Research analyst Suganya Rajan, from Frost & Sullivan’s environment and building technology practice, looks at the GCC’s district cooling market
Air conditioning consumes about 50% of the peak power load in the Middle East, where cooling is a necessity more than a luxury. All efforts from the governments to reduce the energy consumption are concentrated on air conditioning; this focus puts the Middle East district cooling market in the spotlight to reduce power consumption and cut CO2 emissions.
District cooling is currently the technology preferred for new buildings, as it is considered the environment-friendly alternative to traditional air-conditioning.
Though district cooling was introduced to the Middle East in the late ‘60s, it gained momentum as an industry in the late ‘90s, when Tabreed set up its first plant in this region, in Abu Dhabi.
Over the last five years, the industry witnessed a staggering growth rate of more than 60%, mainly fueled by the construction sector in big cities of the UAE, Saudi Arabia and Qatar. Until the end of 2008, district cooling provided less than 2 million tonnes of refrigeration in the GCC, generating revenues worth more than US $500 million. District cooling, a highly capital-intensive industry, attracted many new entrants and kick started a period of high growth.
This led to the sprint for market share and a proliferation of different strategies.
Utilities and the spectrum of issues
District cooling companies’ main concern is the supply of water, which constitutes about 10% of the overall operational cost of a district cooling plant. Desalinated water is the most common source for potable water; roughly about 90% of the region’s potable water is derived from desalination.
However, some governments in the GCC are beginning to discourage the use of potable municipal water in district cooling plants. This has triggered a chain of activities and left companies looking out for alternative sources of water, mainly the use of salt or grey water and treated sewage effluent (TSE).
The key concern involving salt water usage is salt emission, and grey or salt water cannot be used unless there is corrosion resistant equipment installed. Similarly, there was hope that TSE could be used in lieu of potable water, without incurring additional cost, but this has proved futile as there are incidences of corrosion and fouling when plants switch to TSE. District cooling companies are still trying to find viable options as an answer to this challenge.
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Power occupies the largest segment in the overall operating cost of a district cooling plant, with an average plant spending about 60% of its operating costs on electricity. GCC countries face high growth in demand for power, but power is still provided at subsidised rates for the residential sector – for many, at below the cost of generation. Hence the end consumer is not concerned about energy efficiency, leaving district cooling companies bearing the cost liability, which is later passed on to the customer.
Saudi Arabia levies different charges for day and night usage and the difference between the tariffs is massive. This has dramatically brought down power consumption during peak hours. Since most of the district cooling companies are located in the UAE, market participants are looking forward to a similar shift in power tariff by Dubai Electricity and Water Authority (DEWA) and Abu Dhabi Water and Electricity Authority (ADWEA). If tariffs can be reduced for night-time usage district cooling providers will then be able to adopt thermal energy storage (TES).
TES will enable them to load almost 25% of the capacity into thermo-storage tanks, where they can store it in the form of ice or chilled water. Later in the day, when consumption is at its peak, they can use water from these tanks, thereby reducing power consumption. Such a tariff, when implemented, will be encouraging and offer an impressive power infrastructure for district cooling companies in the UAE as well.
With constructive strategies and efficient business models, district cooling companies can reap high rewards, bearing in mind that it is the obvious answer to future power short falls.
