Kamal Pharran, CEO, Saudi Tabreed: Interview

Interview: Kamal Pharran

How can district cooling (DC) optimise the Kingdom’s energy and power generation requirements?

KAMAL PHARRAN: Air conditioning consumes up to 70% of all energy used in the Kingdom. There is a need for a large-scale, sustainable cooling solution that is energy efficient and cost effective, reduces carbon emissions, and saves millions of oil barrels and billions of riyals. DC is an effective and sustainable solution for energy optimisation. By implementing DC, up to 50% of the upfront capital needed for electricity generation and its associated infrastructure can be saved, power consumption can be reduced by up to 40% throughout the life cycle of the DC assets, and a 50% saving in electricity use can be achieved, when compared to conventional cooling and air conditioning systems. With the combined efforts of 72 DC plants across the gulf region, over 2bn KWh of energy is saved annually – the equivalent of eliminating 986,000 tonnes of carbon emissions from the atmosphere.

What can be done to increase the share of DC within the Kingdom’s renewable energy mix?

PHARRAN: Going forward, DC is being offered with solar power solutions for off-grid projects, which can provide substantial savings. Government-backed competitive financing rates under non-recourse project finance would further support the industry’s growth, while securing rights of way for chilled water networks would strengthen the industry and increase its exposure. Lastly, aligning corporate growth strategies with Vision 2030 targets, as well as using outsourcing mechanisms via long-term build-own-operate (BOO) and build-operate-transfer (BOT) frameworks for mega-projects, creates an environment that is conducive to increasing the share of DC within the energy mix.

How attractive is Saudi Arabia to investors?

PHARRAN: There is a strong appetite among the international community to invest in the future of Saudi Arabia. Long-term BOO and BOT frameworks can result in a significant reduction in cost, since the expertise comes from specialised and experienced DC developers, thus removing the need for consultants. A mandate is already in place by the Electricity and Cogeneration Regulatory Authority to implement DC in greenfield governmental and semi-governmental projects with a threshold of 15,000 tonnes of refrigeration and above in cooling capacity. The Arriyadh Development Authority is also studying DC zoning in Riyadh. Areas that meet the requirements for density and size must adopt DC solutions or connect to an existing DC scheme nearby.

What are the major challenges facing Saudi Arabia’s DC industry under public-private partnerships?

PHARRAN: The industry is not currently as mature as that of the UAE, and challenges remain at every stage of the development process. Financing is linked to the developer’s creditworthiness, and the BOO and BOT framework is currently structured for only a single offtaker. This can make the financing of a project challenging if a single, reputable off-taker cannot be sourced.

Meanwhile, there is no framework available for financing DC projects without off-taking. The bankability of projects remains a challenge, particularly when looking at long-term refinancing without off-taking. DC regulations also do not cover the billing and payment collection process, meaning that the responsibilities for developers and end-users are unclear, undefined and yet to be regulated, which ultimately affects the process of collecting revenue.

Lastly, the availability of water connection points for DC plants is another challenge, since the size of the Kingdom and the remote nature of certain areas means that the resources required are not always readily available. One key strategy for mitigating these challenges is to create alliances with different stakeholders, and adopt an outsourcing strategy through long-term BOO and BOT frameworks for large-scale DC projects.