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‘Yas, It’s Doable’

Challenges are aplenty, but there are ways and means for the district cooling industry to see the downturn through, said participants at the recently concluded DC Dialogue 2010.

| | Jun 20, 2010 | 10:10 pm
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This is the first of a three-part report on the recently concluded DC Dialogue 2010 in Yas Island, Abu Dhabi, which consisted of a series of three roundtables. The report is based on the first roundtable, titled ‘Contracting challenges: exploring new avenues for profitability’. Subsequent reports will focus on the roundtables that looked at arbitration and legal challenges in district cooling, and metering and billing issues in district cooling.

Challenges are aplenty, but there are ways and means for the district cooling industry to see the downturn through, said participants at the recently concluded DC Dialogue 2010.

Three years ago, at the inaugural DC Dialogue, held in Dubai, the mood had been buoyant as 11 industry folk deliberated on the operations and maintenance aspects of district cooling. The discussions, held amidst a real estate boom, had been high on intensity, focusing as they did on critical issues like the low delta T syndrome and the need for properly maintaining cooling towers from an energy efficiency point of view and a health perspective.

Roundtable One

Topic

  • Contracting challenges: exploring new avenues for profitability

Moderator

  • Masood Raza, PAL Technology

Participants:

  • Mohammad Abusaa, ADC Energy Systems
  • Tawfiq Abu Soud, Drake & Scull
  • Ken Currie, Mott MacDonald
  • Prabhakar Naik, John Buck International
  • S G Thiyagarajan, TransGulf Electromechanical
  • Abdullah Zeneeh, Rio Electromechanical

In the second edition of DC Dialogue, held on June 2 at Yas Island, in Abu Dhabi, a different kind of intensity was on display. This time around, the number of people present swelled. While 2007 had drawn 11 people and no audience, Yas Island drew not only a larger participation but also a large audience, all eagerly converging to hear what could be done to resuscitate an industry in distress. Post Lehman, the district cooling industry began to flounder as it hit road blocks spurred by a precipitous slowing down of real estate construction. During 2006, 2007 and much of 2008, it had transformed into a behemoth that constantly fed on a slew of new projects – in Dubai, in particular – to keep the momentum alive. The downturn in its wake mauled the momentum, forcing the industry to look for sustenance for survival. Despondency crept in, though George Berbari of DC Pro Engineering, speaking as a member of the audience at Yas, pointed out that the melancholy was the offshoot of an exaggerated fear, considering that other avenues for business never did go away. Abu Dhabi, Saudi Arabia and Qatar were – and continue to be – robust, he said. UAE’s capital, he added, had such projects as the Khalifa University (20,000 TR), Saadiyat Island first phase (42,000 TR) and Abu Dhabi Airport (300,000 TR), over the next 15 years. In Saudi Arabia, he pointed out, Makkah and Madinah also had several projects, and in Qatar, Lusail alone had 400,000 TR in the pipeline.

Berbari’s comments notwithstanding, DC Dialogue at Yas Island essentially became an exercise in collectively identifying challenges, agreeing that they, indeed, were legitimate challenges, and proposing solutions.

A key challenge that the downturn immediately threw up was the lack of availability of sufficient projects in the market, compared to two years ago. While projects do exist to this day, as Berbari said, they are not sufficient, considering the large number of contractors vying for a share of a considerably smaller pie. By way of offering solutions, the participants agreed that there was a need to think broadly. Abdullah Zeneeh of Rio Electromechanical said that he saw an opportunity for growth and sustenance by focusing on existing buildings. Building owners, he said, were now being careful in sizing their plant rooms, in contrast to the profligacy of the past. The new mindset, he said, meant that it was possible to build smaller plant rooms in congested neighbourhoods and, thus, overcome the constraint of a smaller footprint. Ken Currie of Mott MacDonald, and a long-time proponent of a modular approach, said that distributed cooling was, indeed, the answer. A smaller plant room, he said, meant a smaller piping network, which could be accommodated even in congested utility corridors.

Some of the participants said that while building a smaller modular plant room was, indeed, a solution for Dubai, the proposal was not attractive enough to many building owners, and also end-users, because they lacked a true awareness and education about district cooling and because they had developed several misconceptions about the costs involved. Said Mohammad Abusaa, of ADC Energy Systems: “Some people are walking away, because they have seen only the large plant rooms and, thus, feel that district cooling will be expensive.” Added Zeneeh: “Also, the existing plants have never showed what they have achieved. A plant room is not what it was designed for. So the contractor has to prove (the effectiveness of district cooling) by using, say, BMS. Developers and investors want to see results. It has not been proved so far, and strongly. The figure of savings has not been achieved so far.”

The ramifications of poor PR for district cooling, some of the participants said, simply could not be ignored. While on one side, some major existing developments, like the Burj Al Arab and the Emirates Towers were in the process of migrating to district cooling, a reverse phenomenon was being seen in Jumeirah Lake Towers, where some owners were looking to move to standalone systems. Zeneeh pointed out to the example of a new development where the owner had already installed air-cooled chillers in the first phase and was, in fact, pressing ahead with the same for the second phase. This, Zeneeh said, was a worrying phenomenon. Suggesting that he was not surprised by Zeneeh’s words, Abusaa said that the industry ought to take note of the fact that the air-cooled market was not sitting still and was, in fact, building better efficiencies. “So we are facing this challenge as district cooling providers,” Abusaa added.

The participants said that in addition to educating building owners and end-users on the numerous benefits of district cooling, there was an urgent need to introduce government regulation to ensure that district cooling plants were energy efficient. Tawfiq Abu Soud of Drake & Scull went a step further when he said that regulation, as such, was insufficient, and that the government should issue mandatory rules. “(The use of) treated sewage effluent is mandatory for us, so why not make district cooling plants a mandatory issue?” he asked. This prompted Prabhakar Naik of John Buck International to say that mandatory rules would work but only if the benefit of the savings through district cooling was passed on to the end-user. “For it to be mandatory, the government should subsidise the rate (of district cooling),” he said. By way of substantiating Naik’s words, Currie narrated an interaction he had had with the main developer of a project, who told Currie that district cooling would not be attractive for him till there was a move to reduce the rate. Thiyagarajan of TransGulf Electromechanical agreed with the viewpoint of Naik and Currie. Referring to Zeneeh’s earlier comment about the need to pursue the possibility of installing a district cooling scheme in an existing development, Thiyagarajan said that owners of existing buildings would be willing to migrate to district cooling only if they were offered better costs.

Almost all the participants agreed that it was in the best interests of GCC governments to offer a preferential treatment to district cooling. Earlier in the session, Berbari had quoted the Minister of Oil and Gas in Saudi Arabia as saying that Saudi Arabia was currently consuming 3.5 million barrels a day for producing power and that it would be consuming seven million barrels out of 12 million barrels a day it would be producing in 15 years’ time. In that context, district cooling was crucial, in that it reduced power consumption, Berbari had said. Currie referred to Berbari’s words when he expressed the collective sentiment that the region’s governments ought to treat the industry better in a bid to conserve power.

Another legitimate challenge, the participants agreed, was the financing of district cooling projects in the midst of the downturn. He said that Drake & Scull had adopted a novel approach in situations where funding was not forthcoming. Citing a project in Sudan, Abu Soud said that Drake & Scull adopted the DBFO model. “The client owns the assets, and we finance it,” he said.

Saying that it was not easy to attract finance, Abu Soud added that those developers going ahead with projects did have the funds, but they were trying to protect the money. “They are keeping it aside for a rainy day,” he said. Zeneeh said the developers were adopting a cautious approach, because district cooling involved a long payback period. “They would want to invest their money in something else,” Zeneeh added.

A key challenge when it came to financing district cooling projects involved the extensive piping networks. Masood Raza of PAL Technology wanted to know if there was any way the district cooling industry could let someone else do the piping. Abu Soud said in response that piping was, indeed, a vexing issue, as it was a dead asset for two to three years, till the network started distributing chilled water. And with 15-20% of the total cost of a district cooling scheme going to piping infrastructure, that was, indeed, a lot of money. Abu Soud added that Drake & Scull had succeeded in getting the client to agree to finance the piping in the Durrat Al Bahrain project, though. “It improved the financial model and reduced the fee for the enduser,” he said. By way of offering an alternative approach, which could be equally successful, Naik said that the infrastructure cost could be recovered as a first-cost from the investor. Currie said that distributed cooling could be a strong answer to piping-related financial challenges. “It’s easy for Dubai Municipality to take ownership and put individual plants to ramp up cooling,” he said. “For me, distributed cooling is the way forward, because the piping will be small.”

Abusaa, while supporting distributed cooling for Dubai, said that it would perhaps not be prudent to advocate a modular approach for the whole of the GCC. A country like Saudi Arabia, with its large domestic population, has different needs, he said. “In Saudi Arabia, they don’t have the problem,” he said. “Our problem (in Dubai) is the expatriate population. So here, it is a challenge, but there it is not; they may need a large load.”

An equally formidable challenge, the participants agreed, was the very survival of district cooling companies as business entities in the near term, despite what Berbari had said about there being sufficient projects and despite there being hope in the form of possible schemes involving existing buildings. The participants agreed and acknowledged that the market had changed and that companies were diversifying and expanding as a natural way of adapting to survive. For instance, some of the companies are offering a raft of solutions that include MEP, power and water. Said Abu Soud: “You cannot sustain only on district cooling. That’s why we have Drake & Scull Water and Power, which includes all the infrastructure-related aspects: wastewater treatment, water treatment, power generation, sub-stations, district cooling and the networks you see underground. All these services are integrated.”

The feeling in the industry, the participants said, was that the large district cooling contracting companies were up to the task of offering a wide range of services. Said Thiyagarajan: “If you look at the background of the companies, most were general contractors that became specialists in district cooling. So there is an opportunity for people to migrate, definitely into sub-stations.” The big question, though, was, “Will a client accept a district cooling engineers who says, ‘We will do everything’?” The answer, Currie said, was a resounding “yes”. “I will accept,” he said, “because the capability is known. I think there is (room for) migration to infrastructure projects.”

Snapshots of the Event

Story: B Surendar | Photographs: Rey Delante


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