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Saudi district cooling market set to surge

KSA's DC market is mainly dominated by commercial offices

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Cooling, District, Market, SAUDI, ANALYSIS

UAE, which has been the fastest growing market for the Middle East’s district cooling (DC) industry, is about to give away its position to Saudi Arabia, where a variety of real estate projects of varying sizes are being newly developed. As per Frost & Sullivan estimates, the Gulf Cooperation Council (GCC) countries’ DC market was valued at US $1.7bn in 2013 and as one of the dynamic markets in the region, Saudi Arabia’s DC market is currently valued at US $468.2mn with an installed capacity of 1.25mn tonnage rate (TR).

“The KSA has become one of the most attractive district cooling business hubs with 26 per cent market share compared to 74 per cent of the all the other GCC countries put together. The district cooling market in the KSA is expected to overtake the UAE district cooling market by 2014 due to an impressive project pipeline and increasing awareness about DC solutions,” said Kumar Ramesh, industry manager, Environment and Building Technologies, Middle East and North Africa, Frost & Sullivan.

The drive to optimise energy efficient air conditioning has resulted in the need to implement district cooling systems over traditional methods. High subsidy burden on government due to lower tariff, environmental concerns due to excessive consumption of fuel for producing power and lack of A/C regulations are some of the challenges in traditional method and the reason why DC is preferred. In the wake of increasing focus on sustainability and the ‘go green’ movement across the globe, the Middle East is also adapting its energy consumption trends to suit the high levels of power demand resulting from extremely high temperatures. District cooling technology is of key importance, as it offers central cooling for multiple buildings effectively while saving about 25 per cent on electrical costs. The DC market is expected to have an additional capacity of 4.5mn TR, mainly contributed by Saudi Arabia & Qatar in the coming five years.

The Saudi Story

The Kingdom’s rapidly expanding industrial base and population have increased the demands for water, power and cooling. The need to increase the availability of air-conditioning systems in the country is rising and the power supply required is said to account for almost 70 per cent of the total growth in power demand. A strong technology footprint and addition of new end users like airports, religious sites, educational institutions and, sports and recreational facilities open up opportunities for integrated district cooling systems.

The DC market is moving towards de-centralisation, as an effect of increasing demand from small scale developments requiring 5,000 to 25,000 TR of cooling. Chiller manufacturers have introduced 6,000 TR capacity chillers, especially for district cooling plants in the region to target small projects in residential, commercial, and industrial applications. The KSA’s DC market is mainly dominated by commercial offices, however, retail sector would soon catch up with a forecast of 30 per cent market share by 2016, according to Frost and Sullivan.

“There are three main factors driving KSA’s DC market. Firstly, construction developments - especially the master-planned communities, hospitals and universities and government projects in prominent cities like Riyadh and Mecca - are responsible. Secondly, growing demand for energy efficient cooling in the KSA is at par with green building standards and lastly, initiation from the government through allocation of Saudi Industrial Development Fund for district cooling projects are catalysing growth,” said Ramesh. DC market leader in the country is Saudi Tabreed and other major players in the industry include City Cool and Arabian District Cooling.

Specific provinces like Mecca are also projected to become a hub for the industry due to developments in commercial, educational and utilities sectors. The Mecca construction industry is likely to take off in a big way by 2017 due to increased usage in residential and industrial sites. As per a Frost & Sullivan study, the utilities and commercial construction markets saw 24 per cent and 11 per cent usage of DC in the year 2012.

The pioneer: Saudi Tabreed

In November, the National Central Cooling Company or Tabreed, the parent company of Saudi Tabreed released its consolidated third quarter (Q3) 2013 financial results and reported that its net profit increased by 21 per cent to Dh202.3mn, EBITDA increased by 5 per cent to Dh379.7mn and net finance costs decreased by 14 per cent to Dh111.0mn.

One of the operational highlights for the period was that, Saudi Tabreed, began providing operation and maintenance (O&M) support to the district cooling plant servicing the King Abdulla Financial District (KAFD) in Saudi Arabia. The contract has been to design and build DC services for the office towers at the KAFD including O&M for a period of ten years. The total capacity of the project is 100,000 TR and is the largest of its kind in the country. The project will be implemented in two phases and the capacity of each phase is 50,000TR.

Jasim Husain Thabet, Tabreed’s Chief Executive Officer, said, “The commencement of O&M support to the King Abdullah Financial District in Saudi Arabia was a major operational milestone. Today, we deliver approximately 830,000 RT of critical district cooling services in five countries throughout the GCC, making us the region’s pre-eminent district cooling provider.”

The KAFD project team did a case study, which drew a comparison between the power consumption requirements of the air-cooled cooling system and the DC system. While the former requires 595mn kWh for 100,000 TR, the DC system will require only 350mn kWh. Further according to the study, the government can generate additional revenue from sale of 41 per cent saved fuel (441,000 barrels in the KAFD example) due to less production requirements of power. This in turn means less CO2 emissions - of almost upto 117,000 metric ton per year. The project’s cost of power generation is SAR4.6mn per MW and the cost of primary substation and distribution is SAR1.06mn per MW.

Other significant projects undertaken by Saudi Tabreed include the Saudi Aramco project in Dhahran, with a capacity of 32,000TR and the SAR500mn Jabal Omar development in Mecca with 55,000TR capacity. According to Ramesh, the Mecca DC plan is one of the big ticket projects in the KSA and Tabreed will start supplying power by the end of third quarter in 2014.

Support from innovations

With the addition of new technologies and systems such as smart metres, advanced plant controls and sea water usage, the DC market is trying to be on par with international standards and practices.

At a recent summit on district cooling in Doha, Qatar, George Berbari, Chief Executive Officer of DC Pro Engineering, said, “Dubai has already implemented strict regulations for district cooling and Kahramaa has established a dedicated district cooling division that has mandated the use of non-desalinated water, along with plans of introducing new and important DC regulations. As the industry is getting more efficient than ever before, with 0.85 kw/ton achieved today compared to 1.0 kw/ton ten years ago, it is also evolving to include tri-generation of power, cooling and heating integrated with renewable solar and deep geothermal energy to provide a comprehensive solution.”

Desalination costs due to water cooled chillers comprise 24 per cent of the cost factors for DC plants in the KSA. Hence, sustainable processes like TSE (Treated Sewage Effluent) and sea water are now being explored by district cooling industry. Usage of sea water can lead to cost benefit of up to US $4mn in a year.

“Even though the current demand for desalinated and fresh water is high due to the booming DC market in the KSA, in long-run there will not be any great impact on water shortage. This is mainly due to growing awareness about usage of alternative water sources like direct sea water and treated grey water or TSE,” said Ramesh.

Another main innovation to the DC industry will be the smart metre system, for which according to the Frost and Sullivan report, pilot projects are being currently being executed to explore feasibility. “Yes. Smart metres, advanced plant controls and sea water usage are new technologies which the KSA have started to experience through successful pilot projects. Penetration of new-age technologies is fast in the KSA as developers are now very conscious about energy saving techniques,” Ramesh added.

To maximise efficiency, DC companies in the UAE, will also tie up with energy meter manufacturing companies, thus ensuring controversy free and transparent billing procedures along with add on services that smart metering offers such as remote reading, cash registers and historical data. “The KSA is expected to embrace innovative technologies, which is expected to make the country a positive market for DC and achieve a higher penetration over conventional air conditioning systems,” said Ramesh.

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