STUDY ON PRIVATE-INITIATIVE INFRASTRUCTURE PROJECTS IN DEVELOPING COUNTRIES IN FY2011

Transcription

1 STUDY ON PRIVATE-INITIATIVE INFRASTRUCTURE PROJECTS IN DEVELOPING COUNTRIES IN FY2011 Study on the Solar Photovoltaic Power Generation Projects in the Federation of Malaysia FINAL REPORT February 2012 Prepared for: The Ministry of Economy, Trade and Industry Prepared by: Nippon Koei Co., Ltd ORIX Corporation

2 Reproduction Prohibited

3 Preface This report is based on the result of our Study on Private-Initiative Infrastructure Projects in Developing Countries. Related tasks were delegated to Nippon Koei Co., Ltd. and ORIX Corporation in fiscal year 2011, by the Ministry of Economy, Trade and Industry. The Study on the Solar Photovoltaic Power Generation Projects in the Federation of Malaysia involves conducting a survey to determine the implementability of the project, which is estimated to cost JPY 2.3billion. The project is intended to produce power, generated by a 10 MW solar photovoltaic power system, for the suburb of Ipoh in the State of Perak. Its implementation is expected to be under the Feed-in Tariff mechanism, which is introduced for the promotion of renewable energy in Malaysia. We hope this report will contribute to the realization of the project mentioned above, and serve as reference for related organizations in Japan. February 2012 Nippon Koei Co., Ltd. ORIX Corporation

4 Proposed Project Site Proposed Project Site Map Source: Made by Study Team based on CIA World Factbook / Department of Surveyand Mapping, Malaysia

5 Abbreviation BM BoS CDM CEMD CF CM COP DL DNA DOE EC EIA EIRR EPC EPU ESCO FIRR FiT FOB GDP GEF GHG IPP IRR ITA JBIC JICA JPY kw kwh MBIPV Mboe MEGTW METI MJ MNRE MTOE Build Margin Balance of System Clean Development Mechanism Conservation and Environmental Management Divisor Cash Flow Combined Margin Conference of the parties Distribution Licensee Designated National Authority Department of Environment Energy Commission Environmental Impact Assessment Economic Internal Rate of Return Engineering Procurement Construction Economic Planning Unit Energy Service Company Financial Internal Rate of Return Feed-in Tariffs Free on Board Gross Domestic Product Global Environmental Facility Green House Gas Independent Power Producer Internal Rate of Return Investment Tax Allowance Japan Bank for International Cooperation Japan International Cooperation Agency Japanese Yen kilowatt kilowatt hour Malaysia Building Integrated Photovoltaic Million Barrel of Oil Equivalent Ministry of Energy, Green Technology and Water Ministry of Economy, Trade and Industry Megajoule Ministry of Natural Resources and Environment Million Ton of Oil Equivalent

6 MW MWh NCCDM NEDO NK NOx NREPAP NSCCC OECD OLM OM ORIX PJ PS PSS PTM PV RE REPPA RM SEB SEDA SESB SOx SPC SSE TNB TOE UNDP UNFCCC Megawatt Megawatt hour National Committee on CDM New Energy and Industrial Technology Development Organization Nippon Koei Co., Ltd Nitrogen Oxide The National Renewable Energy Policy and Action Plan National Steering Committee on Climate Change Organization for Economic Co-operation and Development ORIX Leasing Malaysia Operating Margin ORIX Corporation Petajoule Pioneer Status Power System Study Pusat Tenaga Malaysia Photovoltaic Renewable Energy Renewable Energy Power Purchase Agreement Ringitt Malaysia Sarawak Energy Berhad Sustainable Energy Development Authority Sabah Electricity Sdn. Berhad Sulfur Oxide Special Purpose Company Site Suitability Evaluation Tenaga National Berhad Ton of Oil Equivalent United Nations Development Programme United Nations Framework Convention on Climate Change

7 Executive Summary Contents Chapter 1 Overview of the Host Country and Sector (1) Economy and Financial Situation ) Economic Condition ) Financial Condition (2) Outline of the Project Sector ) Energy Basic Policy ) Organizations Related to Energy Policy ) Trend of Prime Energy in Malaysia ) Trend of Electricity Supply and Demand in Malaysia ) RE Policy ) NREPAP ) Sustainable Energy Development Authority (SEDA) ) FiT Mechanism (3) Conditions in the Targeted Areas Chapter 2 Study Methodology (1) Scope of Survey (2) Survey Organization ) Homework in Japan ) Field Survey in Malaysia ) Selection Method of the Project Site ) Study Organization ) Organization Related to the Project (3) Study Schedule ) Study Schedule ) Terms of Field Survey and Study Contents Chapter 3 Justification, Objectives and Technical Feasibility of the Project (1) Background and Necessity ) Scope of the Project ) Analysis of Present State and Future Forecast ) Impacts of the Project Implementation ) Comparison between the Proposed Project and Other Feasible Projects (2) Study Required for Decision on Contents of the Project ) Demand Forecasting ) Understanding and Analysis on the Problems for Consideration and Decision of the Project Contents

8 3) Review of Technical Measures (3) Planned Outline of the Project ) Basic Policy for Deciding the Scope of the Project ) Conceptual Design and Specifications ) Contents of the Proposed Project ) Problems and Solutions Related to the Proposed Technology and System Chapter 4 Evaluation of Environmental and Social Impacts (1) Analysis on Environmental and Social Impacts ) State Analysis ) Future Forecast (If Project is Not Implemented) (2) Environmental Improvement Effects by the Project (3) Project Influence on Environmental and Social Sectors ) Environmental and Social Items to be Considered ) Comparison between the Proposed Project and Other Feasible Projects ) Discussion with Implementing Agencies (4) Outline of Related Laws and Regulations on Environmental and Social Considerations4-14 1) Outline of the Related Laws and Regulations for the Implementation of the Project ) Contents of EIA in the Host Country (5) Measures to be Taken by Host Country Government to Achieve Project Objectives Chapter 5 Financial and Economic Evaluation (1) Project Cost Estimate ) Outline of Cost Estimation ) Contents of the Cost Estimation ) Verification of Cost Estimation ) Site Layout and Single Line Diagram of 1 MW System ) Prospect of Cost Estimation for Future 10 MW System (2) Results of the Preparatory Financial and Economic Evaluation ) Conditions Precedent for the Project ) Result of the Evaluation Chapter 6 Planned Project Schedule Chapter 7 Implementing Organization Chapter 8 Technical Advantages of Japanese Company (1) Forms of Participation by Japanese Company (Investment, Equipment Supply, Operational Management) ) Investment and Finance ) Equipment Supply ) Operational Management (2) Technical and Economic Advantages of Japanese Company ) Economic Aspect ) Technical Aspect

9 (3) Measures to Help Japanese Companies Win Contracts ) Water Floating PV Module ) Investment to the Project by PV Module Manufacturers ) PV Module Production at Site ) Measure to Avoid the Risk due to Currency Exchange Rate Fluctuations Chapter 9 Financial Outlook (1) Review of the Fund Source and Fund Raising Plan (2) Feasibility of Fund Raising ) Results of Interview with Banks ) Green Technology Financing Scheme (3) Cash Flow Analysis Chapter 10 Action Plan and Issues (1) Efforts to Realize the Project ) Realization below the total investment cost of USD 2,500/kW for 10 MW system ) Realization of long project finance with low interest rates ) Securing a less costly project site which can be used for long periods ) Selection of an excellent local enterprise as a business partner (2) Efforts to Realize the Project by Implementing Organizations in the Host Country ) Action of concerned organization ) Result of consultation with MEGTW (3) Legal and Financial Restrictions (4) Necessity of Additional Detailed Analysis

10 List of Figures Figure 1-1 GDP growth rate Figure 1-2 Organization Chart of EPU (as of January 2012) Figure 1-3 Organization Chart of MEGTW (as of January 2012) Figure 1-4 Installed Generation Capacity and Maximum Demands in Peninsular Malaysia in Figure 1-5 Target of Generated Power and Fulfilled Power by RE in the Malaysian Plan Figure 1-6 Position of SEDA Figure 1-7 Progress Flow Chart Figure 1-8 Login Page of the On-line System on SEDA Website Figure 1-9 Flow of RE fund Figure 1-10 Map Showing Amount of Solar Radiation in Malaysia Figure 2-1 List of Candidate Sites Figure 2-2 Organization Chart of the Study Team Figure 2-3 Study Schedule Figure 3-1 Solar PV System for the Project Figure 3-2 Power Grid in Peninsular Malaysia Figure 3-3 Monthly Peak Demand of Peninsular Malaysia from 2008 to Figure 3-4 Monthly Energy Demand of Peninsular Malaysia from 2008 to Figure 3-5 Estimated Peak Demand and Reserve Margin of TNB from 2010 to Figure 3-6 System Image of Solar PV System Figure 3-7 Situation of Ipoh Site Figure 3-8 Situation of Kuantan Site Figure 3-9 Situation of Johor Site Figure 4-1 Organization Chart Related to CDM in Malaysia Figure 4-2 Outline of Environmental Impact Assessment Procedure Figure 4-3 Application Procedure for Environmental Requirements in Malaysia Figure 5-1 Site Layout Drawing Figure 5-2 Single Line Diagram Figure 5-3 Implementation Structure (Financing, Consulting Type of Business) Figure 5-4 Implementation Structure (Special Purpose Company) Figure 6-1 Planned Project Schdule Figure 7-1 Organization Chart of SEDA (as of January 2012)

11 List of Tables Table 1-1 Revenue, Expenditure and Overall Balance of the Malaysian Government Table 1-2 Trend of Prime Energy Demand in Malaysia Table 1-3 Peak Demand and Installed Capacity of Each DL Table 1-4 Target of Generated Power of RE Table 1-5 RE Capacity Target Under FiT Mechanism Table 1-6 FiT Rates for Biogas Table 1-7 FiT Rates for Biomass Table 1-8 FiT Rates for Small Hydro Table 1-9 FiT Rates for Solar PV Table 1-10 Average of Amount of Solar Radiation per Year in Major Cities Table 3-1 Solar Radiation (Monthly Average) Table 3-2 Average, Maximum and Minimum Solar Radiaition and Estimated Power Generation (1 MW System) Table 4-1 Social and Environmental Considerations for PV Power Generation Table 4-2 Related Regulations to Prevent Pollution Table 5-1 Details of Project Cost (1 MW System) Table 5-2 Cost Estimation for Future 10 MW System Table 5-3 Outline of Fiscal Incentives Table 5-4 Financial IRR Sensitivity Analysis 1 (1 MW) Table 5-5 Financial IRR Sensitivity Analysis 2 (1 MW) Table 5-6 Profit and Loss Statement (1 MW) Table 5-7 Precondition (1 MW) Table 5-8 Financial IRR Sensitivity Analysis 1 (10 MW) Table 5-9 Financial IRR Sensitivity Analysis 2 (10 MW) Table 5-10 Profit and Loss Statement (10 MW) Table 5-11 Precondition (10 MW) Table 9-1 Outline of Green Technology Financing Scheme Table 9-2 Cash Flow Analysis (1 MW) Table 9-3 Cash Flow Analysis (10 MW) Table 10-1 The situation of the quota for solar PV over 500kW

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13 Executive Summary

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15 (1) Background of the Project 1) Renewable Energy Policy The development of electricity supply industry is guided by the National Energy Policy (1979), the Four Fuel Diversification Policy (1981), and the Fifth Fuel Policy (2001). In the Eighth Malaysian Plan ( ), renewable energy (RE) was announced as the fifth fuel in the new Fifth Fuel Policy. It is targeted that RE will contribute 5% (500 MW)of the country's total electricity generation by 2005, which is the end of the Eighth Malaysia Plan period. However, the electricity generated by RE to the national grid was only 0.12% (12 MW) at the end of Due to the unfulfilled target, the Malaysian government proposed the Fifth Fuel Policy to be continued to the Ninth Malaysian Plan from 2006 to 2010, and made policies to promote further development of RE sector in the country. By 2010 in the Ninth Malaysian Plan, RE was expected to contribute 350 MW to the total energy supply in Malaysia. However, at the end of 2010, the electricity generated by RE to the national grid was still short at 62.3 MW. In April 2010, the Malaysian government approved the National Renewable Energy Policy and Action Plan (NREPAP) that would serve as the cornerstone for a more aggressive RE development in Malaysia. The Tenth Malaysian Plan ( ) contains goals for the enhancement of the incentive for RE investment, and for introducing RE by generating 985 MW power until Table S-1 Target Generated Power by RE Year Total RE Share of Annual RE Share of RE Annual CO 2 (MW) RE Capacity Generation (GWh) Generation Avoidance (t-co 2 ) % 5,385 5% 3,715, ,080 11% 11,246 9% 7,759, ,000 17% 17,232 12% 11,889, ,370 73% 44,208 24% 30,503,589 Source : Made by Study Team Plan based on The National Renewable Energy Policy and Action Additionally, the Renewable Energy Act 2011 which incorporated the feed-in tariff (FiT) mechanism was adopted by the government in April The FiT mechanism and governmental RE fund were then introduced in December S-1

16 2) Scope of the Project The project involves power production business conducted by private entities under FiT mechanism. The power producer constructs, operates and maintains the solar photovoltaic (PV) power system and supplies the generated power by the solar PV power system to the Distribution Licensees (DLs). A Special Purpose Company (SPC) as power producer is formed for the project. The SPC must do the following tasks for the project: Preparation of the project site (issue letter of intent to the site owner) Preparation of working plan, financing plan and technical design Conduct of power system study for the relevant DLs Checking of the local governmental requirements and reporting to the local government Application to Sustainable Energy Development Authority (SEDA) for approval of FiT holder Signing of Renewable Energy Power Purchase Agreement (REPPA) with the relevant DLs Application to Energy Commission (EC) for the approval of public generation license Financing arrangements Procurement, construction and commissioning of the solar PV power system Operation, maintenance and management of the power station 3) Analysis of the Present State and Future Forecast Solar PV power system seldom fails compared to other power generating systems, and is almost maintenance free. The risk of the power producer is also limited than in other power generating systems, as stable amount of solar radiation can be relatively secured throughout the year in Malaysia. It is noted that the FiT rate for solar PV power system is not sufficient for business. However, when the construction of the whole project is ensured to be less costly, the business for the system is expected to sufficiently sustain the project needs. On the other hand, in the application process to SEDA for the approval of FiT holder, which commenced in December 2011, it was realized that the requirements will exceed 90% of the general amount of project capacity applied to solar PV, which is 140 MW. The quota for the solar PV until the first half of 2014 was closed for several hours after the process of accepting applications. The examination of the application has been carried out, and the other applicants, which were not approved, shall be considered in the future. The initial target amount of the solar PV generation, which is planned under the FiT mechanism in Malaysia, is 190 MW in SEDA issued a notice on a 5 MW limit for each solar PV application. S-2

17 4) Impact of the Project Implementation The following effects are expected in the implementation of the project: a. Environmental Improvement Effects (Carbon Emission Reduction) The power generation amount of 1,300 MWh shall be generated by a solar PV power system of 1 MW at the planned site. An annual carbon emission reduction of ton CO 2 is expected from the solar PV power system of 1 MW, since the grid emission factor in Peninsular Malaysia is t-co 2 /MWh. b. Japanese Manufacturers Entry Into the FiT Market The project leads to investment promotion for Japan through direct participation of a Japanese company. Japanese solar PV power system-related manufacturers who have expressed interest in the project are also willing to directly participate in the project, aside from supplying equipment. Especially manufacturers of PV modules are suffering price decreasing of modules in the market, and they are considering that it will be difficult to continue their business by present business model to just selling modules in future. In case a PV module manufacturer participates in the project, method of participation to invest the cost of PV modules is clear and the method has high possibility. Generally, around 60% of the total project cost is the cost of PV modules. Ratio of investment by Japanese manufacturer will be high and ratio of Japanese product also will be high if Japanese manufacturer of PV module participates to the project. (2) Study Concept The basic policy for deciding the contents of the project is to start with a small scale project. This will confirm the business circumstance prior to implementing a large scale project. In this Study, the capacity of the small scale project is set at 1 MW, and thus, the planning and design were conducted for a 1 MW PV system. The capacity of the large scale project to be implemented afterward shall be 10 MW. The main features of the concept design and specification for 1 MW PV system are shown below: System capacity: Mode of grid connection: Power conditioner: Foundation of support structure: Support structure: Step-up transformer: Control house: Meteorological observation system: 1.0 MW Distribution line, 11 kv, 1 circuit Plural number (in case of Japanese make) Galvanized steel pipes (scaffold pipes) as pile with concrete reinforcement Galvanized steel pipes(scaffold pipes) 0.4/11 kv, 3 phase, 2 x 500 kva Single-story, reinforced concrete construction Solar insolation, ambient temperature, S-3

18 Data collection and communication system: and module temperature Collect meteorological and power data, and communicate with cell phone network The main features of concept design and specification for 10 MW PV system are shown below: System capacity: 10.0 MW Mode of grid connection: Distribution line, 33 kv, 2 circuits Power conditioner: 10 x 1 MW Foundation of support structure: Galvanized steel pipes (Scaffold pipes) as pile with concrete reinforcement, or water floating type Support structure: Galvanized steel pipes (Scaffold pipes) Step-up transformer: 0.4/33 kv, 3 phase, 2 x 5 MVA Control house: Double-stories, reinforced concrete construction Meteorological observation system: Solar insolation, ambient temperature, and module temperature Data collection and communication system: Collect meteorological and power data, and communicate with cell phone network (3) Outline of the Project 1) Total Cost The estimated project cost for the 1 MW PV system is JPY 263 million (RM 10.8 million or USD 3.38 million), for the 10 MW PV system is JPY 2.31 billion. S-4

19 Details of the project cost for the 1 MW system are shown in following table. Table S-2 Details of the Project Cost (1 MW System) Quoted/Estimated Unit Price For 1 MW System (Unit: RM) Unit Price Sub Total % << Cost of Equipment and Works >> A PV Module RM/W ,840, % B Power Conditioner RM/kW 1,030 1,030, % C Mounting Structure RM/kW 2,122 2,122, % D Other Equipment RM/kW , % E Civil/Building/Installation Works RM/kW , % F Other Works and Cost for Procedures *1 944, % G Contingency Cost *2 153, % H Technical Services Cost *3 211, % Total RM 10,752,000 ( in JPY 263,323,000 ) ( in USD 3,382,000 ) << Yearly Cost of Operation and Maintenance >> I Check and Inspection Cost 30,000 J Equipment Repair and Replacement Cost *4 70,000 Total RM 100,000 /year ( in JPY 2,449,000 ) ( in USD 31,000 ) Note: Each subtotal is rounded up or down to the nearest RM 1,000. "in JPY" and in "USD" are rounded up or down to the nearest JPY 1,000 and USD 1,000 respectively. *1: 10% of total of items A to E above *2: 10% of total of items E and F above *3: 2% of total of items A to G above *4: 0.5% of items A, C, D and 3% of item B Source: Study Team based on collected Price Quotation/Information and Analysis S-5

20 Meanwhile, the details of the project cost for the 10 MW system are shown in the following table. Table S-3 Cost Estimation for Future 10 MW System Quoted/Estimated Unit Price For 10 MW System (Unit: RM) Unit Price Sub Total % << Cost of Equipment and Works >> A PV Module RM/W ,000, % B Power Conditioner RM/kW 979 9,790, % C Mounting Structure RM/kW 1,910 19,100, % D Other Equipment RM/kW 779 7,790, % E Civil/Building/Installation Works RM/kW 527 5,270, % F Other Works and Cost for Procedures *1 4,398, % G Contingency Cost *2 967, % H Technical Services Cost *3 933, % Total RM 94,248,000 ( in JPY 2,308,190,000 ) ( in USD 29,647,000 ) << Yearly Cost of Operation and Maintenance >> I Check and Inspection Cost 150,000 J Equipment Repair and Replacement Cost *4 658,000 K Salary of Maintenance Personnel 128,852 Total RM 936,852 /year ( in JPY 22,944,000 ) ( in USD 295,000 ) Note: Each subtotal is rounded up or down to the nearest RM 1,000. "in JPY" and in "USD" are rounded up or down to the nearest JPY 1,000 and USD 1,000 respectively. *1: 5% of total of items A to E above *2: 10% of total of items E and F above *3: 1% of total of items A to G above *4: 0.5% of items A, C, D and 3% of item B Source: Study Team based on collected Price Quotation/Information and Analysis 2) Results of the Preparatory Financial and Economic Evaluation a. Implementation Structure Nippon Koei Co., Ltd. and ORIX Corporation determined that 49% investment shall be shared by SPC. The remaining 51% shall be financed by Malaysian capital companies. Referring to the analysis of financial and economic feasibility discussed below, a trial calculation has been conducted based on the implementation structure. S-6

21 Figure S-1 Implementation Structure(SPC) SEDA Feed-in tariff Land Lease Equity Land or Building Owner or/and Equity Project Management Malaysian Partner SPC Source : Made by Study Team b. FiT Rate Based on the unit rate mentioned under the FiT, a value of RM 1.14/kWh is calculated for an electric generating capacity of 1 MW, and RM 0.95 /kwh for 10 MW capacity. c. Interest and Duration Regarding the terms of financing, considering the result of hearing survey with banks and the availability of the interest subsidy system by the Malaysian government, a provisional calculated interest rate is determined as 5% per annum for a term of 15 years. d. Result of the Evaluation Table S-4 Financial IRR Sensitivity Analysis-1 (1 MW) IRR (15 years) Debt Ratio 0% 50% 70% % 3.3% 3.1% FIT Rate % 5.9% 7.1% (RM/kWh) % 8.6% 11.2% Source : Made by Study Team i. By increasing the rate of borrowing of SPC, a financial leverage effect was determined, boosting profitability. ii. Though the unit price of FiT is RM 1.14/kWh for the first year, the applicable unit price from the beginning of next year shall gradually decrease by 8%. In terms of profitability, the project is expected to be executed by the second year. iii. The case of internal rate of return (IRR) with 0% of borrowing is so called project IRR. S-7

22 Table S-5 Financial IRR Sensitivity Analysis-2 (1 MW) IRR (15 years) Generated (kwh/year) 1,175,504 1,306,116 1,436, % 16.3% 21.6% System Cost % 11.2% 16.2% (RM/W) % 6.9% 11.6% Source : Made by Study Team i. For the installation cost of RM 10/W, IRR with an increase and decrease of 10% is provisionally calculated. ii. Under similar conditions, annual energy production is also provisionally calculated. Changes in energy production have a big influence on the IRR. In case of 10 MW, profitability is reduced since the applicable FiT rates are lower than 1 MW. Table S-6 Financial IRR Sensitivity Analysis-1 (10 MW) IRR (15 years) Debt Ratio 0% 50% 70% % -2.4% -6.9% FIT Rate % 0.5% -1.7% (RM/kWh) % 2.9% 2.4% Source : Made by Study Team Table S-7 Financial IRR Sensitivity Analysis-2 (10 MW) IRR (15 years) Generated (kwh/year) 11,755,044 13,061,160 14,367, % 6.9% 11.7% System Cost % 2.4% 6.9% (RM/W) % -1.8% 2.8% Source : Made by Study Team 3) Evaluation of Environment and Social Impacts Generally, solar PV power system is assumed to cause limited environmental effects. With operating facilities, solar PV power system would not emit effluent or atmospheric pollutant or odour around the site. Also, solar PV power system would not cause noise or vibration. Environmental effect S-8

23 during construction is small because equipment which consists PV power generation is so light that there is no need for large construction machines and large foundation. In spite of the small environmental risk to residential areas in implementing the project, there is a need to confirm legal consistency and to take necessary procedures. This solar PV power generation project is not included among the projects prescribed under the Environmental Quality Act. It became clear from documents or hearing with DOE that EIA is not necessary for this project as long as it does not necessitate land reclamation of over 50 ha. Consultation with relevant agencies about SSE, and obtaining permission for conducting SSE is required for the project. The details of SSE are discussed in the following section. The procedure on SSE is required when constructing a new factory, even if the project does not require EIA. This application is submitted to the DOE state office. (4) Implementation Schedule The project is implemented as a perfect private enterprise. The economic evaluation of the project is estimated continuously from the result of this Study. Considering that the project will be implemented by concerned firms and judging from the method of project implementation, an SPC acting as the responsible business organization will be established. Consequently, the SPC makes an application as power producer and starts construction work after approval of the application. Power generation business will start after October 2013 since the construction period of the solar PV power system of 1 MW is assumed to be about 10 months. Initial start of business shall be planned for solar PV power system of about 1 MW. However, increase in capacity and addition of a new project will also be considered while ascertaining the cost performance and the market situation. Figure S-2 Planned Project Schedule 1 Outline Study Business Scheme Consideration and 2 SPC Establishment 3 Detail Design Preparation Study for Application to 4 SEDA 5 Application for FiT Approved Holder Construction and Installation 7 Commissioning 8 Starting Power Supply Environmental and Social Consideration related laws and regulations Site Suitability Evaluation Source : Made by Study Team S-9

24 (5) Feasibility of the Project 1) Economic Potential In order to achieve the level of profitability for a 10 MW power system, which is normally required when a private company executes a project, it is necessary to reduce the installation cost to a minimum of RM 9/W. In comparison with 1 MW, this allows taking advantage of economies of scale, and hence is considered to be a feasible level, which is achieved by properly selecting the required equipment. On the other hand, even if the installation cost of RM 9/W is achieved, 10% reduction in the amount of solar radiation has a profound effect on profitability. This is because there is a need to carefully select a site that will secure sufficient amount of solar radiation. 2) Scheme Many local companies are expressed interested in this business. During the Study stage, where discussion with two or more companies in the Study has been carried out, and it is considering the business scheme proposed. 3) Marketability The advance of the third nation company to power generation business in FiT mechanism including South Korean companies having already announced the plan of the mega solar power station becomes active. (6) Technical Advantage of Japanese Company The advantages of engaging Japanese companies for the project are examined below, from both economic and technical aspects, corresponding to the forms of their participation mentioned above. 1) Economic Aspect a. Investment and Finance Because Japanese yen is strong, and its procurement interest rate is relatively low compared with Malaysian Ringgit, there is advantage of engaging Japanese companies in terms of both investing in and financing the project. On the other hand, the exchange rate fluctuations pose a large risk in case of investing and financing with Japanese yen. b. Equipment Supply Japanese equipment, which has high-performance but was originally expensive, has decreased its price competitiveness because of strong yen at a level of JPY 70 to USD 1. Judging from the economic aspect, it may be said that there is limited superiority of Japanese companies in equipment S-10

25 supply. Superiority of Japanese product is high reliability and high efficiency. Such superiority is understandable after long duration from the commencement of operation. It is necessary to arrange to compete under the same condition of high reliability and high efficiency for long term if the product price has less price competitiveness. Suppose a project utilizes cheap PV modules as a product for high profitability. However the modules might not be able to generate in nominal efficiency, might break down after a few year, or the efficiency of the modules might be extremely sagged after around 10 years. Such event can be found only many years after the commencement of power generation. It is ideal that the implementation body of the project and investors decide to utilize Japanese product to avoid such future risks even Japanese product is expensive, however it is actually not easy. The implementation body of the project and investors calculate profitability of the project to decide whether the project is implemented or not. If profitability is not high as result of calculation, the project cost is needed to be reduced and utilize cheap product to realize the project. It has a tendency not to consider un-visible risk at the time e.g. breaking down of the cheap product and extreme deceasing of efficiency. As the above, it is a solution to make decision to utilize Japanese product that manufacturers of equipments participate to the side of decision maker of the project and they decide to utilize Japanese product to reduce the un-visible risks in future. In solar PV power generation business, manufacturers compete not in their equipment as product but in generated power as final product of the manufacturers. As a method to reduce the product price, it is the most realistic to heighten the local production ratio. In case of PV modules, assembling cells to module can be done in local. c. Operational Management Because of expensive manpower cost and strong yen, it may be said that there is limited superiority of Japanese companies in terms of operational management similar to equipment supply mentioned above. 2) Technical Aspect The examination from a technical aspect was performed for equipment supply and operational management. The examination of investment and finance was as performed from economic aspect. a. Equipment Supply Japanese companies are highly superior in terms of efficiency and reliability of all kinds of equipment. Equipment supply by Japanese company is possible if the technical superiority of equipment can overcome their inferiority in the economic aspect, by evaluating their life cycle. However it is difficult to prove it and to convince the project implementation body and investors. The current status can be evaluated as shown below. Materials and equipments supplied by Japanese companies are considerably expensive S-11

26 than ones supplied by companies of other countries. A multitude of materials and equipments supplied by third countries are utilized for other project and the efficiency and reliability of the materials/equipments are not low to disturb the implementation of the project. There are not enough premises to show technical advantage of product supplied by Japanese company overcomes economical disadvantage of price difference and to induce the implementation body and investors to introduce Japanese product for decision making to utilize product supplied by Japanese companies. b. Operational Management For "the operational management at the time of the project setup" and "the operational management after completion of PV system, Japanese companies are superior in the technical aspect. On the other hand, as mentioned above, there is less superiority of Japanese companies in economic aspect because of the high manpower cost. However, it is assumed that participation of Japanese companies is essential for operational management because at present, there are no Malaysian companies which have experience in introducing and operating grid-connected PV system. (7) Risk on the Execution of the Project 1) Approval and license for implementation of the Project Approval and license for implementation of the project must be required before implement of power supply business as follows. And an SPC acting as the responsible business organization will be established to apply for the approval of a feed-in approval holder (FiA). To apply for FiA from SADA To make contract of Renewable Energy Power Purchase Agreement (REPPA) with relevant Distribution Licensee (DL). To apply for public generation license from the Energy Commission. The SPC must prepare permission of the use of the project site, basic design of the system, result of power system study (PSS) by DL, confirmation to relevant local authority, financing plan and work plan before application to SEDA for approval. In order for a foreign company to become a FiT-approved holder, it is necessary to establish a joint corporation with local companies. The foreign equity shareholder is capped maximum at 49%. Many local companies expressed interest in this business. 2) Challenges for implementation of the Project In order for implementation of the project, the biggest challenge is to increase economy of the project. The efforts and solutions for the challenge are as follows. S-12

27 a. Realization below the total investment cost of USD 2,500/kW for 10 MW system It can be judged that it is sufficiently feasible to execute the project if construction cost does not exceed USD 2,500/kW, which is approximated from a local system integrator. Since a FiT rate for solar PV becomes less costly when installed capacity exceeds 1 MW, the project s economic efficiency becomes low. Consequently, the project will not be considered as a profitable business. In the future, it is preferable to consider less costly construction methods in the design and estimates. b. Realization of long project financing with low interest rates If financing will be by a Malaysian bank, long-term finance of years is possible. Financing with interest rates of as low as around 5% is possible if green technology financing scheme of the Malaysian government can be applied. c. Securing less costly project site, which can be used for long periods The landowner of the proposed site in Ipoh is a local government, while the local private company has the right to use the land, being the land holder. Compared with unused land of other private companies, such land can be used at a low cost and for a long term. This is based on the rights of the land holder depending on the method adopted in the site for the project implementation. 3) Risk of reviewing FiT mechanism in future Because the project is carried out based on FiT mechanism, it may be affected by the review of the mechanism. The quotas for solar PV after from late in 2014 have yet to be decided. Because many applicants and projects were applied for the quota of solar PV until first in 2014, SEDA issued a notice on a 5 MW limit for each application. The schedule and design of the project may be affected by such reviewing FiT mechanism. S-13

28 (8) Map Showing Implementation Area Project Site Project Site Map Source: Made by Study Team based on CIA World Factbook / Department of Surveyand Mapping, Malaysia S-14

29 Chapter 1 Overview of the Host Country and Sector

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31 GDP per capita(usd) Real GDP growth rate(annual %) (1) Economy and Financial Situation 1) Economic Condition In 2009, the gross domestic product (GDP) of Malaysia is about USD billion and the GDP per capita is USD 6,975. Malaysia is classified as among the higher middle-income countries. Malaysia s GDP growth rate was kept high at 9% from the late 1980s to 1997, during the Asian currency crisis. Its economy fell at -7.4% growth in 1997, but recovered from the recession through economic stimulus policy and large financial assistance from Japan. Since then, Malaysian economy sustained a stable growth with GDP growth rate maintained at 6%. However, when the economy went into recession due to the world economic crisis in 2008, the GDP per capita remained at 4.6% while its growth rate was at -1.9%. After that, the growth rate rebounded at 7.2% in 2010 due to the economic improvement, and monetary and financial policy. Figure 1-1 shows the trend of real GDP growth rate and GDP per capita from 1990 to Figure 1-1 GDP growth rate 10, , , , , GDP per capita(usd) Real GDP growth rate(annual%) Source : Made by Study Team based on Annual Report issued by Central Bank of Malaysia 2) Financial Condition As shown in Table 1-1, the revenue of the Malaysian government in fiscal year 2009 is about RM billion, which is about 30% of the GDP. On the other hand, the expenditure during the same year was about RM billion while the Malaysian government s deficit was RM 47.5 billion. 1-1

32 Table 1-1 Revenue, Expenditure and Overall Balance of the Malaysian Government Revenue Expenditure Overall Balance year RM billon As % of GDP RM billon RM billon As % of GDP Source : Made by Study Team based on Annual Report issued by Central Bank of Malaysia (2) Outline of the Project Sector 1) Energy Basic Policy In Malaysia, the energy policy turned to diversification and stabilization of the source of energy supply after the looming oil crisis. The energy policy of the country is formulated by the energy section of the Economic Planning Unit (EPU) under the Prime Minister s department, and aims at supporting the national economic development considering the following three principal energy objectives, based on National Energy Policy (1979): Supply objective: To ensure the provision of adequate, secure, and cost-effective energy supplies through developing indigenous energy resources, both non-renewable and renewable; Utilization objective: To promote efficient utilization of energy and to discourage wasteful and non-productive patterns of energy consumption; and Environmental objective: To minimize negative impacts of energy production, transportation, conversion, utilization and consumption to the environment. The government s strategies in achieving the above objectives include the following: Secure supply: Diversification of fuel type and sources, technology, maximized use of indigenous energy resources, and adequate reserve capacity to cater for contingencies; Sufficient supply: Forecast demand, right energy pricing, and formulate plans to meet the demand; Efficient supply: Promote competition in the electricity supply industry; Cost-effective supply: Provide indicative supply plan to meet demand based on least cost 1-2

33 approach, using power system software; Sustainable supply: Promote the development of renewable and co-generation as much as possible; Quality supply: Match quality with customer demand through variable tariffs; Efficient utilization of energy: Promote energy efficiency and conservation by bench marking, energy auditing, financial and fiscal incentives, technology development, promotion of energy service company (ESCO), labeling system, correct pricing, energy management; and Minimizing negative environmental impacts: Monitor the impacts, improve efficiency of utilization, and conversion and promotion of renewable energy. Also, the energy policies in Malaysia, such as stabilization of the source of energy supply, promotion of the development of renewable energy, and promotion of energy efficiency and conservation are set in the Malaysian Plan, which defines more specific national development plan for the country every five years. 2) Organizations Related to Energy Policy a. Economic Planning Unit (EPU) EPU was established in 1961 under the Prime Minister Department. It is the principal government agency responsible for the preparation of development plans for the nation. Energy section of EPU has the following key functions: Formulate policies and strategies for the sustainable development of the energy sector; Promote the development of oil and gas industries; Ensure adequate, stable, quality and cost-effective supply of energy; Promote increased utilization of renewable energy and energy efficiency in the energy sector; and Provide allocation for energy-related development programs and evaluate their achievements. 1-3

34 The organization chart of EPU is shown in Figure 1-2. Figure 1-2 Organization Chart of EPU (as of January 2012) Source : EPU Internet Website b. Ministry of Energy, Green Technology and Water (MEGTW) MEGTW, which was established during a cabinet reshuffling to replace the Ministry of Energy, Water and Communications in April 2009, is responsible in formulating policies and strategies, as well as undertaking planning for electricity supply in Malaysia. Its main functions are as follows: Development of policy, legal framework, regulation, etc., for energy and water, concerning environmental technology; Set up of the target in accordance with the national development goal; and Development of an efficient management system and a monitoring system. 1-4

35 The organization chart of MEGTW is shown in Figure 1-3. Figure 1-3 Organization Chart of MEGTW (as of January 2012) Source : MEGTW Internet Website 3) Trend of Prime Energy in Malaysia The trend of prime energy demand from 2008 in Malaysia is shown in Table 1-2. It is noted that Malaysia's crude oil production has been stable in recent years. 1-5

36 Table 1-2 Trend of Prime Energy Demand in Malaysia (*1) 2011 (*2) (PJ) (PJ) (PJ) (PJ) Petroleum Products 1, % 1, % 1, % 1, % Electricity % % % % Natural Gas % % % % Coal & Coke % % % % Total 1, % 1, % 1, % 1, % Notes: *1 Preliminary data *2 Forecast data Source: Made by Study Team based on The Malaysian Economy in Figures 2011 by EPU After a pause during the Asian financial crisis, Malaysia's domestic petroleum product consumption is growing again, and the country is expected to become a net oil importer before the end of the current decade. 4) Trend of Electricity Supply and Demand in Malaysia The country s main power utility companies are Tenaga National Berhad (TNB), Sabah Electricity Sdn. Berhad (SESB) and Sarawak Energy Berhad (SEB), which cover the regions of Peninsular Malaysia, Saba and Sarawak, respectively. All the three main power utility companies in Malaysia are government-linked companies and are very much influenced by government policy. The trend of peak demand and installed capacity from 2008 in Malaysia is shown in Table 1-3. Electricity generating capacity has increased by 20% between 2000 and Total installed capacity was estimated at 25,000 MW in 2010, and peak demand was anticipated at 17,000 MW. Per capita electricity demand is on the rise, and is expected to reach or even exceed the OECD average by Table 1-3 Peak Demand and Installed Capacity of Each DL Power Utilities TNB (2010) SESB (2010) SEB (2009) Maximum Demand (MW) 15, ,036 Installed Capacity (MW) 21, ,230 Natural Gas 54.0% % Coal 40.0% 31.0% 34.0% Generating Mix Oil % - Hydro 5.2% 9.0% 8.0% Diesel % RE 0.8% 3.0% - Source : Made by Study Team based on The Malaysian Economy in Figures 2011 by EPU 1-6

37 In the project area in Peninsular Malaysia, the total installed generation capacity increased by 2,094 MW, or 10.6% from 19,723 MW in 2008 to 21,817 MW on December 31, Figure 1-4 Installed Generation Capacity and Maximum Demands in Peninsular Malaysia in 2009 Source : Electricity Supply Industry in Malaysia by TNB 5) RE Policy The development of electricity supply industry is guided by the National Energy Policy (1979), Four Fuel Diversification Policy (1981), and Fifth Fuel Policy (2001). In the Eighth Malaysian Plan ( ), RE was announced as the fifth fuel in the new Fifth Fuel Policy. It is targeted that RE will contribute 5% (500 MW) of the country's total electricity generation by 2005, which is the end of the Eighth Malaysia Plan period. However, the capacity generated by RE to the national grid was only 0.12% (12 MW) at the end of Due to the unfulfilled target, the Malaysian government has proposed the Fifth Fuel Policy to be continued to the Ninth Malaysia Plan from 2006 to 2010, and made policies to promote further development of RE sector in the country. By 2010, in the Ninth Malaysia Plan, RE was expected to contribute 350 MW to the total energy supply in Malaysia. However, at the end of 2010, the capacity generated by RE to the national grid was still short at 62.3 MW. 1-7

38 Figure 1-5 Target of Generated Power and Fulfilled Power by RE in the Malaysian Plan Eighth Malaysian Plan ( ) Target of generated power by RE: 500MW Only 12MW Ninth Malaysian Plan ( ) Target of generated power by RE: 350MW (300MW in Peninsular Malaysia, 50MW in Sabah) 62.3 MW (Connected to the grid) Source : Made by Study Team In April 2010, the Malaysian government approved the the NREPAP that would be the cornerstone for a more aggressive RE development in Malaysia. The Tenth Malaysian Plan ( ) contains goals for the enhancement of the incentive for RE investment, and for introducing RE by generating 985 MW power until Additionally, the Renewable Energy Act 2011, which is incorporated the FiT mechanism and the Sustainable Energy Development Authority Act 2011 which is intended to establish the implementation organization of FiT were adopted by the government in April <Renewable Energy Act 2011> Part I: Part II: Part III: Part IV: Part V: PRELIMINARY FEED-IN TARIF SYSTEM CONNECTION, PURCHASE AND DISTRIBUTION OF RENEWABLE ENERGY FEED-IN TARIFF RENEWABLE ENERGY FUND 1-8

39 Part VI: Part VII: Part VIII: Part IX: INFORMATION GATHERING POWER ENFORCEMENT GENERAL SAVINGS AND TRANSITIONAL <Sustainable Energy Development Authority Act 2011> Part I: Part II: Part III: Part IV: Part V: Part VI: PRELIMINARY THE AUTHORITY FUNCTIONS AND POWERS OF THE AUTHORITY EMPLOYEES OF THE AUTHORITY FINANCE GENERAL Based on the Act mentioned above, Sustainable Energy Development Authority (SEDA) and RE fund was established in September 2011, and the FiT mechanism was started in December The power supply produce by RE in Malaysia is carried out in the Act mentioned above and under the supervision of SEDA. 6) NREPAP a. Renewable Energy Policy The policy in NREPAP approved in April 2010 has five objectives as follows: To increase RE contribution in the national power generation mix; To facilitate the growth of the RE industry; To ensure reasonable RE generation costs; To conserve the environment for future generation; and To enhance awareness on the role and importance of RE. b. Strategic Mission The Malaysian government has five strategic action plans to achieve the abovementioned objectives. Strategic mission 1: Introduce appropriate regulatory framework Strategic mission 2: Provide conducive environments for RE business Strategic mission 3: Intensify human capital development Strategic mission 4: Enhance RE research and development Strategic mission 5: Design and implement an RE advocacy programme c. Targets and Success Indicators The targets for the introduction of RE are set as 5% of the total electric generation in 2015, 9% in 2020, and 12% in 2030, under NREPAP. 1-9

40 Table 1-4 Target of Generated Power of RE Year Total RE (MW) Share of RE Capacity Annual RE Generation (GWh) Share of RE Generation Annual CO 2 Avoidance (t-co 2 ) % 5,385 5% 3,715, ,080 11% 11,246 9% 7,759, ,000 17% 17,232 12% 11,889, ,370 73% 44,208 24% 30,503,589 Source : Made by Study Team based on NREPAP 7) Sustainable Energy Development Authority (SEDA) SEDA is a statutory body formed as a lower organization of MEGTW under the SEDA Act 2011 [Act 726]. The key role of SEDA is to administer and manage the implementation of the FiT mechanism, which is mandated under the Renewable Energy Act 2011 [Act 725]. Figure 1-6 Position of SEDA Ministry of Energy, Green Technology & Water (MEGTW) Energy Green Technology Water Renewable Energy Sector Electricity Sector SEDA Energy Commission Implementing Authority Regulator A new organization was formed under the Sustainable Energy Development Authority Act 2011 [Act726] Source : Made by Study Team SEDA has all the functions conferred on it under the Renewable Energy Act 2011, and any other renewable energy laws. Its functions also include the following: To advise the Minister and relevant government entities on all matters relating to 1-10

41 sustainable energy, including providing recommendations on policies, laws and actions to be applied for promoting RE; To implement the national policy objectives for RE; To promote and develop RE; To implement, monitor and review the FiT mechnism; To implement RE laws and to recommend reforms to such laws to the government; To recommend to relevant government entities fiscal incentives applicable to investment in the RE sector; To promote private sector investment in the RE sector; and To conduct training for the development of human resources and capacity building in the sustainable energy sector. 8) FiT Mechanism RE under the FiT mechanism adopted in April 2011 is classified into four categories, namely: biogas (inclusive of landfill/sewage), biomass (inclusive of municipal solid waste), small hydro and solar PV. The outline of the FiT mechanism is as follows: a. RE Capacity Target Table 1-5 RE Capacity Target Under FiT Mechanism Source : FiT Handbook issued by MEGTW b. FiT Rates FiT rates for every energy source are shown in Table 1-6 to Table 1-9. If the system satisfies the requirements as per the criteria, a bonus rate is added to the original FiT rate. However, annual degression rate is established under FiT rates. The effective periods of the applied rate are 16 years for biogas and biomass, and 21 years for small hydro and solar PV. The FiT rate is fixed from the commencement date. 1-11

42 Table 1-6 FiT Rates for Biogas Source : FiT Handbook issued by MEGTW Table 1-7 FiT Rates for Biomass Source : FiT Handbook issued by MEGTW 1-12

43 Table 1-8 FiT Rates for Small Hydro Source : FiT Handbook issued by MEGTW Table 1-9 FiT Rates for Solar PV Source : FiT Handbook issued by MEGTW c. Progress Flow Chart The procedure to ensure progress of the power producer in FiT mechanism is shown in Figure 1-7. Approval and license for implementation of the project must be required before implement of power supply business as follows. To apply for approval of FiT holder from SEDA To make contract of Renewable Energy Power Purchase Agreement (REPPA) with 1-13

44 relevant Distribution Licensee (DL). To apply for public generation license from the Energy Commission. The applicants must prepare the legal rights for the site, basic design of the system, power system study (PSS) by DL, confirmation from relevant local authority, financing plan and detailed work plan before submitting application to SEDA as mentioned in Step 2 of the following flow chart. 1-14

45 Figure 1-7 Progress Flow Chart Source : Website of SEDA 1-15

46 The website of SEDA contains information on FiT mechanism. On-line application for being a FiT approved holder is possible through the website of SEDA. Immediately after receiving application, which started on December 1, 2011, the on-line system could not be accessed temporarily. At present, there is no problem in accessing the on-line system. Figure 1-8 Login Page of the On-line System on SEDA Website Source : SEDA Website 1-16

47 d. RE Fund The FiT mechanism in Malaysia is not financed from tax revenue. Instead, it is financed by an RE fund which is derived by passing the FiT cost to final electricity consumers. However, the passing of this cost is limited to only 1% of the total electricity revenue generated by the utilities. Management of the RE fund will be under the supervision of SEDA. The RE fund can only be used for the purpose of disbursing the FiT payment claims made by the DLs, and to cover any administrative expenses relating to the FiT implementation Figure 1-9 Flow of RE fund RE Fund (SEDA) 1% of Electricity Bill for RE Fund 1% of Electricity Bill for RE Fund RE Fund (SEDA) Payment for clam of differential between FiT payments and market cost Distribution Licensee 99% of Electricity Bill Distribution Licensee 100% of Electric Bill (After tariff review) FiT Payment for distributed electricity from FiTH (1% of Electricity Bill for RE Fund) Electricity Consumer FiTHs Source : Made by Study Team based on FiT handbook (3) Conditions in the Targeted Areas Malaysia has abundant amount of solar radiation as shown in Figure 1-10 and Table 1-10, and thus, it is a place suitable for using solar PV system. In Peninsular Malaysia, the amount of solar radiation in its northern part is more than that in the southern part. Average amount of solar radiation per year (kwh/m 2 ) in Malaysia s major cities is shown in Table

48 Table 1-10 Average of Amount of Solar Radiation per Year in Major Cities Source : National Renewable Energy Policy and Action Plan Figure 1-10 Map Showing Amount of Solar Radiation in Malaysia Source : National Renewable Energy Policy and Action Plan 1-18

49 Chapter 2 Study Methodology

50

51 (1) Scope of Survey Scope of survey is intended to evaluate Japanese companies participation by collecting information about FiT mechanism enforced on December 1, It also aims to evaluate the economic viability of the PV power business Also, the Study Team collected information from finance institutions to determine financial conditions on special loan related to the project s aim of conserving the environment. The information will also be useful in determining a suitable finance model and business scheme for the power production business by solar PV. a. FiT Mechanism It is necessary to conduct survey on business environment about the general conditions of FiT mechanism, FiT rate, terms, and approval for FiT holder. b. Technological Item for Grid Connection It is required to confirm the technological item for grid connection through discussion with the DLs. c. Analysis of Environmental and Social Impacts Environment and social impacts shall be evaluated based on the requirements stipulated in the JICA Guidelines for Environmental and Social Considerations and JBIC Guidelines on Environmental and Social Considerations. d. Project Cost Estimate and Outline Design It is required to perform field survey for the candidate sites to determine connecting points to the grid, and identify basis for outline design. The estimated project cost shall be based on the outline design. e. Financing Financing will be planned by collecting information on financial environment in Malaysia. f. Economical Evaluation of the Business Business scheme by Japanese company shall be considered based on the result of above survey. g. Conserve Environment (Reduce CO 2 emission) Effects of conservation of environment through the implementation of the project shall be estimated. h. Identify the Problems Problems for the implementation of the business shall be identified. 2-1

52 (2) Survey Organization 1) Homework in Japan Preparation of field survey and collecting data related to existing documents Collecting information and performing analysis Consideration of business environment, e.g., financing and regulation Economical evaluation and business scheme consideration 2) Field Survey in Malaysia Confirmation of the state s situation and conducting joint meetings with local consultant Field survey on the candidate site and interview with financial institution and government affiliated organization Financial consideration; estimation of project cost; technical meeting about grid connection Meeting regarding the implementation of the project 3) Selection Method of the Project Site Four field survey sites are selected from among the 19 candidate sites in Figure 2-1, through the following primary selection criteria: Criteria 1: It is available to construct more than 1 MW solar PV power Criteria 2: It is available to use the site for long term of more than 21 years Criteria 3: There is a connecting point to the grid near the site Criteria 4: Site is flat Criteria 5: Landowner allows the Study Team to perform field survey in the candidate site 2-2

53 Figure 2-1 List of Candidate Sites Kedah Penang 12, 13 Pahang Kuantan 7, 8, 9, 10, 11, 16, 17, 18 Perak Ipoh 15 Kuala Lumpur Johor Pasir Gudang 19 Selangor Shah Alam 14 Melaka 1, 2, 3, 4, 5, 6 No Area Land Owner Land Area Capacity Criteria (Acres) (m2) (kw) Melaka Malaysian Company 5 20,000 1,300 A C C C C 2 Melaka Malaysian Company , B C C C C 3 Melaka Malaysian Company , B C C C C 4 Melaka Malaysian Company B C C C C 5 Melaka Malaysian Company 1.5 6, B C C C C 6 Melaka Malaysian Company N/A N/A N/A - C C C C 7 Kuantan Malaysian Company 3 12, B C C C C 8 Kuantan Malaysian Company >5 >20,000 1,300 A C C C C 9 Kuantan Malaysian Company 7 28,000 1,800 A C C C C 10 Kuantan Malaysian Company 10 40,000 2,600 A C C C C 11 Kuantan Malaysian Company >3 >12, B C C C C 12 Penang Japanese Company 2 8, B C C C C 13 Penang Malaysian Company 5 20,000 1,300 A C C C C 14 Shar AlamJapanese Company >3 >12, B C C C C 15 Ipoh Malaysian Company 10 40,000 2,600 A A A A A 16 Kuantan Malaysian Company >3 >12, B C C C A 17 Kuantan Malaysian Company >3 >12, B C C C A 18 Kuantan Malaysian Company >10 >40,000 2,600 A A A A A 19 Johor BaruMalaysian Company >2.5 >10, B A A A A 1 Estimated by Land Space A: eligible, B: ineligible, C: No reply Source : Made by Study Team 2-3

54 Study Team surveyed the following four sites selected from among the 19 candidate sites. No.15 : A vacant lot in Ipoh where tin mining is being conducted No.18 : Two lots at an industrial area in Kuantan No.19 : On the roof of factory/warehouse at an industrial area in Johor 4) Study Organization This study was carried out by the joint venture between Nippon Koei Co., Ltd. and ORIX Corporation. The organization of the Study Team is shown in Figure 2-2. Figure 2-2 Organization Chart of the Study Team Head company:nippon Koei Co., Ltd. Power Engineering Administration Engineering Division Energy Solution business Dept. Team Leader Business planning Tsutomu MORI Technical engineer 1 Photovoltaic system and synchronaization Tomoyasu FUKUCHI Technical engineer 2 Design, Construction Plan and Estimation Ryousuke OGAWA Technical engineer 3 Design, Construction Plan and Estimation Naoya MATSUMOTO Evaluation of environment and social impacts Shinji TANAKA Cooperating Company:ORIX Corporation Economic financial evaluation1 Nobuomi IOKAMORI Economic financial evaluation2 Kiyoharu TSUKADA Malaysia Local consultant :MIRASTECH Sdn. Bhd. Preliminary survey in Malaysia Interview with organization Assistance for Study Team Support Local assistant ORIX Leasing Malaysia Berhad Takashi KITAMURA Source : Made by Study Team 2-4

55 5) Organization Related to the Project Regulatory agency: Sustainable Energy Division of MEGTW (Organization chart refer to Figure1-3) Implementing organization: Feed-in Tariff Division of SEDA (Organization chart refer to Figure7-1) (3) Study Schedule 1) Study Schedule Study schedule is shown in Figure 2-3 Figure 2-3 Study Schedule Field Survey in Malaysia First Field Survey Confirmation of surrret state Negotiation and discussion with local consultant Second Field Survey Site survey at a few candidate site Market survey in financing Interview survey to th organization cocerned Third Field Survey Estimation of the project cost Negotiation to TNB on synchonizing with the grid system Forth Field Survey Developing the implementation plan of projects Home work in Japan Preparation for the Study Preparation works Gathering theinformation First Home work Gathering theinformation by local consultant Analyzing of the information Second Home work Study of the business environment Basic design of the system Third Home work Economical evaluation and study of the Implementation scheme Forth Home work Summarizing the study Source : Made by Study Team Jul Aug Sep Oct Nov Dec Jan Feb 2) Terms of Field Survey and Study Contents a. 1 st field survey Term: September 8, 2011 to September 15, 2011 Study contents: Meeting with interested party and site survey for two candidate sites (No.15 and No.19) 2-5

56 b. 2 nd field survey Term: October 17, 2011 to November 10, 2011 Study contents: Meeting with MEGTW and SEDA, site survey for two candidate sites of No. 18, interview with DOE, meeting with candidate business partner, visit financial institution, and request for quotation from local system integrator c. 3 rd field survey Term: December 4, 2011 to December 17, 2011 Study contents: Meeting with MEGTW, site survey for the project site, interview with local DOE, visit local financing institution, market price survey on equipment for PV power d. 4 th field survey Term: January to February 4, 2012 Study contents: Meeting with MEGTW for explaining the result of the survey, and meeting with interested party 2-6

57 Chapter 3 Justification, Objectives and Technical Feasibility of the Project

58

59 (1) Background and Necessity 1) Scope of the Project The Project is related to power production business conducted by private entities under FiT mechanism. The power producer constructs, operates and maintain the solar PV power system, and supplies DLs with the power generated by the solar PV power system. An SPC of the power producer is formed for the project. The SPC must do the following tasks for the project: Preparation of the project site (submit letter of intent to the site owner) Preparation of the working plan, financing plan and technical design Conduct of power system study with the relevant DL Checking of local governmental requirements and reporting to the local government Application to SEDA for approval of FiT holder Signing of REPPA with relevant DL Application to EC for approval of public generation license Financing arrangements Procurement, construction and commissioning of the solar PV power system Operation, maintenance and management of the power station 3-1

60 The solar PV power system constructed by the project is shown in Figure 3-1. Figure 3-1 Solar PV System for the Project PV Array Connection Box Connection Box Junction Box Inverter - ~ Isolating Transformer Protection Devise Power Conditioner 400V Cubicle Step up Transformer M DL Cubicle PV Module Structure for PV Array AC Distribution Panel Data Collecting System Power Conditioner Internal Power Source Project Site Source : Made by Study Team 2) Analysis of Present State and Future Forecast Solar PV power system seldom fails as compared to other power generating systems, and is almost maintenance free. The risk of the power producer is also limited than that in other power generating systems, as stable amount of solar radiation can be relatively secured throughout the year in Malaysia. It is noted that the FiT tariff for solar PV power system is not sufficient for business. However, when the construction for the whole project is ensured to be less costly, the business for the system is expected to sufficiently sustain the project needs. At the implementation of the project, the project should apply Japanese equipment as much as possible. Superiority of Japanese product is high reliability and high efficiency. Such superiority is understandable after long duration from the commencement of operation. The project leads to develop the new market for a Japanese maker and it can be with a place to appeal for a good point of the high reliability and high efficiency of Japanese product through the long duration of the solar PV power business. If the project is not implemented, the place to appeal for the high reliability and high efficiency of Japanese product would be lost. Moreover, Japanese companies would be lagged behind other Asian countries such as China, Korea, and Taiwan. 3-2

61 3) Impacts of the Project Implementation The following effects are expected in the implementation of the project: a. Environmental Improvement Effect (Carbon Emission Reduction) The power generation amount of 1,300 MWh shall be generated by a solar PV power system of 1 MW at the planned site. An annual carbon emission reduction of t-co 2 is expected from the solar PV power system of 1 MW, since the grid emission factor in Peninsular Malaysia is t-co2/mwh. Details are described in Section 4 (2). b. Japanese Manufacturers Entry into the FiT Market The project leads to investment promotion from Japan through direct participation of a Japanese company. Japanese solar PV power system-related manufacturers who have expressed interest in the project are also willing to directly participate in the project, aside from just supplying equipment. Especially, when a manufacturer of module, which accounts for 60% of the total cost, participates in the project directly, it is possible to raise price competitiveness. 4) Comparison between the Proposed Project and Other Feasible Projects NREPAP, (National Renewable Energy Policy & Action Plan) formulated by MEGTW (The Ministry of Energy, Green Technology and Water), includes biomass, biogas, solid waste and small-hydro RE other than solar PV. However, under FiT mechanism based on the Renewable Energy Act 2011, solar PV will be considered only the unlimited source of energy and the expected important role of national energy. Furthermore, solar PV is superior to other forms of RE (biomass, biogas, solid waste) in terms of effects to ambient air or noise. And also, the power generated by RE other than solar PV were limited to get the source of RE, and more high risk than solar PV. So the operation and maintenance cost became high, the project risk is high as the power production business of emerging start-up by Japanese company. The project is related to power production business conducted by private entities under FiT mechanism. The power producer constructs, operates and maintains the solar PV power system. He is free to choose the system he prefers but for the planned project, there are items that need to be considered. However, it includes the following subjects for project implementation, and it is necessary to compare and examine the following measures and raise the cost performance of the project. Realization below the total investment cost of USD 2,500/kW for 10 MW system Realization of long project financing with low interest rates Securing a less costly project site, which can be used for long periods 3-3

62 (2) Study Required for Decision on Contents of the Project 1) Demand Forecasting a. Target Demand The planned project site in Malacca, Kuantan, Penang, Shah Alam, Ipoh and Johor are located in Peninsular Malaysia. The power supply for Peninsular Malaysia is conducted by TNB, which is an electricity utility company. The planned project is a grid-connected solar generation project, which involves connection of the generated electricity to the national grid of TNB. Therefore, the electricity demand to be considered for planning this project is that of Peninsular Malaysia, which is the demand of electricity supplied by TNB. 3-4

63 Figure 3-2 below shows that the power grid consists of 500 kv and 275 kv facilities in Peninsular Malaysia. Figure 3-2 Power Grid in Peninsular Malaysia Source : TNB s presentation material Planning for Smart Grid in TNB System, 2010 IEEE Conference 3-5

64 b. Present Situation of Electricity Demand Figure 3-3 below shows the peak demand of Peninsular Malaysia in each month from 2008 to Figure 3-3 Monthly Peak Demand of Peninsular Malaysia from 2008 to 2010 Source : Grid System Operation and Performance Report, Peninsular Malaysia: Year 2010, (Energy Commission :EC), Malaysia The peak demand in 2010 was recorded in May, and its value was beyond 15,000 MW. 3-6

65 Figure 3-4 below shows the energy demand of Peninsular Malaysia in each month from 2008 to Figure 3-4 Monthly Energy Demand of Peninsular Malaysia from 2008 to 2010 Source : Grid System Operation and Performance Report, Peninsular Malaysia: Year 2010, (Energy Commission :EC), Malaysia The maximum energy demand in 2010 was recorded in May, and its value was around 9,000 GWh. 3-7

66 c. Demand Forecast Figure 3-5 below shows the estimated peak demand and reserve margin of TNB from 2010 to Figure 3-5 Estimated Peak Demand and Reserve Margin of TNB from 2010 to 2030 Source : TNB Website, Why Nuclear Despite High Reserve Margin? In the figure, the peak demand in 2010 is recorded as 15,072 MW. This is expected to grow annually at a rate of 3.2% from 2010 until 2020, reaching a value of 20,669 MW. Afterward, the peak demand is forecasted to exceed 25,000 MW in d. Demand Forecast and Contents of the Project The target capacities of solar PV generation that the Malaysian government is planning to introduce under a FiT mechanism are 190 MW by 2020 and 1,370 MW by The percentages of said target capacities against the peak demands are 0.9% and 5.5% in 2020 and 2030, respectively. Solar PV power system cannot control the output of generation. Thus, the connection of a large amount of solar PV generation capacity to the grid leads to disturbance of the grid operation. Accordingly, the solar PV generation capacity is generally considered compared with the forecasted demand of the grid to which the solar PV power system is connected for the planning of grid-connected solar PV power system. In this point of view, the above percentages are not at a level that will cause disturbance to the grid operation. The capacity of this solar PV project is decided under the target 1 Handbook on the Malaysian Feed-in Tariff for the Promotion of Renewable Energy, KeTTHA, March

67 capacity. Therefore, the forecasted demand is not the factor to constrain the contents of the project. 2) Understanding and Analysis on the Problems for Consideration and Decision of the Project Contents Following issues are considerable problems for consideration and decision of the project contents. a. Climate condition b. Condition of land for the project c. Matters related to grid connection d. Matters related to maintenance e. Realization of price reduction of the project a. Climate Condition Temperature, rainfall, wind speed, frequency/scale of earthquake and frequency in thunder are considerable issues related to decision of project contents as climate condition. The relationships between climate condition and considerable issues of project contents are shown in below: Temperature: Type of PV Module Rainfall : Tilt Angle of PV Module Wind Speed: Design Strength of Mounting Structure of PV Module Frequency/Scale of Earthquake: Design Strength of Mounting Structure of PV Module Frequency in Thunder: Countermeasures against Surge on Electrical Circuits b. Site Condition at Project Site Following issues are considered as condition at project site. a mountain area or not near the sea or not in low latitudes The relationships between site condition and considerable issues of the project contents are shown in below: In a Mountain Area: Selection of Installation Place of PV Modules Near the Sea: Countermeasure against Salt Damage In Low Latitude: Tilt Angle of PV Module c. Issues related to Grid Connection For the grid connection, it is not clear whether the extension of distribution line to the project site from its existing end point or substation shall be carried out by TNB or by the project owner. As technical specification of power distribution line and its poles for extension of the existing grid, there is no problem to aerial cables and concrete poles, those are specified in the standard items of TNB. 3-9

68 Regarding the assessment of impact to the grid operation by connecting the project to the grid, this is to be done by TNB under a power system study. d. Issues of Maintenance As for the maintenance plan, it can be said that solar PV power system is almost maintenance-free. Among the system components, the equipment with the highest failure probability is the power conditioner. Hence, the selection criteria for power conditioners include high reliability and availability of maintenance support in Malaysia. In deciding the capacity of power conditioner, reserved quantities (stock) of such equipment is considered to ensure continuous system operation in cases of failure of one power conditioner. Regarding maintenance plan, the most suitable will be decided based on the specific type of power conditioners to be provided. As issues at the project site, countermeasures to theft are required in case that the site is away from town/village and there is less traffic on the road to the site. e. Realization of Total Project Cost Reduction The price setting for purchasing electricity under the FiT mechanism is not much attractive for a private business in terms of gaining enough benefits. Therefore, the key factor for the success of the project is to realize the total project cost reduction to a level that makes it financially feasible. It is necessary to carry out detailed cost estimation and examination on the maximum cost reduction for all the components of the project such as PV module, foundation, support structure, erection work, power conditioner, facilities for grid connection, and others. 3) Review of Technical Measures The following technical measures are reviewed to solve the problems in the implementation of the project mentioned above. The way of review on the technical measures are same for the four candidate sites mentioned in Chapter 2. Thus, the technical measures are reviewed at the most promising candidate site Ipho as shown below: a. Climate Condition (Temperature) Monthly average highest temperature and monthly average temperature in Ipoh are 32 to 33 and 22 to 24 degrees Celsius respectively 2, according to data for 30 years from 1971 to It is high temperature throughout the year. 2 The World Meteorological Organization (WMO) specialized agency of the United Nations,

69 The efficiency of crystalline PV module goes down in case of higher temperature on the PV module, and the one of amorphous PV module also goes down but a little. In the point of the efficiency, amorphous type shall be selected, however the aging degradation of the efficiency of amorphous PV module is lager then the one of crystalline PV module. In the project, crystalline PV module is selected since smaller aging degradation is more important for the project. (Rainfall) According to data for data 30 years, which is same as the temperature data, average yearly rainfall is 2,428 mm. The highest month with 297 mm is October and the lowest month with 132 mm is January. There is high rainfall throughout the year. It is recommended to install PV module with same tilt angle as latitude in case of grid-connected system. The latitude in Ipoh is 4.42 degrees, therefore 4 to 5 degrees is recommended as tilt angle at the site. However dusts and leaves cannot be washed away in the tilt angle by rain and the efficiency of the PV module becomes low because of the dusts and leaves. In the project, it is expected that the high rainfall washes away the dusts and leaves. To make the tilt angle 10 degrees, which is greater than 4 to 5 degrees, the rain water can easily wash away on the surface of the PV modules. (Wind Speed) There is light wind in the whole Malay Peninsula. There is a report 3 estimates the strongest wind speed for 10, 30, 50 and 100 years based on the wind data of 1975 to 2008 in Ipoh. According to the report, m/sec, m/sec, m/sec and m/sec are estimated the strongest wind for 10, 30, 50 and 100 years respectively. Expected strong wind will be considered for strength design of mounting structure of PV module. Based on the estimated the maximum wind speed, 25 m/sec is applied as wind speed for design. (Frequency/Scale of Earthquake) There is a very little occasion of earthquake in the whole Malay Peninsula. There are 13 earthquakes with magnitude 5 or more and occur within around 300 km from the project site from January 1973 to January The largest one is occurred in 2006 and its magnitude was 6.3. The focus of earthquake is located more than 200 km away from the site. Therefore the horizontal seismic coefficient for design is expected to be smaller than the one in 3 Mapping of annual extreme wind speed analysis from 12 stations in peninsular Malaysia, 2010, ICOSSSE'10 Proceedings of the 9th WSEAS international conference on System science and simulation in engineering 4 U.S. Geological Survey,

70 Japan. For safety side, 0.7, which is minimum value of the horizontal seismic coefficient for design in JIS C8955, is applied. (Frequency in Thunder) There is much frequency in thunders in Malay Peninsula. Isokeraunic level (IKL) in Malaysia is around 180 days 5. It is around 35 days even in the northern part of Kanto, where the frequency in thunder is quite high in Japan. By the comparison, it is understandable that the frequency in thunder in Malaysia is so high. The project site is located in mountain area, therefore direct lightning strokes strike to the mountain peaks and there is less possibility to strike PV modules or related equipment of the project. However it is certain that a lot of inducement lightning occurs at the site. It is necessary to protect electrical circuits from the surge of thunder. As the protection countermeasures, common grounding of equipment is surely installed, and surge protection device (SPD) is installed at input/output sides of connection box and junction box. b. Site Condition at Project Site (In a Mountain Area) Since the project site is located in a mountain area, shadow by the mountain shall be considered. PV module will be installed at a limited plain area in a mountain area, however alignment of PV module is designed not to be covered by the shadow of mountain for day time. (Near the Sea) Since the project site is located around 500 meter away from the sea. Countermeasure against salt damage is necessary. Mounting structure made of galvanized steel, stainless or aluminum is utilized. (In Low Latitude) As mentioned in the section of rainfall in climate condition, the latitude of the site is 4.42 degree. The latitude and rainfall, 10 degree is selected as the tilt angle of PV module. c. Matters Related to Grid Connection The capacity of solar PV power system is designed at 1 MW in the initial stage at the project site in Ipoh. It is possible to connect this scale of capacity to the grid through 11 kv distribution line. Existing 11 kv distribution line reaches a concrete factory, which is 2 km away from the project site. This is the nearest existing power distribution line from the project site. The grid connection at the point above is under the jurisdiction of the regional site office of TNB. The study team could not have a meeting with the official for grid-connection in the office since the official was absence when the study team visited the site. The local consultant had a meeting with 5 Auto-reclose performance on 275 kv and 132 kv transmission line in Malaysia, 2002, Asia Pacific. IEEE/PES 3-12

71 the office later. At the meeting it was confirmed that it is possible to connect to the existing line at the connection point by installing disconnection switches by the project at the project side and by TNB at existing line side. The construction cost of the distribution line to be provided is accounted for in the project. d. Maintenance Plan In case of applying Japan-made power conditioners, multiple power conditioners are installed (e.g. 4 units of 250 kw power conditioner) to ensure continuous operation during failure of one unit. In case power conditioners from other countries are opted, the primary criteria for selection shall be availability of well-organized support service in Malaysia and low price. To prevent thefts, fence, security cameras and exterior lights are installed and the video picture is monitored at the control house. Data for monitoring the system e.g. amount of generated electricity and voltage, and metrological data are sent to the Internet via mobile network, and the status of operation can be monitored even at Japan through the Internet. e. Realization of Total Project Cost Reduction According to the purpose of the support scheme for this Study, which involves promotion of project formation by Japanese companies and export from Japan, the project formulated under the scheme should apply Japanese equipment as much as possible. However, the cost competitiveness of Japanese equipment is low. In order to make the project financially feasible, applying Japanese equipment for all components of the project should not be considered. Thus, the possibility of applying Japanese equipment is examined only for (i) PV module, which accounts for a high proportion of the project cost, and (ii) power conditioner, which needs to be highly reliable. Regarding cost reduction of PV module, the possibility of manufacturing on site from cells using PV module manufacturing machine has been studied. In such case, PV module manufacturing machine shall be Japan-made. Regarding cost reduction of foundation and support structure for PV module, it was examined to design them considering galvanized steel pipes which are widely used as ready-made products. The cost reduction for constructing them by simplifying their design is also examined. (3) Planned Outline of the Project 1) Basic Policy for Deciding the Scope of the Project The budget under FiT for purchasing electricity generated by renewable energy at higher tariff compared with that generated by conventional energy, is the 1% additional to the electricity tariff for consumers of three power utilities in Malaysia. The price setting of FiT was made as low as possible, within the range that is attractive for private entities to venture into the renewable energy market, in 3-13

72 order to maximize the benefits of electricity generated by renewable energy. With the limitation of budget for FiT, the government is discreet in specifying the target amount of renewable energy to be introduced. It is not certain whether introduction of renewable energy proceeds in line with the government plan by FiT or not. In other words, implementation under FiT mechanism is presently at a trial stage even for the Government of Malaysia. If the introduction of renewable energy does not proceed well, the set prices and/or annual degression rate of FiT may be adjusted. Otherwise, the budget of FiT may be increased. Under such circumstance, the basic policy for deciding the contents of the project is to start with a small scale project in order to confirm business circumstance prior to implementation of a large scale project. In this Study, the capacity of the small scale project is set at 1 MW, and the planning and design were conducted for the 1 MW PV system. The capacity of the large scale project to be implemented afterward is 10 MW. Regarding planning and design for the 10 MW PV system, conceptual design and preliminary cost estimation were conducted utilizing the result of planning and design for the 1 MW PV system. 2) Conceptual Design and Specifications The main features of the conceptual design and specifications for 1 MW PV system are shown below. (a) System capacity: 1.0 MW (b) Mode of grid connection: Distribution line, 11 kv, 1 circuit (c) Power conditioner: Plural number (in case of Japanese make) (d) Foundation of support structure: Galvanized steel pipes (scaffold pipes) as pile with concrete reinforcement (e) Support structure: Galvanized steel pipes (scaffold pipes) (f) Step-up transformer: 0.4/11 kv, 3 phase, 2 x 500 kva (g) Control house: Single-story, reinforced concrete construction (h) Meteorological observation system: Solar insolation, ambient temperature, and module temperature (i) Data collection and communication system: Collect meteorological and power data, and communicate with cell phone network 3-14

73 Meanwhile, the main conceptual design features and specifications for 10 MW PV system are shown below. (a) System capacity: 10.0 MW (b) Mode of grid connection: Distribution line, 33 kv, 2 circuits (c) Power conditioner: 10 x 1 MW (d) Foundation of support structure: Galvanized steel pipes (Scaffold pipes) as pile with concrete reinforcement, or water floating type (e) Support structure: Galvanized steel pipes (Scaffold pipes) (f) Step-up transformer: 0.4/33 kv, 3 phase, 2 x 5 MVA (g) Control house: Double-stories, reinforced concrete construction (h) Meteorological observation system: Solar insolation, ambient temperature, and module temperature (i) Data collection and communication system: Collect meteorological and power data, and communicate with cell phone network System image is shown in Figure 3-6. Site layout of 1 MW system is shown in Figure 5-1 and single line diagram is shown in Figure 5-2. Figure 3-6 System Image of Solar PV System PV Array PV Module Structure for PV Array Meteorological Observation System Connection Box Connection Box Project Site Junction Box Inverter - ~ Isolating Transformer Protection Devise Power Conditioner Power Conditioner Control House 400V Cubicle Step up Transformer AC Distribution Panel Internal Power Source Data Collecting System M Scope 11kV or 33kV Out of Scope DL Cubicle Source : Made by Study Team a. System Output System output is 1 MW or 10 MW in rated total output of installed PV modules. Supplied power to existing power grid of TNB is less than the output because of loss at power conditioner and distribution line even at the peak of power generation by solar PV power system. 3-15

74 The rated output of PV module is specified based on STC (at 25 o C at surface of PV module and some other conditions). Generally, power generation efficiency goes down at a higher temperature 6. At the project site, the temperature at surface of module is estimated from 50 o C to 70 o C since ambient temperatures are 21 o C to 24 o C (minimum of monthly average temperature) and 28 o C to 34 o C (maximum of monthly average temperature). Therefore, economic evaluation shall be based on the power generation estimated not by rated output but by output estimated at such temperature. Considering this, suitable PV module shall be selected. b. Method of Grid Connection Power distribution line of 11 kv in case of 1 MW system and 33 kv in case of 10 MW system is utilized. Aerial cable is utilize for the distribution line. The type of cable and voltage of distribution comply with the standard of TNB. In case of candidate site Ipoh, the method of grid connection is considered as follows. Connection point to existing power grid is existing 11 kv distribution line which is located 2 km away from the site in case of 1 MW system and existing 33 kv sub-station of TNB which is located 10 km away from the site in case of 10 MW system. 1 MW of power can be transmitted by 11 kv line. 33 kv line is utilized for 10 MW system since 10 MW of power is difficult to be transmitted by 11 kv line because of its capacity. 33 kv line can transmit around 15 MW of power if its cross-section size is around 100 mm 2. One 33 kv line is enough to transmit 10 MW of power, however two lines are designed to be installed for future scale expansion and countermeasure of failure on one line. c. Power Conditioner 1 MW of power conditioner is now available at the market. It is ideal to purchase power conditioners with larger capacity to consider economic efficiency. However power conditioner has higher possibility of failure than other system components, several power conditioners with smaller capacity, those made in Japan with high reliability, is to be installed for the project. Ten 1 MW of power conditioners are to be installed for 10 MW system. d. Foundation of Mounting Structure Galvanized steel pipe (scaffold pipe), which is utilized as mounting structure, is utilized as foundation of mounting structure. Number of kinds of material can be reduced and it is helpful to reduce the cost to utilize galvanized steel pipe as the foundation. The pipe is stroked into the ground and stabilized by concrete near the surface level. The method to stroke the pipe vertically is considered including development of working tools for this. For installation of 10 MW system on the water of pond, mounting structure made of galvanized steel 6 Generally, the drop down of output (watt) is 0.4 to 0.5% / o C in case of monopoly of crystalline module. 3-16

75 pipes is assembled on a raft made of floating for fishery and galvanized steel pipes. e. Mounting Structure Mounting structure is made by galvanized steel pipes. The pipe is commonly utilized among building and construction site. The benefits to utilize the pipe are 1) easy to purchase locally, 2) enough strength and 3) availability of connection/joint parts for the pipe. By using the parts, it is much easier to make proper level of pipes, which needs much process in case of utilization of other materials. f. Step-up Transformer 400 V, which is standard line voltage in Malaysia, is adopted as voltage at low voltage side of step-up transformer for both 1 MW system and 10 MW system. 11 kv or 33 kv is adopted as voltage at high voltage side of the transformer for 1 MW system and 10 MW system respectively. Oilinsulation transformer for outdoor use is utilized. Two transformers are installed for continuous operation if failure occurs. g. Control House Control house with reinforced concrete is built for the project. It is single-story because of less number of power conditioner in case of 1 MW system. It is double-stories, power conditioners are installed at ground floor, and electrical panels, data collection and communication equipment and other equipments are installed at control room in upper floor in case of 10 MW system. h. Metrological Monitoring System Solar radiation, ambient temperature and temperature at surface of PV module are measured by a metrological monitoring system. The system will not collect wind direction and wind speed data because wind is not strong at the site. i. Data Collection and Communication Equipment Data collection system collects metrological data and power generation data, and record the data automatically. 1) voltage and current at input side of power conditioner, 2) voltage, current and power factor at output side of power conditioner, 3) voltage, current, power factor and frequency at high voltage side of transformer and 4) voltage, current and power factor at the connection point to the grid are collected as power generation data of the system. Communication equipment has a function to transmit data of collected data and images on security cameras to the Internet via mobile network, Addition to this, the communication equipment has a function to collect power data at connection point via optical fiber cable installed on the power distribution line to the connection point. 3) Contents of the Proposed Project A proposed project site was selected from the results of site survey of the following candidate sites: a. A vacant lot in Ipoh where tin mining is conducted 3-17

76 b. Two lots at an industrial area in Kuantan c. On the roof of factory/warehouse at an industrial area in Johor 3-18

77 a. A vacant lot in Ipoh where tin mining is conducted Site at Ipoh is a vacant lot where tin mining is being carried out. Available land for the proposed site is more than 10 ha. Around 10 MW system can be installed at the site based on the land size. Countermeasure against salt damage is necessary since the site is not so far from the sea. Moreover, extension of existing grid is necessary since existing 11 kv distribution line is located 2 km away from the proposed site. Land clearance cost should also be considered since the land is not cleared. Situation of Ipoh site is shown below. Site layout drawing is shown in Figure 5-1 in Chapter 5. Site Map Figure 3-7 Situation of Ipoh Site Candidate Project Site Site Photo Candidate Project Site Remarks 60 km away from the center of Ipoh (2 hours by car) 4.5 hours drive from Kuala Lumpur Vacant lot where tin mining is being conducted Available land at present: 10 ha or more Expansion of site is possible (on pond) A private company (a candidate partner for the project) has license to use the land. Source of Map : CIA World Factbook/Department of Survey and Mapping Malaysia Source of Photograph : Study Team 3-19

78 b. Two lots at an industrial area in Kuantan Kuantan two sites are located in an industrial area, which is now for sale. It is necessary to consider the cost of purchasing or leasing the land for purposes of cost estimation. It seems that its cost is JPY 54 million for 2 ha land (for 1 MW system). Considering such cost and whole project cost, (JPY 263 million), said site is not feasible because the land cost is too high ratio (around 20%) in the whole project cost. Situation of Kuantan sites are shown below. Site Map Figure 3-8 Situation of Kuantan Site Site Photo Candidate Project Site Remarks 20 km away from the center of Kuantan (30 minutes by car) 4 hours drive from Kuala Lumpur Ownership of land: An industrial area developer (Purchase or Lease) Site 1: Gebeng Industrial Land, 25.3 ha, Land cost: 32,670,000 RM Site 2: Gambang Industrial Land, 20.5 ha, Land cost: 22,055,500 RM Available land: Up to 100 ha Other lot at other industrial areas can be proposed, if necessary Source of Map : CIA World Factbook/Department of Survey and Mapping Malaysia Source of Photograph : Study Team 3-20

79 c. On the roof of factory/warehouse at industrial area in Johor Johor site includes several buildings (factory and warehouse). The sizes of buildings vary; however, some of them have sufficient size for the installation of 1 MW solar PV power system. Bonus rate of FiT mechanism is applicable since PV module is installed at an existing building; however, installation of solar PV power system on the building is more costly due to high installation, maintenance and management costs compared to installation on ground 7. It is also necessary to consider estimating the cost of a foundation/mounting structure to be installed on the roof, as well as verifying the capacity of the existing reinforced building structure, if necessary. Situation of Johor site is shown below. Site Map Figure 3-9 Situation of Johor Site Candidate Project Site Site Photo Candidate Project Site Remarks 15 km away from the center of Johor Baru (half hour by car) 2.0 hours drive from Kuala Lumpur to Johor Baru Building in industrial estate Available space at present: 1 ha A private company of developing industrial estate. Source of Map : CIA World Factbook/Department of Survey and Mapping Malaysia Source of Photograph : Study Team 7 According to Achieving Low-Cost Solar PV: Industry Workshop Recommendations for Near-Term Balance of System Cost Reductions, (September 2010, Rocky Mountain Institute), total project cost is USD 3.5/W for installation on the ground, and USD 3.75/W for installation on the roof. 3-21

80 Average monthly solar radiation is shown in the following table. Table 3-1 Solar Radiation (Monthly Average) Unit: kwh/sq.m/day Average Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec. Ipoh (Site) Ipoh (Central) Johor Kuantan Kuala Lunpur Malacca Source: Website of NASA Average, maximum and minimum solar radiation and estimated power generation (in case of 1 MW system) are shown in the following table. Table 3-2 Average, Maximum and Minimum Solar Radiation and Estimated Power Generation (1 MW System) Average, Maximum and Minimum Daily Solar Radiation (Horizontal) Estimated Power Generation Ipoh (Site) 5.11 kwh/sq.m/day ( 5.70 in Mar. and 4.56 in Nov.) 1.31 GWh/year Ipoh (Central) 4.74 kwh/sq.m/day ( 5.29 in Mar. and 4.05 in Dec.) 1.21 GWh/year Johor 4.56 kwh/sq.m/day ( 5.22 in Feb. and 4.07 in Dec.) 1.17 GWh/year Kuantan 4.79 kwh/sq.m/day ( 5.42 in Apr. and 3.55 in Dec.) 1.22 GWh/year Kuala Lunpur 4.91 kwh/sq.m/day ( 5.42 in Mar. and 4.17 in Dec.) 1.25 GWh/year Malacca 4.68 kwh/sq.m/day ( 5.12 in Feb. and 4.00 in Dec.) 1.20 GWh/year Source: Website of NASA and Calculation by the Study Team Estimated Power Generaton = Average Daily Solar Radiation * Capacity of PV system * 365 (day/year) * 70% (efficiency) From the result of comparison and consideration of the above, Ipoh site is selected because of the available land size for installing large PV system in one place, and the greater availability of solar radiation. The initial capacity is 1 MW and planned increase is 10 MW. Addition to 10 ha or more land is available at the site, which includes a 20 ha pond filled with rain water, after tin mining is carried out. One of the ideas is to install the PV module on a floating device on the pond in the future. As result of cost estimation base on a price quotation by a local system integrator in Malaysia, interview survey from a system integrator of Japanese company in Malaysia, interview survey from a system integrator in Japan and price trend at the word market, the estimated cost will be from JPY 263 million for 1 MW system to JPY 2.31 billion for 10 MW. The basis and process for cost 3-22

81 estimation refer to Chapter5. 4) Problems and Solutions Related to the Proposed Technology and System The profit from power production business is greatly affected if the power cannot be generated due to defective and troublesome system. Therefore, it is necessary to improve the reliability and stability of the system. The following should be noted in designing the system composition: a. Composition of Multi-system PV module and power conditioner are the main components of a solar PV power system. Thus, power cannot be generated if any of these components fail. In order to avoid such, it is necessary to design the system by constituting two or more systems. In case of 1 MW system, it shall be designed by constituting four parallel 250 kw systems. Hence, if one 250 kw system fails, operation can continue with the remaining 750 kw system. b. Maintenance Solar PV power system does not need much maintenance persons since it is related to maintenance-free facility. Two persons for maintenance are employed and one of them is resident once every other day and the other person is resident the other days in day time. The person goes on patrol at the site twice a day in morning and in evening to find damaged equipment, theft of equipment and other abnormalities, and records voltage, amount of generated power, solar radiation and other related data at the control house. Cleanness of surface of some amount of PV module is also done every day by the person and PV module will be cleaned once a month. Security guards are also employed for night. To prevent thefts, fence, security cameras and exterior lights are installed and the video picture is monitored at the control house. Data for monitoring the system e.g. amount of generated electricity and voltage, and metrological data are sent to the Internet via mobile network, and the status of operation can be monitored even at Japan through the Internet. It is the power conditioner which is subjected to high risk of failure among the components of solar PV power system. It is important that the selected manufacturer of such equipment has local maintenance organization in Malaysia. Moreover, a failure risk is reduced by keeping supplies of replacement parts and conducting periodic maintenance of the equipment. c. Grid Connection In Malaysia, there is a technical standard about grid connection of the power system by RE. However, as for the technical specifications for connecting to the local grid, it is necessary to conduct discussions with the local DL. It is important that the protection system of the solar PV power system is designed against grid failures. Principle of grid-protection system is that the PV power generation system is to be isolated certainly in case of electricity failure at the power grid. Disconnection switch is opened by signal from protection relay if the protection relay finds electricity failure on the power grid. Addition to this, the 3-23

82 connection to the grid is released if over current or over voltage is found as general protection method. 3-24

83 Chapter 4 Evaluation of Environmental and Social Impacts

84

85 Generally, solar PV power system is assumed to cause limited environmental effects. With operating facilities, solar PV power system would not emit effluent, atmospheric pollutant, and odour around the site. Also, solar PV power system would not cause noise and vibration. Environmental effect during construction is small because equipment which consists PV power generation is so light that there is no need for large construction machines and large foundation. In spite of the small environmental risk to residential areas in implementing the project, there is a need to confirm legal consistency. Social and environmental effects of PV power generation project as well as the result of study on legal system in Malaysia are shown in this chapter. In addition, result of study on preventing global warming effect is shown. (1) Analysis on Environmental and Social Impacts 1) State Analysis Water pollution in Malaysia is caused by tin mining which is a traditional industry in the country. Additional pollution is also accumulated from natural rubber factory and palm kernel oil plant. As a result of industrialization of Malaysia, which advanced rapidly with the introduction of foreign capital during the second half of 1960s, pollution problems appeared (e.g., water pollution and wastes from factories.) To deal with these problems, Environmental Quality Act was enacted in This law introduced limits of effluent and atmospheric emission. Furthermore, DOE was established in the same year. On the other hand, Malaysian government ratified the United Nations Framework Convention on Climate Change (UNFCCC) in July 1994, and the Kyoto Protocol in September The designated national authority (DNA) is Conservation and Environmental Management Division (CEMD) under the Marrakesh Accords, which is the detailed regulation of Kyoto Protocol. The National Steering Committee on Climate Change (NSCCC) has role to examine climate change problems under the CEMD, and the National Committee of Clean Development Mechanism (NCCDM) argues about clean development mechanism (CDM) under the NSCCC. NCCDM has scope between the energy and forest sectors. Green Tech Malaysia is assigned as the executive office of the energy technological committee. 4-1

86 Figure 4-1 Organization Chart Related to CDM in Malaysia Conservation and Environmental Management Division, Ministry of Natural Resources and Environment : CEMD National Steering Committee on Climate Change: NSCCC National Committee on CDM: NCCDM Technical Committee on CDM for Energy Sector Technical Committee on CDM for Forest Sector Malaysian Green Technology Corporation (Green Tech Malaysia) Forest Research Institute Malaysia: FRIM Source : Made by Study Team Number of registered CDM projects as of January 2011 in Malaysia, the world's fifth, is 87. The expected reductions from registered projects are in the world's seventh annual average of 5,242,897 tons. 8 2) Future Forecast (If Project is Not Implemented) In December 2009, Prime Minister Najib Razak announced at the 15 th Conference of the Parties (COP15) to the United Nations Framework Convention on Climate Change in Copenhagen that by 2020, Malaysia would voluntarily reduce its green house gas (GHG) emissions intensity, per unit of GDP, by up to 40%, based on 2005 levels. This is considering conditions on technology transfer and financial assistance from developed countries. The 10th Malaysia Plan (2010~2015) specified that promoting these policies ensure sustainable 8 Reference 1 "In Overseas Environmental Measures of Japanese Companies" Website of Ministry of Environment Reference 2 The compass of CDM/JI National Policy (Malaysia) Website of The Institute of Energy Economics, Japan 4-2

87 development and conservation of environment. As discussed in Chapter 1, NREPAP formulated by MEGTW specifies the planned proportion of RE in the total electricity generation in the country as 5% in 2015, 9% in 2020, and 12% in It also states the plan to gradually increase the proportion to 24% in If the project would not be implemented, other solar PV projects or RE projects would need to be executed in Malaysia to meet the national goal. Therefore, now is the time for venturing into the RE market in Malaysia. (2) Environmental Improvement Effects by the Project In the project, environmental improvement is through carbon dioxide emission reduction. Therefore, the quantity of emission reduction would be suitable for the evaluation of this project. a. Methodology The generated energy of the project would be less than 15 MW. Consequently, small scale methodology of CDM ( ASMI-D Grid connected electricity generation ) is used for calculating the quantity of reduction. b. Annual Generated Energy For the Solar PV power system of 1 MW in Perak (Ipoh), the assumed annual electricity generation of the construction would be 1,300 MWh. c. Baseline Baseline emissions are calculated by multiplying the emission factor of power generated from RE generation facilities. Emission factors, i.e., operating margin (OM) and build margin (BM) that composes the combined margin (CM), are used. d. Grid Emission Factor OM OM is the emission factor calculated, considering that the power plant under this project would substitute for other active power plants. This emission factor would be calculated based on weighted average of emission factors for all power plants, except the zero-fuel cost and must-run facilities. OM of Peninsular Malaysia was already stated as 0.603(t-CO2/MWh) in the Study on Grid Connected Electricity Baseline in Malaysia published by Malaysia Energy Center (PTM). It is calculated using following formula: 4-3

88 Where, Operating margin in year y.(t-co 2 /MWh) Net electricity supplied to the grid by plant m in year y. (MWh) Emission factor of power plant m in year y.(t-co 2 /MWh) Power plants included in the OM except zero-fuel cost and must-run facilities. y Most recent year for which power generation data is available. BM BM is the emission factor calculated considering that the power plant under this project would not immediately substitute for new power plants soon, signifying delay in construction of such plants. For lack of information about new power plants, the following method for calculating BM from emission factor of active power plants would be adopted: Set of five power units that have been built most recently; or Set of power capacity additions in the electricity system that comprise 20% of the system generation, and that have been built most recently. BM of Peninsular Malaysia was already mentioned as 0.741(t-CO 2 /MWh) in the Study on Grid Connected Electricity Baseline in Malaysia, based on the following formula: Where Build margin in year y.(t-co 2 /MWh) Net electricity supplied to the grid by plant m in year y. (MWh) Emission factor of power plant m in year y.(t-co 2 /MWh) Power plants constructed recently. y Most recent year for which power generation data is available. 4-4

89 CM The emission factor used to determine baseline emission is CM, which is calculated as the weighted average of the emissions factor of the OM and the BM. The formula for calculating this weighted average emission factor is as follows: EF y = w OM EF OM,y + w BM EF BM,y Where EF y EF OM,y EF BM,y Combined margin Operating margin emission factor Build margin emission factor w OM, w BM Weighting of build margin and operating margin emissions factor (%). These values are 50%, as a general rule. (w om =w BM =0.5) EF y = y = (t-co 2 /MWh) e. Calculation of Baseline Emission BE y = EF y EG y = 0.672(t-CO 2 /MWh) 1,300(MWh) =873.6 (t-co 2 ) f. Calculation of Emissions Reduction ER y = BE y - PE y - L y Where, ER y Emission reductions in year y (t-co 2 ) BE y Baseline emissions in year y (t-co 2 ) PE y Project emissions in year y (t-co 2 ) L y Leakage emissions in year y (t-co 2 ) In the solar PV power system project, PEy =0 and Ly=0; therefore, annual emissions reduction is as follows: ERy = BEy =873.6(t-CO 2 ) g. Possibility of the Clean Development Mechanism project or the Bilateral Offset Mechanism project This section shows the study on possibility of the Clean Development Mechanism project or the 4-5

90 1 Permits and Explanation Bilateral Offset Mechanism project for this PV power generation project. According to the Web site of SEDA and interview to the Green Tech Malaysia (Malaysian Green Technology Corporation) which assigned as executive organization of CEMD (Conservation and Environmental Management Divisor), it is possible to make an application of FiT in RE project which applied Clean Development Mechanism provided by Kyoto Protocol. Annual capital gain of carbon credit in this project is 648,770, using calculated reduction of emission in above, and recent price of carbon-credit. ( 874 ton/year 742.3/ton = 648,770 /year) And the price of carbon-credit is refer from Nikkei Ecology January 2012 showed 742.6/ton. Recently the price of carbon-credit is fall down, therefore these mechanisms cannot make feasibility of PV project better, and rather it makes profitability worse for application to CDM and monitoring (3) Project Influence on Environmental and Social Sectors 1) Environmental and Social Items to be Considered The result of confirmation of social and environmental considerations about this project is shown in the following table. It adopted the checklist of JICA for the category of other power generation. Table 4-1 Social and Environmental Considerations for PV Power Generation Category Environmental Items Main Checklist Items Yes: Y No: N Confirmation of Environmental Considerations (a) Have EIA reports been officially (a)n (a)~(c) completed? (b)n Solar PV power system project is not (b) Have EIA reports been approved by (c)n subject to EIA authorities of the host country s (d)n (d)it will be submitted to DOE State government? office before implementation (c) Have EIA reports been (1) EIA and unconditionally approved? If Environmental conditions are imposed on the Permits approval of EIA reports, are the conditions satisfied? (d) In addition to the above approvals, have other required environmental permits been obtained from the appropriate regulatory authorities of the host country s government? 4-6

91 2 Mitigation Measures Category Environmental Items Main Checklist Items Yes: Y No: N Confirmation of Environmental Considerations (a) Are contents of the project and the (a)n (a)eia does not apply to PV power potential impacts adequately (b)n generation projects. However, it is explained to the public based on necessary to obtain the permission appropriate procedures, including for SSE, the information on this information disclosure? Is project would be provided to (2) Explanation understanding obtained from the relevant authorities. to the Public public? (b) Are proper responses made to (b)candidate sites for this project are comments from the public and in industrial estate or the land regulatory authorities? utilized for mining. There is almost no need to incorporate comments from the public. (a) In the case that electric power is (a)n (a)~(b) generated by combustion, such as (b)n The electric power generated by solar biomass energy projects, do air PV power system does not need pollutants, such as sulfur oxides burning of any fuel or materials. (SOx), nitrogen oxides (NOx), and There is no emission of atmospheric soot and dust emitted by power plant pollutant. operations comply with the country s emission standards and ambient air (1) Air Quality quality standards? (b) Do air pollutants, such as hydrogen sulfide emitted from geothermal power plants comply with the country s standards? Is there a possibility that emitted hydrogen sulfide will cause impacts on the surrounding areas, including vegetation? (a) Do effluents (including thermal (a)n (a)~(b) effluent) from various facilities, such (b)n There are no effluents in solar PV as power generation facilities comply power system. (2)Water Quality with the country s effluent standards? Is there a possibility that the effluents from the project will cause areas that do not comply with the country s ambient water quality standards? 4-7

92 3 Natural Environment Category Environmental Items Main Checklist Items Yes: Y No: N Confirmation of Environmental Considerations (b) Do leachates from the waste disposal sites comply with the country s effluent standards and ambient water quality standards? Are adequate measures taken to prevent contamination of soil, groundwater, and seawater by leachates? (a)are wastes generated by the plant (a)n (a) Solar PV power system does not operations properly treated and involve permanent disposal of (3) Waste disposed of in accordance with the wastes. country s standards (especially biomass energy projects)? (a) Has the soil in the project site been (a)n (a) Some sites are potentially (4)Soil Contamination contaminated in the past, and are adequate measures taken to prevent soil contamination? contaminated in the past; however, there is no possibility that soil contamination would spread due to this project. (a)do noise and vibrations comply with (a)y (a) Solar PV power system does not (5)Noise Vibration and the country s standards? (b) Do low frequency sound comply with the country s standards, (b)y generate noise or vibration. (b) Solar PV power generation does not generate low frequency sound. especially in wind power generation? (a) In the case of extraction of a large (a)n (a) Solar PV power system does not volume of groundwater or extraction cause subsidence, because it does (6)Subsidence of steam by geothermal power generation, is there a possibility that not require groundwater use. the extraction of groundwater or steam will cause subsidence? (a) Are there any odor sources? Are (a)n (a) Solar PV power system does not (7) Odour adequate odor control measures cause odor. taken? (a) Is the project site located in protected (a)n (a) Candidate sites are not in protected areas designated by the country s areas. They are located in an (1) Protected laws or international treaties and industrial estate or land utilized for Areas conventions? Is there a possibility mining. that the project will affect the protected areas? 4-8

93 Category Environmental Yes: Y Confirmation of Environmental Main Checklist Items Items No: N Considerations (a) Does the project site encompass primeval forests, tropical rain forests, ecologically valuable habitats (e.g., coral reefs, mangroves, or tidal flats)? (b) Does the project site encompass the protected habitats of endangered species designated by the country s laws or international treaties and conventions? (c) If significant ecological impacts are anticipated, are adequate protection measures taken to reduce the impacts on the ecosystem? (a)n (b)n (c)n (d)n (e)n (a)there are no primeval forests or, tropical rainforests in the candidate sites, located in industrial estate or land used for mining. (b)there are no protected habitats in the candidate sites located in an industrial estate or land used for mining. (c)in the industrial estate, solar PV power system project would not affect the ecosystem. In the land used mining, flora is (2)Ecosystem (d) Is there a possibility that localized micro-meteorological changes due to wind power generation will affect different from primeval forest around the candidate site. There would be no impact to primeval forest. valuable vegetation in the surrounding areas? (Is there valuable (d)it is not expected that solar PV vegetation in the vicinity of the wind power system would cause power generation facilities?) If micro-meteorological changes. impacts on vegetation are anticipated, are adequate measures considered? (e)are the wind power generation facilities (wind turbines) sited by (e)it is not expected that solar PV power system would affect the habitat and migration routes of birds. considering the habitats and migration routes of sensitive or potentially affected bird species? (a) Is there a possibility that hydrologic (a)n (a) Solar PV power system project changes due to installation of would not cause changes of structures, such as weirs will drainage system. Planning and (3)Hydrology adversely affect the surface and management would be based on groundwater flows (especially in urban stormwater management "run of the river generation" manual. projects)? (4)Topography (a) Is there a possibility that the project (a)n (a)in the project, there are no large 4-9

94 4 Social Environment Category Environmental Items Main Checklist Items Yes: Y No: N Confirmation of Environmental Considerations and Geology will cause a large-scale alteration of scale geologic alterations. Only site the topographic features and geologic preparation needs to be performed. structures in the surrounding areas (especially in run of the river generation projects and geothermal power generation projects)? (a) Is involuntary resettlement caused by (a)n (a)~(j) project implementation? If (b)n Resettlement need not be involuntary resettlement is caused, (c)n implemented, because candidate sites are efforts made to minimize the (d)n are located in an industrial estate or impacts caused by the resettlement? (e)n land used for mining. (b) Is adequate explanation on relocation (f)n and compensation given to affected (g)n persons prior to resettlement? (h)n (c) Is the resettlement plan, including (i)n proper compensation, restoration of (j)n livelihoods and living standards, developed based on socioeconomic studies on resettlement? (d) Are the compensations going to be paid prior to the resettlement? (1)Resettlement (e) Are the compensation policies prepared in document? (f) Does the resettlement plan pay particular attention to vulnerable groups or people, including women, children, the elderly, people below the poverty line, ethnic minorities, and indigenous peoples? (g) Are agreements with the affected people obtained prior to resettlement? (h) Is the organizational framework established to properly implement resettlement? Are the capacity and budget secured to implement the plan? 4-10

95 Category Environmental Items Main Checklist Items Yes: Y No: N Confirmation of Environmental Considerations (i) Are any plans developed to monitor the impacts of resettlement? (j) Is the grievance redress mechanism established? (a)is there a possibility that the project (a)n (a)it is not expected that solar PV will adversely affect the living (b)n power system would affect the conditions of inhabitants? Are living conditions of inhabitants. adequate measures considered to (b)solar PV power system does not (2)Living and Livelihood reduce the impacts, if necessary? (b) Is there a possibility that the amount of water (e.g., surface water, require use of surface water or ground water. groundwater) used and discharge of effluents by the project will adversely affect the existing water uses and water area uses? (a) Is there a possibility that the project (a)n (a)candidate sites for this project are will damage the local archeological, in an industrial estate or land for (3)Heritage historical, cultural, and religious heritage? Are adequate measures mining. It is not expected that solar PV power system would damage considered to protect these sites in heritages. accordance with the country s laws? (a) Is there a possibility that the project (a)n (a) Solar PV power system will have will adversely affect the local small impact to local landscape, (4 Landscape landscape? Are necessary measures because candidate sites are located taken? in an industrial estate or land used for mining. ((a) Are considerations given to reduce (a)n (a)~(b) impacts on the culture and lifestyle (b)n Solar PV power system will not have (5) Ethnic of ethnic minorities and indigenous an impact to culture and lifestyle of Minorities and peoples? minorities or indigenous people, Indigenous (b) Are all of the rights of ethnic because candidate sites are located in Peoples minorities and indigenous peoples in an industrial estate or land used for relation to land and resources mining. respected? 4-11

96 5 Others Category Environmental Items Main Checklist Items Yes: Y No: N Confirmation of Environmental Considerations (a) Is the project proponent not violating (a)y (a)~(d) any laws and ordinances associated (b)y Occupational Safety and Health Act with the working conditions of the (c)y 1994 will be complied with in this country which the project proponent (d)y project. should observe in the project? (b) Are tangible safety considerations in place for individuals involved in the project, such as the installation of safety equipment which prevents industrial accidents, and management (6) Working Conditions of hazardous materials? (c) Are intangible measures being planned and implemented for individuals involved in the project, such as the establishment of a safety and health program, and safety training (including traffic safety and public health) for workers, etc.? (d) Are appropriate measures taken to ensure that security guards involved in the project do not to violate safety of other individuals involved, or local residents? (a) Are adequate measures considered to (a)n (a)~(c) reduce impacts during construction (b)n Scale of construction will be limited (e.g., noise, vibrations, turbid water, (c)n and small. Therefore, environmental dust, exhaust gases, and wastes)? impact during construction is (1) Impacts during Construction (b) If construction activities adversely affect the natural environment (ecosystem), are adequate measures considered to reduce impacts? minimal. (c) If construction activities adversely affect the social environment, are adequate measures considered to reduce impacts? 4-12

97 6 Note Category Environmental Yes: Y Confirmation of Environmental Main Checklist Items Items No: N Considerations (a) Does the proponent develop and implement monitoring program for (a)n (b)n (a)~(d) Solar PV power system with less the environmental items that are (c)n environmental and social impact considered to have potential impacts? (d)n require for limited monitoring. (b) Are the items, methods and frequencies included in the monitoring program judged to be appropriate? (c) Does the proponent establish an (2) Monitoring adequate monitoring framework (organization, personnel, equipment, and adequate budget to sustain the monitoring framework)? (d) Are any regulatory requirements pertaining to the monitoring report system identified, such as the format and frequency of reports from the proponent to the regulatory authorities? (a) Where necessary, pertinent items (a)n (a)the project will use transmission described in the Power Transmission lines, which already exist. If none Reference to and Distribution Lines checklist exist around the candidate site, new Checklist of Other Sectors Note on Using Environmental Checklist should also be checked (e.g., projects including installation of electric transmission lines and/or electric distribution facilities). (a) If necessary, the impacts to (a)y trans-boundary or global issues should be confirmed (e.g., the project includes factors that may cause problems, such as trans-boundary waste treatment, acid rain, destruction of the ozone layer, or global warming). transmission line will be needed. However, scale of construction will be limited and small. (a)in the project, reduction of GHG emission will be calculated. Source : JICA s New Guidelines for Environmental and Social Considerations Checklist for Other Electric Generation 4-13

98 2) Comparison between the Proposed Project and Other Feasible Projects NREPAP, formulated by MEGTW, includes biomass, biogas, solid waste and small-hydro RE other than solar PV. However, under FiT mechanism based on the Renewable Energy Act 2011, solar PV will consider only the unlimited source of energy and the expected important role of national energy. Furthermore, solar PV is superior to other forms of RE (biomass, biogas, solid waste) in terms of effects to ambient air or noise. 3) Discussion with Implementing Agencies Consultation with relevant agencies about SSE, and obtaining permission for conducting SSE is required for the project. The details of SSE are discussed in the following section. The procedure on SSE is required when constructing a new factory, even if the project does not require EIA. This application is submitted to the DOE state office. (4) Outline of Related Laws and Regulations on Environmental and Social Considerations 1) Outline of the Related Laws and Regulations for the Implementation of the Project a. Environmental Quality Act Environmental Quality Act was introduced when water pollution became serious due to traditional tin mining, and establishment of industries such as natural rubber and palm oil. Industrial pollution was caused by aggressive industrialization policies since the late 1960s. This law regulates the effluent and atmospheric pollutant, procedure on waste treatment and EIA. This law also regulates procedure on SSE. Table 4-2 Related Regulations to Prevent Pollution Environmental Quality (Sewage and Industrial Effluents) Regulations 1979 Environmental Quality (Clean Air) Regulations 1978 Environmental Quality (Scheduled Wastes) Regulation 1989 Source : Made by Study Team b. Occupational Safety and Health Act Occupational Safety and Health Act, which basically adopts self control, apply to all laborers except troops and crew of commercial vessels as basic rules on industrial safety. For securing health and safety in the workplace, businesses and workers, industrial hygiene, ergonomics, the law is seeking active involvement of safety volunteers and professionals. 4-14

99 c. Other Plans or Guidelines For the siting and zoning of industries These guidelines are used for determining suitable site and adequate buffer zones when locating new industries/industrial areas or residential areas. These also aim to ensure systematic planning to reduce the maximum possible impact of residual pollutant to nearby residents. These guidelines classify the following industries according to environmental effects: Light Industries Medium Industries Heavy Industries Special Industries Specify an example case and minimum buffer zone for each case Planning guidelines for environmental noise limits and control Guidelines for noise labeling and emission limits of outdoor sources Planning guidelines for vibration limits and control In Malaysia, there are no laws or regulations on the limitation of noise or vibration. Since the Environmental Quality Act specifies noise criteria, these were enacted by DOE. These guidelines specify the limitation of general noise, outdoor sources (construction machines, outdoor equipment), and vibration. Urban Stormwater Management Manual for Malaysia This manual serves as guide to regulators, planners and designers who are involved in stormwater management. It identifies a new direction for stormwater management in urban areas of Malaysia. 2) Contents of EIA in the Host Country In Malaysia, Environmental Quality Act was reformed in 1985 before the Rio Declaration on Environment and Development (United Nations Conference on Environment and Development, Rio de Janeiro, 1992). In this modified version, the procedure for conducting EIA in Malaysia was determined. It also specifies types of projects that require EIA, and which should implement preliminary EIA. 4-15

100 Figure 4-2 Outline of Environmental Impact Assessment Procedure Source: Research Report on Trends in Environmental Considerations related to Overseas Activities of Japanese Companies, FY 1999 On the other hand, SSE is necessary for new factories that do not require EIA. In SSE, planning of factory, which is based on Guidelines for the Siting and Zoning of Industries should be referred to the state office of DOE. DOE carries out the evaluation by checking the development plan against environmental laws and guidelines. As a result of evaluation, DOE sometimes recommends changing of the site location. After the SSE, projects that cause effluent or fuel burning should obtain written permission and approval from DOE. This solar PV power generation project is not included among the projects prescribed under the Environmental Quality Act. It became clear from documents or hearing with DOE that EIA is not necessary for this project as long as it does not necessitate land reclamation of over 50 ha. If implementation of solar PV power generation project requires permanent equipment with capacity of over 100 t per day, preparation of related EIA would be required. From the above study, EIA is not necessary for the project while SSE needs to be carried out. 4-16

101 Figure 4-3 Application Procedure for Environmental Requirements in Malaysia Source : A Guide for Investors by DOE (5) Measures to be Taken by Host Country Government to Achieve Project Objectives Renewable Energy Act which is one of the measure to taken by host country government to achieve this project was already enacted and FiT mechanism was introduced on December Other new action plans which host country government should implement about environmental and social part was not expected. Consequently, measure should be done by host country is examining and permitting any applications which submitted by proponent on the basis of predetermined criteria. Under the procedure of SSE, which is needed for this project, the applicant should submit the 4-17

102 following to the state office of DOE: a. Application checklist of the site preliminary assessment b. Copy of the land grant for the site premises c. Site plan of the factory and plan of surrounding sites within 1 km radius d. Factory layout plan The applicant should refer to the Guidelines for the Siting and Zoning of Industries mentioned above when planning the layout. This project has basically no pollutant emissions, and cause lower noise generation. It does not also involve discharging of toxic wastes, and is determined to belong to light type under the guideline, as it has the least effects. According to the guideline, the buffer zone width should be 30 m, which is determined from effect to car traffic, fire, emergency and aesthetics. Therefore, if the candidate site is adjacent to residential areas, it is necessary to secure more than 30 m as the distance between residential and PV power facilities. In addition, the procedure on SSE is needed not only for PV power project on ground, but also for those to be installed on roofs of factory. PV power generation project does not need combustion and effluent facilities. Hence, it will be possible to implement the project when carried out based on the procedure of SSE. Method of application to DOE is mentioned above. For the implementation of the project, noise, vibration, stormwater drainage, etc., should be considered in the planning and design, based on the mentioned guidelines. 4-18

103 Chapter 5 Financial and Economic Evaluation

104

105 (1) Project Cost Estimate 1) Outline of Cost Estimation The project cost has been estimated by the following methods: Cost estimation by a local system integrator in Malaysia Interview survey of a Japanese company working as system integrator in Malaysia Interview survey of a system integrator in Japan According to cost estimation by a local system integrator in Malaysia, cost for design, procurement and building/installation of 1,017 kw of grid-connected PV system is RM 9.76 million (JPY 239 million). According to an overseas subsidiary of a Japanese company, which has a license to work as system integrator in Malaysia, it is possible to install 1 MW PV system at a cost of RM 10,000/kW (RM 10 million or JPY 245 million in total for 1 MW system) under an engineering procurement construction (EPC) contract. A Japanese system integrator also stated that it is possible to provide all necessary equipment for 1 MW PV System at a cost of JPY 200,000/kW (JPY 200 million in total for 1 MW system) under free on board (FOB) price. Hence, the estimated total cost of JPY 263 million is considered reasonable and proper. 2) Contents of the Cost Estimation Contents of the cost estimation are described below based on the price quotation from a local system integrator and price trend in the world market. The cost is estimated considering the following components of the project: a. PV Module b. Power Conditioner c. Mounting Structure d. Other Equipment e. Civil/Building/Installation Works f. Other Works and Cost for Procedures g. Other Cost (Technical Services) h. Contingency Cost i. Technical Services Cost In this chapter, the following exchange rates announced by the Central Bank of Malaysia on December 13, 2011 are applied: RM 1 = USD JPY 100 = RM

106 << PV Module >> Price quotes for products, which are available in Malaysia, were collected from a local system integrator. Price information from Japan and other countries were also collected. The costs were RM 1,210 in case of 250 W mono-crystalline type PV module, which is available in Malaysia. This is equivalent to RM 4.84/W (JPY 119/W or USD 1.52/W). Wholesalers in the U.S. and other countries are selling PV modules at USD 1 to 2/W (JPY 78 to 156)/W). Malaysian made modules are also evaluated. A cost of JPY 230 to 320/W is determined in case of products from Japan at an ex-warehouse price, which has less advantage in terms of pricing. <<Power Conditioner>> Same as PV module, price quotations of products, which are available in Malaysia, were collected from a local system integrator. Price information from Japan and other countries were also collected. A cost of RM 257,500 in case of 250 kw power conditioner is determined. This is equivalent to RM 1,030/kW (JPY 25,225/kW or USD 324/kW). Japanese products could not be found in Malaysian Market. China-made or Germany-made products are commonly distributed. Wholesalers in the U.S. and other countries are selling power conditioners with 250 kw to 1 MW capacity at USD 300 to 500/kW. <<Mounting Structure>> Price quotes of products for conservatively designed mounting structure made of galvanized steel angles are collected from a local system integrator. The cost is RM 2,158,000 for 4,068 pcs. of PV module (total 1,017 kw), which is equivalent to RM 2,122/kW (JPY 51,967/kW or USD 667/kW). << Other Equipment >> Other equipment includes electrical boards/panels, connection box, junction box, transformer, display panel to show the amount of power generation and others. According to price quotation from a local system integrator, the cost is RM 880,300, which is equivalent to RM 866/kW (JPY 21,199/kW or USD 272/kW). << Civil/Building/Installation Works >> Civil/building/installation works include foundation structures for PV array, assembly of mounting structure, installation of PV module, power conditioner electrical boards/panels, and others. According to price quotation from a local system integrator, the cost is RM 595,500, which is equivalent to RM 586/kW (JPY 14,340/kW or USD 184/kW). << Other Works and Cost for Procedures >> Other works and procedures will cost RM 159,300, which is equivalent to RM 156/kW (JPY 3,836/kW or USD 49/kW), for design works by a local system integrator, including transportation of equipment, cost of tests and commissioning. 5-2

107 It is necessary to consider the cost of a power system study (analysis of power grid if the new power plant is connected), site survey, geological survey, and installation of power distribution line up to the existing line, which depends on site conditions. Such cost mentioned above is considered under the item of Other Works and Cost for Procedures, which is estimated to be 10% of the total cost of equipment, and civil/building/installation works. << Contingency Cost >> A value of 10% of total cost of Civil/Building/Installation Works and Other Works and Cost for Procedures is estimated as Contingency Cost. << Technical Services Cost >> A value of 2% of total cost of PV Module, Power Conditioner, Mounting Structure, Other Equipment, Civil/Building/Installation Works, Other Works and Cost for Procedures and Contingency Cost is estimated as the cost for technical services, e.g., project supervision. << Yearly Cost of Operation and Maintenance >> Unattended operation of solar power generation station is possible, however inspection is necessity. Monthly and yearly inspection is assumed. According to price quotation by a local system integrator, it costs RM 30,000 (JPY 735,000 or USD 9,000) for 12 times (monthly) inspection for the first year after taking-over. The price is estimated as inspection for a year. It is also necessary to accumulate sufficient funds for future repair/replacement of equipment. Especially power conditioner will be required to be repaired/replaced 10 years after commencement of operation. A value of 0.5% of total cost of PV Module, Mounting Structure and Other Equipment, and a value of 3% of cost of Power Conditioner are estimated as the yearly cost for the fund for future repair/replacement. 5-3

108 Details of project cost (1MW system) are shown in the following table. Table 5-1 Details of Project Cost (1 MW System) Quoted/Estimated Unit Price For 1 MW System (Unit: RM) Unit Price Sub Total % << Cost of Equipment and Works >> A PV Module RM/W ,840, % B Power Conditioner RM/kW 1,030 1,030, % C Mounting Structure RM/kW 2,122 2,122, % D Other Equipment RM/kW , % E Civil/Building/Installation Works RM/kW , % F Other Works and Cost for Procedures *1 944, % G Contingency Cost *2 153, % H Technical Services Cost *3 211, % Total RM 10,752,000 ( in JPY 263,323,000 ) ( in USD 3,382,000 ) << Yearly Cost of Operation and Maintenance >> I Check and Inspection Cost 30,000 J Equipment Repair and Replacement Cost *4 70,000 Total RM 100,000 /year ( in JPY 2,449,000 ) ( in USD 31,000 ) Note: Each subtotal is rounded up or down to the nearest RM 1,000. "in JPY" and in "USD" are rounded up or down to the nearest JPY 1,000 and USD 1,000 respectively. *1: 10% of total of items A to E above *2: 10% of total of items E and F above *3: 2% of total of items A to G above *4: 0.5% of items A, C, D and 3% of item B Source: Study Team based on collected Price Quotation/Information and Analysis 3) Verification of Cost Estimation According to the cost data for projects involving 20 kw or more capacity, which were procured in 2008 or , e.g., Malaysia Building Integrated Photovoltaic (MBIPV) project implemented by the Government of Malaysia, United Nations Development Programme (UNDP) and Global Environmental Facility (GEF), the total cost of such projects, taking MBIPV as reference, is about RM 24,855/kW. Of this, RM 15,311/kW (61.60%) was for the PV module, RM 2,433/kW (9.79%) 9 Since the cost of each component is rapidly going down recently, the costs shown in the text shall be considered to be higher than current cost level. 5-4

109 was for power conditioner, and RM 7,111/kW (28.61%) 10 was for balance of system (BoS). Although simplified comparison of MBIPV project cost and cost of proposed project is difficult (since building integrated PV is costlier than installation on the ground and considering there is rapid price decline in recent year), the ratio of each component to total project cost is reasonable. This is realized because the costs of PV module and power conditioner have declined rapidly, as well as the BoS cost. According to a recent survey 11 regarding projects greater than 10 MW, USD 1.90/W (54%) of total project cost (USD 3.50/W) was for PV module, USD 0.26/W (7%) was for power conditioner, USD 0.44/W (13%) was for mounting structure of PV module, USD 0.48/W (14%) was for other equipment and works, and USD 0.42/W (12%) was for other costs. The cost estimation of proposed project is reasonable based on the result of the survey. 4) Site Layout and Single Line Diagram of 1 MW System Site layout drawing and single line diagram based on the following components and design are shown in the following figures. << PV Module >> Mono-crystalline type, 250 W, 4,000 pcs (total 1 MW), Size: 1,700 mm x 1,000 mm << PV Array >> 20 Series (system voltage: approx. 600 V), 200 Parallel << Mounting Structure of PV Array >> 2 rows x 5 columns, 3.5 m width x (5.5 m depth m interval) 400 Units << Power Conditioner >> 250 kw/unit x 4 units 10 Project cost data of each project is available at the website of MBIPV project. The ratio and unit price per kw is the weighted average of capacity of projects 11 Achieving Low-Cost Solar PV: Industry Workshop Recommendations for Near-Term Balance of System Cost Reductions, September 2010, Rocky Mountain Institute 5-5

110 Figure 5-1 Site Layout Drawing Source: Made by Study Team 5-6

111 Figure 5-2 Single Line Diagram Source: Made by Study Team 5-7

112 5) Prospect of Cost Estimation for Future 10 MW System The project cost for 10 MW system in the future is considered to be certainly lower than 10 times the cost of 1 MW system. In addition to scale merit and price decline of PV module and power conditioner, research and utilization of cost reduction method for BoS are expected. Cost estimation for future 10 MW system is shown in the following table. For the estimation, price decline of 5% for PV module and power conditioner; and 10% for mounting structure, other equipment and civil/building/installation works are expected. Percentage of other works and cost for procedure and technical services cost decreased from 10% to 5%, and from 2% to 1%, respectively. The estimated project cost is JPY 2.31 billion (RM 94.2 million or USD 29.6 million). Check and Inspection Cost for 10 MW system is assumed to be 5 times of the one for 1 MW system. Equipment Repair and Replacement Cost for 10 MW system is based on the same calculation as 1 MW system. For 10 MW system, salary for maintenance personnel (two engineers and two security guards) are also considered as a part of the cost of operation and maintenance. 5-8

113 Table 5-2 Cost Estimation for Future 10 MW System Quoted/Estimated Unit Price For 10 MW System (Unit: RM) Unit Price Sub Total % << Cost of Equipment and Works >> A PV Module RM/W ,000, % B Power Conditioner RM/kW 979 9,790, % C Mounting Structure RM/kW 1,910 19,100, % D Other Equipment RM/kW 779 7,790, % E Civil/Building/Installation Works RM/kW 527 5,270, % F Other Works and Cost for Procedures *1 4,398, % G Contingency Cost *2 967, % H Technical Services Cost *3 933, % Total RM 94,248,000 ( in JPY 2,308,190,000 ) ( in USD 29,647,000 ) << Yearly Cost of Operation and Maintenance >> I Check and Inspection Cost 150,000 J Equipment Repair and Replacement Cost *4 658,000 K Salary of Maintenance Personnel 128,852 Total RM 936,852 /year ( in JPY 22,944,000 ) ( in USD 295,000 ) Note: Each subtotal is rounded up or down to the nearest RM 1,000. "in JPY" and in "USD" are rounded up or down to the nearest JPY 1,000 and USD 1,000 respectively. *1: 5% of total of items A to E above *2: 10% of total of items E and F above *3: 1% of total of items A to G above *4: 0.5% of items A, C, D and 3% of item B Source: Study Team based on collected Price Quotation/Information and Analysis At the site, addition to 10 ha land is available. which is a 20 ha pond filled by rainwater at a hole created for tin mining. One of the ideas is to install the PV module on a floating device on the pond. Such idea is utilized at several sites in Japan and is considered during operational stage, not during research stage. This is considered as a solution to reduce the cost for foundation as such works will not be necessary. FiT rates will decline after Declined rate shall be considered in case of economic/financial evaluation of future 10 MW system. 5-9

114 (2) Results of the Preparatory Financial and Economic Evaluation 1) Conditions Precedent for the Project a. Implementation Structure The implementation structure of the project has two patterns as shown below. Figure 5-3 Implementation Structure (Financing, Consulting Type of Business) Feed-in tariff Finance SEDA Land or Building Owner Consulting Source : Made by Study Team Based on the structure above, the Malaysian capital company who possesses the land and buildings necessary for the installation of PV facilities is responsible for the project. Nippon Koei Co., Ltd. selects the facilities and supports the application for FiT, while ORIX Corporation mainly provides financing to introduce the leased equipment, etc. Figure 5-4 Implementation Structure (Special Purpose Company) SEDA Feed-in tariff Land Lease Equity Land or Building Owner or/and Equity Project Management Malaysian Partner SPC Source : Made by Study Team Based on the structure above, Nippon Koei Co., Ltd. and ORIX Corporation provide a maximum of 49% investment for SPC shares. The remaining 51% is financed by Malaysian capital companies. Referring to the analysis of financial and economic feasibility discussed below, a trial calculation is made based on the latter implementation structure. 5-10

115 b. Fiscal Incentives for RE Business entities, which undertake generation of energy using RE, are eligible to apply for the fiscal incentives indicated below. Table 5-3 Outline of Fiscal Incentives Pioneer Status Investment Tax Import Duty and Sales Tax (Income Tax Exemption) Allowance (ITA) Exemption Selling all the energy Exemption from income 100% of expenditure On imported machinery, generated tax on 100% of income for within 5 years can be equipment, materials, etc. 10 years utilized against 100% of given for a period of one Accumulated losses and income for each year of year. capital allowances can be assessment. carried forward. Selling the partial Exemption from income 100% of expenditure energy generated tax on 100% of income for within 5 years can be 10 years utilized against 100% of Accumulated losses and income for each year of capital allowances can be assessment. carried forward. Own 100% of expenditure enegy consumption within 5 years can be utilized against 100% of income for each year of assessment. Source : Made by Study Team Regarding pioneer status (PS) and investment tax allowance (ITA), either of the two can be selected. For this project, ITA is adopted as it allows deduction by qualifying capital expenditure as a deficit, covering more than a decade. c. Project Size Calculations are made for 1 MW and 10 MW capacities. 5-11

116 d. FiT Rate Applying the monetary unit for FiT, RM 1.14/kWh is calculated for electric generating capacity of 1 MW, while RM 0.95/kWh for 10 MW. e. Interest and Duration Regarding the terms of financing, considering the result of hearings with banks and the availability of interest subsidy system by the Malaysian government, provisional calculation of interest rates is made at 5% per annum for a term of 15 years. f. Facility Cost Facility cost is provisionally calculated as JPY 300 million per 1 MW. g. Electricity Generated Per Annum A trial calculation of expected annual energy production is made, based on the amount of solar radiation from one of the candidate sites, i.e., Ipoh site. 2) Result of the Evaluation a. Economic Internal Rate of Return The cost of solar PV power system is much higher than other conventional power plants such as gas fired, hydro power. Also, due to instability of solar PV, there is no advantage in terms of national economy at this point in time. However, in case of escalating fuel price or/and climate change along with global warming in the future, which is difficult to predict but devastating impact on national society, Malaysian government introduce FiT to cope with these potential problems. Therefore, it is difficult and not necessarily important to put forward specific EIRR in this case. b. Financial Internal Rate of Return Table 5-4 Financial IRR Sensitivity Analysis 1 (1 MW) IRR (15 years) Debt Ratio 0% 50% 70% % 3.3% 3.1% FIT Rate % 5.9% 7.1% (RM/kWh) % 8.6% 11.2% Source: Made by Study Team i. By increasing the rate of borrowing of SPC, a financial leverage effect is determined, boosting the profitability. ii. Though the unit price of FiT is RM 1.14/kWh for the first year, the applicable unit price from the beginning of next year is gradually decreased by 8%. In terms of profitability, project is expected to be executed by the second year. 5-12

117 iii. The case of IRR with 10% of borrowing is so-called Project IRR. Table 5-5 Financial IRR Sensitivity Analysis 2 (1 MW) IRR (15 years) Generated (kwh/year) 1,175,504 1,306,116 1,436, % 16.3% 21.6% System Cost % 11.2% 16.2% (RM/W) % 6.9% 11.6% Source: Made by Study Team i. For the cost of installation, which is RM 10/W, IRR with an increase and decrease of 10% is provisionally calculated. ii. Under the same conditions, annual energy production is provisionally calculated. Changes in energy production have a big influence on IRR. 5-13

118 Table 5-6 Profit and Loss Statement (1 MW) Profit & Loss - Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 Year11 Year12 Year13 Year14 Year15 '000RM 2013/ / / / / / / / / / / / / / /03 Revenue 1,415 1,407 1,400 1,393 1,386 1,380 1,373 1,366 1,359 1,352 1,345 1,339 1,332 1,325 1,319 Insurance Rent Depreciation Maintenance Interest Removal Amortization Operating Cost 1,213 1,211 1,189 1,167 1,145 1,123 1,102 1,080 1,058 1,036 1, Profit before Tax margin 14.2% 13.9% 15.1% 16.2% 17.4% 18.6% 19.7% 20.9% 22.2% 23.4% 24.6% 25.9% 27.2% 28.5% 29.8% Tax(Accounting) -2, , Profit after Tax EBITDA ,002 1,017 1,032 1,048 1,063 margin 61.7% 61.6% 63.0% 64.4% 65.8% 67.2% 68.6% 70.1% 71.5% 73.0% 74.5% 76.0% 77.5% 79.1% 80.6% Source : Made by Study Team 5-14

119 Table 5-7 Precondition (1 MW) Generation Tariff Year1~ RM/kWh Capacity 1,000 kw Panels 6,667 Year16~ 1.14 RM/kWh Hour 24 h Panel size VAT Tax excluded Day 365 days Buffer 1.3 Trans Loss 5.0% 8,760,000 kwh/year Area 2.6 acre Gradual 0.5% /year Availability 14.9% Decrease Generated 1,306,116 kwh/year Commenciment 2012/01 Expiration Year21 RM in million Cost Property facility 0.0% System Cost RM/W real estate 0.0% ITA 100.0% Removal 6.00 RM/W Corporte tax 25.0% Duration 15 year account Maintenance 1.0% Duration 6 year tax Insurance 0.2% ITA Depreciation ratio 14.0% Land 3, RM/acre/month Initial ratio 20.0% Land 114 acre/month 償却保証率 14.0% 改定償却率 14.0% Finance and Structure Use Source Capita ratio 70.0% Duration 15 year Tax - Debt 7,042 D/E ratio 2.33 (Max 3.0x) Interest 5.0% Solar PV 10,000 GAAP 1 US-GAAP Other equipment 10 Equity 3,018 Tax incentive 2 ITA Arrangement fee 0.5% Arrangement Fee 50 Initial year 12 month Total 10,060 Total 10,060 1 Source : Made by Study Team 5-15

120 Table 5-8 Financial IRR Sensitivity Analysis 1 (10 MW) IRR (15 years) Debt Ratio 0% 50% 70% % -2.4% -6.9% FIT Rate % 0.5% -1.7% (RM/kWh) % 2.9% 2.4% Source : Made by Study Team In case of 10 MW, as the applicable FiT rates are lower than for 1 MW, profitability is reduced. Table 5-9 Financial IRR Sensitivity Analysis 2 (10 MW) IRR (15 years) Generated (kwh/year) 11,755,044 13,061,160 14,367, % 6.9% 11.7% System Cost % 2.4% 6.9% (RM/W) % -1.8% 2.8% Source : Made by Study Team i. In order to achieve the level of profitability with 10 MW, which is normally required when a private company executes a project, it is necessary to reduce the cost of installation to a minimum of RM 9/W. In comparison with 1 MW, this allows taking advantage of economies of scale, and hence is considered as the level, which is achieved through selection methods for equipment. ii. On the other hand, even if the cost of installation at RM 9/W is achieved, 10% reduction in the amount of solar radiation has a profound effect on profitability. This is because there is a need to carefully select a site that secures enough amount of solar radiation. 5-16

121 Table 5-10 Profit and Loss Statement (10 MW) Profit & Loss - Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 Year11 Year12 Year13 Year14 Year15 '000RM 2013/ / / / / / / / / / / / / / /03 Revenue 11,788 11,729 11,670 11,612 11,554 11,496 11,438 11,381 11,324 11,268 11,211 11,155 11,100 11,044 10,989 Insurance Rent 1,136 1,136 1,136 1,136 1,136 1,136 1,136 1,136 1,136 1,136 1,136 1,136 1,136 1,136 1,136 Depreciation 6,673 6,673 6,673 6,673 6,673 6,673 6,673 6,673 6,673 6,673 6,673 6,673 6,673 6,673 6,673 Maintenance 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 1,001 Interest 3,286 3,067 2,848 2,629 2,410 2,191 1,972 1,753 1,534 1,315 1, Removal Amortization Operating Cost 12,130 12,111 11,892 11,673 11,454 11,235 11,016 10,797 10,578 10,358 10,139 9,920 9,701 9,482 9,263 Profit before Tax ,072 1,235 1,398 1,562 1,726 margin n/a n/a n/a n/a 0.9% 2.3% 3.7% 5.1% 6.6% 8.1% 9.6% 11.1% 12.6% 14.1% 15.7% Tax(Acconting) -23,442 1,573 1,613 1,653 1,693 1,734 1,774 1,814 1,855 1,896 1,936 1,977 2,018 2,059 2,100 23,357-1,668-1,668-1,668-1,668-1,668-1,668-1,668-1,668-1,668-1,668-1,668-1,668-1,668-1,668 Profit after Tax ,049 1,171 1,294 EBITDA 6,364 6,324 6,485 6,645 6,807 6,968 7,129 7,291 7,454 7,616 7,779 7,942 8,105 8,269 8,433 margin 54.0% 53.9% 55.6% 57.2% 58.9% 60.6% 62.3% 64.1% 65.8% 67.6% 69.4% 71.2% 73.0% 74.9% 76.7% Source : Made by Study Team 5-17

122 Table 5-11 Precondition (10 MW) Generation Tariff Year1~ RM/kWh Capacity 10,000 kw Panels 66,667 Year16~ 0.95 RM/kWh Hour 24 h Panel size VAT Tax excluded Day 365 days Buffer 1.3 Trans Loss 5.0% 87,600,000 kwh/year Area 26.3 acre Gradual 0.5% year Availability 14.9% Decrease Generated 13,061,160 kwh/year Commenciment 2012/01 Expiration Year21 RM in million Cost Property facility 0.0% System Cost RM/W real estate 0.0% ITA 100.0% Removal 6.00 RM/W Corporte tax 25.0% Duration 15 year account Maintenance 1.0% Duration 6 year tax Insurance 0.2% ITA Depreciation ratio 14.0% Land 3, RM/acre/month Initial ratio 20.0% Land 1,136 acre/month 償却保証率 14.0% 改定償却率 14.0% Finance and Structure Use Source Capita ratio 70.0% Duration 15 year Tax - Debt 70,420 D/E ratio 2.33 (Max 3.0x) Interest 5.0% Solar PV 100,000 GAAP 1 US-GAAP Other equipment 100 Equity 30,180 Tax incentive 2 ITA Arrangement fee 0.5% Arrangement Fee 501 Initial year 12 month Total 100,601 Total 100,601 1 Source : Made by Study Team 5-18

123 Chapter 6 Planned Project Schedule

124

125 The project is implemented as a perfect private enterprise. The economic evaluation of the project is estimated continuously from the result of this Study. When considering that the project will be implemented by the firms concerned, an SPC, which becomes the responsible business organization, will be established. SPC then makes a power producer application and starts construction work after approval. Power production business will start after October 2013, as construction period of the solar PV power system of 1 MW is assumed to be about 10months. At first, planned business will start for solar PV power system of about 1 MW. However, increase of the capacity and addition of a new project will also be considered while ascertaining the cost performance and market situation. Figure 6-1 Planned Project Schedule 1 Outline Study Business Scheme Consideration and 2 SPC Establishment 3 Detail Design Preparation Study for Application to 4 SEDA 5 Application for FiT Approved Holder Construction and Installation 7 Commissioning 8 Starting Power Supply Environmental and Social Consideration related laws and regulations Site Suitability Evaluation Source : Made by Study Team 6-1

126

127 Chapter 7 Implementing Organization

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129 The implementing organization of FiT mechanism is SEDA. Since the FiT mechanism, which was supposed to commence in September 2011, was postponed until December 2011, there appears a lack in lead time for commencement. SEDA already operated from September 2011, and has 30 staffs as of December The organization is new; however, many staffs from MEGTW have already been replaced. Nevertheless, it can be said that there is no particular problem with regard to the implementing ability of the organization. The organization chart of SEDA is shown in Figure 7-1 Figure 7-1 Organization Chart of SEDA (as of January 2012) Source : SEDA Internet Website 7-1