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There are no two ways about it – the industry needs to adopt a decisive and open-minded approach to win over building owners still reluctant to connect to District Cooling. By B Surendar.

| | Jun 8, 2014 | 11:44 pm
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There are no two ways about it – the industry needs to adopt a decisive and open-minded approach to win over building owners still reluctant to connect to District Cooling. By B Surendar.

The GCC’s dalliance with District Cooling is nearly two decades old. In this time, the behemoth has been eulogised and flayed with almost equal vigour, with the post-Lehman skew adding to the murkiness.

It is easy to get emotional about District Cooling, but in any discussion on the subject, it is essential to consider technology and finance, as applied in the region, as two separate aspects; without the dichotomy, we would be headed towards a skewed interpretation.

From a technology point of view, District Cooling has a lot going for it, with the diversity it affords a powerful factor in its favour. In fact, it won’t be inaccurate to say that a good diversity can save 30-40% of energy consumption when compared to a standalone scheme.

The savings in energy leads to a well-spring of benefits, among them being a reduction in costs for multiple stakeholders, be it the building owners or the utilities that are hard-pressed to invest in more power generation, transmission and distribution infrastructure. An equally beneficial outcome is the contribution to mitigation efforts related to climate change, with a reduction in direct and indirect emissions. In short, the benefits are economic, environmental and social in nature.

The financial aspect is a different story altogether, and therein is the conundrum.

Looking back, putting things in perspective

The 1970s saw the growth of large single-client centralised cooling plants in the Kingdom of Saudi Arabia. Those plants were a collective precursor to the emergence of District Cooling in the GCC, with the emirate of Abu Dhabi taking the lead. Today, the GCC is home to 4.2 million tonnes of refrigeration (TR) served by means of serpentine chilled water networks.

In terms of total square footage under District Cooling, countries like the UAE and Qatar have more capacity in place than North America. The UAE is home to approximately 2.8 million TR of District Cooling, with Dubai, in particular, claiming a penetration of 20% of the total cooling market in the emirate.

To bolster the situation further, in a major development, Empower earlier in the year announced the acquisition of Palm District Cooling and Palm Utilities, with its CEO announcing that by virtue of the deal, Empower had risen to become the largest District Cooling provider in the world with a capacity of one million TR. In neighbouring Abu Dhabi, Tabreed is edging towards the same mark. They along with Emicool and Emaar District Cooling constitute the bulk of the UAE market, which is robustly trying to shake off the gloom of the downturn. In some quarters, Dubai winning the EXPO 2020 is being seen as a major boost to business confidence and as capable of forcefully thrusting the green shoots of economic recovery through the soil.

Perhaps buoyed by the anticipation of a nascent upturn, Empower has already announced expansion plans, with a 120,000 TR plant for TECOM Investments’ D3 project, among them; further, there is a likelihood of a 150,000 TR plant in Al Jadaf area of Dubai.

Qatar is also on a growth trajectory – FIFA World Cup 2022-propelled or otherwise – with Qatar Cool announcing a fourth plant, which will serve Doha’s West Bay area with a total capacity of 40,000 TR. This is in addition to efforts underway in Lusail City and in the Heart of Doha project.

In the Kingdom of Saudi Arabia, there is an on-going major strategic Government push to reduce domestic consumption of energy. Currently, the Kingdom of Saudi Arabia, consumes an estimated three million barrels of oil a day of the estimated 10 million barrels produced a day. (Climate Control Middle East is unable to verify the exact production and consumption figures, but data culled from different sources do indicate they are close to the production and consumption figures, mentioned above.) The estimated domestic consumption, according to reports, is going up by eight per cent a year, and if allowed to continue, could firmly place the Kingdom on the route to becoming a net importer of oil by 2030, according to a report in UK’s The Guardian newspaper.

Of the estimated domestic consumption, a substantial volume is for generating power. And like elsewhere, approximately 70% of the power supplied to individual buildings goes towards running the electro-mechanical HVAC equipment. The connection is obvious – there is a definite role for a cooling technology that is able to reliably do the job in an energy-efficient manner. The District Cooling industry has put its hand up, believing it has a role to play, along with combined heat and power (CHP) and tri-generation. That said, District Cooling has a market share of only three per cent in the Kingdom and is still facing headwinds. It must, however, be said that such is the enormity of the size of the country that there are individual District Cooling projects planned that are abnormally large in size.

Overall, the redeeming aspect, though, is the determination of the District Cooling players to make inroads into the market. Of all the cooling approaches, the District Cooling industry is relatively more organised when it comes to collective introspection efforts and the collection of operational data as a source of benchmarking for continuous improvement; it is another matter altogether that commercial considerations often impede the sharing of the data, and this is one area that the players ought to work towards establishing a close-knit unit.

The sharing of operational data is a minor issue, though, when viewed against a broad context. In all the years of District Cooling in the GCC, generally speaking, owners of buildings have shown a reluctance to connect to a centralised plant regimen, with the high costs acting as a key factor; they have shown a preference to install a standalone chilled-water system, saying that the initial costs involved in acquiring dedicated chillers and other equipment can be recovered in a few years’ time, considering it is far cheaper to cool their buildings that way than to pay a District Cooling provider.

Another issue is the penalties levied on building owners in the initial years over low Delta T. Again, ‘initial’ is a relative term, because it could stretch to even close to five years, if not more. Many building owners have cried foul over the penalties, saying that the inefficiencies are the result of being served by means of temporary air-cooled chillers, which are reportedly unable to match the efficiencies of their water-cooled counterparts.

To date, District Cooling providers have not been able to effectively solve the conundrum of costs. It is true that the cost of laying reticulation networks alone is extraordinarily high, and overall, District Cooling providers are up against a capital-intense scenario. As commercial bodies, they say they have an obligation to recoup costs through District Cooling connection charges and chilled water tariffs, but, as mentioned earlier, the argument does not hold water with many building owners. They have their respective bottom-lines to consider and feel the standalone route (captive central cooling plant) is more cost-effective.

Regulation-wise, steps are being taken that support District Cooling in the region. The Dubai Supreme Council of Energy, for instance, has eight programmes to manage energy demand, including regulations and specifications for green construction, retrofitting of existing buildings, District Cooling, wastewater reuse, regulations to raise the standards and efficiency of devices and lighting and working with private companies to retrofit 30,000 buildings in Dubai. It is up to the District Cooling industry to rise to the occasion and take care of pending issues.

So far, the industry has used the virtues of savings on footprint – carbon and real estate – and reliability in an attempt to bolster its case, but for most building owners, seared by the economic downturn or otherwise, these are not factors in the overall scheme of things.

To say that District Cooling is at a crossroads in the region is akin to glossing over the issues related to costs. The need of the hour is a robust and open-minded discussion to evaluate the ground realities related to costs, with due consideration given to the voices of a wider section of building owners. From there alone will emerge top-quality solutions that will point to the general direction that the purveyors of District Cooling ought to consider taking and to the balancing of multilateral interests.

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