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New power solutions needed in the Gulf after power cuts

The region has managed – just – to keep on top of rapidly rising demand for electricity. But new solutions will be needed soon, says Robin Mills

On 11 February, Kuwait was struck by a widespread power cut, with lights going off along roads, at hospitals and at the international airport. Outages are common in the Gulf country, with a creaking and outdated grid, but this was unusual for coming in winter, not the peak summer season.

Power cuts have been all too frequent in the Gulf in recent years. In January 2014, a major outage shut down Kuwait’s three oil refineries. Saudi Arabia suffered repeated interruptions in 2009 and 2010, striking Jeddah particularly hard. Sharjah in the United Arab Emirates (UAE) has also had major problems, particularly in 2010.

Yet given the soaring electricity consumption in the six-member Gulf Cooperation Council (GCC) area, comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arab and the UAE, the problems could have been much worse. Power cuts have more often been due to overloaded grids and technical breakdowns, than an absolute lack of generating capacity or fuel.

Power problems

The wealthy Gulf states have been able to avoid the endemic power shortages and financial collapse of the utility companies that have struck near-neighbours such as Egypt, Iraq and Pakistan by spending heavily on generation capacity. They are increasingly aware that this model is not financially, practically or environmentally sustainable. But so far, they have made only tentative steps towards solutions.

As Figure 1 shows, GCC power generation and consumption has grown strongly since 2000, only a little interrupted by the Great Rrecession of 2008-09 and consequent oil-price slump. Despite lower oil prices, the IMF forecasts generally strong continuing economic growth, averaging 6.4% annually during 2012-20, only slightly slower than the break-neck 7.7% of 2000-12. Population growth, mostly driven by immigration of expatriate workers, also remains strong.

Even during the economic slump in the 1990s, Saudi electricity consumption grew 6.1% per year, almost as fast as it has done since the turn of the millennium. So even lower oil prices may not slow power demand much. With GCC electricity generation having more than doubled from 2000-12, it could rise a further 65% to 2020.

In Saudi Arabia, 52% of 2012 electricity consumption went to residential use and another 32% to commercial and government use. Industry, although significant, took only 14%.

The Gulf states have pursued a path of energy-intensive industrialisation over the past two decades, with petrochemicals, aluminium, steel and other such investments. Dubai Aluminium (Dubal) features a 2,350 megawatt (MW) power plant (compared with state utility Dewa’s total installed capacity of 9,656 MW), while its joint venture Emirates Aluminium down the road to Abu Dhabi has another 2,000 MW. But it is a concern that, nevertheless, most electricity is not being consumed in value-added uses.

The widespread use of air conditioning, high incomes, low subsidised electricity prices and a culture of waste mean that Gulf economic growth is highly electricity-intensive. Kuwait’s electricity price, not raised since 1966, is just $0.007 per kilowatt-hour (KWh) – compared with average US residential rates of about $0.12/KWh.

On average, since the turn of the millennium, every percentage point of GDP growth required 0.9% of extra electricity. Electricity use is 15.9 megawatt-hours (MWh) per person each year in Qatar and 17.6 MWh per person in Bahrain.

That compares with 13 MWh per person in the famously energy-hungry US, and 8.7 MWh in Singapore, another industrialised city-state in a hot climate.

Electricity demand is driven primarily by air-conditioning in residential and commercial buildings, with peak demand in summer typically 40-60% higher than in winter.

Lowering efficiency

Desalination is another important source of energy demand but, with little use of reverse-osmosis plants, it does not consume electricity directly. Instead, most desalination is via thermal plants, usually co-generation ones in which waste heat from electricity generation is used to evaporate sea-water. Although effective, this does lower the plant’s efficiency. In particular, in winter when electricity demand falls sharply but water demand does not drop much, some plants have to be run solely to produce water.

Generation is overwhelmingly supplied by hydrocarbons. In Saudi Arabia and Kuwait, the fuel mix is split between oil and gas, while the other four GCC members have switched over to using gas almost exclusively. Rising oil use – with Saudi Arabia burning some 400,000 barrels per a day of crude oil alone, plus fuel oil and diesel, for electricity – has led to concerns that export capacity will be constrained. Oil use is also extremely expensive, if valued at international prices. (Saudi Arabia could argue that it would not export this extra oil.)

With the exception of Qatar, all the GCC members are short of gas, trying to balance demand for power with that for industry, enhanced oil recovery and export. Though Saudi Arabia and the UAE in particular have large gas reserves, the bulk is associated and can only be produced in step with oil production.

New gas resources are more costly and difficult – as in Abu Dhabi’s expensive Shah and Bab sour-gas fields, Saudi Arabia’s investigation of tight and shale gas in its northwest, or Oman’s Khazzan tight gas project with BP. Kuwait has all but given up on its deep, tight, sour Jurassic gas reserves in the country’s north. Domestic gas prices, as low as $0.75 per million British thermal units (Btu) in Saudi Arabia, do not provide an incentive to extract from difficult gasfields that may cost $5/m Btu or more. Bahrain and Oman have both raised domestic gas prices somewhat in response.

Despite having the world’s first- and third- largest gas reserves on the GCC’s doorstep, in Iran and Qatar, there has been little progress in cross-border gas trade, hampered by political suspicions and commercial barriers. The Dolphin pipeline from Qatar to the UAE and Oman has been the outstanding success, but its expansion foundered on Qatar’s moratorium on expanding supply, and on political disputes within the GCC. Saudi Arabia blocked proposed pipelines from Qatar to Bahrain and Kuwait.

Subsidised domestic gas prices make countries request unrealistically low import prices, while conversely Iran in particular has demanded prices that were too high, especially given its chequered history as a supplier. A deal to supply Dana Gas of Sharjah has fallen foul of commercial disputes. A post-sanctions Iran could become a major exporter to the Gulf, as in the preliminary deal of March 2014 to send gas to Oman, but that requires political willingness on both sides, and further gas developments in Iran to have a surplus for export.

In the absence of additional pipeline gas, Kuwait and Dubai have turned to liquefied natural gas (LNG) imports, with Abu Dhabi (via the Indian Ocean emirate of Fujairah) and Bahrain likely to follow this decade. LNG offers flexibility and the comfort of supply from a diverse range of exporters, though it remains expensive despite a softening of prices in the past year.

In January, Dubai announced that it had increased its 2020 renewable electricity target from 1% to 7% of capacity, and for 2030 from 5% to 15%.

This was triggered by the extraordinarily competitive bid it received for the second phase of the Mohammed bin Rashid solar park, $0.0585/KWh, from a consortium of Saudi Arabia’s Acwa Power and Spain’s TSK. That cost is dramatically below generation costs from oil or imported LNG, even after recent price falls.

Match-making

Solar power is well-matched to the Gulf’s needs, largely coinciding with the midday peak in demand for air-conditioning. It could well meet 10%-20% of capacity without major difficulties. Beyond then, there would be a problem in addressing the early evening demand peak, when the sun has set but the temperature remains high and additional demand comes from lighting, cooking and television.

Nevertheless, despite recent progress in Dubai, solar power has advanced slowly in the region – Saudi Arabia’s giant 41 gigawatt (GW) solar programme has been put back to 2040. Abu Dhabi’s Masdar, having led the construction of the 100 MW Shams-1 concentrated solar thermal facility in 2013, has taken a long time to advance on Noor-1, its photovoltaic (PV) plant.

Solar PV panels deliver only about 20% of their headline capacity over the course of a year, so even 7% of total generation capacity for Dubai equates to just 1.4% of equivalent supply from baseload gas-fired power plants.

Wind power can have a role in parts of western Saudi Arabia and Oman, and innovative renewables such as geothermal heat for district cooling, or renewable desalination, are on the distant horizon. But major contributions to diversifying generation, saving fuel and reducing carbon dioxide emissions will require much higher solar targets, or nuclear power.

Only the UAE has an active nuclear power programme, with four reactors totalling 5.6 GW of capacity planned at Baraka in the remote Western Region of Abu Dhabi, the first to start in 2017. With the Emirate’s peak demand forecast to reach 17.6-21.7 GW by 2020, the nuclear programme will make up about a quarter of capacity, and a larger share of generation. In the longer term for the UAE, a mix of nuclear baseload, flexible gas and solar for peak daytime periods seems a plausible and optimal solution.

Across the Gulf in general, investment in new generation can keep up with demand, but only at increasingly exorbitant financial and environmental cost. Yet there has been insufficient attention to energy efficiency.

Dubai raised its electricity and water prices in 2010 and 2011, to the point that they now more than cover costs. Per capita electricity consumption fell around 4% in 2013. Late last year, Abu Dhabi followed suit, though bills remain subsidised, and began charging UAE citizens for water for the first time.

But Saudi Arabia, the largest consumer, has tried to pursue energy efficiency only through exhortation and regulation of appliances.

Worldwide experience suggests this will have little effect unless combined with price rises – but governments remain nervous of sparking discontent. Attempts by Kuwait to withdraw fuel subsidies in October were quickly reversed after parliamentary complaints.

So the Gulf has in some ways performed impressively in mostly keeping up with rapid power demand growth. Electricity networks in the UAE and Qatar, at least, are modern, reliable and highly efficient.

Some tentative steps have been made on diversifying away from sole reliance on oil and gas fuels, via solar and, on a much bigger scale, nuclear power. A GCC-wide power grid provides emergency back-up, though it is not yet used for routine trading.

But over the next decade, the GCC power sector needs to change course – reforming and reducing subsidies, greatly improving efficiency, and integrating alternative energy, particularly solar power, given its new cost-competitiveness.

That in turn offers new business opportunities for locally-based renewable and energy efficiency firms, such as Acwa. At a time of likely more constrained finances, any policy that can ease the financial burden on governments and their hydrocarbon resources should be welcome.

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