ENERGY PERFORMANCE CONTRACTING &
FINANCING OPTIONS FOR IMPLEMENTATION
Seminar on Energy Efficiency Initiatives for Government Buildings
By
Zaini Abdul Wahab
MAESCO
19th December 2012 Putra World Trade Centre
Kuala Lumpur
Outline
1. Introduction to MAESCO
2. What is EPC?
3. EE & EPC potentials
4. EPC Process For Building Facilities Owner
5. Options For EPC Project Financing
6. What’s Next?
7. The Conclusions
Introduction To Malaysia Association Of Energy
Service Companies
What is ESCO?
An Energy Service Company(ESCO) Develop and implement turn key, 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 gain accreditation, ESCOs must demonstrate the technical and
managerial competence to design and implement projects involving multiple technologies such as: Lighting Motors and Drives HVAC Systems Control Systems Building Envelope Improvements …at building facilities
What is Energy Services?
Scope of Energy Services
ESCOs must also demonstrate the ability to provide the full range of services required for a comprehensive energy efficiency project covering: Energy Audit Consultancy Design of energy efficient systems Implementation Project Financing Implementation and Project Management Construction management Energy performance monitoring and verification
performance Testing and commissioning Operation and maintenance
Background of MAESCO
The Malaysian Industrial Energy Efficiency Improvement Project (MIEEIP) components includes ESCO Development Programs and ESCO participation in EE Technology Demonstration Projects
Industrial was chosen as the sector in which the greatest commercial and environmental impact could be achieved
MAESCO was registered with the Malaysian Registrar of Society in September 2000
Incorporated in conjunction with the launching of the MIEEIP by a Government’s implementation agency, PTM (Energy Centre of Malaysia) which is now known as Malaysia Green Technology Corporation(Green Tech Malaysia)
MAESCO’s Constitutional Objectives
1. To develop recognized ESCO Business models in collaboration with Government and Private Sector
2. To actively promote the activity of energy cost reduction and efficiency standards in the industrial, commercial and public sector
3. To oversee the well being of its members
4. To facilitate and do all things necessary towards developing successful energy related projects
5. To introduce related products and services for the industry
6. To foster healthy co-existence amongst members through ethical professional practices
7. Ensure quality & reliable of services by members
Organizational Structure
President Ar. Zulkifli Zahari
Vice President, Policies & Int. Liaison
Ir. Ong Ching Loon
Honorary Secretary / Webmaster & Historian
Dharamarajah
Honorary Advisor / Internal Auditor
Ir. Dr. KS Kannan
Business Development Ahmad Zaky
Training Iskandar Majidi
Internal Auditor Kevin Yap
Publicity & Promotions
Ir. Kumarason S Kandiah
Government Liaison
Zaini Abdul Wahab
Green Technology
Dr. Dixon Chai
Treasurer & Finance Tuan Hj. Mohd Noor Harun
Asst. Honorary Secretary & Membership and Practice
Koay Keong Tay
General Admin Anuar b. Mat Saad
Admin / Secretariat Afiza Mohd Sa’ad
Accountant Mohd Izzuddin
Salahudin
Membership
Categories
Energy Performance Contracting (EPC)
Non Energy Performance Contracting (EPC)
Affiliate
Associate
International
Consist of
Energy Performance Contractors (EPC)
Energy Auditors
Energy Management Trainers
Energy Efficient Equipment Manufacturers/Suppliers
Energy Consultants
Energy Management Systems/Technologies
Total Facilities Management
60 Registered Members
Key Activities & Involvement In EE Industry Development
Energy Management Training Courses for Energy Managers
Preparatory Workshop for Registered Electrical Energy Manager (REEM) Application
Rental of Equipment for energy audit and M&V
Awareness and promotional programs
Visits And Dialogues With Government and Key Stakeholders
Industrial Energy Efficiency For Malaysian Manufacturing Sector (IEEMMS) :UNIDO-SMECORP
Green and Renewable Energy Institute(GREENi) with UTeM, Melaka
WHAT IS ENERGY PERFORMANCE CONTRACTING
( EPC)?
EPC Definition
“A single procurement contract for engineering, construction, installation, start-up, measurement, verification, operation and maintenance that specifies performance energy saving improvements in buildings/facilities that will result in sufficient avoidance energy cost and enhanced recovery from utility systems to pay for the cost of equipment, materials, labour, subcontracts, fees, insurance, bonds, permits, debt service, and all cost associated with the implementation of the contract scope over the life of the contract.”
In simple terms, EPC is a project approach that utilizes the energy savings and revenue gains to pay for the project cost.
- Land-of-Sky Regional Council, USA
Why EPC? : Building Owner
Energy cost savings & improvements with NO UPFRONT CAPITAL - invest savings achieved into other projects
ESCO to identify Energy Saving Measures (ESMs) to replace / modify existing inefficient systems or/and equipment
The remuneration of ESCOs is directly tied to the energy savings achieved
Energy cost saving is shared between ESCO and the building owner with payment schedule with a single-source responsibility
ESCO supplies, install, maintain and retain on-going operational roles in energy performance measurement for each ESM over the financing/contractual terms.
Use future energy ,cut operating cost, be more competitive and improved comfort/productivity
Positive environmental impacts & reduced environmental footprint
EE & EPC POTENTIALS
Overall Rankings in Asean EE Market
16
Biggest Electricity Users For Government Buildings (Sep 2009-Oct 2010)
Hospitals 20%
Universities29%
Ministries 19%
Others (States,
Agencies) 32%
Building Nos Total Consumption
(kWh/year) Total Bill (RM/year)
Hospitals 22 367,587,657 130,640,653 Universities 25 543,961,738 193,324,002 Ministries 25 360,592,831 128,154,692 Others States & Agencies
56 603,464,085 214,471,136
128 1,875,606,311 666,590,483
Estimated Total TNB Bill for government buildings (Sep 2010-Aug 2011)
Total Consumption (kWh/year)
Total Bill (RM/year)
7,896,508,329 2,726,767,394
10% saving ± RM270 millions /year
Potential Areas for EPC Projects Energy Conservation at buildings
facilities Renewable & Alternative
Energy Sources Air Conditioning, Refrigeration & Ventilation Systems
Chillers, AHUs, fans, pumps Operational, & equipment controls System optimization
Lighting Systems Buildings(interior & exterior),public
lighting Operational controls Types of lamp technologies
Demand Controls
Internal electricity distribution
system
Utilization of Feed-in Tariff(FiT) for RE sources
Solar Photo Voltaic(PV) Building Integrated PV System
PV Power Plant
Biomass & Biogas Power Plant
Waste-to-energy systems
Successful EPC Project(1): Private Commercial Shopping Complex
Areas of Implementation: 1) Transformers 2) Cooling System – Chillers, Cooling Towers, AHUs, CHW & CDW Pumps 3) Lighting System – Internal, External & Parking 4) Demand Controls
Total Actual Saving Achieved
= RM 1,495,000/year
Successful EPC Project(2): Private Industrial Warehouse
Application Areas: - Fluorescent Lamps - High bay Lighting - HID
Total Annual Actual Saving Achieved
= 42.2%
= 3,283,200 kWh,
= RM 920,000
EPC Potential: Pilot Project for Public Lighting -Comparison Before & After Implementation
(Before) Conventional HID 250W (After) LED 150W
Options To Implement Energy Saving Measures
• Management
Directives
• Implementation of EnMS- to ensure sustainability of energy cost reduction initiatives
MEASURES With LOW/
NO COST
Minimal Cost Savings
• Priorities of budget - core business/operations
• Investment risks
• Limited human resources & expertise
MEASURES WITH HIGH
COST
Significant Cost Savings
Expert assistance &
investment from ESCOs through
EPC model
In-house initiatives
EPC PROCESS FOR BUILDING FACILITIES OWNER
EPC Process Flow & Key Elements
Appoint ESCO
Sign EPC Contract
1.DEVELOP NEED BASIS
2. DEFINE PROJECT
3. ESCO PREQUALIFICATIONS
4. REQUEST FOR PROPOSAL
RFP Steps 1. PREPARATION OF PROPOSAL BASIS AND PROCEDURES
Review ESCO Prequalification Document
Formal Communications of Intent
RFP Document
2. ISSUANCE OF RFP
3. SITE VISIT AND SHARING BASIC INFORMATION
4. PREPARATION OF SELECTION CRITERIA
RFP Document
To gain important evaluation information about the proposers covering: Owner’s Preliminary
Scope of Work and Project Definition
Communicating owner Requirements and Expectations in the RFP
Sharing Energy Service Agreement Format in RFP
Proposal Response
RFP Outline Introduction
Overview
Scope of Work
Administrative Information • General Contract Terms
and Conditions
• Insurance and Licensing Agreements
• ESCO Response Format
• Evaluation Criteria
• Technical Profile of the facilities
5. EVALUATE PROPOSAL
Appointment of ESCO
Proposal Evaluation Method
Steps
1. Initial screening
2. Scoring
3. Reference interviews
4. Oral presentation with given outline and Q&A
Criteria
Prequalification rating/minimum requirements
Project team qualification
Experiences in relevant project
Technical approach
Management plan
Credit worthiness
Full range of capabilities
Financial benefits
Cost competetiveness
Example: Evaluation of ESCO
6. ENERGY AUDIT & ENERGY SERVICES AGREEMENT
Appointment of ESCO
7. NEGOTIATE PERFORMANCE CONTRACT TERMS
• Sharing amount (%) • Duration of contract • Baseline, M&V method • Detailed terms & conditions
Sign EPC Contract & Implement Project
8. MONITOR, MEASURE & VERIFY PERFORMANCE
To calculate the ACTUAL savings achieved!
Factors should be considered to reduce dispute in EPC Contract Commitment from the client Factors affecting savings performance Valuating savings uncertainty Minimum operating conditions Energy prices/tariff rates Verification by A third party Baseline modification/review(non-routine) Balancing uncertainty and costs
Options For Energy Baseline & Savings Calculation
Method Advantages Disadvantages
Utility billing history Low cost •Effects of weather , occupancy, other changes may mask savings •May be unreliable unless savings are significant compared to normal bill variation
Data already available
Independent data
Represent all effects of ESMs
Account for interactive effects
System/Equipment sub-metering
Isolate effects of ESMs •Higher cost •Misses interactive effects
Very accurate for lighting measures
Results are more predictable(low risk)
Baseline: Baseline year from electricity bill data (kWh) (k
Wh
)
Example: Energy saving calculated by the difference between a baseline year and a subsequent year from electricity bill
(kW
h)
Baseline : Building Monthly Load Profile (kW) from sub-metering
40
Baseline : Building monthly electricity consumption profile(kWh) from sub-metering
41
Baseline : Building monthly load profile(kW) for AHU from sub-metering
42
Baseline : Monthly electricity consumption profile(kWh) for AHU from sub-metering
43
Example: Savings calculated based on actual measurement from sub-meters
Modifying/Reviewing Baseline
To establish standards for “Materials” changes which may reasonable expected to change energy consumption trend in the facility Occupied square footage, operating hours Facility’s energy equipment/operating parameters
other than the ESCO equipment
Energy equipment, other than ESCO equipment, that malfunctions, or is repaired, or replaced in a manner that increases or decreases energy consumption;
Other actions taken by the facility owner that may reduce or increase energy use; and,
Discovery of an error in the original baseline, in which case the change would be retroactive
Trust , good relationship & effective
communication between ESCO & building owner is crucial to identify the needs to modify/review
baseline!
OPTIONS FOR EPC PROJECT FINANCING
Key imperative for financing
Certainty: • Revenue certainty and ring fencing • Precedence
Clarity:
• Project size and feasibility study • Procurement framework
Commitment:
• Counter party • Institutional arrangement
Source: KPMG
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 SAVINGS Model
• The loan goes on the client’s balance sheet
2. SHARED SAVINGS Model
• The loan goes on ESCO’s balance sheet
3. Through a Special Purpose Vehicle(SPV) created specially for the purpose
Guaranteed Savings Model
FACILITIES OWNER
ESCO BANK
Project Design& Implementation
Project Fees Loan
Repayment
Shared-Savings Model
FACILITIES OWNER ESCO BANK
Project Design& Implementation
Loan
Repayment
EE PROJECT
Energy saving share (90%-70%)
Financing
Energy saving share
(10%-30%)
How the Model Works?
Guaranteed Savings
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 Savings
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
Through a Special Purpose Vehicle(SPV)
Case Study: Financing building retrofit projects through EPC
Initial Owner Commitment
• Harmonization
Preliminary Assessment by ESCOs
• Scope of Work
• Project Savings/Pricing/Technologies
Selection of 1 ESCO
• Conformance
• Qualitative & Quantitative evaluation
Investment Grade Audit
• Detailed Energy Engineering
• Savings/price Guarantee
• Service Proposal
Final Contract Signed
• Project Implementation
• Loan Underwriting
Different Steps in Energy Performance Contracting
Source: KPMG research
Performance Contract
• Qualified Measures • Performance Guarantee • Walk-away Compensation
Energy Savings Financials: Savings used to pay for project and remaining to customer
Time (Years) Ener
gy &
Op
erat
ion
al c
ost
s
Baseline
Savings used to pay for project
Customer savings
Duration of Program
Reduced costs due to performance based solutions
Start of Program
Customer to retain all savings
Additional cost avoidance due to energy price increase
service
Performance Risk Business Risk
The ESCO scheme
Guaranteed Savings (GS) Structure
Performance Contracting Agreement
(energy savings guarantee)
Bank (lender / investor)
ESCO Client (building owner)
Financing Agreement (fixed-repayment schedule)
Financing Payment
Payment
Credit Risk
Example :ESCO Fund in Thailand
WHAT’S NEXT?
Proposed Support Programs by the government for EPC Implementation
To create a special revolving fund for EPC Projects with lower interest rates – to kick-off and develop the EPC market
Development of in-house capacity in technical & financial evaluation
of EE&EC Projects for Authorized agency financial institutions
Development and acceptance of standard technical evaluation,
monitoring and performance verification criteria for EE&EC Projects With by technical experts from recognized professional/industry bodies/ associations
Development of and acceptance of standard evaluation for funding
and risk assessment criteria for EE&EC Projects
Sharing of experiences in successful investments in EPC projects through seminars/dialogues
• (results, payback period) from people in business community who have experienced it • Criteria of viable EE projects • Competency of ESCOs
Proposed Actions Required for Financial Institutions
To specialize in green technologies such as EE EE has wide range of technologies & applications with different
levels of difficulties in technology(implementation, reliability, ease of operation and durability
Due to… Insufficient proven domestic case studies by banks
EE project require time and specific expertise to be assessed
EE funds started in other countries such as Thailand & USA
has developed in-house expertise for banks in evaluating EE projects
Source: Green Prospects Asia, June 2012
Expected Impacts From EPC Implementation
INTRODUCTION &
AWARENESS
IMPLEMENTATION & SUPPORT MEASURES
PERFORMANCE MONITORING,
MEASUREMENT & VERIFICATION
IMPROVED •Energy Efficiency •Competitiveness
/profits •Environmental
quality
REDUCED •Energy
consumption & costs
•CO2 emissions
CREATED •Business & job opportunities
•More experts/workers from EE industry •New source of economic growth & Direct Domestic
Investments
THE CONCLUSIONS
EPC The potentials in Malaysia is still relatively
“UNTAPPED”
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 CONCLUSIONS
FINANCING FOR EE PROJECTS is more complex than rebate or grant programs
potential for leverage and for low/no energy subsidies
provide new opportunities for overcoming barriers to the adoption
of EE measures
should be viewed as a complement to other strategies such as building energy codes, appliance EE standards, or utility rebate programs
successful financing program should support, and not be a barrier to, customer participation - financing should remain streamlined, easy-to-access, and quick
THANK YOU FOR YOUR ATTENTION!
[email protected] 019 2152700
www.maesco.org.my www.goingee.blogspot.com