Target Audience-Biggest electricity users in government buildings major reference for EPC process flow-North Carolina Guide to Energy Performance Contracting

1. Seminar on Energy Efficiency Initiatives for Government Buildings
ENERGY PERFORMANCE CONTRACTING &
FINANCING OPTIONS FOR IMPLEMENTATION
By
Zaini Abdul Wahab
MAESCO
19th December 2012
Putra World Trade Centre
Kuala Lumpur

2. 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

3. Introduction To
Malaysia Association Of Energy
Service Companies

4. 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

5. What is Energy Services?

6. 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

7. 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)

8. 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

9. Organizational Structure
Honorary Advisor / Internal
Auditor President
Ir. Dr. KS Kannan Ar. Zulkifli Zahari
General Admin
Anuar b. Mat Saad
Vice President, Policies & Int.
Liaison
Ir. Ong Ching Loon
Admin / Secretariat
Honorary Secretary / Afiza Mohd Sa’ad
Webmaster & Historian
Dharamarajah
Treasurer & Finance Accountant
Tuan Hj. Mohd Noor Harun Mohd Izzuddin
Asst. Honorary Secretary & Salahudin
Membership and Practice
Koay Keong Tay
Publicity & Training
Government Business Green
Promotions Iskandar Internal Auditor
Liaison Development Technology Kevin Yap
Ir. Kumarason S Majidi
Zaini Abdul Wahab Ahmad Zaky Dr. Dixon Chai
Kandiah

10. Membership
60 Registered Members
Categories Consist of
 Energy Performance
 Energy Performance Contractors (EPC)
Contracting (EPC)  Energy Auditors
 Non Energy Performance  Energy Management Trainers
Contracting (EPC)  Energy Efficient Equipment
Manufacturers/Suppliers
 Affiliate  Energy Consultants
 Associate  Energy Management
Systems/Technologies
 International
 Total Facilities Management

11. 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

12. WHAT IS ENERGY
PERFORMANCE CONTRACTING
( EPC)?

13. 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

14. Why EPC? : Building Owner
 Energy cost savings & improvements
with NO UPFRONT CAPITAL - invest
savings achieved into other projects  ESCO supplies, install, maintain
and retain on-going operational
roles in energy performance
 ESCO to identify Energy Saving measurement for each ESM over
Measures (ESMs) to replace / modify
the financing/contractual terms.
existing inefficient systems or/and
equipment
 Use future energy ,cut operating
cost, be more competitive and
 The remuneration of ESCOs is improved comfort/productivity
directly tied to the energy savings
achieved
 Positive environmental impacts &
 Energy cost saving is shared between reduced environmental footprint
ESCO and the building owner with
payment schedule with a single-source
responsibility

15. EE & EPC POTENTIALS

16. Overall Rankings in Asean EE Market
16

17. Biggest Electricity Users For Government
Buildings (Sep 2009-Oct 2010)
Others Hospitals
(States, 20%
Agencies)
32% 10% saving ± RM270
millions /year
Ministries Universities
19% 29%
Total Consumption
Building Nos Total Bill (RM/year)
(kWh/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 &
56 603,464,085 214,471,136
Agencies
128 1,875,606,311 666,590,483
Estimated Total TNB Bill for Total Consumption Total Bill
government buildings (kWh/year) (RM/year)
(Sep 2010-Aug 2011)
7,896,508,329 2,726,767,394

18. Potential Areas for EPC Projects
Energy Conservation at buildings
facilities
Renewable & Alternative
 Air Conditioning, Refrigeration & Energy Sources
Ventilation Systems
 Chillers, AHUs, fans, pumps
 Operational, & equipment controls
 Utilization of Feed-in
 System optimization Tariff(FiT) for RE sources
 Lighting Systems  Solar Photo Voltaic(PV)
 Buildings(interior & exterior),public
lighting  Building Integrated PV System
 Operational controls  PV Power Plant
 Types of lamp technologies
 Demand Controls  Biomass & Biogas Power
Plant
 Internal electricity distribution
system
 Waste-to-energy systems

19. 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

20. 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

21. EPC Potential: Pilot Project for Public Lighting -Comparison Before & After
Implementation
(Before) Conventional HID 250W (After) LED 150W

22. Options To Implement Energy
Saving Measures
MEASURES • Management
With LOW/ Directives
NO COST • Implementation of In-house
EnMS- to ensure initiatives
Minimal Cost sustainability of
energy cost reduction
Savings
initiatives
MEASURES Expert
• Priorities of budget -
WITH HIGH core business/operations assistance &
COST • Investment risks investment from
• Limited human resources ESCOs through
Significant Cost & expertise EPC model
Savings

23. EPC PROCESS FOR
BUILDING FACILITIES OWNER

24. EPC Process Flow & Key Elements
Appoint ESCO
Sign EPC Contract

25. 1.DEVELOP NEED BASIS

26. 2. DEFINE PROJECT

27. 3. ESCO PREQUALIFICATIONS

28. 4. REQUEST FOR PROPOSAL

29. 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

30. RFP Document
 To gain important  RFP Outline
evaluation information  Introduction
about the proposers  Overview
covering:  Scope of Work
 Owner’s Preliminary  Administrative Information
Scope of Work and Project • General Contract Terms
Definition and Conditions
 Communicating owner • Insurance and Licensing
Requirements and Agreements
Expectations in the RFP • ESCO Response Format
 Sharing Energy Service • Evaluation Criteria
Agreement Format in RFP • Technical Profile of the
facilities
 Proposal Response

31. 5. EVALUATE PROPOSAL
Appointment of ESCO

32. Proposal Evaluation Method
Steps Criteria
1. Initial screening  Prequalification
rating/minimum requirements
2. Scoring  Project team qualification
 Experiences in relevant project
 Technical approach
3. Reference interviews  Management plan
 Credit worthiness
4. Oral presentation with  Full range of capabilities
given outline and Q&A  Financial benefits
 Cost competetiveness

33. Example: Evaluation of ESCO

34. 6. ENERGY AUDIT &
ENERGY SERVICES AGREEMENT
Appointment of ESCO

35. 7. NEGOTIATE PERFORMANCE
CONTRACT TERMS
• Sharing amount (%)
• Duration of contract
• Baseline, M&V
method
• Detailed terms &
conditions
Sign EPC Contract &
Implement Project

36. 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

37. Options For
Energy Baseline & Savings Calculation
Method Advantages Disadvantages
Utility billing history Low cost •Effects of weather ,
occupancy, other changes
Data already available
may mask savings
Independent data
Represent all effects of •May be unreliable unless
ESMs savings are significant
compared to normal bill
Account for interactive variation
effects
Isolate effects of ESMs
System/Equipment •Higher cost
Very accurate for lighting
sub-metering
measures
•Misses interactive effects
Results are more
predictable(low risk)

38. Baseline: Baseline year from electricity bill data (kWh)
(kWh)

39. Example: Energy saving calculated by the difference between a
baseline year and a subsequent year from electricity bill
(kWh)

40. Baseline : Building Monthly Load Profile (kW) from sub-metering
40

41. Baseline : Building monthly electricity consumption profile(kWh) from sub-metering
41

42. Baseline : Building monthly load profile(kW) for AHU from sub-metering
42

43. Baseline : Monthly electricity consumption profile(kWh) for AHU from sub-metering
43

44. Example: Savings calculated based on actual
measurement from sub-meters

45. 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
Trust , good relationship
 Facility’s energy equipment/operating parameters
other than the ESCO equipment & effective
communication between
 Energy equipment, other than ESCO equipment, ESCO & building owner
that malfunctions, or is repaired, or replaced in a is crucial to identify the
manner that increases or decreases energy needs to modify/review
consumption;
baseline!
 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

46. OPTIONS FOR
EPC PROJECT FINANCING

47. 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

48. Financing Options for EPC
1. GUARANTEED 2. SHARED
SAVINGS Model SAVINGS Model
• The loan goes on the client’s • The loan goes on ESCO’s
balance sheet balance sheet
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

49. Guaranteed Savings Model
Loan Project Fees
FACILITIES ESCO
BANK
OWNER
Repayment Project Design&
Implementation

50. Shared-Savings Model
EE PROJECT
Energy saving
Energy saving share share
(90%-70%) (10%-30%)
Financing
Loan
FACILITIES
BANK ESCO OWNER
Project Design&
Repayment Implementation

51. How the Model Works?
Guaranteed Savings Shared Savings
 Facilities owner takes out  Facilities owner does not take
“normal” loan loan (will not appear on balance
(will appear on balance sheet) sheet)
 ESCO guarantees loan can be  ESCO finances project: takes
repaid with savings performance & credit risk
 ESCO pays difference if  Facilities owner pays higher %
minimum savings not met to ESCO
Main advantage: Main advantage:
ESCO can undertake more Independent of Facilities owner ’s
projects borrowing capacity

52. Through a Special Purpose
Vehicle(SPV)

53. Case Study: Financing building retrofit projects through EPC
Different Steps in Energy Performance Contracting
Initial Owner Preliminary Assessment
Selection of 1 ESCO Investment Grade Audit Final Contract Signed
Commitment by ESCOs
• Harmonization • Scope of Work • Conformance • Detailed Energy Engineering • Project Implementation
• Project • Qualitative & Quantitative • Savings/price Guarantee • Loan Underwriting
Savings/Pricing/Technologies evaluation • Service Proposal
Performance • Qualified Measures
Contract • Performance Guarantee
• Walk-away Compensation
Energy Savings Financials: Savings used to pay for The ESCO scheme
project and remaining to customer
Additional cost avoidance due to Guaranteed Savings (GS) Structure
energy price increase
Performance Contracting
Agreement
Customer (energy savings guarantee)
Savings used to pay
for project savings
Business Risk Performance Risk
Energy & Operational costs
Payment
Baseline Client (building owner) ESCO
Reduced costs due to
service
performance based
solutions
Financing Payment
Financing Agreement (fixed-
repayment schedule)
Time (Years) Bank (lender / investor)
Duration of
Start of Customer to
Program
Program retain all savings Credit Risk
Source: KPMG research

54. Example :ESCO Fund in Thailand

55. WHAT’S NEXT?

56. 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

57. 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

58. Expected Impacts From
EPC Implementation
IMPROVED
•Energy Efficiency
•Competitiveness
/profits
PERFORMANCE •Environmental
IMPLEMENTATION
INTRODUCTION & & SUPPORT MONITORING, quality
AWARENESS MEASURES MEASUREMENT &
VERIFICATION REDUCED
•Energy
consumption &
costs
•CO2 emissions
CREATED
•Business & job opportunities
•More experts/workers from EE industry
•New source of economic growth & Direct Domestic
Investments

59. 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

60. 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

61. THANK YOU FOR YOUR ATTENTION!
zaini@cnsgroup.com.my
019 2152700
www.maesco.org.my
www.goingee.blogspot.com