Capacity increase in power and water ultities key to supporting Qatar's economic expansion

 

Driven by large energy-intensive developments and a rapidly growing population, demand for electricity and water has surged in Qatar over the past decade. Peak power demand on the country’s networks has more than doubled since 2006, while water consumption has also increased in tandem with the country’s development, according to data released by the Ministry of Development Planning and Statistics (MDPS). Base case assumptions issued by government regulators and procurement agencies forecast strong demand growth over the next several years in both water and power as the country gears up to host the 2022 FIFA World Cup. Power generation and desalination capacity has continued to grow since 2007. With considerable capacity coming on-line up to 2018 and the Qatar Power Transmission System Expansion project entering its 13th phase, supplies of power and water are well positioned to meet growing demand.

Structure 

Power in Qatar is produced and sold in a deregulated single-buyer market, with privately operated independent water and power producers (IWPPs) selling their production exclusively to state-owned corporations under long-term power and water purchase agreements. Qatar Petroleum (QP) is the sole source of natural gas as fuel for the power and water production facilities run by IWPPs.

Prior to 1999 electricity generation and water production, transmission and distribution services were carried out by the Ministry of Electricity and Water. To encourage private investment and achieve some degree of deregulation, power and water production services were separated and privatised.

The country’s primary utilities provider, Qatar Electricity and Water Company (QEWC), was formed in 2000, and today it is the second-largest private utility company in the MENA region and the main supplier of electricity and desalinated water in Qatar, holding market shares of 62% in electricity and 79% in water. The company has production capacities of 5432 MW of electricity and 258m imperial gallons per day (MIGD) of desalinated water.

In 2000 the transmission and distribution of electricity and water were brought under the authority of the newly formed, state-owned Qatar General Electricity and Water Corporation (Kahramaa). At 11,570 sq km, the relatively small size of the country limits competitive space for transmission companies and positions Kahramaa as the sole transmission and distribution system owner and operator for electricity and water in Qatar.

The corporation operates independently on a commercial basis with a focus on efficiently delivering electricity and water services to all consumers. Acting as a single buyer, Kahramaa defines demand, issues tenders for new production facilities, provides necessary technical and corporate support for the establishment of generation and desalination ventures, and owns and operates all transmission and distribution infrastructure in the country. Regulation in the sector is the responsibility of the Ministry of Energy and Industry. In practice, the regulatory function is delegated to Kahramaa, although given its role as a system operator the corporation has no formal regulatory authority.

More Power

Power in Qatar is supplied by a total of five plants and three satellite stations in and around the capital city Doha, utilising open-cycle or combined-cycle gas turbine facilities, operated as IWPPs or independent power producers.

Kahramaa purchases the total power and water output from a plant for a period of 25 years on a take-or-pay basis, while QP supplies the fuel. International developers are invited to tender for the post of foreign partner on new IWPPs, with winning consortia normally taking a 40% stake in a project company and QEWC holding a majority share. “Foreign investors are drawn to opportunities in power and water in Qatar because they receive a very attractive return on investment and a reliable fuel supply that is guaranteed by the government for a fixed period,” Jamal Al Khalaf, CEO of Umm Al Houl Power, told OBG. “Very few other countries, if any, can offer such secure and stable investment opportunities in this sector,” he added.

Peak demand and consumption of electricity grows at an average of 7-10% annually, driven mainly in part by large-scale and energy-intensive developments. These include the Doha Metro, special economic zones and major industrial programmes, such as the significant increase in production at the Qatalum aluminium plant in Mesaieed.

The sector remains heavily subsidised with the government still covering 45% of energy consumption costs on average, or a little under $0.02 for every KWh consumed by residential users, according to credit ratings agency Moody’s. In addition, the country continues to have one of the highest per capita consumption rates in the world. Despite the reported success of conservation strategies and increased electricity costs for consumers in driving down usage over the past three years, sector demand has been propelled by a 48% increase in population from 2011 to 2017.

In order to keep up with demand for electricity, generation capacity in the country has grown markedly over the past decade, rising by over 75% between 2007 and 2013 and reaching 8750 MW in 2016, according to statistics published by QEWC. Production for that year exceeded power consumption maximum load by roughly 1300 MW.

The country’s generation procurement strategy is aimed at aligning mid-term capacity requirements with a design cycle of three to five years from planning to commission. New plants are generally brought on-line due to natural growth in consumption; the retirement of old equipment, for example the 43-year-old Ras Abu Fontas A plant; and technical and system requirements for the construction of power plants in areas where extending transmission facilities may not be practical. Following a prolonged slowdown in capacity development since the Ras Laffan C IWPP was brought on-line in 2011, the Qatari government is now investing heavily in infrastructure and utility capacity upgrades to meet rising demand and achieve capacity objectives in preparation for the 2022 FIFA World Cup.

Major Generation Projects

Qatar’s expansion of generation capacity comes at a significant cost. In a 2016 report, the Arab Petroleum Investments Corporation estimated that the power sector as a whole will require investments of $9bn to meet rising demand from 2016 to 2020. The document stated that roughly $6bn would be needed to add 5.2 GW of electricity capacity, with the remaining $3bn required for transmission and distribution.

Several major projects under way are expected to raise Qatar’s power capacity to 13.1 GW by 2018, an increase of 49% on 2016, Fahad Hamad Al Mohannadi, general manager of QEWC, said at an industry event in September 2016.

The bulk of this new capacity will come from two projects expected to add nearly 4.5 GW. The larger of these, the 2.5-GW Umm Al Houl integrated power and desalination plant, is being developed 15 km south of Doha near Qatar Economic Zone 3 at an estimated cost of $3bn. Construction began in the third quarter of 2015, with the first phase coming on-line in the second quarter of 2017 and providing 60 MIGD of water and 1612 MW of electricity. Full capacity is planned for the second quarter of 2018. The two phases will provide a combined 136 MIGD of desalinated water and 2520 MW of electricity.

The natural gas-fired combined-cycle power plant will be Qatar’s largest when it opens, increasing current electricity output by 23%, or enough to supply roughly 2.5m homes. Along with a second plant at Ras Laffan, completion of the Umm Al Houl plant will keep the country in line to meet rising demand with new capacity up to 2018.

Kahramaa is also reportedly in the early stages of planning to build a new Facility E IWPP to meet demand beyond 2020. The utility invited a tender for consultancy services to assist in all stages of the project, from planning to construction, in mid-2016.

Transmission & Distribution

Kahramaa’s transmission system benefits from relatively new infrastructure, a benign climate and a modestly sized service area. In the second quarter of 2016 the corporation operated 490 distribution transformers and 301 distribution plants, setting up 298 new electricity distribution stations in the second quarter of that year, and continuing to invest in improving electrical transmission networks by replacing outdated protection devices with modern, digital technology.

Projects under way as of October 2017 in transmission and distribution included phases 12 and 13 of the Qatar Power Transmission System Expansion Programme, which are progressing on schedule and expected to be completed in the fourth quarters of 2017 and 2018, respectively (see analysis).

Renewables

In line with Qatar’s vision for sustainable growth and diversification away from hydrocarbons, renewable energy is expected to play an increasingly important role in the national energy mix over the coming years. Solar photovoltaics (PVs) are likely to lead the growth in renewables, with concentrated solar power soon to enter the mix.

Other alternative energies have been broadly studied and ruled out given the country’s size and resource profile. Coal power has been rejected in the past, and nuclear power requires too much land for such a small country. Though wind power may be introduced by 2020, any capacity will be brought on at a significantly smaller scale than that of solar.

Several major solar projects are scheduled to come on-line to help the government meet its targets of achieving 1.8 GW of installed solar energy capacity by 2020 and having it account for 20% of total capacity by 2030. Kahramaa has committed to deploying at least 200 MW of solar energy by 2020, and tendered a 100-MW solar farm project in mid-2016 that will consist of around 800,000 sq metres of solar PV panels.

QEWC and QP have also unveiled plans to set up a joint venture for the construction of solar power plants around the country. A memorandum of understanding was signed by the partners in late 2015 establishing Siraj Power in Qatar. With a capital base of $500m, QEWC owns a 60% stake in the venture with QP holding the remaining 40%.

Siraj Power formally commenced operations in Qatar in the first quarter of 2017, with work on major planned solar power plants beginning in June and initial production anticipated by April 2020.

At the 2017 QEWC annual general meeting, Mohamed bin Saleh Al Sada, minister of energy and industry, noted that the plant will have an initial production capacity of 200 MW of electricity, with a plan to increase this to 500 MW. QEWC and QP are expected to invite international companies to back 40% of each solar project that will be developed by Siraj Power through a competitive tender process.

New Technology

On a smaller scale, solar panels have been deployed across multiple locations in Qatar, including the National Convention Centre and Hamad bin Khalifa University student housing. Installations are expected to pick up as the Gulf nation strives to meet benchmarks for carbon neutrality ahead of the 2022 FIFA World Cup.

“Rooftop solar could become very cost-effective in lowering peak electricity demand, which is very important to Qatar’s utilities,” Khalid Al Subai, acting executive director of Hamad bin Khalifa University’s Qatar Environment and Energy Research Institute (QEERI), told local press in July 2016.

Previously, these technologies were not adopted because of their relatively high cost; however, the price of renewable energies in the Gulf is on course to drop significantly. At the Solar Test Facility, located at Qatar Science and Technology Park (QSTP), QEERI is engaged in intensive efforts to increase the efficiency of PV panels and produce solar energy at a much lower cost. “The current global PV industry has billions of dollars invested in ongoing manufacturing technologies, so we are trying to achieve incremental improvements in existing silicon cells, as well as being at the forefront of next-generation thin film technologies,” said Al Subai.

Solar Potential

Solar technology companies based in Qatar benefit from a strong research and development base engendered by the Qatar Foundation, QEERI and the QSTP, as well as abundant sunshine that makes silicon and thin film modules up to 45% more productive than in Germany. Domestically, Qatar Solar Technologies (QST ec) operates a modern plant in Ras Laffan Industrial City (RLIC) capable of annually producing 8000 tonnes of solar-grade polysilicon – the key ingredient used in over 90% of the world’s solar modules. When converted to solar PV panels, this amount of polysilicon is roughly equivalent to 1.2 GW of installed power on a yearly basis when converted to solar PV panels.

Though solar cells and panels are not currently manufactured in Qatar, QST ec has 1.2m sq metres of land in RLIC, which the company intends to use for future expansion along the solar value chain to ultimately produce high-quality solar modules and technologies domestically.

Other major players in the Qatari solar industry include Nebras Power, an international investment joint venture between QEWC, QP International and Qatar Holding. Nebras Power has announced plans to back wind, solar and potentially coal projects in the broader Middle East, Africa, Europe and South-east Asia. The company ended 2016 by signing a memorandum of understanding with Japan’s Marubeni Corporation to invest in power generation and water desalination projects around the world.

Water Production

Desalinated sea water is the primary source of potable drinking water in Qatar, and it satisfies 99% of the country’s municipal water demand. Qatar and other GCC member states are global leaders in desalination and make up four of the world’s 10 largest users of the technology, according to a report released by renewable energy firm Masdar at the 2017 International Water Summit in Abu Dhabi. The reliance on desalinated water is due to limited groundwater resources, which have been overused and restricted to agricultural irrigation due to quality issues. Treated sewage water, meanwhile, is mostly used in public parks, for industrial purposes and for groundwater injection.

As the economy and population has grown, from 967,000 in 2006 to around 2.67m in 2016, so too has the demand for water. Indeed, between 2006 and 2013 water consumption rose from just over 437m cu metres per year to 740m cu metres.

Figures provided by the MDPS indicate that the biggest consumers over this period were the agriculture sector and households, though industry use increased by over 200%, and government consumption rose by over 400%. Although the interministerial Permanent Population Committee estimates that Qatari residents’ per capita water consumption is nearly double that of residents in the EU, the country maintains adequate spare production capacity and is expected to increase desalination capacity to 400m gallons by the start of 2018.

Desalination Projects

Until 2016 desalination in Qatar relied exclusively on thermal multi-stage flash distillation that used waste heat from turbines at co-located electric power plants to desalinate sea water. The shallow waters of the Gulf, contamination and relatively high temperatures had previously stood in the way of introducing a reverse osmosis (RO) plant in Qatar. Having overcome these technical limitations, Kahramaa officials have indicated that the country will move to exclusive use of RO technology going forward. This allows planners the flexibility to uncouple water from electricity generation and build desalination facilities independent of power plants. The country inaugurated its first ever sea water RO desalination project in May 2017. Ras Abu Fontas A3 will produce 36 MIGD at a total commissioning cost of $480.6m.

Water Storage

With only a 48-hour storage supply of water on hand at any given time, Qatar is also investing in potable water storage capacity by building five mega-reservoirs and an interconnecting network of large-diameter water pipelines collectively known as the Water Security Mega Reservoirs Project. Every reservoir site will ultimately comprise up to nine reservoirs, each of which will be the among the largest of their type in the world.

The first phase of the project, which is currently under implementation following the award of five construction contracts in April 2015, will deliver a total storage capacity of about 2.3bn gallons of water in 24 large concrete reservoirs by 2026, providing seven days of potable water within its network system. The second stage, which will be implemented after 2020, will include construction of additional pipelines and 16 new reservoirs within the five large-scale sites to achieve an ultimate total storage capacity of roughly 3.8bn gallons of water.

Conservation

Improving Qatar’s water security is the third and last of the key challenges outlined in Qatar National Vision 2030 (QNV 2030), following energy security and cybersecurity.

Recognising the need to draw down rates of consumption, the Conservation and Energy Efficiency Department of Kahramaa manages the National Programme for Conservation and Energy Efficiency (Tarsheed), an initiative to encourage and empower the general public to make their homes, workplaces and lifestyles more sustainable and efficient.

Kahramaa has set specific water and power reduction targets up until 2018 and is currently working to reduce per capita energy consumption from 43 KWh per day to 39 KWh, and per capita water usage from 595 litres per day to 459 litres. The programme has reported achieving significant gains in efficiency, driving electricity consumption down by 14% and reducing water consumption by 17% between April 2012 and November 2015, Essa bin Hilal Al Kuwari, president of Kahramaa, told local media in mid-2016.

Strategies employed to achieve efficiency objectives through Tarsheed include the introduction of new technologies, the revision of water and electricity tariffs, and raising public awareness of the importance of conservation. Kahramaa has also implemented legislation that enforces compliance with national conservation laws and aims to drive down per capita consumption by authorising strict penalties of up to QR10,000 ($2750) for leaving external lights on between 7.00am and 4.30pm, or QR20,000 ($5490) for using drinking water for washing vehicles, equipment and home exteriors.

Waste Management

Treated sewage effluent (TSE) in Qatar is managed by the Public Works Authority of Qatar, with waste water recycled for irrigation and other non-potable purposes that include district cooling – a market segment where Kahramaa is actively promoting the use of TSE over fresh water. Qatar also manages one of the largest specialised centres for processing solid domestic waste in the MENA region. In operation for six years, the Domestic Solid Waste Management Centre (DSWMC) has the capacity to process 2300 tonnes of waste per day, around 95% of which is recycled for other purposes or converted to energy. The QR3.9bn ($1.1bn) integrated treatment facility is located near the city of Messaieed, 50km south of Doha and primarily serves the capital and its suburbs Umm Salal, Gharafa, Simaisma and Lusail.

According to Keppel Seghers, the Singapore-based firm which has had the contract to operate the facility for over 20 years, the plant is designed to maximise recovery of resources and energy, by diverting 95% of incoming waste from the landfill to integrated sorting and recycling facilities, a composting plant, and a 1500-tonne-per-year 50-MW waste-to-energy incinerator and landfill.

With an annual expenditure of around QR100m ($27.5m), Qatar has allocated QR2bn ($549.3m) for running the centre through to 2030. The government has also announced plans to expand and upgrade the capacity of the DSWMC from 2300 tonnes of waste per day to an estimated 5300 tonnes by 2022. Another centre with a daily capacity of 3000 tonnes is expected to be built in the north of the country before 2020 to meet QNV 2030 targets.

Outlook

Demand for electricity and water is growing in Qatar, driven by energy-intensive infrastructure projects, industrial programmes and over a decade of rapid population growth. With the 2022 FIFA World Cup fast approaching, and QNV 2030 identifying energy and water security as key challenges, ambitious government-driven procurement strategies are expected to provide a host of opportunities for private sector investors seeking solid returns from a single-buyer system. To meet capacity requirements, new large IWPPs will be brought on-line up to 2018, including the Umm Al Houl integrated power and desalination plant and the Ras Abu Fontas A3 desalination project.

Furthermore, the proven funding strategies in place, strong demand growth projections and robust regulatory framework should support the promotion of private investment in planned tenders for generation, transmission and distribution.

Meanwhile, government initiatives – including smart metering, conservation under the Tarsheed programme and cuts to utility subsidies – are expected to help rationalise delivery and continue the move towards more cost-reflective pricing.

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