Industry Issues

Delegates at the Global IWPP Summit discuss the pressing issues

The event looked at issues including grid interconnections and tariff systems.
The event looked at issues including grid interconnections and tariff systems.

The utilities industry’s ‘events season’ is now in full swing, with events coming thick and fast around the region.

UME kicked off its own conference bonanza with a trip to Ras Al Khaimah for Fleming Gulf’s Global IWPP Summit.

Presenting an opportunity to hear the experiences and opinions of the people operating and working with regional assets, the event produced some impressively frank and forthright opinions on current market issues.

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Fawzi Kharbat, Arab Union of Electricity Secretary General
Arab Union of Electricity Secretary-General Fawzi Kharbat discusses the challenges facing the region’s electricity sector and the prospects for grid interconnection.

Can you give an insight into what the Arab Union of Electricity is and what your key objectives are?
FK. The Union was established in 1987 and is based in Jordan. Since it was set up, our goal has been to enhance the cooperation between Arab electrical companies working in generation, transmission and distribution.

We have 29 members and all Arab governments are represented by the Union. We have a board of directors with eight representatives sitting twice a year, and six technical committees that cover all aspects of the electrical sector within member countries.

What work do you do to help boost cooperation?
FK. We have, for example, made maps for the interconnection between countries, and we have also made a dictionary of technical terms for the electrical sector according to IEC standards.

This contains 20,000 technical terms – so it was a very big job – and we translated it into Arabic and unified the meanings so that each word has only one definition so it’s suitable in all countries. We also have a bulletin system which gives information about each Arab country – generation, storage capacity, transmission lines etc. – and we also produce comparisons of different countries’ tariffs.

In addition, we arrange conferences and seminars for our members, and arrange training courses. We also recently produced a list of manufacturing companies that could be distributed among Arab companies so they can buy products and services without having to go outside the region.

How do you view the current state of the market for electricity in the Arab world?
FK. The rate of growth is still high because many of the Arab countries are growing rapidly – especially in the manufacturing sector.

The use of air conditioning in many countries is also growing – in the Gulf this is normal, but we are now seeing increased usage in countries such as Jordan and Egypt, which were not using it in the past. This needs a lot of power, so we are still in the high range of global growth – ranging between 5 and 10%.

It costs a lot of money to meet the demand – especially for those countries that are already in the high category of maximum demand. Saudi Arabia, for example, needs to add 3,000-4,000 MW each year; in Egypt they need 3,000 MW each year. If you translate this into money, it means billions of dollars.

In the coming ten years, we were actually expecting the situation to become saturated, but it seems from our collection of data that the rate of growth will remain almost at the same level – between 4 and 8% in some countries.

You mentioned interconnection between Arab nations. How are projects to more closely integrate different countries’ grids going?
FK. Interconnection is an interesting story. Fifteen years ago, when you heard about interconnection between Arab countries, you wouldn’t believe it. The dominant thought at the time was the interconnection would not happen because the political situation was not settled. Now the reality is something different.

We now have three blocks in the Arab countries – the east block, the west block and the Gulf block. The east block has been interconnected since the 1980s – so there is interchange capacity between Jordan and Egypt; Jordan and Syria; Syria and Lebanon; Jordan and Palestine.

In the western countries, Tunisia, Algeria and Morocco are exchanging power – every year they import and export between each other. Libya is connected with Egypt, but not interconnected with Tunisia because the project failed technically.

The installations are already there, the lines were built, the transformers were built, but technically it does not work. Why? Because the line is a little weak and it is too long. Now they are thinking to redesign the project so that it runs on Direct Current (DC).

Now Morocco is connected to Spain, and they are doing very good business with each other. When Libya is connected to Tunisia, all the areas of the region will be interconnected to Morocco and then to Europe.

Then we come to the Gulf area, which is already interconnected and is really a unique project as it doesn’t depend on the transmission systems of the countries. They have their own system, and they have a utility to run the project on a commercial basis. They are working very professionally, and whilst the interchange or exchange of power is not tremendous; in the very near future it will be working.

There is now a project to interconnect Saudi Arabia with Egypt which is planned for 2015. When this is completed, the Gulf will be connected to both other blocks. So then, any project in the Gulf can export power to either of the other areas.

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Andy Biffen, Hidd Power Company Executive Managing Director
Hidd Power Company, owned by a consortium of Sumitomo Corporation, Malakoff International and International Power-GDF Suez, is responsible for Al Hidd, Bahrain’s second IPP site. The 929 MW facility supplies around a third of the country’s total power, together with 90 million gallons of water each day – equivalent to two thirds of Bahrain’s total consumption.

Executive MD Andy Biffen spoke with UME about the current state of Bahrain’s electricity and water sector.

Can you tell us a little about your role?
AB. So my role is to run the business of an IWPP. In doing that I represent the shareholders, and I represent particularly the shareholder that seconded me to the asset - which is Sumitomo Corp.

There’s three shareholders –Malakoff, International Power and Sumitomo Corp, and the way that IWPP’s usually work is that those key positions –directors - usually rotate every three or four years. So in our case, it’s every three years. That’s got pros and cons - there’s clearly a downside in that directors change from time to time, but then it’s good to have new blood in there as well.

Can you give an insight into Bahrain’s current electricity market?
AB. Bahrain has privatised three of the main assets in the country. Unlike the UAE and other regions, they have sold down 100%, whereas in the UAE its 40% and then 60% government-owned.

There’s three assets – Hidd, Al Ezzel, and now Al Dur. Between us, we effectively represent the entire baseload of power generation in Bahrain, and also water supply. So that’s the market – it’s quite deregulated.

Bahrain is interconnected to Saudi Arabia, and there’s some support through the grid, through that link. But it’s not traded capacity that goes backwards and forwards – it’s just there for system stability.

Looking forward, I think it would be good for the whole industry if some of these technical grid connections became more commercial – to see more movement of power across boundaries.

So that isn’t already happening with the GCCIA?
AB. I don’t think it’s that lively, no. At the moment, people’s main concern is getting the capacity. Depending on which country you are, you may be in a good position or in a bad position.

If you are in a good position, you don’t necessarily want to compromise that with a trading link. Unfortunately I don’t think it’s that likely to happen in the near-term. It’s not like in Europe where you’re trading across boundaries.

What about reports that Bahrain could be a net exporter of power?
AB. It can do – now that it has Al Dur, it has lots of capacity and it is in a very good position. Clearly there’s two sides of the coin – on the power side, they’re in a very good position; on the water side they are in a slightly constrained position.

But that’s more because of water distribution around the network. Once they’ve overcome that, they’ve got the actual generating capacity for water.

Bahrain is again slightly different in that there is groundwater. Historically there was a lot of water taken out of the ground. I think the new capacity will probably offset the groundwater extraction, which environmentally should be a good thing for the landscape generally.

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Dr Fareed M. Al Yagout, President, National Power Co.
Saudi Arabia’s National Power Company was the first private company to start up operations in the Kingdom.

Awarded the first ever Saudi IPP back in 2003, the firm built a 250MW cogeneration plant within the Saudi Petrochemical Company’s complex in Jubail Industrial City. UME caught up with the company’s President, Dr Fareed M. Al Yagout, to hear about the problems faced by developers in the Saudi market.

Tell us about your company’s current activity.
FY. We were established when the Saudi Arabian government decided to privatise the power and water sector, and were the first company to take up the challenge and move on a project.

The SADAF project has been in operation from 2005. We have also participated in all the projects offered in Saudi Arabia, also in Bahrain, also in Qatar. So we are active in the IPP and IWPP projects in the region.

We were not very lucky to win projects. We were second lowest bidders in four projects – so not very lucky. But we did our best, we are existing in the region, we are working, we have a name. We decided to diversify our work and started doing industrial gases in addition to continuing work in power plants.

So we diversified our markets so that we now have projects in power, water and industrial gases. And now we are also looking into renewables and we are exploring projects. We have two or three in discussions, although renewables are not yet opened in Saudi Arabia in a way that we can bid for. But we are in negotiation with other projects outside of Saudi Arabia.

Saudi Arabia does have some big renewables targets…
FY. Yes but it is just targets - they have still not decided on anything. But everyone is following this. Since we were the pioneer of the IPP in Saudi Arabia, we want to also be the pioneer in renewables, so that’s why we tried to do our first project outside the Kingdom – to gain expertise.

We are part of Zamil Group, which is one of the leading industrial groups in the region, and within that we have a solar energy project in India. It’s a 20 MW solar PV project, and it’s in operation right now.

Saudi Arabia has also recently announced plans to look at a much wider privatisation of the electricity sector. What do you think of the plans?
FY. I think Saudi Arabia is ambitious, but execu tion-wise, I think very lazy. It’s really confusing to be the developers – it’s very slow in the process and we are uncomfortable with what is going on. The announcement is big, but the execution is one project per year, for example, and that does not meet the government plan.

That’s why we are questioning it – if you have a very ambitious plan to put 4,000 MW into operation each year, and you are not offering more than one project of 2,000 MW, how can you meet the plan you are putting forward?
Plus you have to understand that power plants are not a shelf item that you just take down and put up; it takes four years to build it, so it needs really serious work and that is not there.

The process is also sad, because most of the projects are now awarded to one company and it becomes like a domination. Once the power plant is in operation, you will know if it is reliable or not, and if it’s not reliable, who is paying for that? That’s the problem. Then the government will be affected.

And we are also taking a penalty, because we developed the project, and we lost because we were not the lowest bidder. Nobody is paying us back the money we spent during the development and bidding.

That is very expensive – you work for a full year for one project and you lose an average US $2 million. Then, when you lose it, you go to the next year, and the next year there are no projects. And this is what happens.

So what is your strategy for tenders?
FY. Actually it is very difficult to bid in the way that others do. The last two projects we were just watching, we were not very interested in bidding. If you follow the projects you will see that the difference between the lowest bidder and second place was around 20%, and this is continuously happening.

If you are second in four projects – and this is what is happening – I think you cannot compete with this suicide idea.

When we bid, we know exactly what we want, and we know the returns that are expected and the risk we are taking. So if you do not do good work, it will reflect later on. And that is the struggle.

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Dr Ghaleb Maabreh, NEPCO Managing Director
As the single entity responsible for transmission in the country, Jordan’s National Electric Power Company (NEPCO), has a sizeable task on its hands. With exceptionally high levels of imported fuel, and soaring demand in common with much of the MENA region, Jordan’s power sector appears to require considerable investment. Dr Ghaleb Maabreh, NEPCO MD, explains some of the projects underway to ensure power supplies.

What are the key challenges facing Jordan’s power sector?
GM. The rate of energy needs in Jordan is growing – for the last 10 to 15 years it has been around 6-7% - in terms of capacity and in terms of energy. The problem is that Jordan is a very poor country.

It’s importing more than 98% of its energy needs from outside, and we have to cope with increasing demand; we have to have new power generation.

It’s also a small country – about 10 million people – and we have currently have 3,000 MW [of capacity] and need almost 78% of this.

And the other challenge we are faced with is that we don’t have the energy sources, in terms of primary energy. So we were importing natural gas from Egypt, and now that has been interrupted. So we have a very bad financial position.

What projects are currently being looked at to meet this rising demand?
GM. There are some deposits of oil shale in the country, and we are looking at oil shale in an IPP project. We have some connection with the Estonians and Chinese. They have conducted experiments and they are going to offer us a solution for a power plant burning oil shale.

An Estonian/Malaysian consortium has issued a tender for a project for a 460MW plant and has had exceptional interest – sixteen expressions of interest which they are now going to shortlist.

By the end of this year they might formally solicit bids, and hopefully by the end of next year, this area will be very clear for us. There are many blocks of oil shale deposits in Jordan, and we have opened the area to anybody who wants to analyse them, so hopefully this will be able to contribute to our energy needs.

What plans does Jordan have with renewable energy?
GM. In 2007 we drafted the energy strategy of Jordan, and in that strategy they put targets for having a contribution from renewable energy. I think they are talking about have a 10% contribution from renewable energy by 2020. Right now they are working on having some wind energy projects, and are also investigating some solar units.

We at NEPCO, as the transmission company, have to prepare ourselves to work with this power because we are the off-taker. In our plans, we also have to build a so-called ‘green corridor’ interconnecting all the generators of renewable energy into a new 132kV line, and integrate this into the grid. This project will be in the next two or three years.

And we hope that by around 2016 we will have something like 300 to 500 MW of renewables. Let’s hope at least.

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RAK gets “world’s greenest” coal-fired plant
The biggest and most interesting announcement of the event was the signing of a US $408 million deal between Utico Middle East and Shanghai Electric to collaborate to build a new clean coal power plant in Ras Al Khaimah.

Under the agreement, the pair will construct a 270MW plant which will be the first ever coal-fired facility in the Middle East. Located in RAK Maritime City, Khor Khowir, the new plant will use 100% carbon capture technology as nominal design capacity, with 80% of carbon captured in actual operations.

“Clean coal-fired energy is acknowledged to be even cleaner and greener than gas-reliant energy.

By deploying Shanghai Electric’s superior energy-efficient and tried and proven technology for the plant, we are confident of reducing Flue Gas Desulphurisation, carbon dioxide emissions almost to zero, and setting the benchmark for cleaner energy to the world and not only to the UAE,” said Utico Middle East’s MD and executive vice chairman Richard Menezes.

Under the agreement, Shanghai Electric will become equity partners in the project, as well as providing their carbon-capture expertise, with Utico joint equity partners along with “prominent investors”. Both firms are set to operate and maintain the facility, with Utico the off-taker for power at the project.

Utico has also said that it is also in talks with Dubai, which has said it wants to procure 12% of its power from clean coal.


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