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The road travelled since 1998

On the occasion of Tabreed celebrating its 20th anniversary, George Berbari, CEO, DC PRO Engineering, looks at the progress made by the District Cooling industry in the region and, in the process, highlights some of the issues that need urgent attention for its growth and wellbeing

| | Jul 15, 2018 | 5:25 pm
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It has been 20 years since the inception of Tabreed as a pioneering District Cooling utility company in the Middle East. In this time – and especially in the last few years – the District Cooling industry has achieved several milestones to indicate a certain level of maturity. Indeed, we have been witness to recent significant developments, including…

  • Engie acquiring 40% of Tabreed for an amount of AED 2,800 million
  • Dubai Investment acquiring 50% shareholding in Emicool from Union Properties for an amount of AED 500 million, and planning an IPO soon
  • Tabreed acquiring 50% shareholding in S&T Cool District  Cooling company on Reem Island from Aldar Properties for AED 348 million

Besides Engie, international District Cooling utilities in Malaysia, Singapore and South Korea are interested in the  UAE and are showing a keenness for moving to the region. The interest is owing to record revenues, estimated at AED 5 billion, and net profits, estimated at AED 1.5 billion, the District Cooling industry in the region has achieved, and is on track to increasing in the coming years. The financial showing is led by the two major    players in the region – Empower with AED 1,960 million in revenues and AED 772 million in net profit, and Tabreed with AED 1,399 million in revenues and AED 400 million   in net profit. And then, there are the medium- and small-sized players, such as Emicool, Emaar   DC, Pal Technology, DFC DC  and City Cool, which to my knowledge haven’t published their data, forcing  me to arrive at values based on logic. Overall,  the picture  makes   for pleasant viewing when we consider that the District Cooling utility industry in the UAE is estimated to have a market value between AED 25 billion and AED 30 billion and can grow even further if government and private  institutions sell their District Cooling assets. Indeed, from a District Cooling utility perspective, the current situation is healthy and is set to get better in the years to come. Buoyed by continuous growth and an assured universe of customers, the utilities, generally speaking, are under no pressure to change their current approach. The room     for growth is phenomenal, though, as the current penetration of District  Cooling is less than 10% of the air conditioning market, and as the construction and air conditioning market itself is growing at the rate of a few percentage points a year. All said, the dominant sentiment is, “If it is working, why break it?” Electricity and water utilities in the Middle East, generally speaking, are making bulk profit as well from selling electricity, water and sewerage to District  Colling, amounting to around AED 2.5 billion a year. Most of the utilities penalise the District  Cooling and the central  air conditioning industry by selling electricity at a higher rate compared to the rate for operating inefficient  unitary  air  conditioners, with the exception of Abu Dhabi, where District Cooling and the central air conditioning industry enjoy lower rates than individual users. District Cooling brings benefits  to the building developer.  The truth of the matter is that the main project or building developer enjoys  a 5-8% reduction in total construction cost and a 30-50% reduction in utility connection fee, when a building  is connected to a District  Cooling utility provider. Everyone is happy, except seemingly the end user, who reluctantly and without having much choice, is probably paying almost double than what he would if using a unitary air conditioner. This is an important aspect for consideration and something that regulatory bureaux, electricity and water utilities and District Cooling utilities need to pay attention to. In Copenhagen,  where   98% of the  city’s residents are connected to its District  Energy  network, the end user, on average, is able to save € 1,500 a year in comparison with any other system. The setup is helping the city to become the world’s first carbon-neutral  city by 2025. The lower rate of the District Energy regime in Copenhagen was designed and created by giving tax rebates to all power producers, industries and wastewater-to-energy schemes to feed their waste heat to District  energy  plants and give it  the incentive it needs to serve everyone and, at the same time, keep an eye on safeguarding the environment. Governments in  the Middle  East need to plan for carbon-neutrality, and that requires the following change in approach:

1. Renewables are growing at a fast rate, but without an integrated energy strategy, the GCC region governments are likely to face an increase in energy costs and a serious disruption in power management and storage.

2. District  Cooling needs to reach 90% market coverage through using a completely different  technical and financial approach, which would integrate it with the city or country’s carbon-neutral  policy:

a. Ideally, 50-100% of the electricity needed to run District  Cooling schemes should  come from renewables, and again ideally,  100% of the water  usage should  be from Treated Sewage Effluent (TSE), or other sources, such as sea water and geothermal.

b.  Waste-to-energy should include power generation and large industry and city waste conversion to District  Cooling.

c. Thermal Energy Storage should become the main energy storage technology used to harvest the intermittent renewable energy, mainly   solar, for use during night or during low solar energy periods.

3. Electricity and water utilities ought to consider changing their tariff structure to favour District Cooling utilities and, thus, make it more beneficial for the end user to use District Cooling.

Are we hopeful these changes will soon happen in the Middle  East or not? As an industry representative, I have learnt in the last 20 years that patience brings results  in the medium-to-long term and that we need stamina and perseverance to direct the region   into a better and more competitive future.

 

George Berbari is CEO of DC PRO Engineering. He is also author of the internationally acclaimed book, The Energy Budget. He can be contacted at gberbari@dcproeng.com.

 

CPI Industry accepts no liability for the views or opinions expressed in this column, or for the consequences of any actions taken on the basis of the information provided here.


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