Demand for district cooling soars

24 August 2008

The surge in air-conditioning installations is making increased use of district cooling more economical.

The GCC district cooling sector has the potential to grow by more than 350 per cent by the middle of the next decade, typifying the dramatic growth of new facets to the region’s construction industry.

Capacity in the GCC at the end of 2007 was more than 1.8 million tonnes of refrigeration (TR). But MEED predicts that the regional market will grow to 8.3 million TR by 2015. By that time, MEED also predicts that a further 2.1 million TR will be under construction and 5.4 million TR in the planning or design phases.

Currently, the industry is still small. Regional bellwether the National Central Cooling Company, known as Tabreed, is at the vanguard of the market, and, for almost five years, was its sole representative.

It increased capacity in the UAE to about 287,000 TR in 2007, from about 10,000 TR in 2001 - a compound annual growth rate of 73 per cent (see bar chart).

The company has work under way or expected to begin on plants that will add a further 1.1 million TR to UAE capacity in the next three to five years.

Renewable energy

The future of district cooling in the GCC is assured. Hot and humid summers make the mass delivery of air conditioning a highly desirable goal. Data from Masdar, the scheme to build a zero-carbon mini-city in Abu Dhabi running on renewable energy, shows that the air temperature is at 24 degrees Celsius or above for 65 per cent of the year.

District cooling is also well suited to the region’s new masterplanned cities and the huge residential and commercial developments that are springing up across the Gulf.

District cooling offers electricity savings of 40 per cent at a time when power demand and feedstock costs are rising.

In terms of land use, district cooling also saves developers space by concentrating the bulk of the cooling function in one place. Central plants serving multiple buildings, as with Dubai’s Jumeirah Lake Towers, free up space for other uses.

The UAE is driving the sector. According to regional district cooling company estimates obtained by MEED, 1.8 million TR of capacity is operational today, 3.7 million TR is under construction and a further 1.3 million TR is planned. The UAE accounts for 64 per cent of operational capacity in the GCC, 92 per cent of that under construction and 81 per cent of that planned.

Rising capacity

The UAE’s district cooling capacity will increase dramatically if a raft of planned megaprojects goes ahead. In a speech to the International District Energy Association Middle East Conference last year, a Palm District Cooling (PDC) official estimated that 4 million TR would be needed for Dubai Waterfront alone and 2 million TR for Palm Deira.

The website of Emirates Central Cooling Systems Corporation (Empower) estimates a 2 million TR requirement for Dubailand. An official from Emirates District Cooling (Emicool) was quoted in May saying that 10 million TR would be required in the next eight to 10 years in the region, costing about $20bn.

Abu Dhabi is believed to be planning a number of projects on a similar scale. Across the GCC, MEED Projects lists more than 90 projects planned and under way, worth a total of $550bn.

Several district cooling companies operate in the UAE. The first to emerge, Tabreed, was founded in 1998 with assistance from the UAE Offsets Programme to set up a number of plants for the military in the emirate of Abu Dhabi. At the end of 2007, the UAE still had more capacity in the military than the commercial and residential sectors combined. It has managed growth carefully, forging joint ventures and alliances throughout the region and taking advantage of Islamic financing options, although its debt is substantial. From 2004-07, its debt rose to 3.3 times its annual revenues from 2.7.

Empower, PDC and Emicool are the UAE’s other major players. Empower claims half the inventory now under construction, at almost 1.7 million TR, dwarfing the contribution of the other three players. In Saudi Arabia, several power and water companies are hoping to use their knowhow to enter the market rather than see players from the UAE take over.

Qatar and Bahrain are the other growing centres of activity. Qatar Cool’s 130,000 TR Pearl island plant - the second of two major projects, the first being at Doha’s West Bay - is likely to be one of the biggest in the world when completed in 2009. Tabreed is installing a huge pipeline network on Bahrain’s north shore designed to provide chilled water on demand to potential offtakers.

The increasingly tight electricity market lies at the heart of the push for greater district cooling provision.

Increasing demand

Power demand in the GCC is set to rise by 80 per cent between now and 2015, and to triple in Dubai. Across the region, at least 60 per cent of summer peak demand is for air-conditioning.

Regional governments are keen to use district cooling because of its potential. One consultant refers to a semi-official policy of making district cooling “indirectly mandatory”, while anecdotal evidence points to the fact that on large new developments, Dubai Electricity and Water Authority (Dewa) is refusing to supply any more air conditioning power than is sufficient for district cooling, making the use of single-building chiller systems impossible.

There are still obstacles to district cooling taking off. The tendency to subsume utility bills in overall monthly rental payments means that residential offtakers might not see the decrease in prices.

This could tarnish the technology’s obvious green credentials at a time when regional governments are embracing initiatives such as the US Green Building Council’s Leadership in Energy and Environmental Design programme, which promotes environmentally sustainable construction.

District cooling is also costly, at an estimated $2,700 per TR, including plant and pipeline network. MEED estimates that at least $2.5bn of funding has been provided to date by regional and some international financial institutions to ease the burden.

Financing in the past has not been difficult for district cooling plants because government involvement in real estate construction has ensured its availability. But as the industry gears up to tackle a new and much bigger wave of plant construction, future project financings may be hampered by financiers’ doubts concerning offtaker risk.

Aligning the building of district cooling plants with the wider development schedules, along with price certainty and security of supply will be a an issue for financiers in future.

Correct tariff setting, accurate load estimates, careful consideration of project costs in a highly inflationary environment, and attention to initial capital costs, given payback periods of 20 years and more, are all essential.

More efficient plant configurations will emerge as technology develops. The effort to package thermal energy storage as a superior system to on-line, where chilled water reserves are not kept back, is well under way.

This involves creating and storing large amounts of chilled water or ice during off-peak periods.

This process will evolve further when dual or split tariffs, which have yet to materialise in the GCC, are introduced. In 2006, Dewa strongly advised district cooling clients to employ the new technology.

The goal of the region’s operators is to turn district cooling into a utility service, for which customers can be billed and seasoned consultants to the district cooling industry speak openly about the creation of a national grid one day, which might suit the UAE.

Incorporating existing facilities into a national grid will be a challenge. But with all the construction still to take place, and the buoyancy of the real estate market, the district cooling companies’ marked optimism seems entirely justifiable.

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