Energy efficiency implementation program for state level in Malaysia

ENERGY EFFICIENCY PROGRAM IMPLEMENTATION AT STATE LEVEL IN MALAYSIA

FOR BUILDING FACILITIES

By ZAINI ABDUL WAHAB

Committee Member (Strategic Initiatives)MAESCO

2014

Outline

ENERGY SERVICES INDUSTRY AND EPC SUCCESS STORIES FOR ENERGY COST REDUCTION

EPC IMPLEMENTATION FOR BUILDING FACILITIES

WHERE AND HOW TO SAVE?-Potential energy saving opportunities from detailed energy audit

What’s Next and The Way Forward…

ENERGY SERVICES INDUSTRY AND EPC SUCCESS STORIES FOR ENERGY COST REDUCTION

ESCO industry size estimates by selected country

Source: Lawrence Berkeley National Laboratory , National Association of Energy Service Companies, USA September 2013

ESCO Industry in the US…


Market Potentials of ESCO industry by sector-USA


Energy Saving Potentials (in USD) in South East Asia’s Countries

Clearly, the industrial and commercial sector s offers

much higher savings potential Source: www.reexasia.com

Pay Back Period for EE Investments

Source: reexasia.com(Feb 2011)

Australia’s Strategy

Source: Government Property Group ,Integrated Energy Efficiency Retrofits and Energy Performance Contracting ,Australia,2011

AUSTRALIA -Victorian Government

Greener Government Buildings Program in 2009.

Aimed to save $1 billion in energy & maintenance costs in 25 year

To reduce emissions from government buildings by 20% by 2020.

A simple government-wide protocol for the EPC process

Loans for agencies to implement energy efficiency upgrades

Establishing a facilitation unit in the Department of Treasury and Finance

A mandate for all agencies to implement energy efficiency upgrades at sites accounting for 20% of agency energy use by 2012 and 90% by 2018.

Commenced with a trial EPC covering 16 office buildings, and is now being rolled out across agencies

$160 million in 4 years

Decisions on additional funding to complete the program will be made in coming years.

AUSTRALIA -Queensland Government

The Strategic Energy Efficiency Policy for Queensland Government Buildings - to reduce their energy consumption by 5 % below 2005-06 levels by 2010, and 20 % by 2015.

Shares some key features with the Victorian program - the use of EPC and facilitation by a single department, the Department of Public Works.

The Department of Public Works has so far invested over $20 million in improving the energy efficiency of 25 of the sites that it owns, and has reduced its energy use in those buildings by 18 megawatt hours per year.6

United States Federal, State, and local governments in the US invested

over $21 billion in EPC since 1997.

The US Federal Government’s 2009 economic stimulus package included an additional $3.1 billion for efficiency in existing federal government buildings

Federal and State governments have passed specific laws to facilitate EPC and accept up to 15-20 year payback periods.

Research in the US indicated that EPCs have delivered general benefit to cost ratios of 1.6 to 1, with higher 2.1 to 1 ratios for EPCs in health facilities.

European Platform for the Promotion of EPC

Development of manuals on additional models and support-EPC + White Certification› Quality Standards › Comprehensive

Refurbishment & link to Facility Management

› Norms /Certification › Financing

Intensive dialogue with market actors - Building owners - Financial sector - ESCOs

Capacity building & Increased awareness, know-how & exchange › Over 100 events organised

and attended, 2,000 participants with about 60 are new EPC experts.

Pilot projects › Over 360 buildings screened › 30 more concrete projects

received further support › 17 resulted in concrete EPC

projects› About 1 million square

meters › Energy cost baseline of

almost 10 million Euros/year› Estimated energy savings

between 10% and over 25%

ESCO Fund in Thailand

Malaysia’s EPC case study : Warehouse Facilities

Application Areas: - Fluorescent Lamps - High bay Lighting - HID

After Installation:20,000 pcs x 26W/1000

Before Installation:20,000 pcs x 45W/1000 Total annual Saving =

42.2%= 3,283,200 kWh, = RM 920,000

Source: MAESCO member

Malaysia’s EPC case study : Integrated Shopping Complex

Facilities

Areas of Conservation Implementation:1) Transformers (MSB)2) Cooling System – Chillers, C/Tower, AHUs, CHW & CDW

Pumps3) Lighting System – Internal, External & Parking4) Peak Demand Control

Total Actual Saving Achieved = RM 1,495,000/year

Total Proposed Saving = RM 905,000/yearSource: MAESCO member

EPC IMPLEMENTATION FOR BUILDING

FACILITIES

How to make EPC Works for buildings?

Commitment to get faster

results!

Asset Responsibility Period

Energy Supply & Utilization

Building life cycle

Source:The American Institute of Architects,2010

ENERGY EFFICIENCY

IMPROVEMENT PROGRAM

Sustainable Energy Management

Awareness Program

Capacity Building – Training &

Development

HRDF refundable programs

Measurement & Verification (M&V) Internal/3rd Parties

Adoption of Energy Management System

(ISO50001)

Internal/Consultant

Energy Saving Project

Energy Auditing

Internal Budget

EPC Model

Full/matching grant – with commitment

to implement

Energy Saving Projects

Implementation

EPC model

Standard Procurement

SUPPORT MEASURES by the government

TA

RG

ET

GR

IOU

P

S

Options To REDUCE Energy Costs For Businesses

Hypothetical Scenario – energy efficiency costs and savings


Traditional vs. Integrated Energy Services Model

Traditional Integrated Energy Services Model


What is Energy Performance Contracting(EPC)?

“Energy Performance Contracting is when an ESCO is engaged to improve the energy efficiency of a facility, with the guaranteed energy savings paying for the capital investment required to implement improvements”

Scope of Services under EPC Projects

Project Funding & Financing Options

Engineering & Economic Feasibility Studies

Project Design, Engineering & Permitting

Project Construction

Project Commissioning

Operation, spare parts & Maintenance

Performance measurements & monitoring

Energy performance reporting

Benefits of EPC-Facilities OwnerFinance energy saving improvements with no upfront capital

Invest savings achieved into other projects

ESCO to identify Energy Saving projects

ESCO guarantee Energy savings - the remuneration of ESCOs is directly tied to the actual energy savings achieved

Energy saving is shared between ESCO & the building owneras per agreed terms & payment schedule with a single-source responsibility

ESCO supplies, installs, maintains & retain an on-going operational role in measuring & verifying the savings over the contractual terms.

Use future energy ,cut operating cost, be more competitive & improved comfort & productivity from upgraded systems

Positive environmental impacts & reduced environmental footprint

Summary of Comparison Between EPC –Shared Saving Model & Cash Purchase

Item EPC-Shared Saving Model

Cash Purchase

Technical Expertise ESCO ESCO

Implementation(design, installation, testing & commissioning) ESCO ESCO

Funding Source ESCO OWNER

Sharing of returns % At agreed % & conditions

100% to OWNER

Technical & Investment Risks ESCO OWNER

Energy Performance Maintenance & monitoring works and risks ESCO OWNER

Key Features & Success Factors Of EPC Projects Implementation

Savings based on actual & measured energy performance data with permanent measuring equipment

Capable ESCO- Technically & Financially

Comprehensive EPC Contract document

Understanding of the how EPC works & it long term benefits by facilities owners

Financing Options for EPC

In all above, ESCO provides a guarantee of the project’s technical performance and satisfaction of contracted specifications with the client

1. GUARANTEED SAVING Model

• The loan goes on the client’s balance sheet

2. SHARED SAVING Model

• The loan goes on ESCO’s balance sheet

Guaranteed Saving Model

FACILITIES

OWNERESCOBANK

Project Design&

Implementation

Agreed Project

FeesLoan

Repayment

Owner’s Share(10-30%)ESCO’s share(70-90%)(Loan & interest, O&M, spare parts, insurance,

profit & etc)

EPC contract periodBEFORE

BaselineDetailed

Energy Audit 100% saving

enjoyed by owner

After EPC contract period

Energy bill saved

Develop EnMS & in-house capacity building

Implement EnMS & sustain saving

YEAR

EN

ER

GY

BIL

L

Implement EPC

Project

Shared Saving Model

How the Model Works?

GUARANTEED SAVING

Facilities owner takes out “normal” loan (will appear on balance sheet)

ESCO guarantees loan can be repaid with savings

ESCO pays difference if minimum savings not met

Main advantage: ESCO can undertake moreprojects

SHARED SAVING

Facilities owner does not take loan (will not appear on balance sheet)

ESCO finances project: takes performance & credit risk

Facilities owner pays higher % to ESCO

Main advantage: Independent of Facilities

owner ’s borrowing capacity

Key Steps in EPC Implementation Process

Selection Criteria of an ESCO

Experiences in EPC Projects /Track

Records in energy services

Financial Strengths

Management capacity in

energy services

Technical Competency &

ExpertiseESCO

To secure financing &

ensure sustainable operations

MAESCO WILL ASSIST IN THE SELECTION OF ITS MEMBERS

WHERE AND HOW TO SAVE?Potential energy saving opportunities from detailed energy audit

SAVING POTENTIALS Pumps (25% - 35%) Chiller (20% - 25%) AHU/FCU (25% - 35%) Cooling Tower(15% - 20% Lighting System (40-60%)

Energy Saving potentials at Building Facilities


Potential EPC Projects for Energy Efficient Lighting Technologies

Savings at 40-60% from lighting system

Energy Saving Micro Ballast and HP Fluorescent T8-28

watts

LED Fluorescent Tubes LED Down Light

LED Ceiling Light High Performance LED Street Light

LED Spot/Flood Light

EPC Project Implementation Process

EPC Contract Negotiation &

Signing

Install Data Logger/

permanent sub-meters

Collect energy data to

establish energy

baseline values

Improve & optimize energy

consumption with energy

saving measures

Measure & monitor actual

energy savings

achieved against agreed

baseline values

Measurement & Verification of Actual Electricity Consumption Reduction

Achieved

Saving = 40%

(7.8 – 4.7)/7.8

Saving = 42.5%

(8.0 – 4.6)/8.0


Factors should be considered for M&V in EPC contract to reduce dispute

Commitment from Client Factors Affecting Savings

Performance Evaluating Savings Uncertainty Minimum Operating Conditions Energy Prices Verification by a Third Party Baseline Adjustments (Non-

Routine) Balancing Uncertainty and Cost

Key Elements in EPC Contract Document(1)

What is guaranteed?› The minimum amount of savings expected

to be achieved› The method, report formatting and formula

for calculating shared savings will be paid to the ESCO;

› Conditions to be applied if savings achieved are less than guaranteed by the ESCO.

Key Elements in EPC Contract Document(2)

The cost savings measurement with significant changes of operations at the facilities.

The responsibilities of building owners and the ESCO throughout the contract period.

Maintenance, use and modification/ removal of the equipment that was installed by the ESCO by the facilities owner.

If the equipment installed by the ESCO is lost or damaged

Guarantee of losses and liabilities by ESCO to the facilities owner.

Challenges of Energy Performance Contracting(1)

•Facility owner participate in establishing the energy baseline,

Energy Baseline Development

• The facility owner agree on the definitions and methodology for making any future adjustments to the energy baseline and should be A part of the contract.

Energy Baseline Adjustment

•The allowance of operational savings is generally discouraged.

Operational Savings

•Should be avoided/used minimally.

Stipulated Savings

•ESCOs inflated the interest rate of funds borrowed for additional profits.

•Facility owners may check/arrange their own financing at lower rates.

Excessive Finance Charges

Challenges of Energy Performance Contracting(2)

•Some ESCOs have required that the preventive maintenance on facilities also be outsourced to that ESCO

Required Maintenance Agreements

•off-site control must be avoided.

Lack of Local Facilities Control

•Savings should be calculated on an annual basis and stand alone on that basis.

Terms of Savings Reconciliation Versus Budget

Cycle

•the use of a project manager or a third party verifier by the client is highly recommended.

Quality Control

•Transparency in the overall costs involved(technologies, )&M, interest rates, IRR, profits and etc.)

Owners request unreasonable

amount of shared saving %

WHAT’S NEXT?

ENERGY EFFICIENT BUILDINGS – PROPOSED PROCESS FLOW

STAGE 1 - PREPARATORY(2-3 weeks)

STAGE 2 - AUDIT(2 -3 Months)

STAGE 3 - RETROFIT(3-6 months)

STAGE 4 – O&M(5-7 years)

Building Owner

Program Manager

ESCO

1.Initial Briefing

2.Obtain Initial Info

3.WorkshopOn EE

4A. Apply forBSEEP Fund

4B.Engage withOther Funders

5. Evaluate, select & appoint ESCO

6.Energy Audit

8.PresentAudit Report

Yes

Yes

7.PrepareEnergy Audit Report

9.Prep areDraft EPC Contract

10.Nego

11.Sign EPC Contract

12.ImplementEPC Works

Performance Monitoring &Verification

MonthlyPayment to ESCO

Yes

• Implementation process• Contract principles• Top mgmt. participation• Form 2 to fill up

• Intro on EE Bldgs• Form 1 to fill up

Funding

Yes

Monitoring, Operation & Maintenance based on contractual conditions

Assistance/Advisory on M&V

How to make EPC Works for government buildings?

Commitment to get faster results!

A Standardize

d Government Guidelines

A Lead Agency

A source of Capital

Mandates & set targets on agencies

Recommended Support Measures for EPC in Malaysia

FINANCING

Sustainable Funding Sources

Revolving Fund /Low

Interest Loans

Assessment Criteria For

Energy Services/Energy

Efficiency Solutions

TECHNICAL ASSESSMENT

Competent & Independent

Parties

Transparency In Assessment

Criteria

ACTUAL ENERGY

PERFORMANCE M&V

Competent & Independent

Parties

Recognition Of M&V Services

FISCAL INCENTIVES

GOVERNMENT AGENCIES,FINANCIAL

INSTITUTIONS, PROFESSIONAL BODIES

THE WAY FORWARD….

The potentials in Malaysia is still relatively “UNTAPPED”.EPC is a proven workable model for faster EE implementation!

Interested parties must have the same understanding & goals on how to make EPC works – WIN-WIN & LONG TERM ENERGY COST SAVINGS!

ESCOs must have/develop competency & capability to ensure successful EPC projects implementation

More successful EPC projects are required to attract more attention of building owners & banks/investors

THANK YOU FOR YOUR ATTENTION!

www.maesco.org.my

[email protected]