Steering consumption change
, July 28th, 2016
Following the unbundling of Abu Dhabi’s water and electricity sector in 1998, the Emirate has for the past few years created a suitable environment for utilities to evolve. The subsequent sector reforms continue to give rise to a wide range of government initiatives that have opened doors for further investments in water and electricity.
But, creating a balance between investor interests and consumer expectations is often a delicate situation that economies around the world have to grapple with. This is what the Regulation and Supervision Bureau (RSB) in Abu Dhabi set out to do when it was created seventeen years ago, and its efforts are yielding significant results for the utilities sector.
RSB is the independent regulator of the water, wastewater and electricity sector in Abu Dhabi. Its main responsibility is to ensure secure supplies of electricity and water to customers in Abu Dhabi, in particular for hospitals and centres for the disabled, aged and sick. It then regulates sector companies both technically and economically, to ensure the development and operation of a safe, economic and efficient sector.
“The need for regulation is due to the fact that many of the companies operating in the sector are natural monopolies. Specifically, these are transmission company, the distribution companies and the wastewater company,” says Saif Saeed Al Qubaisi, acting Director General at RSB. “Regulators everywhere have a primary duty to protect the rights of customers from potential abuse of a dominant position by monopolies. When receiving services or products from a monopoly company, a customer has no real choice as to the provider.”
How such protection is administered varies from one sector to another, but Al Qubaisi says that the practices employed by the Bureau are in common use elsewhere, especially in power and water utility regulation.
“We work to ensure that all licenced companies operate in an efficient and cost-effective manner that will limit a transfer of costs to the end user. Our supervisory role is to see if companies are abiding by the guidelines set by international standards and following best practices,” says Al Qubaisi.
The utilities sector restructuring in Abu Dhabi saw five independent water and power projects (IWPPs) introduced in the capital's water and electricity sector on a build, own and operate (BOO) basis via joint venture arrangements between Abu Dhabi Water and Electricity Authority (ADWEA) and various international companies.
In each IWPP, the Government retains a 60% shareholding, through entities like ADWEA and TAQA, while the remaining 40% is owned by overseas private investors. All these IWPPs sell water and electricity from their production plant to the single buyer of the sector – ADWEC – under long-term power and water purchase agreements.
“ADWEC is the Single Buyer of all water and electricity from production plants which connect to the sector’s transmission grid, utilising long-term power and water purchase agreements (PWPAs),” says Al Qubaisi.
It is an arrangement that continues to boost confidence in the sector, leading to growth in electricity and water output in Abu Dhabi. Over the past few years, Abu Dhabi has witnessed an average annual growth of about 8% in electricity demand and 4% for water, which is high due to population and economic growth.
Recently, a report by Deloitte recently stated that GCC residents use more electricity domestically per capita than their US counterparts. With this in mind, it is clear why Abu Dhabi is employing a range of approaches to encourage consumers to rationalise their electricity and water use, and contribute to efforts to sustain natural resources.
One such example is the tariff changes made at the start of 2015. This saw tariffs updated for the vast majority of customers in the Emirate. Most notable amongst the changes was the removal of subsidy for Government customers. Before the changes were made, their electricity tariff was 15 fils/kWh and their water tariff was 2.20 AED/m3. Currently, these tariffs stand at 29.7 fils/kWh and 10.55 AED/m3 respectively. In the case of residential customers, they now face two tariff rates for both electricity and water, whereby those that use more than an ideal average will pay a higher tariff for use above that is above this average.
“When making changes to tariffs, we have to consider what is in the customers’ best long-term interests. As such, placing a value on our precious resources and encouraging sustainable use is very much consistent with this consideration,” says Al Qubaisi. “It is for such reasons that we have launched a range of initiatives targeting users and educating them about conservation.”
As a result RSB has been working to change consumption patterns and drive conservation through its Powerwise and Waterwise initiatives, by combining research and education to equip residents, businesses and the government of Abu Dhabi to make wise decisions about the use of water and power.
“Our focus is on promoting best practice in the use of electricity at every level – from homes to large factories - and to give people a comprehensive knowledge base so that together we can strengthen the Abu Dhabi’s ability to be energy efficient,” says Ramiz Alaileh, head of Powerwise office at RSB.
“We conduct studies to gather evidence to deepen our understanding of how we use electricity in various aspects of our lives, helping to create informed policies to better manage our energy resources.”
“We also work with key stakeholders to recommend effective energy management technologies, and encourage simple yet effective behavioural changes through education,” says Alaileh.
Powerwise utilised a number of Demand Side Management (DSM) techniques that provide a variety of measures to reduce both demand and energy consumption, which leads to more manageable demand. These techniques included time-of-use pricing and smart metering with in-home displays, energy retrofits and optimisation, and load control.
Powerwise conducted a smart metering trial project as part of a concerted effort to track and analyse consumption behaviour. This has involved testing how time-of-day electricity pricing could encourage overall efficient electricity consumption, reduce peak demand, and potentially save money for the consumer.
In addition, another project called “Powerwise Home Makeover” measured the energy savings achieved through home efficiency upgrades in Abu Dhabi households. Over the course of the project, Powerwise selected ten Abu Dhabi villas with high electricity consumption, conducted energy audits of each of the homes, provided energy-efficiency upgrades and studied the impact on electricity consumption.
“This project and similar ones help Powerwise, the Government and other Abu Dhabi entities provide better programmes, initiatives and incentives to improve efficiency and reduce electricity consumption in the Emirate,” says Ramiz.
Powerwise also conducted another DSM pilot project to test the technology of remotely controlling air conditioning chillers of high-rise buildings and office towers in Abu Dhabi. The main purpose of this initiative was to test this technology in the local environment of Abu Dhabi, where air conditioning accounts for about 65% of electricity summer demand, and to record the resulting reduction in peak demand.
Based on the outcomes, different schemes could be proposed and implemented to manage electricity demand growth in the summer. The project demonstrated the potential to achieve between 20-40% peak demand electricity shaving on AC chillers for 3 hours during the peak period.
At the same time, Waterwise initiatives aim to empower behaviours and attitudes by helping residents understand exactly how they can save water and why it is so important to do so. It equips key decision-makers with the information they need to lead the Emirate towards greater water efficiency.
In addition, Waterwise’s In Home Water use Audit Project followed the Residential End Use if Water Project. The aim of this project was to broaden the baseline data on water consumption in the residential sector by studying consumption patterns of the higher water using homes in the Emirate. The project involved conducting detailed water use audits in 45 high water consuming villas and shaabiaas from Abu Dhabi and Al Ain. The study involved investigating water saving opportunities in these homes and interacting with residents to promote positive behavioural change.
Such studies have provided key information on the complex drivers of water end-uses in the residential sector. Data gathered from Waterwise’s research studies is being used to inform water demand side management initiatives in Abu Dhabi.
“We work toward a vision of a prosperous and water-efficient Abu Dhabi for generations to come. Waterwise works with partners from all sectors to strengthen the Emirate’s ability to be water efficient,” says Khadija bin Braik, Head of Waterwise.
RSB is confident that these demand management initiatives will compliment wider government programmes geared towards boosting efficiency from the utilities supply side.
In fact, RSB is a key stakeholder in Abu Dhabi’s push for a more sustainable and low-carbon energy mix geared to satisfy the power and water demands of the growing economy. These technologies include solar and nuclear energy generation and one key part of the Bureau’s regulatory duties in law is licencing of generation facilities.
Renewable energy push
A further aspect of Abu Dhabi’s sustainability drive is renewable energy. The Emirate aims to considerably increase its low carbon electricity capacity with up to 7% of installed capacity in 2020 targeted to be from renewable energy sources.
RSB is actively working to support the sector to achieve these targets by facilitating the licensing process, monitoring the performance of the existing renewable projects, supporting the testing and evaluation of performance and operating costs of new energy technologies, and introducing amendments to current regulatory policies to accommodate the projected low carbon generation mix efficiently and effectively.
“One of the key roles of the Bureau is to ensure all power and water facilities within the sector can demonstrate an economic procurement process and appropriate tariff for a given technology,” says Al Qubaisi.
In respect of renewables projects, the Bureau is actively involved in the due diligence review of project costs – both CAPEX and OPEX over the lifetime of a project to determine an agreed levelised cost of electricity (LCOE) and thereon in an appropriate tariff for a particular project or technology in line with its legal obligations.
“One of the key challenges for the roll-out of the renewable programme, both globally and in Abu Dhabi is that ability of renewables to compete with conventional power sources on an economic and unsubsidised basis. Most notably, large scale photovoltaic (PV) renewable projects are beginning to compete on such a basis,” Al Qubaisi points out.
As a result, the renewable energy sector is witnessing considerable activity in the Emirate, and is set to maintain significant progress towards achieving, or even exceeding, the government’s targets.
Renewable energy projects
The most significant renewable project to date in Abu Dhabi is the recently-completed Masdar project, Shams 1, is a 100 MW development that is one of the World’s largest concentrated solar power (CSP) projects and the first of its kind in the Middle East.
The project, which covers an area of 2.5 km² with a solar field, consists of 768 parabolic trough collectors. The project reached financial close in 2011 and achieved Commercial Operation in September 2013.
In addition, Masdar has developed a pilot solar rooftop programme, launched in collaboration with RSB and ADWEA in 2011, where 2 MW of solar PV were installed on 11 government-owned buildings connected to ADDC’s network.
“This pilot project has enabled stakeholders to develop a greater understanding of a number of important factors, including operational performance, actual generation output, and operation and maintenance aspects and costs applicable specifically in Abu Dhabi,” says Al Qubaisi. RSB has working with stakeholders on developing a regulatory framework that will enable the introduction of small-scale solar PV energy netting. This will enable consumers to potentially credit surplus energy which is exported to the grid and net-off from consumption in future billing cycles.
A key part of Abu Dhabi’s future outlook and strategy is the construction of four nuclear plants to provide a total capacity of 5.6 GW. Located at Barakah in the Western Region, 240 kilometres west of Abu Dhabi city, the programme is scheduled to deliver the first of these units next year.
The generation capacity of the new nuclear plant will be required to satisfy the Bureau’s licence conditions prior to operations. Since this facility is the first of a kind in the region, RSB is already working on an appropriate generation licence to provide for the necessary governance around general conditions as well as specific nuances of a nuclear facility, particularly in relation to the generation of electricity and integration with the sector. Importantly, all aspects relating to nuclear safety are the responsibility of the Federal Authority for Nuclear Regulation (FANR).
The electricity generation licencing fundamentally aims to ensure that the prospective licensee meets RSB’s due diligence criteria in in accordance with Law No (2) of 1998. Each licensee must have an appropriate financial position, as well as technical and managerial competence to operate the facility. To that end, the electricity generation licence will cover standard generation conditions, nuclear-power specific conditions, and issues for monitoring and reporting.
“In performing all its licensing and regulatory duties, RSB maintains a close relationship with other regulatory bodies, in particular FANR and the Environment Agency of Abu Dhabi (EAD),” says Al Qubaisi. “We also endeavour to coordinate with their duties and functions to make sure that the respective regulatory licences are appropriate, consistent and avoid unnecessary overlapping obligations.”
The nuclear programme and its integration within the sector is hugely complex. Aside from the specific development of the generation licence, RSB is working closely alongside the Emirates Nuclear Energy Corporation (ENEC), key power and water licensees and relevant stakeholders to understand and facilitate the necessary transitional steps towards the safe and secure integration of nuclear.
With an installed capacity of 15,546MW for power and 916MGD of potable water, the utilities sector in Abu Dhabi must thus invest heavily to address new demand growth, but also imbed rationalisation and conservation activities to ensure efficiency from the demand management side.
Through the stability of the regulation provided by the RSB and the ease of doing business in Abu Dhabi, there is a successful track record of private sector investment in Abu Dhabi’s water and electricity sectors. As a result, the range of significant developments expected to take place in these sectors – such as the development of PV, the delivery of the nuclear programme and the drives for end-use efficiency – means that the attractiveness of Abu Dhabi to investors will continue long into the future.