ROLES OF THE KEY STAKEHOLDERS FOR THE GROWTH OF ENERGY SERVICE INDUSTRY IN MALAYSIA

The potentials of energy service industry in the form of investment opportunities and   the creation of new jobs is enormous which can contribute significantly to the growth of our economy. With the potentials valued at billions of dollars at regional markets which will be more opened with the upcoming ASEAN Economic Community(AEC)  introduction and the implementation of Trans Pacific Partnership Agreement(TPPA), Malaysia could not afford to just ignore it and not participating.

Like any other industry, energy service industry where energy efficiency is the core part of it, a holistic approach is required to ensure all efforts to be place will bear fruits in long term and able to be sustained to create more opportunities in the way forward.

In this last part on this topic, let us examine on what is exactly expected from key stakeholders in this country in terms of roles and responsibilities that need to be played by each of them to grow and sustain the energy services industry. The more we delay in tapping opportunities from this industry, more we are going to lose its economic opportunities that could benefits us in short and long terms especially in the current challenging economic climate.

The Figure 1 below illustrates that overall framework, key elements, thrusts needed and process flow to grow the energy efficiency industry where energy service is the core feature where big scale investments and new jobs creation is concern.

Figure 1: The schematic framework, thrusts and process flow of the holistic approaches to grow energy efficiency industry at the national level.

For energy service or energy efficiency industry players, what is needed is a clear platform with a conducive business ecosystem for them to play their roles to tap the already available and newly created business opportunities. Like any other industry, there are factors that will contribute to the industry growth such policies, institutional framework for administration and regulatory supports, availability of funding and financial supports for loans, fiscal incentives, awareness and etc. All these factors require involvement of all stakeholders to play their specified roles that will enable industry players to step out and explore existing and new opportunities that will be created with the growth of the industry.

At the national level, Malaysia requires and clear and well national energy efficiency policy with its own policy goals and targets to be achieved at stipulated period. This policy will serve as the common goal for all sectors to refer and figure out ways on how they can play their roles to achieve that national targets according to their sector.

To grow the industry in more sustainable manner, there are thrusts that need to be established which will involve all stakeholders with defined roles. These thrust could also be seen as tools to achieve the national policy targets. On top of that, inclusiveness in policies development and reviews is also required to ensure goals and targets established to be well understood and accepted with commitment by all stakeholders.

Firstly, for the government, there is an urgent need to build a strong governance for energy efficiency administration and effective and comprehensive regulatory frameworks. In the same time, the government need to look and act on energy efficiency measures or programs holistically and urgently for prioritized targeted groups and not with project-based approaches which often no further efforts to sustain and improve performances beyond the project period.

Secondly, there must be a commitment for funding because there is need to establish as sustainable sources of fund to finance big scales energy efficiency projects implementation. The government should play its roles in getting the financial institutions to be involved more in energy efficiency industry like other types of industry. The fund can be in the form of a revolving fund with loan facilities administered and managed by the government appointed entity. To add the availability of fund for energy efficiency projects investments, commercial financial institutions need to be roped into the picture.

The fund or loans facilities established can be utilized by parties involved to implement such projects among large energy users themselves and industry players such as Energy Service Companies (ESCOs) who are mainly involved in energy performance contracting projects that require large amount of fund.

The mechanism to distribute the fund should also made as business-friendly possible to attract large energy users and industry players to use it with assessment criteria for the eligibility to suit the energy service business models such as energy performance contracting type of projects and if the fund to be sourced as loans by the large energy users themselves.

The inputs from industry associations representing both sides from large energy users  from various sectors such as manufacturing, healthcare, hotels and etc. and industry players such Malaysia Energy Service Companies Association can be sought to establish the financial and technical assessment criteria that will be adopted by the administrator of the fund and financial institutions.

Thirdly, there is a need for some consistency, uniformity and accountability in implementing energy efficiency programs by any agency empowered and made responsible by the government. This agency can be a one-stop-center for all parties especially investors and industry players to refer for energy efficiency related matters that will finally resulted in more big scale energy efficiency projects to be implemented in faster mode.

The last two thrusts that also need to be made available to support the growth of energy efficiency industry which are the continuous dissemination of information, awareness creation and education for targeted sectors and the initiative to have more research and development in energy efficiency technologies and applications.

Decision makers from financial institutions and business owners among large energy users are the most important target groups that require strategic approaches for them to look at business and investment potentials in energy efficiency industry. This will require a well-planned strategy to educate and create the awareness among them and this role is expected to be played by energy service industry players with the assistance and facilitation by the government.

Awareness creation and education among business leaders on potentials of investments in energy service industry must be an on-going process through seminars, dialogues and conferences facilitated by the government.

All the five key thrusts will serve as a very strong platform for the whole energy efficiency industry to grow where energy service industry players will have to play their roles to tap the opportunities created in the process and in the way forward as the industry keep growing in the future.

With the inclusion of the preparation of a strategic national plan for the demand side or the energy users’ side of the energy sector in the 11^th Malaysia Plan between 2015 and 2020 by the government, all the above five thrusts are strongly recommended to be  included in the plan. The inclusion of initiatives for the demand side management is mentioned in the 11^th Malaysia Plan document, Chapter 6 under the title of Pursuing Green Growth for Sustainability and Resilience.

The initiative which is led by the Economic Planning Unit under the Prime Minister’s Department  is from adopting the sustainable consumption and production concepts where managing the demand side is one of the  key criteria as illustrated in the Figure 2 below. The formulation of the strategic national plan for the demand side is expected to come in the form of a comprehensive master plan which will include types of energy consumption which are electrical, thermal and transport energy sectors.

Energy efficiency measures for the demand side will be focused according to different types of users which are industrial, buildings and households.

Figure 2: The plan by EPU in the 11^th Malaysia Plan for the establishment of a national energy efficiency strategic master plan.

For ESCOs in Malaysia, the biggest potentials to be exploited from the energy efficiency growth the possible adoption of energy performance contracting business model by large energy users the new strategic business strategies for business sustainability. More efforts are needed to sell the idea among key decision makers from all sectors to consider other alternatives of funding to implement big scale energy efficiency projects that are already available and proven in developed and developing markets such as in USA,Europe and Thailand and China.

What are needed to stimulate the growth of the investments in the energy efficiency industry through energy performance contracting projects is illustrated in the Figure 3 below. Energy service companies who will play the key roles to promote and to ensure the successful adoption of energy performance contracting business model need supports from other stakeholders which are the designated government agency, financial institutions and professional bodies to provide the supporting measures covering the financing, technical assessment, fiscal incentives and performing the independent energy performance measurement and verifications works.

These supports measures are not only required by ESCOs as the industry players but also by each stakeholder in order for them to play their roles effectively. For example, banks will required an independent and competent party to assess technical proposal on loan applications for energy performance contracting projects investments by energy service companies and companies with large energy consumption.

Another example is, fiscal incentives provided by the government in the form of tax exemptions or investment tax allowance for large investments in energy efficiency projects implementation will attract more companies to consider to invest with their own internal fund or from commercial loans.

Figure 3: Support measures required from stakeholders to stimulate the take-up of EPC model by large energy users and ESCOs.

THE CONCLUSIONS

Despite its enormous potentials, the investments and business opportunities in energy service industry in Malaysian market is still relatively very much “untapped” due to factors that have been discussed this article and my last two articles in this topic. It means there are so much more need to be done by all stakeholders to stimulate the growth of the industry  that will benefit all in many ways.

Energy performance contracting model has been proven as a viable and effective business model for faster big scale energy efficiency projects implementation for large energy users. However, with the lacking of national level holistic approach to implement energy efficiency programs and also the lacking support measures to implement energy performance contracting projects have been main barriers.

More successful energy performance contracting projects are required to attract more attention of business owners from large energy users, financial institutions and other investors to look at energy service industry as another attractive platform to invest their money for more profits to grow their businesses.

In the same time ESCOs must have and continue to develop their competency and capability to ensure successful EPC projects implementation to who more success stories to the market and all stakeholders. The upcoming AEC implementation for ASEAN countries and TPPA to be implemented in markets in participating countries, Malaysian ESCOs must also look at these markets to expand their investments and sell their expertise.

All stakeholders must work hand in hand to grow and stimulate the energy service industry from the holistic approach of energy efficiency implementation for Malaysia to benefit from its potentials as the new source of economic growth for the current and  future development to become a greener nation for our future generations.

Note:

The contents of this article is also featured in my column in the Green Plus magazine.

THE NEWLY RELEASED BOOK FOR REGISTERED ELECTRICAL ENERGY MANAGERS IN MALAYSIA

Alhamdulillah.It is finally published and out for sale.

My first ever book for the industry which took me about 3 years from the moment I started until I saw the first printed copy last week.

The book is published by the Malaysia Association of Energy Service Companies(MAESCO) .It is aimed to cater the needs for some guidance by the industry players and practitioners that can contribute to increase the number of REEMs to meet the market demand and subsequently will help to ensure the effectiveness of the implementation of EMEER 2008.

I would like to take this opportunity to thank my fellow committee members and energy efficiency experts in MAESCO and some good friends who have contributed in reviewing and giving their inputs for me to improve the contents of the book.

Also a big thank to others whao have given me so much encouragement and supports for me to continue writing this book until it finally published.

This book is about tips that I have shared purely from my own experiences involved from the implementation of the EMEER 2008 from 2008 until I become the REEM myself today to serve over 20 facilities to comply to the legal requirements and to develop and implement sustainable energy management system.

The 3 parts of this book covers:

1.Tips for successful applications to become REEMs

2. How to structure and deliver effective services as REEMs to large energy users affected by EMEER 2008

3. Key elements and tips to develop and implement EnMS based on key provisions in EMEER 2008.

Other than that I also shared some tips on how to successful energy managers and the potential demands for energy managers in the future.

The targeted readers of this book are:

•  REEMs
• Those who are interested to become a REEM
• Companies and organizations who are affected by EMEER 2008
• Facility engineers and managers
• Energy management committee members
• Building/asset managers for large energy users 
• Professional engineers and architects who have interests in energy management or to add their competency
• Facility management companies for  facilities affected by EMEER 2008
• Energy efficiency practitioners/service providers/consultants
• Energy management system certification consultants/auditors
• Energy management trainers/coaches 
• Academicians/lecturers/researchers who have interests in energy management topics
• ESCOs
• Higher learning institutions with degrees in Science, Engineering and Architecture Courses.
• Engineering  and science graduates who has interests in energy efficiency industry for their career
• Training centers and training providers for energy management and energy efficiency related topics and competencies.
• Energy related resource centers/libraries

How to get your copy?

The book is now available for sale at MAESCO and  priced at RM50 for MAESCO members and those have attended Energy Manager's Training Course organized by MAESCO  and RM60 for others. Details to purchase is available at http://www.maesco.org.my/new-book-by-maesco.html

Met with one of the early buyers of the book this week who came to get copies with the author's signature and personal message at MAESCO office

ENERGY SERVICE INDUSTRY AND IT’S AND CHALLENGES IN MALAYSIAN MARKET

The energy efficiency market is growing in stature and maturity, but it is developing more rapidly than the ability to properly evaluate and understand it. A particular priority is to improve our capability to measure the size, nature and impact of energy efficiency markets and the outcomes from investments made in them.

Energy Service Companies (ESCOs) have started making their presence Malaysia toward the end of 90s and they were mainly involved in promoting technologies on how to save energy costs. Most of them merely were technologies suppliers and using energy saving features of their products as additional marketing strategy to convince the market. Most of these technologies often brought by foreign promoters or companies who worked with their local partners to penetrate the domestic markets.

Then slowly energy service businesses expand into consultancy and training services where among the main objective was to educate the market on energy efficiency in bigger perspective other than just energy efficient technologies. This was done through collaboration and jointly-organized programs such as seminars and conferences between technologies and services providers with government agencies and government linked companies such as the department of electricity and gas supply(now known as Energy Commission), Malaysia Energy Centre(now Malaysia Green Technology  Corporation, Malaysia Timber Industry Board, SIRIM and Tenaga Nasional Bhd.

In the same time, there were internal organizations related to energy efficiency such as from Japan and Denmark which offered some assistance technically and financially to Malaysian government for activities such as technical assessment to identify energy efficiency potentials in various sectors, market and policy studies and also training programs for local government and private personnel.

Energy service industry development has been identified as one of the key component s under the United Nation Development Progarm-Global Environment Faclity(UNDP-GEF) and Malaysian Government Funded project named Malaysia Energy Efficiency Industrial Improvement Project (MIEEIP) from year 2000 until 2005. This has led to the formation of Malaysia Association of Energy Service Companies (MAESCO) in 2001. However, the growth of energy service industry to be further explored by ESCOs  has not been fast as initially expected despite very promising findings from the MIEEP implementation. The project has identified how much businesses and investment potentials with very attractive returns available in industrial and also building sectors from hundreds of energy audits carried out.

MAESCO has been proactively involved with key stakeholders to create awareness about potentials of energy service industry since its formation in 2001.

The table below summarizes the potentials saving, investment required and returns expected based on types or energy intensive industry.

Industry Type	Potential energy  saving (GJ/year)	Energy Consumption (GJ/year)	% of energy saving potential	Investment Cost(RM)	Potential cost saving per year (RM'000)	% of cost saving from energy bill per year	Payback period (Year)
FOOD	272,354	1,418,625	19.2	2,299	4,382	13.7	0.5
WOOD	457,494	874,200	52.3	9,904	4,822	38.9	2.1
CERAMIC	212,974	774,061	27.5	5,760	5,992	24.8	1
CEMENT	4,887,239	14,956,563	32.7	39,456	33,752	16.5	1.2
GLASS	81,660	4,000,370	2	3,586	2,120	2.1	1.7
RUBBER	97,215	460,913	21.1	5,079	3,063	22.6	1.7
PULP & PAPER	811,547	5,080,208	16	29,883	18,174	21.3	1.6
IRON & STEEL	270,053	4,215,761	6.4	4,443	5,247	3.4	0.8

Source: Malaysia Energy Centre, 2005

With the several tariff increases occurred from the time of the project implemented, returns from the investments should have been bigger and faster to be achieved if companies selected have implemented all energy saving measures recommended to them.

For energy audits performed by Malaysia Energy Centre at the buildings sector, they identified energy efficiency potentials of 40% to 50% reduction of energy consumption of new buildings, 15% to 25% in reduction in energy consumption of existing buildings and also the possibility of shifting some electricity demand for some building operations from day to night by improving its load factor.

The MIEEP and many other studies have shown that there are undoubtedly huge potentials of investments and business opportunities in implementing energy efficiency measures in industrial and building sectors.

To do that ESCOs are supposed to play very significant roles to ensure the successful energy efficiency implementation in both sectors. Support for setting up ESCOs and industry groups has been undertaken in emerging countries by international agencies. The GEF program in China to support start-up ESCO is representative and the role of GEF and the World Bank in development of China’s ESCO industry was extremely comprehensive and also effective. In India, the US Agency for International Development (USAID) provided support through a program of information transfer to ESCOs, and through a special program with the support for foundation of an ESCO association. Also, in Malaysia and the Philippines, ESCO associations were set up with support from governments initially and they are expected to grow further with the growth in energy efficiency industry in their respective country.

While in Japan, until now Energy Conservation Center of Japan(ECCJ) and Japan Association of Energy Service Companies(JAESCO) have carried out activities as the core of the ESCO movement. Then, the ECCJ functions are being integrated into JAESCO, to complete the functions of an ESCO association.

The establishment of MAESCO for meeting the demand for energy service market in Malaysia in 2001 has clearly intended for the same intention like those countries. The key objectives outlined its constitution as follows:

• To develop recognized ESCO businesses in collaboration with Government and 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 its members and 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 and ensuring  the prestige of services delivered  by its members

At present MAESCO has about over sixty members with almost half of them are stated in the list in the official website with the capability to perform EPC projects.

However, the growth of ESCOs in Malaysia has been hampered by several factors that are still unresolved despite some progress made by some ESCOs in local and regional markets.

One of the key issues is how the energy service itself defined and understood among by the market. At present, most ESCOs are still being seen to push for energy efficient products and technologies as solutions to reduce energy costs. The whole spectrum of works in energy service before reaching the energy saving solutions, requirements to implement energy saving measures and measurement and verification of the actual saving achieved have not been made aware and highlighted to the potential markets.

Other main barriers that are still faced by ESCOs in Malaysia are as follows:

i)               Immaturity of the energy efficiency market

In general, the costs of project development are relatively high and most small ESCOs find it difficult to finance project development costs. On top of that there are limited experience with successful ESCO projects and ESCOs have not yet developed good credibility with intensive energy users, policy makers and financial institutions.

ii)              Lack opportunities that suit ESCO’s  business model

The typical approaches in the implementation of energy efficiency projects in Malaysia is based in budget allocated or approved by the organization in their annual budget planning.

The unique feature of EPC business model where they can source the fund from the third party such as ESCO to implement energy saving measures that require bigger budget are not something common and easily accepted conceptually especially within the government agencies and locally owned companies.

The idea of involving the external parties to save energy costs by doing almost everything to get the results is not well accepted yet the local market until today. In the same time, most purchasing made for energy related technologies and products still looking at the purchase price as the main evaluation criteria.

There are some efforts by government entities to opt for EPC approach to implement energy saving measures but some conditions that they imposed do not match with the EPC business model. For example, the duration of EPC contract period and percentages of energy cost saving to be shared have been predetermined by the owner and qualified ESCOs have been asked to agree with the predetermined requirements before the investment grade energy audit carried out. As a results, no or very limited ESCOs were interested to participate and finally no progress made at all.

On-going engagements with fellow industry players and other key agencies in the government  have been always the most effective way in shaping the way forward for energy service industry.

iii)          Limited understanding of decision makers among public and private sectors on the true values of engaging ESCOs in their energy efficiency programs.

For example they are more prefer to adopt the conventional model of sourcing energy service using their normal procurement process where the upfront costs or the purchase price of energy efficiency solutions is their main consideration in decision making. Other than that, EPC model is the least preferred option to implement big scale energy efficiency projects although it often seen that internal budgets are limited with many other priorities.

In some cases, when they embarked on EPC approach, some unreasonable conditions imposed to ESCOs where finally the projects become not feasible for ESCOs to invest and making reasonable profits for their business.

In some government entities, instead of looking at EPC model as an option to implement energy efficiency projects  to get faster results with risks taken by the third parties such as ESCOs, they started to behave like as normal business entities where the  maximum profits has suddenly become their top priority.

iv)         Lack of financing from the financial institutions for loans, special funds, grants and etc.

Banks and other funding agencies in Malaysia are still not fully aware and understand the concepts and risks factors in business models for ESCO.

To financial institutions in Malaysia, the financing for energy efficiency projects is still considered “high risk” and they are using the same guidelines for all industries and sectors. Although the risk management and credit enhancement is critical, it has been proven that default rates for efficiency programs have been low in many countries such as Thailand and USA.

The failure of some MAESCO members and other ESCOs to source funds from local institutions is one of the most important factors that put a stop to the implementation big scale energy efficiency projects. They are often compared against the typical business entities with conventional projects approach when applying for funding for EPC projects.

Factors that involved financing that have contributed to less funding given for projects by ESCOs could summarized as follows:

·   Most independent ESCOs have a small capital base and often have difficulties accessing project funding from commercial financial institutions.

·     Financing for ESCO projects is also not commonly accepted by financial institutions where ESCO business model is new to them.

·  Investment by ESCOs are smaller compare to other investments where energy efficiency projects are generally small relative to other investment projects being considered by the financial institutions.

·    Lack of expertise among financial institution where their personnel typically has limited knowledge and understanding of energy efficiency projects and the EPC concept. They perceive EE projects (incorrectly) as inherently more risky than other investments.

v)          Lack of clear policy and mechanisms to implement big scale energy efficiency projects

The unavailability of a common and clear policy with targets to be achieved at the national level for energy efficiency is another big barrier for ESCOs to grow. Both public and private sectors do not know on how much should be their contribution to achieve the national efficiency targets because simply there is no targets have been set yet.

Energy efficiency initiatives with capital expenditures often implemented on project to project basis based on existing conventional purchasing mechanisms and procedures.

The foundation of these procedures is based on expenditure by the owner of the facilities and when the budget is not secured, projects implementation will have to wait for another budget to be approved or sourced.

Some progress has been made and one of that is by creating a special registration code for ESCOs to register at the Ministry of Finance to allow EPC business model to be adopted from 2012.However, until today, they mechanism and procedure on how government entities to pay ESCOs their share from the energy cost saving achieved has not been established yet. This has resulted in no EPC project has been implemented in any government agencies yet.

MAESCO has a very good relationship with the current leadership of key agencies such as KeTTHA, Energy Commission and MIGHT with some collaborations to promote investments in energy efficiency industry.

All the above factors have left ESCOs with limited opportunities to tap bigger investment potentials of energy efficiency project and therefore they have to compete among the conventional technology providers and product suppliers to secure clients. As a support services providers in energy efficiency industry, ESCOs would not be able to grow further in this type of competition. This is because the ESCO’s business model such as EPC is meant to get faster results, long term benefits and more risks taken by ESCOs for their solutions while the conventional business approach is mainly based on the most competitive or cheapest price to secure clients.

To develop the healthy and competitive market for ESCOs, several key measures have been identified from studies and experiences of local ESCOs and from other countries as counter measures to the above barriers. It is important to establish or strengthen energy efficiency related policies at the national and organizational levels, reform procurement systems, develop financial mechanisms and obtain business friendly intensive investments by government or private and international organizations with strong involvement of ESCOs in giving inputs as industry players through the association, MAESCO.

More need to be done and they need to be done faster to avoid more potential loss in economic for Malaysia in private investments and business opportunities to spur our economic growth especially for us to rise in this challenging and tough climate.

Energy service has been proven elsewhere as a good and promising investment and business potentials. In sha Allah, in the next post, I will share on what are exactly need to be done by all stakeholders in energy efficiency industry as counter measures to the above barriers.