GCC in $217bn power capacity expansion drive

Aug 31, 2008 - Karen Remo-Listana - Emirates Business 24/7

GCC countries are in a serious drive to expand their power capacity and have already earmarked $217 billion (Dh797bn) on power projects to date.

Majority of the new projects are in Saudi Arabia, where power-starved mega projects are expected to go on stream from this year up to 2012, according to data from projects information specialist ProLeads.

Saudi Arabia, the world's largest producer and exporter of oil, is shelling out $111bn on new power generation and transmission projects to stem the growing demand for electricity. Second to the pack is the UAE with 58 projects valued at $55bn followed by Qatar, the world's LNG capital with 12 projects valued at $21bn. Kuwait's planned and ongoing projects stands at $14bn while Oman and Bahrain's power projects are put at $10bn and $5bn respectively.

The UAE power demand is among the largest in the region due to financial and tourist projects as well as a growing population. According to Global Insight, UAE has added 24 per cent electricity-generating capacity at an annual rate over the last 30 years.

Current total capacity for electricity production is around 16.7 gigawatts (GW), but will need to increase further considering the 10 per cent per year demand rise expected through 2010.

Abu Dhabi's demand for electricity alone will leapfrog from 5286 megawatts (MW) in 2007 to 12,817MW in 2013; 17,469 in 2020 and 23,554 in 2030, Abu Dhabi Water and Electricity Company (Adwec) – the single buyer and seller of electricity and water in the UAE's capital – said.

Its forecasts are based on a 6.7 per cent per annum average growth for 2007 to 2030, which is lower than the historic rate of 7.6 per cent in the period of 1990-2007.

Adwea projects Abu Dhabi residents will increase from 930,000 in 2007 to 1.3 million in 2013. The agency further slates population to grow to 2m in 2020 and 3m in 2030.

And according to Keith Miller, Adwec's director of planning and studies, Abu Dhabi will either have to build a new plant or extend the lifespan of current ones.

He said Abu Dhabi can expect to suffer a 774MW shortfall in power capacity by 2012. And without any new plants being developed, the shortfall is expected to reach 2,000MW just one year later.

Dubai's electricity demand, on the other hand, is set to reach 5,400MW this year and will further jump to 8,513MW and 16,000MW in 2011 and 2015, respectively. Commercial entities consume about 43 per cent of Dubai's power, residential uses 31 per cent, while industrial and power stations consume 10 per cent each.

In Saudi Arabia, the combination of Saudi Arabia's rapidly expanding population and industrial base representing 60 per cent of demand, paired with artificially low power tariffs, has increased the demand on electric utilities, which is averaging five to seven per cent annual growth.

At times, the increased load has lead to shortages, blackouts and power rations in various parts of the country, a recent report by US Department's Energy Information Agency said. Saudi Arabia's Water and Electricity Ministry estimates that the country will require at least 35GW of additional power generating capacity by 2023 to 2025 – more than double the 2005 estimate of installed capacity of 30.5 GW – at a cost of an estimated $120bn.

In addition, Saudi Arabia's state-owned Saline Water Conversion Corp has estimated that through 2020, the country will need to spend at least $50bn on water projects, many integrated with new power generation capacity, in order to meet the kingdom's equally rapidly growing water demand. Most of this money is slated to come from the private sector, including foreign investors.

According to the 2007 SEC annual report, Saudi Arabia has added more than 2.3GW last year, including expansions at the Shuaibah Power Plant and nearly 900 MW of gas fired turbines in Riyadh, Tehama and Jizan.

Some of the newest and largest facilities include the $1.7bn, 2400-MW Ghazlan II plant north of Dammam, the first power project to be debt-financed; its sister plant, the1600-MW Ghazlan I; and the 2500-MW Qurayya I and II.

Saudi Arabia's power sector – including generation, transmission and distribution – has traditionally been dominated by the partly state-owned Saudi Electricity Company. However, in July 2002, the Supreme Economic Council (SEC) passed a resolution setting out a framework for private sector involvement in developing mega-scale integrated Independent Water and Power Projects (IWPPs), and since that time the sector has become increasingly liberalised.

In March 2004, Saudi Arabia announced their plan to launch 10 IWPPs by 2016, at a total cost of around $16bn although this is said to be increasing.

The SEC has already approved six such mega-projects. The majority of the facilities will be in the Western parts of the country, drawing from the Red Sea.

The combined production capacity of the original four projects, which are under construction or in the bidding phase, will produce more than 7000MW of power and 600 million gallons of water daily. They will boost the total desalination capacity of the kingdom by 80 per cent when the come online between 2009 and 2010. Also proposed is a 60-MW Shuqaiq-3 extension.

Throughout the Kingdom, independent power projects (IPPs), which are not integrated with desalinisation facilities, are also being tendered by the SEC, primarily to local contractors.

According to the SEC, about 8000MW of new capacity is currently under construction, 5200 MW of which are IPPs. The SEC is calling for 10 per cent of power generation to come from IPPs in the next decade. Three SEC-led IPPs are currently being planned include Rabigh (1200MW, online 2012 or 2013), Riyadh-P11 (2000MW, 2013 or 2014) and Al-Qurayyah (2000MW, 2014 or 2015). The facilities will be built on a Build-Own-Operate basis, and the SEC will be a partner.

In addition, several large- scale electricity IPPs are still in the planning phases, including 1,725-MW expansions at Muzahimiyah, Shubuk and Riyadh.

Separately, Saudi Aramco is building a series of co-generation plants at oil and gas installations throughout the country in order to reduce drain of the energy sector on the national grid. For example, as part of the Khursaniya and Shaybah mega-projects, two cogeneration units with a combined capacity of 300 MW were installed. Also, a 380-MW plant is being constructed at Rabigh that will power the adjacent Sumitomo/Aramco petrochemical complex.

Besides generation, Saudi Arabia also requires additional investment in power transmission. At present around 10 per cent of the kingdom's population lacks access to the national power grid. Aramco estimates that creating a unified national grid may require laying more than 20,000 miles of additional power transmission and distribution lines on top of the existing 150,000 miles of lines.

Similarly, Qatar is restructuring its power sector and encouraging foreign investment to expand electricity generating capacity. Electricity generation shortfalls led the Qatari government to encourage greater foreign investment through IPPs and to begin restructuring of the country's power sector.

The government has considered plans to privatise transmission and distribution functions, but Qatari nationals currently receive free electricity and water supplies, which poses a significant barrier to complete privatisation.

Kuwait on the other hand has already suffered from a lack of power plant capacity, resulting in power cuts during summer months last year. It was further pressured by its creaking political system as the energy minister bore the brunt of disgruntled voters' anger when summer temperatures hit as high as 55 degrees and air-conditioning was off.

THE NUMBERS

16.7GW: Current total capacity for electricity production needs to increase further considering the 10 per cent per year demand rise expected through 2010

23,554 MW: Abu Dhabi's demand for electricity, which was 5,286MW in 2007, will leapfrog by 2030