Energy Performance
Contract in Malaysia and
Other Countries
By Ir. Dr Goh Hui Hwang, IPM Professional Service Sdn Bhd
Dr Chai Chang Saar, University of Reading Malaysia
Dr Goh Kai Chen, Universiti Tun Hussein Onn Malaysia
M
inister of Energy, Green Technology,
Science, Climate Change and Environment
Yeo Bee Yin said that various approaches
are being taken by the Government to promote
energy efficiency, among which include 50
Government buildings being retrofitted with energy
efficient lighting and appliances by next year
through Energy Performance Contracts, drafting
the Energy Efficiency and Conservation Act, and
reviewing the National Energy Efficiency Action
Plan 2016-2025.
An Energy Performance Contract (EPC) is
a mechanism that uses market-based capital
and technology to improve energy efficiency
in buildings, industry, and other areas. There
is a lot of room for development in the Energy
Performance Contract market in Malaysia. This
article analyses the key elements of EPC market
development in Malaysia, including market
advantages and challenges.
Norazrin bin Rupadi of the Energy Commission
stated that the implementation of EPCs in
Malaysia’s Government sector was approved by
the Government in January 2013. The concept
of EPC is based on a profit-sharing agreement
between the building owner and the Energy
Service Company (ESCO) whereby the initial cost
for the energy efficiency improvement project is
borne by the ESCO. In ensuring the successful
implementation of the EPC, ESCOs are required to
register with the Ministry of Finance (MoF) to carry
out EPC projects in Government buildings under
the Green Technology Service Code (222801).
Meanwhile, MoF requires ESCOs applying for
registration under this code to be registered with
the Energy Commission. Since then, Malaysia’s
energy-saving service industry has developed
rapidly, both in terms of the number of ESCOs and
the amount of investment in EPC management.
The development of Malaysia’s energy-saving
service industry has been concentrated in the
industrial sector, mainly because industry is the
main area of energy consumption, accounting
for two-thirds of the country’s total energy
consumption. There is more than one model for
EPCs in Malaysia, with energy-saving benefit-
sharing as the main factor, partly because energy-
saving benefit-sharing contracts enjoy national
financial incentives and tax incentives. The
energy service industry is in its infancy because
Malaysia is in the market stage of rapid economic
development and low energy prices. Many
industrial enterprises often only regard energy
efficiency improvement as one of the means to
reduce costs and impact on enterprises, to expand
production and increase profits. Therefore, there
is a lack of enthusiasm and initiative for energy
efficiency investment. Due to this circumstance,
energy-saving service companies have promoted
the implementation of EPC projects on a large
scale by using their own funds for energy-saving
retrofitting and sharing energy-saving benefits
with industrial enterprises. In doing so, they have
put huge financial pressure upon energy service
companies.
For most small and medium-sized energy
service companies in Malaysia, it is difficult to
obtain third-party financing because of the lack
of credit records, so most Energy management
projects can only be financed with their limited
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