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It seems like with most glycol chillers, the glycol doesn't have to be chilled below 32?. Why not just use water as the coolant instead?

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4 answers

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Keep in mind that there is a 8 to 10 degree F heat transfer at the evaporator. In order to provide 42F leaving fluid from the chiller the refrigerant is 8 to 10 degrees colder. This means you could potentially rupture and damage your chiller system because the water would be subject to freezing or near freezing conditions in the evaporator. 

We always recommend using glycol to protect against freezing. Not just for the leaving fluid but of the ambient air temperatures as well. We like to see 10 to 15 degrees of protection below the coldest leaving temperatures or ambient air temperatures. 

Also most brands of chiller rated glycol include inhibitors to prevent against corrosion and bacterial growth. Typically 30% to 50% depending on your application and the environment the chiller will be operating in. 
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If your fluid temp (glycol temp) is above 45F degrees you can use in theory water. The challenge will be with maintaining water quality and keeping bacteria out of the system.

Inhibited propylene glycol has additives to keep bacteria growth in control in addition to providing anti-freeze protection. It also keeps the pump seals lubricated and system free of rust and corrosion. Your chiller will last much longer. Finally, if the chiller is located outdoors in an area that dips below 32F degree ambient, it will keep your pipes from freezing.

 In summary, use the proper amounts and type of glycol and your chiller will last longer.
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Actually, it is quite common for Brewers to run Glycol at around 28 Degrees F., to maximize the crash recovery capabilities, and to more easily maintain proper process temperatures.  Therefore, desired Glycol temperatures are the significant factor, not rust prevention.  For such applications, many Brewers will aim for a 40% Glycol / 60% treated Water solution in their chillers.
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The main reason is that water causes rust, which is the primary rationale behind using the glycol.
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