Cooling our world

How to increase district cooling adoption through proven regulation

Executive summary

As the planet warms, global demand for air-conditioning is projected to triple over the next 30 years, much of it in developing countries. Providing cooling is expensive, demanding power generation surges during the day for workplaces and at night and the weekend for residential spaces. Although the International Energy Agency (IEA) anticipates that improvements in the energy efficiency of traditional cooling technologies can prevent unsustainable electricity demand, developing countries could also adopt district cooling. The way that district cooling works is by aggregating demand, ideally among multiple buildings that combine residential and commercial spaces. When applied appropriately, district cooling is more energy-efficient than traditional cooling solutions, more cost-effective for customers, and it reduces peak power requirements. Moreover, district cooling works well with solar and other increasingly common renewable-energy technologies.

Gulf Cooperation Council (GCC) countries were early adopters of district cooling, and can act as exemplars for other countries. Strategy& analysis shows that district cooling can serve 40 percent of new-construction communities, and up to 10 percent of buildings can be retrofitted in the GCC countries, with similar potential impact elsewhere. We determined that using district cooling for future additional cooling demand in developing countries could lead to over US$1 trillion in energy savings worldwide through 2035.

Governments play a critical role in the adoption of district cooling, as it requires significant planning to aggregate demand, protect customers, and ensure that economic benefits are equally distributed along the value chain. Governments can create a favorable district cooling market by crafting a holistic regulatory framework based on GCC countries’ experience, introducing different elements simultaneously:

  • Mandate the use of district cooling in applicable situations
  • License operators, providers, and retailers
  • Set technical and service standards
  • Develop contractual frameworks
  • Establish competitive tendering processes
  • Regulate prices

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The GCC example

Despite the advantages of district cooling, few markets have adopted this solution. In 2016, the IEA estimated that only 2 percent of global cooling requirements were met through district cooling systems or stand-alone air or water chillers (the base technology in district cooling).

The greatest challenge is often the inability of real estate developments to consolidate demand. Even those developments that do aggregate demand often still rely on low-efficiency cooling technologies. Mostly, these developments use mini splits and multi-ductless splits, which are far less efficient than other systems such as chillers and central ductless splits. In particular, split units degrade quickly in terms of their efficiency, and they are rarely maintained to manufacturers’ specifications.

The GCC countries are a significant exception. Penetration rates of both district cooling and stand-alone air or water chillers are higher than in the rest of the world, representing 15 percent to 25 percent of the total installed cooling capacity in the region. This high adoption rate is the result of two factors: recent real estate development, and the need to minimize the cooling load during the hot summer days, when cooling load could represent up to 70 percent of peak electricity demand in some countries.

There remain many opportunities for the increased use of district cooling in GCC countries. Our forecasts of urban plans show that district cooling is a feasible solution in about 40 percent of new-build communities. The percentage is even higher for the mega-developments in GCC countries, which are ideal candidates for district cooling. Also, up to 10 percent of the current building stock in the region can be retrofitted by connecting to nearby district cooling plants with available capacity.


As developing countries worldwide face growing demand for comfort cooling, merely improving the energy efficiency of the existing solution will probably not suffice. There is a need for developing countries to increase the adoption of district cooling at a national level. To ensure that this occurs to the maximum possible extent, these countries should emulate GCC countries by drafting and implementing district cooling policies.

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George Sarraf

George Sarraf

Partner and Managing Director, Strategy& Middle East

Dr. Raed Kombargi

Dr. Raed Kombargi

Partner, Strategy& Middle East

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