The UAE's utility infrastructure - report
It's boom time for the UAE's energy sector
With more than $39bn in power and water projects in the pipeline and under construction, it’s boom time for the UAE’s energy sector
The provision of power and water in the UAE is a big topic. There are more than $39bn worth of power and water projects currently planned or already under construction in the Emirates, and those are just the projects which have disclosed estimates.
Rapid development of both population and industry has seen the region struggling to stay ahead of demand for utilities, although for the most part the UAE has fared better than many Middle Eastern nations.
Experts are confident that the utilities sector will be a key growth driver for engineering, procurement and construction spending in the UAE, especially with financier confidence in power purchase agreements with government and state-owned utilities.
Demand is only going one way, too. Industrial consumption is expected to increase in tandem with new activity, although some are predicting a decline in household demand for utilities in Dubai as highly-skilled expat workers leave the Emirate.
However new burdens, such as metro railways in Abu Dhabi and Dubai and the UAE’s new railways - which will eventually become part of the GCC railway – will strain the power sector in the future.
The UAE’s planned projects have introduced a series of major international players to the region, bringing technical expertise to lead the large-scale projects in the power and water industries.
Perhaps the most important is Braka, Abu Dhabi’s long-awaited nuclear facility. Despite many European countries searching for ways to drop nuclear power as part of their energy mix, all the GCC states are in various stages of planning a nuclear programme of some type.
However, the UAE is the first country to agree a nuclear cooperation accord, which will make Braka the first civil nuclear power plant in the Arab world to be sanctioned by the IAEA.
The UAE’s nuclear programme will be developed jointly with France, a nation that extracts the majority of its power from atomic energy. But despite an agreement signed with French President Nicholas Sarkozy during a visit in 2008, the UAE has awarded the construction contract for the first plant to a consortium of South Korean firms led by Kepco, which submitted a more competitive bid than the French rivals.
With Iran’s controversial Russian-built nuclear facility already connected to the national grid despite an international standoff over its intended purpose, Korean contractors – which have steadily been developing good strategic relations with Gulf governments – are perhaps a more discreet route than French or US options.
Originally tipped for commissioning in 2017 the quad-reactor plant, to be built at Braka on Abu Dhabi’s coastline, will develop 5,600 megawatts to the national grid. It seems reasonable however, to expect a delay of at least one year, following the introduction of a 12-month review into the plant’s design in the wake of Japan’s Fukushima disaster.
Aside from the obvious need to increase power generation for rising population and industry, depleting the region’s own gas supply by using it as feedstock
for traditional power plants will lessen potential financial gains through exports, and also increase reliance on imports.
Natural gas is rapidly becoming the world’s most popular feedstock for new power plants, and the UAE has 214.4 trillion cubic feet of proven natural gas reserves, making it the seventh largest globally. With the majority of the reserves in Abu Dhabi (and small amounts in Sharjah, Dubai and Ras al-Khaimah), it is in the interests of the Emirates to ensure as much as possible can be exported for sale on an international market.
The development of nuclear energy will allow much of the new electricity generation to be free of natural gas, which will be a boon to the UAE where shortages of spare generation at peak times are brought about not so much through lack of capacity, but by shortages in feedstock.
It’s not just the UAE which will benefit from an increase in its power generation – as a strategic part of the GCC Interconnection Grid, other GCC nations will soon be able to share power, covering peak periods and sending spare capacity where it’s needed the most.
The joint project between Saudi Arabia, Bahrain, Qatar, Oman, Kuwait and the UAE will allow the nations to reduce the frequency of power outages by exchanging generation capacities across seasons and time zones.
The GCC Interconnection Authority has estimated the cost of the grid to be in the region of $3bn, and despite having been in the planning stages since 1998, construction work only began in 2005.
Earlier this year the second phase of the project, which will connect the UAE’s grid to Oman’s, was inaugurated by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, at a cost of more than $1.4 billion.
Phase three will connect the two major grids together, and some analysts believe it could eventually be linked to North African and European networks.
Johan de Villiers, ABB’s Middle Eastern Power Services manager is positive on the interconnection grid’s potential benefits.
“It could create a real win-win situation,” he says. “It could be some time before you have a lot of active trading across this link but once you start trading, the countries with excess and cheap power would benefit by exporting it and leveraging this advantage, while countries with expensive power would benefit from buying it from cheaper sources.”
Power projects commissioned by ADWEA make up around 26 per cent of the UAE’s projected new expansion capacity, with plans to construct at least three new integrated power and desalination plants by 2016. Dubai’s project spend is in the region of $7bn, Sharjah’s $1.17, Ajman’s $357m and Fujairah’s $856m, with all of the emirates beginning to place a renewed emphasis on water security.
ADWEA estimates that power and water demand will increase by up to eight per cent in the next five years, and DEWA is expecting similar growth figures prompting the rapid development of new water resources.
The problem of the UAE’s increasing thirst is one shared by all of the Middle East. Fuelled chiefly by desalination and rapidly depleting groundwater resources, plans to increase water production capacity to keep up with demand are on the drawing board – Abu Dhabi alone is spending $1.3bn expanding desalination plants – but there is a mounting consensus that a more intelligent approach to existing resources is required.
“Desalination plants will continue to be built – they’re already on the drawing board so that’s a given,” says Bart Rehbein, MD of irrigation specialists EPIC. “Unfortunately it probably wouldn’t have to happen to the degree that it is, because if you conserve enough water you can cut back on the level of desalination.”
Perhaps even more so than electricity, water also raises the question of whether generous subsidies that create low tariffs should be revised, in an attempt to promote more responsible use of water resources in the region.
Currently in the UAE it costs around AED14 to produce a gallon of desalinated water, which is then sold for AED4. Tom Styles, an environmental analyst at Maplecroft, is unequivocal about the effects of introducing higher tariffs.
“In all cases of resource use, where a resource is higher priced, its use is more efficient,” he says. “A cut in subsidy is very likely therefore to increase the water-use efficiency among consumers, but there is a balance to be struck. If this happens, it is very important that it is not overly punishing to less well-off users who need to be able to afford a minimum quantity of water.”
However, in August DEWA announced that it would not be raising power or water tariffs in the near future, leaving the conservation of water down to the conscience of users. The news came shortly before the authority launched an efficiency campaign which will see a power-saving consultant employed to advise the Emirate.
As part of the effort to conserve water, the UAE has also seen an increase in the volume of wastewater projects, with grey water being used in applications from irrigation to district cooling. Empower, one of the Middle East’s largest district cooling firms, has already shifted the majority of its plants to use treated water from Dubai municipality; after it’s circulated once it’s taken to the plant room, recycled, and reused, a move Ahmad Bin Shafar, the CEO, cites as: “the real efficiency in our operation.”
The UAE is also continuing its pioneering work in the field of solar generation, with Masdar’s continuing to position itself as the centerpiece of the UAE’s clean energy ambitions, as well as the Shams 1 solar project being the first of its kind worldwide.
Designed to use both PV cells to harness solar radiation and concentrated solar thermal technologies to capture heat, the project – on which Masdar is soon to release an update – it tipped to produce 100 megawatts of power.
Abu Dhabi also recently became the home of the International Renewable Energy Agency which, under the leadership of recently appointed Director General Adnan Amin, aims to promote the increased adoption and use of all forms of renewable energy.
Metito’s Bassem Halabi discusses the water business in the UAE
Having a diversified line of products and services, and operating in different regions and parts of the world, Metito is doing well and on target to meet our 2011 budgets. Furthermore, our investments in China have also been a major success, and business continues to grow at a high rate.
What regions or projects in the UAE are representing growth for you?
The local economy has not fully recovered with the real estate sector the most affected. This in turn affects our industry. Though slowing down, Abu Dhabi seems to be the major source of business at this moment in time. We also continue to operate and maintain a number of our plants and are increasing the capacity of our BOOT concession at Dubai Investment Park.
What’s your predicted outlook for business?
Rapid growth is expected to continue across South East Asia and China over the next few years, while the slow recovery in MENA is expected to gather pace starting 2012.
What challenges are facing your business in the UAE?
The lack of public and private sector opportunities (as a result of the decline in the real estate industry) has intensified competition on the limited projects in the market. Being a geographically diverse company, we have been able to balance our focus between the UAE and other regions while the UAE market recovers.
What’s the biggest challenge the region faces?
There are several with water security leading, followed by environmental impact of insufficient waste treatment and desalination processes. Project funding is also a critical issue.
Proper planning and cooperation is required by all Gulf states to ensure a safe and continuous supply of water as well as minimising and controlling the impact on the environment. Private Public Participation should be implemented on a wider scale.
Emerson’s Cor Corbeek discusses business in the UAE
Business has been consistently positive for several years now. We opened the Abu Dhabi office in 2009 because we wanted to be closer to our customers and so we are decentralising from our Middle East and Africa headquarters in Jebel Ali.
What regions represent growth for you?
The largest growth region in the UAE is Abu Dhabi. We see large projects aimed at sustaining oil and gas production from existing facilities as well as the creation of new facilities. We are fortunate that we can help with both kinds of projects.
Our intelligent architecture and process measurement and control devices are able to both add insight into the health of an existing plant, thus reducing unplanned shutdowns, and also to start a new plant up sooner.
We also have a suite of subsurface geological modelling software to help with the exploration effort, and subsurface and subsea devices to optimise production.
What’s your predicted outlook for business?
We expect business to remain strong for the next few years. Abu Dhabi will continue to grow as a powerhouse of global oil and gas production, and there are plans in place to add more downstream projects to allow the UAE to capture more of the value chain. We are also seeing a trend towards local value addition, where more projects are executed locally.
What challenges are currently facing your business?
The biggest challenge that we are facing as our business grows is in hiring the quantity of qualified and experienced service engineers that our customers need. We used to attract talent through people that our employees knew in the industry. Now we use recruitment consultants and head hunters in order to help us find the right calibre of personnel.
What’s the biggest challenge the region faces?
There are two challenges facing the region in our opinion. The one that has had the most attention recently has been the political uncertainty in some of the Middle East countries.
While this causes some concern, the more pressing issue is the development of local talent across the whole of the Middle East. With a young and fast-growing population, it is imperative that the countries of the GCC develop their young people. That is why we are so supportive of Educational institutions across the region as they are the source of the next generation of talent for industry.