The power and water sector in Abu Dhabi has changed dramatically in the past 15 years. With partial privatisation at the end of the last century, the provision of utilities in the emirate has improved significantly, while disruptions and inefficiencies in both networks have also been greatly reduced under the new model. However, with the growth in demand for services increasing and showing no signs of diminishing any time in the future, the challenges in the coming decade will be no less testing and the sector’s dynamics will likely shift again. The coming years are therefore expected to be crucial in establishing the specifics of how the evolving generation mix will meet demand, as well as finding ways to integrate the new government-led generation projects into the emirate’s existing utilities structure.


In 1999 the government moved towards the partial privatisation of the utilities sector with the establishment of the Abu Dhabi Water and Electricity Authority (ADWEA), a fully government-owned entity with financial and administrative independence. ADWEA was tasked with restructuring and unbundling the sector to boost efficiency and cost-effectiveness in the supply of power and water. Through this restructuring, Abu Dhabi settled upon a single-buyer model under which the Abu Dhabi Water and Electricity Company (ADWEC), a wholly owned subsidiary of ADWEA, became the offtaker (buyer) of power and water from private generation operators, as well as the seller to ADWEA’s subsidiaries, the Abu Dhabi Distribution Company (ADDC) and the Al Ain Distribution Company (AADC).

Rather than generate competition through an electricity pool with a number of bidders, the sector employs a competitive bidding scheme to build, own and operate independent water and power plants (IWPPs) on a long-term contract basis. The main determinant of the success of a bid is the tariff price at which private generators would sell electricity and water to ADWEC, a measure that was designed to reduce the cost of power and water production in the emirate.

From an investor’s perspective, the new regulations enshrined a minimum return on equity of 13% for the IWPP company – this was subsequently reduced to 11% in order to better reflect the changed interest rate environment and risk scenario. “With investment directed towards upgrading utilities, wastewater and sewage facilities, opportunities have emerged for companies operating in the sector as well as newcomers,” William Haddad, the founder and chairman of UAE-based Mechanical and Civil Engineering Contractors, told OBG.

IWPP Investment

 The ownership of each IWPP is structured to give 40% to a foreign investor, usually as a consortium of power and water producers, with the remaining 60% retained by a local holding company. The Abu Dhabi National Energy Company (TAQA) has held 90% of the retained 60% since its establishment about nine years ago in 2005. The remaining 10% is held by ADWEA. TAQA itself is 51% owned by ADWEA, 24.1% by the government Farmers’ Fund and 24.9% by public shareholders via a listing on the Abu Dhabi Stock Exchange.

Transmission & Distribution

Under the current structure of the sector, transmission, distribution and sales are monopolies. Thus, the Regulation and Supervision Bureau (RSB), established as an independent regulator in the same year as ADWEA’s launch in 1999, provides strict oversight of the sector. The bureau has also instituted a price control mechanism in order to ensure efficient investment in the transmission and distribution networks, Abu Dhabi Transmission Company (TRANSCO), ADDC, AADC and the wastewater network firm, Abu Dhabi Sewerage Services Company (ADSSC).

For each four-year regulatory period, RSB determines a maximum allowed revenue (MAR) for each licensee across the network. This accounts for cost of capital, depreciation and operating expenses for the activities of all the network companies. The RSB sets the capital allowance based on the historical spend in the sector with revisions at the end of each price control period based on the actual spend and a determination of whether it was efficient. The fourth and latest price control period, known as PC4, closed at the end of 2013, with the RSB concluding the final determination of the network MAR for PC5, which runs from 2014 to 2018.

Track Record

ADWEA’s restructured utilities system, working for more than a decade now across nine IWPP companies, has been a demonstrable success. The IWPP model accounts for more than 95% of generation and has shown substantial benefits for both the government and private investors alike.

At the transmission and distribution level, the RSB’s regulatory oversight has produced a very robust network at a competitive cost. The capital investment programme has been extensive, leading to a secure and reliable network. Losses on the TRANSCO electricity transmission network do not exceed 2%, according to ADWEA.

Furthermore, the cost of developing and operating the transmission and distribution network has come down on a per unit basis. According to the RSB, the actual MAR across the electricity network is expected to quadruple from its levels in 1999 by 2018 (in real terms). However, if the rapid escalation in demand is factored in, the unit cost of electricity across the network is expected to be about 30% lower in 2018 than in 1999.

Similarly, in water provision, while the absolute MAR for transmission and distribution is expected to be 270% higher in 2018 than in 1999, on a per unit basis it will decrease by 20%. Given that capital expenditure accounts for more than 60% of MAR, this illustrates in particular the efficient deployment of capital throughout the power and water network.

Generation Gains

From a generation perspective, the privatisation process has brought similar benefits in terms of cost reductions and the efficiency of production for the government of Abu Dhabi, as well as attractive investment opportunities for both foreign and local investors. ADWEA continually adapts its privatisation model in order to fit existing market conditions. For example the latest project to reach financial closing the Shuwaihat 3, a 1,600 megawatt independent power producer to begin generation later this year, is the first project to be power only, a change which was due to the changing profile of the system in Abu Dhabi. The highly competitive tender illustrates the advantages of Abu Dhabi’s extensive roll-out of the IWPP model.

Attractive Model

Indeed, while the nominal unit cost of electricity supplied to customers has increased by 53.3% to Dh0.328 ($0.09) per KWh between 2007 and 2013, the current structure of the sector is serving the emirate well. Power producers and the financial sector alike have readily embraced the model within Abu Dhabi. It is clear that IWPP tenders are an attractive proposition for power developers given that they provide contract-backed offtake on a long-term basis (usually 20 years) in a stable environment backed by an “AA/ A-1+” sovereign rating. The minimum 11% return on investment embedded in the contract also helps to explain the strong competition for the IWPP bids.

The experience of TAQA, which with its 24.9% public listing has become an important vehicle for local shareholders to enter the market, illustrates the opportunities available for investors, the risks and the strong performance of the emirate’s utilities sector. TAQA has operations across a number of markets in both utilities and oil and gas. In July 2013 it completed the issuance of $825m in project bonds for the Ruwais Power Company Shuwaihat 2 power and desalination plant in the emirate’s western region. It was issued at a coupon rate of 6% with a final maturity in August 2036.

While the pricing looked attractive for investors, given the stake Abu Dhabi’s government has in the company, TAQA was also pleased with the cost of financing. Carl Sheldon, CEO of TAQA, told OBG, “That’s pretty good, especially as there is a premium associated with the region that is too strong. We’re pleased with financing with both our project debt in plants and public bonds in the market… We have been able to narrow our spread against the Abu Dhabi sovereign.” To some extent, this is a reflection of the low-risk domestic utilities sector that presents good returns on projects.

Indeed, the IWPPs have been able to reduce costs to the sector and ensure a strong financial return for their shareholders. As part of this process, the involvement of private capital in power and water generation has also improved plant efficiencies, enabling the optimal use of fuel among other benefits. “If you look at the fleet here, it is probably the most modern in the world. In terms of heat rates and degradation rates, they are state of the art. All the incentives in the contracts are maintained around how well the plant is assembled,” Sheldon said.

A demanding Future

As of the beginning of 2014 the emirate has an installed capacity of approximately 14,000 MW, while peak demand, including exports to the Northern Emirates, reached 11,243 MW in 2013, according to ADWEC. Growth in demand has been high over the past decade and shows little sign of abating. Overall local peak demand (defined as the sum of peak domestic demand and peak demand of exports to the Northern Emirates) grew at an annual average of 12% between 2005 and 2011. Peak demand in Abu Dhabi itself has averaged growth of 7.8% per year between 1998 and 2012. Moving forward, global demand increases are likely to be just as robust. ADWEC’s baseline forecast predicts a rise in peak demand from 11,556 MW in 2013 to 20,370 MW by 2020. By 2030, it is forecast to reach 32,824 MW.

Impact of ADNOC

In the short term, a substantial additional component of this demand will be provided by the Abu Dhabi National Oil Company (ADNOC), which will also see growth in its demand for power. ADNOC will increasingly be sourcing its power from the ADWEA network rather than self-generating, which will give the company more security for its supply and allow it to focus on its core business of hydrocarbons production. From the perspective of ADWEA, it will, given ADNOC’s fairly flat load profile, allow for higher load factors and better base load demand. The move will have a profound effect on ADWEC’s demand forecast.

According to Keith Miller, director of planning and studies at ADWEC, “We effectively have a new customer coming onto the system”. Between 2012 and 2015, ADNOC will account for 29.5% of the 4645-MW increase in peak demand (while population-related demand will make up another 29.6%).

The other new source of consumption pushing forecasts upwards is the growing needs of the Northern Emirates export market. Between 2012 and 2015, exports will account for around 20% of peak demand growth, while it will fall slightly to 17.3% of the 10,421-MW rise between 2012 and 2020. In the water sector, current capacity stands at 916m imperial gallons per day (MIGD), while total supply was 804 MIGD in 2013. Demand is forecast to hit 1089 MIGD by 2020 and 1307 MIGD by 2030.

Keeping Page

As such, it is clear that the emirate will require substantial additional capacity in both segments of the sector over the next decade. According to Sheldon, “The whole calculus around demand is based on what rate of growth we assume. If it’s at 4-6%, then we need to deliver 1000 MW of capacity every year. That’s a regular-sized plant every two years. But there will be questions around the steepness of the growth curve.”

It is, therefore, evident that investment in generation capacity will be on the cards in the near future. It is less evident from what source, in terms of fuel and funding, this demand will be met.

New Mix

The government has made a number of strategic and commercial calculations and taken the decision to diversify the emirate’s generation mix. While gas-fired plants (predominantly combined cycle) have traditionally met most of its capacity requirements, alternative sources of generation are being added. The first move in this direction was the 100-MW Shams 1 concentrated solar power (CSP) plant in the western region, commissioned in March 2013 and built at a cost of almost $600m. The plant was developed by the Shams Power Company, a joint venture between the Abu Dhabi Future Energy Company (Masdar) with 60%, Total (20%) and Abengoa Solar of Spain (20%) on a 25-year build-own-operate contract. There are also nascent plans to roll out additional plants, Shams 2 and 3, in order to help the emirate reach its target of generating 7% of electricity from renewables.

Using Waste

The Shams 1 project will possibly be joined by the emirate’s first waste-to-energy power plant. TAQA and the Centre for Waste Management Abu Dhabi have been evaluating the potential for constructing a plant to convert up to 1m tonnes of municipal solid waste into 100 MW of power by 2017. The facility would provide power for 20,000 homes in the emirate and would be operational in 2016-17.

Nuclear Plans

These ventures into clean and renewable energy will be dwarfed by the UAE’s nuclear plans (see analysis). The $20bn federal nuclear programme will deliver four nuclear power reactors with a capacity of 5600 MW in Barakah in the western region between 2017 and 2020. The programme, executed by the Emirates Nuclear Energy Corporation (ENEC), with the prime operation contract held by a consortium led by the Korea Electric Power Corporation (KEPCO), will meet 25% of Abu Dhabi’s power demand when all four reactors are on-line in 2020. These new projects will not only have an impact on the demand for further gas-fired plants under the current IWPP model. The nuclear project alone will comfortably meet all the additional population-related peak demand requirements between 2012 and 2020. Nonetheless, this will certainly not be the end of the gas-fired IWPP structure that has served the emirate so well over the past decade and a half. Miller told OBG, “Even with the additional nuclear generation capacity, we still see a need for additional supplies.”

Stand- Alone Water Plants

It is likely that new projects overseen by ADWEA will increasingly move away from joint electricity and water production on a single site. Indeed, with the nuclear facilities providing more than 5000 MW of base load, in the winter months, when demand for power is low, it would be inefficient and costly to run all the emirate’s power plants for the purpose of desalinating water. As such, ADWEA is likely to turn to the more cost-efficient method of standalone reverse osmosis water plants. While these will fall under the privatisation programme, ADWEA is currently looking at the development and structure of agreements for reverse osmosis water generation (see analysis).

Network Investment

Power and water demand in the emirate will also require substantial investment in the transmission and distribution networks. According to the draft proposals from the RSB for PC5, projected capital expenditure by transmission and distribution companies between 2014 and 2018 will reach Dh43.6bn ($11.9bn) (at 2014 prices). To achieve its immediate strategic objective of exporting 2500 MW to the Northern Emirates, TRANSCO has already been working to improve its transmission network. The authority has invested Dh5.3bn ($1.44bn) in upgrading the system to a 400-KV line. The aim is to ensure the same security of 400-KV transmission grid in the Northern Emirates as in Abu Dhabi. The work is due to be completed in 2014.

While there is currently no commercial trading of power between the UAE, Oman and the GCC grid, interconnection is in place for emergency situations. ADWEC exported a small amount of power to Bahrain in 2011, and the link to Oman is currently on a 220-KV transmission line. ADWEA is also in negotiations to upgrade the connection to 400 KV as a means of enhancing stability of the network and sharing the spinning reserve. TRANSCO’s development and investment has certainly provided Abu Dhabi with a firstrate transmission network. In the coming years, the network will continue to develop. TRANSCO is currently tendering for four additional 400-KV transmission lines to connect the anticipated 5600 MW of generation capacity at the new nuclear facilities planned for Barakah in the western region. The four units will be brought on-line between 2017 and 2020. ADWEA expects the transmission expansion necessary to facilitate this additional generation capacity will be complete by 2015. Another significant investment in the works from the transmission licensee is a project to transfer 400-KV power lines underground. This undertaking is expected to be complete by mid-2015.


Given the capital-intensive nature of waste management infrastructure, the ADSSC has to take a longer-term approach to capital investments. While the network as a whole is currently well set up to meet increasing demand (of 10% per year for the past six years), there could be stress on the network in particular areas that will require additional investment in the coming years.

Ian Smith, regulation office manager at ADSSC, told OBG, “We’re aligned with the Abu Dhabi Economic Vision 2030 in terms of meeting demand and we are working to its higher estimates. ADSSC is confident that it will be able to predict intense capital renewal periods.” The main component of this is the Dh5.7bn ($1.55bn) Strategic Tunnel Enhancement Programme, one of the world’s largest gravity-driven sewerage networks with a main tunnel running 41 km. The project will almost triple the network capacity and is due to be operational by 2015. As of October 2013, the main tunnel had been completed, with some 26% of sewer links also finished. “The new gravity-driven sewerage system is set to reduce carbon emissions and provide a more environmentally responsible wastewater collection facility,” Alan Thomson, managing director of ADSSC, told OBG.

This new transmission backbone will require investments in a new pumping station next to the Al Wathba Independent Sewerage Treatment Plant and there is also a prospect of additional capacity at the plant itself. Further, in late October 2013, ADSSC signed two contracts worth Dh721m ($196.25m) with Delma General Contracting and Besix Sanotec for the construction of a treatment plant in Al Ruwais and the renovation of the sewerage system.

“With investment directed towards upgrading Abu Dhabi’s utilities, wastewater and sewage facilities, new opportunities have emerged for companies operating in the sector, as well as newcomers,” Haddad told OBG. “However, this influx of newcomers created tougher competition with lesser margins to cover work risks normally found in congested areas.”


With strong demand growth anticipated across all facets of the utilities networks, investment will be required in both the short and medium terms, creating more opportunities for foreign capital and ownership in both the power and water supply systems in the emirate.

Furthermore, with the burden on transmission and distribution networks increasing, a steady stream of contracts should continue to hit the market over the coming years. Indeed, the environment for foreign and private participation remains quite impressive given the opportunities available for long-term, stable offtake contracts with guaranteed returns.