Conventional Power in the Middle East
Gas is back, with a vengeance. As the artificial intelligence revolution heats up around the world, every country seems to be reconsidering its power resourcing, resulting in one of the most pronounced policy shifts in living memory.
In recent years most Middle Eastern governments have progressed highly ambitious plans to reduce or mitigate their greenhouse gases emissions in line with national targets set in accordance with the Paris Agreement. This has resulted in an impressive number and scale of renewables projects, frequently beating world records and delivering lowest electricity prices seen anywhere in the world. However, despite this incredible résumé, all regional governments are confronting roadblocks to the green revolution which are being experienced world over.
The intermittency problem experienced under most renewables projects, coupled with rapid urbanisation around key cities and city states, has sent energy planners back to the drawing board. Renewable energy( which is predominantly solar and, to a much lesser extent, wind based) is understood to be a critical contributor to electricity national grids, but( in its current technological format) not its foundation. To make matters worse, whatever urbanisation did not manage to do, the artificial intelligence( AI) revolution definitely tipped the scale back to fossil-fuel based conventional power development to accommodate the stratospheric demand for power projected for all things AI. On the current prognosis that most technologies( from vehicles to in-phone applications) will route through power hungry data centres, the scramble for reserve energy is very much on! This has in turn left both financiers and developers alike in a quandary, many having to abandon or water down their‘ net-zero’ commitments in order to accommodate the market demands.
The Middle East is of course no stranger to fossil fuels, the production of which it has dominated for decades. It is therefore only logical that immediate energy demands be met with the resources bountifully present, giving rise to the gas-fired conventional power revolution which just a few years ago seemed like technology committed to history. But even that solution is not simple, being highly dependent on extremely complex, capital intensive, and relatively scarce, gas and steam turbines. The concurrent skyrocketing demand for these turbines in the United States has unintentionally caused a supply shortage in other regions, such as the Middle East. Turbine suppliers have in turn benefited from market conditions never seen before, commanding large commitment and order fees, with price premiums to boot. The scarcity of turbines has reached such levels that procurers have resorted to negotiating exclusivity arrangements with turbine suppliers, the benefit of which has been given to power developers who in turn arrange their own financing and construction contracting. But for this unusual approach, most competitive tenders for conventional power projects would be left with single bids, or no bids at all.
True to our energy roots, we have worked with the biggest developers, financiers and export credit agencies in the region to bring these projects to life. We cannot name these projects for confidentiality reasons, although they will soon dominate the regional PPP headlines. We also experienced, in our own right, the single-bid quandary, having effectively won a tender only to have it retendered on new( single-OEM) terms. We also continue to advise developers on captive conventional power projects, designed to shore up energy resources where they will be needed the most, effectively mitigating national grid supply risk for industrial developers.
The Year Ahead
We foresee conventional power projects to proliferate regionally, with most governments trying to add capacity to their national grids. If turbine supply scarcity continues, we would also expect for battery energy storage systems to ramp up to resolve the intermittency issue presented by existing and new renewables projects, all with the view of bolstering dependable power supply to an energy thirsty market. bracewell. com