Utilities look to private sector for support

02 January 2017

Governments cannot afford to slow the pace of power and water investment programmes

While other sectors have seen a sharp decline in project activity following the drop in oil prices since mid-2014, demand for utilities schemes in the Middle East and North Africa (Mena) region remains robust as populations continue to expand at a rapid pace. A renewed commitment to economic diversification also means power and water demand from industrial and commercial consumers will keep growing.

MEED estimates that total installed generation capacity in the Mena region will have to rise by 150,901MW to 440,762MW in order to meet forecast demand in 2020, an increase of just over 50 per cent on the 289,861MW of capacity installed as of the end of 2015.

Power demand

The largest requirement for new generation facilities will be in Egypt, where an estimated 27,985MW of new capacity is needed as a result of its rapidly growing population. While Saudi Arabia and Kuwait will require additional capacity of 20,239MW and 5,758MW respectively, the actual newbuild requirement will be much higher because of the need to replace or upgrade existing units on account of age.

There is also an urgent need for new capacity in Iraq and Libya, where much of the power infrastructure is outdated or has been damaged by war. Iran will form a focal point for many regional and international developers and contractors in 2017, following the lifting of nuclear-related sanctions in early 2016. It is estimated the country will require an additional 25,600MW of new capacity by 2020, as Tehran pushes ahead with projects to expand its hydrocarbons and industrial sectors.

There will also be significant need for additional desalination capacity in the GCC as a result of growing populations. According to MEED forecasts, the GCC will have to increase desalination capacity by 25 per cent, from 4,128 million imperial gallons a day (MIGD) in 2015 to 5,150 MIGD by 2020 to meet expected demand.

Outside the GCC, Egypt is planning to move ahead with a sizeable programme to build new desalination plants to reduce its reliance on water from the River Nile.

Procurement strategy

A key trend in 2017 will be the increasing role of the private sector in building and operating power and water infrastructure. Utility clients are under pressure to reduce capital expenditure as a result of the drop in state hydrocarbons revenues since mid-2014. While programmes to expand power and water capacity cannot be cancelled or delayed, a shift in strategy for procuring these schemes is now essential.

 Major power & water awards in 2016

Major power & water awards in 2016

Major power & water awards in 2016

Saudi Arabia oversaw the development of several power and water plants in partnership with the private sector as independent power projects (IPPs) or independent water and power projects (IWPPs) between 2003 and 2010. Riyadh then largely moved back to government-funded engineering, procurement and construction contracts for utility projects as oil prices rose above $100 a barrel. Today, the kingdom’s utility firms are expected to use the private developer model for all future major power and cogeneration plants.

Saudi Electricity Company’s invitation for developers to express interest in the planned 5,400MW PP15 IPP in November is expected to be the first of numerous schemes to be tendered under the private developer model in the next five years. The kingdom’s desalination provider, Saline Water Conversion Corporation, has also invited consultants to submit proposals for the planned Jubail 3 IWPP.

Kuwait activity

Following the successful commissioning of its first IWPP in November 2016, Kuwait is preparing to tender several independent utilities projects in 2017. These include the Al-Khiran IWPP and the Al-Zour 3 IWPP.

Qatar, Oman and Bahrain will also move ahead with new IPPs in 2017, remaining faithful to the model that has brought them success in expanding their utilities sectors in recent years. Egypt and Iran are, likewise, working on plans to develop large-scale IPP programmes in the coming years.

Governments are also putting an increased focus on diversifying energy sources for utilities production.

Governments are focusing on diversifying energy sources for utilities production

With the exception of Qatar, all the GCC states are in a race to secure additional gas supplies, with competing demands from the oil, industrial and utilities sectors. Outside the GCC, Jordan has been hit by a rising energy import bill as it has been forced to increase the use of expensive fuel oil due to a fall in natural gas supplies. Governments are targeting renewables, nuclear and even coal-fired power generation as they seek to improve energy security.

Renewable energy projects will figure prominently in 2017 due to the dramatic drop in technology costs. The potential for renewables to meet cost parity with conventional power was first evident in Dubai in early 2015, when Saudi Arabia’s Acwa Power was awarded a deal to develop a 200MW photovoltaic (PV) solar plant with a world-record low tariff of 5.85 cents a kilowatt hour ($c/kWh).

In 2016, new world records set in Dubai and Abu Dhabi for PV projects, with tariffs of 2.99$c/kWh and 2.42$c/kWh respectively, marked the first time that the cost of renewable energy had fallen below conventional resources.

Renewables potential

The fall in cost spurred Dubai to increase its renewable energy target from 5 per cent to 25 per cent of total power generated by 2030. The emirate has also set a target for 75 per cent of its power to come from clean energy resources by 2050, the biggest target in the region.

 Major awards expected in 2017

Major awards expected in 2017

Major awards expected in 2017

In 2017, all eyes will be on Saudi Arabia’s renewable energy programme. Having at one point launched a mammoth 54GW target for renewables by 2032, Riyadh has now drawn up more realistic plans for 9.5GW of clean energy by 2030, and an initial target of 3.5GW by 2020. With bids due in January 2017 for the first 100MW of standalone capacity, the kingdom has made a start, but still has much to do.

Outside the GCC, Morocco has made the most progress in meeting its target for 42 per cent of power production to come from renewables by 2020, with more than 500MW of concentrated solar power commissioned or under construction. Rabat is also moving ahead with plans for its first PV solar projects, and in 2016 selected developers to build 850MW of wind capacity.

Until sufficient storage technologies are developed, renewable energy will need to be supported by substantial base load power. According to MEED estimates, 31GW of nuclear and 24GW of coal-fired facilities are also planned to be developed in the region up to 2032.

Egypt is set to be the first North African state to begin construction on a nuclear power scheme; final contracts were expected to be signed with Russian state nuclear company Rostatom by the end of 2016. Rosatom has also agreed to build the next phases of Iran’s nuclear energy programme, and will complete the financial feasibility study for Jordan’s first nuclear power plant in 2017.

Another milestone in 2016 was the beginning of construction on the 2,400MW Hassyan coal-fired power plant in Dubai, the first such facility in the GCC. Egypt is also planning a coal power programme, with Cairo announcing that coal-fired plants would contribute 15 per cent of generation by 2030.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications