ESCOs facing difficulty in persuading MEP contractors to adopt retrofit projects

At the MEP UAE Conference 2018, experts said that the value of retrofit projects is too small for UAE MEP contractors.

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The second panel at the fourth edition of the MEP UAE Conference discussed the state of the retrofit market in the country.
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The second panel at the fourth edition of the MEP UAE Conference discussed the state of the retrofit market in the country.

The current value of the retrofit market in the UAE, in terms of investment potential, is estimated at between $1.4bn (AED5bn) and $1.9bn (AED7bn).
Jesús Gutiérrez, co-managing director of Dubai-based energy service company (ESCO) Smart4Power, shared the above information, in a panel, at the MEP UAE Conference 2018, that sought to highlight the growth of retrofitting in the country.

According to Gutiérrez, those figures are based on the assumption that around 20-25% of the total energy consumption of buildings in the country is eligible for retrofitting, which he said translates to approximately 25,000 kW/h.
“Putting [the numbers] down in an Excel sheet, you’ll find that, in terms of investment, you’re looking at between [$1.4bn and $1.9bn] for retrofitting in the UAE,” he said.

While it sounds like a substantial amount, the country’s ESCO community is reportedly facing difficulty persuading other construction stakeholders, especially large mechanical, electrical, and plumbing (MEP) contractors, to take part in retrofit projects.
Gutiérrez explained that MEP companies are hesitant to “jump into the [retrofit] business” because they view the typical project value as “much smaller” than those of new construction projects, and therefore not worth the “hassle” of having to deal with issues like financing.
In support of Gutiérrez’s point about project value, Taka Solutions managing director Charles Blaschke cited a two-tower hotel in Dubai as an example, saying that that if the property consumed about $2.7m (AED10m) to $4.1m (AED15m) worth of energy in a year, retrofitting it would yield around $820,000 (AED3m) to $1.1m (AED4m) in savings.
“That’s a lot of money, but for us to retrofit it [and] get 20% or 30% savings, the CAPEX is probably going to be about $1m, maybe $2m,” he said, adding that if Taka were to take the project to a big MEP contractor and explain that the contracting value would be around $500,000 (AED1.8m), the contractor would most likely decline.
“For MEP contractors, that’s very small,” he continued. “Why go through all the hassle for that?”

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Blaschke said that Taka Solutions finds ways of “bundling projects together to make a more attractive offer” to contractors, and that Super ESCOs like Etihad ESCO are helping boost interest in retrofits by tendering “big projects that [are] attractive to not only small ESCOs but MEP contractors as well”.
Also a member of the panel, Etihad ESCO’s business development manager, Pradeep Kumar Singh, said that the size of the Dubai retrofit market is “exponentially growing”, with government contribution higher than that of the private sector.

Singh said that the public’s awareness of the benefits of retrofitting existing buildings is increasing and gaining momentum, and that “a couple of MEP contractors and consultants” have recently approached the Dubai Regulatory and Supervisory Bureau (RSB) to get accredited as ESCOs.
As Etihad ESCO continues to make significant strides towards achieving its goal of retrofitting 30,000 buildings by 2030, other emirates are also implementing energy efficiency programmes, according to Hassan Younes.
Director of Griffin Consultants and moderator of the panel, Younes noted that Abu Dhabi’s Department of Energy – which replaced the Abu Dhabi Water & Electricity Authority (ADWEA) – has launched a pilot retrofit project consisting of eight buildings.
“We are also seeing Ras Al Khaimah running an energy retrofit programme, and Sharjah is doing the same,” said Younes. “Energy retrofits of existing buildings are widely recognised as a sustainable way of changing the economy.”
Meanwhile, 3e Advisory founder and chief executive officer Sougata Nandi offered his views on the role of consultants in the retrofitting movement, remarking: "The only role that [...] would really add value to the customer, to the project, and to the ESCO [is] streamlining or facilitating the customers’ understanding of ESCO.
"A consultant’s job is not to do energy audits, because the ESCOs are better equipped and have more expertise in the delivery of that particular exercise. ESCOs are better equipped at actually delivering tangible results or savings than a consultant. Consultants should do a facilitator’s role [instead of] an auditor’s role."
Also commenting on the difference between ESCOs and MEP contractors, Nandi explained that while retrofit contracts usually last five or even 10 years, contractors are not tied to the project the whole term: "Maybe the first three or five months of the installation or commissioning of the retrofitting equipment, and then the contractor is out.
"[The ESCO's job] is managing the equipment for the entire duration of the contract, achieving and calculating the energy savings, and demonstrating that with evidence, and then that is when the consultant comes in to validate the report the ESCO has submitted."

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