Tariff troubles

Palm District Cooling keep the Palm Jumeirah cool.

Palm District Cooling are planning to adopt a new model for financing their district cooling plants, hoping to replace an incremental reimbursement with an upfront charge. But will this model be accepted, and is it the best way to encourage end users to reduce their energy consumption?

District cooling companies have not been left unscathed by the recession, as banks were unwilling to dispense credit, and the district cooling business was affected by the slowdown in construction activity. This has left the industry searching for new ways of gathering the necessary funds for the construction of their plants.

Story continues below

Advertisement

FEATURED COMMENT Please click here to comment on this article

Palm District Cooling have come up with what they see as a viable alternative to the existing model, says Shafiq Khoori, managing director at the company.

Up to now, district cooling companies have covered the costs of constructing plants and piping through an annual capacity charge, by which the capital investment is recovered over the life time of a plant by charging end users a set amount every year.

Palm, who have supplied district cooling to the Palm Jumeirah, Jumeirah Lake Towers and Discovery Gardens developments in Dubai, are now looking to recoup construction costs with an upfront charge paid by the developer of residential complexes.

“We’ve developed a new tariff model to move away from the annual capacity charge,” says Khoori.

“This model mirrors how an investment in a conventional system looks like. For example: if you are building a typical building here in Dubai, you buy your own chillers, so there is a cost outlay.

We said, instead of people paying this money towards their own chillers, we collect these moneys, and we build a central cooling plant and a network, and serve them with district cooling. There is no ongoing capital recovery. Its upfront, and it costs a similar amount to what it costs to have a chiller.”

The company is hoping to implement the new model at one of the projects they are currently involved in. “We are trying to implement it here at Jumeirah Village South for the first time,” reveals Khoori.

Residents would only be charged for the consumption on a meter basis under the new model, says Khoori. He admits that his company will have work on its hands to convince stakeholders of the model, starting with the developers.

"We have to find out the concerns of all stakeholders, because its a new model, and we have to address all the doubts and questions. So we are trying to show developers that the cost is very nominal and will not make their properties unmarketable.”