Newly announced as the regional manager of IDEA's Middle East Chapter, Tabreed CEO Dany Safi explains to Alison Luke the challenges that have been overcome in forming a multi-billion dollar district cooling sector in the region and what the future holds for the firm.
Dany Safi's input to the Middle East's district cooling industry is a matter of fact. He is widely accepted as the man behind the creation and development of the sector in the region and has won several international awards in recognition of this, including the International District Energy Association's (IDEA) Unsung Hero and Global Pioneer Awards.
He was also the first Arab to be elected onto the IDEA board of directors in its 94-year history. And at the time of writing, his appointment as the first regional manager of IDEA's Middle East Chapter is due to be confirmed at a regional conference in Dubai in late October.
But achieving such success has not been easy. Simply gaining acceptance of the district cooling concept was the first challenge that had to be overcome. "Convincing the market [of the viability of district cooling] took a lot of effort and work," stresses Safi.
One of the first moves for Safi and his team was to carry out financial and technical analyses of the local markets to demonstrate the possibilities to future clients. "People are afraid of new ideas and concepts, they will always resist the implementation of new things. It's human nature," states Safi. "Those were the main obstacles [to the uptake of district cooling], but I think we have crossed that time now," he laughs. "I look back and smile - now everybody wants to be in this business."
And Safi has reason to smile: in less than a decade the Middle East's district cooling sector has grown from a virtual standing start into a multi-billion dollar industry, with Tabreed as one of the main providers in the region. The industry's growth is also currently outstripping that in North America, the home of IDEA's headquarter by a ratio of 2:1 and US $30 billion of investments are predicted for the sector over the next ten years.
Lebanese Safi is an engineer by training, studying a BSc in electrical engineering in France, followed by a MSc in mechanical engineering in the UK. He began his working career with a real estate development firm then joined global air conditioning firm Carrier. He spent several years with Carrier, where he was responsible for projects worldwide in locations varying from the USA to Qatar, before beginning his ventures in the field of district cooling.
"I'm basically an engineer and I got involved in the business of district cooling by coincidence to a certain extent," explains Safi. His involvement in the sector began around 17 years ago while he was based in Abu Dhabi with Carrier. He explains: "We were working on a project that required a large [air conditioning] installation and we found that it was difficult for us to commission the equipment because of a lack of electricity at that time.
"I had an idea to start using district cooling driven on natural gas; that was the original proposal, to use natural gas as an alternative energy. One of the other main reasons for suggesting such an idea was basically to save energy and help to conserve the environment," he adds. The concept wasn't new stresses Safi, it was merely it's implementation in the region that was unusual. "The district energy concept is 100 years old," he states. "It started in heating in the late 1800s, then the concept of cooling was started in 1922...in the US."
Getting the client to accept the concept was only the first step, the implementation of the technology required a structure and legal entity; this was developed over the following years. "It took us years to develop this business until we formed the company Tabreed in June 1998; it wasn't overnight," stresses Safi. During this period of formation Gulf Energy Systems was also created, a company that is now 100% owned by Tabreed.
Tabreed was listed as a public stock company in 1998. Today it has almost 20,000 shareholders and is one of the largest district cooling providers in the world. In less than ten years the number of direct employees has risen from three to more than 460.
This level of growth is expected to continue for both Tabreed and the region's district cooling sector in general. The boom in the Middle East's real estate industry is playing a principal role: "The whole region is growing; it's a young region. And of course the growth in the real estate market and developments [are important because] these are the main places where district energy can be implemented," Safi states. "The growth is considered phenomenal, while in the West those markets are more or less becoming mature, so we don't see as many developments [under construction] at the same time," he adds.
Although new projects are a primary target for the industry, district cooling systems are now also being installed in existing developments. "This concept can be implemented at any time [in the life of a development]," assures Safi. The sheer volume of work available in the sector has meant the arrival of new firms into the market, which Safi sees as a good indication of the acceptance of district cooling in general.
Saudi Arabia is the biggest market in the region due to its size, but in terms of the implementation of district cooling systems the UAE is currently at the top of the scale. "The market is growing, it's a very solid and healthy market," states Safi. "Many companies are investing in this part of the world and, of course, in terms of ambient temperature we are in a place where cooling is needed almost all year round. So this market still has a tremendous growth ahead of it and there is room for many developers and companies to perform," he adds.
While many international firms are looking to the Middle East as an opportunity for expansion, Tabreed itself will be taking a more global outlook in the near future reports Safi. "We have requests to expand [outwith the Middle East]...Towards the end of the year we will be announcing something," he confirms.
Any moves into other countries are likely to involve joint ventures with local partners: "It's easier to have people involved that have the knowledge of their country," explains Safi. "They can assist in developing the business, breaking into the market and red tape issues. We play a role of developing, helping, assisting and promoting this business, but we would like to have local players in each country [in which we operate]," he adds. The firm will also remain focused on growth within the Middle East market assures Safi.
One of the biggest challenges facing the sector is securing the financial funds needed to meet the market growth. "These projects are capital intensive and they require a lot of financing as well since we build, own and operate all the plants," explains Safi. "Owning [the plants] requires a lot of financial strength in the beginning and continuing to raise the necessary equity to finance these projects is quite a challenge and requires a lot of financial engineering...but we are dealing with it," he adds.
Further increasing the utilisation and efficiency of district cooling systems is also vital. "District cooling is a know-how business; it's a combination of equipment, materials and engineering work. It's very important to stay up to date in terms of engineering, new products, new controls and the nucleation of new technologies that can provide us with the most efficient systems," stresses Safi.
To reduce the amount of potable water consumed by the sector, district cooling providers are moving to alternatives such as treated sewage water (TSE), grey water and seawater. Tabreed is using seawater cooling in plants throughout the region including Bahrain, where it is using this water source as standard. The main issue with seawater is access states Safi, as although the type of water used may affect the technology and materials needed for a system, pre-planning will prevent any potential operational problems these could cause. "All we need is to know ahead of time what type of water we will be using and the equipment can be designed accordingly; [the technology is] available, its easy," Safi assures.
A further issue being faced is ensuring that sufficient power is available when needed due to the amount of projects underway in the region. "It's becoming a big challenge for the authorities to keep up the same speed because it takes longer to build a power and water plant than a building, so there is a lack of time," explains Safi. "It is a challenge, but from our side we try always to come up with new ideas and solutions to assist wherever we can."
One way to reduce the amount of electricity needed by district cooling is the implementation of thermal storage plants in the system. Tabreed uses such systems in several of its plants, however the full benefits can only be gained with financial incentives in the electricity tariff structures. "We are not benefiting from the electricity tariff structures yet, but we believe that eventually we will reach a point where the electricity authorities have to encourage the implementation of district cooling and to do this they have to provide those companies with different tariffs," predicts Safi. "By doing that we can use more thermal storage systems and this will help in shaving the peak [power demand] and in fact it will help the electrical authorities in their planning, production and distribution networks," he adds.
A good IDEA
The arrival of IDEA into the region early in 2007 signalled a positive future for the sector and the worldwide recognition of the industry in the Middle East. "IDEA will create the necessary platform for [Middle East-based firms] to really stay in touch with the international sector, and the worldwide industry to stay in touch with what's happening with all the new technologies and new information, to understand and train people about everything new in this industry," stresses Safi.
In his latest role as IDEA regional manager he aims to continue promoting the district cooling business in the Middle East and educating the market on its benefits. "My focus is basically to continue in realising my passion and this is my passion," he stresses. "When I [first] started talking about [district cooling] people told me that I am mad, I am crazy and I do not know what I am doing. It has been said to me many times, but now everybody wants to imitate me, everybody wants to do what I'm doing," he laughs.