Costs of over-estimation

Gavin Davids

During an in-depth look at the MEP industry’s efforts at energy efficiency, I spoke to experts across all three sectors, and I found that while there’s a wide body of differing opinions, there’s one thing that suppliers, manufacturers and consultants are in total agreement about, and that’s electricity rates.

Electricity rates, specifically, UAE electricity rates, have long been acknowledged as among the highest in the GCC. This is despite them being heavily subsidised by the UAE government. Even though they remain below the global market rate, the need for cheaper alternatives and greater efficiency is growing.

I recently spoke to a leading expert in the development of energy efficiency products, who expressed serious reservations over the way things were going with electricity rates in Dubai.

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With prices officially pegged at an already high 38fils/kW, he tells me that in actuality, end-users are paying closer to 42fils/kW, with fuel charges being added onto the bill.

While this affects end-users the most, the high cost of electricity has repercussions for those energy efficient services that seek to minimise the excess use of electricity.

A clear example is district cooling. The major issue in Dubai is that district cooling companies pay the same slab electricity tariff as other bulk users.

Chiller units at district cooling plants are tremendous users of electricity, which leads to huge bills for the provider, who transfer these costs to a frequently over-burdened end-user. However, district cooling companies argue that they save power in the long-run, so should be incentivised with a lower tariff.

According to the experts, Dubai residents are being charged as much as 60fils/hour for district cooling, a huge amount compared to the 16fils/hour and the 19fils/hour that Qatar and Abu Dhabi charge, respectively.

This is something that needs to be rectified immediately, otherwise end-users will turn away from the technology.

If energy efficiency is to succeed in the GCC, we need to create the right economic atmosphere.

One option is to introduce a scheme where industrial users who implement efficiency measures, receive rebates. The fallout of the failure to address the rates issue cannot be underestimated.

There’s more than $6bn invested into the UAE’s district cooling industry alone. With so much at stake, investors could start getting jittery about seeing returns on their investment and pull out, a move that could have a disastrous long-term impact on the industry.

The major cause of all this is a surprising lack of foresight from developers, who drew up district cooling plant plans based on huge property developments, while over-estimating demand.

It’s an approach that is coming back to haunt developers. Properties lie half empty, and disgruntled tenants trapped into paying utility bills that have been calculated based on the size of a property and the total usage of a building, rather than an individual’s personal consumption.
Hardly seems fair, does it?
A complete revamp of the region’s electricity tariffs for industrial users, and the introduction of a ‘pay-as-you-go’ scheme for district cooling consumers, is a possible solution.

This in turn could lead to district cooling tariffs that accurately reflect true usage figures. Thankfully, this does seem to be happening, with the likes of Empower campaigning to increase awareness of its billing services.

Although belated, this attempt to increase transparency is a welcome step towards a more balanced billing system. One can only hope that more companies follow Empower’s lead and the region gets a clear, well thought out strategy for its energy and cooling tariffs.

Gavin Davids is deputy editor of MEP.