Subsidised energy costs deter companies from investing in UAE, experts say

Subsidising the price of electricity to keep prices low is deterring energy saving companies from investing in Abu Dhabi, says a professor at Masdar.

View of the Dubai Skyline in Marina in Dubai. Academics and industry experts have said the low price of electricity is deterring energy savings companies from investing in the emirate. Pawan Singh / TShow more

ABU DHABI // The artificially low price of electricity is deterring energy-saving companies from investing in the emirate, say academics and industry experts.

Because the cost of energy is subsidised, this acts as a disincentive for anyone to conserve energy, said Afshin Afshari, lead author of the paper titled, “A proposal to introduce tradeable energy savings certificates in the emirate of Abu Dhabi”.

Because investors would not be able to recoup the cost of their investment for decades, this stops potential investors from funding projects such as retrofitting older buildings with energy-efficient chillers or improving the lighting and insulation systems.

“The higher the price of electricity, the more people have incentives to make this kind of enhancement,” said Mr Afshari, who is professor of engineering systems and management at Masdar.

In the paper, co-authored by Luiz Friedrich, the researchers propose subsidising energy savings to promote investment by the private sector in making buildings more energy efficient.

“By subsiding savings, you reduce the consumption, so you reduce your own disbursement of cash subsidies,” said Mr Afshari.

The solution proposed by the researchers is modelled after systems already in place in some European countries where energy-saving companies or major consumers, such as industrial companies, can earn energy efficiency certificates, also called white certificates.

These are given if they can demonstrate that they have implemented energy efficiency projects resulting in a sizeable reduction of their energy consumption.

They then receive cash compensation for the certificates from major energy companies, usually regional or national energy distribution companies.

These energy providers are told by the government to achieve certain annual energy reduction targets.

Alternatively, the government may directly fund the purchases via an energy efficiency subsidy, he said.

“That’s the idea, basically. You give a portion of what you would have given as subsidy on consumption to subsidy to reduce or curtail that same consumption,” said Mr Afshari, noting that a government body would have to be established to monitor and administer the scheme.

“The net national benefit is enormous, since government and consumers end up paying less,” he said.

“Basically anyone who makes a saving in their home – not only will they get the pure benefit of reducing their energy bill, but they get a credit that says this guy has saved one kilowatt hour over one year and with this credit, it’s like money,” said Mr Afshari. “They go to a market and get whatever the market value is for that credit. So that’s like a complement to the savings.”

Khaled Bushnaq, chief executive officer of Energy Management Services Emirates, the first energy-saving company, or Esco, in the region, said the low cost of electricity in the emirate was “one of the biggest challenges that we are facing in doing any kind of energy efficiency projects in Abu Dhabi”.

“Escos will never come and invest in Abu Dhabi because they will never get their money back,” he said.

“The energy inefficiencies in Abu Dhabi are high also because the tariffs are low, nobody cares about saving.

“The return would be much greater provided that the energy tariffs were higher or the government came and provided what you call the white certificate.”

Mr Bushnaq said that if the government was to subsidise energy savings, that would “help a lot for everybody to implement energy efficiency”.