Cold calling

As high summer temperatures take hold in the region, the focus has again fallen on air conditioning system options. Alison Luke investigates how the sector is coping with ever increasing market demands.

UTS Carrier LLC, ANALYSIS, MEP

As high summer temperatures take hold in the region, the focus has again fallen on air conditioning system options. Alison Luke investigates how the sector is coping with ever increasing market demands.

In 2007 the worldwide air conditioning market was valued at US $62 billion (AED227.6 billion). A rise from the reported $55 billion value in 2006, the Middle East, Africa and India market accounted for $5 billion of this total, with the sector's value in these countries continuing to grow.

Increased construction work and a move towards sustainable standards of building are among the factors affecting the sector, with air conditioning manufacturers adapting to meet the changing needs.

The latest World Market for Air Conditioning report from the UK-based Building Services Research and Information Association (BSRIA) highlights many of the recent changes and offers predictions for the future of the industry.

The constant demand for replacement and upgrade of existing units combined with the construction of new buildings are fuelling new demand for air conditioning plant reports BSRIA. Further boosts to the sector include a reduction in trade barriers, high oil prices driving inward investment and strong direct foreign investment desiring to engage with the region's dynamic growth markets.

"The Middle East [air conditioning] market is growing rapidly; compared to 2007 it has grown approximately 15%. Compared to the rest of the world [this growth] would be approximately 5%," states LG Electronics Gulf general manager air conditioning division Chris Ahn. "There is a lot of scope in this market," he adds.

The UAE, with Dubai and Abu Dhabi in particular, is heading this rising demand, but other countries within the region are closing fast. "If you look at the five-year period up to 2008, Dubai has seen the biggest growth in the Middle East; but if you look forward for the next five to ten years there are other regions that in terms of growth rate will probably overtake Dubai," states Pramod Parasramka, UTS Carrier marketing manager Middle East, building systems and services section.

Growth is expected in several countries throughout the region, but some are progressing at faster rates than others. "Saudi Arabia and Iran's growth are the highest in the region at 25%, while the UAE, Oman and Qatar are increasing by 15%," explains Panasonic Marketing Middle East product manager AC Abby Thomas.

We are seeing Saudi as the next big thing [in terms of market growth]," agrees Trane Middle East, Africa, India marketing manager Peter Blanchflower, "but Abu Dhabi, Qatar, India and Turkey are also exhibiting strong growth. In addition, parts of Africa are exhibiting signs of stability and growth," he reports.

The number of projects planned for these countries is as important as their scale stresses Parasramka, with six economic cities planned for Saudi Arabia alone and an investment of close of $100 billion in the Kingdom's construction industry.

Around 85% of all air conditioning products sold in the UAE are for residential applications reports BSRIA, with this trend following throughout the region. "Residential is the biggest market for air conditioning currently, with many international sub-developers coming into this region," states Ahn. "There is increasing demand for the energy efficient systems; also with the vertical growth [of buildings] there is demand for air conditioning systems that have flexibility in the refrigerant piping elevation between outdoor and indoor units," he reports.

Market changes

BSRIA reports that the global residential and light commercial market increased by around 14% to a value of $39 billion between 2006 and 2007, with mini-splits accounting for the largest proportion of this sector. The market for mini-split products rated at more than 5kW is expected to grow by 10% by 2011.

"In the split air conditioner/purifier market the Middle East is leading the way with 20% growth," states Thomas. "This compares to 15% [growth] in India, China, Brazil and Russia; and only 5% in Europe, the USA and Asia. "The Middle East is also experiencing 15% growth in ducted and large room air conditioners," Thomas adds.


The variable refrigerant flow (VRF) market also showed a significant increase over the 2006-07 period, up from $5 billion to $7 billion in 2007. This is expected to grow in value by a further 15% between 2006-2011.

In terms of chillers, BSRIA predicts the biggest growth in the Middle East to be among the centrifugal versions, with this market already booming and a strong potential existing for further development. The overall chiller market in the Middle East and Africa is currently growing at a rate of 19% per year, reports BSRIA, with its total value expected to equal that of the Americas region by 2010. The UAE is currently the third fastest growing market for chillers behind China and India.

One of the most significant changes to the air conditioning market in the region has been the development and uptake of district cooling systems. "The growth of the district cooling sector has had a big impact on the traditional air conditioning market," states Ahn. "As per new rules from the government, certain mega projects have to use district cooling...as a result the scope for traditional air conditioning has become limited," he adds. More than 60% of new developments will have district cooling systems installed rather than traditional air conditioning reports Ahn.

"There is no doubt that very large district cooling plants using the best technologies can produce and distribute chilled water at a lower cost per ton than smaller plants, but this approach only works where loads are high and concentrated," warns Blanchflower. "There is still a major need for individual plants providing cooling for independent facilities," he stresses.

Meeting demands

"Due to the increased demand for air conditioners and the fast-track nature of projects, all manufacturers are gearing up to increase their production base by expansions and acquisitions," reports Ahn. LG for one, expanded its manufacturing capability into other countries in order to meet local demands and in 2007 the firm produced more than 12 million air conditioning units.

The global economy is playing a part in manufacturers plans also. Parasramka explains: "If you look at the global scenario, with the slowdown in the US market and perhaps in Europe as well, [manufacturers] have that much more capacity available to them [for use in the Middle East] if required."

Other issues facing the manufacturers in the region are the availability of skilled manpower and rising costs. The increasing costs of raw materials are raising the prices of some air conditioning products, with increased competition and productivity gains only partially able to offset these resource-related price surges states BSRIA. "At the end of the day it is a manufacturing industry and you use raw materials to come up with the finished product, so of course there is an impact of the inflation of costs of the raw materials," stresses Parasramka.

"It's compounded by the fact that especially with the construction materials the prices are going through the roof, so projects that are being delayed have an impact on what we can bring to the market in terms of product delivery. [Rising costs] trickle down to the project being delayed and then further on to how the manufacturers have to deal with their production schedules and plans," Parasramka adds.

Some costs are being borne by the manufacturers reports BSRIA, with the additional price of mini-split units in particular not being passed onto UAE customers. The majority of this market is for small, new-build projects, with the strong market competition preventing any large price increases at consumer level.

Green movements

The growing awareness of sustainable technologies and an increasing demand for energy efficiency are having a significant effect on the region's air conditioning market. This push is coming from two angles: an increased international awareness of climate change issues; plus the narrowing gap between available and demanded power to meet project needs.

"To approach the green buildings concept in a more holistic manner we would need to start using ozone friendly units and higher energy efficient units," states Thomas. The key to achieving a truly green building runs much deeper than installing efficient chillers stresses Blanchflower. "The designer must consider the whole system and then ensure that the controls platform is able to integrate and optimise all elements," he explains.

"Since air conditioning is the major consumer of electrical power, at almost 60-70%, there is a increased focus on the efficiency of the air conditioning units used," reports Ahn. Most major manufacturers are continually reviewing their existing products in order to increase their efficiency and a number of new products have been launched to meet these new demands.

LG, for example, introduced the future generation Multi-V system, which uses a multiple inverter direct current (dc) compressor. This unit consumes 35-40% less electrical power than comparable conventional systems.

Trane's Earthwise CenTraVac chiller, in turn, was highlighted by the US Environmental Protection Agency as the most efficient and environmentally responsible chiller in 2007.


In addition, UTS Carrier is planning product launches for both the air and cooling side of the equipment during the second half of 2008. The firm is also intending to raise its presence in the district cooling sector over the next year reports Parasramka.

The region's saturated markets in particular have shown a trend towards the use of more environmentally friendly products such as VRF systems, heat recovery devices and inverters. High-rise commercial towers are particularly suitable for VRF technology and with many of the new developments within the region taking this form, the 15% increase in their use by 2011 predicted by BSRIA seems more than realistic. Currently the use of VRF products is being restricted by the low electricity and labour costs in the region, but again these factors are changing.

Parasramka warns however that this growth will be affected by the application of district cooling. "We do expect the market to grow but we have to balance it against how district cooling will figure in the new developments...district cooling could possibly cannibalise the market for packaged and maybe even small chillers," he states. "Given that you have a better control of the machines, the impact that you see on energy usage has to be balanced with what better solutions can be presented by the manufacturers to address the energy use."

Obstacles to change

Obstacles still exist for the uptake of some of the new energy efficient technology available. An overall focus on capital rather than operating and overall life cycle costs means that such systems can sometimes be dismissed at the design or construction stages.

"Because of higher initial capital costs, clients are keeping a distance from [some] energy efficient systems," reports Ahn. "We request the local authorities to come up with regulations to encourage developers to base their calculations on the basis of the operating costs and not only on the initial capital cost," Ahn adds.

But the air conditioning industry must also play its part in changing the mindset of clients stresses Blanchflower. "Owners and developers are allocating too much time in securing what they consider to be the best price for products, when this only represents the very smallest fraction of what the system will cost over its life," Blanchflower states. "The [air conditioning] industry needs to improve its messaging in respect of total cost of ownership."

In terms of increasing the focus on environmental aspects of the systems, more must also be done. "The governments must consider checking the energy efficiency ratio of units and research the possibility of mandating units that use ozone friendly gas," states Thomas. Such change is happening, with regulations underway in both Dubai and Abu Dhabi, plus an increased use of the US Green Building Council's Leadership in Energy and Environmental Design (LEED) rating system when designing buildings.

However confusion exists as to exactly what is required under green building regulations and until specific guidelines are enforced, ensuring that all projects include the most efficient air conditioning equipment will be a difficult task.

A change in building ownership may help in pushing the use of more efficient plant. "Consumers will be more driven by value-added products," predicts Thomas. "With greater private ownership coursing through the region, we see greater interest in quality outcomes rather than economic inputs," adds Blanchflower. "Owners and developers are looking to ensure they get the comfort levels they anticipated when they made their investment. In addition we see growing interest in the total cost of ownership model." What is sure is the air conditioning market is set to continue growing in all its forms throughout the region.

For more details of the BSRIA report see www.bsria.co.uk/wmi

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