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

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

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?

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

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

OVERVIEW OF ENERGY SERVICES

INDUSTRY & ENERGY IN BUILDING

FACILITIES

Source: American Council for an Energy Efficient Economy(ACEEE)

Energy Efficiency Scorecard 2014

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

ESCO industry size estimates by selected country

ESCO Industry in the US…

Market Potentials of ESCO industry by sector-USA

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

Energy Supply & Utilization

Asset Responsibility Period

Source: The American Institute of Architects,2010

Building life cycle

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

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

• 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

• 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

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

Hypothetical Scenario – energy efficiency costs and savings

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)?

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

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

• 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

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

FACILITIES OWNER

ESCO BANK

Project Design& Implementation

Agreed Project Fees Loan

Repayment

Guaranteed Saving Model

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

Develop EnMS & in-house capacity building

Implement EnMS & sustain saving

Implement EPC Project

Shared Saving Model

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?

Key Steps in EPC Implementation Process

Experiences in EPC Projects /Track Records

in energy services

Financial Strengths

Management capacity in

energy services

Technical Competency & Expertise

To secure financing &

ensure sustainable operations

Selection Criteria of an ESCO

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

Energy Saving Micro Ballast and HP Fluorescent T8-28

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

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 : Warehouse Facilities

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 Source: MAESCO member

Malaysia’s EPC case study : Integrated Shopping Complex Facilities

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

Saving = 40%

(7.8 – 4.7)/7.8

Saving = 42.5%

(8.0 – 4.6)/8.0

Source: MAESCO member

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

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)

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)

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

•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)

•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)

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!

SUCCESS STORIES OF EPC

PROGRAM IMPLEMENTATION

Australia’s Strategy

• 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

• 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

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

ESCO Fund in Thailand

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

• 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

WHAT’S NEXT?

FINANCING

Sustainable Funding Sources

Revolving Fund /Low Interest

Assessment Criteria For Energy

Services/Energy Efficiency Solutions

TECHNICAL ASSESSMENT

Competent & Independent

Parties

Transparency In Assessment

Criteria

ACTUAL ENERGY PERFORMANCE

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….

REDUCING ENERGY COSTS THROUGH INVESTMENTS

WITH ENERGY PERFORMANCE CONTRACTING

PROJECTS IMPLEMENTATION AT BUILDING

FACILITIES

ZAINI ABDUL WAHAB

smartcommunities@might.org.my

www.maesco.org.my

zainiabdulwahab@yahoo.com

In Collaboration with:

THANK YOU FOR YOUR ATTENTION!

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