1
PROJECT BRIEF
1.
Identifiers
Project Number
Project Name:
Duration:
Implementing Agency:
Executing Agency:
Requesting Country:
Eligibility:
GEF Focal Area:
GEF Programming Framework
2.
Industrial Energy Efficiency Improvement Project
1 January 1999 - 31 December 2002
United Nations Development Programme
Ministry of Energy, Telecommunications and Post
Malaysia
Malaysia ratified the FCCC on 17 July 1994
Climate Change
Removing Barriers to Energy Efficiency and
Conservation, Operational Program 5
Energy
Summary
About one quarter of the total CO2 emissions from fuel combustion in Malaysia comes from
manufacturing industries. Significant reductions in CO2 emissions can be effectuated by the
efficient and rational use of energy in this sector. However, there are a number of barriers that
hinder the implementation of energy efficiency and conservation efforts in the Malaysian context.
This project aims to reduce such barriers and will contribute to the rational use and improved
energy efficiency in Malaysian industries. In particular, capacity-building demonstration
incentive schemes will be established to address inadequate information and perceived risk among
industrial producers.
3.
Costs and Financing (million US$):
GEF :
Co-Financing:
- PROJECT
- Subtotal GEF
- IA
Government (Cash)
Government (In-Kind)
Private (Cash)
Private (In-Kind)
:
:
US$
US$
:
:
:
:
:
US$
US$
US$
US$
US$
Total Project Costs
:
4.
Associated financing (million us$)
:
5.
Operational Focal Point Endorsement:
Name: Ms. Hiswani Harun
Ministry of Science, Technology and
(MOSTE)
7,300,600
7,300,600
300,000
8,536,843
1,481,270
2,163,067
146,330
US$
US$
19,928,110
17,510,000
Title: Director, Conservation
Environment and Management Division
2
Name: Ms. Puan Husniati
Ministry of Energy Telecommunications and Post
(MOETP)
6.
Title: Secretary General
IA Contact:
NANDITA MONGIA,
GEF REGIONAL COORDINATOR FOR CLIMATE CHANGE,
RBAP
TEL. (212) 906-5889 * FAX. (212) 906-5825
3
List of Abbreviations Used:
MOETP:
MOEST:
EPU:
MITI:
DES:
TNB:
SIRIM:
FRIM:
PORIM
UKM:
MIDA:
ESTIF:
Ministry of Energy Telecommunication and Post
Ministry Of Science ,Technology and Environment
Economic Planning Unit (JPM)
Ministry of International Trade and Industry.
Department of Electricity.
Tenaga National Research.
Scientific and Industrial Research Institute of Malaysia.
Forest Research Institute of Malaysia.
Palm Oil and Rubber Research Institute.
University Kebangsaan Malaysia.
Malaysia Industrial Development Agency
Electricity Supply Industry Trust Fund
EE&C:
Energy Efficiency & Conservation
4
BACKGROUND AND CONTEXT
1. The project has been developed in the programming context of removing barriers to energy
efficiency improvements in the Malaysian Industrial Sector i.e., the Operational Programme 5.
2. Malaysia is one of the member states of the Association of South East Asia Nations (ASEAN) which
is endowed with abundant natural resources. It is a country which until the first half of 1997
experienced a remarkable economic growth through the last decade, particularly in the industrial sector.
The country’s annual GDP growth rates have been one of the world's highest, and in 1992, with a GDP
per capita of US$2,678. The World Bank classifies Malaysia as an upper middle income country.
3. Presently, the country’s economic growth is expected to be lower, as compared to that in the
previous years, at an average rate of 4% per year till the year 2000. This is due to the current economic
conditions in the country that led to the devaluation of the Malaysian ringgit by as much as 47% in July
1997.
4. Energy Utilization: Energy has been a key input in the development and growth of Malaysia’s
economy. Malaysia is a net exporter of oil and natural gas; has significant hydropower resources;
recently started to exploit its limited coal resources; and also possesses significant potential in
renewable energy resources.
5. The final consumption of commercial energy has been growing at an average annual rate of 8.6%
during the period 1991-1995 and is expected to continue at the average annual rate of 8.9% during the
period 1996-2000. Total commercial energy consumption is expected to reach 1,279 PJ in the year 2000.
The country’s energy intensity increased from 6.96 MJ/RM (17.4 MJ/US$) of GDP in 1991 to 7.07
MJ/RM (17.68 MJ/US$ ) of GDP in 1995. This trend is expected to continue to increase during the
Seventh Plan period resulting in an energy intensity of 7.34 MJ/RM (18.35 MJ/US$) of GDP by 2000.
Malaysia’s energy consumption per unit of GDP is high in comparison to most developed countries and
several advanced developing countries.
6. Industrial Sector Energy Consumption: The country’s industry sector contributes about a third of
the overall gross domestic product (GDP). Its contribution to the GDP grew from 13% in 1970 to 27% in
1990. The industrial sector is expected to continue growing, albeit at a lower average annual rate as
compared to the 10.7% that the country’s Seventh Plan (1996-2000) had projected. The continued
development and growth of Malaysia’s industrial sector is an important objective of the “Seventh
Malaysia Plan” and its targets for 2020. In 1995, manufacturing accounted for 33.1% of GDP and it was
expected to grow to 37.5% by 2000. During the same time period, the manufacturing sector consumed
35.7% of total commercial energy and is expected to consume 38.2% by the year 2000. However, revised
estimates of economic growth rates projects the sector to account for about a third of GDP by the year
2000, the same as in 1995. Present plans to continue infrastructure and industrial projects, plus the
projected growth rate in the sector still reflects the growing importance of the industrial sector in
Malaysia’s economy. These estimates do not include “non-conventional” energy resources used by
some of the industrial establishments. Energy consumption in the industrial sector is only rivaled by
that in the transport sector which accounted for 39.1% of the overall energy utilization in 1995 and is
expected to account for 38.3% in 2000. When conventional and non-conventional energy resources are
combined, the manufacturing sector represents the largest sectoral consumer of energy in Malaysia.
However, considering the present economic conditions, it may be possible that there will be a reduction
in energy consumption not because of energy efficiency improvements but because of lower production
volumes and perhaps energy supply and/or use curtailments. The Government’s present policies favor
the use of fossil fuels and electricity by the manufacturing sector, and this makes the country’s
industrial sector a primary source of greenhouse gas (GHG) emissions.
5
7. The final consumption of commercial energy in the Malaysian industrial sector grew at an average
annual rate of 6.0% during the period 1991-1995. Assuming a business-as-usual scenario, the total
commercial energy consumption is expected to reach 488.7 PJ in the year 2000. High efficiency industrial
energy utilisation techniques have not penetrated the Malaysian market except for a few large steel and
cement plants. The majority of industrial production comes from medium and small scale units.
Commensurate with the projected economic growth, the energy consumption and the energy intensity
of the industrial sector are expected to continue to increase during the Seventh Plan period. The
forecasted energy intensity is 178.3 MJ/RM million of industrial GDP in 2000. The trend in the annual
average industrial sector energy intensity indicates an enormous opportunity for energy utilization
efficiency improvements. Being the largest energy consuming sector in the country, the potentials for
energy savings, and at the same time GHG emissions reduction are high.
8. Energy Efficiency and Energy Conservation Efforts: Concern for energy conservation became
prominent in Malaysia in the 80s, after the oil crisis. Since then, a number of activities have been
initiated to create a greater awareness of energy conservation. However, since Malaysia has primarily
been an energy surplus economy, the efforts had not yielded much result. In line with the objectives of
the National Economic Program, the National Development Policy emphasized the overriding goal of
rapid industrialization in 1991, with the goal of becoming a highly developed nation by the year 2020.
This goal is embodied in the concept "Vision 2020." In view of such a goal, Malaysia focused its attention
to enhancing energy efficiency and conservation.
9. Malaysia's energy policy objectives as stated by the Economic Planning Unit focus on:
1. Energy Supply: Assurance of adequate energy supply through the reduction of the dependence on
oil, and through the development and utilization of alternative sources of energy.
2. Energy Utilization: Promotion and encouragement of the efficient use of energy and the elimination
of wasteful and non-productive patterns of energy consumption.
3. Environmental Conservation: Minimization of environmental degradation in realizing the supply
and utilization objectives.
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10. The implementation of the energy efficiency program is primarily guided by the utilization
objective of the National Energy Policy. In consonance with the utilization objective, a national energy
efficiency strategy is currently being considered for implementation. The objective is not to constrain the
consumption of energy, but to promote efficient use of energy resources.
11. Considering the present economic conditions, energy efficiency and energy conservation (EE&EC)
will surely be a prominent feature in the Malaysian industrial sector in the near as well as the long-term.
As per its plans in the 80s, the government is expected to continue the propagation of energy
conservation among energy consumers and enhance these endeavors in the future. In spite of the
availability and current surplus of domestic energy resources, the GoM is preparing to issue some basic
energy efficiency regulations under the authority of the 1990 Electricity Supply Act to support EE&EC
efforts.
12. To meet the objective of improving energy efficiency in the country, the GoM has established a
separate Energy Efficiency Group (EEG) within the Ministry of Energy Telecommunications and Post
(MOETP) to catalyze the implementation of EE&EC measures throughout the country. The objective of
the group will be to work with Government, private sector, NGOs and academe to help build capacity,
institute policies and practices and identify opportunities for adoption of energy efficiency measures in
Malaysia.
EE&C Implementation Problems in Industry
13. To date, efforts to conserve energy and utilize energy efficiently in industries have been hampered
by several barriers which are economic/financial, information, regulatory and technical in nature. The
main barriers include:








Limited knowledge/awareness about EE&EC techniques/technologies in industries and the
lifecycle economic benefits there of. Producers remain extremely sensitive to the relatively high
first cost to be paid for energy efficient equipment’s.
Lack/limited access to information on EE&EC techniques/technologies. Lack of information on
sectoral energy benchmarks.
Industries are unwilling to incur what are perceived as “high cost-high risk” transactions barriers
involved in implementing EE&EC projects.
Industries generally focus on investments on production-related improvements and not
productivity.
Lack of financiers ready to finance EE&EC industrial processes.
Limited/not stringent regulations on energy efficiency standards and implementation.
Few/limited EE&EC technology demonstration project or program implemented by industries /or
Govt.
Weak local energy support services. Lack of trained industry and financial sector personnel on
energy management.
14. These barriers all lead up to the core problem in the promotion and implementation of EE&EC
measures in industries which is the inefficient and wasteful use of energy in industrial facilities. This
core problem leads to the problem of high energy consumption and demand, and increased GHG
emissions from, Malaysian industries (ZOPP-Log Frame).
15. A project that addresses the removal of the barriers to EE&EC specifically in the industrial sector
will improve the competitiveness of the locally manufactured products. At the same time, it will
contribute to the reduction of GHG emissions.
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Need for Assistance
16. Concerns about the present economic conditions in the country have spurred many industrial
establishments to seriously consider cutting down on operating cost. Energy is one of the targeted
areas. Most of these establishments are also concerned about the forthcoming AFTA (2002-2003), and
are now gearing up for improving competitiveness by employing new technologies that will not only
improve quality but also energy use efficiency. In the short term, the present anxiety regarding the
economy is considered by most industries as a motivation for them to become more efficient to sustain
and/or improve their cash flows.
17. In view of the above and with the prospects of increased energy demand and consumption in the
industry sector, the idea of removing the barriers to EE&EC implementation in industries has recently
been accepted as a practical course of action for the country to undertake in order to attain its energy
and environmental objectives. It also is one of the strategies identified by the UNFCCC to stabilize
atmospheric GHG concentrations at levels that would prevent dangerous anthropogenic interference
with global climate. The country is committed to identifying and implementing ways to achieve this
objective.
18. Although the GoM has already initiated the creation of an Energy Efficiency Group (as an interim
body prior to the establishment of the NEC), its catalytic role in promoting EE&EC is viewed as
insufficient to remove the major barriers to EE&EC. Adequate support is needed to train and assist
industrial plant managers to prepare EE&EC projects and, when necessary, to secure the external
private sector financing needed to implement such projects. Technical assistance to backstop the group
will be needed to enhance the planned activities of the group that are in line with removing barriers to
wide spread adoption of EE measures.
19. Demonstration projects are necessary and are among proven measures to exhibit designs,
undertake feasibility, engineering, installation, operation, performance evaluation and ultimately
publicise the benefits of EE&EC technologies in industrial facilities. The project activities, besides
addressing most of these initiatives, identify an incentive scheme to attract procedures to undertake
such activities. In the absence of the project, the potentials for energy savings and consequently the
reduction in energy use-related GHG emissions will not be fully realised. Through time, inaction on the
part of GoM to implement the alternative options will result in a greater entrenchment of these barriers
or fortification.
RATIONALE AND PROJECT OBJECTIVES
20. The objective and desired outcomes of the proposed project are based on the results of the log
frame (ZOPP) analysis of the identified barriers to EE&EC. Based on this analysis, the goal of the
proposed project is to identify and remove the barriers that ensure the attainment of sustainable levels
of industrial energy demand and use, and resulting reduction of GHG emissions. This goal is a desired
outcome from the immediate effect of the core problem identified in the problem tree analysis which is
the inefficient and wasteful use of energy in industrial facilities. From the results of the objectives tree
analysis the core objective in the Malaysian industrial sector energy scene is the rational use of energy
and improved energy efficiency in industries. The achievement of such an objective is the main goal of
the project.
21. In order to achieve the goal of the project, several specific objectives of the project were identified.
These are: (1) To assist the industrial sector in adopting and investing in well-proven EE&C
technologies and practices; (2) To help industries realize the technical, financial, productivity, and
environmental benefits of investing in EE&EC; (3) To address information, technical, financial and
8
institutional barriers in adopting viable EE&C practices in industries; (4) To develop technical and
institutional capacity to assist industries in formulating and implementing EE&EC technology projects;
and (5) To encourage and catalyze the development of ESCOs for implementation of energy projects by
industries.
22. Based on the analysis of the “means and ends” relationships of the desirable outcomes of the
identified barriers to EE&EC implementations, the following are the expected results of the project:
a.
b.
c.
d.
e.
f.
g.
h.
i.
Information on EE&C technologies are documented, have easy access, and are disseminated.
Regular campaign programs on the rational use of energy are provided to industries by the
government /other autonomous bodies. Sectoral energy benchmarks are set and published.
Industries become interested in investing in the implementation of EC&EE projects and practices
that are economically and financially viable.
Industry personnel are adequately trained on energy management.
Financial incentives to industries to conserve energy are provided.
Financiers provide financing for EE&EC projects to interested industries.
Energy efficient equipment becomes affordable to industries.
Stringent regulations on energy efficiency are enforced by the government.
Local energy support services are promoted, strengthened and utilized.
Significant EE&EC technology demonstration programs are implemented by the
government/Institutes in collaboration with the private sector and financial institutions.
23. The present and proposed activities of the GoM’s Energy Efficiency Group are regarded as baseline
activities. GEF interventions plus the baseline activities, represent the alternative options to achieve the
desired outcomes in the EE&EC barrier removal program. The description of the business-as-usual
activities (baseline options) and the alternative options (with GEF interventions) are presented in
Attachment 1. The domestic and global benefits of the business-as-usual and alternative options are also
described.
24. The alternative options in attachment 1 make up the components of the proposed IEEIP. The IEEIP
will demonstrate how energy users in the industry sector can benefit from the implementation of
EE&EC technologies, and consequently catalyze the wider adoption of EE&EC not only in the country,
but possibly in the other ASEAN states where Malaysian financial and industrial interests are
increasing.
25. The IEEIP’s global environmental objective is to mitigate GHG emissions from the industrial sector
of Malaysia. The sector is rapidly growing and in a “business as usual scenario” is expected to produce
GHG emissions three times higher than its 1990 level. The proposed project would help catalyze the
implementation of EE&EC that could directly and indirectly help reduce GHG emissions from the
sector by 10% or equivalent 39 million tons of carbon by the year 2004.
26. The IEEIP’s activities concerning the improvement of energy efficiency in the Malaysian industrial
sector would definitely be in line with other measures/programs undertaken by the GoM in the pursuit
of national energy objectives. Such a project will be influenced by the objectives of these measures that
have been undertaken by the government.
a.
Deregulation of the power generation sector and encouragement of competition with the
privatization of the electric utilities.
b. National Energy Efficiency Program (1991) - This includes energy conservation awareness
programs, energy audits in buildings as well as studies on fiscal incentives, transfer of technology,
legislation. etc..
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c.
d.
e.
Requirement of Environmental Impact Assessment Study for all new energy projects.
Issuance of the Electricity Supply Act 1919 (Electricity Regulations 1994)
Factories and Machinery Act 1957 (Factory and Machinery Regulation 1970)
27. The project can build on the significant volume of existing studies that have been undertaken in
identifying EE&EC opportunities in Malaysian industries. Specifically, the proposed project can utilize
the Asian Development Bank technical assistance study (ADB/TA No. 1574-MAL) “A Report on Energy
Efficiency in Malaysian Industries - Economic Analysis and Recommendations for an Institutional
Framework” and the detailed multi-volume “Study on Energy Policy Analysis and Planning to the Year
2020” prepared for the Economic Planning Unit (EPU) by Ademe and BCEOM. There are also other
documents produced from other previous and ongoing energy studies carried out by foreign
institutions (e.g., JETRO, JICA, DANCED) in cooperation with local government and private
organizations (e.g., SIRIM, FRIM, MITI) that can be utilized in defining the relevant components of an
EE&EC barrier removal project.
PROJECT ACTIVITIES/COMPONENTS AND EXPECTED RESULTS
28. The IEEIP is specifically designed to address the barriers in EE&EC implementations in the
Malaysian industrial sector. To achieve this objective, the project is organized into eight (8) components.
The project components are designed to draw and build on the existing capacity already available in
Malaysia in a number of government and private sector institutions. Each component is briefly
described below.
29. The expected results of each components are also described below. The objectively verifiable
indicators, means of verification of indicators and critical assumptions for the results are described in
detail in the project planning matrix, Attachment 2.
Component No. 1: Energy-Use Benchmarking Programme
30. Based on energy monitoring and requesting activities to be undertaken as baseline initiative by the
EEG, this component addresses the barrier concerning the lack of “benchmark” information regarding
the energy performance in the various processes of the industrial sub-sector of the country.
31. Benchmarks are usually used for industrial processes. They establish energy consumption
“norms” for various industry subsectors for major industrial processes (e.g. wet, semidry, dry);
operations (e.g. grinding, evaporation, crystallisation); and for energy system (e.g. refrigeration or
steaming). These programmes will involve the setting of sectoral energy benchmarks that can be used
by industries and by industry groups as guides in their EE&C efforts.
32. In addition to establishing benchmarks, the programme will include an activity for disseminating
the evaluation results (e.g., benchmarks) and other relevant information that can assist industries in
their EE&C activities. The information can be provided to industries through the publication of monthly
bulletins or through the information dissemination activities of the NEC, MITI and the industry
associations. Since energy-use monitoring and reporting will be a continuous baseline activity, there
will be enough data to update “benchmarks” regularly.
Component No. 2: Energy Audit Program
33. This project component addresses the barrier concerning the lack of awareness/knowledge about,
and poor attitude towards, energy efficiency. It also addresses the lack of trained local energy audit
professionals. The energy audit program will supplement the proposed energy monitoring and
10
reporting system by evaluating the factors responsible for the current levels of energy performances of
specific industrial establishments and of specific sub-sector.
34. The program will involve the setting up of sectoral energy audit teams. The program will only set
up audit teams in pre-selected industry sub-sectors undertaken on the basis of comparative sectoral
energy performance, which include the cement, ceramic, food, glass, iron/steel, pulp/paper, rubber and
wood sub-sectors. In cooperation with the various industry associations, the Energy Efficiency Group of
the MOETP will train a cadre of technical people to become energy auditors in each industry sub-sector.
The trainees will be drawn from the companies that make up the sub-sector. They will be trained in all
aspects of energy management and energy auditing (fundamentals, techniques, engineering evaluations
and calculations, use of audit instruments, etc.). With the guidance of the EEG and technical assistance
from the IEEIP, the sectoral audit teams will conduct energy audits in a selected number of
establishments within their sub-sectors. They will carry out all aspects of the audit, from the selection of
the establishments to be audited, to the presentation of audit findings, evaluations and
recommendations, up to the preparation of energy audit reports. The audit teams will also be expected
to train other potential energy auditors from their sub-sector and in the future, also in other industry
sub-sectors.
35. Energy audits will be carried out in the other industry sub-sectors by the EEG with the technical
assistance from the IEEIP. The selection of establishments from these sub-sectors will be based on the
information that will be derived from the baseline energy monitoring and reporting program activities.
36. Besides instituting an energy auditing programme for existing facilities, a subprogramme under this
component will involve instituting “ auditing” of proposed new facilities. It will set up within the GOM
a mechanism that involves analysis and advice concerning new industrial facilities to be constructed in
Malaysia. Under this component the project would hire experts to review plans for new manufacturing
plants and provide advice to encourage construction of state of the art facilities. Given the long lifetime
of some manufacturing facilities and the fact that it is always more cost effective to make plants more
energy efficient to start with, rather than retrofitting them once built, the mechanism will encourage
adoption of EE measures. The process will require industries to comply on a voluntary basis (to begin
with), to be followed as a mandatory requirement by the time the project reaches its conclusion.
Component No. 3: Energy Rating Program
37. For the industry subsectors selected for the project, this program will address the barrier concerning
the lack of information on the energy use performance or equipment and machineries used, the absence
of energy ratings for industrial equipment sold and used in the country. The program will involve the
setting up of an industrial equipment testing facility and establish comparative ratings, name plate
characteristics, as well as the assembling, organization and dissemination of such information to
increase awareness and encourage the use of energy efficient equipments in industries.
38. The overriding principle here is that a consumer who is adequately educated about energy
consumption is a better consumer. If the aim is to promote EE&EC in industries, one of the most
effective strategies is to educate the energy users in industry and make available energy ratings for
industrial equipments.
39. Hence, this program will involve activities that will inform industries about energy efficient
equipment/machineries particularly their availability, cost, technical specifications, economics, and
energy performance. Available information on applicable energy rating programs and case studies of
energy rating will also be provided to industries. An example of energy ratings for industrial
equipment is one that is available for electric motors under EPACT (1992), USA. Similar codes are
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suggested by NEMA and EASA (Electrical Apparatus Services Association), but have not been laid out
in any of the ASEAN countries (expect Philippines).
40. With the technical assistance provided to the IEEIP, policy support studies, definition of
institutional arrangements and the development of a marketing plan for promoting the comparative
energy rating program will be carried out under the program. Furthermore, the program will identify
the infrastructure requirements for energy rating such as the laboratory facilities and testing equipment
that need to be used.
Component No. 4: Energy Efficiency Promotion Program
41. This program will address the information barriers that hinder the implementation of EE&EC
efforts in industries. It will address the concerns regarding the limited forum for local exchange of
information and technical assistance on EE&EC techniques and technology applications, as well as the
weak local energy support services in the country. The program will build on the regular information
dissemination activities of the MOETP and those proposed for the Energy Efficiency Group. These
activities include the coordination, monitoring and review of the activities of the energy research
institutions in the country, consolidation/review of available information on EE&EC technology
applications, and the provision of extension work for industry regarding energy conserving practices
and techniques.
42. Further, the proposed program will involve the documentation of relevant energy project profiles
and case studies on EE&EC technology applications in developed and developing countries, and in
ASEAN. A compendium of EE&EC techniques and technology applications will also be prepared. More
importantly, a computerized database of EE&EC technology application projects implemented in
Malaysia, ASEAN and in the developed countries will also be prepared.
43. The program will establish a local professional organization of energy specialists, consultants and
technology developers and providers, similar to the MOETP’s plan to support local energy specialists
and energy service companies (ESCOs), coordinate government-led energy efficiency promotion
activities with private sector groups.
44. Another major activity in this project component is the creation of an accreditation program for local
ESCOs and energy specialists. In coordination with relevant government institutions, an appropriate
accreditation scheme will be developed including testing programs and the definition of the
institutional mechanisms for the accreditation program. Moreover, a scheme will be developed to
integrate the energy specialist accreditation program to existing related accreditation schemes in the
country, in other ASEAN countries and in the developed countries.
Component No. 5: Energy Service Companies (ESCOs) Support Program
45. The rapid growth of the industrial sector is straining the capacity of the sector to focus on multiple
objectives. As a result, the opportunity exists for ESCOs to assist the industrial sector in achieving
energy efficiency objectives without compromising on industrial productivity and growth. However, to
date the model of industrial ESCOs has not been widely practiced in Malaysia. Presently, local energy
support services in the country are weak, with few local full time professional energy auditors.
46. This component is targeted at stimulating the establishment of credible and proactive ESCOs in the
country. Among the activities that will be carried out under this program are: (a) survey and evaluation
of the capacity of known, existing ESCOs in Malaysia with a specific emphasis on their capability to
assist industries; (b) national workshop to promote the concept and benefits of ESCOs for potential
12
recipients and providers of this service; (c) a cooperative workshop to develop the institutional and
legal framework for the delivery and cost recovery of ESCO services; (d) monitoring and evaluation of
any existing or resulting ESCO service programs with Malaysian industry; (e) provision of training to
local engineering firms and consultants in integrating energy efficiency in their designs; (f) development
of energy engineering design tools for ESCOs; and, (g) development of a marketing strategy for ESCOs,
in coordination with industry groups and the GoM.
13
Component No. 6: Demonstration Program
47. This project component will address the barrier concerning the lack of knowledge on EE&EC
techniques and technologies, and the limited energy demonstration programs of the government.
Demonstration projects will be undertaken on a 50% cost-sharing basis between the private sector and
the project resources. The project will provide resources to demo projects on a zero interest loan basis
to be repaid by the recipients at the end of the payback period. The paid back resources will be
channeled once again through the same process to additional demo plants.
48. The major activities however will be similar to full project implementations, starting from the
conceptual design, to feasibility study, engineering design, installation, operation, monitoring and
evaluation. Appropriate EE&EC technologies will be selected for the sectors that will be considered in
the program. The sectors will be identical to those considered in Component No. 2, namely: cement,
ceramics, food, glass, iron/steel, pulp/paper, rubber, and wood. These sectors were chosen using a
selection process based on information derived from the ADB Project Report of 1994 (See Table 2) and a
questionnaire prepared and circulated by the IEEIP project proponents to energy intensive industries.
Based on the ADB report, interviews and survey information obtained from various industry
representatives regarding energy technology applications in the sectors, the following projects are
suggested for the energy demonstration program:
Cement Sector:
Ceramic Sector:
Food Sector:
Glass Sector:
Iron & Steel Sector:
Pulp & Paper Sector:
Rubber Sector:
Wood Sector:
High Insulating Bricks in Rotary Kiln Burning Zone; and/or
Ceramic Recuperator in Sanitary Ware Muffle Kiln;
Automatic Temperature Control of Tunn; Ceramic Recuperator
in Muffle Kiln Extra.
Compact Immersion Tube Juice Pasteurization; and/or
Mechanical Vapor Recompression Evaporator; and/or
Energy Efficient Food Blanching through Steam Recirculation;
Air Precooling in Air Compressors.
External Sprayed-applied Insulating Fibers for Furnace Regenerator
Use of Low Excess Air Recuperative Burners; and/or
Improved Ladle Drying and Preheating in Small Foundries;
EAF Optimization.
Radio Frequency Drying; Improved Paper Drying System (Optional)
Insulation of Pre-dryer end caps.
Drying Air Recirculation; and/or
Insulation Jackets for Rubber Injection Press Mold
Flash Steam and Condensate Recovery; and/or
Automatic Solid Fuel Feeding and Combustion System
Wood Dust Burning System (Optional)
14
49. The size of the ultimate market and the “win-win” nature of the initiatives through the
demonstration projects is summarised in Table 1 below:
Table 1: Comparative Industry Sector Energy Performance Data
Industry
Sub-Sector
Number of
Sites
Food
Iron & Steel
Rubber
Cement
Ceramic
Glass
Paper
Wood
208
95
145
5
23
14
48
203
Industry
Sub-Sector
Food
Iron & Steel
Rubber
Cement
Ceramic
Glass
Paper
Wood
Typical Savings
Per Demonstration
Site
toe/yr.
226.35
456.90
181.70
1411.40
483.30
428.60
502.35
2387.07
Typical Baseline
Energy Consumption
Per Site
toe/yr.
519.98
4002.37
1691.15
12807.00
1112.20
5709.00
2447.40
19078.43
Total Potential
Energy Savings
Per Subsector
toe/yr.
47080.80
43405.50
26346.50
7057.00
11115.90
6000.40
24112.80
484575.21
Total Baseline
Energy Consumption
Per Sub-Sector
toe/yr.
108155.84
380225.15
245216.75
64035.00
25580.60
79926.00
117475.20
3872921.29
Percent Energy
Savings Due to
Technology
Replication
43.53%
11.42%
10.74%
11.02%
43.45%
7.51%
20.53%
12.51%
Total Potential
CO2 Savings
tons/yr.
156941.20
130751.67
76784.75
27061.00
34328.27
17371.20
75040.80
1917903.40
50. The major activities that will be carried out in this program include: a) development of criteria for
the selection of qualified hosts for the demonstration schemes; b) identification and selection of suitable
demonstration sites; and c) implementation of the EE&C projects. The last activity will include the
review of the proposed project design, implementation and operation; monitoring of energy projects;
and, the evaluation of savings realized.
51. The results of the energy demonstration schemes will be documented and disseminated.
Component No.7: Local Energy Efficient Equipment Manufacturing Support Program
52. This program will address the barriers concerning expensive energy efficient equipment and the lack
of locally available and manufactured energy efficient equipment sold to, and used in, Malaysian
industries.
53. The program will focus on local manufacturers and will be implemented in conjunction with the
technical assistance provided under the energy rating program (Component No. 3). It is designed to
offer incentives to local selected industrial equipment manufacturers. Local manufacturing capabilities
in the production of industrial equipment in Malaysia are currently not attracted to produce EE plants
15
and equipment .This component will attract manufacturers to generic EE equipments, that cut across
most of the industrial sectors under study. Based on the opinions/suggestions of industry
representatives collected during the industry survey the following locally manufactured industrial
equipment can be considered for the program: (1) boilers; (2) electric motors and transformers; (3) heat
exchangers; (4) pumps; (5) fans and blowers; assistance that will be provided by the program will offset
the expected incremental costs that will be incurred by local manufacturers in developing and
introducing new energy efficient products.
54. The major activities involved in this program include: (a) conduct of a market survey to determine
current local equipment manufacturing capabilities; (b) selection of industrial equipment that will be
covered under the program; (c) evaluation of the typical energy performance of the selected locally
produced industrial equipment; (d) identification and assessment of potential improvements and also
new designs that can be implemented by local equipment manufacturers; and (e) selection of
manufacturers (through competitive bidding) that will be granted zero interest funding for their
projected incremental costs to develop, produce and market energy efficient products.
Component No. 8: Financial Institutional Participation Program.
55. This project component is basically intended for setting up the financing arrangements for the
provision of loans to be eligible companies/equipment manufacturers who can:
a.
b.
Host energy efficient technology demonstration projects and design applications
Produce EE equipments amongst local markets for the technology demonstration activity.
56. The financiers will be trained to assess techno-economic viability of demonstration techniques and
choose among alternate host candidates. This will include activities such as:
a. development of company selection criteria;
b. conduct of background information;
c. review of financial and economic feasibility of proposed projects;
d. review of proposed budgets and determination of applicable loan amount and payback period;
e. monitoring and finance auditing of implemented Energy Efficient technology demonstrations; and
f. recovering the zero interest loans at the end of the payback period.
57. For the selection of energy efficient equipment manufacturers and setting up the mechanism for
servicing zero interest loan, financial sector participation and involvement will be introduced through:
a. Financial assessment of Improved Energy Efficient Equipment manufacturing design,
implementation, and operations strategy;
b. assessment of financial/economic viability of proponent companies;
c. monitoring of energy performance indicators of the new equipment;
d. evaluation of savings realised;
e. evaluation of project economies and determination of loans repayment period; and
f. establishment of loan repayment mechanism.
58. This programme will deal with the liaising with Industrial Development Bank/ other financial
institutions in Malaysia for analysing & designing proforma and disseminate it among manufacturers
that will help make choices for energy efficiency loans.
59. A bidding procedure among the manufacturers to access the no interest loan will be set up. It
will be structured in such a way to maximize the efficiency gains and the resulting GHG emissions
reductions that are attributable to improvements implemented and market penetration of the resultant
energy efficient equipment.
60. The results of the program will be documented and disseminated.
16
RISKS AND SUSTAINABILITY
61. Risks: An evaluation of the relevant issues that may impact the promotion of EE&EC in the
industrial sector of Malaysia should be done in the IEEIP implementation, as part of risk analysis.
Presently, the primary issue is the present national energy pricing policy which is not sensitive to
energy conservation needs of the economy. However, the Malaysian Ministry of Energy’s Directorate
General for Electricity and Natural Gas has indicated that this policy is under review especially as it
relates to inhibiting energy efficiency in the industrial sector. Another issue is the issuance of
regulations that are necessary to sustain the efforts that will be initiated and implemented by the IEEIP.
Specifically, this refers to regulations that will require industrial establishments to carry out mandatory
energy audits and regularly submit to the MOETP periodic energy consumption reports. There is also
the need for government to enforce energy labels in the near future and for the industrial equipment
manufacturers and distributors to cooperate in complying with such labels.
62. The GoM has just recently postponed the establishment of a planned independent center called the
National Energy Centre (NEC). Although this action can be viewed as a departure from the
achievement of the GoM’s declared commitments for energy efficiency, it is expected to be a temporary
phase. The recently formed Energy Efficiency Group within the MOETP will serve as an interim NEC.
Nevertheless, the present Energy Efficiency Group (i.e. the future NEC) alone will be insufficient to
meet the major challenges for implementing effective energy efficiency in the Malaysian industrial
sector.
63. The primary risks associated with the IEEIP include: (a) a possible downturn in Malaysia’s
industrial growth and income due to the present economic conditions which would inhibit investments
for improving industrial capacity; (b) increase in interest rates that would also inhibit new
investments;(c) inability to encourage the other stakeholders to support the project; (d) inability to
establish the capacity of ESCOs and other services; and (e) adverse changes in national energy policy,
prices and capital market conditions in Malaysia.
64. Sustainability: The activities in each project component have long-ranging implications in creating a
sustainable financing network for implementation of EE&EC options beyond the life of the project. For
example, the energy audit program (with the enforcement of planned mandatory energy audits) will
provide opportunity for MOETP and the future NEC ( of which the EEG is an interim body) and other
accredited ESCOs and sectoral energy audit teams to get paid for energy audit services rendered to
industries, and the fees collected can be used to fund other activities like the energy monitoring and
reporting program.
65. Another example is the information dissemination activity of the proposed Malaysian Energy
Engineers Society whereby it can publish technical journals which can be sold to industries. It can also
be sustained through annual membership fees. The IEEIP, by stimulating opportunities for EE&C will
also help develop the basis for local industrial equipment manufacturers and energy service providers.
Malaysia has a demonstrated capability to undertake technology transfer and adaptation for domestic
needs.
66. Further, the demonstration programme supported through the IEEIP will help build confidence
among plant owners and managers to join the initiative. The no-interest loan will address the barrier of
putting up the first cost to producers found ready to undertake production of EE equipments. The
recovery of the loan from the first set of recipients by the end of four years will allow the NEC to
re-engage in the competitive process of selecting the winning manufacturers again for the next round
of production of EE plants and equipments.
67. Finally, the IEEIP, through its limitation of core staff, is designed to access and utilize existing
expertise in government, academic institutions, private sector firms, regional and/international
17
industrial associations and NGOs. As a result, the IEEIP will help strengthen the domestic capacity to
support future EE&C activities in Malaysia.
STAKEHOLDER PARTICIPATION AND IMPLEMENTATION ARRANGEMENTS
68. The IEEIP will involve the participation of the key players in the promotion of EE&EC in the
Malaysian industrial sector. These include the GoM (MOETP, MOEST, EPU, MITI,TNB), national
Industrial research institutions ( SIRIM , FRIM , PORIM) industrial sector managers, local industrial
equipment manufacturers, domestic financial institutions, energy service providers, engineering firms,
NGOs and others. During the project development phase the stake holders have been extensively
involved through continuous consultative process
over several months, in the design and
formulation of the proposed project activities. Attachment 2&2A are indicative of the extent of
consultation and stake holder participation that led to the final project design and cost sharing of
baseline and incremental activities.
69. The IEEIP is intended to be executed by the Department of Energy within the Ministry of Energy,
Telecommunications and Posts (MOETP). GEF oversight will be undertaken by the UNDP Resident
Mission in Kuala Lumpur. The day-to-day operational management of the IEEIP will be the
responsibility of the Energy Efficiency Group ( an interim body till NEC is formally set up)within the
MOETP. A Local Project Appraisal Committee (LPAC) is established to provide overall guidance and
approval of key IEEIP program activities including fund commitments and co-financing arrangements.
The LPAC will consists of the head of the Energy Efficiency Group, senior representatives from the
MOETP, MOSTE, EPU and from national industrial associations. An IEEIP Project Manager will be
appointed along with three core senior technical staff. This core group will be supplemented with
national and international experts as and when needed to undertake project activities. Support staff,
services and facilities will be provided by the MOETP
70. Considering the typical gestation period for obtaining GEF funding commitment, actual project
development, evaluation and approval, it is anticipated that project will kick-off by January 1999. It will
operate for a period of four years concluding on 31 December 2002. The project implementation will be
structured to initially establish the IEEIP technical and institutional capacity and to subsequently target
specific industrial sub-sectors for adopting investments in EE&EC. A detailed project implementation
plan will be formulated at project document formulation phase.
INCREMENTAL COSTS AND PROJECT FINANCING
71. The total estimated project cost is US$ 19,928,110. The total cost associated with the implementation
of baseline activities added over the 8 project components is US$ 12,627,510 (which is 63.4% of the total
project cost). Out of this total amount of co-financing, 67.6% will be provided in cash by GoM and 17%
by the Malaysian private sector . The rest are in the form of in-kind contributions 11.7% and 1.2%,
respectively from various government agencies such as the DES, TNB, SIRIM, PORIM, FRIM, UTM,
MOETP, EPU, MITI and MIDA.
72. About US$ 2,822,000 of the GoM contribution will come from the amount earmarked by the GoM
for the activities of the energy efficiency group within the MOETP for the group’s first 4 years of
operation. The DES contributes a total of US$ 1,064,000 (@ US$ 266,000 per year). The other funds for the
baseline activities will come from the UNDP (US$ 300,000) and the Electricity Supply Industry Trust
Fund, ESITF (US$ 4,256,000), which represents the private sector contribution. The ESITF will provide
US$ 1,064,00 per year, and can be tapped further after the project.
73. The incremental costs to be funded by GEF for the incremental activities in each of the project
components amounts to US$ 7,300,600. Details of the indicative project costs are in table 2.
18
MONITORING, EVALUATION AND DISSEMINATION
74. In order to keep track of the progress of the project and assess the likelihood of success or failure of
each project component, a systematic means of monitoring, evaluation and dissemination has to be put
in place. The project’s M&E plan calls for the active role of the MOETP, being the main executing
agency of the project, as to the administrative, technical and financial aspects of the project
implementation and management. The MOETP shall designate as coordinators of each project
component. The coordinators will report to the IEEIP manager who will be responsible for overall
day-to-day operational management. The project manager is also the head of the energy efficiency
group within the MOETP.
75. The project will be subject to tripartite review (joint review by representatives of the Government,
executing agency and UNDP) at least once every 12 months. The first such meeting will be held within
12 months of the start of full implementation. The executing agency will prepare and submit to each
tripartite review meeting a Project Performance Evaluation Report (PPER). Additional PPERs may be
requested, if necessary, during the project.
76. In addition to normal UNDP project monitoring and evaluation activities, long-term impact
assessment will be initiated during the course of the project and provisions will be made to continue
this assessment activity after the project is completed. Indicators will be developed, a baseline will be
established for the indicators, and the indicators will be tracked over time relative to the baseline.
Examples of “the market response” indicators include market share by class of energy-efficient
equipments, the number of producers or distributors who are stocking and selling energy efficient
models and industrial use rates directly. The project will attempt to monitor reductions in marker
barriers, such as: a) availability of energy-efficient generic equipment produced domestically, b)
understanding of plant managers of the benefits of high efficiency equipment; c) anticipation by
manufacturers that markets for high energy efficient equipment will expand in the future; d) plans by
manufactures to produce high-efficiency models; e) energy efficient equipment sold carrying nationally
certified and easy-to-understand labels as to annual operating costs; and f) dealer incentives to stock
and sell energy-efficient models.
19
Table 2: Indicative GEF Budget for Major Program Components
COMPONENT
Staff
Costs
Training
Costs
Equipment
Costs
Travel
Costs
TOTAL
Cost
1. ENERGY MONITORING
&
REPORTING PROGRAM
Total Baseline Funds
Funds Requested from GEF
Total Funds Required
Transaction Barrier
to Implementation
Lack of systemic interest and
$808,343
$51,765
$197,222
$60,710
$1,118,040 incentive to participate in pr
$239,313
$42,227
$35,122
$87,038
$403,700
No government directives t
$1,047,656
$93,992
$232,344
$147,747
$1,521,740
obligate companies to repor
their energy consumption.
Estimated Funds Required
2. ENERGY AUDIT
PROGRAM
Total Baseline Funds
Funds Requested from GEF
$1,047,700
$94,000
$232,300
$147,700
$1,521,700
Lack of trained local person
$1,206,576
$372,938
$435,024
$90,078
$2,104,616
to carry out the audits. Com
$377,322
$171,693
$1,287,594
$171,492
$2,008,100
nies are reluctant to carry o
Total Funds Required
$1,583,898
$544,631
$1,722,618
$261,569
$4,112,716
and pay for energy audits. L
Estimated Funds Required
$1,583,900
$544,600
$1,722,600
$261,600
$4,112,700
of awareness/knowledge of
and poor attitude towards,
energy efficiency.
3. ENERGY RATING
Lack of information on ene
PROGRAM
Total Baseline Funds
$248,558
$46,783
$3,232,329
$43,569
Funds Requested from GEF
$268,609
Total Funds Required
$517,168
Estimated Funds Required
$517,200
$3,571,240
$47,404
$24,990
$110,896
$94,188
$3,257,319
$154,465
$4,023,140 Lack of energy ratings for eq
$94,200
$3,257,300
$154,500
$4,023,100 country. Lack of informatio
$451,900
performance of equipment a
machineries used in industr
ments sold and used in the
sectoral energy use benchma
4. ENERGY EFFICIENCY
Limited knowledge about, a
PROMOTION
PROGRAM
Total Baseline Funds
$201,237
$233,938
$169,794
$23,897
$628,865
availability of, information
Funds Requested from GEF
$132,712
$132,712
$177,784
$57,592
$500,800
EE&EC techniques/technol
Total Funds Required
$333,949
$366,650
$347,578
$81,489
$1,129,665
Estimated Funds Required
$333,900
$366,600
$347,600
$81,500
$1,129,700
Lack of information about E
EC developers, suppliers, e
as well as costs of EE&EC
technologies.
5. ESCO SUPPORT
PROGRAM
Weak local energy support
20
Total Baseline Funds
Funds Requested from GEF
Total Funds Required
$133,044
$239,984
$51,992
$3,600
$428,620
services. No/Few energy
$96,899
$17,102
$15,996
$37,503
$167,500
service companies. No loca
$229,942
$257,086
$67,988
$41,104
$596,120
full time professional energ
auditors.
Estimated Funds Required
$229,900
$257,100
$68,000
$41,100
$596,100
6. ENERGY TECHNOLOGY
DEMONSTRATION
PROGRAM
Total Baseline Funds
Funds Requested from GEF
Lack of knowledge and conf
$1,284,276
$520,538
$1,643,268
$71,446
$3,519,529 on EE&EC techniques. Ab
$200,051
$219,884
$2,000,016
$28,649
$2,448,600 of significant demonstration
Total Funds Required
$1,484,327
$740,423
$3,643,285
$100,095
$5,968,129 to combat perceived notion o
Estimated Funds Required
$1,484,300
$740,400
$3,643,300
$100,100
$5,968,100
implementation risk.
7. LOCAL ENERGY EFF.
EQPT
MANUF. SUPPORT
PROGRAM
Total Baseline Funds
Energy efficient equipment
not locally available, are im
$159,124
$113,660
$56,830
$806,986
$1,136,600
Funds Requested from GEF
$132,000
$24,000
$36,000
$408,000
$600,000
ted and usually expensive.
Local manufacturers have n
Total Funds Required
$291,124
$137,660
$92,830
$1,214,986
$1,736,600
incentive to produce energy
efficient equipment. Industr
Estimated Funds Required
$291,100
$137,700
$92,800
$1,215,000
$2,136,000
use whatever is available in
local market (usually not en
efficient)
8. Financial Institutional
Participation
Total Baseline Funds
$36,000
$66,000
$6,000
$12,000
$120,000 Limited skills amongst the
Funds Requested from GEF
$216,000
$396,000
$36,000
$72,000
$720,000 financiers to assess and
Total Funds Required
$252,000
$462,000
$42,000
$84,000
$840,000 formulate loan packages for
Estimated Funds Required
$252,000
$462,000
$42,000
$84,000
$840,000
Total Baseline Funds
$4,077,158
$1,645,607
$5,792,459
$1,112,286
$12,627,510
Funds Requested from GEF*
$1,662,906
$1,051,022
$3,613,502
$973,170
$7,300,600
Total Funds Required
$5,740,064
$2,696,629
$9,405,961
$2,085,456
$19,928,110
EE technologies and equipm
SUMMARY
Total Baseline Funds (63.4%)
Total GEF Funds (36.6%)
Total Project Cost
$12,627,510
$ 7,300,600
$19,928,110
21
Table 3: Cost Categories (in U
Activities
Source
In-Kind
Source
Baseline
1. Energy Benchmarking
Program
Cost Local:
$958,640
EEG/MOETP and DES
Contributions
$159,400
DES, UTM, MOETP, MITI,
MIDA
2. Energy Auditing Program
a) (Existing Industries)
Cost Local:
$1,370,016
EEG/MOETP and DES
Contributions
$309,600
DES, SIRIM, PORIM,
FRIM, MOETP, MITI,
MIDA
Int'l Agency:
$225,000
UNDP
$200,000
MOETP, SIRIM
b) (New Industrial Plants)
3. Energy Ratings Program
Cost Local:
$3,424,240
EEG/MOETP, DES and
ESITF Contributions
$147,000
TNB, SIRIM, UTM,
MOETP, MITI, MIDA
4. Energy Efficiency
Promotion Program
Cost Local:
$389,365
EEG/MOETP Contributions
$164,500
DES, TNB, SIRIM, UTM,
MOETP, EPU, MITI, MIDA
Int'l Agency:
$75,000
UNDP
5. ESCO Support Program
Cost Local:
$351,620
EEG/MOETP Contributions
$77,000
DES, SIRIM, UTM, MOETP
6. Energy Technology
Demonstration Program
Cost Local:
$3,184,029
EEG/MOETP, DES and
ESITF Contributions
$335,500
DES, TNB, SIRIM, UTM,
MOETP, EPU, MITI, MIDA
7. Local Energy Efficient
Equipment Manufacturing
Support Program
Cost Local:
$1,022,000
DES and ESITF Contributions $114,600
DES, TNB, SIRIM, UTM,
MOETP, EPU, MITI, MIDA
22
8. Financial Institutional
Participation
a) Pertaining to
Demonstration Plants
Cost Local:
$0
N/A
$60,000
MOETP
b) Pertaining to
Manufacturers
Cost Local:
$0
N/A
$60,000
MOETP
SUB-TOTAL
$10,999,910
$1,627,600
* The financial contribution in Malaysian Ringit have been converted to US dollars at the latest currency exchange rate of 4.6 Ringit to 1 U
However, this is considered to be the all time record low. At the time of initial project formulation, the exchange rate was 3.3 Ringit to
It is expected that the long term exchange rates will stabilise in the range of 3.3 and 4 Ringit to 1 US Dollar resulting in a considerable i
Government of Malaysia and Malaysian private sector contribution to this project.
23
LIST OF ATTACHMENTS
1)
2)
3)
4)
PROJECT INCREMENTAL COSTS
PROJECT PLANNING MATRIX
TIMELINE
INDUSTRIAL ENERGY USE, CO2 EMISSIONS AND SAVINGS POTENTIAL (BASELINE & ALTERNATIVE)
TOTAL AS PER SUBSECTOR
5) STAP REVIEW AND RESPONSE
24
ATTACHMENT I
INCREMENTAL COSTS
1. Broad Development Goals
In line with the objectives of the National Economic Program, the National Development Policy
emphasized on the overriding goal of rapid industrialization in 1991, with the goal of becoming a highly
developed nation by the year 2020. This goal is embodied in the concept "Vision 2020." In view of such
goal, Malaysia focused its attention to enhancing energy efficiency, rather than energy conservation.
The rationale behind this is that industrialization will require high demand for energy, and to manage
the country's energy resources, improvements in the use of energy (energy efficiency) rather than
curtailing the use of energy (energy conservation), are necessary.
Malaysia's energy policy is based primarily on adequate energy supply, efficient energy utilization, and
environment-friendly objectives. Several policy measures have been carried out in the past, and EE&EC
efforts have slowed down in the 90s primarily due to a booming economy and the abundance of
available energy. Recently, EE&EC activities have been revived particularly in the industrial sector in an
effort to mitigate potential electricity supply problems and meeting environmental quality goals.
2. Baseline
The MOETP is the government institution in Malaysia that is responsible for the administration and
coordination of energy-related issues and concerns. It is the focal point for the implementation of the
national energy policy, energy conservation program and coordination of electricity supply planning,
and is responsible for the coordination and integration of energy plans into national plans and
strategies.
Many other aspects of the management of the energy sector fall under the scope of other government
agencies. Among those which are more or less related to the utilization of energy are the pricing of
retailed petroleum products by the Ministry of Domestic Trade and Consumer Affairs; and the
industrial EE&EC projects of institutions like the Standards and Industrial Research Institute of
Malaysia (SIRIM), Palm Oil Research Institute of Malaysia (PORIM) and Forest Research Institute of
Malaysia (FRIM).
The implementation of the government’s energy efficiency activities is primarily guided by the
utilization objective of the National Energy Policy. In consonance with the utilization objective, a
national energy efficiency strategy is currently being implemented. The objective is not to constrain the
consumption of energy, but to promote efficient use of various energy resources.
In this regard, the government took a non-interventionist policy with no legislation. The MOETP
focuses more on awareness campaign, for the simple reason that it is not possible to legislate/regulate
without telling people about the issues. Legislation is reserved as a later option. Due to the lack of
regulations pertaining to energy efficiency, the focus in this area is
25
merely confined to the few informed users on the energy demand side. Guidelines for energy efficiency
have been recommended by the government to be adopted by the energy users. But being merely a
guideline, it does not create as much desirable impact as a regulation.
Nevertheless, energy conservation and efficient use of energy will continue to be a prominent feature in
the Malaysian energy scene. The government is expected to continue the propagation of energy
conservation among energy consumers and to enhance these endeavors in the future.
Most of the present and planned activities of the GoM in the area of EE&EC are actually complementing
the activities of the proposed IEEIP. Hence, their activities must be integrated with those of the
proposed project. In the context of the IEEIP, the activities of the MOETP, DES, and other government
agencies in the area of EE&EC are regarded as baseline activities. Such activities will have to be
implemented under their own steam (i.e., using funds/resources allocated for them) even without any
support from a funding institution (like GEF). Private sector entities with relevant on-going
EE&EC-related activities can also be tapped by the IEEIP. In that regard, their activities will form part of
the baseline activities of the IEEIP, and the budget for such activities are considered part of the IEEIP’s
baseline cost.
The detailed descriptions of the baseline situations for each component of the proposed IEEIP are in
Attachment 1.
Component No. 1-5 are basically capacity building barrier removal activities addressing lack of
industrial process benchmarks, audits, ESCOs and access to energy efficiency information used and
available international.
Component No. 6 is a special case. The calculation of the incremental cost for this IEEIP component is
based on the “most likely” EE&EC schemes that will be implemented for the demonstration program.
The estimates of investment and operating costs are based on experience and documented results of
applicable demonstration projects implemented elsewhere. Fifty percent of the costs associated with the
implementation of any of the suggested demonstration projects (Component No. 6), such as operating
costs and others (e.g., space for installation of necessary hardware), investment costs shall be borne by
the companies that will be selected to host the demonstration projects. Such cost are considered as
baseline. The shouldering of such costs will be a pre-requisite for the companies which will propose to
host the demonstration projects. These will be the host companies’ contribution to the IEEIP. In
addition, the remaining 50% will be made available to the host companies funded through the project
with the help of financial institutions forwarding zero interest loans, to be repaid at the end of the pay
back period by the firms. The resources so received will be used for meeting further requests for
loans.
For Component 6, a more definite baseline cost can be calculated if the list of demonstration projects are
finalized, host companies are named, and baseline conditions in each of the project sites are assessed.
The computation of investment costs, operating costs and savings for each proposed project involved
the assumption of energy-inefficient situations that are typical in the industry sub-sectors (in Malaysia
and ASEAN) considered in the IEEIP. The host companies that will be selected may have to be in
similar conditions considered in the initial calculations made, based on the industry survey undertaken
at the beginning of this project. Fifty percent of the computed investment costs (for the suggested
demonstration projects) are those which need GEF funding.
Baseline situations (i.e., business-as-usual) for the suggested demonstration projects are described in
Attachment 1. Table 1 in the text shows more detailed information about energy usage and GHG
emissions before and after the demonstration project implementations. Estimates of baseline costs
(mainly annual energy costs before the project) and alternative option costs (project investment cost and
26
annual energy cost after the project) are also presented. The incremental cost for each project is also
shown. Overall, a positive incremental cost is indicated.
3. Global Environmental Objective
The present non-interventionist policy of the government (which is gradually being changed with the
planned issuance of energy regulations) will not encourage industry users to implement EE&EC
measures. The country’s industrial sector, which for the last decade has been benefiting from the
economic boom have become complacent in the use of energy in their operations. Add to that the
absence of incentives to invest in EE&EC technologies which some of them perceive as risky ventures or
plainly don’t see the need to implement. If the right interventions are not implemented and the present
conditions are to remain the same, then the negative impact on the global environment would be felt in
the long run. At the present rate of energy consumption, the portion as well as the magnitude of fuel
combustion generated GHGs is expected to increase dramatically and is forecast to increase by about
67% from the 1990 level by the year 2000.
4. GEF Alternative/s
Under the project scenario, this GEF project would focus on removing barriers to the improvement of
energy efficiency of the industrial sector and industrial equipment manufacture. Based on the problem
tree analysis of the barriers to implementation of EE&EC technologies in the industrial sector in
Malaysia, several programs have been identified to remove the barriers. These programs (except the
demonstration programs which will involve actual EE&EC technology applications) will not directly
save energy and reduce GHG emissions. These will however clear the way for both the government, the
industries and other stakeholders to implement, and get the benefits out from, EE&EC options through
extensive capacity building activities and information dissemination. These will also show and teach the
stakeholders how to effectively implement EE&EC in industries with the aim of reducing energy
demand and at the same time reduce energy use-based GHG emissions.
The detailed description of the energy saving and GHG emission reduction potential of the GEF
alternatives is in Table 1 in the text. Alternative situations for the suggested demonstration projects are
described in Attachment 1.
5. System Boundary
The scope of the project is the entire Malaysian industrial sector. For medium and small units. It is a
well-defined sector and therefore, any savings that can be realized from the interventions that will be
implemented, including all the attributable GHG emissions reduction, shall be credited to it, in general,
and to the 8 specific industry sub-sectors, in particular.
6. Domestic Benefits
For each project component (i.e., programs or GEF alternatives), the domestic benefits (in terms of
energy savings and the resulting GHG emissions reduction) are those which are attributable to baseline
efforts that are being carried out, e.g., ongoing information dissemination campaigns. If there are no
baseline efforts, then there will be no domestic benefits. Details of the domestic benefits from each
project component are in Attachment 1.
7. Costs
Details of the project cost estimates are in Table 2.
27
8. Incremental Cost Matrix
The project’s incremental cost matrix is shown in Attachment 1. The costs of the project $7.3 million
are required to remove barriers to the widespread use of energy efficient industrial processes and
energy efficient industrial equipments. The total project costs include about US$10.9 million of
contribution from the Malaysia (Government and private sector, valued at the exchange rate of US$1 =
Ringgit $4.6). Without these barrier removal activities it is very unlikely that the transformation of the
industrial sector to a more efficiency equilibrium will take place.
9. Agreement
Agreements regarding the items to be included in the project brief shall be done by consensus among
the members of the local project appraisal committee (LPAC). The LPAC meetings shall be carried to
consult relevant resource persons and for members to agree to all the project components details (e.g.,
objectives, actions, cost).
Proposed costs shall be justified when required, and compromises can be made through negotiations. It
would however be helpful and would save much time for both the project proponents and the proposal
evaluators if there are already certain GEF-approved cost guidelines which can be used in costing
project proposals that will be applied for GEF funding.
28
Attachment 1: Project Incremental Cost
Matrix
Baseline
Alternative
1. Energy Benchmarking
Compilation and publication of energy
statistics. Energy use databanking. Conduct of company visits/inspections.
Program
Proposed Situation
New Featu
Nationwide industrial energy consumption
monitoring and reporting system and
benchmarks for energy intensive sub-
Identificatio
regular upd
disseminatio
sectors and processes.
Domestic Benefits:
Domestic Benefits:
Domestic B
Macro information on energy use levels
Sectoral energy plans/ intervention programs
Industry se
and patterns/trends in the country, region
can be defined and developed for specific
base, energ
and other parts of the world. Data used in
sectors. Chances of achieving more energy
various com
energy forecasting, supply/demand planning
savings and GHG reductions from more
marks. Mo
policy making and project development.
specific sectoral plans and programs.
sector deve
Policies and plans made are supposed to
More energ
influence the efficient use of energy in the
reduction r
country. Lack of benchmarks to be used for
energy monitoring and reporting.
Global Benefits:
Global Ben
If corrective actions are implemented:
If correctiv
Energy savings and GHG emission reduc-
Improved levels of realizing energy savings
Industry su
tions resulting from programs, activities and
and GHG emission reductions from more
rized in ter
policies implemented according to the plans.
specific and focused sectoral energy
emissions.
plans and programs.
emissions
Cost:
2. Energy Audit
Program
Global Benefits:
If corrective actions are implemented:
$1,118,040
Business-as-Usual Scenario
Performance of limited energy audits and
review of energy audit reports submitted by
monitored buildings and industries
$1,521,740
Proposed Situation
Energy audit program for the entire industry sector, existing and new installations.
Energy audit program conducted by more
New Featu
Regular en
that is imp
sector.
skilled personnel and with the support of the
stakeholders/public participation.
Domestic Benefits:
Domestic Benefits:
Domestic B
Identification of energy conservation oppor-
Wider coverage of energy audit activities
Industry se
tunities (ECOs) in specific energy uses.
resulting in the identification of industry sec-
base, energ
Typically, EE&EC recommendations given
tor specific ECOs. Identification & develop-
audited com
are generic and/or specific only to users
ment of relevant EE&EC projects.
marks, and
that were audited. Energy savings & GHG
Higher levels of energy savings and GHG
More detai
emissions reduction can be realized from
emissions reductions can be achieved from
sub-sector
audit recommendations implemented.
the implementation of more audit-recommen-
More energ
ded energy saving schemes.
reduction r
Lack of awareness/knowledge on energy
auditing & practice. Limited national skills
Strengthened national capacity on energy
Strengthene
in energy auditing.
auditing. Strengthened awareness of relevant
Wide suppo
29
personnel and stakeholders.
Global Benefits:
Global Ben
If EA recommendation is implemented:
If EA recom
Energy savings and GHG emission reduc-
Higher levels of energy savings and GHG
Industry su
tions resulting from energy saving schemes
emissions reductions can be achieved from
rized in ter
recommended by the audits that were
the implementation of more audit-recommen-
emissions.
implemented.
ded energy saving schemes.
emissions
Cost:
3. Energy Ratings
Program
Global Benefits:
If EA recommendation is implemented:
$2,104,616
Business-as-Usual Scenario
Preparatory work in establishing and
energy ratings program. Establishment of
testing laboratory facilities.
$4,112,716
Proposed Situation
Energy ratings program established to
provide information on energy use by
various industrial sectors.
Domestic Benefits:
energy sav
Domestic Benefits:
Domestic B
Knowledge about the benefits and mecha-
Better policy support and definition of the
Policy sup
nics for the implementation of an energy
institutional arrangements for the energy
definition,
ratings program. Industries become aware
ratings program, including the specification
rating progr
of energy efficient equipment.
of the energy ratings infrastructures.
energy rati
Lack of information on energy use,
Information on comparative energy ratings
Energy ratin
performance of equipment. The absence of
B91
energy ratings for equipment.
provided.
implemente
Global Benefits:
Global Benefits:
Global Ben
If "energy rated" equipment are used:
If "energy rated" equipment are used:
If "energy
Indirect energy savings and GHG emissions
Improved level of realization of potential
Improved l
reduction resulting from the utilization of
indirect energy savings and GHG emissions
indirect en
"energy rated" and efficient equipment.
reduction resulting from the utilization of
reduction r
efficient equipments with energy use ratings.
Cost:
4. Energy Efficiency
Promotion Program
New Featu
A better de
that can en
$3,571,240
Business-as-Usual Scenario
Compilation, publication and dissemination of
information on EM and EE&EC technologies.
and efficien
$4,023,140
Proposed Situation
Documentation, publication & dissemination
of info on EM and EE&EC technologies and
New Featu
Compendi
and an EE&
Organization/conduct of information and
applications projects, development of an
awareness campaigns
EE&EC projects database
A governm
Facilitate dialogs between public & private
Establishment of an organization of local
organizatio
sectors and training programs of energy
energy professionals that coordinate with
matters. Regulate and support ESCOs.
the METP on information exchange activities.
Domestic Benefits:
Domestic Benefits:
Domestic B
Increased awareness about EM and EE&EC
More available sources of information on
Increased l
in industry sector.
EM and EE&EC industries can use.
dence on E
Limited information exchange on EE&C
Regular dissemination of information of
Wider acces
technology application. Absence of energy
activities carried out. Creation of an accred-
Energy spec
specialist accreditation program.
itation program for local energy efficiency
integrated in
30
Global Benefits:
scheme.
Global Benefits:
Global Ben
If information is put to good use:
If information is put to good use:
If informat
Energy savings and GHG emission reduc-
Higher levels of energy savings and GHG
Additional
tions resulting from energy saving schemes
emissions reductions can be achieved from
emissions
implementation influenced by increased
EE&EC project implementations by a more
EE&EC pr
awareness and knowledge on EE&EC.
informed industry sector.
informed i
Cost:
5. Energy Service
Company (ESCO)
Support Program
expertise.
$628,865
$1,129,665
Business-as-Usual Scenario
Capacity building activities for ESCOs
Proposed Situation
Capacity building, technical assistance in
setting-up ESCO industry, and marketing
Domestic Benefits:
Domestic Benefits:
New Featu
ESCO sup
ESCO indu
strategy development.
Domestic B
An established ESCO strategy consisting
Better trained ESCOs with clear prospects
ESCOs are
of qualified energy professionals and
for being engaged by industries.
personnel a
supported by the government.
necessary t
services th
Global Benefits:
Global Benefits:
Global Ben
If ESCOs are utilized by industries:
If ESCOs are utilized by industries:
If ESCOs a
Identification of ECOs and implementation
ESCOs are better known by the industries.
Additional
of energy saving schemes that will save
Hence, more ECOs and energy projects
reduction f
energy and reduce GHG emissions.
are identified and implemented that save
ESCO serv
energy and reduce GHG emissions.
Cost:
6. Demonstration
Program
$428,620
Business-as-Usual Scenario
Research, evaluation and promotion of, and
info dissemination about, EE&EC technologies. Provision of training on EE&EC.
$596,120
Proposed Situation
Energy technology applications in selected
companies in identified industry sub-sectors
as demonstration projects to be funded on a
New Featu
Demonstra
application
for funding
cost-sharing basis (50% Private sector;
applications
50% GEF Loan to be repaid at end of
hosts for de
payback period)
31
Domestic Benefits:
Domestic Benefits:
Increased awareness about EE&EC options
Improved awareness about EE&EC techno-
Knowledge
in industry sector.
logies particularly in their design, implemen-
technology
Lack of confidence to implement EE&C
tation, operation, performance and benefits
from demo
technologies
by the industry sector.
Global Benefits:
Global Benefits:
Global Ben
If information is put to good use:
If technology applications are replicated:
If technolo
Energy savings and GHG emission reduc-
Energy savings will translate to reduced
Reduction
tions resulting from energy saving schemes
GHG emissions. Technologies can be re-
savings. Re
implementations influenced by increased
plicated in other industries or in other
as models
awareness and knowledge on EE&EC.
countries where applicable.
Cost:
7. Local Energy
Efficient Equipment
Manufacturing Support
Program
Domestic B
$3,519,529
$5,968,129
Business-as-Usual Scenario
Local equipment manufacturers have
no incentives to improve the efficiency of
industrial equipments.
Domestic Benefits:
Proposed Situation
Incentives are provided to local equipment
manufacturers to produce energy efficient
industrial equipment
Domestic Benefits:
New Featu
Financing
ment manu
manufactu
Domestic B
None: Locally made industrial equipment
Increased interest in production and used
Increased k
are only used in local industries. Potentials
of energy efficient industrial equipment, as
design, inc
for export of such equipment not realized.
well as improved competitiveness of local
technologi
Replication of energy efficient equipment
manufactured equipment.
of energy e
manufacture is not realized.
Global Benefits:
Global Ben
If efficient equipment are available locally:
If efficient
None: Potential energy savings and GHG
Potential energy savings and GHG emission
Energy eff
emission reduction from use of energy
reduction and replication of manufacture of
can be repl
efficient equipment are not realized.
energy efficient equipment.
country an
Cost:
8. Financial Institutions
Participation Program
Global Benefits:
If efficient equipment not locally available:
$1,136,600
Business-as-Usual Scenario
Local equipment manufacturers have
no incentives to improve the efficiency of
the products they manufacture.
$1,736,600
Proposed Situation
Establish financing arrangements for
manufacturers to produce EE equipments
New Featu
provide ince
energy effic
for the technology demonstration activity.
Domestic Benefits: Lack of incentives to
Domestic Benefits: Increased interest in
improve efficiency of products manufactured.
production and use of energy efficient
Increased k
Local financiers lack skills to assess and
industrial equipment, as well as improved
design, inc
formulate loan packages for EE technologies
competitiveness of local manufactured
technologi
and equipment.
equipment.
of energy e
Domestic B
32
Establish skills of local financiers to assess
ability to as
and formulate loan packages for EE
technologies
Global Benefits:
Global Benefits:
If information is put to good use:
Cost:
Global Ben
If technology applications are replicated:
If technolo
Loss of potential energy savings and
Potential energy savings and GHG emission
Energy eff
GHG emission reduction through use of
reduction and replication of manufacture of
can be repl
energy efficient equipment.
energy efficient equipment.
country an
$120,000
Total Baseline Funds: $10,999,910.00
Total In-Kind Funds: $1,627,600.00
Funds Requested From GEF: $7,300,600.00
Total Funds Required: $19,928,110.00
$840,000
33
Attachment 2: Project Planning Matrix
Summary
Objectively Verifiable Indicators
Means of Verification
Objectives
# To reduce the risk of climate change by
reducing net GHG emissions from
anthropogenic sources and enhancing
# Industrial sector energy-related GHG emission
levels is reduced by 10% (compared to 1995 levels)
# Sectoral energy consumption data (surve
# Calculated from sectoral energy use data
# Actual emission level measurements
# Industrial sector energy consumption is reduced
by 10% in 2004, along w/ a sustained GDP growth.
# Industrial sector energy use intensity is reduced
by 10% in 2004.
# Sectoral energy supply and demand bala
# Industrial sector economic performance
# Energy consumption reports and energy
reports of industrial firms
# Calculated from energy consumption dat
1. Industries become aware of the actual and
rational energy utilization performance, as
# Industry energy utilization benchmarks are set
by year 2000.
# Developed industry energy benchmarks.
well as the EE&EC measures that can be
# About 25% of industrial companies have SEC's
removal of such gases.
The Industrial Energy Efficiency
Improvement Project in Malaysia is
implemented by the UNDP with the aim of
removing barriers to large scale application,
implementation and dissemination of least
cost energy efficient technologies and by
promoting more efficient use of energy.
Outcomes
applied to improve energy utilization
lower than the benchmarks by mid-2000.
efficiency, through establishment of energy use
# Energy consumption reports of industrie
# Available energy audit reports
norms for industrial sub-sectors and processes.
# Energy auditing is instituted as a regular activity
of the EEG/MOETP by 2000.
# Policy statements and relevant documen
from the EEG/MOETP.
2. Industries comply with regulations
designed to encourage the use of energy
efficient equipment, and practices.
# Relevant energy and energy efficiency regulations # Documents stating the relevant laws and
and laws are enacted and enforced by the
tions concerning energy efficiency in indu
government by 2001.
# Energy labeling is instituted as a regular activity
# Policy statements and relevant documen
of the EEG/MOETP by 2002.
from the EEG/MOETP.
3. Awareness about, and attitude towards,
# Significant number of industries implement
# Surveys
energy and environmental conservation by
energy projects in their facilities by end 1999.
# Survey questionnaire completed and sub
industries are improved.
along with energy report of each industrial
4. Industries are using, and benefiting from
local energy support services (ESCOs) in the
implementation of their energy projects.
# ESCO business is well established by 2001.
# Industries are engaging ESCOs by mid-2000.
# Financial statements of ESCOs
# Energy consumption reports of industrie
5. Industries are implementing proven &
# Significant number of industries implement
# Surveys
cost-effective EE&EC technology projects.
EE&EC technology projects by end 2001.
# Survey questionnaire completed and sub
along with energy report of each industrial
6. Industries utilize locally manufactured
equipment with comparable efficiencies to
imported quality industrial equipment.
# Locally made energy efficient equipment
are available in the market by 2002.
# Industries are using locally made energy
# Market survey of locally made equipmen
# Locally made equipment performance te
results.
efficient equipment by mid-2002.
# Survey questionnaire completed and sub
along with energy report of each industrial
Results
34
Establishing Energy Use Benchmarks
1.1. Report on energy consumption
benchmarks of each industry sub-sector,
processes and energy systems.
1.2. Industry Sector Energy Database
# Energy consumption benchmarks for the
processes/systems in each sub-sector is
# Database @ EEG/MOETP
established by mid-2000 & updated yearly.
#. An adequate and useful energy database is
developed, installed & operated by mid-1999.
# Database @ EEG/MOETP
#. Energy Database used by industrial
# Report submissions of industries
companies as reference in EE&EC project
# Relevant project documents
implementations by the year 2000.
# Database user/guest book entries
Energy Auditing
2.1 Energy Audit Reports of selected companies 1. Evaluation of sub-sectoral energy utilization
belonging to the target industry sub-sectors.
performances by end of 1999
2.2. Industry Sub-Sectoral Audit Teams
# Training of energy auditors in selected industry
# Energy audit reports prepared under the
# Database @ EEG/MOETP
# Training materials, Training certificates
sub-sectors by mid-1999.
# Setting-up of industry sub-sectoral energy
# Energy audit teams in industry associatio
audit teams by end of 1999
# Setting up industrial audit for new industrial plants # Energy audit teams in industry associatio
3.1. Establish Energy Rating and NamePlating system
# Equipment manufacturers agree to support
program by end of 2000.
# Energy ratings for selected equipment/
# Agreement between MOETP/MITI/MID
and the local equipment manufacturers
# Testing and rating procedures developed
machineries are developed/enforced by end 2001.
utilized. Actual labels used.
# Industries purchase and install, and/or replace old
# Sales data from equipment dealers/distri
equipment with, energy-efficient units starting 2002.
4.1. Energy Project Profiles
# Compendium of relevant energy project profiles
prepared, published and disseminated by end 1999.
# Compendium disseminated (or sold) to
companies
4.2. EE&EC Technology Database
# An adequate and useful energy database of EE&
EC technology applications developed, installed &
# Database @ EEG/MOETP
operated by end 1999 and updated regularly yearly.
# Energy Database is used by industrial
# Report submissions of industries
companies as reference in EE&EC project
# Relevant project documents
implementations by the year 2000.
# Database user/guest book entries
35
4.3. Local Energy Professionals Society
# A society of local energy professionals is set-up
and is operational by the year 2000.
# Society brochure showing organization,
activities, membership, etc.
4.4. Auditors Accreditation Program
# An accreditation program for energy auditors is
established and is operational by the year 2000.
# Relevant documents about the program a
its implementation
# At least 100 local energy auditors, nationwide,
# Number of certified auditors.
accredited under the program by end of 2000.
5.1. ESCO Training Program
# A series of training programs for ESCOs is held
nationwide by mid-1999, and implemented
# Training materials, Training certificates
regularly yearly as part of continuing education
for the local energy professionals.
5.2. ESCO Industry Framework
# Institutional and legal framework for the ESCO
industry is developed and enforced by end 2000.
# Relevant documents about the institution
and legal framework of the industry.
5.3. Energy Engineering Tools
# Energy engineering design tools for ESCOs are
developed and disseminated by the year 2000.
# Engineering tools (e.g., guidebooks, man
calculation software) developed and provi
free or sold by the EEG/MOETP or the so
6.1. Demonstration Scheme Implementation
# Energy eng'g design tools are used by ESCOs
# Engineering tools obtained by engineerin
for their project implementations by the year 2001.
firms and ESCOs.
# At least 2 demonstration projects are developed
and implemented in each sub-sector by end 2001.
# Report submissions of industries
# Relevant project documents
# At least 25% of the estimated energy savings &
# Report submissions of industries
GHG reductions from the demo projects are
# Conduct energy audits in selected compa
realized by the end of 2002.
# Computed from Database @ EEG/MOE
# At least 2 companies in each selected industry
# Report submissions of industries
sub-sector replicate relevant technologies that
# Relevant project documents
were demonstrated by end 2002, on their own.
6.2. Demonstration Scheme Reports
# Profiles of demonstration projects are
published and disseminated by end 2002.
# Reports prepared.
7.1. Local Manufacturers Incentive Scheme
# At least 3 manufacturers qualify for the
incentives and carry out the manufacturing
# Relevant incentives application evaluatio
# Report submissions of industries
improvements by the end of 2001.
# Relevant project documents
# At least 15% of the estimated energy
# Report submissions of industries
GHG emission reductions from the use of locally
# Conduct energy audits in selected compa
made energy efficient equipment are realized by the
# Computed from Database @ EEG/MOE
end of 2002.
# At least 2 local manufacturers of selected equip-
# Report submissions of industries
ment replicate relevant improvements that were
# Relevant project documents
demonstrated by end 2002, on their own.
7.2. Incentives Program Reports
# Profiles of each local manufacturing projects
are published and disseminated by mid-2002.
# Reports prepared.
8.1 Financial Sector Participation Programme
# Loans disbursed by financial institutions for
# Relevant sources of resources are identif
36
for Demonstration projects
demonstration projects in Energy Efficient
technologies.
publicized.
8.2 Financial Sector Participation Programme
for Equipment Manufacture support.
#Loans disbursed by financial institutions to at least Energy Efficient equipment manufacturing
2 EE manufacturer per intervention.
on selected interventions.
37
Attachment 4a: Malaysia Industrial Energy Efficiency Program
Industrial Energy Consumption CO2 Emissions Forecasts
SCENARIO: Business-as-Usual
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Energy Usage,
kTOE
7705.6
8339.3
9006.7
9708.0
10443.0
11211.9
12014.5
12850.9
13721.1
14625.1
15562.8
16534.4
17539.7
CO2
Emissions, mT
20.98
24.62
26.18
27.74
29.30
30.86
32.42
33.98
35.54
37.11
38.67
40.23
41.79
SCENARIO: Energy Efficient
Year
Energy Usage,
CO2
kTOE
Emissions, mT
1995
7705.6
20.98
1996
7907.6
22.09
1997
8450.7
22.31
1998
9020.4
22.36
1999
9616.7
22.23
2000
10239.7
21.92
2001
10889.3
21.43
2002
11565.6
20.76
2003
12268.5
19.91
2004
12998.0
18.88
2005
13754.2
17.68
2006
14537.1
16.29
2007
15346.5
14.73
NOTES:
1. Historical energy consumption data are from the ASEA
Energy Review (1996 ed., May 1997), AEEMTRC
2. Historical CO2 emissions data are from the IEA public
CO2 Emissions from Fuel Combustion (1972-1995),
3. Forecast figures are based on trend-analysis of histori
data, as well as forecasts (Business-as-Usual Scena
derived from ASEAN 2020: An Energy Outlook up to
Year 2020: Malaysia, AEEMTRC, 1997
NOTES:
1. Forecast energy consumption and CO2 emissions are
based on computed energy savings and CO2 emissio
reductions from potential energy efficiency technolog
that can be implemented in the industrial sector.
2. Forecast trends are also based on projections for the
following scenarios: (a) Emissions Reduction; and, (b
Energy Efficient, given in the ASEAN 2020: An Energ
Outlook up to the Year 2020: Malaysia, AEEMTRC, 1
3. Forecast CO2 emissions are also based on projected
energy consumption mix. The use of cleaner fuels an
clean energy technologies are projected in the indust
sector in Malaysia.
B 10
Attachment 4b: Malaysia Industrial Subsector Baseline* Energy-Use, CO2 Emissions and Savings
Potential
Sector
Initial Energy
Consumption
Food
937.8
126.4
655.4
360.3
519.98
480.2
37.9
279.2
108.1
226.35
2854.4
393
1897.2
1088.2
1558.20
1712.6
170.8
808.2
326.5
754.53
3489
457.8
10525
1381.2
13.12%
176.1
8342
4002.37
52.9
860
456.90
501.6
25192.6
12073.07
150.6
2597.2
1376.33
43405.50
30.04%
10.31%
11.42%
2633
749.3
1691.15
323.4
40
181.7
7618
2307.9
4962.95
936
123.1
529.55
26346.50
12.28%
5.34%
10.74%
12807
12807
12807.00
1411.4
1411.4
1411.40
166115
166115
166115.00
5412.2
5412.2
5412.20
7057.00
11.02%
11.02%
11.02%
436.1
436.1
2464.4
1112.20
81.7
136
1232.2
483.30
1261.5
1351.9
7639.7
3417.70
236.2
421.6
3819.8
1492.53
11115.90
18.73%
31.19%
50.00%
43.45%
5709
5709
5709.00
428.6
428.6
428.60
16527.1
16527.1
16527.10
1240.8
1240.8
1240.80
6000.40
7.51%
7.51%
7.51%
1494.8
3400
2447.40
766.7
238
502.35
4640.8
10540
7590.40
2389.7
737
1563.35
24112.80
51.29%
7.00%
20.53%
20485
20485
16265.3
3896
2414
851.2
81100
81100
64396.6
15425
9556
3362.4
Average
Iron &
Steel
Average
Rubber
Average
Cement
Average
Ceramic
Average
Glass
Average
Paper
Average
Wood
Energy
Savings
Initial CO2
CO2 Saved
Total Potential
Energy Savings
47080.80
Percent
Energy Savings
51.20%
29.98%
42.60%
30.00%
43.53%
19.02%
11.78%
5.23%
T
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Sector
Initial Energy
Consumption
Average
19078.43
Energy
Savings
2387.07
Initial CO2
75532.20
CO2 Saved
9447.80
Total Potential
Percent
T
Energy Savings Energy Savings
484574.53
12.51%
* Baseline Year 1995
The expected 10% emission reduction in the industry subsectors is a weighted average of the individual sectors a
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COMMENTS ON MALAYSIA ENERGY EFFICIENCY IMPROVEMENT PROJECT
January 26, 1998
1) My overall impression is that this is a good project that will have substantial economic and
environmental benefits for Malaysia. There is enormous potential for energy efficiency
improvement in the industrial sector, but there are barriers to realizing this potential which the
project will address. It is well within the guidelines and operational strategy of the GEF, and
should receive funding in my view.
2) I believe this project is highly relevant to both the Climate Change Convention and national
priorities of Malaysia. Increasing energy efficiency is one of the most effective ways of limiting
greenhouse gas emissions. However, there are many barriers inhibiting widespread adoption
of energy efficiency improvements in countries like Malaysia. This project will help to
overcome these barriers. It will also help Malaysia’s industries reduce their cost of production
and thereby enhance industrial productivity and competitiveness. In addition, it will help to
reduce emissions of other pollutants besides carbon dioxide.
3) The background and justification for the project is well elaborated in the project proposal.
4) The project appears to be sound from a technical perspective and the objectives look
reasonable. The goal of reducing energy use and greenhouse gas emissions in the industrial
sector by 10% by 2002 is relatively ambitious. It might be desirable to provide more time for
realizing this goal, say by changing the target date for achieving 10% savings to 2005.
5) The proposed activities seem appropriate, both the establishment of any energy efficiency
group within the Ministry and the specific project components. However, I have some
suggestions for expanding and/or modifying the activities in order to improve the effectiveness
of the project and increase the long-term benefits.
Concerning component 1, I support the idea of setting up a benchmarking program within key
sectors. This has been successfully done in the U.K. and the experts who played a key role in that
program (from the Energy Technology Support Unit of the University of Sussex) might be willing
to help set up and implement a similar program in Malaysia.
Concerning component 2, I suggest designing the audit program in ways that will encourage
maximum implementation of recommended measures by audited companies. For example,
companies could be required to implement a large fraction of cost-effective recommendations (e.g.,
at least 80% of measures that have a payback under two or three years) in order to get a free audit.
Companies that fail to meet this requirement after a reasonable period (say 1-2 years later) would
be charged for the audit. Having the audits performed by ESCOs could also help to stimulate
implementation, since the ESCOs would be interested in helping companies follow-up with
implementation.
Concerning component 3, it would be useful to identify which products will be tested and labeled.
As part of this component, it will be necessary to establish standardized test procedures in
Malaysia. These can be based on regional or international test procedures. In the case of some
products such as motors, I suggest attempting to adopt minimum efficiency standards once testing
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and labeling is underway. The standards, which could either be voluntary or mandatory, could
greatly increase the amount of energy savings and greenhouse has emissions reduction.
Concerning components 4 and 5, I endorse the ideas of establishing a database on energy efficiency
projects as well as training, accreditation and other support for ESCOs. In addition, it might be
helpful to include training courses for energy managers from industry. Short courses could be
developed and offered on specific topics like energy savings in motors and motor systems; energy
savings from boilers; and energy savings in refrigeration systems.
Concerning component 6, I support implementing a demonstration program. In addition to the
technologies listed, there are some newer technologies that have been commercialized in the US in
recent years, such as membrane filtration for the food industry, oxygen-enriched combustion in the
glass industry, use of adjustable speed drives in motor systems, and improved cogeneration
systems, that possibly could be used in Malaysia. The Office of Industrial Technologies of the US
Department of Energy might be willing to help in the design of demonstration projects for many of
these technologies (which DOE helped to develop and commercialize). Contact Denise Swink,
DOE Office Director at 202/586/0559 or Peter Salmon-Cox, responsible for international activities
in the office at (202/586/2360.
Component 7 strikes me as being relatively innovative and quite interesting. Careful assessment
of industry capabilities and proposals will be critical to the success of this activity. Also, it would
be useful to link it back to the other promotion and market stimulation activities in order to help
build the demand for the various technologies supported through these manufacturer incentives.
Financing is one area identified as a barrier but not addressed by the proposed project components.
While it may be too late to include a financing component in this project, it might be useful to
include an activity to assess this issue in greater detail and provide recommendations concerning
how to create financing mechanisms for industrial energy efficiency project sin Malaysia in the
future.
In addition to the components included, I recommend adding a component or activity involving
analysis and advice concerning new industrial facilities constructed in Malaysia, either on a
mandatory or voluntary basis. The project could hire experts who could review plans for new
manufacturing plants and provide advice to encourage construction of state-of-the-art facilities.
This is extremely important given the long lifetime of some manufacturing facilities and the fact
that it is more cost-effective and feasible to make them energy-efficient to start with rather than
trying to retrofit them after they are built. This activity could be included under component 2 (i.e.,
“auditing” of proposed new facilities, as well as existing facilities) or under component 4 (i.e., as
part of general energy efficiency promotion. The incremental cost for this activity might be
around US$500,000-$1 million (averaging $125,000-$250,000 per year for four years).
6) Regarding the question of stakeholder and community participation, this is a relevant issue in
my opinion. The project will not succeed without active involvement and cooperation of
industries in Malaysia. The formulation of the LPAC should help in this regard. In addition,
it might be useful to have periodic informal consultations with industries unrelated to the
formal operation of the LPAC.
7) The project proposal includes an estimate of avoided CO2 emissions that could occur as a result
of the project (10% of projected sector emissions by 2002). But it s not clear how this value was
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derived. I suggest providing this analysis, perhaps based on savings estimates and avoided
emissions sector by sector. Also, the analysis should take into account both direct emissions
reductions and indirect reductions through electricity savings and avoided emissions by the
utility sector.
8) I believe this project has value in terms of demonstrating a strategy and approach that, if
successful, could be replicated in other developing countries. Also, there is enormous
potential for end-use efficiency improvements in the industrial sector in other developing
countries.
9) Regarding capacity building, the project proposal covers this relatively well in my view
through establishing the energy efficiency group in Ministry and through activities such as
training and support for ESCOs. I suggest that, if funding allows, the energy efficiency group
be expanded to six professionals including a coordinator, two technical specialist (perhaps one
electrical engineer an one specialist in thermal systems), a marketing specialist, an evaluation
expert, and a data base manager.
10) The proposed project funding and budget seem reasonable although the budget might be
increased to cover the additional activities I suggest above. If this is not possible, then I suggest
reducing the budgets for components 6 and 7 in order to add some funding for the additional
training and advisory activities that I have suggested.
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Response to STAP Review:
1. Most of the comments made by the Reviewer are very positive. The project has a strong
technical base, appropriate activities with reasonable coverage, and is highly relevant to both the
Malaysian economy and the Climate Change convention because of its substantial economic and
environmental benefits.
2.There were 3 suggestions for additional activities, of which two have been accommodated:
i) Setting up an audit program to analyze /advise to new industrial facilities to be
accessed on a voluntary basis to begin with .The activity will provide for a mechanism that would
review and encourage construction of state- of- the art facilities. This is an extremely useful step
since it is always more difficult and less cost effective to retrofit than set up a more efficient unit.
ii) Addressing the issue of financing of EE&C projects:
The suggestion was welcomed by the counterpart GOM focal point and has been incorporated as
an activity under component 7. In conjunction with the industrial development bank of Malaysia
and the GOM ( MOSTE and MOETP), the project will set up a mechanism to select and provide
interest free loans on a competitive basis to the selected industrial units interested in producing
energy efficient plants and equipments.
iii) To accommodate the above activity in a comprehensive fashion, the manufacturers of
generic industrial equipments that lend easily to EE improvements was restricted to 4 categories,
compared to the original provision of six. This is in line with the STAP reviewer’s suggestion that
activity six /seven be revisited to accommodate the above initiative in a comprehensive manner.
iv) The reviewer was provided with the background data and calculation that went towards
the estimate of avoided CO2 emission, as per his comment ( item 7).
v)The budget was partially revised to accommodate the two additional activities
(i and ii above). However, the reviewers recommendation of extending it to hire six rather than
the suggested four professionals is currently under consideration of the GOM and may indeed be
added on. This will involve adding on staff cost for 2 professionals for at least 4 years ( incremental
GEF)
vi) The importance of stakeholder and community participation is covered extensively in
the project. The formulation phase of the project involved months of intense consultation and
participatory dialogue between the project partners viz: MOETP, MOSTE, EPU, MIDA, MITI, DES,
TNB, SIRIM, FRIM, PORIM, UTM, industry representatives and some chambers of commerce,
two NGOs involved with ESCO type of activities and the UNDP -GEF. Through the life of the
project, under the stewardship of MOETP and UNDP resident office in KL, the implementation
phase will be regularly monitored and coordination of project activities be ensured.