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

MW MWh NCCDM NEDO NK NOx NREPAP NSCCC OECD OLM OM ORIX PJ PS PSS PTM PV RE REPPA RM SEB SEDA SESB SOx SPC SSE TNB TOE UNDP UNFCCC

Megawatt Megawatt hour National Committee on CDM New Energy and Industrial Technology Development Organization Nippon Koei Co., Ltd Nitrogen Oxide The National Renewable Energy Policy and Action Plan National Steering Committee on Climate Change Organization for Economic Co-operation and Development ORIX Leasing Malaysia Operating Margin ORIX Corporation Petajoule Pioneer Status Power System Study Pusat Tenaga Malaysia Photovoltaic Renewable Energy Renewable Energy Power Purchase Agreement Ringitt Malaysia Sarawak Energy Berhad Sustainable Energy Development Authority Sabah Electricity Sdn. Berhad Sulfur Oxide Special Purpose Company Site Suitability Evaluation Tenaga National Berhad Ton of Oil Equivalent United Nations Development Programme United Nations Framework Convention on Climate Change

Contents
Executive Summary

Chapter 1 Overview of the Host Country and Sector

(1) 1) 2) (2) 1) 2) 3) 4) 5) 6) 7) 8) (3) (1) (2) 1) 2) 3) 4) 5) (3) 1) 2) (1) 1) 2) 3) 4) (2) 1) 2) Economy and Financial Situation ..................................................................................... 1-1 Economic Condition ......................................................................................................... 1-1 Financial Condition .......................................................................................................... 1-1 Outline of the Project Sector ............................................................................................. 1-2 Energy Basic Policy .......................................................................................................... 1-2 Organizations Related to Energy Policy ........................................................................... 1-3 Trend of Prime Energy in Malaysia .................................................................................. 1-5 Trend of Electricity Supply and Demand in Malaysia ...................................................... 1-6 RE Policy .......................................................................................................................... 1-7 NREPAP ........................................................................................................................... 1-9 Sustainable Energy Development Authority (SEDA) ..................................................... 1-10 FiT Mechanism ............................................................................................................... 1-11 Conditions in the Targeted Areas .................................................................................... 1-17 Scope of Survey ................................................................................................................ 2-1 Survey Organization ......................................................................................................... 2-2 Homework in Japan .......................................................................................................... 2-2 Field Survey in Malaysia .................................................................................................. 2-2 Selection Method of the Project Site ................................................................................ 2-2 Study Organization ........................................................................................................... 2-4 Organization Related to the Project .................................................................................. 2-5 Study Schedule.................................................................................................................. 2-5 Study Schedule ................................................................................................................. 2-5 Terms of Field Survey and Study Contents ...................................................................... 2-5 Background and Necessity ................................................................................................ 3-1 Scope of the Project .......................................................................................................... 3-1 Analysis of Present State and Future Forecast .................................................................. 3-2 Impacts of the Project Implementation ............................................................................. 3-3 Comparison between the Proposed Project and Other Feasible Projects .......................... 3-3 Study Required for Decision on Contents of the Project .................................................. 3-4 Demand Forecasting ......................................................................................................... 3-4 Understanding and Analysis on the Problems for Consideration and Decision of the Project Contents ............................................................................................................................ 3-9

Chapter 2 Study Methodology

Chapter 3 Justification, Objectives and Technical Feasibility of the Project

3) (3) 1) 2) 3) 4) (1) 1) 2) (2) (3) 1) 2) 3) (4) 1) 2) (5) (1) 1) 2) 3) 4) 5) (2) 1) 2)

Review of Technical Measures ....................................................................................... 3-10 Planned Outline of the Project ........................................................................................ 3-13 Basic Policy for Deciding the Scope of the Project ........................................................ 3-13 Conceptual Design and Specifications............................................................................ 3-14 Contents of the Proposed Project .................................................................................... 3-17 Problems and Solutions Related to the Proposed Technology and System .................... 3-23 Analysis on Environmental and Social Impacts ................................................................ 4-1 State Analysis .................................................................................................................... 4-1 Future Forecast (If Project is Not Implemented) .............................................................. 4-2 Environmental Improvement Effects by the Project ......................................................... 4-3 Project Influence on Environmental and Social Sectors ................................................... 4-6 Environmental and Social Items to be Considered ........................................................... 4-6 Comparison between the Proposed Project and Other Feasible Projects ........................ 4-14 Discussion with Implementing Agencies ........................................................................ 4-14 Outline of Related Laws and Regulations on Environmental and Social Considerations4-14 Outline of the Related Laws and Regulations for the Implementation of the Project..... 4-14 Contents of EIA in the Host Country .............................................................................. 4-15 Measures to be Taken by Host Country Government to Achieve Project Objectives ..... 4-17 Project Cost Estimate ........................................................................................................ 5-1 Outline of Cost Estimation ............................................................................................... 5-1 Contents of the Cost Estimation ....................................................................................... 5-1 Verification of Cost Estimation......................................................................................... 5-4 Site Layout and Single Line Diagram of 1 MW System .................................................. 5-5 Prospect of Cost Estimation for Future 10 MW System ................................................... 5-8 Results of the Preparatory Financial and Economic Evaluation ..................................... 5-10 Conditions Precedent for the Project .............................................................................. 5-10 Result of the Evaluation.................................................................................................. 5-12

Chapter 4 Evaluation of Environmental and Social Impacts

Chapter 5 Financial and Economic Evaluation

Chapter 6 Planned Project Schedule Chapter 7 Implementing Organization Chapter 8 Technical Advantages of Japanese Company
(1) 1) 2) 3) (2) 1) 2) Forms of Participation by Japanese Company (Investment, Equipment Supply, Operational Management) .................................................................................................................... 8-1 Investment and Finance .................................................................................................... 8-1 Equipment Supply ............................................................................................................ 8-1 Operational Management .................................................................................................. 8-1 Technical and Economic Advantages of Japanese Company ............................................ 8-2 Economic Aspect .............................................................................................................. 8-2 Technical Aspect ............................................................................................................... 8-3

(3) 1) 2) 3) 4) (1) (2) 1) 2) (3) (1) 1) 2) 3) 4) (2) 1) 2) (3) (4)

Measures to Help Japanese Companies Win Contracts .................................................... 8-4 Water Floating PV Module ............................................................................................... 8-4 Investment to the Project by PV Module Manufacturers .................................................. 8-5 PV Module Production at Site .......................................................................................... 8-5 Measure to Avoid the Risk due to Currency Exchange Rate Fluctuations ........................ 8-6 Review of the Fund Source and Fund Raising Plan .......................................................... 9-1 Feasibility of Fund Raising ............................................................................................... 9-1 Results of Interview with Banks ....................................................................................... 9-1 Green Technology Financing Scheme .............................................................................. 9-3 Cash Flow Analysis........................................................................................................... 9-3

Chapter 9 Financial Outlook

Chapter 10

Action Plan and Issues

Efforts to Realize the Project .......................................................................................... 10-1 Realization below the total investment cost of USD 2,500/kW for 10 MW system ....... 10-1 Realization of long project finance with low interest rates ............................................. 10-1 Securing a less costly project site which can be used for long periods........................... 10-1 Selection of an excellent local enterprise as a business partner ...................................... 10-1 Efforts to Realize the Project by Implementing Organizations in the Host Country ...... 10-2 Action of concerned organization ................................................................................... 10-2 Result of consultation with MEGTW ............................................................................. 10-2 Legal and Financial Restrictions ..................................................................................... 10-3 Necessity of Additional Detailed Analysis ...................................................................... 10-3

List of Figures Figure 1-1 Figure 1-2 Figure 1-3 Figure 1-4 Figure 1-5 Figure 1-6 Figure 1-7 Figure 1-8 Figure 1-9 Figure 1-10 Figure 2-1 Figure 2-2 Figure 2-3 Figure 3-1 Figure 3-2 Figure 3-3 Figure 3-4 Figure 3-5 Figure 3-6 Figure 3-7 Figure 3-8 Figure 3-9 Figure 4-1 Figure 4-2 Figure 4-3 Figure 5-1 Figure 5-2 Figure 5-3 Figure 5-4 Figure 6-1 Figure 7-1 GDP growth rate ................................................................................................... 1-1 Organization Chart of EPU (as of January 2012) ................................................. 1-4 Organization Chart of MEGTW (as of January 2012) ......................................... 1-5 Installed Generation Capacity and Maximum Demands in Peninsular Malaysia in 2009 ..................................................................................................................... 1-7 Target of Generated Power and Fulfilled Power by RE in the Malaysian Plan.... 1-8 Position of SEDA ............................................................................................... 1-10 Progress Flow Chart ........................................................................................... 1-15 Login Page of the On-line System on SEDA Website ........................................ 1-16 Flow of RE fund ................................................................................................. 1-17 Map Showing Amount of Solar Radiation in Malaysia.................................... 1-18 List of Candidate Sites ......................................................................................... 2-3 Organization Chart of the Study Team ................................................................. 2-4 Study Schedule ..................................................................................................... 2-5 Solar PV System for the Project ........................................................................... 3-2 Power Grid in Peninsular Malaysia ...................................................................... 3-5 Monthly Peak Demand of Peninsular Malaysia from 2008 to 2010 .................... 3-6 Monthly Energy Demand of Peninsular Malaysia from 2008 to 2010 ................. 3-7 Estimated Peak Demand and Reserve Margin of TNB from 2010 to 2030 ......... 3-8 System Image of Solar PV System ..................................................................... 3-15 Situation of Ipoh Site.......................................................................................... 3-19 Situation of Kuantan Site ................................................................................... 3-20 Situation of Johor Site ........................................................................................ 3-21 Organization Chart Related to CDM in Malaysia ................................................ 4-2 Outline of Environmental Impact Assessment Procedure .................................. 4-16 Application Procedure for Environmental Requirements in Malaysia ............... 4-17 Site Layout Drawing ............................................................................................ 5-6 Single Line Diagram ............................................................................................ 5-7 Implementation Structure (Financing, Consulting Type of Business) ................ 5-10 Implementation Structure (Special Purpose Company) ..................................... 5-10 Planned Project Schdule ....................................................................................... 6-1 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 Table 1-7 Table 1-8 Table 1-9 Table 3-1 FiT Rates for Biogas ............................................................................................ 1-12 FiT Rates for Biomass ......................................................................................... 1-12 FiT Rates for Small Hydro ................................................................................... 1-13 FiT Rates for Solar PV ......................................................................................... 1-13 Solar Radiation (Monthly Average) ..................................................................... 3-22 Generation (1 MW System) ................................................................................. 3-22 Table 4-1 Table 4-2 Social and Environmental Considerations for PV Power Generation .................... 4-6 Related Regulations to Prevent Pollution .......................................................... 4-14

Table 1-10 Average of Amount of Solar Radiation per Year in Major Cities....................... 1-18 Table 3-2 Average, Maximum and Minimum Solar Radiaition and Estimated Power

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 Table 5-5 Financial IRR Sensitivity Analysis 1 (1 MW) ..................................................... 5-12 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 Table 5-9 Financial IRR Sensitivity Analysis 1 (10 MW) ................................................... 5-16 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

(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 Year Total RE (MW) 2015 2020 2030 2050 985 2,080 4,000 21,370 Target Generated Power by RE Annual (GWh) 6% 11% 17% 73% 5,385 11,246 17,232 44,208 5% 9% 12% 24% RE Share of RE Generation Annual Avoidance (t-CO2) 3,715,415 7,759,474 11,889,887 30,503,589 CO2 Generation

Share of RE Capacity

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.

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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.

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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: Mode of grid connection: Power conditioner: Foundation of support structure: Support structure: Step-up transformer: Control house: Meteorological observation system: 1.0 MW Distribution line, 11 kV, 1 circuit Plural number (in case of Japanese make) Galvanized steel pipes (scaffold pipes) as pile with concrete reinforcement Galvanized steel pipes(scaffold pipes) 0.4/11 kV, 3 phase, 2 x 500 kVA Single-story, reinforced concrete construction Solar insolation, ambient temperature,

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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: Mode of grid connection: Power conditioner: Foundation of support structure: 10.0 MW Distribution line, 33 kV, 2 circuits 10 x 1 MW Galvanized steel pipes (Scaffold pipes) as pile with concrete reinforcement, or water floating type Support structure: Step-up transformer: Control house: Meteorological observation system: Data collection and communication system: Galvanized steel pipes (Scaffold pipes) 0.4/33 kV, 3 phase, 2 x 5 MVA Double-stories, construction Solar insolation, ambient temperature, and module temperature Collect meteorological and power data, and communicate with cell phone network reinforced concrete

(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.

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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 Unit Price A B C D E F G H << Cost of Equipment and Works >> PV Module Power Conditioner Mounting Structure Other Equipment Civil/Building/Installation Works Other Works and Cost for Procedures Contingency Cost Technical Services Cost Total RM/W RM/kW RM/kW RM/kW RM/kW 4.84 1,030 2,122 866 586 *1 *2 *3 For 1 MW System (Unit: RM) Sub Total % 4,840,000 1,030,000 2,122,000 866,000 586,000 944,000 153,000 211,000 10,752,000 263,323,000 ) 3,382,000 ) 45.01% 9.58% 19.74% 8.05% 5.45% 8.78% 1.42% 1.96%

RM ( in JPY ( in USD << Yearly Cost of Operation and Maintenance >> I Check and Inspection Cost 30,000 J Equipment Repair and Replacement Cost *4 70,000 Total RM 100,000 /year ( in JPY 2,449,000 ) ( in USD 31,000 ) Note: Each subtotal is rounded up or down to the nearest RM 1,000. "in JPY" and in "USD" are rounded up or down to the nearest JPY 1,000 and USD 1,000 respectively. *1: 10% of total of items A to E above *2: 10% of total of items E and F above *3: 2% of total of items A to G above *4: 0.5% of items A, C, D and 3% of item B Source: Study Team based on collected Price Quotation/Information and Analysis

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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 Unit Price A B C D E F G H << Cost of Equipment and Works >> PV Module Power Conditioner Mounting Structure Other Equipment Civil/Building/Installation Works Other Works and Cost for Procedures Contingency Cost Technical Services Cost Total RM/W RM/kW RM/kW RM/kW RM/kW 4.60 979 1,910 779 527 *1 *2 *3 For 10 MW System (Unit: RM) Sub Total % 46,000,000 9,790,000 19,100,000 7,790,000 5,270,000 4,398,000 967,000 933,000 94,248,000 2,308,190,000 ) 29,647,000 ) 48.81% 10.39% 20.27% 8.27% 5.59% 4.67% 1.03% 0.99%

RM ( in JPY ( in USD << Yearly Cost of Operation and Maintenance >> I Check and Inspection Cost 150,000 J Equipment Repair and Replacement Cost *4 658,000 K Salary of Maintenance Personnel 128,852 Total RM 936,852 /year ( in JPY 22,944,000 ) ( in USD 295,000 ) Note: Each subtotal is rounded up or down to the nearest RM 1,000. "in JPY" and in "USD" are rounded up or down to the nearest JPY 1,000 and USD 1,000 respectively. *1: 5% of total of items A to E above *2: 10% of total of items E and F above *3: 1% of total of items A to G above *4: 0.5% of items A, C, D and 3% of item B Source: Study Team based on collected Price Quotation/Information and Analysis

2) Results of the Preparatory Financial and Economic Evaluation a. Implementation Structure

Nippon Koei Co., Ltd. and ORIX Corporation determined that 49% investment shall be shared by SPC. The remaining 51% shall be financed by Malaysian capital companies. Referring to the analysis of financial and economic feasibility discussed below, a trial calculation has been conducted based on the implementation structure.

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Figure S-1
SEDA

Implementation StructureSPC

Feed-in tariff Land Lease or/and Land or Building Owner Equity Equity Project Management Malaysian Partner SPC

Source : Made by Study Team b. FiT Rate

Based on the unit rate mentioned under the FiT, a value of RM 1.14/kWh is calculated for an electric generating capacity of 1 MW, and RM 0.95 /kWh for 10 MW capacity. c. Interest and Duration

Regarding the terms of financing, considering the result of hearing survey with banks and the availability of the interest subsidy system by the Malaysian government, a provisional calculated interest rate is determined as 5% per annum for a term of 15 years. d. Result of the Evaluation Table S-4 Financial IRR Sensitivity Analysis-1 (1 MW) IRR (15 years) Debt Ratio 0% FIT Rate (RM/kWh) 0.9649 1.0488 1.1400 3.5% 4.9% 6.3% 50% 3.3% 5.9% 8.6% 70% 3.1% 7.1% 11.2%

Source : Made by Study Team i. ii. By increasing the rate of borrowing of SPC, a financial leverage effect was determined, boosting profitability. 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.

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Table S-5 Financial IRR Sensitivity Analysis-2 (1 MW) IRR (15 years) Generated (kWh/year) 1,175,504 System Cost (RM/W) 9.0 10.0 1.10 10.7% 6.0% 2.0% 1,306,116 16.3% 11.2% 6.9% 1,436,728 21.6% 16.2% 11.6%

Source : Made by Study Team i. ii. For the installation cost of RM 10/W, IRR with an increase and decrease of 10% is provisionally calculated. Under similar conditions, annual energy production is also provisionally calculated. Changes in energy production have a big influence on the IRR. In case of 10 MW, profitability is reduced since the applicable FiT rates are lower than 1 MW. Table S-6 Financial IRR Sensitivity Analysis-1 (10 MW) IRR (15 years) Debt Ratio 0% FIT Rate (RM/kWh) 0.8041 0.8740 0.9500 0.9% 2.0% 3.3% 50% -2.4% 0.5% 2.9% 70% -6.9% -1.7% 2.4%

Source : Made by Study Team Table S-7 Financial IRR Sensitivity Analysis-2 (10 MW) IRR (15 years) Generated (kWh/year) 11,755,044 System Cost (RM/W) 9.0 10.0 11.0 1.9% -3.0% -8.5% 13,061,160 6.9% 2.4% -1.8% 14,367,276 11.7% 6.9% 2.8%

Source : Made by Study Team

3) Evaluation of Environment and Social Impacts Generally, solar PV power system is assumed to cause limited environmental effects. With operating facilities, solar PV power system would not emit effluent or atmospheric pollutant or odour around the site. Also, solar PV power system would not cause noise or vibration. Environmental effect

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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
2012 2013 2014 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 2 Business Scheme Consideration and SPC Establishment Preparation Study for Application to SEDA

3 Detail Design 4

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

Source : Made by Study Team

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(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

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supply. Superiority of Japanese product is high reliability and high efficiency. Such superiority is understandable after long duration from the commencement of operation. It is necessary to arrange to compete under the same condition of high reliability and high efficiency for long term if the product price has less price competitiveness. Suppose a project utilizes cheap PV modules as a product for high profitability. However the modules might not be able to generate in nominal efficiency, might break down after a few year, or the efficiency of the modules might be extremely sagged after around 10 years. Such event can be found only many years after the commencement of power generation. It is ideal that the implementation body of the project and investors decide to utilize Japanese product to avoid such future risks even Japanese product is expensive, however it is actually not easy. The implementation body of the project and investors calculate profitability of the project to decide whether the project is implemented or not. If profitability is not high as result of calculation, the project cost is needed to be reduced and utilize cheap product to realize the project. It has a tendency not to consider un-visible risk at the time e.g. breaking down of the cheap product and extreme deceasing of efficiency. As the above, it is a solution to make decision to utilize Japanese product that manufacturers of equipments participate to the side of decision maker of the project and they decide to utilize Japanese product to reduce the un-visible risks in future. In solar PV power generation business, manufacturers compete not in their equipment as product but in generated power as final product of the manufacturers. As a method to reduce the product price, it is the most realistic to heighten the local production ratio. In case of PV modules, assembling cells to module can be done in local. c. Operational Management

Because of expensive manpower cost and strong yen, it may be said that there is limited superiority of Japanese companies in terms of operational management similar to equipment supply mentioned above. 2) Technical Aspect The examination from a technical aspect was performed for equipment supply and operational management. The examination of investment and finance was as performed from economic aspect. a. Equipment Supply

Japanese companies are highly superior in terms of efficiency and reliability of all kinds of equipment. Equipment supply by Japanese company is possible if the technical superiority of equipment can overcome their inferiority in the economic aspect, by evaluating their life cycle. However it is difficult to prove it and to convince the project implementation body and investors. The current status can be evaluated as shown below. Materials and equipments supplied by Japanese companies are considerably expensive

S-11

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 projects 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.

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(8) Map Showing Implementation Area

Project Site Project Site

Map Source: Made by Study Team based on CIA World Factbook / Department of Surveyand Mapping, Malaysia S-14

Chapter 1 Overview of the Host Country and Sector

(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. Malaysias 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
10,000 8,000

GDP growth rate

15 10

6,000
4,000 2,000 0

5
0 -5 -10

GDP per capita(USD)

Real GDP growth rate(annual%)

Source : Made by Study Team based on Annual Report issued by Central Bank of Malaysia 2) Financial Condition As shown in Table 1-1, the revenue of the Malaysian government in fiscal year 2009 is about RM 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 governments deficit was RM 47.5 billion.

1-1

Real GDP growth rate(annual %)

GDP per capita(USD)

Table 1-1 Revenue, Expenditure and Overall Balance of the Malaysian Government Revenue year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 RM billon 61.9 79.6 83.0 91.3 91.3 97.7 123.5 139.9 159.8 158.6 As % of GDP 17.4 22.2 22.0 22.9 21.4 21.8 26.0 27.6 30.2 30.4 Expenditure RM billon 81.5 97.9 103.8 103.5 118.8 125.0 142.7 160.6 195.4 206.1 Overall Balance RM billon -19.6 -18.3 -20.8 -12.2 -27.5 -27.3 -19.2 -20.7 -35.6 -47.5 As % of GDP -5.5 -5.1 -5.5 -3.1 -6.5 -6.1 -4.0 -4.1 -6.7 -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 Ministers 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 governments strategies in achieving the above objectives include the following: Secure supply: Diversification of fuel type and sources, technology, maximized use of indigenous energy resources, and adequate reserve capacity to cater for contingencies; Sufficient supply: Forecast demand, right energy pricing, and formulate plans to meet the demand; Efficient supply: Promote competition in the electricity supply industry; Cost-effective supply: Provide indicative supply plan to meet demand based on least cost

1-2

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.

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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.

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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.

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Table 1-2

Trend of Prime Energy Demand in Malaysia

2009 (PJ) 1,010.0 59.1% 347.0 20.3% 285.0 16.7% 67.0 3.9% 1,709.0 100.0% 2010 2011 (PJ) (PJ) 1,041.0 58.6% 1,072.0 58.2% 359.0 20.2% 371.0 20.1% 304.0 17.1% 324.0 17.6% 71.0 4.0% 75.0 4.1% 1,775.0 100.0% 1,842.0 100.0% Notes: *1 Preliminary data *2 Forecast data
(*1) (*2)

Petroleum Products Electricity Natural Gas Coal & Coke Total

2008 (PJ) 1,023.0 54.4% 334.0 17.8% 450.0 23.9% 72.0 3.8% 1,879.0 100.0%

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 countrys 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 Maximum Demand (MW) Installed Capacity (MW) Natural Gas Coal Generating Mix Oil Hydro Diesel RE TNB (2010) 15,072 21,817 54.0% 40.0% 5.2% 0.8% SESB (2010) 760 866 31.0% 57.0% 9.0% 3.0% SEB (2009) 1,036 1,230 53.0% 34.0% 8.0% 5.0% -

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

1-6

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.

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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)
Source : Made by Study Team In April 2010, the Malaysian government approved the the NREPAP that would be the cornerstone for a more aggressive RE development in Malaysia. The Tenth Malaysian Plan (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: Part II: Part III: Part IV: Part V: PRELIMINARY FEED-IN TARIF SYSTEM CONNECTION, PURCHASE AND DISTRIBUTION OF RENEWABLE ENERGY FEED-IN TARIFF RENEWABLE ENERGY FUND

1-8

Part VI: Part VII: Part VIII: Part IX:

INFORMATION GATHERING POWER ENFORCEMENT GENERAL SAVINGS AND TRANSITIONAL

<Sustainable Energy Development Authority Act 2011> Part I: Part II: Part III: Part IV: Part V: Part VI: PRELIMINARY THE AUTHORITY FUNCTIONS AND POWERS OF THE AUTHORITY EMPLOYEES OF THE AUTHORITY FINANCE GENERAL

Based on the Act mentioned above, Sustainable Energy Development Authority (SEDA) and RE fund was established in September 2011, and the FiT mechanism was started in December 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.

1-9

Table 1-4 Target of Generated Power of RE Year Total RE (MW) 2015 2020 2030 2050 985 2,080 4,000 21,370 Share of RE Capacity 6% 11% 17% 73% Annual RE Generation (GWh) 5,385 11,246 17,232 44,208 5% 9% 12% 24% Share of RE Generation Annual CO2 Avoidance (t-CO2) 3,715,415 7,759,474 11,889,887 30,503,589

Source : Made by Study Team based on NREPAP 7) Sustainable Energy Development Authority (SEDA) SEDA is a statutory body formed as a lower organization of MEGTW under the SEDA Act 2011 [Act 726]. The key role of SEDA is to administer and manage the implementation of the FiT mechanism, which is mandated under the Renewable Energy Act 2011 [Act 725]. Figure 1-6 Position of SEDA

Ministry of Energy , Green Technology & Water (MEGTW)

Energy Renewable Energy Sector Green Technology Water

Electricity Sector
Energy Commission

SEDA
Implementing Authority

Regulator

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

Source : Made by Study Team

SEDA has all the functions conferred on it under the Renewable Energy Act 2011, and any other renewable energy laws. Its functions also include the following: To advise the Minister and relevant government entities on all matters relating to

1-10

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

Source : FiT Handbook issued by MEGTW Table 1-7 FiT Rates for Biomass

Source : FiT Handbook issued by MEGTW

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Table 1-8

FiT Rates for Small Hydro

Source : FiT Handbook issued by MEGTW Table 1-9 FiT Rates for Solar PV

Source : FiT Handbook issued by MEGTW c. Progress Flow Chart

The procedure to ensure progress of the power producer in FiT mechanism is shown in Figure 1-7. Approval and license for implementation of the project must be required before implement of power supply business as follows. To apply for approval of FiT holder from SEDA To make contract of Renewable Energy Power Purchase Agreement (REPPA) with

1-13

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.

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Figure 1-7

Progress Flow Chart

Source : Website of SEDA

1-15

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

RE Fund (SEDA)
1% of Electricity Bill for RE Fund
1% of Electricity Bill for RE Fund

RE Fund (SEDA)
Payment for clam of differential between FiT payments and market cost

Distribution Licensee
99% of Electricity Bill 100% of Electric Bill (After tariff review)
(1% of Electricity Bill for RE Fund)

Distribution Licensee
FiT Payment for distributed electricity from FiTH

Electricity Consumer
Source : Made by Study Team based on FiT handbook

FiTHs

(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 Malaysias major cities is shown in Table 1-10.

1-17

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

Source : National Renewable Energy Policy and Action Plan Figure 1-10 Map Showing Amount of Solar Radiation in Malaysia

Source : National Renewable Energy Policy and Action Plan

1-18

Chapter 2 Study Methodology

(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 projects 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 states 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

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Figure 2-1

List of Candidate Sites

Kedah Penang 12, 13 Perak Ipoh 15 Kuala Lumpur

Pahang Kuantan 7, 8, 9, 10, 11, 16, 17, 18

Johor Pasir Gudang 19

Selangor Shah Alam 14

Melaka 1, 2, 3, 4, 5, 6
No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Area Land Owner Land Area (Acres) (m2) 5 20,000 2.5 10,000 0.44 1,800 0.22 900 1.5 6,000 N/A N/A 3 12,000 >5 >20,000 7 28,000 10 40,000 >3 >12,000 2 8,000 5 20,000 >3 >12,000 10 40,000 >3 >12,000 >3 >12,000 >10 >40,000 >2.5 >10,000 Capacity (kW)1 1,300 660 120 60 400 N/A 800 1,300 1,800 2,600 800 500 1,300 800 2,600 800 800 2,600 660 1 A B B B B B A A A B B A B A B B A B Criteria 2 3 4 C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C A A A C C C C C C A A A A A A 5 C C C C C C C C C C C C C C A A A A A

Melaka Malaysian Company Melaka Malaysian Company Melaka Malaysian Company Melaka Malaysian Company Melaka Malaysian Company Melaka Malaysian Company Kuantan Malaysian Company Kuantan Malaysian Company Kuantan Malaysian Company Kuantan Malaysian Company Kuantan Malaysian Company Penang Japanese Company Penang Malaysian Company Shar AlamJapanese Company Ipoh Malaysian Company Kuantan Malaysian Company Kuantan Malaysian Company Kuantan Malaysian Company Johor BaruMalaysian Company

1 Estimated by Land Space

A: eligible, B: ineligible, C: No reply

Source : Made by Study Team

2-3

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
Head company Nippon Koei Co., Ltd.
Power Engineering Administration Engineering Division Energy Solution business Dept.

Organization Chart of the Study Team

Technical engineer 1 Photovoltaic system and synchronaization Tomoyasu FUKUCHI

Technical engineer 2 Design, Construction Plan and Estimation Ryousuke OGAWA

Team Leader Business planning Tsutomu MORI

Technical engineer 3 Design, Construction Plan and Estimation Naoya MATSUMOTO Evaluation of environment and social impacts Shinji TANAKA

Cooperating Company ORIX Corporation Economic financial evaluation1 Nobuomi IOKAMORI Malaysia Local consultant MIRASTECH Sdn. Bhd.
Preliminary survey in Malaysia Interview with organization Assistance for Study Team Economic financial evaluation2 Kiyoharu TSUKADA Support

Local assistant ORIX Leasing Malaysia Berhad Takashi KITAMURA

Source : Made by Study Team

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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

Jul

Study Schedule
2011 Aug Sep Oct Nov Dec Jan 2012 Feb

Field Survey in Malaysia First Field Survey Confirmation of surrret state Negotiation and discussion with local consultant Second Field Survey Site survey at a few candidate site Market survey in financing Interview survey to th organization cocerned Third Field Survey Estimation of the project cost Negotiation to TNB on synchonizing with the grid system Forth Field Survey Developing the implementation plan of projects Home work in Japan Preparation for the Study Preparation works Gathering theinformation First Home work Gathering theinformation by local consultant Analyzing of the information Second Home work Study of the business environment Basic design of the system Third Home work Economical evaluation and study of the Implementation scheme Forth Home work Summarizing the study

Source : Made by Study Team 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)

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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

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Chapter 3 Justification, Objectives and Technical Feasibility of the Project

(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 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 The SPC must do the following tasks for

3-1

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

PV Array

Connection Box Connection Box

Junction Box

Inverter

Isolating Transformer

400V Cubicle Step up Transformer AC Distribution Panel Internal Power Source

DL Cubicle

Protection Devise Power Conditioner

PV Module Structure for PV Array

Data Collecting System

Power Conditioner

Project Site

Source : Made by Study Team 2) Analysis of Present State and Future Forecast Solar PV power system seldom fails as compared to other power generating systems, and is almost maintenance free. The risk of the power producer is also limited than that in other power generating systems, as stable amount of solar radiation can be relatively secured throughout the year in Malaysia. It is noted that the FiT tariff for solar PV power system is not sufficient for business. However, when the construction for the whole project is ensured to be less costly, the business for the system is expected to sufficiently sustain the project needs. At the implementation of the project, the project should apply Japanese equipment as much as possible. Superiority of Japanese product is high reliability and high efficiency. Such superiority is understandable after long duration from the commencement of operation. The project leads to develop the new market for a Japanese maker and it can be with a place to appeal for a good point of the high reliability and high efficiency of Japanese product through the long duration of the solar PV power business. If the project is not implemented, the place to appeal for the high reliability and high efficiency of Japanese product would be lost. Moreover, Japanese companies would be lagged behind other Asian countries such as China, Korea, and Taiwan.

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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

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(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.

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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 : TNBs presentation material Planning for Smart Grid in TNB System, 2010 IEEE Conference

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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.

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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.

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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

Handbook on the Malaysian Feed-in Tariff for the Promotion of Renewable Energy, KeTTHA, March 2011 3-8

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. c. Climate condition Matters related to grid connection

b. Condition of land for the project 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.

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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.

The World Meteorological Organization (WMO) specialized agency of the United Nations, http://www.worldweather.org/020/c00077f.htm#climate 3-10

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

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 3-11

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

Auto-reclose performance on 275 kV and 132 kV transmission line in Malaysia, 2002, Asia Pacific. IEEE/PES 3-12

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

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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: (b) Mode of grid connection: (c) Power conditioner: (d) Foundation of support structure: (e) Support structure: (f) Step-up transformer: (g) Control house: (h) Meteorological observation system: 1.0 MW Distribution line, 11 kV, 1 circuit Plural number (in case of Japanese make) Galvanized steel pipes (scaffold pipes) as pile with concrete reinforcement Galvanized steel pipes (scaffold pipes) 0.4/11 kV, 3 phase, 2 x 500 kVA Single-story, reinforced concrete construction Solar insolation, ambient temperature, and module temperature (i) Data collection and communication system: Collect meteorological and power data, and communicate with cell phone network

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Meanwhile, the main conceptual design features and specifications for 10 MW PV system are shown below. (a) System capacity: (b) Mode of grid connection: (c) Power conditioner: (d) Foundation of support structure: 10.0 MW Distribution line, 33 kV, 2 circuits 10 x 1 MW Galvanized steel pipes (Scaffold pipes) as pile with concrete reinforcement, or water floating type (e) Support structure: (f) Step-up transformer: (g) Control house: (h) Meteorological observation system: Galvanized steel pipes (Scaffold pipes) 0.4/33 kV, 3 phase, 2 x 5 MVA Double-stories, reinforced concrete construction 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
Scope 400V Cubicle M Out of Scope DL Cubicle

PV Array

Connection Box

Junction Box

Inverter

Isolating Transformer

11kV or 33kV

Connection Box

Protection Devise
Power Conditioner

Step up Transformer
AC Distribution Panel Internal Power Source

PV Module Structure for PV Array Meteorological Observation System Project Site Power Conditioner Control House

Data Collecting System

Source : Made by Study Team a. System Output

System output is 1 MW or 10 MW in rated total output of installed PV modules. Supplied power to existing power grid of TNB is less than the output because of loss at power conditioner and distribution line even at the peak of power generation by solar PV power system.

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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 70oC since ambient temperatures are 21oC to 24oC (minimum of monthly average temperature) and 28oC 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

Generally, the drop down of output (watt) is 0.4 to 0.5% / oC in case of monopoly of crystalline module. 3-16

pipes is assembled on a raft made of floating for fishery and galvanized steel pipes. e. Mounting Structure

Mounting structure is made by galvanized steel pipes. The pipe is commonly utilized among building and construction site. The benefits to utilize the pipe are 1) easy to purchase locally, 2) enough strength and 3) availability of connection/joint parts for the pipe. By using the parts, it is much easier to make proper level of pipes, which needs much process in case of utilization of other materials. f. Step-up Transformer

400 V, which is standard line voltage in Malaysia, is adopted as voltage at low voltage side of step-up transformer for both 1 MW system and 10 MW system. 11 kV or 33 kV is adopted as voltage at high voltage side of the transformer for 1 MW system and 10 MW system respectively. Oilinsulation transformer for outdoor use is utilized. Two transformers are installed for continuous operation if failure occurs. g. Control House Control house with reinforced concrete is built for the project. It is single-story because of less number of power conditioner in case of 1 MW system. It is double-stories, power conditioners are installed at ground floor, and electrical panels, data collection and communication equipment and other equipments are installed at control room in upper floor in case of 10 MW system. h. Metrological Monitoring System Solar radiation, ambient temperature and temperature at surface of PV module are measured by a metrological monitoring system. The system will not collect wind direction and wind speed data because wind is not strong at the site. i. Data Collection and Communication Equipment

Data collection system collects metrological data and power generation data, and record the data automatically. 1) voltage and current at input side of power conditioner, 2) voltage, current and power factor at output side of power conditioner, 3) voltage, current, power factor and frequency at high voltage side of transformer and 4) voltage, current and power factor at the connection point to the grid are collected as power generation data of the system. Communication equipment has a function to transmit data of collected data and images on security cameras to the Internet via mobile network, Addition to this, the communication equipment has a function to collect power data at connection point via optical fiber cable installed on the power distribution line to the connection point. 3) Contents of the Proposed Project A proposed project site was selected from the results of site survey of the following candidate sites: a. A vacant lot in Ipoh where tin mining is conducted

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b. c.

Two lots at an industrial area in Kuantan On the roof of factory/warehouse at an industrial area in Johor

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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 Site Map Situation of Ipoh Site

Candidate Project Site

Candidate Project Site

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

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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 Site Map Situation of Kuantan Site

Candidate Project Site

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

Source of Map : CIA World Factbook/Department of Survey and Mapping Malaysia Source of Photograph : Study Team

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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 Site Map Situation of Johor Site

Candidate Project Site

Candidate Project Site

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.

Source of Map : CIA World Factbook/Department of Survey and Mapping Malaysia Source of Photograph : Study Team
7

According to Achieving Low-Cost Solar PV: Industry Workshop Recommendations for Near-Term Balance of System Cost Reductions, (September 2010, Rocky Mountain Institute), total project cost is USD 3.5/W for installation on the ground, and USD 3.75/W for installation on the roof.

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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 Ipoh (Central) 4.74 4.59 Johor 4.56 4.48 Kuantan 4.79 4.24 Kuala Lunpur 4.91 4.79 Malacca 4.68 4.48 Source: Website of NASA 5.66 5.20 5.22 5.09 5.37 5.12 5.70 5.29 5.06 5.24 5.42 5.10 5.55 5.27 4.87 5.42 5.27 5.09 5.16 4.93 4.57 5.15 5.11 4.77 5.19 4.85 4.41 5.02 4.98 4.61 5.10 4.81 4.30 4.96 4.92 4.58 4.92 4.68 4.33 5.05 4.87 4.61 4.90 4.67 4.53 5.12 4.88 4.71 4.64 4.47 4.57 4.71 4.77 4.76 4.56 4.11 4.34 3.89 4.36 4.34 4.67 4.05 4.07 3.55 4.17 4.00

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 Estimated (Horizontal) 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

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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

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

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Chapter 4 Evaluation of Environmental 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, 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.

4-1

Figure 4-1

Organization Chart Related to CDM in Malaysia

Conservation and Environmental Management Division, Ministry of Natural Resources and Environment : CEMD

National Steering Committee on Climate Change: NSCCC

National Committee on CDM: NCCDM

Technical Committee on CDM for Energy Sector

Technical Committee on CDM for Forest Sector

Malaysian Green Technology Corporation (Green Tech Malaysia)

Forest Research Malaysia: FRIM

Institute

Source : Made by Study Team

Number of registered CDM projects as of January 2011 in Malaysia, the world's fifth, is 87. The expected reductions from registered projects are in the world's seventh annual average of 5,242,897 tons.8 2) Future Forecast (If Project is Not Implemented) In December 2009, Prime Minister Najib Razak announced at the 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 (20102015) specified that promoting these policies ensure sustainable

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

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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:

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

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 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 EFOM,y EFBM,y wOM,wBM Combined margin Operating margin emission factor Build margin emission factor 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 BEy PEy Ly Emission reductions in year y (t-CO2) Baseline emissions in year y (t-CO2) Project emissions in year y (t-CO2) 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

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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
Category Environmental Items

Social and Environmental Considerations for PV Power Generation

Main Checklist Items (a) Have EIA reports been officially completed? (b) Have EIA reports been approved by authorities of the host countrys government? (c) Have conditions EIA are reports approved? imposed on been If the Yes: Y No: N (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 Confirmation of Environmental Considerations

(1)

EIA

and

unconditionally

Environmental 1 Permits and Explanation Permits

approval of EIA reports, are the conditions satisfied? (d) In addition to the above approvals, have other required environmental permits been obtained from the appropriate regulatory authorities of the host countrys government?

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Category

Environmental Items

Main Checklist Items (a) Are contents of the project and the potential appropriate information impacts procedures, disclosure? explained to the public based on including Is

Yes: Y No: N (a)N

Confirmation of Environmental Considerations (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.

adequately (b)N

(2) Explanation to the Public

understanding obtained from the public? (b) Are proper responses made to comments from the public and regulatory authorities?

(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 countrys emission standards and ambient air (1) Air Quality quality standards? (b) Do air pollutants, such as hydrogen sulfide emitted from geothermal power plants comply with the countrys standards? Is there a

(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.

possibility that emitted hydrogen sulfide will cause impacts on the surrounding vegetation? (a) Do effluents (including thermal effluent) from various facilities, such 2 Mitigation Measures as power generation facilities comply (2)Water Quality with the countrys effluent standards? Is there a possibility that the effluents from the project will cause areas that do not comply with the countrys ambient water quality standards? (a)N (b)N (a)(b) There are no effluents in solar PV power system. areas, including

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Category

Environmental Items

Main Checklist Items (b) Do leachates from the waste disposal sites comply with the countrys effluent standards and ambient water quality standards? measures taken Are adequate to prevent

Yes: Y No: N

Confirmation of Environmental Considerations

contamination of soil, groundwater, and seawater by leachates? (a)Are wastes generated by the plant operations (3) Waste countrys properly standards treated and disposed of in accordance with the (especially (a)N (a) Some sites are potentially biomass energy projects)? (a) Has the soil in the project site been (4)Soil Contamination contaminated in the past, and are adequate measures taken to prevent soil contamination? (a)Do noise and vibrations comply with (5)Noise Vibration and the countrys standards? (b) Do low frequency sound comply with the countrys standards, (a)N especially in wind power generation? (a) In the case of extraction of a large volume of groundwater or extraction (6)Subsidence of steam by geothermal power generation, is there a possibility that the extraction of groundwater or steam will cause subsidence? (a) Are there any odor sources? (7) Odour adequate taken? 3 Natural Environment (a) Is the project site located in protected areas designated by the countrys (1) Areas Protected 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. odor control Are (a)N (a) Solar PV power system does not cause odor. measures (a) Solar PV power system does not cause subsidence, because it does not require groundwater use. (a)Y (b)Y contaminated in the past; however, there is no possibility that soil contamination would spread due to this project. (a) Solar PV power system does not generate noise or vibration. (b) Solar PV power generation does not generate low frequency sound. (a)N (a) Solar PV power system does not involve wastes. permanent disposal of

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Category

Environmental Items

Main Checklist Items

Yes: Y No: N (b)N (c)N (e)N

Confirmation of Environmental Considerations (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.

(a) Does the project site encompass (a)N primeval forests, tropical rain forests, ecologically valuable habitats (e.g., flats)? (b) Does the project site encompass the protected habitats of endangered species designated by the countrys 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? (2)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?) impacts 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) Is there a possibility that hydrologic changes structures, (3)Hydrology due to installation as weirs of will such (a)N on vegetation If are

coral reefs, mangroves, or tidal (d)N

anticipated, are adequate measures

(a) Solar PV power system project would not cause changes of drainage system. Planning and management would be based on urban manual. stormwater management

adversely affect the surface and groundwater flows (especially in "run of the river generation" (a)N projects)?

(4)Topography

(a) Is there a possibility that the project

(a)In the project, there are no large

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Category

Environmental Items and Geology

Main Checklist Items 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)?

Yes: Y No: N

Confirmation of Environmental Considerations scale geologic alterations. Only site preparation needs to be performed.

(a) Is involuntary resettlement caused by (a)N project implementation? If (b)N (c)N (d)N (e)N (f)N (g)N (h)N (i)N (j)N 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? (1)Resettlement (e) Are the compensation policies prepared in document? (f) Does the resettlement plan pay particular attention to vulnerable groups or people, including women, children, the elderly, people below the poverty line, ethnic minorities, and indigenous peoples? (g) Are agreements with the affected people 4 Social Environment 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)(j) Resettlement need not be implemented, because candidate sites are located in an industrial estate or land used for mining.

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Category

Environmental Items

Main Checklist Items (i) Are any plans developed to monitor the impacts of resettlement? (j) Is the grievance redress mechanism established?

Yes: Y No: N

Confirmation of Environmental Considerations

(a)Is there a possibility that the project (a)N will adversely affect the living conditions of inhabitants? Are adequate measures considered to (2)Living and Livelihood reduce the impacts, if necessary? (b) Is there a possibility that the amount of water (e.g., by the surface project water, will groundwater) used and discharge of effluents adversely affect the existing water uses and water area uses? (a) Is there a possibility that the project will damage the local archeological, (3)Heritage historical, cultural, and religious heritage? Are adequate measures considered to protect these sites in accordance with the countrys laws? (a) Is there a possibility that the project will (4 Landscape taken? ((a) Are considerations given to reduce impacts on the culture and lifestyle (5) Ethnic Minorities and Indigenous Peoples 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 adversely affect the local landscape? Are necessary measures (a)N (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.

(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. (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. (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.

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Category

Environmental Items

Main Checklist Items (a) Is the project proponent not violating 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 and measures being implemented for planned

Yes: Y No: N (a)Y (c)Y (d)Y

Confirmation of Environmental Considerations (a)(d) Occupational Safety and Health Act 1994 will be complied with in this project.

any laws and ordinances associated (b)Y

(6) Working Conditions

individuals involved in the project, such as the establishment of a safety and health program, and safety training (including traffic safety and public health) for workers, etc.? (d) Are appropriate measures taken to ensure that security guards involved in the project do not to violate safety of other individuals involved, or local residents? (a) Are adequate measures considered to reduce impacts during construction (e.g., noise, vibrations, turbid water, dust, exhaust gases, and wastes)? (1) during Construction Impacts (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 5 Others 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 minimal. during construction is

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Category

Environmental Items

Main Checklist Items (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 in and the frequencies appropriate? (c) Does the proponent establish an included

Yes: Y No: N (a)N (b)N (c)N (d)N

Confirmation of Environmental Considerations (a)(d) Solar PV power system with less environmental and social impact require for limited monitoring.

monitoring program judged to be

(2) Monitoring

adequate

monitoring

framework

(organization, personnel, equipment, and adequate budget to sustain the monitoring framework)? (d) Are any regulatory requirements pertaining to the monitoring report system identified, such as the format and frequency of reports from the proponent authorities? (a) Where necessary, pertinent items described in the Power Transmission Reference Checklist Other Sectors to of and Distribution Lines of checklist electric should also be checked (e.g., projects including installation transmission lines and/or electric distribution facilities). (a) If necessary, the or impacts global to (a)Y (a)In the project, reduction of GHG emission will be calculated. trans-boundary Note on Using Environmental Checklist 6 Note issues (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. to the regulatory

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).

Source : JICAs New Guidelines for Environmental and Social Considerations Checklist for Other Electric Generation

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2) Comparison between the Proposed Project and Other Feasible Projects NREPAP, formulated by MEGTW, includes biomass, biogas, solid waste and small-hydro RE other than solar PV. However, under FiT mechanism based on the Renewable Energy Act 2011, solar PV will consider only the unlimited source of energy and the expected important role of national energy. Furthermore, solar PV is superior to other forms of RE (biomass, biogas, solid waste) in terms of effects to ambient air or noise. 3) Discussion with Implementing Agencies Consultation with relevant agencies about SSE, and obtaining permission for conducting SSE is required for the project. The details of SSE are discussed in the following section. The procedure on SSE is required when constructing a new factory, even if the project does not require EIA. This application is submitted to the DOE state office.

(4)

Outline

of

Related

Laws

and

Regulations

on

Environmental and Social Considerations

1) Outline of the Related Laws and Regulations for the Implementation of the Project a. Environmental Quality Act

Environmental Quality Act was introduced when water pollution became serious due to traditional tin mining, and establishment of industries such as natural rubber and palm oil. Industrial pollution was caused by aggressive industrialization policies since the late 1960s. This law regulates the effluent and atmospheric pollutant, procedure on waste treatment and EIA. This law also regulates procedure on SSE. Table 4-2 Related Regulations to Prevent Pollution

Environmental Quality (Sewage and Industrial Effluents) Regulations 1979 Environmental Quality (Clean Air) Regulations 1978 Environmental Quality (Scheduled Wastes) Regulation 1989 Source : Made by Study Team

b.

Occupational Safety and Health Act

Occupational Safety and Health Act, which basically adopts self control, apply to all laborers except troops and crew of commercial vessels as basic rules on industrial safety. For securing health and safety in the workplace, businesses and workers, industrial hygiene, ergonomics, the law is seeking active involvement of safety volunteers and professionals.

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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.

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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.

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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 4-17

following to the state office of DOE: a. b. c. d. Application checklist of the site preliminary assessment Copy of the land grant for the site premises Site plan of the factory and plan of surrounding sites within 1 km radius 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.

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Chapter 5 Financial and Economic Evaluation

(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. b. c. d. e. f. g. h. i. PV Module Power Conditioner Mounting Structure Other Equipment Civil/Building/Installation Works Other Works and Cost for Procedures Other Cost (Technical Services) Contingency Cost 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

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

5-2

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

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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 Unit Price A B C D E F G H << Cost of Equipment and Works >> PV Module Power Conditioner Mounting Structure Other Equipment Civil/Building/Installation Works Other Works and Cost for Procedures Contingency Cost Technical Services Cost Total RM/W RM/kW RM/kW RM/kW RM/kW 4.84 1,030 2,122 866 586 *1 *2 *3 For 1 MW System (Unit: RM) Sub Total % 4,840,000 1,030,000 2,122,000 866,000 586,000 944,000 153,000 211,000 10,752,000 263,323,000 ) 3,382,000 ) 45.01% 9.58% 19.74% 8.05% 5.45% 8.78% 1.42% 1.96%

RM ( in JPY ( in USD << Yearly Cost of Operation and Maintenance >> I Check and Inspection Cost 30,000 J Equipment Repair and Replacement Cost *4 70,000 Total RM 100,000 /year ( in JPY 2,449,000 ) ( in USD 31,000 ) Note: Each subtotal is rounded up or down to the nearest RM 1,000. "in JPY" and in "USD" are rounded up or down to the nearest JPY 1,000 and USD 1,000 respectively. *1: 10% of total of items A to E above *2: 10% of total of items E and F above *3: 2% of total of items A to G above *4: 0.5% of items A, C, D and 3% of item B Source: Study Team based on collected Price Quotation/Information and Analysis

3) Verification of Cost Estimation According to the cost data for projects involving 20 kW or more capacity, which were procured in 2008 or 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%)

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.

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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

5-5

Figure 5-1

Site Layout Drawing

Source: Made by Study Team

5-6

Figure 5-2

Single Line Diagram

Source: Made by Study Team

5-7

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

5-8

Table 5-2 Cost Estimation for Future 10 MW System

Quoted/Estimated Unit Price Unit Price A B C D E F G H << Cost of Equipment and Works >> PV Module Power Conditioner Mounting Structure Other Equipment Civil/Building/Installation Works Other Works and Cost for Procedures Contingency Cost Technical Services Cost Total RM/W RM/kW RM/kW RM/kW RM/kW 4.60 979 1,910 779 527 *1 *2 *3 For 10 MW System (Unit: RM) Sub Total % 46,000,000 9,790,000 19,100,000 7,790,000 5,270,000 4,398,000 967,000 933,000 94,248,000 2,308,190,000 ) 29,647,000 ) 48.81% 10.39% 20.27% 8.27% 5.59% 4.67% 1.03% 0.99%

RM ( in JPY ( in USD << Yearly Cost of Operation and Maintenance >> I Check and Inspection Cost 150,000 J Equipment Repair and Replacement Cost *4 658,000 K Salary of Maintenance Personnel 128,852 Total RM 936,852 /year ( in JPY 22,944,000 ) ( in USD 295,000 ) Note: Each subtotal is rounded up or down to the nearest RM 1,000. "in JPY" and in "USD" are rounded up or down to the nearest JPY 1,000 and USD 1,000 respectively. *1: 5% of total of items A to E above *2: 10% of total of items E and F above *3: 1% of total of items A to G above *4: 0.5% of items A, C, D and 3% of item B Source: Study Team based on collected Price Quotation/Information and Analysis

At the site, addition to 10 ha land is available. which is a 20 ha pond filled by rainwater at a hole created for tin mining. One of the ideas is to install the PV module on a floating device on the pond. Such idea is utilized at several sites in Japan and is considered during operational stage, not during research stage. This is considered as a solution to reduce the cost for foundation as such works will not be necessary. FiT rates will decline after 2013. Declined rate shall be considered in case of economic/financial evaluation of future 10 MW system.

5-9

(2) Results of the Preparatory Financial and Economic Evaluation

1) Conditions Precedent for the Project a. Implementation Structure

The implementation structure of the project has two patterns as shown below. Figure 5-3 Implementation Structure (Financing, Consulting Type of Business)

Feed-in tariff SEDA Land or Building Owner

Source : Made by Study Team

Finance

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
SEDA Feed-in tariff Land Lease or/and Land or Building Owner Equity Equity Project Management Malaysian Partner SPC

Implementation Structure (Special Purpose Company)

Source : Made by Study Team

Based on the structure above, Nippon Koei Co., Ltd. and ORIX Corporation provide a maximum of 49% investment for SPC shares. The remaining 51% is financed by Malaysian capital companies. Referring to the analysis of financial and economic feasibility discussed below, a trial calculation is made based on the latter implementation structure.

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b.

Fiscal Incentives for RE

Business entities, which undertake generation of energy using RE, are eligible to apply for the fiscal incentives indicated below. Table 5-3 Outline of Fiscal Incentives Pioneer Status (Income Tax Exemption Investment Allowance (ITA) Tax Import Duty and Sales Tax Exemption

Selling all the energy generated

Exemption from income

100%

of

expenditure

On imported machinery, equipment, materials, etc. given for a period of one year.

tax on 100% of income for 10 years

Accumulated losses and

within 5 years can be utilized against 100% of income for each year of assessment.

capital allowances can be carried forward. Selling the partial

Exemption from income

100%

of

expenditure

energy generated

tax on 100% of income for 10 years

Accumulated losses and

within 5 years can be utilized against 100% of income for each year of assessment.

capital allowances can be carried forward. Own enegy consumption

100%

of

expenditure

within 5 years can be utilized against 100% of income for each year of assessment.

Source : Made by Study Team

Regarding pioneer status (PS) and investment tax allowance (ITA), either of the two can be selected. For this project, ITA is adopted as it allows deduction by qualifying capital expenditure as a deficit, covering more than a decade. c. Project Size

Calculations are made for 1 MW and 10 MW capacities.

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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 IRR (15 years) Debt Ratio 0% FIT Rate (RM/kWh) 0.9649 1.0488 1.1400 3.5% 4.9% 6.3% 50% 3.3% 5.9% 8.6% 70% 3.1% 7.1% 11.2% Financial IRR Sensitivity Analysis 1 (1 MW)

Source: Made by Study Team i. ii. By increasing the rate of borrowing of SPC, a financial leverage effect is determined, boosting the profitability. Though the unit price of FiT is RM 1.14/kWh for the first year, the applicable unit price from the beginning of next year is gradually decreased by 8%. In terms of profitability, project is expected to be executed by the second year. 5-12

iii.

The case of IRR with 10% of borrowing is so-called Project IRR. Table 5-5 IRR (15 years) Generated (kWh/year) 1,175,504 System Cost (RM/W) 9.0 10.0 11.0 10.7% 6.0% 2.0% 1,306,116 16.3% 11.2% 6.9% 1,436,728 21.6% 16.2% 11.6% Financial IRR Sensitivity Analysis 2 (1 MW)

Source: Made by Study Team i. ii. For the cost of installation, which is RM 10/W, IRR with an increase and decrease of 10% is provisionally calculated. Under the same conditions, annual energy production is provisionally calculated. Changes in energy production have a big influence on IRR.

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

Prof i t & Los s
'000RM Revenue Insurance Rent Depreciation Maintenance Interest Removal Amortization Operating Cost Profit before Tax margin TaxAccounting Profit after Tax EBITDA margin Year1 2013/03 1,415 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 Year11 Year12 Year13 Year14 Year15 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 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 20 20 20 20 20 20 20 20 20 20 20 20 20 20 114 114 114 114 114 114 114 114 114 114 114 114 114 114 114 667 667 667 667 667 667 667 667 667 667 667 667 667 667 667 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 329 307 285 263 241 219 197 175 153 131 110 88 66 44 22 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 1,213 1,211 1,189 1,167 1,145 1,123 1,102 1,080 1,058 1,036 1,014 992 970 948 926 202 196 211 226 241 256 271 286 301 316 331 347 362 377 392 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 -167 151 147 158 170 181 192 203 215 226 237 249 260 271 283 294 872 867 882 897 912 927 942 957 972 987 1,002 1,017 1,032 1,048 1,063 61.7% 61.6% 63.0% 64.4% 65.8% 67.2% 68.6% 70.1% 71.5% 73.0% 74.5% 76.0% 77.5% 79.1% 80.6%

Source : Made by Study Team

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Table 5-7 Precondition (1 MW)

RM in million Generation Tariff VAT Trans Loss Gradual Decrease Year1~15 1.14 RM/kWh Year16~ 1.14 RM/kWh Tax excluded 5.0% 0.5% /year Capacity Hour Day Availability Generated 1,000 24 365 8,760,000 14.9% 1,306,116 kW h days kWh/year kWh/year Panels Panel size Buffer Area
Commenciment

6,667 1.228 1.3 2.6 acre 2012/01 Year21

Expiration Cost Property Corporte tax

facility real estate 25.0% ITA

0.0% 0.0%

ITA Duration Duration

Depreciation ratio

Initial ratio Finance and Structure Use Source Tax - Debt 7,042 Solar PV 10,000 Other equipment 10 Equity 3,018 Arrangement Fee 50 Total 10,060 Total 10,060

100.0% 15 year account 6 year tax 14.0% 20.0% 14.0% 14.0%

System Cost Removal Maintenance Insurance Land Land

10.00 6.00 1.0% 0.2% 3,600.00 114

RM/W RM/W

RM/acre/month acre/month

Capita ratio D/E ratio GAAP

Tax incentive

Initial year

70.0% 2.33 1 2 12

(Max 3.0x) US-GAAP ITA month 1

Duration Interest
Arrangement fee

15 year 5.0% 0.5%

Source : Made by Study Team

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Table 5-8 Financial IRR Sensitivity Analysis 1 (10 MW) IRR (15 years) Debt Ratio 0% FIT Rate (RM/kWh) 0.8041 0.8740 0.9500 0.9% 2.0% 3.3% 50% -2.4% 0.5% 2.9% 70% -6.9% -1.7% 2.4%

Source : Made by Study Team In case of 10 MW, as the applicable FiT rates are lower than for 1 MW, profitability is reduced. Table 5-9 Financial IRR Sensitivity Analysis 2 (10 MW) IRR (15 years) Generated (kWh/year) 11,755,044 System Cost (RM/W) 9.0 10.0 11.0 1.9% -3.0% -8.5% 13,061,160 6.9% 2.4% -1.8% 14,367,276 11.7% 6.9% 2.8%

Source : Made by Study Team i. In order to achieve the level of profitability with 10 MW, which is normally required when a private company executes a project, it is necessary to reduce the cost of installation to a minimum of RM 9/W. In comparison with 1 MW, this allows taking advantage of economies of scale, and hence is considered as the level, which is achieved through selection methods for equipment. ii. On the other hand, even if the cost of installation at RM 9/W is achieved, 10% reduction in the amount of solar radiation has a profound effect on profitability. This is because there is a need to carefully select a site that secures enough amount of solar radiation.

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

Prof i t & Los s
'000RM Revenue Insurance Rent Depreciation Maintenance Interest Removal Amortization Operating Cost Profit before Tax margin Tax(Acconting) Profit after Tax EBITDA margin Year1 2013/03 11,788 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 Year11 Year12 Year13 Year14 Year15 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 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 10,989 200 200 200 200 200 200 200 200 200 200 200 200 200 200 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 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 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 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 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 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 -342 -382 -222 -61 100 261 423 585 747 909 1,072 1,235 1,398 1,562 1,726 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 -257 -287 -166 -46 75 196 317 438 560 682 804 926 1,049 1,171 1,294 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 54.0% 53.9% 55.6% 57.2% 58.9% 60.6% 62.3% 64.1% 65.8% 67.6% 69.4% 71.2% 73.0% 74.9% 76.7%

Source : Made by Study Team

5-17

Table 5-11 Precondition (10 MW)

RM in million Generation Tariff VAT Trans Loss Gradual Decrease Year1~15 0.95 RM/kWh Year16~ 0.95 RM/kWh Tax excluded 5.0% 0.5% year Capacity Hour Day Availability Generated 10,000 24 365 87,600,000 14.9% 13,061,160 kW h days kWh/year kWh/year Panels Panel size Buffer Area
Commenciment

66,667 1.228 1.3 26.3 acre 2012/01 Year21

Expiration Cost Property Corporte tax

facility real estate 25.0% ITA

0.0% 0.0%

ITA Duration Duration

Depreciation ratio

Initial ratio Finance and Structure Use Source Tax - Debt 70,420 Solar PV 100,000 Other equipment 100 Equity 30,180 Arrangement Fee 501 Total 100,601 Total 100,601

100.0% 15 year account 6 year tax 14.0% 20.0% 14.0% 14.0%

System Cost Removal Maintenance Insurance Land Land

10.00 6.00 1.0% 0.2% 3,600.00 1,136

RM/W RM/W

RM/acre/month acre/month

Capita ratio D/E ratio GAAP

Tax incentive

Initial year

70.0% 2.33 1 2 12

(Max 3.0x) US-GAAP ITA month 1

Duration Interest
Arrangement fee

15 year 5.0% 0.5%

Source : Made by Study Team

5-18

Chapter 6 Planned Project 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. 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

2012 2013 2014 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 2 Business Scheme Consideration and SPC Establishment Preparation Study for Application to SEDA

3 Detail Design 4

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

Source : Made by Study Team

6-1

Chapter 7 Implementing Organization

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

7-1

Chapter 8 Technical Company

Advantages

of

Japanese

(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.

8-1

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,

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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 equipments 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.

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(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: Location: Capacity of PV: Implemented by: Funding source: 2007 Regulation pond of Kameyama City, Mie Province 200 kW Sharp Corporation, Cenergy Co. Inc. New Energy and Industrial Technology Development OrganizationNEDO (Source: Report on Collaborative Research of Fiscal 2006, NEDO, 2007) (ii) Technical development for large scale PV system on water surface Completion Year: Location: Capacity of PV: Implemented by: Funding source: 2007 and 2008 Aichi Pond, Nisshin City, Aichi Province 20 kW and 60 kW Japan Water Agency (Incorporated Administrative Agency), Kureha Engineering Co., Ltd. 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 8-4

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.

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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.

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Chapter 9 Financial Outlook

(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)
a.

Feasibility of Fund Raising

1) Results of Interview with Banks 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.

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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 projects 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 companys 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.

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2) Green Technology Financing Scheme Table 9-1 Outline of Green Technology Financing Scheme

Purpose

Promoting Green Technology

Objective

Malaysian-owned companies(at least 51%) All industrial sectors Conserve the use of energy and natural resources or pro

Budget

Total of 1.5 billion ringgits Up to 50 million ringgits per applicant

Tenure Incentives

Maximum 15 yearsTypically 7-10 years 2% interest subsidy from Government 60% loan guarantee from Government

Fee Application date

0.5% of loan gurantee per annum 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.

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Table 9-2 Cash Flow Analysis (1 MW)

Cash Flow Statement
'000RM Profit before Tax Tax Depreciation Amortization Principal payment Increase in Cash Tax Shield Total Year1 2013/03 202 667 3 (469) 403 403 Year2 2014/03 196 667 3 (469) 398 398 Year3 2015/03 211 667 3 (469) 412 412 Year4 2016/03 226 667 3 (469) 427 427 Year5 2017/03 241 667 3 (469) 442 442 Year6 2018/03 256 667 3 (469) 457 457 Year7 2019/03 271 667 3 (469) 472 472 Year8 2020/03 286 667 3 (469) 487 487 Year9 2021/03 301 667 3 (469) 502 502 Year10 2022/03 316 667 3 (469) 517 517 Year11 2023/03 331 -42 667 3 (469) 490 490 Year12 2024/03 347 -253 667 3 (469) 294 294 Year13 2025/03 362 -257 667 3 (469) 306 306 Year14 2026/03 377 -261 667 3 (469) 317 317 Year15 2027/03 392 -265 667 3 (469) 329 329

Source : Made by Study Team 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.

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Table 9-3 Cash Flow Analysis (10 MW)

Cash Flow Statement
'000RM Profit before Tax Tax Depreciation Amortization Principal payment Increase in Cash Tax Shield Total Year1 2013/03 -342 6,673 33 (4,695) 1,670 1,670 Year2 2014/03 -382 6,673 33 (4,695) 1,630 1,630 Year3 2015/03 -222 6,673 33 (4,695) 1,790 1,790 Year4 2016/03 -61 6,673 33 (4,695) 1,951 1,951 Year5 2017/03 100 6,673 33 (4,695) 2,112 2,112 Year6 2018/03 261 6,673 33 (4,695) 2,273 2,273 Year7 2019/03 423 6,673 33 (4,695) 2,435 2,435 Year8 2020/03 585 6,673 33 (4,695) 2,597 2,597 Year9 2021/03 747 6,673 33 (4,695) 2,759 2,759 Year10 2022/03 909 6,673 33 (4,695) 2,921 2,921 Year11 2023/03 1,072 6,673 33 (4,695) 3,084 3,084 Year12 2024/03 1,235 6,673 33 (4,695) 3,247 3,247 Year13 2025/03 1,398 6,673 33 (4,695) 3,410 3,410 Year14 2026/03 1,562 -153 6,673 33 (4,695) 3,421 3,421 Year15 2027/03 1,726 -2,100 6,673 33 (4,695) 1,638 1,638

Source : Made by Study Team 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

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Chapter 10

Action Plan and Issues

(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 Category: Engineering Service Main business: Mineral exploitation such as tin

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Scheme for participation: Contributed assets by provided by their unused land, maintenance of the solar PV system at site c. Engineering Company Category: Engineering Service 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 Category: Engineering Service 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 1/2 ApprovedMW Non-approvalMW 28.3 0.48 2/2 27.75 0.46 1/2 31.26 0.55 2013 2/2 23.76 0.52 1/2 34.02 0.35 2014 2/2 0.00 0.00 1/2 TBA TBA 2015 2/2 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. 10-2

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.

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