Nearly two decades on from reforms which introduced private investment and an unbundled operational structure to the sector, Abu Dhabi’s utilities are on a sound footing. With nearly a 30% cushion between peak load and installed capacity (as of 2014), it is clear that the emirate’s model of encouraging partnership with international investors to secure a stable supply of power has paid off. However, with the decline in oil prices placing the federal budget under pressure, and demand for power and water increasing at a rapid rate, the authorities have turned their attentions toward more effective consumer pricing and demand management.

Moreover, diversification away from an almost complete reliance on combined-cycle gas independent water and power producers (IWPPs) will also have a transformative effect on the supply side of the sector in the coming years, as the UAE’s nuclear reactors gradually enter service, and renewable energy and reverse-osmosis (stand-alone) water plants are increasingly added to the mix.

In Figures

According to preliminary estimates produced by the Statistics Centre – Abu Dhabi (SCAD), in 2014 the electricity and water sector contributed 2.4% to Abu Dhabi’s GDP, a share unchanged from 2013. As a share of non-oil GDP, electricity and water accounted for 5% – marginally down on 2013 figures by 0.2 percentage points.

While GDP contribution remained unchanged, output from the sector in terms of power and water generation grew considerably. According to data compiled by the Abu Dhabi Water and Electricity Company (ADWEC), installed power generation capacity increased by 11.9% year-on-year (y-o-y) to 15,546 MW, having remained relatively flat in 2013 (growing by only 0.4% that year). The increase in capacity resulted in 8.2% higher total generation, reaching 70,847 GWh – an acceleration in growth compared with 2013, when generation rose by 5.4%.

Installed capacity in water production remained stable in 2014 at 916m imperial gallons per day (MIGD); however, usage of installed facilities increased, with total annual production growing by more than 10,000 MIGD to reach 273,960 MIGD, an increase of 4.09% y-o-y, which represented a similar level of growth to 2013 figures.

According to ADWEC, in the decade running up to 2014, water production in Abu Dhabi has increased by 98%, while power production has jumped by 193%. Over the same period, specific fuel consumption (a measure of efficiency) has reduced by 31%.

Composition

Aside from the Shams 1 concentrated solar power plant (owned by Masdar), all of Abu Dhabi’s power is currently generated through fossil fuels. In 2014, 99.8% of the 767trn British thermal units (Btus) of fuel consumed by Abu Dhabi’s power sector was in the form of natural gas.

The emirate currently has a total of nine combined-cycle IWPPs whose ownership is divided between the government and private investors, and one plant (Al Mirfa) which is still wholly owned by the Abu Dhabi Water and Electricity Authority (ADWEA). A further IWPP (a new Al Mirfa plant) is due to enter service in the second quarter of 2017.

On the demand side, peak load in the Abu Dhabi system (including Al Ain and the Western Region) reached 8983 MW in 2014, an increase of 4.5% on 2013 figures. Peak load in the region of Abu Dhabi City grew by 4.2% to reach 5618 MW. As the largest emirate, Abu Dhabi also provides power to some of its neighbouring emirates within the UAE, as well as exporting some power through the GCC grid. As a result, total peak load in 2014 was 12,093 MW, an increase of 7.6% on 2013. At the time of writing, 2014 figures on unit costs for production, as well as for wastewater, had yet to be released. In 2013, however, average unit costs for power production were Dh0.26 ($0.07) per KWh and Dh9.93 ($2.70) per cu metre of water. Peak wastewater processing was 836,228 cu metres per day, a 7% increase y-o-y and equivalent to 305.2m cu metres annually.

Formation

The legal framework for the power and water sectors comprises Law No. 2 of 1998, as subsequently amended by laws 19/2007 and 9/2009. The revisions provided for a means to enable private investment within the generation side of the sector, as well as creating an “unbundled” structure that separated generation from procurement, transmission and distribution. Responsibility for regulating the sector was handed to an independent body, the Regulation and Supervision Bureau (RSB), while government operations are vested in ADWEA. A newly created Energy Authority, to be chaired by Sheikh Abdullah bin Mohammed Al Hamed, has recently been established, although the precise scope and role of this body is yet to be revealed.

In the current system, ADWEA partners with local or international investors through the IWPP model. ADWEA forms a joint venture with the private investor to build a combined power and water desalination plant, with ownership typically divided 60/40 between the government and the investor (the exception is the latest IWPP at Al Mirfa, in which ADWEA holds an 80% equity stake).

The joint venture then signs a long-term ( typically 20-year) power and water purchase agreement (PWPA) with ADWEC, which is the sole-mandated “off-taker” of power and water in the emirate.

IWPP investors receive a minimum return on equity of 11% (reduced from an initial level of 13% in light of the reduced risk environment and lower interest rates). The return on equity at Al Mirfa will also be lower, at 8%. As part of its agreement with IWPPs, ADWEC additionally undertakes to purchase fuel from suppliers on their behalf.

Distribution & Transmission

The counterpart to the PWPA is the bulk supply tariff, which ADWEC negotiates every year with the distribution companies. There are two such operators in the emirate: the Abu Dhabi Distribution Company (ADDC), which distributes to Abu Dhabi, and Al Ain Distribution Company (AADC), which distributes to Al Ain. They each operate distribution networks of 33-KV, 11-KV and low-voltage lines to consumers. The transmission network, meanwhile, is operated by the Abu Dhabi Transmission and Despatch Company (TRANSCO), which handles 400-KV, 220-KV and 132-KV lines.

TRANSCO, ADDC, AADC and ADWEC are all wholly owned subsidiaries of ADWEA. To maintain efficient operations and investment in these bodies, the RSB uses a price control mechanism to establish a maximum allowed revenue (MAR) for each company. The MAR takes into account cost of capital, depreciation and operating expenses. The current price control period is known as PC5, and came into effect at the beginning of 2014. PC5 saw a general increase in the MAR, as TRANSCO in particular will be required to make significant upgrades to its transmission network to handle the commissioning of the UAE’s first nuclear power plants, expected in 2017. PC5 will run until the end of that year.

As well as regulating the power and water sectors, the RSB is responsible for regulating the wastewater sector. Law No. 17 of 2005 (as amended by laws 18/2007, 12/2008 and 12/2009) established the Abu Dhabi Sewerage Service Company (ADSSC). Operating costs for the ADSSC are set through a MAR, while revenues for the emirate’s independent sewage treatment providers are constrained by their individual sewage treatment agreements, which are subject to the purchasing licence obligations of the off-taker (the ADSSC). Solid waste in Abu Dhabi is regulated by the Environment Agency – Abu Dhabi through Law No. 21 of 2005, with responsibility for the sector falling on the Centre of Waste Management (Tadweer).

Tadweer was established in 2008 to enact the government’s Waste Management Strategy, and establish a full-cycle integrated waste management system (see analysis). It is the governmental entity that handles the activities related to the development of waste management services, from the collection, transport, treatment, resource recovery, recycling and safe disposal in a sustainable manner across Abu Dhabi. Tadweer also spares no effort to provide support for events and occasions that aim to educate communities on the importance of preserving the environment and encourage them to exercise and adopt a sustainable waste culture, which would advance sustainable development.

In light of these advances in capacity, Tadweer announced in June 2015 that it was beginning work on an ambitious 25-year master plan on waste management that it hopes will serve as a model for the entire region. The plan, which is being developed, hopes to introduce a “sustainable, circular economy”, which will divert waste away from the landfills.

In November 2015 Tadweer launched its Abu Dhabi Waste Management Master Plan 2040, which aims to reduce waste in the emirate and maximise recycling. According to local press reports, the plan identifies possible challenges ahead, which include collection issues due to traffic and short working windows, misuse of the collection system, transportation issues due to restrictions on truck movements, and treatment facilities with insufficient capacity as well as limited technology. The plan also highlights the requirement for new regulations. As part of the waste management master plan, Tadweer is also developing a regional standards system for reducing construction and demolition waste. According to Waste and Recycling Middle East magazine, most GCC countries rank among the top 10 countries globally in waste generation per capita, with construction and demolition (C&D) debris accounting for the largest proportion of waste in the Middle East. Recycling C&D waste can preserve raw materials, energy and water, in addition to reducing the production of greenhouse emissions and other pollutants.

Power

Abu Dhabi currently has nine IWPPs and one IPP. The largest facilities are Arabian Power Company (APC), Taweelah Asia Power Company (TAPCO) and Fujairah Asia Power Company (FAPCO), each with a generation capacity greater than 2 GW. The largest associated desalination plants are, respectively, TAPCO (with capacity of 162 MIGD), APC (145 MIGD), and FAPCO (132 MIGD). These facilities are due to be joined in the second quarter of 2017 by the new $1.5bn Al Mirfa IWPP, which will have a generation capacity of 1600 MW and desalination capacity of 52.5 MIGD. Al Mirfa is being built by a consortium led by South Korea’s Hyundai Engineering and Construction and Italy’s Ansaldo Energia.

The facility will be managed by GDF Suez, which was awarded a 25-year operating contract by ADWEA in July 2014. In February 2015 an engineering design contract for the facility was awarded to Atkins.

Abu Dhabi’s government-owned national energy company TAQA has also been making investments internationally in the power sector. In October 2015, for example, commercial operations began at the successfully expanded 330-MW T2 power plant in Takoradi, Ghana. TAQA owns a 90% interest in the combined-cycle power plant, and has signed a 25-year power purchase agreement with Ghana’s state-owned Volta River Authority.

The upgrades raised capacity at the plant by 50%, with no increase in fuel consumption or emissions. Meanwhile, in Morocco, Jorf Lasfar Energy Company, TAQA’s Moroccan subsidiary, meets around 50% of domestic electricity demand with a power generation capacity of 2056 MW. In 2015 TAQA also began commercial operations at its Bergermeer gas storage facility in the Netherlands, and has plans to commission two further power plants in India and Fujairah before the end of 2015.

Renewable energy is also expected to play an increasingly important role in Abu Dhabi’s power generation in the near future. The emirate is currently working towards a 7% (450 MW) renewable target by 2020, while the UAE federal government is aiming for renewable energy to account for 24% of the energy mix by 2021 (see Energy chapter).

Nuclear

The biggest shake-up to Abu Dhabi’s power sector, however, will arrive with the launch of the Barakah Nuclear Power Plant, which is due to begin producing power in 2017 and will eventually have an output of 5600 MW – representing more than a third of current generation capacity.

The plant will consist of four APR-1400 reactors, currently being built by a consortium led by Korean contractor Korea Electric Power Corporation (KEPCO). The plant, which has a construction budget in excess of $20bn and expected operational costs across its 60-year lifespan of a further $20bn, was described in local press as having entered a “critical phase” of construction in 2015, as the second reactor vessel was put into place.

One significant challenge relates to delays at KEPCO’s Shin Kori reactor in Korea. This reactor will serve as a prototype for the APR-1400 and provide the operating procedures template for the UAE plants.

Oversight

The UAE’s nuclear project makes it the first newcomer to civil nuclear power in 27 years. In 2009 the government established the Emirates Nuclear Energy Corporation to act as the deployer, owner and operator of nuclear power plants within the UAE, while oversight of the sector will be the responsibility of the Federal Authority for Nuclear Regulation (FANR). The UAE has consulted heavily with the International Atomic Energy Agency throughout the process of acquiring civil nuclear power, and the country has been held as a model for new entrants to the sector.

Christer Viktorsson, director-general of FANR, spoke with OBG about some of the challenges and choices associated with developing a domestic nuclear sector almost from scratch. “When it comes to nuclear waste there are various options available,” he said. “One of them is the ‘Nordic model’ whereby high-level nuclear waste is kept on-site to be cooled for 30-40 years. After that, it can be placed underground in containers isolating it from the environment. This presents minimal risk to the environment provided the storage site lies in geologically stable regions.” In addition, the programme has also provided a significant opportunity for Emiratis to gain skills in the sector. “Emiratisation throughout the UAE’s nuclear programme is a top priority,” Viktorsson told OBG. “Khalifa University has been selected by the government to be a centre for nuclear engineering with high-specification laboratories and facilities available to pupils. Students will have to work hard, but career prospects and job opportunities are extremely favourable given that the UAE is at the very forefront of nuclear energy in the region.”

Water

The arrival of nuclear power is likely to have a knock-on effect on the water sector. David Barlow, general manager of Summit Global Power Abu Dhabi (part-owner of the Shuweihat S1 plant), sees fewer projects in the power sector going forward as a result of the huge capacity due from nuclear. As a result, he expects to see more independent water plants (IWPs), as power and water generation begin to separate. “Currently, water generation is flat-out – anything that’s produced gets used,” Barlow told OBG. “But power demand is variable. Indeed, one of the plants here is in shutdown over the winter as the power isn’t needed.”

The technology behind Reverse Osmosis (RO) has matured to the stage that it represents a viable option in the Gulf, where salinity is high. One area where RO is being rolled out is Fujairah, which unlike Abu Dhabi lies on the coast of the Gulf of Oman, where salinity is less of an issue. Emirates Sembcorp, a joint venture between ADWEA and Singapore’s Sembcorp, has been working on a 30-MIGD capacity plant in the emirate since 2013, to be built within the premises of the existing Fujairah 1 IWPP. The RO facility was due to enter service in the second quarter of 2015, though in early October 2015 it was reported that Emirates Sembcorp was also looking to issue a $350m project bond early in 2016 to refinance loans taken out to build the Fujairah 1 IWPP.

While the Fujairah RO plant will set a high standard for efficiency of 3.7 KWh per cu metre, four small-scale pilot desalination plants soon to enter operations in Abu Dhabi will look to produce water at less than 1 KWh per cu metre. The trial, which is funded by Abu Dhabi Future Energy Company (Masdar) and is taking place at Ghantoot, includes advanced RO as well as Forward Osmosis technology, and will run until mid-2016. “Thermal technology has some advantages, but going forward it will be RO that will most likely be introduced as it brings down the unit cost without compromising quality. This is imperative as water security is a vital issue that has to be addressed. Not only do we need to diversify how water is produced, but also diversify the locations where water is produced,” Ahmed Al Adawi, senior vice-president of GCC and India in TAQA energy, told OBG.

Pricing

While the government is continuing to ensure that supply keeps pace with demand, the authorities have also taken steps to encourage more efficient use of both water and electricity. On January 1, 2015, the RSB introduced a new fee structure which rewards careful consumption. The new consumer tariff provides an allowance for nationals and expatriates below which power and water is charged at a lower rate. For nationals, these charges are Dh5 ($1.36) per KWh and Dh1.70 ($0.46) per 1000 litres, while for foreign residents the tariffs are Dh15 ($4.08) per KWh and Dh5.95 ($1.62) per 1000 litres.

A higher rate is then applied for usage above a certain level per day. For electricity, the higher tariff of Dh5.50 ($1.50) per KWh kicks in at between 30 and 400 KWh for nationals in flats and villas, respectively, while for expatriates it starts at between 20 and 200 KWh and costs between Dh21 ($5.72) and Dh29.30 ($7.98) per KWh. For water, the lower rate expires at 700 or 7000 litres of water for nationals in flats or villas, and is charged at Dh1.89 ($0.51) per 1000 litres. Expatriates are charged at Dh9.90 ($2.69) per 1000 litres when usage reaches 700 or 5000 litres, depending on the type of residence.

The new price structure follows several years of rapid growth in demand, and complements the government’s desire to reduce subsidies for water and energy. In October 2015 Suhail Al Mazrouei, the minister of energy, called for Dh3.5bn ($952.7m) of savings in water and energy, in light of the estimated Dh35bn ($9.5bn) the UAE government spends on subsidies for these utilities each year. Rather than an annual increase in consumption of 6%, Al Mazrouei told local press he hoped consumers would reduce demand by 10%. Around the same time the UAE government also moved to reduce subsidies on retail fuel prices (see Energy chapter), suggesting utilities may also move in this direction in coming years.

Indications from sector sources would seem to suggest that the new tariff structure has played some role in lowering consumption, with unaudited figures pointing to a drop of 7.5% for water in particular. ADDC has invested in a pilot scheme to install smart meters, which can help determine peak and off-peak times and better manage supply, and provide customers with a rebate for shifting consumption.

Outlook

The coming two to three years will be a momentous period for energy in Abu Dhabi and the wider UAE, as the emirate becomes the first place in the Arab world to harness nuclear power for civil energy purposes. The arrival of nuclear will have a transformative effect on the utilities sector: not only are significant works already being undertaken to handle the increased load which nuclear will produce, but the decoupling of power and water will likely also lead to increasing opportunities for investment in IWPs. Furthermore, the additional generation capacity may see Abu Dhabi playing more of a role in exporting energy to its neighbours.

Equally, the creation of a new Energy Authority will create a subtly different organisational framework for the sector, with the RSB likely to focus more on an internal regulatory role, and the distribution companies taking on a greater role in customer relations.