The rate at which electricity consumption is growing in Dubai has slowed in the wake of the global economic crisis. While power demand in the UAE increased by 7 per cent between 2008-09, Dubai saw its year-on-year electricity demand growth halve from 12 per cent between 2007-08 to 6 per cent between 2008-09.

Peak electricity demand in the emirate was 5,622MW in 2009, compared with 5,287MW in 2008 and 4,736MW in 2007. In Abu Dhabi demand increased by 11 per cent between 2008-09, so it is clear that Dubai’s power consumption growth is slowing, in line with the emirate’s population growth.

Demand slowdown

The deceleration in demand growth has highlighted the effect the global economic slowdown has had on the emirate’s economy, but has also offered state-owned Dubai Electricity & Water Authority (Dewa) the chance to pursue its capacity building plans at a less frenetic pace. Dewa has revised down future power demand growth to a year-on-year rise of about 6-8 per cent over the next five years, and has adjusted its capacity-building masterplan in line with this.

As a result, some projects have been shelved, while others will be brought online later than originally planned. Nevertheless, Dewa is still moving forward with a handful of power capacity and transmission projects.

Dewa expects to spend AED9.8bn ($2.7bn) on capital investments between 2010 and 2012, which will be sufficient to complete projects currently under construction.

This includes phase two of L station at Jebel Ali, which was brought online in January, adding 196MW to the 2,197MW plant. The expansion was carried out by South Korea’s Hyundai Engineering & Construction Company and Italy’s Fisia Italimpianti.

The 2,060MW M station, also at Jebel Ali, is currently under construction. South Korea’s Doosan Heavy Industries & Construction won the contract to build the final stage of the M station on a turnkey basis in March 2007. Construction of the final phase was scheduled for completion by June 2010, but is now expected to be commissioned in June 2011.

Dewa plans to further enhance the generation capacity of its plants at Jebel Ali, with six stations to be upgraded in 2010-11.The turbines at these facilities will be modified to lower gas turbine inlet temperatures – a project that will increase Dewa’s overall capacity by about 390MW.

Dewa’s power plants are already quite efficient as most use combined-cycle technology. Several of Dewa’s earlier simple-cycle gas turbine plants were converted into combined-cycle co-generation plants by combining gas turbines, with condensing extraction steam turbines or back-pressure steam turbines.

The efficiency improvement scheme, combined with the completion of L and M stations, will add 2,646MW of capacity to Dubai’s current installed capacity, which stands at about 7,500MW. This represents an increase of about 35 per cent.

If power demand in the emirate rises at the projected rate of 6-8 per cent through to 2015, Dubai will still have a margin of 1,300MW between capacity and peak demand. Had demand for electricity not eased signigicantly, Dewa would have been unlikely to launch its first independent water and power project (IWPP).

Private power

Previously, the authority had been against allowing private developers into the market insisting it would raise the cost of production and take longer to bring capacity online. But in December 2009, Dubai’s Supreme Council of Energy gave its approval for privately financed power projects in the emirate.

Dewa had intended to develop two 1,500MW projects at Hassyan on a government-procured basis. It has since scrapped these plans in favour of a single 1,500MW project with an independent power project structure.

While the two government-procured projects were to come online in 2012, the IWPP facility is expected to be commissioned in 2014. The tender for developers to build the Hassyan IWPP is due to be launched later in 2010.

Dewa plans to develop further projects in partnership with the private sector. It has signed three memorandums of understanding to conduct feasibility studies for IWPPs. Two of the studies will focus on the use of alternative feedstocks to natural gas – namely syngas (a gas mixture, which contains varying amounts of carbon monoxide and hydrogen) and coal.

Dewa is moving forward with a handful of power capacity and transmission projects

If Dewa were to chose the latter option, the plant would be sited in Fujairah due to the infrastructure requirements needed to import coal. The coal study will consider the feasibility of building power and water transmission facilities in Fujairah, with a view to exporting electricity from the plant and integrating it with Dewa’s network.

However, should the studies recommend gas-fired facilities, the plants would likely be relocated to Dubai.

The decision to look into the potential for coal and syngas-fired facilities is driven by a concern that Dubai’s generating capacity is too dependent on gas. Dewa relies on Dubai Supply Authority (Dusup) to provide its gas feedstock. As a country with limited gas supplies, the UAE is keen to diversify its energy mix to reduce its dependence on the one feedstock. However, as one of the three countries on the Dolphin Energy gas project, the UAE’s – and hence Dubai’s – supply is cushioned to a certain extent. Dolphin is contracted to supply Dusup with 255.5 million BTU of gas a year until 2032.

Gas from the scheme is being supplied at contracted prices, which are significantly lower than the prevailing market prices. Also, the Dolphin agreement stipulates that price increases will not rise at a rate higher than 2 per cent a year.

While the supply agreement works strongly in Dewa’s favour, Dubai’s reliance on a single resource could be seen as over-exposure. Beyond the Hassyan project, Dewa plans to develop another power plant at Lehbab, at a site 50 kilometres from Dubai. A pre-feasibility study has been carried out at the site.

Dewa has indicated the Lehbab scheme would be about 1,000MW in size with no water desalination element attached. The facility would be used just to meet peak demand and would be built on a government-procured basis and will be gas-fired.

Building capacity to meet peak demand in Dubai is essential as electricity use in the emirate swings between a low 2,700MW in January to 5,700MW in the hot months of July to September.

Beyond adding capacity, Dewa also plans to expand and upgrade Dubai’s existing transmission and distribution network over the next two years at a cost of AED26-28bn.

According to figures from Dewa, in 2009, Dubai had 1,500km of overhead lines (mostly 400kV) and 23,785km of underground cables (mostly 6.6 and 11kV) in operation.

In terms of financing its electricity generation and transmission plans, Dewa aims to use corporate debt and bond finance. The Hassyan IWPP is expected to be financed as a mix of equity and project finance debt.

Dewa has successfully secured a series of corporate loans to finance its activities. In May 2009, Dewa successfully closed a $1bn export credit agency (ECA)-backed financing facility in support of its ongoing capital expansion. The deal follows on from the $2.2bn facility that Dewa signed with 18 banks in April 2009. The three-year syndicated Islamic financing deal was coordinated by  Emirates NDB, Dubai Islamic Bank, National Bank of Abu Dhabi, all local, and the UK’s Standard Chartered Bank.

Dewa was the first Dubai issuer to approach the debt market after restructuring proposals for state firms Dubai World and Nakheel. The bond, like the Hassyan IWPP, does not have a sovereign guarantee.

That the utility has been able to secure financing in the current climate is an endorsement of Dewa’s creditworthiness. But Dewa is better placed than most other Dubai state-owned firms to secure funds. The authority has been reporting positive financial results since 2008, following reforms to its tariff structure. However, the big test will be whether banks are willing to back the Hassyan IWPP.

The success or failure of the scheme will determine whether Dewa presses ahead with its private power projects or whether it reverts back to traditional lump-sum procurement methods.