How district cooling evolved in the Middle East

A.R. Suresh Kumar, general manager, corporate business development & projects, Voltas, talks about the evolution of district cooling in the Middle East

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A.R. Suresh Kumar, general manager, corporate business development & projects, Voltas.
A.R. Suresh Kumar, general manager, corporate business development & projects, Voltas.

District cooling is no stranger to the Middle East market, reminds A.R. Suresh Kumar, general manager - corporate business development & projects, Voltas. He says: “District cooling has got a great history in the Middle East; it dates back to large cooling plants at remote locations in Mecca and Madina supplying to mosques. However, DCP (District Cooling Plants) in today’s context has come up in the early eighties. Probably, we can define DCP as a central chilling plant irrespective of capacity serving multiple clients in a limited geography.”

The UAE, however, is at the forefront of DC technology. Kumar says that local governments in the UAE have taken initiatives that have led to growth of large companies such as Tabreed and Empower. “While Tabreed led the way initially with a growing demand in Dubai, Empower has grown rapidly establishing itself as world’s largest district cooling company,” says Kumar.

The DCP market will have a moderate growth for the next couple of years in the UAE.  “We expect 20 to 24 plants of medium and large capacity to come up in the next 24 months [in the UAE]. You can expect rapid growth of DCPs in Saudi Arabia as that being a virgin market. While it is difficult to predict the numbers, it can vary from 30 to 40 plants. Bahrain, Kuwait and Oman combined may have a possibility of coming up with 10 plants.”
In the table below, Kumar gives a breakdown of the three major players in the DC market whose financials are available in the public domain.

Related

Company        Revenue       Profit

Empower         1.96bn           772m

Tabreed            1.399bn          402m

Emicool            353.1m          73.3m

Note:  All these numbers are in AED and taken from available public documents subject to validation. Author does not take any responsibility.

With regards to contractor’s revenue, Kumar says, the average cost of plants will vary from AED150m to AED200m with each of these plants getting completed in 12 to 18 months. With about 50 to 60 plants coming up in a year, there will be around AED9bn worth projects announced every year. This gives us an idea of the size of the DC market.
Kumar says that the government of Dubai has led the world in many ways in coming up with innovative ideas and practices in the field of energy conservation. 
He says: “It is very much evident that a power distribution company like Dubai Electricity and Water Authority (DEWA) is a major shareholder in Empower.”
As there are mandatory requirements on the limitations of power consumption on HVAC systems, individual clients are looking towards district cooling providers for their chilled water requirements. In addition, mandatory green building requirements in both Abu Dhabi and Dubai have encouraged the use of DCP rather than opting for individual chilling systems.
Kumar says: “Probably in the near future developers and building owners may be given attractive terms such as lower ‘minimum demand cost’, lower BTU (British thermal unit) charges or any other innovative proposals such as telescopic rate reduction based on higher usage. The terms offered by the DC companies should force the developers and building owners to not consider individual chillers.”

Bringing down costs
Talking about the innovative solutions to optimise total project life cycle cost in district cooling systems, Kumar says: “The life style cost of DCPs are quite high to start with the project cost. DCPs can’t be just taken as a normal built environment of MEP works.  Since it is an industrial plant, it needs a different focus and skill level.  The fact is that DCP tenders are issued with a combined civil and MEP works, with MEP taking the lion’s share. This process needs to be reset!”

MEP companies should partner with capable general contractors who can carry out good structural work at fairly lower cost, especially at a controlled minimum prelims, says Kumar.
“With the oil and gas market opportunities at a decline, there are plenty of large sized prefabrication companies available, who will be interested in talking up mechanical works. Also, with the advent of BIM (building information modelling) and other fabrication software, you can develop excellent prefabrication drawings and up to 80% of the mechanical fabrication can be done offsite saving valuable time,” Kumar adds.
Another innovative approach can be to use skid mounted plants or large size modularisation, which can bring down the time required for the construction of DCP, says Kumar. “Operation cost has got both ‘O and ‘M’ components.  This need to be factored during the design. By improving the current level of automation – SCADA, and extending and controlling several DCPs through a ‘central command center’, the cost of operations can be brought down.”
Outsourcing some of the services along with the use of IOT can bring down the operational and administrative expenses. He says: “In a nutshell, the reduction of operational expenses will lead to lower cost of production and will further lead to lower unit cost to the customer, attracting more customers to opt for DCP.”

In conclusion, Kumar says: “The district cooling sector in the UAE is forecast to see 18% growth over the next five years, according to a business survey. The cooling capacity growth in GCC may triple by 2030. We expect over 40% of the overall global demand for district cooling to come from the Middle East and Africa by 2019. In terms of value this translates to almost $29bn.
“There is demand for 20 million tonnes of refrigeration in the gulf over the next 10-20 years,” says Kumar, hinting that district cooling is well capable of meeting
that demand.

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