Cooling the Kingdom
Kamal Pharran, CEO of Saudi Tabreed, on the company's ambitions for district cooling in Saudi Arabia.
Tell us about Saudi Tabreed and how you came to be involved with the company?
Saudi Tabreed was formed in 2006 as a joint venture with Tabreed of the UAE, a major regional district cooling player that has established a solid track record in owning, designing, building and operating schemes throughout the GCC. Since its start-up in 1998, Tabreed has built a portfolio of 60 district cooling plants with a total capacity of almost 1 million Refrigeration Tonnes (RT).
Saudi Tabreed is the leading district cooling player in the Kingdom of Saudi Arabia with key clients like Aramco in Dhahran, King Abdullah Financial District in Riyadh and Jabal Omar Development in Makkah. We have developed district cooling projects under Build Own Operate (BOO)/Build Own Transfer (BOT) and EPC-O frameworks with a total capacity of 182,000 RT. Our newly awarded project will add 35,000 RT to our portfolio.
The company started with a vision of transforming energy efficiency in the Kingdom of Saudi Arabia via district cooling (DC). We’ve been through the learning curve of introducing the technological platform to government and semi-government entities and demonstrating the added value and advantages of district cooling versus conventional cooling systems.
We at Saudi Tabreed bring the best of our shareholders. The know-how and expertise of district cooling developed by Tabreed over the past 15 years, and ACWA Holdings’ key competency in innovative financing solutions and structures.
I was fortunate enough to Join Saudi Tabreed in January 2012 and have worked on transforming the company into what it is today, with a prestigious portfolio of projects and a backlog worth in excess of SAR 8.5bn ($2.3bn).
What was the company’s first project and what were the main challenges?
The first project was with Saudi Aramco, and was the result of the oil company’s strong drive and commitment to energy efficiency and green sustainable initiatives. We signed a contract in 2010 to develop a 32,000 RT capacity DC scheme on a BOO basis and successfully completed the project in mid-2012. It remains one of our flagship developments and we are very proud of this accomplishment and especially of the long-term relationship we’ve developed with Aramco. The project supplies the whole of Aramco’s management buildings and support facilities in Dhahran. Aramco is an oil company, but it wants to go green and reduce electricity consumption and CO2 emissions. The company is a pioneer of district cooling in Saudi Arabia.
Building upon this success, we implemented the 100,000 RT project at King Abdullah Financial District, the largest DC scheme developed under a Design Build Operate (DBO) framework in the kingdom so far. We also developed the 55,000 RT scheme in Jabal Omar, Makkah Al Mukaramah, a project that optimises energy and space usage within Makkah’s tight land allocation and busy schedules.
There are many mega projects planned in Saudi Arabia and infrastructure spending has been a major driver of economic growth. How are you positioning yourselves to benefit from that trend?
Spending in Saudi Arabia over the past three years has been focused on infrastructure more than at any time in its modern history. We’re talking about investment in hospitals, schools, universities, government centers and mixed use developments. Our role is to promote energy efficient cooling solutions for these.
The Ministry of Water & Electricity and the Ministry of Finance both face constant pressure to meet new power demand which is rising in line with the various developments taking place across the Kingdom. And this has to be done within budget and on time. We collaborate closely with the various government entities to develop mega projects in an efficient manner and under innovative frameworks and we are moving forward with these. Saudi Tabreed is involved in most major projects in the kingdom. For example, we are operating two plants in the King Abdullah Financial District.
Tell us about your most recent project
King Khaled International Airport in Riyadh is the jewel in the crown and one of the most prestigious district cooling projects in the Gulf Cooperation Council (GCC). The 35,000 RT project involves the integration of existing assets with a new state-of-the-art plant. We took over the existing DC plant supplying the airport and its support facilities to enhance its efficiency. Within two years we will deliver a new district cooling plant to accommodate the airport’s expansion and replace the older plant gradually.
This project is being developed under a BOT framework and a 30-year concession agreement. It is also the first time that a government entity has outsourced cooling requirements to a specialised developer. We hope this project will set a new quality benchmark for other government entities to follow.
How have you gone about educating the market and creating awareness of district cooling?
We’ve invested a lot of time and effort in going through the learning curve, demonstrating the principals of district cooling with most of the government and semi government entities as well as the private sector. We’ve sponsored leading conferences and seminars with the aim of further promoting district cooling. We’ve also organised site visits of our plants in Abu Dhabi, Dubai, Qatar and Bahrain for public and private officials. We have worked hard on highlighting the value of district cooling from a macro and micro-economic perspective to both sectors. Our King Khaled International Airport project is the ideal template for government efforts to outsource cooling requirements under BOT frameworks. We hope to capitalise on the trend towards energy efficiency and district cooling initiatives.
At what stage of development is district cooling (DC) in KSA compared to other Gulf countries?
From the private sector perspective, the decision makers in this part of Saudi Arabia are starting to come round to the idea of district cooling and understand the value it brings. However, to be honest it is a challenging market. We are still working on enhancing the exposure of district cooling to different stakeholders in the kingdom. Project bankability remains a big challenge, particularly long-term financing within the private sector.
The offtake agreement structure and framework is another challenge. We in the Kingdom do not yet have regulations covering the use, implementation and financing of district cooling projects. Our portfolio of projects was covered under long-term financing by hand-picked clients with whom banks feel comfortable dealing with. That is not always the case.
Overall the DC industry in the kingdom is not as mature as in the UAE or even Qatar. The Ministry of Water & Electricity is starting to recognise how district cooling can help reduce the consumption of electricity and associated upfront investment in electricity and infrastructure. However, still little has been done to facilitate DC.
While Saudi Arabia is experiencing a fundamental change driven by the need for energy efficiency and cost effective solutions, the market and stakeholders in the kingdom are still evolving. We hope the fundamentals will help us connect with more clients as the DC industry matures.
How quickly do you expect the DC sector to develop in KSA over the next 10 years and what will be the main drivers of growth?
Riyadh City Development Council issued a directive to use district cooling solutions for all the mega projects within the city. We expect the DC industry to evolve under the same directive to cover all cities in the Kingdom, where government entities and real estate developers alike are obliged to use DC in current and future projects. The Saudi Energy Efficiency Center will also be key to the development of district cooling across the Kingdom.
Demand for cooling in Saudi Arabia is growing in line with the rapid economic and demographic transformation of the country, and the government is facing the challenge of providing sufficient electricity to the Kingdom. District cooling is an improved technology that can satisfy almost 50% of cooling demand. We aspire to see the DC industry in the kingdom become as big and mature as the UAE and Qatar in the coming ten years.
What advantages does DC offer over alternative cooling solutions and what can Saudi Tabreed offer over other DC providers in KSA?
Compared to conventional cooling systems, district cooling offers up to 50% upfront capital savings on electricity generation and associated infrastructure requirements in addition to 40% savings in power consumption throughout the life cycle of the assets.
Our solid track record in owning, designing, building and operating district cooling schemes throughout the GCC since 1998, having a total of 60 plants and a with total capacity of almost 1 million RT, is certainly one of our competitive advantages. More importantly, the appetite of Saudi Tabreed to invest long-term in the future of Saudi Arabia is an essential advantage.
Under the BOO/BOT business model we use, design parameters and associated Key Performance Indicators (KPIs) regarding plant performance are actually guaranteed by the Special Purpose Vehicle (SPV) owning the DC scheme, facilitated by the tariff paid by end-users via billing cycles. The BOO/BOT framework covers the design risk, execution and construction risk, as well as operational and asset risk throughout the period of the concession agreement.
Is the KSA government doing anything to promote the use of DC over other systems? Are there regulations in place?
The government did establish the Saudi Energy Efficiency Center (SEEC) by the Council of Ministers in 2010 with a mandate to enhance energy efficiency in the Kingdom. The Executive Committee of SEEC is headed by HRH Prince Abdulaziz Bin Salman Al Saudi, the Deputy Minister of Petroleum who is leading energy efficiency programmes across the different sectors in the Kingdom in close collaboration with stakeholders. DC regulations are at the top of the agenda and we hope they will be implemented in the coming years with a main emphasis on mega projects in the Kingdom.
SEEC aspires to create awareness and enhance energy consumption efficiency, as well as unifying the efforts of governmental and non-governmental agencies to support and preserve energy resources. District cooling can help achieve the lowest levels of energy consumption. Our close collaboration with SEEC is key to further developing the DC industry in the kingdom.
What are the major challenges that district cooling faces in Saudi Arabia?
Challenges remain on every level. Financing, for example, is very much linked to the credit worthiness of the developer/end-user. The BOO/BOT framework is structured for a single off-taker, provided they are capable of handling the financial commitments and have the capacity to secure the financing.
Another important challenge is the means by which revenue is being collected, the billing cycle and the way payments are made. DC regulations governing the relationship between the end-user and the developer are not yet in place. Hence billing and collection cycles are neither clear nor framed in a structure where responsibilities and limitations are addressed for both parties. Securing financing under private developments without a single off-taker is another obstacle.
Availability of water connection points to any DC plant across the kingdom is a major challenge which we are trying to solve and mitigate via alliances and partnerships with the different stakeholders. The kingdom is huge and the resources required for a successful DC implementation are not necessarily available everywhere.
We are ahead of the learning curve for district cooling from an awareness perspective. However, when things come to the actual implementation of DC we are still at an early stage compared to other countries in the region.
Does Saudi Tabreed use desalinated water or treated sewage effluent in its developments?
Treated Sewage effluent is our favoured source of water supply for all our DC plants so far. We do have a strategic partnership with National Water Company (NWC) to provide us with the required volumes and the connection points for most of our projects in the Kingdom. Desalinated water is too precious to be used in industrial applications!
What’s next for Saudi Tabreed?
Our growth strategy is strongly aligned with the kingdom’s needs and requirements to further optimise energy consumption for cooling systems. Our main focus is on the outsourcing mechanism via long-term BOO/BOT frameworks for our district cooling schemes throughout the Kingdom, namely for mega projects. Around 70% of electricity generated in Saudi Arabia is used for cooling. If you compare district cooling to conventional air conditioning, we are talking about a 50% saving in electricity. District cooling can reduce electricity consumption in Saudi Arabia by around 30%-40%, which is a huge saving.