Prepared for: The Ministry of Economy, Trade and Industry

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 SUMMARY February 2012 Prepared for: The Ministry of Economy, Trade and Industry Prepared by: Nippon Koei Co., Ltd ORIX Corporation

2 (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

3 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

4 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

5 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

6 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

7 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

8 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

9 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

10 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

11 (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

12 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

13 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

14 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

15 (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