Malaysia’s Rising Electricity Costs: A Ripple Effect on Consumers and Businesses

As of July 1, 2025, Malaysia has rolled out new electricity tariffs, sparking concerns among business groups and consumers alike. The tariff hike, aimed at reflecting rising energy costs, is set to increase operational expenses for businesses, particularly small and medium enterprises (SMEs) and energy-intensive industries. With many unable to absorb the additional costs, the burden is expected to trickle down to consumers through higher prices for goods and services, raising questions about the broader economic impact in a country already grappling with inflationary pressures.

A Gradual Price Surge on the Horizon

The implementation of the new tariffs has prompted immediate reactions from business leaders, who warn that the increased electricity costs will likely lead to a gradual rise in the price of goods. Chin Chee Seong, president of the SME Association of Malaysia, highlighted the uncertainty surrounding the exact impact on businesses. “It is difficult to say how much their electricity bills will increase at the moment,” Chin noted, adding that early discussions among SMEs suggest a potential increase of at least 20% in electricity expenses. He emphasized that the association plans to collect detailed feedback from members to better understand the financial strain.

For many SMEs, absorbing these costs appears unfeasible. Chin stated, “Most of them would not absorb the cost and pass it down to either their supply chain or consumers.” This sentiment points to an inevitable price hike, particularly in sectors like food and beverage and retail, where margins are often tight. As SMEs form the backbone of Malaysia’s economy, employing a significant portion of the workforce, any increase in their operational costs could have a cascading effect on the cost of living for ordinary Malaysians.

Manufacturers Under Pressure

The manufacturing sector, another critical pillar of Malaysia’s economy, is also bracing for the impact of the tariff changes. Nivas Ragavan, vice-chairman of the Federation of Malaysian Business Association, acknowledged that while some businesses might attempt to mitigate the cost increase through efficiency measures, complete absorption is unlikely. “Manufacturers have always tried to absorb cost increases where possible through efficiency measures and cost optimisation,” he said. However, with cumulative cost pressures from raw materials, logistics, labor, and now energy, many—especially SMEs and export-driven businesses with slim profit margins—will struggle to cope.

Ragavan estimated that the manufacturing sector could see electricity bills rise by 5% to 7%, with energy-intensive industries facing a more pronounced impact if they are ineligible for the Imbalance Cost Pass-Through rebate. He warned that some portion of these increased costs would likely be passed down the supply chain, potentially resulting in adjusted pricing for downstream partners and, ultimately, higher consumer prices depending on the sector and product. Yet, he also noted that manufacturers, particularly those competing in global markets, would strive to minimize cost increases to maintain competitiveness.

Varied Impacts Across the Sector

Not all businesses will feel the sting of the new tariffs equally. Tan Sri Soh Thian Lai, president of the Federation of Malaysian Manufacturing (FMM), explained that the impact on the manufacturing sector would vary based on electricity usage and load factors. “FMM understands that 70% of medium voltage customers, many of whom are industrial users, will have a reduction in electricity bill ranging from 4% up to 18% depending on the load factor,” Soh said. He added that businesses with higher load factors would benefit from greater reductions in their bills.

However, the remaining 30% of manufacturers with lower load factors may face increases of 3% to 10% in their electricity bills. For some in this category, renewable energy solutions offer a potential buffer. “Some customers in this category have installed solar PV systems, allowing them to offset the increase in bill through the revised mechanism under the renewable energy schemes,” Soh explained. Despite these variations, he suggested that passing on the increased costs through the supply chain is unlikely due to intense market competition, which could force businesses to find alternative ways to manage the financial burden.

Consumer Impact and Inflationary Concerns

For Malaysian consumers, the new electricity tariffs come at a time when household budgets are already stretched by rising costs in other areas, such as food and transportation. The potential for businesses to pass on higher operational costs to consumers could exacerbate inflationary pressures, a concern for policymakers aiming to balance economic growth with affordability. While the exact scale of price increases remains unclear, the consensus among business leaders is that sectors heavily reliant on electricity—such as retail and food services—will likely see noticeable adjustments in pricing.

The broader economic implications of the tariff hike are significant. Malaysia’s economy, which has been recovering from the impacts of global supply chain disruptions and the COVID-19 pandemic, faces the risk of slower consumer spending if price increases dampen purchasing power. SMEs, which account for a substantial share of employment and GDP, may also face reduced profitability, potentially leading to layoffs or reduced investment in growth. For export-driven industries, higher production costs could undermine competitiveness in international markets, particularly against regional peers with lower energy costs.

Government Rationale and Public Response

The Malaysian government has justified the tariff adjustments as a necessary step to align electricity pricing with rising global energy costs and to ensure the sustainability of the national grid. While specific details on the tariff structure and rebates for eligible businesses have been outlined, the immediate focus for many remains on how these changes will affect day-to-day operations and household expenses. The introduction of renewable energy schemes and rebates for certain industrial users reflects an attempt to mitigate the impact, but questions remain about whether these measures will be sufficient for the most vulnerable businesses and consumers.

Public sentiment, while not yet fully crystallized, is likely to reflect growing unease about the cost of living. In a country where electricity is a fundamental expense for both households and businesses, any upward adjustment in tariffs is bound to draw scrutiny. For now, the government faces the challenge of communicating the necessity of these changes while addressing concerns about affordability and economic stability.

Looking Ahead: Balancing Costs and Sustainability

As Malaysia navigates the rollout of the new electricity tariffs, the coming months will reveal the full extent of their impact on businesses and consumers. While some companies may find ways to offset the cost through efficiency measures or renewable energy adoption, others—particularly SMEs—face a tougher road ahead. For consumers, the prospect of higher prices for everyday goods adds another layer of financial strain in an already challenging economic environment.

The tariff hike also raises broader questions about the balance between energy sustainability and economic affordability. As global energy prices continue to fluctuate, Malaysia must grapple with how to modernize its energy infrastructure without placing undue burden on its people and industries. For now, as businesses and households adjust to the new reality, the ripple effects of the July 1 tariff changes are poised to shape the country’s economic landscape in ways that remain to be seen.