Jean Rappe, Engie Power & Water Middle East

Jean Rappe, Engie Power & Water Middle East

Jean Rappe, Engie Power & Water Middle East

With Engie having reasserted its position at the top of MEED’s annual power developer ranking through its success on Saudi Arabia’s Fadhili independent power project (IPP), the man at the helm of the French energy giant’s Middle East operation has had an impressive start to his tenure.

Jean Rappe, CEO for Engie Power & Water Middle East, has been with the developer in several roles over the past 26 years and from 1 January 2016 took on the head position for the Middle East. Rappe hopes the firm’s recent success in Saudi Arabia will be the first of many in the region’s largest utilities market, which had shied away from the private developer model in recent years before the decline in oil prices.

“There is an urgent need [for power] that I’m sure will be met through classic IPPs, particularly gas-fired power plants in the coming years,” he says. “I am not yet aware of the next major IPP [in the kingdom], but [state utility] Saudi Electricity Company is already back to the market with IPPs on the renewables side, and I think [the model] will have a second chance in Saudi Arabia.”

Major reforms

Rappe has taken over the reins following some major reforms within the energy company, previously called GDF Suez International, which included it changing its name to Engie in April 2015.

In addition to a global restructuring, the developer has also amended the way it will operate in the Middle East. Rappe says the strategic changes are in response to the growing importance of renewables in the region’s energy plans. The group’s operations in the Middle East are now structured into three main pillars, with energy services joining the IPP and renewables arms.

“I think our main objective today is to prepare for the changes that we see in the region,” he says. “Obviously, we will continue pursuing classical IPPs – large gas-fired power plants and desalination plants – and strive to be the best like we have been doing for the past 20 years.

“But now we see huge potential for renewable development – solar in particular – and energy efficiency, not just in the Middle East, but globally. We see this as the future of the energy landscape.”

Cost efficiency

Rappe says the sharp fall in the cost of renewable technology is a primary driver behind the region’s rapid move to integrate clean energy into its power portfolios.

“I think one of the major factors is the competitiveness of renewable technologies, in particular solar energy,” he says. “Just a couple of years ago not many people would believe that PV [photovoltaic] solar could be as cheap as it is now. But we have seen with the major drop in tariffs for Dubai’s solar projects from just one year to the next what can be done.”

While the UAE and Jordan have been leading the region’s push for solar energy, Rappe believes the new competitive cost of clean technologies will spur others to follow. “[The Dubai solar project] must be triggering thoughts for utilities and decision-makers in the region – if you combine this with the fact that it is a natural place for solar energy; not many places in the world have the conditions enjoyed in the Middle East,” he says.

Although Engie has yet to start working on renewables schemes in the wider Middle East and North Africa region, the group is currently in negotiations with the Egyptian authorities to develop a 250MW wind farm in the Gulf of Suez.

The new addition to Engie’s operational structure in the region is the energy services division, which Rappe feels will also become increasingly important in the next decade.

“The main focus of the energy services division is energy efficiency, and we see great potential for this in the region: improving the efficiency of everything, from buildings to infrastructure,” says the CEO. “And we want to be involved in that space in the future. That is why we are trying to prepare and be involved in those activities.”

Financing challenges

The other big change affecting the regional energy market is the collapse in oil prices since mid-2014. In addition to facilitating the drive towards renewable energy, Rappe says the low oil price is having an impact on the project finance market, a vital area for any utilities developer.

“It is not as easy as it used to be to finance projects,” he says. “One of the reasons is that governments are [sucking] a lot of the money from the market to try to mitigate budgetary deficits, and this is one area that creates a liquidity issue in the region.

“This is compounded by the fact that some international banks have reached their limits in terms of exposure, or have revisited their limits considering low oil prices and have reviewed exposure to the region. This has created another issue regarding financing projects.”

The Engie head expects this to result in a void that will be increasingly filled by export credit agencies (ECAs). “There are still banks out there willing to lend money to projects, but ECAs are expected to play a much bigger role than ever before for the foreseeable future,” he says.

New funding sources

Engie has been one of the regional pioneers in developing new financial models for structuring large-scale utility projects in the region, including utilising a mini-perm loan structure for the under-construction Mirfa independent water and power project (IWPP) in Abu Dhabi. While implementing the shorter-term loan structure for the scheme was expected to trigger more use of the model, it has yet to take off. Rappe is uncertain whether it will appeal to other project owners.

“After Mirfa we have had discussions with some governments for using mini-perm structures for other projects in the region, but we have seen some reluctance due to a lack of visibility when the project has to be refinanced,” he says. “So the jury is out on that one; it is a decision that governments have to take with respect to their exposure to changes in market conditions in the long term with refinancing and the profitability on projects.”

Engie also reignited the discussion of using project bonds for refinancing major utility projects when it entered the bond market in 2013 for its Shuweihat 2 IWPP in Abu Dhabi. However, Rappe feels further opportunities for using project bonds are limited given the current economic climate.

“We don’t see opportunity for another project bond at the moment due to liquidity restriction in the region,” he says. “We would like to tap the bond market, but we don’t see any opportunity at the moment or in the short term.”

New markets

While Engie seeks to bolster its position as the largest private developer of power and water schemes in the GCC, Rappe says the firm will also seek to boost its portfolio in emerging markets. He adds that Iran is one example of a regional market that may offer opportunities for developers in the future.

“Iran is quite a sophisticated market that we are looking at more now,” says the CEO. “We don’t think it will be ready to structure a project in the near future, as there is limited appetite from international banks to lend money to finance schemes at this stage. But we want to be ready for when it is possible to invest and do IPPs in Iran; we want to be ready to be the first to develop IPPs in Iran.”