HOT|COOL NO.2/2016 - "District cooling in the Middle East"


By Kristina Lygnerud, PhD University of Halmstad

Taking into account that a majority of the Swedish district heating companies are municipally owned and under municipal jurisdiction, it is interesting to note that municipally owned entities strive to increase commitment, quality and to develop the way that operations are carried out (The Swedish Association of Local Authorities and Regions (SKL), 2012). One tool that has become widely spread and used in the Swedish municipal sector is Lean (one municipality of five in Sweden has ongoing Lean projects: The Swedish Association of Local Authorities and Regions (SKL), 2012). Having worked with Lean in different contexts (healthcare and district heating), my experience is that there are many different ways to use Lean. If used well, the largest benefit resulting from it is the creation of transparent processes. One very relevant process to shed light on in district heating companies is the one of balancing investments andmaintenance. Currently, research is made on the possible mismatch between investment decisions and maintenance levels in district heating companies. One hypothesis is that reinvestments are being undertaken prematurely. Regardless of how large the potential is to enhance internal efficiency through integrated investment/ maintenance strategies, transparency fosters questions and questions trigger change; leading to the much neededmakeover of district heating companies for future survival.

The preconditions for district heating companies are fierce and district heating companies cannot afford to let heat go up the chimney. It is not feasible to let inefficient operations, as a result of habit, remain and it is not possible to create long-term customer relationships without revisiting the way that customer value is created. District heating providers are under pressure: Fuels risk becoming scarce, expensive or obsolete as a result of political decision making. Customers want more than heated space and water in the tap, and energy savings shrink the heat market. The circumstances do not allow for inefficient usage of resources and inefficient activities. Insufficient internal communication, inefficient production planning, blunt sales, incorrect measurements of consumed quantities of heat, poor follow up of investments, and too early reinvestments are examples of internal inefficiencies that seem to be part of the way that business is conducted in some district heating companies (Lygnerud, 2008 and Lygnerud, 2011). It is risky to keep internal inefficiencies if district heating companies want to stay competitive. Potential to increase internal efficiency District heating companies base their business on fixed assets. A production plant is in use to produce the heat which is distributed in networks to the customers. There is a point at which the demand is too low to make production economically viable. One alternative is then to replace the existing production plant with a smaller one. However, even such a strategy will eventually come to a dead end. Talking to managers in Swedish district heating companies it is not known how long it will take to reach that point. The pace depends on what kind of production is in use - CHP plants will for example become unprofitable fast whereas an old, fossil-fueled boilers might actually benefit from lower demand. Hence, it can take years (a few or many) for the demand to sink low enough to put the companies out of business (Lygnerud, 2011). That heat demand will not decrease overnight is both a risk and a possibility. It is risky because the reduction in heat demand is slow enough to cradle management in safety. It is a possibility to management that is forward looking since it provides the time needed to cut internal inefficiencies.


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