Energy costs reduction through Energy Performance Contracting projects implementation in Malaysia

REDUCING ENERGY COSTS THROUGH INVESTMENTS WITH ENERGY PERFORMANCE CONTRACTING PROJECTS IMPLEMENTATION AT BUILDING FACILITIES
By
ZAINI ABDUL WAHAB
In Collaboration with:
&
Date:19th September 2014
SMART CITIES

Copyright MIGHT-PTHM-MAESCO-2014
Introduction To Energy Services & MAESCO
Overview Of Energy Services Industry & Energy In Building Facilities
Introduction To EPC Projects Implementation – to reduce energy costs
What’s Next and The Way Forward…
Outline
2

INTRODUCTION TO ENERGY SERVICES & MAESCO

An Energy Service Company(ESCO)
Develop and implement turnkey, comprehensive energy efficiency projects
ESCOs offer performance-based contracts (i.e., contracts that tie the compensation of the ESCO to the energy savings generated by the project) as a significant part of their business
To ensure credentials, ESCOs must demonstrate the technical & managerial competencies to design & implement projects involving multiple technologies :
Lighting
Motors & Drives
Heating & steam systems
HVAC Systems
Control Systems
Maximum Demand Controls
Building Envelope Improvements
…at building/industrial facilities
What Is ESCO?
4

Registered in September 2000 in conjunction with the launching of the Malaysian Industrial Energy Efficiency Improvement Project (MIEEIP) by the Government-UNDP
OBJECTIVES
•To develop recognized ESCO businesses in collaboration with Government & private sectors.
•To actively promote the activity of cost reduction and efficiency standards of the industrial and commercial sector
•To oversee the well being of it’s members
•To facilitate and do all things necessary towards developing successful energy related projects.
•To introduce related products and services for the industry
•To foster healthy co-existence amongst members through ethical professional practices
•Ensure prestige of services by members
5

Energy Management Training Courses for Energy Managers
Producing guidelines & provide advisory in services delivery
Awareness & promotional programs
Provide inputs on EE industry to the Government with other Stakeholders
Rental of Equipment for energy audit and M&V
Key Activities & Involvement In Industry Development
6

OVERVIEW OF ENERGY SERVICES INDUSTRY & ENERGY IN BUILDING FACILITIES

Source: American Council for an Energy Efficient Economy(ACEEE)
Energy Efficiency Scorecard 2014
8

Source: Lawrence Berkeley National Laboratory , National Association of Energy Service Companies, USA September 2013
ESCO industry size estimates by selected country
9

ESCO Industry in the US…
10

Market Potentials of ESCO industry by sector-USA
11

Clearly, the industrial and commercial sector s offers much higher savings potential
Source: www.reexasia.com
Energy Saving Potentials (in USD) in South East Asia’s Countries

Source: reexasia.com(Feb 2011)
Pay Back Period for EE Investments
13

Energy Supply & Utilization
Asset Responsibility Period
14

Source: The American Institute of Architects,2010
Building life cycle
15

Source: The American Institute of Architects,2010
Green buildings will result in producing lesser in long term
Global Warming Potential (GWP)
Energy in building projects
16

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
Options To REDUCE Energy Costs For Businesses
17

•EEPs viewed as “Infrastructure Investments” – LOW PRIORITY VS. CORE BUSINESS – don’t fix if not broken
•EEPs funding through loans/debts WILL IMPAIR “CREDIT CAPACITY” from core business – NO WAY for SMEs/SMIs
•BENEFITS ARE TOO SMALL TO APPEAR ON CEO’S RADAR SCREEN & to justify “perceived’ operating complexities/risks
•NOT CONVINCED ON ACTUAL COST SAVINGS ACHIEVED nor aware of proven Measurement & Verification(M&V) methods to ensure sustainability of savings.
KEY BARRIERS to implement Energy Efficiency Projects(EEPs) for companies
18

•Reduce government expenditure
•Create local employment and the capacity to deliver efficiency in the private sector
•Meet community expectations and existing environmental targets
•“Lead by example” to mitigate impacts for energy subsidies reduction
Key drivers on why the Government should improve energy efficiency of its buildings
19

Source: Government Property Group ,Integrated Energy Efficiency Retrofits and Energy Performance Contracting ,Australia,2011
Hypothetical Scenario – energy efficiency costs and savings
20

INTRODUCTION TO EPC PROJECTS IMPLEMENTATION To Reduce Energy Cost At Building Facilities

“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”
What is Energy Performance Contracting(EPC)?
22

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
Scope of Services under EPC Projects
23

Finance 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 owner as 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
Benefits of EPC-Facilities Owner

Traditional
Integrated Energy Services Model
Traditional vs. Integrated Energy Services Model
25

•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
Key Features & Success Factors Of EPC Projects Implementation
26

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
Financing Options for EPC
3. Through a Special Purpose Vehicle(SPV) created specially for the purpose
In all above, ESCO provides a guarantee of the project’s technical performance and satisfaction of contracted specifications with the client
27

FACILITIES OWNER
ESCO
BANK
Project Design&
Implementation
Agreed Project Fees
Loan
Repayment
Guaranteed Saving Model
28

Owner’s Share(10-30%)
ESCO’s share(70-90%) (Loan & interest, O&M, spare parts, insurance, profit & etc)
EPC contract period
BEFORE
Baseline
Detailed 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
ENERGY BILL
Implement EPC Project
Shared Saving Model
29

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 more
projects
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
How the Model Works?
30

Key Steps in EPC Implementation Process
31

Experiences in EPC Projects /Track Records in energy services
Financial Strengths
Management capacity in energy services
Technical Competency & Expertise
ESCO
To secure financing & ensure sustainable operations
Selection Criteria of an ESCO
32

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

SAVING POTENTIALS
Pumps (25% - 35%)
Chiller (20% - 25%)
AHU/FCU (25% - 35%)
Cooling Tower(15% - 20%
Lighting System (40-60%)
Source: MAESCO member
Energy Saving potentials at Building Facilities
34

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
Potential EPC Projects for Energy Efficient Lighting Technologies
Savings at 40-60% from lighting system
35

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
Malaysia’s EPC case study : Warehouse Facilities
36

Areas of Conservation Implementation:
1)Transformers (MSB)
2)Cooling System – Chillers, C/Tower, AHUs, CHW & CDW Pumps
3)Lighting System – Internal, External & Parking
4)Peak Demand Control
Total Actual Saving Achieved
= RM 1,495,000/year
Total Proposed Saving
= RM 905,000/year
Malaysia’s EPC case study : Integrated Shopping Complex Facilities
37

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
EPC Project Implementation Process
38

Saving = 40%
(7.8 – 4.7)/7.8
Saving = 42.5%
(8.0 – 4.6)/8.0
Measurement & Verification of Actual Electricity Consumption Reduction Achieved

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
Factors should be considered for M&V in EPC contract to reduce dispute
40

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(1)
41

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.
Key Elements in EPC Contract Document(2)
42

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
Summary of Comparison Between EPC –Shared Saving Model & Cash Purchase
43

•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(1)
44

•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, O&M, interest rates, IRR, profits and etc.)
Owners request unreasonable amount of shared saving %
Challenges of Energy Performance Contracting(2)
45

A Standardized Government Guidelines
A Lead Agency
A source of Capital
Mandates & set targets on agencies
How to make EPC Works for government buildings?
Commitment to get faster results!
46

SUCCESS STORIES OF EPC PROGRAM IMPLEMENTATION

Australia’s Strategy
48

•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.
AUSTRALIA -Victorian Government
•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.

•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
AUSTRALIA -Queensland Government
50

•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.
United States
51

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%
European Platform for the Promotion of EPC
52

ESCO Fund in Thailand
53

2010
• Introduced in ETP under Oil, Gas& Energy Sector – Entry Point Project 9 for Energy Efficiency Initiatives
•Identified for 128 biggest energy users for government buildings
2012
•The Treasury created new Code for ESCO to enable to implement EPC project at government buildings
•ST introduced the registration for ESCOs to qualify under the new Treasury’s new code
2010-present
•Creation of standard EPC contract document & implementation procedure by JKR
Current EPC implementation progress in Malaysia for government buildings
54

WHAT’S NEXT?

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
Recommended Support Measures for EPC in Malaysia

The potentials in Malaysia is still relatively “UNTAPPED”
The commitment and mandates to government agencies to get faster energy saving results!- with timeline & support measures
Interested parties must have the same understanding & goals on how to make EPC works
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
THE WAY FORWARD….
57

REDUCING ENERGY COSTS THROUGH INVESTMENTS WITH ENERGY PERFORMANCE CONTRACTING PROJECTS IMPLEMENTATION AT BUILDING FACILITIES
By
ZAINI ABDUL WAHAB
smartcommunities@might.org.my
www.maesco.org.my
zainiabdulwahab@yahoo.com
In Collaboration with:
&
THANK YOU FOR YOUR ATTENTION!

Energy costs reduction through Energy Performance Contracting projects implementation in Malaysia

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