A proposal to introduce tradable energy savings certificates in the emirate of Abu Dhabi

Abstract

Enhancing energy use efficiency is the most cost effective way to reduce green house gases emission and avoid investments in energy supply/distribution infrastructure. In the Emirate of Abu Dhabi, one of the seven Emirates of the United Arab Emirates (UAE), about 84% of 2012 electricity use can be traced back to buildings—of which close to 60% is devoted to indoor air-conditioning. Almost untapped, energy efficiency in the existing buildings sector has a huge potential for development. Under the current political/economic scenario, heavy subsidies on retail electricity and water prices are in place, amounting to $4.8 billion in 2014, although a slight reduction is expected in 2015. Subsidized electricity is probably the most important barrier to energy efficiency. It is also often one of the most difficult to alleviate in developing countries because of undesirable societal and political repercussions. In this study, a series of building retrofits were tested on a model of a typical building in the Emirate. A retrofit consisting in the replacement of the existing chiller by one operating at 25% higher efficiency is selected in order to assess a proposed tradable energy efficiency certificates scheme. The selected retrofit, despite its high initial cost, is shown to have a significant impact on energy consumption and, if implemented on all candidate sites according to its full technical potential, produces Emirate-wide annual electricity savings of around 8% and peak demand reduction of around 13.5%. Under the current subsidized electricity price scheme, investments in energy efficiency of existing buildings are not attractive for the typical ESCO, as over the lifecycle of the measure, the return on investment is low or negative. This paper studies the feasibility of energy savings obligations and tradable white certificates as a mechanism to enable private sector involvement in demand-side energy efficiency by guaranteeing an attracive internal rate of return. Based on the outcome of this analysis, we believe that a white certificates market would be an effective tool to jump-start buildings energy efficiency in the Emirate.