TYPICAL QUESTIONS FROM PROSPECTS IN EPC-SHARED SAVING PROJECTS IMPLEMENTATION IN MALAYSIA

TYPICAL QUESTIONS FROM PROSPECTS IN ENERGY PERFORMANCE CONTRACTING-SHARED SAVING PROJECTS IMPLEMENTATION IN MALAYSIA AND KEY POINTS IN ANSWERS 

I have been involved in EPC projects since year 2001 with small scale investments at commercial building and industrial facilities until now with bigger investments and more comprehensive energy conservation solutions involved.

Here I would like to share some questions that I often faced with prospects for technical personnel and mostly non technical groups(who are decision makers) and even with existing clients for projects that I have been involved and how possibly we can answer each of the question.

In general, Malaysian companies and government facilities are still very "shy" on the EPC option for implementing big scale energy conservation project despite some successful projects implemented at MNCs which are based here.

I hope this tips will help others because as industry players in Malaysia , ESCOs need to paint the right picture of EPC projects to the market that will erase their doubts on risks and negative perception about the feasibility of EPC for their facilities.

Q1. HOW THE ACTUAL SAVINGS IS MEASURED?

Answer:

·   The saving will be determined based on actual measured data collected using agreed measurement method (mostly permanent meters) to be compared with the agreed baselines data.

·  Energy saving reports based on actual measured data will be submitted on monthly basis to the owner.

· All energy saving measurements will follow the international method, International Performance Measurement and Verification Protocol (IPMVP).

·  The owner is allowed to engage independent parties to measure and verify data using the same method.

 Q2. Assurance about the performance of the equipment/ systems such as lighting especially with the fast changing in lighting technologies?

Answer:

· ESCOs are responsible to ensure the best and the most economical technologies throughout the contract period to maximize savings that will benefit them and the owners of the facilities.

· The facilities will be able to change to any other technologies after the contract ended the fitting for lighting systems are generic and easily fitted with other types of lamps.

Q3.WHAT IF THE ENERGY SAVING ACHIEVED IS LESS THAN PROMISED BY THE ESCO AND VICE VERSA?

Answer:

·   If the saving achieved is less, the owner  will only need to pay the ESCO  actual saving achieved and the ESCO  will take the full risks to get less  returns in its investment until the contract ended or  the owner can terminate the contract with sufficient notice for the ESCO to take back all equipment installed at their own costs and bring back the operation of the facilities into its initial conditions; or

·      To renegotiate the contract period and conditions.

Q4.WHAT IF THE ELECTRICITY TARIFF RATES INCREASED THROUGHOUT THE CONTRACT PERIOD?

Answer:

·     If the owner agrees to tie the contract to the tariff increase, the contract period will be shorter and the owner will be able to enjoy the 100% saving achieved earlier.

Q5.WHAT IF THERE ARE SIGNIFICANT CHANGES OF OPERATIONS IN THE FACILITIES?

Answer:

• All data will be collected and the baseline to be reviewed to accommodate those changes based on discussion and agreement between the ESCO and the owner.

Q6.HOW ABOUT ENERGY SAVINGS ACHIEVED BY OWN INITIATIVES BY THE OWNER THROUGHOUT THE CONTRACT PERIOD?

Answer:

• The ESCO’s and the owner’s personnel will closely communicating to update on all energy related activities that may affect the actual saving achieved from the ESCO’s projects. A suitable method will be proposed and discussed to resolve it.

Q7. WHO WILL BEAR THE COSTS FOR MAINTENANCE AND SPARE PARTS OF EQUIPMENT INSTALLED BY THE ESCO IN THE PROJECT?

Answer:

• All costs for maintenance and spare parts for all system and equipment installed by the ESCO will be borne by the ESCO.

Q8. WHAT IF THE  PROJECT FAILED AND HOW TO DEAL WITH THE CONSEQUENCES OF THAT SITUATION

Answer:

·  If  the ESCO fail to deliver or the project caused serious problems to the facilities which could not be resolved, the ESCO will remove all  equipment  from the facilities  at its own cost and bring the operation back to normal; or

· Delayed to resolve any technical problems or other issues, the ESCO will request to renegotiate the contract where longer period of contract may be needed to complete the project.

· All responsibilities by the ESCO will be clearly stipulated in the contract terms and conditions to mitigate all possible consequences where the ESCO will be accountable to fix it or bring it back to the normal conditions at its own cost.

Q9.WHY DON’T THE ESCO INSTALL EVERYTHING AND RUN FOR 3 MONTHS AND LATER THE OWNER WILL SIGN THE EPC CONTRACT?

· The ESCO need to have the signed agreement to secure funding from investors for the project.

·  There must be provisions in the contract that will allow the owner to instruct the ESCO to dismantle everything with sufficient notice or whenever the ESCO fail to fulfill its contractual obligations.

Q10. WHAT WILL HAPPEN AFTER THE CONTRACT PERIOD?

Answer:

• All system and equipment installed will be handed over and owned by the owner;
• The owner will enjoy the 100% saving from the energy saving measures implemented;
• The owner may engage the ESCO to for specified support services at agreed and common service rates for maintenance and reporting.

Q11.  COULD THE ESCO PROVIDE COMPETITIVE BIDS FOR THE LED LIGHTINGS, POWER METERS, AND VSDS ETC?

Answer:

·   The ESCO  could not since the ESCO  could not let others supplying any equipment in all proposed energy saving measures where the ESCO  have to ensure the quality and performances for each equipment/system to get the guaranteed saving results

· The ESCO will also take all the risks by guaranteeing functionality of each equipment/system to be used in the solution to achieve intended saving targets.

·  The cost of each equipment is sourced to ensure the project is financially attractive for sides, the ESCO and the owner. Details of the financial analysis and costs involved will be shared during the EPC contract negotiations with the owner’s finance department.

Q12. HOW DO WE KNOW THAT THE ESCO IS CAPABLE OF IMPLEMENTING EPC PROJECTS?

Answer:

Key selection criteria of ESCO to perform EPC projects:

· The ability of the qualified and competent management and technical personnel of the ESCO to manage and execute EPC projects;

·    The financial strength of the company to fund a project either by using internal financial resources or loans from financial institutions, and

· Track record and experience in implementing projects with EPC concept including the scale of investment in the projects.

As a guide, the Malaysian Association of Energy Services Company (MAESCO) has proposed a list of criteria to evaluate an ESCO that can be used as a reference or based on feedback and experiences of its members in implementing EPC projects.

A summary of the proposed criteria include the following:

·   The minimum paid-up capital and financial position ESCO - to ensure that the ESCO has enough basic financial strength to be considered by the bank for any financing;

·  The need to have a top management and technical teams with minimum qualifications and experiences in project implementation Energy Conservation projects especially with EPC model;

· The need to have permanent technical support groups to implement the proposed energy conservation projects;

·  The need to have the basic equipment  for conducting detailed energy audit.

In addition to the criteria mentioned above, other important criteria to ensure that the qualifications and capability of an ESCO to implement the EPC projects particularly in the government sector are as follows:

·   The Company has been registered with the Energy Commission as an ESCO;

·  Must be registered with the Ministry of Finance as a provider of services under the Green Technology Code 222 801;

· To submit a record and information about EPC projects ever and is being implemented as a reference mainly involving large-scale investments;

·  Submission of proposed method for the measurement and monitoring of energy savings each month on a regular basis over the term of the EPC contract to be implemented. The method of calculating the energy savings achieved must be based on the actual measurement of the difference in total energy consumption before and after implementation of the proposed energy conservation project;

·  Be prepared to conduct a detailed energy audit of buildings at no cost and no guarantee for the appointment to implement EPC project by  the owner of the building.