Japan 10mw Project Plan

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

Reproduction Prohibited

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

Proposed Project Site

Proposed Project Site

Map Source: Made by Study Team based on

CIA World Factbook / Department of Surveyand Mapping, Malaysia

Abbreviation

BM Build Margin

BoS Balance of System

CDM Clean Development Mechanism

CEMD Conservation and Environmental Management Divisor

CF Cash Flow

CM Combined Margin

COP Conference of the parties

DL Distribution Licensee

DNA Designated National Authority

DOE Department of Environment

EC Energy Commission

EIA Environmental Impact Assessment

EIRR Economic Internal Rate of Return

EPC Engineering Procurement Construction

EPU Economic Planning Unit

ESCO Energy Service Company

FIRR Financial Internal Rate of Return

FiT Feed-in Tariffs

FOB Free on Board

GDP Gross Domestic Product

GEF Global Environmental Facility

GHG Green House Gas

IPP Independent Power Producer

IRR Internal Rate of Return

ITA Investment Tax Allowance

JBIC Japan Bank for International Cooperation

JICA Japan International Cooperation Agency

JPY Japanese Yen

kW kilowatt

kWh kilowatt hour

MBIPV Malaysia Building Integrated Photovoltaic

Mboe Million Barrel of Oil Equivalent

MEGTW Ministry of Energy, Green Technology and Water

METI Ministry of Economy, Trade and Industry

MJ Megajoule

MNRE Ministry of Natural Resources and Environment

MTOE Million Ton of Oil Equivalent

MW Megawatt

MWh Megawatt hour

NCCDM National Committee on CDM

NEDO New Energy and Industrial Technology Development Organization

NK Nippon Koei Co., Ltd

NOx Nitrogen Oxide

NREPAP The National Renewable Energy Policy and Action Plan

NSCCC National Steering Committee on Climate Change

OECD Organization for Economic Co-operation and Development

OLM ORIX Leasing Malaysia

OM Operating Margin

ORIX ORIX Corporation

PJ Petajoule

PS Pioneer Status

PSS Power System Study

PTM Pusat Tenaga Malaysia

PV Photovoltaic

RE Renewable Energy

REPPA Renewable Energy Power Purchase Agreement

RM Ringitt Malaysia

SEB Sarawak Energy Berhad

SEDA Sustainable Energy Development Authority

SESB Sabah Electricity Sdn. Berhad

SOx Sulfur Oxide

SPC Special Purpose Company

SSE Site Suitability Evaluation

TNB Tenaga National Berhad

TOE Ton of Oil Equivalent

UNDP United Nations Development Programme

UNFCCC United Nations Framework Convention on Climate Change

Contents Executive Summary

Chapter 1 Overview of the Host Country and Sector

(1) Economy and Financial Situation ..................................................................................... 1-1

1) Economic Condition ......................................................................................................... 1-1

2) Financial Condition .......................................................................................................... 1-1

(2) Outline of the Project Sector ............................................................................................. 1-2

1) Energy Basic Policy .......................................................................................................... 1-2

2) Organizations Related to Energy Policy ........................................................................... 1-3

3) Trend of Prime Energy in Malaysia .................................................................................. 1-5

4) Trend of Electricity Supply and Demand in Malaysia ...................................................... 1-6

5) RE Policy .......................................................................................................................... 1-7

6) NREPAP ........................................................................................................................... 1-9

7) Sustainable Energy Development Authority (SEDA) ..................................................... 1-10

8) FiT Mechanism ............................................................................................................... 1-11

(3) Conditions in the Targeted Areas .................................................................................... 1-17

Chapter 2 Study Methodology

(1) Scope of Survey ................................................................................................................ 2-1

(2) Survey Organization ......................................................................................................... 2-2

1) Homework in Japan .......................................................................................................... 2-2

2) Field Survey in Malaysia .................................................................................................. 2-2

3) Selection Method of the Project Site ................................................................................ 2-2

4) Study Organization ........................................................................................................... 2-4

5) Organization Related to the Project .................................................................................. 2-5

(3) Study Schedule .................................................................................................................. 2-5

1) Study Schedule ................................................................................................................. 2-5

2) Terms of Field Survey and Study Contents ...................................................................... 2-5

Chapter 3 Justification, Objectives and Technical Feasibility of the Project

(1) Background and Necessity ................................................................................................ 3-1

1) Scope of the Project .......................................................................................................... 3-1

2) Analysis of Present State and Future Forecast .................................................................. 3-2

3) Impacts of the Project Implementation ............................................................................. 3-3

4) Comparison between the Proposed Project and Other Feasible Projects .......................... 3-3

(2) Study Required for Decision on Contents of the Project .................................................. 3-4

1) Demand Forecasting ......................................................................................................... 3-4

2) Understanding and Analysis on the Problems for Consideration and Decision of the Project

Contents ............................................................................................................................ 3-9

3) Review of Technical Measures ....................................................................................... 3-10

(3) Planned Outline of the Project ........................................................................................ 3-13

1) Basic Policy for Deciding the Scope of the Project ........................................................ 3-13

2) Conceptual Design and Specifications............................................................................ 3-14

3) Contents of the Proposed Project .................................................................................... 3-17

4) Problems and Solutions Related to the Proposed Technology and System .................... 3-23

Chapter 4 Evaluation of Environmental and Social Impacts

(1) Analysis on Environmental and Social Impacts ................................................................ 4-1

1) State Analysis .................................................................................................................... 4-1

2) Future Forecast (If Project is Not Implemented) .............................................................. 4-2

(2) Environmental Improvement Effects by the Project ......................................................... 4-3

(3) Project Influence on Environmental and Social Sectors ................................................... 4-6

1) Environmental and Social Items to be Considered ........................................................... 4-6

2) Comparison between the Proposed Project and Other Feasible Projects ........................ 4-14

3) Discussion with Implementing Agencies ........................................................................ 4-14

(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 ..... 4-14

2) Contents of EIA in the Host Country .............................................................................. 4-15

(5) Measures to be Taken by Host Country Government to Achieve Project Objectives ..... 4-17

Chapter 5 Financial and Economic Evaluation

(1) Project Cost Estimate ........................................................................................................ 5-1

1) Outline of Cost Estimation ............................................................................................... 5-1

2) Contents of the Cost Estimation ....................................................................................... 5-1

3) Verification of Cost Estimation ......................................................................................... 5-4

4) Site Layout and Single Line Diagram of 1 MW System .................................................. 5-5

5) Prospect of Cost Estimation for Future 10 MW System ................................................... 5-8

(2) Results of the Preparatory Financial and Economic Evaluation ..................................... 5-10

1) Conditions Precedent for the Project .............................................................................. 5-10

2) Result of the Evaluation .................................................................................................. 5-12

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) .................................................................................................................... 8-1

1) Investment and Finance .................................................................................................... 8-1

2) Equipment Supply ............................................................................................................ 8-1

3) Operational Management .................................................................................................. 8-1

(2) Technical and Economic Advantages of Japanese Company ............................................ 8-2

1) Economic Aspect .............................................................................................................. 8-2

2) Technical Aspect ............................................................................................................... 8-3

(3) Measures to Help Japanese Companies Win Contracts .................................................... 8-4

1) Water Floating PV Module ............................................................................................... 8-4

2) Investment to the Project by PV Module Manufacturers .................................................. 8-5

3) PV Module Production at Site .......................................................................................... 8-5

4) Measure to Avoid the Risk due to Currency Exchange Rate Fluctuations ........................ 8-6

Chapter 9 Financial Outlook

(1) Review of the Fund Source and Fund Raising Plan .......................................................... 9-1

(2) Feasibility of Fund Raising ............................................................................................... 9-1

1) Results of Interview with Banks ....................................................................................... 9-1

2) Green Technology Financing Scheme .............................................................................. 9-3

(3) Cash Flow Analysis ........................................................................................................... 9-3

Chapter 10 Action Plan and Issues

(1) Efforts to Realize the Project .......................................................................................... 10-1

1) Realization below the total investment cost of USD 2,500/kW for 10 MW system ....... 10-1

2) Realization of long project finance with low interest rates ............................................. 10-1

3) Securing a less costly project site which can be used for long periods ........................... 10-1

4) Selection of an excellent local enterprise as a business partner ...................................... 10-1

(2) Efforts to Realize the Project by Implementing Organizations in the Host Country ...... 10-2

1) Action of concerned organization ................................................................................... 10-2

2) Result of consultation with MEGTW ............................................................................. 10-2

(3) Legal and Financial Restrictions ..................................................................................... 10-3

(4) Necessity of Additional Detailed Analysis ...................................................................... 10-3

List of Figures

Figure 1-1 GDP growth rate ................................................................................................... 1-1

Figure 1-2 Organization Chart of EPU (as of January 2012) ................................................. 1-4

Figure 1-3 Organization Chart of MEGTW (as of January 2012) ......................................... 1-5

Figure 1-4 Installed Generation Capacity and Maximum Demands in Peninsular Malaysia in

2009 ..................................................................................................................... 1-7

Figure 1-5 Target of Generated Power and Fulfilled Power by RE in the Malaysian Plan .... 1-8

Figure 1-6 Position of SEDA ............................................................................................... 1-10

Figure 1-7 Progress Flow Chart ........................................................................................... 1-15

Figure 1-8 Login Page of the On-line System on SEDA Website ........................................ 1-16

Figure 1-9 Flow of RE fund ................................................................................................. 1-17

Figure 1-10 Map Showing Amount of Solar Radiation in Malaysia .................................... 1-18

Figure 2-1 List of Candidate Sites ......................................................................................... 2-3

Figure 2-2 Organization Chart of the Study Team ................................................................. 2-4

Figure 2-3 Study Schedule ..................................................................................................... 2-5

Figure 3-1 Solar PV System for the Project ........................................................................... 3-2

Figure 3-2 Power Grid in Peninsular Malaysia ...................................................................... 3-5

Figure 3-3 Monthly Peak Demand of Peninsular Malaysia from 2008 to 2010 .................... 3-6

Figure 3-4 Monthly Energy Demand of Peninsular Malaysia from 2008 to 2010 ................. 3-7

Figure 3-5 Estimated Peak Demand and Reserve Margin of TNB from 2010 to 2030 ......... 3-8

Figure 3-6 System Image of Solar PV System ..................................................................... 3-15

Figure 3-7 Situation of Ipoh Site.......................................................................................... 3-19

Figure 3-8 Situation of Kuantan Site ................................................................................... 3-20

Figure 3-9 Situation of Johor Site ........................................................................................ 3-21

Figure 4-1 Organization Chart Related to CDM in Malaysia ................................................ 4-2

Figure 4-2 Outline of Environmental Impact Assessment Procedure .................................. 4-16

Figure 4-3 Application Procedure for Environmental Requirements in Malaysia ............... 4-17

Figure 5-1 Site Layout Drawing ............................................................................................ 5-6

Figure 5-2 Single Line Diagram ............................................................................................ 5-7

Figure 5-3 Implementation Structure (Financing, Consulting Type of Business) ................ 5-10

Figure 5-4 Implementation Structure (Special Purpose Company) ..................................... 5-10

Figure 6-1 Planned Project Schdule ....................................................................................... 6-1

Figure 7-1 Organization Chart of SEDA (as of January 2012) .............................................. 7-1

List of Tables

Table 1-1 Revenue, Expenditure and Overall Balance of the Malaysian Government .......... 1-2

Table 1-2 Trend of Prime Energy Demand in Malaysia ......................................................... 1-6

Table 1-3 Peak Demand and Installed Capacity of Each DL ................................................. 1-6

Table 1-4 Target of Generated Power of RE ........................................................................ 1-10

Table 1-5 RE Capacity Target Under FiT Mechanism ......................................................... 1-11

Table 1-6 FiT Rates for Biogas ............................................................................................ 1-12

Table 1-7 FiT Rates for Biomass ......................................................................................... 1-12

Table 1-8 FiT Rates for Small Hydro ................................................................................... 1-13

Table 1-9 FiT Rates for Solar PV ......................................................................................... 1-13

Table 1-10 Average of Amount of Solar Radiation per Year in Major Cities....................... 1-18

Table 3-1 Solar Radiation (Monthly Average) ..................................................................... 3-22

Table 3-2 Average, Maximum and Minimum Solar Radiaition and Estimated Power

Generation (1 MW System) ................................................................................. 3-22

Table 4-1 Social and Environmental Considerations for PV Power Generation .................... 4-6

Table 4-2 Related Regulations to Prevent Pollution .......................................................... 4-14

Table 5-1 Details of Project Cost (1 MW System) ................................................................. 5-4

Table 5-2 Cost Estimation for Future 10 MW System ........................................................... 5-9

Table 5-3 Outline of Fiscal Incentives ................................................................................. 5-11

Table 5-4 Financial IRR Sensitivity Analysis 1 (1 MW) ..................................................... 5-12

Table 5-5 Financial IRR Sensitivity Analysis 2 (1 MW) ..................................................... 5-13

Table 5-6 Profit and Loss Statement (1 MW) ...................................................................... 5-14

Table 5-7 Precondition (1 MW) ........................................................................................... 5-15

Table 5-8 Financial IRR Sensitivity Analysis 1 (10 MW) ................................................... 5-16

Table 5-9 Financial IRR Sensitivity Analysis 2 (10 MW) ................................................... 5-16

Table 5-10 Profit and Loss Statement (10 MW) .................................................................. 5-17

Table 5-11 Precondition (10 MW) ....................................................................................... 5-18

Table 9-1 Outline of Green Technology Financing Scheme .................................................. 9-3

Table 9-2 Cash Flow Analysis (1 MW) .................................................................................. 9-4

Table 9-3 Cash Flow Analysis (10 MW) ................................................................................ 9-5

Table 10-1 The situation of the quota for solar PV over 500kW ......................................... 10-2

Executive Summary

S-1

(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 (2001-2005), 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 2005.

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 (2011-2015) contains goals for the enhancement of the incentive for RE

investment, and for introducing RE by generating 985 MW power until 2015.

Table S-1 Target Generated Power by RE

Year Total RE

(MW)

Share of

RE Capacity

Annual RE

Generation

(GWh)

Share of RE

Generation

Annual CO2

Avoidance

(t-CO2)

2015 985 6% 5,385 5% 3,715,415

2020 2,080 11% 11,246 9% 7,759,474

2030 4,000 17% 17,232 12% 11,889,887

2050 21,370 73% 44,208 24% 30,503,589

Source : Made by Study Team based on “The National Renewable Energy Policy and Action

Plan”

Additionally, the Renewable Energy Act 2011 which incorporated the feed-in tariff (FiT) mechanism

was adopted by the government in April 2011. The FiT mechanism and governmental RE fund were

then introduced in December 2011.

S-2

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 2020.

SEDA issued a notice on a 5 MW limit for each solar PV application.

S-3

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 873.6 ton CO2 is expected from the

solar PV power system of 1 MW, since the grid emission factor in Peninsular Malaysia is 0.672

t-CO2/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: 1.0 MW

Mode of grid connection: Distribution line, 11 kV, 1 circuit

Power conditioner: Plural number (in case of Japanese make)

Foundation of support structure: Galvanized steel pipes (scaffold pipes) as

pile with concrete reinforcement

Support structure: Galvanized steel pipes(scaffold pipes)

Step-up transformer: 0.4/11 kV, 3 phase, 2 x 500 kVA

Control house: Single-story, reinforced concrete

construction

Meteorological observation system: Solar insolation, ambient temperature,

S-4

and module temperature

Data collection and communication system: 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-5

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 4.84 4,840,000 45.01%

B Power Conditioner RM/kW 1,030 1,030,000 9.58%

C Mounting Structure RM/kW 2,122 2,122,000 19.74%

D Other Equipment RM/kW 866 866,000 8.05%

E Civil/Building/Installation Works RM/kW 586 586,000 5.45%

F *1 944,000 8.78%

G Contingency Cost *2 153,000 1.42%

H Technical Services Cost *3 211,000 1.96%

Total RM 10,752,000

( in JPY 263,323,000 )

( in USD 3,382,000 )

<< Yearly Cost of Operation and Maintenance >>

I 30,000

J *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.

*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

Other Works and Cost for Procedures

"in JPY" and in "USD" are rounded up or down to the nearest JPY 1,000 and USD 1,000

respectively.

Source: Study Team based on collected Price Quotation/Information and Analysis

Check and Inspection Cost

Equipment Repair and Replacement Cost

S-6

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)



A PV Module RM/W 4.60 46,000,000 48.81%

B Power Conditioner RM/kW 979 9,790,000 10.39%


D Other Equipment RM/kW 779 7,790,000 8.27%

E Civil/Building/Installation Works RM/kW 527 5,270,000 5.59%

F *1 4,398,000 4.67%



Total RM 94,248,000

( in JPY 2,308,190,000 )

( in USD 29,647,000 )


I 150,000

J *4 658,000

K 128,852


( in JPY 22,944,000 )

( in USD 295,000 )

Note:








respectively.

Salary of Maintenance Personnel




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-7

Figure S-1 Implementation Structure（SPC）

SPC

Land or Building

Owner

Land Lease

or/and

Equity

・Equity

・Project

Management

SEDA

Feed-in tariff

Malaysian Partner

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%

FIT Rate

(RM/kWh)

0.9649 3.5% 3.3% 3.1%

1.0488 4.9% 5.9% 7.1%

1.1400 6.3% 8.6% 11.2%


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-8


IRR (15 years)

Generated (kWh/year)

1,175,504 1,306,116 1,436,728

System Cost

(RM/W)

9.0 10.7% 16.3% 21.6%

10.0 6.0% 11.2% 16.2%

1.10 2.0% 6.9% 11.6%


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.


IRR (15 years)

Debt Ratio

0% 50% 70%

FIT Rate

(RM/kWh)

0.8041 0.9% -2.4% -6.9%

0.8740 2.0% 0.5% -1.7%

0.9500 3.3% 2.9% 2.4%



IRR (15 years)


11,755,044 13,061,160 14,367,276

System Cost

(RM/W)

9.0 1.9% 6.9% 11.7%

10.0 -3.0% 2.4% 6.9%

11.0 -8.5% -1.8% 2.8%


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-9

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 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

1 Outline Study

2Business Scheme Consideration and

SPC Establishment

3 Detail Design

4Preparation Study for Application to

SEDA

5 Application for FiT Approved Holder

6 Construction and Installation

7 Commissioning

8 Starting Power Supply

Environmental and Social Consideration related laws and regulations

Site Suitability Evaluation

2012 2013 2014


S-10

(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-11

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-12

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.

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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 10-15 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-14

(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

Chapter 1 Overview of the Host Country and Sector

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(1) Economy and Financial Situation

1) Economic Condition

In 2009, the gross domestic product (GDP) of Malaysia is about USD 191.6 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 2010.

Figure 1-1 GDP growth rate

-10

-5

0

5

10

15

0

2,000

4,000

6,000

8,000

10,000

Rea

l G

DP

gro

wth

rat

e(an

nual

%)

GD

P p

er c

apit

a(U

SD

)

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

158.1 billion, which is about 30% of the GDP. On the other hand, the expenditure during the same

year was about RM 206.1 billion while the Malaysian government‟s deficit was RM 47.5 billion.

1-2

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

2000 61.9 17.4 81.5 -19.6 -5.5

2001 79.6 22.2 97.9 -18.3 -5.1

2002 83.0 22.0 103.8 -20.8 -5.5

2003 91.3 22.9 103.5 -12.2 -3.1

2004 91.3 21.4 118.8 -27.5 -6.5

2005 97.7 21.8 125.0 -27.3 -6.1

2006 123.5 26.0 142.7 -19.2 -4.0

2007 139.9 27.6 160.6 -20.7 -4.1

2008 159.8 30.2 195.4 -35.6 -6.7

2009 158.6 30.4 206.1 -47.5 -9.1

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

1-3

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.

1-4

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.

1-5

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.

1-6

Table 1-2 Trend of Prime Energy Demand in Malaysia

(PJ) (PJ) (PJ) (PJ)

Petroleum Products 1,023.0 54.4% 1,010.0 59.1% 1,041.0 58.6% 1,072.0 58.2%

Electricity 334.0 17.8% 347.0 20.3% 359.0 20.2% 371.0 20.1%

Natural Gas 450.0 23.9% 285.0 16.7% 304.0 17.1% 324.0 17.6%

Coal & Coke 72.0 3.8% 67.0 3.9% 71.0 4.0% 75.0 4.1%

Total 1,879.0 100.0% 1,709.0 100.0% 1,775.0 100.0% 1,842.0 100.0%

Notes: *1 Preliminary data

*2 Forecast data

2008 2009 2010(*1)

2011(*2)

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 2009. 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 2030.

Table 1-3 Peak Demand and Installed Capacity of Each DL

Power Utilities TNB

(2010)

SESB

(2010)

SEB

(2009)

Maximum Demand (MW) 15,072 760 1,036

Installed Capacity (MW) 21,817 866 1,230

Generating Mix

Natural Gas 54.0% - 53.0%

Coal 40.0% 31.0% 34.0%

Oil - 57.0% -

Hydro 5.2% 9.0% 8.0%

Diesel - - 5.0%

RE 0.8% 3.0% -

Source : Made by Study Team based on “The Malaysian Economy in Figures 2011” by EPU

1-7

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, 2009.

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 (2001-2005), 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 2005.

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.

1-8

Figure 1-5 Target of Generated Power and Fulfilled Power by RE in the Malaysian Plan

Eighth Malaysian Plan (2001-2005)

Target of generated power by RE: 500MW

Only 12MW

Ninth Malaysian Plan (2006-2010)

Target of generated power by RE: 350MW

(300MW in Peninsular Malaysia, 50MW in Sabah)

62.3 MW

(Connected to the grid)


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 (2011-2015) contains goals for the enhancement of the incentive for RE

investment, and for introducing RE by generating 985 MW power until 2015.

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 2011.

<Renewable Energy Act 2011>

Part I: PRELIMINARY

Part II: FEED-IN TARIF SYSTEM

Part III: CONNECTION, PURCHASE AND DISTRIBUTION OF RENEWABLE

ENERGY

Part IV: FEED-IN TARIFF

Part V: RENEWABLE ENERGY FUND

1-9

Part VI: INFORMATION GATHERING POWER

Part VII: ENFORCEMENT

Part VIII: GENERAL

Part IX: SAVINGS AND TRANSITIONAL

<Sustainable Energy Development Authority Act 2011>

Part I: PRELIMINARY

Part II: THE AUTHORITY

Part III: FUNCTIONS AND POWERS OF THE AUTHORITY

Part IV: EMPLOYEES OF THE AUTHORITY

Part V: FINANCE

Part VI: 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 2011.

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.

1-10

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 CO2

Avoidance

(t-CO2)

2015 985 6% 5,385 5% 3,715,415

2020 2,080 11% 11,246 9% 7,759,474

2030 4,000 17% 17,232 12% 11,889,887

2050 21,370 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

Electricity SectorRenewable

Energy Sector

Energy CommissionSEDA

A new organization was formed under the Sustainable Energy Development Authority Act 2011 [Act726]

Energy

RegulatorImplementing

Authority

Green Technology Water

Ministry of Energy , Green Technology & Water

(MEGTW)


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

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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.

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Table 1-6 FiT Rates for Biogas


Table 1-7 FiT Rates for Biomass


1-13

Table 1-8 FiT Rates for Small Hydro


Table 1-9 FiT Rates for Solar PV


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

1-14

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.

1-15

Figure 1-7 Progress Flow Chart

Source : Website of SEDA

1-16

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

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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

(1% of Electricity Bill for RE Fund)

Electricity Consumer

Distribution Licensee99% of Electricity Bill

RE Fund (SEDA)

1% of Electricity Bill for RE Fund

1% of Electricity Bill for RE Fund

FiTHs

Distribution Licensee

RE Fund (SEDA)

100% of Electric Bill(After tariff review)

FiT Payment for distributed electricity from FiTH

Payment for clam of differential between FiT payments and market cost

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/m2) in Malaysia‟s major cities is shown in Table

1-10.

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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

Chapter 2 Study Methodology

2-1

(1) Scope of Survey

Scope of survey is intended to evaluate Japanese companies‟ participation by collecting information

about FiT mechanism enforced on December 1, 2011. 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 CO2 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.

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(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

2-3

Figure 2-1 List of Candidate Sites

Kedah Penang12, 13

Perak Ipoh15

Selangor Shah Alam14

Kuala Lumpur

Pahang Kuantan7, 8, 9, 10, 11, 16, 17, 18

Melaka1, 2, 3, 4, 5, 6

Johor Pasir Gudang19

No Area Land Owner Capacity (Acres) (m2) (kW)※1 1 2 3 4 5

1 Melaka Malaysian Company 5 20,000 1,300 A C C C C

2 Melaka Malaysian Company 2.5 10,000 660 B C C C C


4 Melaka Malaysian Company 0.22 900 60 B C C C C


6 Melaka Malaysian Company N/A N/A N/A - C C C C

7 Kuantan Malaysian Company 3 12,000 800 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 >12,000 800 B C C C C

12 Penang Japanese Company 2 8,000 500 B C C C C

13 Penang Malaysian Company 5 20,000 1,300 A C C C C

14 Shar AlamJapanese Company >3 >12,000 800 B C C C C

15 Ipoh Malaysian Company 10 40,000 2,600 A A A A A

16 Kuantan Malaysian Company >3 >12,000 800 B C C C A

17 Kuantan Malaysian Company >3 >12,000 800 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 >10,000 660 B A A A A

※1 Estimated by Land Space A: eligible, B: ineligible, C: No reply

Land Area Criteria


2-4

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

Power Engineering AdministrationEngineering Division

Energy Solution business Dept.

Team LeaderBusiness planning

Tsutomu MORI

Technical engineer 1Photovoltaic system and

synchronaizationTomoyasu FUKUCHI

Technical engineer 2Design, Construction Plan and

Estimation

Ryousuke OGAWA

Economic financial evaluation1

Nobuomi IOKAMORI

Evaluation of environment and social impacts

Shinji TANAKA

Head company：Nippon Koei Co., Ltd.

Cooperating Company：ORIX

Corporation

Local consultant ：MIRASTECH Sdn. Bhd.

・Preliminary survey in Malaysia

・Interview with organization

・Assistance for Study Team

Local assistantORIX Leasing Malaysia Berhad

Takashi KITAMURA

SupportMalaysia

Technical engineer 3Design, Construction Plan and

EstimationNaoya MATSUMOTO

Economic financialevaluation2

Kiyoharu TSUKADA


2-5

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

2011 2012

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

Jul Aug Sep Oct Nov Dec Jan Feb


2) Terms of Field Survey and Study Contents

a. 1st 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)

2-6

b. 2nd

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. 3rd

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. 4th

field survey

Term: January 31 2012 to February 4, 2012

Study contents: Meeting with MEGTW for explaining the result of the survey, and meeting with

interested party

Chapter 3 Justification, Objectives and Technical

Feasibility of the Project

3-1

(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

3-2

The solar PV power system constructed by the project is shown in Figure 3-1.

Figure 3-1 Solar PV System for the Project

－～

InverterIsolating

Transformer

Protection Devise

Power Conditioner

AC

Distribution

Panel

Internal Power Source

400V

Cubicle

Step up

Transformer

Data Collecting

System

PV Module

PV Array

Structure for PV Array

DL

Cubicle

Project Site

M

Connection

Box Junction

Box

Power Conditioner

Connection

Box


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.

3-3

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 873.6 t-CO2 is expected from the

solar PV power system of 1 MW, since the grid emission factor in Peninsular Malaysia is 0.672

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

3-4

(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.

3-5

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

3-6

b. Present Situation of Electricity Demand

Figure 3-3 below shows the peak demand of Peninsular Malaysia in each month from 2008 to 2010.

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.

3-7

Figure 3-4 below shows the energy demand of Peninsular Malaysia in each month from 2008 to

2010.

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.

3-8

c. Demand Forecast

Figure 3-5 below shows the estimated peak demand and reserve margin of TNB from 2010 to 2030.

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 2030.

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 20301. 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 2011

3-9

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.

3-10

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 respectively2, according to data for 30 years from 1971 to 2000. It is high

temperature throughout the year.

2 The World Meteorological Organization (WMO) specialized agency of the United Nations,

http://www.worldweather.org/020/c00077f.htm#climate

3-11

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 report3 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, 14.37 m/sec, 19.18 m/sec, 21.41 m/sec and 24.44 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 20124. 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,

http://earthquake.usgs.gov/earthquakes/eqarchives/epic/epic_global.php

3-12

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 days5. 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

3-13

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

3-14

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

3-15

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

－～

Inverter

Isolating

Transformer

Protection Devise

Power Conditioner

AC

Distribution Panel

Internal Power Source

400V

Cubicle

Step up

Transformer

Data Collecting

System

PV Module

PV Array

Structure for PV Array

DL

CubicleM

Connection

Box

Connection

Box

Junction

Box

Power Conditioner

11kV or 33kV

Meteorological

Observation

System

Project Site

Control House

Scope Out of Scope


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.

3-16

The rated output of PV module is specified based on STC (at 25oC at surface of PV module and

some other conditions). Generally, power generation efficiency goes down at a higher temperature6.

At the project site, the temperature at surface of module is estimated from 50oC to 70

oC since

ambient temperatures are 21oC to 24

oC (minimum of monthly average temperature) and 28

oC to

34oC (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 mm2. 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% /

oC in case of monopoly of crystalline

module.

3-17

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. Oil-

insulation 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

3-18

b. Two lots at an industrial area in Kuantan

c. On the roof of factory/warehouse at an industrial area in Johor

3-19

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.

Figure 3-7 Situation of Ipoh Site

Site Map

Site Photo

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

Candidate Project Site


3-20

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.

Figure 3-8 Situation of Kuantan Site

Site Map

Site Photo

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




3-21

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 ground7. 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.

Figure 3-9 Situation of Johor Site

Site Map

Site Photo

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.

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.





3-22

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) 5.11 5.23 5.66 5.70 5.55 5.16 5.19 5.10 4.92 4.90 4.64 4.56 4.67

Ipoh (Central) 4.74 4.59 5.20 5.29 5.27 4.93 4.85 4.81 4.68 4.67 4.47 4.11 4.05

Johor 4.56 4.48 5.22 5.06 4.87 4.57 4.41 4.30 4.33 4.53 4.57 4.34 4.07

Kuantan 4.79 4.24 5.09 5.24 5.42 5.15 5.02 4.96 5.05 5.12 4.71 3.89 3.55

Kuala Lunpur 4.91 4.79 5.37 5.42 5.27 5.11 4.98 4.92 4.87 4.88 4.77 4.36 4.17

Malacca 4.68 4.48 5.12 5.10 5.09 4.77 4.61 4.58 4.61 4.71 4.76 4.34 4.00

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

3-23

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

3-24

connection to the grid is released if over current or over voltage is found as general protection

method.

Chapter 4 Evaluation of Environmental and Social

Impacts

4-1

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 1974.

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 2002. 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.

4-2

Figure 4-1 Organization Chart Related to CDM in Malaysia


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 15th

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

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

4-3

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 2030. It also

states the plan to gradually increase the proportion to 24% in 2050.

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:

4-4

Where,

Operating margin in year y.（t-CO2/MWh）

Net electricity supplied to the grid by plant m in year y. (MWh)

Emission factor of power plant m in year y.（t-CO2/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-CO2/MWh) in the “Study on Grid

Connected Electricity Baseline in Malaysia”, based on the following formula:

Where

Build margin in year y.（t-CO2/MWh）

Net electricity supplied to the grid by plant m in year y. (MWh)

Emission factor of power plant m in year y.（t-CO2/MWh）

Power plants constructed recently.

ｙ Most recent year for which power generation data is available.

4-5

・ 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:

EFy = wOM × EFOM,y + wBM × EFBM,y

Where

EFy Combined margin

EFOM,y Operating margin emission factor

EFBM,y Build margin emission factor

wOM,wBM Weighting of build margin and operating margin emissions factor (%).

These values are 50%, as a general rule. (wom=wBM=0.5)

EFy = 0.5 × 0.603 + 0.5 × 0.741y = 0.672 (t-CO2/MWh)

e. Calculation of Baseline Emission

BEy = EFy × EGy = 0.672(t-CO2/MWh) ×1,300(MWh) =873.6 (t-CO2)

f. Calculation of Emissions Reduction

ERy = BEy － PEy － Ly

Where,

ERy Emission reductions in year y (t-CO2)

BEy Baseline emissions in year y (t-CO2)

PEy Project emissions in year y (t-CO2)

Ly Leakage emissions in year y (t-CO2)

In the solar PV power system project, PEy =0 and Ly=0; therefore, annual emissions reduction is

as follows:

ERy = BEy =873.6(t-CO2)

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

4-6

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

1 P

erm

its

and

Exp

lan

atio

n

(1) EIA and

Environmental

Permits

(a) Have EIA reports been officially

completed?

(b) Have EIA reports been approved by

authorities of the host country‟s

government?

(c) Have EIA reports been

unconditionally approved? If

conditions are imposed on the

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?

(a)N

(b)N

(c)N

(d)N

(a)～(c)

Solar PV power system project is not

subject to EIA

(d)It will be submitted to DOE State

office before implementation

4-7



Yes: Y

No: N


Considerations

(2) Explanation

to the Public

(a) Are contents of the project and the

potential impacts adequately

explained to the public based on

appropriate procedures, including

information disclosure? Is

understanding obtained from the

public?

(b) Are proper responses made to

comments from the public and

regulatory authorities?

(a)N

(b)N

(a)EIA does not apply to PV power

generation projects. However, it is

necessary to obtain the permission

for SSE, the information on this

project would be provided to

relevant authorities.

(b)Candidate sites for this project are

in industrial estate or the land

utilized for mining. There is almost

no need to incorporate comments

from the public.

2 M

itig

atio

n M

easu

res

(1) Air Quality

(a) In the case that electric power is

generated by combustion, such as

biomass energy projects, do air

pollutants, such as sulfur oxides

(SOx), nitrogen oxides (NOx), and

soot and dust emitted by power plant

operations comply with the country‟s

emission standards and ambient air

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)N

(b)N

(a)～(b)

The electric power generated by solar

PV power system does not need

burning of any fuel or materials.

There is no emission of atmospheric

pollutant.

(2)Water Quality

(a) Do effluents (including thermal

effluent) from various facilities, such

as power generation facilities comply

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?

(a)N

(b)N

(a)～(b)

There are no effluents in solar PV

power system.

4-8



Yes: Y

No: N


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?

(3) Waste

(a)Are wastes generated by the plant

operations properly treated and

disposed of in accordance with the

country‟s standards (especially

biomass energy projects)?

(a)N (a) Solar PV power system does not

involve permanent disposal of

wastes.

(4)Soil

Contamination

(a) Has the soil in the project site been

contaminated in the past, and are

adequate measures taken to prevent

soil contamination?

(a)N (a) Some sites are potentially

contaminated in the past; however,

there is no possibility that soil

contamination would spread due to

this project.

(5)Noise and

Vibration

(a)Do noise and vibrations comply with

the country‟s standards?

(b) Do low frequency sound comply

with the country‟s standards,

especially in wind power generation?

(a)Y

(b)Y

(a) Solar PV power system does not

generate noise or vibration.

(b) Solar PV power generation does

not generate low frequency sound.

(6)Subsidence

(a) In the case of extraction of a large

volume of groundwater or extraction

of steam by geothermal power

generation, is there a possibility that

the extraction of groundwater or

steam will cause subsidence?


cause subsidence, because it does

not require groundwater use.

(7) Odour

(a) Are there any odor sources? Are

adequate odor control measures

taken?


cause odor.

3 N

atu

ral

Env

iro

nm

ent

(1) Protected

Areas

(a) Is the project site located in protected

areas designated by the country‟s

laws or international treaties and

conventions? Is there a possibility

that the project will affect the

protected areas?

(a)N (a) Candidate sites are not in protected

areas. They are located in an

industrial estate or land utilized for

mining.

4-9



Yes: Y

No: N


Considerations

(2)Ecosystem

(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?

(d) Is there a possibility that localized

micro-meteorological changes due to

wind power generation will affect

valuable vegetation in the

surrounding areas? (Is there valuable

vegetation in the vicinity of the wind

power generation facilities?) If

impacts on vegetation are

anticipated, are adequate measures

considered?

(e)Are the wind power generation

facilities (wind turbines) sited by

considering the habitats and

migration routes of sensitive or

potentially affected bird species?

(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

different from primeval forest around

the candidate site. There would be no

impact to primeval forest.

(d)It is not expected that solar PV

power system would cause

micro-meteorological changes.

(e)It is not expected that solar PV

power system would affect the

habitat and migration routes of

birds.

(3)Hydrology

(a) Is there a possibility that hydrologic

changes due to installation of

structures, such as weirs will

adversely affect the surface and

groundwater flows (especially in

"run of the river generation"

projects)?

(a)N (a) Solar PV power system project

would not cause changes of

drainage system. Planning and

management would be based on

urban stormwater management

manual.

(4)Topography (a) Is there a possibility that the project (a)N (a)In the project, there are no large

4-10



Yes: Y

No: N


Considerations

and Geology will cause a large-scale alteration of

the topographic features and geologic

structures in the surrounding areas

(especially in run of the river

generation projects and geothermal

power generation projects)?

scale geologic alterations. Only site

preparation needs to be performed.

4 S

oci

al E

nv

iro

nm

ent

(1)Resettlement

(a) Is involuntary resettlement caused by

project implementation? If

involuntary resettlement is caused,

are efforts made to minimize the

impacts caused by the resettlement?

(b) Is adequate explanation on relocation

and compensation given to affected

persons prior to resettlement?

(c) Is the resettlement plan, including

proper compensation, restoration of

livelihoods and living standards,

developed based on socioeconomic

studies on resettlement?

(d) Are the compensations going to be

paid prior to the 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?

(a)N

(b)N

(c)N

(d)N

(e)N

(f)N

(g)N

(h)N

(i)N

(j)N

(a)～(j)

Resettlement need not be

implemented, because candidate sites

are located in an industrial estate or

land used for mining.

4-11



Yes: Y

No: N


Considerations

(i) Are any plans developed to monitor

the impacts of resettlement?

(j) Is the grievance redress mechanism

established?

(2)Living and

Livelihood

(a)Is there a possibility that the project

will adversely affect the living

conditions of inhabitants? Are

adequate measures considered to

reduce the impacts, if necessary?

(b) Is there a possibility that the amount

of water (e.g., surface water,

groundwater) used and discharge of

effluents by the project will

adversely affect the existing water

uses and water area uses?

(a)N

(b)N

(a)It is not expected that solar PV

power system would affect the

living conditions of inhabitants.

(b)Solar PV power system does not

require use of surface water or

ground water.

(3)Heritage

(a) Is there a possibility that the project

will damage the local archeological,

historical, cultural, and religious

heritage? Are adequate measures

considered to protect these sites in

accordance with the country‟s laws?

(a)N (a)Candidate sites for this project are

in an industrial estate or land for

mining. It is not expected that solar

PV power system would damage

heritages.

(4 Landscape

(a) Is there a possibility that the project

will adversely affect the local

landscape? Are necessary measures

taken?

(a)N (a) Solar PV power system will have

small impact to local landscape,

because candidate sites are located

in an industrial estate or land used

for mining.

(5) Ethnic

Minorities and

Indigenous

Peoples

((a) Are considerations given to reduce

impacts on the culture and lifestyle

of ethnic minorities and indigenous

peoples?

(b) Are all of the rights of ethnic

minorities and indigenous peoples in

relation to land and resources

respected?

(a)N

(b)N

(a)～(b)

Solar PV power system will not have

an impact to culture and lifestyle of

minorities or indigenous people,

because candidate sites are located in

an industrial estate or land used for

mining.

4-12



Yes: Y

No: N


Considerations

(6) Working

Conditions

(a) Is the project proponent not violating

any laws and ordinances associated

with the working conditions of the

country which the project proponent

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

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)Y

(b)Y

(c)Y

(d)Y

(a)～(d)

Occupational Safety and Health Act

1994 will be complied with in this

project.

5 O

ther

s

(1) Impacts

during

Construction

(a) Are adequate measures considered to

reduce impacts during construction

(e.g., noise, vibrations, turbid water,

dust, exhaust gases, and wastes)?

(b) If construction activities adversely

affect the natural environment

(ecosystem), are adequate measures

considered to reduce impacts?

(c) If construction activities adversely

affect the social environment, are

adequate measures considered to

reduce impacts?

(a)N

(b)N

(c)N

(a)～(c)

Scale of construction will be limited

and small. Therefore, environmental

impact during construction is

minimal.

4-13



Yes: Y

No: N


Considerations

(2) Monitoring

(a) Does the proponent develop and

implement monitoring program for

the environmental items that are

considered to have potential impacts?

(b) Are the items, methods and

frequencies included in the

monitoring program judged to be

appropriate?

(c) Does the proponent establish an

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)N

(b)N

(c)N

(d)N

(a)～(d)

Solar PV power system with less

environmental and social impact

require for limited monitoring.

6 N

ote

Reference to

Checklist of

Other Sectors

(a) Where necessary, pertinent items

described in the Power Transmission

and Distribution Lines checklist

should also be checked (e.g., projects

including installation of electric

transmission lines and/or electric

distribution facilities).

(a)N (a)The project will use transmission

lines, which already exist. If none

exist around the candidate site, new

transmission line will be needed.

However, scale of construction will

be limited and small.

Note on Using

Environmental

Checklist

(a) If necessary, the impacts to

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).

(a)Y (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”

4-14

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


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.

4-15

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.

4-16

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.

4-17

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 2011. 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

4-18

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.

Chapter 5 Financial and Economic Evaluation

5-1

(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 3.1790

JPY 100 = RM 4.0832

5-2

<< 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.

5-3

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.


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.

5-4

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)



A PV Module RM/W 4.84 4,840,000 45.01%

B Power Conditioner RM/kW 1,030 1,030,000 9.58%


D Other Equipment RM/kW 866 866,000 8.05%

E Civil/Building/Installation Works RM/kW 586 586,000 5.45%

F *1 944,000 8.78%



Total RM 10,752,000

( in JPY 263,323,000 )

( in USD 3,382,000 )


I 30,000

J *4 70,000


( in JPY 2,449,000 )

( in USD 31,000 )

Note:








respectively.




3) Verification of Cost Estimation

According to the cost data for projects involving 20 kW or more capacity, which were procured in

2008 or 20099, 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.

5-5

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 survey11

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 + 3.0 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

5-6

Figure 5-1 Site Layout Drawing

Source: Made by Study Team

5-7

Figure 5-2 Single Line Diagram


5-8

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.

5-9

Table 5-2 Cost Estimation for Future 10 MW System

Quoted/Estimated

Unit Price

For 10 MW System

(Unit: RM)



A PV Module RM/W 4.60 46,000,000 48.81%

B Power Conditioner RM/kW 979 9,790,000 10.39%


D Other Equipment RM/kW 779 7,790,000 8.27%

E Civil/Building/Installation Works RM/kW 527 5,270,000 5.59%

F *1 4,398,000 4.67%



Total RM 94,248,000

( in JPY 2,308,190,000 )

( in USD 29,647,000 )


I 150,000

J *4 658,000

K 128,852


( in JPY 22,944,000 )

( in USD 295,000 )

Note:








respectively.

Salary of Maintenance Personnel




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 2013. Declined rate shall be considered in case of economic/financial

evaluation of future 10 MW system.

5-10

(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)

Land or Building

Owner

Finance

SEDA

Feed-in tariff

Consulting


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)

SPC

Land or Building

Owner

Land Lease

or/and

Equity

・Equity

・Project

Management

SEDA

Feed-in tariff

Malaysian Partner


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.

5-11

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


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.

Pioneer Status

(Income Tax Exemption）

Investment Tax

Allowance (ITA)

Import Duty and Sales Tax

Exemption

Selling all the energy

generated

Exemption from income

tax on 100% of income for

10 years

Accumulated losses and

capital allowances can be

carried forward.

100% of expenditure

within 5 years can be

utilized against 100% of

income for each year of

assessment.

On imported machinery,

equipment, materials, etc.

given for a period of one

year.

Selling the partial

energy generated

Exemption from income

tax on 100% of income for

10 years

Accumulated losses and

capital allowances can be

carried forward.

100% of expenditure




assessment.

Own

enegy consumption

100% of expenditure




assessment.

5-12

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%

FIT Rate

(RM/kWh)

0.9649 3.5% 3.3% 3.1%

1.0488 4.9% 5.9% 7.1%

1.1400 6.3% 8.6% 11.2%


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.

5-13

iii. The case of IRR with 10% of borrowing is so-called Project IRR.


IRR (15 years)


1,175,504 1,306,116 1,436,728

System Cost

(RM/W)

9.0 10.7% 16.3% 21.6%

10.0 6.0% 11.2% 16.2%

11.0 2.0% 6.9% 11.6%


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.

5-14

Table 5-6 Profit and Loss Statement (1 MW)

Prof i t & Loss

- Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 Year11 Year12 Year13 Year14 Year15

'000RM 2013/03 2014/03 2015/03 2016/03 2017/03 2018/03 2019/03 2020/03 2021/03 2022/03 2023/03 2024/03 2025/03 2026/03 2027/03

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 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Rent 114 114 114 114 114 114 114 114 114 114 114 114 114 114 114

Depreciation 667 667 667 667 667 667 667 667 667 667 667 667 667 667 667

Maintenance 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

Interest 329 307 285 263 241 219 197 175 153 131 110 88 66 44 22

Removal - - - - - - - - - - - - - - -

Amortization 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3

Operating Cost 1,213 1,211 1,189 1,167 1,145 1,123 1,102 1,080 1,058 1,036 1,014 992 970 948 926

Profit before Tax 202 196 211 226 241 256 271 286 301 316 331 347 362 377 392

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%

-2,285 216 220 223 227 231 235 238 242 246 250 253 257 261 265

2,336 -167 -167 -167 -167 -167 -167 -167 -167 -167 -167 -167 -167 -167 -167

Profit after Tax 151 147 158 170 181 192 203 215 226 237 249 260 271 283 294

EBITDA 872 867 882 897 912 927 942 957 972 987 1,002 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%

Tax（Accounting）


5-15

Table 5-7 Precondition (1 MW)

RM in million

Generation

Tariff Year1~15 1.14 RM/kWh Capacity 1,000 kW Panels 6,667

Year16~ 1.14 RM/kWh Hour 24 h Panel size 1.228

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

Cost

Property facility 0.0% System Cost 10.00 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 3,600.00 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


5-16


IRR (15 years)

Debt Ratio

0% 50% 70%

FIT Rate

(RM/kWh)

0.8041 0.9% -2.4% -6.9%

0.8740 2.0% 0.5% -1.7%

0.9500 3.3% 2.9% 2.4%


In case of 10 MW, as the applicable FiT rates are lower than for 1 MW, profitability is reduced.


IRR (15 years)


11,755,044 13,061,160 14,367,276

System Cost

(RM/W)

9.0 1.9% 6.9% 11.7%

10.0 -3.0% 2.4% 6.9%

11.0 -8.5% -1.8% 2.8%


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.

5-17

Table 5-10 Profit and Loss Statement (10 MW)

Prof i t & Loss

- Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 Year11 Year12 Year13 Year14 Year15

'000RM 2013/03 2014/03 2015/03 2016/03 2017/03 2018/03 2019/03 2020/03 2021/03 2022/03 2023/03 2024/03 2025/03 2026/03 2027/03

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 200 200 200 200 200 200 200 200 200 200 200 200 200 200

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 1,095 876 657 438 219

Removal - - - - - - - - - - - - - - -

Amortization 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33

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 -342 -382 -222 -61 100 261 423 585 747 909 1,072 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%

-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 -257 -287 -166 -46 75 196 317 438 560 682 804 926 1,049 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%

Tax(Acconting)


5-18

Table 5-11 Precondition (10 MW)

RM in million

Generation

Tariff Year1~15 0.95 RM/kWh Capacity 10,000 kW Panels 66,667

Year16~ 0.95 RM/kWh Hour 24 h Panel size 1.228

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

Cost

Property facility 0.0% System Cost 10.00 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 3,600.00 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


Chapter 6 Planned Project Schedule

6-1

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 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

1 Outline Study

2Business Scheme Consideration and

SPC Establishment

3 Detail Design

4Preparation Study for Application to

SEDA

5 Application for FiT Approved Holder

6 Construction and Installation

7 Commissioning

8 Starting Power Supply

Environmental and Social Consideration related laws and regulations

Site Suitability Evaluation

2012 2013 2014


Chapter 7 Implementing Organization

7-1

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 2011. 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

Chapter 8 Technical Advantages of Japanese

Company

8-1

(1) Forms of Participation by Japanese Company (Investment,

Equipment Supply, Operational Management)

At first, the forms of participation by Japanese company in terms of investment and finance,

equipment supply, and operational management are evaluated to determine the technical and

economical advantages of such participation.

1) Investment and Finance

To carry out this project, an SPC is established through co-funding between a Malaysian company

and a Japanese company. The capital share of SPC by the Malaysian side must be more than 51% so

that SPC could apply for FiT. Therefore, the investment upper limit becomes 49% of the SPC capital

when Japanese company participates in the project in the form of an investment.

The fund necessary for the project implementation is collected as financing and investment. Because

there is no limitation on the financing share not like in the case of investment, 100% financing is

possible for the project implementation.

2) Equipment Supply

All equipment to be used for the project can be supplied from Japan. Hence, it is highly possible

from a technical aspect that Japanese companies can participate in the project as equipment suppliers.

However, since Japan-made equipment have low price competitiveness as mentioned in the next

section, such equipment to be procured actually for the project will be limited.

3) Operational Management

Operational management is examined under two categories. The first one is operational management

at the time of project setup, which involves design, procurement, construction/installation, and

commissioning. The second one is operational management after completion of PV system

installation, which consists of daily operation and maintenance works for the system, and which is

usually routine task.

The first category is not a routine task, and needs high technical and management capacity, and

occasionally, critical decisions for the project have to be made during this stage. Therefore, it is

essential that Japanese companies who are investors of SPC participate in the project by directly

conducting operational management. Besides acting as investors of SPC, it is assumed that the

suppliers of equipment participate in the project by providing training to the staff of SPC for the

operation and maintenance of the equipment.

8-2

For the latter category, participation of Japanese companies, which entails high labor costs, is

minimized since high technical and management capacity is not much required during this stage.

(2) Technical and Economic Advantages of Japanese Company

The advantages of Japanese companies are examined below from the economic and technical aspects,

corresponding to their forms of 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, Japanese companies could gain advantage in terms of providing investment and

financing to the project. On the other hand, the exchange rate fluctuations pose large risk in case of

investing and financing with Japanese yen.

b. Equipment Supply

Japanese equipment, which have high-performance but originally expensive, have decreased price

competitiveness due to strong yen at a level of JPY 70 to USD 1. Judging from an economic aspect,

it may be said that there is limited superiority of Japanese companies in equipment 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,

8-3

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 the case of equipment supply

mentioned above.

2) Technical Aspect

The examination from a technical aspect was performed for equipment supply and operational

management only, as investment and finance are not technical matters.

a. Equipment Supply

The superiority of Japanese companies is high considering efficiency and reliability of

Japanese-made equipment. Equipment supply by a Japanese company is possible if the technical

superiority of equipment can overcome their inferior level in the economic aspect, through

evaluation of the equipment‟s 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

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

Based on the above discussions, Japanese companies are superior in terms of technical aspect. On

the other hand, they are less superior in economic aspect because of their high manpower cost.

However, it is assumed that participation of Japanese companies is essential for operational

management as no Malaysian companies are experienced in initiating and operating grid-connected

PV system at present.

8-4

(3) Measures to Help Japanese Companies Win Contracts

As mentioned above, Japanese companies are superior in the technical aspect, but are inferior in the

economic aspect, compared with foreign companies. In order for Japanese companies to participate

in the project, it is necessary to define measures to avoid failing from simple price competition and

eliminate other problems that could prevent their participation.

Hence, the following measures will be examined:

・ Introduction of water floating PV module

・ Investment to the project by PV module manufacturers

・ PV module production at site

・ Measure to avoid risk due to currency exchange rate fluctuations

1) Water Floating PV Module

Water floating PV module is a technology that Japanese companies have developed in advance. The

following demonstration tests have already been carried out:

(i) New technology field test for water floating PV module on a regulation pond

in Kameyama City

Completion Year: 2007

Location: Regulation pond of Kameyama City, Mie Province

Capacity of PV: 200 kW

Implemented by: Sharp Corporation, Cenergy Co. Inc.

Funding source: New Energy and Industrial Technology Development

Organization（NEDO）

(Source: Report on Collaborative Research of Fiscal 2006, NEDO, 2007)

(ii) Technical development for large scale PV system on water surface

Completion Year: 2007 and 2008

Location: Aichi Pond, Nisshin City, Aichi Province

Capacity of PV: 20 kW and 60 kW

Implemented by: Japan Water Agency (Incorporated Administrative Agency),

Kureha Engineering Co., Ltd.

Funding source: Ministry of the Environment, Government of Japan

(Source: Mizu-to-tomoni, Japan Water Agency, June 2008)

Abovementioned demonstration tests prove that PV system generates electricity at a similar or

8-5

greater efficiency as those installed on ground.

The situations of other countries about water floating PV module development are as follows based

on related websites.

Singapore prepared the budget for the demonstration testing of 2 MW water floating

PV module in November 2011.

French and Israeli companies jointly started the demonstration test of water floating

PV module in September 2011.

Korea completed a water floating PV module for 100 kW as demonstration test on a

dam lake in August 2011.

An Indian company concluded a memorandum on engineering with French company

on November 15, 2011 about water floating PV module.

Based on the above, development of water floating PV module in other countries has just started.

Thus, it can be said that Japanese companies are already leading in such technology.

In the project site of Ipoh, there is a pond with an area more of than 20 ha. Implementing water

floating PV module for 10 MW PV system on this pond will be examined.

2) Investment to the Project by PV Module Manufacturers

Japanese PV module manufacturers suffer from the decline of module prices in the market. They

face crisis in continuing such business due to difficulty in the business model of simple product sale.

However, there are some PV module manufacturers with policy to invest in generation business,

downstream in the value chain. Considering this, there is a possibility for the PV module to be

procured through the participation of Japanese PV module manufacturers.

3) PV Module Production at Site

It is noted that Japanese PV module, which is a consumer product, has less price competitiveness.

However, Japan-made fabrication machine for PV module, which is a good investment, remains

superior in terms of price competitiveness. It is assumed that the business model of fabricating PV

module at the project site with Japan-made PV module fabrication machine using cheaper PV cell

from foreign companies is possible. Small scale and low price PV module fabrication machine has

been commercialized. The cost will be reduced if the fabrication machine is introduced on lease. The

Government of Malaysia wishes improvement of technology in Malaysia and employment

generation. Such business model is considered to be welcomed by Malaysian side.

8-6

4) Measure to Avoid the Risk due to Currency Exchange Rate Fluctuations

Regarding the raising of fund for the project, it is noted that interest rate of local currency is high and

loan period is short, compared with procurement using Japanese yen. However, in the case of

financing in Japanese yen, risk of currency exchange rate fluctuation poses a problem. The measure

to avoid such risk should be further explored. If there is a means of settling this through Japanese

government aid package on RE promotion, this will be an effective solution. For example, the

Government establishes a fund for renewable energy dissemination, and the fund covers foreign

exchange risk. By the fund, it will be easy for funding for project implementation. Foreign exchange

risk includes not only negative risk, but positive profit also. In the point of long-term view, it is

considered that the fund will be balanced by loss and profit caused by floating exchange rate.

Chapter 9 Financial Outlook

9-1

(1) Review of the Fund Source and Fund Raising Plan

In this project, investment by project finance is discussed. This is generally used as a lending form

for infrastructure-related projects, including power business, such as by independent power producer

(IPP), in developed and developing countries, and construction of expressways.

Project finance is different from normal financing for companies but is an independent form of

corporative credit capability. As a general rule, it refers to the lending form characterized by

payment resource from the profit of financed projects only. Therefore, banking institutions tend to

take longer time in analyzing business profitability and introduce greater complexity into financing

agreements as compared to financing for normal companies. Consequently, it is often adopted for

large-scale projects in terms of cost-benefit performance.

This project keeps necessary funds to a minimum, compared to normal steam power generation.

Hence, it considers whether utilization of project finance is possible or not. Also, in case utilization

is difficult, hearings with two Malaysian domestic banks and a local Japanese corporate bank are

conducted, focusing on what sort of incidental conditions are set.

(2) Feasibility of Fund Raising

1) Results of Interview with Banks

a. RHB Bank

RHB is the fourth largest Malaysian banking group in terms of assets (RM 117.5 billion as of end of

September 2011). Reply of RHB during the interview is quoted as follows:

“Financing for renewable energy or environmental projects will particularly be responded positively.

For banks, it is a priority area as they have separately participated in setting up and taking an active

part in green fund”

“This project is predicated on detailed due diligence, and its profit is virtually guaranteed by the

Malaysian government. Referring to solar PV power systems, in comparison with other power

generating facilities, as risks of incomplete construction and a breakdown during operation are

limited, it is possible to lend it with a fixed rate for the maximum of 15 years.”

“The application of Green Technology Finance Scheme, discussed below (a partial interest subsidy

and guaranteed repayment for environmental projects by the Malaysian government), is predicated.”

9-2

b. AM Bank

AM Bank is the fifth largest Malaysian banking group in terms of assets (RM 81.1 billion as of end

of September 2011). Reply of AM Bank during the interview is quoted as follows:

“Expansion of financing for environmental projects is part of the project‟s strategy for banks.”

“In this project, risks during the period of the project are limited. In terms of risks, it is suitable for

PROJECT FINANCE, but it is difficult to fund with a fixed rate due to its small scale. The desirable

period is for up to a decade.”

“It is possible to apply Islamic banking, and in this case, there is a possibility of keeping interest

rates low, fixed and at about 7% per annum.”

“The application of Green Technology Finance Scheme, discussed below (a partial interest subsidy

and guaranteed repayment for environmental projects by the Malaysian government), is predicated.”

c. Bank of Tokyo Mitsubishi (UFJ Malaysian subsidiary)

Reply of Bank of Tokyo Mitsubishi during the interview is quoted as follows:

“Due to the FiT mechanism, though an increase in the number of RE projects is expected in the

future, PROJECT FINANCE, long term, unsecured credit, is unable to deal with the financial

expenditure for FiT at the moment, as it is the first area to be cut when macro economy worsens,

which is seen from the cases in Europe.”

“If SPC is a main borrower for the project capital, parent company‟s corporate guarantee is required.

It will have similar condition as with the normal financing of companies (3.5~5% interest, 5 years

period).”

“In order to promote measures for RE projects, banks have requested local government financial

institutions to introduce directed credit.”

9-3

2) Green Technology Financing Scheme

Table 9-1 Outline of Green Technology Financing Scheme

Promoting Green Technology Purpose

Malaysian-owned companies(at least 51%)

All industrial sectors

Conserve the use of energy and natural resources

or pro

Objective

Budget Total of 1.5 billion ringgits

Up to 50 million ringgits per applicant

Tenure Maximum 15 years（Typically 7-10 years）

Incentives 2% interest subsidy from Government

60% loan guarantee from Government

Fee 0.5% of loan gurantee per annum

Application date 3 years from 1 January 2010

or upon approval of financing up to the 1.5 billion

ringgints, whichever is earlier.

Source : Made by Study Team based on Green tech Malaysia Website

As of July 15, 2011, green technology financing scheme was applied to 90 projects (19 projects

rejected). Also, the remaining budget is RM 1.29 billion.

(3) Cash Flow Analysis

1MW and 10MW cash flow projections are based on table 5-7 and 5-11 respectively. Also, 1MW

and 10MW sensitivity analysis are based on table5-4, 5-5 and 5-8, 5-9 respectively.

9-4

Table 9-2 Cash Flow Analysis (1 MW)


Given a discount rate is 5% that is upper limit of 10-year Malaysian government bond issued in the last five years.

Also, initial investment cost is 3.018 million ringgits. Net Present Value of the 1MW project will be 1.295 million ringgits that justifies investment required.

Cash Flow StatementYear1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 Year11 Year12 Year13 Year14 Year15

'000RM 2013/03 2014/03 2015/03 2016/03 2017/03 2018/03 2019/03 2020/03 2021/03 2022/03 2023/03 2024/03 2025/03 2026/03 2027/03

Profit before Tax 202 196 211 226 241 256 271 286 301 316 331 347 362 377 392

Tax - - - - - - - - - - -42 -253 -257 -261 -265

Depreciation 667 667 667 667 667 667 667 667 667 667 667 667 667 667 667

Amortization 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3

Principal payment (469) (469) (469) (469) (469) (469) (469) (469) (469) (469) (469) (469) (469) (469) (469)

Increase in Cash 403 398 412 427 442 457 472 487 502 517 490 294 306 317 329

Tax Shield - - - - - - - - - - - - - - -

Total 403 398 412 427 442 457 472 487 502 517 490 294 306 317 329

9-5

Table 9-3 Cash Flow Analysis (10 MW)


Given a discount rate is 5% that is upper limit of 10-year Malaysian government bond issued in the last five years.

Also, initial investment cost is 30.18 million ringgits. Net Present Value of the 10MW project will be minus 5.347 million ringgits that does not justify

investment required

Cash Flow StatementYear1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 Year11 Year12 Year13 Year14 Year15

'000RM 2013/03 2014/03 2015/03 2016/03 2017/03 2018/03 2019/03 2020/03 2021/03 2022/03 2023/03 2024/03 2025/03 2026/03 2027/03

Profit before Tax -342 -382 -222 -61 100 261 423 585 747 909 1,072 1,235 1,398 1,562 1,726

Tax - - - - - - - - - - - - - -153 -2,100

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

Amortization 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33

Principal payment (4,695) (4,695) (4,695) (4,695) (4,695) (4,695) (4,695) (4,695) (4,695) (4,695) (4,695) (4,695) (4,695) (4,695) (4,695)

Increase in Cash 1,670 1,630 1,790 1,951 2,112 2,273 2,435 2,597 2,759 2,921 3,084 3,247 3,410 3,421 1,638

Tax Shield - - - - - - - - - - - - - - -

Total 1,670 1,630 1,790 1,951 2,112 2,273 2,435 2,597 2,759 2,921 3,084 3,247 3,410 3,421 1,638

Chapter 10 Action Plan and Issues

10-1

(1) Efforts to Realize the Project

The issues and efforts to realize the project are as follows:

1) Realization below the total investment cost of USD 2,500/kW for 10 MW system

It can be judged that investment cost of USD 2,500/kW, based on estimate by a local system

integrator, is feasible as such rate is not greater than the construction cost. Since the FiT rate for solar

PV becomes less costly when installed capacity exceeds 1 MW, the project economic efficiency

becomes low as well and thus, it could not be realized as a viable business. In the future, it is

considered to design, probe estimate contents and further minimize construction cost to ensure

affordability of the project.

2) Realization of long project finance with low interest rates

If financing is by Malaysia Bank, long-term finance for 10-15 years is possible. The financing with

low interest rate of around 5% is possible if the green technology financing scheme of the Malaysian

government can be applied.

3) Securing a less costly project site which can be used for long periods

The landowner of the proposed site in Ipoh is the local government, while the rights to the land

belong to a local private company as its holder. Compared with the unused land of other private

companies, the proposed site is less costly and can be utilized in the long term. Thus, the land rights

are granted to a holder based on the method of use of the site for project implementation.

4) Selection of an excellent local enterprise as a business partner

In order for a foreign company to become a FiT-approved holder, it is necessary to establish a joint

corporation with local companies. Many local companies expressed interest in this business. During

this Study, discussion with two or more companies has been carried out considering the business

scheme proposed.

a. Engineering Company

Category: Engineering Service

Main business: Wastewater treatment

Scheme for participation: Capital injection to SPC, effective utilization of their unused land

b. Engineering Company


Main business: Mineral exploitation such as tin

10-2

Scheme for participation: Contributed assets by provided by their unused land, maintenance of the

solar PV system at site

c. Engineering Company


Main business: Engineering, procurement and construction of power plant

Scheme for participation: Capital injection to SPC, engineering and maintenance of the solar PV

system

d. Energy Service Company


Main business: Engineering for the field of energy conservation and RE

Scheme for participation: Capital injection to SPC, engineering and maintenance of the solar PV

system

(2) Efforts to Realize the Project by Implementing

Organizations in the Host Country

1) Action of concerned organization

The application for FiT approved holder has started from 1 December, 2011, and the quota for solar

PV has closed until first half in 2014. The situation of the quota for solar PV until 2015 is shown in

Table 10-1, most of the quota until first half in 2014 has been approved.

Table 10-1 The situation of the quota for solar PV over 500kW

2012 2013 2014 2015

1/2 2/2 1/2 2/2 1/2 2/2 1/2 2/2

Approved（MW） 28.3 27.75 31.26 23.76 34.02 0.00 TBA TBA

Non-approval（MW） 0.48 0.46 0.55 0.52 0.35 0.00 TBA TBA

TBA: To be announced

Source : Made by Study Team based on web page of SADA

2) Result of consultation with MEGTW

The comments from MEGTW for the proposed project are as follows.

Foreign companies are welcome to the power generation business in FiT mechanism.

10-3

However, there are the rule of the foreign equity shareholding cap at a maximum rate of

49%, foreign companies require consideration of the rule.

The quota for solar PV has closed until the first half in 2014, so Malaysian government

will consider to increase the quota of 2014, and to review the quota after 2015.

Raising 1% of the electricity bill which the consumer used as the financial funds of a

renewable energy fund pays to 2% is recognized in the Diet to increase the quota after

2015.

Although high technical capabilities of Japan for RE are expected, since the power

generation business under FiT mechanism is undertaken as business, price competitiveness

is also important.

(3) Legal and Financial Restrictions

Since it is a power producing business undertaken based on FiT mechanism, the business may be

affected by the results of reexamining and correcting the FiT mechanism.

Specifically, the quota for the solar PV after the second half in 2014 is not decided at present.

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.

(4) Necessity of Additional Detailed Analysis

None in particular.

Japan 10mw Project Plan

Documents

Transcript of Japan 10mw Project Plan