4 October 2021
The Economics of Energy Services
We continuously hear about the importance of achieving net zero and mitigating climate change, and we’re sharing ideas and information on various routes to create a more sustainable future. However, we can’t meet these ambitious targets without an entire ecosystem of solutions – and that includes demand side management (DSM) for energy and energy efficiency.
Let’s be realistic – economics still play a major role in addressing these fundamental changes such changing old energy intensive equipment with those that are less energy intensive, or retrofitting. For instance, building high-speed rails would help decrease emissions away from regional flights; however, it would require around 170,000 kilometers of new track to be built globally by 2050. That’s triple the current levels, according to the IEA’s Net Zero by 2050 report. Yet there are other options that can help contribute to the net zero targets. This is where energy services companies have entered the market to provide solutions and create market value to help entities and individuals cut consumption. What is important to recognize is that energy services have two key economic benefits: • Helping users (individuals or commercial entities) save money, reduce consumption and increase efficiency • Adding to the efficiency value chain through skills and employment
According to a report by Fortune Business Insights , this market is expected to reach US$41.85 billion by 2027, up from $17.82 billion in 2019. Currently, the US, Europe and China take up about 90% of the global retrofitting market share. This means there is great potential for the MENA region, home to more than 570 million people, to carve out its own industry and claim a share of this booming sector.
Energy services fits well in this region. Governments have set ambitious targets for decarbonization and consumption reduction. In the UAE, the National Energy Strategy 2050 sets clear targets for clean energy in the total energy mix as well increasing consumption efficiency by 40%. In addition, these economies are looking to diversify away from oil and gas and create havens for foreign investment and a knowledge industry.
According to the American Council for an Energy-Efficient Economy, more than 2.2 million people in the US work on energy-efficient technologies and services. This outnumbers the 1.9 million Americans who work in the power sector as well as coal, oil and gas. Not only does energy efficiency support the creation of jobs but attracts billions of dollars in capital each year. The sector can create new jobs in a region where youth unemployment rates are more than twice as large as overall unemployment rates.
This industry can be catalyst to new investments and job creation in the region. Retrofitting existing infrastructure offers a more favorable option in terms of cost but also in reducing the carbon footprint that come with new builds. Individuals and businesses can increase and enhance the attractiveness of their property investments.
It is these factors that led to the establishment of Abu Dhabi Energy Services (ADES), a super ESCO that is part of TAQA Group. We are aiming to create an energy services market in the UAE capital. We want to help foster a culture where reducing consumption becomes part of the psyche, but also where services are easy to access and commercially competitive.
From the outset, a return on investment is clearly set. ADES also wants to help commercial entities by managing the entire process from end-to-end – from evaluation and tendering with suppliers to the convenience and no upfront capital investment from customers. The cost of the retrofit is repaid via the utility bill savings over time.
To see further points as to the economic benefits – Abu Dhabi’s Department of Energy (DoE) announced the completion of the Emirate’s first Energy Saving Performance Contracting (ESPC) project which retrofitted eight government buildings. The project has shown an initial average energy saving of 38%.
For ADES, we are working with several Abu Dhabi entities including Abu Dhabi Health Services (SEHA), United Arab Emirates University (UAEU), Abu Dhabi National Oil Company (ADNOC), Department of Culture and Tourism (DCT) and the Abu Dhabi Department of Municipalities and Transport (DMT). Through these partnerships, we are working together to build on those energy efficient targets.
ADES is conducting the retrofitting projects and introducing energy efficiency programs because at the end of the day – we can add energy efficient appliances to buildings, but it’s the behavior that will help support these initiatives longer-term.
We want to ensure that we play a pivotal role in helping to progress sustainability. It’s not just about doing what’s right, but it’s also better on the bottom line – and that’s a win-win.