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Energy & Sustainability Conference 2015
INVESTMENT AND BUSINESS POTENTIALS IN ENERGY
EFFICIENCY MARKET
By ZAINI ABDUL WAHABCONNECSYS SDN BHD
Palace of Golden Horses10th June 2015
Outline EE OUTLOOKS & POLICIES
OUTLOOKS ON EE INVESTMENT POTENTIALS
ESCOs in EE INDUSTRY
INVESTMENT OPTIONS IN EE INDUSTRY
THE PRACTICAL APPROACH OF TO IMPLEMENT EE INITIATIVES AT ORGANIZATIONS
BARRIERS & COUNTER MEASURES TO GROW INVESTMENTS IN EE INDUSTRY
WHAT’S NEXT?
EE OUTLOOKS & POLICIES
Towards Energy Efficient Scenario :New Policy
Economically viable efficiency measures can halve energy demand growth to 2035
Source: IEA
Global EE Potentials
EE potential used by sector in the New Policies Scenario
2/3 of the economic potential to improve EE remains untapped in the period to 2035
Source: IEA
Where the opportunities are?
Source: McKinsey Global Institute Analysis 2010
Variation in energy productivity
Source:Global Insight, IEA McKinsey Global Institute Analysis
Malaysia don’t have EE policy yet & urgently need one!
Impacts Of EE Policies In Japan
1,327
1,273
1,192
1,101 1,101
1,059 1,059
1,000978
951
1,036
1,013
1,013
985
1,0491,091
1,051
1,0701,077
1,037
1,0441,021
1,059
1,036
1,038
1,050
1,1311,142
1,345
1,405
1,467
1,566
1,573
1,438
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
Fiscal Year
Pri
ma
ry e
ne
rgy
co
ns
um
pti
on
/ G
DP
Ton oil eq. / Billion
yen
2nd Oil Crisis
1st Oil Crisis
Source: METI/General Energy Statistics
10 years
Improvement by 30%
10% improved for 20 years
Main Improvements:1. Energy Management2. Energy Efficient
Equipment3. Efficient Processes
Technologies4. R&D
Energy Consumption Performance With National EE Policy Implementation In Thailand
Through strong regulatory implementation framework, sustainable funding & holistic approach for focused sectors
EE Scorecard 2014
Source: American Council for an Energy Efficient Economy(ACEEE)
Building owners can see reduced operating costs, increased building values, greater return on investment, and higher occupancy from new and retrofitted green buildings
UNEP - GEO-5 for BusinessImpacts of a Changing Environment on the Corporate Sector
Companies may receive reputational benefits from achieving green building certifications . A 2011 survey of U.S. adults- 64% would prefer to patronize a business whose facility is certified as green, while 48% indicated that green certification of a facility improves their image of a company.
University of Missouri researchers - consumers would be more willing to pay between 15 & 20% more for retail products from companies that support sustainable practices
UN Global Compact of 766 CEOs worldwide-93 % of CEOs said sustainability issues will be a critical factor to the future success of their business
2012 Ernst & Young Survey – 66% of executives saw an increased amount of sustainability-related inquiries from investors in the past year. 70% inquiries focused on energy management and greenhouse gas emissions & more than ½ questions about sustainability reporting
The Corporate Trends…Survey on 250 CFOs in 14 countries by Deloitte - CFOs are increasingly aware the benefits sustainability can bring to the business. 2/3 respondents said they are involved in driving sustainability strategies .More than 50 % said their involvement in pushing sustainable practices has increased in the past year.
TOWARDS GREENER BUSINESS PRACTICES & MARKET DEMANDS
How Is Malaysia Doing?
Comparison Of Emissions Intensity Of GDP &Per Capita In
2011
Source: RMK11,EPU
Energy Related Policies in Malaysia
There is a need to have a dedicated policy on EE at the national level &recommended in studies
NO SPECIFIC ENERGY CONSERVATION/EFFICIENCT POLICY AT
NATIONAL LEVEL
source: National Energy Security Forum 2012
Why EE is crucial for Malaysia?
Energy demand projected to increase from 2,000 PJ(2009) to 4,013 PJ(2030), average rate of 3.6% /year
Short term &long term measures that can be taken is through EE initiatives while working on looking for new energy sources (RE& alternative energy)
To balance and reduce the supply and demand gap
Source: EPU
WE NEED TO
CREATE THE EE LINE!
TO QUANTIFY!
OUTLOOKS ON EE INVESTMENT POTENTIALS
OVERVIEW OF EE POTENTIALS
EE improves› energy security› fosters economic gains› to reduce human-
induced CO2 emissions
Policies designed to increase EE have already delivered significant benefits in many countries
Worldwide energy consumption
› would be 56% higher today if without the various EE policies that have been implemented since 1973 (IEA, 2007a)
EE
Energy Management
Energy Management
System
Consultancy/Advisory
Standard &Certification
Performance Measurement &
Verification
EnMS Tools
Hardware(meters , sensors & etc)
Software (Computerized EnMS)
Energy Engineering
Energy Efficient
technologies
Testing, Rating & Labeling
R&D, TQM
Manufacturing
Energy Auditing
Capacity Building
Education & Awareness
Training & Development
Policy
Policy research & development
Regulatory
Fiscal & FinancialInvestments &
FundingAnalysis & Evaluation
Areas to Explore In EE Industry
The Practical Strategy for EE implementation
ALTERNATIVE ENERGY SOURCESHigh costs
ENERGY EFFICIENT TECHNOLOGY SOLUTIONS
Medium-high costsRequire financial & investment risks
assessmentsSAVE THROUGH BEST PRACTICES & CULTURAL CHANGE – ENERGY
MANAGEMENTLow-no costs
MORE POLICIES & SUPPPORT
MEASURES REQUIRED FROM THE
GOVERNMENT TO ENCOURAGE INVESTMENTS FROM PRIVATE
SECTOR
SUBSTANTIAL DIRECT & INDIRECT SAVINGS
Typical manufacturing companies* can improve their profit margins by 2% within 3 years
EE INVESTMENT NEWS!
SEA: INVESTMENT POTENTIALS (US$MIL.)
The total market size = US$6.7 billion;Industrial = US$2.9 billion(44%)Commercial = US$3.7 billion(56%)
source: www.reexasia.com
Biggest potentials in the industrial sector
SEA:Comparison of Energy efficiency potentials
Ranked #1 in investment potential & #4 in payback period due to Malaysia’s lower electricity tariff
Lagged behind Singapore &Thailand to unavailability of comprehensive regulatory support
SEA:Payback Period for EE Investments
Source: reexasia.com(Feb 2011)
Findings from Energy Audits at Malaysian Government Buildings
No. Building Year Potential Savings
(RM)
Implementation Costs(RM)
ROI(Year)
1 Ministry Of Health 2010 740,652 1,546,545 2.0
2 MAMPU 2010 254,500 964,737 3.8
3 Ministry Of Human Resource 2010 195,146 405,180 2.1
4 Public Service Department 2010 174,480 897,000 5.1
5 Ministry of Natural Resources &Environment 2010 316,440 963,500 3.0
6 Ministry of Finance 2008 355,892 2,326,259 6.5
7Selayang Hospital, Selangor 2008 1,612,800 3,294,350 2.0
8Kuala Lumpur General Hospital, Kuala Lumpur
2008 2,538,705 8,423,740 3.32
9University Malaya Medical Center, Kuala Lumpur 2008 4,477,067 622,500 0.1
(Source: KeTTHA,2011)
Fiscal incentives for EE in Malaysia since 2001
Investment Tax Allowance (ITA)
Pioneer Status for companies that provide energy conservation services
Sales & import tax exemption for EE products for EE projects implementation
Sales tax exemption for locally manufactured EE appliances (ended in 2012)
Implementing Agency: › MIDA & Energy Commission
ESCOs in EE INDUSTRY
What Is ESCO?
An Energy Service Company(ESCO) Develop and implement turnkey, comprehensive EE 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
SCOPES IN ENERGY SERVICE For EPC ProjectsProject 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
Consultancy & Advisory
Regulatory Compliance
Standards & Ratings
ESCO industry size estimates by selected country
Source: Lawrence Berkeley National Laboratory , National Association of Energy Service Companies, USA September 2013
Malaysia Association Of Energy Service Companies
Established Registered in September 2000
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
www.maesco.org.my
INVESTMENT OPTIONS IN EE
INDUSTRY
THE COST & THE CHALLENGE
The foregone benefits represent the ‘opportunity cost’ of failing to
adequately evaluate & prioritize EE investments
Larger opportunities & increasing global demand, stress on
resources & climate concerns-costs that we cannot afford to
bear
The failure to properly evaluate the benefits of EE likely results in
under investment in EE
Existing Programs for EE investments
• 2011-present• PEMANDU-KeTTHA - Energy Commission
EPC Program for government buildings
• 2014-present• MIGHT-MAESCO-Melaka Green Tech Corp.
EPC Program for private sectors in
Melaka
• 2010-2016• JKR(BSEEP Project Team)-UNDP
Building Sector Energy Efficiency Project: EE
Demonstration Projects
• 2012-present• KeTTHA
LED Lighting Retrofitting Program
for government building
Delayed until today due to unavailability of the mechanism to pay ESCOs
Delayed until today due to the lack of national level EE policy & regulatory framework
WHERE TO INVEST?
System/
equipment optimization
New & energy efficient designs & operational
features
Retrofitting for energy efficient
technologies
Renewable Energy options
FUNDING OPTIONS?
LOAN
CONVENTIONAL
PROCUREMENT
ENERGY PERFORMANCE CONTRACTINGPerformance Guarantee
Model
GRANTS
ENERGY PERFORMANCE CONTRACTINGShared Saving
Model
PUBLIC PRIVATE PARTNERSHIP
INTERNAL
EXTERNAL EXTERNAL & BY THIRD PARTIES
ENERGY PERFORMANCE CONTRACTING
Special Purpose Vehicle
Traditional vs. Integrated Energy Services Model
Traditional Integrated Energy Services Model
Source: Government Property Group ,Integrated Energy Efficiency Retrofits and Energy Performance Contracting ,Australia,2011
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”
Hypothetical Scenario – energy efficiency costs and savings
Source: Government Property Group ,Integrated Energy Efficiency Retrofits and Energy Performance Contracting ,Australia,2011
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 Features & Success Factors in EPC implementation
Energy Cost savings based on ACTUAL & MEASURED data-before & after
CAPABLE ESCO
UNDERSTANDING of the how EPC works & it long term benefits by facilities owners
COMPREHENSIVE EPC Contract Document
TRUST & TRANPARENCY in strategic partnership to reduce business costs
Commitment to get FASTER results!
Success Stories on EPC:United States
Federal, State & local governments in the US invested over $21 billion in EPC since 1997.
US Federal Government’s 2009 economic stimulus package-additional $3.1 billion for efficiency in existing federal government buildings
Federal & State governments have passed specific laws to facilitate EPC & accept up to 15-20 year payback periods.
Research found 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.
Success Stories on EPC: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 & 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
Invested $160 million in 4 years
European Platform for the Promotion of EPC Development of manuals
on additional models & 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 &
created new EPC experts.
Pilot projects › 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 for EE Projects Implementation in Thailand
THE PRACTICAL APPROACH TO IMPLEMENT EE
INITIATIVES AT ORGANIZATIONS
KEY BARRIERS to implement EE Projects for companies
Viewed as “Infrastructure Investments” – LOW PRIORITY VS. CORE BUSINESS – don’t fix if not broken
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.
ENERGY EXPOSURE BEYOND ELECTRICITY PRICE
EE programs help manage energy risks - reducing exposure to the high costs of sourcing, transport & energy-intensive upstream products
Sustainable Approach To Reduce Energy Costs – Implement Energy Management System
MANAGEMENT COMMITMENT
ENERGY POLICY
PLANNING
IMPLEMENTATION &
OPERATION
SYSTEM & PERFORMANCE CHECKING
MANAGEMENT REVIEW
Energy saving measures – to
bring results in improving energy
performance & cost reduction!
No management commitment = less impacts = forget it!
Watch-outs to avoid unsuccessful EE programs-Bain’s experience
• CEO shows strong & ongoing enthusiasm for EE
• To achieve significant results
ENSURE TOP MANAGEMENT
SUPPORT
• Giving the program its own budget responsibility
ALIGN RESPONSIBILITIES& BUDGETS
• set up new metrics & tools to measure energy consumption
• quantify the success & benefits
CREATE DATA TRANSPARENCY
& INSTALL TARGET
TRACKING
BARRIERS & COUNTER MEASURES TO GROW INVESTMENTS IN EE
INDUSTRY
Common BARRIERS of EE in Malaysia…lack of…
• Clear policy & targets• Comprehensive regulatory & implementation framework
• Competencies in institutional set up
Strong governance in policies implementation
• Competency programs• Career opportunities
Technical competencies & human resource capacity
• Sources of funds• Understanding risks & mitigating factors in EE investments
Sustainable financing & business friendly
mechanisms
• On green practices• Business opportunities • Impacts to climate change mitigation
Information ,education &awareness
• Funding• Academic vs. Commercial values
R&D & commercialization
Support Measures To OVERCOME barriers…
SMEs & SMIs - energy audit and guidance
Measurement & verification of performance
Technical assessment from other ministries/agencies on EE projects for financing /further approval
Registration & deployment of experts
Fiscal incentives
Low interest loans with government guarantee
Grant based on annual government budget for specified initiatives and awareness programs
Technical Assistance & Advisory
Incentives & Financial Assistance
No Silver Bullet!
Public-private
Partnership
Creating A Market
Strong Political Will
The Importance Of National
Context
PROMOTING ENERGY
EFFICIENCY INVESTMENTS
THROUGH POLICIES
IMPLEMENTATION: CASE STUDIES
FROM IEA
WHAT’S NEXT?
11th Malaysia Plan:Chapter 6-Pursuing green growth for sustainability & Resilience
CONSERVING NATURAL RESOURCES FOR PRESENT & FUTURE GENERATIONS
ADOPTING THE SUSTAINABLE CONSUMPTION & PRODUCTION CONCEPTS
Source: RMK11,EPU
STRENGTHENING RESILIENCE AGAINST CLIMATE CHANGE & NATURAL DISASTERS
STRENGTHENING THE ENABLING ENVIRONMENT FOR GREEN GROWTH
11th Malaysia Plan:Enhancing Demand Side Management
FORMULATING A COMPREHENSIVE DEMAND SIDE MASTER PLAN
EXPANDING DEMAND SIDE MANAGEMENT
MEASURESIndustries Buildings Households
ElectricalEnergy
Transport Energy
Thermal Energy
For the EE industry development in Malaysia
Strong Governance
& regulatory framework
Financing & business
friendly mechanism
s
Accountable & competent implementing
agency
Information,
Education &
Awareness
R&D & Commercializati
on
ENERGY EFFICIENCY Industry Growth
Policy Targets
Policy Introduction
Focused Sectors +Industry Players + Consumers
Industry players just need the basic & right “infrastructure” & supports.We can take it from there!
Expectations From The Government
Look and act on EE holistically & urgently for prioritized ENERGY USERS…not with project-based approaches
Consistency, accountability & empowered responsible agency
Clear policy goals & targets
Commitment on FUNDING resources & mechanism
Strong governance & comprehensive regulatory framework
Inclusiveness in policies development & reviews
Impacts from a Holistic EE Implementation at National Level
INTRODUCTION OF
POLICY, LAW &
AWARENESS
IMPLEMENTATION & SUPPORT
MEASURES FROM THE
GOVERNMENT
PERFORMANCE
MONITORING&
IMPROVEMENTS
IMPROVED• National
Energy Performance
• Competitiveness/profits
• Environmental quality
REDUCED• Energy
consumption & costs
• Pollution & CO2
emission level
CREATED
• Business & job opportunities• More experts/workers from energy efficiency
industry• New source of economic growth
• More Direct Domestic Investments
