Kuwait is planning to invest over $20bn in more than doubling generation capacity as it seeks to avoid the errors of the past and upgrade infrastructure
If there is one country in the region that sums up the issues facing the regional power sector it is Kuwait. Since 2006, it has frequently been in the headlines over the extensive power cuts that have hit the state during the peak summer months.
Rolling outages of various magnitudes have been common place in the early afternoons as the authorities attempt to avoid full-blown blackouts. This has naturally not gone down well with the local population who look to their government for cheap and uninterrupted supplies of power.
As one of the world’s largest crude exporters Kuwait is not a poor country and the authorities cannot blame a lack of financial firepower for their woes. Rather, the situation it has faced over the past four years is the result of a combination of poor planning and project cancellations. Only one power plant was commissioned in the nine years leading up to the start of the crisis. Efforts to build another power facility at Al-Zour North that would have done much to alleviate the problems were defeated in 2005 when only one bidding group submitted a bid for the contract.
|Kuwait power factfile, 2009|
|Installed generating capacity (MW)||10,825|
|Peak power demand (MW)||10,500|
|Growth in peak power demand (%)||8|
|Reserve power margin (%)||3|
|Number of power customers||800,000|
|Number of IPPs/IWPPs concluded||0|
|Additional capacity requirement by 2019 (MW)||17,925|
|Estimated cost of required capacity ($bn)||21.5|
|IPP=Independent power project; IWPP=Independent water and power project. Source: MEED Insight|
All new power and desalination has historically been carried out on a direct public procurement basis through the Central Tenders Committee. Because of the strict rules governing the process, including the fact that at least two bids must be received for a tender process to be valid, the Ministry of Electricity & Water (MEW) has found it increasingly difficult to attract international contractors to bid on high-risk, lump-sum turnkey work especially as there were easier opportunities elsewhere in the region.
Planning was also at fault. It was clear from 2002-03 onwards that the state was heading for a capacity crisis as its once comfortable reserve margins were steadily eroded by annual demand growth rates of up to 8 per cent. Yet little action was taken. It was thus not a surprise to many when the first outages hit in the summer of 2006. Only then did the government belatedly begin to act by implementing a number of costly emergency power schemes to provide some quick-fire capacity.
Despite the addition of permanent power capacity at Shuaiba North and Subiya, the situation today is still precarious. In 2009, the reserve margin was just 3 per cent and would have been much less if it had not been assisted by the economic slowdown and a successful public energy conservation programme.
The year 2010 has been little better. MEW estimates peak demand load this summer has been 10,700MW, just 600MW below the 11,300MW supply capacity. The situation should, however, improve from next year onwards as more capacity comes on stream firstly at Subiya, and then at Shuaiba North and Al-Zour South.
Power generation is not the only area where there have been challenges. The state’s transmission and distribution system is ageing and requires significant investment. Over the past five years, many outages have been down to faulty equipment and a network that has simply been unable to cope with the increased load, especially during the intense summer heat when equipment cannot operate at the required efficiency levels.
To rectify the power situation, MEW has drawn up one of the region’s most ambitious electricity sector capacity programmes. Over the next 10 years, it is planning to invest over $20bn in more than doubling generation capacity as it seeks to avoid the errors of the past. A substantial capital investment drive will also be directed towards the upgrade of substations and underground cables.
In recent years, the power sector has been hit by rising capacity building and fuel costs. This has fed through to significant increases in operating costs. In 2002, it cost MEW KD0.017 to generate a KWh of electricity, a figure that had surged to KD0.360 a kWh in 2009 due to a hike in the oil price.
Although the long-term plan is for future power plants to use recently-discovered gas reserves, there is no guarantee they will be available as extracting them has proven more difficult than first thought. It is little surprise thus, that Kuwait is seriously looking at nuclear energy as an alternative.
The rise in costs, coupled with the slow decision-making process and contracting issues, has forced the government to look at alternative procurement strategies. In 2009, it was announced that the next major power and desalination project at Al-Zour North would be implemented on a build-own-operate basis, with the involvement of international developers.
Kuwait remains the last GCC state to adopt private power. If all goes according to plan with the Al-Zour project, then all future capacity additions are likely to be implemented on a private basis.
Despite the addition of power capacity at Shuaiba North and Subiya, the situation is still precarious