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Acwa Power widens equity gap in power developer league

2 October 2023

 

The equity gap between Saudi utility developer Acwa Power and the other private utility developers in the GCC region has continued to widen, according to MEED’s annual GCC power developer ranking.

Acwa Power’s net capacity reached 13,340MW. This has doubled its lead to 67 per cent over France’s Engie, whose net capacity of 7,987MW has remained unchanged.

Over the past 12 months, power-purchase agreements were signed for six solar independent power producer (IPP) projects, as well as for a multi-utility public-private partnership contract and a cogeneration plant.

The seven contracts have a total combined power generation capacity of more than 8,000MW.

Acwa Power gained more than 2,900MW in net capacity over this period. This was due in large part to a 35 per cent equity share in the 2,060MW Shuaibah 2 solar power project and a 50 per cent shareholding in each of the Saad 2, Ar-Rass 2 and Kahfah solar photovoltaic (PV) projects. 

These contracts were procured by the kingdom's Public Investment Fund (PIF) through the Saudi renewable energy price discovery scheme.

Notably, the 600MW Shuaibah 1 solar IPP scheme, which was publicly tendered and awarded to an Acwa Power-led consortium under the second round of the National Renewable Energy Programme (NREP) in 2021, has been combined with the PIF’s Shuaibah 2.

Under the final scheme, which reached financial close this year, Acwa Power’s shares in Shuaibah 1 decreased from 50 per cent to 35 per cent. The shares of its partners Gulf Investment Corporation and Al-Babtain, which originally maintained 30 per cent and 20 per cent, respectively, have been bought by PIF subsidiary the Water & Electricity Holding Company (Badeel) and Saudi Aramco Power Company (Sapco).

As with Engie, the net and gross capacities of Japanese firms Marubeni, Mitsui, Sumitomo and Jera also remained unchanged, with no new contract wins in the period.

Ranked 10th in the previous year’s listing, France’s EDF rose three spots this year to claim seventh place, which was previously held by Korea Electric Power Corporation (Kepco).

EDF’s rise came as a result of winning contracts for two major schemes. It was selected together with South Korea’s Korea Western Power Company (Kowepo) to develop Oman’s 500MW Manah 1 solar IPP project, and was also awarded a multi-utility contract with the UAE’s Abu Dhabi Future Energy Company (Masdar) for the Amaala development in Saudi Arabia, which includes a 250MW solar power farm.

EDF overtook Kepco despite the South Korean firm’s successful bid for the Jafurah cogeneration plant, where it maintains a 60 per cent equity. The scheme’s power generation plant has a capacity of 320MW.

Singapore’s Sembcorp and China’s Jinko Power, which comprise the team that won the Manah 2 solar IPP contract in Oman, occupy the ninth and 10th spots, respectively.

Saudi utility developer Aljomaih Energy & Water Company relinquished its 10th spot last year.

Power tariffs have scope to improve

A different view

Saudi Arabia’s renewable energy price discovery tool is becoming a potential game-changer for the competitive landscape of GCC power developers.

It allows Acwa Power to submit a proposal to match the most recent prices obtained through each round of the NREP public tendering process, which is overseen by the state-backed principal buyer, Saudi Power Procurement Company (SPPC).

Under the price discovery scheme, the PIF will only invite other developers to bid for a contract if Acwa Power fails to match prices achieved through the public tenders.

Acwa Power has so far won all five of these contracts, which have a total combined capacity of 8,110MW.

Since the PIF is tasked with procuring 70 per cent of Saudi Arabia’s 58,700MW renewable energy capacity target by 2030, the Saudi sovereign wealth vehicle is expected to procure a further 32,000MW of renewable capacity over the coming years using the price discovery scheme.

Given the scale of the PIF’s programme, and the extent to which it has expanded Acwa Power’s renewables portfolio this year, a separate league table that includes only IPPs and independent water and power producer (IWPP) projects that have been publicly tendered, or simultaneously tendered to a pool of qualified private utility developers, offers interesting insights.

Excluding the PIF contracts reveals that the ranking of the private utility developers based on their net capacity – or the capacity commensurate to a developer’s equity shareholding in each power generation asset – is unchanged. Acwa Power remains at the top, with a total equity capacity of more than 9,800MW, compared to Engie’s nearly 8,000MW.

However, their gross capacity rankings reverse when the PIF contracts are excluded. Engie leads by 4 per cent in terms of gross capacity, or the total capacity of power plants that they are developing alone or with consortium partners.

Gas revival

No new gas-fired IPP or IWPP projects have been let in the GCC since 2021, when most principal buyers and utilities began to focus on increasing their renewable energy capacity in line with their countries’ decarbonisation agendas.

With the exception of the UAE's Fujairah F3 and Saudi Aramco’s Tanajib and Jafurah cogeneration plants, solar and wind power plants have accounted for the majority of private power generation capacity that has been procured since 2020.

This is set to change in the next 12-24 months as renewed demand for combined-cycle gas turbine (CCGT) plants is driven by the need to decommission old fleets that burn liquid fuel, or to replace expiring baseload capacity.

As of September this year, gas-fired power plants account for approximately 60 per cent of the GCC region's planned power generation plants that are likely to be awarded in the next 24 months, according to MEED research. 

The bid evaluation process is under way for four gas-fired IPPs in Saudi Arabia with a total combined capacity of 7,200MW. These are the first gas-fired IPP schemes to be procured by the kingdom since 2016.

A further three IWPP schemes – Kuwait's Al-Zour North 2 & 3 and Al-Khiran 1 and Qatar’s Facility E – are in the procurement stage. These schemes have a total combined power generation capacity of 6,800MW.

Next year, SPPC is expected to begin the procurement process for two gas-fired IPPs: the PP15 in Riyadh and another in Al-Khafji. Each is expected to have power generation capacity of 3,600MW.

Abu Dhabi’s Emirates Water & Electricity Company (Ewec) is also expected to initiate the procurement process for two CCGT plants with a total combined capacity of 2,500MW before the end of 2023.

Renewable arena

The revival of gas-fired schemes will not necessarily come at the expense of renewables, however.

The region’s largest market has ramped up its issuance of solar and wind tenders over the past 12 months and is expected to sustain or even accelerate the pace of its renewables procurement.

Saudi Arabia needs to procure at least 43,000MW of renewable energy capacity through public tenders and direct negotiations over the next six years to meet its 2030 target. This equates to about 7,200MW a year – twice its current average.

Overall, the future strength of the market for private utility developers is ensured by a growing clientele in Saudi Arabia that includes Neom and its subsidiary Enowa, in addition to the utilities in the other five GCC states, and the large conglomerates and organisations that aim to build captive power plants.

A case in point is the 35,000MW of solar and wind energy projects are in the pre-development stage for Neom, which aims to be powered 100 per cent by renewable energy by 2030.

Abu Dhabi also plans to procure at least 1,500MW of solar PV capacity annually over the next 10 years, in line with its goals for decarbonising its electricity system.

Developers’ dilemma

A Dubai-based executive with one of the international developers active in the region says: “It has been a very busy year for us. If all of these plans come through in the next 12-24 months, it will be even busier.”

The executive is unsure whether all the planned gas-fired projects will materialise, however. “We have been here before, and some of these projects have experienced major delays in the past for reasons that are not even related to decarbonisation or net-zero targets.”

Given the GCC states' carbon emissions reduction targets and the recent easing of supply chain constraints, solar and wind IPPs appear to offer greater certainty for utility developers, many of which are also beholden to internal decarbonisation targets that include a reduction of their existing thermal fleets.

The contracts for five solar and three wind IPPs in the region are expected to be awarded soon.

Masdar has outpriced Acwa Power for the 1,800MW sixth phase of Dubai’s Mohammed bin Rashid al-Maktoum Solar Park project. A team of EDF and Kowepo has also submitted the lowest bid for the 1,500MW Al-Ajban solar PV IPP in Abu Dhabi.

In addition, SPPC has shortlisted bidders for two solar PV IPPs with a total combined capacity of 1,500MW under the NREP fourth round. It also expects to receive bids soon for three wind IPPs with a total combined capacity of 1,800MW.

Tenders for the NREP’s fifth round and Abu Dhabi’s fourth utility-scale solar PV farm are also expected imminently.

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Jennifer Aguinaldo

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    Saudi Arabia is likely to remain dominant, particularly if SPPC and the PIF activate a plan by the Energy Ministry to procure 20,000MW of renewable energy capacity annually until it reaches its target for renewables to account for half of its energy production mix by 2030.

    Morocco has the second-largest power projects pipeline thanks to several planned schemes to export clean energy and green hydrogen to Europe. Notably, the tender is under way for the country’s first two solar PV plus battery energy storage system (bess) projects, Noor Midelt 2 and 3.

    Abu Dhabi also maintains a substantial renewables and gas-fired generation project pipeline. It has several upcoming IPPs with a total combined capacity of over 7,000MW, of which more than 6,000MW is in the tendering stage.

    While the procurement process for Saudi Arabia’s first nuclear power plant in Duwaiheen has been delayed, the UAE has plans to procure the next phase of its nuclear power plant project in Barakah.

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    Egypt, Iran, Kuwait and Iraq have the next largest power projects pipelines. The key drivers in each state vary, with populous countries Egypt and Iran seeking to develop integrated green hydrogen hubs and nuclear power capacity, respectively, while Kuwait remains a promising market with extended plans to procure both conventional and renewable energy capacity to address peak demand.

    There are indications that Iraq’s first utility-scale solar PV scheme – a 1GW project being developed by France’s TotalEnergies – will head into the construction stage in the coming months, along with other similar projects for which preliminary agreements were signed by Iraqi authorities in 2021-22.

    Oman is actively pursuing renewable energy capacity, with the state offtaker having tendered the contracts for two wind IPPs in September 2024.

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    In November, Bahrain started the procurement process for its fourth independent water and power project (IWPP) in Sitra, which replaced the previously planned Al-Dur IWPP 3 scheme.

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    The Middle East’s projects market in 2024 has been fuelled by the same heady cocktail of favourable oil prices, continued investment into oil and gas projects, government infrastructure spending, the energy transition, real estate investment and economic diversification that propelled the total value of awards in 2023 to record levels.

    By the end of October 2024, there were $262bn of contract awards across the Middle East and North Africa (Mena) region, according to regional projects tracker MEED Projects. By the end of the year, the 2024 total may top the $290bn recorded in 2023. 

    While economic diversification is a priority for governments across the region, oil and gas remains a key sector for project awards. The three largest contract awards in 2024 were from the sector.

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    Next was the $8bn deal won by China’s Hualu Engineering Technology Company for delivering the Al-Faw refinery in Iraq for Southern Refineries Company.

    The third-largest award was a $5.5bn contract won by a joint venture of France’s Technip Energies, Japan’s JGC Corporation and the UAE’s NMDC Group for the Ruwais low-carbon liquefied natural gas terminal project by Abu Dhabi National Oil Company (Adnoc).

    These contract awards mean that the oil and gas sector accounted for 32% of the $262bn total that was recorded in the Mena region by the end of October 2024.

    Breaking down the sector into oil and gas separately reveals a telling trend. Oil accounts for 12% of awards, while gas accounts for 20%. These numbers reflect the growing importance of gas as a transition fuel that is cleaner and more environmentally friendly than oil, but still provides the dependable energy that many renewable alternatives still do not offer. 

    Strong performances

    Construction is the second-largest sector after oil and gas, accounting for 23% of awards. Its significance has dropped in 2024 compared to 2023, when it accounted for 32% of contract awards. 

    In terms of value, there were $68bn of contract awards in 2024 until the end of October. If the same pace is maintained during November and December, the 2024 total is expected to be about $81bn, which falls short of the 2023 total of $97bn. 

    While the total value of contract awards may have dropped, there was the largest construction contract award on record in 2024 – a $4.7bn deal secured by Italian contractor WeBuild for the construction of three dams for the Trojena mountain resort at Saudi Arabia’s Neom gigaproject. 

    The power sector accounted for 18% of the total awards during the period, the largest of which was the $5.3bn contract won by Saudi Arabia’s Alfanar Projects and China Electric Power Equipment & Technology Company for the 7,000MW Saudi Central, Western and Southern Regions high-voltage direct current overhead transmission lines project being developed by Saudi Electricity Company.

    When analysed by country, Saudi Arabia and the UAE dominate the market, and together they account for over 60% of contract awards across the region in 2024 up to the end of October. 

    As the region’s largest economy, it is unsurprising that Saudi Arabia accounts for the largest share, with 38.6%, followed by the UAE, which had 22%. The next most significant country was Iran, which came in a distant third with 8% of contract awards. 

    The outsized contribution of Saudi Arabia and the UAE reflects the relative economic stability found in the GCC compared to other countries in the region that are grappling with the impact of conflict and other associated financial pressures. 

    Looking beyond the contract awards numbers, the biggest project announcement in 2024 came in April, when Abu Dhabi investment vehicle ADQ released details of plans to invest $35bn in Egypt. The plans involve ADQ acquiring the development rights for Ras El-Hekma, a planned new city on Egypt’s northern Mediterranean coast, for $24bn. 

    The development has been billed as having the potential to attract over $150bn in investment.

    In October, ADQ appointed its subsidiary Modon Holding as the master developer for Ras El-Hekma. Modon will act as the master developer for the entire development, which covers more than 170 square kilometres (sq km). 

    Modon will develop the first phase, which covers 50 sq km, and the remaining 120 sq km will delivered with private developers.

    Key partners for delivering the project have already been found. For construction, Modon has signed a framework agreement with Egyptian firm Orascom Construction to serve as the primary contractor for the project’s first phase. 

    Modon also signed a deal with Abu Dhabi National Energy Company (Taqa) for developing, financing and operating greenfield utility infrastructure projects, water desalination projects, electricity transmission and distribution projects and wastewater projects at the Ras El-Hekma development.

    While economic diversification is a priority for governments across the region, oil and gas remains a key sector for project awards

    Future prospects

    Looking ahead, the performance of the projects market in 2025 will depend  on the favourable macroeconomic conditions remaining in the GCC, which if the other four members of the six-nation bloc are added, accounted for nearly 72% of the Mena region’s total contract awards during the first 10 months of 2024. 

    The key metric to watch in 2025 will be the oil price. In mid-November, the price of Brent Crude was $72 a barrel, which is below what many in the region, including Saudi Arabia, require if they are to maintain their project spending plans. 

    The outlook for oil prices is uncertain and after oil producers’ group Opec cut its global demand growth forecasts for both 2024 and 2025 for the fourth time, highlighting economic weakness in China, India and other regions, there are concerns prices will dip in 2025. 

    The election of Donald Trump as US president adds to those concerns. He has promised to “drill, baby, drill”, and a sharp uptick in output from the US could cause oil prices to soften further.

    Trump is also a protectionist and has said ‘tariff’ is his favourite word. Most of his new tariffs are expected to be aimed at China, which could mean that Chinese companies look to other markets that remain open to them, including the Middle East.

    The appeal is clear to see. Chinese contractors already command a dominant position in the region – particularly in North Africa and Iraq – and Chinese companies will find great appeal in affluent markets such as Saudi Arabia and the UAE, which can offer large-scale project opportunities.

    The other metric that will drive the projects market in 2025 is real estate. In the UAE, much of the ongoing development work is supported by the buoyant property market, particularly in Dubai, which has grown strongly throughout 2024. 

    According to a report by data and analytics company Reidin, property sales in the UAE reached AED46.52bn ($12.7bn) in October 2024, marking a 55% year-on-year increase. Demand also remains robust, with 19,500 transactions recorded in October, reflecting a 72% rise compared to the same period in 2023. 

    Looking ahead to 2025, Reidin says that the outlook remains optimistic as sustained demand, rising property values and steady inventory turnover are all expected to continue driving growth. 

    While the forecast supports a positive outlook for construction in the UAE, those who have seen Dubai’s property market collapse before will be keenly watching the data in 2025.

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