High costs of power propel ME district cooling market

• Text size
•  
•  

JEDDAH - In a region where the temperature frequently exceeds 45 degree Celsius and air-conditioning requirements consume 70 percent of the power during peak electricity demand, district cooling is emerging as the most viable cooling solution in the Middle East.

As power shortage is rampant in this region, the governments are turning to district cooling to cool buildings, as it is a less expensive and greener alternative to air conditioning. This solution can not only mitigate the power crisis in the Gulf Cooperation Council (GCC) region, but also help reduce carbon footprints through increased energy efficiency and lower CO2 emissions.

With greater involvement of the government, the market is expected to become more organized, populated, and competitive. Multinational companies will be attracted to this market due to the prospects presented by the investor-friendly laws, improved standards of living, and high disposable income, which has set off a retail boom in the region.

With the GCC becoming home to the biggest shopping malls in the world, there is a distinct need for district cooling in not only the residential sector, but also the commercial sector. The United Arab Emirates alone is expecting to have 80 million sq. ft of office space by 2010, widening the scope for district cooling companies.

"The market is also expected to benefit from the environment-consciousness of governments, high oil prices, abundance of energy, a construction boom, and harsh climatic conditions," the Frost & Sullivan research service titled "Analysis of the District Cooling Market in the Middle East Region" said.

Among all Middle Eastern countries, Saudi Arabia is perceived to have the most untapped potential, with more than $100 billion worth construction projects underway. Its rapidly expanding industrial base and population have increased the demand for power, which averages an annual growth rate of nearly 5 percent.

The rising air conditioning needs account for almost 70 percent of this growth in power demand. By 2013, the district cooling market is expected to have an additional capacity of 4.5 million tonnage of refrigeration (TR), mainly contributed by Saudi Arabia and Qatar. "Although there is a continuous rise in the demand for power in almost all GCC member countries, power is still provided at subsidized rates for the residential sector," notes the analyst. "This puts a huge drain on the region's utilities, as power costs account for around 50 percent to 60 percent of the district cooling production cost."

District cooling production also requires copious water, which, like electricity, is limited and therefore, expensive in the GCC.

Currently, district cooling plants use potable water, but the search is on for a technology that will allow them to use non-desalinated seawater. Even though a few plants are already using seawater, the corrosion-resistant equipment needed will increase their equipment cost. The current credit crunch will make it even more challenging for companies to acquire the systems required to deal with this issue. As district cooling is a highly capital-intensive market, huge investments are required to meet the additional capacity required.

"Market participants can blunt the effect of the reduced capital by concentrating more on small projects that require less time in commissioning and that can guarantee quick returns," remarks the analyst. "When big projects are split into smaller units, the limited capital will be sufficient to start the project."

© The Saudi Gazette 2009