|01 March, 2017

UAE energy efficiency push could be boon for financial investors

Low oil prices have pushed Gulf states to reduce government spending on energy subsidies

By Megha Merani

DUBAI, March 1 (TRPN) - The retrofit market for energy inefficient buildings in the United Arab Emirates (UAE) is a nascent opportunity for financiers seeking green project investments in the region, the chief executive of an end-use energy consultancy said.

Upcoming opportunities include the launch of a new retrofit program in Abu Dhabi this year and a tender for the retrofit of Dubai's main airport.

Low oil prices have pushed Gulf states to reduce government spending on energy subsidies. The consequent increase in utility costs will trigger energy-efficient building retrofits to cut consumption, thereby creating demand for retrofit financing, said Stephane le Gentil, chief executive of Dubai's Wattaqa. His firm advises governments and the private sector on energy demand and consumption.

"There's a whole opportunity there for third-party financiers to invest and get returns on just a retrofit," Gentil told Zawya Projects on the sidelines of the Alleem Business Congress last month.

"I think more and more, especially when they (building owners) see prices going up for electricity and water bills, like what happened in Abu Dhabi recently, that's when they start to be interested (in retrofit)."

The Abu Dhabi Water and Electricity Authority (ADWEA) hiked its basic electricity tariffs by 34 percent for citizens and 28 percent for expats, with effect from January 1, 2017. Expats also pay also roughly four times as much as Emiratis.

Gentil, previously CEO of Etihad Energy Services Company (Etihad ESCO), said his former firm is focusing on the biggest entity consuming energy in the emirate, Dubai's main airport, with a tender likely to be floated this year.

Etihad ESCO chief executive Ali Al Jassim told Zawya Projects in February that the government-owned company plans to implement up to 160 million dirhams ($43.56 million) worth of new projects in 2017 including a major retrofit to be announced before the end of March.

The adoption of green building codes, such as the Estidama rating system introduced by Abu Dhabi in 2010, and the Al Safat rating system launched in Dubai last year, are expected to boost the retrofit market.

Projects to improve mosques in Dubai as well as clinics, schools and hotels are also expected this year, Gentil said, adding that government initiatives such as the creation of Etihad ESCO, which is charged with reducing electricity and water consumption in 30,000 existing buildings in Dubai, showed public sector commitment to energy efficiency.

But retrofits in the private sector are still rare, he said.

"It's new... it's not as common to retrofit in the private sector... hotels are doing it, some schools... but it's coming," said Gentil.


As a niche form of financing, retrofit financing can earn investors a higher return than from simply financing the construction of a building, for example. Financing for energy retrofits are also structured in such a way that investors get paid on the savings generated after improvements are completed.

"Retrofits pay for themselves because you save so much electricity that the (financial) savings you get will cover the investment," explained Gentil. "Therefore, they can be financed by third parties."

Gentil gave the example of Etihad ESCO's 2015 project to retrofit 157 labour accommodation buildings in Jebel Ali Free Zone.

"In that case, the overall investment was 64 million dirhams... the savings were 22 million dirhams per year," he said.

Etihad ESCO funded the JAFZA project through Dubai-based National Bonds. Repayment will be met from savings generated over the scheme's six-year timeframe.

"You (can) use an energy performance contract and those projects are pretty special because they require the companies that worked (on the project) to guarantee the result of what they do," Gentil added.


Builders and architects paid little heed to energy efficiency during the UAE's construction boom last decade.

"I think a lot of the buildings were made at a time when the UAE market grew very quickly and they needed buildings quickly... so people were focusing more on getting the buildings delivered and not really looking at how much they would consume," Gentil said. "That's why you have (a) big stock of buildings where they are not really good (efficient)."

The UAE's 2015 State of Energy Report estimated about 20 percent of residential energy consumption was wasted through inefficiencies and that Dubai had among the highest residential energy use per household globally.

If Dubai captured this 20 percent, the report said, consumers could save more than 1.9 terawatt hours (TWh) and over $150 million. This would also reduce carbon dioxide emissions by 1.1 million tonnes, which is equivalent of more than 3 million barrels of oil.

"There have been projects in Dubai where we have reduced the bills by 70 percent," said Gentil.

A "good building" in the UAE, he added, would consume 100-120 kilowatt-hour (kWh) per square metre (sqm) per year.

"But I've seen some buildings today that are 800-900 kWh per sqm per year," said Gentil.

Air conditioning accounts for about 60-70 percent of buildings' energy consumption.

A 2015 study by Strategy & said the UAE's gross domestic electricity consumption had more than doubled over the previous 10 years and is expected to grow even more rapidly over the following five years as the country undergoes substantial population and economic growth.


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