Malaysia’s hydrogen economy: A grand vision, a harder truth — Ahmad Ibrahim

OCTOBER 29 — According to a recent journal paper, the case for Malaysian hydrogen rests on solid fundamentals. The NETR and the Hydrogen Roadmap, both launched in 2023, identify hydrogen as a key decarbonisation lever. The country’s solar resource potential and year-round irradiance supports predictable renewable generation. In the eastern state of Sarawak, hydropower can provide a low-carbon base for electrolysis that most emerging hydrogen regions lack. The recent launch of the Malaysia Clean Hydrogen Project under the Global Clean Hydrogen Programme, executed by UNIDO with NanoMalaysia Berhad, signals that international institutions see enough promise to invest in policy and technical capacity-building over a five-year horizon.

But potential is not production. Malaysia currently generates roughly 0.6 million tonnes of hydrogen annually, mostly “grey” hydrogen derived from steam methane reforming for fertilizer, petrochemical, and electronics manufacturing. The roadmap target of 16 million tonnes by 2030 sits an order of magnitude beyond current output, and no plant currently produces hydrogen specifically for energy applications. This is not a minor gap; it is a chasm.

The economics explain why. Electricity accounts for 60 to 70 per cent of the levelised cost of hydrogen, with electrolysers adding another 20 per cent. In Peninsular Malaysia, renewable capacity remains insufficient for large-scale electrolysis, and grid wheeling charges further erode project economics. Solar contributes just over 1 percent of national electricity generation despite the country’s abundant resource, a utilisation gap that reflects land constraints, grid integration hurdles, and slow deployment. One modelling study found that in Sabah — the state with the best solar resource and land availability — the levelised cost of hydrogen could fall from US$5.81 (RM23.63) to US$2.52 per kilogram with reduced electrolyser costs, but that remains above the threshold for commercial viability without policy support. 

Electricity accounts for 60 to 70 per cent of the levelised cost of hydrogen, with electrolysers adding another 20 per cent. In Peninsular Malaysia, renewable capacity remains insufficient for large-scale electrolysis, and grid wheeling charges further erode project economics. — Pexels.com pic

A separate analysis identified the “investment corridor” for hydrogen projects at costs below US$3.5 per kilogram combined with carbon taxes above US$40 per tone — a zone that current conditions do not yet reach.

Sarawak offers a partial counterpoint. With hydropower as its backbone, the state has moved further than any other Malaysian region: hydrogen refuelling stations, fuel cell buses, and announced production targets of around 10 kilotonnes per year for domestic mobility and pilot exports to Japan and South Korea. But Sarawak is an exception, and its hydropower advantage is not replicable in the peninsula, where most industrial demand and population reside.

The literature points to two underutilised domestic pathways. First, Malaysia generates millions of tonnes oil palm biomass waste annually, which could be converted to hydrogen through gasification or supercritical water gasification. This offers a near-term, waste-to-value route that leverages an existing industry rather than waiting for electrolyser cost curves to fall. Second, seawater electrolysis presents a strategically compelling option for a maritime nation: indirect seawater electrolysis is already technologically mature and would add less than US$0.1 per kilogram to the levelised cost while co-producing potable water. Direct seawater electrolysis remains at lower readiness.

The policy response has been coordination-heavy but market-light. NanoMalaysia has evolved into the government’s de facto hydrogen coordinator, convening an industry alliance to organize a fragmented private sector. The Global Clean Hydrogen Programme will strengthen standards, technical expertise, and investment preparation. Yet industry players describe a sector “pushed into existence rather than pulled forward by organic market demand”. The government’s approach of co-financing “catalytic users” to validate commercial use cases is a reasonable demand-side intervention, but it remains small in scale.

A carbon tax, now delayed, on metals, steel, and energy industries could change the calculus by making green hydrogen more competitive with grey alternatives. The real-options modelling suggests that policy clarity around carbon pricing can trigger capital deployment far earlier than traditional net-present-value analysis would predict. But a carbon tax alone will not build electrolysers or pipelines; it must be paired with cost-side reforms and infrastructure sequencing.

The strategic risk is not that Malaysia fails to become a hydrogen exporter. That ambition may be premature. The real risk is that the country spends a decade building pilot projects and roadmaps while its industrial hydrogen demand — currently met by grey production — continues to lock in carbon-intensive infrastructure that will be expensive to retrofit. The window for converting existing ammonia and petrochemical facilities to green or blue hydrogen is open now, with policy support and international climate finance. Waiting for perfect economics means waiting for competitors to capture the market first.

Malaysia’s hydrogen future will not be won in Putrajaya or Kuching alone. It will be won in Sipitang’s ammonia plants, Bintulu’s industrial clusters, and the palm oil mills of Johor — where hydrogen can become a practical input rather than a policy aspiration. The roadmaps are sound. The research is clear. The missing ingredient is urgency.  

* The author is affiliated with the Tan Sri Omar Centre for STI Policy Studies at UCSI University and is an Adjunct Professor at the Ungku Aziz Centre for Development Studies, Universiti Malaya. He can be reached at [email protected].  

** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.