FEATURE
38 Utilities Middle East / August 2019 http://www.utilities-me.com
competitive bids will continue to reduce costs
and prices for governments and consumers.
Third, IPP projects are quicker to execute.
With an additional 69GW that needs to be
added in the next fi ve years, projects must be
implemented swiftly.
“IPPs provide governments with the fl exi-
bility to identify projects and capacity needs
while leaving developers to execute. On aver-
age, an IPP takes 3-4 years to be commissioned
after tendering. Unlike government projects
that usually face delays due to technical spec-
ifi cation changes and confl icting roles of vari-
ous government entities, it is in the interest of
IPPs to bring on line the project as soon as pos-
sible – given that delays translate into higher
costs,” says a report by the Arab Petroleum
Investments Corporation (APICORP).
The Kingdom of Saudi Arabia announced
long-awaited reforms last year. The plans centre
on splitting up SEC to create four power gener-
ating companies and establish a separate trans-
mission company. SEC is the Kingdom’s verti-
cally integrated electricity company that owns
most power-generating assets and almost all
transmission and distribution networks.
The government allows the private sector
to enter the generating sector. As a result, most
ongoing and future projects will be IPPs, but SEC
will hold major equity stakes. The current envi-
ronment has been very favourable to the pri-
vate sector. IPPs have benefi ted from cheap fuel
and priority access to the grid. However, with
government plans to increase competition andprivatisation, future terms might be less favour-
able.
Estimated capacity stood at approximately
80GW in 2015, with SEC representing around
60GW and the remaining 20GW operated by
the private sector. The Kingdom will meet rising
demand with 28GW of capacity already in the
pipeline. Of this, 12GW are SEC projects while
the rest are IPPs, Saudi Aramco, and Saline
Water Conversion Company (SWCC) projects.
Major IPP projects include the 2.1GW Rabigh
2 and the 1.5GW Fadhili cogeneration plant,
expected on line in 2017 and 2019. So far this
year, the 1.5GW Fadhili cogeneration plant was
the only IPP awarded to an Engie-led consor-
tium at an expected cost of $1.5bn.
A joint venture between SEC and Saudi
Aramco will hold a majority equity stake,
with the remaining owned by the private
sector. The electricity will be sold on a 20-year
power, water and steam purchase agreement,
although prices have not been disclosed.
The IPP model is also expected to prevail in
the Kingdom’s latest 3.5GW renewable-energy
target by 2020, and 9.5GW by 2030. SEC aims
to attract the private sector to develop 50MW
solar at Al-Jouf and another 50MW at Rafha.
Financing is a growing challenge for the
Kingdom. SEC’s growing reliance on external
fi nance might provide more opportunities for
IPPs to dictate better terms. The state utility has
already borrowed more in the fi rst half of 2016
than it did in 2015, surpassing the record $3.7bn
set in 2014 and 2015.IPPS DOMINATE
The UAE boasts one of the most advanced
power sectors in the region, with the seven
emirates given control over their programmes
and strategies. Abu Dhabi took its fi rst steps to
unbundle the sector in 1998 when it pushed to
privatise power generation and adopt the sin-
gle-buyer model. More than 90% of power gen-
eration in Abu Dhabi is provided by IPPs today,
although the Abu Dhabi Water and Electricity
Authority (ADWEA) holds major equity in all
projects.
In Dubai, the Dubai Electricity and Water
Authority (DEWA) is also increasing its reli-
ance on IPPs. In 2015, the fi rst clean coal power
plant - the 1.2GW Hassyan plant – was awarded
as an IPP after a consortium of Acwa Power
and Harbin Electric off ered a LCOE of 5.01 ¢/
kWh. DEWA will hold a 51% stake in the project.
Dubai’s large solar park is also off ered under
the IPP model. Phase II of the solar park is beingNEW NORMAL
IPPs are gaining
traction for new pow-
er and water projects
in the GCC