The transformation of regional power
The Middle East’s power sector is on a transformational path, with governments working to shore up energy security and delegate responsibilities to the private sector
Demand growth for additional generation capacity remains robust, but while rising power demand is nothing new for the Middle East, the approach to developing electricity infrastructure is changing significantly.
MEED estimates that at current growth rates, installed power generation capacity will need to increase by about 40 per cent on the 297,367MW of available power in 2016 to meet the forecasted demand by 2025.
In addition to growing demand from rising populations, sizeable capacity additions will be required to power major energy and industrial schemes, with the Gulf’s major oil companies seeking to boost their downstream and petrochemical sectors as part of economic reform programmes.
The drop in oil prices four years ago has expedited programmes to tap into new fuel resources and financing structures, and this strategy shift will be more prevalent than ever in the coming year.
An emerging trend in recent years has been a shift towards using gas to produce power. Some of the region’s largest oil exporters, such as Saudi Arabia and Kuwait, started developing more efficient gas turbine projects to replace the reliance on oil for power generation. However, despite the region’s wealth of hydrocarbons, few states have easily accessible domestic gas reserves to provide fuel for power plants. While the use of gas will continue to rise sharply up to 2030, utilities are also targeting renewables, nuclear and coal power to meet rising demand, boost energy security and reduce the reliance on gas imports for power generation.
Much of the headlines in the region’s power sector over the past year were for the award of contracts for pioneering renewable energy projects and the launch of tenders for ambitious clean energy schemes.
While the potential for renewables in the Middle East and North Africa (Mena) region has been previously discussed, the sharp fall in the cost of solar and wind technologies has led to governments setting ambitious clean energy targets and implementing major clean energy projects.
The first contract under Saudi Arabia’s renewables programme was awarded in February, with the groundbreaking for the 300MW Sakaka photovoltaic (PV) solar project taking place in late November. Earlier that month, the Renewable Energy Project Development Office (Repdo) selected the preferred bidder for the kingdom’s first major wind power project, the 400MW Dumat al-Jandal scheme.
With Riyadh having set a goal of 9.5GW of clean energy capacity by 2023, the country’s power sector should offer numerous opportunities for power firms and investors in the coming year.
MBR solar park
Dubai is continuing to lead the way for the development of renewable energy in the Gulf. As part of its 25 per cent renewable energy target by 2030, the emirate commissioned the first 200MW of the 800MW third phase of the Mohammed bin Rashid solar park in February 2018. As work continues on the remaining 600MW of the third phase, work will soon begin on the fourth phase of the park, which is the first concentrated solar power (CSP) capacity at the park.
Saudi Arabia’s Acwa Power was awarded the contract to develop the CSP plant with storage for a tariff of 7.3$cents a kilowatt hour ($c/kWh), one of the lowest tariffs for thermal storage in the world. This record-low price could be the game changer for enabling renewables to provide 24-hour power at prices competitive with conventional gas-fired plants. The emirate will push ahead with the tender for its next major solar project in 2019, having already received proposals from advisers for the planned 300MW PV scheme.
After seemingly falling behind its GCC neighbours in developing renewables, Oman is set to offer some interesting opportunities for clean energy firms in 2019.
In late October 2018, state oil firm Petroleum Development Oman awarded a contract to a consortium led by Japan’s Marubeni to develop a 100MW PV solar plant. This was followed by the submission of bids from three international consortiums for the sultanate’s first grid-connected 500MW Ibri PV solar project. State utility Oman Power & Water Procurement Company has already started the procurement process for selecting consultants for the next major solar project, which will have a capacity of up to 1,000MW.
Kuwait and Bahrain will also push ahead, with the largest project planned in the former. State oil firm Kuwait National Petroleum Company is planning to develop a 1GW solar project at the Shagaya Renewable Energy Park, which so far consists of three pilot projects.
In North Africa, Tunisia and Algeria are seeking to follow the lead of Morocco and Egypt, both of which are implementing significant renewable energy programmes.
Regional utilities are also pushing ahead with projects to develop nuclear and coal-fired plants to diversify fuel sources and boost energy security. As the UAE prepares to commission the Arab world’s first nuclear plant in 2020, work will begin shortly on Egypt’s first nuclear power project at El-Dabaa.
As with renewables, Saudi Arabia is the market that international nuclear firms are looking towards to provide opportunities in the atomic energy sector in 2019. In late November, the King Abdullah City for Atomic & Renewable Energy (KA-Care) appointed Australia’s WorleyParsons to provide project management services across the kingdom’s atomic energy programme. The first nuclear project, a 2.8GW two-reactor plant, is expected to be tendered to a handful of prequalified international nuclear providers in the coming 12 months.
As governments seek to reduce pressure on public accounts and cut capital expenditure, utilities are switching almost wholesale from traditional engineering, procurement and construction contracts to public-private partnership (PPP) structures.
The shift in strategy towards independent power projects (IPPs) has resulted in some of the largest planned projects in Saudi Arabia stalling due to the reforms being undertaken. This should begin to change in 2019 as Riyadh pushes ahead with its renewable programme and major conventional thermal power plants.
Kuwait is also set to offer opportunities for investors as it begins the procurement process for two major independent water and power projects (IWPPs). The country has struggled to make progress with its next major privately financed utility projects since the commissioning of its maiden IWPP in 2016, but the recent signing of the final agreements for its second PPP project, the Umm al-Hayman wastewater scheme, has raised hopes that headway can be made with the Al-Zour North phase 2&3 and Al-Khiran IWPPs in 2019.
It is not just Gulf utilities seeking to appoint private developers to finance and operate power plants. In early November, a developer consortium led by Acwa Power and the local Hassan Allam signed a power-purchase agreement with the Egyptian Electricity Transmission Company for the planned 2,300MW Luxor IPP. The $2.3bn project represents the largest IPP tendered to date and the first conventional IPP since the late 1990s.
In tandem with the shift towards PPP models for procuring new greenfield power plants, a potentially exciting development in 2019 is progress with the privatisation of the some of the region’s largest existing utilities plants.
In Saudi Arabia, state electricity provider Saudi Electricity Company and desalination company Saline Water Conversion Corporation are set to sell off operational power and water assets.
While the kingdom launched programmes to privatise the ownership of utilities assets more than a decade ago, the plans were given fresh impetus following the launch of Vision 2030 in 2016.
After a number of steps were taken in 2017 to lay the foundations for unbundling and selling power and water plants, little progress was made in 2018 with the eagerly anticipated asset sale. However, Riyadh has informed investors it remains committed to its privatisation plans and expects to make progress bringing the first assets to the market in 2019.
Kuwait’s Supreme Council of Privatisation is also planning to sell off brownfield power plants to the private sector, with the North Shuaiba generation facility earmarked as the first project to be offered to investors.
The increase in private sector participation will ultimately encourage improved efficiency, with asset owners and developers striving to achieve optimum efficiency to keep operational costs as low as possible. With much of the transmission and distribution infrastructure set to remain under state control for the time being, utilities will seek to improve efficiency in networks by reducing leakages and digitalising infrastructure to drive down costs.
With the rise in oil prices in 2018 not appearing to have derailed government privatisation plans, the ability to raise private capital and increase efficiency will be critical prerequisites for succeeding in the region’s power sector in 2019.