energy malaysia

8/11/2019 Energy Malaysia

http://slidepdf.com/reader/full/energy-malaysia 1/52

www.st.gov.my Volume 1 2014

Towards A World-Class Energy Sector

Spark of Efficiency Ensuring National Energy Security

www.st.gov.my Volume 1 2014

Towards A World-Class Energy Sector



CONTENTS

23

10

42

26 SAFEGUARDING INTERESTS

A look at how second generation power purchaseagreements (PPAs) created by the Energy Commissionof Malaysia are helping to ensure energy security.

Guidelines31 LICENSING

GUIDELINES

The application process forobtaining a licence to produceand sell power, is explained byEnergy Malaysia.

Analysis36 TAKING STOCK

Energy Malaysia analyses thetrends in electricity generation,distribution and transmissionacross the country.

02 CHAIRMAN’S OVERVIEW

04 THE CEO SPEAKS

News06 The latest news and updates on industrydevelopments, government initiatives and innovationsin the Malaysian energy sector.

Features10 ENSURING EFFICIENCY

Having taken effect on the 1st of January 2014,Incentive-Based Regulation (IBR) was introduced tocreate a more competitive and efficient, and ultimatelyworld-class energy sector.

18 GETTING MORE FROM LESS

With one of the Energy Commission of Malaysia’sroles being to encourage energy efficiency, EnergyMalaysia looks at how the organisation’s initiatives

are helping to create a Green future.



31

39 ENERGY BALANCE

The increase in Malaysia’s population has prompted reports andstudies that can estimate the country’s energy requirements.

Innovations42

MICRO-GRIDS

Micro-grids are one of the solutions being considered to solve theglobal lack of access to electricity.

Tips46 SAFETY AT HOME

47

EFFICIENT ELECTRICITY USE

On-site48 Highlights of events, forums, seminars, conferences andexhibitions organised or attended by the Energy Commissionof Malaysia.

Editorial Board

Advisor

Datuk Ir Ahmad Fauzi Hasan

Members

Ir Azhar OmarIr Othman Omar

Asma Aini Mohd NadzriIr Abdul Rahim Ibrahim

Ir Ahmad Nornadzmi Datuk Dr DzulkarnainMohd Elmi Anas

Editorial Committee

Noor Haniza NoordinSueharti Mokhtar

© All rights reserved. Reproduction of all or any part ofthis publication via electronic, mechanical, recording orother medium is strictly prohibited without written consent

from the Energy Commission.

PUBLISHED BY:SURUHANJAYA TENAGA (ENERGY COMMISSION)

No. 12, Jalan Tun Hussein, Precinct 2,62100 Putrajaya, Malaysia

Tel: (03)8870 8500 Fax: (03)8888 8637Toll Free Number: 1-800-2222-78 (ST)

www.st.gov.my

ST Publication No: ST(P)09/04/2014.

Conceptualised andProduced by

AMG Holdings International Sdn. Bhd. (356247-V)

No. 10-3A, Jalan PJU8/3,Damansara Perdana,

47820 Petaling Jaya,Selangor Darul Ehsan, Malaysia.

Tel: +603-7729 4886Fax: +603-7729 4887

Website: www.amginternational.net

Printed byPercetakan Skyline Sdn. Bhd.

(135134-V)

No. 35 & 37, Jalan 12/32B, Jalan Kepong,

52100 Kuala Lumpur, Malaysia.

18



Malaysia’s economy and industry is on a forwardmomentum. Therefore, it is vital to ensure that energysupply is able to keep up with demand. As thenational energy regulator, the Energy Commissionneeds to ensure a steady supply of power in thecountry while taking other factors such as costs– including imports through interconnections,generation and supply of energy to the consumers –into account.

Presently, the two largest fuel sources for electricityin Malaysia are coal and gas, accounting for 33%and 58% respectively. Since Malaysia does not havean indigenous coal supply, it has to import fromIndonesia and Australia, and be subjected to the riskof price variabilities in the commodities market.

As for gas, while Malaysia is a net exporter,Peninsular Malaysia also imports about 30% ofits natural gas. However, the current system ofsubsidising oil and gas is resulting in the countryhaving to support a value differential as it paysmarket price for the imported fuels and then sells it ata discount. There is a bigger picture that needs to belooked at.

Owing to the subsidies, Malaysia is able to offer oneof the lowest electricity tariffs in the region. This in

turn has helped us attract investors to start operationsin the country. In addition, local SMEs are alsodependent on the low costs of electricity to maintaintheir business, and without it, many will surely suffer,if not close down.

It falls on our shoulders at the Energy Commission tocome up with ways to mitigate the cost without havingto resort to hiking tariffs, as this will prove untenableto the economy. There has been much talk aboutalternative fuel sources. However, the reality of thesituation is that coal and gas will still be dominant,owing to drawbacks of the other fuel sources.

For instance, renewable energy (RE) is still relativelynew. Although there has been a concerted effort toencourage its growth so that it will comprise 5.5% ofour energy mix by 2015, this only complements, anddoes not meet, our needs.

Therefore, the most feasible solution is to focus onmaximising our output of energy without increasingour use of feedstock. Efficiency is the way forward forpower production, distribution, transmission and usein our country. It is this which will guarantee our futureprosperity.

In line with the urgency of this mission, the publicationof Energy Malaysia – the Energy Commission’sofficial magazine – is timely. Through it, we aimto provide a platform for energy expertise whereall stakeholders can come together and share bestpractices and information to help create a world-classenergy sector in Malaysia

Safeguarding Growth

Dato’ Abdul Razak bin Abdul MajidEnergy Commission of Malaysia

2



“Just like oureconomy, powerconsumption hasbeen on the rise inMalaysia. In 2011,

electricity demandstood at 107,331gigawatt hours(GWh), comparedto 104,519 GWhin 2010. We at theEnergy Commissionof Malaysia areconstantly lookingat ways to ensure

supply stays aheadof demand.”

Chairman’s Overview

3



4

“ThroughIncentive BasedRegulation, weare ensuring thatboth the needs ofconsumers andproviders arebalanced out inthe most efficientand effective

way possible.”

4



The CEO Speaks

5

It is therefore apt that our inaugural issue featuresa topic that has been a subject of interest amongboth experts and laymen. It is the Incentive BasedRegulation (IBR) which came into effect as of the1st of January this year.

We aim for this feature to answer all the questions,and resolve the speculation and supposition of theeffects of IBR on the public and providers. In light ofthe government’s Subsidy Rationalisation Programmeand our national mission to become a developednation, it is clear that IBR is the best way to create amore efficient and competitive energy sector.

In addition, we explore other important and relevanttopics such as the efforts being made to promoteand encourage energy efficiency. We also analysethe second generation power purchase agreements(PPAs), and how a more balanced set of terms andconditions between IPPs and the utility will enhancethe energy sector in Malaysia.

Ultimately, energy is what drives national growth.

The Energy Commission is honoured to play a role inguiding the sector in Malaysia as we steer it towardsworld class standards.

Datuk Ir. Ahmad Fauzi HasanEnergy Commission of Malaysia

I am pleased to welcome you to the inaugural editionof Energy Malaysia, the dedicated magazine ofthe Energy Commission of Malaysia. As the statutorybody regulating the supply of electricity and pipedgas in Peninsular Malaysia and Sabah, we arecommitted to ensuring safe, secure, reliable andreasonably-priced access to these two amenities.At the same time, we also need to be aware of theneeds of utility providers and ensure that they areable to provide their services efficiently and optimally,so that they may contribute to national development.

We understand the importance of communicating toour stakeholders – the public and private sectors, aswell as the general population at large; hence ourdecision to create this publication. This magazinewill be the medium that will showcase efforts headingtowards a world-class energy sector, and ensureenergy security through effective planning.

Just as Energy Malaysia will be our means ofhighlighting the Energy Commission’s and theGovernment’s initiatives, decisions and regulations

to energy sector players and the public, it will alsoshowcase their views and reactions to developmentsin the industry. This magazine will therefore be the‘one-stop’ for all the news, views, innovations, andregulations regarding the energy sector, as well assafety and efficiency.

Reaching Out

YBhg Tan Sri Datuk Dr Ahmad Tajuddin Ali for his dedication and service asthe Chairman of the Energy Commission of Malaysia (Suruhanjaya Tenaga)from the 1st of April 2010 to the 31st of March 2014. His guidance andmentorship were invaluable, and we at ST thank him for his leadership.

Our Heartfelt Appreciationand Thanks To



6

An UpcomingPower Plant

Expected to be located at Jimah, Negeri Sembilan,the power plant consists of two units of IHI ultra-supercritical technology steam generator and twounits of Toshiba turbo generators, and complies withall the requirements set by the Energy Commission.It also offers a very competitive tariff of 25.33sen per kWh.

The upcoming coal-fired power plantproposed by 1MDB-Mitsui will belocated near the Jimah Energy Plant,reducing its project costs as it sharesthe readily available infrastructure.

1MDB-Mitsui’s proposed plans had the lowest projectcost per MW of all bidders, at RM5.40 million/MW,whereas its closest competitor, YTL Power International(YTL)-SIPP power (SIPP) consortium bid RM5.438million/MW. The project will be commissioned instages, with the first unit in October 2018 and thesecond by April 2019.

1MDB-Mitsui – a consortiumof 1Malaysia Development(1MDB) and Mitsui hasbeen selected by the Energy

Commission to develop a newcoal-fired power plant with acapacity of 2GW.



7

News

Natural gas odourisers are important as they allowodourless and colourless yet flammable natural gas toemit an easily detectable smell.

Measurements on-site and various simulations revealedthat gas flow was higher closer to stations. This reducescontact with the pipe wall and minimises odorantlosses. Distribution pipe lines with intermittent servicemay experience non-equilibrium conditions, resultingin declining gas odorant concentration due to being

Effective Natural GasOdourisation

What is it?

It is a process in which anodorant – commonly a blend ofSulphur compounds, Mercaptans,Sulphides or Thiophanes – isinjected into natural gas, givingit a pungent smell.

Why does natural gashave to be odourised?It acts as a warning to the public through a strong smell andallows technicians to locate leaks.

Where does the

process take place?Odorant is injected intothe natural gas flow atodourisation stations.

Who benefitsfrom this process?Not only the utility, but also the consumerbenefits from the improved safety resulting

from this process.

How do you verify ifgas odourisation is sufficient?Through quantity (the smell must permeatethrough the entire gas network) and quality

(the smell must be strong enough to promptimmediate action).

adsorbed by the pipeline walls. Another factor affectingodorant concentration is the altitudinal position of thepipeline, with certain odorants settling at ground level.

These findings will allow service providers to utilise themost effective methods for odourisation. The conductedstudy also determined the level of odourisation, andobserved if it was in compliance with local standardsand international best practices, leading to improvedsafety in the country’s gas installations.

Prompted by a number of undetected gas leaks inMalaysia, the Energy Commission appointed the UniversitiTeknologi Malaysia (UTM)–MPRC Institute for Oil andGas to conduct a study on the effectiveness of naturalgas odourisation systems in commercial and residentialbuildings in Peninsular Malaysia.



Introduction of TPA system will allowthird parties to gain access to local gasfacilities, enabling supply of gas fromregasification terminal or internationalborder pipeline to meet local demands.

By implementing TPA, regasification terminals act asa new source of gas, while also allowing new playersto access local gas facilities. This would enable

additional gas to be secured, meeting current andfuture needs. In addition to liberalising the supplyindustry, this new system will allow for competitionbetween suppliers, by allowing third parties to accessthe regasification terminal as well as the transmissionand distribution pipelines.

Gaining Access

8

Owing to the growing demand for gas, the “ThirdParty Access” (TPA) system regulated by the EnergyCommission, will soon be introduced to ensuresecurity, reliability and sustainability of supply inPeninsular Malaysia and Sabah.

To facilitate this system, the Gas Supply Act will also beamended this year to expand the Energy Commission’sscope of regulating downstream economic, technical

and safety regulations, by including the economicaspects of regasification and transportation activities.The Act will encompass the regulation of accessarrangements, connection, regasification, transportationand distribution agreements, licences, guidelines andregulations and tariffs for the utilisation of gas facilities.



9

News

As Southeast Asia continues to expand,it is expected to be a net energy importerin the future, and there are concernsthat a lack of energy security may affectthe growing economies. In line with thisworrying trend, the Minister of Energy,Green Technology and Water Datuk SeriPanglima Dr Maximus Johnity Ongkilirevealed that a National Energy ActionPlan was being finalised, which included

actions to cut energy consumption by6% – compared to the business-as-usualscenario – in the next 10 years.

Pledging for Efficiency

Above: Datuk Seri PanglimaDr Maximus Johnity Ongkili revealed anaction plan that would reduce energyconsumption by 6%, which is necessaryto improve local energy security.

Below: Energy performancecontracting is another method that willbe implemented in Malaysia, allowingthe government to purchase energystrategically from sustainable sources.

At the Powering Asia’s Future Energy Needs andAsian Views on Power Market Integration panelsessions held during the Singapore International

Energy Week 2013, he explained that Malaysia is inthe midst of implementing measures to ensure energysecurity, as reflected in the 2014 Budget focus onenergy conservation and efficiency. These includeenergy audits, retrofitting energy efficiency measuresand replacing existing lights with LED alternatives ingovernment buildings.

Another initiative by the Ministry is energyperformance contracting (EPC), which aims tocontrol costs through strategic energy purchases.This will result in reduced bills, and the resultantsavings will be invested in energy efficiency.



10

Tariff Review Submission, which wasprovided to the Energy Commissionin November 2012. the EnergyCommission then verified that TNB’sproposal satisfied the requirementsset out in the RIGs, while aligningit with the government’s priorities,such as subsidy rationalisation

and ensuring the imposed tariff isboth reasonable and affordable.Additionally, it conducted a series offrequent consultations with TNB andrelevant stakeholders, which began inNovember 2012 and ended in July2013, to review the utility’s proposal.

The finalised tariff rate was presentedto the Ministry of Energy, GreenTechnology and Water for initialcomment and subsequently tabled atthe Ministry of Finance (MoF) and theEconomic Planning Unit (EPU) under

INNOVATING TARIFFCALCULATION

As a precursor to this system, theEnergy Commission first assembledexhaustive Regulatory ImplementationGuidelines (RIGs) in 2011, whichoutline 11 vital areas of work. Central

among them is determining the annualrevenue utilities require to carry outoperations (called the Annual RevenueRequirement – ARR). As the EnergyCommission CEO Datuk Ir AhmadFauzi Hasan explains, “The requiredincome must be commensurate withthe level of services offered and ensurethat users get reliable supply at areasonable cost.”

Subsequently, TNB used this set ofRIGs to prepare a proposed revision totariff rates, as delineated in its IBR and

In the wake of rising global fuel costs, the EnergyCommission has taken action as the energy regulator inPeninsular Malaysia, to safeguard the efficient and effectivefunctioning of Tenaga Nasional Berhad (TNB), the nation’slargest utility. In developing an improved mechanism todetermine the electricity tariff rate, the Energy Commission

took into consideration the interests of the consumer, andbalanced them against the needs of the utility.

At the start of 2014, the Incentive-Based Regulation (IBR)system took effect after a full three years of development– helping mitigate the threat posed by unpredictable fuelcosts resulting in a more consistent and transparent meansof determining the tariffs applied to residences, commercialpremises and industrial facilities across PeninsularMalaysia. Furthermore, the new system also allows theEnergy Commission to fulfil another of its goals, by driving

greater efficiency through the incentivisation of excellenceamong players in Malaysia’s energy sector.

Making Energy Tariffs Responsive to MarketFactors through Incentive-Based Regulation

Ensuring Efficiency

The Incentive-Based Regulation system is avital mechanism to ensure that Malaysia’senergy needs are always met in order tomeet the demands of a growing economy.

Below right: The RegulatoryImplementation Guidelines (RIGs) weredeveloped to enable and guide the designand application of each element involvedin the IBR system.

the Prime Minister’s Department, as

well as at a Special Meeting of theEconomic Council for consideration.The final approval was then givenby the Cabinet. The first RegulatoryPeriod (RP) of IBR will start in January2014 as a one-year trial period andend in 2017.

DRIVING ENERGY EXCELLENCE

As the regulator entrusted withsafeguarding consistent and reliableenergy supply in Peninsular Malaysia,one of the Energy Commission’s



11

Feature

RIG 1 Define business entity, specify functions of each business entity, specify the flow of funds between business entities

RIG 2 Define the tariff setting framework for each business entity (price or revenue regulation, regulatory term)

RIG 3 Establish revenue requirement principles for each business entity (building block model) & establish incentive

framework: clear principles for treating variances in forecasts (both cost and consumption)

RIG 4 Establish return requirement for each business entity (WACC)

RIG 5 Establish detailed operating cost, capital cost, asset and consumption templates for each business entity

RIG 6 Establish incentive framework for operational performance

RIG 7 Establish cost allocation principles (to allocate common costs)

RIG 8 Establish imbalance cost pass through mechanism

RIG 9 Establish tariff design principles

RIG 10 Establish regulatory accounts process: specify timing, reconciliation to audited accounts and explanation of variances

RIG 11 Establish process for establishing revenue requirements and tariff for each business entity

Regulatory Implementation Guidelines

RIG Purpose



main priorities during the developmentof IBR was to ensure that maintenance

of vital equipment and assets is notoverlooked Additionally, the processhas resulted in a more transparentand orderly procedure to determinethe electricity tariff, by taking intoconsideration costs that are bothrealistic and current.

Simultaneously, the system allowsthe Energy Commission to driveconstant progress through theadoption of the latest best practices.

COUNTING THE COSTS

In order to properly provide a steadysupply to TNB’s 8.4 million energyconsumers, the utility integrates anumber of different core functions,

including Transmission, SystemOperations, Customer Service,

Single Buyer Operations and SingleBuyer Generation.

According to Datuk Ir Ahmad Fauzi,“IBR works by using forecasts ofthe utility’s projected earnings,which are calculated by looking atReturn on Assets, efficient OperatingExpenditure (OPEX), depreciationand tax payable.” Therefore, thisseparation of accounts also facilitatescalculation of the ARR amount.

First, the Return on Assets iscalculated by multiplying the figuresfor the Regulated Asset Base (RAB)and the Weighted Average Cost ofCapital (WACC). The RAB is theaverage value of assets between

As finite resources, conventional fuels suchas coal have fluctuating global prices. TheIBR system uses more realistic cost projectionsto mititgate this threat and promote bettermanagement of remaining supply.

the start and the end of the financial year and the WACC reflects the cost

of obtaining new capital to financethe investment of infrastructure.

Next, OPEX – the total capital requiredto undertake operations – is factoredinto the ARR. The Energy Commissionbenchmarks against foreign utilities,reviews historical cost performance andassesses asset management policiesto determine this value.

For the Single Buyer, the OPEXincludes the working capital, and isderived by multiplying the WACCand the same working capitalrequired. However, every paymentmust be substantiated with detailedinformation on debtor and creditordays and amounts.

12



Feature

13

Carryover Amounts and CapitalAllowances – which are determinedaccording to the relevant MalaysianTax Guide, with any tax losses

carried forward to the next yearof the RP.

The IBR system also features anImbalance Cost Pass -Throughmechanism to evenly distributefluctuations in the global price offuels used for energy generation –such as piped gas, Liquefied NaturalGas (LNG) and coal – amongMalaysia’s energy consumers.

This change affects the energy chargecomponent of customers’ bills and

increments also reflect governmentsubsidy rationalisation on piped gas,while global price drops result insavings for the consumer. Rateadjustments are calculated bycomparing the projected fuel costagainst actual fuel costs and are onlyapplied upon receiving governmentapproval, at half-yearly intervals.

SPURRING GREATER SUCCESS

The final contributor to ARR calculationis related to the incentivisation of

Procurements from parties relatedto TNB are only factored into theoverall OPEX if they are obtainedthrough competitive tendering,

which ref lect an eff icient costprice and cost-competition withother alternatives available onthe open market. Meanwhile,OPEX projections for CustomerService include interest payableon customer deposits.

To determine the average rate of valuedepreciation exhibited by industry-relevant assets (such as transformers,transmission poles, sub-stations andswitchgear), the Energy Commissionuses estimations of their efficient

economic lifespans. To ensure thisvalue is relevant to market factorsand reflects industry best practices,the Energy Commission uses theutility’s relevant accounting standardsto determine the finalised annualdepreciation forecast using thestraight line method.

Tax payments are based onprojections of taxable income andthe applicable tax rates. Taxableincome is calculated using forecastedReturn on Assets, OPEX, Efficiency

Calculating the Annual Revenue Requirement

AnnualRevenue

Requirement

Depreciation

Tax

Efficiency

Carryover

Amount

From the 2nd Regulatory

Period onwards

OperatingExpenditure

Return on Assets

Regulated AssetBase

Weighted AverageCost of CapitalThe Annual Revenue Requirementincorporates the utility’s Return on Assets,Operating Expenditure, Depreciation,relevant Taxes and – from the secondRegulatory Period onwards – theEfficiency Carryover Amount.



14

than 5 sen/kWh, yet has hugeimplications on energy efficiencyin Malaysia and the nat ion’s

development as a whole.Primarily, the revised tariff rateprovides the ideal platform for thegovernment to continue pursuingrat ional ised fue l subsidies, inturn allowing for more efficientallocation of the national budget todevelopmental infrastructure projects,or simply to reduce public spendingand help lower Malaysia’s deficit.

Throughout its involvement informing the IBR system, the EnergyCommission ensured that the interestsof low-income consumers werewell represented, while at thesame time setting its sights on theenvisioned high-income society of2020. As a resul t , IBR bet terexposes businesses of all sizes tointernational fuel cost trends, makingthem more competi t ive in thelong run as they seek out new andinnovative ways to meet currentbusiness demands at a more efficientcost. This is anticipated to give rise toa more robust economy with greaterpresence on the world stage.

continuous improvement for theutility. While allowed to retainsurplus capital as Base Incentives,

the total value of cost savings the utilityachieves from improving efficiencyare also halved and added to theARR of the following RP – as EfficiencyCarryover Incentives – distributedat 50% during the first year, 30%during the second year and 20%during the final year. Naturally, thisfactor will only come into effect fromthe second RP onwards.

Additionally, divisions are alsoprovided the impetus to pursueproductivity enhancements throughpenalties and incentives that areal located depending on theirperformance, in relation to a seriesof indicators relevant to their areasof activity. The rate of these incentivesand penalties is currently fixed at0.5% of the ARR until the first RPends in December 2017.

The indicators and limits employedwere determined through intensive

negotiations between the EnergyCommission and TNB. A completelist of these, as well as formulas

for calculating performance undereach indicator are laid out in theEnergy Commission’s report entitledIncentive Framework For OperationalPerformance: TNB PerformanceIndicators Under Incentive-BasedRegulation Regime , which waspublished in January 2013. As IBRcomes into effect, TNB is requiredto provide the Energy Commissionwith quarterly performance reportson each indicator, thus promotingmonitoring and transparency.

BROAD BENEFITSUltimately, the IBR system has resultedin an average tariff rate increase of14.89%, meaning an adjusted rateof 31.66 sen/kWh for domesticconsumers, 47.92 sen/kWh forcommercial premises and 36.15sen/kWh for industrial facilities.This represents a comparativelymarginal average increase of less

Determining Carryover Incentives*

First Regulatory Period Second Regulatory Period

Year 1 Year 2 Year 3 Year 1 Year 2 Year 3

Carryover AmountCalculated after Year 2

Initial Annual RevenueRequirement (ARR) Forecast RM120 RM120 RM120 RM100 RM100 RM100

Actual ARR Cost RM100 RM100

Estimated ARR for Year 3 RM100

Annual Cost Savings RM20 RM20 RM20

Total Cost Savings RM60

Carryover Total (50% of Savings) RM30

Efficiency Carryover Amount(ST-set Percentages) 50% 30% 20%

Annual Carryover Amounts RM15 RM9 RM6

Revised ARR Forecast RM115 RM109 RM106

The Efficiency Carryover Amount – an

incentive offered to the utility on top ofBase Incentives from efficiency savings –is identified by halving the total savingsachieved and distributing the resulting figureover the following Regulatory Period.

*Worked example based on a revenue of RM120



In recent years, national energy utility TNB has beenabsorbing additional fuel costs amounting to nearly RM3billion, due to rising coal prices between 2010 and2012, and a national gas shortage in 2011 that caused

higher distillate fuel consumption. As a result, regulatorssought a far-sighted solution to overcome mountingcosts, which could concurrently revamp Malaysia’stariff calculation while prioritising affordability forall. Moreover, the IBR system typifies the EnergyCommission’s emphasis on securing steady supply andguaranteeing constant improvement among all playersin the energy industry. On top of this focus, thesedevelopments lay the groundwork for a more prosperousand innovative national economy in the long term.

Feature

15

As a result of the IBR system, IPPs operating inMalaysia will also be encouraged to elevateefficiency as the nation’s largest utility is likelyto seek out more cost-effective agreements forthe coming years.



16

The Challengesof Regulation

The Incentive-Based Regulation (IBR) system aims toprotect Malaysia’s energy needs by creating a balancethat would enable utilities and consumers alike to benefitfrom the power supply. Energy Malaysia spoketo Ir Azhar Omar, Senior Director of the ElectricitySupply & Market Regulation Department of the EnergyCommission, who explained why IBR is a must that willbenefit the country and people in the long run.

The Energy Commission’s Senior Directorof Electricity Supply & Market RegulationDepartment Ir Azhar Omar talked about howIBR will be good in the long run, and that itsprimary aim is to drive efficiency and cut costs.



17

Feature

The Energy Commission continues to customise IBR to fit thenational vision for the energy sector – to ultimately achievesustainable and efficient energy, while balancing the needs ofboth the utility and the consumer. Spearheading this effort isthe Electricity Supply & Market Regulation Department, whichis directly involved in the implementation of IBR, and as canbe seen in the words of its Senior Director Ir Azhar Omar, it isready to take the challenge head-on.

IBR is being implemented to driveefficiency, and particularly to answerthe question, “Is the utility passing

the actual, efficient cost to consumersthrough the electricity tariff?” Thereis a need to balance the revenuerequired by the utility to deliverthe expected level of services andaffordability for the consumers as awhole. Ir Azhar clarified that IBRis not a new system – it has beenused all over the world – and thatthe Energy Commission is merelyformally introducing it.

The IBR’s predecessor, however,worked differently. ‘In the past,

regulation was based on a utility’scost recovery – how much they spentand how they can try to recover it,”the Senior Director said. “Now,instead of looking backwards, theutility has to submit its expectedrevenue requirement based onforecasted capital expenditure(CAPEX), operational expenditure(OPEX) and expected return for thenext four years. ”He explained thatthis four-year set term is known as aregulatory period, when the utility willhave to operate within the approved

CAPEX and OPEX to deliver theexpected services. He explained thatthe utility stands to gain from thisregulation because its expectationsare set from the beginning.

Under IBR, accounting separationbased on each regulated activitywill have to be put in place bythe utility – dispelling any hiddeninefficiencies within the supply chain.To spur efficiency improvement, theEnergy Commission has introduced theincentive-penalty scheme – if the utility

performs above specific operationalKPIs, it receives incentives, in the formof additional revenue of a certainpercentage above its approvedrevenue requirement. However, whenit does not achieve the KPIs, it ispenalised – for instance with areduction in its revenue requirement,which will affect its expected return.

In line with the Energy Commission’sgoal to introduce competition,which will in turn lower costs,the Energy Commission has also

embarked on a competitive biddingprocess for procurement of newgeneration capacity required tomeet demand. “As generation costaccounts for almost 74% of tariff,the competitive bidding process helpsto keep costs down,” said Ir Azhar.“At present, gas price for powergeneration is heavily subsidised, sowe need to gradually remove thesesubsidies and move to market price

– the sooner the better. Only thencan we see the true cost of electricitysupply,” he explained.

Since the reduction of subsidies willresult in a hike in electricity tariff, thepublic does not respond with muchpositivity. Ir Azhar Omar believesthat the people should keep anopen mind. “People think we arejust raising prices, but in fact we aretrying to fix the gas price distortion bygradually removing the subsidy whichis not sustainable in the long term,” he

said. “We have to constantly assure

the public that we‘re doing this forcost-efficient tariff, to ensure only theactual cost is passed on to consumers,and not the inefficiencies within thesupply chain.”

Although the economy adjusts toincreasing energy prices, in general,it always has a cascading effect. Asthe main energy regulator, the EnergyCommission comes up with solutions

to mitigate this, and one of them isto look at possible ways of offsettingsome of the increase, and proposingnew tariff schemes such as Time ofUse Tariff to industries. “Industriesthat bring higher economic valuewill get preference,” Ir Azhar said.

Nevertheless, Ir Azhar believes thatthe success of IBR implementationwill be dependent on consistencyand transparency in decision-making,to communicate to the public theneed and rationale behind any

tariff decision.

Utilities &consumersalike stand togain from

these regulationsbecause expectations

are set fromthebeginning.”

“



Not only do energy saving light bulbs (right)use less power than older, incandescent ones,they are also brighter and last longer, thuslowering costs for both electricity producersand consumers.

18



19

Special Feature

E

nergy efficiency (EE) impliesemploying less energyto accomplish the sameeve r yday t a s k s . Be i ng

energy eff icient simplyrequires monitoring energy use andmaking simple behavioural changesto conserve energy, which wil ltranslate to monetary savings.

The importance of EE in everydayprocesses cannot be over-emphasised.Electric utilities will benefit from thereduction and optimisation of powergeneration and supply to customersin the form of lower operating costs.Consumers, on the other hand willbenefit from lower electricity tariffs.

To illustrate, in homes and offices,appliances such as air conditioners,refrigerators, lamps, televisions, andwashing machines are among the

biggest consumers of electricity. Ifkept running – even on standby – theelectricity consumed quickly addsto a massive amount of squanderedenergy. By improving EE, less powerwill be used to accomplish such tasks.

These include lighting and heating/cooling systems in homes and offices,as well as making compressed airand drive systems more cost-effectivein factories. At the same time, utilitycompanies need to ensure thatconsumers have a consistent and

As Malaysia’s economy continues to expand, the demandfor electricity is also increasing. Presently, the bulk of thecountry’s energy production comes from natural gas andimported coal, which are finite in supply and subject toforeign exchange fluctuations. Therefore, the need to findmore efficient ways of producing, transmission, distributionand use of electricity has become an imperative.

Ultimately, this is not just a concern of power producers andutilities, but also of industries and ordinary consumers.The Energy Commission is taking the lead to promote energyefficiency in the country, and as its official publication,Energy Malaysia discusses the various ways to do so.

Safeguarding Malaysia’s FutureThrough Energy Efficiency

Getting Morefrom Less



20

constant supply of power. Improvingefficiency will result in reduced loadwhich means that fewer power plants

need to be developed.

TAKING THE LEAD

Because of the national need to ensurecontinued strong growth, the focusis on increasing energy efficiency,where the output is maximised whilecosts are minimised. Here is where theEnergy Commission is taking the lead.

In 2009, it introduced the voluntaryEnergy Rat ing and Label l ingProgramme for Household Appliances

programme which was the precursorto the establishment of Minimum EnergyPerformance Standards (MEPS). Thiscovered air-conditioners, refrigerators,domestic fans, televisions, insulators,ballasts, and high efficiency motors(HEM), as well as fluorescent andLED lighting.

Following this, on the 3rd of May2013, the Energy Commission madeMEPS mandatory for five typesof domestic electrical appliances– refrigerators, air conditioners,

televisions, electric fans and lamps.To support the programme, theMalaysian Investment DevelopmentAuthority (MIDA) offers incentivessuch as exemptions from sales taxand import duties for appliancesthat comply with MEPS.

Manufacturers and importers ofthe aforementioned applianceshave to comply with certainrequirements in order to obtain theCertificate of Approval (CoA) fromthe Energy Commission before they

can be imported, produced, marketedand sold in the country. Refrigerators,air conditioners, televisions, domesticelectric fans are required to obtainat least two stars on the EnergyCommission’s Energy Label, whilelighting devices have to meet theminimum efficacy value. Appliancesthat fail to comply with MEPS may beremoved from the market.

In addition, as of the start of 2014,the sale of incandescent light bulbshas been banned in Malaysia. This is

“The way forward for MEPS is to include moreelectrical appliances under the regulations. Itcan be expanded to industrial equipment and

machinery to broaden the target of energyefciency conservation measures and also

promote the development of more efcient lightingsuch as LED or other new technologies.”

- Datuk Ir Ahmad Fauzi Hasan,

CEO, Energy Commission of Malaysia



21

Special Feature

Above: Under the 10th Malaysia Plan,renewable energy is expected to account for11% of generating capacity by 2020. Out ofthis, 22.3% will be derived from solar power.This will help alleviate the burden of electricityproduction in Malaysia which is currentlydominated by coal and gas.

Top right: Ministry of Energy, GreenTechnology and Water (KeTTHA) Secretary-

General Datuk Loo Took Gee (3rd from left)with the Energy Commission officials during asite inspection. As the regulator for the powersector in Malaysia, the Energy Commisionis tasked with ensuring safe, reliable andefficient electricity supply.

Bottom right: One of the responsibilities ofthe Energy Commission is to regulate pipedgas supply in the country. Presently, 58% ofelectricity generated in Malaysia comes fromnatural gas, and in order to ensure energyefficiency, it is imperative that the gas reachespower producers with minimum loss.

in line with the efforts of the Ministry ofEnergy, Green Technology and Waterto phase them out, a process whichstarted in 2011.

MEPS has also supported othergovernment agencies in promotingenergy efficiency. For instance, theSustainability Achieved via EnergyEfficiency (SAVE) programme by theSustainable Energy DevelopmentAuthority of Malaysia (SEDA)encourages the purchase of domestic

appliances – such as refrigerators andair-conditioners – which have beenrated highly under the aforementionedthe Energy Commission programme.

Through SAVE, consumers are givenrebates to buy such appliancesfrom participating vendors andmanufac turers . Indus t r ia l andcommercial purchasers may alsomake use of SAVE when buyingenergy efficient chillers for theirfactories and/or offices.



22

Total energy savings: 208,967,046 kWhTotal carbon savings: 142 million tonnes.

Saving Energy withSAVE Sales of 5-Star RatedDomestic Appliances(2011 – 2013)

Reduction in

CO2 Emissions

57,180,041.28 tonnes5-Star Rated

Refrigerators

Appliance

5-Star Rated

Air Conditioners

Units

337,704

166,505

Market Share

Percentage

56.28%

27.75% 84,917,550 tonnes

The Energy label by the Energy Commission allows consumers to knowthe energy efficiency of appliances, with Five Stars being the best.

MAXIMISING OUTPUT

Power generation is also one areawhere a lot of energy is wasted, asthe electricity yield is not as high aspossible. To illustrate, most Combined-Cycle (CC) plants in Malaysia havean average operating efficiency ofabout 45%. Thus 55% of potentialpower is lost.

The solution is to invest in newer andmore efficient technology. In fact,national electricity provider, TenagaNasional Berhad (TNB) is investingRM9.7b (US$3.12b) over the next

four years in new-builds or powerplant extensions. This includes newCC plants with an operating efficiencyof over 60%.

Through these efforts the need forelectricity supply transmission anddistribution system reinforcement willbe reduced. This in turn will reduce thenecessity for further capital investmentby the utility to operate the service.

The lower the capital investment inthe supply system infrastructure, the

less the need for higher “revenuereturn” (profits) for the energy supplyutility. This will automatically translateto a lower need for tariff escalationin the future, thus reducing theburden of higher energy costs forthe consumer.

GET SMART

Another way to ensure EE is toupgrade power grids to become smartgrids which are intelligently able todistribute power to areas where the

need for electricity is greater, fromthose where there is little usage.

The term ‘smarter wires’ has beenused to describe the manner in whichsmart grids work; electricity supplyfrom the power generator to the end-user is calculated and varied by thegrid, according to the needs of the endconsumer. Making use of accessoriessuch as smart meters, these intelligent

The total marketshare of energyefcient chillerscompliant withMS1524:2007Standard is 39.2%with a total of 80,611refrigeration tonnes.



Special Feature

23

Above: Among the major challenges ofenergy generation is to extract the maximumamount of power from feedstock. Thanks toadvanced gas turbines, power producerscan generate more energy from the sameamount of feedstock than before.

Below: One way to enhance efficiencyin power distribution is to use smart gridswhich will measure the amount of demandautomatically so that there will not be toomuch or too little electricity sent to theend-users.



24

grids can result in significant financialsavings, by turning devices andequipment on or off as required,based on the wishes of the customer.

For instance, lighting can be switchedon or off at pre-arranged times, or

certain home appliances, such aswashing machines, air conditionersand deep freezers, can be setupto operate only at off-peak periodswhen electricity tariff is much lower.This way, only the maximum requiredelectricity is generated and supplied,saving costs to utility companies,and reducing wasted energy andpreventing further damage to theenvironment.

BUILDING GREEN

Being energy efficient does notonly encompass electrical equipmentand engineering. Civil engineeringand architecture also helps inachieving EE as can be seen in thebenefits of Green buildings.

General ly, a Green building isa structure whose constructor isenvironmentally responsible, andwhich is energy efficient throughouti t s l i fe cyc le , f rom des ign todemolit ion. The use of energyand water is controlled, and the

type of materials incorporated inits structure reduces the impact onits inhabitants’ health as well asthe environment. Green buildingsenhance quali ty of l i fe whilemaintaining the ecosystem locallyand globally.

In Malaysia, a Green buildingshould conform to the Green BuildingIndex (GBI), established in February2009 by Malaysian Institute ofArchitects (PAM) and the Associationof Consulting Engineers Malaysia

(ACEM). Driven by environmental

needs, GBI was introduced tolead the property industry towardsbecoming more environment-friendly.It is specifically designed to suitMalaysia’s tropical climate, andin fact, is the only rating tool fortropical zones in the world, apartfrom the Singapore Government’sGreenmark.

There are three steps to obtain GBIcertification, namely applicationand registration, design assessmentand completion and verification

assessment, with each stage

taking about six to eight weeks. Acompany applying for certificationis assessed in six categories: EnergyEfficiency, Indoor EnvironmentalQuality, Sustainable Site Planningand Management, Materials andResources, Water Efficiency andInnovation.

Incidentally, the Energy Commission’sheadquarters – the Diamond Building– has received Platinum certificationfrom the GBI as well as byGreenmark, confirming it as one of

The Energy Commission’s iconic diamondheadquarters is not just a marvellous sightbut also one of the energy efficient buildingsin Malaysia, and the recipient of a Platinumrating by the Green Building Index (GBI).



25

Special Feature

At the end of the day, being energy efficient does notrequire a major outlay of finance such as commissioningand purchasing a Green building or investing inadvanced power management systems. The simplest ofacts also helps, such as turning off lights and applianceswhen not in use, or changing light bulbs to those that donot consume as much power. Every little bit counts in themission to guarantee the energy security of Malaysia,and your contribution can, spur its continued growth.

the most energy efficient buildings

in the country. In addit ion, i talso won the ASEAN Energy Awards2012 for Energy Efficient Building –New and Existing Category.

To illustrate, the Diamond Buildinguses an average of 65 kWh/m2/ year – or 65 kilowatt hour energyper square metre per year. Incontrast, a normal building uses210 kWh/m2/year. Through itsiconic headquarters, the EnergyCommission of Malaysia is definitelyleading by example.



26

New Power Purchase AgreementsCreate A More Competitive Energy MarketSafeguarding Interests

As part of its efforts to ensure that the people are given access to a safe, secure,reliable and reasonably priced supply of energy, the Energy Commission ensures thatthe new power purchase agreements (PPAs) are more stringent. The latest generationPPAs are notably more balanced, with guidelines set in place to ensure efficiency andtransparency, and to prevent exploitation.

The new generation PPAs have also given way to a level playing field within theindustry, with IPPs sharing costs among each other, and the elimination of the commonoccurence of some IPPs getting financial gains from discrepancies. These changesultimately result in benefits for everyone - power consumers, utilities and IPPs.

Owing to the latest generation Power Purchase Agreements, consumers can enjoymore competitive rates of electricity. In addition, the Energy Commission’s introductionof the competitive-bidding exercise has also resulted in lower buying rates, thuscutting costs for the people. Thanks to its efforts in creating a system that is fair to allstakeholders – IPPs, utility and end-users – the Energy Commission is taking anotherimportant step in creating a world-class energy sector.



Feature

27

The Advantages of the Latest Generation PPAs

Area of Concern PreviousGeneration PPAs

LatestGeneration PPAs

Significance

Heat Rate Contracted heat rate ishigher than the actualheat rate, resulting in IPPsreceiving extra payment.

Contracted and actual heatrates are more in-line witheach other.

Lower generation costs inthe system

Sharing of Savingsin Project Cost,Refinancing and TaxExemption

No sharing mechanismfor 1st, 2nd and 3rdgeneration IPPs.

Sharing of savings isprovided for in the firstbidding exercise underthe capacity rate financial(CRF) revision in thefinancial model. Theamount of savings will bereported to the EnergyCommission for tariff

review under Incentive-Based Regulation (IBR).

Sharing of savings allowsfor reduction of generationcosts

Structure ofPower Purchase

Agreements

Under Take-or-Payconditions, TNB has toeither take the electricity

generated by the IPPseven if they do not needit or they will need to paycompensation to the IPPs.

Take-or-Pay is notapplicable and IPPs will bepaid based on capacity

and energy paymentstructure.

A more structuredtechnical and commercialarrangement

PerformanceRequirements

Availability Rate

85-87% 91-93% A higher availability ratesignifies more efficientmachines in place forlower electricitygeneration cost



28



Significance

28

PerformanceRequirementsOutages

No distinction betweenforced (unexpected) andplanned (scheduled)outages. Both are set ata tolerance thresholdof 13-15%.

A distinction is madebetween forced andplanned outages. Theformer has a tolerancethreshold of 4-6% while thelatter is 7-9%.

A lower tolerancethreshold aims to increaseefficiency in plantmanagement

Power PlantReadiness

No conditions setfor power plantreadiness.

Conditions are clearlydefined at each level,namely

• When the agreementtakes effect

• Commencement date

• Initial operation date(IOD)

• Commercial operationdate (COD)

Clearly defined termsand conditions ensurethat each step of thepower purchase processfrom commencement tooperation is monitored andadhered to properly



Feature

29

A gas turbine – under the terms of the newPPAs, the price that the utility pays for powerproduced by gas, has gone down by 12.31sen per kWh.



Significance

LiquidatedDamages

Liquidated damages areapplicable for failure tofollow dispatch instruction.

Liquidated damages areclearly defined, and fixedmonetary penalties will beimposed for

• Failure to follow dispatchinstruction

• Failure to meetscheduled commercialoperation date (SCOD)

• Failure to meet technicalrequirements

• Failure to achieveContractual AvailableCapacity

• Abandonment of project

Clearly definedconditions create greatertransparency andaccountability



30



Significance

Force Majeure TNB has to make capacitypayments to IPPs even ifthere is a forcemajeure event.

Payment in forcemajeure events underlatest generation PPAs isdependent on whetherTNB or the IPP is affected.If the former and thecommercial operation date(COD) is delayed beyondthe scheduled commercialoperation date (SCOD),TNB will pay the IPP thecost of servicing its debt.However, if the latter, TNBhas no obligation to pay.

A fairer system is inplace in the event of forcemajeure which ensurethat TNB and IPPs are notbeing penalised for factorsoutside its control

Financing Arrangement

Financing is lesscompetitive with expectedDSCR (Debt ServiceCoverage Ratio) of 1.75to 3.56.

Financing is morecompetitive with interestrates between 4.5 – 5.5%.Also DSCR is estimated at1.2 to 1.25.

Lower generation cost inthe system

Energy Pricefor Coal

Levelised tariff of 22-23sen/kWh at a coal priceof US$87.5/tonne.

Levelised tariff of 18-21sen/kWh at a coal priceof US$87.5/tonne.Conditions are clearlydefined at each level,namely• When the agreement

takes effect

•Commencement date

•Initial operation date

(IOD)

•Commercial operationdate (COD)

The cost of purchasingpower has gone down

Energy Pricefor Gas

Levelised tariff of 45-47sen/kWh at a gas price ofRM44/mmbtu.

Levelised tariff of 34-35sen/kWh at a gas price ofRM44/mmbtu.

The cost of purchasingpower has gone down



31

Guidelines

Energy is a precious commodity, and like other vital goods, it is importantto protect the rights of the consumers by ensuring the quality of supply andthe safety of the facilities. Thus, the Energy Commission is entrusted withthe role of granting licences for the operation of such facilities and theregulation of electricity and piped gas in Peninsular Malaysia and Sabah.

Those using, working or operating facilities that supply electricity withoutapproval can be fined up to RM50,000 (with additional fines of RM1,000

for each day the offence persists) under the Electricity Act 1990, whilethose supplying electricity from such a facility is punishable by notmore than RM100,000 (with additional fines of RM1,000 for each daythe offence persists). Energy Malaysia provides key information onlicensing to raise awareness of these processes.

Regulations and Procedures for Energy Generation Activities

Licensing Guidelines

There are two types of licences available.

TYPES OF LICENCES

1. Public Licence – Forthe licensee to operatea public installation tosupply energy to others.

Activities allowed underthis licence include:

2. Private Licence – For alicensee to operate a privateinstallation to generate electricityfor their own use or at their ownproperty.

Activities allowed under thislicence include:

a. Supplyingelectricity toconsumers. e.g.Tenaga Nasional(TNB) and SabahElectricity (SESB)

a. Managing own powerlines or underground cableswhich traverse acrossroads/rivers/bridge/telecommunication lines/railways owned by others.

b. Managingelectricitygeneration for ownuse in an area thatdoes not supplyelectricity.

d. Managing electricity generation for own use using efficienttechnologies such as co-generation or power generation usingRenewable Energy sources.

c. Managingtemporary electricitygeneration for ownuse in constructionsites, funfairs,exhibition sites etc.

b. Generatingelectricity tosupply/sell toutilities.e.g. IndependentPower Plants (IPPs)

c. Generating electricity through efficienttechnology such as co-generation forown use and selling excess energy toothers within the licensed area.e.g. Gas District Cooling in KLIA

d. Supplying/selling electricity and providingother services to users in a complex or high risebuilding using electricity purchased from utilities.e.g. Malakoff Utilities in the KL Sentral Complex

e. Generating electricity usingRenewable Energy to be sold toutilities.e.g. Projects benefiting from theFeed-in-Tariff Scheme



32

PUBLIC LICENSING ANDPRIVATE LICENSING PROCEDURE

(for a capacity greater than 5MW)

START

Applicant is contacted

for additional

information

**For any licence application of less than30MW, the licence will be issued after approvalfrom the the Energy Commission

Application complete

and attached with

required documents?

An application proposal is prepared

and debated by the Licensing

Committee for consideration

Yes

No

Applications for private licenceswith a capacity of 5MW andbelow are surveyed at theRegional Office. The RegionalDirector is responsible for theprocessing of the privatelicensing application and isgiven the authority to approve.

Rejected

Accepted

Application is

submitted online at

www.oas.st.gov.my

Applicant is

informed of

the failed

application



33

Guidelines

Payment received

Licence issued

Monitoring and

enforcement of the

licensing conditions,such as the collection

of annual fees as well

as statistics for

information on monthly

performance

A memorandum is

prepared and

presented to the

Minister for

approval**

Licence

application

process ends

Rejected

The proposal is

discussed at the

the Energy

Commission

Meeting for

consideration

The licence is prepared, theapplicant is informed, and the

licensing fee is imposed

Rejected

Accepted

Applicant is

informed of

the failed

application

30MW Accepted< 30MW

Applicant is

informed of

the failed

application



34

CRITERIA FOR CONSIDERATION

For an application to be evaluated, it must comply with the following provisions in theElectricity Supply Act 1990 and the Energy Commission Act 200 1:

1.Promotecompetitionin generationand supply ofelectricity toensure it is offeredat reasonableprices.

1. A copy of thebusiness or companyregistration as proofthat the business or

company exists andis registered underthe Companies Act1965.

2. Form 24, Form 32A andForm 49 and the Form of AnnualReturn to verify the shareholders,percentage of bumiputera shares

and paid-up capital.

3. The locationand site plans,including thedistribution

system.

4. A Project FinancialRun (for generationactivities) or SimpleFinancial Analysis

(for supply activities)to ensure the viabilityof the companythroughout the licenceperiod.

5. A summaryof the projectdetailing theactivities to be

licensed.

1. To increase fuel diversityand reduce dependency ona particular fuel.

2. Promote and encouragethe generation of energy forthe economic developmentof Malaysia.

2. To use renewable energy such as biomass (e.g.palm oil waste, sawdust), industrial waste (e.g.industrial waste gas) or solid waste (e.g. municipalwaste and landfill gas).

3. Ensure allreasonable claimsfor electricitysupply are met.

3.To useefficienttechnology.

4. Ensure consumer needsin terms of affordableprices, security, reliabilityof supply and quality ofservices are met.

4. To use technology and methodsthat are efficient in energymanagement, and provide value-added services to end-users.

5. To give efficient,economical andsatisfactory serviceto the users.

6. To useenvironmentally friendlyelectricity generationtechnology.

7. To encouragethe growth ofnew methods.

5. Ensure the licensee canfinance the activities as set outin the licence.

Additionally, the aim of the government to create a quality power supply industry areto be considered.

Note that these are just a few of the important supporting documents. Other necessarydocuments may depend on the project, and can be found online when applying atwww.oas.st.gov.my. Issuance of the licence requires approval from the government andother agencies. Some of these include the Ministry for Energy, Green Technology andWater (KeTTHA), the Economic Planning Unit, local authorities, the state government, theDepartment of Environment, Tenaga Nasional and financial institutes.

REQUIRED DOCUMENTS

Aside from the legal requirements, the Energy Commission has also outlined important terms to determinepublic and private licensing needs. Therefore, the applicant has to include the following documents:

6. Encourage efficient use andsupply of electricity.



35

Guidelines

Meeting certain requirements set by the Sustainable Energy DevelopmentAuthority (SEDA) is necessary for a renewable energy project to enjoy the Feed- in-Tariff rate. For these developers, a provisional licence may be necessary toreceive funding from financial institutions. This licence is only temporary, and adeveloper must get a permanent licence before the commissioning of the project.

Provisional Licence

LICENCE TO GENERATE

The Provisional Licence is meant for Feed-in Approval (an approval granted under the Renewable Energy Act 2011)

Holders operating a public installation that generates renewable energy using biogas, biomass, solar photovoltaic or minihydro sources. These fuel sources have set tariff rate incentives, tenures and annual rate reduction.

GETTING THE PROVISIONAL LICENCE

In order to obtain a provisional licence, several conditions must be fulfilled. The document, Approval of Tariff issued bythe Sustainable Energy Development Authority (SEDA), is necessary to obtain this licence, because it ensures the projecthas been recognised. Other papers required for this licence are similar to those required to apply for public or privatepermanent licences. The Energy Commission will evaluate the project and determine if a provisional licence should beissued based on these documents.

PROCESSING PROCEDURE

The application will be processed by the Licensing Unit of Jabatan Kawal Selia Pembekalan dan Pasaran Elektrik (JKPPE)

at the Energy Commission headquarters.Once the the Energy Commission (JKPPE)2011 – PL Application Form and accompanying documents are received by the JKPPE, the Energy Commission officer will check and evaluate the document to ensure it fulfils the criteria. A draft licenceis submitted to the Heads of Department Meeting for approval.

Upon approval, the applicant will be asked to pay the licensing fees according to the rate set by the legislation, and thelicence will then be granted. However, failure to comply with the conditions may lead to the licence being revoked. TheEnergy Commission officers will monitor and inspect the project regularly to enforce compliance to the licence.

ACCESS TO BENEFITS

When a renewable energy project is commissioned, a permanent licence must be obtained in order for the licence holder togain the benefits of the Feed-in-Tariff (FiT) system. To smooth the transition between licences, the Energy Commission advisesholders of provisional licences to apply for a permanent licence and submit the necessary documents three months before theinitial operation date.

As energy plays a key role in the advancement of an economy, it is vital for thisasset to be regulated to protect consumer rights and secure a reliable supplyat affordable prices. The Energy Commission has put a great deal of effort intocontrolling the electricity industry in Malaysia, and provides a variety of resourcessuch as this guide to help interested parties understand the processes required tolegally own and operate electricity generation facilities.



GDP, PRIMARY ENERGY SUPPLY AND FINAL ENERGY CONSUMPTIONTRENDS IN KILOTONNES OF OIL EQUIVALENT (KTOE)

GDP at 2005 prices (RM Million)Final Energy Consumption (ktoe)Primary Energy Supply (ktoe)

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

ktoe

1990

RM Million(at 2005 prices)

OVERVIEW

In spite of the sluggish global economy,Malaysia’s GDP posted healthy growthin 2012, largely due to resilientdomestic consumption. This trendresulted in a 0.5% increase in year-on-year economic growth, putting theannual figure for 2012 at 5.6%. Domesticconsumption recorded its highest rate of

expansion for the decade, supportedby investment spending.

Energy supply and demand bothrecorded strong growth in 2012, withtotal primary energy supply and finalconsumption achieving increases of5.9% and 7.5% respectively. Thehigher growth rate of the latter indicatesthat economic activities in 2012

Malaysia’s total production and consumption of energy demonstrated healthy growthin 2012, as the nation continued its efforts to diversify and secure its energy sources.The National Energy Balance 2012 Report by the Energy Commission indicates thatwhile Malaysia’s industries have moved towards more energy-intensive areas – placinga greater strain on the national grid – the country’s efforts to satisfy this heighteneddemand have consequently also progressed.

Keeping Malaysia Energised

Taking Stock

36

Source: The Energy Commission of Malaysia

Malaysia’s GDP, Primary Energy Supplyand Final Energy Consumption continuedtheir positive growth trend in 2012.

were dominated by industriesthat consume large quantities ofenergy.

PRODUCTION AND IMPORTS

In 2012, total primary energysupply increased by 5.9%compared to 3.2% in 2011. Thegrowth was motivated by higher



37

Analysis

crude oil production at 29,115kilotonnes of oil equivalent (ktoe), anincrease of 2.8% from the previous

year. However, natural gas productiondropped 10.4% to 62,581 ktoe, dueto lower production from gas fields inPeninsular Malaysia and Sarawak.In order to fulfil local demand,Malaysia imported natural gas fromThailand and Indonesia. These importsincreased by 12.7% in 2012, settlingat 7,866 ktoe.

Malaysia’s coal and coke productionincreased steadily by 1.2% tosettle at 1,860 ktoe, with locallyproduced coal and coke, mainlyfrom the Mukah-Balingian area inSarawak, accounting for nearly 78%of the nation’s total production. ForPeninsular Malaysia, coal and coke

is mostly imported from Indonesia,South Africa and Australia. Totalcoal and coke imports rose by

6.7% to 14,220 ktoe in 2012.Meanwhile, hydropower productionposted an increase of 16.2% or2,149 ktoe, compared to the previous year’s 1,850 ktoe.

ENERGY MIX AND RESERVES

In terms of total share, crude oiland petroleum products reduced by1.5% to 32.5% in 2012. Naturalgas increased by 0.9% to 46.0%,while the shares of coal and cokeand hydroelectric both rose 0.3% to18.9% and 2.6% respectively.

As of the 1st of January 2012,Malaysia’s crude oil reserves rose 1.6%

to 5.954 billion barrels comparedwith the previous year’s 5.858 billionbarrels. This was mainly due to a 3.7%

increase in the projected capacityof wells in Peninsular Malaysia andSarawak which brought their totaloutput to 4.013 billion barrels. At thesame time, Malaysia’s natural gasreserves increased by 2.3% to 92.122trillion standard cubic feet (tscf) as ofthe beginning of 2012. This was mostlydriven by two gas reserve discoveriesin the Kasawari and NC8SW fieldsoff the coast of Sarawak.

DEMAND AND CONSUMPTION

In 2012, growth in final energyconsumption increased by 2.7% year-on-year to reach 7.5%, or 46,711 ktoe,as compared to the previous year’s

CRUDEOIL

PETROLEUMPRODUCTS

&OTHERS

NATURALGAS

(SALESGAS)

COAL &COKE

HYDROPOWER

TOTAL ANNUALGROWTHRATE (%)

SHARE (%)

43.7 48.2 4.4 3.7

39.9 52.0 4.9 3.2

41.7 49.3 5.7 3.2

41.6 49.1 6.8 2.5

41.6 47.3 9.2 1.8

40.2 46.4 11.3 2.1

36.4 51.2 10.4 2.0

34.7 52.1 10.9 2.3

35.1 50.6 12.2 2.1

32.9 51.7 12.9 2.6

35.5 48.1 14.2 2.2

32.6 46.1 19.2 2.1

34.0 45.1 18.6 2.3

32.5 46.0 18.9 2.6

PRIMARY ENERGY SUPPLY IN KTOE

Crude Oil and Petroleum Products & Other Natural Gas (Sales Gas) Coal and Coke Hydropower

Long-term trends reveal that while Malaysia has progressivelyreduced its dependence on petroleum products, natural gasremains relatively unchanged from late-1990s levels and coal andcoke has assumed increased significance.




38

While Malaysia’s domestic energy consumption outpaced productionin 2012, the nation also aggressively moved to enhance the safetyand security of supply to vital industries, such as the manufacturingand transportation sectors. Indeed, these efforts were mainly buoyedby increasing imports and the discovery of greater supplies in bothnew and existing stockpiles in Malaysia.

4.8%. Up to 36.8% of the final energydemand came from the transportsector, while the industrial sectorconsumed 29.8%, the non-energysector used 16%, and the residentialand commercial, and agriculturalsectors were responsible for 15.1%and 2.3% of demand respectively.

Energy demand from crude oil andpetroleum products rose 3.4% to 53%or 24,749 ktoe in 2012, while demandfrom natural gas and electricity alsorose at 19.8% and 0.1% year-on-yearto rest at 21.8% (or 10,206 ktoe) and21.4% (or 10,011 ktoe) respectively.Meanwhile, the share of energydemand from coal and coke continuedto fall in 2012, dropping 0.8% to 3.7%– equivalent to a total of 1,744 ktoe.

OUTLOOK

In line with the Economic TransformationProgramme (ETP) and the government’shigh-income aspirations for the year2020, activity has begun to intensify

in the industrial sectors relevantto the National Key EconomicAreas (NKEAs) for electronics,communication, plantations andinfrastructural development.

Consequently, manufacturing andprocessing facilities, as well asconstruction operations, continueto place an increasing load on thenational grid. Beyond providingadequate resources to fuel this growthtrend, Malaysia currently stands at acrossroads where it has the opportunityto ensure lasting energy independence

by systematically easing reliance onimported fuels.

Admittedly, these import limitationsmay drive prices up due to diminishedsupply and impact negatively uponthe profitability of industries of allsizes. Nevertheless, by engenderingmore efficient practices in both theproduction and consumption ofenergy, the nation has the potentialto prevent final energy consumptionfrom ballooning beyond control andthereby maintain consistency andreliability of supply.

FINAL ENERGY CONSUMPTION BY SECTOR

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

ktoe

Residential & Commercial Transport IndustryNon-Energy UseAgriculture


The industrial and transportation sectorscontinued their dominance of finalenergy consumption in 2012, whilethe non-energy use and residential andcommercial sectors also increased theirdemand to follow closely.



39

Analysis

1971 1973 1980 1990 2000 2005 2009 2010 2011

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Source: Energy Balances of Non-OECD Countries, 2013 Edition, International Energy Agency (IEA)

M t o e /

B i l l i o n U S D 2 0 0 5

0.024 0.021 0.024 0.051 0.067 0.066 0.115 0.1330.790 0.710 0.614 0.532 0.530 0.469 0.410 0.413 0.394

0.172

0.292 0.238 0.227 0.243 0.260 0.262 0.257 0.243 0.2403.729 3.667 2.883 2.848 1.753 1.082 0.762 0.741 0.7120.406 0.396 0.315 0.319 0.292 0.222 0.188 0.182 0.1740.099 0.101 0.091 0.102 0.096 0.132 0.135 0.143 0.1370.424 0.419 0.363 0.325 0.368 0.396 0.401 0.404 0.4201.305 1.503 1.282 0.905 0.681 0.668 0.648 0.656 0.652

BruneiIndonesiaMalaysiaMyanmar PhilippinesSingaporeThailand Vietnam

Recording National Progress

Power supply and prices play a major role in the economy

of Malaysia, which is one of the reasons why there is acontinuous search for renewable and sustainable sourcesof energy. Historical trends indicate that petroleum hasbeen the major source of energy, particularly in thetransportation sector. However, in recent years, Malaysiahas increasingly looked into other means of generating it.

Between 2007 and 2012, energy supply from crude oiland petroleum products across Malaysia declined from35.1% to 32.5%. In the same period, natural gas energysupply also reduced from 50.6% to 46% while supply fromcoal and hydropower surged from 12.2% to 18.9% and2.1% to 2.6% respectively. As at 2012, energy supplyfrom renewable sources such as biomass, biogas and

solar was 0.4%.

As Malaysia’s population grows, so does its rate of energy consumption. Accordingto the International Energy Agency’s South-East Asia Energy Outlook 2013 specialreport, the country is the third largest energy consumer in Asean, with its populationgrowing at an average of 1.2% and GDP by 4%. This has been accompaniedby a 2.3% rise in the country’s annual primary energy demand. In order to betterestimate the energy requirements of the future, Energy Malaysia examines somekey statistics of Malaysia’s power needs over the past few years.

Energy Balance

REGIONAL DEVELOPMENT

In Peninsular Malaysia, electricity consumption between2007 and 2012 increased by 25% from 81,710 GWh to102,174 GWh compared with Sarawak, which recordeda massive 116% spike, from 4,277 GWh to 9,237 GWhand Sabah which grew 38.6% from 1,061 GWh to1,471 GWh. In all three regions however, energy intensity– which measures the quantity of energy required per unitof GDP product – decreased significantly.

Higher energy intensity signifies a higher cost of convertingenergy into GDP. For instance, Peninsular Malaysiarecorded a 4% rise in GDP from 2007 to 2012 whileenergy intensity only rose 0.63% from RM160,000 to

RM161,000 per GWh of energy consumed, comparedto 2005 when it was RM163,000. If the economy growswithout an accompanying rise in energy intensity, thissignifies a degree of efficiency involved in the nationalproduction process.

From 265 ktoe in 2007, final energy consumption in theagricultural industry surged by 297% to 1,052 ktoe in2012. The transportation and non-energy use (such asnatural gas for industrial feedstock) sectors also grew by9.3% and 153% respectively. Additionally, residentialand commercial use, including government buildings andinstitutions increased by 13.7%. However, the industrialand manufacturing sectors experienced a decline by

14% from 16,205 ktoe to 13,919 ktoe.

Smaller values denote higher efficiency in thegeneration of energy. Malaysia advanced from

0.260 million tonnes in oil equivalent (Mtoe)per billion dollars in 2000 to 0.240 in 2011,indicating that the energy generation process

in the country became more efficient.

Final Energy Intensity in Asean



40

PRIMARY ENERGY SUPPLY

Oil

32.1%

Natural Gas46.0%

Coal18.9%

Hydro2.9%

Renewables0.4%

TOTAL : 83,938ktoe

“One of the challenges the EIU currently

encounters is collecting recent, up-to-date information. We are resolving this bycommunicating more often with the data

providers and encouraging them to submitthe necessary information for the data

compilation as early as possible and withinthe target deadline.”

– Datin Noor Aizah Abdul Karim,Head of the Energy Information Unit,

Energy Commission of Malaysia

PENINSULAR MALAYSIA

GDP at 2005 prices (RM million)Population ('000 people)Electricity Consumption (GWh)

Energy Intensity

Electricity Consumption(GWh/GDP at 2005 prices (RM million))

SABAH

GDP at 2005 prices (RM million)Population ('000 people)

Electricity Consumption (GWh)

Energy Intensity


SARAWAK

GDP at 2005 prices (RM million)Population ('000 people)Electricity Consumption (GWh)

Energy Intensity


One-Stop Energy

Information CentreEstablished in 2009 within the Department ofEnergy Management and Industry Development ofthe Energy Commission, the Energy Information Unit(EIU) of the Energy Commission, provides currentand historical data on supply, transformation anddemand of commercial energy sources, as well asother related information, to local and internationalstakeholders. These include regulators, policymakers, planners, investors, analysts, researchers,academicians, consultants and other professionals.

An online version of the National Energy Balancereport – The Malaysia Energy Information Hub(MEIH) – enables easy access to the data.Currently, the input is based on data voluntarilysupplied quarterly on-line by 75 organisations,including relevant government agencies, powerutilities, independent power producers, private oiland gas companies, and cement, iron and steelmanufacturers.

The Energy Commission is also responsible forproviding information on energy use to international

organisations such as the International EnergyAgency (IEA), United Nations Statistics Division andthe Asia-Pacific Economic Cooperation (APEC).

KEY ECONOMIC AND

ENERGY DATA BY REGION



Micro-grids utilise sustainable andrenewable energy sources such as hydro,wind and solar to create an ‘islandof power’ which can be isolated orconnected to a major grid when required.

42



Aside from the efficient use of energy, its safe utilisation is also crucialto prevent avoidable accidents, particularly in homes. In line with theobjectives of the Energy Commission to ensure an efficient energy industryin the country, the Commission highlights ways in which residents can avoidpreventable electricity hazards and optimise electricity use.

Found in all homes connected to the national grid, thedistribution board features circuit breakers, fuses and a

Residual Current Device (RCD) to ensure safe and consistentelectricity supply. Circuit breakers and fuses are designedto prevent electrical fires caused by overloading and shortcircuits, and do so by interrupting the flow of electricitywhen the volume of current reaches dangerous levels.

On the other hand, the RCD is a safety device designedto prevent electrocution by cutting the power when earthleakages occur – typically when current flows to the earththrough a person’s body. These leakages are usuallycaused by faulty appliances or wiring systems, thus RCDsare needed to protect lighting and power circuits, includingsocket outlets.

Turn off all electronic equipment andsensitive appliances before opening thecover on the indoor unit of your electricaldistribution board.

1

Further safety is ensured through RCD test buttonswhich when pushed, simulates an earth leakageand indicates whether or not the device isfunctioning correctly. Follow these simple steps totest your RCD regularly:

Please ensure that additional RCDs are installedfor each storage or instantaneous water heater in your home. These RCDs must have a sensitivity of10mA or 0.01A.

To further protect your family, preventelectrocution while using handheld appliancesby installing dedicated RCDs with a sensitivity of30mA or 0.03A for socket outlets.

2Refer to the picture on the left to identify your RCD. It should indicate a sensitivityof 100mA or 0.1A.

Safety at Home

3Look for a button marked ‘T,’ which isusually located on the front of the device.

4

Press and release the test button. Ifoperating normally, the RCD should tripand cut the supply of electricity to thecircuits it is connected to. Check that alllights and socket outlets in the affectedcircuits are not operational.

5

If the supply of electricity is not interrupted,it indicates that your RCD is malfunctioning.Please contact an electrical contractorregistered with the Energy Commission tocheck the device professionally.

6Having completed testing, restoreelectricity supply by simply returning thepower switch to its ‘on’ position.

46



Efficient or optimised use of electricity can lessen ahomeowner’s financial burden, and reduce the amount ofcarbon emission into the environment. Some ways to minimiseenergy consumption in the home include:

Purchasing electricalappliances – such astelevision sets, refrigerators,air conditioners, lights andfans – that have a highenergy efficiency rating bythe Energy Commission.The Commission establishedthe labelling scheme forhousehold appliancesaccording to international testprocedures, where a highernumber of stars – up to amaximum of five – indicateslarger energy savings andbetter quality.

Running electricalappliances – such asair conditioners – atmoderate temperatures

or load. Air conditionersshould be set at 24degrees celsius for optimalcoolness and efficiency.

Using natural lightingand ventilation – suchas opening curtains andwindows – wheneverpossible to reduce the useof electrical appliances.

Monitoring the energyconsumption regularly bychecking the electricitymeter on a regular basis.

12

34

Efficient Electricity Use

47

Tips



49

In his speech, Datuk Ir Ahmad Fauzispoke of the Energy Commission’sinitiatives to improve EE in theindustrial, commercial, institutionaland domestic sectors. “These arebeneficial to any Smart City project,”he asserted. “Educating businessesas well as the public, auditingbuildings and building Green,efficient ones such as the EnergyCommission headquarters, rebateschemes – these are all examples

On-Site

The Energy Commission of Malaysia, Datuk Ir AhmadFauzi Hasan, spoke on energy efficiency (EE) efforts inMalaysia at the Smart Cities, Smart Living seminar. Heldon the 12th of March, the seminar is part of the trademission of the same name which promotes UK excellencein urban development solutions.

A Seminar on Urban Management

Smart Cities,

Smart Living

of what we can do to assist citiesin moving forward in terms ofefficiency and sustainability.”

Opened by UK Cabinet MinisterGrant Shapps and Director Generalof the Kuala Lumpur City Hall (DBKL)Datuk Hj Mohd Amin Nordin AbdAziz, the seminar was attendedby professionals and representativesfrom various Green industriesin Malaysia.



In order to further enhance the performance of the energy supply industry,the Malaysian Government established the Energy Commission of Malaysia

(Suruhanjaya Tenaga - ST) under the Energy Commission Act 2001. It is a

statutory body responsible for regulating the energy sector, in particular theelectricity and piped gas supply industries in Peninsular Malaysia and Sabah.The Energy Commission ensures that the provision of electricity and piped gas to

consumers is secure, reliable, safe and reasonably priced.

HeadquartersEnergy Commission of Malaysia12 Jalan Tun HusseinPrecinct 2, 62100, PutrajayaToll Free Number :1 800 2222 78Telephone : 03-8870 8500F 03 8888 8637

Tel: 03 - 7955 8930Fax : 03 - 7955 8939

Negeri Sembilan & Melaka

Tingkat 4, Wisma Perkeso, Jalan Persekutuan, MITC,75450 Ayer Keroh, MELAKATel: 06 - 231 9594Fax : 06 - 231 9620

JohorSuite 18A, Aras 18M ANSAR 65 J l T

PERAKTel: 05 - 253 5413Fax : 05 - 255 3525

Pulau Pinang, Kedah & PerlisTingkat 10, Bangunan KWSP13700 Seberang Jaya,Butterworth, PULAU PINANGTel: 04 - 398 8255Fax : 04 - 390 0255

PahangTi k 7 K l k T

Jalan Padang Garong, 15000Kota Bharu, KELANTANTel: 09 - 748 7390Fax : 09 - 744 5498 West Coast of SabahTingkat 7, Bangunan BSN

Jalan Kemajuan88000 Kota Kinabalu, SABAHTel: 088 - 232 447Fax : 089 - 660 279

East Coast of SabahTi k t 3 Wi S b KM12

energy malaysia

Documents