Can district cooling cure Gulf's energy headache?

01 June 2008
A $100bn investment could make district cooling one of the region's most buoyant industries.

Among the many unexpected consequences of the great Gulf boom, now in its fifth year, is the startling emergence of energy shortages in a region more abundantly endowed with oil and gas than any other.

Khalid al-Awadi, gas operations manager at the Emirates General Petroleum Corporation (EGPC), recently said that the gas shortage in the UAE's northern emirates is so severe that a growing number of completed projects cannot be occupied.

He said that a radical change in energy strategy is required, which would involve Abu Dhabi burning oil in power stations and supplying its gas to parts of the UAE that don't have any. It is a radical proposal that looks impractical. But the times demand fresh thinking.

Short-term headaches

The issue is probably most pressing in Dubai, which may now be a net energy importer. It is, for the first time, taking Qatari gas from the Dolphin pipeline and it may have to import up to 1,000MW of power from the Abu Dhabi Water & Electricity Authority (ADWEA) this summer. This dependency upon imported energy will grow massively in the decade to come.

The only GCC country without short-term energy headaches is Qatar, which enjoys the privilege of controlling the world's largest non-associated gas field. But even there, it makes sense to use its gas more economically.

MEED's District Cooling 2008 conference in Dubai was hugely encouraging to all those grappling with the GCC energy challenge. According to Bob Bryniak, chief executive of Golden Sands consultancy, the region could conserve 11,000 cubic metres of gas and save the equivalent of $3bn each year by meeting half of its air-conditioning needs with district cooling.

Global record

District cooling saves energy for the same reason: that big power stations are better than small ones. The economies of scale are enormous, and persist as production at a single site grows. So why does district cooling account for only a fraction of the GCC's air-conditioning needs?

The first reason is that this is a new technology which is only just beginning to prove itself. But this objection is being eroded in the GCC. Qatar Cool, which has the mandate to supply the whole of the Pearl project, will next year complete a plant with 130,000 tonnes of refrigeration capacity - a new global record. Other plants on a similar scale, and larger, are planned.

The main obstacle is the absence of government regulation and support to make district cooling more attractive. GCC power suppliers, all of which are owned or subsidised by governments, provide no incentives to the district cooling industry - although Dubai is now considering the possibility of lower off-peak charges.

Energy conservation strategies

This will be a boon to residential district cooling, since its power needs intensify in the evening and at night. A further obstacle is that developers say the cost of installing district cooling connections makes it uneconomic to supply villa developments.

This suggests that GCC governments should promote district cooling as a central element of new energy conservation strategies. GCC governments subsidise transmission lines to remote areas that the private sector would never finance. There seems, therefore, to be no reason why similar measures should not be applied to district cooling.

The easiest first step is to make district cooling mandatory for all new developments. This could then be extended quickly to all retrofit projects.

Pressing shortage

But if district cooling is to become compulsory, what standards should be applied to maximise energy efficiency and the effectiveness of the required environmental code? Again, Dubai seems to be in the lead and is soon expected to define standards and announce a ban on the use of potable water in district cooling networks.

The next challenge is providing an alternative, which could be treated effluent or seawater or both. There is also a pressing shortage of district cooling contractors and operators.

But the biggest long-term issue is financing the world's largest district cooling programme.

Bouyant industry

It is estimated that the GCC will need up to $100bn of district cooling. Governments and investors will only be able to mobilise a fraction of this figure. Most will have to come from long-term loans.

The GCC banking system is the most liquid in the world, but it will not lend unless long-term demand risk is mitigated. Only government or semi-government agencies have the capacity to deal with this issue by providing long-term off-take guarantees, as they do in privatised GCC power and water systems.

District cooling will be one of the region's most buoyant industries for the indefinite future. The Gulf will soon become a world leader in the technology. This will occur naturally but effective action now will help make it happen quicker.

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