District cooling is still offering tremendous growth rates as a utility business sector, despite the adverse effects of the global economic slowdown.
That’s according to new research from consultancy Frost & Sullivan, which says the market – worth US $500 million up to the end of 2008 – has been ‘pepped up’ by the potential of the Saudi Arabian and Qatari economies.
“District cooling, which is predominantly dependant on the construction activities in the UAE and other Gulf states, is facing adverse effects of the global economic slowdown,” said Suganya Rajan, a research analyst with Frost & Sullivan.
“The slump in the growth rates for district cooling is evident as the fallout of the recession has brought down the market growth rate to about 28%, from the stupendous rate of 60% clocked up over the last five years.”
Frost & Sullivan estimate that the Saudi Arabian market for district cooling comprises about 10% of the overall GCC market, but represents a massive neglected market.
“Saudi Arabia is expected to witness exponential growth in construction activities mainly driven by its geographic size and new economic policies that are trying to reduce the dependence on oil,” said Rajan. “Saudi Arabia is shielded against the adverse effects of credit crunch; hence the district cooling market is expected to grow above the regional average.
“Though there is a huge untapped market, very few new entrants are moving swiftly to establish themselves and acquire a market share. At this moment, we do not expect international companies to be entering the market in the near future.”
Tabreed, Palm District Cooling, Emicool, and Empower are identified as the leading companies in the GCC’s district cooling market. Although competition is concentrated, with these few big players having capitalised on early opportunities, Frost & Sullivan also point to many newer entrants, such as City Cool and A&T Cool, mainly in the UAE, which are trying to establish themselves. While all are vulnerable to shrinking revenues on the back of reduced off-takes, Rajan says the situation is not desperate.
“They are certainly vulnerable to a decline in this market growth, but it is definitely not an alarming situation. If they adopt the right strategies they can sustain the slowdown, and when the construction activities are predicted to rebound to normal in 2010, with the recession bottoming out, they can make up for this slow growth period. Currently, it is prudent to look at small projects and try diversifying into other geographic locations.”
