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Energy Service Companies
At the heart of innovative financing models for efficiency
Energy service companies (ESCOs) deliver energy efficiency projects that are financed based on energy savings. Given the need to rapidly and significantly increase financing for energy efficiency, interest in ESCO business models is growing.
Most ESCO activity is happening in Dubai, however this is beginning to change as more of the UAE expands interest in energy savings. As can be seen from the energy savings achieved by a typical project in Dubai there is an opportunity to drastically decrease energy consumption through retrofitting an existing building stock that was not constructed with energy efficiency as a priority. Projects where the largest energy savings occur is improvement of spacing cooling systems and sealing of the building envelope.
The majority of the ESCOs operating in the UAE are a subsidiary of a larger organisation with very few operating as a standalone company.
70% of projects include renewables – mainly solar PV and solar water heaters.
Average duration of Contract
Government contracts (public sector): 5-7 years
Private sector: 2-4
Private sector contracts are generally shorter due to smaller balance sheets, and seeking quick returns.
Public projects in comparison have longer contracts and larger budgets than private projects.
The Etihad SuperESCO is the sole government run SuperESCO which operates on government funds with Islamic financing scheme. There is no interest rate but there is a profit rate (typically of 6%).
Dubai Regulation & Supervision Bureau (RSB) created a framework for accreditation and standardised contracts, dispute resolution and M+V protocol.
Building codes exist and further labelling programs are being developed.
Energy Supply Contracts are not possible due to monopoly of utilities by law. This leaves the decisions for energy supply to the state run utilities company.
There are few challenges for the government/public sector thanks to the SuperESCO. In the private sector, banks may provide funding but with high interest rates that prevent projects from being financially viable. This is due to a lack of information or trust in the ESCO.
Additionally, energy savings are not a large concern among clients in the region, and the perceived complexity of performance contracting serves as a large barrier.