presentation for the prime - … · building sector energy efficiency project (bseep) ) c/o...

BUILDING SECTOR ENERGY EFFICIENCY PROJECT (BSEEP) )

C/O CAWANGAN ALAM SEKITAR DAN TENAGA (ENVIRONMENT AND ENERGY BRANCH )

IBU PEJABAT JKR MALAYSIA ( P.W.D. HEAD QUARTERS MALAYSIA)

TKT. 23, MENARA PJD NO. 50, JALAN TUN RAZAK 50400 KUALA LUMPUR

Telefon : (603) 4041 1924 Faksimili : (603)4041 1988 http://www.jkr.gov.my/bseep/

PRESENTATION FOR THE PRIME

MINISTER’S

GREEN TECH AND CLIMATE CHANGE

COUNCIL MEETING

REALISING THE 3 KEY BENEFITS

OF ENERGY EFFICIENT BUILDINGS

Prepared by the

Building Sector Energy Efficiency Project (BSEEP), JKR.

Preliminary draft, 14 July 2014; updates 20 July, 1 August 2014

Not for circulation – still in draft form with requested changes still in the

process of being made

http://www.jkr.gov.my/bseep/

2 | P a g e E n e r g y E f f i c i e n c y i n B u i l d i n g s

OVERVIEW

The purpose of this paper is to present building sector energy efficiency

policies for inclusion in RMK11 and beyond, demonstrating their

financial, environmental and social benefits.

Building sector electricity consumption is growing at an increasing rate,

faster than GDP growth.

This trend of ever increasing consumption can be halted with energy

efficiency (EE) – using less energy to provide the same outcome.

Energy efficiency provides three key benefits: Economic, Environmental

and Social.

However, to realise these benefits government intervention is required to

overcome a range of barriers.

The barriers to building sector EE include:

A widely disconnected market between developers and occupants

of buildings

Low awareness of the value of energy efficiency

Fragmented and weak institutional setups

Gaps in regulation and enforcement

Lack of data on building energy use.

Addressing these barriers involves enabling the market, creating a

stable financing mechanism, incentivising the market, having


government lead by example, undertaking institutional transformation

and monitoring and evaluation.

Government investment of around RM 1.5b over RMK11 can reduce

building sector GHG emissions by 3%. However a longer term

commitment to building sector EE can deliver much larger savings, of

34% by 2035, reducing carbon emissions by 274m tonnes and providing

RM87b of net financial benefit with 15,000 people employed.

This document is divided into three sections:

1. An executive summary providing an overview of energy

consumption trends in the building sector, the barriers preventing

buildings from becoming more efficient, and a suggested approach

for government to overcome these barriers in order to unlock the

substantial economic, environmental and social benefit of EE;

2. An introduction that expands on the barriers to EE in Malaysia and

the suggested strategy, and introduces research and assessment

of twelve mechanisms/approaches/ enablers that can drive energy

efficiency;

3. The detailed research and assessment of the twelve

mechanisms/approaches/ enablers.

Bruce Rowse, Kevin Hor

Building Sector Energy Efficiency Project.


CONTENTS

EXECUTIVE SUMMARY ........................................................................ 9

Objectives ............................................................................................................ 9

Background ......................................................................................................... 9

Basis of consideration ........................................................................................ 11

Implications ........................................................................................................ 17

Conclusion ......................................................................................................... 23

Acknowledgements ............................................................................................ 25

Acronyms ........................................................................................................... 27

Disclaimer .......................................................................................................... 30

INTRODUCTION .................................................................................. 31

BSEEP ............................................................................................................... 31

What is covered in this document ...................................................................... 32

Why reduce building sector energy use? ........................................................... 33

Benefits of EE in the building sector not yet being realised. .............................. 34

Suggested strategies for building sector EE ...................................................... 45

Comparison of policies ...................................................................................... 57

Expected results ................................................................................................ 58


DISCUSSION PAPERS ON EACH OF THE POLICY TOPICS ............ 62

Utility driven energy efficiency / Utility Energy Efficiency Obligation (White

Certificate scheme) ............................................................................................... 63

Summary ........................................................................................................... 63

Utility driven energy efficiency ........................................................................... 66

What is a utility energy efficiency obligation? .................................................... 69

Where energy efficiency schemes are used ...................................................... 71

What sort of activities are undertaken to generate savings from UEEOs? ........ 73

How UEEOs work .............................................................................................. 75

Plus, minus, interesting of UEEO ....................................................................... 79

Designing a UEEO ............................................................................................. 85

Applicability to Malaysia ..................................................................................... 86

Appliance and Equipment Standards & Labelling ............................................... 117

Summary ......................................................................................................... 117

Purpose of this document ................................................................................ 118

Standards and Labelling in Malaysia ............................................................... 119

Global and regional experience with MEPS ..................................................... 120

Suggestions for Malaysia ................................................................................. 125

Synergies with other policy measures ............................................................. 137

Building performance disclosure ......................................................................... 139


Summary ......................................................................................................... 139

What is building performance disclosure? ....................................................... 140

Why disclose building performance? ............................................................... 144

Global experience with building performance disclosure ................................. 145


Energy Efficiency Rating Tools for Buildings....................................................... 178

Summary ......................................................................................................... 178

What are building energy efficiency rating tools?............................................. 179

An asset rating or an operational rating tool? .................................................. 181

International experience with rating tools ......................................................... 183

Factors important to energy efficiency building disclosure tool selection ......... 190


National Building Consumption Database ........................................................... 194

Summary ......................................................................................................... 194

Why a National Building Energy Consumption Database? .............................. 196

A suggested NBECD for Malaysia ................................................................... 197

Author’s personal experience .......................................................................... 202


Energy Efficiency Codes for Buildings ................................................................ 204

Summary ......................................................................................................... 204


Current Building Energy Efficiency Codes and practice in Malaysia ................ 205

The importance of Building Energy Efficiency Codes to energy security and

reducing energy consumption. ......................................................................... 210

Global experience with Building Energy Efficiency Standards ......................... 214

Suggested pathway for EE building standards going forward in Malaysia. ...... 221


Energy efficient technologies / construction methods for new buildings ............. 229

Summary ......................................................................................................... 229

International experience .................................................................................. 230

Key success factors ......................................................................................... 231

What should the focus be on? ......................................................................... 233

Suggested policy pathway ............................................................................... 239

Energy Performance Requirements for Government Buildings........................... 242

Summary ......................................................................................................... 242

Energy performance requirements for government buildings .......................... 244

International experience .................................................................................. 245

Malaysian experience ...................................................................................... 249



Enabling ESCO delivered projects ...................................................................... 256


Summary ......................................................................................................... 256

ESCOs – limited by a funding constraint? ....................................................... 257

Suggested approach in Malaysia ..................................................................... 265


Housing mortgages that enable EE .................................................................... 268

Summary ......................................................................................................... 268

The International Experience ........................................................................... 269

Suitability to Malaysia ...................................................................................... 280


Capacity building for EE in Buildings .................................................................. 291

Summary ......................................................................................................... 291

Capacity building ............................................................................................. 292

International experience in systematic capacity building ................................. 296


Incentives for EE in Buildings.............................................................................. 303

Summary ......................................................................................................... 303

Why incentives? ............................................................................................... 304

Types of incentives .......................................................................................... 311

Malaysian experience with incentives .............................................................. 315

Suggestions for Malaysia going forward .......................................................... 319


EXECUTIVE SUMMARY

OBJECTIVES

The purpose of this paper is to present building sector energy efficiency

policies for inclusion in RMK11 and beyond, demonstrating their

financial, environmental and social benefits.

BACKGROUND

The vast majority of buildings in Malaysia are energy inefficient. They

are uncomfortably hot and humid unless air conditioning is used, and the

lighting is inefficient.

As living standards and comfort expectations rise in Malaysia, energy

use per building is increasing. The rapid construction rate – at current

rates of growth in 2031 Malaysia will have twice the number of electricity

consumers that is now has in 2014 – is also causing building sector

consumption to rise.

The building sector accounts for 54% of Malaysia’s electricity use.

Building sector electricity consumption is growing faster than industrial

electricity consumption, and at current growth rates by 2020 buildings

will use 50% more electricity than they did in 2012. Carbon emissions

and coal imports will increase accordingly.


This trend of ever increasing consumption can be halted with energy

efficiency (EE) – using less energy to provide the same outcome. For

example using less energy to illuminate a workspace. Energy efficiency

provides three key benefits:

1. Economic benefits. These benefits can be very high. For

example, investing RM 1 million to make a building more efficient

can yield up to RM 15 million in lifetime energy savings. Over the

20 years from 2016 to 2035, RM 34 b of government investment in

building sector EE could yield RM 174 b in energy savings across

Malaysia. It costs less to save 1 GWh than it takes to generate 1

GWh of electricity. Which is why globally there is a shift to make

energy efficiency the “first fuel”.

2. Environmental benefits. The building sector represents around

15% of Malaysia’s greenhouse gas (GHG) emissions. 274 million

tonnes of GHG could be saved by 2035 with the investment

outlined above, reducing building sector emissions by one third

compared with Business as Usual (BAU).

3. Social benefits. Investments in energy efficiency are labour

intensive and geographically dispersed. Roughly 5 times as many

jobs are created in EE than when the same amount of money is

invested in building and operating fossil fuel power plants. 15,000

jobs could be created by 2025 with the investment in building

sector EE outlined above. EE creates jobs and builds skills for the

growing global green economy.


Whilst energy efficiency (EE) is economically, environmentally and

socially more beneficial than building more power plants, government

intervention is required to address the barriers to EE and create a

market for EE.

The barriers to building sector EE include a widely disconnected market

between developers and occupants of buildings, low awareness of the

value of energy efficiency, fragmented and weak institutional setups,

gaps in regulation and enforcement and lack of data on building energy

use.

Addressing these barriers involves enabling and incentivising the

market, creating a stable financing mechanism, having government lead

by example, strengthening institutions, and monitoring and evaluation.

BASIS OF CONSIDERATION

Trends in building sector energy consumption

Building sector electricity consumption is increasing at a rapid rate. As

figure 1 shows, electricity consumption in Malaysian buildings has grown

at an increasing rate in a highly predictable manner since 1990.

If this trend was continued to 2020, building sector electricity

consumption will be 50% higher than in 2012.

Furthermore building sector electricity consumption has grown at a faster

rate than GDP (constant prices). In 2012 building sector electricity

consumption intensity was 49% higher per unit of GDP than in 1997.


Figure 1 - Trendline of building sector electricity consumption projected forward to 2020. Based on

Energy Commission (EC) for Malaysia on the Malaysian Energy Information Hub, in accordance with the

following categories: Agricultural, Transport, Commercial, Residential (Domestic) and Industrial, with

Commercial and Residential assumed to represent building sector electricity consumption. GDP is based

on data published by the Malaysian department of statistics, with a reference of the year 2000 = 100.

Energy efficiency can break this trend and provide other benefits. It is

possible to have GDP growth without ever increasing energy use. In the

UK between 2000 and 2012 GDP grew by 58%, yet energy use dropped

by 12%. In Australia electricity consumption in the National Electricity

Market has dropped 8% since 2008/09, yet GDP has continued to grow.

y = 47,134 x2 + 1,298,117 x + 8,545,154 R² = 1

-

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100,000,000

19

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GD

P (

con

stan

t p

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s, R

M m

illio

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mp

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Building Sector Electricity Consumption (projected to 2020), GDP (constant prices) to 2012

Electricity Consumption (MWh) GDP at constant prices (RM, reference 2000 = 100)


Belarus, whose GDP and GDP growth matches Malaysia’s, reduced its

energy intensity per unit of GDP by two-thirds between 1990 and 2010.

The benefits of EE in the building sector

Broadly speaking it costs much less to save one megawatt-hour (MWh)

of electricity than it does to purchase one MWh of electricity. BSEEPs

modelling indicates that energy efficiency can cost effectively deliver

large savings at a cost of roughly RM 0.15/kWh, far lower than the RM

0.30/kWh required to generate electricity from fossil fuels. To meet the

growth in electricity demand it is cheaper to invest in energy efficiency at

the point where energy is used – in buildings – rather than investing in

new power plants, transmission and distribution infrastructure. Treating

energy efficiency as the first fuel – as California has done since the

1970s – provides wide ranging economic, environmental and social

benefits.

The most cost effective time to undertake energy efficiency in a building

is at the design stage, and with strong rates of construction, Malaysia

has the opportunity to deliver savings at lower costs than in developed

countries where retrofits form the backbone of energy efficiency policy.

Malaysia has had an active green building community since 2007,

focussed on reducing the energy consumption of new buildings. Based

on data estimates for the first 50 green certified buildings provided by

the Malaysian Green Building Index (GBI), BSEEP calculates that every

ringgit invested in making a building more efficient reduces electricity

consumption by RM 0.30 per year. Over a 50 year building lifetime this

results in a total return of RM 15.


However for existing buildings there is also opportunity to cost effectively

improve the performance buildings. This is particularly the case at the

time of refurbishment, which typically happens every 15 to 20 years.

Upgrading to the most efficient lighting or air conditioning has a lower

lifetime cost than purchasing a cheaper less efficient system.

Malaysia’s electricity supply has over recent years moved to greater

dependency on imported coal. As a result the greenhouse gas

emissions factor – the amount of greenhouse gas produced for each

MWh of electricity generated – has increased.

Energy efficiency reduces carbon emissions, a key environmental

benefit.

Energy efficiency is labour intensive, unlike electricity production which

is fuel intensive. As a result more jobs are created when investment is

made in energy efficiency than when it is invested in generation.

There are, however, a range of barriers that require government

intervention in order to capture the benefits of EE. These barriers have

not yet been effectively addressed in Malaysia, with the consequence of

ever increasing electricity consumption as shown in figure 1.

The barriers to EE.

The barriers to EE in Malaysia include:

A widely disconnected market between developers and occupants

of buildings. Developers do not benefit financially from buildings

that use less energy (occupants do), yet developers are required


to make the upfront investment to enable these savings. With the

exception of high-end new buildings (where rating systems such

as the Green Building Index add prestige), there is a lack of a

marketplace driving demand for EE buildings.

Low awareness of the value of energy efficiency

Energy efficiency is generally not factored into purchase decisions.

And often information on the benefit of EE is not available at the

point of purchase.

The benefit of energy efficiency as an investment is not

understood. Energy efficiency provides a good ROI, however it is

not often perceived as an investment opportunity.

Fragmented and weak institutional setups

Jurisdiction issues, for example between the Energy Commission

(EC) and the Sustainable Energy Development Authority (SEDA),

both of which have energy efficiency programs that appear to

overlap. E.g. SEDA implemented the SAVE program which

incentivised consumers to refer to appliance energy efficiency

labels in their purchase decisions, but ST administers the

appliance standards and labelling program.

Lack of a clearly visible champion strongly promoting EE.

Lack of coordination between different institutions.

Human resources capacity issues. For example only 2 people are

employed to administer the appliance energy standards and

labelling program, an insufficient number to adequately enforce

the program. Whilst these regulations were introduced in May


2013 – and require domestic refrigerators, televisions, fans and air

conditioners to display an energy label and meet Minimum Energy

Performance Standards (MEPS), there is still low compliance with

the program. Yet a 5% non-compliance rate in any one year costs

energy users an additional estimated RM 24m in electricity

charges over the lifetime of those non-compliant products!

Gaps in regulation and enforcement. For example:

- Only one state has gazetted the Uniform Building By Laws

2012 which incorporate requirements from MS 1525: Code of

Practice on Energy Efficiency and Use of Renewable Energy

for Non-Residential Buildings

- No regulation exists around the public disclosure of building

performance.

- Insufficient penalties to enable full compliance with the

Efficient Management of Electrical Energy Regulations

(EMEER)

- As described above low compliance with the Standards and

Labelling requirements for domestic appliances.

Lack of data on building energy use. Data on building energy

consumption is not collected, reported, analysed or shared in a way that

can drive voluntary energy efficiency or enable the measurement,

verification and evaluation of EE interventions.


IMPLICATIONS

Until such point as these barriers are addressed, it is likely that electricity

consumption in buildings will continue to increase at an accelerating

rate, as shown in figure 1.

The recommended strategy to address these barriers includes six

elements. These are: enable the market, create a stable financing

mechanism, incentivise the market, have government lead by example,

strengthen institutions, and monitor and evaluate.

Enabling the market:

The Uniform Building By Laws, 2012, which incorporate energy

efficiency provisions from MS 1525, need to be gazetted by the

majority of states and municipalities in Malaysia.

Energy usage and the opportunity provided by energy efficiency

needs to become more visible through the mandatory disclosure of

energy building performance. To enable this

- An energy efficiency rating tool for existing buildings which

covers a range of building types needs to be available.

- A National Building Energy Consumption Database (NBECD)

needs to be developed.

Awareness should be raised through Appliance and Equipment

Standards and Labelling (S&L) and expansion of the S&L program

to cover commercial equipment, notably chillers and commercial

air-conditioners.


Subsidies on electricity prices should be totally removed.

Create a stable financing mechanism

To provide funding to government to effectively resource and

administer energy efficiency programs, and to incentivise energy

efficiency an additional tariff charge on electricity bills should

apply.

Create a revolving fund for large energy users to access ESCO

delivered project.

Incentivise the market

As mandatory disclosure is introduced incentives can be used to

drive early compliance.

Longer term incentives can be used to motivate the adoption of

very high efficiency technologies.

Ultimately market based incentives using methods which clearly

enable energy savings to be determined, should be used. When

energy savings can be clearly quantified, incentives can be

created (and funded) based on the “negawatts” saved, which can

be priced to compete with generated megawatts. The aim should

be to move to these market based methods (used in Europe,

North and South America and Australia) by the 12th Malaysia

plan. A Utility Energy Efficiency Obligation or dedicated Energy

Efficiency Generator could be established to enable this.


Have government lead by example

Government ministries should be required to adhere to energy

performance requirements for their buildings.

Mechanisms should be in place to enable ESCOS to deliver EE to

government

Government should adopt green procurement principles.

Strengthen Institutions

Define champion and supporting stakeholders

Greatly increase resourcing for the administration of EE programs

Enhance capacity including cooperation with the private sector

Monitor and Evaluate.

The following should be monitored and evaluated:

Compliance with MS1525

The disclosure of building energy consumption (enabled through

analysis of data in the National Building Energy Consumption

Database)

Monitor compliance with Standards and labelling

Monitor the impact and effectiveness of incentives

Improve the monitoring of how well government is leading by

example (i.e. PEMANDU)


Input the results of monitoring and evaluation into the Malaysian

Sustainable Consumption and Production Indicators (MYSCPI) – a

comprehensive SCP monitoring system

Cutting across these six strategic interventions is the establishment of a

Malaysian Training Centre for Energy and Water Efficiency and a Green

Building Council with government representation.

Adopting this approach, table 1 below provides estimates of costs and

benefits over the next four Malaysian plans, covering the period from

2016 to 2035. Benefits accrue over time, reflecting the fact that energy

efficiency requires up-front investment to deliver long term savings.

Table 1 Estimated economics of suggested energy efficiency policies, RM11 to

RMK14 (2016 to 2035)

Period

Revenue

raised

from tariff

charge

(RM m)

Total

government

investment in

incentives and

tax benefits

(RM m)

Net financial

benefit to the

Malaysian

economy (RM

m)

No of

people

employed

GHG

savings

(m

tonnes)

vs BAU

Reduction in

electricity

consumption

vs BAU

RMK 11 1,000 1,500 - 1,600 2,600 5 3%

RMK 12 6,100 6,600 2,900 10,200 30 13%

RMK 13 12,400 12,400 24,200 14,600 90 25%

RMK 14 13,800 13,800 62,200 14,700 150 34%

TOTAL 33,400 34,300 87,700 14,700 270 34%


It’s broadly estimated that the policies identified could, over the period of

the 11th Malaysian plan, reduce building sector electricity consumption

by 3 % compared with BAU by 2020. By 2035 the continuation of these

policies could reduce building sector electricity consumption by 34% vs

BAU.

Low savings in RMK11 and growing savings in subsequent years reflect

the fact that building sector EE is an investment with yields that go up

the longer it is done for. EE is not a “no-cost/near zero cost” way of

delivering GHG abatement; this misguided perception that EE can

deliver savings for free is a key reason for policy failings in the EE sector

around the world. Well managed EE delivers excellent returns, but does

require substantial up-front investment.

Investment funding should come from revenue raised from an additional

tariff charge – a stable mechanism that can deliver large amounts of

investment funding. Whilst it is envisaged that this will be mostly used to

fund a Utility Energy Efficiency Obligation (UEEO) or similar, funds

raised will also be allocated to fund the administration of a range of EE

policies, including measurement, verification and evaluation (MV&E).

This additional tariff would start 2018 with an additional tariff of RM

0.2sen/kWh, which rises to 0.3sen/kWh and RM 0.4sen/kWh in 2019

and 2020. It continues to rise gradually through to 2028, at which point it

is RM 2 sen/kWh, and remains at this level. This additional charge would


not apply to low income households on the lowest tariff, who are

estimated to consume no more than 20% of Malaysia’s total electricity

consumption. Over the 11th Malaysian plan it would raise nearly RM

1,000m. By 2035 nearly RM 33b could be raised for investment in EE.

The tariff charge could be enabled in the first instance by linking it to the

subsidy rationalisation program.

Further funding for energy efficiency will come in the form of governmet

revenue foregone over the period 2016 to 2025, from tax exemptions for

energy efficient new buildings.

Responsibility matrix

Suggested responsibilities for implementation of the strategy are tabled

below.


Table 2 - Suggested responsibility matrix

Strategy Approach

Respons-

ibility

Staffing

(RMK 11)

Enable the market

(regulation)

Support the gazetting and application of EE building

codes and standards across Malaysia KPKT 2

Require Mandatory disclosure of building performance ST 16

Strengthen and expand the appliance and equipment EE

Standards and Labelling program ST 9

Create a stable

financing

mechanism Impose a tariff charge ST

19

Incentivise the

market

Create a Utility Energy Efficiency Obligation (UEEO),

making EE the first fuel ST

Have government

lead by example

Require all Ministries to develop and implement an

Energy Management Plan in line with ISO 50001,

including the use of Energy Performance Contracts JKR

7, plus 1 in

each of the

24 ministries

Strengthen

Institutions

Establish an Energy and Water Efficiency training centre MoE 4

Establish a coordination unit and monitor and report

annually ST 5

Monitor and

evaluate

TOTAL 96

CONCLUSION

Building sector electricity consumption is growing rapidly in Malaysia,

faster than growth in GDP. This trend can be broken by investing in

energy efficiency. Energy efficiency provides economic, environmental


and social benefits, however to realise the benefit a range of barriers

need to be overcome.

Addressing these barriers involves enabling the market, creating a

stable financing mechanism, incentivising the market, having

government lead by example, undertaking institutional transformation

and monitoring and evaluation.

Government investment of around RM 1.45b over RMK11 can reduce

building sector GHG emissions by 3%. However a longer term

commitment to building sector EE can deliver much larger savings, of

34% by 2035, and providing RM87b of net financial benefit with 15,000

people employed, and saving 274 m tonnes of GHG.

Bruce Rowse, Kevin Hor

Building Sector Energy Efficiency Project.


ACKNOWLEDGEMENTS

The policy papers prepared by the Building Sector Energy Efficiency

Project (BSEEP) and which are presented in this paper is the result of

consultation via workshops and individual discussion with a wide range

of people. This suggestions and ideas of the following individuals is

gratefully acknowledged:

YBhg. Dato’ Ir. Dr.

Roslan Md Taha

Pengarah (National

Project Director)

CAST JKR

YBhg. Datin Noor

Haliza Mohd Noor

Director EPU

Ir. Mohd Zaini Bin Abu

Hassan

Superintendent Electrical

Engineer

CKE JKR

Ir. Hj. Baihaki Bin

Azraee

Electrical Engineer CKE JKR

Mahira Bt Othman Assistant Secretary KKR

Mohd Sukri Mat Jusoh Deputy Director EPU

Safwan Rosidy b.

Mohammad

Principal Assistant

Director

EPU

Dr. Gerhard Weihs Team Coach SCP EPU

Dr. Khalid Bid Abdul

Hamid

Deputy Secretary, Fiscal

& Economic Division

MoF

Dr. Noraisah Binti

Spahat

Section Head, Fiscal &

Economic Division

MoF


Khoh Joo Bee Deputy Secretary KPKT

Aminah Abd Rahman Director KPKT

Ir. Francis Xavier Jacob Senior Analyst ST

Ir. Zulkiflee Umar Head, Demand Side

Management (DSM)

ST

Norazrin B. Rupadi Executive, DSM ST

Omar Farouk bin Ali

Askar

Executive, DSM ST

Hafiza binti Yob Regulatory Officer, DSM ST

Steve Anthony Lojuntin Deputy Director SEDA

Mohd Najmi b.

Abdullah Sani

Assistant Director SEDA

Muhammed Fendi

Mustafa

Senior Analyst, Built

Environment

GreenTech

Malaysia

Ir. Sharifah Jusoh Head, Electrical and

Electronic 2 Section

SIRIM

Mohd Fairuz bin

Zainordin

Senior Testing Executive SIRIM

Roswaidin Mohd Zain Deputy Director MIDA

Ar. Zulkhairi Md. Zain Architect PAM

Azliza Abd. Shukor Assistant Vice President IRDA

Ar. Zulkifli Zahari President MAESCO


Ir. Chen Thiam Leong ACEM Past

President/GBIAP

ACEM/GBI

Ir. H.P Looi Past President MGBC

B.K. Sinha Co-Chair, Research

Committee

MGBC

Raja Nor Laila Raja

Jaapar

Senior Project Officer MGBC

James Chua Executive Director GreenRE

Chin Bung Seang Technical Manager GreenRE

Stanley Kok General Manager PPK

Ir. Dr. Cheong Thiam

Fook

Director IEM

CK Tang Director VESB

Deep Kumar Project Executive BSEEP

Muhammad Hafiz

Azizan

Component 1 Consultant BSEEP

ACRONYMS

AC Air conditioner

ACEM Association of Consulting Engineers Malaysia

BAU Business as usual


BSEEP Building Sector Energy Efficiency Project

EC Energy Commission (malay: Suruhanjaya Tenaga)

EE Energy Efficiency

EMEER Efficient Management of Electrical Energy Regulations

EPU Economic Planning Unit

ESCO Energy Services Contractor

GBI Malaysian Green Building Index

GDP Gross Domestic Product

GEF Global Environment Facility

GHG Greenhouse Gas

GWh gigawatt hour

JKR Department of Public Works

KeTTHA Ministry of Energy, Green Technology and Water

KKR Ministery of Housing

KPKT Ministry of Housing and Local Government

kW kilowatt

kWh kilowatt hour

M&V Measurement and Verification

MAESCO Malaysian Association of Energy Services Contractors

MEPS Minimum Energy Performance Standards

MGBC Malaysian Green Building Confederation


MoE Ministry of Education

MoF Ministry of Finance

MWh megawatt hour

NBECD National Building Energy Consumption Database

PV Photovoltaic

RMK11 11th Malaysian Plan

S&L Standards and Labelling

SCP Sustainable Consumption and Production

SEDA Sustainable Energy Development Authority

ST Suruhanjaya Tenaga (english: Energy Commission)

UBBL Uniform Building By Laws

UNDP United Nations Development Program


DISCLAIMER

The contents of this draft paper are the responsibility of the authors and

do not necessarily reflect the views of the Malaysian government, UNDP

or GEF.

We apologize for any mistakes, omissions and existing gaps in this

document. Your feedback is invited to improve the paper.

Reasonable effort has been made to base the ideas and modelling in

this report on factual evidence and reasonable assumptions, however it

should be born in mind that the authors may have erred, and disclaim

any legal liability.


INTRODUCTION

BSEEP

The Building Sector Energy Efficiency Project (BSEEP), with financial

support of Global Environment Facility (GEF) / UNDP, and implemented

through JKR (Public Works Department), aims to reduce emissions of

GHG growth through the continued and further adaptation of energy

efficiency in new and existing buildings. https://www.jkr.gov.my/bseep/

Component 2 of the BSEEP project aims to contribute to the adoption of

policies that are effective in making a significant contribution to reducing

the energy use of buildings in Malaysia.

This discussion paper is a result of BSEEPs research into a wide range

of policy topics raised by stakeholders, and summarises and presents

the findings from this research.

The research approach has been to examine the application of the

suggested policies internationally, and to then put forward suggestions

for application in Malaysia.

The following topics have been examined by BSEEP

1. A Utility Energy Efficiency Obligation (UEEO)

2. Appliance and Equipment Standards and Labelling (S&L)

3. Disclosure of Building Performance

4. Energy efficiency building rating tools

https://www.jkr.gov.my/bseep/


5. A National Building Energy Consumption Database (NBECD)

6. Energy efficiency codes and standards for buildings

7. Energy efficient technologies / construction methods for new

buildings.

8. Energy performance standards for government buildings.

9. Enabling Energy Services Contractors

10. Mortgages to enable EE

11. Capacity building in EE

12. Incentives for EE

WHAT IS COVERED IN THIS DOCUMENT

This document is divided into three sections:

1. An executive summary providing an overview of energy

consumption trends in the building sector, the barriers preventing

buildings from becoming more efficient, and a suggested approach

for government to overcome these barriers in order to unlock the

substantial economic, environmental and social benefit of EE;

2. An introduction that expands on the barriers to EE in Malaysia and

the suggested strategy, and introduces research and assessment

of twelve mechanisms/approaches/ enablers that can drive energy

efficiency;

3. The detailed research and assessment of the twelve

mechanisms/approaches/ enablers.


Accompanying this document is a spreadsheet model, which contains

calculations and assumptions supporting the estimates of costs and

benefits.

WHY REDUCE BUILDING SECTOR ENERGY USE?

Reducing building sector electricity consumption will:

Improve energy security and reduce dependence on imported

fuels, such as coal. EE can deliver cost-effective generation of

“nega-watts” cheaper than the cost of building and operating a

coal fired power station and create more long term jobs.

Reduce greenhouse gas emissions. Malaysia has made a

voluntary commitment to decrease GHG intensity by 40%

compared with BAU by 2020.

Reduce the budgetary impact of subsidies. Malaysia’s natural gas

generates more revenue on the international market than it does

when used for domestic electricity generation, and the government

pays the difference through subsidies. Reducing energy use

reduces the cost of subsidies.

Reduce costs for electricity users. Reduced costs for domestic

users can enhance quality of life. For commercial users it can

improve profitability.

Improve Malaysia’s competitiveness internationally. Many

countries are investing heavily in energy efficiency. In the long run


this improves their international competitiveness. Failure to invest

in EE could reduce Malaysia’s international competitiveness.

Create jobs. Around five more jobs are created in EE than in

energy generation per million dollars invested.1

By 2035 building sector EE has the potential to reduce electricity

consumption by 34% compared with BAU, creating 15,000 jobs and

reducing GHG emissions by 270 million tonnes. And rather than cost

money, the net economic benefit is estimated at RM 87 billion.

BENEFITS OF EE IN THE BUILDING SECTOR NOT

YET BEING REALISED.

Whilst EE can provide many benefits, in the building sector it appears

they are not yet being realised.

As figure 1 shows, electricity consumption in Malaysian buildings has

grown at an increasing rate in a highly predictable manner since 1990. A

number of EE building sector initiatives have been undertaken – for

example rebates on energy efficiency chillers – and whilst these initiative

have been effective in reducing energy use in individual buildings, they

have not be done so at a sufficiently large scale to make an observable

impact on Malaysia’s overall building sector electricity consumption.

1 A 1997 Canadian analysis of 30 studies across North America found that on average one million

dollars created five more jobs when invested in energy efficiency than it did when invested in energy

generation. http://www.pembina.org/reports/CompAnayl_EmplAirEmRed_1997.pdf

http://www.pembina.org/reports/CompAnayl_EmplAirEmRed_1997.pdf

http://www.pembina.org/reports/CompAnayl_EmplAirEmRed_1997.pdf


If this trend was continued to 2020, building sector electricity

consumption would be 94,000,000 MWh in 2020, and 50% higher than

in 2012.

Why are the benefits of EE in the building sector not yet

being realised?

Compared with other countries, Malaysia’s building sector EE policies

are weak, as shown in figure 2 below. Malaysia’s performance contrasts

strongly with that of one of its main trading partners, China, which tops

the rankings.

Figure 2 - Malaysia's Building Sector Energy Efficiency Policy Score. As reported in the 2014

International Energy Efficiency Scorecard, ACEEE. *Malaysia’s policy performance was not reported in

the scorecard, but has been derived by BSEEP using the methodology presented in the scorecard

0

5

10

15

20

25

Building sector Energy Efficiency Policy Score

Ideal


Table 3 below assesses where Malaysia currently stands in a range of

dimensions with respect to building sector EE.

Table 3 Assessment of current building sector EE approach and performance

Areas of

Assessment

Descriptions Strategy/objective Action plans/Activities Performance/Results Issues and Gaps

1. Institutional

Framework

Various

government,

government-

affliiated and

non govt

stakeholders are

promoting EE

JKR promotes EE in govt buildings

KeTTHA promotes EE in buildings as part

of the green technology policy

ST administers EMEER and MEPS

CIDB is supporting its member on EE

developments

The NGOs GBI, MGBC, REHDA, etc

promote EE.

Development corridors (eg IRDA) are

trying to put in place EE policies.

JKR implements most

new government

construction projects

ST regulates EE

CIDB develops a

sustainable

infrastructure blueprint

NGOs promote green

buildings (eg GBI)

Mixed results.

The level of

coordination varies.

Responsibilities can

be unclear (eg SEDA

implementing the

SAVE scheme, not

ST)

Champion stakeholder for building sector

EE is unclear.

No central coordination to track building

sector energy use, manage EE initiatives

and report on impacts and benefits

2. Policy and

regulatory

framework

UBBL (new

buildings)

EMEER, MEPS,

National EE

Master Plan (not

adopted), Green

Technology

Policy,

Make new buildings more efficient

Make appliances more efficient

Provide a roadmap for holistic EE

KeTTHA is developing a

NEEAP

JKR has mandatory EE

performance

requirements for new

govt. building designs.

CIDB and JKR are

working on rating tools

KeTTHA has created

regulations: MEPS &

EMEER implemented.

Low Carbon City

framework created.

Status of NEEAP

unclear

Low adoption of UBBL

Lack of monitoring

Lack of effective enforcement mechanisms

Low adoption of UBBL

EMEER compliance not 100%

MEPS compliance low at start of scheme

Lack of market oriented policy

Lack of overall building sector EE policy.


Areas of

Assessment

Descriptions Strategy/objective Action plans/Activities Performance/Results Issues and Gaps

3. Financial

Initiatives

Incentives are provided and

administered by various

agencies

Incentivise EE initiatives to

promote take-up by

industrial & commercial

sector

Past & present: Pioneer

status, Investment Tax

Allowance, GTFS, Innocert,

Renewable Energy and

Energy Efficiency Scheme

(BPMB), SAVE, Free energy

audits, Import duty and sales

tax exemption for EE

equipment, Green building

rating tax incentive for

developers and purchasers

Very limited GTFS

applicants for

building EE

No information on

other incentives.

Low uptake due to

mechanism

Low uptake of loan guarantee

Monitoring and Evaluation not generally

done

Largely project based instead of program

based.

No stable financing mechanism identified to

fund incentives

4. Human

Capital

8 staff employed by EC to

administer EE regulation.

JKR assign a slightly higher

number of staff to

administer EE in

government buildings.

Human capacity

development is done on

internationally sponsored

projects.

NGOs undertake capacity

development.

Danish Project on EE

capacity building (finished)

BSEEP Project

Workshops held /

guidelines developed

Huge lack of human resources in

government.

Weak utilisation of domestic private sector

capacities


Areas of Assessment Descriptions Strategy/objective Action plans/Activities Performance/Results Issues and Gaps

5. Infrastructure The building stock is

expected to double by

2031.

Electricity consumption in

existing buildings is rising

Develop standards for

new buildings and

incorporate in the UBBL

Limit appliance energy

use through standards &

labelling

Certain provisions of

MS1525 have been

incorporated into the

UBBL.

MEPS has been

introduced at the

residential level

Only 1 state has gazetted the EE

provisions.

MEPS compliance rates and

savings unknown.

The EE provisions of the UBBL

haven’t been widely adopted by

state and local government.

A broad mechanism to enable

the retrofitting of existing

buildings is missing.

Lack of substantial investment in

building sector EE.

6. Innovations Various green technologies

Develop priority

technologies

Green Technology

foresight 2030.

Prioritised areas are related to

building envelope

Technology development on

random base rather than

systematic assessment; however

it is hoped this can be addressed

by the Green Technology

foresight report.

7. Awareness/Education Various initiatives by

various stakeholders

Informing and training on

selected topics

Programmes

implemented by

KeTTHA, ST, MGTC,

JKR and NGOs

Awareness workshops, leaflets,

materials, guidelines, newspaper

campaigns, training

Low awareness of most energy

users

Few consistent and systematic

capacity and awareness

programs.


Areas of Assessment Descriptions Strategy/objective Action plans/Activities Performance/Results Issues and Gaps

8. Monitoring &

Evaluation

KPIs have been

formulated in some

cases

Monitoring of budget

spending

SAVE, MEPS, SIRIM

energy testing lab

No information No systematic monitoring and

evaluation regarding impacts and

effects

9. Green growth aspects Building sector is

recognised as a key

sector in the

economy

It is assumed that green

technologies have huge

potential in the building

sector

Green technology and

SCP and BSEEP

policies are in

development

Draft strategies Systematic capitalising on building

sector EE for growth (connecting

the market) is in the infant stage.

In response to each of these issues and gaps the following approach is recommended.


Table 4 Strategy, actions and KPIs to overcome the issues and gaps in building sector EE.

Areas of

Assessment

Descriptions Strategy/objective Action plans/Activities Performance/R

esults

KPI

1. Institutional

Framework

Champion stakeholder for building

sector EE is unclear.

No central coordination

Define the champion stakeholder

and assisting stakeholders

Allocate responsibilities and

resources

Clear

identification of

champion and

others

Identified by 2016

Budget allocation

2.. Policy and

regulatory

framework

Lack of monitoring

Lack of effective enforcement

mechanisms

Low adaption of UBBL

Low full compliance with the EMEER

MEPS compliance low at start of

scheme

Lack of market oriented policy

Lack of overall building sector EE

policy.

Have a comprehensive EE

building policy and regulation to:

connect the market

create a stable financing

mechanism

incentivise the market

enable government to lead by

example

initiate institutional transformation

Monitor, evaluate.

Utility energy efficiency obligation

MS 1525 and its application across

Malaysia

Mandatory disclosure of building

energy performance

Appliance and Equipment

Standards and Labelling

Energy performance requirements

for govt. bldgs.

The policy is in

place

Blueprint ready by 2015,

policy endorsed by

Cabinet by ____


Areas of

Assessment

Descriptions Strategy/objective Action plans/Activities Performance/Results KPI

3. Financial

Initiatives

Low uptake of loan

guarantee

Monitoring and Evaluation

not done

Largely project based

instead of program based.

No stable financing

mechanism identified to

fund incentives

Ensure long term

stable funding and

targeted distribution of

funds with the goal of

driving large scale EE

in buildings.

Tariff charge / Utility energy efficiency

obligation

Develop methods which enable

appropriate incentive allocation

Targeted incentives for new buildings

(tax breaks)

Potentially provide a EE specific

revolving fund for ESCOs. (RM 1

billion), supported by government

purchase of EPCs

Stable long term funding

Effective usage of funds

Effective monitoring and

verification

Tariff charge of 0.2

sen/kWh from 2018 rising

to 2 sen/kWh by 2028, and

raising MR 990m in

revenue over RMK11, and

RM 33,000 by 2035. NB.

Current tariff is around RM

0.47/kWh.

This is used to deliver RM

88 b in net financial benefit

by 2035.

4. Human

Capital

Huge lack of human

resources in government.

Weak utilisation of

domestic private sector

capacities

Enhance capacity of

government to

administrate EE policy

Increase number of people employed

to administer EE in government.

Employ training pathways

Include private sector participation to

multiply human resources

Establish a Malaysian Training Centre

for Energy and Water Efficiency

Sufficient capacity to

effectively administer the

policy and its

instruments; an estimate

of 96 persons.

Training Centre is

established

EE building policy has to be

tabled together with a

business plan that spells

out resourcing

requirements, including

staffing.


Areas of

Assessment


5. Infrastructure The EE provisions of the

UBBL haven’t been widely

adopted by state and local

government.

A mechanism to enable the

retrofitting of existing

buildings is missing.

Lack of substantial

investment in building

sector EE.

Speed-up uptake of the

application of

MS1525/UBBL at the state

and local government

level.

Create mechanism that

create a market for the

retrofitting existing

buildings.

Persuade the states and local

authorities to mandate the use of

the EE provisions of the UBBL.

Create the following mechanisms:

Building performance disclosure,

Utility energy efficiency obligation

(UEEO), Expanded scope for

MEPS, government obligation to

engage in EPCs.

Establish a Green Building

Council with government

representation.

Wide mandatory uptake

of the EE provisions at

the state and local govt

level.

Market driven retrofitting

of buildings, driven by

mandatory disclosure,

MEPS, UEEO.

80% of states and local

authorities adopt the

MS1525/UBBL provisions

by 2020.

98% of buildings using

above 500 MWh/year

disclose their performance

in a NBECD by 2025.

UEEO saves 2m MWh in

2020.

MEPS encompasses all air

conditioning by 2017, by

2020 MEPS compliance

rate is 98%.

6. Innovations Technology development

on random base rather

than systematic

assessment.

Prioritise technologies

which can compete in the

marketplace

Assess and develop a list of

technologies based on their

market suitability.

Priority technologies

identified

Technologies identified are

in the Green Technology

Master Plan


Areas of

Assessment


7. Awareness Low awareness of most

energy users

Few consistent and

systematic capacity and

awareness program.

Increase awareness of

all energy users, building

developers, occupants,

government and

students on the

importance of EE

buildings.

Mandatory building performance

disclosure

Cross government and cross

institutional effort to promote EE

Establish a Malaysian Training

Centre for Energy and Water

Efficiency

Building sector energy

consumption can be

tracked in detail.

Coordinated efforts of all

stakeholders to promote

EE in buildings within a

broader SCP campaign.

98% of obligated buildings

are reporting to a NBECD

Annual mass media,

internet, social media

campaigns.

8. Monitoring and

Evaluation

No systematic monitoring

and evaluation regarding

impacts and effects

Beyond the KPIs, the

effects and impacts of

the EE building policy

shall be monitored and

evaluated.

EE building M&E is included in the

MYSCPI framework.

Produce annual reports, using the

National Building Energy

Consumption Database (NBECD).

Ensure the NBECD enables tracking

of energy saving activities.

Relevant indicators

identified and data

collected, evaluated and

reported.

Annual reports.

9. Green Growth

Relevance

Systematic capitalising on

building sector EE for

growth (connecting the

market) is in the infant

stage.

Systematically connect

the market to get

stakeholders

transactions mobilised to

enable green growth.

Move systematic integration of

green growth in the building sector

from the infant to childhood stage

Economic,

environmental and social

benefits

6,000 GWh, 4.6m tonnes of

GHG saved over RMK11,

2,600 jobs in buildings

sector EE by 2020.

SUGGESTED STRATEGIES FOR BUILDING

SECTOR EE

Based on the matrix presented in table 4, the six key recommended

strategies require the approach as tabled below.

Table 5:The six key strategies for building sector energy efficiency

Strategy Approach

Enable the market

(regulation)

Support the gazetting and application of EE building

codes and standards across Malaysia

Require Mandatory disclosure of building performance


Standards and Labelling program

Create a stable financing

mechanism Impose a tariff charge

Incentivise the market Create a Utility Energy Efficiency Obligation (UEEO),

making EE the first fuel

Have government lead by

example

Require all Ministries to develop and implement an

Energy Management Plan in line with ISO 50001,

including the use of Energy Performance Contracts

Strengthen Institutions Establish an Energy and Water Efficiency training centre

Establish a coordination unit and monitor and report

annually Monitor and evaluate


These approaches are summarised below

Enable the market

Support the gazetting and application of EE building codes and

standards across Malaysia

Effective building codes and standards are one of the most cost effective

ways of achieving large energy savings. For example good passive

design is something that can save large amounts of energy, yet the

opportunity for good passive design is largely lost once the building is

built.

However in Malaysia EE building standards or codes have not been

widely adopted across all 148 municipalities.

Rather than focus on further enhancing or expanding the scope of EE

building codes and standards, the recommended approach for the 11th

Malaysian plan is to focus on improving the application of the Uniform

Building By Laws (UBBL) across the country and adopting more of the

provisions of MS1525 into the UBBL, whilst also continuing to support

the voluntary application of MS 1525 in the construction of “green”

buildings.

Until such point that codes are widely applied, the economies of scale

that result in the construction industry effectively internalising the

additional costs will not be realised to their full extent.

The International Energy Agency has developed a ten step process

encompassing the plan-implement-monitor-evaluate process that


addresses these barriers to codes implementation. It is suggested that

Malaysia adopt a consultative process to both review its past

achievements and how to identify how to fully apply this process over

the 11th Malaysian plan.

Once code compliance is widespread, Malaysia can then move to

tighten codes and expand their application. A suggested pathway is that

Malaysia set building energy intensity requirements that lower every five

years such that new buildings use zero net energy by 2040, and that

these be widely communicated to enable industry to prepare

appropriately.

Require Mandatory disclosure of building performance

Mandatory disclosure of building energy performance has been shown

to be effective in reducing energy consumption in commercial buildings.

This is achieved by drawing energy consumption and comparative

performance to building owners, occupiers, tenants and buyers, and

thus providing competitive market advantage to better performing

buildings. In the residential sector energy saving results are less clear,

although there is evidence that property values and rental yields go up

as homes become more efficient.

In very rough numbers, at best, Malaysian mandatory disclosure could

lead to energy savings worth RM 325 billion annually, with the benefit

being approximately seven times the direct compliance costs. GHG

savings could reach 0.6 million tonnes annually and 250 people provided

with employment.


Mandatory annual disclosure is initially recommended for large office

tenancies and common property areas in larger buildings consuming

over 1,000 MWh/year. Over five years the scheme should be tightened

to eventually cover all non-industrial buildings consuming over 200

MWh/year.

Existing regulation can be modified to enable building energy

performance disclosure. Excess government revenue from a Utility

Energy Efficiency Obligation (UEEO) or White Certificate scheme could

be used to fund early incentives which would be withdrawn over the first

three to five years. Penalties would drive the necessary compliance to

ensure that the scheme is widely adhered to, which is essential for its

success.

Mandatory disclosure would be enabled through a National Building

Energy Consumption Database (NBECD). The key purpose of an

NBECD is to enable traceability of the impact of energy efficiency

measures through to changes in energy consumption, and to be able to

do so with a large data set in order to provide a high degree of

confidence in any findings.

If an ambitious set of building sector EE policies are to be adopted in the

11th Malaysian plan efficiencies should be sought in program

administration.

A NBECD is an elegant and cost-effective way of doing this and can also

serve the additional purpose of providing an administration and

regulatory tool.



Standards and Labelling program

Standards and Labelling (S&L) of appliances and equipment is widely

recognised as being a highly cost-effective EE policy measure. S&L is

the most widely used EE policy measure globally.

Malaysia, via a 2013 amendment to the Electricity Supply Act, restricts

the sale of domestic equipment, low voltage equipment usually sold

directly to the public, and low voltage equipment that does not require

special skills in its operation, unless approved by the Energy

Commission. It stipulates that in order to be approved a number of high

energy using residential appliances need to meet certain minimum

energy performance requirements (MEPS) and have an energy

efficiency label, as determined by the EC.

The EC is now planning to expand the scope of coverage.

International experience shows that the Measurement, Verification and

Evaluation (MV&E) of S&L programs is often a weak link in such

programs. Even relatively small percentage failure rates in compliance

can result in significant lost savings. Sufficient resourcing of MV&E

provides an outstanding return on investment.

It’s suggested that Malaysia have four areas of policy focus around S&L:

1. Additional products for the expansion of S&L should be selected

based on their economic benefit. This means expanding to also

cover equipment used in the commercial and industrial sectors,

particularly to commercial air conditioning


2. The roll out of additional products should happen in accordance

with a long term plan, which needs to be developed.

3. Malaysia should be better resourcing its capacity to administer and

enforce compliance with standards and labelling regulations,

including establishing a dedicated department to do this.

4. Malaysia can continue to play a role in harmonisation, particularly

around testing standards. As a small country that exports air

conditioners Malaysia has more to win than lose out of

harmonisation.

Create a stable financing mechanism – impose a tariff

charge

An additional tariff charge of 0.2 sen/kWh in 2018, rising to 2 sen/kWh

over an eleven year period and then remaining at 2 sen/kWh will provide

a stable long term financing mechanism.

At the current average tariff of 47 sen/kWh, this tariff charge will initially

represent less than 0.5% of the typical electricity bill, and will not apply to

residential consumers using less than 200 kWh/month.

A wide range of countries use this mechanism to fund EE incentives

through a Utility Energy Efficiency Obligation (UEEO). This includes EU

countries, Brazil and various states in the USA and Australia.


Incentivise the market through a UEEO

A Utility Energy Efficiency Obligation (UEEO), also known as a white

certificate scheme, is a way of financing energy efficiency upgrades and

driving large investment in energy efficiency. This is an emerging form of

policy, used in Australia, the US, Europe and Brazil.

UEEOs place an obligation on energy utilities to save energy, with a

fixed amount of “negawatts” to be generated each year. In effect EE

needs to be considered as a fuel – in California it is considered as the

first fuel. Utilities purchase energy savings – or negawatts – at a certain

price per negawatt-hour.

A UEEO is financed by an additional charge on electricity bills, with this

used to then incentivise EE – for example by providing a discount on a 5

star air refrigerator – based on the amount of negawatt-hours generated

over the lifetime of the fridge.

For a scheme that ran for 20 years from 2018 electricity consumers

could save over RM 100 billion (at a cost of RM 40 billion in additional

tariff charges), and greenhouse gas savings of 190 million tonnes could

be realised. The tariff charge could be enabled by linking it to the

subsidy rationalisation program.

Importantly a well-designed scheme can deliver energy efficiency

benefits to virtually all consumers – not just those who can afford

expensive renewable energy or EE measures. For example by providing

discounts on 5 star energy efficient appliances such as TVs and

refrigerators – appliances that are purchased by all income levels.


UEEOs are a relatively complex instrument and are significantly more

complex to administer than the Feed in Tariff as already exists in

Malaysia. However, as a market based mechanism they should deliver

least cost energy savings, with the price of each certificate, equivalent to

1 MWh of electricity saved, set by the market. Our estimate is that a

price of RM 150/MWh – equivalent to 15 sen/kWh - should provide a

strong incentive, noting that this is roughly half the cost of electricity

generation in Malaysia.

Given the complexity of a UEEO, Malaysia could consider starting with a

fairly simple model initially. It could also split off the funding mechanism

(the additional tariff charge) and manage this separately. Failure to

adequately administer a UEEO could result in “phantom” energy savings

being generated, and make little contribution to reduced carbon

emissions or improved energy security.

Malaysia could also consider using an additional tariff charge to raise

money for EE, but rather than put the obligation on the utilities to

generate savings, could put it onto a purpose created “energy efficiency

generator” as has been done in the U.S. state of Vermont. This then

removes the split incentive for a utility that also wants to maximise its

sales of generated electricity.

Have government lead by example

There are a large number of countries which have energy performance

requirements for government buildings. These range from construction

standards more stringent than those which apply to other buildings, to


reporting publicly on energy consumption, through to achieving high

operational performance.

It is suggested that Malaysia require:

The mandatory compliance for new or refurbished government

buildings with JKRs performance requirements.

Mandatory annual public reporting on energy consumption of

existing buildings

A requirement to improve the energy performance of existing

buildings, enabled by both:

- A requirement for Ministries to employ energy managers and

implement energy planning activities in accordance with ISO

50001

- Energy Performance Contracts of government buildings.

Compliance requirements would be monitored by JKR, the reporting and

improvement requirements by the Energy Commission, aided by the

Ministry of Finance.

Presently core federal government buildings2 are roughly estimated to

use RM 80m of electricity annually, and across the 22,300 government

buildings annual energy costs are estimated at RM 1.9b. A well

implemented policy has the potential to reduce energy consumption in

government buildings by 10% over the first three years with a payback of

2 Office buildings only


around three years, including administration costs. Subsequent

additional savings in future years will more than cover the costs of

compliance.

In addition to the budgetary benefits this policy will build up capacity in

reporting on and reducing building energy use, and can be used to

support the implementation of building performance disclosure, the

development of a National Building Energy Reporting Database and the

introduction of mandatory standards of all buildings.

These benefits will not be realised without effective policy

implementation. This requires enhancing the authority of the EC to

collect performance data and require performance improvements, and

capacity building and effective resourcing of government building energy

managers to enable timely reporting and effective building operations to

reduce energy use.

In leading by example government can stimulate the Energy Services

Contractor (ESCO) industry in Malaysia.

ESCOs have the potential to be able to use private financing to

undertake EE, reducing the need for government investment.

Malaysia’s Green Technology Financing Scheme has RM 3.5b of

funding available as a loan guarantee for projects that reduce energy

consumption, including building energy efficiency retrofit projects that

provide guaranteed savings and are delivered by Energy Services

Contractors (ESCOs). However no ESCO projects have been


implemented through this fund. The reasons for this go beyond

financing, and include:

Very little experience and familiarity in Malaysia with such projects

The lack of standard process and contracts

Financial risk is considered as high by financiers

To kick start the languishing ESCO industry in Malaysia government

should aim to purchase EE upgrades for existing buildings through

ESCOs.

Strengthen Institutions

Establish an Energy and Water Efficiency training centre

An Energy and Water Efficiency training sector will address capacity

concerns.

Strong capacity in any sector depends on market demand and the extent

to which the market demands leading performance.

As demand for building sector EE in Malaysia picks up, it is suggested

the Malaysia develop an over-arching approach to systematic wide

capacity building in EE that integrates over time with the training sector.

It’s suggested that Malaysia:

Allocate responsibility to the Ministry of Education, and establish a

Malaysian Training Centre for Energy and Water Efficiency


Look at capacity developing in governance, industry, and the

training sector

Ensure consistency of resourcing for the governance of EE – a

key challenge internationally

Focus not just on enhancing technical skills, but ensure that there

is capacity in policy, law, finance, management, measurement,

verification and evaluation

Foster international collaboration for the development of capacity,

so as to learn from and avoid the mistakes of other countries when

introducing new policies

Tap into a wide range of internationally provided training and e-

learning in EE.

Establish a coordination unit

A coordination unit will play the important role of driving energy efficiency

across all areas of building sector energy use. It will also monitor

performance and results, and be responsible for overall achievement of

building sector EE KPIs.

The establishment of a coordination unit also requires strong resourcing

of EE. It is suggested that 96 people be employed in government to

administer EE programs, as outlined in table 2.


Monitor and Evaluate

The establishment of a NBECD, and a coordination unit, will enable the

implementation of EE policy to be effectively monitored and evaluated.

Annual reports showing plans and progress should be provided at the

Ministerial level.

COMPARISON OF POLICIES

In arriving at the suggested policy approach above, a range of policies

were considered in response to stakeholder assessment.

These have been ranked by the author with respect to the following four

dimensions, in the Malaysian context:

Magnitude of savings when well implemented

International performance

Ease of effective implementation

Cost effectiveness

The ranking goes from 1 (low ranking) to 5 (high ranking). For example

energy efficiency codes and standards for building rank at 5 for

magnitude of savings when well implemented. This is the policy measure

that is expected to yield the greatest savings in Malaysia. On the other

hand mortgages to enable EE only ranks a 1 on the same dimension.

The ranking assessment is graphed below.


Figure 3 - Policy ranking assessment. A ranking of 1 is considered to be low (weak), a ranking of 5 high

(strong).

Two policy measures have relatively low rankings – mortgages to enable

EE and Energy efficient technologies/construction methods for new

buildings - and it is suggested that these not be adopted.

The following section presents a discussion of each policy in detail.

EXPECTED RESULTS

The implementation of these policies is expected to reduce electricity

consumption costs for Malaysian consumers by RM 174b by 2035, and

reduce GHG emissions by 270 tonnes, with nearly 15,000 people

employed in energy efficiency in the building sector, as tabled below.

0

1

2

3

4

5

Mandatory disclosure ofBuilding Performance

Energy efficiency codesand standards for

buildings

Energy performancerequirements for

government buildings.

Energy efficienttechnologies /

construction methods…Mortgages to enable EE

A Utility Energy EfficiencyObligation (UEEO)

Appliance and EquipmentStandards and Labelling

(S&L)

Policy ranking assessment

Magnitude of savings when well implemented

International performance

Ease of effective implementation

Cost effectiveness


Table 6 - Costs and benefits of building sector EE RMK11 to RMK14

Period

Cost to

consumers of

tariff charge

(RM m)

Savings to

consumers

(RM m)

Savings in

govt buildings

(RM m)

GHG

savings (m

tonnes)

People

employed

RMK 11

1,000

3,000

500

5

2,600

RMK 12

6,100

20,100

3,600

30

10,200

RMK 13

12,400

56,000

10,200

90

14,600

RMK 14

13,800

96,300

17,500

150

14,700

TOTAL

33,400

175,400

31,800

280

14,700

This investment in energy efficiency will leverage government

investment at a ratio of roughly 1:5, that is every RM 1b invested in

building sector EE will deliver roughly RM 5b in energy savings to

Malaysian consumers, as graphed below. And for every RM 1b of

government investment roughly RM 1.5b of private investment is

expected to be released.


Figure 4 - Performance and leverage of EE investment (building sector)

More or less government investment is expected to result in more or less

private investment and savings, in proportion to these leverage ratios.

From around 2025 these policies, when well implemented, should mean

that building sector electricity consumption ceases to grow, as graphed

below. Further investment, and the inclusion of building integrated

renewable energy, should then result in building sector electricity

consumption falling. This is illustrated in the figure below.


Figure 5 - Building Sector Electricity Consumption, BAU and with investment in EE

Further detail on the expected costs and benefits can be found in the

spreadsheet accompanying this document.


DISCUSSION PAPERS ON EACH OF

THE POLICY TOPICS

These are presented below, with one paper on each of the following

twelve policy topics

1. A Utility Energy Efficiency Obligation (UEEO)

2. Appliance and Equipment Standards and Labelling (S&L)

3. Disclosure of Building Performance

4. Energy efficiency building rating tools

5. A National Building Energy Consumption Database (NBECD)

6. Energy efficiency codes and standards for buildings

7. Energy efficient technologies / construction methods for new

buildings.

8. Energy performance standards for government buildings.

9. Enabling Energy Services Contractors

10. Mortgages to enable EE

11. Capacity building in EE

12. Incentives for EE


UTILITY DRIVEN ENERGY EFFICIENCY /

UTILITY ENERGY EFFICIENCY

OBLIGATION (WHITE CERTIFICATE

SCHEME)

SUMMARY

Utilities have the potential to engage with their customers to drive energy

efficiency. Whilst information campaigns, the provision of free energy

audits, or similar have often been undertaken by utilities, such “soft”

activities have had negligible impact on overall energy consumption.

Utilities have only been shown to be capable of either delivering or

fostering large scale energy conservation in the case of capacity

constraints (such as in Japan post-Fukushima) or where there is strong

regulation and incentive to do so.

A Utility Energy Efficiency Obligation (UEEO), also known as a white

certificate scheme, is a regulatory method of financing energy efficiency

upgrades and driving large investment in energy efficiency that utilities

can, if they so choose, use to decouple their income from the sale of

energy. This is an emerging form of policy, used in Australia, the US,

Europe and Brazil.

UEEOs place an obligation on energy utilities to save energy, with a

fixed amount of “negawatts” to be generated each year. They are

financed by an additional charge on electricity bills. Preliminary


modelling for Malaysia shows that harnessing an additional charge of

RM 0.002/kWh in 2018, rising to RM 0.02/kWh over an eleven year

period and then remaining at RM 0.02/kWh has the potential to reduce

electricity consumption in Malaysia by 9% by 2037 vs BAU. For a

scheme that ran for 20 years from 2018 electricity consumers would

save over RM 100 billion, and greenhouse gas savings of 190 million

tonnes would be realised. The tariff charge could be enabled in the first

instance by linking it to the subsidy rationalisation program.

Whilst funding for energy efficiency measures could come from the

Malaysia Electricity Supply Industries Trust Account (MESITA) fund, the

amount of funding available is insufficient to provide the large investment

needed for energy efficiency to deliver significant economic benefit.

Enabling such a scheme would likely require an amendment to the

Electricity Supply Act, or alternatively a new Act.

UEEOs are a relatively complex instrument and are significantly more

complex to administer than the Feed in Tariff as already exists in

Malaysia. However, as a market based mechanism they deliver least

cost energy savings, with the price of each certificate, equivalent to 1

MWh of electricity saved, set by the market. Australian experience

shows that as schemes mature the certificate price settles to well below

the ceiling price.

Modelling undertaken indicates that an UEEO could generate RM 4

billion of funding over and above that required to administer the scheme.

This will provide a valuable revenue source averaging around RM 200

million annually for the financing of other EE policies.


This policy paper describes how a UEEO works, assesses the strengths

and weaknesses of this policy measure, and looks at its suitability to

Malaysia, outlining elements of how a scheme might be set up in

Malaysia. Due to the complexity of such schemes it recommends that a

UEEO start off slowly, with a fixed certificate price, so as to provide time

for government, industry and utilities to become familiar with scheme

operation. It then recommends moving to market based certificate

pricing and rapid expansion. A scheme model is presented, showing the

possible economic benefits. Examples are presented of the level of

stimulus a UEEO could provide for a range of energy saving activities,

covering appliances, lighting, whole of building energy savings and

industry.

As an alternative to an obligation on the utilities to save energy,

Malaysia could also look at setting up a dedicated “energy efficiency

generator”, which has the liability to meet the annual target for energy

savings, effectively generating “negawatts”.

A UEEO has substantial synergy with other proposed measures. It

compliments MEPS, and the expansion of MEPS. It can be used to

incentivise improved whole of building performance. It can be used to

drive electricity savings in both the building and industrial sector, and

create significant employment opportunities in EE.

Achieving large energy savings requires large investment, which the

private sector is generally unwilling to make unless substantial incentives

exist. A UEEO is an effective way of financing and creating these

incentives.


A UEEO represents a leadership opportunity to Malaysia. It can lead in

developing smart-phone based tools that greatly reduce administration

effort, and in designing a scheme that integrates in a holistic way with

other policies rather than having a piecemeal approach. And it can be

the first ASEAN country to have an effective mechanism for providing

large on-going financing for EE whilst harnessing the power of the

market to deliver least cost savings.

On the other hand UEEO schemes are complex. Without effective

administration, measurement, verification, evaluation and enforcement a

UEEO is unlikely to be effective.

The paper concludes with a number of discussion questions to elicit

further suggestions.

UTILITY DRIVEN ENERGY EFFICIENCY

Globally utilities have been shown to engage in nine different types of

activities to reduce end use energy consumption through energy

efficiency.3 These include:

1. Advice and assistance (such as energy audits)

2. Information, education and promotion (e.g. general provision of

energy saving advice on a website)

3. Financial incentives (e.g. subsidies for EE products)

3 Energy Provider-Delivered Energy Efficiency, IEA, 2013

http://www.iea.org/publications/insights/EnergyProviderDeliveredEnergyEfficiency_WEB.pdf

http://www.iea.org/publications/insights/EnergyProviderDeliveredEnergyEfficiency_WEB.pdf


4. Direct installation of low cost energy saving measures, often at no

cost (eg CFL light bulbs)

5. Comprehensive installation – identify and implement all known

opportunities at a site

6. Equipment replacement

7. On bill financing – loans for EE products provided, with repayment

costs added to the energy bill.

8. Technology development – R&D, demonstration and

commercialisation of EE technologies

9. Bulk procurement and distribution (e.g. CFL light bulbs)

The dominant driver for utilities to engage in energy efficiency is

regulation, however some utilities have also engaged in EE because of

funding opportunities, their own internal corporate sustainability policies,

and to retain or win new customers. There are several examples where

utilities have undertaken EE in response to a need to urgently deal with

rising demand or capacity constraints, notably in Thailand and South

Africa. In the remarkable voluntary energy conservation savings

achieved in Japan after the Fukushima nuclear disaster in March 20114

4 How Japan Replaced Half its Nuclear Capacity With Efficiency.

http://www.greentechmedia.com/articles/read/how-japan-replaced-half-its-nuclear-capacity-with-

efficiency

http://www.greentechmedia.com/articles/read/how-japan-replaced-half-its-nuclear-capacity-with-efficiency

http://www.greentechmedia.com/articles/read/how-japan-replaced-half-its-nuclear-capacity-with-efficiency


the main role undertaken by utilities was the provision of information on

electricity consumption and supply capacity.5

Utilities have a revenue model based on the sale of electricity, and

therefore have little motivation to reduce energy consumption.

Accordingly in the absence of capacity constraints, very high energy

prices (i.e. as is the case in Malaysia – plenty of capacity and low energy

prices), or substantial incentives, “soft” utility driven energy efficiency

activities – such as information campaigns – have had negligible impact.

Through Utility Energy Efficiency Obligations (UEEOs) which create

annual energy efficiency targets regulators have attempted to create a

framework that can reward utilities for saving energy. California is likely

the most successful model, with a UEEO scheme in operation now since

2004. In Denmark utilities have successfully set up ESCOs to capture

this opportunity. For a UEEO to operate effectively over a long period,

utilities need to be willing to adopt new business models or divisions to

be able to decouple their revenue streams from electricity sales.

Accordingly, as is the case with many EE policies, sustained strong

governance, administration, measurement, verification and enforcement

is necessary for policy success, and utilities need to be willing to strongly

engage in a competitive EE marketplace.

5 Environmental Action Plan by the Japanese Electric Utility Industry, 2012,

http://www.fepc.or.jp/english/library/environmental_action_plan/__icsFiles/afieldfile/2013/03/27/action

plan_E_2012.pdf

http://www.fepc.or.jp/english/library/environmental_action_plan/__icsFiles/afieldfile/2013/03/27/actionplan_E_2012.pdf

http://www.fepc.or.jp/english/library/environmental_action_plan/__icsFiles/afieldfile/2013/03/27/actionplan_E_2012.pdf


A criticism of UEEO schemes is that even though a UEEO may create

an incentive mechanism for saving energy, ultimately they want to sell

more power. When setting up a scheme an important choice is to

whether to give the energy savings obligation to a utility, or to set up a

dedicated energy “energy efficiency generator” to take on an annual

savings obligation.

WHAT IS A UTILITY ENERGY EFFICIENCY

OBLIGATION?

A Utility Energy Efficiency Obligation (UEEO) places on obligation on a

utility to reduce the consumption of energy.

For example, a utility might be obliged to source 2% of its annual energy

supply from energy savings.

Utility energy efficiency obligations are also known as:

White Certificate Schemes.

Energy Saving Certificates

Energy Efficiency Resource Standards (EERS)

Energy Savings Obligations (ESOs)

Energy Savings Schemes

Energy Saving Initiative Schemes

Energy Company Obligation

By setting annual energy savings targets UEEO schemes can be very

effective in generating large energy savings. In California energy


efficiency is legislated as the “first fuel”, that is any loads should be met

first by energy efficiency.

As is being done in California, UEEO programs can also be used to

provide a transition towards stringent appliance and building standards.

California aims to have all new homes using zero net energy by 2020,

and all new commercial buildings to be zero net energy by 2030. A

UEEO scheme is now being used as an incentive. The plan is to phase

this out and replace it with wide ranging and stringent standards. Figure

6 shows this diagrammatically.

Figure 6 - Diagram from the California Public Utility Commission's (CPUC) Energy Efficiency Primer,

showing the move from incentives to codes and standards and the level of activity this will entail for its

UEEO incentive program for Investor Owned Utilities (IOU)

http://www.cpuc.ca.gov/NR/rdonlyres/18AFB3ED-AF8D-45CA-9E08-

E25FF3ED4B68/0/CPUCEnergyEfficiencyPrimer.pdf

http://www.cpuc.ca.gov/NR/rdonlyres/18AFB3ED-AF8D-45CA-9E08-E25FF3ED4B68/0/CPUCEnergyEfficiencyPrimer.pdf

http://www.cpuc.ca.gov/NR/rdonlyres/18AFB3ED-AF8D-45CA-9E08-E25FF3ED4B68/0/CPUCEnergyEfficiencyPrimer.pdf


WHERE ENERGY EFFICIENCY SCHEMES ARE

USED

UEEOs are used by several European countries (eg Italy, France,

Demark, the UK, Poland), roughly half of the states in the United States,

in four Australian states, in China and in Brazil.

The European Union Energy Efficiency Directive (2012) mandates that

all EU-28 countries are legally obliged to achieve a certain amount of

final energy savings by 2020. A range of mechanisms are required, one

of which is the obligation to use energy efficiency obligation schemes or

other targeted policy measure.6

India has developed a roadmap for the rollout of an EUUO.7

The required savings to be achieved by each country via a UEEO is

1.5% of the average energy sales over 2010 to 2012, for each year from

2014 to 2020.

Further information on some of the schemes used elsewhere include:

Australia: state of Victoria (pop 5m)

o Information for the general public:

http://www.switchon.vic.gov.au/how-can-i-take-charge-of-my-

power-bill/energy-saver-incentive

6 European Commission, Energy Efficiency Directive.

http://ec.europa.eu/energy/efficiency/eed/eed_en.htm

7 Preparing a Roadmap for Implementing Energy Efficiency Portfolio Obligation in India.

http://www.shaktifoundation.in/cms/uploadedImages/product-DSM.pdf

http://www.switchon.vic.gov.au/how-can-i-take-charge-of-my-power-bill/energy-saver-incentive

http://www.switchon.vic.gov.au/how-can-i-take-charge-of-my-power-bill/energy-saver-incentive

http://ec.europa.eu/energy/efficiency/eed/eed_en.htm

http://www.shaktifoundation.in/cms/uploadedImages/product-DSM.pdf


o Scheme administration (for use by scheme participants),

including the register of energy efficiency certificates and

links to scheme legislation: www.veet.vic.gov.au

Australia: state of NSW (pop 7m ?)

o This scheme, which commenced in 2009, had annual targets

increase from 0.4% of sales up to 4% of sales in 2014, then

remaining at 4% through to 2020. Cumulatively this will give

a 34% savings by 2020. http://www.ess.nsw.gov.au/Home

USA: state of California (pop 37m)

o Californian has a mature and comprehensive EE program,

much of it delivered through utilities. The target is a 17%

saving by 2020 from 2004.

http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/

USA: state of Vermont (pop 0.6m)

o Efficiency Vermont administers a fund collected from an

additional charge on energy bills. This is then used to

provide rebates on EE products.

http://www.efficiencyvermont.com/About-Us/Energy-

Efficiency-Initiatives

Brazil (pop 200m)

o This scheme has an annual allocation of 0.5% to EE

o English (but significantly out of date):

http://www.aneel.gov.br/area.cfm?idArea=262

o Portuguese: http://www.aneel.gov.br/area.cfm?idArea=27

http://www.veet.vic.gov.au/

http://www.ess.nsw.gov.au/Home

http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/

http://www.efficiencyvermont.com/About-Us/Energy-Efficiency-Initiatives

http://www.efficiencyvermont.com/About-Us/Energy-Efficiency-Initiatives




UK (pop 63m)

o https://www.ofgem.gov.uk/environmental-

programmes/energy-companies-obligation-eco

Portugal (pop 11m)

o This paper on the Portuguese system has a good approach

to ensure deemed savings are not over-estimated.

http://www.ure.gov.pl/download/1/6013/Portugueseenergyeffi

ciencyregulatoryprogramPPECPedroVerdelho.pdf

WHAT SORT OF ACTIVITIES ARE UNDERTAKEN

TO GENERATE SAVINGS FROM UEEOS?

Savings can be generated from either “standard” measures where the

savings are deemed (i.e. estimated) or project measures which require

measurement and verification of the savings achieved.

Some examples of activities include:

Efficient Water heating

Efficient Heating and cooling

Weather proofing and insulation

Efficient Lighting

Standby power controllers

Efficient appliances, such as televisions, refrigerators, clothes

dryers

https://www.ofgem.gov.uk/environmental-programmes/energy-companies-obligation-eco

https://www.ofgem.gov.uk/environmental-programmes/energy-companies-obligation-eco

http://www.ure.gov.pl/download/1/6013/PortugueseenergyefficiencyregulatoryprogramPPECPedroVerdelho.pdf

http://www.ure.gov.pl/download/1/6013/PortugueseenergyefficiencyregulatoryprogramPPECPedroVerdelho.pdf


Efficient Pool pumps

Efficient refrigerated display cabinets

Efficiency refrigerator fans

Efficient motors

Metered baseline for commercial and industrial (any activity can

be implemented, providing savings can be measured)

An example of how a white certificate scheme can be used to foster the

uptake of high efficiency appliances is shown below. This example

demonstrates how deeming the savings, and bringing the lifetime

savings forward, can be used to create a substantial incentive. It also

shows how a white certificate scheme can build on energy labelling and

MEPS for appliances.


Figure 7 - Example of white certificates applied to purchase of a high efficiency air conditioner

HOW UEEOS WORK

UEEO schemes can work as either market based schemes (white

certificate schemes) or as schemes that are not market based.

Market based white certificate scheme

As shown in figure 8, a market based scheme is one where tradable

certificates are generated from the implementation of energy-saving

Example: white certificates applies to the

purchase of a high efficiency air

conditioner.

Make certificates available for any

aircon unit with a star rating of 5,

based on the COP vs the MEPS

COP.

Installing a high efficiency 5 kWr

split system air conditioner with a

COP of 4.1 (vs MEPS at 2.36).

Would save approx 4.4 MWh over

a 10 year lifetime*. This equates to

4 certificates.

If the certificate price was MYR

120, this could be used to offer a

discount of up to MYR 480 on the

unit

The owner would save MYR 1,700

over the lifetime of the unit in

reduced electricity costs (at MYR

0.40/kWh)

*Deeming assumption: Unit is operated

for 2,000 hours/year with a 30% load

factor, for 10 years. Overall discount

factor for uncertainty is 81%. (0.9 x 0.9)


measures. Energy retailers are required to purchase a certain number of

certificates each year and surrender these to the regulator. Retailers

pass on the cost of certificate purchase to energy users. Each certificate

will either be equivalent to 1 MWh of electricity saved (Europe, USA) or

one tonne of carbon pollution that has been avoided (Australia).

Figure 8 - How a white certificate scheme works. Note some of the terminology: Energy retailers are also

known as obliged entities. An Accredited Certificate Creator is also known as an Accredited Person or an

Accredited Certificate Provider


Figure 9 Portion of a commercial electricity bill, NSW, Australia, showing how a range of environmental

charges are passed on to consumers, including the white certificate charge.

Certificates are generated when energy-savings measures are

implemented in accordance with the rules of the scheme. White

certificates can only be created by regulator-accredited parties.

Certificates are created by implementing measures that have been

approved by the regulator. Schemes often have a wide range of

measures that can be implemented, and industry can propose new

measures.

In many schemes savings for many of the energy saving activities are

deemed rather than measured, for ease of administration. Where a

deemed methodology is used, the lifetime savings are also deemed

upfront. Therefore, for example, a high efficiency air conditioner that is

deemed to save 1 tonne of GHG emissions annually as compared with a

standard efficiency air conditioner, and has an expected lifetime of 10

Environmental charges on a commercial

electricity bill, NSW:

LRET – Large (>100 kW) renewable

energy certificate

SRES – Small (<100 kw) renewable

energy certificate

Carbon charge – carbon price levied on

the generator passed through to the

consumer

NSW Energy Savings Scheme – EE White

Certificate


years, would generate 10 certificates on installation (assuming 1

certificate equates to 1 tonne).

White certificate schemes are market-based. That is the price of

certificates sold to utilities is set by negotiation between the seller and

the buyer. Being a market-based scheme, the measures that are most

cost-effective are implemented in favour of those that are less cost-

effective.

The government may set a cap on the certificate price and will determine

the annual quota that the market needs to produce. In a deregulated

market each energy retailer will be assigned a quota commensurate with

its market share. In a monopoly market the single retailer would need to

redeem all certificates. A cap is important to provide price stability to the

scheme.

Energy efficiency obligation schemes – not market based

A scheme that is not market based is similar to above. Rather than

certificates, fixed rebate amounts might be provided for a range of

measures selected by the regulator.

Other scheme models

Other models may place the obligation to generate savings on either a

state agency (rather than a utility) or a purpose created “energy

efficiency utility” as has been done in Vermont.

In India the Perform, Achieve Trade (PAT) scheme is similar to a UEEO,

but does not oblige utilities. Rather large energy intensive industry is


mandated to generate savings, and the obligation is on each individual

enterprise. Enterprises can trade their savings amongst each other,

however the overall savings target must be met. 478 plants have been

targeted, representing 54% of total energy consumed in India.8

PLUS, MINUS, INTERESTING OF UEEO

Plus

Key benefits of UEEO schemes include:

Provide a mechanism for public financing of EE

Drives large energy savings

Effective at driving savings in existing buildings

The benefits are inclusive, and not just limited to the wealthy

Provides an incentive for utilities to engage in EE

Can complement and leverage other initiatives, such as labelling

and MEPS

Provides market demand that stimulates the growth of ESCOs and

other EE product and service providers.

Is target driven

8 International Review of Trading Schemes for Energy Savings and Carbon Emissions Reduction,

Report Commissioned by the World Bank, Ricardo-AEA, September 2013.

http://www.thepRM.org/system/files/documents/International%20Review%20of%20Certificate%20Tra

ding%20Schemes%20v4%20final%20agreed.pdf

http://www.thepmr.org/system/files/documents/International%20Review%20of%20Certificate%20Trading%20Schemes%20v4%20final%20agreed.pdf

http://www.thepmr.org/system/files/documents/International%20Review%20of%20Certificate%20Trading%20Schemes%20v4%20final%20agreed.pdf


When targets are set high (> 1 million certificates/year) then this drives

considerable investment in energy efficiency. For example, the state of

Victoria currently has an annual target of 5.4 million certificates. At a

market price per certificate approaching $20, this is equal to a annual

investment of around $100m. Considering that white certificates typically

do not cover the full cost of the energy efficiency measure, and require

additional private investment, the annual investment arising from

certificates is also leveraging substantial additional private investment.

As identified in discussion paper 1, considerable investment is required

to realise large energy savings. White certificates scheme can leverage

private investment. How much private investment can they leverage?

One experienced EE policy maker has identified that public funding for

EE may be matched by private at a ratio of between 1:3 and 1:49 ,

although evidence for this was not provided.

Early results from California showed in the residential sector that rebates

of $2,500 were typical for a single family residential energy upgrades

averaging in cost of around $13,00010. This shows leverage of roughly

1:4. However, in the same report, it was also reported that EE programs

9 Richard Cowart, Energy Savings Obligations, Global Experience, Lessons Learned, Jan 2012.

http://www.iea.org/media/workshops/2012/pepdeebrussels/CowartSession1InternationalTrendsinener

gysavingsobligations.pdf

10 The Limits of Financing for Energy Efficiency, Borgeson, M., ZiRMing, M., Goldman, C., Lawrence

Berkeley National Laboratory, 2012. http://www.aceee.org/files/proceedings/2012/data/papers/0193-

000155.pdf

http://www.iea.org/media/workshops/2012/pepdeebrussels/CowartSession1InternationalTrendsinenergysavingsobligations.pdf

http://www.iea.org/media/workshops/2012/pepdeebrussels/CowartSession1InternationalTrendsinenergysavingsobligations.pdf

http://www.aceee.org/files/proceedings/2012/data/papers/0193-000155.pdf



which have been successful in reaching large markets have offered

incentives of 50% or more of the total cost.

My “gut feel” personal experience from operating an energy services

company over twelve years in Melbourne, Australia, would concur with

this, that incentives have to be proportionally large to attract private

investment.

The prior Malaysian experience with rebates could also inform this.

Factors that will influence the amount of leverage would include:

The extent to which energy costs are perceived to be high to very

high. Note that price shocks can create this perception (use to

enhance the scheme’s effectiveness, and a reason for making the

scheme high in price).

The capital available to invest in EE. This is related to the cash

reserves held by an individual or business. The wealthy are in a

better position to invest.

The extent to which the purchase provides non-monetary benefits,

such as status.

Typically many of the measures in UEEO schemes “deem” forward the

life-time carbon savings for the energy saving activity being implemented

to provide an up-front discount. Where this discount is large, this

encourages the up-take of energy saving measures.

There is evidence that UEEOs are much more effective than many other

policies in driving the retrofit uptake of energy efficiency measures in


existing buildings. For example, in the state of Victoria Australia, the

(deemed) carbon savings from this state’s white certificate schemes far

exceed the savings achieved by other state government energy

efficiency policies, such as the state government greener government

buildings program (where state government departments and agencies

are required to implement an energy performance contract). As they are

market based mechanisms they drive competition resulting in lower

prices for consumers. In the U.S. UEEO obligations along with MEPS

have been identified as the key policy measure that has begun to

decouple energy consumption from GDP.11

Compared with household solar PV systems, residential white certificate

schemes are much more “democratic” in that for many measures only a

small investment will be required by the household to attract the co-

investment provided by the white certificate scheme. An example would

be subsidised lighting. This opens up the benefits of a white certificate

scheme to poorer households, and doesn’t limit it to only those who can

afford a substantial up-front capital investment.

In de-regulated markets white certificates can help energy retailers “de-

couple” their income from energy sales. This provides an incentive for

utilities to engage in EE.

11 Why is Electricity Use No Longer Growing, American Council for an Energy Efficient Economy,

2014, http://www.aceee.org/white-paper/low-electricity-growth

http://www.aceee.org/white-paper/low-electricity-growth


UEEO schemes can be used to complement a range of other policies,

such as:

Labelling and MEPS

ESCO financing

Building performance disclosure

For residential and commercial building sectors energy efficiency has

traditionally failed to gain much tracking without heavy government

subsidies. UEEOs break down a range of barriers and can result in EE

delivering long-hoped for savings.

Minus

Negatives of an UEEO scheme can be:

Price increases on electricity bills may not be welcome. On the

other hand the government is moving towards subsidy

rationalisation, and a UEEO is an effective way of undertaking

subsidy rationalisation, as it actually provides more benefit to

consumers than subsidies do.

Establishing a robust scheme which enables effective market

competition requires considerable effort to establish and

administer. It is a relatively complex mechanism that requires

considerable effort to educate and inform scheme participant

about, and to enforce the following of the schemes rules. However

as a rapidly developing country Malaysia certainly has the

expertise to manage this if it is appropriately resourced.


There may be significant volatility in certificate prices. If deeming

or measurement of savings is not done accurately, the scheme

may not deliver cost-effective carbon abatement. Malaysia can

learn from the experience elsewhere, and by investing in robust

M&V avoid this problem

If the scheme is very successful, the utilities with obligation under

the scheme may disengage due to lost revenue from electricity

sales. But with Malaysia’s electricity use growing strongly, a UEEO

would slow the rate of growth, not cause an absolute decline in

revenues. Alternatively a purpose created “energy efficiency

generator” utility could be established.

The establishment of a white certificate scheme requires considerable

effort, in informing and educating stakeholders, identifying suitable

activities, developing deeming methods, setting up administrative and

data management arrangements, and in ensuring that verification can

and is done effectively. Effective resourcing of scheme administration

and management is essential to its success.

Interesting

Utilities need to be willing to develop new business models or divisions

that deliver energy efficiency, so as to be able to profit from a UEEO.

Certificate schemes have the potential to trade with other market based

measures. If a certificate is based on one MWh of electricity saved, it

can be converted to a carbon equivalent using the emissions factor

applicable at that time.


Trading could possibly go beyond Malaysia’s borders.

DESIGNING A UEEO

The steps in designing a UEEO are summarised below12:

1. Establish the sectoral coverage of the energy obligation

2. Identify the obligated parties

3. Define the obligation clearly and specifically

4. Prescribe adequate penalties for non-compliance

5. Describe who may be accredited to carry out energy efficiency

projects to meet the obligation

6. Define the energy efficiency measures that will be eligible for

meeting the obligation

7. Define how energy savings will be counted and validated

8. Define the source of funding

9. Require and effective measurement and verification (M&V)

program

10. Adjust obligations at regular intervals.

These are discussed in the Malaysian context further below.

12 Regulatory Mechanisms to Enable Energy Provider Delivered Energy Efficiency, March 2012,

Regulatory Assistance Project, http://www.raponline.org/document/download/id/4872

http://www.raponline.org/document/download/id/4872


APPLICABILITY TO MALAYSIA

General suitability

UEEOs are a method of attracting significant investment into EE and can

help create a strong ESCO capacity by creating market demand.

As discussed above many UEEOs rely on the implementation of

measures whose savings have been deemed. The development of these

“standard measures” for use in a UEEO could also be used to facilitate

other proposed measures already being considered, such as for

example accounting for the extra cost of a home loan to ensure highly

efficient air conditioners are installed.

UEEO schemes are essentially self-funding, and require no investment

of general government revenue.

Electricity subsidies

Malaysia has clearly recognised that in the long term energy subsidies

are unsustainable. The use of a white certificate scheme provides a

politically acceptable way of a reduction in subsidies. Government could

argue that “yes, the price of electricity has gone up, but this is being

used to subsidise energy efficiency measures available to all

consumers”. It is appropriate to link the tariff charge increase associated

with a UEEO to Malaysia’s subsidy rationalisation program.

There is anecdotal evidence that the relatively small feed in tariff charge

has not created a consumer backlash. So it appears politically


acceptable to add another small environmental charge to electricity bills

to enable the implementation of a UEEO.

On the other hand, with only gradual small increases in electricity prices,

the “rebound” effect is more likely.

An example of a rebound effect would be the replacement of an

inefficient “window ratter” air conditioner with a COP of say 2, with a high

efficiency split system with a COP of 4. The new air conditioner would

use half of the energy of the old and cost half as much to run each hour.

The occupant may then chose to run the air conditioner more often,

increasing the homes comfort, and offsetting some of the total energy

savings that would have been achieved had the new air conditioner only

been operated for the same amount of time as the old air conditioner.

There is evidence that rapid increases in electricity prices foster

behaviour change to reduce electricity use, and reduce the “rebound”

effect. A World Bank study identified “Get the pricing right” as one of five

key success factors for EE, and provides the example of how price

shocks from the removal of subsidies have been effective in driving

decreased energy use in Poland and Lithuania.13

Its is therefore proposed that over the first three years the scheme start

with modest targets to enable industry and government to gain familiarity

with the scheme and to ensure smooth administration. However, from

13 Energy Efficiency – Lessons Learned from Success Stories, World Bank, 2013.

http://documents.worldbank.org/curated/en/2013/01/17597865/energy-efficiency-lessons-learned-

success-stories

http://documents.worldbank.org/curated/en/2013/01/17597865/energy-efficiency-lessons-learned-success-stories

http://documents.worldbank.org/curated/en/2013/01/17597865/energy-efficiency-lessons-learned-success-stories


year’s four to eleven the target should increase rapidly. If accompanied

with the further removal of subsiside to create a price shock its

effectiveness will be improved.

Why not start off big?

Malaysia recognises that its energy efficiency performance to date could

be improved on. And globally the profile of energy efficiency is rising.

There is increasing pressure for Malaysia to get some “quick wins” from

energy efficiency.

However rushing to start a UEEO that very quickly generates large

savings could backfire:

Malaysia does not have a history of public administration of large

amounts of EE funding. The UEEO will create a large funding

source.

The administrative complexity and expense of getting a smoothly

running UEEO scheme established should not be underestimated.

It is much more complex than a Feed In Tariff. Some of this

complexity comes from:

Ensuring that chances for scheme fraud are minimised whilst

keeping the procedures easy to follow so as to not deter the

generation of certificates. This can be very challenging. For

example, with respect to the sale of high efficiency appliances,

various opportunities for fraud exist: falsification of model

numbers/serial numbers, creation of phantom customer, reselling

overseas, etc.


Ensuring that deemed energy savings are accurate. This has been

a key weakness of at least one international scheme 14 . For

example, for an air conditioner, it is easy to determine the power

savings at full load based on the Coefficient of Performance (COP)

of the unit. However to determine the energy savings relies on

understanding the loading factor and hours of use. Is the air

conditioner the only one in the house? Or is it going into the guest

bedroom that is only used one month a year? What is a

comfortable temperature for the occupants of the house and how

heavily is the aircon loaded when in use? This can only be done

accurately by sampling a statistically significant sample for a

statistically significant period of time, which is expensive and time

consuming.

Establishing a database to enable the proper recording,

verification and trading of certificates; register of accredited

persons; dissemination of scheme rules and any changes to those

rules

14 The Victorian scheme in Australia had very high deeming factors for standby power controllers

(SPCs), such that they could be installed for free. SPCs flooded the scheme, accounting for around

80% of certificates from 2010 to 2012. However there was a good body of evidence that the savings

were “phantom”. The administrator eventually recognised this, and slashed the deeming factor in

October 2013. Unfortunately by then the market was saturated with SPCs, it was a case of being too

late. Poor deeming from the start, coupled with a lack of resourcing to enable agile and responsive

scheme administration, lead to the scheme operating poorly for a three year period. Unfortunately the

whole scheme now has a cloud over its future. A change of state government means that the new

government is now questioning the value of the scheme.


Extensive industry consultation by those industries impacted by

the scheme and from where accredited persons are likely to come

from. For example, this would include the retailers of appliances.

Training and awareness raising; engaging with those who will

likely be accredited persons.

The energy efficiency industry could be characterised as immature

in Malaysia. It will require a lot of effort to educate and inform the

wide range of potential providers of EE service providers who

could benefit from a UEEO.

There is some evidence from the SAVE scheme that getting the

administrative arrangements and correct functioning of the

scheme right will take some time. Starting off with a high charge

from the start, if the scheme has teething problems, may create an

industry and public backlash against the scheme.

White certificates could also potentially even provide a long term

pathway for the retirement of feed in tariffs, and adoption of a single

certificate system that essentially becomes a single way of valuing the

carbon savings achieved by Malaysian renewable energy supply and

energy efficiency projects.

Timing

The chart below shows suggested timing should Malaysia chose to

introduce a UEEO scheme


Figure 10 Possible timing of a UEEO scheme in Malaysia

Note the following key elements of this suggested time line:

A long lead time of nearly 3 years. This is to allow for very through

scheme design, building on global experience so as to minimise

the chance of repeating mistakes from elsewhere (such as over-

deeming), and also developing an on-line platform that will enable

much of the scheme administration via smart phone. Once

Malaysia decides to proceed, a key initial task will be developing a

comprehensive start up plan for this period.

Training is an important element that needs to be well resourced.

Training will predominantly be for accredited persons. It should not

just occur before the scheme starts, but over the first three years

to encourage new entrants. Training can likely scale back from

year four on.

Scheme formally endorsed by cabinet as

part of the 11th Malaysian plan

Scheme design

Amendment of the Electricity Supply Act

to make provision for the scheme

Stakeholder engagement, define energy

saving measures to use at start

Develop scheme rules

Conduct training

Development and testing of database

and on-line platform for scheme admin

Final preparations prior to scheme

launch

Scheme introduction: first 3 years.

Scheme expansion

Scheme is “Business as Usual” / / … / / …

Transition away from the scheme as

standards and regulations toughen …

2020 2021 2027 20282015 2016 2017 2018 2019 2039…

…

… … 2037 20382033 2034


A possible system design for Malaysia

Below is a rough outline of how the design elements outlined earlier

might play out in Malaysia. Its suggested that the UEEO scheme in

Malaysia be a white certificate system.

Establish the sectoral coverage of the energy obligation

Option 1: To cover commercial and residential users of electricity.

However it may be difficult to stop industrial or other sectors

participating. Additionally many energy users, such as SMEs, may not

know if they are classified as commercial or industrial.

Option 2: To cover all electricity users in Malaysia. This would simplify

scheme administration. It would also then be able to be used to

incentivise industrial EE, which may have the potential to generate large

savings.

The modelling below is based on option 2.

Identify the obligated parties

Parties obliged to surrender certificates each year in accordance with the

target, or the “obligated entity”:

Option 1: The three electricity companies: Tenega Nasional, Sabah

Electricity and Sarawak Electricity. This has the benefit of encouraging

the power utilities to think of EE as a “fuel”, possibly as the “first fuel” as

is done in California. Additionally it is easy for the utilities to

communicate with customers and can provide information about the


program and how incentives can be accessed either printed on or

attached to electricity bills. It also provides an incentive for the utilities to

reduce electricity consumption.

Option 2: A purpose created “energy efficiency generator.” The

advantage is no loss of focus, whereas utilities have multiple priorities,

such as reliability of supply, asset maintenance, etc. Additionally a

purpose created energy efficiency generator has no motivation to sell

more electricity.

Option 2 is only used in Vermont, with a population of 0.6m. If the

scheme wants to build on learning from elsewhere, it might be better to

pursue option 1, where there is a much greater body of experience.

Scheme administration and enforcement

One of the admin agencies under KeTTHA. Whilst the EC has

responsibility for EE, SEDA possibly have more appetite.

The administration and enforcement agency should be clearly separate

from the obligated entity(ies) required to surrender certificates to as to

enable “arms length” scheme administration.


Define the obligation clearly and specifically

The obligation would be comprised of:

A long timeframe for the scheme, likely in the vicinity of 20 years,

with the option of extending it. Long time frames are a key element

of successful schemes.15

One certificate = 1 MWh (as Malaysia’s emissions factor is

changing, setting 1 certificate to 1 tonne CO2-e would require

annual or bi-annual adjustment of the number of certificates

created by each activity, which would confuse the market and

create unnecessary administrative work)

Certificates shall only be created on evidence that the energy

saving product or activity is installed (so as to avoid the creation of

“phantom” energy savings, or exploitation of the scheme)

An annual target as to number of certificates that need to be

surrendered.

Target to start low and be increased every year during the first

three years of the program to gradually introduce to industry and

the public, and to iron out any administration difficulties. The target

then to ramp up through to 2028, when 18 million certificates need

15 Policies for Energy Provider Delivered Energy Efficiency, IEA, 2012.

http://www.iea.org/publications/freepublications/publication/PEPDEEBrusselsWorkshopReport_FINAL

-1.pdf

http://www.iea.org/publications/freepublications/publication/PEPDEEBrusselsWorkshopReport_FINAL-1.pdf



to be generated. Through from 2028 to 2037 the annual target

then remains at 18 million certificates.

The price in the scheme to be fixed for the first two to four years of

operation.16

A maximum certificate ceiling price should be set (to avoid

stockpiling)

Prescribe adequate penalties for non-compliance

Any shortfall in certificates surrendered by the obligated entity(ies) would

be penalised at the maximum ceiling price for each certificate short for

the first 5% shortfall, then increase at an escalating rate.

In the first year the penalty would be relaxed, then tightened up over the

following year.

For those accredited to carry out EE projects to meet the obligation

penalties will vary from:

1. Warning letter on minor breach.

2. Withdrawal of accreditation for a more serious breach or repeated

minor breaches.

3. Criminal prosecution in the event of deliberate fraud, as identified

by the scheme administrator.

16 As recommended under the heading “Pros and cons of tradability” in Policies for Energy Provider

Delivered Energy Efficiency, IEA, 2012.

http://www.iea.org/publications/freepublications/publication/PEPDEEBrusselsWorkshopReport_FINAL

-1.pdf




Describe who may be accredited to carry out energy efficiency

projects to meet the obligation

Any person may be accredited. Anyone accredited shall be required to

attend training, pass an examination, and make a statutory declaration

to follow the rules of the scheme. They will also be required to participate

in audits.

Define the energy efficiency measures that will be eligible for

meeting the obligation

EE measures eligible for meeting the obligation shall be:

Year 1: High efficiency (5 star +) versions of all MEPS liable

appliances (currently split system air-con, fridges, fans, TVs),

lighting upgrades, plus a small number of industry nominated

measures during early stakeholder consultation on scheme design.

Years 2 to 6: Additional administrator or industry nominated

measures.

Any measures introduced after year 1 to be finalised no less than 6

months before the next year, to enable sufficient time for industry

training.

All measures will need to have robust Measurement and Verification to

ensure that the savings achieved are real. For deemed measures

typically around 18 months to 2 years should be allowed to do this.


Define how energy savings will be counted and validated

Energy savings will be counted on the date of certificate surrender,

however the final number of certificates created annually will be subject

to an annual audit prior to being recognised.

Each measure implemented will receive preliminary validation at the time

of certificate creation via the smart phone app; with random sampling,

phone validation and physical inspections providing final validation.


Table 7 Lifecycle of a white certificate

Activity Who is involved When this occurs

Certificate

creation

The energy user: assigns

the savings to the

accredited person.

The accredited person:

creates the certificate(s)

based on the savings.

Scheme administrator:

audits the correct creation

of certificates.

Either:

For deemed savings: When the energy

efficiency measure is installed and the

energy user assigns the deemed savings to

the accredited person, and the accredited

person registers the certificate(s).

For measured savings: When the M&V

report is complete to measure actual

savings and the energy user assigns the

deemed savings to the accredited person,

and the accredited person registers the

certificates.

Certificate

purchase

The accredited person:

sells this certificate

The obliged entity:

purchases the certificate

This is a market based transaction and will

occur when both the seller and buyer have

agreed on the certificate price.

Certificates

surrender

The obliged entity:

surrenders the certificate

The administrator:

Receives the certificate

then extinguishes it so that

it can no longer be used.

Also does an annual audit.

At least once annually, as determined by the

scheme’s rules.


Define the source of funding

The scheme will be funded by an additional charge on electricity bills for

all users consuming > 300 kWh/month. Initially set at 0.2 sen/kWh, it will

rise at 0.1 sen/year over the second and third years. After the first three

years, the annual increase will then be 0.2 sen, with this increase

continuing until the 11th year (2028) when it will reach 2 sen/kWh, and

then remain at 2 sen/kWh.

The charge would need to cover:

The cost of certificate purchase by the obligated entity(ies)

The administration cost

Early costs associated with scheme establishment

An ongoing margin for government to fund other EE or RE policies

such as training, information campaigns, administration of MEPS,

etc.

A margin for the obligated entity(ies). The margin should be

sufficient to create incentive to the obligated entity(ies) to meet the

annual quota.

The charge would need to deliberately exclude the costs incurred

by the obligated entity(ies) in meeting any shortfall in their

obligations, so that there is also a strong dis-incentive for failing to

meet obligations. This should be structured so that say any

shortfall of 10% or greater in meeting the annual target creates an

overall loss for the obligated entit(ies)


Require an effective measurement and verification (M&V)

program

For appliances savings will be deemed forward over the lifetime of the

unit. Savings to be based on a nominal appliance lifetime and based on

the difference between the annual energy consumption of the appliance

and that of a 2 star appliance that is at the MEPS cut-off level. The

lifetime for the purposes of deeming shall be the lesser of ten years or

the known appliance lifetime. A discount factor shall be applied to

account for uncertainty (discount factor to be no greater than 0.9)

Other activities will have either deemed savings or measured savings.

Calculation of deeming values should require the undertaking of trials

and measurement of actual savings, undertaken in accordance with the

International Performance Measurement and Verification Protocol

(IPMVP) to verify the lifetime benefit, using sample sizes that provide

80% certainty that the deemed savings are within plus/minus 20% of

actual. As discussed earlier a key flaw of at least one scheme has been

poor deeming which has created phantom savings.

Any measurement of savings for other activities will need to be based on

the International Performance Measurement and Verification Protocol

(IPMVP) with the aim of achieving 80% certainty that measured savings

are within plus/minus 20% of actual.

In all cases a discount factor of no greater than 0.9 shall be applied to

account for uncertainty. For example one of the factors to consider when

developing a discount factor could be that a new high efficiency air


conditioner purchased under the scheme could go into a new apartment

that remained unoccupied for a long time.17

Adjust obligations at regular intervals.

The scheme will have a major review after 2 years. There will be a minor

review 4 years from commencement, and a major review 6 years from

commencement, at which point the timing of further reviews will be

decided.

Modelled savings achieved by a UEEO

The graphs below shows the savings, costs, benefits achieved by a

UEEO which operates for 20 years, based on a range of assumptions

following the graphs. Beware of assumptions

These graphs are indicative only, to aid in the assessment of whether a

UEEO will be implemented in Malaysia or not. Note modelling done for

the purpose of full scheme design (beyond the scope of BSEEP) may

produce a different set of number. Beware – assumptions can be

dangerous!

Note that the savings continue for another 10 years after the scheme

ends.

17 Portugal has used discount factors as low as 0.2, where savings are highly dependent on consumer

behaviour and consumers have an alternative to the EE equipment supplied. Portuguese energy

efficiency regulatory program (PPEC),

http://www.ure.gov.pl/download/1/6013/PortugueseenergyefficiencyregulatoryprogramPPECPedroVer

delho.pdf


Figure 11 Malaysia's projected energy consumption, BAU and with a white certificate scheme.

The scheme would grow such that by 2034 electricity consumption

would be 9% below BAU.

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100,000,000

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Elec

tric

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on

sum

pti

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(M

Wh

)

Malaysia's projected electricity consumption, BAU and with a UEEO

Sum of Malaysia expected annual electricity consumption, BAU, assume linear growth to 2030, than a halving of thegrowth rate (MWh)*

Sum of Malaysia annual electrictity consumption after UEEO taken into account (MWh)

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mill

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h),

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illio

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CO

2-e

)

Projected annual electricity savings and GHG savings

Sum of Annual electricity savings (compared with year zero),million MWh

Sum of Annual GHG savings (million tonnes CO2-e)


Figure 12 Projected annual electricity and GHG savings

By 2037 near 14 million tonnes of GHG would be being saved annually.

Overall he scheme is expected to save around 250 million MWh and 190

million tonnes of GHG.

Figure 13 Revenue raised by scheme and how it is distributed

By 2028 the scheme would:

Be providing employment for an estimated 13,000 people

Be providing RM 1.7b annually to directly fund EE measures

Over the scheme lifetime additional funds would be generated which

could be allocated to further stimulate EE and RE in Malaysia through:

Information, awareness raising and education

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500

1,000

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(RM

mill

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)

Revenue raised by the scheme and where it goes

Sum of Surplus revenue for other EE/RE policy (RM million)

Sum of Revenue to scheme administrator (RM million)

Sum of Revenue to obligated entity(ies) (RM million)

Sum of Revenue to accretited persons (RM million)

Sum of Revenue to actually fund the EE measure (RM million)


Funding retrofits of government buildings

Providing training

Providing funds for the expansion of MEPS and associated

administration, training and awareness raising costs.

Funding other policies not listed above.

Over the 20 years the scheme would provide over RM 4 billion in surplus

funds to government to invest in EE/RE. It would provide close to RM 25

billion in direct funding to EE. ESCOs and other accredited persons

would be expected to make RM 6 billion from the scheme, which would

help create a vibrant and strong EE industry in Malaysia. The obligated

entity(ies) would receive around RM 3 billion in revenue, which should

be more than adequate to cover the costs of personal required to

manage the trading of certificates. The administrator would get about

RM 1.6 billion in revenue.


Figure 14 Costs and benefits to consumers

If the scheme were discontinued after 2036, benefits would continue to

flow to consumers. The overall expected value of electricity savings is

RM 100 billion, at a cost to consumers of RM 40 billion, leaving them RM

60 billion better off.

Modelling assumptions

Assumptions can be very dangerous, and its highly risky to assume they

are correct. Notes are made below on the various assumptions.

Assumptions used in the modelling presented above

That the scheme starts on 1 January 2018.

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ost

s, b

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(RM

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)

Costs and benefits to consumers

Sum of Value of electricity savings to consumers, MR million

Sum of Cost to consumers of tariff increase, MR million


That in the absence of a UEEO Malaysia’s total electricity

consumption over the period 2018 to 2037:

Continues to grow at a rate of 4.26 million MWh/year (the same

average growth rate from 1990 to 2012) through to 2030. Based

on Energy Commission data at http://meih.st.gov.my/statistics

accessed March 2014.

From 2030 the rate of growth slows to half that.

This assumption seems reasonable, but is not based on any

evidence or any published study of forward electricity use.

An average electricity tariff of RM 0.40 which is stable over the

period. Note in reality tariff’s will rise, which will increase the value

of electricity savings.

One certificate = 1 MWh of electricity saved

An emissions factor of 0.75 tonne CO2-e/MWH (which is constant)

All measures produce deemed savings, with a lifetime of 10 years.

Or, in other words, if deemed savings of 1,000,000 MWh are

achieved in a year, that the actual savings in that year, and in

each of the following 9 years, is 1,000,000 MWh divided by 10 =

100,000 MWh. Note in reality there will likely be a mix of deemed

savings (which will have a range of deeming periods) and metered

savings, which the certificates are not deemed and must be

claimed each year based on metered reductions in electricity use.

The obligation in the first 11 years rises each year. The scheme

starts year 1 with 1 million certificates, 1.5 million in the second

year and 2 million in the third year. After three years it is expected

http://meih.st.gov.my/statistics


the scheme will be running smoothly, and the target will then rise

by 2 million certificates a year, through to the 11th year when it will

reach 18 million certificates. The obligation will then remain steady

at 18 million certificates a year. Note that this will be determined

in the scheme design.

The charge to consumers starts at 0.2 sen/kWh in year 1, is 0.3

sen/kWh in year 2 and 0.4 sen/kWh in year 3. It then rises at 0.2

sen/kWh/year through to year 11, settling at 2 sen/kWh from then

on. Note that this will be determined in the scheme design.

Figure 15 Number of certificates surrendered, annual tariff charge above BAU

That electricity consumption equivalent to 80% of total Malaysian

electricity consumption is subject to the additional tariff charge. Its

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urr

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(m

illio

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Number of certificates surrendered, additional tariff charge above BAU

Sum of Number of certificates surrendered (million)

Sum of Additional tariff charge (sen) above BAU


assumed that this would represent all consumers using over 300

kWh/month. Note – this is a guess. I have no evidence that this is

the case.

That the market certificate price is steady at RM 120. Note.

Experience in the NSW and Victorian schemes in Australia shows

that whilst the price of certificates may be high in the first year or

two of operation, it may then drop considerably as industry

becomes more adept at delivering energy savings cost effectively.

If the certificate price drops, and the additional tariff charge

remains, this will create a large amount of surplus revenue for

government.

That the accredited persons creating certificates keep 20% of the

certificate price for themselves for administration/profit (ie RM 24).

Note – this is a guess. It will be up to each accredited person to

decide how much they want to keep, and how much they want to

pass onto the customer. As a market based mechanism there is

an incentive for accredited persons to minimise their costs to gain

market share. Additionally brokers may enter the market, at

intermediaries between the accredited persons and the obliged

entity(ies); brokers will want a slice of the cake too. The more that

accredited persons/brokers keep for themselves, the less incentive

there will be for consumers to adopt EE. Market forces should

balance it out.

That the administration fee on surrender of certificates starts high

at 20% in the first year, drops to 15% in the second year and 10%

in the third year (providing the administrator a fairly stable income


of the first 3 years of around RM 24 million/year, drops to 8% in

year 4, then 1% a year in year’s 5, 6 and 7, and then remains

stable at 5%. Administrator revenue will continue to rise, however,

during the growth period of the scheme, and will then settle at RM

100 million/year. This will provide good levels of funding to provide

training, education, and very importantly to provide robust and

consistent measurement and verification to ensure the integrity of

the scheme. It can also contribute to the development and

maintenance of software and databases needed to effectively

manage the scheme. Note: This will be determined in the scheme

design.

That the obligated entity(ies) have a margin of 10% for admin

expenses. Note: The allowance for obliged entity margin will be

determined in the scheme design.

That revenue of RM 100,000/year will create 1 job in an admin

capacity (eg scheme administrator, administration work accredited

persons need to do, administration expense of the obliged

entities). Note – I have no reports or guidance to validate this

estimate.

That revenue of RM 300,000/year will create 1 EE job (e.g. ESCO

employment, additional employment by

manufactuers/importers/retailers of energy efficient appliances,

etc). Note – I have no reports or guidance to validate this estimate.


Figure 16 Cost associated with 1 certificate, based on a certificate price of RM 120. *Note that additionally

the scheme administrator costs would be higher

Enabling Legislation

Possible ways of creating the enabling legislation are:

Incorporate it into the Electricity Supply Act (as has been done in

NSW, Australia)

Create a separate Act (as has been done in Victoria, Australia)

Links to both these pieces of legislation are included at the end of

this document.

If changes were to be made in the Electricity Supply Act a new part VB

could be incorporated into the Act.

0

20

40

60

80

100

120

140

160

Before trading of certificate After trading and onsurrender of certificate

RM

Costs associated with 1 certificate, with a certificate price of RM 120*

Scheme administrator costs

Obliged entity(ies) admin fee

Certificate price

Administration fee charged by accredited persons

Discount to customer


Alternatively it could be incorporated in Part VA – Efficient use of

electricity – although a UEEO is substantially different to Part VA, and for

the purposes of clarity it would be better to have it has an entirely new

part.

Synergy with other policies, regulations and thrusts

A UEEO has synergies with a range of other policies and regulations:

Labelling and MEPS. A UEEO can use MEPS to allow certificates

for the purchase of 5 star appliances. This leverages the labelling

system

An energy efficiency rating tool for buildings. Improvements in

performance based on the rating tool could be used to award

certificates.

A national EE energy consumption database. This adds value to a

UEEO by facilitating measurement and verification of savings. For

example, if a lighting upgrade was undertaken and certificates

claimed under a UEEO for the upgrade, the actual drop in

electricity consumption at the site where the upgrade was

undertaken could be identified from a national energy consumption

date based. With appropriate database design, this could be used

to tune the methods used to calculate savings.

Building energy performance standards. Certificates could be used

to incentivise performance that was measured to be better than

the standard.


Energy savings at large facilities (i.e. those facilities subject to the

Efficient Manager of Electrical Energy regulations) – based on

reductions in energy use certificates could be generated.

Promotion of ESCOs. ESCOs could create certificates from a

range of activities

Enabling of mortgages for EE in housing. The deeming

methodologies used under the scheme could be used as the basis

by which financial institutions can calculate the amount they can

lend for different EE features (such as high efficiency air

conditioning).

Need to allocate resources to analysing the data and fine tuning

policies

Examples of the level of incentive created by a UEEO

These example provide an idea of how a UEEO can incentivise the

uptake of energy efficiency. In a competitive market these measures

would be competing against other to sell certificates to the obligated

entity(ies), which may lower the certificate price.

In all cases the measures that can be implemented by the scheme need

to be approved by the regulator, industry should be given an option once

a year to put forward new measures.

All assumptions stated above with respect to electricity price, emissions

factor, certificate price, fee charged by the accredited person etc apply

to these examples. Its also assumed that in each deemed case an

overall uncertainty factor of 0.81 (0.9 x 0.9) applies


Air conditioner upgrade (deemed method)

Refer to figure 7 The discount passed onto the consumer would be RM

384. A very high efficiency 5 star unit, such as the one shown in the

example, is estimated to cost RM 800 more than a 2 star unit. Over the

lifetime of the AC the consumer will be RM 1330 better off.

Shop lighting change (deemed method)

Assume a boutique shop in a shopping centre goes from halogen

downlights consuming 70 watts to LED downlights consuming 14 watts.

Assume lifetime of LED lamps is 25,000 hours. Assume shop is open for

7 days a week, 12 hours a day, closed for 5 days/year. Its estimated that

the lighting upgrade without certificates will cost RM250 per lamp

(installed), or for ten lamps a total of RM 2,500.

For ten lamps 11 certificates are created, creating a discount of RM

1056. Lifetime energy savings are worth RM 4,540. Over the lifetime of

the LED lamps the shop owner will be RM 3,090 better off.

Office fluorescent lighting change (deemed method)

Assume an office fitted with 1200mm T8 fluorescent fittings using

magnetic ballasts (most common form of lighting in offices over 7 years

old). Assume office lights are on 5 days a week for 10 hours a day, 50

weeks a year. Lights are replaced with LED tubes. Assume lifetime of

LED lamps is 25,000 hours. Its estimated that the lighting upgrade

without certificates will cost RM90 per lamp (installed), or for 100 lamps

a total of RM 9,000.


For one hundred lamps 43 certificates are created, creating a discount of

RM 4,128. Lifetime energy savings are worth RM 17,000. Over the

lifetime of the LED lamps the office tenant will be RM 12,100 better off.

Building re-commissioning (metered method)

Assume a 30,000 m2 office building with a Building Energy Intensity

(BEI) index over the last three years averaging 250 kWh/m2/year.

Assume recommissioning costs RM 300,000, and over the 12 months

following the recommissioning the BEI is 215 kWh/m2/year. There are

no changes to building use or occupancy.

1050 certificates are created, providing a discount of RM 100,800. The

energy savings over the 12 months are worth RM 420,000, and the

building owner is RM 220,800 better off.

Under the metered method certificates can only be claimed annually

once the savings have been measured. The rules of the scheme will

determine the number of years for which an annual claim can be made,

with measurement of actual savings still required each year.

Industrial process upgrade (metered method / expert assessment /

then deemed)

A factory is upgrading its old equipment. As all modern equipment is

more efficient than the old, energy savings are going to be realised in

any case. An industrial energy efficiency expert suggests, however, that

rather than spend RM 10m on the upgrade, an additional RM 1m more

should be spent on equipment that will use 15% less electricity than the


equipment the company was originally proposing. The company decides

to go ahead with the new equipment.

Under the rules of the scheme, after the installation of the new

equipment an independent Certified Measurement and Verification

Professional with industrial experience examines the site. He identifies

firstly that the new equipment is much more efficient than the old. He

also does further research into the proposed cheaper equipment, and

does a detailed site examination and data logging. He carefully

calculates that the high efficiency equipment is using 13% less electricity

than the cheaper equipment would have used. The saving is 500 MWh

over 12 months, equivalent to 500 certificates a year.

The new equipment has an expected lifetime of 20 years. A uncertainty

factor of 0.5 is applied (the business may not be around in 20 years),

resulting in 5,000 certificates in total. This provides a discount of RM

480,000, with the energy savings over 10 years worth RM 2m.

This final measure is an illustration of how checks and balances might

be needed, and the challenge in creating scheme rules that are fair

whilst minimising the chance of fraud. It may be the case that a measure

such as this is only introduced after the scheme is well established and

good measurement and verification skills and methods exist.

A leadership opportunity

By adopting a UEEO Malaysia has the opportunity to lead the way in SE

Asia in being the first to adopt this emerging policy measure.


Over the last three years smart phones have become ubiquitous and by

the time the scheme starts the clear majority of Malaysians are likely to

own a smart phone. Malaysia has the opportunity to use smart phones

linking through to a web-based database to facilitate the administration

of the scheme, and which reduces the time spent on administrative tasks

by all participants in the scheme. To the best of my knowledge this is not

being done anywhere else yet.

By linking through to a national EE consumption database, which would

be populated directly from meter data collected by the three electrical

utilities Malaysia would also be leading the way globally.

By using certificates as a central policy about which forms the basis of

incentives across industry, buildings and appliances, and even

potentially to RE, Malaysia has the opportunity to demonstrate how

UEEO can be leveraged in a way that reduces duplication of effort and

uses the force of the market to deliver least cost reduction of energy

related carbon emissions.

If, however, there is not strong commitment to a sustained, long term

UEEO and if scheme design and development, governance,

administration, measurement, verification, evaluation and enforcement is

not well undertaken or not well resourced a UEEO should not be

implemented. It is a complex measure that is likely to be a costly failure

in the absence of strong commitment and resourcing.


APPLIANCE AND EQUIPMENT

STANDARDS & LABELLING

SUMMARY

Standards and Labelling (S&L) of appliances and equipment is widely

recognised as being a highly cost-effective EE policy measure. S&L is

the most widely used EE policy measure globally.

Malaysia, via a 2013 amendment to the Electricity Supply Act, restricts

the sale of domestic equipment, low voltage equipment usually sold

directly to the public, and low voltage equipment that does not require

special skills in its operation, unless approved by the Energy

Commission. It stipulates that in order to be approved a number of high

energy using residential appliances need to meet certain minimum

energy performance requirements (MEPS) and have an energy

efficiency label, as determined by the EC.

The EC is now planning to expand the scope of coverage.

In the APEC region S&L is widely used. However this is little consistency

between programs, and in some countries the focus appears to be on

appliances that use relatively little energy compared with major items of

equipment used in buildings which could provide much greater economic

benefit with mandatory S&L requirements.

International experience shows that the Measurement, Verification and

Evaluation (MV&E) of S&L programs is often a weak link in such


programs. Even relatively small percentage failure rates in compliance

can result in significant lost savings. Sufficient resourcing of MV&E

provides an outstanding return on investment and reduces the likelihood

of product being dumped in Malaysia.

Its suggested that Malaysia have four areas of policy focus around S&L:


based on their economic benefit. This means creating a new

mechanism to enable MEPS to expand from just a residential

appliance focus, where a Certificate of Approval (COA) applies, to

also covering equipment used in the commercial and industrial

sectors, without the need for a COA.









harmonisation.

PURPOSE OF THIS DOCUMENT

Malaysia is committed to Standards and Labelling (S&L) of appliances

and equipment, and is planning to expand the range of products subject

to mandatory S&L requirements. The purpose of this document to


examine global experience with S&L and to provide suggestions for the

expansion of S&L whilst also learning from international best practice.

STANDARDS AND LABELLING IN MALAYSIA

Malaysia introduced Minimum Energy Performance Standards (MEPS)

in 2013, as an amendment18 to the electricity supply regulations 1994.

After a 1 year transitionary period, enforcement of MEPS is legislated

from April 2014. The Demand Side Management unit of the Energy

Commission is responsible for MEPS.

MEPS applies to refrigerators, fans, air conditioners and televisions and

lamps. Labelling is now also required by the EC for refrigerators, fans,

air conditioners and televisions. Voluntary labelling was first introduced

in 2005, and removed at the end of 2012.

Whilst during the voluntary labelling period Malaysia had both an

endorsement and comparative label, it is now using a comparative label

only.

18 Electricity Supply Act 1990, Electricity (Amendment) Regulations 2013,

http://www.st.gov.my/images/article/polisi/regulation_suruhanjaya/20130503_P_U__A_151-

PERATURAN_-_PERATURAN_ELEKTRIK_PINDAAN_2013.pdf

http://www.st.gov.my/images/article/polisi/regulation_suruhanjaya/20130503_P_U__A_151-PERATURAN_-_PERATURAN_ELEKTRIK_PINDAAN_2013.pdf

http://www.st.gov.my/images/article/polisi/regulation_suruhanjaya/20130503_P_U__A_151-PERATURAN_-_PERATURAN_ELEKTRIK_PINDAAN_2013.pdf


Figure 17 - Malaysian Energy Labels

GLOBAL AND REGIONAL EXPERIENCE WITH

MEPS

MEPS was introduced nearly 40 years ago in California in response to

the oil crisis at the time.

Progressively tightened MEPS standards in California resulted in a 75%

reduction in energy use in refrigerators over a 30 year period.19

Equipment labelling and MEPS are now used widely globally. The table

below shows the application of labelling and MEPS in the APEC region20

19 Energy-Efficiency Labels and Standards: A guidebook for appliances, equipment and lighting.

Collaborative Labeling and Appliance Standards Program (CLASP), 2005.

Comparison Label Endorsement Label

(discontinued)


Table 8 Application of labelling and MEPS in APEC

Country Voluntary labels Mandatory labels MEPS

Brunei

Darusslam

Central AC under consideration

Hong

Kong

Computers, rice cookers, clothes

dryers, ballasts, LED lighting, office

imaging equipment, water coolers,

televisions, hot water heaters, and

petrol-powered vehicles

Room air conditioners,

refrigerators, CFL lamps,

washing machines,

dehumidifiers

Indonesia Refrigerators, heaters, air

conditioners,

CFL lamps Chillers, packaged AC,

lighting systems

Japan Air conditioners, fluorescent lights,

solid state lighting, televisions,

refrigerators and freezers, water

heaters, cooking equipment,

monitors, computers and peripherals,

printers, fax and copy machines,

transformers, heated toilet seats,

No MEPS, but a “Top

Runner” program which is

prescribed by law. All

products in a category have

to reach the performance of

the best product over a

period of time. Covers 23

products

Korea 41 products including induction

motors, boilers, lighting equipment,

insulation, computers, etc.

22 products; air conditioners,

refrigerators, dishwashers,

etc

22 products; air conditioners,

refrigerators, cooktops, etc.

Malaysia Refrigerators, televisions,

fans, air conditioners

Refrigerators, televisions,

fans, air conditioners, lamps

Philippines ACs, refrigerators, freezers,

ballasts, lighting systems,

freezers, lighting. Label

requirements for other light

types developed but not yet

implemented.

ACs, fluorescent and CFL

lamps, lighting systems.

Standards for other light

types developed but not yet

implemented.

20 Using the database at http://www.clasponline.org/Tools/Tools/EconomyFinder

http://www.clasponline.org/Tools/Tools/EconomyFinder


Country Voluntary labels Mandatory labels MEPS

Singapore Coffee machines, dishwashers,

televisions,

Refrigerators, air

conditioners, clothes dryers

Air conditioners,

refrigerators,

Taiwan 28 product categories.

ACs, refrigerators, TVs, lamps,

clothes washers & dryers,

monitors, instantaneous gas water

heaters, electric storage tank

water heaters, electric pots, exit

lights and emergency direction

lights, luminaires, etc

Air conditioners,

refrigerators, freezers,

cooktops, dehumidifiers, hot

water heaters,

Air conditioners, water

chillers, refrigerators, central

heaters, fluorescent lamps &

ballasts, chillers (pending

implementation),

dehumidifiers, motors,

ceiling fans, hot water

heaters

Thailand Computers, kettles, microwaves,

rice cookers, central AC, room

AC, washing machine, fluorescent

ballasts, CFL, imaging equipment,

refrigerator, standby power for all

equipment, televisions, miscl. AV

equipment, fans, water heaters.

Also LPG stoves, variable speed

drives, glazing, insulation

Kettles, AC, CFL, motors,

Vietnam imaging machines, televisions, Rice cookers, ACs, washing

machines, fluorescent

ballasts, CFL lighting,

motors, transformers,

refrigerators, ceiling fans

Pending implementation:

refrigerated cabinet

Incandescent lighting,

lighting systems,

Pending implementation: rice

cookers, ACs, washing

machines, fluorescent

ballasts, CFL lighting, HID

lighting, motors, imaging

machines, transformers,

refrigerated cabinet,

televisions, ceiling fans,

water heaters,


The Malaysian experience in moving from voluntary labelling to

mandatory labelling and MEPS is not unique, and in the region as a

whole, as is the case globally, S&L programs are expanding to cover a

greater range of appliance and equipment.

On the other hand, the APEC region has not yet take the opportunity to

cut the costs of labelling and MEPS through harmonisation of labels and

MEPS levels.

Reviewing the above it can be seen that almost all countries have labels

or MEPS for refrigerators, air conditioners, televisions and lighting, but

otherwise there is large variation from country to country.

For these common appliances, however, harmonisation has a range of

technical obstacles, due to differences in test procedures, product scope

and definition, key performance characteristics and energy levels.21

The greatest scope for harmonisation is in:

Voluntary use of Energy star labelling, which occurs in several

APEC countries

The adoption of international test standards.

Malaysia has tended to adopt IEC test standards, and recognises the

results from any testing laboratory that is APLAC or ILAC22 approved,

which is an excellent approach.

21 Energy efficiency standards and labelling in Asia, ICF, March 2011.


Improving the impact of labelling and MEPS programs

The Survey of market compliance mechanisms for energy efficiency

programs in APEC economies (2012), focussed on labelling and

standards, identified the following key recommendations to improve

compliance:23

Governments and government agencies need to be more aware of

the importance of the establishment and operation of effective

Measurement, Verification and Evaluation (MV&E). More

resources should be invested into MV&E to “ensure the integrity of

their S&L programs”

Operational guidelines that transparently detail MV&E procedures

and are available to stakeholders both facilitate compliance and

reduce misunderstandings and disputes. They should be

accompanied by communications from government that indicate

government is serious about following and implementing the

MV&E procedures, including the levying of penalties for non-

compliance.

Access to competent laboratories is a common problem.

Governments are urged to maintain lists of competent laboratories

22 APLAC: Asia Pacific Laboratory Accreditation Cooperation; ILAC: International Laboratory

Accreditation Cooperation.

23 Survey of market compliance mechanisms for energy efficiency programs in APEC economies,

APEC energy working group expert group on energy efficiency and conservation, May 2012.

http://www.clasponline.org/Resources/Resources/PublicationLibrary/2012/~/media/Files/SLDocument

s/2012/MVEworkshop/APEC-MVEsurvey-FullReport.pdf

http://www.clasponline.org/Resources/Resources/PublicationLibrary/2012/~/media/Files/SLDocuments/2012/MVEworkshop/APEC-MVEsurvey-FullReport.pdf

http://www.clasponline.org/Resources/Resources/PublicationLibrary/2012/~/media/Files/SLDocuments/2012/MVEworkshop/APEC-MVEsurvey-FullReport.pdf


in the APEC region and make them available to stakeholders,

whilst also agreeing to regularly test the same products in different

laboratories for the purposes of improving test methods and

enhancing collaboration.

Greater coordination of verification testing and sharing of test

results should take place, particularly as there are many common

products traded within APEC. This can both lower costs and

increase the range of eligible products available.

Governments should endeavour to improve their dialogue with

industry.

SUGGESTIONS FOR MALAYSIA

Malaysia is now in the stage of moving out of the transition period for its

initial round of MEPS products, and retailers are gradually coming to

grips with the reality of the new requirements.

Malaysia is clearly committed to standards and labelling, and has taken

due consideration of the costs and benefits. Costs of S&L include the

costs to manufacturers and retailers, costs to consumers of more

expensive products (initially), and the public cost to taxpayers of

program administration. The benefits include reduced energy

consumption, better quality products, greater global competitiveness for

Malaysian industry.

Malaysia’s commitment is evidenced by its plans to introduce additional

products for mandatory labelling and MEPS.


For the scheme going forward the following is suggested:


based on their economic benefit. This means creating a new

mechanism to enable MEPS to expand from just a residential

appliance focus, where a Certificate of Approval (COA) applies, to

also covering equipment used in the commercial and industrial

sectors, without the need for a COA.









harmonisation.

One. Select additional products for S&L based on their

economic benefit

Targeting products that use a lot of energy and where there is

opportunity for cost-effective savings by making them more efficient

provides substantial economic benefit, improving energy security and

reducing GHG emissions.


S&L in Malaysia began with a focus on residential appliances, and

initially has targeted those home appliances which use the most energy.

The initial products selected include refrigerators (1 and 2 door only),

single split system wall mounted air conditioners (up to 7.1 kW),

televisions up to 70”, wall, desk, pedestal or ceiling fans, and tubular

fluorescent, compact fluorescent, LED and incandescent lamps.

This targets the main areas or electricity consumption in a home, which

is guesstimated as per the graph below.

Figure 18 Guesstimated average residential daily energy consumption (kWh). In 2012 average daily

consumption was 9 kWh.

Malaysia plans is to expand this to other domestic appliances, including

rice cookers (identified as contributing to peak demand), instantaneous

single phase water heaters (becoming much more popular in Malaysia)

and vacuum cleaners. Washing machines and dryers have been

considered, however the lack of domestic testing capability means that

this is no longer considered.


Residential energy use, however, only accounts for 21% of Malaysian

electricity consumption with commercial (33%) and industrial (45%) the

main users. The expansion of MEPS to cover equipment used in the

commercial and industrial sectors is therefore recommended.

Figure 19 Malaysia’s Electricity Consumption, 2012

Commercial buildings include offices, schools, health care facilities,

shopping centres, shops, hotels, restaurants, etc.

In many of these buildings, such as offices, shopping centres and hotels,

the bulk of commercial electricity consumption is for air conditioning and

ventilation.


Figure 20 - Guestimated average office daily electricity consumption

The industrial sector in Malaysia is comprised of oil and gas

exploration, steel, cement, automotive, electrical and electronics

manufacturing, food production. These use energy in very different

ways, and so far no study has been done to breakdown industrial energy

consumption by sector or identify the major energy users in each sector.

Common across all sectors will be the use of electric motors, lighting –

much of which will be High Intensity Discharge (HID), lighting and

possibly the use of compressed air.

The food sector, along with supermarkets and food service businesses,

will use refrigeration.

Obvious candidates for MEPS are therefore:

Commercial air conditioning and ventilation

Electric motors

Air compressors


Commercial and industrial refrigeration

Further opportunities can be identified by analysis of energy

consumption data and site surveys/audits of different sectors to identify

the items of equipment that use more energy.24

The table below estimates the potential for energy savings in rough

terms across the whole economy

24 For undertaking an economic impact assessment, the use of the Collaborative Labeling and

Appliance Standards Program (CLASP) Policy Analysis Modeling System (PAMS) could be

considered. This can be used to identify which products can provide the greatest economic benefit,

but relies on accurate data, which it may not be possible to get.


Table 9 - Rough estimate of savings potential from S&L for various products

Product category Diversity of those

product types which

contribute to the bulk

of energy use in the

economy

Estimated Economy

wide energy use

Estimated cost

effective savings

potential per unit

Likely relative

overall savings

potential

Air conditioning

(including inbuilt

fans)

Moderate High Moderate to

high

High

Lighting Moderate Moderate to high Moderate* Moderate

Electric motors Moderate Extremely high.

Likely to account for

over 50% of

electricity use

Low** Low to moderate***

Electronics (TVs,

computers, power

supplies, etc)

Moderate to High Low to moderate Moderate to

high

Low to Moderate

Refrigeration High Moderate Moderate Low to Moderate

Windows# High Moderate Moderate Low to Moderate

Air compressors Moderate Low to Moderate Low to moderate Low

Cooking equipment High Low to moderate Low to moderate Low

Hot water heating Low Low Low Very low

# Windows are considered with respect to the impact they have on air-conditioning loads

* LED lighting makes MEPS for lighting likely to yield more savings than in the past

** Motors will vary in efficiency from around 20% (small shaded pole motors) to over 95%

(large 3 phase motors). Whilst there is very large savings potential from these small motors,

they don’t represent a large portion of total motor energy use.

*** Many of the motors in use in Malaysia will come embedded in imported products, where

the enforcement of MEPS may not be practical.


Enabling MEPS for equipment

Currently MEPS in incorporated in the Certificate of Approval (COA)

used to verify the safety and quality standards of new appliances. SIRIM

has been contracted by ST to produce the COA.

Commercial and industrial equipment, such as chillers, don’t need a

COA. A new mechanism should be introduced to enable the application

of MEPS to commercial and industrial equipment. Options for this could

include:

Not requiring any COA, but rather requiring manufacturers,

importers or supplies to undertake:

Testing to prove energy performance

Registration of the product, along with the test results that

demonstrate compliance.

Relying on self-enforcement, with spot checks. If punitive

measures were to be introduced to encourage compliance,

this may need to be regulated.

In addition to the above, requiring a “MEPS only” COA for the

prescribed equipment subject to MEPS. This would require an

amendment to the Energy Commission Act.


Tightening MEPS and labelling levels

To facilitate the progressive tightening of MEPS and labelling levels, the

Electricity Supply Act 2013 amendment should be changed to remove

the inclusion of the MEPS energy levels and star rating levels from the

legislation, and to place these rather in regulations managed by the

Energy Commission. This streamlines the process of tightening,

eliminating the time and expense of having to create an amendment in

the Electricity Supply Act each time product standards are tightened.

For the same reason, the legislation could also be amended such that

the Energy Commission can add (and remove) products subject to S&L

requirements through regulation, rather than having to re-legislate.

Accompanying this change would be an amendment to the Energy

Commission Act, giving the EC the power to add or remove products

under L&S requirements and to tighten or change regulation around

existing products.

Two. Roll out appliances to a long term plan

Long term planning can facilitate the uptake of new labelling and MEPS

requirements and provides industry with advance notice, reducing the

possibility that they will be left with non-compliant stock when the

regulations come into effect, and also making enforcement easier.

Ideally a ten year play would be developed, which shows when new

products will be introduced, and when requirements for existing products

will be tightened.


Three. Better resource capacity to administer and enforce

S&L

As the transition period during the first year of mandatory S&L drew to a

close it appeared as though compliance with the new regulations would

be slower than expected.

Of crucial importance in the remainder of the 10th Malaysian plan and in

the 11th Malaysian plan will be clearly establishing the authority of the

Energy Commission to ensure high compliance with S&L. As more

products are rolled out the workload will increase, and further resourcing

will be required.

As a rough estimate, full compliance with the current MEPS in any one

year will result in MR 300m of energy savings over the lifetime of the

compliant products.

As the savings are so high, the cost of even a small amount of non-

compliance is very high. Assume for example that sampling of

refrigerators sold finds that on average they use 3% more energy than

that specified by MEPS. If its assumed that 220,000 refrigerators are

sold annually in Malaysia25, and the average consumption is 450 kWh, at

an electricity price of MR 0.40/kWh, the annual cost of the extra energy

25 For Malaysia, assuming 5 people per household, 1 fridge per house, an average lifetime of 15

years, and a population of 28 million.


used is RM 1,200,000. (Example adapted from the CLASP MV&E

guidebook).

Poor enforcement of compliance also creates the risk of poor quality and

inefficient products being dumped in Malaysia.

The CLASP Measurement, Verification and Evaluation (MV&E)

guidebook (2010) 26 shows in the figure below how poor levels of

enforcement can erode the credibility and effectiveness of a S&L

program.

Figure 21 – The compliance cicle. From Compliance counts: A practitioners Guidebook on Best Practice

Monitoring, Verification, and Enforcement for Appliance Standards and Labeling. CLASP, 2010.

http://www.clasponline.org/Resources/MVEResources/~/media/Files/SLDocuments/2006-2011/2010-

09_MVEGuidebookSingle.pdf

26 Compliance counts: A practitioners Guidebook on Best Practice Monitoring, Verification, and

Enforcement for Appliance Standards and Labeling. CLASP, 2010.

http://www.clasponline.org/Resources/MVEResources/~/media/Files/SLDocuments/2006-2011/2010-

09_MVEGuidebookSingle.pdf

http://www.clasponline.org/Resources/MVEResources/~/media/Files/SLDocuments/2006-2011/2010-09_MVEGuidebookSingle.pdf





The value of resources allocated to ensure compliance should be based

on the value of non-compliance.

A rough estimate would be that over one year:

If on average there was a 5% non-compliance rate (ie products

that perform at the average level before MEPS was introduced) for

the air conditioners, fridges, televisions and fans that are now

subject to MEPS

This would result in Malaysia consuming an additional 50 GWh

over the lifetime of the units, costing the appliance owners an

additional RM 24m.

If its assumed electricity has an average subsidy of 20%, then the

direct cost to government would be RM 4.8m.

On this basis, and as a rough estimate, it would likely not be

unreasonable to allocate around RM 3m annually over the period 2015

to 2017 for the purposes of administration and MV&E of Malaysia’s S&L

program 27 . This funding should be sufficient to establish rates of

compliance so as to inform future MV&E budgets and to administer

enforcement. Rather than rely on this estimate, a complete M&V budget

should be developed, using the guidance in the CLASP MV&E

guidebook.

27 Roughly allows for the cost of employing say 7 staff, undertaking around 500 to 1,000 verification

tests a year, undertaking say 2,000 store visits a year, and prosecuting 5 to 10 cases of infringement

a year, and commission an expert review after 3 years. Also includes cost of workshops and other

engagement with industry, including development and distribution of guidelines.


The development of operational guidelines that transparently detail

MV&E procedures is also recommended.

Finally education and public information around S&L can help create

informed consumer demand for efficient products. A website such as

www.energyrating.gov.au could be set up to aid this.

Four. Participate in harmonisation of S&L in the region

Malaysia is encouraged to continue to participate in harmonisation of

S&L in the region, particularly around products that it exports.

Specifically it’s suggested that this be around testing procedures, such

that the results of tests suited to one country, can be interpreted and

applied to the S&L regime in another country, without having to

undertake additional tests.

SYNERGIES WITH OTHER POLICY MEASURES

A Utility Energy Efficiency Obligation (UEEO) – also known as a

white certificate scheme - is highly synergistic, as S&L can be used as

the basis for deeming factors used when generating certificates from the

purchase of high efficiency appliances.

Equipment S&L has synergies with building energy efficiency

standards. However rather than being additional, equipment S&L and

building EE standards can be viewed as mutual “fail-safe” mechanisms

that improve the overall rate of compliance and thus energy savings.

When modelling the impact of both these policies appropriate discount

http://www.energyrating.gov.au/


factors need to be used to account for the redundancy involved in having

two policy measures focussed on the same outcome.

A National building energy efficiency database can contribute to

evaluating the effectiveness of S&L.


BUILDING PERFORMANCE

DISCLOSURE

SUMMARY

Mandatory disclosure of building energy performance has been shown

to be effective in reducing energy consumption in commercial buildings.

This is achieved by drawing energy consumption and comparative

performance to building owners, occupiers, tenants and buyers, and

thus providing competitive market advantage to better performing

buildings. In the residential sector energy saving results are less clear,

although there is evidence that property values and rental yields go up

as homes become more efficient.

Malaysia mandatory disclosure could lead to energy savings worth

roughly RM 325 million annually, with the benefit being approximately

seven times the direct compliance costs. GHG savings could reach 0.6

million tonnes annually with 250 people provided with permanent

employment.

Setting up a scheme would take approximately 18 months of preliminary

work prior to launch. Mandatory annual disclosure is initially

recommended for large office tenancies and common property areas in

larger buildings consuming over 1,000 MWh/year. Over five years the

scheme should be tightened to eventually cover all non-industrial

buildings consuming over 200 MWh/year.


Existing regulation can be modified to enable building energy

performance disclosure. Excess government revenue from a Utility

Energy Efficiency Obligation (UEEO) or White Certificate scheme could

be used to fund early incentives which would be withdrawn over the first

three to five years. Penalties would drive the necessary compliance to

ensure that the scheme is widely adhered to, which is essential for its

success.

WHAT IS BUILDING PERFORMANCE

DISCLOSURE?

Building performance disclosure and building ratings are two terms that

may be used to characterise a building. However, there is a distinction

between an asset rating and actual operational building energy use.

An asset rating refers to the design features and construction of the

building. This may encompass just “passive” features of the buildings

(such as type of glazing, R rating of insulation in walls, floors and ceiling,

amount of shading) or it may encompass both “passive” and “active”

features of the building such as the type of lighting and light power

density. Ratings often are developed by taking data on the

characteristics of the building, inputting this into modelling software,

which is then used to simulate/estimate what the energy consumption of

the building would be when operated in a “standard” way. Ratings can

be generated for both existing buildings and buildings which have been

designed but not yet built.


On the other hand the building operational energy use typically refers to

the actual energy consumption of the building. This may or may not be

normalised for factors such as occupancy, hours of use, etc. via the use

of software that enables a comparative rating with other buildings. At its

simplest level operational building performance is the energy use per

gross square meter of floor area. Alternatively operational energy use

may be split between “base building” and “tenancy”, have a carefully

prescribed description of various exclusions to make when calculating

building area, and enable - assuming appropriate metering

arrangements are present - for different building uses to be accounted

for (e.g. a building which is predominantly an office, but also has shops

and a data centre in it).

Generally practice globally is for residential building performance

disclosure to be undertaken as an asset rating. Possibly this is because

of the considerable variation that may exist in actual operational energy

use, which is highly dependent on the number of occupants and the

hours that the house is in use. For example a three bedroom home with

a single occupant, employed professionally, who travels frequently, is

likely to use less energy than the same home occupied by a family with

two children and the grandparents living in it.

On the other hand, non-residential building performance disclosure of

existing buildings is typically based on the operational energy use. For

non-residential buildings patterns of occupancy are generally much more

consistent than for residential buildings.


When developing a building performance assessment tool there are a

wide range of considerations. The Institute for Market Transformation

has compared seventeen building performance assessment systems

and proposes a classification framework for building energy performance

tools. 28 This recommended classification criteria is shown below and

provides a useful framework when considering building performance

disclosure.

28 Comparing Building Energy Performance Measurement – A framework for international energy

efficiency assessment systems. D. Leipziger, May 2013, Institute for Market Transformation.

http://www.imt.org/uploads/resources/files/ComparingBuildingEnergyPerformanceMeasurementFINAL

.pdf

http://www.imt.org/uploads/resources/files/ComparingBuildingEnergyPerformanceMeasurementFINAL.pdf



Figure 22 Classification criteria for building energy performance measurement. Comparing Building

Energy Performance Measurement – A framework for international energy efficiency assessment

systems. D. Leipziger, May 2013, Institute for Market Transformation.

http://www.imt.org/uploads/resources/files/ComparingBuildingEnergyPerformanceMeasurementFINAL.p

df




A range of ISO standards have now been developed to aid in the

development of methods for the assessment of building energy

performance. ISO 16343:2013 sets out ways of expressing the energy

performance of a building in an energy performance certificate.29 ISO/TR

16344:2012 provides definitions of terms used in determining the energy

performance of buildings.30 ISO 16346:2013 defines procedures used to

assess the energy performance of buildings.31

These standards are so recent that acquiring data on adoption by any

country has not been possible.

WHY DISCLOSE BUILDING PERFORMANCE?

Building performance disclosure is believed to address the information

gap that hinders the uptake of energy efficiency. It is believed to add to

property value, and provide a driver for improving building energy

performance.

29

http://www.iso.org/iso/home/store/catalogue_tc/catalogue_detail.htm?csnumber=56224&commid=534

76

30


76

31


76








GLOBAL EXPERIENCE WITH BUILDING

PERFORMANCE DISCLOSURE

Where practiced

Building performance disclosure occurs in various parts of the USA,

across the European Union, and in Australia. Brazil and China also have

systems, but these appear to be more voluntary green building rating

tools for new buildings rather than disclosure of actual measured

performance. 32 In addition to the above, building performance labels

have been developed in a range of other countries and cities, including

Turkey, Tokyo, Shanghai, Canada and South Africa.33

The table below shows the coverage of some of the national systems.

32 Brazil and China also have systems, but these appear to be voluntary and with low uptake. For

Brazil refer to http://www.procelinfo.com.br/main.asp?View={89E211C6-61C2-499A-A791-

DACD33A348F3}. For China it is difficult for this author to determine the coverage of ratings, which

are administered by the Ministry of Housing and Urban-Rural Development (MOHURD –

http://www.mohurd.gov.cn) – for English language commentary refer to

http://www.institutebe.com/InstituteBE/media/Library/Resources/Green%20Buildings/Fact-

Sheet_Green-Building-Ratings_China.pdf

33 http://www.buildingrating.org/content/energy-label-gallery

http://www.procelinfo.com.br/main.asp?View=%7b89E211C6-61C2-499A-A791-DACD33A348F3%7d

http://www.procelinfo.com.br/main.asp?View=%7b89E211C6-61C2-499A-A791-DACD33A348F3%7d

http://www.mohurd.gov.cn/

http://www.institutebe.com/InstituteBE/media/Library/Resources/Green%20Buildings/Fact-Sheet_Green-Building-Ratings_China.pdf

http://www.institutebe.com/InstituteBE/media/Library/Resources/Green%20Buildings/Fact-Sheet_Green-Building-Ratings_China.pdf

http://www.buildingrating.org/content/energy-label-gallery


Table 10 Building Energy Rating and Disclosure Policies. The Institute for

Market Transformation.

http://www.imt.org/uploads/resources/files/6.26Int_l_Rating_Policy_FACTSHE

ET_41.pdf

In the USA disclosure has been voluntary, but more state and local

governments are now requiring mandatory performance disclosure. This

includes California and Washington, and the cities of Washington DC,

Austin, New York, Seattle, San Francisco, Philadelphia, Minneapolis and

Boston. In all cases disclosure is via use of the Energy Star Portfolio

Manager, a free on-line software tool developed by the EPA in the

USA.34 Typically disclosure is required annually, encompassing annual

energy use and building characteristics including gross floor area,

operating hours, number of people occupying the building and what the

building is used for. 35 Disclosure is typically mandatory for buildings

34 Energy Star Portfolio Manager. http://www.energystar.gov/buildings/facility-owners-and-

managers/existing-buildings/use-portfolio-manager

35 For example, refer to the City of Boston’s user guide:

http://www.cityofboston.gov/images_documents/Draft%20User%20Guide%203%2021%202014_tcm3

-42713.pdf

http://www.energystar.gov/buildings/facility-owners-and-managers/existing-buildings/use-portfolio-manager


http://www.cityofboston.gov/images_documents/Draft%20User%20Guide%203%2021%202014_tcm3-42713.pdf

http://www.cityofboston.gov/images_documents/Draft%20User%20Guide%203%2021%202014_tcm3-42713.pdf


above a certain size, usually 50,000 square feet (4,645 m2). Depending

on the city/state, building performance data may36 or may not be publicly

available. It is worthwhile to note that data for over 350,000 buildings

has been entered into Energy Star Portfolio Manager.

36 Example of public disclosure - New York City:

http://www.nyc.gov/html/gbee/html/plan/covered_buildings_list.shtml

http://www.nyc.gov/html/gbee/html/plan/covered_buildings_list.shtml


Figure 23 – Sample Energy Star Statement of Energy Performance

In addition to disclosure of building performance some of the US

schemes have required identification of energy saving opportunities. In

New York, for example, an ASHRAE (American Society of Heating,

Refrigeration and Air Conditioning Engineers) accredited assessor is

required to undertake a building audit.


The European Union’s Energy Performance of Building Directive 2002

was revised in 2010. As only 1.1% on average of buildings in Europe are

new each year, there is strong focus on existing building stock,

particularly residential. Within this directive is the mandatory disclosure

of energy performance whenever a dwelling is sold or rented, via an

Energy Performance Certificate (EPC). Whilst each country has

prepared their own system, broadly the EPC is based on an examination

of the building by an accredited assessor, who inputs building data into

software in order to generate a rating. This includes data about building

construction (e.g. type of glazing, level of insulation etc.) but does not

necessarily include data on actual energy consumption. It generally also

includes an energy audit. In France the EPC rating must be included in

any advertisement for the property, however in other countries it is only

communicated during the sale or lease transaction.37

The disclosure requirements also stipulate periodic certification of

buildings owned by public authorities and are frequently visited by the

public. An example would be the UK’s Display Energy Certificates

(DECs), which are required for public buildings of greater than 500m2,

and are based on normalised actual energy use.38 For buildings of less

than 1,000 m2 the DEC is valid for 10 years, for buildings of 1,000m2 or

37 Energy Efficiency in Europe – Overview of Policies and Good Practice. European Energy Network,

2013. http://www.buildup.eu/sites/default/files/content/EnR-EEE-Broch-PaP-web.pdf

38 A guide to display energy certificates and advisory reports for public buildings, Department for

Communities and Local Government, December 2012.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/51164/A_guide_to_disp

lay_energy_certificates_and_advisory_reports_for_public_buildings.pdf

http://www.buildup.eu/sites/default/files/content/EnR-EEE-Broch-PaP-web.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/51164/A_guide_to_display_energy_certificates_and_advisory_reports_for_public_buildings.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/51164/A_guide_to_display_energy_certificates_and_advisory_reports_for_public_buildings.pdf


greater it must be renewed annually. The DEC must be displayed in a

prominent position in the building. It is normalised for occupancy and

weather, and certain areas (eg data centres) are excluded from the

assessment. 29 different categories of buildings can be assessed.39

The EU is also developing a voluntary common scheme for the energy

performance of non-residential buildings. This is likely to be based on

technical building details.40 It’s not clear if these technical details will

include operational energy consumption or be limited to an asset

assessment.

The Building Performance Institute Europe has developed a data hub,

which contains statistics and policy information on Europe’s building

stock.41

39 The Government’s methodology for the production of Operational Ratings, Display Energy

Certificates and Advisory Reports, Department for Communities and Local Government, December

2008, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/7806/998942.pdf

40 Implementing the Energy Performance of Buildings Directive, Featuring Country Reports 2012,

Concerted Action Energy Performance of Buildings, http://www.epbd-ca.org/Medias/Pdf/CA3-BOOK-

2012-ebook-201310.pdf

41 Data Hub for the Energy Performance of Buildings. http://www.buildingsdata.eu/

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/7806/998942.pdf

http://www.epbd-ca.org/Medias/Pdf/CA3-BOOK-2012-ebook-201310.pdf

http://www.epbd-ca.org/Medias/Pdf/CA3-BOOK-2012-ebook-201310.pdf

http://www.buildingsdata.eu/


Figure 24 - Display Energy Certificate from the UK.


Australia requires mandatory disclosure of building energy performance

for office space exceeding 2000m2 at the time of sale or lease.42 This

includes disclosure of the NABERS rating of base building performance,

a tenancy lighting assessment, and general guidance on energy

efficiency improvements. The NABERS base building assessment is a

rating of actual annual energy use in base building services, which

typically covers all energy use in common areas (lighting, lifts,

escalators) etc and whole of building HVAC (excluding tenant installed

HVAC). It is normalised for climatic zone, occupancy, hours of use and

number of computers. The rating must be displayed on any

advertisement, as shown below.

42 Commercial Building Disclosure: http://www.cbd.gov.au/

http://www.cbd.gov.au/


Figure 25 - Illustration of how the NABERS rating needs to be displayed in advertisements for building

sale or lease

The Building Energy Efficiency Register, showing all buildings that have

been required to comply with the Commercial Building Disclosure Act, is

available for public download.43

Lessons learnt from the international experience

Key lessons learnt from international experience are:

The benefits of residential disclosure are mixed

For non-residential buildings the benefits are more clear

Normalisation makes comparisons meaningful

Operational ratings are more useful than asset ratings.

The benefits of residential disclosure are mixed

The key premise behind residential building performance disclosure is

that it is difficult for a buyer to determine how energy efficient a home

might be and mandatory disclosure addresses this information gap. This

should therefore provide more efficient buildings a market advantage

when it comes to sale or lease.

However in the residential market in Europe and Australia there is mixed

evidence supporting the premise that information on a homes’ energy

performance is perceived as useful by buyers.

43 http://www.cbd.gov.au/registers/cbd-downloadable-data-set

http://www.cbd.gov.au/registers/cbd-downloadable-data-set


A 2011 review of the European Energy Performance Certificate (EPC)

found that “More than one hundred in-depth interviews and a large-scale

survey among more than 3000 homeowners revealed how little impact

the Energy Performance Certificate (EPC) currently has on home

owners’ decision-making.”44

Improvements suggested following this review were to make EPCs more

useful include raising the profile of the EPC (for example my making

EPC disclosure mandatory in advertisements) and making the

information more useful and meaningful (e.g. translating energy

numbers into financial numbers).

On the other hand a 2013 European Commission report based on

literature reviews shows that homes that have a better EPC rating are

worth more and attract higher rentals. Examining several countries, the

report found that in Austria and Belgium homes which had a better EPC

score were worth more, but noted that the EPC was generally not

disclosed before the sale or rental transaction, so therefore was unlikely

to have influenced the buyer’s perception of value. In France and

Ireland, where the EPC is disclosed before sale, there was also a

positive correlation between a good EPC and home sale or rental value.

In the UK, depending on location, the study found that there may or may

not be a correlation between a good EPC and sale or rental value. The

EPC is disclosed before the transaction in the UK. Not with standing

44 Key findings and policy recommendation to improve effectiveness of Energy Performance

Certificates and the Energy Performance of Buildings Directive, IEAL EPBD, December 2011,

http://www.ideal-epbd.eu/download/pap/Final_IDEAL_EPBD_result_oriented_report.pdf

http://www.ideal-epbd.eu/download/pap/Final_IDEAL_EPBD_result_oriented_report.pdf


these positive findings, the study concludes that EPCs are still not yet

producing the results it is believed they can produce, due to a lack of

visibility of the EPC, particularly at the point of decision making, lack of

understanding of the information in the EPC, and lack of trust in the

information.45 It is also interesting to note that buyers may actually be

able to recognise and reward energy efficient features in a home,

without an EPC, as appears may be the case in Austria and Belgium.

A study on the application of EPCs to existing housing stock in the UK

found that to be effective the EPC should be supported by fiscal

incentives, including direct subsidies for the costs of retrofit, rebates on

council tax and stamp duty, or reduced value added tax on materials

used in renovation.46

In the state of Queensland, Australia, a “sustainability declaration” was

introduced in 2010. This is a compulsory checklist that must be

completed by the seller when selling a home. It also had to be displayed

in the home for potential buyers to see. A 2011 survey however found

45 Bio Intelligence Service, Ronan Lyons and IEEP (2013) Energy performance certificates in

buildings and their impact on transaction prices and rents in selected EU countries, Final report

prepared for European Commission (DG Energy).

http://ec.europa.eu/energy/efficiency/buildings/doc/20130619-

energy_performance_certificates_in_buildings.pdf

46 Energy Certificate in the Energy Performance of Buildings Directive: Effectiveness of the Appliation

on the Existing Housing Stock in the UK, Sunnikka, M., Delft University of Technology.

http://repository.tudelft.nl/assets/uuid:069bae73-22ed-4a02-9d91-ade556ce2a7a/176693.pdf

http://ec.europa.eu/energy/efficiency/buildings/doc/20130619-energy_performance_certificates_in_buildings.pdf

http://ec.europa.eu/energy/efficiency/buildings/doc/20130619-energy_performance_certificates_in_buildings.pdf

http://repository.tudelft.nl/assets/uuid:069bae73-22ed-4a02-9d91-ade556ce2a7a/176693.pdf


that “a massive 98% of buyers do not ask for a copy of the sustainability

declaration at any time during the sales process.”47

A Massachusetts Institute of Technology (MIT) study in 2012 found that:

… existing approaches to disclosure are fraught with numerous issues,

including a lack of connection to the retrofit process, poor visibility of

ratings, and a lack of balance between transparency for stakeholders

and homeowner privacy. These problems limit the benefits of labelling

for the delivery of energy efficiency.48

A new model is proposed in the MIT study which proposes that:

Home ratings should be both asset and operational based

The costs of undertaking an asset rating should be minimised,

particularly for larger apartment buildings.

The approach to disclosure should maintain privacy

Ratings should be accessible to the right stakeholders at the right

time

Ratings need to be made visible

47 Residential Energy Efficiency and Mandatory Disclosure Practicess, O’Leary, T., University of

South Australia, Jan 2012.

http://www.prres.net/Papers/OLeary_Residential_Energy_Efficiency_Mandatory_Disclosure_Practice.

pdf

48 A New Model for Disclosing the Energy Performance of Residential Buildings, Nadkarin N.,

Michaels, H., MIT, March 2012. http://web.mit.edu/energy-

efficiency/docs/EESP_Nadkarni_BuildingPerformanceDisclosure.pdf

http://www.prres.net/Papers/OLeary_Residential_Energy_Efficiency_Mandatory_Disclosure_Practice.pdf

http://www.prres.net/Papers/OLeary_Residential_Energy_Efficiency_Mandatory_Disclosure_Practice.pdf

http://web.mit.edu/energy-efficiency/docs/EESP_Nadkarni_BuildingPerformanceDisclosure.pdf

http://web.mit.edu/energy-efficiency/docs/EESP_Nadkarni_BuildingPerformanceDisclosure.pdf


The labelling program needs to include measures to maintain

stakeholder trust

The labelling should actively connect owners with retrofits

The rating disclosure process should be simple.

This diagram below shows how MIT proposed to integrate these different

criteria to improve the usefulness of home performance disclosure. The

estimated cost is USD $200 per home.


Figure 26 MIT model of residential energy performance disclosure


Based on the discussion covering Europe, Australia and the USA

residential home disclosure is challenging to get right. There is evidence

that more efficient homes are worth more, but less evidence of

behavioural changes or investment to improve energy performance

being driven by disclosure. There are ongoing efforts in Europe and the

USA to improve the impact of residential performance disclosure.

For non-residential buildings the benefits are more obvious

For non-residential buildings there is greater evidence of the benefits of

building performance disclosure.

The USA’s Energy Star Portfolio Manager, with over 350,000 buildings in

it, has shown that benchmarking via performance disclosure does result

in improved building performance. “In a recent study, EPA found that

buildings that were benchmarked consistently reduced energy use by an

average of 2.4 percent per year, for a total savings of 7 percent [over

three years]. And, buildings that started out as poor performers saved

even more.”49

In the USA the Institute for Market Transformation has identified that

commercial building Energy Star ratings improve rental prices, property

values, and occupancy rates, as shown in the figure below.

49 http://www.energystar.gov/buildings/about-us/how-can-we-help-you/benchmark-energy-

use/benchmarking

http://www.energystar.gov/buildings/about-us/how-can-we-help-you/benchmark-energy-use/benchmarking



Figure 27 Benefits of Energy Star labelled buildings, from

http://www.buildingrating.org/sites/default/files/Added%20Value%20of%20ENERGY%20STAR_0.pdf

Of interest in these studies is the large variation in results, indicating that

as is so often the case when it comes to energy efficiency high claims

should probably be treated with caution.

In Australia mandatory disclosure via the Commercial Building

Disclosure Act (CBD) for office space in excess of 2,000 m2 at the time

of sale or lease has been in place since 2010. However prior to this

many buildings undertook voluntary NABERS (National Australia Built

Environment Rating System) ratings. Savings of 9% have been reported

http://www.buildingrating.org/sites/default/files/Added%20Value%20of%20ENERGY%20STAR_0.pdf


for those buildings which have undertaken more than one NABERS

rating.50

Both Portfolio Manager and NABERS are operational ratings.

The New Buildings Institute undertook modelling which found that

operational practices have enormous influence on building energy use.

Modelling of three different buildings showed that best practice can

reduce energy consumption by up to 45% whilst worst practices can

increase consumption by up to 140%. 51 My personal experience in

energy audits of over one thousand non-residential buildings bears this

out; buildings that are very similar in construction (i.e. would achieve

similar asset ratings) may show large differences in energy consumption

due to occupant practices in how energy use in the building is managed

and controlled. On the other hand, buildings that are substantially

different in construction and age may have similar energy use intensities

as a result of operational practices.

An analysis of the publicly available NABERS Commercial Building

disclosure dataset shows that from November 2010 to date (5 June

2014) 638 “base buildings” with more than one rating saved on average

50 Final Report: Quantitative Assessment of Energy Savings from Building Energy Efficiency

Measures, produced by Pitt & Sherry for the Commonwealth of Australia, 2013.

http://www.pittsh.com.au/assets/files/CE%20Showcase/Quantitative%20Assessment%20of%20Buildi

ngs%20Measures.pdf

51 Sensitivity Analysis: Comparing the Impact of Design, Operation and Tenant Behaviour on Building

Energy Performance. New Building Instituted, July 2011.

http://newbuildings.org/sites/default/files/SensitivityAnalysisReport.pdf

http://www.pittsh.com.au/assets/files/CE%20Showcase/Quantitative%20Assessment%20of%20Buildings%20Measures.pdf

http://www.pittsh.com.au/assets/files/CE%20Showcase/Quantitative%20Assessment%20of%20Buildings%20Measures.pdf



4% a year. However the 131 “whole building” ratings found an average

annual increase in energy use of 0.5% a year.52

An analysis of Display Energy Certificates, as used in England and

Wales, found that on average the 35,000 public buildings rated annually

reduced energy usage by 2% on average each year.53

Disclosure of operational energy performance reveals the potential for

improvement, particularly when the rating is poor. As the Energy Star

Portfolio Manager experience has shown, buildings which initially have a

poor rating tend to have the greatest improvement in performance over

time when benchmarking is undertaken regularly.

These findings from three different countries shows that buildings which

disclose their energy performance do reduce their energy use over time.

Normalisation makes comparisons meaningful

Normalisation is the adjustment of energy use to enable a fair

comparison between buildings. Key variables considered for

normalisation include weather, type of use, hours of occupancy and

number of occupants.

Normalisation is practiced in all of those countries with building

disclosure obligations. Typically weather normalisation is the most

52 Based on analysis of the public data to 5 June 2014, available at http://www.cbd.gov.au

53 Based on analysis of the public data to 5 June 2014, available at

https://www.gov.uk/government/publications/energy-performance-of-buildings-certificates-in-england-

and-wales-2008-to-2013

http://www.cbd.gov.au/

https://www.gov.uk/government/publications/energy-performance-of-buildings-certificates-in-england-and-wales-2008-to-2013

https://www.gov.uk/government/publications/energy-performance-of-buildings-certificates-in-england-and-wales-2008-to-2013


prominent, however normalisation for type of use, hours of occupancy

and other factors is undertaken. The Energy Star Portfolio Manager for

example normalises for weather (based on the location of the building),

building type, operating hours and occupant density.

Operational ratings are more useful than asset based ratings

David Hsu of the University of Pennsylvania undertook a statistical

analysis of a data set for multi-family buildings in New York City and

found that there are “few, if any, relationships of building systems to

observed energy use” indicating that basing energy performance ratings

on operational energy use was more effective than basing it on an

assessment of the building’s assets or construction.

Asset based ratings were found to cost up to ten times the cost of an

operational rating. “Costs for the annual benchmarking of buildings are

estimated at between USD $500 and $1,500 per building in New York,

and around $1.50 per square meter for auditing.”

His conclusion was that “disclosure laws requiring benchmarking data

may be relatively more useful than engineering audits in explaining the

observed energy performance of existing buildings.”54

Again my experience as an energy auditor bears out this finding. I have

assessed a number of award winning buildings with excellent asset

54 How Much Information Disclosure of Building Performance is Necessary? Hsu., D, Energy Policy,

Vol 64, Jan 2014, pp 263-272, Elseivier.

http://www.sciencedirect.com/science/article/pii/S0301421513008987



ratings (“as designed”) but which have had high energy use when

operational and actually performed poorly.

If the end intent of energy efficiency policy is actual energy savings,

leading to increased energy security and reduced GHG emissions, then

operational ratings are far more likely to lead to this outcome than asset

based ratings.


It is suggested that Malaysia introduce performance disclosure for larger

buildings based on actual operational energy use.

The form of disclosure shall be in the form of an annual Statement and

Rating of Building Energy Efficiency (SRBEE)

The SRBEE shall be generated by the Energy Commission, through the

(proposed) National Building Energy Consumption Database. A SRBEE

website/portal will be used for the upload of data needed to generate the

rating. The ratings of all buildings subject to the regulation will be

publicly available on the SRBEE website.

Data to be uploaded will include:

Property details (eg address, name of responsible person, etc)

Meter identifiers – the identification numbers (as per energy bills)

of the meters supplying those parts of the building subject to

disclosure.


Annual electricity consumption data (by linking to a National

Building Energy Consumption Database it will be possible to have

this data uploaded automatically)

If necessary, one, but no more than two, normalisation factor(s)

specific to the type of building. For example for an office this

normalisation factor would be the building area (m2).

The Building Energy Intensity, as calculated by the Energy

Efficiency Rating Tool.

Certification by an independent assessor that the data uploaded is

true and accurate.

For many buildings the only annual variable will be electricity

consumption, which through linking to a National Building Energy

Consumption Database could be uploaded automatically. So the cost of

ongoing annual compliance could be very low.

A current copy of the SRBEE will need to be displayed at all major

entrances in a prominent position for all buildings subject to the

regulation.

Scope of coverage

The scope is for existing buildings, and should apply to buildings where

the certificate of occupancy was issued 24 months or more ago.

The size and type of building required to comply will initially be as

follows:


The common property of any building which is subject to the Strata

Management Act using in excess of 1,000 MWh of electricity

annually; with “common property” and “building” as defined in this

Act. Energy used in common property will typically cover that used

in car parks, recreational areas, lobbies, corridors, lifts, stairs, fire

escapes, entrances and exits, and façade illumination.

Office Tenancies or single-occupant office buildings (including

government tenancies or buildings) using in excess of 1,000 MWh

of electricity annually.

All other non-industrial tenancies or single-occupant buildings of

any sort using in excess of 1,000 MWh of electricity annually.

Over a five year period the scheme would be expanded in two phases:

Phase 1: To expand to include:

- The common property of any building which is subject to the

Strata Management Act using in excess of 500 MWh of

electricity annually.

- Office Tenancies or single-occupant office buildings

(including government tenancies or buildings) using in

excess of 500 MWh of electricity annually.

- All other non-industrial tenancies or single-occupant

buildings of any sort using in excess of 500 MWh of



Phase 2: To expand to include:

- The common property of any building which is subject to the

Strata Management Act using in excess of 200 MWh of


- Office Tenancies or single-occupant office buildings

(including government tenancies or buildings) using in

excess of 200 MWh of electricity annually.

- All other non-industrial tenancies or single-occupant

buildings of any sort using in excess of 200 MWh of


Annual disclosure draws operational inefficiencies to the attention of

management and provides an annual scorecard of performance.

For buildings with long lease terms or which are rarely sold

infrequent disclosure will not have the beneficial impact of more

frequent disclosure. The US Energy Star experience highlights that

those buildings which were benchmarked consistently achieved

savings. On the other hand asset ratings, which remain unchanged

if the building is not refurbished or upgraded, do not incentivise

energy savings.


The National Property Information Centre (NAPIC) has data on the

number of office buildings, shopping centres, shops and hotels in

Malaysia, as tabled below.55

Table 11 - Estimated number of buildings that would need to comply with

mandatory disclosure requirements

Number of

buildings

Est.

Percent

measure

applies to

Number

liable

Total

energy use

liable

(GWh)

Purpose built office 2,363 100% 2,363 4,367.27

Shopping complex 877 100% 877 3,734.07

Hotel subtotal 2,710 -

Shop 392,304 10% 39,230 2,585.50

Serviced apartment 88 - 11,429.44

Attributable to other commercial buildings not listed

by NAPIC* 28,299 30% 8,490 5,116.47

Residential common property strata titled** 4,746,184 0.5% 23,731 1,918.69

Total buildings 5,573,877 76,779 29,894

*Estimate based on a rough energy balance

**Note this is an uninformed estimate as to the number of residential strata titled buildings

that would need to comply.

55 http://napic.jpph.gov.my/portal/portal/eps/Online%20Services/Publication


Expected costs and benefits

Based on the table aboveNAPIC data an estimated 77,000 buildings will

need to comply.

If it is assumed that:

Buildings that comply with the scheme reduce electricity

consumption by 1.5%

It costs RM 3,000 for each building to comply in the first year they

are required to comply. This cost covers the expense of having a

registered engineer or architect certify the metering arrangements

and that the normalisation factors are correct plus any time that the

building manager needs to dedicate to this task.

Compliance costs RM 1,000 per building in the second and all

subsequent years that they are required to comploy56;

Compliance is introduced gradually

Every RM 200,000 spent on compliance creates 1 job.

Then after 10 years:

Annual savings will be RM 360m

Annual compliance costs will be RM 110m

670 people will be employed.

56 Costs are similar to the costs in New York.


Due to possible capacity constraints it is unrealistic to expect to be able

to bring all buildings into the scheme in one year, so a phased

introduction is suggested.

Elements of scheme design

With reference to figure 22 are a wide range of considerations involved

when deciding on the design of a performance disclosure system.

The availability and cost of getting data has to be considered against the

benefit the data provides. Application of the 80/20 rule would indicate

that just enough information should be gathered to provide 80%

confidence that the performance disclosure is within the likely actual

performance range. The scheme design needs to decide on the level of

accuracy required. For example the NABERS rating in Australia, which

could be considered a “Rolls Royce” rating system, needs to be

undertaken by an accredited assessor following a complex validation

protocol that ensures a high degree of comparability between ratings.

This however comes at a cost, for a tenancy of 1,500 m2 the cost is

estimated at between $1,000 to $4,000. 57 A lodgement fee of $700

applies for any NABERS rating to be registered.

As indicated above costs are in the range of $500 to $1,500 per building

in New York for the operational rating and $1.50/m2 for the associated

audit. In Australia the cost to a property owner of complying with the

57 http://www.cityswitch.net.au/Nabers/Howmuchdoesitcost.aspx

http://www.cityswitch.net.au/Nabers/Howmuchdoesitcost.aspx


CBD legislation (NABERS rating and lighting audit) is estimated at

between AUD $6,000 to $10,000.58

For Malaysia an operational rating only is suggested, with minimal data

collection. Its estimated that it will be possible to keep the cost of first

year compliance at an average of RM 3,000 or less, then RM 1,000 or

less in subsequent years.

Suggestions for each of the classification criteria presented in figure 22

are listed below:

Consumption quantification: The performance disclosure should be

based on measured, normalised operational performance, only, and not

include any element of an asset rating. Normalisation factors should

depend on building type. For an example, for an office building

normalisation would be based on the area of the building. To keep costs

low initially only one normalisation variable shall be used, which should

still be sufficient to enable a reasonable comparison between buildings.

This should be building area for most if not all types of buildings.

Energy measurement: Should be based on meter readings of energy

delivered to the meter(s), based on utility billing data. Where the rating is

for “base building” or common areas only, then only that consumption

data need be considered.

58 http://cbd.gov.au/get-and-use-a-rating/how-to-get-a-beec

http://cbd.gov.au/get-and-use-a-rating/how-to-get-a-beec


Floor area: Gross unconditioned and conditioned floor area is the

easiest to measure, however this may make it challenging to make valid

comparisons between buildings. The Kuala Lumpur City Council has

developed a simple definition of Gross Floor Area that should be

adopted.

Building type: As discussed above initially common areas of large

buildings and office buildings should be required to comply, expanding to

a wider range of building types. Where a building has different types of

usages adjustments may need to be made, depending on energy

metering arrangements and details on floor area.

Comparability metric: For ease of communication the comparison

should also be presented at a statistical relative reference in bands of

usage (e.g. 1 star to 5 star, or A to F) with the halfway point representing

the average for the building type. With references to figures 23 and 24

above it can be seen that figure 24 appears to communicate the most

clearly, and being easier to understand than figure 23.

Energy end use: Whole of building energy use should be considered,

based on metered supply data, rather than trying to break it down by

various end uses (such as lighting, cooling, etc.) for which metered data

is not likely to be available. Where the rating only applies to the base

building, then all consumption on the base building meter should be

included.

With only three electricity utilities in Malaysia, the alignment of

performance disclosure with a national building energy consumption


database will facilitate the provision of consumption data that can be

used in determining energy performance of buildings.

The above discussion illustrates some of the complexity involved in

starting up such a scheme and the various considerations that need to

occur.

Voluntary or mandatory?

As presented in the Building Energy Intensity disclosure discussion

paper59 by Kevin Hor of BSEEP and Dr. Gerhard Weihs of SCP-EPU,

mandatory disclosure is recommended. The advantages of mandatory

disclosure are:

Improved effectiveness of labelling. As shown in the discussion

above on EPCs, where ratings are not mandatory the market

impact is reduced substantially.

Economies of scale reduce costs. The costs of assessments could

be expected to drop as market demand for accredited assessors

grows due to competition between assessors.

It is suggested that mandatory disclosure include:

59 Strategic paper for mandating the disclosure of Building Energy Intensity (BEI) for new high rise

(above 5 storey) residential buildings and high rise (above 5 storey) commercial property transactions

in Malaysia, March 2014, Hor K., Weihs G., unpublished.


Display of energy performance rating in a prominent position at

building entrances

Energy performance rating be available in a publicly accessible

website

Display of the current energy performance rating in any

advertisement for sale or lease.

Implementation pathway

The following elements need to be considered in determination of the

implementation pathway/timeline:

Detailed scheme design. As outlined above various factors need to be

considered, however it is likely that these could be resolved over a three

to six month period with appropriate industry consultation.

Development or adaption of a database and normalisation tool that

enables cost-effective measurement of operational BEI across a wide

variety of building types.

A separate policy discussion paper has been prepared on Building

Energy Efficiency Assessment Tools

Likely timeline is six to twelve months.

Enabling Regulation. The powers vested in ST under the Electricity

Supply Act (1990) shall be used to oblige utilities to supply the Energy

Commission (EC) with the following data on a quarterly basis for all

buildings subject to the disclosure:


Meter identifier / account number

Account name, address, contact details

Consumption data for each month of the quarter.

The Energy Management Regulations 2008 may need to be amended to

allow for ST to collect data for those buildings using less than 3,000

MWh over a six month period.

To mandate the public disclosure of data and for liable buildings to

provide information to produce a SRBEE may also require changes to

the Energy Management Regulations 2008.

Scheme administration. Shall be undertaken by the EC, which will also

administer the National Energy Building Consumption Database and

providing help-desk services in use of the website and portal used to

generate SRBEEs.

A team of roughly ten people would be needed to undertake these

activities. This could be funded through a UEEO.

Scheme introduction. Scheme introduction would involve engaging

with property managers, and commercial real-estate agents to provide

information on the scheme. A transition period could apply before

enforcement was made mandatory.

Scheme tightening. This would be at three and five years after scheme

introduction.


Monitoring of results and tuning of policy. The database developed

for the scheme would be accessed for the purpose of monitoring and

tuning of policy. Appropriate resourcing would need to be allocated.

Responsibility

ST

Synergies

Building standards and building performance disclosure are highly

synergistic. There is considerable evidence that building efficiency

standards alone are not effective in realising the full energy saving

potential of such standards. Good operational practices are needed, and

this can be driven by mandatory performance disclosure of actual

operational energy consumption. The synergy is shown in the graphic

below.

Figure 28 - How energy codes and operational energy performance disclosure impact on a buildings

energy use over its lifetime. From Lining Building Energy Codes with Benchmarking and Disclosure

Policies, Global Building Performance Network and Institute for Market Transformation, March 2014.

http://www.imt.org/uploads/resources/files/Linking_Codes_With_Benchmarking.pdf



A National building energy efficiency database can benefit greatly

from performance disclosure, and enable the tracking of policy

effectiveness over time whilst also providing insights that many facilitate

the development or tuning of other energy efficiency policies.

A Utility Energy Efficiency Obligation could be used to provide

funding for scheme administration, and in the early years of the scheme

to subsidise the cost of compliance.


ENERGY EFFICIENCY RATING TOOLS

FOR BUILDINGS

SUMMARY

Energy efficiency benchmarking tools have been shown to be important

tools enabling mandatory disclosure of building energy performance,

which has been shown to be effective in reducing energy consumption in

commercial buildings.

Buildings can be benchmarked and compared either by an asset rating

or an operational rating.

Operational ratings show how much energy a building actually uses,

which is a function both of how the building is operated and energy

efficiency features incorporated into its design and equipment. Asset

ratings show how much energy the building is expected to use if

operated a certain way.

Operational ratings are preferred for existing non-residential buildings

and the common areas of large residential buildings. Operational ratings

have been proven to drive large energy savings. For example in the

U.S.A’s Energy Star Portfolio Manager, which has over 350,000

buildings benchmarked in it, buildings which have consistently

benchmarked have reduced energy consumption on average by 7%

over a three year period. The use of an operational rating tool is

recommended for Malaysia.


Globally the best tool is the Energy Star Portfolio Manager. It can be

used with up to 80 different property types, with 18 broad categories

from banking through to warehouse. With over 350,000 properties

benchmarked by Portfolio Manager, it has been refined to be a fairly

easy to use tool with a large help section.

In selecting an operational rating tool consideration needs to be given to

accuracy, cost and ease of use.

Malaysia can potentially adapt the Building Energy Intensity Tool. This

is currently used to provide asset ratings for office buildings used in the

Green Building Index, but could be adapted to enable an operational

rating. Alternatively it could develop an operational rating tool from

scratch, or else adopt Energy Star Portfolio Manager. This would have

the advantage of being a well-developed tool suited to a wide range of

facility types.

Any tool should be capable of seamless integration with a National

Building Energy Consumption Database.

Stakeholders have not indicated a strong preference for a particular tool,

however the BEI tool is viewed favourably.

WHAT ARE BUILDING ENERGY EFFICIENCY

RATING TOOLS?

Building energy efficiency rating tools are used to compare the energy

efficiency of different buildings.


There are broadly two types of rating tools – tools that generate “asset”

ratings, or those that produce “operational” ratings.

Asset ratings use design information about a building, or information

gathered by an assessor about the characteristics of the building that

impact on energy use. Such characteristics may include the amount of

insulation, the type of windows, the lighting power density, etc. This

design information is then entered into software which calculates a

simulated annual energy use, based on certain operating conditions.

Operational ratings are based on actual energy bills for the building.

They are normalised for weather and other parameters such as

operating hours, to enable a comparison between buildings.

Operational ratings show how much energy the building actually uses

which is a function both of how the building is operated and energy

efficiency features incorporated into its design and equipment. Asset

ratings show how much energy the building is expected to use if

operated a certain way.

Asset ratings are generally used for home energy ratings, where there

can be large variation in occupant behaviour, whereas operational

ratings are more commonly used to show how commercial buildings

actually perform, as there is generally less variation in occupant

behaviour.

Operational ratings are technology agnostic, and require no

understanding of the equipment and plant in use in the building or how

the building has been constructed. As such they are usually much


cheaper than asset ratings, which rely on understanding the technology

and construction used in the building.

AN ASSET RATING OR AN OPERATIONAL RATING

TOOL?

As discussed in the paper on building performance disclosure,

operational ratings are preferred for existing non-residential buildings

and the common areas of large residential buildings.

Asset ratings cannot show any reduction in building energy consumption

due to operational changes. On the other hand operational ratings

capture this change. Analysis of the large dataset in the USA’s Energy

Star Portfolio Manager (an operational rating tool) shows this. “In a

recent study, EPA found that buildings that were benchmarked

consistently reduced energy use by an average of 2.4 percent per year,

for a total savings of 7 percent [over three years]. And, buildings that

started out as poor performers saved even more.”60

The New Buildings Institute undertook modelling which found that

operational practices have enormous influence on building energy use.

Modelling of three different buildings showed that best practice can

reduce energy consumption by up to 45% whilst worst practices can

60 http://www.energystar.gov/buildings/about-us/how-can-we-help-you/benchmark-energy-

use/benchmarking




increase consumption by up to 140%. 61 My personal experience in

energy audits of over one thousand non-residential buildings bears this

out; buildings that are very similar in construction (i.e. would achieve

similar asset ratings) may show large differences in energy consumption

due to occupant practices in how energy use in the building is managed

and controlled. On the other hand, buildings that are substantially

different in construction and age may have similar energy use intensities

as a result of operational practices.

Disclosure of operational energy performance reveals the potential for

improvement, particularly when the rating is poor. As the Energy Star

Portfolio Manager experience has shown, buildings which initially have a

poor rating tend to have the greatest improvement in performance over

time when benchmarking is undertaken regularly.

David Hsu of the University of Pennsylvania undertook a statistical

analysis of a data set for multi-family buildings in New York City and

found that there are “few, if any, relationships of building systems to

observed energy use” indicating that basing energy performance ratings

on operational energy use was more effective than basing it on an

assessment of the building’s assets or construction.

61 Sensitivity Analysis: Comparing the Impact of Design, Operation and Tenant Behaviour on Building

Energy Performance. New Building Instituted, July 2011.




Asset based ratings were found to cost up to ten times the cost of an

operational rating. “Costs for the annual benchmarking of buildings are

estimated at between USD $500 and $1,500 per building in New York,

and around $1.50 per square meter for auditing.”

His conclusion was that “disclosure laws requiring benchmarking data

may be relatively more useful than engineering audits in explaining the

observed energy performance of existing buildings.”62

Again my experience as an energy auditor bears out this finding. I have

assessed a number of award winning buildings with excellent asset

ratings (“as designed”) but which have had high energy use when

operational and actually performed poorly.

If the end intent of energy efficiency policy is actual energy savings,

leading to increased energy security and reduced GHG emissions, then

operational ratings are far more likely to lead to this outcome than asset

based ratings.

INTERNATIONAL EXPERIENCE WITH RATING

TOOLS

The accompanying paper on building performance disclosure provides a

discussion on how different countries assess the energy efficiency

performance of their buildings, with reference to the tools in use.

62 How Much Information Disclosure of Building Performance is Necessary? Hsu., D, Energy Policy,

Vol 64, Jan 2014, pp 263-272, Elseivier.




Rather than repeat this discussion the experience with a range of

different tools from different countries (including Malaysia) is

summarised in the table below.

Note that internationally there are many asset based tools (only a few of

which are listed below) but fewer operational tools.

185 | P a g e

Tool Country Type of tool Basis of rating Main use

Green Building Index Malaysia Asset rating, post

occupancy

operational rating.

Uses the Building Energy Intensity Tool For the calculation of the GBI rating for new

and existing buildings.

Building Energy

Intensity Tool63

Malaysia Primarily an asset

rating, post

occupancy

operational rating

possible.

Characteristics of the building (size, heat transfer

coefficients, amount of glazing, glazing type, shading)

and equipment power densities and efficiencies are

entered which results in the calculation of a simulated

building energy intensity based on air conditioned

building area.

Post occupancy an operational rating can be

generated.

For the calculation of BEI in GBI ratings for

new buildings and confirmation rating in the

first 12 months of operation.

63 http://www.acem.com.my/index.php?option=com_content&task=view&id=65&Itemid=69

http://www.acem.com.my/index.php?option=com_content&task=view&id=65&Itemid=69



BCA Green Mark64 Singapore Asset rating Characteristics of the building and equipment re

entered which results in the allocation of points for a

green building rating

For the calculation of the Green Mark rating

for new buildings

GreenRE65 Malaysia Asset rating Characteristics of the building and equipment in

relation to MS1525 are entered which results in the

allocation of points for a green building rating (similar

to Green Mark)

For the calculation of the GreenRE rating for

new buildings (an alternate to GBI)

Penarafan Hijau, JKR66 Malaysia Asset rating Used by JKR to assess government

buildings

64 http://www.greenmark.sg/index.html

65 http://greenre.org/wp-content/uploads/2014/01/Design-Ref-Guide-ENRB1.1.pdf

66 http://www.jkr.terengganu.gov.my/v2/index.php?option=com_content&view=article&id=312:program-pengenalan-skim-penarafan-hijau-jabatan-kerja-raya-

malaysia&catid=1:taklimat&Itemid=67

http://www.greenmark.sg/index.html

http://greenre.org/wp-content/uploads/2014/01/Design-Ref-Guide-ENRB1.1.pdf

http://www.jkr.terengganu.gov.my/v2/index.php?option=com_content&view=article&id=312:program-pengenalan-skim-penarafan-hijau-jabatan-kerja-raya-malaysia&catid=1:taklimat&Itemid=67

http://www.jkr.terengganu.gov.my/v2/index.php?option=com_content&view=article&id=312:program-pengenalan-skim-penarafan-hijau-jabatan-kerja-raya-malaysia&catid=1:taklimat&Itemid=67



Green Pass Malaysia Asset and

operational

CIDB have used this tool to undertaken carbon

ratings for government buildings.

Currently Penarafan Hijau and Green Pass are

being combined into a single tool to generate

carbon ratings for a range of building types

Melaka State Menterai

Hijau67

Malaysia

(Melaka)

Tool currently under development

Energy Star Portfolio

manager68

U.S.A.,

Canada

Operational

rating

Annual energy consumption, normalised for weather, hours

of use, occupancy. BEI calculation based on gross floor area

excluding car parking.

Existing buildings: Voluntary ratings and for

compliance with various state and local government

mandatory disclosure regulations

67 Tool still being developed. http://www.melakagreentech.gov.my/

68 http://www.energystar.gov/buildings/facility-owners-and-managers/existing-buildings/use-portfolio-manager

http://www.melakagreentech.gov.my/




NABERS69 Australia Operational rating Annual energy consumption, normalised for weather, hours

of use, occupancy and for offices on desktop computer

loads. BEI calculation based on net lettable floor area with

exclusions for areas with different usage types.

Existing buildings: Voluntary ratings and for

compliance with national mandatory

disclosure regulation at time of sale or lease

for spaces larger than 2,000m2.

DEC70 UK, Ireland Operational rating Annual energy consumption, normalised for weather, hours

of use, BEI calculation based on conditioned floor area with

exclusions for areas with different usage types.

Existing public buildings. Mandatory

disclosure every 10 years for buildings of 500

to 1,000 m2, mandatory annual disclosure for

buildings of more than 1,000 m2.

69 www.nabers.com.au

70 http://www.seai.ie/Your_Building/BER/Large_Public_Buildings/DEC_FAQ/Public_buildings_technical_bulletin_Dec_09.pdf

http://www.nabers.com.au/

http://www.seai.ie/Your_Building/BER/Large_Public_Buildings/DEC_FAQ/Public_buildings_technical_bulletin_Dec_09.pdf

189 | P a g e

Of the operational tools Energy Star Portfolio Manager has had the

greatest development effort. It can be used with up to 80 different

property types, with 18 broad categories from banking through to

warehouse. With over 350,000 properties benchmarked by Portfolio

Manager, it has been refined to be a fairly easy to use tool with a large

help section.

Additionally Portfolio Manager can be used with a range of

manufacturing/industrial building types. Whilst it requires a licenced

Professional Engineer or Registered Architect, in good standing with

working knowledge of building systems to verify the data for the purpose

of certification, there is no need for special certification. This is

substantially different (and thus less expensive) to the UK/Ireland and

the Australian systems, where a specially accredited assessor is

required to undertake the rating.

Also, unlike Australia, there is no requirement to pay a certification fee.

In effect the tool is subsidised, which could explain its very large

voluntary uptake.


FACTORS IMPORTANT TO ENERGY EFFICIENCY

BUILDING DISCLOSURE TOOL SELECTION

The tool should enable an operational rating (as discussed in the

paper on building performance disclosure)

The rating should be accurate enough to provide a fair comparison

between buildings of the same type.

The cost of doing the rating should be as low as possible without

compromising accuracy

The tool should be relatively easy to use, so as to minimise the

chance of erroneous ratings

It should be able to integrate with a National Building Energy

Consumption Database, to make it much easier (and therefore

less expensive) to generate a Statement of Rating and Building

Energy Efficiency (SRBEE) for a property.

The tool must be able to be used with a range of building types.


Malaysia has no operational rating systems. Options are:

Adapt the BEIT

Develop an operational rating tool from scratch

Adapt one of the operational tools used internationally.

Each of these options is reviewed in the table overleaf.


As shown earlier Malaysia has a large number of green building rating

tools. To avoid confusion it is recommended that mechanisms be put in

place so that only one tool can be used to generate operational ratings

for the purposes of mandatory disclosure, and this tool should be

embedded into the National Building Energy Consumption database

192 | P a g e

Option Plus Minus Interesting

Adapt BEIT Construction industry for large buildings already familiar with BEIT

Can enhance the certification of existing buildings after 12 months of

operation.

Easy to incorporate concepts and language familiar to Malaysia.

BEIT is not government owned

Have to develop training and

accreditation material

Currently only suited to office buildings

BEIT is primarily a tool for building

design, not for assessing actual

consumption

Develop an

operational tool

from scratch

Can be fully customised.

Government can have full control.

Easy to incorporate concepts and language familiar to Malaysia.

Easy to incorporate into a National Building Energy Consumption

Database

Not hard to develop

Longer time frame

Have to develop training and

accreditation material

Adapt one of the

operational tools

used

internationally

No need to reinvent the wheel.

Could save years of tool development and enhancement

Possibly (much) less expensive

Training and accreditation material already developed

Possible sovereignty concerns

Less ability to customise to Malaysia


Adapt Energy

Star Portfolio

Manager

Very well developed program; the best tool for operational energy use

assessment in the world.

Suited to a wide range of building types so enables mandatory

performance disclosure across a wide range of building types, including

industrial facilities (and encompassing the use of gas and other fuels)

Already uses units familiar to Malaysians (e.g. ft2 rather than m2, BTU)

Energy star welcomes international use of the Portfolio Manager into its

existing database.

Could be used for international benchmarking.

Requires development of a stable long

term agreement with the USA EPA;

less direct control possible of the tool

May be harder to integrate with a

National Building Energy Consumption

Database.

Portfolio Manager is an excellent

tool.

Would the U.S.A. be willing to

license it, with a separate

Malaysian data-set, and give

Malaysia sovereignty over the

data?

Responsibility

ST

194 | P a g e

NATIONAL BUILDING CONSUMPTION

DATABASE

SUMMARY

A National Building Energy Consumption Database (NBECD) enables

the impact of energy efficiency policies to be measured. It can also serve

the additional purpose of providing an administration and regulatory tool

(which is required in any case).

The key objective of Building Sector energy efficiency policy is reduced

energy consumption in buildings, leading to greater national energy

security and reduced GHG emissions, and providing greater

competitiveness in the global marketplace.

However unless policy results are effectively measured and monitored,

tens or hundreds of millions of dollars may be wasted.

The key purpose of an NBECD is to enable traceability of the impact of

energy efficiency measures through to changes in energy consumption,

and to be able to do so with a large data set in order to provide a high

degree of confidence in any findings.

Site address Energy efficiency intervention Reduction in metered

consumption


As an ambitious set of building sector EE policies are put forward for the


administration.

A NBECD is an elegant and cost-effective way of doing this.

Failure to adopt an NBECD would result in un-necessary duplication and

inefficiencies, and may make the cause-effect measurement enabled by

an NBECD impossible.

Changes to the Energy Manager Regulations could enable an NBECD,

which would be administered by the Energy Commission. The cost of

establishing an NBECD is roughly estimated at between RM 3m to 5m,

and roughly ten people would be needed to maintain and administer it

on an ongoing basis. This could be funded by a Utility Energy Efficiency

Obligation (UEEO).

A NBECD is synergistic with all EE policy measures that can be

expected to result in a measurable impact on energy use at the level of

an individual meter.

It has very strong synergy with a UEEO and mandatory building

performance disclosure.


WHY A NATIONAL BUILDING ENERGY

CONSUMPTION DATABASE?

“You can’t manage what you don’t measure” is a well know saying, but

unfortunately when it comes to energy efficiency policy it is challenging

to apply.

Policy endeavours through either regulation or incentives to direct public

and private activity and investment to achieve outcomes in the public

interest.

However without measurement tools in place it is very hard to assess

the impact of these policies, to ditch ineffective policy and enhance

policy that is producing results.

The key objective of Building Sector energy efficiency policy is reduced

energy consumption in buildings, leading to greater national energy

security and reduced GHG emissions, and providing greater

competitiveness in the global marketplace.

A National Building Energy Consumption Database enables the impact

of these policies to be measured. It can also serve the additional

purpose of providing an administration and regulatory tool (which is

required in any case).


A SUGGESTED NBECD FOR MALAYSIA

The structure of a suggested NBECD for Malaysia is shown below,

followed by an explanation of key features.

Figure 29 Structure of a NBECD


Data keys

Data keys refer to how data is inter-related. The two most important data

keys are the electricity meter identifier (EMI) and the site address.

The electricity meter identifier is a number that refers to the point of

electricity supply, and never changes. The meter may change. Malaysia

in the future may de-regulate its electricity supply and the account

number may change. But the EMI never changes.

If Malaysia does not currently have an EMI appearing on each electricity

bill, but it has some other form of unchangeable identifier, this should be

the key. If account numbers never change, then this could be the

identifier.

The site address is the building to which electricity is supplied to. This is

where the database administration gets challenging, as one meter may

supply more than one address (think of a school, which has expended to

occupy multiple addresses with multiple buildings but only one electricity

supply meter), or, more commonly, one address may have multiple

meters (again a school is a good example, it may have multiple

electricity supply points and meters to different buildings).

What is ultimately important is that any data entered into the database

can be traced back to a meter whose consumption is expected to reduce

as a result of an activity that has the intent of reducing energy use. This

then enables the tracing of Causes to Effects.


Site address Energy efficiency intervention Reduction in metered

consumption

Where there is doubt an NBECD will need active administration to

enable the matching of the address where an energy efficiency

intervention occurred to the meter supplying electricity to the address, or

that part of the address, where the energy saving measure took place.

The gas meter identifier is the third identifier. Electricity is the

predominant form of energy used in buildings, but if the NBECD is to

cover industrial buildings, it needs to be able to track interventions that

are expected to reduce gas consumption.

Complete coverage

The NBECD needs to encompass all activities that reduce metered

energy consumption in buildings. It therefore needs to be able to capture

the impact of policies such as:

A Utility Energy Efficiency Obligation Scheme (UEEO)

Building performance disclosure, via a Statement and Rating of

Building Energy Efficiency

Embedded generation, through the Feed In Tariff

The Efficient Management of Electrical Energy Regulations, which

apply to all large electricity users.

Any other policy, regulation or activity that is expected to change

metered energy consumption in buildings


Building Energy Intensity (BEI) calculation

The BEI calculation is undertaken by the Energy Efficiency Rating Tool.

It should link seamlessly to the NBECD to reduce the time and effort

needed to generate a Statement of Rating of Building Energy Efficiency

(SRBEE).

Enables Program Administration

In this second decade of the 21st century there is no excuse for not

making all transactions electronic, and every electronic transaction

needs a database to support it.

Good database design, coupled with easy to use user interfaces that

can be used on computers, tablets and phones, slashes the costs of

transactions, improves accuracy, facilitates audits and provides

traceability.

As an ambitious set of building sector EE policies are put forward for the


administration.

A NBECD is an elegant and cost-effective way of doing this.

Failure to adopt an NBECD would result in un-necessary duplication and

inefficiencies, and may make the cause-effect measurement enabled by

an NBECD impossible.


Enables policy to be measured and tuned

A key deficiency in the implementation of EE policies globally is the lack

of measurement of policy effectiveness. A NBECD that is well

administered enables this. Which policies are the most cost effective?

Which policies leverage the most private investment? Which policies

don’t work? Which policies aren’t working well, but can be improved? A

NBECD can enable the answering of all these questions.

For example, under a UEEO many sites might receive lighting upgrades,

and many sites might have high efficiency air conditioners installed.

Which provides the most reliable savings? Should any deeming factors

for lifetime savings be changed? Do the metered savings match the

deemed savings? A NBECD facilitates the answering of these questions.

Developing a NBECD, costs and benefits.

No special regulation needs to be enacted for EC to establish a NBECD.

The Energy Commission would administer the NBECD

Development of the NBECD would likely take 6 to 12 months.

A rough estimate of the cost of developing an NBECD and the

associated portals as outlined above is RM 3m.

Given that several of the EE policies under consideration are likely to

result in expenditure ranging from hundreds of millions through to billions

of Ringgits, an NBECD is inexpensive in relation to the benefit it can

provide as an administration and monitoring tool.


Responsibility

ST

AUTHOR’S PERSONAL EXPERIENCE

The key reference for this paper is my personal experience. I believe a

NBECD could be of tremendous long-term benefit to Malaysia in helping

ensure policy effectiveness. Much of the thinking in this paper comes

from my experience in:

Designing and developing energy management databases and

web-based interfaces. I’ve designed and managed the

development of tools for organisations with hundreds of sites to

track their energy and water consumption and carbon footprint.

Energy audits. What are the metering arrangements? Which part

of the site is supplied by which meter?

Measurement and verification. What are the metering

arrangements? What are the variables impacting on energy

usage? Were the savings as estimated?

Analysing large data sets to determine policy impact (and often

finding that the data doesn’t exist, creating a tremendous amount

of extra work often based on tenuous assumptions that can’t be

validated). One policy I evaluated, which did not have a system for

measuring policy impact and then adjusting policy, appeared to be


wasting in excess of $50m annually. 71 This could have been

avoided with an NBECD.

Comparing deemed or projected savings and impacts with actual.

The difference can be huge!

I have a great appreciation of the value of energy efficiency data, and

the inefficiency that can arise in the absence of such data.


A NBECD is synergistic with all EE policy measures that can be

expected to result in a measurable impact on energy use at the level of

an individual meter.

It has very strong synergy with a UEEO and mandatory building

performance disclosure.

71 Carbon Policy – How robust measurement and verification can improve policy effectiveness.

Rowse, B., CarbonetiX Pty Ltd., http://www.smashwords.com/books/view/332515

http://www.smashwords.com/books/view/332515


ENERGY EFFICIENCY CODES FOR

BUILDINGS

SUMMARY

Effective building codes and standards are one of the most cost effective

ways of achieving large energy savings. For example good passive

design is something that can save large amounts of energy, yet the

opportunity for good passive design is largely lost once the building is

built.

However in Malaysia EE building standards or codes have not been

widely adopted across all 148 municipalities.

In Malaysia MS 1525: Code of Practice on Energy Efficiency and Use of

Renewable Energy for Non-Residential Buildings if complied with limits

maximum energy intensity to around 200 kWh/m2/year. It is referred to

in the 2012 amendment to the Uniform Building By-Laws (UBBL) which

are used to regulate the construction of buildings in Malaysia. However

only one state in Malaysia has gazetted this amendment.

Rather than focus on further enhancing or expanding the scope of EE

building codes and standards, the recommended approach for the 11th

Malaysian plan is to focus on improving the application of the Uniform

Building By Laws (UBBL) across the country and adopting more of the

provisions of MS1525 into the UBBL, whilst also continuing to support

the voluntary application of MS 1525 in the construction of “green”

buildings.


Until such point that codes are widely applied, the economies of scale

that result in the construction industry effectively internalising the

additional costs cannot be realised.



addresses these barriers. It is suggested that Malaysia adopt a

consultative process to both review its past achievements and how to

identify how to fully apply this process over the 11th Malaysian plan. This

can include having KPKT raising the awareness of state and local

government of the benefits of mandatory building standards, and the

provision of training to state and local government as to how to manage

compliance.

Once code compliance is widespread, Malaysia can then move to

tighten codes and expand their application. A suggested pathway is that

Malaysia set building energy intensity requirements that lower every five

years such that new buildings use zero net energy by 2040, and that

these be widely communicated to enable industry to prepare

appropriately.

CURRENT BUILDING ENERGY EFFICIENCY CODES

AND PRACTICE IN MALAYSIA

Malaysia has developed a voluntary building energy efficiency standard

for non-residential buildings – MS 1525: Code of Practice on Energy

Efficiency and Use of Renewable Energy for Non-Residential Buildings.

Part of this has been incorporated federally in the Uniform Building By-


Laws (UBBL) 2012, however only one state has adopted this as a

mandatory building code.

MS1525 is targeted at commercial buildings, particularly office buildings.

It both provides recommended measures and prescribes energy

performance standards for different elements of the building. For

example it recommends maximum permissible rates for heat transfer

through the building fabric and prescribes maximum lighting power

densities.

No standards exist yet for residential buildings, although these are now

in the early stages of being developed.

Initially developed in 2001, two revisions of MS 1525 have subsequently

occurred – in 2007 (revision 1) and now in 2014 (revision 2). MS1525

has been developed with wide industry consultation

MS1525 and the UBBL

In Malaysia construction practices are regulated by the Uniform Building

By-Laws (UBBL).

At the federal level in 2012 two of the provisions of MS1525 (2007) were

incorporated in the UBBL. Specifically clause 38A Energy efficiency in

buildings was added, which states that:

1. New or renovated non-residential buildings with air-conditioned space

exceeding 4,000 square metres shall be


a) designed to meet the requirements of MS 1525 with regards to the

Overall Thermal Transfer Value (OTTV) and the Roof Thermal Transfer

Value (RTTV); and

b) provided with an Energy Management System.72

2. The roof of all buildings, residential and non residential, shall not have

a thermal transmittance U value greater than:

a) 40 W/m2.K for a light weight roof of under 50 kg/m2;

b) 60 W/m2.K for a light weight roof of under 50 kg/m2;

Unless provided with other shading or cooling means.

Whilst this change has been gazetted federally, enforcement of the

UBBL is at the state level, and relies on the state government gazetting

it for it to become mandatory in any state.

Application of the EE provisions in the UBBL

So far only Selangor has gazetted the 2012 amendments to the UBBL,

so with the exception of Selangor the application of EE building

standards is voluntary.

72

http://www.eria.org/events/6.%20UBBL%202012%20Amendments%20on%20EE%20and%20MS152

5%20-%20Ir%20Ahmad%20Izdihar.pdf

http://www.eria.org/events/6.%20UBBL%202012%20Amendments%20on%20EE%20and%20MS1525%20-%20Ir%20Ahmad%20Izdihar.pdf

http://www.eria.org/events/6.%20UBBL%202012%20Amendments%20on%20EE%20and%20MS1525%20-%20Ir%20Ahmad%20Izdihar.pdf


Various green building rating systems, including the Green Building

Index, GreenRE, tools developed by JKR and by Melaka state refer to

MS1525 and require adherence to its provisions.

This has meant the adoption of MS1525 in the construction of green

buildings. Tax incentives have also stimulated the construction of more

energy efficient buildings.

Its estimated that around 500 Malaysian buildings have incorporated

some or all of the elements of MS1525.73

Note that effective 1 July 2014 the GBI has required mandatory

compliance with Bylaw 38A for buildings wishing to be GBI certified.

Voluntary energy efficient design of new buildings

From 2009 Malaysia has very quickly developed a vibrant green

buildings industry.

The Green Building Index (GBI) reports that 100 million square feet has

now been GBI certified.74

Based on GBI data, GBI certified new non-residential buildings are

estimated to be savings on average around 100 kWh/m2/year, equating

to around 75 kg CO2-e/m2, and energy cost savings of about RM 40/m2

(assuming a tariff of RM 0.40/kWh). Further analysis of GBI data

73 This is the number of buildings registered with the GBI as shown on the GBI website,

www.greenbuildingindex.org

74 As of 10 May 2014.

http://www.greenbuildingindex.org/


(assuming an average construction cost of RM 3,000/m2) indicates that

on average the additional construction cost to achieve GBI certification is

estimated to be around RM 100/m2, providing a payback of around 2 ½

years.

Why aren’t the use of EE building codes mandatory across

Malaysia?

Two key reasons have been identified for the lack of mandatory uptake.

1. The states have not been convinced of the benefits of application

of the UBBL. For example from the recent major update to the

UBBL (2012), five states have gazetted some of the other

provisions, but only one state, Selangor, has adopted the EE

provisions. Selangor adopted all of the 2012 updates in the UBBL.

KPKT have identified that a convincing argument has not been

presented to the states as to why the EE provisions in the UBBL

should be adopted.

2. Local municipalities in Selangor, however, have not insisted on

compliance with the EE provisions. The reason for this is believed

to be a lack of understanding of the EE provisions and how to

verify that the certifying engineer has ensured compliance with

Clause 38A.


THE IMPORTANCE OF BUILDING ENERGY

EFFICIENCY CODES TO ENERGY SECURITY AND

REDUCING ENERGY CONSUMPTION.

The long life of buildings mean that building EE design and construction

codes have a long term impact on a country’s energy consumption, and

thus its long term energy security and carbon emissions.

Good passive design is something that can save large amounts of

energy, yet the opportunity for good passive design is largely lost once

the building is built. Only some elements of passive design – such as

cool roofs - can be cost effectively retrofitted to existing buildings.

Whilst the literature states that there is an opportunity to realise large

savings in buildings when major plant and equipment is replaced at

roughly 15 year cycles, the reality is that generally the key energy using

equipment – that used to ventilate and cool the building, is generally only

refurbished every 25 to 30 years.

And lighting fixtures similarly may only be upgraded on a 20 to 25 year

cycle, not necessarily accompanied by a new lighting design to get the

most advantage from newer more efficient technology.

Replacing equipment out of the normal replacement or retrofit cycle is

generally not cost effective based on energy savings alone.

It is therefore much easier to design in high efficiency into buildings that

it is to retrofit it.


In countries with high rates of new construction, such as Malaysia, the

energy efficiency of new buildings is one of the key determinants of the

country’s future energy requirements.

Building codes and Malaysia’s future energy consumption.

Based on Energy Commission data, in 2012 commercial and residential

electricity consumption (presumably of which all is used by buildings),

represented 54% of national electricity consumption.

The same data set shows that the number of commercial and residential

consumers tripled between 1990 and 2012. If this trend continues, by

2031 the number of consumers will be double those of 2014.


This strong growth in the number of consumers, if continues, means that

building standards around EE have a substantial forward impact if they

are widely implemented.

If for example Malaysia was to have building standards adopted and in

use, that set maximum allowable Building Energy Intensity (BEI) targets

as per table 12 below, then the cumulative effect on total building sector

electricity consumption by 2040 would be a reduction in annual usage of

20% compared with no standards, saving RM 8 billion and 16 million

tonnes of greenhouse gas annually.75

75 Rough estimate based on electricity consumption continuing to grow in line with the historical trend.


Table 12 - Suggested future BEI targets for new buildings

Year compliance

required from

Maximum Building Energy Intensity

(kWh/m2/year)

2014 200 (achieved by compliance with MS1525

revision 2, 2014)

2020 150

2025 100

2030 50

2035 25

2040 0 net energy consumption.

However up to 2012, it would appear that energy efficient building

standards have had negligible measurable impact on building sector

electricity consumption in Malaysia. This highlights the key challenge of

using building standards to drive energy savings, which is getting the

standards applied.

So what has been achieved internationally, and what is international

best practice that Malaysia can learn from?


GLOBAL EXPERIENCE WITH BUILDING ENERGY

EFFICIENCY STANDARDS

Energy efficiency standards for buildings are a widely applied globally,

and have been used since 1946. The maps below show the coverage for

new residential and non-residential buildings.

Figure 30 - Building codes for new residential buildings. From Modernising Building Energy Codes, IEA,

2013.

http://www.iea.org/publications/freepublications/publication/PolicyPathwaysModernisingBuildingEnergy

Codes.pdf

http://www.iea.org/publications/freepublications/publication/PolicyPathwaysModernisingBuildingEnergyCodes.pdf



Figure 31 Building codes for new non-residential buildings. From Modernising Building Energy Codes,

IEA, 2013.


Codes.pdf

Some of the global experience with Building EE standards is tabled

below




Table 13 - Some of the global experience with Building EE standards

Country Summary of experience Key lessons learned

China Over two decades there has

been persistent effort to raise

standards. The incremental

costs of EE buildings have now

been largely internalised as

they are now accepted as

common practice.

Nationally conducted building

inspections by the central

government achieved a

reported 80% compliance rate

in major cities in 2008

An effective compliance regime ensures that industry moves

to EE construction as the norm.

However on the other hand in medium and small cities

compliance is believed to be much lower, with less effort at a

central level to ensure compliance.

Key factors important in China have been:

A standardised systems of compliance and enforcement.

Broad capacity of the construction industry to adopt EE

practices.

Widely available EE construction materials.

Ability and willingness to pay for the additional costs of

achieving compliance.

Capacity and motivation of local govt to enforce building

codes (possibly through the power that central government

can exert, e.g. by withholding funding).



Mexico Developed a mandatory building code in

2001 but has largely failed to implement it as

local governments have failed to included it

in their building regulations.

Mexico is now trying to force compliance

through its nationally funded low-cost

housing program, requiring mandatory

compliance in order for funding to be

released. It is hoped that this experience

will help state and local governments will

become more familiar with the standard

and thus more willing to include them in

their local regulations.

Australia Residential energy construction standards

based on an asset rating have been effective

at reducing heating energy, but to date have

had less impact on cooling energy.

A key success factor has been strong

industry engagement and awareness and

very high levels of scheme compliance in

building design. Compliance costs are

included in the cost of obtaining a building

permit, making financing of compliance

largely self funding.

On the other hand, verification of

compliance in actual construction has not

been as robust as it has elsewhere (eg

California) and the design intent has not

necessarily been achieved. For example

insulation has been poorly installed.

Stronger enforcement to ensure that

buildings are compliant when they are

built, not just when they are designed,

would lead to higher savings.

Additionally it was nearly ten years from

introduction of standards before a review

of the actual measurable impact on home

performance was undertaken. As a result

some of the problems with compliance in

construction practices are now much

harder to resolve.



Denmark Demark has had EE building

codes in place since 1961, when

the standard was set at 350

kWh/m2/year. The standard was

tightened in 1979, 1994, and every

five years since 2006. The current

standard (2010) is 55

kWh/m2/year, and by 2020 will be

10 kWh/m2/year. Refer to the

figure below.

A key feature of the Danish

approach has been to develop a

long term plan and clearly

communicate this to industry. So,

for example, builders already know

what the standard will be in 2020.

However Demark too has had

challenges with compliance. For

example a survey in 2000 found

that in 43% of the surveyed

houses insulation was missing on

internal pipes and water tanks.

Compliance is a challenge

everywhere!

Figure 32 Energy requirements in the Danish building code over time. From Modernising Building Energy

Codes, IEA, 2013.


Codes.pdf




References:

Data in the table above is from the author (Australia) and otherwise from

these two publications, which are both highly recommended:

Mainstreaming Building Energy Efficiency Codes in Developing

Countries – Global Experiences and Lessons from Early Adopters.

World Bank Working Paper No. 204, World Bank, 2010,

http://www.esmap.org/sites/esmap.org/files/WP_204_GBL_Mainstr

eaming%20Building%20Energy%20Efficiency%20Codes%20in%2

0Developing%20Countries_Overview_1.pdf

Modernising Building Energy Codes, IEA, 2013.

http://www.iea.org/publications/freepublications/publication/PolicyP

athwaysModernisingBuildingEnergyCodes.pdf

Two key themes from the international experience are:

1. Ensuring compliance with standards is a challenge globally,

applying to both developed and developing countries. There are

many reasons for this, ranging for lack of capacity or interest at the

local government level, absence of a clear, unwavering

commitment over time at the central level, a lack of strong capacity

to enforce any construction standard, and a lack of finance.

2. Mandatory standards, however, are necessary, if high efficiency

buildings are to overcome the market barriers. “Removing or

lowering the market barriers to delivery of more energy efficient

buildings requires government intervention through mandatory

http://www.esmap.org/sites/esmap.org/files/WP_204_GBL_Mainstreaming%20Building%20Energy%20Efficiency%20Codes%20in%20Developing%20Countries_Overview_1.pdf






building EE codes. There have been no exceptions, even in the

most developed economies in the world.”76 These market barriers

are:

- When a building purchase is made, the cost of providing

energy to the building is generally not an important factor in

the purchase decision, especially where energy costs are

subsidised. Its hare to convince the market of the financial

benefits of an energy efficient building.

- The “split incentive” – that is it costs the developer more to

build an EE building, but the developer doesn’t enjoy the

benefit of the lower energy bills that result.

- Lack of information and knowledge about EE, and EE

technologies, in the construction industry.

- The added complexity of designing and constructing a

building that is more energy efficient. For example, chilled

beams are much more complex than a fixed air system.

76 Mainstreaming Building Energy Efficiency Codes in Developing Countries – Global Experiences

and Lessons from Early Adopters. World Bank Working Paper No. 204, World Bank, 2010,

http://www.esmap.org/sites/esmap.org/files/WP_204_GBL_Mainstreaming%20Building%20Energy%2

0Efficiency%20Codes%20in%20Developing%20Countries_Overview_1.pdf




SUGGESTED PATHWAY FOR EE BUILDING

STANDARDS GOING FORWARD IN MALAYSIA.

Malaysia has not been successful in ensuring widespread compliance

with building standards. On the other hand, for more prestigious

buildings industry has voluntarily adopted the use of MS1525, as this

sector of the market recognises and rewards green buildings.

The pathway forward needs to address the lack of compliance, whilst

also trying to enhance and support the voluntary uptake of standards

such as MS1525.

From a policy perspective a two phased approach is suggested:

First: enhance compliance with the EE provisions of the UBBL

Second: Once compliance becomes the norm, then tighten EE building

codes on a regular basis.

One. Enhance compliance with the EE provisions of the

UBBL.

The global experience shows that common reasons for the lack of codes

application are:

Lack of capacity: whether this be government capacity to promote

codes, administer their implementation and enforce compliance, or

industry technical capacity whether in design or construction.

Large elements of the construction industry that cannot see the

benefits of code compliance.


Failure to get both building buyers to value energy efficiency and

developers to see the value in making buildings more efficient.



addresses these barriers. It is suggested that Malaysia adopt a

consultative process to apply this process over the 11th Malaysian plan.

These steps and corresponding actions are replicated from the IEA

guidance in the figure below.


Figure 33 IEA recommended building energy code policy pathway. From Modernising Building Energy

Codes, IEA, 2013.

http://www.iea.org/publications/freepublications/publication/PolicyPathwaysModernisingBuildingEnerg

yCodes.pdf




Whilst Malaysia may have already implemented some of these actions,

more comprehensive implementation will improve outcomes. For

example, by clearly defining governance structures and institutional

arrangements at the federal, state and local government levels, with

consultation across these levels of government when developing these

structures.

An important part of steps 2 and 3 is to identify funding mechanisms,

including from complementary policies. One way of doing this could be

to create mechanisms to bring forward the operational cost savings to

the time of design and construction, which address the split incentive

discussed earlier. For example certificates from a Utility Energy

Efficiency Obligation could be used to achieve this. International

experience shows that including a levy in the cost of building approvals

can cover the cost of administrating and enforcing compliance.

The tax incentives for green buildings could also continue. However it is

recommended that they become more stringent over time. One way of

doing this could be to “raise the bar” for which the tax incentive apply.

For example, if tax incentives now are available when a building is

designed to achieve 150 kWh/m2/year, moving forward this threshold

could go to 125 kWh/m2/year, then 100 kWh/m2/year, and so on. By

clearly defining in advance a schedule for the changing of thresholds

industry has plenty of lead time to be prepared for progressively

tightening requirements.

The stakeholder consultation on 9 June 2014 identified that a key reason

for low uptake by state and local governments was that the benefits of


compliance with Clause 38A of the UBBL had not been clearly

presented. It was suggested that:

A compelling case for the adoption of standards be put forward

KPKT then present this at its twice annual meetings with the state

governments and annual meetings with local authorities.

On the basis that the cost of a building increases by 1% in order to

comply with MS1525, and that this saves 50 kWh/year on average, the

energy savings provide a payback on the additional cost of around 1 ½

years. This is a compelling argument for states to gazette these

standards.

Stakeholders have also identified the need to provide training to state

and local government. Such training should focus on the process of

application of the standard, and how to ensure that the consulting

engineer has verified compliance.

Incentives for states could be provided on the condition that the EE

provisions be incorporated into the state UBBL as follows:

Direct financial transfers, for the purpose of employing personnel

to administer and enforce the use of standards, provided use of

the standard is made m.

Training for staff in enforcement.

Enhancing compliance, including greater state take-up of the EE

provisions in their building codes is recommended as being the key

focus for building codes in the 11th Malaysian plan.


Two: tighten EE building codes on a regular basis and

expand their application to residential buildings

Once compliance is the norm then effort can be put into making new

buildings progressively more energy efficient.

Many developed countries now have ambitious long term plans to

reduce the energy use of new buildings.

In the EU, 28 countries have committed to new residential buildings

being “near zero energy” from 31 December 2020. The directive

2010/31/EU also requires that after 31 December 2018 new public

buildings are nearly zero energy.77

California’s target is for all residential buildings to use zero net energy by

2020, and all commercial buildings to use zero net energy by 2030.78

Malaysia intends to become a developed country by 2020, at the end of

the 11th Malaysian plan. It is recommended that it too set a pathway for

all new buildings to be zero net energy buildings by 2040, and could

then look to increase standards stringency every five years in line with

this. A suggested timeline is:

77 http://www.epbd-ca.eu/themes/nearly-zero-energy

78 http://www.cpuc.ca.gov/NR/rdonlyres/041CB347-6AA8-4EE7-AE3C-

324B4A3F0A98/0/ZNE_Action_Plan_June_2011_Update.pdf

http://www.cpuc.ca.gov/NR/rdonlyres/041CB347-6AA8-4EE7-AE3C-324B4A3F0A98/0/ZNE_Action_Plan_June_2011_Update.pdf

http://www.cpuc.ca.gov/NR/rdonlyres/041CB347-6AA8-4EE7-AE3C-324B4A3F0A98/0/ZNE_Action_Plan_June_2011_Update.pdf


Table 14 - Pathway to making buildings use zero net energy

Year Building Energy Intensity (BEI),

kWh/m2

Now 200

2020 150

2025 100

2030 50

2035 25

2040 0

Over the period to 2020 it can also expand EE building codes to

residential buildings.

Responsibility

KPKT


Building codes have strong synergy with disclosure of building


There is considerable evidence that building efficiency standards alone

are not effective in realising the full energy saving potential of such


standards. Good operational practices are needed, and this can be

driven by mandatory performance disclosure of actual operational

energy consumption. The synergy is shown in the graphic below.

Figure 34 - How energy codes and operational energy performance disclosure impact on a buildings

energy use over its lifetime. From Lining Building Energy Codes with Benchmarking and Disclosure

Policies, Global Building Performance Network and Institute for Market Transformation, March 2014.


A National building energy consumption database can be used to

compare the design intent of new buildings with actual performance. For

example if by the application of MS1525 a building is expected to use

150 kWh/m2/year, this can be compared with actual operational

performance. This can then facilitate the development and tuning of

standards and codes.

A Utility Energy Efficiency Obligation (UEEO) could be used to

provide an up-front incentive for developers to build energy efficient

buildings. Based on actual operational performance, over the first (five?)

years of a building’s life, the developer could be provided annually with

energy efficiency certificates for sale on the UEEO market.



ENERGY EFFICIENT TECHNOLOGIES /

CONSTRUCTION METHODS FOR NEW

BUILDINGS

SUMMARY

The Building Sector Energy Efficiency Project has developed a range of

policy papers examining opportunities to drive energy efficiency in

buildings.

Support for the rollout of specific technologies is a policy measure that

has been successfully used in a range of countries, including Malaysia

with its support of chiller upgrades under the SAVE program.

With Malaysia’s high rate of new construction energy efficient

technologies or construction methods that deliver energy savings can

have a large long-term impact.

Any technology or construction method supported must deliver energy

savings, have market acceptance, be capable of being delivered, be

effectively introduced and then eventually mandated through standards.

An alternative to this approach is to set performance standards, and

leave it up to the market to choose which technologies to adopt to meet

those targets.

Should Malaysia wish to set up a program to support the rollout of

specific technologies or construction methods in new buildings, this


could be best done by setting up a long term program in CIDB, with base

funding of around RM 500,000 annually. A Utility Energy Efficiency

Obligation could be used to provide incentives to early adopters of the

technologies.

INTERNATIONAL EXPERIENCE

The supporting of the rollout of specific technologies is a reasonably

common policy measure.

Examples of some of the successful international experience include:

Malaysia: Support for the upgrade of chillers more than 15 years

old, under the SAVE program. SEDA, the program administrator,

reported good uptake of the SAVE incentive for chillers.

Belarus. Support for the replacement of inefficient boilers with new,

high efficiency boilers. Over a period of 20 years Belarus has more

than halved its energy intensity, with the boiler replacement

program playing an important role in the savings achieved.

Australia: Mandated lighting power density standards for new

residential buildings have supported the rollout of high efficiency

residential lighting, notably LED, substituting inefficient halogen

down-lighting that would otherwise have been used. Note that

whilst this policy hasn’t specified that LED lighting must be used,

this has been one of its impacts.


KEY SUCCESS FACTORS

The technology or construction method must:

Deliver energy savings

Have market acceptance

Have an industry with capacity to deliver

Be effectively introduced

Move to mandatory application through building standards.

Deliver energy savings

Any new technology or construction method introduced should deliver

meaningful energy and or carbon savings.

Have market acceptance

The critical success factor is winning industry acceptance of the new

technologies / construction methods.

Anything that can either reduce costs or else alternatively cost-effectively

improve quality will be seriously considered.

Technologies or construction methods that do not provide any lifetime

ROI will not be accepted, except possibly for low volume high-end

construction.


Have an industry with capacity to deliver

There must be capability to deliver the new technology or construction

method, encompassing:

Manufacture: Can it be manufactured locally, or easily imported

from overseas? Is the capacity available to meet demand? Can

manufacturing be easily established? Are the necessary raw

materials, skills and tooling readily available?

Supply: Are the logistics of supply feasible (e.g. distance from

factory, ease of transportation, ease of storage)?

Installation: Do the skills exist for proper installation?

Commissioning: Is commissioning required, and do the skills exist

to enable this?

Be effectively introduced

Elements important to successfully introducing a new technology or

technique include:

A high profile, well-respected champion

Adoption and promotion by industry bodies

High profile rollout

Skills development


Move to mandatory application through building standards

So that a new technology or construction method becomes the norm its

application should eventually be mandated through building standards.

WHAT SHOULD THE FOCUS BE ON?

The requirements for commercial and residential buildings are different.

Commercial buildings

The passive design guidelines developed by BSEEP identify that for

commercial buildings the very largest contributors to energy use are:

Lighting energy: Representing 34% of building energy use when

the heat load generated by lighting is taken into account

Small power energy (i.e. plug loads), representing 31% of building

energy use when the heat load is taken into account.

Air handling fan energy, representing 14% of building energy use

when the heat load is taken into account.

Solar heat gain, representing just under 10% of building energy

use.

Dehumidification, representing just under 10% of building energy

use.

Note that these percentages should be considered as indicative only


Based on this analysis, for commercial buildings the focus of new

technologies or construction methods should be on:

Reducing lighting energy use, by:

o Better use of daylighting

o Good controls to ensure that the use of powered lighting is

minimised in response to daylighting

o High efficiency lighting, comprised of the lighting design,

selection of luminaire, and light source.

Reducing plug loads. This is unfortunately largely outside of the

control of the building designer and builder. Timed power outlets,

that switch off at certain times of day to reduce standby energy can

make a small contribution.

Reducing air handler fan energy use. Achieved by:

o Design of cooling system (flow rates, temperatures, duct

design, air distribution design, fan selection, filter selection)

o Design to distribute cold by refrigerant or water, and not air.

Reducing solar heat gain. Achieved by:

o Shading

o Window selection

o Window size and orientation

Reducing dehumidification loads. Achieved by:

o Control of air volumes / air quality


Residential buildings

No detailed analysis has been undertaken of the largest contributors to

energy use.

For buildings with air conditioning (around say 50% of Malaysian homes,

and growing), the largest contributors to energy use will likely be:

Plug loads (fridge, TV etc)

Solar heat gain

Conductive heat gain (terrace homes)

Hot water (if any)

Lighting

Dehumidification

Based on this, for residential buildings the focus of new technologies or

construction methods should be on:

Reducing plug loads. This is unfortunately largely outside of the

control of the building designer and builder.

Reducing solar heat gain. Achieved by:

o Shading

o Window selection

o Window size and orientation

Reducing conductive heat gain (terrace homes). Achieved by:

o Roof insulation


o Wall insulation

Reducing hot water energy use. Achieved by:

o Solar hot water

Reducing lighting energy use, by:

o Better use of daylighting

o High efficiency lighting, comprised of the lighting design,

selection of luminaire, and light source.

Reducing dehumidification loads. Achieved by:

o Lockout on lowest temperature room can be cooled to. Eg.

Say 23 degrees. Would need to be programmed into the air

conditioner / air conditioner would need to be capable of

having this programmed.

Likely technologies/construction methods

Based on the above analysis areas of focus for new

technologies/construction methods can be identified.

Incremental vs step change

Incremental improvements are more likely to be accepted than step

changes. Step changes which disrupt existing supply chains will attract

strong opposition from the existing supply chain, and may be hampered

by lack of skills.

Incremental improvement


Improved use of passive design features such as shading and

orientation to maximise daylighting.

Improved lighting and lighting control

Improved cooling system design and efficiency

Improved glazing

Improved ventilation control

Electrical design/installation to provided timed power outlets

Solar hot water (terrace homes)

Roof insulation

Rooftop solar PV

Improved sealing

Step changes

Insulated walls

Low concrete construction

Building integrated solar PV

Solar hot water (high rise)

Night purge / night cooling

Possible innovation opportunities

The dimming of a single LED light source is relatively easy to

achieve. Dimming of lights in a commercial building in response to

changes in daylight is more complex, as the amount of dimming


required can vary, and is not yet something that has been done in

an affordable way. A great innovation opportunity!

Improved glazing. Single glazing with a hard low emissivity coating

performs much better than the single glazing used in most

buildings in Malaysia. With increasing demand costs should lower.

Building shading. Present practice means that shading elements

are expensive. There could be opportunities to use different

materials to cut costs / improve cost-benefit.

Solar PV. The installed cost of rooftop solar PV is extremely high

in Malaysia (e.g. double that of Australia and Germany). The

mandatory use of solar PV in new buildings could drive innovation

to reduce costs by creating a competitive market.

Night purge / night cooling. Malaysia has around 6 hours a day on

average where the ambient dry-bulb temperature is a very

comfortable 24OC. However little use of this is made to cool

buildings. Changing the way that buildings are cooled to make

better use of low night time temperatures could provide valuable

savings to commercial buildings. Further innovation that can

overcome the nuisance of mosquitos and outside noise also

makes this applicable to residential buildings.

Malaysia’s climate is such that solar hot water can be provided

without the need for any electric boosting. Low cost solar hot water

innovations from China could be adapted.

Changed construction techniques to provide low-concrete

construction and wall insulation for terrace homes.


SUGGESTED POLICY PATHWAY

Malaysia has an active green building community which is keen to

reduce the energy consumption and environmental footprint of new

buildings. Support for specific technologies/construction techniques

could be provided through CIDB as follows, with the same process

followed for each technology:

1. Identify the preferred technology / construction technique.

2. Identify the extent to which this is currently being used in Malaysia

3. Identify the barriers to use

4. Develop interventions to overcome the barriers with industry

5. Help early adopters in industry use the technology/construction

technique

6. Promote the results of this and develop guidelines

7. Run training courses

8. Provide targeted incentives to achieve high awareness and

adoption

9. Monitor results.

For example, table 15 below shows how this process would be applied

to glazing:


Table 15 Example of the process of promoting the use of a particular

technology or construction technique: improved glazing

Identify the preferred technology /

construction technique.

Single glazing with a hard low emissivity coating

Identify the extent to which this is

currently being used in Malaysia

Relatively low

Identify the barriers to use Cost, availability, window manufacturer and designer awareness

Develop interventions to overcome the

barriers with industry

Cost: Discuss scale, cost and availability issues with local glazing

and window manufacturers. Provide tax incentives or similar to

enable tooling up for low-e glazing manufacture if required.

Awareness: Run a campaign targeting all window manufacturers

and building designers.

Help early adopters in industry use the

technology/construction technique

Support a number of case study buildings, both residential and

non-residential. Data log temperature and power consumption. Do

a comparison with/without low-e glazing

Promote the results of this and develop

guidelines

Develop guidelines, run training workshops, target all window

manufacturers and building designers.

Run training courses Run hands on training workshops, targeting municipalities

representing 80% of Malaysian new building activity.

Provide targeted incentives to achieve

high awareness and adoption

Provide incentives over say a 3 year period for the use of low-e

glazing. (For example, through a Utility Energy Efficiency

Obligation) Then after 5 years make use of low-e glazing

mandatory (in MS1525)

Monitor results. Monitor results through a National Building Energy Consumption

Database.

Administration

A small division could be set up in CIDB to run this program over a

period of say 20 years, helping drive Malaysia to having all new


buildings using zero net energy by 2040, by progressively introducing a

range of different technologies and construction techniques.

Staff employed in this division would include:

Manager

Engineer, technology evaluation and assessment

Training Coordinator

Promotion / Case study developer

Timeline

A timeline of around 10 years could be considered reasonable from first

introduction of a new technology or construction technique through to

when it is made mandatory.

Funding

Excluding incentives, which could be funded by a Utility Energy

Efficiency Obligation, funding of approximately RM 500,000 annually

could drive program administration and outreach.


ENERGY PERFORMANCE

REQUIREMENTS FOR GOVERNMENT

BUILDINGS

SUMMARY

There are a large number of countries which have energy performance

requirements for government buildings. These range from construction

standards more stringent than those which apply to other buildings, to

reporting publicly on energy consumption, through to achieving high


It is suggested that Malaysia require:


buildings with JKRs performance requirements (which go beyond

that required by MS1525).


existing buildings


buildings, enabled by both:

o A requirement for Ministries to employ energy managers and

implement energy planning activities in accordance with ISO

50001

o Energy Performance Contracts of government buildings.


Compliance requirements would be enforced by JKR, the reporting and

improvement requirements by the Energy Commission, aided by the

Ministry of Finance.

Presently core federal government buildings79 are roughly estimated to

use RM 80m of electricity annually, and across the 22,300 government

buildings annual energy costs are estimated at RM 1.9b. A well

implemented policy has the potential to reduce energy consumption in

government buildings by 10% over the first three years with a payback of

around three years, including administration costs. Subsequent

additional savings in future years will more than cover the costs of

compliance.

In addition to the budgetary benefits this policy will build up capacity in

reporting on and reducing building energy use, and can be used to

support the implementation of building performance disclosure, the

development of a National Building Energy Reporting Database and the

introduction of mandatory standards of all buildings.

These benefits will not be realised without effective policy

implementation. This requires enhancing the authority of the EC to

collect performance data and require performance improvements, and

capacity building and effective resourcing of government building energy

managers to enable timely reporting and effective building operations to

reduce energy use.

79 Office buildings only


This measure is highly synergistic with building standards, performance

disclosure, and a national building energy consumption database, as

outlined in the three policy discussion papers addressing each of these.

It could also be expanded to require government department and

agencies to enter into energy performance contracts. This would give

large savings and aid in building up an ESCO industry in Malaysia.

ENERGY PERFORMANCE REQUIREMENTS FOR

GOVERNMENT BUILDINGS

Energy performance requirements for government buildings enable

government to lead by example in EE. This can build capacity in the

development and operation of energy efficient buildings. They also can

be of significant beneficial impact on government budgets through

reduced energy bills.

Performance requirements can either be specified in terms of

prescriptive requirements, or in terms of actual energy performance.

Prescriptive requirements

Prescriptive requirements outline either requirements for building design

and construction or in operation. Some examples of prescriptive

requirements are:

A requirement that a building be designed to achieve a thermal

transmittance value be below a certain level, as is specified in

MS1525.


An operational requirement might be that the temperature be set at

a certain level. E.g. in Malaysia there is a high level directive that

government buildings should have the temperature set to 24OC.

Another form of prescriptive requirement would be to require the

implementation of an Energy Performance Contract.

Actual energy performance

Standards around actual energy performance prescribe the maximum

amount of energy that a building can use. This could be represented as

either an actual value (eg 150 kWh/m2/year) or as a rating (eg a

minimum 4 star rating), where the rating is based on actual performance

but also normalised to the building (eg normalisation based on hours of

occupancy).

INTERNATIONAL EXPERIENCE

Internationally many countries have performance requirements for public

buildings. Some of these are briefly outlined below:

In Singapore new government buildings in certain areas need to

achieve Green Mark Gold or better.80

In the USA “Forty seven states have energy efficiency requirements for

state-owned or funded public buildings that go beyond the state energy

code”81 These are varied and include:

80 http://www.bca.gov.sg/EnvSusLegislation/Environmental_Sustainability_Legislation.html

http://www.bca.gov.sg/EnvSusLegislation/Environmental_Sustainability_Legislation.html


LEED requirements for new or renovated buildings

Requirements to meet ASHRAE standards

Requirements to meet Green Globe or Energy Star requirements.

In Australia, the NSW state government requires that government

buildings over 1,000 m2 are required to achieve and maintain “where

cost effective” a NABERS rating of at least 4.5 stars.82

In the state of Victoria all state government departments and agencies

have been required to enter into an Energy Performance Contract for

buildings representing 90% of their energy use.

In Korea new public or renovated public buildings larger than 3,000 m2

are required to incorporate at least 10% renewable energy, rising to 20%

by 2020. New buildings are required to meet the highest standard in

energy performance certification. Public buildings larger than 10,000 m2

are required to propose an ESCO project.83

In Europe EU28 countries are required to undertake performance

ratings of large public buildings not less than once very ten years, under

the Energy Performance of Buildings Directive (EPBD). The rating needs

to be publicly displayed.

81 http://www.ncsl.org/research/energy/energy-efficiency-requirements-for-public-buildings.aspx

82 http://www.environment.nsw.gov.au/government/nabers.htm

83 Energy Policies of IEA Countries: Republic of Korea, 2012 Review. IEA.

http://www.ncsl.org/research/energy/energy-efficiency-requirements-for-public-buildings.aspx

http://www.environment.nsw.gov.au/government/nabers.htm


“By 2018, all new public buildings must be near zero energy and all

existing public buildings over 500 m² must be certified and display

certificates (from 2015 this demand will cover all public buildings of more

than 250 m²)”84

The UK has gone beyond the European requirements, requiring the

annual renewal of the Display Energy Certificate for public buildings of

above 1,000 m2.

84 Energy Performance Certification of Buildings, IEA, 2010.


Figure 35 - Display Energy Certificate from the UK.


MALAYSIAN EXPERIENCE

Malaysia has used government buildings to demonstrate good EE

practice, notably the LEO, GEO and Diamond buildings.

Malaysia has a directive in place that government buildings have their

air-conditioning set to deliver air at 24 OC.

The extent of uptake of this policy is unknown. In some buildings, such

as the JKR office or the EPU building, this policy is not being adhered to,

with temperatures of around 20 OC.

This reflects a common challenge with directives and standards – unless

mechanisms are put in place to enable or enforce compliance then

uptake may be patchy. Any approach imposing performance

requirements on buildings need to ensure that there are adequate

mechanisms and resources in place to enable this.

105 federal government buildings are required to report on their energy

use to the Energy Commission (EC) under the Efficient Management of

Electrical Energy Regulation (EMEER) 2008. However this information is

not reported publicly.

With respect to new buildings, there are not yet any special requirements

for new government buildings.



Three suggestions for Malaysia are:


buildings with JKRs design requirements


existing buildings


buildings, enabled by dedicated energy managers using MS-ISO

50001.

Mandatory compliance with JKRs design requirements

JKRs design requirements go beyond that of MS1525 in incorporation of

energy efficiency features that enable lowered operational energy use.

Adoption by government will help industry development and pave the

way for MS1525 requirements to eventually be tightened.

It is recommended that standards for new or refurbished government

buildings then be tightened every five years, with notice of the new

requirements issued three years in advance.



existing buildings

This will help government identify poorly performing buildings and target

these with more efficient operational practices.

Making disclosure of performance public will provide both an example to

the general public, and provide a motivator for buildings to improve their

performance.

Improvements to operational practices can provide very good paybacks,

and make a contribution to reduced government expenditure on

electricity.

New buildings would need to begin mandatory annual public reporting

two years after the date of issue of the certificate of occupancy. This

would be additional motivator for good design and construction practices

and compliance with MS1525 during construction, as new buildings that

performed poorly would like attract public scrutiny.


buildings

Once government buildings have identified their energy use, there can

then be a requirement to improve their performance. The level of

improvement would depend on the normalised energy intensity reported.

Those with poor performance would be required to achieve the greatest

improvement.


To enable this it is suggested that all ministries be required to employ an

energy manager, tasked with developing an Energy Management Plan,

and having the organisation adopt MS-ISO 50001.

Any public disclosure of building performance could show the

performance in the previous two years (as is done in the UK). This would

provide further motivation for performance improvement.

Malaysia could also look into requiring the implementation of Energy

Performance Contracts (EPC) in government buildings. Buildings could

be selected either on their size (as done in Korea) or departments and

agencies could be required to implement an EPC for buildings

representing 90% of their energy use (as done in Victoria, Australia).

However, the implementation of EPCs in the absence of an overall

Energy Management Plan is not recommended. An Energy

Management Plan ensures that there is strong corporate support and

awareness of energy efficiency; where an EPC or other energy saving

initiatives are implemented without this support the results can be sub-

optimal.

Implementing these suggestions

Initially it would only be possible to target federal buildings. However the

implementation could be undertaken in a transparent fashion that would

enable states to replicate the requirements, should they so choose.

At present the Department of Public Works (JKR), within the Ministry of

Works, is generally responsible for new government buildings or major


refurbishments, although individual ministries may decline this

assistance. Data on the energy consumption of some public buildings is

now collected by the Energy Commission (EC).

This arrangement could continue, with JKR tasked with the ensuring

compliance for new buildings or refurbishments, and the EC responsible

for ensuring government reporting and improvements in existing

buildings.

The authority of the EC would need to be enhanced to enable it to

collect data, which could be achieved through changes to the Efficient

Management of Electrical Energy Regulations 2008.

The Ministry of Finance could play a role in:

(a) Instructing department and agencies to get JRK approval for new

building designs, as a condition for the provision of funds.

(b) Assisting the EC enforce the requirement that government

buildings reduce their energy use, by setting operational energy

budgets based in line with EC nominated improvement targets.

Reporting procedures and templates would also need to be developed.

The EC would likely need additional resources to enable effective

administration and compliance.

Good inter-agency collaboration is important to enable high levels of

compliance and implementation.


Likely costs and benefits

For new buildings the life-cycle costs of energy efficient buildings are

clearly established.

Similarly performance disclosure fosters cost-effective improvements to

building performance. Requiring annual improvement forces cost-

effective savings opportunities to be identified and implemented.

Based on representations that many Malaysian buildings now use 250 to

300 kWh/m2/year, for the existing government building stock an overall

reduction in energy use of 10% after three years with an overall payback

of three years would not be an unreasonable expectation for a well

implemented policy.

On the basis that federally Malaysia has 648,000 m2 of federal office

buildings85, that the average energy intensity is 250 kWh/m2/year, and

that the average tariff is RM 0.50/kWh, then annual expenditure on

electricity consumption is around 81m RM.

An annual 10% saving is around RM 8m, and corresponds to 12,000

tonnes of greenhouse gas emissions being saved annually.

Resourcing costs for policy implementation would likely be in the vicinity

of RM 4m annually, as follows. Note these figures are indicative only and

a proper budget would need to be drafted

85 Totalling the data from the list of federal buildings at http://www.kkr.gov.my/en/node/31328. The

details of the types of buildings on this list is not clear. Presumably these are only office buildings.

http://www.kkr.gov.my/en/node/31328


Training and funding of government energy managers: RM

2,500,000

Additional resources to the EC: RM 1,000,000

Additional resources to JKR: RM 500,000

Total RM 4,000,000

If after three years the policy was saving RM 8m annually, the costs of

policy implementation would easily be covered. Savings could potentially

be applied to assist states introduce similar requirements for their

buildings.


This measure is highly synergistic with building standards, performance

disclosure, and a national building energy consumption database, as

outlined in the three policy discussion papers addressing each of these.

Government adoption of performance requirements could be used to

introduce performance disclosure and a national building energy

consumption database.


ENABLING ESCO DELIVERED

PROJECTS

SUMMARY

Malaysia’s Green Technology Financing Scheme has RM 3.5b of

funding available as a loan guarantee for projects that reduce energy

consumption, including building energy efficiency retrofit projects that

provide guaranteed savings and are delivered by Energy Services

Contractors (ESCOs).

However no ESCO projects have yet been implemented through this

fund. Some of the reasons for this are:

Very little experience and familiarity in Malaysia with such projects

The lack of standard process and contracts

Financial risk is considered as high by financiers

To kick start the languishing ESCO industry in Malaysia a four pronged

approach is recommended to reduce actual and perceived risk. Direct

government loan funding is one element in this approach. By making the

government the client and guarantor of the finance, third party risk is

eliminated.

However, more than this is needed. Government should commit to

undertaking a certain number of contracts each year, to build up ESCO

capability. A standard process for undertaking contracts should be

developed. Standard contracts need to be readily available. And skills


need to be developed in undertaking investment grade energy audits,

project management of integrated energy efficiency retrofit projects, and

measurement and verification.

To illustrate the need for a multipronged approach the experience of the

starting of the ESCO industry in Australia is presented, which began in a

large way with the Greener Government Buildings Program in the state

of Victoria.

ESCOS – LIMITED BY A FUNDING CONSTRAINT?

Energy Services Contractors (ESCOs) offer large energy users the

opportunity to save energy and be cash-flow positive from the start,

through the delivery of an Energy Performance Contract (EPC) - see

figure below. But this all depends on the ESCO being able to source

funding.

Energy User

Financier

Energy

Services

Contractor

(ESCO)

Finances the

EE works

Repays

the loan

Pays for the

works

Implements

the works

Guarantees the

savings


Figure 36 – How an energy performance works. By guaranteeing the savings an ESCO can deliver energy

savings that are cash flow positive to the energy user from the start.

Unfortunately where EPCs are not common practice, ESCOs generally

find it difficult to find financing. Some reasons for this are:

Limited or no previous experience from financial institutions in

funding ESCO projects

Banks and other financial institutions see either the ESCO or the

energy user as a credit risk. Typically performance contracts run

from 7 to 10 years. If either the ESCO or energy user becomes

insolvent over this period the financier may not be able to recoup

their costs.

Contract values may be small relative to the work involved in

establishing a contract. For example a $2m contract, whilst this

may be sizeable to a local ESCO, to a bank that funds construction

projects its relatively small.

Lack of standard contracts, leading to high transaction costs.

Lack of capacity to independently verify savings

Insufficient expertise in a bank or financial institution to assess the

level of risk

A large part of a project’s cost is unrecoverable if the event of

default. For example, an upgrade to a building management

system (a typical ESCO project) will typically have well over half of

the costs unrecoverable, as it is a bespoke solution.

Unavailability of insurance products to cover the risk.


This financing deadlock means that many energy efficiency projects may

not be implemented. And it can be difficult for an ESCO market to

develop when neither banks or ESCOs have much experience.

Is breaking the financing deadlock enough to kick-start the

industry?

One way of breaking the deadlock might be for government to provide

direct loan funding to ESCOs for the implementation of performance

contract on government buildings.

Essentially the government (although most likely different

ministries/departments) becomes both the client to the ESCO and the

financier. This essentially means there is no third party risk.

Whilst there is still an element of risk, the risk is reduced compared with

the alternate model based on a consultant undertaken energy audit.

In China the ESCO industry was kick started when large state owned

enterprises used their own balance sheets as loan guarantees and the

IFC and World Bank provided financing guarantees through commercial

banks. And in Korea the Korea Energy Management Corp provides loan

funding through commercial financial institutions. In 2012 it had USD


175m of ESCO financing budgeted; the interest rate is low at around 2%

to 3%.86

Under the energy audit model, an energy auditor is contracted to identify

and quantify energy savings opportunities. The energy user may then

chose to project manage the works implementation directly, or even

contract the auditor to do this. However the auditor bears no financial

responsibility for ensuring that savings are achieved.

Unfortunately auditors can get it wrong, and it’s the energy user who

bears the cost of this. A study by Texas A&M when evaluating the work

of pre-qualified energy auditors five years after projects had been

implemented found that measured cost savings on average, across 24

projects, were 25.1% lower than estimated. In some cases, savings were

as little as 5.5% as what was estimated! 87

Under a performance contract, the ESCO takes the financial

responsibility for any shortfall in savings, thus reducing the risk of a

savings shortfall.

In Australia two states have set up programs using direct government

loan funding for performance contracts.

86 International Experience in ESCO Financing, Khanna A., World Bank.

http://www.eesl.co.in/Website/Portals/0/NCSL_Presentations/Ashish-International-experience-on-

ESCO-financing.pdf

87 As reported in Investment Grade Energy Audit: Making Smart Energy Choices, 2004, Hansen S. &

Brown J., The Fairmont Press Inc.

http://www.eesl.co.in/Website/Portals/0/NCSL_Presentations/Ashish-International-experience-on-ESCO-financing.pdf

http://www.eesl.co.in/Website/Portals/0/NCSL_Presentations/Ashish-International-experience-on-ESCO-financing.pdf


The Victorian Greener Government Buildings Program (GGBP) used

zero interest funding from the Department of Treasury and Finance to

finance state government departments and agencies for the

implementation of energy performance contracts. A panel of pre-

selected ESCOs88 competed to deliver the greatest savings with a seven

year payback, using a standard contract.

This first project in this program was for the Department of Treasury and

Finance itself. When this proved successful it was encompassed to

involve the whole of government. All state government departments and

agencies were mandated to implement EPCs under the GGBP for

buildings representing 90% of their energy consumption by 2018.

Over its first three years the program identified savings worth AUD $32m

annually, with an investment of $180m.89

The process for any one project is shown in the flow chart below:

88 The author operated a local Australian ESCO on the GGBP panel. Admission to the panel was

based on experience in delivering energy efficiency upgrades, the CVs of staff members, and a

independent financial assessment of balance sheet strength.

89 Greener Government Buildings Performance Report 2009-2012, Department of Treasury and

Finance. http://www.dtf.vic.gov.au/files/4373c9c9-8b25-46cb-b4f0-a1d300f43933/Greener-

Government-Buildings-Performance-Report2009-2012.doc

http://www.dtf.vic.gov.au/files/4373c9c9-8b25-46cb-b4f0-a1d300f43933/Greener-Government-Buildings-Performance-Report2009-2012.doc

http://www.dtf.vic.gov.au/files/4373c9c9-8b25-46cb-b4f0-a1d300f43933/Greener-Government-Buildings-Performance-Report2009-2012.doc


Figure 37 - How Energy Performance contracts are implemented by ESCOS in the Victorian Greener

Government Buildings Program


This flow chart illustrates several key elements of a successful

ESCO/EPC program

A clear, unambiguous process

Standard contracts (both for the DFS and the EPC)

A clearly staged approach

Mechanisms to avoid unscrupulous ESCOs “gaming” the tender

process.

It should also be observed that from the time of issuing of the EOI

through to the certificate of completion has typically taken in the vicinity

of 3 to 4 years. Whilst robust, this is a relatively complex procedure to

follow, requires ESCOs to have strong balance sheets due to the initial

very poor cash flow, and requires departments and agencies to

adequately resource the assistance ESCOs need whilst tendering, and

to the selected ESCO whilst preparing the DFS.

By March 2014 under this program energy efficiency upgrade works

were either being undertaken or had been completed for twelve projects.

A further 12 projects were in the Detailed Feasibility Stage. The largest

project, from a university, is worth AUD $98m, covers 90 buildings and

involves two ESCOs.90

The state of New South Wales has a similar model. 21 projects have

been financed with an investment of $50m.

90 http://www.rmit.edu.au/thinkgreen/supp

http://www.rmit.edu.au/thinkgreen/supp


Enabling the success of these programs has been:

The commitment by government to the EPC process.

The development and use of standard contracts and processes.

Capacity building in Measurement and Verification. Over 100

people in Australia are now Certified Measurement and Verification

Professionals (CMVP).

Strong technical capacity in the Department of Treasury and

Finance, who has administered the program.

Leading up to the introduction of these programs, several local

ESCOs had already gained substantial experience in investment-

grade energy audits and project implementation of relatively

complex integrated energy efficiency retrofits, and were thus able

to compete effectively with the multi-national ESCOs in the

program.

This illustrates that while government financing from Treasury is an

important part of the program, there are many other factors important to

the success of ESCO implemented projects.

On the other hand in the US, a much more mature ESCO market,

government funding contributes to the execution of around 30% of

ESCO projects.91

91 Current size and remaining market potential of the US Energy Service Company Industry. LBNL,

2013. http://emp.lbl.gov/sites/all/files/lbnl-6300e_0.pdf

http://emp.lbl.gov/sites/all/files/lbnl-6300e_0.pdf


As practiced in Korea and Australia, government financing enables EPC

projects. China is an example of where non-bank financing has kick

started an ESCO industry.

SUGGESTED APPROACH IN MALAYSIA

At present Malaysia has a Green Technology Financing Scheme with

RM 3.5b of funding. This is private bank funding, with a government

guarantee. However ESCOs have not yet tapped into this funding.

The fact that even with a loan guarantee there have been no projects is

indicative of other barriers – such as the lack of a market and lack of

experience.

Similarly on the client side Malaysia has very limited experience in the

integrated energy efficiency retrofit projects that characterise ESCO

projects.

A multi-pronged approach with four components is recommended to

address these barriers:

1. Maintaining the loan guarantee with at least RM 500m of the

guarantee earmarked for ESCO projects,

2. Creating a market for ESCOs by encouraging government to enter

into EPCs or equivalent to improve the energy performance of

existing government buildings. This could be facilitated by:

a. Enhancing the credibility of the ESCO panel, by creating a

“EPC grade ESCO”, based on both demonstrated technical


capability in the delivery of EE upgrades and a balance sheet

assessment of the ability to honour any guarantee.

b. Implementing a set number of projects each year

3. Development of standard process for undertaking contracts.

4. Skills development in:

a. Investment grade energy audits and detailed feasibility

studies

b. Project management of integrated energy efficiency retrofit

projects.

c. Measurement and verification

Based on the Australian experience it would also appear that a

reasonably long time frame should be allowed to get energy users and

ESCOs to the point where commercial funders are willing to get

involved.

Considering the lack of experience of Malaysia ESCOs, it is

recommended to start with relatively small EPC projects (say up to RM

5m). Over the 11th Malaysian plan projects could be gradually scaled up,

with say an overall objective of providing at least RM 200m in ESCO

loan guarantees for EPCs in government buildings.



A National building energy efficiency database can be used to help

identify government buildings that can be put through performance

contracts delivered by ESCOs.

A Utility Energy Efficiency Obligation (UEEO) could also be

harnessed by ESCOs, and enable them to deliver larger savings without

increasing the value of a performance contract.


HOUSING MORTGAGES THAT ENABLE

EE

SUMMARY

Housing mortgages that enable more energy efficient homes have been

effective in Germany and Japan, have had a minor benefit in Estonia

and the USA, and have not yet been effective in the UK.

In Germany large interest rate subsidies, and grants based on the value

of interest rate savings, are being used to retrofit buildings as part of an

ambitious national energy conservation program. Japan offers long term

mortgages with small interest rate cuts, with roughly a 20% take up.

Estonia has a focus on apartment buildings via loan guarantees, loans,

and grants, but relatively low uptake.

The mixed international experience means that great care should be

taken when developing a green loans program to ensure that it is

effective.

With low energy prices and a climate that requires less energy to provide

comfortable conditions, can energy efficient housing mortgages be

effective in Malaysia? However the non-financial benefit of improved

comfort also needs to be considered.

Energy efficient housing mortgages may appeal to wealthier home

owners who use a lot of energy. A green loan that is added onto a


conventional housing loan, used to pay for energy saving features such

as insulation in a low-rise home, may be effective.

One of the more cost-effective retrofits for existing low-rise homes is the

installation of insulation in the ceiling. A loan product could be developed

to promote this.

Developers could be offered low interest financing on the additional cost

of complying with MS1525 in residential buildings.

If Malaysia was to adopt a Utility Energy Efficiency Obligation,

alternatively methods could be developed to incentivise energy

efficiency in new and existing homes and buildings. This may be more

efficient administratively.

THE INTERNATIONAL EXPERIENCE

The international experience in EE housing loans is mixed. Large, long

term programs that have had uptake from a large number of homes can

be found in Germany and Japan; both of these originating from post war

reconstruction banks. Estonia has a modest program of loan

guarantees, loans and grants. In the US there is a long running program

of energy efficient loans but it has had low uptake. The UK’s Green

Deal, which recently started, has had little success to date. And in

Australia a Green Loans program targeting residential energy efficiency

upgrades was a AUD$175m disaster.


Germany

Germany, has a long running home thermal retrofit loan and grants

program, operational since 1996. The German development bank, KfW

offers low interest loans and grants for energy efficiency thermal

upgrades and new construction, supported by the Federal Ministry of

Transport, Building and Urban Affairs, though its Energy Efficient

Rehabilitation and Energy Efficient Construction Programs.

For new homes loans of up to €50,000 are offered at low interest rates

(starting at 1.4%) and with repayment bonuses of up to €10,000 when

the loan is taken out to achieve energy savings of over 45%. A minimum

savings of 30% has to be achieved to be eligible, with the greatest

support provided for a savings of 60%, as compared with a new home

built to the mandatory energy efficiency standards. 92

For refurbishments either a loan of up to €75,000 at an interest rate of

1%, or a grant of up to €18,750 is available.

A certified expert is required to review any plans prior to project

approval. 93

92 Energy efficiency in Germany – Status & Perspectives. Grewe H.,

http://www.gaccny.com/fileadmin/ahk_gaccny/Consulting/Green_Corner/Energy_Efficiency_2013_2/H

artmut_Grewe.pdf

93 Financial Incentives for Energy Efficiency Retrofits in Buildings, ACEEE, 2012,


http://www.gaccny.com/fileadmin/ahk_gaccny/Consulting/Green_Corner/Energy_Efficiency_2013_2/Hartmut_Grewe.pdf

http://www.gaccny.com/fileadmin/ahk_gaccny/Consulting/Green_Corner/Energy_Efficiency_2013_2/Hartmut_Grewe.pdf



This program has also created a large number of jobs, in 2010 345,000

“promoted jobs” arose from the program, 94 although this figure could be

an overestimate.

Funding has also been significant, over 2006 to 2013 around €9.3b of

public funds went into the program. In 2010 around €0.8b was allocated.

This funding has come from general federal government funds, but in

the future will come from the Energy and Climate Fund, based on carbon

certificate revenues and power plant duties.

Loans are provided through retail banks, who are permitted to add up to

0.75% to the interest rate to cover their risks and costs, as shown in the

figure below.

94 Financing energy efficiency in buildings, Doubrava R., Directorate-General for Energy Efficiency,

http://archive.housingeurope.eu/archive.housingeurope.eu/uploads/file_/Roman%20Doubrava%20Fin

ancing%20energy%20efficiency%20in%20buildings.ppt

http://archive.housingeurope.eu/archive.housingeurope.eu/uploads/file_/Roman%20Doubrava%20Financing%20energy%20efficiency%20in%20buildings.ppt

http://archive.housingeurope.eu/archive.housingeurope.eu/uploads/file_/Roman%20Doubrava%20Financing%20energy%20efficiency%20in%20buildings.ppt


Figure 38 - How the German Energy Efficient Rehabilitation and Energy Efficient Construction Programs

work. From Financing energy efficiency in buildings: an international review of best practice and

innovation. Guertler P., and Royston S., Association for the Conservation of Energy, 2013.

http://www.eceee.org/all-news/press/2013/2013-10-22/WEC-EEC-Final

What have the energy savings been? A rough estimate would be that in

2010 savings were about 40kWh of heating energy/m2 on average,

taking into account “pre-bound” effects (that is homes actually use less

energy than estimated before refurbishment and “re-bound” effects

(occupants may chose to make the home more comfortable than it was

pre-refrofit). 95 A number of reports have suggested that government

investment has been more than repaid by taxes from the increased

construction activity arising from the loans.

95 Based on Evaluating the evaluations: Evidence from energy efficiency programs in Germany and

the UK. Elsevier, Energy and Buildings 62 (2013), Rosenow J.,

http://www.academia.edu/5296057/Evaluating_the_evaluations_Evidence_from_energy_efficiency_pr

ogrammes_in_Germany_and_the_UK


http://www.academia.edu/5296057/Evaluating_the_evaluations_Evidence_from_energy_efficiency_programmes_in_Germany_and_the_UK

http://www.academia.edu/5296057/Evaluating_the_evaluations_Evidence_from_energy_efficiency_programmes_in_Germany_and_the_UK


An estimated 80% of the 40million buildings in Germany were built

before 1979.96 Between 2001 and 2011 around 2.1million homes had

energy efficiency improvement work funded through loans.97

Germany aims to reduce energy consumption by 20% in 2020 compared

with 2008, and is clearly making a large investment to achieve this goal.

However it is believed that investment in these loans needs to be around

five times higher than it actually is, to achieve the target.

Financial incentives via loans and subsidies are one of three core

elements of Germany’s energy efficiency focus, the other two being:

A binding legal framework that imposes energy performance

improvements on buildings and the increased use of renewable

energy by electricity suppliers

Awareness raising to change energy behaviour, including through

the issue of Energy Performance Certificates for homes.

96 Energy saving programs in Germany: an unsung success story. http://www.electrical-

efficiency.com/2011/08/energy-saving-programs-in-germany-an-unsung-success-story/

97 Financing energy efficiency in buildings: an international review of best practice and innovation.

Guertler P., and Royston S., Association for the Conservation of Energy, 2013.


http://www.electrical-efficiency.com/2011/08/energy-saving-programs-in-germany-an-unsung-success-story/

http://www.electrical-efficiency.com/2011/08/energy-saving-programs-in-germany-an-unsung-success-story/



Japan

Japan’s Flat 35 Mortgage program promotes the adoption of “quality”

home in Japan, including energy efficiency. Flat 35 mortgages are linked

to the home achieving an overall thermal efficiency standard, and

provide a flat interest rate for 35 years. There are two levels of interest

rate subsidies for homes that go beyond the minimum standards, those

homes achieving the highest thermal efficiency standards are provided a

government funded reduction in interest rate of 0.3% for ten years.

Those achieving the next level of thermal efficiency receive an interest

rate reduction of 0.3% for five years. To be eligible for a Flat 35 loan a

certificate issued by a qualified surveyor or assessor needs to be

issued.98

The majority of loans go to new construction. Half of the 150,000 loans

issued in 2011 were for those which went beyond the minimum EE

standard.

In Japan there are no mandatory home energy efficiency standards. The

flat 35 mortgage program encourages the uptake of voluntary standards.






Estonia

In Estonia the KredEx program established in 2001 is perceived as a

successful model. KredEx is a credit and export guarantee fund, a

revolving fund that supports energy efficiency projects, amongst other

measures.

It supports EE in three ways:

Loan guarantees:

o Housing loan guarantees, which decrease the down payment

requirements, eligible to certain sections of society. It applies

to both the purchase and renovation of homes.

o Apartment building loan guarantees, covering up to 75% of

the loan amount, for renovation works to existing apartments.

Typically targeting those disadvantaged when it comes to

accessing normal bank financing.

Loans:

o Apartment building renovation loans, where no collateral is

required. A precondition for this is an energy audit. Typically

targeting those disadvantaged when it comes to accessing

normal bank financing.

Grants:

o Apartment reconstruction grant. A grant of up to 15% is

available for energy savings of at least 20% for apartment

buildings up to 2,000 m2 is size, or 30% if the building is

larger. Additionally a Building energy label “E” must be


obtained. Larger grants are available if an energy label “D” or

“C” can be achieved.

o Energy audit, building design and expert evaluation grant, for

apartment associations planning to rennovate their buildings,

covering 50% of eligible costs.

The program aims to improve the thermal performance of buildings, as

also supports renewable energy such as solar thermal or solar PV.

With funding of around $100m to kick start the program, it now has a

perpetuating revolving fund for the loan guarantee and loan component

of the program, with a state guarantee attached to loan funds provided

through the program.

Over 2 ½ years to 2013 €21m was made available in grant funding.

Some of this funding came from the sale of Kyoto carbon credits to

Luxemburg.

For the three years to 2012 renovation loan funds of €49m were made.

Loan guarantee payments of €291,000 were made in 2011.

Uptake of the program has not been as strong as expected.

By 2011 Grants had been provided to:

o 266 apartment buildings

o 1,038 energy audit grants for apartment buildings

391 loan agreements for apartments were entered into between

2009 to 2011


Around 14,000 housing loan guarantees were provided from 2000

to 2011

583 apartment loan guarantees were provided between 2004 and

201199

There is little data available on savings that have been achieved.

Program start up took around 2 years.

USA - Energy Efficiency Mortgages

In the US Energy Efficiency Mortgages are available from a number of

lenders. These are based based on a home energy rating undertaken by

an accredited Home Energy Rating System Provider. The home rating

either provides an indication of how efficient a home already is, and the

financial benefit this provides or identifies the cost and benefit of

improving the home’s performance (for an Energy Improvement

Mortgages). The maximum amount available is no more than 5% of the

home’s value, in some cases less.100

Available since 1992, a 2012 review found that “despite widespread

availability, few borrowers have participated in these programs.”

Possible reasons identified included low awareness, high transaction




100 http://www.energystar.gov/index.cfm?c=mortgages.energy_efficient_mortgages


http://www.energystar.gov/index.cfm?c=mortgages.energy_efficient_mortgages


costs, and lack of incentives for lenders to market these products. 101

Another apparent reason is the limited availability of such loans.

On the other hand, a 2013 review found that mortgage holders of single

family homes that were energy efficient (as rated by Energy Star) were:

(a) Less likely to default, with default risk around 32% lower.

(b) Less likely to pre-pay their mortgage.102

This review was prepared in part to demonstrate to lenders that making

available more energy efficiency loan products could be seen as a solid

investment. The review identified other barriers such as “transactional

complexity, poorly developed lender guidance, limited benefit for lenders

and lack of consumer information”

However its still too early to see if improvement efforts will have any

impact on the low uptake of energy efficiency mortgages in the U.S.

Green home loans – UK and Australia

The UK’s “green deal” project which commenced at the start of 2013

appears to also have problems with loan uptake. After energy

101 Borrowing to save energy: An assessment of energy-efficiency financing programs. Palmer K.,

Walls M., Geradden T., Resources for the Future, 2012. http://www.rff.org/RFF/Documents/RFF-Rpt-

Palmeretal%20EEFinancing.pdf

102 Home energy efficiency and mortgage risks, Institute for Market Transformation, 2013.

http://www.imt.org/uploads/resources/files/IMT_UNC_HomeEEMortgageRisksfinal.pdf

http://www.rff.org/RFF/Documents/RFF-Rpt-Palmeretal%20EEFinancing.pdf

http://www.rff.org/RFF/Documents/RFF-Rpt-Palmeretal%20EEFinancing.pdf

http://www.imt.org/uploads/resources/files/IMT_UNC_HomeEEMortgageRisksfinal.pdf


assessments of over 70,000 households just 12 houses had taken a

loan.103 Reasons for poor uptake appear to be the amount of paperwork

householders need to process, a relatively high interest rate (7%) with

unattractive terms, and industry fragmentation in the delivery of upgrade

services.

In Australia a government supported “green loans” program operating

from 2008 to 2010 was a AUD $175m failure. The program provided a

$10,000 interest free loan based on an energy audit of the property, also

provided free of charge. Government reviews found “significant and

extensive administrative failings in relation to the program’s design and

administration.”104 Loan uptake was very low. Around 360,000 home

assessments were undertaken, but only around 1,000 loans awarded. In

various discussions I held with assessors who undertook audits in the

program, another barrier was the relatively long payback of measures

identified in the program. At the time Australia did not have the high

electricity tariff’s it now has.

103 As reported in the Guardian. http://www.theguardian.com/money/green-living-

blog/2013/sep/22/green-deal-energy-saving-offer

104 Green Loans Program, Australian National Audit Office, 2010. http://www.environmental-

auditing.org/Portals/0/AuditFiles/Australia_f_eng_Green%20Loans%20Program.pdf

http://www.theguardian.com/money/green-living-blog/2013/sep/22/green-deal-energy-saving-offer

http://www.theguardian.com/money/green-living-blog/2013/sep/22/green-deal-energy-saving-offer

http://www.environmental-auditing.org/Portals/0/AuditFiles/Australia_f_eng_Green%20Loans%20Program.pdf

http://www.environmental-auditing.org/Portals/0/AuditFiles/Australia_f_eng_Green%20Loans%20Program.pdf


Discussion of the international experience

The international experience is clearly mixed. Both Germany and Japan

have large programs that are engaging a large portion of the market,

possibly around 20% in Japan and higher in Germany. However as

reviews of these programs point out, both programs originate from post

war reconstruction banks, and operate in countries with long term

experience in the reconstruction / repair of buildings.

The Estonian experience is perhaps of most interest to Malaysia, as

Estonia is likely more similar to Malaysia than the other countries. It has

a specific target of apartment buildings. It also seeks to make financing

available where otherwise a bank could see the credit risk as too high.

However, the program, despite being in operation since 2001, has only

provided a small number of loans and a relatively small number of loan

guarantees.

Clearly the failure in Australia (trying to do too much too soon with poor

administration and long paybacks) and the poor success in England (too

much red-tape?) to date are cautionary.

SUITABILITY TO MALAYSIA

The bulk of the schemes examined have been based on thermal

performance for cold climates.

Using the concept of “degree days” the likely benefit of thermal

performance upgrades can be very roughly approximated. To

understand the concept of degree days, consider a day where the


average temperature was 28 OC. With respect to a temperature of 25 OC,

that day would be considered to have 3 cooling degree days.

The table below shows the heating and cooling degree days for a major

city in each of the three more successful case studies given above.105

The bases of 18 OC and 25 OC have been used for heating and cooling

respectively as these could be considered as the temperatures where

either home space heating or home space cooling might first per

operated.106

105 Five year averages, using data from www.degreedays.net, accessed 2 May 2013.

106 Many people consider whether to use heating or cooling in their home in terms of the cost of

heating or cooling. Whilst 18OC may be considered “cold” or 25OC “hot” the reality is that these

temperatures are likely considered as “mild” by poor and middle income householders. I remember

attending a conference in 2004 where a case study on insulating retrofits from the South Island of

New Zealand was presented. Very little energy was saved. The reason? Instead of warming their

houses to 11 or 12 OC, after the retrofits homeowners took them up to a more comfortable

temperature of 15 or 16 OC – using the same amount of energy. Prior to the upgrades they couldn’t

afford, or didn’t perceive the benefit, of making their houses warmer, worth the cost. Subsequent

studies have shown that the main benefits of this program have been in improved health.

http://www.degreedays.net/


Table 16 - Degree days in various locations

Where Heating degree

days – Base

18OC

Cooling

degree days –

Base 25OC

Total degree

days

Germany -

Frankfurt

2950 N/A 2950

Japan - Osaka 1600 300 1900

Estonia - Tallinn 4500 N/A 4500

Malaysia - KL N/A 1200 1200

What this table doesn’t capture is the impact of direct and indirect radiant

heat, but it does indicate that improving the thermal performance of a

building in Malaysia would likely provide less energy benefit than it

would in Japan, and almost certainly less benefit than it would in

Estonia.

Another consideration when it comes to cooling buildings vs heating

buildings is the efficiency of the device providing heating or cooling.

Typically in Europe heating is from either gas or oil, combusted in a

boiler with an efficiency of between 70% to 90% and a system efficiency

in the order of 40% to 70%. In Malaysia cooling comes from an air

conditioner, typically with a likely efficiency (based on electrical energy

in) of around 250%. So it requires much less metered energy to deliver

one MJ of cooling energy in Malaysia as it does to deliver 1 MJ of

heating energy in say Estonia.


Finally, Malaysia’s relatively cheap electricity tariff’s need to be

considered.

The combination of (a) a less harsh climate (b) high efficiency of

electricity powered air conditioners compared with fuel fired heaters and

(c) low electricity tariff means that the financial benefit to an householder

in Malaysia of home thermal improvements may not be that high as

compared with benefits experienced elsewhere. On the other hand, the

improved comfort benefits cannot be discounted.

Any scheme Malaysia might consider should also therefore go beyond

just thermal performance, but also look at renewable energy and

potentially lighting.

What could realistically be financed through a housing

mortgage

The table below shows what can be likely realistically be financed in

Malaysia through a housing mortgage. Typically these would need to be

fixtures that remain with the home and that have a long life.

Approximately half of the homes in Malaysia are apartments and half

terrace or stand alone homes. For apartments it is more cost effective to

focus on the whole building, rather than individual elements.

Measures that reduce water or hot water use, such as low flow taps or

showerheads, could also be considered, but are typically too low in

value to be seriously considered with respect to the paper-work involved


in a loan. Similarly the upgrade of individual light fixtures in an existing

home can’t really be considered as practical under a loan program.

Note that savings can be very hard to estimate, and depend enormously

on occupant behaviour. For example, does each member of a family of 5

have a hot shower every day? In this case installing a low-flow

showerhead will have a very good payback. But a household which

never has hot showers there won’t be a return in energy savings.

Similarly some measures, such as the application of a window film to

reduce radiant heat gain, may improve comfort but not necessarily save

much energy because the occupant simply doesn’t use the AC much.


Table 17 - Possible energy efficiency measures that could be funded by a

mortgage or loan

Terrace / stand alone Apartment

New Roof insulation or cool roof

High effcy AC

High effcy hot water system

High efficiency lighting

Glazing upgrade

Solar PV

Wall insulation *

Shading elements*

Building orientation / window position*

Wall insulation**

Glazing upgrade**

Shading elements**

Cool external surfaces**

High effcy AC

High effcy lighting

High effcy hot water system

Existing Roof insulation or cool roof

Solar PV

Shading

Window films

AC upgrade***

Hot water system upgrade***

Window films

AC upgrade***

Hot water system upgrade***

*Items such as wall insulation, a design that provides improved energy performance (eg

through better cross flow ventilation) or shading elements may not be possible in all cases,

and will depend on construction details, such as the type of wall construction and site

limitations.

** Depending on the flexibility of the construction contractor, custom elements that don’t

apply to all apartments may not be possible to incorporate in a new home. The whole

building would likely need to incorporate these elements


*** Depending on how long this equipment is operated for, it may only be economic to install

high efficiency equipment when the existing equipment is in the process of being replaced

anyway.

Likely benefits, costs and economic viability

Benefits are challenging to estimate, as the same measures applied to

identical homes might yield very different savings, depending on

occupant behaviour.

Two identical neighbouring apartments can have large variation in their

energy use depending on number of occupants, number of appliances,

perceptions of comfort, time spent at home, etc.

In general, the higher the income the higher the consumption: bigger

house, more air conditioners, bigger TV, has hot water vs doesn’t have

hot water, etc.

An analysis of Energy Commission data shows that the average

Malaysian residential electricity consumer uses 3.3 MWh of electricity

annually (2012), or around 9 kWh/day. In 1997 the average residential

consumer used 6 kWh/day, and the rate of annual increase is around

3% per year.

There is little data available on how this energy is consumed. The table

below provides a rough estimate:


Table 18 - Rough estimate of where energy is consumed in an

"average"Malaysian household in 2012.

Electrical Load Estimated average

daily energy

consumption (kWh)

Refrigerator 2

Lighting 1

Cooking 0.5

Television, radio, other plug loads 1.5

Cooling – fans and air

conditioning

4

Many of the energy upgrades that could be funded by a mortgage or a

loan would decrease the cooling energy use. There is no doubt that

cooling energy use will grow in future years as more people either install

their first, or their second or third air conditioner. But in the table above

shows that in the “average” Malaysian home air conditioning energy use

could be lower than expected.

For existing buildings

If we assume a typical “deep” retrofit is able to reduce electricity

consumption by 1/3rd – or 3 kWh/day on average, the savings, at an

average tariff rate of MR 0.40/kWh, would be worth MR438/year.


What would the cost of a deep retrofit be? Possibly in the order of MR

10,000, or higher.107

Clearly the economic cost-benefit is poor for the “average” existing

home. Even if a home cut its consumption by 50%, for an average home

the simple payback would still be over 15 years.

But for a small number of homes that use a lot of energy, a retrofit could

make economic sense. And this number of homes is set to increase as

the use of air conditioning continues to grow.

A higher tariff would reduce the gap between benefits and costs

For new buildings

For new buildings the benefit to cost ratio would likely be higher, as

costs can may be lower. For example it’s cheaper to buy a cool roof with

pre-treated tiles or steel sheeting than it is to clean then paint an existing

roof.

Its more than just finance

Access to finance could be a barrier to homes becoming more efficient in

Malaysia. However poor financial payback (particularly for retrofits), is

also a barrier.

107 This estimate is based solely on “gut feel” and experience, but not in Malaysia.


Possible pathways for Malaysia

The discussion above indicates that getting energy efficient mortgages

to work in Malaysia could be challenging. Reflecting on the international

experience suggestions are, should Malaysia choose to pursue this

policy option:

Make financing available at reduced interest rates to developers of

new apartment buildings that incorporate air conditioning of say

larger than 2,000 m2 that adopt MS1525. This will likely provide a

reasonable return (reduced energy bills for apartment dwellers) on

the investment made (cost of funding the reduced interest rate). It

could also possibly pave the way for the eventual introduction of

mandatory standards for residential buildings.

Provide a green loan at reduced interest rate for the additional cost

of of homes (terrace or apartment) that incorporate a number of

prescribed elements (eg cool roof/roof insulation for terrace

homes, air conditioner that has a star rating of 5 for both terrace

homes and apartments)

Use a Utility Energy Efficiency Obligation scheme to encourage

the uptake of high efficiency home appliances, particularly air

conditioners, but don’t provide any concessional mortgage

financing. Look for ways of incorporating measures such as cool

roofs, insulation, etc into a UEEO. This saves administrative effort,

with no need for a special loan program.

Have very strong enforcement of labelling and MEPS. In addition

to air-conditioning, likely future areas of home energy consumption


growth will come from televisions (more of them, bigger);

computers, tablets, home networks; more gadgets and appliances.

Improving the home’s thermal performance via a mortgage or loan

has no impact on the consumption of these devices.

Responsibility

Ministry of Finance working with ST.


Building standards can achieve the same impact of this policy

measure. However low-interest finance or similar can encourage the

uptake of these standards

Appliance and equipment standards and labelling also reduce

household electricity consumption. Measures that reduce thermal loads,

funded through a mortgage or loan can further reduce consumption.

A Utility Energy Efficiency Obligation may be synergistic, but could

also result in “double dipping”. For example if a developer is able to

access low interest financing through installing high efficiency air

conditioners, and also getting access to cheaper air conditioners

because of the UEEO, then a double subsidy is in effect. Any scheme

design ideally would try to avoid this.


CAPACITY BUILDING FOR EE IN

BUILDINGS

SUMMARY

Strong capacity in any sector depends on market demand and the extent

to which the market demands leading performance.

As demand for building sector EE in Malaysia picks up, it is suggested

the Malaysia develop an over-arching approach to systematic wide

capacity building in EE that integrates over time with the training sector.

It’s suggested that Malaysia:

Allocate responsibility to the Ministry of Education, and establish a

Malaysian Training Centre for Energy and Water Efficiency

Look at capacity developing in governance, industry, and the

training sector

Ensure consistency of resourcing for the governance of EE – a key

challenge internationally

Focus not just on enhancing technical skills, but ensure that there

is capacity in policy, law, finance, management, measurement,

verification and evaluation

Foster international collaboration for the development of capacity,

so as to learn from and avoid the mistakes of other countries when

introducing new policies


Tap into a wide range of internationally provided training and e-

learning in EE.

CAPACITY BUILDING

Malaysia has developed strong capability in building engineering, but

without a large market for energy efficiency services much of this skill

has not been applied to energy efficiency projects.

The effective implementation of building sector energy efficiency policy

requires capabilities across a range of skills, including:

Policy specific expertise, for example:

o Standards and Labelling (S&L)

o Utility Energy Efficiency Obligations (UEEO)

o Building Standards

o Mandatory reporting

Policy promotion

Public administration

Energy/carbon accounting

Project management

Measurement, Verification and Evaluation (MV&E)

Technical capacity in energy efficient:

o Building design


o Building construction

o Building operation

o HVAC design and operation

o Lighting design and operation

o Retrofits to the building envelope/shell

o Appliances

o IT equipment

Energy efficient procurement

Energy efficiency financing

Training and development

Energy audits

Delivery of integrated energy efficiency retrofit projects.

Capacity in governance, capacity in implementation

There are two broad areas where the effective implementation of EE

requires good capacity: in governance and in implementation.


Governance

EE governance cuts across a wide range of areas, as illustrated in the

figure below.

Figure 39 Areas of energy efficiency governance. From Energy Efficiency Governance Handbook, 2nd ed,

IEA, 2010

Implementation

Implementation of EE projects typically requires a wide range of skill

areas. Consider, for example, the retrofit of a 50,000 m2 hospital with a

budget of $5m. This is a complex project requiring design, supervisory,

implementation and trades skills in:

Financing

Contract development and negotiation


Construction project management

Scheduling and coordination – the hospital can’t be shut down

when the chiller is replaced.

General lighting

Hospital lighting (special lighting for the detection of cyanosis in

certain parts of the hospital, including some corridors)

HVAC

Hospital HVAC (special filtration and pressurisation requirements

for certain parts of the hospital)

Steam and laundry processes

Building automation and control

Occupational health and safety

Measurement and verification

Countries such as Singapore and Australia have developed industry-

based certifications to manage integrated energy efficiency retrofit

projects, which cover an integration of the broad range of skills needed

to manage building retrofits to make them more efficienty.


INTERNATIONAL EXPERIENCE IN SYSTEMATIC

CAPACITY BUILDING

The international experience broadly can be categorised as being

piecemeal. Two examples are provided, covering governance and

industry.

A more systematic approach is to use a qualifications framework or to

map skills to this framework. Over time formal capacity building then

becomes embedded. The Australian experience is discussed.

Capacity building for government

A review of US federal State Energy Program, a grant program providing

states with founding to support EE and RE activities, found capacity

building focussed on the following key areas:108

Policy, regulatory and legislative skills

Technical skills

Team building collaboration

Professional skills

Essentially this form of capacity building was identified as “learn by

doing”.

108 The state energy program: Building energy efficiency and renewable energy capacity in the states,

Oak Ridge National Laboratory, 2010.

http://energy.gov/sites/prod/files/2014/01/f7/sep_capacity_building_report_6-30-10.pdf

http://energy.gov/sites/prod/files/2014/01/f7/sep_capacity_building_report_6-30-10.pdf


Variations in funding from year to year were identified as a key constraint

to institutionalising effective EE capacity in the state government level.

Over a period of 25 years in one state, Connecticut, the number of staff

employed in state government EE programs went as high as 83, and as

low as 2. Clearly as positions have been made redundant in response to

changing funding levels capacity has been lost.

Australia has also had a “boom or bust” cycle of government capacity in

EE.

A key lesson from the US and Australia is that consistency of funding is

very important for building long term capacity in government to deliver

EE policies.

Industry capacity building

Across a wide range of countries, including Malaysia, there has been

significant progress in developing the capacity to design and deliver

large energy efficient buildings. This has largely been driven by industry

associations following the example of LEED (Leadership in Energy and

Environmental Design) and developing rating tools for green buildings.

In Malaysia the Green Building Index has played a key role in

developing this capacity.

Similarly energy manager accreditations, developed by industry – often

in response to government requirements – build some preliminary

capacity. Globally the Certified Energy Manager accreditation offered by

the Association of Energy Engineers is the most common, with over

10,000 individuals certified. Countries such as India and Malaysia have


developed their own accreditations which are similar. Typically

accreditation is achieved by attending a short course then sitting an

exam. Eligibility to be accredited is based on a certain number of years

of prior experience in an energy related role, typically as an engineer.

The bulk of industry accreditation globally are “light”. That is they are

essentially an introductory level qualification, based on a short course.

Deep capacity tends to be developed by experience.

Capacity building within a qualifications framework

Many countries, including Malaysia109, have qualifications frameworks, in

Malaysia these cover three broad sectors: skills, vocational and training,

and higher education.

Training institutions can collaborate with industry to develop new

qualifications, and fit them into the qualifications framework.

Any individual qualification needs to be carefully described with respect

to the competency, and evidence of competency.110 Once qualifications

are developed and described, one or more training institutions can then

offer the qualification.

109

http://www.mqa.gov.my/portal2012/dokumen/MALAYSIAN%20QUALIFICATIONS%20FRAMEWORK

_2011.pdf

110 The Australian qualifications framework in the vocational area is a good example.

www.training.gov.au

http://www.mqa.gov.my/portal2012/dokumen/MALAYSIAN%20QUALIFICATIONS%20FRAMEWORK_2011.pdf

http://www.mqa.gov.my/portal2012/dokumen/MALAYSIAN%20QUALIFICATIONS%20FRAMEWORK_2011.pdf

http://www.training.gov.au/


Qualifications can, if well designed and appropriately resourced, develop

capacity beyond a superficial level.

Developing an industry potentially worth billions of dollars annually

would ideally effectively map skills into qualifications frameworks, which

can be used to build industry in the long term.

In Australia the Australian Institute of Refrigeration, Air Conditioning and

Heating (AIRAH) developed a post-graduate diploma in Energy Efficient

Building Operations and incorporated it into the national qualifications

framework. Unfortunately demand for this training was low, and the high

annual cost of maintaining registration as a training organisation has

meant that AIRAH is now discontinuing the offering of this qualification.

On the other hand, also in Australia, the National Electrical and

Communications Association (NECA) also developed energy efficiency

training for electricians, largely focussed on lighting, under this

framework. This training course has been very popular and has now run

for many years.


Malaysia has the opportunity to learn from this international experience,

and develop an over-arching approach to systematic wide capacity

building in EE that integrates over time with the training sector.

Capacity that is developed needs to align with the particular policies that

are chosen. Consistency of policy and resourcing over a long time


period is essential to enable the experience on which deep capacity is

built.

A Malaysian Training Centre for Energy and Water Efficiency could be

established to lead this.

Several dot-point suggestions are made below covering governance,

industry, the training sector and e-learning

Developing capacity in governance

Develop long term resourcing plans

Identify stable funding sources that are independent of central

budgets

Ensure that the capacity built is not just technical, but covers

policy, legal, financial, managerial, measurement verification and

evaluation.

Learn from the international experience in each of the policy areas

selected:

o Pick a country which has effectively implemented a policy,

and develop bi-lateral cooperation.

o Put sufficient effort into detailed policy design so as to avoid

making the mistakes other countries have typically made

when introducing a new policy

o Ensure adequate and consistent resourcing.


Developing capacity in industry

Support capacity development where the work actually is, not

where it is hoped that the work is.

Align capacity with policy

Require demonstrated competency to access incentives

Developing capacity in the training sector

Develop a long term framework

Get EE incorporated into a wide range of vocational qualifications

including (but not limited to):

o Electrician (lighting, motors)

o Air conditioning mechanics (across almost all areas of air

conditioning)

o Plumbers (solar hot water)

o Automation qualifications (building management systems)

At the university level develop a regional framework with

neighbouring countries

Create demand: Make accreditation a pre-requisite to engage in

certain activities

Copy the international experience, form international alliances

E-learning

Tap into some of the capacity building programs developed or

being developed internationally.


o Association of Energy Engineers http://www.aeecenter.org

o Efficiency valuation organisation http://www.evo-world.org

o Massive Open Online Courses (MOOCs) – eg

www.coursera.org

o Graduate and post-graduate training in EE:

http://airah.trainingvc.com.au/

http://www.energystar.gov/buildings/training

https://www.greenedu.com/energy-efficiency-training

http://www2.schneider-

electric.com/sites/corporate/en/products-

services/training/energy-university/energy-

university.page

https://cleanenergysolutions.org/training

Institutional arrangements

The Ministry of Education could take on overall responsibility for

ensuring capacity development activities are implemented.

A Malaysian Training Centre for Energy and Water Efficiency could be

established to lead this.

BSEEPs active and passive technical guidelines are some of the

resources that could be used in training.

http://www.aeecenter.org/

http://www.evo-world.org/

http://www.coursera.org/

http://airah.trainingvc.com.au/

http://www.energystar.gov/buildings/training

https://www.greenedu.com/energy-efficiency-training

http://www2.schneider-electric.com/sites/corporate/en/products-services/training/energy-university/energy-university.page




https://cleanenergysolutions.org/training


INCENTIVES FOR EE IN BUILDINGS

SUMMARY

Many energy efficiency measures for buildings are cost negative from a

macro-economic perspective, however these are not implemented for a

variety of reasons. Incentives and regulations are used to overcome

these barriers. Whilst regulation is widely considered to be more

effective than incentives, if well designed, incentives can have a useful

impact on reducing energy use.

Well designed and implemented incentives can be used to either (a)

smooth the transition to regulation or (b) create economies of scale that

can help create new markets and drive down costs.

For example in Malaysia tax incentives for green buildings have played a

key role in creating a market for green buildings, and in building up

capacity to deliver such buildings.

Incentives that appear to be appropriate for Malaysia include:

Continuation of tax incentives for green buildings, with the aim of

progressively tightening the performance requirements before the

tax incentives apply.

A Utility Energy Efficiency Opportunities Scheme

Financial incentives that usher in the mandatory reporting of

building energy use


Grants to assist state governments support the uptake of EE

building standards.

Capacity building, by addressing the barriers to ESCOs and also

providing support for capacity in building sector EE more broadly.

WHY INCENTIVES?

Anyone with experience in energy efficiency will know that apparent

economic rational behaviour rarely occurs. Economic rational theory

assumes that people and organisations will make decisions that are

cost-effective in the long term.

The McKinsey cost curve – something once considered essential in

virtually every conference paper on the economics of carbon abatement

– starkly shows that energy efficiency is supposed to make rationale

economic sense. Items below zero on the y axis (on to the left of the

curve) are considered to have a “negative” cost of abatement. Many of

these are energy efficiency measures.


Figure 40 - sample McKinsey cost curve

The reality is that whilst apparently making macro-economic sense,

many energy efficiency opportunities are not implemented, for a variety

of reasons.

Regulation and incentives are therefore needed to drive the uptake of

EE.

In almost all countries, regulation has been favoured over incentives.

The World Energy Council explains this well:

Regulations are more powerful than traditional incentives to transform

the market, because they do not leave any choice for consumers.

Incentives are often weak because they depend on the behaviour


change of millions of consumers who essentially lack the information and

resources to act. However, the impact of regulation depends on their

effective enforcement.111

However well designed and implemented incentives can have a useful

impact on reducing energy use.

How to best use incentives

Incentives are best used to either:

(a) Provide a transition to regulation; or

(b) Create economies of scale or critical mass.

Transition to regulation

As has been done in Malaysia with standards and labelling, incentives

can aid the transition to regulated EE. The SAVE scheme provided an

incentive for consumers to buy more efficient appliances, and for

manufacturers and retailers to adopt voluntary labelling and supply more

efficient products.

Another example from Australia would be the Green Building Fund – a

stimulatory incentive that was used to aid the introduction of the

Commercial Building Disclosure (CBD) legislation.

111 World Energy Perspective: Energy efficiency policies: what works and what does not, World

Energy Council, 2013.


Under the Green Building Fund a grant equal to 50% of capital costs

was provided to large office buildings which increased their NABERS

rating by at least 2 stars. This lifted the number of buildings with

NABERS ratings, and developed industry capacity in managing and

delivering energy efficient refurbishments of large office buildings.

The stimulus might have been overly generous however, and had the

highest uptake from organisations with large portfolios of grade A office

space, who could realise higher rental returns by improving their

NABERS ratings. These organisations could probably also be

considered as capable of undertaking these upgrades without support.

Nonetheless it did help a market transformation that added value to

energy efficient buildings, and aided industry acceptance of the CBD

legislation.

Another example would be the long term Californian pathway to reduce

home energy use. In the current decade incentives, through a Utility

Energy Efficiency Obligation, are stimulating investment to improve

home performance. In the next decade, however, these incentives will

be phased out and replaced with regulation.

Create economies of scale or critical mass

Well implemented incentive programs drive down the costs of energy

efficiency by creating a vibrant and competitive domestic market.

A fairly successful example of this is the incentives for household solar

PV in Australia, starting in 2007. Early federally provided up-front


discounts based on renewable energy certificates (RECs) and generous

state feed-in tariffs created large demand.

At first a “feeding frenzy” was created as solar providers jumped on the

band wagon; the incentives initially were overly generous.

However policy makers were reasonably quick to react. Over a five year

period the stimulatory multiplier of five on the RECs was reduced to one

(a reduction in up-front subsidies of 80%), and state feed in tariffs were

wound back, making the industry more competitive.

Table 19 - Solar PV subsidies 2009 vs 2014, Melbourne, Australia, for a 2kW

solar PV system

Year 2009 2014

Up front subsidy $9,600 $1,350

Net feed in tariff $0.60/kWh $0.08/kWh

Installed price to

customer

$5,600 $3,000

With over 15,000 people now employed in the solar PV industry

Australia is now one of the cheapest countries in the world to install a

solar PV system, even though the country itself is not a manufacturer of

PV modules. Feed in tariff’s could now be considered as “negative” by

some commentators (that is the value of the feed in tariff is not much

above the cost of centralised electricity generation, and well below the

retail price of electricity). The figure below provides an indication of the

low pricing that is making solar PV is now so popular in Australia, with


13% of households now with a solar PV system and this number growing

at around 2% per year. Australia is now close to the point where

subsidies for solar could be completely withdrawn and the market would

survive.

This transition has been aided by solar module prices which have

plummeted (now approaching $0.60/watt); however the industry large

enough to be highly competitive and installation costs have also

dropped.


Figure 41 - A solar offer, Australia, 4 May 2014. The industry is highly competitive, with the installed cost

of a 3 kW system in this advertisement costing just AUD $1/watt (MR 3/watt). The subsidy on the 3 kW

system based on the renewable energy certificates is around $2,000, meaning that the installed cost,

without subsidies, is around AUD 1.67 (MR 5) per watt. Without any subsidy at all, for an average

household, this 3 kW system with a low net feed in tariff of just $0.08/kWh would have a payback of 7

years (daily output and annual savings in the advertisement are exaggerated) and represents an

excellent long term investment.

This example shows how a combination of domestic subsidies creating

domestic competition, and very strong international growth in demand


pushing down prices, have worked together. In retrospect the policy has

worked well, although this strategic approach of developing a vibrant

and competitive local industry to take advantage of falling PV module

prices might not have been so obvious when the policies were first

implemented

TYPES OF INCENTIVES

Broadly speaking, there are two types of incentives:

- Fiscal incentives

- Financial incentives

Fiscal incentives

Fiscal incentives, such as tax breaks, are often used to promote energy

efficiency. Forms of fiscal incentives include:

Tax breaks, covering:

o Import tax

o Income tax

o Sales tax

o Accelerated depreciation tax allowances

Taxes on inefficient equipment

Carbon taxes or prices


Financial incentives

Financial incentives include:

Subsidies

Soft loans

Grants

Effective deployment of incentives

As discussed above incentives are best used either as a transition to

regulation, or as a way of building economies of scale. The effective

deployment of incentives includes:

Providing clear signals to the market in advance; having a long

term pathway to follow

Ensure sufficient resourcing of the administration of incentives

Having clear processes in place for measurement, verification and

evaluation (MV&E)

Clear market signals with a long term pathway

Without clear signals to the market and a long term pathway either a

boom or bust cycle may result, or the roll out of the incentive may have

unintended consequences.

An example would be the fiscal incentive of carbon pricing in Australia

(although many may phrase this as regulation rather than an incentive!).

This was designed has a long term policy measure to be the cornerstone


of Australia’s greenhouse gas abatement activities through to 2050. The

first three years was designed as a transitionary period, employing a

fixed carbon price and generous exclusions to trade exposed industries.

However this policy did not have bi-partisan support, and a change in

government meant the likely repeal of the carbon pricing legislation in

July 2014, just two years after it came into force.

The consequence of this is that the scheme has been less effective in

persuading the large emitters with liability under the scheme to make

long term investments to reduce their carbon footprint.

Adequate resourcing of administration

Adequate resourcing of the administration of any incentive is essential to

ensure that policy objectives are achieved. An example of where

resourcing has been inadequate also come from Australia.

In 2007 a new government announced a “Green Loans” program worth

$300m. This program aimed to promote EE residential retrofits, by

providing free home assessments and then access to green home loans

of up to AUD $10,000. The program was to be rolled out very quickly.

The large program size meant that very quickly thousands of individuals

sought accreditation as home assessors under the program. Home

assessments were undertaken by visiting the home and uploading

information about the home into online software. The software would

then come up recommendations with estimates of costs and benefits for

a range of EE measures.


Unfortunately the software was poorly developed, and assessments

were taking months to be processed. Additionally the flood or assessors

meant that the initial budget was spent very quickly, meaning that

assessors who were slow in getting accredited (which cost around

$3,000) were unable to get work out of the program.

The program was eventually quietly closed after $175m had been spent.

Only 1,000 homes took up home loans under the program.

An audit of the program found poor administration and inexperienced

administration staff the key reason for its failure. Other reasons could be:

A rushed roll out (contributing to the poor administration)

A lack of MV&E to pick up problems and act on them quickly. With

this program it appears as though the entire premise of the

program was wrong – the premise being that lack of financing was

a key barrier to the improvement of home energy efficiency – as

evidenced by the low number of loans issued.

Have clear processes in place for MV&E

Without adequate MV&E an incentive may not be achieving the desired

objective.

Another Australian example is provided illustrating what not to do. The

Victorian Utility Energy Efficiency Obligation (UEEO) white certificate

scheme did not effectively engage in measurement and verification of

savings achieved by the installation of Standby Power Controllers

(SPCs) which dominated the scheme from 2011 to 2013. As a result a


market distortion was created, delivering “phantom” energy savings.

Rather than least cost abatement being achieved, poor MV&E meant the

program was delivering high cost energy savings.

Many of the examples above illustrate failings. This is deliberate – it is

hard to get incentives right.

MALAYSIAN EXPERIENCE WITH INCENTIVES

Malaysia has deployed a range of incentives to drive energy efficiency in

buildings, described below.

Tax breaks for green buildings

From October 2009 tax breaks have been provided for green buildings.

This program is scheduled to end in December 2014.

The tax breaks are:

A tax exemption on the income equivalent to the additional cost of

achieving certification under the Green Building Index (GBI). This

applies to both new buildings and existing buildings.

A stamp duty exemption on the additional amount required to

achieve GBI certification when a building is first sold.

In the absence of any reports, the benefit of these tax incentives is very

roughly estimated as shown in table 20 below. Note that as of 15 June

2014 there were a total of 235 building certified under GBI, either

completed (very few) or undergoing construction, with a total of

9,660,000 m2 for floor space. Of these 50 buildings are likely to be


completed by the end of 2014. There are a further 303 buildings which

are registered under GBI but are either in the design or construction

stage and are yet to be certified.

Table 20 - Estimated benefit of tax incentives – assuming 50% of GBI

registered or certified buildings benefit from the tax incentives.

As of 15 June 2014

Numbers below for the 50% of GBI registered or certified

buildings which are estimated to have benefited from tax

incentives.

Buildings likely to

be completed by

end of 2014

Certified Bldgs -

either completed

or with ongoing

construction

Registered buildings

in the

design/construction

stage not yet certified

Area (sq m) m2

1,000,000

4,800,000 6,200,000

Annual CO2 reduction t CO2-e

50,000

234,000 301,000

Annual kWh savings kWh 70,000,000

310,000,000 400,000,000

Annual cost savings to building users RM 30,000,000

130,000,000 160,000,000

Additional cost of green building RM

100,000,000

470,000,000 610,000,000

Number of jobs created RM

170

780 1,020


Table 20 assumes:

That the tax incentives are the trigger for half of the GBI buildings

certified to date.

Based on data on the GBI website, as of 15 June 2014

Estimates for buildings likely to be completed by the end of 2014

and registered buildings are based on those figures for certified

buildings, on a pro-rata basis (235 certified buildings, estimated 50

buildings to be completed this year, 303 registered buildings not

yet certified)

An emissions factor of 0.747 (kg CO2-e/kWh)

An overall average electricity cost of RM 0.40/kWh:

An average cost of just under RM 100/m2 to achieve certification

That it costs RM 600,000 to create one job in the construction

industry.

The cost to government of these tax incentives is unknown.

Note that the above figures are annual saving figures. Lifetime saving

figures can be calculated by multiplying by the expected average

building lifespan.

The SAVE program

The SAVE program provided a rebate of RM 100 on 5 star air

conditioners, up to RM 200 on 5 star fridges, and RM 200/refrigerative


tonne for new chillers used to replace chillers more than 15 years old. It

ran from 2011 through to December 2012.

It was part of the Entry Point Project 9 (EPP9) of the Economic

Transformation Program.

The program was well subscribed and used all the allocated funding of

RM 45 million. A project review undertaken by SEDA (who also

administered the program) identified that the lifetime savings achieved

by the program were estimated at 1,320 GWh, with the lifetime value of

energy savings estimated at RM 382 million.

Effectiveness of these incentive programs.

Both the tax incentives and the SAVE rebate appear to have been

effective in driving energy efficiency. Whilst both the GBI numbers and

the SEDA numbers are estimates of savings, not measurements of

actual savings achieved, even if the savings were substantially over-

estimated the results still show the excellent financial returns to the

economy generated by investment in energy efficiency.

The magnitude of savings from both programs, if combined, should be

generating savings of over 400 MWh annually once those buildings

which have received tax incentives are operational, or around 0.7% of

building sector annual electricity consumption.

With data on building sector electricity consumption only available till the

end of 2012, it is not possible to observe whether these programs have

caused a slow down in the trend of ever-increasing building energy use


or not. A National Building Energy Consumption Database would make it

much easier to identify savings.

Nonetheless it is clear that these programs have been effective, and

their continuation in one form or another is recommended. Tax breaks

for green buildings should remain. And a more permanent version of the

SAVE scheme could be introduced via a Utility Energy Efficiency

Obligation.

SUGGESTIONS FOR MALAYSIA GOING FORWARD

Malaysia should adopt a strategic approach that uses incentives to

either transition to regulation or to build up local capacity to a strong

level.

The tax breaks for green buildings may have already achieved this to

some extent. Evidence of increased local competitiveness is now the

competition between the two rating systems – GBI and GreenRE.

Additionally it appears as though now a building with the entry level of

GBI certification now costs no more than a normal building. However

industry has indicated that the tax breaks have played a key role in

stimulating demand for green buildings, and should remain.

Suggested areas to focus incentives are on are tabled below:


Table 21 - Suggested areas to focus incentives on

Incentive Purpose Details

Tax breaks for

green buildings

Build a market for

green buildings,

create capacity in

delivery of

buildings, aid the

transition and

uptake of standards

Continue existing tax breaks, gradually making

the performance levels for which tax breaks

apply more stringent over time. The staging

should be based on revisions of MS1525, with

the tax breaks available for building which

achieve a BEI at least 25% below that expected

for a building which complies with MS1525. For

example, over RMK11 25% below MS1525

would be a BEI of nominally around 150

kWh/m2/year. Other green building rating tools

should also be eligible for the tax break, on the

basis of actual BEI post-occupancy.

Area

adjustment for

green buildings

Build a market for

green buildings,

create capacity in

delivery of

buildings, aid the

transition and

uptake of standards

Allow additional gross floor area (1% to 2%)

beyond the limit of normal planning controls for

green buildings that are eligible for tax breaks.

It would be up to local governments to allow

this.

Tax breaks for

new energy

efficient

apartment

bldgs.

Transition to EE

construction

standards, aid the

uptake of standards

Once a residential standard (similar to MS1525)

is introduced, tax breaks should apply for

buildings that achieve a BEI at least 25% below

this standard.


Incentive Purpose Details

Utility energy

efficiency

obligation

(UEEO)

Support the uptake

of Standards and

Labelling, aid in the

development of an

ESCO industry.

Will be the main form of subsidy provided, and

funded via a small additional charge on the

electricity bill. Needs strong administration and

MV&E to work well. Is a stable long term

financing mechanism that drives energy

savings and long term economic benefit.

Incentives for

reporting of

building

performance

Aid the transition to

mandatory

reporting of building

energy

performance

Incentives could start with a payment for

compliance, moving to a no fee arrangement on

lodgement (an effective subsidy), through to

cost recovery through lodgement fees. Initially a

fund of RM10 million could be established to

enable owners to pay consultants as required to

meet compliance. Once the fund is exhausted

reporting should become mandatory. The

incentive could be in the form of a cash rebate

like the SAVE scheme, issued on satisfactory

compliance, which could be enabled through a

UEEO. Alternatively a tax break may be

considered.

Capacity

building of the

ESCO industry.

Build an ESCO

industry whilst

improving the

performance of

government

buildings

Incentive needs to go beyond financing, to

require government to commit to implementing

a certain number of Energy Performance

Contracts annually, which will build up ESCO

capacity. The development of standard

processes and contracts for governments to

use to procure energy savings through Energy

Performance Contracts will help too.


The accompanying policy discussion papers explore these measures in

more detail. with the exception of grants to state governments to

support EE, discussed below

Funding of incentives

Malaysis aims to reduce the government budget deficit to zero by 2020;

it was 3.9% in 2013, and the aim is to gradually reduce it year on year to

2020.112

Any incentive programs need to bear this in mind, and endeavour to

minimise any negative impact on the government budget. A UEEO

scheme can potentially contribute to the financing of EE incentives.

Monitoring, reporting and impact assessment scheme.

The monitoring, reporting and impact assessment (MRIA) of each

incentive can be monitored as tabled below. Additionally KeTTHA to

host an annual meeting of government stakeholders (MoF, KPKT, JKR,

ST) to discuss and report on progress.

112 http://www.bloomberg.com/news/2014-02-13/malaysia-s-budget-deficit-shrinks-more-than-

government-targeted.html

http://www.bloomberg.com/news/2014-02-13/malaysia-s-budget-deficit-shrinks-more-than-government-targeted.html

http://www.bloomberg.com/news/2014-02-13/malaysia-s-budget-deficit-shrinks-more-than-government-targeted.html


Table 22 - Monitoring, Reporting and Impact Assessment Scheme

Incentive Monitoring, reporting and impact assessment (MRIA)

Tax breaks for green

buildings

M: Require all buildings which intend to claim tax breaks to register at the design

stage, and provide an indication of the expected claim date and claim amount.

Establish a database for all buildings which intend to claim, and use it to track their

progress (intent to claim, claim, impact assessment). R: MoF to prepare an annual

report of registered and claimed buildings and provided to KeTTHA. IA: Use a

National Building Energy Consumption Database (NBECD) to verify savings and

identify impact of program. Note that IA can only be realistically determined from 2

years post occupancy and beyond. Undertaken by KeTTHA

Area adjustment for

green buildings

M: Request local government’s to provide to MoF on an annual basis a list of

buildings for which area adjustments have been claimed. R: MoF to provide an

overall list on an annual basis to KeTTHA. IA: Use the NBECD to verify performance

of these new buildings and verify impact. Undertaken by KeTTHA

Tax breaks for new

energy efficient

apartment bldgs.

MRIA: As per tax breaks for green buildings.

Utility energy efficiency

obligation

M: Measurement and Verification (M&V) is a very important element of the scheme

design to ensure that the savings achieved are accurately estimated. This is to be

undertaken applying the principles of the International Performance Measurement

and Verification Protocol (IPMVP) with the aim of achieving 80% certainty that

measured savings are within plus/minus 20% of actual. R: The UEEO administrator

(ST) to prepare an annual report to KeTTHA on the impact of the scheme. IA: To be

based on the M&V report prepared annually by ST, cross checked against the

NBECD. Undertaken by ST.

Incentives for reporting

of building

performance

M: ST to include in the NBECD a field which tracks which buildings have

claimed/been provided with the incentive. R: ST to provide an annual report to

KeTTHA. IA: To be determined using the NBECD, undertaken by KeTTHA.


Incentive Monitoring, reporting and impact assessment (MRIA)

Capacity building of

the ESCO industry.

M: Monitor number of Energy Performance Contracts (EPCs) are delivered by

ESCOs to improve the performance of government buildings vs the annual target.

R: ST to prepare an annual report to KeTTHA. IA: Use the M&V reports produced as

part of the EPCs, cross checked against the NBECD. To be undertaken by ST.

Grants to state

governments to

support EE

M: MoF or KPKT to manage a database recording grants issued to state and local

governments. R: MoF/KPKT to prepare an annual report to KeTTHA. IA: Measured

by the number of local and state governments which are requiring mandatory use of

the EE provisions of the UBBL.