This thesis highlighted the challenges facing Dubai’s government due to the changing characteristics of Dubai’s energy landscape and resultant need to diversify its energy resources and incorporate solar into its energy mix. By doing so, a new burden will be imposed on the government of Dubai to cover the cost of generating power from solar due to the discrepancy between the cost of producing electricity from fossil fuel and the cost of producing electricity from solar, especially that there are no additional tariffs on Dubai’s consumers to pay a premium to cover such cost.
This gave rise to the main research question:
How may the private sector from the consumer side play a role in promoting renewable energy through the development of a sustainable energy business model?
Using theoretical insight, knowledge and information from literature review the study aimed to examine whether a specific commercial market segment within electricity end-users in Dubai would be willing to pay a premium for receiving part of their electricity from solar energy through implementing an innovative sustainable energy business model.
To address this aim the main question was broken to three sub research questions. These sub questions were addressed in the thesis as reported below.
What are the core characteristics of the Dubai energy business model?
The core characteristics of the Dubai traditional and current energy business models were produced as a result of populating the Business Model Canvas (BMC) (Osterwalder & Pigneur, 2010) from literature review and empirical evidence from interviewing main figures in the utility and energy sector. Building Dubai’s traditional energy BM first functioned as a blueprint that was reused for building variations such as the current energy BM and for future use in terms of introducing innovation to the business operations and developing a new sustainable energy business model.
The output that addressed this question is presented in Figure 38 showing the traditional business model characteristics in black text and the current characteristics in blue text. The use of the BMC facilitated the grouping of the core characteristics into the four main categories that defines a business model: 1.Customers (green) 2. Offer (purple) 3. Infrastructure (red) and 4. Financial viability (blue).
181
Although Figure 38 consists of characteristics that are common to most utility sectors around the world, the uniqueness of the Dubai energy business model lies in the fact that Dubai has a centralized energy sector. This made the introduction of innovation and sustainability measures easier.
Which solar technology has the most competitive LCOE in Dubai?
To determine the monetary value of the solar premium that hotels would need to pay for solar energy, the study identified the most established and commercially deployed solar technologies in the market and then identified the most suitable renewable energy modeling software that would calculate the LCOE of a 100 MW solar plant in Dubai. The most suitable resource modelling software was System Advisor Model (SAM) which yielded Cd-Te PV technology as the lowest LCOE in UAE’s ambience. A sensitivity analysis was also conducted on the most impactful financial parameters. In determining the optimum power purchase agreement tariff that the hotels would need to pay for solar energy, the financial parameters used in the simulation remained within the range of IRR and debt to equity ratio that makes the project financially attractive for investors With an IRR of 17%, a debt ratio of 74.5% and the technology data inputs exercised in the simulations, the PPA tariff resulted in USD cents 14.36/kWh, this equates to AED 0.53/kWh in UAE currency. Therefore, a premium of roughly AED 0.09/kWh from the price of conventional electricity paid today by large electricity consumers in Dubai. The net annual energy output of the Cd-Te PV plant was 237,027,882 kWh.
What could be the possible incentives that would encourage the Hotels as a consumer of energy to pay a premium to buy electricity generated from solar energy?
Dubai’s hotel industry was identified as a potential candidate due to its strong tourism sector that contributes 31% to its GDP and grows at 15% annually, and has one of the highest hotel occupancy rates in the world (around 80%). Furthermore, Dubai Department of Tourism and Commerce Marketing (DTCM), the regulatory body for all tourism-related activities, is positioning itself as an active driver and supporter of the government’s mandate in greening Dubai. In light of this, three incentive schemes were designed in the aim of having DTCM offer these as a value proposition to encourage hotels to pay for the solar premium. The proposed incentives were: 1. Green Certification Program, 2. Marketing and Advertising Support and 3. Green Star Classification. Interviews were conducted with 15 leading hotel chains in Dubai that have 5 and 4-star hotels in their portfolio. For the purpose of the interviews, each hotel was suggested to allocate 30% (on average 4,772 MWh) of its electricity to solar. That approach suggested that 50 hotels would consume the total net annual energy produced from the PV plant. The interview questions aimed to assess the length of commitment of the hotel sector to the greening of Dubai’s tourism and capture the hotels’ views and feedback on the incentives as well as assess their willingness to pay for solar energy with or without these incentives. The interview data were analyzed following the Thematic Analysis approach which included first transcribing the interview into text
182
and then noting items of interest and relevance to the research (codes) of which as a result themes based on similar topics emerged.
Overall, the Green Star Classification was the most attractive incentive. This is basically due to its visibility as it can be attached to the status of the hotel, especially coming from DTCM which offers it credibility. As per the hotels’ feedback, the Green Star Classification also reflects the hotel’s commitment to the environmental issues and offers a unique and exclusive status. The second most attractive incentive scheme was the Marketing and Advertisement support through DTCM’s channels (online sites, booking engines and global tourism exhibitions). The Green Certification Programme resulted in low interest by the hotels because of abundant availability globally of green certification programmes. During the interviews, the hotels suggested alternative incentives that could be offered by DTCM such as 1. Reduction of government fees, 2. VIP service track, 3. Booking of events at hotel’s facilities, 4. Reduction of solar share from 30%, 5. Paying for energy efficient equipment.
This feedback was then communicated to DTCM to obtain their opinion on the proposed incentives and the responses from the hotels. In principle, DTCM has indicated a general agreement to the green star and the marketing support incentives. As for the alternative incentives recommended by the hotels, in particular the ones that are directly in control of DTCM such as the VIP track service and the booking of venues, there was an initial agreement. For the other incentives, DTCM suggested further discussions would need to be conducted between DTCM leadership, DEWA and the hotel operators to further refine the value propositions. The final result of this thesis presents the proposed SEBM highlighting the main business process and value flow among the main stakeholders. This SEBM is a means to support Dubai in achieving its solar target as well as alleviating any possible need for financial support from the government to cover the difference between the cost of solar energy and the cost of conventional energy. Figure 38 shows the characteristics of the Dubai traditional and current energy business model as well the additions to the 9 blocks of the canvas as a result of the transition to the SEBM.
183
Figure 38 BMC with the core characteristics of the Dubai traditional (black text), current (blue text) and sustainable (red text) energy business model
To conclude, this study helped to address the need for identifying ways to encourage the private sector to contribute into building of the solar energy capacity of Dubai. The findings of this research highlights the importance of using Business Models as a tool to help understand the different elements of the energy sector in Dubai and therefore use it as a base for promoting transitions and innovation.
By means of a literature review and analysis of empirical data this study has shown that with providing the right incentives, it is possible to attract the private sector to participate in promoting RE production.