ENERGY EFFICIENCY, NOT ENERGY GENERATION, THE NEW … · 2020-05-19 · Energy efficiency, not...

ENERGY EFFICIENCY, NOT ENERGY GENERATION, THE NEW NORM IN GCC

World Future Energy Summit - 15-18 January, 2018

Energy efficiency, not energy generation, the new norm in GCC 2

INTRODUCTION

Home to some of the world’s great energy sources, the Middle East, is a growing consumer

of energy. According to Enerdata Yearbook 2011, primary energy intensity has been steadily

decreasing in most parts of the world, but energy consumption in the Middle East is growing

faster than the region’s GDP. The GCC is at an interesting juncture as the economic and social

rationale driving the energy efficiency (EE) growth has never been stronger. High economic

growth and diversification from Oil and Gas (O&G) have significantly increased the demand

for electricity/energy. Simultaneously, the region’s policies on fuel and electricity subsidies

have led to a high degree of wastefulness as well as creation of inefficient buildings and

industrial infrastructure, making these countries some of the most energy intensive ones

globally. Lack of energy efficiency initiatives could have undesirable impact on the GCC

economies by way of higher spending on power generation, transmission, losing of valuable

forex revenues through oil sales, and crunch in funds to meet the infrastructure growth.

1. Growing consumption of power means investments to the tune of US$ 89 billion for the

addition of 43GW of generating capacity including Transmission & Distribution over the next

five years is required to meet the anticipated consumption that is growing by 5% to 6%.

2. Energy Lock-in: Nearly 40%-50% of the energy supply is locked for electricity generation

purposes.

3. Losing Valuable Forex Revenues: Declining oil revenues and widening budget deficits

imparting thrust to energy price reforms and energy efficiency measures. Unlocking certain

portion of this energy for exports to give valuable forex and revenues

4. Support Infrastructure Growth: Revenues through reforms to provide succour to USD 3

trillion worth of projects in the pipeline

GCC’s energy consumption is driven largely by the residential sector, with almost 47%

Compared with the global average of 25%. Effective demand side measures aimed at reduction

of energy consumption in the residential sector could help the GCC countries solve some of

their power sector dilemmas in the coming years.

RECENT TRENDS IN ENERGY DEMAND

The current economic growth path is unsustainable; hence, there is a stronger push to develop

renewable energy (RE) and energy efficiency (EE) policies to satisfy shared objectives such

as meeting the increasing energy demand, diversifying the electricity mix, and reducing

dependence on fossil fuels.


The EE policies, if adopted, offer ample financial support to the governments of GCC countries,

as there is an opportunity cost associated with reducing wasteful consumption of oil/electricity,

which could otherwise be sold in the export markets to fetch valuable foreign exchange. The

EE policies will also eliminate the need for massive investments in power generation and divert

a portion of the planned investments to other sectors including renewable energy.

Per capita electricity consumption in the GCC has been high with a steep increase in

consumption across the three sectors: residential, industrial, and commercial. Given the

current economic scenario, GCC countries are dipping into their oil revenue to bolster growth.

However, such economic slowdown as faced by these countries, offers a perfect raison détre

to curtail electricity consumption, thereby saving or re-directing investments from setting up

conventional power plants toward renewable and energy efficiency projects.

Exhibit 1: Electricity Consumption Growth in GCC, 2000-2030

Source: Economist Intelligence Unit, Frost & Sullivan analysis

Energy consumption has grown so rapidly that some countries in the GCC are having difficulty

meeting demand. Energy consumption is expected to witness a 3% growth per annum and

the levels of investments envisaged are likely to lead to an even wider gap between supply

and demand.

ENERGY GENERATION VS. ENERGY EFFICIENCY

Given the challenges of future energy security, the time is ripe for GCC countries to draw

inspiration from the energy efficiency technologies and programmes that are successfully

implemented in other regions of the world (including emerging economies) to reduce energy

intensity.


According to industry experts, even moderate adoption of proven energy efficiency measures

in the GCC could reduce energy demand by a quarter to half by 2030, allowing capital to be

invested in other sectors and oil for exports, as well as help in reducing the region’s carbon

footprint.

Demand-side energy efficiency measures are not only significant, but also the most cost-

effective according to several research. A study at Masdar Institute has indicated that “A

consensus is forming among experts that the best way to achieve emission reductions in the

near and mid-term future is by increasing demand-side energy efficiency.”

Buildings are the major energy consumers with 60% of electricity consumption. Hence, any

energy efficiency policy has to be targeted on all major electricity consuming equipment in

new and old buildings.

Exhibit 2: Electricity consumption by end-use sector, 2015

Source: Saudi Electricity Company, World Bank, International Energy Agency, Arab Union of Electricity

As demand outpaces supply, even with more technological innovations to support eco-friendly

sources, infrastructure complexities and limited capital may restrict a complete transformation.

Globally, governments and environmental organisations have identified improved energy

efficiency as the only way to address growing environmental concerns and minimise power

demand, and are targeting end users with policies and mandates. This approach has

limitations; however, improvements can be made along the entire power system value chain.


Several research studies indicate that energy efficiency is the first step toward a more energy-

secure future, and when coupled with renewable energy policies, yields better results in a

country’s energy usage pattern.

Exhibit 3: Case studies of buildings where advanced technologies are incorporated

Source: Frost & Sullivan analysis

INITIATIVES TOWARD ENERGY EFFICIENCY IN THE GCC

The following are the energy efficiency policies and measures promulgated by few of the GCC

countries. In addition, in 2010, 23 major economies (include the UAE) agreed to participate in

the UN-backed Clean Energy Ministerial, which includes five initiatives (the Global Energy

Efficiency Challenge) to help cut energy waste around the world.

Example Description Benefits

Head QuartersBusiness Park(HQBP), SaudiArabia

HQBP is a mixed use development that usestrigeneration plant system to provide electricity,cooling, hot water and potable water. The trigeneration plant consists of:

•Eight 2 MW diesel generators capable of generating 34 MW of electricity

•Three electrical chillers of 1400 TR each•Three absorption chillers of 700 TR each

• Insulate the building from grid outages•Expected reduction of 15,000 tons of

carbon dioxide emissions•Waste heat from diesel generators is fed

into absorption chillers•Balancing between electrical and

absorption chillers at different loads

Abu DhabiTransmission &DespatchCompany(TRANSCO)

The building is installed with a solar-drivensystem to supplement building‘s conventional air-conditioning load and offset this peak electricalconsumption with clean renewable energy.

•Reduction in peak electricity demand of buildings

•Reduced emissions•Less stress on grid on hot summer days

when air conditioning demand is the greatest

Sheikh ZayedDesert LearningCenter (SZDLC),UAE

SZDLC is an exhibition center with a LEEDplatinum rated building with a total coolingrequirement of 1.5 MWth. Its solar thermal driven cooling supplies theconcrete core activation for cooling at a set pointof 16°C. A 1,100m2 solar farm generates hotwater for an absorption chiller.

•Reduction in peak electricity demand of buildings

•Reduced emissions•Less stress on grid on hot summer days

when air conditioning demand is the greatest


Exhibit 4: Recent Developments in Energy Efficiency Policy in the GCC Countries

Country Initiatives to Promote Energy Efficiency

The UAE

Dubai has launched a programme – Dubai Integrated Energy Strategy- to reduce energy requirement by30% by 2030. This is a demand side optimisation measure that includes eight pillars of strategicimportance in managing the energy demand, with retrofitting of existing buildings, Energy-efficient streetLighting and Building regulations being few of them. The Dubai Government is also the first in the regionto formalise energy management through a demand side management (DSM) strategy that resulted inthe formation of the Etihad Master ESCO, which is focusing extensively on many areas for energyefficiency and CO2 reduction.

Abu Dhabi Environment Vision 2030 policy is an integral part of the economic vision that has imperativesto be delivered across the following sectors: Energy and Utilities; Industry; Agriculture, Livestock andFisheries; Buildings and Infrastructure; Transportation; Public Realm Amenities and Forestry; Environment;and Waste Management. In the context of Buildings, Estidama in Abu Dhabi regulates the design,construction, and operation of buildings through phased approvals. Estidama also uses an assessmentscale called the “Pearl Rating System”, for driving and determining sustainable development by reducingbuilding’s load from HVAC systems and lighting.

The Kingdom of Saudi Arabia(the KSA)

The KSA’s Electricity and Cogeneration Regulatory Authority (ECRA) is aiming for drastic reduction inelectricity from both new and retrofit buildings. The King Abdullah University of Science and Technology(KAUST) has identified high priority measures and technologies to wean the country away from rampantenergy consumption. Areas expected to kick-off include but are not limited to building energymanagement systems to monitor energy use, load control programmes, promotion of the ESCO industry,and tariff restructuring. Demand Response strategies are expected to maintain a focus on promoting useof smart meters, thermal storage, district cooling, HVAC controllers, LED lighting, Building managementsystems, tri-generation, and renewables.

Qatar

Qatar’s energy efficiency and sustainable measures are supported through a joint collaboration withChevron. The Chevron Center for Sustainable Energy Efficiency (CSEE) located at Qatar Science andTechnology Park (QSTP) studies solar power, solar air conditioning and lighting technologies for buildings.The US Department of Energy (DOE) and the QSTP also signed a MoU to undertake joint R&D anddeployment initiatives in five areas, which, when adopted, would be a driver for:

• Advanced Cooling Technologies, including next generation cooling technologies such as solar and absorption technologies to produce chilled water, building controls

• Cost effective integrated photovoltaic systems and coating technologies for solar power generation• Energy Storage, including high energy density electric storage and thermal storage for combined heat

and power systems• Carbon Capture and Sequestration• Efficient desalination techniques and effective water purification


Source: The Dubai Supreme Council of Energy, Electricity & Co-generation Authority, The King Abdullah

University for Science and Technology (KAUST) Industry Collaboration Program (KICP), Chevron Center for

Sustainable Energy Efficiency, Kuwait Institute for Scientific Research (KISR), Frost & Sullivan analysis

The implementation of energy efficiency measures in Saudi Arabia alone indicate that annual

energy costs could be reduced by USD 15 billion to USD 30 billion. In addition, Saudi Arabia

would be able to save a portion of the USD 100 billion in capital investments envisaged for

the power sector through implementation of these measures.

Key elements of energy-efficiency aims at improving the performance of energy-intensive

equipment within the buildings which include the following:

Heating Ventilation and Air Conditioning (HVAC) of buildings and lighting provide maximum

number of Energy efficiency opportunities in buildings. HVAC provides better energy efficient

opportunities than lighting and other components.

Newer air conditioning models such as inverter-based air conditioners provide better options.

Retrofitting old and inefficient equipment with efficient government approved equipment will

therefore enable better energy savings. Various labelling programmes such as the Energy Star

and Top Runner have been developed by governments to identify the most efficient among

the domestic equipment available in the market.

Kuwait

In Kuwait, buildings (government, residential, and commercial) consume about 80% of the electricitygenerated. Kuwait Institute for Scientific Research (KISR) is the front runner in developing the EnergyEfficiency Technologies Programme (EET) that aims to reduce energy consumption in new and oldbuildings by 30% and 10%, respectively, by concentrating on the following thrust areas:

• Improvement of Energy Efficiency in buildings through enhanced building envelope construction, improved air conditioning, and lighting technologies

• Innovative HVAC solutions using advanced heat exchanger technologies, nanotechnologies• Develop a Kuwait Reference Energy Scenario (RES) that serves as an index to benchmark consumption

of energy by different sectors

The energy conservation programme code mandates the following measures, inter-alia:• Thermal insulation for columns and beams• Mandatory use of water-cooled A/C systems for 500 TR onwards• Compulsory use of thermal storage systems• Use of variable frequency drives (VFDs) in cooling towers• Demand side management of public buildings like schools from a centralised remote control room


Water management is another area where energy savings may be achieved by following

efficient practices.

Energy efficient design and materials are encouraged, particularly construction materials. They

enable better insulation and protection, ultimately providing a tighter envelope. These

structures provide better ventilation and thermal conditions for more efficient air conditioning

and minimal energy losses. Though compact fluorescent lamps may bring down energy

usage; they affect the bigger picture of grid power quality by injecting harmonics.

Exhibit 5: Measures and Technologies Identified in the KAUST Report on Energy Efficiency

Source: KAUST Report on Energy Efficiency, Frost & Sullivan analysis

Exhibit 6: Dubai’s DSM Strategy

Source: Dubai’s Supreme Council of Energy

High Priority Energy Efficiency Measures

• Building energy management systems for

better information on energy consumption

• Load control programmes

• Energy manager at large-scale energy

consumers

• Promote energy service industry

• Tariff restructuring

• Voluntary action by industry and

commerce supporting energy efficiency

High Priority Energy Efficiency Technologies

• Lighting efficiency: LEDs for commerce,

government, and households

• Building Management System (BMS) for

commercial and residential buildings

• CHP, Co-generation, Trigeneration, district

cooling, Micro- and small-scale CHP

• Process improvements in steel, cement, and

other industries

• Centralised and decentralised PV, CSP

• Standards of equipment efficiency


In 2017, the Public Investment Fund (PIF) set up a Super Esco, a new energy service company,

designed to promote energy efficiency in government and public buildings. The latent

potential market for energy performance contracting in Saudi Arabia is pegged at SAR 42

billion and the establishment of Super Esco with a capitalization of SAR 1.9 billion will be able

to fund the retrofit projects in government and public buildings by creating partnerships with

the private sector to deliver projects.

Kuwait has also raised the electricity and water rates for commercial and government sectors.

Kuwait consumes about 350,000 barrels of oil a day to generate power and this could touch

2 million barrels per day in 2035 if irrational consumption continues unchecked.

All these reforms augur well for energy performance contracting services. Under old tariffs

that has resulted in overconsumption and wastage resulted in longer ROI making the energy

savings projects unviable. As per industry participants’ opinion, a typical building with 4 floors

with each floor having 6000-10,000 sqft of area, the CAPEX to install and adopt the energy

conservation measures like LED lighting, changing the building’s façade, and other measures

was about SAR 5-6 Mn SAR with the ROI pegged at 15-20 years. The recent increase in tariffs

and other initiatives such as setting up a super ESCO in Saudi Arabia is well timed and much

needed reforms that could promote the market for energy efficient products such as LED

Lighting, Day Lighting Systems, Building Insulation, Solar Air Conditioning, Building

Management Solutions (BMS), Energy Recovery Devices (ERDs) for building equipment, Tri-

generation plant, Building Materials such as Low E-Glass, Micro CHP, Electricity/Energy

Storage as well as energy performance contracting services.

CHALLENGES IN IMPLEMENTATION

Most governments in the GCC have adopted several measures and implemented many energy

efficiency initiatives, but the overall adoption of such measures is still in infancy. This lag in

adopting measures can be attributed to inherent structural issues as well to region specific

challenges.

Structural Challenges: It is a challenge to convince the end-customer or user of energy to

adopt energy efficiency as it is perceived as an additional cost to the total electricity bill.

Similarly, it is difficult to quantify the benefits and the actual savings through energy efficiency

measures, thereby making it difficult to calculate ROI.


Region Specific Challenges: Low consumer awareness, lack of incentive at the end-user’s side

as majority of the population comprises expats who rent buildings belonging to local nationals.

The expats are often paid through their employers and the landlord does not invest in energy

efficiency because the energy bill is paid by the tenant’s employers. Low on priority mainly

due to the subsidies provided thus far. Lastly the geo-political structure of the region, in which

the energy usage patterns of the GCC countries differ making it difficult to design or implement

regional energy efficiency standards.

However, these challenges are expected to taper off going forward as GCC countries are taking

steps to revise their decade old electricity tariffs. Recently, Saudi Arabia has increased the

tariffis threefold in which electricity consumption of 1-6000 kWh per month will cost 18 halalas

per kWh and consumption above 6000 kWh per month will cost 30 halalas per kWh.

Establishment of Super Esco in Saudi Arabia in line with UAE’s Etihad bodes well to the

market.

CONCLUSION

With the growth of smart buildings and urbanisation, tremendous growth is expected in the

energy efficiency market for buildings. Major fields of innovations would be energy efficient

building materials, air handling units and temperature control – Governments in the Middle

East are already focusing on these areas. Improving the power quality scenario of residential

and commercial segments would lead to better grid conditions and reduced losses. We have

also seen that the usage of standalone power supply for buildings could bring down energy

consumption, and this is a fitment area with distributed generation through renewables and

power suppliers.

Though the current low oil prices could weaken the energy efficiency efforts, governments in

the GCC countries must further strengthen the policies, as it is a win-win situation for both the

government and citizenry. It is interesting to know that as per the 2016 IEA’s report on energy

efficiency, global energy intensity has improved by 1.8% in 2015 as compared to 1.5% in 2014,

despite the decline in crude oil prices. De-coupling of EE policies with crude oil/energy prices

is important to meet the goals set in COP21, also known as the 2015 Paris Climate Conference

that aims to set the global temperature rise in this century well below 2 degrees Celsius.


It also benefits the GCC countries as the energy/crude oil saved due to EE measures can be

exported enriching their treasury. As GCC countries continue to invest in construction of new

buildings and infrastructure and coupled with hot climate, it will push up the demand for

cooling and lighting. GCC countries are expected to take this challenge head-on with the

adoption of more assertive standards and building codes, which would generate demand for

EE products and technologies as well as for energy performance contracting or energy

services.

As the EE market gains momentum and government agencies continue to battle the “energy

efficient paradox”, another wave of disruption is in sight. We are on the verge of riding the

future wave of Internet of buildings where we see interoperability and seamless data

interchange, ability to be integrated into a larger solution, centrally and remotely controlled,

and scalable.

The growth of smart and net zero buildings and thereon smart cities is expected to offer

exciting opportunities in the long run. The past 5 years have seen huge levels of technology

innovation in the energy efficiency industry with smart technology re-defining the landscape.

The next 5 years will be the era of business model innovation as EE suppliers fight to maximise

the real benefits for customers. Big data analytics and precision instruments can also create

a whole new income mechanism for municipalities by monetizing the energy savings into a

tradable certificate akin to carbon trading.

Performance contracting will become customers’ preferred business model and suppliers will

need to develop service capabilities or partner with FM companies or energy service providers

in order to play in the most dynamic part of the market. EE suppliers and other building

stakeholders will have to adapt their business models, devise new market approaches, and

offer value creation. This would require bundled services created through more solutions;

capturing new markets and customer segments by leveraging partnerships. For example, with

software firms, as in the future equipment would not be purchased, and energy efficiency

would entirely be delivered by service; a move that was never on the radar or a part of their

growth strategies.


To sum up, the following are the top opportunities for stakeholders in the GCC

1. High Growth: Energy performance contracting to witness “hockey stick curve” growth

clocking growth rates of 15-20% in the next 5 years. UAE is the vanguard in this market

with Saudi Arabia appearing promising due to the recent reforms and demand side

management initiatives.

2. High Potential Products and technologies: Based on higher relevance and greater adoption

include but not limited to: LED Lighting, Day Lighting Systems, Building Insulation, Solar

Air Conditioning, Building Management Solutions (BMS), Energy Recovery Devices (ERDs)

for building equipment, Tri-generation plant, Building Materials such as Low E-Glass, Micro

CHP, Electricity/Energy Storage.

3. X-as-a-service: Energy efficiency to be delivered as a service and no one will buy just the

equipment. For example, Light-as-a-service [LaaS] means lighting product companies will

need to develop service capabilities.

4. Vertical Integration: Facility Management (FM) companies uniquely positioned to expand

into the energy performance contracting market.

5. Business Model Innovation: Energy service companies (ESCOs) must equip themselves

or through technology and software analytics partners exploit the Information and

Communication Technology (ICT) convergence.

Frost & Sullivan, the Growth Par tnership Company, works in collaboration with clients to leverage visionary innovation that ddresses the globalchallenges and related growth opportunities that will make orbreak today’s market participants. For more than 50 years, we have been developinggrowth strategies for the Global 1000, emerging businesses, the public sector and the investment community. Is your organization prepared for thenext profound wave of industry convergence, disruptive technologies, increasingcompetitive intensity, Mega Trends, breakthrough best practices,changing customer dynamics and emerging economies?

For information regarding Frost & Sullivan's whitepaper, please write to:Abhay BhargavaBusiness Head - MEA, Industrial Practice, Frost & Sullivan P: +971 4 4331 883 | M: +971 55 241 3065 | E: [email protected]

Sasidhar ChidanamarriIndistry Principal, Industrial Practice, Frost & SullivanP: +91 44 6681 4511 | M: +91 99529 65389 | E: [email protected]

Anita ChandhokeCorporate Communications, Frost & SullivanE: [email protected]

www.frost.com

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