Key fact

Abu Dhabi plans to construct four 1,400MW nuclear reactors in the emirate’s Western Region

Source: MEED

The devastating earthquake that shook Japan on 11 March and triggered a tsunami that resulted in a major nuclear crisis has forced many governments around the world to question the use of nuclear energy to generate electricity.

Germany’s response was the most extreme. Following a public outcry, it decided to turn its back on the technology, which provides about a quarter of its power needs, and immediately shut down several plants. Nuclear phase-out, however, had long been on Berlin’s agenda.

In the Gulf, certain countries that had previously announced plans to build nuclear power plants suddenly fell silent on the subject.

Nuclear crisis prevention

The response from Abu Dhabi – the first GCC country to put its nuclear plans into action – was different. It immediately sent a delegation to Japan on a fact-finding mission. Issues surrounding redundancy capacity and the containment of fuel were explored in the aftermath, with the hope of devising strategies that could prevent such a crisis from happening again.

We are investigating what is going on in the market in the region, but this is a long-term plan

Waleed Salman, Dubai Nuclear Energy Committee

The emirate wants to learn from the disaster and try to prevent anything similar occurring in the UAE. The sentiment has been echoed by nuclear experts, who continue to argue that nuclear power is safe, as long as the latest technology is used in the correct way.

Dubai is several steps behind Abu Dhabi in its plans to develop a nuclear power programme. The Dubai Nuclear Energy Committee is currently investigating the technology’s potential in the emirate. It hopes to draw on the experience of Abu Dhabi’s Emirates Nuclear Energy Corporation (Enec) for its research, with the intention of developing its own nuclear power project in the future.

Dubai and Abu Dhabi have different motivations and abilities when it comes to nuclear power programmes. Abu Dhabi has energy reserves that could serve its domestic electricity generation needs many times over. What resources the emirate does not burn domestically can be sold on the international market at great profit to fund infrastructure projects, or can be kept for future generations to use. As a result, nuclear power is seen as a strategic long-term investment.

[The problems in Japan] might teach us that we need more redundancy capacity. It will be a challenge

Nuclear expert in Jordan

By contrast, Dubai has few oil and gas reserves of its own. As a net importer of fuel for its power plants, it has a strong incentive to consider using nuclear power as a low-cost source of energy. However, while Abu Dhabi is structuring its nuclear power scheme as a traditional independent power project (IPP), whereby the private sector takes an equity position in the project and raises commercial debt, Dubai would struggle to do so.

A project of this size requires billions of dollars in financing and needs strong and credible financial support from the government. The alternative would be to pay for the project outright as an engineering, procurement and construction deal. But again, Dubai’s recent financial problems make this a huge challenge. While the emirate may have the will to develop nuclear power, it may not have the means.

Abu Dhabi’s nuclear programme comprises the construction of four 1,400MW reactors in the emirate’s Western Region. A South Korean group made up of Korea Electric Power Corporation (Kepco), Hyundai Engineering & Construction and Samsung C&T won a $20bn contract to build and operate the reactors in December 2009.

Enec filed applications in April 2010 to build the nuclear complex at its preferred site at Baraka on the coast, near the Saudi Arabian border. The Federal Authority for Nuclear Regulation approved two permits relating to the proposed site in July 2010. 

Enec evaluated 10 sites across the UAE, narrowing them down to a set of preferred and alternate sites that were subject to further evaluation. The selected site, including an area set aside for temporary construction space, covers approximately 13 square kilometres.

Enec and the South Korean team are currently working on securing commercial debt for the project. According to sources close to the deal, the joint venture originally planned to seek debt commitments for the scheme early this year. However, Japan’s nuclear disaster has led others to reassess their commitment to nuclear power. “At this stage, Enec is closely monitoring the situation in Japan. Our thoughts remain with all those affected by the recent events,” said an Enec spokesman in the days that followed the disaster.

Lending agreements

While Abu Dhabi remains committed to developing its nuclear project, the partnership now aims to finalise agreements with lenders by the end of the summer. Swiss-based Credit Suisse and Netherlands-based KPMG are financial advisers to Enec, while UK-based Norton Rose is the legal adviser. The UK’s Standard Chartered is acting as financial adviser to Kepco.

The progress of Abu Dhabi’s nuclear project will not only be watched by Dubai. The rest of the Gulf will also be eager to see whether the emirate can deliver the region’s first nuclear power plant. Abu Dhabi was the first to pioneer private power in the Middle East. It was successful and in doing so created an IPP blueprint that other GCC countries have followed. Abu Dhabi is perceived to have the best chances of successfully launching nuclear power in the region. It is therefore crucial that the 5,600MW facility goes ahead.

Dwindling oil and gas reserves

Dubai’s limited oil and gas reserves mean nuclear power offers an attractive solution. In 2009, the emirate’s oil production was just 100,000 barrels a day and Dubai had 4 trillion cubic feet in natural gas reserves. The bulk of the emirate’s gas for electricity production comes from Qatar. This is costly for Dubai and places the emirate in a vulnerable position should Doha decide to cut the supply.

As a result, Dubai hopes to meet about 12 per cent of its domestic electricity demand using nuclear power by 2030. It set up the Dubai Nuclear Energy Committee in 2009 to act as a unit of the Supreme Council of Energy.

“We are investigating what is going on in the market in the region, but this is a long-term plan,” says Waleed Salman, vice chairman of the nuclear committee. “We’re not going to have something tomorrow, next year or even in five years’ time.”

Salman says Dubai is aiming to generate 70 per cent of its power from natural gas and 30 per cent from clean coal, nuclear and solar power. “We don’t want to be too aggressive in terms of identifying advantages and how we are going to do it … When we talk about nuclear, we are referring to a long-term process of engagement,” he says.

“We are co-ordinating [with Enec] and have very good communications. When we speak about nuclear and about power, we are speaking about the UAE as a whole. We will look for consultants when the time is right.”

Regarding the impact of the disaster in Japan on Dubai’s intention to pursue nuclear power, Salman says: “If you look at the region and worldwide – for instance, what has happened in Germany – let’s not rush making a decision; it’s not going to happen today. Today, we start the strategy and it is 12 per cent [of power from nuclear energy] by 2030. We have a plan to study everything … and review the technology.”

While the disaster in Japan has caused regional governments to question plans to develop nuclear power, the UAE remains committed to nuclear energy. Countries that have already started building projects – such as the UAE – have an added incentive to ensure that their plans stay on track.

Recent events have acted as a check on the industry. This is no bad thing. The age of the plant at Fukushima has to be taken into account, but the disaster has been a wake-up call over the handling of nuclear fuel and running plants at the intended capacity.

Nuclear lessons learnt from Japan

As a nuclear expert in Jordan – another country with a firm commitment to nuclear power – explains: “[The problems in Japan] might teach us that we need more redundancy capacity. It will be a challenge for technical engineers. Another important issue is the containment of fuel … [The projects in Japan] used temporary storage at the plant for long-term storage of fuel for 20 years. The fuel should not have been stored here. We will definitely see more regulation in this area as a result.”

Such lessons will certainly benefit the new project in Abu Dhabi. It was the pressure of public opinion that convinced the elected government in Germany to abandon nuclear power. Without a democratic political system, the UAE government has no need to fear such a backlash and can push ahead with its scheme.

The story is different in Dubai. Japan’s disaster has forced the nuclear committee to take stock of the emirate’s energy options. It is only able to do so because its plans are still in the early stages.

But in the long term, it would be prudent to forge ahead with a nuclear power strategy. By that stage, Dubai’s creditworthiness may have recovered to the extent that it could finance major projects through the private sector. The success of Abu Dhabi’s nuclear project is more crucial than ever.