Acwa Power tightens grip on GCC water

26 January 2024

 

This report also includes: Mena water delivers exceptional growth


Time-bound sustainability objectives and improving economic conditions kept the GCC region’s water sector projects buoyant in 2023.

This coincided with the key milestones achieved by independent water producer (IWP) contracts awarded between 2020 and 2021, which reached either the commissioning or commercial operation stages in 2023 following two years of disruption caused by the Covid-19 pandemic.

The UAE awarded three IWP contracts in 2023 and Saudi Arabia awarded one. This was a remarkable recovery considering that there was only one contract award in 2021 and none in 2022, barring the directly negotiated contract for the development of Shuaibah 3 in Saudi Arabia.

In contrast, there were no new awards for independent water and power producer (IWPP) projects – a model that worked successfully from the 1990s until the mid-2010s, when policies started to shift away from thermal desalination technologies and towards IWPs that rely on reverse osmosis technology for water treatment.


Source: MEED

IWP awards

The IWP contracts awarded in 2023 include Mirfa 2 and Shuweihat 4 in Abu Dhabi, Rabigh 4 in Saudi Arabia and Hassyan 1 in Dubai. The four IWP schemes have a total combined capacity of about 2.3 million cubic metres a day (cm/d).

The award of these contracts resulted in higher net and gross capacities for Saudi utility developer Acwa Power, France’s Engie and Spain-headquartered GS Inima, relative to the last MEED water developer ranking published in January 2023.

Acwa Power’s overall net capacity leapt by 20 per cent in 2023 to reach approximately 3.5 million cm/d. This resulted from its 40 per cent equity in Dubai’s Hassyan 1 IWP project, which has a capacity of over 818,000 cm/d; and its 45 per cent shareholding in the 600,000 cm/d Rabigh 4 IWP.

Engie likewise posted an impressive two-digit rise in terms of its net capacity, growing from 1.67 million cm/d to 1.87 million cm/d, thanks to its 40 per cent equity in the Mirfa 2 IWP project in Abu Dhabi.

The size of the two projects that Acwa Power won in 2023, however, meant it managed to further widen its lead over Engie and the other private water developers operating assets across the GCC states.

At 3.5 million cm/d, Acwa Power’s overall net capacity is equivalent to the total combined net capacity of the next five developers in the ranking: Malaysia’s Malakoff, Japan’s Marubeni and Sumitomo, and GS Inima, in addition to Engie.

The Saudi utility developer has also for the first time overtaken Engie in terms of gross water desalination capacity. As
of the end of 2023, its gross capacity crossed 7.7 million cm/d compared to Engie’s 7.0 cm/d.

In terms of ranking, GS Inima registered the most significant improvement among the top 10 private water developer companies, advancing three spots to rank fifth, having grown its net equity capacity nearly 50 per cent to reach close to 383,000 cm/d. This change takes into consideration that Kuwait’s Gulf Investment Corporation (GIC), which was included in the previous index, has been excluded this year due to its role as an investor rather than a developer of water desalination projects.

GS Inima will maintain a 60 per cent shareholding in Abu Dhabi’s Shuweihat 4 IWP scheme, which is expected to reach commercial operation by mid-2026.

Despite not having won any new contracts, Saudi Brothers Commercial Company and Abdulaziz al-Ajlan, both Riyadh-based, managed to land in the top 10 ranking of water developers this year, mainly due to the exclusion of both GIC and Water & Electricity Holding Company (Badeel), which is fully owned by Saudi Arabia’s Public Investment Fund. 

Outlook

The next 12 months will likely be an active period for the water industry, particularly in Saudi Arabia.

This is mainly due to the target set by the kingdom’s Environment, Water & Agriculture Ministry to meet 92 per cent of Saudi Arabia’s water demand using desalinated water by 2030, to reduce reliance on ground and surface water.

Both Saudi Water Conversion Corporation, the world’s largest desalinator, which supplies 69 per cent of Saudi Arabia’s water, and Saudi Water Partnership Company (SWPC) will have to get “plants up and running as soon as possible to make this target”, says Robert Bryniak, CEO of Dubai-based Golden Sands Management Consulting.

Elsewhere – particularly in the UAE and, to a lesser extent, Oman – expiring contracted capacity and growing demand are expected to continue to drive the procurement of additional seawater reverse osmosis (SWRO) capacity.

The past few years have seen several international and local developers and investors enter the GCC’s water desalination market.

“The water industry could benefit by having more engineering, procurement and construction (EPC) contractors and developers, but I do not see this holding back procurers in launching new projects,” says Bryniak. “Having said that, there is definitely room for the water industry to accommodate more developers and EPC contractors.”

Tariff trend

Tariffs, or the long-term levelised costs that offtakers pay for water that private developers produce, are expected to trend upwards in 2024. This is due to higher interest rates and inflationary pressures on materials and supplies.

“These considerations, coupled with a limited number of experienced EPC contractors with excess contracting capacity, suggest that it will be tough seeing lower tariffs this year,” Bryniak says.

“We expect this trend due to the expected higher costs,” says another water desalination expert based in the UAE.

“The tariff for the Hassyan 1 IWP was low, but I see that as an anomaly,” says Bryniak, referring to the $cents 36.5 a cubic metre ($c/cm) tariff that Acwa Power proposed last year to develop the Hassyan 1 IWP in Dubai.

The previous tariff bid for the project was about 30 per cent lower than that proposed by Acwa Power last year, and it is likely that the bidder “had tremendous pressure to maintain a relatively low tariff to secure the project”, says Bryniak.  

Future projects

SWPC issued the tender for the contract to develop the Jubail 4 and 6 IWP schemes on 1 January, and the tendering process is also under way for the Ras Mohaisen IWP. Both contracts are expected to be awarded before the end of this year.

In addition, SWPC has indicated that four more IWPs are expected to reach commercial operation by 2027, which implies that it could start seeking interest from developers for these projects in the next 12-24 months. 

Under the latest plan, the Ras al-Khair 2 and 4, Al-Rais 2 and Tabuk 1 IWP projects will have a combined total capacity of 1.7 million cm/d.

In the UAE, Acwa Power is understood to be the sole bidder for the 400,000 cm/d Hamriyah IWP in Sharjah. The contract could be awarded in the first half of 2024.

In Abu Dhabi, the tendering process is under way for two SWRO plants that will be developed under one contract. The Abu Dhabi Islands SWRO projects will each have a capacity of 227,000 cm/d.

Kuwait’s two IWPPs – Al-Zour North 2 & 3 and Al-Khiran 1 – and the Facility E IWPP in Qatar include water desalination units with capacities of 695,000 cm/d and 454,000 cm/d, respectively.

MEED understands that an option is open for the bidders to use membrane technology for the desalination units of these planned facilities.

Unstoppable

Acwa Power thus appears unstoppable given its plans to further consolidate its presence in the region’s water industry, and pursue new technologies and partnerships, as its CEO Marco Arcelli told MEED in July last year.

The company plans to work with Japanese membrane technology provider Toray Industries to explore energy-saving technologies for SWRO. It is also working with other suppliers located in the US, Japan and China, as well as with Saudi Arabia’s King Abdullah University of Science & Technology to explore energy-efficient solutions for treating seawater.

The scale of the IWP projects Acwa Power has won between 2019 and 2023 enables it to outprice key competitors, or bid for projects deemed too risky by other developers.

The firm’s offer to develop Rabigh 4 for $c0.458/cm, for instance, was lower than what some of its competitors anticipated Acwa Power was capable of offering, although it lost Mirfa 2 to Engie a few months earlier.

As it is, Acwa Power won five of the 12 IWP contracts that were tendered and awarded in Saudi Arabia, the UAE and Oman during the past four years, equivalent to more than 56 per cent of the gross capacity awarded over that period.

Other developers should take note as they establish strategies to win more contracts in the future and potentially slow down Acwa Power's three-year sector dominance.

 Mena water delivers exceptional growth 

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Jennifer Aguinaldo
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