The energy sector stays ahead of demand as Qatar increases capacity

As Qatar’s population and economy have continued to expand in recent years, demand for utilities has also been increasing rapidly. Power and water consumption have recorded average growth rates of 10.4% and 7.7% a year, respectively, over the last half decade, according to the country’s main utilities authority, the Qatar General Electricity and Water Corporation (Kahramaa). Such growth has prompted the government to pursue a range of expansion projects to raise capacity, many of them with foreign and private sector help, from pilot solar power projects to a large new power and water plant now under way at Umm Al Houl.

A Shift In Focus

There are some signs that conservation efforts are starting to show results, as consumption of power and water in 2014 rose by 12.1% and 6.5%, respectively. In April 2016 Kahramaa said that per person electricity use declined 14% between April 2012 and November 2015, while water consumption per person also fell by 17% during the same period. At the same time data from the Ministry of Development Planning and Statistics shows that in December 2015 electricity utilisation increased 8.3% year-on-year (y-o-y), while per person water consumption dropped by 1.4%.

Two major developments have given new life to the country’s efforts to enhance efficiency and reduce consumption. First, the recent fall in oil prices – the commodity that provides the inputs for public utilities as well as the bulk of state revenues – has triggered a new focus on cost optimisation in the whole apparatus of the state, including power and water services. This shift was strongly signalled in a speech delivered by Sheikh Tamim bin Hamad Al Thani, the emir of Qatar, in November 2015 which, among other things, urged state officials to take steps to reduce government waste. Second, a rising global consciousness of climate change and the need for environmental sustainability has found its way into domestic public works projects. With its high disposable incomes and subsidised utilities services, Qatar had the second-highest carbon footprint in the world on a per capita basis, according to a 2014 World Wildlife Fund report, though this was down from first place in 2012 as the country pursues greener policies under its development plan, Qatar National Vision 2030 (QNV 2030).

These forces have combined to create a delicate balancing act for Qatar: to conserve and rationalise at the same time as the country up-scales and expands. The results of such efforts are being manifested in a range of areas, such as installing more efficient equipment at power plants, conducting public awareness campaigns aimed at curbing consumption and protecting the salinity of Gulf waters by gradually shifting water desalination methods from thermal to reverse osmosis (see analysis).

History 

Before independence in 1971 Qatar’s power and water supply was run by the British under two separate agencies. The first desalination plant in the country was built in the 1950s, with a capacity of 150,000 gallons per day. After Qatar ceased to be a protectorate of the UK, control of these resources was gradually ceded to the newly established Ministry of Electricity and Water, which directed both production and distribution. The merger of the two utilities was born out of the close link between them; in arid Qatar, most potable water is produced by desalinating seawater, a process that requires large amounts of electricity.

In the 1990s the ministry commissioned a number of new power plants, raising generation capacity sharply to meet demand as the country’s hydrocarbons sector ramped into full gear and its population boomed, partly from large influxes of foreign workers. An emiri decree issued in July 2000 created Kahramaa – an independent distribution company that doubles as the sector regulator.

Sector Structure

Today the electricity and water sectors are structured on a split-sector model in which generation and production are carried out by a range of private and public sector players, while the responsibility for transmission and distribution rests with Kahramaa. Under this system Kahramaa is the sole designated purchaser of all electricity generated and all water desalinated within the country, which it then sells on to consumers at subsidised rates. Though it operates on commercial principles, the entity receives some funding from the state in addition to revenues from the sale of output from the units it oversees.

Kahramaa is also responsible for capital investment projects in the sector, commonly outsourcing components of these to the private sector – including both local and foreign companies – through public-private partnerships (PPPs). Examples of this began soon after Kahramaa’s foundation, when the Ras Laffan A water and power project was launched as a PPP in 2001, followed by Ras Laffan B, Mesaieed A and Ras Laffan C. In all, power projects with a total generation capacity of 6500 MW, as well as desalination components, have been built through PPPs, with another such project, known as Facility D, a 2520-MW gas-fired power plant and a 136.5m-gallon-per-day associated desalination plant currently under way (see analysis).

Towards the end of 2014 a new sub-agency was formed under Kahramaa, the National Programme for Conservation and Energy Efficiency (Tarsheed). This agency is responsible for aligning Kahramaa’s policies with the environmental sustainability goals of QNV 2030. The Ministry of Municipality and Environment, meanwhile, sets the levels of emissions acceptable from power and water plants, assesses the environmental impact of all sector projects and enforces rules on the discharge of brine (the liquid left over after seawater has been desalinated for consumer use) back into the Gulf waters.

Operations

The country’s production units generally fall into one of two categories: independent water producers (IWPs) or independent water and power projects (IWPPs), the latter being more common given the traditional link between water and power production in Qatar. Both types of operation may be privately owned and managed but are required to sell all of their output under exclusive power and water purchase agreements (PWPAs) to Kahramaa for sale and distribution. The PWPAs, which last for 25 years and are renewable by another five years, are designed as take-or-pay contracts that in effect guarantee Kahramaa as a buyer by subjecting it to penalty payments should it choose not to purchase. Wastewater and drainage systems, for their part, are built, managed and operated by the Public Works Authority (Ashghal), which also doubles as regulator in that space.

Major Players

The country’s main utilities producer is Qatar Electricity and Water Company (QEWC), which is also the second-largest power and water firm in the MENA region. Within Qatar, according to the company, it has a 62% share of the electricity market and 79% of the water market. Founded in 1990 as the first such private firm in the region, QEWC was ceded control of Kahramaa’s production units in 2002, and today is a public shareholding company owned 52% by the state and 48% by private firms and individuals. In turn, it holds part-ownership in six other local utilities producers. These include stakes in Ras Laffan Operating Company (100%), Ras Laffan Power Company (80%), Nebras Power (60%) and Qatar Power Company (QP ower) (55%); and minority stakes in Ras Girtas Power Company (45%) and Mesaieed Power Company (40%). By law, QEWC is granted an automatic stake in all new sector enterprises.

Between its various in-country facilities, QEWC produces 5432 MW of electricity and 258m gallons of water per day. It also directly owns and operates six plants: Ras Abu Fontas (RAF) A, with a daily capacity of 497 MW of electricity and 55m gallons of water; RAF A1, with a capacity of 45m gallons; RAF A2, with 36m gallons; RAF B, with 609 MW of electricity and 33m gallons; RAF B1, with 376.5 MW; and RAF B2, with 567 MW and 30m gallons.

As demand has grown in line with the population and economy, QEWC’s revenues have risen by a compound annual growth rate of 10.3% between 2004 and 2014, according to its 2014 annual report. In 2015 QEWC recorded a marginal increase in the annual total revenues compared with 2014, with revenues for the year rising to QR3.49bn ($957.7m) against QR3.48bn ($954.9m) in 2014.

Suppliers

Other IWPPs have a substantial presence on the supply side. Ras Girtas Power Company runs the largest power generation project in the region, with capacity of 2730 MW a day, alongside 63m gallons of water production. The country’s third-largest producer by electricity generation capacity (QEWC comes second with its six plants totalling 2050 MW) is Mesaieed Power Company, with 2007 MW. QP ower is fourth with 1025 MW per day alongside 60m gallons of water, followed by Ras Laffan Power Company with 756 MW and 40m gallons per day. A utility services company founded in 2011, Marafeq Qatar, provides assistance in areas such as project engineering and design, operations supervision, risk management and environmental sustainability standards, as well as running several projects in the district cooling segment.

Natural Gas

As the world’s fourth-largest producer of natural gas, Qatar has abundant resources of this kind and meets its needs in the segment fully from in-country sources, including as inputs for its utilities sector. All of its power plants are natural gas-fired, with no need for less environmentally friendly inputs such as coal and little scope for hydroelectric power given the country’s topography – though there is plenty of scope for solar power, something authorities are pursuing.

In light of this, domestic consumption of natural gas, mostly by electricity and water desalination plants, nearly tripled in the decade to 2013, a movement that strongly correlates with production, which quadrupled in the same period, according to the US Energy Information Administration (EIA). Natural gas consumption in Qatar stood at 24.9bn cu metres in 2009, and increased to 44.8bn cu metres in 2014, according to BP “Statistical Review of World Energy” 2015 report.

Electricity

Driven by rapid economic and population growth and the low prices induced by state subsidies, demand for electricity has grown rapidly in Qatar, more than quadrupling in the 12 years to 2012, to 32bn KWh, according to the EIA. This rose to some 36.1bn KWh in 2014, according to Kahramaa’s annual report for that year, up 12.1% on 2013, while peak electricity demand reached 6740 MW, a rise of 12.3%. The peak demand increased again in 2015 to around 7000 MW, according to QEWC, with 6-8% growth expected in 2016.

The majority of power is consumed by residents. Of the total generated in 2014 – the latest year for which data is available – some 57% went to residents, 30% to industry, 7% to auxiliary consumers and 6% to transmission losses. All of Qatar’s power plants are fired by natural gas: the country consumes zero coal. Given the ready availability of oil and gas domestically (supplied at favourable rates by state-owned Qatar Petroleum) and the low prices this allows Kahramaa to charge consumers, Qatar, like many of its GCC neighbours, has long been a large consumer of power. In per capita terms, Qatar has the third-highest electricity consumption rate in the Middle East, at about 17bn KWh, less than Kuwait (19bn KWh) and the UAE (18bn KWh) but well above the next-highest consumers, Bahrain (9.5bn KWh) and Saudi Arabia (8.5bn KWh).

Expansion

Though Qatar has a surplus of power generation capacity – multilateral development bank Arab Petroleum Investments Corporation estimated in 2016 that the state had capacity of 8800 MW with a peak load reaching a record 7100 MW in 2015 – rapid demand growth has prompted the government to announce $5bn in expansionary projects. In 2015 one of these was brought to completion and two others got under way, including a large IWPP involving desalination in Umm Al Houl to be completed by 2018 (see analysis).

Kahramaa has also been improving its transmission and distribution infrastructure. As of late 2015 it was building new electricity substations in Gharafa, Doha and Abu Hamour, and expanding or upgrading old ones in Wijba, Lusail, Qatar University and Garian Genyhat, as well as replacing overhead lines across the country with ground cables. In August 2015 German engineering firm Siemens won a contract to supply 14 turnkey substations to Qatar and expand four others by 2017, including for the upcoming IWPP in Umm Al Houl. The €470m contract encompasses the design, engineering, installation and commissioning of the new units at four different transmission levels (400, 132, 66 and 11 KV) and includes the full range of auxiliary equipment, from transformers and switchgear to control and protection apparatus.

Water

Total water consumption in Qatar rose to 535m cu metres in 2015, according to Kahramaa data, up from 195m cu metres in 2005. Per capita consumption of water comes to around 500 litres a day, according to Adel Sharif, research director at the Qatar Environment and Energy Research Institute, which is well above that of other high-income countries such as the UK (150 litres), France (164) and Australia (290). This puts Qatar among the seven countries (alongside three others in the GCC) that are most at risk of an extreme water shortage by 2040, according to the World Resources Institute, which produced rankings for this based on factors such as economic development, population growth, urbanisation and climate change forecasts.

Indeed, some estimates rate Qatar’s water consumption even higher: Kahramaa has said this reached 595 litres per resident per day in 2014, up from 430 in 2012, while Qatar’s inter-ministerial Permanent Population Committee estimated recently that residents now consume 675 litres of water per capita per day – a problem that the government is making efforts to tackle through a range of initiatives under Tarsheed.

So far, however, a steady pipeline of projects has helped production keep pace with the country’s needs. Some 495m cu metres of water were desalinated and distributed in 2014 – the latest year for which data was available at the time of publication. This was up 6.5% on 2013, with peak production hitting 45.7m cu metres during July, according to Kahramaa. The number of customers served that year (via both meters and tankers) reached 262,018, up 8% on 2013 and above the average growth rate of 6.9% over the last five years. Efforts to improve the efficiency of desalination processes have shown results in the last few years, with the share of “non-revenue water” – the difference between total water inputs and total water sold – falling from 25% in 2010 to 21.2% in 2014, according to a Kahramaa report from that year.

Auxiliary Capacity  

As a host of modern desalination projects have reached completion over the last two decades, most of the country’s older water-producing “well fields” have been either decommissioned, such as the Old Jemiliyah field (with a capacity of 850 cu metres per day); put on standby, such as at Al Rushaidah (8100 cu metres per day) and Adh Dhibiyah (2700); or reserved for emergency supply, such as at Al Otoriyah (4363), Abu Thailah (2400) and Al Judiyah (1760). Other more traditional wells are used in rural areas like Al Khubaib and Rawdat Rashid, though their output is non-potable. In 2008 operation of these was transferred from Kahramaa to the Ministry of Municipality and Urban Planning, which in January 2016 was combined with the Ministry of Environment to create the Ministry of Municipality and Environment. Two small reverse osmosis plants are also in operation, one in south-western Abu Samra with a capacity of 666 cu metres a day, and another at Army North Camp producing 416 cu metres a day.

Reservoir Project

One issue authorities have been working to solve is reservoir capacity. At present Qatar has enough potable water stored in reserve to supply the country for 48 hours, and though it has ample production capacity to meet demand, any interruption of operations at these units could have an adverse effect on businesses and resident life. To hedge this risk, in March 2015 Kahramaa broke ground on the country’s largest-ever reservoir expansion, to be completed by 2018. Dubbed the Strategic Mega Reservoirs Project, the expansions would more than triple storage volumes to seven days’ worth of supply, by building 24 new reservoirs in five locations at a total cost of QR17bn ($4.7bn). A first phase, conducted in the years to 2020, will build out units capable of storing a week’s supply on 2026 forecasts, while a second, carried out thereafter, would secure the same on 2036 projections. The first phase of the project will add storage capacity of around 2.3bn gallons, with the second phase to bring an ultimate total capacity of about 3.8bn gallons.

The tendering for this stretches back to February 2014, when the contract for earth works at Abu Nakhla was awarded to Marco Trading and Contracting. This was followed by tenders for new transmission pipelines, with various packages awarded to Leighton, Al Jaber Engineering and China Harbour Engineering in June, and others to Boom Construction and Sinohydro Group in September. Then in April 2015 a clutch of contracts for building the reservoirs themselves (and their pumping stations) were awarded to six companies: Consolidated Contracting Group, Teyseer Contracting, HBK Contracting, Habtoor Leighton Group, China Gezhouba and Burhan. Next Kahramaa is planning to tender a contract to integrate these systems.

Conservation Efforts

Given Qatar’s high consumption rates, efforts to curb public usage have picked up in recent years. When the Tarsheed conservation programme was established in 2012, it was given the target of reducing per capita consumption of water by 35% and of power by 20% within five years. To this end, it has since launched a range of public awareness schemes. One of the latest was a TV ad aired in 2015 called “The Drop of Life”, which uses a desert journey scene from Qatar’s pre-oil past to convey the preciousness of water and thus spur residents towards greater thrift. Tarsheed banners posted across Doha read “Waste today, risk tomorrow” beneath images of power cords tangled in the shape of a scorpion, or splashes of water forming an alligator.

In January 2016 Tarsheed launched a campaign with the theme “bad habits cost” to boost awareness of the provisions of the New Conservation Law No. 20/2015, which modifies items on Conservation Law No. 26/2008. Advertised in shopping malls, mosques, schools, government entities and outdoors, as well as on television, radio and social media, the campaign focuses on conveying conservation messages and the law’s provisions to penalise those responsible for violation of the law as well as offering solutions to prevent violations. According to the conservation law, using potable water for washing cars or cleaning building yards by a hose or any other flushing tools, leaving the damaged or broken parts of the water internal inlets such as taps and pipes causing water leaks, and leaving the outdoor lights on between 7.00am and 4.30pm constitute violations of the law, with fines that could reach QR20,000 ($5490) for the first violation.

Qatar University recently partnered with ExxonMobil to research ways to recycle water, such as through phyto-remediation, the creation of man-made wetlands whose vegetation can clean industrial wastewater. The output of these would then be used to irrigate parks and green spaces, thus saving potable water for home use. To improve monitoring, Kahramaa launched a scheme in early 2015 to fit out the entire country with smart meters, which provide data on water usage in real time to consumers and authorities. With 8000 meters already installed in Al Khor and Shamaal, the goal is to cover all of Doha by the end of 2016.

As a result of such measures, between April 2012 and November 2015 per capita domestic consumption of water fell by 17%, according to Kahramaa.

Subsidies

Generous energy subsidies have long been practised in Qatar, making fuels cheap for automobiles, homes and businesses. Utilities are no exception: power and water plants in Qatar can leverage the cheap energy feedstock, natural gas, provided by Qatar Petroleum and then sell their output back, allowing the distributor to set consumer tariffs at rates that reflect these low input costs. An IMF report from March 2015 estimated the cost of energy subsidies in Qatar at about 2% of GDP for explicit subsidies (such as tax incentives), rising to 3.5% when including implicit subsidies (such as inexpensive utilities). However, this last figure ranks as the lowest in the GCC, below that of the UAE (5.7%), Oman (6.2%) and Kuwait (7%) and well below that of Saudi Arabia (9.9%) and Bahrain (12.5%).

Reducing subsidies is a key factor in all efforts to conserve resources. The IMF report also noted the GCC’s sizeable water subsidies, particularly in Qatar given the state’s high rates of water consumption and technical losses. Though data on water subsidies are rare in the GCC, the IMF reckons their cost may reach as much as a few percentage points of regional GDP. Curbing wasteful usage, it said, could reduce consumption in Qatar by up to 40%. “There needs to be a clear policy to regulate usage or else the goals for conservation will never happen,” Jamal Ali Al Khalaf, CEO of Umm Al Houl Power, the company executing the new IWPP south of Doha, told OBG. “Why would you use less water or electricity if it costs you so little in the first place?”

The country has recently taken several steps in this direction. It has cut back subsidies several times in the last five years, raising pump prices of petrol by 25% and 30% for diesel in January 2011, followed by a larger increase for diesel – by 50% – in May 2014. In January 2016 the price of petrol jumped up by between 30% and 35%, depending on the grade of petrol, after the government further cut subsidies. The price of Gasoline Super 97, for example, increased from QR1 ($0.27) to QR1.30 ($0.36). An additional increase for some grades of petrol was also announced for July 2016. While petrol prices have increased recently, there was no rise for diesel, a decision that government sources attributed to a need to “curb inflationary trends in the movement of goods,” according to The Gulf Times. In September 2015 Kahramaa raised tariffs on water and power usage over certain thresholds – 20 cu metres and 2000 KWh, respectively – prompting many residents to curb their consumption. Under this so-called slab system, prices for use over the threshold rise incrementally with each additional 50 cu metres of water or 2000 KWh of power used.

Solar 

One way to achieve Qatar’s goals to reduce use of fossil fuels is through solar power, especially given the abundant sunshine in the country. According to the Climate Technology Centre and Network, the annual solar energy potential of each square kilometre of Qatari soil is equivalent to 1.5m barrels of oil. Recognising this, authorities have been pushing major projects in this segment, announcing in December 2012 a huge investment plan with a goal of producing some 1800 MW of power from solar sources by 2020 – the equivalent of 2% of Qatar’s forecast energy needs. Targets rise to meeting 20% of energy demand with solar power by 2030, according to Kahramaa. This new capacity will help meet demand from the utilities sector, which currently accounts for about 40% of domestic consumption, and would have a significant effect on cost margins and sustainability. Phase one of this plan, covering 2016-17, will see a clutch of small-scale plants installed on under-utilised land, each with a capacity of 5-10 MW and costing around $30m a year. The first such unit, a pilot project being built on a 100,000-sq-metre plot in Duhail, is scheduled to be switched on in 2016, according to Fahad Hamad Al Mohannadi, general manager of QEWC. More such units will be added to the site over the next five years, reaching a total of 200 MW in 2020, according to QEWC. In December 2015 QEWC signed a memorandum of understanding with Qatar Petroleum for the establishment of a new 60:40 joint venture to pursue solar power projects with initial capital of QR1.82bn ($500m), though it did not reveal further details.

New Regulator 

Government authorities have also been planning to establish an independent regulatory agency for water and power for several years. The country’s National Development Strategy 2011-16, which was released at the start of the plan’s period, set real goals and included a target of doing so by 2014, with the aim of improving sector management and furthering the country’s long-term goals. “For conservation efforts in water and power to succeed, the government needs effective communications and stronger regulatory capacities,” the national strategy document read. “A key part of the robust demand management architecture will be the establishment of an independent regulator covering power and all aspects of water.”

Industry experts have likewise argued that the existence of an independent regulator would help “depoliticise” decision-making and improve efficiency, helping Qatar to reach its long-term targets. “All countries will need private sector engagement in order to realise their renewables potential, the ideal being to create a competitive market and level playing field for providers,” said Glada Lahn, a senior researcher on energy at Chatham House, an international think tank. “Establishing an independent electricity and cogeneration regulator is an absolute priority for creating the right investment environment.” Government officials are reportedly still considering the issue, though no timeline has been publicly confirmed. “For Qatar, renewables are largely about choosing the right technologies,” Arnaud Berthet, general manager of French utility company ENGIE, told OBG. “The costs have come down drastically, and it’s possible to invest in renewables in this day and age without subsidies.”

Outlook

As usage of public utilities continues to rise in coming years, Qatar is on track to keep well ahead of demand, not least through a large new IWPP set for completion in 2018 (see analysis). The drop in oil prices, meanwhile, is unlikely to restrain development of the sector, which has strong state backing and is supported by commitments in QNV 2030 to provide first-rate public services – something it is doing increasingly through PPPs. “The government has the will and the cash to build new utilities plants and all the infrastructure that entails,” Al Khalaf told OBG, “even if they are not needed for a few years coming.” What lower oil prices have done, however, is spur a new focus on cost optimisation among government authorities, as is clear from the emir’s November 2015 speech and is now widely voiced by key public figures. This, along with Qatar’s expressed commitments to improving environmental sustainability, should spawn a host of new opportunities for private sector players. Ideas that present a compelling proposition promising more efficient use of resources are likely to find much more receptive ears now.