Jun 2, 2007 - ArabianBusiness.com

At this summit in Kuwait in 2004 GCC states agreed to finance the grid project 100%.	Site of the control centre for the GCC interconnection grid in Ghunan, Saudi Arabia.

One of the Gulf Cooperation Council's objectives is to promote cooperation in areas of industry and power. To this end it is working on a power grid that will connect the systems of its six member states.

The purpose of the grid is to reduce the cost of power generation for each of the member states and reduce the levels of generation reserves required. The grid could improve the quality of power distribution and ensure a constant supply of electricity at all times, providing emergency assistance when needed. It is estimated that the interconnection could save billions in years to come.

However, it has also become apparent that the grid could generate revenues of its own, serving as a platform for energy trading in the region and beyond.

At a recent power and water conference in Abu Dhabi, Hassan Al-Asaad, head of projects, planning and IT at the Gulf Cooperation Council Interconnection Authority (GCCIA), outlined the history of the grid project.

"In 1986 a study was conducted by the Kuwait Institute for Scientific Research (KISR) and the King Fahd University of Petroleum and Minerals," he said.

"That was the first study where they deemed it feasible to pursue the project.

"SNC-Lavalin of Canada, along with Saud Consult and Hydro-Quebec, were then hired to conduct an economic and techno-analysis feasibility study for the project in 1990. That study showed good results."

The GCCIA, head quartered in Dammam, Saudi Arabia, was subsequently formed by royal decree in 2001. But there was, of course, an issue of financing. The original plan was for 35% of the costs to come from equity - to be paid up front by the states - and 65% to come from debt through financing from the private sector. However, following a summit held in May 2004 in Kuwait, the states agreed they would finance the project 100%, though how they individually financed it would be up to them. The overall cost of the project is in the region of US $1.95 billion.

A contract was awarded to engineering and construction firm SNC-Lavalin to conduct the prequalification process on the technical and commercial aspects for all the tenders. In November 2005, GCCIA then awarded six EPC contracts for the project: one for substations, one for the HVDC (high-voltage direct current) conversion, one for the control centre, two for the transmission lines and one for a submarine cable.

The tender for the supervision of the project construction was also awarded to SNC-Lavalin.

Three-phase project

The work required was split up into three phases. Phase I is currently ongoing and should be completed by the first quarter of 2009. It involves the interconnection between Saudi Arabia, Kuwait, Qatar and Bahrain. The governments of those countries are covering 40%, 36.5%, 13.5% and 10% of the costs of this phase respectively.

Phase II has involved the internal integration of the independent systems of the UAE and Oman and the minor interconnection between them. The Dubai and Abu Dhabi grids were connected in May 2006 and Sharjah was expected to be connected to these by May 2007.

Phase III will connect the UAE to Saudi Arabia, effectively connecting phases I and II. Another link between Oman and the UAE will be added during phase III to enhance the connection. GCCIA chairman Dr Saleh Al-Awaji recently said he expected the whole project to be completed by 2010.

Unique features

Al-Asaad points out that the project is unique because of its use of a hybrid common neighbour-to-neighbour interconnection. "This is an independent link, which would interconnect all the systems and the neighbour-to-neighbour link between the UAE and Oman," he explains. "GCCIA's transmission lines will go to each state and there will be a substation which will act as a node between each state. That will connect their internal transmission system with the independent interconnection system.

"It is not a neighbour-to-neighbour link. The states are all going to be connected to the common backbone, except for Oman, which is connected to the UAE, which will be connected to this backbone. The hybrid common neighbour-to-neighbour interconnection is unique, not like in Europe where each state is connected neighbour-to-neighbour."

The project will also see the Middle East's first HVDC station. The 1 800 MW station is required to convert the frequency between Saudi Arabia's transmission grid, which operates at 380 kV and 60 Hz to the other GCC countries, which operate at 400 kV and 50 Hz.

And perhaps the most significant feature of the project is the use of a submarine cable to connect the island of Bahrain to Saudi Arabia. The possibility of constructing a transmission line over the Gulf of Bahrain had been considered. However, when security and environmental issues had been examined it was decided that it would be much more feasible to go with the submerged cable - albeit at a cost. Installing the submarine cable represents almost one third of the total cost of the interconnection project. The in-depth survey of the rights-of-way of the line has now been completed and the cable is being manufactured in Europe.

"The link between Bahrain and the rest of the GCC interconnection grid will be at 400 kV," says Satish Sud, vice president of transmission and distribution at SNC-Lavalin. "For environmental reasons it was decided that the link should be made by means of a submarine and land cable.

"In Bahrain there are no overhead lines. The 220 kV grid is made of underground cables. Submarine cables are expensive to manufacture and have to be protected. The cable is then brought to the site on special ships. Given that the water is not deep, there is an additional requirement to use special barges to lay the cable. In order to further protect the cable it will be buried using special techniques."

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Work being done on the substation at Al Fadhili, Saudi Arabia, in April.

Energy trading

Though the investment is huge, the GCCIA has realised that the GCC grid system could be used in energy trading, with regional demand growing at an estimated 8-9% annually. Trading can be undertaken both among the GCC states themselves and abroad.

GCCIA is now working with an international legal firm to develop the interconnection agreements, which set out how the states would engage in exchanging power, eventually setting out the principles for future trading and the rights of using the transmission code. A control centre is being built that will enable the recording and billing of energy transactions between the different countries.

Once the grid is ready, Kuwait and Saudi Arabia will each receive an extra 1 200 MW of power capacity, the UAE will receive 900 MW, Qatar 750 MW, Bahrain 600 MW and Oman 450 MW. These represent the amounts each country can contribute or take.

"The first two purchase orders have been received already from two GCC member countries, as some countries expect a shortage in their supply in the short term, following the establishment of the grid in 2009," said Al-Asaad.

GCCIA has forecast that its project will generate revenues of US $3.2 billion by 2028. But will the grid recover the investment any time soon? Waleed Ali Salman, director of electricity at the Federal Electricity and Water Authority (FEWA), is not convinced. He thinks the grid could "maybe maintain the tariffs of electricity consumption" but doubts that it could generate any revenue of its own.

"Today we have very big tariffs," says Salman. "The cost of fuel is very high. The cost of manpower, maintenance - everything is going to increase. As it stands, utilities will definitely have to increase their prices, otherwise they will end up with a loss. There is a very, very small chance of making profit out of it," Since the GCC shares time zones and peak periods, selling between the states is not as feasible as it would be to sell to, and even buy from, other regions in the world, such as Turkey, North Africa or even Europe.

Pan-Arab project

A prerequisite for power trading with Europe is the concept of a Pan-Arab grid. This identifies four possible areas which could be connected: the North African grid (Morocco, Algeria, Tunisia and Libya), the EJLIS grid (Egypt, Jordan, Lebanon, Iraq and Syria), the GCC grid and Yemen, and finally a grid linking Sudan, Djibouti, Mauritania and the Comoros Islands.

A study looking at linking Egypt and Saudi Arabia is presently being worked on. Egypt is also being connected to North Africa and Jordan, while in future the GCC line could be extended from Kuwait to Iraq.

When asked about the possibility of a Pan-Arab grid, FEWA's Salman did see more potential. "There may be some profit with the Pan-Arab grid because there we will be dealing with different trends," he said. "Today my peak is in the summertime but maybe in Tunisia or Morocco that will be different."

The GCC power grid is primarily a good way of saving on generation costs and dealing with emergencies. GCC states will be able to supply their surplus power resources to their neighbours when there are shortages. The additional capacity eliminates the cost of building new power plants, along with the issue of identifying suitable locations at which to build them.

The idea of supplying power to countries on different continents over vast distances does, however, seem to be a somewhat far-off prospect and no conclusions should yet be drawn on how profitable it would be.

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