Originally posted by Jason O’Connell of Construction Business News

 

Demand side energy management could open up new opportunities for contractors ready to build skills and take a performance-based approach to their rewards. Stuart Matthews writes.

Charles Blaschke is accelerating. The engineer, one of the co-founders of Taka Solutions, is representing his company and the Gulf region in The Venture, a global competition that sees budding enterprises compete for a share of a $1m funding pool.

In preparation for The Venture’s final round of pitching, Blaschke and the 26 other finalists from around the world have travelled to Oxford, in England, to take part in what is described as a ‘transformational’ accelerator week programme. During an intensive five days of learning, finalists are being coached, supported and mentored as every aspect of their business comes under the microscope. Expert trainers and inspirational leaders recruited by the Skoll Centre for Social Entrepreneurship, part of the Saïd Business School at the University of Oxford, will be on hand to offer insight and take competitors to task.

This though is not just a regular pitch for business funding. Entrants to The Venture are an emerging type of company, broadly classified as social enterprises. Although such enterprises are still relatively rare in the Gulf, The Venture’s judges are looking for pioneering businesses striving to use innovation and enterprise to create positive social or environmental change, as well as turn a profit. Blaschke’s Taka Solutions is competing against start-ups touting ideas that identify diseases faster, boost skills among the world’s poorest subsistence farmers and, in Blaschke’s case, reduce energy consumption.

Taka Solutions is an engineering and technology company that uses a ‘paid-from-savings’ business model to reduce energy consumption and carbon from buildings. It installs technology in existing buildings, saving owners and operators both energy and money. This means the company earns its living from the financial savings its work generates, placing a huge emphasis on the quality and the long-term performance of their ideas. The company believes that the potential exists to reduce the world’s energy usage by 20% – which it says is the equivalent of all the world’s new CO2 and power plants for 10 years – simply by using better existing technologies to control energy usage. The huge capacity for scale in the business, where its impact could be far reaching and felt for years, is what helped it to get it the judges nod in the Gulf round of The Venture. Taka Solutions will hope it will convince the international judges too.

“If the UAE gave us the keys to manage the energy in the buildings of the country we could reduce the overall consumption and carbon output by 50%,” says Blaschke. “We have a plan to enable the savings of 20% of the entire world’s energy consumption and carbon using our model. This is the basis and reason we are here in Oxford for the accelerator, to make this happen.”

Competition is tough: 27 finalists have been whittled down from 2500 entrants. That Taka Solutions made it this far is a considerable achievement. While no one will turn down free funding, the accelerator could be the more useful part of the prize in the long term, giving Blaschke and his partners the chance to step back from the helter-skelter ride of start-up and establishment, to assess the business landscape they find themselves in.

As they look to the UAE, they find a home market where there is a strong desire to make reductions on the demand side of the energy equation. Organisations are being driven to improve the efficiency of their utilities profiles in response to the Demand Side Management Strategy (DSM), part of the Dubai Integrated Energy Strategy 2030 (DIES), which is looking for a 30% reduction in water and electricity usage by 2030. Achieving these targets will not only reduce the burden on generation and the high-cost infrastructure development that goes along with it, but, in concert with an increase in renewable energy generation, will also cut the country’s carbon dioxide output.

The UAE is already significantly ahead of the Middle East average in terms of energy intensity against GDP – a measure of how much energy a country uses to generate each dollar of gross domestic product – but compared to North America or the European Union there’s still a long way to go. The DSM promotes energy conservation through efficient consumption behaviours and it is supporting Dubai’s smart city initiatives by promoting the introduction of new technologies.

“We hope the UAE government bodies and right people know we are here to help and have the solution to make real, positive impact as a private enterprise,” says Blaschke.

When it comes to buildings, a lot of emphasis in achieving the demand side targets rests with new builds – some 75% in fact – but existing stock needs to be brought up to standard to secure the remaining 25%. While both will place new demands on the contracting and consulting sectors, in terms of understanding energy management techniques and technologies, the retrofit of so many existing buildings represents a significant opportunity for contractors to open up a new line of business. It’s a line that will gradually grow stronger over the next decade as the strategy matures into more action. But despite the long-term opportunity, it seems to be one the contractor community is being slow to appreciate.

“The larger contractors, or entities who have the knowledge about energy have tried to get involved and make it a new business line,” says Blaschke. “Smaller contractors do not understand the difference and still approach it like a typical design-bid-build job. We have tried to teach them a performance based contract is about higher quality delivery and that they are expected to perform and deliver higher quality. This has not gone well.”

Despite the tough time spreading the word, Taka Solutions can boast some notable project cases. In the UAE it claims to have achieved 20 to 40% energy savings on buildings within a three year simple payback period. Longer payback horizons could see this figure rise to 50% savings on most projects, says Blaschke.

“For the time being there is enough work to be done bringing building technology to 2016 that we don’t need to worry about the harder to reach savings,” he says. “This is our target in the second phase of a project contract.”

For contractors to make more of the opportunity such work presents Blashcke feels they need to get on board with the idea and create the necessary internal processes, improve staff skill sets and make themselves capable of high-quality deliveries.

“They need to be much higher quality to be a true player in the market and take advantage of the opportunities that will arise from energy retrofits,” he says.

There is work to be done on the customer side of the equation too. Customers still require an enormous amount of education and awareness for energy, and very specifically, energy performance contracting projects. The model that these projects work on is relatively new to the market and that means existing contract structures and purchasing processes are not geared up to take it on. Potential customers and their advisors need to gain a technical understanding of energy savings and how to measure them accurately, as well as develop a financial understanding of making payments based on savings and developing the commercial contracts that would make that run smoothly.

“It is a never ending cycle for customers, individuals and the world as a whole,” says Blaschke. “We feel the need to educate is one of our main roles and are doing this in a number of ways.”

These include creating their own simple guidelines to energy audits, measurement and verification, custom software applications that provide valuable data and information, plus mobile applications on energy savings and impact. History suggests getting the message across will be a slow process, at least at first, but, as with the emergence of effective green building regulations over the last decade, it will happen once the economic advantages become evident. Taka Solutions is by no means alone in the quest to make a difference.

Naturally there is some emphasis coming from government and the various departments and organisations it drives. Atkins, the consultancy, currently has a multidisciplinary team embedded within a large public sector client to develop a combined energy management programme across their portfolio of assets, in order to meet reduction targets.

“There’s clear recognition that there is a lot of scope for improvement and they’re looking for a step change in their operations,” explains Stuart Bridges, principal consultant for Atkins. “Our work is based around the core themes of people, process and technical, so it’s all encompassing.

“The programme’s main objectives are to create a schedule of energy improvement initiatives; baseline and monitor electricity and water consumption; integrate all energy management activities; provide control and reporting and set realistic targets to develop and manage a complete plan to meet targets.”

While government departments may be among the first customers to take on energy management, the private sector is likely to follow suit, particularly when there are some significant cost savings to be had. Organisations can get support from consultancies, or they can go to an energy services company – known as ESCOs – which effectively enable them to outsource the whole issue. An ESCO might develop a three or five year plan for these organisations and rather than facing an upfront payment, they can pay for the ESCO’s services out of the energy savings they make.

“The Etihad ESCO was established by DEWA as a super ESCO, which aims to jump start the creation of a viable contracting market for energy services companies,” says Bridges. “This is enabling the creation of a new tier of engineering companies who are looking to win retrofitting work with ESCOs.”

Bridges reports that Atkins does see an opportunity emerging for the private sector to get involved in the ESCO market. He believes it offers good opportunities for the company to support more organisations with the development of energy saving plans and would be able to link closely with its building services activities to design and deliver solutions.

“Retrofitting is only one of nine programmes for reducing energy intensity – others include building regulations, district cooling, water reuse and efficient irrigation and Shams Dubai,” he says. “Within all these elements it is easy to see opportunities for contractors to provide support and build sustainable businesses.”

Anyone taking on the market though will have to contend with both a palpable knowledge gap among consumers and a shortfall in hard facts to hit them with. Data on effectiveness and strong benchmarks are still in relatively short supply, limiting the information available to accurately outline the benefits, always crucial in a market noted for its conservative approach to new technologies.

“The UAE market, like any other, is driven by monetary costs and savings,” says Omnia Halawani, managing partner at Griffin Consultants. “One of the most common barriers facing building owners and developers [looking] to invest in energy efficiency and retrofit projects is the lack of accountable information and benchmarks to assist energy experts and consultants in creating a clear-cut financial case to demonstrate that investing in energy reduction measures can provide profitable growth.”

This, says Halawani, makes it difficult for developers to make the right decisions when it comes to energy efficiency projects, since long-established and widely adopted benchmarks are not in place. She believes developers have proved reluctant to invest in energy efficiency projects for fear of missing out on other more straightforward opportunities for improved returns. The challenges of convincing them have been exacerbated by poor practices in the market and a parallel lack of awareness about adequate energy audits.

“The field has been harmed largely by incompetent energy auditors and firms that claim they can do a proper and insightful energy audit for a fraction of the price, or within a significantly shorter period of time,” says Halawani. “A proper energy audit takes a lot of knowledge and expertise as well as time. It is imperative for the auditor to take their time to conduct proper measurements to get at realistic energy saving figures. Any firm that claims they can do a full and deep energy audit within a week definitely doesn’t know what it takes to properly audit a facility.”

The issue is being addressed through regulation with the Supervisory Bureau for Electricity & Water in Dubai (RSB) having put in place an energy audit accreditation scheme, which Halawani believes will provide some sort of differentiation in the market. With estimates putting the built stock ripe for retrofit at around 120,000 buildings, many of which were constructed in an era when energy consumption was a secondary consideration to getting things done, the market is large and the potential for building a revenue pipeline significant.

“Large developers and building owners can now see the opportunity in saving on the energy costs to invest this wasted money in other profitable areas,” says Halawani. “We have been exerting a lot of effort in educating the market not only on the benefits of audits, but also on what they should expect from an audit properly done.”

If the wider industry can respond to the opportunity with the right skills, the detailed information potential consumers need and are prepared to take on a performance-based approach to rewards, then the rewards could be plenty. Contractors that do can approach the issue with confidence that they are engaging with an idea reflected in long-term government strategies to curb energy demand, reduce consumption and develop sustainable cities. Since the cities are likely to be smart, it won’t do any harm if the contractors are too.