The business case for net zero in Malaysia — Malaysia Green Building Confederation

OCTOBER 29 — This letter is in response to Malay Mail’s article, dated 18 September 2018, titled “Putrajaya says no to nuclear energy, but keen on coal from East Malaysia“.

While it is most admirable that nuclear energy is not being considered anymore in Malaysia, going for conventional energy sources, such as coal, is not the right path for Malaysia. Malaysia should instead focus on the world of opportunities in Energy Efficiency and Renewable Energy to offset the need to build new carbon-based powerplants.

Currently, around the world, these things are happening:

• 19 global cities around the world has committed that by 2030 all new buildings will be net zero energy.
• Countries are seriously talking about net zero economy by 2050. i.e. the entire country energy consumption from manufacturing, transportation and building is net zero.
• California has mandated solar PV on all new residential homes from 2018 onwards. Why? Because over the lifetime of the solar PV, the energy produced is cheaper than carbon-based fuel.

While renewable energy through solar PV is already financially feasible as compared to carbon-based energy, a nation cannot ignore energy efficiency.

This is because the cost of energy efficiency to a nation is well below that of any available renewable energy technology.

The rate of return of energy efficiency far higher than other investments that is available, for example, educating someone to turn off the lights when it is not required, will yield savings to the nation with a net investment of zero, i.e. the economic rate of return is exponential to our nation — because we generated savings with zero investment.

Moreover, the International Energy Agency (IEA) has identified that Energy Efficiency alone has a potential to achieve 80 per cent+ energy savings in buildings.

Let’s consider these business case scenarios of Renewable Energy and Energy Efficiency in Malaysia today:

1. Renewable Energy — Rooftop Solar PV

These are the existing numbers we have on Rooftop Solar PV in Malaysia:

• Solar PV Current Investment cost: ~RM 4,000 per kWp
• Minimum Production of Energy in Malaysia: 1,100 kWh/kWp per year
• Yearly Degradation of Output: less than 1 per cent
• Average Lifespan: 25 ~ 30 years.
• Maintenance cost: ~ RM 500 per kWp for new inverter (to convert DC current to AC current) after 12 years. No other maintenance is necessary in our climate.

Without evaluating the time value of money, over 25 years, 1 kWp of solar PV will provide these returns:

• 24,400 kWh over 25 years.
• Capital Cost investment: RM 4,500
• Cost of Electricity from Solar PV over 25 years = RM 0.18 per kWh produced.
• Current TNB electricity rate to consumers: ~ RM 0.50 per kWh.
• Current TNB electricity rate from IPP: ~RM 0.25 per kWh.
• For a home owner it is almost 3x cheaper than buying electricity from TNB!
• For TNB, it is cheaper for them to produce electricity using solar PV than to purchase from IPP.

When the time value of money is accounted, with a discount rate (inflation rate) of 5 per cent, solar PV is still very interesting. It will provide more money saved in the end than putting that same amount of money in a Fixed Deposit. This is true even assuming a fixed displaced cost of electricity of RM 0.50 per kWh from TNB (fixed — means no increase in electricity tariff over the next 25 years!). Refer to the table below for the lifecycle analysis of 25 years:

The lifecycle analysis showed a Net Present Value (NPV) for Solar PV investment is RM 7,000 over 25 years. The capital cost investment of solar PV is RM 4,500 (RM 4000 at year 0, and RM 500 at year 12). Ignoring the time value of money of RM 500 at year 12 and making a conservative assumption that RM 500 at year 12 was spend at initial setup, the investment in solar PV provided an annual rate of return of 57 per cent [(7,000 — 4,500)/4,500]! Meanwhile, Fixed Deposit from bank is, at most, 4 per cent today!

• Put RM 4,500 in a Fixed Deposit of 4 per cent. In one year, you get back RM 4500 + RM 180 (interest earned) = RM 4680
• Put RM 4,500 in solar PV today. The Net Present Value over 25 years of this investment is RM 7,000, (assuming a discount rate of 5 per cent).

In short, if you have RM 4,500 today, it is only logical to invest in solar PV on your roof or find yourself another investment that will give a rate of return of 57 per cent! Furthermore, it does not require further subsidies or fit-in-tariff to make this a financially viable option today. The government only need to provide the education and awareness to the public of this investment potential. Education and awareness allow the public to make informed decision with their money. Finally, the government also need to ensure a fair trade is made between solar PV owner with TNB.

Furthermore, the technological advantages of solar PV are improving year on year:

• Price of Solar PV is reducing yearly,
• Efficiency is increasing yearly,
• Degradation rate of output is reducing yearly, and
• Lifespan is increasing yearly.

In short, the business case for solar PV today is a no-brainer.

Further advantages of rooftop solar PV for our nation are:

• Investment for solar PV is made by home owners and bankers. Our government does not need to provide guarantees or soft loan to TNB or other IPPs for new power plants.
• Connection to TNB grid is simple and near zero-cost, to TNB.
• In a net zero residential home, TNB will be able to sell solar PV injected into the grid at peak hour rate to large commercial buildings nearby, while residential homes will buy back cheap electricity from TNB at night. I.e. TNB will profit from rate differences between daytime and night-time, with zero capital cost investment, as the solar PV will be invested by home owners. Making profit from zero capital cost has a rate of return of infinity for TNB.

There is no reason for Malaysian government to ignore this opportunity to make Malaysia more sustainable with such amazing rate of return to the nation, while seeking to use coal energy instead!

By adopting the right approach, Malaysian government will not only make Malaysia a more sustainable nation, but also allow millions of homeowners to benefit financially from such an investment. And our government will also retain more money for investment into education and healthcare, instead of spending it on energy subsidy. A win-win scenario for everyone.

2. Energy Efficiency in Buildings

Energy efficiency is always more difficult to address than renewable energy, because the issues are often exponentially more complex than renewable energy. For example, in a Malaysian building scenario, all the heat from the sun, air leakage, equipment, lighting and more need to be extracted using expensive air-conditioning equipment.

Fortunately, a government does not really need to worry about the complexities of energy flow for energy efficiency in our nation. A government role is to create a platform that will encourage entrepreneurship on energy efficiency. In short, government must provide an equal playing field that will reward the best ideas and best technology to emerge from it.

The business case for energy efficiency in buildings is also a no-brainer, today. For new buildings, it is possible to build an energy efficient building at a lower cost than a non-efficient building. The efficiency of building insulation, equipment and lighting energy consumption has improved tremendously in recent years, allowing the air-conditioning system to be sized down by 35 per cent ~ 50 per cent easily. The cost reduction of the air-conditioning system in such a building is more than adequate to pay for the all building features for an energy efficient building.

On existing buildings, it is also possible to conduct energy efficiency and generate savings from zero investment. By addressing the low hanging fruits of better energy management, of making sure energy consuming equipment is switched off when it is not in use, substantial savings can be achieved in 90 per cent+ of buildings in Malaysia. Saving achieved is then used to purchase more efficient equipment for more savings. In short, Energy Efficiency when practiced right is zero cost for infinity rate of return on existing buildings.

More importantly, the business potential of energy efficiency in buildings worldwide is enormous! IEA stated that we have 80 per cent+ of energy efficiency potential in buildings that remain untouched, as shown by the list of articles shown below:

• The chairman of the IEA Governing Board, Mr. Noe van Hulst, wrote an article titled “The untapped potential of energy efficiency”, in 2017.
• EnergyStar in USA published this article titled “Untapped Potential of Commercial Buildings: Energy Use and Emissions” in 2016.
• Recently, Deloitte published a report on Europe, stating, “75 per cent of EU building stock is still energy inefficient. And the rate of building renovation remains very low.”

These are the known key facts on energy consumption in buildings worldwide:

• Energy Consumption: 17,700,000,000 MWh/year (2013 World’s Building Energy Consumption)
• @ RM 0.50 per kWh (using Malaysian tariff)
• = RM 8.85 Trillion per Year!

• @80 per cent Reduction Potential
• RM 7 Trillion per Year to be Saved!
• @ 1 per cent market share = RM 70 Billion industry yearly!

The business case in energy efficiency in building worldwide is a RM7 trillion (US$1.7 trillion) per year industry. The global potential of Energy Efficiency in Buildings is a bigger business opportunity than global smartphone sales today (smartphone sales was US$479 billion in 2017)! Now, why are we (Malaysian), not looking at this business opportunity and instead settle on easy solution of coal energy?

Malaysia do have the technical knowhow to lead in energy efficiency in tropical climate as we have some of the most energy efficient demonstration buildings in tropical climate since 2005. We just need groom this potential to make Malaysia the leading solution provider for tropical climate worldwide.

For Malaysia to tap onto this enormous opportunity, we need to have the right policies in place to create the environment for green entrepreneurship to emerge from it. These are our proposed policies for Malaysia:

1. Say no to nuclear.
2. Say no to coal and other carbon-based fuel.
3. Remove subsidy of energy, water and waste.
   Subsidy is a barrier for green entrepreneurship to emerge because viable business model become unviable due to the subsidy provided. Subsidy should be directed to the poor instead of a blanket subsidy on energy, water and waste that benefited the rich more than the poor. I.e. The rich will use more energy, water and generate more waste than the poor.
4. Remove laws that hinders the green development.
   For example: 75 per cent maximum demand limit on Solar PV, that limited the amount of solar PV that can be installed by owners. 100 per cent waste water must be directed to Indah Water, limits the ability of green entrepreneurs to tap into waste water to generate biogas and fertiliser. Law on recuperated waste water, even after treatment and proven safe, is not allowed for agriculture use, limits the ability of green entrepreneur to make their business case viable to treat the waste locally and generate income out of it.
5. Create laws that help green businesses.
   Cost of cleaning up dirty pollution must be factored into the price of waste disposal, carbon emission and ecosystem maintenance. I.e. landfill cost should be priced to cover the cost of repair to the ecosystem, to encourage the people and industry to innovate on reducing, reusing and recycling waste. Also create laws that enforce declaration of energy, water and waste for each premises. This allows entrepreneur to easily identify green business opportunities. Create laws that punish oversizing of air-conditioning system. This ensure that our professionals are not simply oversizing system with unrealistic safety factor, causing lost of income to our nation. Malaysia become less competitive because we spent the money on unnecessary investment in oversized air-conditioning system.
6. Make information easily available.
   Entrepreneurs need information on energy, water and waste consumption in Malaysia per state, per district, per household. They also need to know how much was spend on these items by each household, each municipal and each state, so that they can come out with innovative solutions that are lower cost and with better efficiency for a feasible sustainable business model to emerge from it.
7. Provide grants, soft-loan and more to green businesses with high potential.
   These grants must be adequate to offset current subsidy provided on energy, water and waste, to help these businesses to be viable on a level playing field. This will allow viable business model to grow and allow these businesses to be exported worldwide. Successful home grown businesses will attract worldwide funding into our country as we export our technologies and knowhow worldwide (ala Grab, Lazada, etc.).
8. Create awareness and education to our people.
   It is government role and responsibility to provide education to our future generation on the need to be sustainable. Education need to be provided to the people on the potential business opportunities on RE and EE. Awareness of grants and soft-loan made available to entrepreneurs that will tap into this market by the government should be promoted widely.

We are bounded by natural laws to live a sustainable life on this planet because there is no planet B. Everyone knows there is a looming crisis coming, and yet it is also a business opportunity for Malaysian to tap on, because the rest of the world is also struggling to find a solution to this crisis.

Most importantly, the current environment in Malaysia is perfect for a green solution to emerge from it that will be applicable to many other tropical nations worldwide. The European solution is too dependent on high-end knowhow and workforce. The Singaporean solution is too dependent on an authoritative government. The US will take years to recover from Trumpism, offering Malaysia, a head start on green development. The opportunity is now, to get our policies right to develop Malaysia as the leading nation of sustainable development in tropical climate.

We hope the new government of Malaysia, have the vision to appreciate the economic potential of sustainable development here. It will not only benefit our environment and society, but it will significantly strengthen our national economy as well, if we can get our policies and priorities right. Coal and national cars are a bygone era. Malaysia should not be looking back at these bygone era industries, but instead look forward to a more sustainable future with energy efficiency and renewable energy industry as one of the key driver of Malaysian economy.