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The word on the street

District Cooling has undoubtedly gained much ground in the middle east region, compared to other parts of the globe. However, the technical language surrounding the topic remains largely foreign to tenants bearing the cost. Has inadequate communication fuelled a certain lack of trust towards the system? What’s the word on the street among end-users? Hannah Jo Uy of Climate Control Middle East has the story…

| | Feb 15, 2018 | 10:42 pm
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District Cooling has become an increasingly popular cooling solution in the Middle East region, owing to the proactive role of governments to advance its penetration. Citing the case of the UAE, Sameer Daoud, Chief Development Officer and Managing Director at MEP contracting firm, Drake & Scull, KSA, says the UAE “has driven District Cooling to a completely different level”. Daoud believes that the UAE’s efforts to drive the solution “left and right”, is necessary in the context of energy efficiency. “If this is not governed and pushed by the government and local authorities,” he says, “it might not reach the level we want it to achieve.”

Dr Anwar Hassan, Vice President, Field Sales & Operations, Johnson Controls, says that in Saudi Arabia, there is wide acceptance of District Cooling among consultants and owners as a favourable concept and practice. “Adoption, however, remains elusive,” he says. In Saudi Arabia, District Cooling is very common in single-owner multiple buildings, Dr Hassan says, noting that it is mandatory in government developments requiring 15,000 tonnes of refrigeration (TR) or more, following a royal decree. In the case of commercial District Cooling with multiple clients, he says, the concept
is accepted, but there is difficulty in assuring availability and cost of infrastructural services, such as Treated Sewage Effluent (TSE) and feeling comfortable about levels of off-take and applicable charge rates and that “future change in rates is impeding adoption in many potential cases”.

“These are major concerns in the minds of those potential commercial and residential tenants,” Dr Hassan says. “It is clear that standards must be set and guidelines published for charges. And public bodies for setting rules regulating the dealing of tenants with utility District Cooling suppliers are needed to help resolve this matter.” Dr Hassan says that supply and the rates applicable to TSE also need to be communicated publicly and “committed to as a utility with standard rates and not privately negotiated contracts before participation becomes a wide front trend”.

The word on the street

While industry experts discuss the technical merits of District Cooling, end-users struggle in dealing with the cost of a system they have become often unwitting consumers of, owing to the apartment or development they inhabit.

A survey conducted by UAE-headquartered consultancy firm, DC PRO Engineering, explored perception of District Cooling among consumers. The survey asked key questions and had 10 respondents. The first question pertained to the level of satisfaction regarding the reliability of their District Cooling service provider. Thirty per cent of the participants answered that they were ‘Extremely Satisfied’, 10% reported being ‘Very Satisfied’, 10% reported being ‘Somewhat Satisfied’ and 50% said they were ‘Not Very Satisfied’.

The second question sought to determine whether the meter charges, capacity or demand charge or energy charge were well understood by the consumer or not. Sixty per cent of the respondents answered ‘yes’, while 40% answered ‘no’.

The third question pertained to how consumers viewed their District Cooling charges. Seventy per cent answered that it was expensive, while 30% said it was fair.

To the last question, ‘What do District Cooling service providers need to do to improve satisfaction, the following were the answers and comments…

  • Determine and manage the customer’s actual cooling requirements
  • Reduce the energy needed and, hence, maintain costs
  • Pass on the savings in energy cost to the end user
  • To share the savings, as they claim – that District Cooling is 60-70% cheaper than conventional cooling; the reality is different
  • Run the plant at full capacity
  • Transparency in reading the counter
  • More efficient, and less expensive charges
  • Charge based on actual consumption
  • District Cooling charges are coming higher than chillers/split ACs for residential users

Fleshing out the figures

In an effort to flesh out the figures, Climate Control Middle East interviewed relevant stakeholders. Samer Shahin was one of them. Shahin, CEO of a marketing and innovation firm, who has a 1,695-square-foot office in an upmarket neighbourhood in the UAE, says he is acutely aware of the cost of District Cooling.

Speaking from his understanding, he says District Cooling was developed to save energy, in line with sustainability goals and that it was showcased as being more cost-effective for the consumer. “I’m not sure how the first level is being achieved,” he says. “I’m not checking on the [overall] efficiency of the power and sustainability [aspect], “but for us end-users, we find that the bills are extremely expensive.” The entire mechanism, he says, adds another layer of expenses from the onset of registration. In his case, Shahin says, the cost immediately came upon ownership of the office even prior to occupancy, despite the fact that it took a year or more to inhabit the space, as it needed to be fitted out, plus the time it took to obtain necessary approvals from the civil defence and other matters before tenancy.

Shahin says that upon moving in, the bills for the company just continued to increase, owing to consumption as an occupant, adding that building owners and management rarely make an effort to negotiate or represent the interests of the tenant. Georgina Deeb, a tenant of a building in another upmarket neighbourhood in the UAE, echoes the expensive nature of District Cooling demand charges, which, for the most part, she says, reveals itself in a bill that she says is vague and unclear.

Matthew Green, Director, Head of Research & Consulting UAE, Strategic Advisory, CBRE Middle East Region, provides a perspective on the possible implications that concerns over District Cooling could have on the uptake of investment in real estate developments that only offer this option. “There is a bit of a general distrust, I suppose,” he says, “because it appears developments that have District Cooling have higher associated cost without any particular benefits for the end user. Not even just that, developers appear to be passing on infrastructure cost to investors.”

Green adds: “As an investor, you buy a development that has a District Cooling equipment rather than a [standalone] air conditioner, you will have higher monthly or annual charges. If you have an older building, [with a] split [unit], you will pay less than a new development that has District Cooling provider.”

For his part, Shahin summarises the key questions he would like District Cooling providers to answer: “First, why can’t you clarify to the property owners what exactly they are paying for? I’ll be unhappy if my AC is [being used] in the common areas. We don’t know who is paying for what? Is it possible that the chilled water that comes to the unit is shared with common areas, or are the common areas operated by management part of the maintenance charges already being paid? And how can you guarantee that the water temperature is actually a certain temperature and is not causing more work for compressors and fan-coil units?”

The missing link

Tenants, such as Shahin, say they are not necessarily against the system. “I want it to improve,” he says. “I just want us to have the control and the ability to understand how we are charged and the ability to know that if we turn off the air conditioner and don’t consume [energy] we could be rewarded.” Green seconds this, saying there is no guarantee that if one is efficient and does not use as much electricity, the bills would be lower.

Shahin is adamant about the need for greater transparency. “Where can we actually check the water temperature that comes to us?” he says. “If it’s not chilled enough, it means we get a higher electricity bill and consume more power. They’re also not transparent with how they are calculating the bill. Are we paying someone else’s bill?”

Green also touches on the issue of transparency in the context of its implications in the real-estate market, saying that most investors are not aware and do not realise the impending additional charges upon purchasing into such types of developments. “The developer probably doesn’t know,” he says. “It’s also not disclosed when investors purchase [the property], and there’s nothing from the District Cooling providers.”

Green adds: “More transparency from District Cooling providers with regard to service charges will always be welcome, particularly from an investor’s perspective. If you are buying [a property], you want to see the yield once you take the expenses. If you’re buying, and you don’t know the additional expenses, you cannot make the investment decision with a clear picture.” Green emphasises that this is especially the case among international investors, who are used to a level of transparency, which they need to be granted in this market. In an effort to isolate the problem and move towards a solution, Shahin draws from his professional experience in communication to emphasise that the answer lies in taking the issues into account and developing a more customer-friendly mechanism. “This may cost money,” he says, “but it’s valuable in the long run, [because it’s about] increasing the brand equity, appeal and advocacy. Once there are independent checks and balance, the customer will take the effort. [It’s important to] listen to and understand the suffering we have and alleviate these issues. It will be good for the [District Cooling] companies, and they stand to win in the long run, [and it will help encourage] people to move into such communities because it is better and more transparent.”

A call to action

The creation of a more customer-friendly District Cooling mechanism, besides requiring more effective communication channels, is also dependent on stakeholders involved in the infrastructure. Dr Hassan says: “The fact is that adoption and implementation is impeded by the lack of clarity on a number of practical considerations. Since utilities are basically monopolies (partial or full), clarity on availability of utilities and the cost is needed for investors to be confident of the correctness of their choices.”

Providing an example, Dr Hassan says that determining whether TSE is available or not, when it is available at a particular location and at what rates is “a pretty hard set of questions to get an answer for”. “Without such answers being public knowledge with commitment behind them,” he says, “it is difficult for the energy efficiency conversations to progress and lead to favourable decisions without one party taking a leap of faith or having sufficient influence to find out the answers as an individual.”

Dr Hassan adds that in many cases, energy-efficient solutions make it necessary to have a system for billing chilled water supply for air conditioning as a utility. “Clear answers are needed to questions from providers of such a utility regarding what assurance they have that future tenants and property developers will sign up to use their utility, and by the same token, tenants and property developers will need assurances on what prices they will be charged by the utility providers,” he says. “Arbitration and standards bodies, in addition to mandatory procedures and processes for setting rates and arbitrating differences, are needed to boost the rate of adoption.” All these, he says, are issues where the government can take lead. “It has an important role to play in setting up finance rules that get such socially progressive practices off the ground at the initial stages,” he adds.

Additionally, prevailing design and construction practices are proving to be a bottleneck. Dr Hassan comments on the lack of proper hydraulic balancing, leading to a situation where the projects at the end of the reticulation network are not getting adequate chilled water. “This is very common in many District Cooling loops,” he says. “Recognising the malady and calling on experts to help resolve it is not yet a wide practice. The practice of optimising systems is in its infancy and has a long way to go. Customers are challenged by the task of setting up contracts targeting performance enhancement, since the environment has not practised this widely in the past.”

Dr Hywel Davies, Technical Director, CIBSE, echoes the same issue around contracts, drawing comparisons from CIBSE’s involvement with the code of practice in District Heating in the United Kingdom. “The critical thing with any District plant, whether it’s heating or cooling, is you’re sending a fluid out at a certain temperature and you want it back at a certain temperature – the difference between the two is critical. There’s a big issue around contracts between customers and the plant, because they want the return flow at the right temperature.” Dr Davies says that the customer must be able to manage the system in such a way to ensure the right temperature.

Dr Davies believes the answer lies in education, noting that the main issue is the competence of the sector to produce good District Heating or Cooling designs. “[In the UK], we have a scheme for recognising competent District Heating practitioners,” he says, “and that’s all being driven by government wanting to know that the money it’s putting into schemes is being spent with people who know what they’re doing.” Dr Davies says that the clients are being strongly encouraged to use competent people and that the code of practice is a requirement for a scheme that is funded by the government.

Dr Davies adds that another issue of concern is the significant amount of infrastructure associated with the system. “Whether it’s District Heating or Cooling,” he says, “you need a well-insulated pipework that is not cheap to build. There is an issue around skills to build them well. Whatever is connected needs to operate – a chain is only as strong as its weakest link.” Dr Davies adds that with the relatively high upfront investment, people would need to get the revenue or suffer a loss, pointing out that, “the people putting the money in are not engineers in a sense we understand – they tend to be financial engineers”.

Broadly speaking on the challenge of optimising opex and capex in the Middle East region, Dr Hassan says: “The contracting market is nowhere as developed in contracting performance-based projects as it is with bill of materials-based plan and spec projects. The criterion for optimum selection of systems and major components based on proper evaluation of lifecycle cost is lost to the widespread lump sum construction contracts based on specifications that are not very sophisticated, and the evaluation criterion of the different merits of products is often limited to first cost.”

Daoud provides a contractor’s perspective when he says: “We intend to try, but within certain limitations. We have delivered many projects around the world and in the Middle East, in particular. We are aware of the end-users requirements and demand. We try to share that with our clients as well and make sure they are on board, but at the end of the day it’s the client’s decision and the developer’s decision on what specifications and what quality they want to implement within their projects.” Daoud, however, believes that as contractors they have an obligation “to educate, communicate and share with our clients what are the real market needs and what needs to be implemented”. We do that, we will continue to do that even if it doesn’t get accepted or it doesn’t actually get approved, he says.

Daoud says that he remains optimistic that there will be a move in the industry towards a positive direction. Despite the many constrains in the market, Daoud says he believes that an open mind and willingness to share knowledge can help move the industry forward – for the benefit of all parties involved.

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