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Investments in the Middle East district cooling sector will range from US $10 – 30 billion over the next ten years according to an estimate by its leading industry body, the US-headquartered International District Energy Association (IDEA). It estimates that the rapid rate of Middle East construction will generate demand for cooling services of more than 10 – 20 million tonnes of refrigeration.

Rapid growth

Rob Thornton, the president of IDEA, says the regional real estate sector was adopting district cooling as its preferred technology, fueling the huge investment. So far, most of the district cooling in the region has been in the UAE but Saudi Arabia is increasingly seen as the area for strong growth over the next five years.

The one dark cloud on the horizon is the disparate tariff system in the region, which IDEA says is doing little to encourage more energy efficient usage.

In the UAE, power utility DEWA’s slab system, where consumption above a certain level is charged at a higher rate, is hitting the industry hard, said Thornton on the sidelines of IDEA’s third International District Cooling Conference, “Essential Infrastructure, Sustainable City,” in Dubai in October.

Slab tariffs

Karl Marietta, deputy CEO of Tabreed points out that Dubai and the northern emirates raised their tariff earlier this year after a ten-year period when pricing didn’t change at all. DEWA hoped that the slab on energy consumption would encourage consumers to reduce their power consumption, but Marietta claims this has hit the district cooling industry as it is unable to alter its power consumption.

Karl Marietta, deputy CEO of Tabreed, says: “DEWA upped the tariff simply because of the financial situation, they needed more revenue so they changed the rate, they tried to protect the small user but only at the most basic level so the district cooling industry was itself being penalised.”

“Nobody in the district cooling is saying that DEWA needs to make less revenue than they are doing at the moment but they need to put in place a system whereby the lousy customer pays more and instead to charge rates that reward efficient users,” adds Marietta.

IDEA members are also concerned that there is no difference in the UAE between day-time and night-time tariffs. Having a day-night system in place could help firms to reduce grid usage during the day and shift the load to night-time.

Fouad Younan, chief executive of CityCool says that DEWA’s slab system of tariffs has adversely affected most district cooling companies. “The real problem is day time peak hours. We have requested the authorities to make an exception for district cooling facilities or at least introduce different tariff for day and night time usage,” he  says.

“We’ve been trying so many years to get this changed and people in power have asked DEWA to do it. I honestly don’t know why the change hasn’t happened but we will have to wait until a political decision is taken,” he adds.

Rita Chahoud, executive director of the IDEA Middle East Chapter says the industry is acting in unison to get the tariff system altered: “As IDEA, we plan to discuss tariffs with DEWA and ADWEA as an industry. When you go as an industry it is quite powerful and this has its own value,” she says.

Working together

Younan believes that the recent economic slowdown could be beneficial as it will provide breathing space for the pace of development to slow and for utilities to come up with improved tariff structures.

“If you are building in an area where DEWA cannot give you power then you have a problem. Everyone is facing this problem since many companies are building plants in areas that have power shortages. The developments are going way too fast and the utility providers are unable to cater to demand,” says Younan.

“This is one of the reasons that we are pushing for district cooling, which will reduce power consumption. Dubai has been growing at a faster pace than its infrastructure. We know it takes time for infrastructure and hear of developments that are not functional because they do not have the utilities connected. As time goes by we will face more and more of these issues,” he adds.
 

But Younan admits that the introduction of preferential electricity tariffs would take some time to achieve. “We have had discussions with government bodies and invite representations to our events. The government is proactive about district cooling and is making it part of the coming green laws and we feel that we are going to get there.”

“But it is quite a sensitive matter now and a strategy should be developed in partnership with utilities such as DEWA and ADWEA. Until this happens we can’t tell what kind of tariffs and advantages they would be willing to give to the district cooling industry,” he adds.

Regional structures

Elsewhere in the region, Saudi Arabia and Jordan have already implemented different tariffs for day and night, dramatically reducing consumption during peak hours. “This could benefit everyone. If the district cooling industry got preferred rates it could pass them on to their customers,” says Younan.

Chahoud says that in Jordan the tariff structure for large power consumers is not flexible enough to provide benefits if thermal storage were to be considered as there is no significant difference between peak and off-peak hours.

There is also an alternate flat rate tariff which is given to commercial consumers; this tariff becomes less than that offered to residential consumers when consumption is above 500 KWH.

In Kuwait, electricity is charged at 2 fils per KWH flat rate and water at 180 fils per m3. “Ideally, the electricity tariff should be brought in line with some of the other GCC countries and a slab tariff structure introduced but we cannot see this happening ,” says Chahoud.

“In Saudi Arabia the difference between day and night tariffs is very large. “Users pay 72 halala during day for peak hours and 19 halala during the night and that encourages people to save as much as they can and helps the authority at the same time, as it means that people are going to switch the air-conditioning off when they leave the house and to save energy in other ways,” says Younan.

“With the savings that would happen with day-night tariffs, whatever production DEWA can do now they would be able to use for other projects and end users will also be saving. But with no decisions from DEWA so far companies have passed on the additional tariff on to customers,” adds Younan.

Electricity consumes a big operational cost for district cooling companies. “We are dependent on electricity. If tariff can be reduced for night-time usage, district cooling companies will be able to load almost 20% to 25% of the capacity of the tank into thermo-storage tanks. During the day when consumption is at its peak, we can use water from thermo-storage tanks, thereby reducing power consumption, ” says Younan.

Saudi tariffs

CityCool recently opened a power plant for a development in Saudi Arabia, where it provides both district cooling and waste water treatment. “That is an ideal solution. But the situation in Saudi is different as diesel is subsidised. It will be difficult to emulate the same in Dubai or the Northern Emirates,” says Younan.

“As the largest country in the Gulf region with what has been a thriving real estate market, Saudi Arabia offers tremendous growth opportunities in the district cooling arena,” he says.

Younan believes Saudi Arabia offers a conducive environment for district cooling companies to launch new projects in partnership with the real estate and construction sectors.

“An impressive power infrastructure and the different tariff systems for day and night have all contributed to Saudi emerging as an attractive investment market for district cooling,”  he says.

“The Saudi system whereby the more you use the higher the price you pay is at least sending out a pricing message. Utilities elsewhere in the region should encourage storage for all off-peak use, district cooling definitely needs financial incentive, as although district cooling is more efficient we are being asked to pay the same as everyone else and that is not sending a pricing message to the consumer,” says Younan.

“The Saudi tariff helps but if you go to any industrialized nation outside the GCC they sell electricity on a demand and energy basis rather than simply on an energy basis,” says Marietta. “It will eventually happen in the UAE too but it will take time and political will.”