KXGM 6302 Energy Efficiency

CHAPTER 6:
ENERGY EFFICIENCY STANDARD-ECONOMICAL IMPACT
Summary
The ownership of household electrical appliances especially refrigerator-freezer has increased rapidly
in Malaysia. Almost every household in this country has a refrigerator-freezer. To reduce energy
consumption in this sector the refrigerator is one of the top priorities of the energy efficiency program for
household appliances. Malaysian authority is considering implementing minimum energy efficiency
standards for refrigerator-freezer sometime in the coming year. This paper attempts to analyze cost benefit of
implementing minimum energy efficiency standards for household refrigerator-freezers in Malaysia. The
calculations were made based on growth of ownership data for refrigerators in Malaysian households. The
number of refrigerator-freezer has increased from 175,842 units in 1970 to 4,196,486 in 2000 and it will be
about 11,293,043 in the year of 2020. Meanwhile it has accounted for about 26.3% of electricity
consumption in a single household. Therefore, efficiency improvement of this appliance will give a
significant impact in the future of electricity consumption in this country. Furthermore, it has been found that
implementing an energy efficiency standard for household refrigerator-freezers is economically justified.

1. Introduction
Refrigerator-freezers accounted for about 26.3% of residential electricity demand in Malaysia
(Masjuki, 2000). Therefore, any efficiency improvement of this appliance will produce a significant amount
of electricity consumption in residential sector. Many efficient refrigerator-freezers are available in the
market today. Through pushing consumers to buy and use efficient refrigerator-freezers, a significant amount
of electricity can be saved. This can be achieved by implementing minimum energy efficiency standards for
the appliance. However, this potential energy savings should be proven economically reliable.
An energy efficiency standard is the prescribed energy performance of a manufactured product,
sometimes prohibiting the manufacture of products with less energy efficiency than the minimum standards.
Minimum energy efficiency standards for appliances have been enacted in Australia, Brazil, Canada, China,
Europe, Japan, Korea, Mexico, the Philippines, Russia and the US. The program can be mandatory (i.e.
government law or regulation) or voluntary (i.e. agreement with manufacturers). Most countries have
adopted mandatory standards while several countries such as Brazil, Japan and Korea have successfully used
voluntary standards. Standards are essentially voluntary in name only in these countries; failure to meet
standards is likely to result in substantial embarrassment or imposition of mandatory standards. In countries
with truly optional voluntary standards (e.g. India), impact has been limited (Nadel, 1997). Based on the
experience of other countries, policymakers in Malaysia should implement the program as mandatory since it
works effectively in many countries.

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KXGM 6302 Energy Efficiency

2. Survey data in Malaysia
The data necessary for the study are the electricity data and household refrigerator-freezer data. The
historical electricity data was given by the Department of Electricity & Gas Supply (2002) and Ministry of
Energy (2002) and projected electricity data was given by Economic Planning Unit (1996). The number of
household and refrigerator-freezers were collected from Department of Statistics (1991) and Department of
Electricity & Gas Supply (2000). As shown in Table 1, the electricity consumption and the use of
refrigerator-freezers in the residential sector has increased year by year along with the total electricity
consumption of the country.
Table 1
Households and refrigerator-freezers
Year
Total
Residential
(GWh)
(GWh)
1970
2175
326
1980
7912
1348
1990
19 469
3897
1991
21 442
4212
1997
49 080
8309
2000
52 300
9471
2010
105 762
19 153
2020
195 253
35 360

Households
1 890 282
2 503 974
3 428 142
3 537 606
4 662 762
-

Refrigeratorfreezers
175 842
685 912
2 073 726
4 196 486
-

3. Methodology
There are some methodologies of calculating impact of energy efficiency standards, however the one
described by Mahlia (2002) was employed for this study. The complete equations are discussed below.
3.1. Method of predicting data
The method used to estimate the rest of the data for calculation is polynomial curve fitting. The method
is attempted to describe the relationship between variable x as the function of available data and a response y.
It seeks to find a smooth curve that best fits the data, but does not necessarily pass through any data points.
Mathematically, a polynomial of order k in x is an expression of the form:

y c0 c1x c2 x 2 ... ck x k

(1)

3.2. Method of calculating potential energy savings

3.2.1. Baseline energy consumption
The baseline energy consumption is based on the survey or test data. In order to get baseline energy
consumption in the future, prediction must be made using the annual efficiency improvement. The baseline
energy consumption in a particular year can be calculated by the following equation:
r
BEC sr BECYsc
(1 AEI ir ) (YpdYsc)

(2)

3.2.2. Initial unit energy savings

The initial unit energy savings is the difference between the annual unit energy consumption of a unit
meeting the standards and the unit energy consumption of the average unit that would have been shipped in
the absence of standards. The actual use for a particular appliance will depend on the capacity and usage
pattern of the refrigerator-freezers. Initial unit energy savings can be calculated by the following equations:

UES sr BEC sr SEC sr

(3)

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KXGM 6302 Energy Efficiency

3.2.3. Shipment
Shipment data comprise the number of refrigerator-freezers in predicting year minus the number in the
previous year plus number of retired appliances in the current year. The shipment for refrigerator-freezers
can be expressed by the following equation:

Shir ( Nair Nair1) Nair L

(4)

3.2.4. Total efficiency improvement

Total efficiency improvement is a percentage ratio of initial unit energy savings and baseline energy
consumption of refrigerator-freezers while the standards is enacted. Thus, total efficiency improvement can
be calculated using the following equation:

TEI sr

UES sr
BECsr

100%

(5)

3.2.5. Scaling factor

The scaling factor would linearly scale down the unit energy savings of refrigerator-freezers and the
incremental cost to zero over the effective lifetime of the standards. The scaling factor can be expressed as
the following equation:

SFi r 1 (Yshir Ysesr )

AEI sr

(6)

TEI sr

3.2.6. Unit energy savings

The unit energy savings were adjusted downward in the years after the standards is implemented using
the efficiency trend scaling factors. This factor accounts for the natural progress in efficiency expected in the
baseline case. The unit energy savings for refrigerator-freezers can be calculated by the following equation:

UESir SFir UES sr (7)

3.2.7. Shipment survival factor

The shipment survival factor is a function of the annual retirement rate and the retirement function. The
shipment survival factor for refrigerator-freezers can be calculated using following equation:

(YtcTr Yshir ) 2 3 Lr
SSFi r 1

( 4 3 2 3 ) Lr

(8)

3.2.8. Applicable stock

The applicable stock is the shipments in particular year plus number of refrigerator-freezer affected by
standards in previous year multiplied by shipment survival factor. The applicable stock can be calculated
using the following equation:

ASir (Shir SSFir ) ASir1

(9)

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KXGM 6302 Energy Efficiency

3.2.9. Energy Savings
To determine the unit energy savings in a particular year, the energy savings for refrigerator-freezers
associated with standards is multiplied by the scaling factor. Then the unit energy savings multiplies by the
number of refrigerator-freezers purchased in that year. The energy savings can be calculated by the following
equation:
T

ES ir

AS

r
i

UESsr SFi r

(10)

is

3.3. Economic impact of the standards

The economic impact consists of potential bill savings, net savings and cumulative present value. The
economic impact is actually a function of energy savings and investment for more efficient refrigeratorfreezers due to the standards. The description of each variable is explained in the following section.
3.3.1. Initial incremental cost
Initial incremental cost per unit of refrigerator-freezer is a function of unit energy savings and
incremental cost and can be calculated using the following equation:

IIC sr UES sr IC r

(11)

3.3.2. Capital recovery factor

Capital recovery factor is the correlation between the real discount rate and the lifespan of the
refrigerator-freezer. This correlation can be expressed by the following mathematical equation:

CRF

(12)

(1 (1 d ) L )
r

3.3.3. Bill Savings

The bill savings is the energy savings multiplied by an average fuel price and can be expressed as
follows:

BSir ESir PFin

(13)

3.3.4. Net savings

There are two ways to estimate economic impact: annualized costs and cash flow. In the first method,
the incremental cost is spread over the lifetime of the refrigerator-freezer so that the pattern of expenditures
matches the flow of bill savings. This method smooth the net savings over time. The annualized net dollar
savings in a particular year, which is the main economic indicator used in this analysis, is calculated using
the following equation:
T

ANSir ESir PFi n

AS

r
i

CRF SFi r IIC r

(14)

is

The second method considers the cash flow over the lifetime of the investment assuming that the
refrigerator-freezer is paid for in full when it is purchased. Purchasers incur the incremental cost when the
appliance is purchased, but benefits of higher energy efficiency are spread over the lifetime of the
refrigerator-freezer. To calculate the net savings in a certain year in term of actual cash flows, the following
equation is used:

NSir ESir PFin Shir SFir IIC r

(15)

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KXGM 6302 Energy Efficiency

3.3.5. Cumulative present value

The cumulative present value can be calculated using a percentage real discount rate. The cumulative
present value of annualized net savings can be expressed in the mathematical form as follows:
T

PV ( ANSir )

ANSir

(1 d )
is

(i-Ydr)

(16)

4. Data analysis
Based on the data shown in Table 1, using Eq. (1) the total energy consumption can be predicted using
the following mathematical equation:

y1 5755.9 1333.2 x 100.65 x 2 ,

R 2 0.9941

(17)

Energy consumption in the residential sector can be expressed by the following mathematical equation:

y 2 1022.8 237.95 x 18.142 x 2 ,

R 2 0.9949

(18)

Base on the data shown in Table 1, using Eq. (1), the number of household in Malaysia can be
predicted by the following mathematical equation:

y3 1890282 45847 x 1552.3 x 2 ,

R 2 1.000

(19)

The number of refrigerator-freezers in the Malaysian household can be calculated using the following
mathematical equation:

y 4 196113 1516 x 4469.1 x 2 ,

R2 0.992

(20)

Predicted electricity, household and number of refrigerator-freezer data in Malaysia from year 2003 to
year 2020 using above polynomials shown in Table 2.
Table 2
Predicted electricity consumption, households and number of refrigerator-freezer
Year
Total
Residential
Households
Refrigerator(GWh)
(GWh)
freezers
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

76 779
82 390
88 203
94 217
100 433
106 850
113 468
120 287
127 308
134 530
141 954
149 578
157 404
165 431
173 660
182 090
190 721

13 905
14 919
15 969
17 055
18 178
19 337
20 532
21 764
23 031
24 336
25 676
27 053
28 466
29 915
31 400
32 922
34 480

5 243 539
5 396 495
5 552 555
5 711 720
5 873 989
6 039 363
6 207 842
6 379 425
6 554 113
6 731 906
6 912 803
7 096 805
7 283 911
7 474 122
7 667 437
7 863 857
8 063 382

79

5 310 835
5 617 687
5 933 476
6 258 204
6 591 870
6 934 475
7 286 017
7 646 498
8 015 917
8 394 274
8 781 569
9 177 803
9 582 974
9 997 084
10 420 132
10 852 119
11 293 043

KXGM 6302 Energy Efficiency

Six refrigerator-freezers of different capacities and brand were tested based on ISO 8187, 8516 test
specifications to determine the daily energy consumption. Using the data, yearly average or baseline energy
consumption was estimated (Masjuki, 2001). The baseline energy consumption in Malaysia in the year 2001
is given by Saidur (2001) which is about 946 kWh/year and for the year 2004 can be calculated using Eq.
(2):

BECsr 946 (1 0.03)(2004 2001) = 863 kWh/year

Like any other developing countries, it is difficult to get a complete statistical data and technical data
for analysis in this country because of lack of planning. However, estimated primary data inputs for analysis
have been collected from Saidur (2001), Koomey et al (1998), Webber (1998), Masjuki (2001) and
Department of electricity and Gas Supply (2000) and the results are tabulated in Table 3.
Table 3
Input data
Description
Year standards enacted
Discount rate
Incremental cost
Lifespan
Baseline energy consumption
Current average electricity price
Standards energy consumption
Annual efficiency improvement

Values
2004
7%
RM$ 0.512/ kWh/year
12 year
863 kWh/year
RM 0.235 /kWh
650 kWh/year
3%

5. Results
The calculation result of implementing of minimum energy efficiency standards for household
refrigerator-freezer in Malaysia is tabulated in Table 4. It is necessary to remember that the standards for
household refrigerator-freezer are only effective for a certain period because annual efficiency of the
refrigerator-freezer is still improving 3% per year without standards. In other words, even in the absence of
standards, the energy efficiency of appliance tends to improve gradually over time due to technological
advances.
Table 4
The calculation results of energy savings
Year

Shipment

2004
2005
2006
2007
2008
2009
2010
2011
2012

2 623 710
2 832 242
3 049 710
3 276 119
3 511 464
3 755 749
4 008 970
4 271 132
4 565 905

Applicable
Stock
2 623 710
5 455 952
8 505 662
11 781 781
15 293 245
19 048 994
23 057 964
27 329 096
31 895 001

Scaling
Factor
1.00
0.88
0.76
0.64
0.51
0.39
0.27
0.15
0.03

Unit Energy Energy Savings

Savings
(kWh)
(kWh)
213
558 850 230
187 1 020 855 486
161 1 371 258 841
135 1 594 378 584
109 1 673 606 476
84 1 591 409 149
58 1 329 327 127
32
867 975 632
6
187 182 818

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KXGM 6302 Energy Efficiency

1800000000
1600000000
1400000000

(kWh)

1200000000
1000000000
800000000
600000000
400000000
200000000
0
2004

2005

2006

2007

2008

2009

2010

2011

2012

Fig. 1. Projected annual electricity savings by implementing minimum energy efficiency standards for
household refrigerator-freezers
Fig. 1 shows that, the annual savings from household refrigerator-freezer standards increase sharply in
the beginning of the analysis period. Over time, the projected technological improvement in the baseline
begins to catch up to standards. Since the savings on each unit are calculated relative to the baseline unit in
the year the unit was purchased, the savings on new units is lower in later years, since the baseline energy
consumption has declined. Referring to Fig. 1, the standard is only effective for about 8 years from 2004 to
2012.
The minimum energy efficiency standards program starting in 2004 will save about 10,195 GWh in the
year 2012. The calculation result is the minimum amount which can be saved due to implementing of
minimum energy efficiency standards for refrigerator-freezer. This is because of the calculation is based on
minimum standards (kWh/year) allowed, but in actual case there are many household refrigerator-freezer
exceeding the standards sold in the Malaysian market. The calculation result of cost benefit analysis is
tabulated in Table 5 and presented in Fig. 2. The programs will result of bill savings RM 2396 Mil.,
annualized net dollar savings is RM 1738 Mil., net savings RM 802 Mil., and cumulative present value of
annualized net savings is about RM 1357 Mil., after 8 years of implementation. This study has proved that
introducing energy efficiency standards for refrigerator-freezer offer great benefits for the consumers,
governments as well as the environment, which is not considered in this paper.
Table 5
The calculation result of the cost benefit analysis
Year
Bill Savings
Annualized
Net Savings
Net Savings
(RM)
(RM)
(RM)
2004
131 329 804
95 295 771
-154 654 586
2005
239 901 039
174 077 428
-31 287 280
2006
322 245 828
233 828 603
70 642 281
2007
374 678 967
271 875 233
147 803 744
2008
393 297 522
285 385 262
196 649 847
2009
373 981 150
271 368 881
213 415 271
2010
312 391 875
226 678 360
194 117 514
2011
203 974 274
148 008 183
134 556 264
2012
43 987 962
31 918 625
30 275 447

81

Present Value
of ANS
(RM)
95 295 771
162 689 185
204 234 957
221 931 175
217 719 050
193 482 262
151 045 362
92 172 058
18 576 930

KXGM 6302 Energy Efficiency

Fig. 2. Calculation result of cost benefit analysis of minimum efficiency standards for household refrigeratorfreezer

5. Conclusions
Implementing the energy efficiency standards for household refrigerator-freezer offer many benefit for
Malaysia. The minimum energy efficiency standards will encourage manufacturers to produce energy
efficient product which will increase the competitiveness of the product in the local and international market.
The standards indirectly also reduce the environmental pollution. The study has shown that implementation
of energy efficiency standards for refrigerator-freezer is economically reliable. The consumers will pay
higher purchase prices for appliances, but luckily will get lower electricity bill. Once the standards is
implemented, inefficient product will be push out from the market. If most of the products exceed the
standards, it will become irrelevant. Therefore, the standards must be periodically revised to continued
progress in improving appliance efficiency.
References
Department of electricity and Gas Supply, 2000. Forum on energy performance and labeling standards for
refrigeration. Kuala Lumpur, Malaysia.
Department of Electricity & Gas Supply, 2002. Statistics of electricity supply industry in Malaysia, Kuala
Lumpur.
Department of Statistics, 1991. General report of population census. Kuala Lumpur, Malaysia.
Economic Planning Unit, 1996. Study on energy policy analysis and planning to the year 2020. Prime
Minister Department, Kuala Lumpur, Malaysia.
Koomey, J.G., Mahler, S.A., Webber, C.A., McMahon, J.E., 1998. Projected regional impacts of appliance
efficiency standards for the U.S. residential sector. Lawrence Berkeley Laboratory, Berkeley.
Mahlia, T.M.I., Masjuki, H.H., Choudhury, I.A., 2002. Theory of energy efficiency standards and labels.
Energy Conversion & Management 43(6), 743-761.
Masjuki, H.H., Mahlia, T.M.I., Choudhury, I.A., Saidur, R., 2000. Potential electricity savings by
implementing energy efficiency standards for household electrical appliances in Malaysia. Proceedings
WRECIV, Brigton, U.K., July 1-7. pp. 2606-2609, Pergamon, Kidlington, Oxford.
Masjuki, H.H., Saidur, R., Choudhury, I.A., Mahlia, T.M.I., Ghani, A.K., Maleque, M.A., 2001. The
applicability of ISO household refrigerator-freezers energy test specifications in Malaysia. Energy- the
Int Journal 26(7), 723-737.
Ministry of Energy, 2002. National energy balance Malaysia 1980-2001. Kuala Lumpur, Malaysia.
Nadel, S., 1999. Appliance energy efficiency: opportunities, barriers and policy solutions. Proceeding 1st
International Conference on energy efficiency in household appliances. Italy, November 10-12, pp. 2237, Springer-Verlag, Berlin, Heidelberg.

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KXGM 6302 Energy Efficiency

Saidur, R., 2001. Importance of energy test procedure, energy efficiency standards and label on household
refrigerator-freezers' energy consumption. M.Eng.Sc. Thesis, Mechanical Engineering Department,
University of Malaya, Kuala Lumpur, Malaysia.
Webber, C.A., 1998. Saving potential of ENERGY STAR voluntary labeling program. Lawrence Berkeley
Laboratory, Berkeley.
Notation
AEI r
ANSir

annual efficiency improvement of refrigerator-freezer (%)

annualized net dollar savings in year i of refrigerator-freezers (RM)

AS ir

applicable stock in year i of refrigerator-freezer

BAU ir

business as usual energy consumption in year i of refrigerator-freezer (kWh)

BECsr

baseline energy consumption in the year of standards enacted for refrigerator-freezer

(kWh/year)
bill savings in year i of refrigerator-freezer (RM)

BSir
c,k
CRF
d
ESir
ICr
IIC sr
Lr
Nair

constant value
the capital recovery factor
discount rate (%)
energy savings in year i of refrigerator-freezer (kWh)
incremental cost for the more efficient refrigerator-freezer (RM)
initial incremental cost for more efficient refrigerator-freezer (RM)
life span of refrigerator-freezers (years)
number of refrigerator-freezers in year i

Nair1

number of refrigerator-freezers in year i - 1

Nair L

number of refrigerator-freezers in year i - L

Net savings in year i for refrigerator-freezers (RM)

NSir
PF
price of fuel (RM)
PV ( ANSir ) present value of annualized net saving in year i of refrigerator-freezers (RM)
r
SECsr

refrigerator-freezers
standards energy consumption of refrigerator-freezers (kWh/year)

SFi r

scaling factor in year i of refrigerator-freezers (%)

Shir

shipments in year i of refrigerator-freezers

SSFi r

shipment survival factor in year i of refrigerator-freezer

TEI r
UES ir
x
y
y1
y2
y3
y4
Yscsr

total efficiency improvement of refrigerator-freezer (%)

initial unit energy savings in year i of refrigerator-freezer (kWh/year)

Ysesr

year of standards enacted of refrigerator-freezer

Yshir

year i of shipment of refrigerator-freezer

YtcTr

year target calculation for refrigerator-freezer

predicted year starting year

value of the predicted data
predicted of total energy consumption (GWh)
predicted of residential energy consumption (GWh)
predicted of the number of household
predicted of number of refrigerator-freezers
year of survey/test conducted of refrigerator-freezer

83