Malaysia's Strategic Shift to Coal Power: Energy Security and the Resilience of Energy Infrastructure Stocks

Malaysia's energy landscape is undergoing a pivotal transformation, driven by the urgent need to balance energy security with long-term sustainability. While the government has set ambitious decarbonization targets—phasing out coal by 2045 and achieving 70% renewable energy penetration by 2050—the immediate reality is a heightened reliance on coal to meet surging electricity demand. This duality creates a unique investment opportunity for infrastructure stocks positioned at the intersection of short-term energy reliability and long-term transition planning.

The Drivers of Malaysia's Coal Resurgence

Between 2023 and 2025, coal's share of Malaysia's power generation has surged to nearly 60%, a stark reversal from its earlier commitment to renewables. This shift is not a policy reversal but a pragmatic response to three key factors:

1. Cost Competitiveness: Coal remains 40% cheaper than gas, making it an indispensable fuel for baseload power. With electricity demand rising by 5.2% in 2025—driven by data centers, manufacturing, and urbanization—coal's affordability has become a lifeline.
2. Regulatory Framework: Long-term power purchase agreements (PPAs) for existing coal plants, often 25 years in duration, ensure financial stability for operators. These PPAs shield utilities from fuel price volatility, incentivizing continued operation until 2045.
3. Energy Security Pressures: Gas reserves are declining, and renewable infrastructure is still ramping up. For now, coal is the only viable option to guarantee uninterrupted supply for critical sectors like data centers, which now account for 52% of Peninsular Malaysia's demand by 2030.

The Strategic Role of Energy Infrastructure Stocks

While the government's long-term vision is to transition to gas and renewables, the interim reliance on coal has elevated the importance of utilities and infrastructure firms that manage this delicate balance. Here are three undervalued players poised to benefit:

1. Tenaga Nasional Berhad (TNB)

As Malaysia's largest utility, TNB operates 13.3GW of coal-fired capacity and holds 60% of the national grid. Its recent financial performance underscores its strategic role:
- Revenue Growth: RM16 billion in 2025 Q1 revenue, driven by commercial demand.
- Data Center Partnerships: 5.9GW of committed load from 38 data center projects by December 2024.
- ESG Credibility: An MSCI 'A' rating and a 3.4 Smart Score reflect its transition-readiness.

Despite its coal-heavy portfolio, TNB is investing in gas and renewables. Its 43 billion ringgit ($10.1 billion) grid modernization plan, including battery storage and AI-driven infrastructure, positions it as a bridge between today's energy needs and tomorrow's green vision.

2. Sarawak Energy Berhad (SEB)

SEB, the state-owned utility in Sarawak, is leveraging its hydro dominance (80% of its energy mix) to support the coal-to-gas transition. Its 60 MW/82 MWh Battery Energy Storage System (BESS) is the first of its kind in Malaysia, enabling better integration of renewables. With plans to retrofit coal plants with hydrogen-ready gas turbines, SEB is uniquely positioned to capitalize on both transitional fuels and long-term sustainability.

3. Sabah Electricity Sdn Bhd (SESB)

SESB's underutilized coal assets and proximity to emerging industrial hubs in Sabah make it a sleeper stock. Its current low capacity utilization (50% vs. Peninsular Malaysia's 74%) leaves room for growth as the government prioritizes regional energy security. SESB's potential to transition to ammonia co-firing or biomass blends—supported by Japanese partners—adds a layer of innovation to its coal operations.

Why Act Now? The Transition Window

Investors who act today can capitalize on a critical window of opportunity. While coal's dominance is expected to wane by the 2030s, the transition will be gradual and capital-intensive. Utilities like TNB, SEB, and SESB are not just coal operators—they are enablers of the energy transition. Their current financial health, regulatory support, and strategic investments in hybrid models (coal-to-gas, coal-to-hydrogen) make them resilient against regulatory shocks.

Conclusion: A Balanced Approach to Energy Security

Malaysia's energy strategy reflects a global trend: prioritizing immediate security while laying the groundwork for long-term sustainability. For investors, this means favoring utilities that can navigate both worlds. Tenaga Nasional Berhad, Sarawak Energy, and Sabah Electricity are not merely holding onto coal—they are using it as a bridge to a cleaner future. With the government's 2045 coal phase-out target and the surging demand for reliable power, these stocks offer a compelling blend of stability and growth.

The time to act is now. As the world grapples with energy volatility, Malaysia's pragmatic approach—and the utilities powering it—present a rare opportunity to align with both macroeconomic trends and long-term decarbonization goals.