Henrique Pereira, CEO, Taka Solutions, in an interview he gave to Climate Control Middle East (February 2023 issue), elaborated on the benefits to be had through adopting Cooling as a Service (CaaS). He spoke of how the approach is the way forward and described it as a game-changing solution amidst turbulent financial times and the urgent need for substantial climate action.
About six months later, Pereira says that with more solution providers adopting different variations of the CaaS model, more and more customers are becoming aware of CaaS business models, especially in the UAE. Over the past 8-12 months, he says, the growth of CaaS as a sustainable cooling solution in the Middle East is remarkable. “We are actively promoting CaaS and have seen positive feedback and engagement from various sectors, especially large groups and industrial facilities looking to retrofit their existing chiller plants, develop greenfield projects or expand their business operations,” Pereira says
Joining the conversation, Fadi Shamsi, CaaS expert, ENGIE Solutions GCC, says his company, too, has witnessed an increase in demand for CaaS in the last few months across different sectors, with the highest demand coming from the industrial sector. Though ENGIE Solutions is currently in discussion with several entities, Shamsi says, deal closure is entirely dependent on the ability of all parties involved to agree on a fair tariff and on the contract terms.
Jason Prince, GM – Sales & Business Development, EFS Facilities Services, shares a similar perspective as Shamsi and Pereira regarding the progress of CaaS in the Middle East region. From EFS’ point of view, Prince says, there has been a lot of acceptance for the concept; however, we are yet to see an actual implementation, and many projects are in the last stage of discussion. “There has been considerable progress for the CaaS model in the region, especially in accepting the concept,” he says.
Shifting the discussion to the factors that are contributing to the growth of the CaaS in the region, Pereira says the ambitious energy-efficiency and sustainability goals set by many GCC region countries are, in a way, pushing the cooling industry to adopt more innovative business models that are technically and financially feasible at a macro level. CaaS, he says, aligns with these sustainability initiatives and contributes to achieving emission reduction targets. Besides this, he says, there has been an increase in interest amongst some local government bodies to promote such new models as CaaS. He says: “Supportive regulatory frameworks that encourage energy-efficient technologies and sustainable practices have contributed to the growth of CaaS, and we have seen some local governments taking action to promote these new models. We have also seen an increased interest from local governments in CaaS and have been working with them to promote this business model. The positive impact and result of their support in creating awareness can be directly seen through the uptake in interest in the models.” Furthermore, Pereira says, customers are becoming more aware of alternatives to District Cooling and are understanding the pros and cons of each approach. Customers, Pereira says, are now aware of the far bigger advantage of custom-designed, built-and-operated cooling plants that cater to their needs, now and also in the future.
With the soaring temperatures in the GCC region, Pereira says, the demand for cooling during summer is significantly higher, and thus there is a need for more efficient and advanced technologies. He says, “Advances in cooling technologies, such as energy-efficient chillers, heat pumps and thermal storage systems, have made CaaS more viable and attractive, as these technologies can help reduce energy consumption and operational costs efficiently.”
For his part, Shamsi says, the cost of cooling, which has traditionally been embedded in building management costs and rent, has become tangible with the increase in the number of jointly owned properties and with governments slowly reducing the subsidisation of electricity. In addition, Shamsi says, projects due for chiller replacements, and the intensive investment associated with such replacements, have persuaded building owners to seek alternative solutions, where such expenditures could be shifted to opex. In the industrial space, he says, the increase in demand for products due to market growth and globalisation, which calls for the most sustainable production, along with the rise in utility-related costs, has led investors to recognise the need for more efficient and cost-effective solutions.
Weighing in, Prince says that the growth of CaaS in the GCC region is also associated with the increasing need for ESG reporting in the region. A chiller-based HVAC system, Prince says, contributes to 70% of entire energy consumption, and the companies require the associated ESG-related data to report on a weekly and monthly basis. Clients, unable to extract the date efficiently, owing to the lack of an adequate workforce, approach companies like EFS for cooling solutions, he says. ESG reporting, thus, has been indirectly playing a vital role in the increasing popularity of decentralised cooling solutions such as CaaS, he adds.
Prince also emphasises clients’ requirements for pay-per-use cooling models and highlights the importance of life cycle analysis in the effective implementation of pay-per-use cooling models. A complete life cycle analysis, Prince says, will help the client understand which model would work the best for their requirements, because pay-per-use cooling models do not work for everybody.
Meanwhile, Pereira says, clients now value the flexibility in the operations of pay-per-use cooling models. He says, “Clients are aware that pay-per-use cooling models offer scalable solutions aligned with demand, avoiding large upfront costs and including maintenance.” Moreover, Pereira says, paying for cooling based on actual usage brings cost savings compared to ownership models, considering maintenance, repairs and energy use. “Energy-efficiency and carbon-reduction goals drive clients to seek high-performing, eco-friendly cooling solutions,” he says. “Increased awareness of usage patterns encourages optimising efficiency for cost reduction, with pay-per-use models promoting responsible consumption and resource management.”
Weighing in, Shamsi shares an overview of the shift in client requirements for pay-per-use cooling models, especially in the industrial sector. He says clients seek more flexibility, cost-effectiveness and sustainability in their cooling solutions, as they face rising electricity prices, ageing cooling equipment and environmental regulations. Furthermore, he says the organisations in the GCC region are becoming more conscious of the environmental impact of cooling systems, and the pay-per-use cooling models can help organisations to reduce their carbon footprint and comply with environmental standards by providing access to state-of-the-art, energy-efficient cooling technologies that use natural refrigerants or renewable energy sources.
However, Shamsi says, challenges remain that hinder a more widespread shift to pay-per-use models. In general, he says, the concept of capex-based partnerships is quite new in the region. Moreover, he adds, most large organisations are uncomfortable partnering with a service provider out of fear of losing control over the quality of the service and utilities supplied, such as cooling. However, Shamsi says, with the rise in public-private-partnership projects between government and international organisations, confidence in capex-based partnerships will likely grow rapidly in the next few years.
One of the key challenges Taka Solutions faces, Pereira says, is the cultural and behavioural shift in customer behaviour. In other words, he says, changing the way customers think about cooling, ownership, service, and data can mean changing mindsets and attitudes towards sustainability. Furthermore, Pereira says, COP27, held in Egypt and the upcoming COP28 are also contributing to an increase in interest towards sustainability, and it will continue to rise in the future. As CaaS is a relatively new business model in the GCC region, and particularly in the UAE, he says, the efforts to create awareness are substantial, as compared to other business models, such as Energy Performance Contracts, which Taka has been doing for over 10 years now. “We are also experiencing the effects of different types of CaaS models being offered in the market, creating misconceptions, and as such, the journey of customer education is ongoing,” he says.
Pereira also touches on the technical challenges and notes that they are thought-provoking. For instance, he says, integrating CaaS into existing infrastructure and processes is complex, and perceived issues relating to compatibility and retrofitting, can deter potential customers. Some clients, he says, are concerned about disruptions and operational downtime during installation, and tenant or guest complaints; and more so, we are seeing an increase in need to demonstrate how we build redundancy and fail-safe mechanisms in the systems. Furthermore, he says, advocates of CaaS face challenges out of customers’ perceived loss of control over the chiller plant.
For his part, Prince says some of the challenges surrounding pay-per-use cooling models involve managing existing chillers, implementing rebate models and assessing salvage possibilities. Companies, he says, face complexities in calculating salvage costs and aligning estimates with their accounts department, in addition to the challenges around repurposing existing workforce and incorporating them into the new model.
Further, taking the discussion to the role of governments in the GCC region countries in the growth of decentralised utility consumption models, Pereira says governments can play a pivotal role in fostering the growth of decentralised utility consumption models like CaaS by establishing a favourable regulatory framework, building rating systems, incentives and penalties, and ensuring fair competition amongst service providers. Additionally, Pereira says, governments can collaborate with private sector stakeholders to develop and implement decentralised utility consumption solutions, which will lead to technological advancements, cost reductions and improved efficiency. “Moreover, governments can create innovation hubs, incubators or accelerators focused on decentralised utility consumption technologies,” he says.
Shamsi also points to how government subsidies can benefit the decentralised utility consumption models along with incentives or regulations for using clean, renewable energy sources. Further, emphasising why governments should allow more flexibility for industrial and manufacturing plants to implement on-site utilities based on waste energy, bio-waste and natural gas, he says it will reduce their dependence on the grid and lower their costs. Finally, he says, authorities should support awareness campaigns and capacity-building programmes to educate consumers and stakeholders about the benefits of CaaS and other decentralised utility consumption models.
Prince puts forward a different perspective on the government’s role in decentralised utility consumption models and says that determining whether to adopt CaaS is primarily a company-specific decision, and the role of government is limited. Governments, he adds, can offer support to the companies that opt for efficient decentralised cooling models rather than endorsing any specific model. Moreover, he says, governments can aid by implementing ESG reporting to ensure accountability.
Learning from SaaS
What can CaaS solution providers learn from the growth of Software as a Service (SaaS) models?
Henrique Pereira, CEO, Taka Solutions; Fadi Shamsi, CaaS expert, ENGIE Solutions GCC; and Jason Prince GM – Sales & Business Development, EFS Facilities Services, say that CaaS solution providers can learn from the growth of the Software as a Service (SaaS) models. Pereira is of the view that CaaS solution providers can mirror the SaaS model of delivering value by addressing customers’ pain points, emphasising how the solutions contribute to energy efficiency, cost savings and sustainability, and to aligning with environmental and financial goals of businesses. Moreover, he says, CaaS providers can learn from SaaS by prioritising transparent communication, fostering long-term partnerships and by utilising data-driven insights for optimised cooling strategies. He says: “CaaS solution providers should embrace continuous innovation, cloud infrastructure and adjustable solutions while offering seamless integration. Following a customer-centric approach, they should ensure reliable maintenance and ongoing optimisation, mirroring SaaS’ success.”
Weighing in, Shamsi highlights two aspects of SaaS, namely customer-centricity and financing model and says CaaS solution providers can focus on delivering value to their customers by understanding their needs, preferences and feedback, and by tailoring their cooling solutions to the specific requirements of each customer segment, thus providing high-quality service and support. Further, elaborating on the financing model, Shamsi says SaaS’ primary aim is to reduce or eliminate the initial capital investment in the assets and transfer the cost to the opex, hence enabling the service provider to sell at a premium whilst providing an affordable premium service that doesn’t cause a burden to the customer and makes financial sense over the asset’s life cycle.
SaaS models, Prince says, can serve as an effective benchmark for simplifying complex processes in CaaS, particularly regarding the initial analysis. CaaS providers, he says, can draw inspiration from how SaaS platforms streamline operations. Further, he underlines the importance of making the CaaS model user-friendly and accessible, especially to non-technical departments like finance, by using SaaS. By emulating the user-friendly nature of SaaS platforms, Prince says, CaaS providers can simplify their offerings and present information in an easily understandable way. “The goal,” he says, “is to bridge the gap between technical intricacies and comprehensibility, ensuring that even finance teams within companies can readily grasp and assess the financial implications of adopting the CaaS model.”