An ever-present entity in facility management is energy management. The pandemic has had an impact and allowed the industry to relook at the way one maintains and manages the buildings. However, the COVID-19 has also opened up many opportunities for improvement and save costs in the way we manage the building’s energy.
CM today talks to experts in the market to relook at energy performance contracts and understand how service providers can create a synergy with an energy service company (ESCOs) to maximize the benefits of the building's energy performance.
Traditional & Primary Energy Contracts
Before one gets into the benefits, it is important to understand the difference between traditional & primary energy contracts. ESCOs are domain experts that can help facility owners and managers focus on the systems that need to be optimised and how to go about that to achieve highly efficient and environment-friendly results. Matthew Smith, Associate Head, School of Energy, Geoscience, Infrastructure and Society (EGIS), Heriot-Watt University Dubai, says that in a performance-based energy service contract, the ESCO assures a specific reduction in energy use and if the guarantee is not met, then the ESCO pays the owner the difference based upon agreed-upon contractual utility rates for the annual performance period. ESCOs have variable financing options and usually, their remuneration may be directly tied to the energy savings achieved. “What sets ESCOs apart from traditional energy improvement contract is that they assume some risk for the delivery of the energy-saving measures that they propose to a client. For the client (buildings and infrastructure), energy service contracting can provide a cost-effective route to improving energy efficiency, reducing operating costs, allowing the transfer of risk, and focusing attention on core activities,” adds Smith.
While energy performance contracting by FM companies and ESCOs in the GCC remains in the nascent stages of development, mainly due to limitations such as overall technical experience and equipment essential to achieve significant savings in energy expenditure and costs, followed by access to financing and an overall lack of awareness; the launch of Super ESCOs in the UAE such as Etihad ESCO has significantly eliminated entry barriers in the country.
“In recent months, several renowned private FM companies with qualified human resources, and financial footing have managed to secure accreditation as approved ESCOs by Dubai’s Regulatory Services Bureau (RSB). However, their presence and utilisation by building owners are yet to be realized to the fullest,” says Smith.
In the emirate of Dubai, energy performance contracting is primarily being led by government entities who are begun to make great strides in this direction. The Dubai Demand Side Management Strategy 2030 – which aims to reduce electricity and water demand by 30 percent by the year 2030 – is currently helmed by the Dubai Supreme Council of Energy.
Smith explains that as part of this strategy, the Dubai Supreme Council of Energy has also driven a pilot demand-side management (DSM) project in collaboration with DEWA and involving Dubai Aluminium (DUBAL) and Emirates National Oil Company (ENOC). “Etihad Energy Services Company (Etihad ESCO), the wholly-owned subsidiary of Dubai Electricity and Water Authority (DEWA) has already implemented energy-saving initiatives for production plants, residential complexes, golf clubs among many clients in Dubai to help them meet their sustainability goals – demonstrating the growing interest from both private and public stakeholders,” he adds.
Outsourcing or In-sourcing
So the question arises, in what scenario might a service provider consider looking into hiring a certified ESCO or turning into one themselves? Delivering energy efficiency services requires significant depth in expertise as clients’ needs differ greatly according to the industry or sector in which they operate.
According to Jesus Gutierrez, Head of Energy Efficiency, ENGIE Solutions, the decision to outsource or in-source such expertise is about long-term commitment and investment to drive efficiency programs, funds from the client, and RoI to the client. “A service provider is prepared to commit to ensuring sustainability, unlike FM where we see companies coming in and out of the industry and in the process driving the value of the industry down. To become an energy services company, you need to be highly specialized and committed to delivering guaranteed results over the long term,” adds Gutierrez.
Enova says that it is a vicious cycle. While a conventional FM contract would only cover the O&M side, Enova recommends a combined offer so that both steps are conducted in parallel through the same team and monitoring platform, which leads to synergies in terms of headcount and digital tools, which in turn translates into cost efficiencies on operations and as well as with utilities. “What is more, any utilities cost savings through the Energy Performance Contract (EPC) can be re-invested into the modernization of assets or additional utility conservation measures which benefits the facility and therefore the client and its customers,” says Francisco Ramalheira, Director of Business Development and Marketing, Enova.
The approach during the pandemic
“As UAE buildings advance to a post-pandemic re-opening, building owners need to bring their properties back to work with expert partners – especially after they have been out of use for weeks or months, or working with limited activity,” says Ramalheira. “Building owners should consider three steps for the health of their buildings and their occupants: conduct an operational audit of all business systems and equipment, define an action plan aiming at improved operational performance and take this as an opportunity to communicate their strategies to tenants and building occupants. This 3-step approach is embedded into an ongoing long-term commitment to both energy usage reduction as well as comfort and wellbeing of building occupants.”
With regards to EPCs, any day is a good day to start looking into options. “We understand that many building owners might not be able to consider investing in new assets or Energy Conservation Measures (ECMs) as a means to reduce their operational cost. However, there are EPC models in which the ESCO or Super ESCO can cover the investment for a wide range of interventions and payback periods,” adds Ramalheira, who adds that Enova offers a no-CAPEX option through data-powered ECMs through their remote monitoring center - Hubgrade.
Relooking Contracts for Public entities
Energy Savings Performance Contracts (ESPCs) are more relevant than ever when dealing with energy efficiency projects in public entities. In downturn periods like the one we are experiencing, ESPC provides a secure contract vehicle for public entities to reduce their energy bill and operating expenses, freeing resources that can be reallocated to improve public services such as education, health, social services, and so on.
Gutierrez points out that ESPCs are well-drafted contracts to protect public entities and ESCOs during the tenure of the contract, so if things do not work out the way they were expected, any of the parties can terminate the contract. “Given the long-term nature of the contracts, it is very important for the public entities to deal with ESCOs that are technically and financially strong and with solid roots in the country. On the other side, for ESCOs dealing with long-term contracts with public entities is an advantage, since they provide a very secure investment environment, in terms of payments and facilities ownership,” Gutierrez adds.
While an ESPC can be tailored to address different contract terms and in recent years Ramalheira says that they have seen an interest in ESPC not only by the public but also by private entities. “This model was indeed born out of a downturn, but with the present environmental constraints and the need to use resources efficiently, paired with the need for building owners and businesses to reduce their operational cost, it makes sense to invest in energy efficiency,” he says.
Ramalheira goes on to add that more and more building owners are also considering and committing to adding building integrated renewable energy, namely solar PV plants to have a truly holistic long-term energy management approach.
Energy savings performance contracting observes the option that the ESCO invests in the retrofit of the client’s facilities and, in return, the client pays the ESCO a percentage of the actual savings achieved over the contract period.
The advantage of this scheme, Gutierrez says is known as shared savings, is that the ESCO will cover all costs related to the detailed design, procurement, installation, testing, and commissioning of the energy savings solutions, as well as the operations and maintenance costs after the implementation. “The obvious benefit for the client is that they will not have any upfront investment nor fixed costs over the contract period. They will pay the ESCO as long as the ESCO can reduce the energy bill. After the contract period, the client will take ownership of the solutions and retain 100% of the savings,” adds Gutierrez.
When we talk about Energy as a Service (EaaS) it has a rather wide definition because it can be applied to several services and models in the energy sector. Ramalheira provides a simple example of selling chilled water. In this case, a service provider installs the infrastructure on behalf of the client (i.e. plant and distribution network) and the client pays for the chilled water consumed. The immediate benefit seen is that the client doesn’t need to cover the capital investment on the equipment required (releasing those funds to something else) nor does the client need to operate and maintain the infrastructure. However, it must be understood that the chilled water rate will include a component for the investment that the service provider has done as well as for the cost to operate and maintain the infrastructure. “In a competitive market, the service provider selection will be done on the best rate of chilled water (other considerations aside). For this reason, the best service providers invest in high performing equipment, to minimize the cost to operate and maintain the infrastructure in the long run,” explains Ramalheira.
However, the successful delivery of an energy performance contract by FM companies can help them put back the energy cost savings into the improvement of their clients’ business processes and new Smith sums up by saying, “By optimising properties with such services, FM can ultimately deliver on their core purpose, that is helping businesses and people prosper in a reliable, safe and productive environment.”