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New projects offer crossroads for utility developers

29 July 2024

Commentary
Jennifer Aguinaldo
Energy & technology editor

Following four lacklustre years, projects activity has rebounded for the region's conventional power generation sector.

At least five combined-cycle gas turbine (CCGT) plants with a total generation capacity of 14.7GW are under bid in four of the GCC states, excluding the 3GW-4GW of capacity being directly negotiated by Saudi Arabia's principal buyer, Saudi Power Procurement Company (SPPC), and Saudi Electricity Company. 

However, the robust projects activity is being met with a dwindling number of bidders in some cases.

While four consortiums submitted bids in July 2023 for the contracts to develop the Taiba 1, Qassim 1, Taiba 2 and Qassim 2 independent power projects (IPPs) in Saudi Arabia, only one consortium submitted a bid on 25 July for the contract to develop Qatar's Facility E independent water and power project.

The main differentiator appears to be the presence, or absence, of a clause to deploy carbon-capture solutions during the lifecycles of the projects.

Some international developers require the inclusion of a serious carbon-capture provision for them to bid for future conventional power generation plants, the concession agreements for which usually extend 20-30 years, depending on the jurisdiction.

Given that the construction of a utility-scale conventional power plant usually takes an average of three years, a typical 25-year power-purchase agreement (PPA) implies contract expiry not earlier than 2052, overshooting most developers' 2050 net-zero targets.

SPPC has indicated that its under-construction CCGTs, and those that it plans to procure, will be carbon-capture-ready, which indicates an intention that such technology could be in place during the projects' contract duration.

Of the five CCGT schemes under bid, however, only Abu Dhabi's Taweelah C has so far required a provision for carbon-capture solutions and a shorter PPA, in line with the UAE's plan to reach net-zero carbon emissions by 2050.

The PPA for the Taweelah C IPP is expected to expire by 2049, making it several years shorter than usual.

State utility Emirates Water & Electricity Company has prequalified nine developers that can bid for the contract, the majority of which have existing and operational CCGT assets in Abu Dhabi.

There remains uncertainty about whether some international developers will decide to bid for the Taweelah C and other future contracts, as they try to reconcile their sustainable and commercial strategies.

The others see these as major opportunities to expand their presence and win long-term contracts vital to their commercial success after years of waiting for the established developers to step back.

 

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Jennifer Aguinaldo

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    The exclusion of dominant utility developer Acwa Power in the prequalification process for the NREP’s fifth and sixth procurement rounds has also opened up opportunities for other international and local developers that are keen to win more contracts in Saudi Arabia.

    Aljomaih Energy & Water, Ajlan & Brothers, Alfanar, Algihaz and SEC’s developer arm have been pursuing new contracts, usually in cooperation with an international developer.

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    “We are definitely interested,” says a senior executive with a European utility developer, referring to the first phase of the kingdom’s independent storage provider (ISP) programme.

    In addition to its net-zero merits, the ISPs will follow the same model as an IPP project, where the successful bidders will hold 100% equity in the special purpose vehicles set up to develop and operate the project.

    While such strong interest is expected to benefit the principal buyer, which can expect to receive competitive prices from bidders, an over-competitive or crowded landscape could also be off-putting to developers and investors that are keen to maintain their internal rate of return, or which are shifting their global focus to other geographies.

    “We prefer to wait and see,” one source tells MEED, indicating that their company does not intend to participate in upcoming battery tenders, not only in Saudi Arabia but also in other GCC states.

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    Jennifer Aguinaldo