GCC power initiatives tackle excess demand

29 February 2012

Governments across the region are taking the issue of electricity-saving more seriously, rolling out initiatives to reduce consumption

Faced with rapidly rising electricity demand and tightening supplies of gas, GCC countries have started to look more closely at alternative sources of fuel. Nuclear power and renewable energy are being given much more attention than in the past, but more efficient usage of electricity also has a role to play.

Until recently, the idea of curbing demand for electricity has not been high on the agenda. There are signs, however, that this may be starting to change.

“I would say that the attitude among GCC governments now is that they are taking energy-saving programmes much more seriously than in the past,” says Sylvain Hijazi, UAE country president for France’s Alstom Power.

In 2006-07, Kuwait faced a crisis that highlighted the impact that energy saving initiatives can have in easing the burden on utilities providers. Failure to boost power generation capacity in the emirate led to severe power cuts in the summer of 2006, but a similar crisis was avoided in 2007 by using emergency generators and a successful public-awareness campaign.

Kuwait energy crisis

The campaign, called Tarsheed, called on households and businesses to conserve air-conditioning and turn off lights, and a meter in the corner of television screens told viewers how close the country was to exceeding capacity. Efficient lighting was installed in government buildings and thermostats were raised to 25C. Electricity demand dropped by 700MW as a result.

GCC governments have looked seriously at the existing subsidy structures for nationals and expatriates

Sylvain Hijazi, Alstom Power

Other Gulf states took note of Kuwait’s crisis. Energy saving projects have become more important in recent years, and regional governments have completed the first phase of the GCC grid, which can now provide access to emergency power.

“GCC countries are no longer facing the challenges Kuwait faced back in 2007,” says Hijazi. “Alstom was able to deliver 800MW of [emergency] power in less than 12 months back then. With the GCC grid, this kind of situation is unlikely to happen again.

“Over 2007-08, the danger of power consumption [exceeding capacity] in the UAE was a concern with the booming construction sector at the time. But the pace of industrial development and construction projects is more regular now.”

The GCC grid went operational at the end of 2010. It allows states to access spare capacity in case of emergency. “In the GCC states, the average peak time for electricity consumption is between 1200 and 1500, peaking at about 1500 and then reducing towards 1800,” says Hijazi. “Through efficiency improvements in power plants and the introduction of the GCC grid, up to 14-15 per cent of total capacity can now be described as reserve margin [capacity].”

Efficiency at consumer level remains poor, however. The main reason for this is the low prices paid for power. Across the Gulf, nationals enjoy subsidised tariffs for their water and electricity, meaning they pay virtually nothing as consumers. Low prices encourage wasteful usage and the Middle East already has some of the highest per capita energy consumption rates in the world. Governments acknowledge that such policies are unsustainable in the long term and electricity tariffs have risen for non-nationals over the past few years.

“GCC governments have looked at the existing power subsidy structures in place for nationals and expatriates. Tariffs have risen for non-nationals for industrial and residential consumers from AED0.10 ($0.027) a kilowatt hour (kWh) in the UAE about 10 years ago, to AED0.30 a kWh today,” says Hijazi.

Christophe Campagne, country manager for Saudi Arabia at Schneider Electric, says, “Commercial tariffs are higher than residential tariffs, but at the moment water and electricity remain virtually free for the majority of national consumers.”

Reducing electricity consumption

In March, Abu Dhabi is rolling out a new utility bill to highlight the amount of water and electricity households use. Tariffs will stay the same, but the bills will show whether consumers’ usage is within or exceeding what the emirate’s Regulation & Supervision Bureau (RSB) calls an ‘ideal average’.

There is concern among government departments on the issue of national energy consumption

Christophe Campagne, Schneider Electric

“By encouraging customers to use efficient appliances and adjust their air-conditioning, we can reduce our electricity use significantly,” said Mohammed bin Jarsh, deputy managing director of Abu Dhabi Distribution Company, in a statement.

Bills will also show actual electricity costs before government subsidies. “By showing the actual cost, customers will realise the government’s contribution. This will increase awareness among consumers in relation to their consumption of water and electricity,” says Nicholas Carter, director general of the RSB.

Abu Dhabi residential utility tariffs
 Non-nationalsNationals
Electricity tariff (fils a unit*)155
Actual cost of production3232
Water (AED a unit**)2.20Free
Actual cost of production9.119.11
*1 unit=1 kilowatt hour; **1 unit=1,000 litres. Source: RSB

Tariffs reform is a controversial issue and attempts to raise prices in the past have provoked social unrest. Some analysts say the 2011 Arab uprisings could delay possible reforms.

“It is still hard to describe exactly what impact the Arab unrest across the region has had on governments and societies,” says Hijazi. “In the GCC, we have noticed an ongoing desire by decision-makers to create more employment opportunities and improve the quality of life for their citizens. But with the price of energy and gas remaining low, I don’t expect to see any real change in subsidy policies across the GCC and I don’t think tariffs will rise for national consumers in GCC states.

Abu Dhabi consumption guidelines
 Average apartmentOther premises
Electricity (units* a day)0-200-200
Water (litres a day)0-7000-5,000
*1 unit=1 kilowatt hour. Source: RSB

“What I can see is much greater pressure from governments on private firms to improve the efficiency of existing power plants and greater use, in the future, of renewable technologies.”

Saudi energy saving initiatives

Tracking power consumption is a sensitive political issue, but some states are starting to take steps in that direction. With a population of 27 million and as one of the largest economies in the GCC, Saudi Arabia has the strongest motives to curb usage. At current growth rates, the kingdom needs to add 4,000MW of new capacity each year to keep up with demand.

Following a series of government announcements in recent years setting up new bodies to address energy consumption, Campagne believes a changing attitude could start to trickle down to consumers.

“There is growing concern among Saudi government departments on the issue of national energy consumption,” says Campagne. “At the level of the consumer, there is not yet any new regulation or incentive in place to trigger a change in behaviour. But the new agencies and programmes such as the National Energy Efficiency Programme, the Saudi Green Building Council (SGBC) and the King Abdullah City for Atomic & Renewable Energy are all looking at ways to preserve energy.”

One of the main causes of concern in Saudi Arabia is that 18 per cent of the country’s exportable crude is currently used to fuel the kingdom’s power plants. This figure is set to rise to 40 per cent by 2030 unless new sources of energy are used.

According to a July 2011 report by the Paris-based International Energy Agency, the kingdom burnt as much as 437,000 barrels a day (b/d) of crude oil in its power plants in 2009, which it said was due to rise to 581,000 b/d in 2011.

“Given that 85 per cent of the country’s income comes from oil revenue, something must be done to free up oil for export, which is currently being used as a fuel for power plants,” says Campagne. “The government is looking at a plan to create localised PV [photovoltaic] panel manufacturers. It also plans to build up to 16 nuclear reactors by 2030 under agreements with the French, Chinese and South Korean governments.”

Reducing reliance on oil used for electricity generation is not just a Saudi concern, but one for governments across the Gulf, as is the development of renewable and nuclear energy. But energy efficiency in industrial, commercial and residential developments must also be part of the overall energy-saving plan.

As in the UAE, policymakers in the kingdom are investigating this. “Saudi Electricity Company is looking increasingly at automated electricity meters on the basis that you cannot save what you don’t measure,” says Campagne. “I expect this trend to go further with more widespread use of smart meters in the future. The University of Riyadh is conducting a pilot project to measure the levels of energy consumption between departments to inform future strategy. Other pilots are likely in the near future.”

One new headline initiative that might have a major impact on consumption and energy-saving practice in the future is the plan for a new financial district in the capital.

“There has been a lot of interest in the six economic cities, but as yet there is no change in approach towards energy saving on these projects,” says Campagne. “The King Abdullah Financial District could change things, however. [It involves developing] a 3 million square metre area of land in the capital for 12,000 inhabitants. All buildings will be LEED [Leadership in Energy & Environmental Design] certified, which is a very significant step. The project is under the direction of the Saudi Pension Fund and the SGBC is advising. Hopefully this project will act as a catalyst for more green-building and energy-saving programmes in the kingdom.”

Driving energy efficiency in Saudi Arabia

Up to 70 per cent of the energy used in most buildings in the kingdom is consumed by inefficient air conditioning systems. Schneider and other international firms plan to work with local private companies and public sector departments, such as the Saudi Arabian Standards Organisation, on regulations for green buildings and LEED certification. This includes regulating the output of district cooling plants.

One of the main reasons behind increasing power demand in the kingdom is a growing population. “In Saudi Arabia, you have about 27 million nationals and 8 million expatriates with an annual population growth rate of 2 per cent,” Campagne says.

“When you combine this with rapid urbanisation and the need to find employment for large numbers of young people, you start to see energy consumption per capita in the kingdom reaching levels equivalent to the US.”

There can be no doubt that GCC governments need to drive down electricity usage, but there is no single solution. Rather, the problem requires a multi-pronged approach. Governments must drive energy efficiency, build public awareness and raise tariffs to discourage wasteful consumption. But for the moment, at least, it looks like the idea of raising electricity prices for nationals will be a measure of last resort.

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