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UAE banks have to come to the retrofit table

Experts say inadequate financial support is holding back energy efficiency and green government initiatives

Making buildings energy efficient costs money, so banks need to get with the programme
Making buildings energy efficient costs money, so banks need to get with the programme

The reluctance of UAE banks to fund building retrofit programmes is holding back goals of the Dubai government to reduce energy demand by 30% by 2030.

The Dubai Supreme Council of Energy strategy wants to position Dubai as a model for safe and effective energy use and retrofitting an initial target of 30,000 buildings with energy efficient technologies.

Retrofitting entails the replacement of existing systems in buildings including lighting, heating, ventilation, air-conditioning, elevators, sewerage and others with new, energy efficient technologies not available at the time of original construction. The goal of retrofitting is to extend the life of a building, and therefore the investment, and to save operating costs. 

Most of the buildings are privately-owned but local developers and investors don't want to commit to the initial capital expense because risk-averse banks are reluctant to give financial backing for the relatively new process.

“Energy is the second largest operational expense after manpower while the goal of achieving energy efficiency targets requires consuming less energy to achieve the same output,” Khaled Bushnaq, chief executive officer of Energy Management Services, to the inaugural RetrofitTech conference in Dubai.

He said the main barrier to the private sector following the government’s lead was the lack of awareness of the emerging retrofit technologies, coupled with inadequate capital being made available by local lenders to invest in retrofit programmes.

“To achieve the goal of 30,000 buildings as set by the government we need more people, many more experts trained in the processes,” Mr Bushnaq told conference delegates.

“International banks do finance energy efficiency projects such as retrofitting in their home markets but they are unwilling to do so here in spite of the fact that the default rate of energy efficient projects is the lowest by far.”

He urged local banks in the UAE to develop risk analysis mechanisms to measure the potential for lending to this market but conceded that the energy services companies (ESCOs) had to raise awareness of the trend within the financial community and also to complete as many projects as possible to establish a track record.

“Most young Esco companies simply don’t have the financial resources to fund projects for their clients, which means there are financial bottlenecks,” he said.

Mr Bushnaq called for a “retrofit insurance fund” which would be supported by premiums from vendors and the ESCO’s themselves.

He projected the UAE could save more than $8bn from energy efficiencies resulting from retrofits.

“This presents a compelling opportunity for banks,” Mr Bushnaq said.

However, private funding for retrofit projects is available from a limited number of providers, including Emrill Energy Services, which has a dedicated fund to finance such projects.

“Utilities represent the single largest operational cost for all building owners,” said Stuart Harrison, Support Services Director at Emrill in Dubai.

He said the lack of awareness of the cost savings from energy efficient retrofit projects was influenced by a lack of confidence in manufacturer or supplier claims of energy efficiency coupled with the lack of available budget or finance to mount the projects.

He added investors had to take the long view of the benefits and should not consider return on investment of two or three years when the lifespan of the upgraded asset could be as long as 30 years.

“We have to change behaviours and change the mindset. Many building owners or investors are interested in pay back the quicker the better. This thinking has to change. Energy has traditionally been cheap in this part of the world so it is very difficult to get people to buy into this concept,” Mr Harrison said.

“Local banks are simply reluctant to take the risk, which is why Emrill has created this financing facility.”

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