The long-awaited financial close of Kuwait’s first independent water and power project (IWPP) in December 2013 was a watershed for the emirate, which for years had been struggling with the challenge of addressing the gap between fast-rising consumption and its crumbling power supply infrastructure.

The $1.4bn financing for the first phase of the Al-Zour project was the first procured by Kuwait’s Partnerships Technical Bureau (PTB) as part of a public-private partnership (PPP) programme designed to revolutionise the award of contracts in Kuwait’s power sector.

Major breakthrough

The implementation of the Al-Zour North phase 1 project, which will add 1,500MW of new capacity to the country’s generation network and desalination capacity of about 105 million imperial gallons a day (MIGD), was a major breakthrough after years of waiting. The project was conceived in the mid-1980s, but it was two decades later, in 2004, that the Ministry of Electricity & Water (MEW) finally invited bidders to prequalify for a 3,000MW steam project.

That was the start of the problems. Only one of seven prequalifiers bid for the project when the tender closed in 2006, and although the MEW approved the award of the contract – to a consortium of the US’ Washington Group International, South Korea’s Doosan Heavy Industries & Construction Company and Athens-based Consolidated Contractors Company – the decision was overturned by the Central Tenders Committee (CTC).

Responsibility transferred

In 2009, responsibility for the project was transferred to the PTB, created the previous year, and restructured as an IWPP. Another wait, of almost four years, preceded the award of the project in January 2013 to a team of France’s GDF Suez, Japan’s Sumitomo Corporation and the local AH al-Sagar & Brothers. It took another year for the project to reach financial close.

The close of the Al-Zour North phase 1 financing paved the way for a major injection of generation capacity and a new model to address infrastructure development in the emirate. For both of these tasks, it came not a moment too soon.

Demand rising

For several years, the growth in supply to Kuwait’s power sector has been falling behind demand growth. In the first decade of the millennium, peak power demand was growing by 6-8 per cent a year. By 2009, the emirate’s power reserve margin had fallen to below 5 per cent, compared with the internationally accepted standard of 15 per cent.

The turn of the decade brought some improvement. Peak demand growth slowed to 4.7 per cent in 2011 and 5.3 per cent in 2012, and after several years of supply-side inactivity, the MEW commissioned the 2,000MW Subiya power plant in mid-2012. A 560MW extension to the Al-Zour South facility in the same year meant that 2012 saw the largest increase in installed capacity for a decade.

Aging facilities

However, much of Kuwait’s power infrastructure is reaching the end of its lifespan, and the MEW estimates that demand will grow by an average 6 per cent a year up to 2020.

Many of the emirate’s largest power generation facilities are more than 20 years old. Turbines at Doha East, Doha West, Shuaiba South and Al-Zour South steam plants have been derated and are operating below capacity. In 2011, available generation capacity was just 13,660MW, 7 per cent below nameplate capacity of 14,700MW.

A refurbishment programme at Shuaiba South was carried out between 2002-05, but it was only expected to prolong the life of the plant’s turbines by 10 years. Facilities at Shuwaikh and Shuaiba North have been decommissioned; others will inevitably follow.

Emergency projects

Such was the lag in incremental supply that in 2007 and 2008 the MEW launched two emergency power projects (EPPs) to fast-track the completion of more than 4,000MW of new capacity, with an implementation schedule of between six and 12 months.

Although the EPPs averted serious power shortages in the 2008-10 period, they were not without their issues. Citing cost issues, the MEW scrapped the contract for the 2,500MW Subiya EPP it had awarded to the local Kharafi National, even though the company had already ordered the turbines. Several other projects suffered delays.

PPP contracts

The MEW estimates that in addition to replacing existing infrastructure, it will have to bring onstream 9,000MW in new capacity to meet demand growth projections up to 2020. It expects peak power demand to climb from 10,890MW in 2010 to 15,300MW in 2015 and 21,600MW in 2020. The government decided that a shift in emphasis to the award of PPP contracts through the PTB was the best way to bridge the gap, and build in a 10 per cent reserve margin.

In June 2010, Kuwait passed Law 39, also known as the IWPP law, which stipulates that any power project with generation capacity greater than 500MW must be developed by the PTB, using a PPP model. Numerous other power projects were lined up under the programme, including subsequent phases of the Al-Zour scheme and another IWPP, Al-Khiran.

Policy shift

But the impetus given to the PPP programme by the Al-Zour success is already ebbing. Speaking at MEED’s Kuwait Energy & Water Efficiency conference in Kuwait City on 3 June, Meshan al-Otaibi, the MEW’s assistant undersecretary of planning and training, said that the ministry was planning to amend the IWPP law to allow the ministry to choose its method of procurement for future major power projects.

Just a few months after the PTB’s first major breakthrough, the amendment threatens to sideline the organisation. Under its terms, the MEW would be able to directly procure power projects of more than 500MW – the core of the PTB’s mandate.

The ministry’s policy shift shows that it has little faith that the PTB can deliver on its objectives to overhaul the country’s power sector. In January 2013, the government decided to postpone several other planned PPP schemes that were to be managed by the PTB. The public-private development of the national railway, the metro system and the telecommunications network, and the part-privatisation of the post office have all been placed under review.

According to Al-Otaibi, those IWPPs that have already been planned are still likely to go ahead under the PTB model, although the policy shift introduces an element of doubt that this will indeed be the case.

Project pipeline

In the meantime, the PTB is still moving forwards, albeit slowly. In December 2013, it invited developers to express interest in the Al-Khiran IWPP, which will have capacity of 1,500MW of power and 125 MIGD of desalinated water. In June 2013, it invited companies to express interest in the second phase of the Al-Zour North project.

According to Al-Otaibi, tender documents were being prepared for Al-Zour North 2 over the summer, with an invitation for prequalification next on the agenda. The project will add 1,500MW of power capacity and 102 MIGD of water. The third and fourth phases of the scheme, which will have combined power capacity of 1,800MW, are scheduled to come onstream by 2020.

Public projects

In parallel with the IWPP programme, the government is also moving ahead with several public power projects. In June 2013, the local Alghanim International was awarded contracts to supply and install two 225MW gas turbines at both the Subiya and Al-Zour South power plants. Germany’s Siemens is providing the turbines for both schemes.

A third project involves the addition of 200MW steam turbines to convert the Subiya plant to a combined-cycle facility. A direct procurement model is also under consideration for the implementation of the planned 2,500MW Nuwaisab steam power plant, which was originally expected to be part of the PPP programme. The facility is scheduled to be commissioned by 2020.

Renewables capacity

There are also plans for the addition of renewables capacity, which has the benefit of reducing Kuwait’s reliance on its valuable oil and gas reserves. The MEW estimates that by 2030 fuel consumption by utilities will amount to 20 per cent of the country’s hydrocarbons production. By then, the government hopes it can supply 15 per cent of power generation using alternative energy.

Kuwait Municipality and the Kuwait Institute for Scientific Research (Kisr) are developing plans for a 20GW renewable energy park west of Kuwait City, focused primarily on solar power. But realising these plans will take many years, and physical progress is still in its infancy.

In May, the PTB invited companies to submit expressions of interest in the contract to develop Kuwait’s first major solar scheme, the 280MW integrated Al-Abdaliya integrated solar combined-cycle plant, which will include a 60MW solar element.

Kisr is developing pilot wind and solar schemes at Shagaya Renewable Energy Park, on which Spain’s Cobra has won a $500m contract to build a 50MW concentrated solar power plant, and a consortium of Alghanim and Spain’s Elecnor has won a contract to build a 10MW pilot wind project. A joint venture of Spain’s TSK Electronica and Kharafi National is the low bidder on a 10MW photovoltaic (PV) solar plant at the park worth about $20m. There are also plans to introduce a pilot programme to install PV panels on the roofs of 150 Kuwaiti homes.

Gas imports

The long-term advantages of renewables projects are indisputable, but they will not deliver sufficient new capacity to make a serious impact in the short term. In April, Kuwait began importing liquefied natural gas from Qatar in an effort to boost fuel supply, and imports from Iran are also under consideration. This helps conserve precious oil resources, but is an unsatisfactory solution for a country so rich in hydrocarbons. The MEW is also considering raising electricity tariffs in an effort to reduce consumption, but the political implications of such a move mean that at best it will be introduced only very gradually.

Kuwait is aware that with its energy strategy plunged into doubt once more it needs to find solutions quickly. In August, it invited bids for a consultancy contract to advise on meeting the country’s power challenge. The government will hope that it can find some answers soon.