New tech and contract forms to boost Mideast district cooling

A R Suresh Kumar from Voltas says civil and MEP contractors must pay attention to the growing district cooling segment in the Middle East

Demand for district cooling is on the up in the Middle East, Kumar says.
Demand for district cooling is on the up in the Middle East, Kumar says.

While a relatively new technology, district cooling is not unheard of in the Middle East. A R Suresh Kumar, general manager for corporate business development and projects at Voltas, says the system has “a great history in the Middle East”.

“It dates back to large cooling plants at remote locations in Makkah and Medina that are supplying output for [surrounding] mosques,” he tells Construction Week.

“However, district cooling plants (DCPs), as they are referred to in the contemporary context, emerged as a concept only in the early 1980s. A DCP can be defined as a central chilling plant, regardless of the capacity served for multiple clients in a limited geography.”

The UAE is at the forefront of DC technology, Kumar says, adding that the Dubai Government has taken initiatives that have spurred the growth of companies such as Tabreed and Empower: “While Tabreed led the way initially with demand in Dubai, Empower has grown rapidly establishing itself as world’s largest district cooling company.

“We expect 20 to 24 plants of medium and large capacities to come up in the next 24 months in the UAE. We’re also expecting the rapid growth of DCPs in Saudi Arabia – while it is difficult to predict the numbers, it can vary from 30 to 40 plants. Bahrain, Kuwait, and Oman combined may possibly come up with 10 plants.”

Remarking on how these projects might impact contractor revenues, Kumar says the average cost of developing these plants will vary from $41m to $55m (AED150m to AED200m), with each DCP being completed within 12 to 18 months. Considering that between 50 and 60 plants could be developed in a year, the total value of the regional district cooling market can be estimated at $2.45bn (AED9bn).

In the UAE, the Dubai Government’s initiatives to encourage energy conservation are promoting the uptake of technologies such as district cooling, according to Kumar: “[This intent] is very much evident [when you consider] that a company like Dubai Electricity and Water Authority is a major shareholder in Empower.”

As there are mandatory requirements and limits associated with the power consumption of heating, ventilating, and air-conditioning (HVAC) systems, individual clients are prone to adopting DCPs for chilled water needs. Additionally, mandatory green building requirements in both Abu Dhabi and Dubai have also encouraged the development of DCPs rather than individual chilling systems.

“In the near future, developers and building owners may be given attractive terms such as lower minimum demand costs and British thermal unit (BTU) charges – or any other innovative proposals, such as telescopic rate reduction based on higher usage – to encourage DCPs,” Kumar says. “Ideally, the terms offered by district cooling companies should compel developers and building owners to look beyond individual chillers.”

Because the life cycle costs associated with DCPs are “quite high to start with”, it is important that their development is not viewed as a run-of-the-mill aspect of mechanical, electrical, and plumbing (MEP) works, Kumar explains.

“Since it is an industrial plant, it needs a different focus and skill level. DCP tenders are [currently] issued with a combined civil and MEP works contract, with MEP taking the lion’s share of the job. This process needs to be reset.”

Instead, he explains, MEP companies must partner with civil contractors that can implement structural work at low costs with controlled prelims: “With oil and gas opportunities in a decline, there are plenty of large prefabrication companies available that might be interested in taking up mechanical works.

“With the advent of building information modelling (BIM) and other fabrication software, you can develop excellent drawings that would allow up to 80% of the mechanical fabrication to be done offsite, saving valuable time.”

Another option to reduce DCP costs is to use skid-mounted plants, or deploy large-scale modularisation, both of which can help to cut construction time. This is particularly helpful when the costs of both operation and maintenance are considered.

“This needs to be factored during the design stage,” he continues.

“By improving the current level of automation – through supervisory control and data acquisition (SCADA), and by extending and controlling DCPs through a ‘central command’ hub, the cost of operations can be brought down.”

Outsourcing some project-related tasks, along with the adoption of technologies such as the Internet of Things (IoT), can later help to cut operational and admin expenses, Kumar explains. This will also help to lower production costs, “and further lead to lower unit costs for the customer, attracting more customers to opt for DCPs”.

He continues: “The district cooling sector in the UAE is forecast to see 18% growth over the next five years, according to a business survey, and the cooling capacity growth in GCC may triple by 2030. We expect over 40% of the overall global demand for district cooling to come from the Middle East and Africa by 2019, and this translates to almost $29bn.”

Kumar continues that demand in the GCC alone may top 20 million tonnes of refrigeration over the next 10-20 years, adding that he is optimistic about the sector’s long-term prospects.

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