Mary Coons speaks to industry experts about the long and short-term implications of adopting district cooling in the Middle East. She concludes that despite several ramifications, it deserves to be considered seriously as it offers sustainable solutions.
Smart sustainable energy is crucial for district cooling. And district cooling is vital in the Middle East’s harsh desert climate. Air conditioning in the Middle East is an essential service, with obvious life safety implications. Therefore, even greater attention needs to be directed to enhancing efficiency, maintaining reliability, and ensuring safety and security of supply.
“The district energy industry – both heating and cooling – is a proven, reliable and scalable energy technology that can contribute immediately to greater energy efficiency and mitigate carbon emissions on a highly effective scale,” Rita Chahoud, Executive Director of the International District Energy Association’s United Arab Emirates chapter, states. “Proof comes from the US industry standing the test of time. Businesses have been operating efficiently for more than a century with district energy.”
BUILDING ENVIRONMENTALLY ‘GREEN ’
With today’s emphasis on building ‘green’ to protect the environment, there’s already a frontrunner for cooling buildings. District cooling has always been environmentally friendly, with outstanding reliability and compelling efficiency. Going ‘green’ – and what shade of green – means different things within a variety of industries. District energy, which consists of heating and/or cooling water to heat and air condition buildings, is already ‘green’ in the sense that it uses so much less electricity than the alternatives, thus, reducing carbon footprints.
Bernt Andersson, CEO of Tabreed Bahrain, a utility company selling chilled water for building operators to use for air conditioning, believes that the only way to meet the demand for cooling buildings in a sustainable manner is to be sustainable. “And to be sustainable, one must utilise higher efficiency from district cooling plants as a local solution,” he says. “This green environmental thinking needs to take precedence in this part of the world, by making entire systems more efficient. We simply cannot burn fuels inefficiently to produce electricity.”
District cooling’s sustainable development provides essential environmental benefits, such as reducing air pollution, global warming, and ozone depletion. Its superior energy efficiency reduces electricity consumption – probably its greatest environmental impact – says Mark Spurr, President, FVB Energy Inc. FVB, a US consulting firm specialising in district energy systems, has a Middle East presence, with an office in Bahrain.
Elaborating on the environmental impact, Spurr explains, “This positive reduction in electricity consumption can be translated into any number of parameters. The most prominent one is carbon dioxide. We calculate that for every tonne of connected cooling load, we’ll save annually about 1.3 metric tonnes of carbon dioxide. That’s a huge environmental benefit.” On the flip side, he acknowledges, “The potential negative with district cooling, environmentally, is water. Potable (sweet) water is a precious commodity, and electricity reduction requires water. The days of using sweet water for a cooling tower makeup are rapidly ending. Water access, and making sure that water can be procured in an environmentally acceptable way, is key.”
The good news, though, according to Spurr, is the available options to this environmental challenge. “We can do many things, including using relatively low-quality water,” Spurr says. “The option of treated sewage effluent (TSE) for cooling tower makeup is another potential synergy of district cooling, with new developments.”
Major real estate developments create demand for all utilities, including wastewater treatment and cooling. “At FVB, we are focused on integrated infrastructure design, such as using the output of wastewater treatment – TSE – for optimising and reducing the environmental impact of district cooling,” Spurr says.
Says Andersson: “In Bahrain, where we use seawater for cooling, if the water is not distributed properly when let out, local sea life can be harmed. Therefore, you always try to distribute the water over longer lengths, so as to not impact the local change of temperature too much.”
Speaking on the pluses of district cooling, Andersson says: “Less natural gas or fuel oil is required to produce electrical power, with the main reduction being greenhouse gases. Often overlooked is the heat emitted from rooftop chillers. Substantial amounts of energy are released into the atmosphere. Chillers on the rooftops of buildings can contribute to the ambient temperature increasing in an urban area. That goes away if you use seawater for cooling. Another benefit of centralised plants is lower refrigerant emissions. From that perspective alone comes many benefits.”
In the near future, further restrictions related to which refrigerants will be allowed for use will also help the district cooling business, as well as the environment, say industry experts.
Thermal energy storage technology can further increase district cooling efficiency by shifting production to nighttime, when chiller efficiency is higher. In addition, by allowing chillers to operate at night, during the offpeak period, thermal energy storage reduces the peak demand on the electrical system. This can be viewed as either freeing up existing generation capacity for users who cannot shift their demand, or reducing the need for new generation capacity to meet the growing power demand of new customers.
All of the major Middle East players, including Bahrain’s Ministry of Works, agree that energy efficiency is the biggest benefit of district cooling, globally, not just in the Middle East.
In the current economic climate, cost is more important than ever. Reduced capital costs is the number one benefit for district cooling customers, with the reduction in peak power demand being an integral component for reducing these costs.
“Building developers save not only the cost of buying and installing cooling equipment but also on the connection fees that they might otherwise have to pay the government to obtain power, and eliminate the operation and maintenance costs of running cooling equipment,” explains Spurr.
Comfort is an obvious added benefit. Since district cooling provides a much higher quality and a more controllable comfort level in buildings, end users find this benefit extremely important. Living in the Middle East with high temperature and humidity levels takes an obvious toll on one’s body. Working and conducting business in a comfortably cooled environment can make all the difference to employees and customers.
Maintaining cooling equipment in the Middle East is a major challenge due to its harsh environment. So, from a building management perspective, the convenience associated with district cooling services is considerable. According to industry advocates, that’s something customers don’t appreciate until they’ve experienced it. Khalil Issa, CEO of Energy Central, a multi-utility services company in Bahrain, calls it “a one-stop shop for multiple utilities and integrated solutions.” He should know, as the company works with the Gulf’s industrial clients more so than real estate clients, and also with developers within a design, bid, finance and operation model.
“In general, district cooling is an energy-intensive utility,” he maintains. “It is a utility that is integrated to leverage multiple utilities, which, in turn, yields a more efficient supply of energy. Combining industrial process loads with building air conditioning loads reduces costs by increasing the number of hours chiller equipment is operated fully loaded. This occurs because the industrial customer requires process cooling even during periods of low air conditioning demand. The process load is tied to industrial production rather than outdoor temperature.”
Andersson, on the other hand, cites reduced requirements for new power stations, transmission and distribution stations for electricity as additional energy-efficient benefits. “With the conventional approach, there would have to be so many power plants with their distribution network so large that it’s almost non-feasible.”
Though there are significant benefits that district energy brings with it, it is not without its share of technical challenges, when district cooling facilities have to be designed in the Middle East.
“Because the combination of high temperature and humidity here is enormous, condenser cooling is our biggest technical challenge,” says Todd Sivertsson, General Manager, FVB Energy, Bahrain.
In simple terms, chillers have a cold and warm side, similar to a refrigerator. The condenser, located on the backside of the refrigerator, needs to be cooled down. “If you try to use air to cool the condenser for large chillers,” explains Sivertsson, “this would require vast heat transfer areas, and there’s not the space. So, instead, we use water to cool it down, which is also much more energy efficient.”
Since the Ministry of Works does not permit using municipality water for cooling – and rightly so – sea water is used. Herein lies a challenge: “Sea water is very corrosive,” Sivertsson continues, “so you need good materials or you must produce fresh water from the sea water. Regardless, your plant must be located near the sea. It’s cost-prohibitive to have long intake and outfall pipes to the sea.”
A second challenge is Bahrain’s high groundwater table with its corrosive, brackish water. Underground pipe connections, therefore, must be one hundred percent watertight.
With constrained power supplies, more district cooling plants need to construct electrical substations into their facility, which adds a level of complexity. Factor in the limited, but valuable, Bahrain real estate, and you now have stakeholders interested in integrating district cooling into building projects, such as with Bahrain Financial Harbour.
District cooling development is totally intertwined with the pace of real estate development. Says Spurr: “To the extent that you have major real estate developments occurring in hot climates, there is going to be a very good correlation with the growth of district cooling.”
The district cooling industry, in general, requires extensive capital at the outset. A payback timeframe is easily 10 or more years, making it difficult to entice investors. Investors want a quick return on their investment, and that is not possible with district cooling.
The economic challenge, then, is to build cost-effective facilities in the context of a rapidly changing and uncertain infrastructure. But how do you lay a pipe across a road when the road hasn’t been built yet, or it is planned for future expansion?
Issa – as do others – feels the industry is currently undergoing reassessment. “The next few years will see a more careful consideration focusing on modularity and scalability,” he says. “Gone are the mega plants concept – a web of plants interconnected and closely associated with loads, impacting infrastructure costs.”
A Gulf-specific challenge is that with the government subsidising energy – thus making it very inexpensive – building owners and investors are opting for inefficient cooling solutions using 100% electricity. In the long term, district cooling saves money, while utilising only half of the electricity, and from completion on, provides greater comfort, more environmental benefits, less maintenance, and a host of other enduser advantages.
“When clients demand district cooling, the government, in turn, will save energy,” says Sivertsson. “The government’s benefit would be, not needing to produce so much electricity and building out all of this capacity. Water usage regulations will also come into play, making district cooling more favoured.”
“The bottom line is that, district cooling systems, particularly in the Middle East, are creating scale for more robust power and water conservation technologies, while mitigating peak demand on the power grid, enhancing sustainable solutions, and generating space and capital savings for end users,” reports Rob Thornton, president of District Energy and the International District Energy Association (IDEA). “Part of IDEA’s challenge is to educate and inform, not only policymakers, but also the wider population, as to the merits and tools involved in developing robust district energy infrastructure.”
A FINANCIAL FIRST
In late January, the first Middle Eastern non-recourse Islamic project financing deal was funded for a district cooling project. Eastern District Cooling Company, a wholly owned subsidiary of Zamil Industrial Investment Company (Zamil Industrial), signed with The National Commercial Bank (NCB) for the non-recourse financing project.
Mansoor Durrani, Head of Project, Finance, NCB, stated at the signing: “We anticipate that there will be a number of similar district cooling projects to be financed with similar structures in the GCC, and are pleased that Zamil is the first Saudi entity to close such a transaction.”
Zamil Industrial signed in November 2007 a 22-year Energy Performance contract with Saudi Basic Industries Corporation for the complete outsourcing of process and comfort cooling, including the construction of a central cooling plant to supply 20,000 tonnes of refrigeration within the premises of Saudi Iron & Steel Company (Hadeed) in Jubail Industrial City, Saudi Arabia. The project is being developed by Energy Central Company of Bahrain, and advised by Gulf International Bank with FVB Energy serving as technical consultant. The total project size is valued at approximately SR300 million, and is expected to go on stream during 2010.
GOVERNMENT ROLES AND CHALLENGES
Governments play a critical role in enabling district cooling infrastructure. Bahrain’s Ministry of Works (MoW), the construction arm of the government, is challenged with providing infrastructure for district cooling development, not only electricity, but also water and roads. This is all in accordance with the legal frameworks set out in the National Strategic Master Plan for Bahrain, Vision 2030. MoW is responsible for reviewing and permitting facilities to be constructed in the streets, sighting the plants, and issuing wayleaves (permission to use public land). In addition, the Ministry is tasked with addressing environmental issues in relation to sewerage, and works closely with the country’s private district cooling providers in TSE developments.
The Ministry’s Central Planning Organisation coordinates the planning and implementation of all public infrastructure projects across the public sector, as well as major industries. Dominic McPolin, Chief Planning Officer for the Ministry of Works, agrees that district cooling is, indeed, one of the most important industries in the Middle East, and recognises it as “the biggest quick-win in the supply side of power. It is also potentially the biggest early-win on the reduction of carbon emissions. As such, it is too important to be left to the marketing department of any district cooling company.”
The challenge, McPolin contends, is meeting district cooling demand as quickly as possible. Nevertheless, he believes there is a lack of procedure and a lack of regulations associated with district cooling, which is hindering its quick growth.
The private companies involved in district cooling projects in the Kingdom generally agree that the government utility requirements are strict; some believe they are too stringent. However, it is important to note that this is Bahrain’s first foray into district cooling (its first facility is under construction in the Diplomatic area), and thus, a learning experience. Obviously, the Ministry of Works wants to ensure that everything is correct.
“It (district cooling) has been run as a business model: integrating for technical and spatial solutions; guiding and helping companies as a team of experts; providing effective and secure customer delivery,” explains McPolin. “But the business model must change to a regulation model. Although we are all in this together, regulation is a government issue.
“This is too important to the government to be left to the success or failure of a district cooling company. We need to regulate this business because of the public/private relationships. We need transparency, customers need protection, and motorists need ease and efficiency driving through construction of public roads while pipes are being laid beneath them.”
Until procedures and regulations are determined and in place, the Ministry of Works has placed a moratorium on all new district cooling projects in the Kingdom.
Furthering his stance, McPolin believes the market now craves regulation, thereby providing security for banks lending huge amounts of money.
“There now exists a change in mindset in this industry. We realise there needs to be benefits for businesses, district cooling companies, and the government,” he explains, and goes on to say, “This is possibly the most important new infrastructure in this region. The industry has an opportunity to get into this equation. It’s a challenge to get it rolled out and be widespread. We want to work as partners, but we must do it through a transparent process. It cannot be any other way. Energy efficiency is the major criterion we seek in a transparent process.”
Why is district cooling so important to Bahrain’s government? According to McPolin, there is the financial incentive for those who pay the government for energy in terms of oil and natural gas conservation, the enormous impact of reducing the carbon footprint, spatial issues (with reduced power demand comes a reduction in substations), and a host of others.
Here, the stakeholders have many faces: the utility developer/operator, lenders, end users, and contractors and consultants. There are challenges to spreading the risks to those best suited to deal with them. “This is a challenge the government is interested in, however,” McPolin says. “We recognise the need to get the price to end users down.”
“Regulation is vital for the realisation of Government objectives and for the stability and growth in the district cooling industry. This is a complex issue, which, like all regulatory practice, requires a delicate balance in its approach in order to maximise the potential of the industry within a transparent and open market for the service. The Government wants to intervene with balance and fairness, despite building models crashing as we speak.”
Although Issa believes the government must play a greater role now than it has in the past, he does have questions: Does the government have an obligation to step in? Should they be custodians of revenue lines? “I don’t think you can bundle everything under one party in order to provide the most cost-effective product,” Issa explains. “The government can pass on electrical transmission cost with reduced risk if there is a public/private partnership with the government, for example.”
So, what is holding back and/or impacting the growth of district cooling in the Gulf – not just in Bahrain? According to Issa, although district cooling companies are helping both the government and the energy sector, it has been very challenging to obtain the necessary supplies of electricity and water, and obtain permit approvals, thereby negatively impacting growth.
Adds Sivertsson: “One of the challenges we face in Bahrain is that the Ministry of Works wants to introduce district cooling regulations. This is holding the industry back, as the Ministry has halted all further development of district cooling through public roads until there are regulations in place.”
Spurr interjects: “What this means in lay terms is that the Ministry would like to regulate district cooling as a regulated public utility. It is a very politically sensitive and tangled topic. A regulated public utility guarantees a rate of return with the government determining what rates to charge. District cooling worldwide has very, very few systems regulated, and such regulation is almost unheard of in the United States.”
Andersson advocates adjusting the electrical tariff system to give a correct reflection of electricity production costs. “If you do that, the whole thing will go to where it should go and where Bahrain’s government wants it to go. This makes it a better use of district cooling, in my opinion,” he says.
McPolin explains that the Ministry of Works is in the very initial stages of regulation discussion with the district cooling companies in Bahrain. “The time is right,” he emphasises. “The industry is ready and the government is ready to start this journey.” Establishing a licensing system for providers is on the board. For example, a Class C license requirement would be in place prior to development, rather than retrofitting later to district cooling. A Class E license issued to a designated area would make it compulsory to all developments to connect to the district cooling system.
When asked if developers will be approved for the entire system or piecemeal in urban areas – street by street or block by block – McPolin characterises his answer to this strategic question by replying, “We can make it happen anyway a developer wants, once we know it’s the right thing for Bahrain.”
As part of His Majesty King Hamad’s 2030 Vision, the Ministry of Works has set 2014 as a targeted goal by which to reduce CO2 emissions by 60% per capita – from 31 tonnes to 10 tonnes. Optimistic shortterm goals, admits McPolin, include introducing thermal storage and retrofitting existing urban areas, such as the highly dense Juffair, from current mini-split units to district cooling.
“It is important for district cooling companies to help governments to really understand the economics of the electrical benefits of district cooling,” believes Spurr, “because in some cases, district cooling is being constrained, while in other situations, the most optimal district cooling solution is being repressed. This occurs when a government is not providing the correct economic signals. For example, if there were truly cost-based power tariffs, you would see abundant thermal energy storage. So, the big issue and greater need, in my opinion, is to help governments understand how district cooling saves them capital and operating costs in the power sector.
“The bottom line is that, district cooling provides a good value proposition when you take into account all of the capital and operating costs,” Spurr says, “and it’s a good shade of environmental ‘green’.”