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Market survey: Experts all behind Smart Grid plan

But who will pay for the smart grid tech roll out in the Middle East?

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Experts say that subsidies and tax exemption mechanisms will need to be structured to encourage utilities to invest in new technology.
Experts say that subsidies and tax exemption mechanisms will need to be structured to encourage utilities to invest in new technology.

With smart grids looking set to be a prominent force behind Middle Eastern utilities over the next decade, where will the investment come from and how will renewables be integrated?

Despite the fact that experts are agreed smart grids are an essential part of the Middle East’s future infrastructure, there are currently none under development in the GCC.

The next ten years will see significant investment in future-proofing our existing networks, and following Europe’s lead might not be a bad idea.

“European countries do have weaknesses, but they also have strengths when it comes to reception of new technologies to make other countries and stakeholders work together,” says Dr Maher Chebbo, VP EMEA, Utilities and Service Industries, SAP.

“In 2005 the European Technology Platform for the smart grid was created, which brought together all of the stakeholders of the market to define the vision, the research and the deployment. That’s what we have to do in the region here.”

“We have to bring together all the stakeholders – not just the existing companies but the suppliers, the regulators and consumers, too. We need to put them all together with the research and academia experts as well, as ask them to define, according to the priorities of the region, what should be the investments in the next ten years in terms of research and demonstration, and then deployment.”

According to a recent report by Frost and Sullivan, the GCC is expected to invest almost $73 billion in power generation and T&D projects, adding 36 gigawatts of generation capacity over the next five years.

This investment in power generation and transmission and distribution is essential to meet the demand emanating from the aggressive diversification attempts and infrastructure led by development commitments by the GCC countries.

Investments in power generation will supplement the expansion and modernisation of the transmission and distribution network, to cater to the increased power generation and the urbanisation and industrialisation of the GCC.

“The main benefit is energy optimisation - one day there will be fewer and fewer resources, so we should be looking at how to optimise the energy – and the resources of energy – by being smarter in terms of consumption,” says Chebbo.

“It’s also an opportunity to be greener – if there are better international agreements, and if we have to comply with a 20 per cent reduction in fuel used, then we are creating a trend for having more renewables here in the region, preparing for a high increase in demand, and preparing for a time when there is no more oil. Those are the benefits of a smart grid system for the region.”

Despite there being no actual grids under development in the GCC, a number of countries in the region are either in the pilot or planning stages, and Frost and Sullivan is expecting this to accelerate in the next five to seven years.

Infrastructure expansion, upgrading of transmission and distribution infrastructure, reducing demand, increasing reliability and stability and flexible tariffs are all factors that are expected to drive smart grid adoption in the Middle East.

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Absolute clarity
“Smart grids might not be the exact solution for all utilities,” says Abhay Bhargava, Frost & Sullivan Energy and Power Systems Industry Manager. “However, each utility needs to gain absolute clarity on the performance optimisation required in its case, and seek a solution that fits with its needs. Benchmarking is a great way to do this.”

Frost & Sullivan’s report states that the most significant challenge for the adoption of smart grids will be to overcome the inappropriate business models for utilities.

The GCC utilities stand to lose, due to decreasing energy consumption, especially given the stringent moderation of tariff structures by regulators, and the firm suggests that this challenge can be overcome through new regulatory models and business incentives that can provide some form of compensation to offset the utilities loss of revenues, potentially in tax exemptions.

Subsidies and tax exemption mechanisms will need to be structured in a way that will encourage utilities to invest in new technologies, which in turn would increase efficiency, clean energy production and reduce demand.

Dr Chebbo also identifies the attitude to cooperation of some Middle Eastern utilities as a potential barrier to the implementation of smart grids.

“Collaboration is not something that’s in the DNA of these utilities,” he says. “In this region everybody wants to be showcased and they don’t collaborate without competing, whereas in Europe there is great collaboration.

“So today, we need to work with regional utilities to define a roadmap, and we’re in a better situation compared to Europe which had a much more aged network. In the Middle East you do have countries with old infrastructure, like Jordan and Lebanon for example, but places like Dubai and Abu Dhabi already have a relatively modern infrastructure in place.

“It’s not about the networks themselves where we have issues though; it’s about the whole integration, the overall system. When you design something thinking you will have power forever, it’s not the same as when you design it thinking that you will have to optimise the whole energy value chain absolutely.”

One recommendation by Frost & Sullivan to help make smart grids a reality in the GCC region includes clear strategy put in place by utilities to ensure business needs that dictate technology requirements, and not vice-versa.

Also, investment in facilitating infrastructure and distributed sources of generation including renewables, along with raising consumer awareness about energy efficiency and new, beyond-the-meter technology will help develop smart grids in the region.

Government investment however, will be key. “In Europe we see about two thirds investment from the private sector and one third from public, but this is because the European market is completely liberalised, completely unbundled, and you have very few utilities that are still government-owned,” says Chebbo.

“In this region most of them are government owned, so I would expect at least 50 to 70 per cent investment to come from the public sector, and in terms of research and large-scale demonstration, I would estimate that the Middle East needs to spend around $12bn to 2020.”

With predictions favouring an increasing reliance on renewable energy, an important part of the smart grid infrastructure will be working out how to store energy produced at off-peak times.

“There are already some programmes in the Middle East, but companies need to start thinking about how they can store renewable energy in batteries, for example. You need a lot of intelligence to combat the instability that comes with renewables, and today’s networks are not designed to connect large numbers of renewable sources.”

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