GCC faces the challenge of keeping supply ahead of demand, says MEED

The first MEED Insight report on the sector provides a comprehensive review of power and water generation in the GCC from 2004, and assesses the outlook for one of the region's most dynamic sectors up to 2015.

The report, collated from six months of research into the GCC utilities, provides critical analysis of supply and demand and projected investment levels; examines the increasing role of the private sector; spotlights the search for alternative energy; and gives a country-by-country assessment of the power and desalination sector.

Angus Hindley, Research Editor, MEED, and author of the report, said:

"The report shows that the GCC utility sector is entering a critical phase. Four years of strong economic growth has fuelled demand by around 10 per cent a year for electricity and 8 per cent a year for desalination. This, combined with a distinct lack of investment in the first half of the decade, has meant that reserve power capacity has fallen significantly across the Gulf, with the single exception of Abu Dhabi. This raises the spectre of power shortages across the region, and in particular in Dubai, Kuwait and parts of Saudi Arabia - despite the fact that the region has substantial oil & gas reserves."

The key findings of the report are:

With little or no prospect of regional economic slowdown, the GCC is facing an unprecedented capacity building programme. According to MEED an estimated 60,000MW of new capacity, representing 80 per cent of current installed capacity, will be required by 2015, while desalination capacity will have to double to over 5,000 million gallons a day (g/d) to meet projected demand. The actual new capacity requirements is expected to be higher given that utilities will need to start decommissioning old installations.

In relative terms, Dubai faces the biggest new-build programme, with both power and desalination capacity forecast to triple in size to 16,000MW and 800 million g/d by 2015.
Based on 2007 unit costs, the GCC power sector will require about $50bn of investment in new power generating capacity and $20bn in desalination by 2015.

The most pressing issue facing the GCC utility market is obtaining new and competitively priced gas allocations. The increase in competition for the feedstock is forcing utilities to consider new technology and alternative energy production, such as coal, nuclear and solar for the first time.

Rising generation costs will increase pressure for a hike in customer tariffs, which are currently well below the cost of production and distribution in virtually all GCC states. With governments unlikely to sanction any increase in living costs on their own populations, non-national consumers are expected to bear the brunt of the increases.

Hindley adds:

"GCC utilities are facing the most challenging time in their history. With the Gulf experiencing record economic expansion and high population growth, demand for power and water has never been greater. Unprecedented capacity additions are planned but with contractors in short supply, new build costs spiralling, and growing concerns over gas feedstock availability, utilities have enormous challenges to overcome in their quest to keep the lights on and the taps running."

"Far more attention will have to be placed on demand supply management in the coming years. Conservation measures, such as energy efficient buildings, district cooling, metering and grid interconnections, are slowly moving up the agenda but will need to be pursued and enforced much more rigorously."