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Thermal plants resurgence creates crossroads

25 April 2025

Commentary
Jennifer Aguinaldo
Energy & technology editor

The GCC states awarded $27bn-worth of gas-fired power plant contracts in 2024, up 127% from the previous year's figure, and nearly 300 times the value of similar contracts awarded in 2019, which sat at a record low of $93m.

And, while the values of awarded thermal plant and renewable energy plant contracts achieved parity in 2023, clients awarded thermal power plant contracts with a total value that was 172% higher than all awarded renewable contracts put together last year.

This trend establishes the return of gas as a feedstock for power generation plants across the GCC states, following years where only a handful of deals came through as a result of offtakers and utilities expanding their scope for renewable energy in line with their energy diversification plans.

The energy transition focus and the muted electricity demand growth throughout Covid-19 and shortly after the pandemic has meant that the comeback of thermal power plants has been fraught with challenges.

There is a squeeze on top original equipment manufacturers' capacity, with the top suppliers having clipped their capacity expansion plans in line with the anticipation that demand would fall, rather than rise, as the implementation of energy transition programmes took hold.

The sheer volume of new combined-cycle gas turbine (CCGT) projects in the GCC – and nearly everywhere else – has also put pressure on engineering, procurement and construction (EPC) contractors, which are now becoming more selective about which projects to bid on, in an effort to manage project delivery risks. 

This has led or is leading to a higher levelised cost of electricity (LCOE), as a diminished number of utility developers and investors that are still interested in bidding for thermal plant projects seek to protect their profit margins from elevated market risks. 

This, in turn, collides with the mandates of most offtakers and utilities to achieve "least-cost" energy transition.

It is also unclear whether the demand spike in CCGT, as well as the so-called peaker – or open-cycle gas turbine – plants, is short-lived, as a means to address the intermittency of renewables or replace liquid fuel-fired fleets, as is the case in Saudi Arabia. Or whether it is long-lasting, as a permanent solution to achieving security of supply that will have to co-exist with the emerging battery energy storage systems (bess) technology.

Based on data from regional projects tracker MEED Projects, the existing project pipeline for thermal power plants in the GCC remains robust, with about $10bn under bid, $9.4bn in prequalification and over $22bn under study and design.

However, this pipeline is significantly smaller compared to the more than $90bn of planned and unawarded renewable projects.

The continued deployment of renewables with or without bess, and the need to interconnect grids, will dictate to a large extent the pace at which offtakers and utilities in the region continue to procure thermal power plants.

It requires everyone in the supply chain to adopt an adroit and flexible strategy that will enable them to meet their net-zero targets while keeping their shareholders happy.

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Jennifer Aguinaldo

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