In 2023, Malaysia stated its commitment to cut 45% of carbon intensity against GDP by 2030 and achieve carbon neutrality goal by 2050. Among the key emission sectors in Malaysia, the industry sector is a noteworthy contributor by having a 10 per cent share or 32.9 Gt CO2-eq. to GHG emissions of Malaysia. To lessen GHG emissions in the industry sector, Malaysia has targeted to lower its energy intensity and achieve 23 per cent energy savings from the industrial and commercial sectors by 2050. Cement production and chemical industry are the key emission sectors from the industry in Malaysia. These sectors emitted 9.1 Gt CO2-eq. and 5.8 Gt CO2-eq. in the year 2019, respectively. 

Energy efficiency (EE) is a demand-side management that focuses on lowering the energy consumption level and could be one of the possible solutions to reduce CO2 emissions. Under the industry sector, EE measures can be taken in the form of the replacement of current technologies with more efficient ones. Thus, energy audit is a crucial step to understanding existing energy consumption patterns. By mapping where existing energy is used and served inefficiently, updating energy management would be more effective, as it may also lower operational fees and decrease carbon emitted through industrial processes. Therefore, energy audit plays a crucial role in a more robust and effective EE potential in the industry. Malaysia initiates energy audits for medium and large-sized industries for the period of 2016-2025. Under this initiative, a free energy audit is offered with a requirement in which the owner needs to invest in energy savings measures with an amount equal to or higher than the cost of the audit. It is further complemented by energy management and monitoring to ensure the energy savings measures are on the right track.  

Under the updated framework in the Energy Audit Conditional Grant (EACG 2.0) for 2021-2025, industries consuming at least 100 thousand kWh/month are eligible to apply for a grant of up to RM100,000. Thus, a grant is provided for industries to perform audits aiming to reduce energy consumption.  Once the application is approved, a grant will be handed out, and energy-saving measures must be implemented within the 3 years after the energy audit. Besides the financial assistance given, facilitation and advisory are free for the recipient to implement the measures. While the grant covers costs of design phase of energy efficiency project, there may be limitations on funding availability and distribution. The government aims to manage and distribute these funds efficiently to support as many qualifying projects as possible.   

Compared to the commercial sector, the industrial sector may need higher investment costs for major repairs or replacements due to new technologies. This has caused some challenges in the industry’s energy efficiency financing scheme. The downtime period during the installation and additional maintenance that has not been calculated before might decrease the production target. When the fund is delivered towards a system that fails to meet the expected target for energy savings, this will result in a waste of funds. Thus, the applicant might need to invest in unforeseen additional costs. A miscalculation on the audit would lead to a longer payback period and a postponed return on investment. Furthermore, the project might gradually lose its feasibility and be no longer attractive. 

To mitigate the performance risk of EE project, improving the credibility of energy audit report, especially in industry sector, is crucial. In conducting the energy audit, Energy Service Company (ESCO), registered and certified under the Energy Commission, will be appointed by applicants. ESCO and the industry are encouraged to collaborate in designing the entire process of the EE aimed to achieve saving productivity goal that enable the project to recover all the cost of CAPEX and OPEX with agreed financial criteria of EE investment.   
Furthermore, an allocated fund could be used to ensure that the risk allocators are all well defined in energy performance contract (EPC) to meet the prerequisite criteria that agreed by client and investor. This fund would act as a safety net for the unpredicted cost that might arise in the operation and maintenance after implementing the energy savings measures. It would enable the ESCO to precisely identify performance and business risks and define an EE business model that enhances the project’s bankability. This approach ensures a more robust risk management strategy, aligning the interests of all parties involved and increasing the likelihood of successful EE project implementation and financing. Currently, the EACG does not include a mandatory inclusion of renewable energy while implementing energy savings measures. With the goal of reducing energy intensity, the government might need to consider taking a step forward by integrating renewable energy sources into the existing EE financing scheme by further collaborating with the assigned authority. With heat processes across industries taking up most of the energy consumption, renewable sources –such as heating technologies– could be an alternative energy source for cooling or processing heat, cutting the energy consumption for heat demand. For the implementation, renewables could start on a small scale to achieve the energy savings target with a smaller capital cost instead of being the main source. However, ESCO needs to assess the integration of renewable sources during the report to determine whether it provides a high return on investment or better allocates it to other measures. If it is within the budget, the industry could exercise the “sinking fund” that has been addressed before as a safeguard in the OPEX of a new technology. Not only does the policy cover EE in the industry sector, but it also supports the practice of using sustainable energy sources to achieve the long-term net zero goal. In addition to the above-mentioned risk reduction options, the performance risk transferring scheme (such as through an energy-saving insurance company) can also be included in the options.  

Lastly, existing regional (ASEAN) level cooperations, such as the potential development of standardised energy management and audit protocols across member states, knowledge-sharing platform and capacity-building programme (targeted to ESCOs, energy managers and auditors), can also effectively strengthen Malaysia’s internal capabilities and help the country to benchmark its practices against regional best practices. Moreover, under the Sustainable ASEAN Energy Management Scheme (SAEMAS) activities, enhancing the quality of energy audits in addition to adding up the numbers of energy audit managers through capacity building is also emphasised. This eventually can foster improvement in the country’s energy audit quality and effectiveness to reduce the risk associated with EE projects, meanwhile also supports ASEAN’s collective EE&C objectives under the APAEC.