As other emirates struggle to meet booming demand, Abu Dhabi is well placed to fill in the gaps. It already supplies Dubai and Sharjah with 700MW and 200MW of power respectively, and 500MW to other emirates. It is in the process of signing a memo-randum of understanding with Fewa.

The deal is a precursor to a longer-term contract under which Adwea will supply the northern emirates with up to 2,500MW of power by 2015.

Under the agreement, Fewa will take a share of the power produced by the 890MW Fujairah 1 and 2,000MW Fujairah 2 independent water and power projects being developed by Adwea.

“Our generation is too expensive,” says Mohamed al-Hammadi, general manager of Fewa. “We did find the opportunity of an agreement with Adwea more cost-effective.”

For Fewa, this will mean demand for power in the northern emirates will be met, and at a lower price. For now, the authority will only generate electricity when demand is high.

It is unclear whether this could change in the future. “It all depends on the availability of fuel other than gas oil, which is very expensive,” says Al-Hammadi.

In addition to Abu Dhabi taking over generation, Adwea's subsidiary Abu Dhabi Transmission & Despatch Company (Transco) will take responsibility for transmission. It will take control of Fewa's 400kV backbone as well as part of the 132kV network. Fewa will retain sole responsibility for the distribution of power.

The move comes after an amendment to legislation in October opened the door to private investment in power projects in the north of the country.

Private developers are now being encouraged to participate in power schemes associated with large projects such as the development of new towns.

Fewa is targeting 8 per cent annual capacity growth, largely through private development. “We need [private developers] to meet that demand because we certainly cannot,” says Al-Hammadi.

The combination of the Adwea deal and an increasing reliance on the private sector means Fewa will divest itself of most of its generation activity.

It has enlisted the help of the US' CRA International to advise on its restructuring and involving the private sector. CRA will complete its study in March 2008, but private investment will be welcomed before then.

“This does not mean that private companies have to wait,” says Al-Hammadi. “They can start any time. The negotiations will take four to five months.”