ERIA Research Project Report 2021, No.

14

Technical Guidelines for Energy Efficiency and

Conservation in Commercial Buildings

Edited by

Shigeru Kimura
Leong Siew Meng
Technical Guidelines for Energy Efficiency and Conservation in Commercial Buildings

Economic Research Institute for ASEAN and East Asia (ERIA)

Sentral Senayan II 6th Floor
Jalan Asia Afrika no.8, Gelora Bung Karno
Senayan, Jakarta Pusat 12710
Indonesia

© Economic Research Institute for ASEAN and East Asia, 2021

ERIA Research Project Report FY2021 No. 14
Published in October 2021

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form by any means electronic or mechanical without prior written notice to and
permission from ERIA.
The findings, interpretations, conclusions, and views expressed in their respective chapters are entirely
those of the author/s and do not reflect the views and policies of the Economic Research Institute for
ASEAN and East Asia, its Governing Board, Academic Advisory Council, or the institutions and
governments they represent. Any error in content or citation in the respective chapters is the sole
responsibility of the authors.
Material in this publication may be freely quoted or reprinted with proper acknowledgement.
 Preface

Energy efficiency and conservation (EEC) is one of the key energy policies. Some may say that EEC is akin
to new oil and gas discoveries; that is why it is also referred to as hidden energy. Many countries,
including developing countries, have EEC policies. However, their implementation is often a different
story as most developing countries cannot implement EEC programmes substantially due to a lack of
EEC expertise and experience. Therefore, the preparation of general EEC guidelines will be useful and
effective for EEC planning and implementation in developing countries.
In essence, EEC contributes towards reduced energy consumption of factories and commercial buildings.
The final energy consumption computation has two other subsectors – transport and residential – but
they have different energy benchmarking criteria. For the transport sector, improving fuel economy
means fuel consumption divided by drive distance. In contrast, for the household sector, this means
education and campaign as well as minimum energy performance standard and labelling of appliances.
Thus, the Economic Research Institute for ASEAN and East Asia (ERIA) prepared the EEC guidelines for
commercial buildings because of commercial buildings’ significant increase. Yet energy-intensive
industries, such as iron and steel as well as paper and pulp, are not major economic activities in ASEAN
countries.
This EEC guideline for commercial buildings comprises three major parts: technical, regulatory, and
economical. The technical part consists of passive and active design measures. Passive design measures
introduce energy conservation through architectural design. On the other hand, active design measures
introduce energy efficiency methodology through engineering design and the selection and operation
of energy-efficient equipment and systems such as air-conditioning, chillers, boilers, and lighting. The
regulatory part introduces a standard & labelling system for appliances, building energy intensity
labelling, or energy efficiency indicators. The EEC concept and implementation will bring monetary
benefits to EEC investors. The chapter on economic analysis describes methods of economic evaluation,
illustrative exercises, and energy service companies.
We highly recommended the following to realise significant energy savings: (i) appropriate energy
efficiency regulations prepared by the concerned government agencies and offices; and (ii) the
appropriate EEC technologies from passive and active design measures with reference to results of
economic analysis, such as the internal rate of return and payback period as outlined in this guideline.
ERIA hopes this guideline will contribute to promoting and successfully implementing EEC in the
Philippines and other ASEAN countries.

Shigeru Kimura
Special Adviser to the President on Energy Affairs
Economic Research Institute for ASEAN and East Asia

iii
 Acknowledgements

The Economic Research Institute for ASEAN and East Asia (ERIA) and Green Technology Solutions PLT
prepared this ‘Technical Guidelines for Energy Efficiency and Conservation in Commercial Buildings’.
These guidelines could not have been realised without the invaluable support and contribution through
many people’s comments, suggestions, and consultations.
I want to express my gratitude to Ir. Leong Siew Meng, Managing Consultant, Green Technology
Solutions PLT, Malaysia, for his technical input.
I also express my gratitude to Stefan Wesiak, Chief Editor and Director of Publications of ERIA, and his
team of editors and publishing staff for helping edit this report and prepare it for publication.

Shigeru Kimura
Special Adviser to the President on Energy Affairs
Economic Research Institute for ASEAN and East Asia

iv
 Project Members

Shigeru Kimura, Special Adviser to the President on Energy Affairs, Economic Research Institute of
ASEAN and East Asia
Leong Siew Meng, Managing Consultant, Green Technology Solutions PLT, Malaysia

v
 Table of Contents

List of Figures vii

List of Tables viii
Abbreviations and Acronyms ix
Executive Summary x

Chapter 1 Introduction 1
Chapter 2 Fundamentals of Energy Efficiency in Buildings 3
Chapter 3 Passive Design Measures 9
Chapter 4 Active Design Measures 17
Chapter 5 Energy Efficiency Regulations 22
Chapter 6 Economic Analysis of CCE Projects 29
References 42

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 List of Figures

Figure 2.1 Breakdown of Energy Use in Typical Office Buildings 4

Figure 2.2 Average Electricity Consumption Breakdowns Based on Surveys Conducted 7
in Malaysia’s 12 Commercial Sub-sectors
Figure 3.1 Long Directional Axis of Building (in Blue) Should Face North and South As 9
Much As Possible
Figure 3.2 Example of Façade Design with External Shading Devices 11
Figure 3.3 Example of Egg-crate Façade Design 11
Figure 3.4 Square Building Centre Core 14
Figure 3.5 Square Building Side Core West 14
Figure 3.6 Building Section Showing Cross Ventilation 15
Figure 3.7 High-rise Building Section Showing Stack Ventilation 15
Figure 3.8 Illustration of Water Body and Shrubs Near Facades Facing West 16
Figure 3.9 Illustration of Strategic Landscaping to Create Cooler Microclimate 16
Figure 5.1 Pyramid of the Commercial Sector, EEI 23
Figure 5.2 Illustration of the Application of EUI Monitoring in Singapore 26
Figure 6.1 Cash flow for ROI and ROE 35
Figure 6.2 Cash Flow for ROI and ROE of Exercise 1 37
Figure 6.3 Cash Flow for ROI and ROE of Exercise 2 39
Figure 6.4 Cash Flow for ROI and ROE of Exercise 3 41

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 List of Tables

Table 2.1 12 Main Categories of Commercial Buildings in the Energy Consumption 5

Survey Conducted in Malaysia
Table 2.2 Final Electricity Consumption by Aggregated Categories in Malaysia’s 4
Commercial Sector, 2016
Table 3.1 Daylight Factors and Impact 10
Table 3.2 Comparison of Estimated Energy (Electricity) Reduction of Various Wall 13
Materials under Three Baseload Scenarios
Table 5.1 Singapore’s National Building Energy Benchmarks for Commercial Buildings, 27
2019
Table 6.1 Income Statement for Economic Analysis (US$1,000) 32
Table 6.2 Cash Balance Statement (US$1,000) 33
Table 6.3 Cash Flow on ROI (US$1,000) 33
Table 6.4 Cash Flow on ROE (US$1,000) 34
Table 6.5 Income Statement of Exercise 1 (US$1,000) 36
Table 6.6 Cash Balance Statement of Exercise 1 (US$1,000) 36
Table 6.7 Income Statement of Exercise 2 (US$1000) 38
Table 6.8 Cash Balance Statement of Exercise 2 (US$1,000) 38
Table 6.9 Income Statement of Exercise 3 (US$1,000) 40
Table 6.10 Cash Balance Statement (US$1,000) 40

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 List of Abbreviations and Acronyms

ACMV air-conditioning and mechanical ventilation

BCA Building and Construction Authority (Singapore)
BEI building energy intensity
CO2 carbon dioxide
DOE Department of Energy (Philippines)
EEC energy efficiency and conservation
EEI energy efficiency indicator
EMS energy management system
ESCO energy service company
EUI energy use intensity
EUMB Energy Utilization and Management Bureau
GFA gross floor area
IEA International Energy Agency
IRR internal rate of return
IRROE internal rate of return on equity
IRROI internal rate of return on investment
LED light-emitting diode
OTTV overall thermal transfer value
PESLP Philippine Energy Standards and Labeling Program
PV photovoltaic
ROE return on equity
ROI return on investment
SEU significant energy user
SHGC solar heat gain coefficient
TWh terawatt-hour
VLT visible light transmission

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 Executive Summary

Energy supply is one of the most fundamental infrastructures needed for the development of society
and economic growth. Energy use must be rational and efficient to avoid the unnecessary wastage of
depleting resources and harmful environmental impacts, such as pollution and global warming. Buildings
consume a significant amount of energy. Optimising energy efficiency in a building is a much more cost-
effective measure to reduce carbon emissions than turning to renewable energy solutions without
addressing efficient energy use in buildings. Energy efficiency solution combines energy efficiency and
conservation (EEC) measures, which need not be expensive and use advanced technology. Unlike
renewable energy, the approach to adopting EEC strategies requires a combination of early planning
and collaborative team efforts by architects, quantity surveyors, engineers, and building professionals
at the beginning of a project. These guidelines provide cost-effective and practical measures and
economic analysis in EEC for new and existing commercial buildings.
These guidelines were prepared to help policymakers, department officers, and building professionals
better understand the basics of energy efficiency for commercial, institutional, and multi-unit residential
buildings in hot and humid climates. These were primarily written as a guide to address the basic issues
on efficient energy use in buildings concerning the design and evaluation of EEC measures, including
economic viewpoints, to complement the ‘Guidelines on Energy Conserving Designs of Buildings’ of the
Philippine Department of Energy (DOE). These guidelines, however, do not cover specific issues
concerning the operation and maintenance of building systems. It is recommended that such specifics
come from other sources. These guidelines discuss mainly the design of buildings and their mechanical
systems, which are the significant energy users (SEUs) in terms of major shares of energy use in buildings
in hot and humid climates. Therefore, these guidelines focus on the more critical aspects that affect
efficient energy use in buildings without considering heating systems, commonly found in temperate
climates.
These technical guidelines explain the fundamentals of energy efficiency in commercial buildings. Firstly,
we need to identify the EEC of lighting, air-conditioning, and mechanical ventilation (ACMV) systems
that are targeted. We also need to discuss a holistic approach to designing energy-efficient buildings by
adopting a combined strategy of passive and active design measures. This approach requires early
efforts in planning and designing by a multi-disciplinary design team that comprises architects,
engineers, surveyors, landscape designers, etc. In addition to the existing Philippine Energy Standards
and Labeling Program (PESLP) for energy-consuming products, building energy intensity (BEI) labelling
may be done to enable the DOE to set up benchmarking targets for various building categories or
subsectors after establishing the system and collecting sufficient building information and annual energy
consumption data. BEI labelling can measure or indicate the energy performance of buildings of the
same category or subsector for design and building operation purposes. A BEI labelling system will
enable setting measurable goals in building energy performance benchmarking, which will be vital in
achieving EEC success in commercial buildings. These guidelines were prepared to complement the
DOE’s existing guidelines, with three key concepts in mind:

▪ adopting holistic EEC strategies through a strategic combination of early planning and
collaborative team efforts by architects, surveyors, engineers, and building
professionals in design and construction through passive and active EEC measures

x
▪ using EEI or BEI labelling to achieve a low BEI, set as measurable goals and benchmark
targets for various types of commercial buildings.

▪ adopting a balanced approach through economic justification with economic analysis of

EEC measures under reasonable energy prices, in other words, marketed energy prices.

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 Chapter 1

Introduction

The Economic Research Institute for ASEAN and East Asia (ERIA) held an energy efficiency and
conservation (EEC) workshop – ‘The Second Energy Efficiency and Conservation (EE&C) Policies in ASEAN’
– on 23 April 2019 in Manila, Philippines – in collaboration with the Institute of Energy Economics, Japan
(IEEJ). ERIA also held a bilateral meeting with the Department of Energy Philippines (DOE) to discuss
ERIA’s support to the department regarding the preparation of the EEC implementation road map in
the Philippines. Subsequently, ERIA submitted the scope of work to DOE’s Energy Utilization and
Management Bureau (EUMB) – ’Preparation of Energy Efficiency Roadmap for the Philippines’ – which
contained EEC fundamentals. These fundamentals comprise a (i) review and preparation of a legislative
framework of EEC sub-decrees, (ii) strengthening of energy service companies (ESCOs), (iii) growing of
energy managers, (iv) installation of a standard and labelling system, (v) mandatory collection system of
energy consumption data from designated factories and commercial buildings, and (vi) enhancement of
education and campaign.
Also, based on the ‘Energy Efficiency and Conservation Act’, signed on 12 April 2019, the DOE sent ERIA
an EEC road map, covering various action plans for the final energy consumption sectors in two periods:
medium term (2019–2022) and long term (2023–2040). Upon the EUMB/DOE’s request, ERIA revised
the existing scope of work to be consistent with the action plans of the road map. ERIA experts visited
Manila to attend the project’s first working group meeting on 29 November 2019 and confirm the
contents of the revised scope of work to EUMB. After the first working meeting, the contents of the
scope of work were fixed: (i) important points of the EEC Act; (ii) review and revision of the existing
document, namely, ‘Guidelines on Energy Conserving Design of Buildings’; (iii) introduction of highly
efficient vehicles; (iv) preparation of energy efficiency indicators (EEIs) of commercial buildings.

The EUMB, however, decided to make a change and requested ERIA to shift to more EEI studies. Based
on EUMB’s request, ERIA revised the scope of work again and submitted it to the DOE in January 2020.
The revised scope of work contains the following: (i) important points of the EEC Act, and (ii) support to
the DOE to prepare the EEIs in the commercial and road transport sectors, including EEI lectures and
pilot energy consumption surveys.

ERIA was supposed to hold a second working meeting in Manila from 30 March to 1 April 2020 to kick
off the two energy consumption surveys to be conducted by local consultants. But due to the COVID-19
pandemic in Asia, ERIA postponed such a meeting to the middle of 2020. After that, the DOE requested
ERIA to expand the scope of work to include EEI preparation in the industry and household sectors with
energy consumption surveys. In this regard, ERIA and the DOE held a virtual meeting on 24 July 2020 to
discuss the scope of work with detailed reviews. Finally, both sides agreed to the following contents of
the EEC project for the Philippines in 2020–2021:

• preparation of the EEIs of commercial buildings, including energy consumption surveys

• preparation of EEIs of factories, including energy consumption surveys

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 • change of the project name to ‘Preparation of Energy Efficiency Indicators of Commercial
Buildings and Industrial Factories in the Philippines’
• change of project term from October 2020 to February 2021

ERIA and the DOE discussed the following during a virtual meeting on 8 September 2020 to kick off this
project:

• introduction of questionnaires to be used for the energy consumption surveys in the

industry and commercial sectors, with illustrations of expected output from the surveys
• terms of reference for local consultants to conduct the surveys
• list of candidates from local consultants.

After the meeting on 8 September, the DOE identified two local consultants and requested them to
submit their proposals, including cost estimations, to the DOE and ERIA. But both consultants informed
the DOE and ERIA that, due to the COVID-19 pandemic, the energy consumption surveys would be
difficult to implement because enumerators could not visit commercial buildings and factories to
conduct surveys and collect energy consumption data. Thus, ERIA decided to postpone the surveys for
the following year (2021) after the COVID-19 pandemic eases.

By January 2021, COVID-19 was still ravaging the Asian region. Thus, ERIA proposed to the DOE that the
surveys be conducted under a new project in 2021–2022, pending any improvement in the pandemic
situation. Meanwhile, the DOE agreed to implement the following activities under the current project:

• conduct a capacity building training on EEC (25–28 January 2021)

• prepare an EEC guidebook.

Again, ERIA organised a virtual meeting on 22 March 2021 to discuss with the EUMB/DOE the contents
of the capacity-building training. The training was planned for April 2021. However, the capacity-building
training could not be conducted due to the busy schedule of the DOE. Finally, the project supporting the
EUMB/DOE in 2019–2020 was reduced only to the preparation of an EEC guidebook in commercial
buildings. This should be a useful guidebook that will complement the DOE’s Guidelines on Energy
Conserving Designs of Buildings in implementing EEC in the Philippines.

2
 Chapter 2

Fundamentals of Energy Efficiency in Buildings

2.1 Background
These technical guidelines were prepared to help policymakers, department officers, and building
professionals better understand the basics of energy efficiency in commercial, institutional, and multi-
unit residential buildings in hot and humid climates. These guidelines were primarily written to address
the basic issues on the efficient use of energy in buildings concerning the design and evaluation of EEC
measures. However, these guidelines do not cover specific issues on the operation and maintenance of
building systems. Such specifics are recommended to come from other sources of such topics.

These guidelines discuss mainly the design of buildings and their mechanical systems, which are
the significant energy users (SEUs) in terms of major shares of energy use in buildings in hot
and humid climates. Therefore, these guidelines focus on the more critical aspects that affect
energy use in buildings without considering heating systems, commonly found in temperate
climates.

Despite the current economic downturn brought about by the COVID-19 pandemic, primary
energy demand and electricity demand in ASEAN countries are expected to continue their trend
of rapid growth under the post-pandemic era. Therefore, energy efficiency will continue to be
significant in governments’ energy planning.

2.2 Energy-use Breakdowns in Commercial Buildings

Before discussing energy efficiency in buildings, it is prudent to understand and identify the SEUs in
building services. These guidelines intend to focus on SEUs in commercial buildings to achieve significant
energy savings. According to the International Energy Agency (IEA, 2019), electricity use for air
conditioning in ASEAN countries increased 7.5 times over 30 years, from 10 terawatt-hours (TWh) in
1990 to almost 75 TWh in 2017. China and India have seen a comparable increase in cooling-related
electricity use during the same period.
It is interesting to note that air-conditioner ownership is still relatively low in the ASEAN region. Around
15% of households in ASEAN countries have an air conditioner, compared with 90% of households in
some developed economies. However, almost 80% of households in Singapore and Malaysia are
reported to have an air conditioner. About 10% of other ASEAN countries are reported owning an air
conditioner, which suggests significant potential for an air-conditioner market in several countries. IEA
2019 also indicates that as the standard of living in a country improves, its population will likely increase
the use of air conditioners. Similarly, as economic activities increase and livelihoods improve, access to
electricity and cooling requirements will increase. The demand for air-conditioning services and, hence,
for electricity will increase with rapid urbanisation across the region, including the Philippines.
As reported in the Public Works Department Malaysia 2013, the Danish International Development
Agency (Danida) conducted a study in 2005 in Malaysia on the reformulation of the overall thermal

3
transfer value (OTTV) in Malaysian Standard 1525. Danida produced a typical energy-use breakdown in
typical office buildings (Public Works Department Malaysia, 2013) in Malaysia (Figure 2.1). This chart
shows that the combined share of energy consumption by air-conditioning and mechanical ventilation
(ACMV) system, comprising chiller energy and energy of air-handling unit fan, is 49% for typical office
buildings in Malaysia. Figure 2.1 also shows the percentage breakdown of the shares of various heat
elements to be removed by the air-conditioning system for occupants’ thermal comfort. These heat
elements are (i) dehumidified fresh air ventilation, (ii) dehumidified people’s latent gain, (iii) sensible
heat gain from occupants, (iv) solar heat gain, (v) lighting heat gain, (vi) small power heat gain, and (vii)
fan heat gain. Figure 2.1 shows the remaining typical shares of small power and lighting energy use at
25% and 26%, respectively.

Figure 2.1: Breakdown of Energy Use in Typical Office Buildings

40% 37%
Heat elements to be
% Share of Energy Distribution

35% removed by air-

8%
conditioning system:
30% 27%
26% 1%
2% Dehumidified Fresh
25% Air
9% Dehumidified
20%
People Latent Gain
15%
People Gain
11%
7% Solar Gain
10%

5% 6% Lighting Gain

0%
3% Small Power Gain
AHU Fan Energy Small Power Energy Lighting Energy Chiller Energy

AHU = air-handling unit.

Source: Public Works Department Malaysia (2013).

The Energy Commission of Malaysia conducted an energy consumption survey in the commercial sector
and reported the findings in the National Energy Balance (Malaysia) 2016. The commission’s studies
collected data from 12 main categories in the commercial sector (Table 2.1) from the 12 states of
Peninsular Malaysia. The surveys were conducted in Peninsular Malaysia and collected annual energy
data from 5,000 business premises from 2014 to 2016. For this report, the latest data for 2016 were
reviewed to establish the latest energy-use breakdowns in Malaysia (Table 2.1).

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Table 2.1: 12 Main Categories of Commercial Buildings in the Energy Consumption Survey Conducted
in Malaysia
1. Wholesale and Retail Trade 7. Travel Agencies and Tour Operators

2. Transportation and Storage 8. Public Administration

3. Accommodation and Food Service 9. Education

4. Information and Communication 10. Human Health and Social Work

5. Selected Services 11. Arts, Entertainment, and Recreation

6. Professional, Scientific, and Technical 12. Other Services

Source: National Energy Balance (Malaysia) 2016 published by Energy Commission Malaysia, 2018.

Table 2.2: Final Electricity Consumption by Aggregated Categories in Malaysia’s Commercial Sector,
2016
Category Space Cooling Water Heating Lighting Other Use TOTAL
(GWh) (GWh) (GWh) (GWh) (GWh)
Wholesale and 2,116.80 45.33 1,116.87 1,253.76 4,532.76
Retail Trade
Transportation and 969.50 5.82 436.57 751.66 2,153.75
Storage
Accommodation 630.02 127.18 331.29 548.17 1,636.83
and Food Service
Information and 1,651.15 150.75 762.45 1,588.44 4,152.78
Communication
Selected Services 2,270.49 − 1,254.17 1,880.72 5,405.92
Professional, 194.35 − 118.65 272.92 585.92
Scientific, and
Technical
Travel Agencies 8.65 0.01 2.92 9.28 20.86
and Tour

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 Public 2,946.31 262.71 1,418.34 2,267.82 6,895.18
Administration
Education 1,339.60 − 673.90 1,139.99 3,153.49
Human Health and 2,120.27 200.57 1,103.11 1,516.59 4,940.04
Social Activities
Arts, 343.17 40.51 223.79 284.82 892.29
Entertainment, and
Recreation
Other Service 1,860.37 201.76 1,074.17 1,599.88 4,736.19
Activities
Total GWh 16,440.66 1,034.62 8,516.23 13,114.06 39,106.00
% Share 42 2.6 21.8 33.6 100
Source: National Energy Balance (Malaysia) 2016 published by Energy Commission Malaysia, 2018.

Based on the data in Table 2.2, Figure 2.2 shows the average energy-use breakdowns for various
building services in commercial buildings (that include the 12 categories of buildings in Table 2.1) in
Malaysia. Figure 2.2 shows the average electricity consumption breakdowns based on the surveys
conducted in Malaysia’s 12 commercial sub-sectors. Similar to the findings of Danida in 2005 for typical
office buildings in Malaysia (refer to Figure 2.1, showing 49% for space cooling), the majority share of
electricity consumption in the commercial sector is substantially taken up by space cooling at about 42%
for the 12 categories of commercial buildings (Figure 2.2). Lighting takes up a significant proportion of
electricity consumption at 21.8%. Other use at 33.6% was reported, but there were no further
breakdowns, comprising lifts and escalators, refrigerators, computers, office equipment, etc. The
difference between the energy-use breakdowns in Figure 2.2 and Figure 2.1 is that the former was based
on the national survey data obtained from the 12 main categories of commercial buildings listed in Table
2.1. The energy-use breakdowns in Figure 2.1 were based on DANIDA’s data specifically obtained from
typical office buildings. In any case, both the analyses in Figures 2.1 and 2.2 show that the largest share
of energy use is air-conditioning systems.

Based on the findings discussed above and the IEA 2019 report on the future of cooling in
Southeast Asia, we can conclude that space cooling or ACMV systems would consume the
largest share of energy in commercial buildings. The second-largest share of energy
consumption in commercial buildings should be lighting.

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 Figure 2.2: Average Electricity Consumption Breakdowns Based on Surveys Conducted in Malaysia’s
12 Commercial Sub-sectors

Total energy comsumption (2016): 39,106 ktoe

Other Use
33.6% Space Cooling
42%

Lighting
21.8%

Water
Heating
2.6%

Source: National Energy Balance (Malaysia) 2016 published by Energy Commission Malaysia, 2018.

2.3 Fundamentals of Energy Efficiency in Buildings

Based on Section 2.2, it would be prudent to focus on space cooling amongst the building services to
achieve significant energy savings. Furthermore, since space cooling consumes a substantial share of the
energy use in buildings, it is suggested that the fundamentals of energy efficiency should focus on
understanding the fundamental physics in thermal comfort requirements in buildings.
For most modern buildings in hot and humid climates, the ACMV is essential for building services. It is
essential because building occupants demand thermal comfort. Thermal comfort is a moving target and
is complex because it is subject to expectations, perceptions, cultures, and behaviours. Comfort
perception changes as occupants change to light or heavy clothing and reduce or increase their physical
activities. Based on the recommendation of ASHRAE, ACMV designers are expected to satisfy only 80%
of occupants so that building owners do not need to overspend on oversized ACMV equipment.

2.3.1 Passive design measures

Before discussing ACMV systems, it would be strategic to consider optimising passive design measures
before optimising active design measures. As Figure 2.1 illustrates, the objective of ACMV systems is to
remove the heat elements prevalent in buildings. A substantial proportion of these heat elements are
due to solar heat gains. Passive design measures would involve essentially architectural, site planning,
and landscaping design. Therefore, adopting an integrated approach through architectural, site
planning, landscaping, and engineering in active design measures (refer to Section 2.2) in designing
energy-efficient buildings would optimise energy efficiency. The basic approach to good passive design
is to orient, shade, insulate, ventilate, and daylight buildings.

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In other words, the objective of the passive design measures is to minimise solar heat gains
through the building envelope that shapes a building. Buildings primarily provide an internal
environment suitable for occupying the building. After the passive design measures are
optimised and solar heat gains minimised, the cooling loads of a building can be reduced.
Hence, the ACMV system capacity can be reduced, resulting in savings in equipment costs and
operating costs. The key factors to be considered in the building envelope approach to minimise
solar heat gains include the following: site planning and orientation, daylighting, façade design,
natural ventilation, thermal insulation, and strategic landscaping.

2.3.2 Active design measures

After the passive cooling strategies are optimised, the next step would be to adopt active design
measures. As discussed in Section 2.2, prioritised efforts in energy efficiency in commercial buildings
should be accorded to ACMV system designs. Fundamentally for thermal comfort, an air-conditioning
system in a commercial building removes heat from the establishment to maintain it at a certain
temperature. Typically, the heat elements that are to be removed from a commercial building by the
air-conditioning system are as follows:

• Solar radiation gain – the heat gain due to solar radiation through building windows is known
as solar radiation sensible heat gain.
• Conduction gains due to building fabric – the temperature gradient between outdoor and
indoor spaces will cause conduction heat gain through the building fabric.
• People sensible gain – the sensible heat gain from people is the heat emitted by people in air-
conditioned spaces.
• Dehumidification of people latent gain – the latent heat gain from people is the moisture
emitted by people in air-conditioned spaces.
• Dehumidification of fresh air ventilation – the mechanical ventilation and infiltration of
outdoor air into air-conditioned spaces brings along the moisture content of outdoor air.
• Outdoor air ventilation sensible gain – the outdoor air ventilation and infiltration into air-
conditioned spaces bring along heat content of the outdoor air.
• Small power gain – all electrical equipment plugged into power points in a building result in
heat in air-conditioned spaces.
• Lighting gain – all electrical energy used by lighting would end up as heat within a building.

Depending on the cooling load, most commercial buildings would have a centralised ACMV system
typically comprising of (i) a chiller plant, (ii) chilled water pumps, (iii) condenser water pumps, (iv) cooling
towers, and (v) an air-distributing system (an air-cooled system does not have condenser water pumps
and cooling towers). Based on the fundamental requirements of an ACMV system discussed above, the
following areas should be prioritised for active EEC measures in a commercial building: chiller system
efficiency, lighting efficiency, small power load, fan efficiency, and control of outdoor air intake and
infiltration.

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 Chapter 3

Passive Design Measures

3.1 Introduction
It is cost-effective to adopt passive design measures as a first step in optimising energy efficiency in
commercial and residential buildings. As discussed in Chapter 1, almost 50% of energy consumption is
typically used in cooling for thermal comfort in hot and humid climates. Therefore, measures discussed
in this chapter should be prioritised and employed as extensively as possible. It makes sense to optimise
passive cooling strategies by adopting passive design measures, which are essentially architectural.
Passive design measures aim to optimise (i) passive cooling strategies, i.e. minimise heat gains in
buildings; and (ii) environmental cooling through natural means such as vegetation, landscaping, and
shading.
Buildings primarily provide an internal environment suitable for occupancy in buildings. Therefore, the
architectural passive design should consider the building’s site environment. The key passive design
measures are discussed below.

3.2 Site Planning and Orientation

It is important to consider site planning and orientation in designing a new building on the green field.
The primary objective of good orientation in the equatorial region is to avoid exposing building openings
to intense solar radiation as the sun travels east to west. As a general rule, orientate the building layout
as much as possible, such that a building’s main long axis with more openings or glazing would face
north to south, and the narrow ends of the building would face the east–west direction (Figure 3.1). The
idea is to minimise the exposure of building openings to the east–west sun travel direction as much as
possible.

The orientation of buildings can contribute to the immediate microclimate of open spaces by
providing shade and shadow to the immediate surroundings that will benefit the indoor areas
adjacent to it.

Figure 3.1: Long Directional Axis of Building (in Blue) Should Face North and South As Much As
Possible

Source: Author.

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3.3 Daylighting
Before considering efficient electrical lighting, daylight harvesting in a building should be incorporated
to provide lighting requirements where possible during the daytime. Building occupants will benefit
from a proper daylight harvesting design that provides a better working environment and improved
energy efficiency. Conversely, improper daylight harvesting design may cause glare discomfort,
excessive heat gain, increased thermal discomfort, and high energy consumption in buildings.
The simplest way to describe daylight distribution, penetration, and intensity is daylight factor (DF),
expressed as a percentage. It is the ratio of the internal space illuminance (Einternal) at a point in a room
to the instantaneous external illuminance (Eexternal) on a horizontal surface (equation 1).

𝐸(𝑖𝑛𝑡𝑒𝑟𝑛𝑎𝑙)
𝐷𝐹 = 𝑥 100 ----------------- (1)
E(external)
Where:
DF = daylight factor (%)
E(internal) = horizontal illumination of reference point indoor (Lux)
E(external) = horizontal illumination of unobstructed point outdoor in an overcast sky condition (Lux)
As a guide, the brightness inside a building and the associated distribution can be broadly classified by
the daylight factors described in Table 3.1, based on Malaysian data given in MS1525:2019. In general,
a daylight factor of 1.0–3.5 is recommended. The introduction of daylighting will save energy through
energy conservation without switching on artificial electrical lighting, which would reduce lighting
energy emissions that the ACMV system needs to remove.

Table 3.1: Daylight Factors and Impact

Daylight Lighting Glare Thermal Appearance and Energy
Factor Comfort Implication
The room appears strongly daylit.
> 6.0 Intolerable Intolerable Uncomfortable
Artificial lighting is rarely needed
during the day, but thermal
problems due to solar heat gains
3.5–6.0 Tolerable Uncomfortable Tolerable and glare may occur.
The room appears moderately
1.0–3.5 Acceptable Acceptable Acceptable
daylit. It is generally a good balance
between lighting and thermal
aspects. Supplementary artificial
lighting may be needed in dark
areas due to the effect of layout or
furniture arrangement.
The room looks gloomy; artificial
< 1.0 Perceptible Imperceptible Acceptable
lighting is needed most of the time.
Source: Department of Standards Malaysia (2019).

10
3.4 Façade Design and Building Envelope
The façade design is an important part of passive design measures. This is where architects can deploy
innovative ideas to minimise solar heat gains in buildings. The façade of a building is the external building
envelope that determines the building’s form and aesthetics. A good façade design using architectural
treatments and suitable materials can help optimise daylighting and thermal comfort by minimising
solar heat gains. A building envelope should be designed to block out heat into buildings via conduction
and solar radiation. A properly designed envelope can greatly reduce the cooling load and, hence, the
energy consumption of a building.
One way to quantify the performance of a building envelope is a design criterion known as overall
thermal transfer value (OTTV). The OTTV is a useful indicator for non-air-conditioned buildings and partly
non-air-conditioned buildings. The OTTV aims at achieving the design of a building envelope to reduce
external heat gain and, hence, reduce the cooling load of ACMV systems. Reference is made to Section
5 of the Philippines’s Guidelines on Energy Conserving Designs of Buildings (DOE, 2008) to determine
the OTTV of a building envelope.
The OTTV of a building envelope is recommended not to exceed 50 W/m2. However, this maximum value
of the OTTV should be deliberated amongst stakeholders and decided by the DOE. Should the
department wish to set a higher energy efficiency goal, this value can be set lower, but there will be cost
implications for such a decision. For this report, the maximum OTTV value for a commercial building is
set at 50 W/m2. The OTTV is determined based on all external walls of a building. Achieving an OTTV not
exceeding 50 W/m2 can confirm that the design of the building envelope has incorporated measures to
reduce external heat gain, hence, decreasing the cooling load of the ACMV system. Such effort will also
result in reducing the ACMV equipment capacity.
The main façade design methods are summarised as follows:

Figure 3.2: Example of Façade Design with Figure 3.3: Example of Egg-crate Façade Design
External Shading Devices

Source: Ar. Voon Kok Leong Source: Author.

11
1) Building envelope design to achieve the OTTV of external walls at 50 W/m2 or less and roof OTTV of
25 W/m2 or less
a) Fenestration design and glazing selection
i) Where possible, choose a building form and fenestration design that provide the
least amount of glazing while maintaining the required aesthetic appearance of the
building.
ii) The correct selection of glazing properties can help reduce the OTTV value, reduce
the cooling load, and increase energy efficiency.
iii) As a selection guide, select glazing with a low solar heat gain coefficient (SHGC) to
reduce the solar heat gain in building and high visible light transmission (VLT) to
improve daylight harvesting.
iv) It is advisable to make a balanced selection because glazing with low SHGC will likely
have an unsatisfactory VLT, e.g. glazing with a VLT of less than 10% makes a building
look dull from within due to the lack of daylight inside the building. For example, a
high-performance low-e double glazing can get a low SHGC of less than 0.15 with a
VLT of 25% or higher.
v) As a general guide, it is possible to use the ratio of light to solar gain (VLT to SHGC,
i.e. LSG [or light to solar gain]). The higher this ratio, the better it is for commercial
buildings where daylight is harvested.
▪ Single glazing without low-e properties has typical LSG values of 0.5 to 1.0.
▪ Single glazing with low-e properties has typical LSG values of 1.05 to 1.3.
▪ High-performance double glazing with low-e properties has typical values
of 1.5 to 2.0.

b) Building materials
Suitable building materials with insulating properties can reduce a significant amount of
energy consumption in a tropical climate. Outdoor air temperature is high during the
daytime, while the air temperature inside air-conditioned spaces is set at 230C to 270C. Heat
is conducted from the outside to the inside of a building. However, the outdoor air
temperature is likely lower than the indoor air temperature during the night and early
morning. Heat flow is then opposite to daytime conditions.

Table 3.2 shows the difference in the energy-saving potential for wall materials with a lower
coefficient of heat transfer (U-value). The estimated values given in Table 3.2 are based on
an energy simulation study reported in BSEEP 2013. The simulation study model was based
on a square building, without external shades and with a service core in the centre of the
building. The high, medium, and low night-time baseloads refer to a night baseload of 50%,
35%, and 10% of the daytime peak load, respectively. Table 3.2 shows that the lower the
wall material’s U-value, the lower is the simplified energy index. This index provides an easy
method to estimate the energy reduction due to the wall U-value selection in a hot and
humid climate.

12
 Table 3.2: Comparison of Estimated Energy (Electricity) Reduction of Various Wall Materials under
Three Baseload Scenarios
Description ASHRAE Wall Simplified Energy Index (kWh/y per m2 of
Case
U-value wall area)
2
(W/m K)
High night- Medium Low night
time night-time time
baseload baseload baseload
Concrete wall, 100 mm 3.40 55 32 28
1
Brick wall, 115 mm 2.82 52 30 25
2
Brick wall, 220 mm 2.16 50 27 22
3
Double brick wall with 50 1.42 48 25 20
4
mm cavity, 300 mm
Autoclave lightweight 1.25 47 24 18
5
concrete, 100 mm
Autoclave lightweight 0.94 45 22 17
6
concrete, 150 mm
Autoclave lightweight 0.75 45 22 16
7
concrete, 200 mm
Source: Extracted from Public Works Department Malaysia (2013).

c) Core location
i) To place the service core (comprising lift core, services, etc.) to serve as a buffer
zone to reduce the impact of solar radiation in the air-conditioned space of a
building, e.g. core location facing the east or west. Sometimes due to other
architectural considerations, it may not be possible to select an ideal core location.
The designers should then consider using the next best option if the best option is
not available.
ii) The objective of the core location is to increase the effectiveness of the façade
design in reducing solar heat gains.
iii) Comparing Figures 3.4 and 3.5 as illustrations of a core location design, a square
building with a centre core has a better view out and more glazing area; a square
building with a side core facing west has less view out and less glazing area.
However, in terms of solar heat gains, OTTV, and building energy performance (BEI
value), the square building with a centre core facing west performs better (Figure
3.5).

13
 Figure 3.4: Square Building Centre Core Figure 3.5: Square Building Side Core West

Source: Public Works Department Malaysia (2013). Source: Public Works Department Malaysia (2013)

3.5 Natural Ventilation

Ventilation, the movement of air, has three useful functions:
1) It provides the fresh air needs of building occupants.
2) It maintains the thermal comfort of building occupants.
3) It cools down the interior building space when outdoor air is cooler.

ASHRAE Standard 62.1 – Ventilation for Acceptable Indoor Air Quality – specifies ventilation
requirements. From the energy efficiency perspective, conditioning ventilation air properly is expensive,
especially in hot and humid climates. It costs money to clean outdoor air, dry it, cool it, and push it into
the breathing zone. Nevertheless, for health reasons, it is necessary to introduce outdoor air to air-
conditioned spaces. There are particular periods, such as mornings and evenings, during which natural
ventilation can cool offices and other areas with fresh air. Air flushing of building spaces may be
considered during these periods. However, security, ambient exterior noise levels, outdoor air quality,
outdoor air temperatures, humidity, weather conditions, etc. should also be considered.
Under the current COVID-19 pandemic situation, ASHRAE’s Position Document on Infectious Aerosols
recommends increased ventilation and filtration for air-conditioned spaces provided by ACMV systems
because such measures can reduce the airborne concentration of COVID-19, and, thus, the risk of
transmission through the air.
Natural ventilation uses natural forces of wind and buoyancy to deliver sufficient fresh air and air change
to ventilate enclosed or semi-enclosed spaces. Natural ventilation without mechanical means should be
considered in the design of common facilities – such as lobbies, corridors, staircases, toilets, and semi-
enclosed parking and canteen areas – to achieve energy efficiency.

The two methods for providing natural ventilation are:

1) Cross ventilation (wind driven)
Figure 3.6 shows cross ventilation, which is wind driven across a building space through windows.

14
 Figure 3.6: Building Section Showing Cross Ventilation

Source: Department of Standards Malaysia (2019), redrawn by Aidan Leong.

2) Stack ventilation (buoyancy driven)

Figure 3.7 shows stack ventilation, which is buoyancy-driven and is commonly incorporated in high-
rise buildings through void spaces or atriums.

Figure 3.7: High-rise Building Section Showing Stack Ventilation

Source: Author.

3.6 Strategic Landscaping

This measure is suitable for a highly urbanised area, where the surrounding area of a building is densely
built up without much greenery. Strategic landscaping in a building development can reduce heat gain.
Strategic landscaping aims to create a cooler microclimate around the building and reduce the urban
heat island effect. The surroundings of highly urbanised and built-up areas are usually significantly
warmer than the rural and less built-up areas.
Figures 3.8 and 3.9 illustrate some methods that can be deployed to create a cooler microclimate around
a building:

15
 • Maximise the area available around a building for landscape (Figure 3.9)
• Incorporate aquascape or water body (Figures 3.8 and 3.9)

The appropriate plant types and high reflectance materials for the hardscape area will help decrease the
solar absorption of the hard surfaces, hence, reducing the urban heat island effect. This can be achieved
by selecting materials with a high solar reflectance index. For example, trees and shrubs near façades
facing east and west can provide external shading to reduce solar heat gain into the buildings (Figure
3.9).

Figure 3.8: Illustration of Water Body and Shrubs Near Façades Facing West

Source: Author.

Figure 3.9: Illustration of Strategic Landscaping to Create a Cooler Microclimate

Water body and

landscape greenery to
minimise heat island Vegetation
effect and generate (east–west)
cooling microclimate

Source: Department of Standards Malaysia (2019), redrawn by Hayley Leong.

16
 Chapter 4

Active Design Measures

4.1 Introduction
A combined approach adopting passive design measures – to optimise daylighting and thermal comfort
by minimising solar heat gain – before adopting active design measures would be a holistic and
sustainable approach to designing an energy-efficient building. Many active design measures can be
considered. However, these guidelines focus on SEUs and EEC measures discussed in Chapter 2, namely,
ACMV systems and energy management systems (EMSs). In general, the selection of efficient equipment
and systems should be prioritised. However, economic evaluation will justify any additional investment
for the selection. The appropriate EMS that enables real-time monitoring and controlling with
optimisation capabilities can achieve energy savings.

4.2 Efficient Lighting

Using efficient lighting has an added advantage besides saving lighting energy. The added benefit is the
reduced heat emission from lights due to the lower wattage of efficient lighting. The first law of
thermodynamics says that energy cannot be created or destroyed. Therefore, 100% of the electricity
used by light fittings will become heat energy when lights are switched on in a building. Given this
reduced heat emission from efficient lighting, the cooling load for ACMV systems will be reduced. Hence,
the ACMV equipment capacity can be downsized, which can be translated into savings in equipment and
subsequent operating energy costs.
For efficient lighting design, refer to DOE’s Guidelines on Energy Conserving Designs of Buildings (DOE,
2008). In addition to complying with the requirements and selection of electric lights with high efficacy
as stated in the said guidelines, five basic recommendations will lead to efficient lighting in a building,
namely:
1) Use natural daylighting as much as possible.
2) Ensure the installed lighting power density (W/m2) is as low as possible while providing the
required amount of light and quality according to the DOE Guidelines, 2008.
3) Select lights with high luminous efficacy, an indicator of the efficiency of the lamps, and is
defined by equation 2 below. Higher efficacy values indicate higher lamp efficiency, producing
more light for the same energy used.
𝐿𝑢𝑚𝑒𝑛
𝐸𝑓𝑓𝑖𝑐𝑎𝑐𝑦 = ---------------------- (2)
𝑊𝑎𝑡𝑡

4) Use light-emitting diode (LED) lights for general lighting, with additional task lights to provide
the required lighting lux level, hence, resulting in energy savings.

17
 5) Ensure that electrical lights are switched off when not required or partially switched off when
basic lighting is required in unoccupied areas through sensors. When daylight is harvested in
an office space, ‘auto-off and manual-on’ control is recommended. This means that electrical
lights are automatically switched off whenever the measured daylight is adequate. Still, the
building occupants need to manually switch on the lights when daylight drops below the preset
lux levels. However, it is advisable to switch on the lights automatically when the measured
daylight drops below the desired lux level in public or common areas.
6) Appropriate light zoning provides a quick and easy way to reduce energy consumption in a
building. Appropriately designed light zoning allows switching off when the space is unused or
when daylight is available, such as in areas adjacent to windows. In addition, segregation of
areas according to their respective functions and operating schedules for emergency, night
lighting, and security lighting will help further reduce lighting energy due to the difference in
operating requirements.
As a general rule, it is advisable to make early plans for various operating requirements such as night
lighting, security lighting, fire safety lighting, and other building functional requirements. Energy
efficiency considerations during the operation stage will be incorporated during the design stage. The
lighting system should be properly commissioned and fine-tuned. For example, the position of motion
and photosensors, timing devices, and others may need to be adjusted to optimise lighting performance.

4.3 Air-conditioning and Mechanical Ventilation (ACMV) System

As discussed in Chapter 2, space cooling requirements are the most significant energy user in a building
in hot and humid climates. The cooling load calculation of a building determines the air-conditioning
capacity of the ACMV system to be installed in a building. The correct sizing of the ACMV equipment
depends on this cooling load calculation, which largely impacts capital costs during the building
construction phase, and later the operating cost during building occupancy and operation. On the other
hand, if the ACMV system is undersized, the building will not be provided with adequate cooling and
cannot function properly to meet the requirements of its occupants.
The cooling system design loads for the ACMV system and equipment sizing should be determined
following the DOE Guidelines 2008 and the ASHRAE Handbook of Fundamentals (ASHRAE, 2017).
The cooling load of space is a simple summation of all the heat generated internally and heat gains from
external sources. The heat generated internally is commonly known as the internal cooling load, while
the heat gains from external sources are known as the external cooling load, as outlined below.
1) Internal cooling loads or heat gains comprise the following:
a) occupants (may be either sensible or latent heat)
b) electrical lights (sensible heat)
c) equipment and appliances (sensible heat)
2) External cooling loads or heat gains comprise the following:
a) heat transmission through building structure as a result of conduction, convection, and
radiation (sensible heat)
b) solar radiation through fenestrations (sensible heat)
c) conductive heat gain transmitted through fenestrations (sensible heat)
d) outdoor ventilation and infiltration air (sensible and latent)

18
Based on the above list of internal and external heat gains, cooling loads of ACMV systems’ sizing and
selection can be reduced if some internal and external heat gains can be minimised. In designing energy-
efficient ACMV systems, the following measures should be considered:
1) Reduce lighting and equipment loads.
2) Minimise heat gains through building envelope as much as possible through strategic
fenestration and shading devices.
3) Specify building functions according to the owner’s project requirements and determine
cooling loads without overloading with safety factors to ensure that the ACMV system is not
oversized. Judicious application of diversity factors is important to the tight control in the sizing
of equipment for optimum efficiency and operation of the ACMV system.
4) Zone perimeter areas separately and design local air distribution system with increased cooling
capacity for spaces with the significant glazed area.
5) Use energy recovery wheels to precool outdoor ventilation air.
6) Use a demand-controlled ventilation strategy to minimise intake of outdoor air based on
demand, with carbon dioxide (CO2) sensors.
7) Minimise infiltration of outdoor air through entrance doors by designing vestibules or sensor-
controlled doors to avoid entrance doors frequently left wide open.
8) Inform the design of schedules of occupancy and use in a building early during the planning
stage so that designers can efficiently select equipment and configuration and ancillary control
systems.
9) Consider using variable speed drives to efficiently control fans and pumps to match airflow and
water flow according to the load requirements. Consider controls using pressure reset based
on measured feedback on systems with variable flow.
10) System selection and configuration should consider the extent of redundancy. Redundancy
allows a spare capacity such that a single piece of equipment can be down for maintenance,
and the rest of the system can still operate at some level. If incorporated into the sizing of the
duty equipment, redundancy in equipment capacity should include efficiency devices, such as
variable speed drive, high efficiency motor, efficient unloading devices, multi-compressors,
water-cooled magnetic bearing chillers, etc. This is to achieve optimised equipment or system
efficiency when operating at varying loads. For instance, a chiller configuration may comprise
3 x 50% capacity. This would be a two-run or one-standby operation or a one-run or two
standby operation giving flexibility in matching varying cooling load requirements while
maintaining high equipment or system efficiency as much as possible. Compared to a 2 x 100%
chiller configuration, a 3 x 50% chiller configuration would provide a greater opportunity to
achieve higher system efficiency.

4.4 Energy Management System (EMS)

The EMS is a subset of the building automation system (BAS) function. It is a computer-based automated
system that monitors and controls all energy-related systems in building services. With the advancement
in BAS technology and the advent of the Internet of Things, an integrated building management system
can provide more options and scopes in energy management. However, a basic EMS should be able to
1) gather and analyse data from every energy user in a building;
2) identify problems and trend tracking by analysing both single-variable and multi-variable data;

19
3) provide monitoring and initiate alerts if the building’s energy consumption or building energy
performance parameters, such as EEI or BEI (refer to Chapter 5), exceed the preset benchmark
parameters;
4) integrate equipment and other subsystems with control systems to perform optimisation, such as:
a) scheduling and manual overriding
b) controlling set points for key operating parameters
c) optimising the system and equipment
d) reporting and recording operational alarms
e) ensuring the correct and safe sequence of operation, including maximum demand limiting
functions
5) identify energy wastage and perform optimisation;
6) analyse and benchmark the building’s energy performance against national benchmarks when they
are available.

EMS implementation is already starting to be a common system in new buildings because of the
following EMS benefits:
1) It provides real-time remote monitoring and integrated control of a wide range of connected
systems, modes of operation, energy use, environmental conditions, and others to be monitored. It
also allows hours of operation, set points, etc. to be adjusted to optimise performance and comfort.
2) An EMS informs and enables the building staff to predict problems and provide a schedule for
maintenance programmes.
3) It allows facilities to power equipment only when needed, eliminating the waste of lighting, heating,
and cooling portions of the building that are unused around the clock. The US Green Building Council
claims that the scale of savings that EMS can achieve ranges from 10% to 25%. If the EMS is operated
properly, it should optimise energy use without compromising comfort or performance.
4) An EMS allows records of historical performance to be kept, enables the benchmarking of
performance against other buildings or records of the same building, and may help automate report
writing.
5) It can perform its functions completely automatically, day in, day out, year after year, without the
need for much interaction. However, a ‘system downtime’ is not acceptable for many users or
owners, such as in data centres or healthcare facilities. Therefore, systems need to be robust,
reliable, and able to adapt or expand with the need of the customers.
6) An EMS can provide educational dashboard information at a suitable public access area of a building,
showing the status of building energy performance and carbon emission reduction. This will help
generate greater EEC awareness amongst building occupants and the general public while meeting
corporate social responsibility and expectations.

For building management, options are now available to monitor the EMS online and from a web-based
information system. The system can be applied and developed to monitor and analyse the real-time
energy performance of multiple buildings offsite. The data processed and analysed by EMS can be used
for in-house energy management reporting and updating purposes. In addition, options are available to

20
develop the administration of external reporting to a dedicated agency or body with the authorities,
such as the DOE, to collect energy building information and energy consumption data. Designated
establishments can upload such building information and data to a web-based energy management
information system administered by the DOE. An example of such web-based energy management
information system is the Building Control Information System (BCIS). The BCIS can facilitate the data
collection, analysis, and tracking of building energy performance by the DOE. However, the
implementation of such a system is subject to many considerations, such as security, information
disclosure regulations, industry acceptance, investments, development of skilled workforce resources,
etc.

21
 Chapter 5

Energy Efficiency Regulations

5.1 Introduction
The DOE (2016) formulated the ‘Implementing Guidelines on Philippine Energy Standards and Labeling
Program (PESLP) for Energy-Consuming Products’. These guidelines stipulate the rules, procedural
requirements, and imposition of penalties. The PESLP provides particular product requirements for air
conditioners, refrigerating appliances, television sets, and lighting products. It also specifies
performance and testing requirements for energy-consuming products, effectively defining the
maximum amount of energy consumed by a product in performing a specified task. The PESLP details
specific minimum energy efficiency levels to the respective products.
Labelling programmes for electrical appliances and equipment are widely recognised as highly cost-
effective energy efficiency policy measures and are part of EEC measures. However, the PESLP should
have a greater impact on the residential sector than the commercial sector. Nevertheless, this
programme will contribute to the energy efficiency targets of the commercial sector in terms of
promoting greater use of energy efficiency–labelled appliances in commercial buildings.
The sections below discuss the effective promotion of EEC in commercial buildings through possible
regulatory measures in EEI building labelling. Through EEI building labelling, building energy
performance and benchmarking can be quantified and measurable. It can be established as a dedicated
tool for driving the energy efficiency agenda in commercial buildings.

5.2 Energy Standards and Labelling Programme

The PESLP has been well established for energy-consuming products. The author opines that the PELSP
by itself may not be able to achieve high impacts in energy savings. The objectives of energy savings can
be greatly enhanced if EEI building labelling is established.
In the overall context, EEI building labelling can be established as a dedicated tool that can set
benchmark targets to achieve greater energy savings in commercial buildings. This energy efficiency
building labelling programme should be developed as a regulatory requirement, similar to the PESLP for
appliances.

5.3 Energy Efficiency Indicators (EEIs)

In the overall context of building energy performance, what is the appropriate energy efficiency
benchmarking tool? Buildings can be benchmarked and compared using the EEI method. The EEI concept
is best explained by a pyramid of indicators presented by the International Energy Agency (IEA, 2014a)
(Figure 5.1). IEA (2014a) aims to provide the necessary tools to initiate or further develop in-depth
indicators to support the development of effective energy efficiency policies. This method can be
adapted and established as an energy efficiency benchmarking tool to quantify and monitor national

22
building energy performance for commercial buildings exceeding a certain size, which the DOE should
determine after deliberation and consultation with stakeholders in the Philippines.
Figure 5.1 explains the various levels of indicators and shows how indicators are organised into a
hierarchy. The top of the pyramid shows the total energy consumption of the commercial sector or share
of each energy source of the total commercial sector energy consumption mix as an aggregated
indicator. The IEA’s concept of EEIs is a ‘pyramidal approach’ starting from the most aggregated level at
level 1 to the most disaggregated level at end-use energy consumption by services, e.g. ACMV, lighting,
lifts and elevators, and escalators, etc. at level 3. The level 2 indicator computation is recommended to
be used as a rating tool for building energy performance. For this purpose, the term ‘building energy
intensity’ (BEI) is used instead of EEI to differentiate the indicators from other sectors, such as the
industry sector EEI, which has a different definition. The IEA defines EEI as follows:

𝐸𝑛𝑒𝑟𝑔𝑦 𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛
𝐸𝐸𝐼 = ------------------------ (3)
𝐴𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝐷𝑎𝑡𝑎

Where:
EEI = energy efficiency indicator
Energy consumption is measured in energy units.
Activity data are measured in physical units (e.g. gross floor area [GFA] for buildings)

Figure 5.1: Pyramid of the Commercial Sector, EEI

Level 1a: Total sectoral energy consumption

(absolute or as a share of TFC)
Level 1b: Share of each energy source total
sectoral energy consumption mix

Level 2: Total energy consumption

per floor area defined as BEI

Level 3: End-use energy

consumption by services
(absolute or as a share of
building energy consumption)

BEI = building energy intensity, TFC = total final consumption.

Source: Adapted from IEA (2014a).

23
BEIs are a ratio of yearly energy consumption (measured in energy unit, kWh) to the GFA (measured in
square metres) under level 2 in Figure 5.1. For a meaningful comparison, the BEI values should be
compared with buildings within the same building subsector or category. In other words, the BEIs of
office buildings, retail malls, hotels, hospitals, etc. should be compared within the same category or type
of building because different building categories have different operating functions and durations.
Based on IEA’s definition of EEI, it is possible to establish building energy performance benchmarking
for each respective category or subsector of the commercial sector provided that sufficient relevant
data are disclosed by the respective subsectors and analysed by the DOE.
The BEIs of buildings are computed at the subsector level and are calculated by the formula in equation
4 below.1 The BEI is essentially a ratio of yearly energy consumption to GFA. However, to accurately
represent and fairly compare the energy intensity throughout the building, energy use in the car park
area, which is usually not air-conditioned, and in the data centre, where a high concentration of
continuous energy use is expected, are excluded in the computation. The floor vacancy rate is only
considered when the BEI is computed for an occupied building after completion and occupancy. For
design submission, the building is usually considered fully occupied. The ratio of average weekly working
hours to weighted weekly operating hours is used to adjust buildings with different weekly operating
hours from the national average weekly operating hours, such as office and retail buildings. This
adjustment or normalisation aims to fairly compare energy performance between different buildings of
the same category. Key variables to be considered for normalisation include operating hours and floor
occupancy rate.

(𝑇𝐵𝐸𝐶− 𝐶𝑃𝐸𝐶−𝐷𝐶𝐸𝐶) 𝐴𝑊𝐻

𝐵𝐸𝐼 = (𝐺𝐹𝐴−𝐶𝑃𝐴−𝐷𝐶𝐴)−(𝐺𝐿𝐴 𝑥 𝐹𝑉𝑅) 𝑥 𝑊𝑂𝐻 ----------- (4)

Where:
BEI = total energy consumed in a building in a year, expressed as kWh per gross
floor area (m2)
TBEC = total yearly building energy consumption (kWh/y)
CPEC = yearly car park energy consumption (kWh/y)
DCEC = data centre energy consumption (kWh/y)
GFA = gross floor area (m2)
CPA = car park area (m2)
DCA = data centre area (m2)
GLA = gross lettable area (m2)
FVR = floor vacancy rate (%)
AWH = average weekly operating hours (hours/week)
WHO = weighted weekly operating hours (hours/week)

1
Green Building Index Malaysia, www.greenbuildingindex.org (accessed 3 October 2021).

24
5.4 BEI Labelling
For this report, the establishment of EEIs for commercial buildings is suggested to be named BEI
labelling. Singapore’s Building and Construction Authority (BCA) named the EEI energy use intensity
(EUI). BEI labelling can be a tool to drive the agenda of energy efficiency in commercial buildings. As
discussed previously, EEC building design would involve deploying a combination of passive and active
design measures. BEI labelling would guide the design with targets and indications of the extent of
energy efficiency that could be achieved in commercial buildings. The benefits of BEI labelling are
summarised as follows:

1) If made mandatory for designated buildings, BEI labelling would allow the DOE to collect
building information and energy consumption data annually to develop and monitor in-depth
indicators for supporting and evaluating the development of various energy efficiency policies
and measures. Upon the disclosure of sufficient data for various categories of commercial
buildings by the respective subsectors, the DOE can establish and formulate benchmarking
values for each category of commercial buildings. EEC implementation concerning the issuance
of building permits for new and existing commercial buildings is the jurisdiction of the local
government units.
2) The BEI is a key performance metric for commercial buildings. It provides a means of
measurement and indication of the energy performance of buildings of the same category or
subsector for design and building operation purposes. It is a key driver of design parameters
throughout the project delivery and operational targets during building occupancy. The BEI
value derived from a functional building is the combined result of energy efficiency and
consumption behaviour or pattern of the building.
3) BEI labelling can set minimum building energy performance requirements for compliance by
building owners, developers, and designers to ensure that the designated buildings attain the
required benchmarking value, which confirms the achievement of minimum energy
performance. BEI establishment would allow the DOE and the building industry to propagate
and understand building energy performance. Building owners can proactively improve their
building’s energy performance by monitoring and comparing its annual energy performance
against similar building types.
4) The publication of BEI trending can be a means of feedback to building owners to monitor and
confirm how well their respective buildings have performed.
5) BEI labelling can be used as a guide and basis for assessing building energy performance by the
building approving authority.
6) BEI labelling can be used to recognise energy-efficient buildings in the national energy efficiency
award scheme as part of national EEC campaigns. Such campaigns can spur building owners to
initiate and implement improvements in energy efficiency and generate greater awareness
amongst the public and building occupants.
7) BEI labelling can help shape the property market through information transparency of buildings’
energy performance compared to benchmarking values of the respective building categories or
subsectors.

25
Figure 5.2 shows the average EUI trend by commercial building types in Singapore based on BCA’s data
collection since 2008. The collection of data has enabled the BCA to establish EUI trending and building
energy benchmarking in Singapore. Based on the EUIs, an overall reduction in energy consumption can
be derived. Figure 5.2 shows that the BCA could quantify overall energy efficiency achievements (in
terms of average EUI) in Singapore as of 2019 compared to 2008. The achievements are summarised as
follows:
1) Office buildings improved by 18%.
2) Hotels improved by 11%.
3) Mixed developments improved by 18%.
4) Retail buildings improved by 10%.
Figure 5.2: Illustration of the Application of EUI Monitoring in Singapore

EUI = energy use intensity.

Source: BCA (2020).

26
 Table 5.1: Singapore’s National Building Energy Benchmarks for Commercial Buildings, 2019
No. of
Building Size
Buildings
Average EUI EUI of EUI Ranges (kWh/m2y)
(kWh/m2y) Top
Type Top 2nd 3rd Bottom
(in 2019) 10%
Quartile Quartile Quartile Quartile
(26%– (51%– (76%–
(1%–
50%) 75%) 100%)
25%)

Office
Large 173 ≤212 ≤115 ≤147 147–196 196–270 >270
buildings
Medium 133 ≤222 ≤90 ≤125 125–175 175–245 >245

Hotels All
90 ≤272 ≤199 ≤226 226–268 268–352 >352

Retail Large
74 ≤331 ≤156 ≤254 254–446 446–568 >568
buildings
Medium
48 ≤372 ≤179 ≤255 255–376 376–468 >468

Mixed All
37 ≤280 ≤152 ≤202 202–246 246–370 >370
developments
*Large: Office buildings and retail buildings of GFA ≥15,000 m2
*Medium: Office buildings and retail buildings of GFA ≥5,000 m2 and <15,000 m2
*Hotels and mixed developments: Buildings of GFA ≥5,000 m2
Source: BCA (2020).

Table 5.1 illustrates how BCA Singapore analysed and computed national building energy benchmarks
based on 555 medium and large-sized commercial buildings. The buildings were categorised by type and
size to facilitate the benchmarking exercise. It is interesting to note that Table 5.1 provides an overall
value of EUI for different building types. In general, the average EUI for large-sized commercial buildings
is lower than that of medium-sized commercial buildings. Table 5.1 also shows that the top 10% of
commercial buildings in Singapore have achieved impressive EUIs, i.e. these buildings are very energy
efficient. For example, the top 10% of large office buildings in Singapore achieved 115 kWh/m2.y,
compared to the average EUI of 212 kWh/m2.y.

27
5.5 Annual Mandatory Submission of Data
The implementation of BEI labelling requires the mandatory submission of building information and
annual energy consumption data. The requirement for the mandatory submission may be based on the
designated establishments defined in the Philippine EEC Act, i.e. Type 1 Designated Establishments
(yearly energy consumption of 500,000 kWh to 4,000,000 kWh), and Type 2 Designated Establishments
(yearly energy consumption of more than 4,000,000 kWh). However, for commercial buildings, it is more
appropriate to set the criterion for mandatory submission of data to be based on the GFA of a building
due to the following reasons:
1) It provides a means of predefining an appropriate level of minimum GFA (e.g. ≥4,000 m2)
for a building because it is not practical and viable for a small building to take up EEC
measures.
2) Basing on the GFA is more definitive and relatively straightforward to implement for new
building development projects. Unlike existing buildings, the annual energy consumption
for a new building development project is only an estimation.

For BEI computation, the following building information should be submitted by owners of existing
buildings or by the principal submitting persons (e.g. architects or consulting engineers) for new building
development projects:
1) ownership and building functions (activity type, occupancy type, etc.);
2) building data (GFA, air-conditioning floor area, retrofitting works if renovation);
3) monthly and total annual energy consumption (electricity, diesel, natural gas, liquefied
petroleum gas, etc.);
4) energy-use breakdowns (ACMV, lighting, lifts and escalators, hot water systems, etc.).

28
 Chapter 6

Economic Analysis of EEC Projects

EEC regulations or sub-decrees are indispensable. EEC should bring some benefits to owners of factories
and commercial buildings. Otherwise, EEC should never be promoted. Thus, the owners want to know
the expected benefits of investing in energy-efficient equipment and facilities to reduce energy
consumption. This chapter shows how to conduct an economic analysis on energy-saving projects to
reduce energy consumption.

6.1. Economic Analysis Method

There are several ways to conduct an economic analysis of energy-saving projects.
1) Financial Statements
To do an economic analysis of energy-saving projects, we should first produce the income
statement or profit and loss statement and the cash balance statement. The purpose of
these financial statements is to achieve a precise economic analysis of energy-saving
projects. These financial statements could be simple, not complicated, such as the financial
statement of existing companies or organisations.

a) Income statement
The income statement clarifies the process of calculating income tax payments. The income
statement comprises the following items:
i) Revenue: benefits from energy savings come from the replacement of low
energy-efficient equipment to high energy-efficient equipment
ii) Operation and maintenance costs: costs to operate and maintain energy-
efficient equipment to be installed
iii) Depreciation: refer to b)
iv) Interest payment (long): refer to c)
v) Interest payment (short): refer to c)
vi) Interest received: refer to c)
vii) Profit before tax: i – ii – iii – iv – v + vi
viii) Income tax: vii x income tax rate after adjustment of carrying over the income
losses
ix) Profit after tax: vii - viii

b) Calculation of depreciation
The purpose of depreciation is to smooth a large amount of capital costs to annual costs in
a certain period. However, it should not be an actual cost or expenditure and a presumed
one. There are two calculation methods:

29
 Straight-line method:
𝐶𝐶0 (1−𝑠𝑣)
𝐷𝑃𝑡 = 𝑁
where,
DPt: Depreciation at year t
CC0: Initial capital cost at year 0
sv: Salvage value ratio
N: Depreciation period
t: 1,….,n

Accelerated method or Fixed-ratio method:

DPt = OSDPt-1 DPR
OSDPt = OSDPt-1-DPt
OSDP0 = CC0 * (1-sv)
where,
DPR: Depreciation ratio
OSDPt-1: Outstanding of capital cost on book at year t-1
T: 1,…,n

c) Calculation of interests
The interest payment is the annual cost of external financing, such as borrowed money,
from commercial and public banks. On the other hand, if this project has some remaining
cash, it puts this cash in its savings account in commercial banks and gains interest. The
calculation method of interest payment and interest received are shown below:

Payment (long):
OSBMt = OSBMt-1-RPt-1
INTt = OSBMt * ir
where,
OSBMt: Outstanding of long-term borrowed money at year t
INTt: Interest payment (long-term) at year t
ir: Interest rate of long-term borrowed money

Payment (short):
If the project incurs a money shortage, this project must borrow short-term (less than
1 year) money from commercial banks. So that this project needs to pay a short-term
interest, as calculated below:
If SBMt-1 > 0, SINTt = SBMt-1 x sr
where,
SBMt-1: Short-term borrowed money at year t-1
SINTt: Interest payment (short-term) at year t
sr: Interest rate of short-term borrowed money

Interest received:
If ACFt-1 > 0, RINTt = ACFt-1 x ei

30
 where,
ACFt-1: Accumulated cash flow at year t-1
RINTt: Interest received at year t
ei: Rate of interest received

d) Cash balance statement

On the other hand, the cash balance statement comprises the following:
- Cash inflow
i) Share capital
ii) Borrowed money (long-term)
iii) Borrowed money (short-term): refer to accumulated cash flow below
iv) Profit after tax: from the income statement
v) Depreciation: from the income statement
- Cash outflow
vi) Capital costs
vii) Repayment of long-term borrowed money refer to e)
viii) Repayment of short-term borrowed money
RSBMt = SBMt-1
where,
RSBMt: Repayment of short-term borrowed money at year t
SBMt-1: Short-term borrowed money at year t-1
- Cash flow defined as Cash inflow – Cash outflow
- Accumulated cash flow
If ACFt < 0, SBMt = - ACFt
where,
ACFt: Accumulated cash flow at year t
SBMt: Short-term borrowed money at year t

e) Calculation of repayment of borrowed money

There are two methods to repay the principal of long-term borrowed money:

Straight-line method:
Repay the same amount of principal within the repayment period
RPt = BM0/N
where,
RPt: Repayment at year t
BM0: Initial borrowed money at year 0
N: Repayment period

Straight payment (repayment + interest) method:

Repay the same amount plus interest within the repayment period
𝐵𝑀0 ⋅𝑖𝑟⋅(1+𝑖𝑟)𝑁
𝑅𝐼 = (1+𝑖𝑟)𝑁 −1
where,
RI: Annual payment of repayment plus interest

31
 BM0: Initial borrowed money at year 0
ir: Interest rate
N: Repayment period
INTt = OSBMt-1*ir
RPt = RI–INTt
OSBMt = OSBMt-1-RPt
where,
INTt: Interest payment at year t
OSBMt-1: Outstanding of borrowed money at year t-1
RPt: Repayment at year t

f) Production of the financial statements using the sample data

Using the sample data below, the financial statements are shown as Table 6.1 for the
income statement and Table 6.2 for the cash balance table.

Description of Sample Data:

Factory A uses a manufacturing machine; its electricity expense has been increasing due to
the machine’s older age. Therefore, the owner of Factory A is considering replacing the old
machine with a new one. Thus, the owner wants to know the economic feasibility of this
EEC project through its financial statements. The assumptions of this EEC project are
mentioned below:
Initial capital cost of energy-efficient-type equipment: US$70 million
Equity ratio: 30% of initial capital cost
Energy-saving amount: 100 GWh/year
Electricity price: 9.5 cents/kWh
Operating costs: US$10,000/year
Depreciation: 10 years straight-line method and 0 salvage value
Borrowed money: 10 years straight-line repayment method and 5% interest rate
Income tax rate: 50%
Income loss can be carried over within 5 years

Table 6.1 Income Statement for Economic Analysis (US$1,000)

Year 0 1 2 3 4 5 6 7 8 9 10
Benefits from energy saving 9,500 9,500 9,500 9,500 9,500 9,500 9,500 9,500 9,500 9,500
Operation cost 700 700 700 700 700 700 700 700 700 700
Depreciation 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000
Interest payment (long term) 2,450 2,205 1,960 1,715 1,470 1,225 980 735 490 245
Interest payment (short term) 0 0 0 0 0 0 0 0 0
Interest received 44 96 157 227 307 387 468 554 645
Profit before tax -650 -362 -64 242 557 882 1,207 1,533 1,864 2,200
Income tax 302 604 767 932 1,100
Profit after tax -650 -362 -64 242 557 579 604 767 932 1,100
Source: Author.

32
The income statement indicates that this project lost income in the first 3 years. After that, this project
can make a profit and pay income tax from the sixth year due to tax exemption regulations. The income
loss can be carried over within 5 years.

Table 6.2. Cash Balance Statement (US$1,000)

Year 0 1 2 3 4 5 6 7 8 9 10
Cash inflow 70,000 6,350 6,639 6,936 7,242 7,557 7,579 7,604 7,767 7,932 8,100
Shared capital 21,000
Borrowed money (long
49,000
term)
Borrowed money (short
term)
Profit after tax -650 -362 -64 242 557 579 604 767 932 1,100
Depreciation 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000
Cash outflow 70,000 4,900 4,900 4,900 4,900 4,900 4,900 4,900 4,900 4,900 4,900
Capital cost 70,000
Repayment of
4,900 4,900 4,900 4,900 4,900 4,900 4,900 4,900 4,900 4,900
borrowed money (long)
Repayment of
borrowed money (short)
Cash balance 0 1,450 1,739 2,036 2,342 2,657 2,679 2,704 2,867 3,032 3,200
Accumulation of cash
0 1,450 3,189 5,224 7,566 10,223 12,902 15,606 18,472 21,504 24,705
balance
Source: Author.

The cash balance table indicates that this project never had a money shortage and its
accumulated cash gained within 10 years is more than the share capital.

2) Cash Flow
Based on the financial statements, we produce a cash flow table. There are two types of
cash flow tables: return on investment (ROI), based on the whole investment, and return
on equity (ROE), based on equity. ROI analyses how much return is expected for the entire
capital cost so that this cash flow just uses capital cost and benefits from energy savings.
Table 6.3 shows the cash flow of the sample data.

Table 6.3: Cash Flow on ROI (US$1,000)

Year 0 1 2 3 4 5 6 7 8 9 10
Capital cost 70,000
Benefits from
9,500 9,500 9,500 9,500 9,500 9,500 9,500 9,500 9,500 9,500
energy saving
Operation cost 700 700 700 700 700 700 700 700 700 700
Cash flow on
-70,000 8,800 8,800 8,800 8,800 8,800 8,800 8,800 8,800 8,800 8,800
ROI
Accumulated
-70,000 -61,200 -52,400 -43,600 -34,800 -26,000 -17,200 -8,400 400 9,200 18,000
cash flow
ROI = return on investment.
Source: Author.

33
On the other hand, ROE analyses how much return is expected on equity or share capital using the
following: profit after tax, depreciation, repayment (long-term), and equity or share capital.
Table 6.4 shows the cash flow of the sample data.

Table 6.4: Cash Flow on ROE (US$1,000)

Year 0 1 2 3 4 5 6 7 8 9 10

Profit after tax -650 -362 -64 242 557 579 604 767 932 1,100
Depreciation 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000
Equity 21,000
Repayment (long) 4,900 4,900 4,900 4,900 4,900 4,900 4,900 4,900 4,900 4,900
Cash flow on ROE -21,000 1,450 1,739 2,036 2,342 2,657 2,679 2,704 2,867 3,032 3,200
Accumulated cash flow -21,000 -19,550 -17,812 -15,776 -13,434 -10,777 -8,098 -5,394 -2,528 504 3,705
ROE = return on equity.
Source: Author.

Both tables indicate that the accumulated cash flow becomes positive in the eighth year of ROI and the
ninth year of ROE. The initial cost seems to be too large compared to the return.

3) Internal Rate of Return (IRR)

The IRR is a typical index to assess the economics of energy projects, calculated through
the following formula, with the iteration method.
𝐶𝐹𝑡
𝐶𝐶0 = ∑ (1+𝑟) 𝑡
𝑡
where,
CC0: Initial capital cost at year 0
CFt: Annual benefit at year i
r: IRR
t: year from 1 to n

There are also two kinds of IRR: IRR on investment (IRROI) and IRR on equity (IRROE). Based on the cash
flows in Tables 6.3 and 6.4, we can get 4.4% as IRROI and 2.7% as IRROE using the IRR numerical formula,
one of the financial formulas installed in MS-Excel (refer to Table 6.5). Both the IRROI and IRROE of this
sample project look unattractive. However, the savings on electricity consumption indeed reduce fossil
fuel consumption, such as coal and gas for thermal power generation. As a result, CO2 emissions can be
reduced. Suppose the owner could get financial incentives from the government for this investment:
applicable soft loans, exemption from income tax, subsidies for capital costs, etc. This project should be
implemented with appropriate government support.

34
 Figure 6.1: Cash Flow for ROI and ROE
1000US$
30,000
20,000
10,000
0 IRROE: 2.7%
-10,000 0 1 2 3 4 5 6 7 8 9 10

-20,000
-30,000
-40,000 IRROI:4.4%
-50,000
-60,000
-70,000
-80,000
Cash flow for IRROI Cash flow for IRROE

IRROE = internal rate of return on equity, IRROI = internal rate of return on investment.
Source: Author.

4) Payback Period
The IRROI payback period is on the eighth year after the start of operations; that of IRROE
is on the ninth year (refer to the accumulated cash flow in Tables 6.3 and 6.4 and Figure
6.1). Generally, the payback period should be less than 5 years so that these results are also
not attractive for private company owners. But for the same reason mentioned above, this
project should be implemented.

6.2. Exercises of Economic Assessment of Energy-Saving Projects

1) Exercise 1
Building A currently uses 20,000 incandescent bulbs for lighting, and its owner wants to replace the
incandescent bulbs with LED. Based on the conditions below, analyse the economic feasibility of
this energy-saving project:

Assumed conditions:
Power rating of incandescent bulb: 60 W each
Power rating of LED: 10 W per each but same lumen of 60 W incandescent bulb
Duration period of LED: 5 years
Operating hours of building A: 10 hours/day
Price of LED: US$50 each
Electricity price: 11 cents/kWh
Share capital: 100%

35
Assessment Results:

The difference between the power rating of an incandescent bulb and a LED is assumed to be 50 W. This
difference is significant even though the initial cost to install 20,000 LED at US$50 per unit is US$1 million.
Thus, this project has profited from the first year and has never had a money shortage (refer to Tables
6.5 and 6.6).

Table 6.5: Income Statement of Exercise 1 (US$1,000)

Year 0 1 2 3 4 5 6 7 8 9 10
Benefits from energy saving 287 287 287 287 287 287 287 287 287 287
Operation cost 0 0 0 0 0 0 0 0 0 0
Depreciation 200 200 200 200 200 200 200 200 200 200
Interest payment (long term) 0 0 0 0 0 0 0 0 0 0
Interest payment (short term) 0 0 0 0 0 0 0 0 0
Interest received 7 15 22 30 38 45 53 62 70
Profit before tax 87 94 101 109 117 124 132 140 148 157
Income tax 43 47 51 55 58 62 66 70 74 78
Profit after tax 43 47 51 55 58 62 66 70 74 78
Source: Author.

Table 6.6: Cash Balance Statement of Exercise 1 (US$1,000)

Year 0 1 2 3 4 5 6 7 8 9 10
Cash Inflow 1,000 243 247 251 255 1,258 262 266 270 274 278
Shared capital 1,000 1,000
Borrowed money (long term) 0 0
Borrowed money (short term)
Profit after tax 43 47 51 55 58 62 66 70 74 78
Depreciation 200 200 200 200 200 200 200 200 200 200
Cash outflow 1,000 0 0 0 0 1,000 0 0 0 0 0
Capital cost 1,000 1,000
Repayment of borrowed money (long) 0 0 0 0 0 0 0 0 0 0
Repayment of borrowed money (short)
Cash balance 0 243 247 251 255 258 262 266 270 274 278
Accumulation of cash balance 0 243 490 741 996 1,254 1,516 1,782 2,052 2,327 2,605
Source: Author.

The IRRs of this project are also reasonable, 13.4% ROI and 9.1% ROE. Therefore, this financial feasibility
study surely greenlights the implementation of this EEC project.

36
 Figure 6.2: Cash Flow for ROI and ROE of Exercise 1
1000US$
1,000

500
IRROI: 13.4%

0
0 1 2 3 4 5 6 7 8 9 10

-500
IRROE: 9.1%

-1,000

-1,500
Casf Flow for ROI Cash Flow for ROE

IRROE = internal rate of return on equity, IRROI = internal rate of return on investment.
Source: Author.

2) Exercise 2
Hotel A uses an old chiller system to supply cool air to guest rooms and other areas. It plans
to replace the old one with a new one. Therefore, based on the conditions below, we
analyse the economic feasibility of this energy-saving project:

Assumed conditions:
Capital cost of a new chiller system: US$1.25 million
Saved electricity amount: 2,171,224 kWh/year
Duration period of the chiller system: 10 years
Electricity price: 16 cents/kWh
Produce cash flow on ROI and seek IRROI and payback period

Assessment Results:
The expected electricity saving (2.2 GWh/year) is significant compared to the initial cost
(US$1.24 million) to install a new chiller system. Both financial statements indicate that
Hotel A has profited from the first year of operation and has had no money shortage in 10
years due to the significant electricity savings and relatively higher electricity price at 16
cents/kWh. In addition, a remarkable reduction of CO2 emissions is expected every year if
a coal power plant generates electricity.

37
 Table 6.7: Income Statement of Exercise 2 (US$1,000)
Year 0 1 2 3 4 5 6 7 8 9 10
Benefits from energy saving 347 347 347 347 347 347 347 347 347 347
Operation cost 0 0 0 0 0 0 0 0 0 0
Depreciation 125 125 125 125 125 125 125 125 125 125
Interest payment (long term) 44 39 35 31 26 22 18 13 9 4
Interest payment (short term) 0 0 0 0 0 0 0 0 0
Interest received 4 8 12 16 20 25 29 34 39
Profit before tax 179 187 195 204 212 221 230 239 248 257
Income tax 89 93 98 102 106 110 115 119 124 128
Profit after tax 89 93 98 102 106 110 115 119 124 128
Source: Author.

Table 6.8: Cash Balance Statement of Exercise 2 (US$1,000)

Year 0 1 2 3 4 5 6 7 8 9 10
Cash Inflow 1,250 214 218 223 227 231 235 240 244 249 253
Shared capital 375
Borrowed money (long term) 875
Borrowed money (short term)
Profit after tax 89 93 98 102 106 110 115 119 124 128
Depreciation 125 125 125 125 125 125 125 125 125 125
Cash outflow 1,250 88 88 88 88 88 88 88 88 88 88
Capital cost 1,250
Repayment of borrowed money (long) 88 88 88 88 88 88 88 88 88 88
Repayment of borrowed money (short)
Cash balance 0 127 131 135 139 144 148 152 157 161 166
Accumulation of cash balance 0 127 258 393 532 676 824 976 1,133 1,294 1,460
Source: Author.

Both IRRs are significant, 24.7% ROI and 34.6% ROE. Thus, the financial indicators of this EEC project give
the green light to proceed.

38
 Figure 6.3 Cash Flow for ROI and ROE of Exercise 2

1000US$
2,500

2,000

1,500 IRROI: 24.7%

1,000

500
IRROE: 34.6%
0
0 1 2 3 4 5 6 7 8 9 10
-500

-1,000

-1,500

Cash Flow for ROI Cash Flow for ROE

IRROE = internal rate of return on equity, IRROI = internal rate of return on investment.
Source: Author.

3) Exercise 3
The owners of Building A plan to install a solar photovoltaic (PV) system to utilise auto-
generated electricity for its internal use and reduce electricity procurement from a power
utility company. Based on the conditions below, we analyse the economic feasibility of this
energy-saving project:

Assumed conditions:
Capacity of solar/PV system to be installed: 1 MW
Unit price of solar/PV system: US$3,000/kW
Duration period of solar/PV system: 10 years
Electricity price: 12 cents/kWh
Share capital: 30%

Assessment results:
The installation of a 1 MW solar PV system seems to be profitable for Building A. The initial
cost is US$3 million, but the annual saving from electricity payments to a power utility is
around US$0.5 million. So, 6 years is enough to recover the initial cost according to a simple
calculation. In addition, both financial statements reflect good conditions of a profit–loss
(positive profit from the first year of operation) and cash balance (no money shortage in 10
years).

39
 Table 6.9: Income Statement of Exercise 3 (US$1,000)
Year 0 1 2 3 4 5 6 7 8 9 10
Benefits from energy saving 473 473 473 473 473 473 473 473 473 473
Operation cost 30 30 30 30 30 30 30 30 30 30
Depreciation 300 300 300 300 300 300 300 300 300 300
Interest payment (long term) 105 95 84 74 63 53 42 32 21 11
Interest payment (short term) 0 0 0 0 0 0 0 0 0
Interest received 3 7 10 14 18 23 27 32 37
Profit before tax 38 52 66 80 94 109 124 139 154 170
Income tax 19 26 33 40 47 54 62 69 77 85
Profit after tax 19 26 33 40 47 54 62 69 77 85
Source: Author.

Table 6.10: Cash Balance Statement (US$1,000)

Year 0 1 2 3 4 5 6 7 8 9 10

Cash Inflow 3.000 319 326 333 340 347 354 362 369 377 385
Shared capital 900
Borrowed money (long term) 2.100
Borrowed money (short term)
Profit after tax 19 26 33 40 47 54 62 69 77 85
Depreciation 300 300 300 300 300 300 300 300 300 300
Cash outflow 3.000 210 210 210 210 210 210 210 210 210 210
Capital cost 3.000
Repayment of borrowed money (long) 210 210 210 210 210 210 210 210 210 210
Repayment of borrowed money (short)
Cash balance 0 109 116 123 130 137 144 152 159 167 175
Accumulation of cash balance 0 109 225 348 478 615 759 911 1.071 1.238 1.413
Source: Author.

The actual payback period is on the seventh year, which is more than 5 years, the expected longest
payback period. In addition, the IRRs look better, 7.8% ROI and 8.4% ROE. As a result, this solar PV
installation project is recommended to proceed due to a better financial situation, a reasonable rate of
return, and an increase of low carbon energy and CO2 emission reduction. But this project also needs
to pay attention to the electricity price of 12 cents/kWh. If it is lower than this price, the financial
situation and the rate of return will be worse.

40
 Figure 6.4: Cash Flow for ROI and ROE of Exercise 3

1000US$
2,000
1,500
1,000
500
0 IRROE: 8.4%
-500 0 1 2 3 4 5 6 7 8 9 10

-1,000
-1,500
IRROI: 7.8%
-2,000
-2,500
-3,000
-3,500
Cash Flow for ROI Cash Flow for ROE

IRROE = internal rate of return on equity, IRROI = internal rate of return on investment.
Source: Author.

6.3. Energy Service Companies (ESCOs)

Energy service companies (ESCOs) consult with factories and commercial buildings to save the latter’s
energy costs by proposing to replace lower energy-efficient equipment and facilities with higher ones.
A factory can save US$5,000 of electricity cost per month. Thus, a certain share (usually 30%–50%) of
the energy costs saved goes to the ESCO as revenue or consultation fee. Energy managers who belong
to ESCOs should understand the economic analysis of EEC projects mentioned in Sections 6.1 and 6.2.
Suppose factories and commercial buildings want to reduce energy costs, such as electricity payment to
a utility company. In that case, they can ask an ESCO to prepare energy-saving measures after a survey
on their energy consumption, expected energy-saving amount in physical and monetary units, and initial
costs. The ESCO produces the financial statements – income statement and cash balance statement,
cash flow tables, IRR, and payback period – to assess the economic feasibility of the EEC project.

Consequently, the ESCO should be familiar with the technical and economic aspects of EEC. The ESCO
should also know EEC regulations in countries, especially the EEC financial incentives provided by the
government, the minimum energy performance standards, standard and labelling system, and others.
Thus, the ESCO contributes to energy saving and CO2 emission reduction on a business basis. Some
ESCOs can arrange to finance the initial cost (capital costs) from commercial and public development
banks.

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