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‘Consolidation is the way forward for the District Cooling industry’

The UAE cannot carry more than two district cooling utilities, says Ahmad Bin Shafar, CEO, Empower, in this interview he gave to Surendar Balakrishnan, in which, among other topics, he spoke on Empower’s work with UNEP, interconnection of reticulation networks and the current regime of Low Delta T penalties. Excerpts…

| | Feb 15, 2020 | 8:10 am
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Ahmad Bin Shafar

WHAT PROGRESS ARE YOU ABLE TO SHARE ON EMPOWER’S WORK WITH UNEP’S DISTRICT ENERGY IN CITIES INITIATIVE?

We were selected to be one of the countries to work on the UNEP programme, and Empower was selected as an advisor on district cooling. We contributed a lot of our engineering hours and our management time. We spent time participating in their conferences and their events. And the purpose of it all was for serving the industry and developing district cooling. Dubai was selected as one of the 45 cities in the UNEP program on the basis of the fact that we were leading in the field of district cooling. We continue to support the UNEP programme.

AND WHAT ARE WE GOING TO SEE OUT OF YOUR SUPPORT FOR THE PROGRAMME? WHAT ARE THE LIKELY OUTCOMES?

To give you an example, the UNEP programme that is happening in Gujarat, in India, is resulting in Tabreed investing in India. The purpose of it is not for Empower to necessarily come in as operator but to encourage the concept of district cooling, and whoever can go there, it is good for them. And we as Empower are also seeing the commercial concept of it. I was advising the Minister of Industry in India and told him that India would be better off to set up a company in India that is owned by Indians, because it is a business that can be developed as a utility. And usually, the utility should be run by the country itself, rather than be outsourced to someone else.

BROADLY SPEAKING, THOUGH, WHAT EXPANSION PLANS DO YOU HAVE OUTSIDE THE GCC REGION, CONSIDERING THAT YOU WERE LOOKING AT INDIA TO EXPAND YOUR BUSINESS AT ONE POINT IN TIME?

Yes, yes, we were working on it as a proposal, but there is no conclusion yet. As you know, there can be progresses and delays from different countries. For us, in Dubai, we are moving faster and growing, as you can see from the numbers we are posting. Dubai is growing, even though the real estate market has been hit a little bit because of oversupply. Despite the market conditions, we have a good number of chillers connected over the last year.

WHEN YOU SAY YOU HAVE ACHIEVED 1,530,000 REFRIGERATED TONNES IN 2019, YOU ARE SPEAKING OF THE CONNECTED LOAD, AREN’T YOU?

Yes, it is the connected load.

SO, IT IS NOT THE CHILLER PLANT CAPACITY, CORRECT?

No, no, this is the connected load to the client, and the chiller is actually almost meeting that. We do have a diversity, but it is very thin.

WHAT IS THE DIVERSITY – ABOUT 70%?

No, we haven’t gone to 70%. If it were 70%, we would be left with very good money. You must keep in mind that over the last 16 years of Empower, a lot of assets have depreciated, and we have added a lot of technologies, which as you know, include treated sewage effluent (TSE) and reverse osmosis. These have helped us improve our profit margin. But the diversity, we haven’t gone to 70. These days, we go to maximum 10 or 12%, because the load is increasing.

WHAT HAS EMPOWER’S ROLE BEEN IN THE BUILD UP TO THE WORLD EXPO?

EXPO is an event for Dubai and for the UAE, specifically. Frankly speaking, to contribute to the EXPO, it is not necessary to be working on an EXPO project. Any customer we serve in Dubai, we are supporting them for the EXPO. We are connecting 17% of the hotels in Dubai. Now, Dubai has 700 hotels, so we are connecting 120 hotels. And all these hotels will be supporting the EXPO. Ours is an indirect contribution. All the entities in Dubai are contributing to the EXPO.

A FEW YEARS AGO, YOU SPOKE ON SEAWATER COOLING, ABOUT HOW YOU WOULD NEVER OPT FOR THAT APPROACH, SAYING THAT DOING SO WOULD RESULT IN THERMAL POLLUTION OF COASTAL DUBAI. HAVE YOU CHANGED YOUR MIND ON SEA WATER COOLING TO LOWER THE USE OF POTABLE WATER?

My technical team and I discussed it. The problem is not the sea water but the cost of getting the sea water, how to treat it for use in district cooling, and how to treat it to discharge it to the sea. In all, the cost of going for sea water would be higher than that for TSE. Over the long run, yes I agree, but I would never dump chilled water to the sea, because that would lead to ecological problems.

AT THIS POINT IN TIME, YOUR WATER USE PROFILE IS A MIX OF POTABLE AND TSE, ISN’T IT, CONSIDERING YOU DON’T HAVE ENOUGH TSE FOR SEVERAL PROJECTS?

We are always in the ratio of 60:40, with 60 for potable and 40 for TSE.

HAVE YOU CONSIDERED INTERCONNECTION OF DISTRICT COOLING NETWORKS TO OVERCOME IDLE CAPACITY? I MEAN INTERCONNECTION INVOLVING EVEN THOSE OF YOUR COMPETITORS. NOW, INTERCONNECTION MIGHT NOT BE TECHNICALLY FEASIBLE EVERYWHERE, BUT IT SURELY IS IN THE CASE OF DISCOVERY GARDENS, WHICH YOU OVERSEE, AND THE GARDENS, WHICH NAKHEEL OVERSEES, OWING TO THEIR PROXIMITY. 

In the United States, as you know, the grid is owned by the government, and a chilled water company distributes its water based on the needs of chilling of Building A, B and C. So, it is bringing 5,000 tonnes to the grid. And another company is supplying another 5,000 tonnes for a different set of customers. So, everybody is accounted for how much they are supplying to the system. Here in Dubai, we don’t have this integration concept. With the condition of the real estate market, the deterioration and reduction in demand for real estate, I think it is the right time for master developers, and for government and semi-government entities to get rid of their plantrooms to the bigger players. And this is the right tactic. At the end of the day, it is not their core businesses. And they have to give a chance to the people who are doing well. They can get rid of their district cooling assets, be it to us or to our competitors.

SO, YOU ARE RECOMMENDING A CONSOLIDATION OF THE INDUSTRY?

Consolidation is the way forward, whether they like it or not. Today, it is your investment, it cost you money to set up the plants. I would rather take my cash out of what I put in this investment and reinvest it in something else, in my core competency, not in something out of my zone. Outsourcing is a global business trend. Today, there is no taxi, there is Uber. With Uber, there is no brand. I and you can drive our car, and we are Uber. And they make extra money. This is the concept for the future. The way forward for the industry is transformation, and we have to accept the changes.

SO, YOU ARE SPEAKING OF A SPECIALISED APPROACH, THEN?

Absolutely. Why should I have all this investment if I am Nakheel? Or, if I am Emaar? Anyway, I outsource water, I outsource electricity, I outsource road and travel, I outsource services in the hotel, I look at what is feasible to me. This is how it works. But if I am thinking, or if somebody is advising me to put my investment into something that will create another source of revenue, yes go ahead, but it is subject to you succeeding in it; and you need to have a certain volume. If you have a small volume of it, it is not profitable. The way forward for this industry is consolidation. And the UAE cannot carry more than one or two companies. And I strongly believe in this. There will be two players in the end.

YOU HAVE ALWAYS BEEN A STRONG ADVOCATE OF TEMPORARY CHILLED WATER PLANTS AND CONVERTING THEM TO PERMANENT PLANTS LATER ON, ONCE YOU GET THE DESIRED LOAD. ARE YOU STILL STICKING TO THAT STRATEGY?

We call them semi-permanent plantrooms. If I start with a cluster that needs 10,000, 15,000 or 20,000 tonnes, I am completely against dumping an investment of 300 or 400 million dirhams when the expected return is two million.

DUBAI HAS A STRATEGIC OBJECTIVE OF INCREASING THE PENETRATION OF DISTRICT COOLING. WOULD YOU SAY ONE OF THE WAYS TO INCREASE THE NUMBER OF BUILDINGS CONNECTED TO A DISTRICT COOLING NETWORK WOULD BE TO MAKE IT MORE ACCESSIBLE AND PERHAPS MORE AFFORDABLE? YOU CURRENTLY CHARGE A LOW DELTA T PENALTY OF SEVEN PER CENT ON CONSUMPTION IF THE DELTA T IS 1 DEGREE F LESS THAN THE DESIGN? WOULD YOU CONSIDER LOWERING THE PENALTY?

If the return water is above nine, we have to pump more water, which means we spend more money. But we never straightaway penalise the customers for Delta T. We always give them a notification for six months to improve the Delta T. If they do not take corrective action, we give them an extended six months. We are always looking at improving the service. As you can see in our business card, it is written Empower Energy Solution, not Empower Penalty Solution. It’s an energy solution – we need to save money for the investor, we need to save money for the end user, we need to save money for the government.


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