Stephane Le Gentil, CEO, Etihad Energy Services, talks to Aby Thomas
With Dubai winning its bid to host World Expo 2020 in November last year, there has been a renewed emphasis on sustainability as a key tenet for all future development happening in the emirate. Dubai Municipality, for instance, has announced Green Building Codes to guide all new construction projects happening in the residential, commercial and industrial sectors.
But new buildings aren’t the only target of Dubai’s drive towards sustainability—efforts are also being made to ensure that existing buildings in the emirate become more efficient, and therefore, greener. However, while there is no question that there are several benefits to retrofitting buildings, the market to do just that has been largely missing from the Dubai landscape.
It is to resolve this gap in the market that the Dubai Electricity and Water Authority (DEWA) created Etihad Energy Services in June last year to enable an energy performance contracting market in Dubai, by developing energy efficiency projects targeting more than 30,000 buildings in the emirate.
In its role as a Super Energy Services Company (ESCO), Etihad aims to jumpstart the creation of a viable performance contracting market for ESCOs by executing building retrofits, increasing penetration of district cooling, and building capacity of local ESCOs for the private sector, all while also facilitating access to finance for these projects.
As the CEO of Etihad Energy Services, Stephane Le Gentil has been tasked with spearheading the development of this new industry in Dubai. Le Gentil is extremely well-suited for this job—he was previously the director of the European Centre of Excellence for Energy Solutions at Johnson Controls, one of the largest ESCOs in the world.
Along with his role at Johnson Controls, Le Gentil also served as the chairman of the European Association of Energy Service Companies (eu.ESCO) for a year and a half before making the move to Etihad and Dubai. Having overseen the shaping up of the ESCO industry in Europe, Le Gentil hopes to make use of his experience in the field to launch a thriving retrofit market in Dubai as well.
In a chat with fmME, Le Gentil laid out the reasons behind the creation of Etihad Energy Services, and also explained how the company plans to build a successful energy performance market in Dubai. The target is a lofty one—1.7 TWh in energy savings by 2030—but Le Gentil seems to be confident about attaining Dubai’s sustainability goals.
Excerpts from the interview:
fmME: Can you start by telling us about Etihad Energy Services and its aims and objectives?
Stephane Le Gentil: Etihad Energy Services is a subsidiary of DEWA that was created last year in June. Our objective, in simple words, is to improve the efficiency of buildings in Dubai, so that they will consume less energy and less water. We are going to help building owners by setting up retrofit projects for them, which will be conducted by ESCOs.
Etihad will therefore function as a Super ESCO. While ESCOs will be the companies that are actually doing the [retrofitting] work, we will be there to help organize the market and the work for the ESCOs, because there is no market in Dubai currently for this. A super ESCO is created when you want to start something completely new, and so, we are here to facilitate this market.
fmME: What was the need for an ESCO market in Dubai? How did Etihad Energy Services come about?
SLG: All of this came about thanks to the Dubai Supreme Council of Energy, who have done many studies on the energy sector in Dubai, one of which was a study on demand side management study. As everyone knows, Dubai is growing, and to grow, we need to continue supplying energy, water, etc.
And there are two ways you can do that: you can either add new capacity, or you can also look at what currently exists and maybe try to reduce the demand.
After all, buildings in Dubai aren’t necessarily models in terms of energy and water consumption. So, there were many opportunities that could be addressed to improve the efficiency of the buildings. And that was the reason why Etihad was created.
In fact, they looked at what has been done in other countries of the world and they saw that the Super ESCO model was the right model, especially when you want to start a market from zero, when there is nothing existing.
fmME: Do you have an idea of the amount of savings are we looking at if a building is properly retrofitted?
SLG: This will depend from building to building, but with respect to the first group of buildings that we have been assessing, our analysis shows that we can get easily get savings of around 30%. So we can save one-third of the energy consumed, or one-third of the water consumed in those buildings.
And that’s just a small group of buildings that we have been assessing—of course, you’ll find buildings where the savings can go up to 50%, and maybe some other buildings that are better managed or in better conditions where maybe only 10-15% of savings can be made.
But still, that’s a lot. In general, given the state of the existing buildings in Dubai, there’s a lot that can be done. From what we have seen, the potential is quite big. 30% savings would be an average.
fmME: Can you talk about the projects you have in the pipeline for Etihad Energy Services?
SLG: Our first project is on a couple of DEWA buildings. Since DEWA is our shareholder, it’s easy for them to give us their buildings. It’s a good start for us too. The pilot project will be to improve the efficiency of seven DEWA buildings, including their main office, which is a fairly old building and has a lot of potential for savings.
We also recently signed an agreement with Economic Zone World (EZW) to launch an energy reduction program for about 120 of their buildings. EZW includes the Jebel Ali Free Zone, and we have started our analysis on some of the buildings there. That will be another important project that we will be managing this year as well.
Our focus initially is on the public and government sector buildings; the reason being that they are probably the most difficult buildings to start with, in terms of organization. And we believe that once this movement has been started with the public sector, then the private sector will also follow.
That’s what has been seen in many other countries: the public sector shows the example, leads the way and it starts a market. Then the private sector will say, okay, that’s interesting and we need to do this as well.
Because the obvious return from doing so is the savings—and it’s not just savings in electricity and water, but also in cash. Because, at the end of the day, such retrofit measures will help save money.
fmME: What role will Etihad play in getting such energy performance projects financed?
SLG: You’ll have customers—when I say customers, I mean building owners—with a budget for these kinds of projects; in that case, we’d simply sit with them and help enable the project.
But the mould that we are looking to develop—and probably, that would be the most frequent one in use—would involve third-party financing like banks and other financial institutions.
And that’s what Etihad is going to organise. The financing part of it was one of the big barriers for an ESCO market here.
There are some ESCOs already in the market, but they usually don’t find the financing, because banks don’t know much about these new types of activities. There is probably also trust missing somewhere. Given these issues, one of our key roles will be to organise the financing of these projects.
So, this will avoid owners having to find a budget for it, and this will also simplify things for the ESCOs as well, as they won’t have to try to find financing, because that’s what we are going to provide.
fmME: Do you have a specific criteria for ESCOs that want to be a part of the projects which you will facilitate?
SLG: At the moment, we are open to any company. We are organising an event in the beginning of February, where we will gather all the ESCOs together and explain to them what we intend to do.
We will be organising this event jointly with Dubai’s Regulatory and Supervisory Bureau (RSB), as they have been working on setting up a framework for ESCOs that we want to partner with in terms of contracts, measurement and verification guidelines, and also, very importantly, an accreditation scheme for ESCOs.
So, only accredited ESCOs will be invited to participate in the projects that Etihad is going to launch. So it’s a joint venture between the two of us—RSB has been working on the regulatory framework, and Etihad has been working on the projects. But I would reiterate that all companies are invited to work with us; they just need to go through the accreditation process.
It’s a way to ensure that we have very serious companies, whose capabilities will be verified, etc. After all, this is a new market that we want to launch, and so, we want to make sure that it is done properly with the right partners.
After that, for each project, we will organise tenders and invite companies to provide offers, out of which we will select the best offer.
In these types of projects, the best offer doesn’t necessarily mean the lowest price—we’ll choose the ones that have the best economical proposals, i.e. the best savings when compared to the most efficient investment. So companies that win will be companies that provide high level of savings with minimum investment.
So, with respect to our DEWA project, we have pretty much progressed and I would say that we’d be launching the first tender on the market during the first quarter of this year.
Everything is going to happen together—we are opening the accreditation scheme at this event with RSB in early February, then the ESCOs need to get through the accreditation scheme, and then they will get to bid on the first tender that we will be launching.
fmME: What are some of the challenges you expect along the way? Also, what are Etihad’s end goals with respect to Dubai’s Integrated Energy Strategy for 2030?
SLG: I think we have addressed a lot of technical barriers already, such as financing, the regulatory framework, the contracts, etc.
Now, there’d be more psychological barriers—worries about whether ESCOs can actually deliver on their promises. That’s why we want to use the DEWA projects as a showcase—so that we can say, look, this is something that can be done, this is working, and there are the benefits.
I have seen it many times in Europe—when you want to start the first project, most people will be cautious and reluctant, but once they see someone else do it, they will change their minds.
In terms of challenges, most of it is due to the fact that it has not been done before. In the past, there were some small things that have been tried and didn’t really work; so we need to make sure that what we do now is properly done and is successful.
Also, there is a stronger drive now to make Dubai greener and more sustainable. So maybe this subject was less important a couple of years ago, but today, it’s become a very important topic.
With respect to the Integrated Energy Strategy, for Etihad, the goal for 2030 has been set, which is to generate 1.7 TWh of savings, by targeting retrofits of a total of 30,000 buildings in Dubai. We also have yearly targets, so that we can see how we progress as compared to the long-term plan for 2030.
fmME: Finally—what will be your pitch to convince building owners who may not be too taken up with the idea of retrofits?
SLG: When we meet with building owners, we tell them that they can improve their buildings, maybe replace all the equipments that are inefficient with new equipment, at no cost to them, because everything would be financed with the savings we make as a result of the retrofit. For a certain number of years, they won’t necessarily see a difference in the final cost, because the savings they make will be used to finance the project.
But once the project is completed in 3-4 years, then they will get 100% of the savings. So, for them, either they have a choice of doing nothing and see their building bills grow given the increase in electricity prices, or they decide to do a project like this and have their bill remain stable for a few years, and then see a huge amount of savings, while at the same time, improving all of the equipment in their buildings. It’s really a win-win situation.
When you explain the concept, it’s crazy for building owners to say no to a retrofit, given how obvious the benefits are.