Driven by the spiralling demand for power domestically and internationally, an increasing number of countries in the region are seeking to generate energy from renewable and alternative sources such as wind farms and nuclear power plants.

The Gulf plans to build power plants with an additional capacity of 78,800MW by 2015, according to MEED Insight’s 2008 Power & Water in the GCC report.

The majority of these plants will primarily burn gas, and to some degree oil, but it is clear that decision makers in the region are becoming increasingly aware of the need to diversify their energy sources.

The Egyptian Electricity Holding Company, for example, is planning to develop facilities to supply 4,000MW of nuclear power and 5,980MW of wind power under its expansion plan for the years 2013-27.

Energy alternatives

Qatar General Electricity & Water Company (Kahramaa), meanwhile, is considering plans to either develop 3,500MW of solar power or 5,400MW of nuclear power by 2036, depending on demand.

Oman is also exploring alternatives to gas-fired generation. Oman Power & Water Procurement (OPWP) Company is studying a proposal to build a 1,000-1,200MW plant at Duqm. Muscat is asking OPWP to diversify away from an all-gas generating strategy, and the utility is exploring the possibility of introducing renewable resources to its portfolio.

In its seven-year plan for 2008-14, the company states that it may be possible to bring renewable energy projects – particularly wind-power schemes – on line in the Salalah area in 2012-14.

In the Gulf, the UAE is leading the way in developing renewable and alternative energy. It is pushing ahead faster than any of its neighbours with a civilian nuclear programme and has established a regulator, the Emirates Nuclear Energy Corporation, for the emerging sector.

The government predicts the country’s power requirements will increase from 15,500MW to more than 40,000MW in 2020, with only enough gas feedstock to meet half of the additional demand.

Alongside nuclear power, the emirate of Abu Dhabi is home to two groundbreaking alternative energy projects. Abu Dhabi Future Energy Company (Masdar) is responsible for both the largest solar power plant in the world by capacity – the 100MW Shams 1 – and the first hydrogen power plant in the Middle East.

Dubai is following close behind. Dubai Electricity & Water Authority (Dewa) recently issued a tender for consultants to carry out a feasibility study on a solar power project, the first in the emirate.

The utility is also considering both nuclear and coal-fired power generation and has been looking into developing wind farms for some time.

Environmental concerns partially explain the noticeable shift towards renewable energy schemes in the region. “There are a number of factors driving this,” says Robert Bryniak, general manager of UAE-based Golden Sands Management Consulting.

“There is an increased awareness and willingness to do something on the environmental side and on the social responsibility side.”

“They are now under tremendous pressure to reduce sulphur oxides and nitrogen oxides in the air,” says Sylvain Hijazi, global vice-president of sales and regional president for the Gulf area at France’s Alstom. “But it is at a very early stage today.”

Setting standards

In many cases, it is the region’s governments that are actively promoting renewable energy schemes. In October 2007, ruler of Dubai Sheikh Mohammed bin Rashid al-Maktoum issued a directive outlining environ-mental standards for builders and developers. The decision came into effect in January this year.

Algiers has a target of producing 10 per cent of its electricity from renewable sources by 2020, while Cairo is aiming for 20 per cent within the same timeframe.

Algeria has adopted a ‘feed-in’ law, which obliges utilities to buy electricity from renewable sources. The law also fixes a tariff on utilities for power purchased from private developers of renewable energy projects.

“We see what is taking place in Europe,” says Edouard Dahome, Middle East head of Electricite de France.

“A political decision has to be taken and the main driver is finding the finances for renewable energy. So long as the government does not put incentives in place, it will be hard.”

But proposing alternative energy schemes is not exclusively the domain of governments and local utilities. Developers and consultants are also playing a role in bringing potential power-generating solutions to the attention of decision makers.

It was a consortium of France’s Areva, Total and Suez that pitched the idea to Abu Dhabi Water & Electricity Authority of developing a nuclear power plant in the emirate.

In Dubai, a consortium of three companies proposed in January an integrated gasification combined cycle power plant that would convert coal feedstock to cleaner-burning gas. The project is now going ahead under an agreement between the governments of Abu Dhabi and China.

An emerging collective environmental conscience alone does not explain the move towards renewables. The steep escalation of oil prices this year has changed the economics of alternative energy significantly.

“It has made it extremely attractive outside the Gulf,” says Bryniak. “It is also very attractive here almost for the same reason. There is a choice between using gas domestically, where it is subsidised, and selling it on the open market.”

The price of gas sold domestically to utilities ranges between $0.75 and $1.50 a million BTUs, but costs $4-5 to produce,” explains Bryniak. “On the world market, it sells for $7-8 a million BTUs,” he says. “The opportunity cost is quite high.”

A shortage of natural gas supplies is often cited as one reason for countries in the region to turn to alternative sources of energy, but regionally gas is not lacking.

The problem is that utilities have grown accustomed to paying heavily subsidised prices for domestic gas and are not willing to pay market prices for imports of the feedstock from their neighbours.

“There is very poor co-operation between gas-long and gas-short countries,” says Mark Lewis, managing director of the UK’s Energy Market Consultants. “There is a very buoyant export market.

Why should Qatar give gas away to its neighbours when it can sell it on the international market for 10 times as much?”

Oman is one recipient of Qatari gas via the Dolphin pipeline. OPWP estimates it will require 1.69 trillion cubic feet of natural gas between 2008 and 2014.

“Oman will have gas, but will have to pay more than $2 a million BTUs for it,” says Bryniak. “If it pays $4, it will get it tomorrow, but it does not want to.”

Seeking change

Countries in the region have different motives for pursuing alternative energy schemes.

“There are two categories of countries: those importing oil and looking to get a less heavy burden on cost; and those in Opec and the Gulf that have the potential to become involved in renewable energy projects,” says Mansour Hamza, head of Middle East, Asia and Africa business at German engineering consultant Fichtner. “They have the sun and they have the money to develop projects.”

The cost of electricity production from renewable sources has fallen over the years. The cost of solar power is less than $0.20 a kilowatt hour (kWh), while wind power comes in at approximately $0.08 a kWh.

“Ten years ago, solar cost $0.40 a kWh,” says Bryniak.
But renewable energy is still an expensive alternative to conventional power generation.

In terms of upfront capital investment, nuclear power is the most expensive alter-native to gas-fired plants. But the cost of production is low and it is a zero-emission way of gener-ating electricity. However, concerns over pro-liferation and waste disposal mean the decision to go down the nuclear route cannot be taken lightly.

At $0.05 a kWh, renewable-energy schemes would become more competitive with conventional power generation. For this to happen, economies of scale will need to be created to drive down the cost.

“Until you have substantially built renewable generation, you will never get the cost of production down to a level where you can say it is economic,” says Alistair Smith, director of nuclear services at UK-based consultant PB power.

Regardless of its growing economic competitiveness, power generation using renewable sources will not surpass conventional generation in the near future.

It does, however, serve to diversify the energy mix, and therefore to increase the security of supply. “It is like an investment fund where you diversify investment,” says Bryniak. “If one area is adversely affected, it does not affect the performance of the rest.”

If coupled with comprehensive demand management strategies and the introduction of better standards and regulation, renewable energy schemes could contribute to greater energy efficiency.

“There are no standards controlling the types of products allowed into these countries,” says Bryniak.

“They also need to pursue district cooling, which reduces the [power] load by 40-50 per cent [compared with conventional air-conditioning units]. Start factoring in all the small parts and you get significant amounts of power.”

This is already starting to happen. But it will require a step-change in government thinking and consumer behaviour for such ideas to really take hold.

“When they have had cheap energy for so many years, it is very easy to be profligate with it,” says Brian Ricketts, an analyst at the Geneva-based International Energy Agency.

Convincing people to use less and pay more will not be an easy task, but the region’s governments have made their intentions clear. Alternative energy is set to become part of the supply mix.

TABLE: GCC power demand forecasts

Country Installed generating capacity (MW) Additional capacity by 2015 (MW) Peak demand (MW) Annual demand growth rate (%) Projected cost ($bn)
Abu Dhabi ** 7,900 6,700 4,800 8 5.69
Dubai ** 5,448 11,000 4,736 16 9.35
Sharjah ** 2,400 2,200 1,700 9 1.87
Fewa ** 1,100 *** 2,500 na 7 2.13
UAE total 16,848 22,400 na 10 19.04
Bahrain ** 2,700 3,000 2,136 10 2.55
Kuwait 10,189 10,000 9,100 7 8.50
Oman 3,300 2,000 2,933 10 1.70
Qatar * 4,200 6,500 3,230 17 5.53
Saudi Arabia * 35,885 15,000 29,900 7 12.75
Country total 56,274 58,900 50.07

* Includes industrial capacity

** 2007 data

*** 2,500 MW is the amount the Federal Electricity & Water Authority (Fewa) says Abu Dhabi Water & Electricity Authority (Adwea) will supply to its network by 2015

na=not available

Source: MEED Insight Power & Water in the GCC report