Power struggle

The electrical grids in the GCC are past their half-lives, and it is time to develop strategies to improve both efficiency - loss reduction strategies and reliability -minimising loss times due to faults.

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Power Grid

When a blackout hit Kuwait in February, it wasn’t the first, and probably not the last that occurred in one of the major cities in the GCC region. Doha, Dubai, Sharjah, Riyadh, Jeddah… all of these cities, not to mention smaller ones, have experienced power outages.

They are especially common in the summer, when the consumption of electrical energy is at its peak, primarily due to cooling systems operating on maximum to fight high temperatures. Air conditioners are one of the biggest consumers of electricity in the region. For example, cooling of buildings accounts for roughly half the electricity consumed in Saudi Arabia.

The GCC is one of the most urbanised areas in the world, with over 70 percent of the population living in urban areas – close to 100 percent in Kuwait and Qatar – and all the member countries are investing billions to develop adequate networks to supply electricity to the booming economy and their high-consuming citizens. Qatar plans to invest USD 22 billion into power and water infrastructure by 2020, and that includes power transmission system expansion projects, and new power plants.

MENA total power

Billions needed

Global consulting firm Frost & Sullivan forecasts growth in demand for power in the MENA region to increase by over 7 percent annually until 2018, while OECD (Organisation for Economic Co-operation and Development) states that MENA energy demand is expected to continue to expand well above the world average, at around 3 percent per year between 2010 and 2030, with electricity demand growing at a rate of 6 percent a year over the same period.

The most recent study by Saudi-based investment company Arab Petroleum Investment Corporation (Apicorp) shows that in order to ensure enough electricity, the GCC states will have to invest around USD 150 billion by 2020.

That constitutes 45 percent of capital requirements in the Arab world and 38 percent of total investments required in the MENA region. Total investment needed in the MENA region is estimated at USD 416 billion, if the capacity expansion stays at the current growth rate of more than 9 percent per year, leading to capacity increment of 180  GW during the five-year period between 2016 and 2020.

Frost & Sullivan’s experts expect the MENA region to add almost 140 GW to its installed power generation capacity until 2018, for which it needs over USD 300 billion of energy investments.

“The grids (in the GCC) are past their half-lives, therefore the importance of asset management has increased to develop strategies to improve both efficiency (loss reduction strategies) and reliability (minimising loss time due to faults),” Mohammed Atif, regional manager Middle East for energy at energy advisory firm DNV GL, tells BQ magazine.

Apicorp’s study reveals that the GCC member states, whose available electrical power during 2013 reached about 120-220 GW, need to invest USD 93.9 billion into power generation projects, USD 19.2 billion into transmission and USD 36.6 billion in distribution.

MENA Power

Reducing losses

Transmission and distribution losses of electricity in the GCC member states are currently relatively low. In Saudi Arabia, the highest regional consumer of electricity, they are just 1 percent, according to the 2013 think thank Chatham House report ‘Saving oil and gas in the Gulf’.

The report states that Qatar also has just 1 percent of transmission and distribution electricity losses (compared to 7 percent just little over a decade ago), and UAE, Kuwait and Bahrain 2 percent. Oman, says the report, has the highest percentage of electricity transmission losses – 14 percent, but it was recently announced that more than USD 1.1 billion will be spent to improve the Sultanate’s  electricity transmission and distribution.

As low as these percentages might seem, they are still high considering the amount of oil and gas used to produce electricity in the region – Saudi Arabia’s current energy consumption is eating up 4.2 million boepd (barrels of oil equivalent per day) and it is expected to rise to more than 8 million boepd by 2030.

“There is always some form of conversion/transit loss in energy. Nevertheless, the GCC countries are aware of the importance of reducing losses. In fact, DNV GL is involved in an initiative called the Distribution Benchmarking Forum which invites many different companies to share common KPIs (key performance indicators) such that companies can constantly benchmark their performance,” explains Atif.

Despite the numerous announced electricity-related mega projects across the Middle East, the investment rate in the energy sector has fallen due to the high cost of projects which are under construction or planned, thus increasing the value of investments according to Apicorp. The report states that credits extended to MENA power and power/water sector have dropped by more than 60 percent from a record high of USD 16.5 billion in 2008 to USD 6.2 billion in 2014.

Final use electricity

The GCC supergrid

Optimal power supply planning is highly complex, but in the MENA and GCC’s case, regional cooperation is the key to addressing electricity supply challenges, such as the development of the electricity grid which is lagging behind economic growth and causing many commercial and industrial users to rely on expensive diesel generators.

One answer to the common problem of power outages in the Gulf is the interconnected GCC grid, built at a cost of around USD 1.4 billion and shared by the six states. From summer 2009 on, when its commercial operation started under the Dammam-based overseeing authority Gulf Cooperation Council Countries Interconnection Authority (GCCIA), the number of sudden power cuts recorded stood at 1,200 cases, during which member states in the project did not have to disconnect loads and avoided partial or total power cuts.

All thanks to the connected grid which is, for now, like recently in Kuwait, primarily used in emergencies when electricity is automatically re-routed from one state to another in the event of a power outage.

According to the GCCIA, around USD 1.82 billion worth of electricity was exchanged between GCC states during 2010. The joint Gulf’s power grid annual trade stands at around 800,000 MW (mega watts hour) of energy, installed capacity across areas covered by the shared grid is 50 GW, with the current total capacity up to 1200 MW. GCCIA officials say the connected grid has already saved USD 3 billion in investments in addition to a savings of USD 330 million in operating costs and fuel.

The long-term plan for the Gulf “supergrid” is to reduce high long-term investment costs in constructing generating plants by reducing the level of reserves needed in each country and enabling energy trading.

The common grid will in the future connect renewable and nuclear energy power facilities, and save up to USD 1.8 billion in fuel operating costs over next 25 years, with some calculations showing savings for member countries will be over USD 6 billion in investments, equivalent to building up capacity of 8,000 MW.

By 2019, the common GCC grid will be expanded across the region at a cost of about 20 or 30 percent of initial investment, or up to USD 420 million, in order to cater to regional electricity consumption which is increasing around 6 to 10 percent a year.

The ultimate goal is to establish a regional energy trading market – to pay for shared energy with energy, and to connect GCC power with Europe through Turkey, in order to trade electricity with the continent that is, opposite to the GCC region, in need of more power in winter than in summer.

In the first phase, the GCC grid will connect with Turkey with a 5,000 MW capacity line, with the plan to double the capacity in the later phase. Before that, GCC power lines are, by 2018, to be connected with Africa.

Saudi Arabia and Egypt are already forging plans for a new joint grid that will cost around USD 1.6 billion and allow them to share up to 3,000 MW. The GCC’s “supergrid” is expected to be the backbone for the deployment of high-voltage grids across the GCC.

GCC gridsSmart and smarter

Atif says one of the most important steps towards improving electricity diversification and conservation in the GCC is to “develop smart grid and smart metering roll-out under the overall umbrella of demand side management”.

Indeed, smart grids are entering the MENA region: North East Group, a Washington-based research and consulting firm with expertise in smart infrastructure and smart grid sectors, projects that USD 9.8 billion will be spent across MENA on smart grid technology by 2024 to enable the incorporation of USD 27.9 billion in solar resources.

It is estimated that GCC countries can save up to USD 10 billion in infrastructural investment by 2020 through the use of smart grid, which optimises supply and demand by using information technology to provide a two-way flow of real time information between power generation, grid operators and consumers.

Frost & Sullivan project the global market for smart grid technology to reach USD 125 billion by 2017, and that 75 percent of Europe is anticipated to be smart grid-enabled by 2018. In the GCC, the first step is to deploy smart metres that can provide detailed and accurate readings which enable customers to follow-up on how much they use. Along with electricity consumption, smart metres also measure water and gas usage, and Qatar, UAE and Oman already started installing them.

GCC grid The subsidies conundrum

The entire MENA region is struggling with growing energy subsidies – it is estimated that subsidies demand more than USD 250 billion every year, while the World Bank data shows GCC member states annually dish out more than USD 160 billion for energy subsidies, equivalent to 10 percent of their GDP, with Saudi Arabia consuming almost half of the GCC subsidies.

Standard Chartered in its report ‘Global Focus – 2015’ says that because of a tighter fiscal environment, subsidy reform should be a regional priority in 2015, in order to free up energy and fiscal resources for more productive investments. Subsidies in the GCC range from 5.5 percent of GDP in Qatar to almost 11.5 percent in Saudi Arabia, which spent USD 71 billion on them in 2014, according to the London bank’s estimate.

Subsidies lead to over consumption – the wealthier the country and the larger the subsidies, the higher electricity demand is. Abu Dhabi, for example, saw its National Energy Company (TAQA) record a deficit of USD 810 million in 2014 after oil prices dropped. The emirate has been subsidising 55 percent – 90 percent of the electricity price, but as consumption relentlessly increases, the Emirate raised electricity prices beginning of the year.

So what is the way to overcome electricity shortages? Saudi Arabia, whose electricity grid, according to Atif, needs urgent improvement, is planning to more than double its available generating capacity from 58 GW to 120 GW by developing solar and nuclear power, but the plan to achieve this by 2032, has already been delayed by 8 years.

InvestmentsUAE is focusing on renewables: Abu Dhabi is committed to securing 7 percent of its total energy needs from renewable sources by 2020, while Dubai aims to have renewables contribute 7 percent of its energy mix by 2020 and 15 percent by 2030.

Kuwait, Oman and Qatar are adding new capacities to meet demand, but the fact remains that domestic consumption is way too high. Some experts estimate that MENA can save between USD 1 billion to USD 3.5 billion per year by redirecting domestic energy consumption towards exports.

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