Special Report Contents

• Northern emirates feel property pinch

• Project spending focuses on northern emirates

• Property slowdown ripples through UAE

The signing of a contract in early August between the local Utico and Spain’s Grupo Cobra to develop a AED719m ($196m) independent water project (IWP) in Ras al-Khaimah is evidence that demand for utilities in the UAE’s northern emirates is continuing to rise rapidly.

Privately owned Utico inked an agreement with Grupo Cobra to form Al-Hamra Water Company, which will develop a 22 million-imperial-gallon-a-day (MIGD) reverse osmosis (RO) plant. The facility will be partly powered by a proposed 40MW solar plant, which Utico is also planning to develop.

In recent years, the state utility for the northern emirates, the Federal Electricity & Water Authority (Fewa), has increasingly relied on imports of power and water from Abu Dhabi’s utility, Abu Dhabi Water & Electricity Authority (Adwea), to meet requirements in the northern emirates. But Utico’s projects show demand is growing at such a rate that there is scope for private utility firms to enter the market.

Unique project

“It is a uniquely structured and designed project,” Richard Menezes, managing director of Utico, told MEED at the signing of the IWP deal with Grupo Cobra in Dubai on 6 August. Utico, which has its own electricity and water networks, will directly bill consumers for the water. But Menezes says Fewa will eventually be the offtaker for some of the output.

The IWP is structured differently from most other independent utility projects in the region, in that there is no government stakeholder.

Historically, Fewa provided all the electricity in the northern emirates, mainly through small-scale power plants, most of which are now old and run on liquid fuels.

Due to problems frequently faced by federal bodies, and similar to issues faced by Sharjah Electricity & Water Authority (Sewa), Fewa has struggled with limited budgets and has been unable to build the necessary generation plants and networks to meet growing demand.

Simultaneously, the utility has faced growing gas shortages, making it heavily reliant on more expensive liquid fuels. Its current available generating capacity of 567MW is much lower than the total installed capacity of 924MW, due to the age of the plants.

With the northern emirates struggling to cope with power shortages, in 2007 the UAE cabinet stipulated that Adwea would take over responsibility for electricity generation and supply in the territories. At the same time, Adwea subsidiary Abu Dhabi Transmission & Despatch Company (Transco) was put in charge of Fewa’s 400kV backbone and most of the 132kV transmission network.

Dominant supplier

In 2011, Adwea overtook Fewa as the leading power supplier in the area and will become the dominant supplier over the medium term as part of plans to improve services and reduce production costs.

Fewa’s imports from Adwea have steadily increased, reaching 2,024MW in 2014, compared with 785MW in 2008. While Sewa has a significantly greater network, it imported 753MW of electricity in 2014, showing it is also becoming reliant on imports.

Rising imports from more modern and efficient power plants in Abu Dhabi resulted in Fewa’s capacity-building programme being abandoned. This has had major consequences for the Al-Zawra plant, a Fewa facility commissioned in 2008.

Al-Zawra was planned to have a capacity of 400MW; only the first two 100MW turbines were ever installed, with the remaining two ordered but not put in place. In 2010, it was decided that all four turbines should be relocated to Mirfa in Abu Dhabi, to be installed in an open-cycle configuration and then converted to combined-cycle.

New entrants

While the majority of Fewa’s energy requirements are being met by Adwea, Utico has realised there is scope for private power and water provision in the northern emirates, particularly to meet growing industrial demand. The right to develop independent power and water projects in the northern emirates was ratified in an October 2007 cabinet decision, which also amended existing legislation to allow local government departments to sanction private utility projects.

In addition to the desalination and solar project, Utico is planning to press ahead with [a] coal-fired power plant

The ruling was made to encourage the private sector to build power and desalination facilities to serve the rising number of real estate projects being developed in the area. However, lack of gas feedstock prevented schemes from getting off the ground.

Government-owned Ras al-Khaimah Investment Authority (Rakia) has had more success, building a series of small plants to serve its industrial and residential developments. In April 2009, it commissioned a 82MW plant, serving the Al-Ghail industrial park. A month later, the first power was brought online at the 45MW Al-Hamra power plant to serve new industry and residential units.

However, Utico is now emerging as a firm capable of delivering private projects. The company has already established its own generating assets and transmission and distribution grid, and its next planned projects will significantly increase its capacity.

The utility has prequalified 16 groups for its solar independent power project (IPP), and it is likely the tendering of the scheme will make swifter progress before the end of 2015. “We are expecting to issue tender documents in the next few weeks, definitely before the end of September,” Menezes tells MEED.

Offtake agreements

While Utico is initially focusing on meeting the needs of its own customers, it is likely the power and water produced will be provided to the Fewa grid in the future.

“The [UAE] Ministry of Public Works signed a contract with utilities for offtake agreements,” Menezes says. “Our network is linked to Fewa’s and, under the contract, Fewa can offtake up to 90 MIGD. At the moment, about 9-10 MIGD goes to Fewa, so there is plenty of capacity left [under the agreement].”

While financing can often be the sticking point for private utility projects, Menezes is confident the company has an adequately structured model to ensure the schemes move ahead. “We received credit approval from six banks and three banks were shortlisted,” says Menezes. “Most of the major terms have been agreed, about 95-98 per cent. So we expect financing to close within the next few weeks.”

In addition to the desalination and solar projects, Utico is still planning to press ahead with an ambitious coal-fired power plant, first mooted in 2012. That year, the firm signed an agreement with China’s Shanghai Electric to build a AED1.5bn clean-coal plant. The 270MW facility was initially planned to be operational in 2015, but has faced delays due to the requirement for relevant regulatory approvals and also because of Dubai’s plans to build a 1,200MW coal-fired IPP at Hassyan.

“It is still going ahead,” says Menezes. “In February this year, we got the environmental approval and we waited to see what was happening with Dubai’s project too.”

Menezes says that while much smaller than the proposed coal facility in neighbouring Dubai, the Ras al-Khaimah project is unique in that it is planning to utilise carbon capture, a technology that has been widely studied globally in recent years but which has not yet been implemented on a large scale.

If Utico can deliver on its ambitious projects, 2015 may prove to be a pivotal year for the northern region’s utility sector, providing a base for increased self-sufficiency in the future.