With oil prices expected to remain subdued in 2016, moves towards energy diversification and private financing will form the key trends in the Middle East and North Africa’s (Mena’s) power and water markets.

An eventful 2015 for the region’s utilities sector showed that as projects in other sectors are cancelled or scaled back due to falling revenues, the growing demand for electricity and water is ensuring governments are still pushing ahead with major power and desalination schemes.

Installed power capacity in the Mena region will need to increase by 143.2GW by 2020 to meet demand

Source: MEED

While demand for power and water from industrial sectors may fall if government and private projects are delayed, the robust population growth being experienced throughout the region will continue to drive demand for utilities.

MEED estimates that installed power capacity in the Mena region will need to increase by 143.2GW by 2020 to meet expected demand, with the desalination requirement for the arid GCC states in this period increasing by 2,012 million imperial gallons a day (MIGD).

Watershed year

In future years, 2015 will likely be remembered as a watershed for the region’s power sector, with renewable energy finally emerging as a viable option for utility-scale power generation. Renewables, along with other alternative energy sources, are emerging as important facets of power generation programmes across the region.

A consortium led by Saudi Arabia’s Acwa Power was awarded a contract to build a 200MW photovoltaic (PV) solar project with a world-record-low tariff in January. With the tariff-price almost converging on conventional energy prices, governments are becoming increasingly keen to develop large-capacity renewable projects.

State utility Dubai Electricity & Water Authority (Dewa) is preparing to tender the 800MW third phase of its Sheikh Mohammed bin Rashid al-Maktoum solar park, which will be by far the largest single-phase solar project undertaken in the world. With more than 95 companies submitting expressions of interest in the project in October, 2016 will usher in great anticipation for the bidding and award of the emirate’s next major solar scheme.

Acwa’s success with the 200MW PV solar project in Dubai came shortly after it was awarded the contract to develop the Noor 2 and Noor 3 concentrated solar power (CSP) projects in Morocco. With a combined capacity of 350MW, the North African schemes are two of the largest CSP projects in the world. The 160MW Noor 1 power plant is already under construction, and the Moroccan Solar Agency (Masen) has awarded contracts for more than 500MW of CSP schemes.

The client is set to continue its ambitious programme into 2016, with the next phase set to encompass 75MW of PV solar to extend its solar energy portfolio.

Ambitious target

Morocco is making inroads towards its ambitious target for renewables to account for 42 per cent of its power capacity by 2020. Rabat’s Office National de l’Electricite et de l’Eau Potable is overseeing the development of 850MW across five wind farms. The client received bids in late October, and the wind project is likely to be one of the first major contract awards in the region’s power sector in 2016.

Egypt is also ready to become a major player in the renewable energy sector in 2016, as it seeks to reach financial close on the first phase of its ambitious 4,300MW feed-in-tariff wind and solar programme, and also makes contract awards on some major renewable independent power projects (IPPs).

Saudi Arabia is still regarded as the potential game-changer for clean-energy schemes

Those within the renewables and project financing market will eagerly be waiting to see if 2016 is the year that Saudi Arabia can finally establish renewable energy projects on a large scale. Following the disappointment of King Abdullah City for Atomic & Renewable Energy’s (KA-Care’s) failed attempts at initiating a 54GW alternative energy programme, state utility Saudi Electricity Company (SEC) has taken on the mantle as the kingdom’s renewable energy hope.

Progress in 2015 was promising, with the long-awaited contract award on the 550MW Duba integrated solar and combined cycle (ISCC) project in October, and the tendering of the 3,780MW Taiba ISCC, which will contain a sizeable 180MW solar component.

While considerable progress was made by several countries in 2015 with renewable projects, Saudi Arabia is still regarded as the potential game-changer for clean-energy schemes in the region. If Riyadh is able to push ahead with projects on a large scale, it will create the sustainable supply chain to put the region on the global map of renewable energy producers.

The drive for alternative energy is not solely being driven by falling government revenues in the era of lower oil prices, but also by the increasing difficulty in securing fuel for gas power plants, still the fuel of choice for large-scale power generation.

In addition to renewables, utilities are looking at other alternative fuels to reduce pressure on gas supplies and imports.

Major power and water projects due to be awarded in 2016
Project Owner Country Budget ($m) Main contract award Due
Fadhili independent power project (IPP) Saudi Aramco/SEC Saudi Arabia 2,500 Q1 2016 2018
Waad al-Shamal power plant SEC Saudi Arabia 1,300 Q1 2016 2018
850MW wind farms  Onee Morocco 1,700 Q1 2016 2018
Gulf of Suez wind farm 250MW IPP NREA Egypt 360 Q1 2016 2018
Dairut IPP EEHC Egypt 2,500 Q2 2016 2019
Jeddah 4 desalination plant SWCC Saudi Arabia 750 Q2 2016 2019
Ouarzazate solar IPP: Noor 4 Masen Morocco 170 Q3 2016 2019
Al-Zour North 2 IWPP KAPP Kuwait 1,600 Q3 2016 2019
Dubai 800MW solar IPP Dewa UAE 1,200 Q3 2016 2018
Taiba ISCC SEC Saudi Arabia 3,500 Q3 2016 2018
Al-Khiran IWPP KAPP Kuwait 1,800 Q4 2016 2020
Al-Abdaliyah ISCC KAPP Kuwait 500 Q4 2016 2019
Abu Dhabi 350MW solar IPP Adwec UAE 500 Q4 2016 2019
Rabigh 3 desalination plant  SWCC Saudi Arabia 1,000 Q4 2016 2020
Salalah independent water project (IWP) OPWP Oman 250 Q4 2016 2019
Sharqiyah IWP OPWP Oman 250 Q4 2016 2020
Adwec=Abu Dhabi Water & Electricity Company; Dewa=Dubai Electricity & Water Authority; EEHC=Egyptian Electricity Holding Company; KAPP=Kuwait Authority for Partnership Projects; NREA=New & Renewable Energy Authority; Onee=Office National de l’Electricite et de l’Eau Potable; OPWP=Oman Power & Water Procurement Company; SEC=Saudi Electricity Company; ISCC=Integrated solar combined-cycle; IWPP=Independent water and power project; Masen=Moroccan Solar Agency; SWCC=Saline Water Conversion Corporation. Source: MEED 

Coal-fired facilities

In October, Dubai selected Acwa Power to develop the GCC’s first large-scale coal-fired power generation facility, the planned 1,200MW Hassyan IPP. With a contract award expected by the end of the first quarter of 2016, the coal project illustrates the government’s drive to diversify fuel supply and bolster energy security.

Egypt is also likely to make progress with major coal-fired power facilities in 2016, having signed agreements with several international firms to build more than 9,000MW of coal plants at the Egypt Economic Development Conference in March.

As Abu Dhabi makes progress with the GCC’s first nuclear power project, Egypt is set to start initial construction work on its first nuclear power plant in 2016. In November, Russia’s nuclear organisation, Rosatom, signed contracts to develop four reactors of 1,200MW each at the El-Dabaa nuclear plant. With Cairo having set a target of delivering first nuclear power by 2022, the Russian company will need to make swift progress. Moscow has reportedly agreed to provide a long-term loan to cover the financing of the facility.

In addition, Russia is working on plans to develop a nuclear power plant in Jordan. Rosatom was selected in late 2014 to build the facility, and the nuclear company is now working on a feasibility study for financing the plant, which is scheduled to be completed in 2017.

The international nuclear market will also be keeping a close eye on Saudi Arabia’s planned nuclear programme. As with its renewables plans, KA-Care has not made any tangible progress with its ambitious atomic power programme, following the appointment of a group of advisers in late 2012. However, with Riyadh committed to developing up to 16 reactors with an installed capacity of upwards of 17GW, the kingdom’s power sector will remain a central focus of nuclear providers from across the world in 2016.

Private assistance

The second major theme set to permeate the region’s utilities market in the coming year is a move towards increased private participation and investment in major power and water projects.

With the demand growth for electricity and potable water set to remain strong, governments are unlikely to remove planned schemes from project pipelines under pressure from falling hydrocarbon revenues. The big question will be how these schemes are to be financed. There is likely to be an increased move towards using the private developer market to finance the capital expense (capex) of costly utility projects.

While the region, particularly the GCC, has built up an impressive portfolio of IPP and independent water and power projects (IWPPs) over the past two decades, many major utilities schemes continue to be funded from government accounts.

2016 may usher in additional ways to procure major utility projects while reducing debt on balance sheets

Saudi Arabia provides the most pertinent example of this. The kingdom’s desalination provider, Saline Water Conversion Corporation (SWCC), has not tendered a major desalination project through the IWPP model since 2007. The electricity generator SEC has also moved away from its IPP model since the award of Rabigh 2 in 2013, with the client having scrapped plans to develop the Duba ISCC as an IPP. Instead it proceeded to tender the scheme as an engineering, procurement and construction (EPC) project.

However, with Riyadh feeling the impact of the drop in oil prices, Saudi utility providers are likely to move towards the private financing model to develop the country’s ambitious programme of projects. According to sources in the kingdom’s water sector, SWCC is considering employing the IWPP model in its next planned major cogeneration project, the 1,500,000 cubic-metres-a-day (cm/d) Jubail 3 plant.

Contractor financing

In addition to the IPP/IWPP models, 2016 may also usher in some additional ways to procure major utility projects while reducing debt on balance sheets. One of the alternative methods emerging for major infrastructure projects is contractor financing, where projects are procured on an EPC basis with the contractor bringing bank or export credit financing. This model may be used extensively in Egypt, where a number of agreements were signed with Chinese contractors in 2015 to build major coal-fired power facilities.

Another part of the region’s changing utilities market that may begin to rise in prominence in 2016 is the growing interest in standalone water plants, as governments seek to boost desalination capacity separately from power plants. Oman and Kuwait have already tendered and awarded some major independent water projects, and Abu Dhabi is reported to be interested in separate desalination facilities due to the significant power capacity that will come online when its nuclear project is completed.

After a milestone year for the Middle East’s utilities sector, 2016 should continue to offer some interesting and lucrative opportunities for contractors and developers. While the robust demand for power and water should ensure that few projects are cancelled, the ability of clients to tap into private financing will determine how successful the market is next year.