Banks need to back more energy projects

Notwithstanding that the Middle East has the world's largest reserves of hydrocarbons, the energy balance of most countries has started to come under a lot of pressure as a result of the economic and population growth. It has come to the extent that some Gulf countries have to import gas from outside the region.

This is besides the fact that they have the highest energy consumption and carbon emissions per capita in the world. Today, most of these countries are seriously considering alternative sources of energy, including renewable energy to address these issues.

Efforts are also focused on demand-side management (DSM), which presents the most econ-omic option with solutions that have attractive payback and high carbon abatement potential. Unfortunately, the heavy utility price subsidies that are prevalent in the entire Gulf remain a major barrier to any serious DSM actions.

Nonetheless, Dubai is taking actions to combat the above challenges. Subsidies on electricity tariffs are gradually being removed, which is putting pressure to drive the cost down on end-users and generating a market for DSM projects.

The Dubai Supreme Council of Energy is also seriously driving a pilot DSM project in collaboration with Dewa and involving Dubal and Enoc. This initiative will help enable ‘energy performance contracting' in Dubai.

This is a performance-based procurement method and financial mechanism for building renewal, whereby utility bill savings that result from the installation of new building management and optimisation systems pay for the cost of the project.

Existing buildings contribute to the bigger portion of energy consumption in Dubai and present the greatest potential for huge energy saving initiatives that are also financially very attractive.

DSM projects offer a win-win solution as they save energy while paying for themselves through the savings. The elephant in the room however, is fin-ancing these energy efficiency projects.

In my opinion financing of such projects has to come from ‘the banks'. The involvement of banks increases the likelihood of longer term projects that result in deeper energy savings.

The other option is for financing to come from energy services companies (ESCOs), which develop and promote energy efficient projects. The challenge with this alternative is that some of the ESCOs may be opportunistic and would only be in it for quick returns without a deep interest in realising the full energy saving potential for Dubai or ensuring that indoor air quality and comfort levels remain intact.

To enable energy performance contracting as a model, three things need to happen at all levels:

• Drive legislations that allow end-users to reduce energy consumption.
• Certify qualified ESCOs. Certification has to be on the quality of services offered, qualifications of energy engineers the ESCOs have, and the financial strength of those companies. The latter is critical when it comes to issuing performance guarantees on energy efficiency projects they perform.
• Bring banks closer to ‘trusted' and allow them to lend money to energy efficient projects at lower interest rates due to the existence of performance guarantees given by ESCOS.

The writer is the Middle East business manager for energy solutions at Johnson Controls Inc.