Could you elaborate on the changes blowing through the District Cooling industry?
There have been many changes recently. One of them is the work by the Regulatory and Supervisory Bureau (RSB Dubai), which is the right combination for future development in the emirate of Dubai. In the contexts of Dubai Energy Strategy 2030 and 2050, District Cooling remains one of the main pillars of transformation, in addition to other sustainable utility features and renewable energy, including solar and probably wind; for now, it is mainly solar. We at Emicool are doing some R&D on wind, but we still have not reached a conclusion.
As a utility, we believe the cooling industry landscape is moving towards District Cooling, and there are certain KPI targets through the Dubai Supreme Council of Energy for the penetration of District Cooling, and we believe Emicool is one of the leading district Cooling companies that will be able to support the strategic approach of the government.
RSB Dubai are doing their optimum best to strike the right balance between the service provider and the customer. Yes, they are customer-focused in their decision, which is good, and they want to give a certain customised delivery model for customers. Of course, the law is a bit generic in terms of the direction, but they are doing amendments now on execution services. As Emicool, we are monitoring on a daily basis and observing the revisions. Any guidelines they put, they put interpretations, and they put requirements on the developers and sometimes on the applicability for the service provider. The RSB have put regulations for service providers and billing agents. In other words, they are trying to justify the B2B versus the B2C concept. They are trying to give more information on B2C.
As Emicool, we were pioneers in 2007 in transforming the B2B [model of District Cooling] to B2C. We started billing consumers directly in the Green Community. Other suppliers are supplying chilled water to the ETS, but we moved and put sub meters beyond that point. So, it is an advanced move by the RSB in issuing guidelines and requirement – for example, the recent one on metering and billing charges, which is dictating what should be in the billing, what are the main elements and components, the accuracy of metering and the meter maintenance strategy that should be adopted.
RSB are being customer-focused in order to improve customer delivery. On the other side, they have created the District Cooling Association to discuss certain important matters in District Cooling, to understand the point of view of District Cooling service providers. They are communicating with the Association, of which Ahmad [Ahmad Bin Shafar, CEO of Empower] is the Chairman, and Emicool is a permanent member, as are Tabreed, Al Futtaim (Dubai Festival City) and Dubai South. There is always a discussion involving these members and the Chairman, and most of the meeting is witnessed by RSB. I believe this is a very advanced and qualified move towards reaching the proper regulatory body. We are on the right track now, I believe, to obtain better regulations from the regulatory body, so this is from the point of view of regulation.
We at Emicool believe it is one of the most advanced and more attractive learning curves for others in the Gulf region to understand how Dubai has built successful [District Cooling] regulations. But we cannot deny the matter needs time, for we are talking of highly sophisticated technology relating to service delivery and how chilled water is pumped from plant to end user. It is a journey, and within a short duration of time we will have an execution version.
Are you still hard at work in persuading the utility to consider a more favourable tariff for District Cooling?
Today, if we need to make District Cooling more attractive and commercially viable for customers, we need to give certain incentives. We at Emicool are working on a sort of green carbon balance and decarbonising concept, and there should be a more tangible carbon footprint and decarbonising. The amount of carbon emission savings in Dubai Investments Park is huge. The main thing is, how will you pass the decarbonsing impact to customers. This is the main point that people need to understand. Media say we need to reduce cost and carbon emission. People need to understand the technicality of this. The issue is proper education, a learning curve that has been given to the customer. You need to change carbon into credit or savings. There should be a sort of institution that comes and takes that carbon and puts incentives to end users through a carbon bank, which should be supported by worldwide and national government bodies. We say, “save the trees.” That concept itself in some places in the world is incentivised for farmers and other people linked to agriculture. You have to make it more tangible for people here. The carbon incentive to be given could be sort of reduction in rates. This is a smart sustainable concept we are talking about – of making the end user take the benefit out of it. Today, if somebody has one split or two split units they can be in green zone when it comes to slab tariff structure. And it is not the same rate for a person who has six ACs. So, in other words, if somebody reduces consumption by operating only one AC unit, he can cut his bill, but in summer, it is hard to be in the green zone. People with split units are enjoying the slab tariff structure. But in the case of District Cooling, I operate huge chiller, so where is the reduction? So, the customer is always paying at the high slab in the case of District Cooling. So, we are in talks with DEWA [the Dubai Electricity and Water Authority], and they are thinking of putting special rates for District Cooling. We believe it will happen, but we don’t honestly know when. You have to give certain incentives to make District Cooling more attractive.
We have been seeing consolidation of District Cooling companies in the last few years. Do you see this as an opportunity to interconnect District Cooling Plants to lower idle capacity, which is estimated at 50% in Dubai?
To tell you the truth, yes… interconnection will help, but you need to understand idle capacity. The business of District Cooling is capital intensive, and when you build, you have a safety factor; nobody builds marginal load, for if something goes wrong, it could cause a problem and attract complaints of not being up to service standards. For the developer, it is not top priority for them to build District Cooling plants, but they need air conditioning. So, they make capital-intensive investment or go find the nearest District Cooling provider. Sports City and Damac Hills are true examples of how we have capitalised on our Hessa Road plant, and we have delivered chilled water to Damac. So, you use idle capacity, and you gain prestigious customers in your territory. The consolidation happened in a brownfield project, or you build network to achieve capacity. So, the concept is visible. We have tried it, and yes, it improved the key financial indicators for the service provider. It improved capital costs for the developer, but finally the end user is still stuck with the same tariff. It is the same concept as that of carbon – how to pass through downstream. Also, developers should have portion to pass some of the savings.
When it comes to consolidation, a key question is, “How many times the book value was the District Cooling company sold for?” The global trend is for buyers to cover up their costs, which invariably leads to pricing pressure, which eventually affects customers.
In any transaction, the financial consultant’s job is to maximise the evaluation. Financial institutions and banks that take the lead for such acquisitions do not work towards striking the right balance – they push hard for their fees. The consolidation activity is seeing high valuation spikes, but the business of District Cooling is mature. The uitilisation of District Cooling is wonderful in the UAE. Investors from other parts of the world have a heavy appetite, and they want to put money and acquire the business. I mean, what is more secure than underground piping and chillers lasting 30 years. So, District Cooling is an attractive model for investors and for developers, who want to get rid of some of the assets in their balance sheet and make money. It is about supply and demand at the end of the day. Real estate escalated and de-escalated based on the geopolitical situation. So, consolidation of District Cooling shall also be part of such an increase or inflation, because it is a secure business at the end of the day. You cannot live without air conditioning. Hospitals cannot work, factories need air conditioning, so if you are asking me how to make it adaptable, it is a cycle, and I have not seen any escalation of price of District Cooling, in terms of acquisition price or market price. So, what about the consumer? There was a risk, earlier, but the presence of RSB is ensuring this is being regulated. You have to take an approval now if you are buying a utility, and RSB can say “yes” or “no”. If it is in their charter to regulate, then it would be regulated.
An estimated 50% of District Cooling Plants do not have Thermal Energy Storage, which is widely considered the best way forward for an efficient approach to energy management. I would like to hear your thoughts on this.
We at Emicool have the largest penetration of Thermal Energy Storage towers. Around 70% of our plants are equipped with Thermal Energy Storage, especially in Dubai Investments Park. And yes, I agree with you that we need higher penetration of District Cooling, and Thermal Energy Storage is the best, most attractive and reliable source of back up and support for mechanical energy, and it is also an energy-saving tool. It creates a certain diversity of your building electric load. You are creating energy from the existing chilled water storage that you have. To complement your business well, though, the Thermal Energy Storage regime should be able to benefit from peak and off-peak rates. If you are buying from DEWA, then DEWA should give you a rate by night, just like in Canada, just like in certain places in France. If you do so, then Thermal Energy Storage will work perfectly, and then you will be obliged to pass on the savings to the end-user.