| Summary: | Renewable energy (RE) sources have gained substantial attention globally as a means to reduce greenhouse gas emissions and enhance energy sustainability. Following the current electricity market trend, in which sustainability and efficiency are crucial, Malaysia electricity supply industry (MESI) has slowly followed suit. In its most recent generation development plan, Malaysia has outlined a goal of achieving at least 31% of RE generation for its generating mix by 2031. This aligns with their pledge to lower the carbon emission intensity per GDP by 35%. This study is motivated by the current market framework adopted by MESI – the incentive-based regulation, which encourages the deployment of RE technologies. This paper explores the intricate relationship between RE incentive – investment tax allowance (ITA), and base electricity tariff within such regulatory framework. The impacts of ITA on the base electricity tariff, considering the economic and environmental factors are analyse in this study. System Dynamics modelling is used in order to model the MESI framework. This study aims to provide insights for policymakers, regulators, and stakeholders in the electricity industry to optimise the generation mix of RE to the market model while ensuring economic viability. The findings of the study indicate that the incorporation of a RE incentive into the MESI market model had a positive impact on the base electricity tariff. © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2024.
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