The UAE is one of the fastest growing power markets in the Middle East and as a pioneer in the region with its privatization programme, was among the first to recognize that a different approach was needed if the growing demand for power and water was to be met.
The seven emirates that make up the United Arab Emirates (UAE), Abu Dhabi, Dubai, Sharjah, Fujairah, Ajman, Ras al-Khaimah and Umm al-Qaiawan, saw an average economic growth of 8.2 per cent for the five years 1997-2002. GDP was projected to reach 3.3 per cent in 2003. As a consequence, the electricity industry in the UAE has been growing consistently each year and continues to increase at a rate of 8-10 per cent per annum.
Production increases have come in response to wider use of air conditioning, improved standards of living, more commercial buildings and a rising population. The UAE’s population has seen a 50 per cent increase in the last five years. Demand is also being driven by a need for clean drinking water.
Water and electricity supply in the UAE is the responsibility of several government utilities. The Federal Electricity and Water Authority (FEWA) currently looks after the utility sector in the Northern Emirates; Sharjah Electricity and Water (SEWA) takes care of Sharjah; Dubai Electricity and Water (DEWA) looks after Dubai while ADWEC is responsible for Abu Dhabi, Al Ain and the western region. Under the instruction of H.H. Sheikh Zayed bin Sultan Al Nahyan, the UAE government currently subsidizes electricity and water services by Dh1.3 billion ($354 million) a year, as part of a five-year plan to commission new power and water stations.
Peak demand for electricity is forecast to nearly double to 16 000 MW from about 9000 MW in 2002. In 2002, the UAE’s installed capacity stood at 11 000 MW, this is expected to reach 20 000 MW by 2020. Abu Dhabi, Dubai and Sharjah account for almost 90 per cent of the installed capacity. The federal government has 14 plants spread all over the smaller northern Emirates but these only account for about 10 per cent of capacity.
In 2001, total electricity production increased by 8 per cent from 40.118 GWh in 2000 to 43.174 GWh in 2001, and by 5 per cent in 2002 to reach 45.12 GWh.
The past few years have seen the UAE shifting its electricity production increasingly towards gas fired generation. The UAE is one of the countries taking part in the ambitious $3.5 billion Dolphin project, which aims to interconnect the gas grids of Qatar, the UAE and Oman.
Abu Dhabi, the UAE capital, has been responsible for most of the expansion in power generation and accounts for nearly half of the installed capacity. In Abu Dhabi, electricity demand in 2003 was growing at about 10 per cent per annum, mainly driven by desalination needs; housing construction; farm expansion and industrial developments in the free zone areas. In the smaller emirates, annual demand growth is put at nearer 15 per cent.
Between 2003 and 2015 electricity demand in Abu Dhabi is expected to grow at an average of 7.1 per cent per annum.
The UAE’s soaring demand for electricity, coupled with volatile swings in peak loads, led the Emirates in 1997 to form a Privatization Committee for the water and electricity sector. In its drive to avert water shortfalls and meet the rapid increase in power, Abu Dhabi has been leading the Gulf region in power privatization.
In early 1998, the committee called for comprehensive restructuring including the elimination of the state-owned Abu Dhabi Water and Electricity Department (ADWED) in favour of sweeping privatization. ADWED has now been transformed into a power and water utility known as the Abu Dhabi Water and Electricity Authority (ADWEA) and a separate Regulation and Supervisory Bureau has been established. Planning and contracting for new production capacity was assigned to a single buyer, the Abu Dhabi Water and Electricity Company (ADWEC).
ADWEA has been spearheading the major restructuring in Abu Dhabi’s water and electricity sector over the past five years. The rapidly increasing demand for power as well as water desalination has led to a number of independent private projects being awarded over the last few years. These projects have followed a successful model under which an international developer acquires 40 per cent in a special purpose project company and assumes responsibility for project development. The remaining 60 per cent of the project is held by ADWEA.
The privatisation process in Abu Dhabi has, to date, resulted in the creation of four independent production companies, Emirates CMS Power Company, Gulf Total-Tractebel Power Company, Shuweihat CMS International Power and Arabian Power Company. ADWEA’s production companies include Al Taweelah Power Company, Bainounah Power Company and the Al Mirfa Power Company.
The UAE’s first independent project was the Al Taweelah A2 water and power project, which was completed in 2002 by CMS Energy. The fourth and latest independent project to complete financing is the Umm Al Nar IWPP. The $1.77 billion financing for this project was completed in late September 2003. The project, which is being developed by the UK’s International Power and two Japanese firms, currently has a capacity of about 850 MW and 736 million l/day. The expansion calls for a further 1550 MW and 113 million l/day. The Umm Al Nar plant is scheduled to be fully operational by mid-2006.
The region’s largest project currently well on the way to completion is the massive Al Shuweihat independent water and power project. CMS Energy and International Power both own 20 per cent of the IWPP, with ADWEA holding the remaining shares. Construction of the plant will be carried out in two phases. Each phase will provide 1500 MW of power and 452 million l/day of desalination capacity.
A race is currently on to be the successful bidder for Abu Dhabi’s fifth IWPP, the 1000 MW and 295 million l/day of water expansion of the Taweelah B cogeneration plant. Three international developer groups have pre-qualified for the estimated $950m project and bids must be submitted by July 11.
A separate Abu Dhabi government owned utility, Union Water & Electricity Company (UWEC), has recently brought online a new 500 MW 454 million l/day plant in the Emirate of Fujairah, UAE next to the existing Qidfa Power Station on the Gulf of Oman. The combined cycle gas turbine plant, built by Doosan Heavy Industries, produces water by a combination of multi stage flash (MSF) evaporators and a reverse osmosis (RO) plant. This plant is among the largest desalination plants of this type in the world.
Meanwhile, FEWA is planning a $650 million 900 MW and 136 million l/day power and desalination plant near the existing Al-Zawra desalination plant. Tender packages for the power plant and gas turbines are expected for release in July with start up scheduled for 2007.
Dubai has also increased its capacity but is constrained by a lack of gas availability. At the end of 2003 Dubai had an installed capacity of 4710 MW of electricity . DEWA’s ‘K’ station power project and desalination plant, located in Jebel Ali, were recently commissioned. Contracts have been signed for the construction of DEWA’s 750 MW ‘L’ combined cycle power plant in Jebel Ali. The station is to be built by ETA Electric under a contract signed with a consortium led by Toshiba and Mitsubishi and valued at $817 million. It is due to be commissioned in 2005.
The Emirate of Sharjah has raised its capacity considerably to about 1500 MW in 2002, a rise of 38 per cent since 1996. Gas is not easily available in the northern Emirates and most (almost 75 per cent) of electricity production therefore comes from diesel oil.
In order to match increasing generation capacity within the UAE, there is also substantial work in the area of power transmission. The UAE is connecting all the power stations along its western coast with the central region and the plan is to connect the transmission grids of the seven Emirates. This work is part of the UAE’s role in a plan to build a regional power network throughout the countries of the Gulf Cooperation Council (GCC).
Funding arrangements for the first phase of the plan have been revealed by the GCC Interconnection Authority in the last couple of months and involve six of the Gulf states bearing a portion of the $1.2 billion cost.
Phase one of the project involves the interconnection of the four states of Saudi Arabia, Kuwait, Bahrain and Qatar. Phase two will integrate the power systems of their southern neighbours, the UAE and Oman. The project is forecast to achieve substantial strategic and financial gains for the participants and will pave the way for energy trading between the GCC states. Studies have shown that the UAE on its own could save 1227 MW of generated capacity.
The main activity in the UAE in the coming years will be the continued building of new plants to meet increasing demand. In Abu Dhabi, annual demand growth is expected to reach 14 per cent this year. The role of the private sector will have to increase to meet its long term capacity forecasts. The statement for the period 2002-2008 shows an overall increase of 71.5 per cent for peak demand.
In terms of the market, the main focus will be on the privatization of ADWEA. It is not known how this will proceed, but one possibility is that ADWEA will gradually sell-off its majority stakes in the IWPP projects through initial public offerings to UAE nationals. ADWEA has stated that by 2006 it expects that all electricity generation will be in private hands. However, the distribution and supply chain is set to remain under government ownership.