Future of cooling
Palm Utilities CEO talks about the present district cooling market
Marwan Al Naqi, CEO of Palm Utilities, talks about challenges, the present market and the future of district cooling in the region
Palm Utilities is one of the largest district cooling service providers in the region. It currently operates an asset portfolio of 14 district cooling plants and has achieved a 242 per cent surge in the past three years’ net profit to US$44.6mn, with prospects of reaching US$51.7mn by end of this year. Revenues further increased by 37 per cent in same period to US$169mn.
Such results can be primarily attributed to the evolving economic recovery in Dubai as the emirate continues to see higher levels of occupancy in hotel, residential and commercial units; in addition to the increased productivity and efficiencies through business process reengineering, under a clear vision and well-defined objectives aimed at optimal use of available resources and waste reduction.
Studies show that the current demand in the GCC for cooling services is estimated at 40mn tonnes; of which the UAE accounts for 10mn and Saudi Arabia for 20mn, while the rest is distributed among the other states. A humble share of 11 per cent of these services are being provided through district cooling techniques in the UAE, compared to only 1 per cent in Saudi Arabia.
One of Palm Utilities’ recent district cooling projects is a conventional/ Islamic club financing facility - a deal worth US$310mn. The company’s customers include Palm Jumeirah, Discovery Gardens, Jumeirah Lake Towers and Ibn Batuta Mall while it is eyeing future projects in Abu Dhabi and Saudi Arabia - all under the leadership of its CEO Marwan Al Naqi.
Al Naqi joined Palm Utilities in 2010 and has since been committed to improve operations, register profits and satisfy investors. In an interview with Utilities Middle East, he talks about the future of district cooling in the region and its advantages.
Tell us about your role and experiences in the company.
When I joined, the two companies - Palm District Cooling and Palm Water merged to form Palm Utilities, and my job was to restructure the new company financially and bring organisational changes. The company was in huge debt of US$345mn and the investors were not happy. It was a challenging job for me to convince the
Draw us a comparison between district cooling and conventional air conditioners.
With district cooling, 0.8kW electricity is needed to produce one tonne of cooling, while in the conventional method, 1.2kW of electricity is used to produce same amount of cooling - a difference of 0.4kW. So it is certainly more cost effective. Of course, anything can be expensive if people keep their air conditions on 24 hours a day. In the region, 70 per cent of electricity is consumed by air conditioners. Importantly, by adapting district cooling, we are reducing carbon footprint. Imagine the amount of noise generated if there are a 1,000 air conditioners running in the same building! District cooling has become a significant component of new real estate developments in the region, especially in the UAE. People have started realising that it is cost effective and reliable.
Do district cooling facilities use a lot of water?
Since it is recycled several times, water consumption is not that high. Plants where potable water is used, it has to replaced more frequently compared to the ones where treated water is used. This is the reason everyone is encouraged to use treated water. In some of our facilities, we have constructed sewage treatment plants for this purpose. As per the law, if there is source for treated sewage water, it is mandatory to use that and not use potable water.
Is the district cooling market growing or has it reached the peak?
It is just the beginning. In the past three years, our net profit has increased by 242 per cent and the revenue increased by 37 per cent. This is because we were able to reduce our costs effectively. Eventually most developers will need to switch to district cooling as a gas shortage is imminent in the future.
What are your main challenges?
There are so many of them, but the most important one is to provide the service in a cost effective way. The user compares district cooling with conventional air conditioning, which is not the right way of looking at it. However Palm Utilities’ tariff is the lowest compared to the other three big district cooling companies in the UAE.
We are looking to reduce the tariff all the more as we are looking at reducing operations costs further. Palm Utilities has a capacity of half a million tonnes of cooling, which equals cooling 40 towers like Burj Khalifa. With such a profile, we are confident of capturing markets in other countries as well.
Tell us about your current projects and future plans.
Hotels are the major revenues contributors for us. Palm Jumeirah and Jumeirah Lake Towers are some of our important projects. We also provide cooling services to Ibn Batuta Mall and we are in talks with another mall as well. There are more projects coming up and we certainly believe that there is a lot of potential to capitalise. However, in places like Discovery Gardens, we have reached our peak as there is no more scope for expansion.
Dubai is currently the frontrunner as far as district cooling is concerned. We have two mega projects coming up in the Emirate, in which we have invested half a billion dirhams. Abu Dhabi is going to be a new market for us and a huge one as well. We are planning to enter big projects in Abu Dhabi and we have already participated in tenders along with international companies.
How about businesses in the Gulf and North Africa?
We are monitoring plenty of projects in Saudi Arabia. The Kingdom’s rapidly expanding industrial base and population have increased the demands for water, power and cooling. In addition, the need to increase availability of air-conditioning systems is rising. However electricity in the Kingdom is subsidised and consequently, there is reluctance in moving to district cooling as it does not make a monetary difference. We will advise them to use district cooling in areas where they do not have fuel reserves. We hope the regulators in Saudi Arabia will take steps to encourage the district cooling market.
We are in talks with several Qatari companies as well, but due to the Arab Spring, we have become cautious in term of investing in countries where its political situation is volatile. We held discussions with the Iraqi government and we are also looking to expand in several North African countries.
Egypt is a potential market for us, especially if they focus on residential projects and so are Tunisia, Morocco and Libya. We want to enter a market where the political situation is stable. Our business is not short term. If we enter a market, it is important for us to know the government’s future expansion plans.
Tell us about Palm Utilities’ Emiratisation programme and other employment plans.
Since district cooling is a new industry, its growth can help in creating employment. Here in the UAE, we have started a district cooling knowledge programme for Emiratis who are willing to join the industry. Under this programme, the plant manager has to be a UAE national and will be responsible for service in the area. Once we enter overseas markets, we hope to create employment opportunities there as well.