Sitting comfortably: The country is well positioned for expected demand increases

Rapid demographic and economic expansion over the past decade has placed a substantial burden on Qatar’s power sector. The government has risen to this challenge, tapping the country’s vast natural gas reserves to fuel the roll-out of a number of independent water and power projects (IWPPs). Unlike many of its counterparts, Qatar has avoided a power crisis and currently sits on a generation surplus, allowing it to export power to the GCC region. However, while the utilities sector has been a success story, more work will be required over the coming decade to meet another expected surge in demand.

MEETING DEMAND: Qatar’s power needs have witnessed a step change over the past decade. Electricity consumption grew at an average annual rate of 12.6% between 2006 and 2010, while electricity consumption per capita hit 14,485 KWh in the latter year, according to Qatar General Electricity and Water Corporation (Kahramaa).

This uptick in demand has been partly fuelled by a steady increase in the number of consumers, which, in step with population growth, rose by 8.7% in 2010. However, it has also been particularly pushed by the country’s dramatic economic growth and the demand from industry. Indeed, while Qatar’s primary energy consumption almost doubled between 2001 and 2008, surpassing 1bn British thermal units (Btu), the country’s energy intensity, or total consumption per dollar of GDP, grew at a much slower rate of less than 5% over the same period, according to the US Energy Information Administration (EIA).

According to Qatar Central Bank, GDP grew by some 19% in 2011, and recorded double-digit growth for five of the past six years. The government has therefore had to work hard to meet the market’s supply requirements. The country’s enormous gas reserves, which total almost 900trn cu feet and are situated almost exclusively in the North Field, have made the job easier. Qatar has been dependent on oil and gas for its primary energy needs, with gas accounting for 75% of total energy consumption in 2008, according to the EIA. As would be expected for a country that has the third-largest natural gas reserves in the world, Qatar’s electricity generation needs are met exclusively by gas-fired power plants.

PRIVATISATION: Despite having cheap and easily accessible feedstock, building a cost-effective, efficient electricity network has not been easy. As with several markets in the region, the government decided to bring the private sector on board in electricity generation. A decision was taken in 2000 to take the first step towards privatisation when the assets owned by the Ministry of Electricity and Water were transferred to Qatar Electricity and Water Company (QEWC), a public shareholding company with a 43% government stake and the remaining 57% owned by institutions and private individuals.

This was followed in 2001 by the award of a 25-year build-operate-transfer (BOT) contract for the first IWPP. Located in the Ras Laffan industrial area, the Ras Laffan A IWPP was awarded to Ras Laffan Power Company, a consortium of US-based AES Corporation, which took a 55% equity stake, QEWC with a 25% stake, Qatar Petroleum with 10% and the Kuwait-based Gulf Investment Corporation with 10%.

The 750-MW plant had an engineering, procurement and construction cost of $700m and a levelised energy cost of $20.60 per MWh, according to Kahramaa. The project was financed with an 80:20% debt-equity split and had a power and water purchase agreement factored into the contract. Under the terms of the agreement, Kahramaa had a volume commitment of 65% of electricity generated and 82% of water, with the average power tariff ( without escalation) of $1.93 per KWh.

This initial agreement gave the government the confidence to move forward with further IWPP agreements, including Ras Laffan B with 1025 MW and Mesaieed A with 2007 MW. These capacity expansions brought new players into the sector as well, including: QP ower, a joint venture between QEWC (55%), International Power (40%) and Chubu Electric Power Company (5%) for Ras Laffan B; and M Power, a joint venture between QEWC (40%), Chubu Electric (30%), Qatar Petroleum (20%) and Marubeni Corporation (10%) for Mesaieed A.

The latest project, completed in June 2011, was the $4bn Ras Qartas power plant (or Ras Laffan C). Built on a 25-year BOT basis, it is operated by Ras Girtas Power Company, a joint venture between QEWC (45%), Qatar Petroleum (15%), International Power (20%), Mitsui & Company (10%), Chubu Electric Power (5%) and Shikoku Electric Power Company (5%). The plant is the largest in Qatar and one of the largest in the region, with a capacity of 2730 MW.

SURPLUS: These rapid capacity expansions have put the country in an extremely strong position, with a reserve margin the envy of much of the region. As of 2010 electricity generation has had annual growth of 16.5%, recording double-digit growth over the past five years, according to Kahramaa. In 2012 Qatar had an installed capacity of 8756 MW, giving the country a surplus of at least 2500 MW.

This has afforded the government the luxury of exporting electricity. Speaking at a press conference held in June 2011, Mohammed bin Saleh Al Sada, the minister of energy and industry, said, “We are currently talking to different countries in the Gulf, and Qatar is ready to discuss requests from any of the GCC states, subject to the capacity of the grid itself and within the framework agreement made between the GCC countries.” This agreement, which stipulates how much each member country can buy and sell on the grid, has given Qatar a significant opportunity to export power in the short term. The first use of the grid occurred in September 2010, when Qatar agreed to supply Bahrain with 150 MW between the peak hours of 3pm and 5pm.

The substantial investment in the Qatari power sector, which hit $10bn in the past decade, according to Beltone Financial, has given the government breathing space. Speaking at the same press conference Al Sada said, “We now have a surplus of 2500 MW. This is not wasted, as this high capacity boosts our ability to develop a number of sectors, such as residential, industrial and commercial. We are in a very comfortable situation as far as power generation is concerned.” He added that Qatar has enough capacity to meet an estimated annual increase in demand of 10% over the next three years.

However, given the government’s economic diversification plans and the building commitments for hosting the 2022 FIFA World Cup, capacity expansion could be back on the agenda sooner than expected. Al Sada told the press, “We are not complacent and open to expansion,” a sensible position given the potential demand that will be placed on the grid in the coming years. The government has targeted more sustainable energy-efficient policies as a means of tempering future demand. Under the National Development Strategy 2011-16, authored by the General Secretariat for Development Planning, the government is looking to cut power generation by 7% by 2016 through awareness campaigns and better supply-side management.

BALANCING ACT: Given the power demands of Qatar’s $36bn state-led construction programme and its diversification plans, which are likely to see industrial electricity consumption patterns mirror the current trends (with a growth rate of 33.6% in 2010, according to Kahramaa), this may be difficult to achieve. Most are predicting significant demand increase over the coming decade. According to a January 2012 report by Beltone Financial, demand is expected to grow by at least 10% per year for the next five to seven years and 4% per year beyond this to 2030. This will require an investment of $20bn in the utilities sector over the coming decade.

While much of this may come from the preferred IWPP method of the past decade, the government is investigating other options. Although there are no official targets, renewable energy sources such as solar and wind are likely to play a role in the future generation mix. The government has already committed to a carbon-neutral World Cup, which will include solar-powered and solar-cooled stadiums.

There are also nascent plans to investigate the ways in which renewable generation sources could be plugged into the national grid. The Qatar National Food Security Programme is in the early stages of looking at smart-grid technologies that would allow the most efficient use of renewable sources whose energy generation may not necessarily dovetail with peak demand requirements.

Such steps indicate that the government is remaining ahead of the curve when it comes to utility provision. The huge capacity expansion, supported by the private sector over the past decade, has put Qatar in a strong position, one that the government is unlikely to squander with its commitment to ensuring an efficient and stable supply of electricity.

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The Report: Qatar 2012

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