The ESCO Retrofit Model Financing energy efficient HVAC improvements through ESCOs Stephane le Gentil - November 2017

Energy use in the GCC GCC energy consumption continues to grow significantly Due to climate conditions, a large part of the electricity is consumed by HVAC

The Retrofit Opportunity 60 to 70% of the end-user electricity is consumed for space cooling Existing building stocks generally not energy efficient (recent buildings codes, lack of insulation, etc.) Oversized or low efficiency equipment installations are frequent Poorly installed or non existing building controls Building maintenance deficiencies Raising electricity costs due to reduction of subsidies

GCC Electricity Tariffs Higher tariffs produce shorter paybacks and stimulate energy efficiency Sweet spot for KSA, UAE (except Abu Dhabi) and now Oman Industrials & Kuwait Government Kuwait Kuwait Gov.. Sweet spot Oman Indus. Kuwait Source:

“ESCO” = Energy Service Company What is an ESCO “ESCO” = Energy Service Company An ESCO is a company specialized intro retrofitting existing buildings to make them more energy efficient ESCO provides a comprehensive bundle of energy efficiency, water efficiency, operational efficiency solutions ESCO provides turn-key responsibility including: site audits, detailed design and engineering, installation, commissioning, and measurement & verification (M&V) in accordance with international standards ESCO assumes performance risk for project in form of a long-term performance guarantee to ensure savings materialize and sustain over time

Guarantee & Maintenance ESCO Methodology Building Audit Retrofit Work Guarantee & Maintenance -Analysis of the building -Energy measurements -Identification of the conservation measures -Costs & payback -Replacement of equipment -Re-tuning of controls -Addition of sensors, meters & monitoring system -Monitoring of performance -Measurement & verification of the savings -Maintenance of the installed equipment 1 week to 3 months 3 to 18 months 2 to 10 years

Two contracting models Guaranteed Savings Shared Savings Loan Lender Building Owner Lender Building Owner Repayment Loan Work Work ESCO ESCO Share of savings Fee Repayment Using an ESCO, the Building Owners do not necessarily have to finance the project. It is financed through the savings that are generated and committed by the ESCO.

How does it work 1000 Investment Before ESCO ESCO Contract Duration (e.g. 4 years) AFTER ESCO 1000 Electricity costs 300 700 Investor 700 Investor 300 Investor Investor SAVINGS Investment 700 700 700 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

What can be improved Lighting replacement, control systems & LEDs On-Site Technical Resource Management Chiller upgrade/replacement & absorption cooling Building Management Systems Zone temperature control Boiler upgrades, controls Combined Heat & Power VSD motor control Ventilation fans High efficiency motors Voltage reduction Damper control Plug load management Solar gain minimization Roof Insulation Wall Insulation

Project Example in Dubai 157 staff accommodation buildings Replaced 5,000 ACs, 84,000 lights and 33,000 water fixtures Contract duration: 7 year (1 year construction + 6 year guarantee) Investment value: AED 64 million Energy savings for Jafza: AED 22 million/year. Simple payback < 3 years 28% savings on electricity

Energy retrofits in the UAE Dubai -Etihad ESCO was created by Dubai Electricity & Water Authority (DEWA) as a “Super ESCO” to retrofit 30,000 buildings with an initial focus on government facilities -20 ESCOs are accredited by the Dubai Regulatory & Supervisory Bureau for Electricity and Water -Many projects are also being executed in the private sector (hotels, schools, clinics, etc.) Abu Dhabi -Abu Dhabi Water & Electricity Authority (ADWEA), launched a building retrofit program named Kafa’ati targeting 3,000 buildings & 5 million square meters -12 ESCOs are licensed by ADWEA to operate in Abu Dhabi

Conclusion The ESCO model is an ideal way to retrofit existing buildings with the cost of the retrofit being financed through the ESCO or a third party Perfect model to finance energy efficient space cooling improvements ESCOs are very developed in the UAE thanks to the government programs that have been launched in Dubai and Abu Dhabi UAE ESCOs are starting to expand their work in the GCC as energy prices are raising making retrofit interesting for buildings owners wishing to save costs Stephane le Gentil stephane@cleanenergybusinesscouncil.com