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Sat 17 Jul 2010 04:00 AM

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Monopoly money

If district cooling was an employee, would you hire it?

Monopoly money

If district cooling was a prospective employee, would you hire it? Let's look at the CV.

This potential job candidate believes he can save you around 55% of your energy consumption, plus he says he is good for the environment. On the surface, this seems excellent.

But, while your employee can save you and everyone else a load of energy, he will cost at least twice the going rate of other employees with a similar output. Normally you might not notice the extra cost, but this guy wants all of his money up front, once a year, before he does a day of work.

Not only that, you have no recourse to fire him, because, although you are doing the paying, he will actually work for someone else. This third party will be getting a big slice of the action and is the reason the guy costs so much, but there's no room to negotiate.

This sounds dreadful. You might like to consider other candidates, but there aren't any. Now the third party is saying this guy's your only choice - but no, he's definitely not a monopoly. ‘How come?' you ask. Well, it turns out he ‘competed' to be the only person you could hire; lucky you.

As absurd as it sounds, this is the reality facing many district cooling end-users. These homeowners can't help but see the business model for the utility - one they are compelled to buy - as flawed. The question is, is the flaw fatal?

I've just been in a room full of angry people who certainly hope so. The object of their fury was district cooling's cost, one of the most divisive issues in the local residential property market. Ultimately, end-users are the people paying for district cooling; the first business that figures this out may actually make a few dollars, without attracting a groundswell of public resentment.

Whatever district cooling may be saving us in energy - the figures are varied and debatable - it is costing us plenty of cash. Partly, this is down to how bills are structured. Paying a year's worth of cash up front for a utility is outrageous, especially when it isn't based on individual usage.

Also, the simple fact is, district cooling companies don't always regard the end-user as their customer. One district cooler told me so in an interview a couple of years back. Depending on how the deals are structured, the ‘customer' is in fact the property's developer.

The developer will pass on the charges, which do not necessarily reflect consumption. Frequently they include an amortised charge for building the system in the first place. The pay back period for this kind of infrastructure runs into decades, far longer than most end-users, also known as the real consumer, stay in one place.

Building a system that ignores the likelihood people will want individual charges, rather than to pay a ‘square metre' proportion of a building's usage, is deliberately ignoring what is best for the end-user. It also means there is no hard financial incentive to moderate use, which leads to massive waste, completely undermining the purpose of district cooling in the first place.

How these flaws have been ignored is beyond any consumer to fathom. The only thing they are certain of is that it has to change. Until then, since we're forced to hire district cooling, it would be nice if we could pay him in Monopoly money.

Stuart Matthews is the senior group editor of ITP Business' construction & design tiles.

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maher hamzi 10 years ago

ALTHOUGH Mr MATHEWS TRIES TO SHOW THE PROS AND CONS IN DISTRICT COOLING ,IN HIS THANKFUL AND THOUGHTFUL EFFORT TO PROTECT THE "POOR" AND HELPLESS CONSUMER, THE FACT REMAINS THAT , THIS BUSINESS IS JUST ANOTHER A UTILITY AFTER ALL ,AND THE ROLE OF THE PUBLIC SECTOR IS KEY TO DETECT MOPOLY AND DIAGNOSE THE RIGHT PRESCRIPTION TARIFF WHICH HEALS THE CONSUMERS' POCKETS AND SOULS, FORM THE MALADIES OF INEFFICIENT OVERPRICING. CONSIDERING THE COSPIRACY THEORY SCENARIO ,THE DC OPERATOR TOGETHER WITH THE "CAPEX WISE" CASH FLOW EXPERT DEVELOPER STRUCTURED THEIR TARIFF TO RECOVER COST AS EARLY AS CONVENIENT TO THEIR BANKERS AND FINANCIAL ADVISORS WHO ALREADY CASHED THEIR FEES UPFRONT. BEING THE FLEDGLING INDUSTRY IT IS , WITH A MULTITUDE OF BOTTLENECKS AND PECULARITIES , DISTRICT COOLING WILL HOPEFULLY SHAPE UP TO IMPROVE THEIR INITIAL COSTS , STREAMLINE THEIR FINANCES AND OFFER A FAIR TARIF ...