Shared demands

Saudi Arabia

TOGY talks to Ahmed Al Ebrahim, CEO of Gulf Cooperation Council Interconnection Authority (GCCIA), about increasing electricity exchange volumes, facilitating power trading deals and expanding connections of the power grid within the GCC region and beyond. Established in 2001, GCCIA is the first cross-border electrical interconnector in the Middle East, connecting Bahrain, Saudi Arabia, Kuwait, Qatar, the UAE and Oman.

The Gulf Cooperation Council Interconnection Authority (GCCIA) is a joint-stock company established in 2001. The GCCIA oversees power grid integration between the six GCC states. In May 2017, GCCIA announced that the grid connectivity is expected to generate about USD 33 billion in investments for the six member countries in 25 years by reducing the construction, operation and maintenance costs of power plants. In 2016, the company achieved a trade volume of 1.3 TWh.

•  On energy subsidies: “In my opinion I do not think it is a sustainable model. It puts lots of pressure on GCC governments. GCC governments are realising that. We have recently seen reforms in subsidies in all of the GCC, whether it is oil and gas or electricity subsidies. Almost all the GCC countries have now put plans in place to remove subsidies, or at least restructure them, and focus on supporting a very narrow sector of nationals who are in need of this support.”

•  On renewables in Saudi Arabia: “I think over the long term for Saudi, the new energies that are coming in – renewables, geothermal, nuclear – will ultimately reduce or replace oil-fired power plants.”

•  On smart grids: “I think the future is about smart grids and about being more efficient.”

Al Ebrahim also talks about the role of gas as a long-term fixture in Saudi Arabia’s energy mix. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Ahmed Al Ebrahim below.

What are some recent highlights and noteworthy initiatives for the GCCIA?
We are continuing what we started a few years back, but we are intensifying our efforts in terms of developing the electricity market. The year 2016 was very significant for us because our power trade pilot project was a success. We have achieved a very high volume of trading – 1.3 TWh, 30 times higher than our previous trade volume.
The trade value over the past year reached around USD 192 million. We had five countries that traded power through this pilot project, and we have made some steps to evolve our role from being a facilitator for these kinds of power trade deals to being the GCC power market operator with a new trade platform that will allow more online advanced trading, not only on monthly and weekly basis, but also introducing the day-ahead market and intra-day market, which will facilitate the procurement and trade of power between GCC market participants on an economic basis.
This year we signed a consultancy contract with Nord Pool, a well-known international brand that is the leader in developing the markets in Nordic countries. They are helping us to develop our framework and our market rules. We are also upgrading our platform for market trading, which will be launched in June 2017. This will really facilitate the access of member states to power trade deals and make it much easier to close them with their counterparts. We are hoping volumes will be higher than last year.
As part of our support to really push power trading, we are waiving the wheeling charges on the interconnection grid, which is usually a minimum of USD 5 per MWh. We will only take some administrative charges for arranging the power trade deals.
This year we have more discussions about new power trade deals between member states and also more offers. We are hoping to close some of them within the next couple of weeks.
Of course, the development of power trade and the evolution of the power market is one of our greatest long-term goals. This would affect all parts of the energy sector. Energy is energy, so when you have it – whether in the form of oil, gas or renewable energy – the interconnector makes it much easier to transfer. Instead of maybe transferring gas or oil, you can transfer energy in the form of electricity.
The GCC interconnection also facilitates the development and integration of renewable energy resources – mostly solar – by providing the means of exchange and trading that over the interconnector. Utilising our network makes projects more efficient as it raises the utilisation rate and allows more commercial opportunities to sell the excess power, thus increasing economic efficiency of a project.

What has the company done to expand trading?
The GCC interconnection grid started operation in 2009, and since that time, we did not have any kind of upgrade to the capacity of the connectors, while all GCC member state grids have been evolving, developing and expanding. There is growth in the GCC energy demand and national grids that reaches around 6-8% annually. To ensure we meet the security and reliability criteria we were designated to serve, the GCC interconnector grid will have to cope with this kind of development, especially in the summer.
For this, we commissioned a study that we started towards the end of 2016. The study looks into the feasibility of expanding the interconnector within the GCC, but more importantly, interconnecting with other regions. For instance, we are considering connecting to Jordan, and having Jordan as a hub for connection to Turkey, Egypt and Iraq.
We have signed an MoU [memorandum of understanding] with the National Electric Power Company of Jordan and set up a joint team for following up the technical studies for connecting Jordan. The initial outputs from this study are very encouraging. We are now going into a more detailed techno-economic study to show the viability of this.
Another area we are looking to connect to is Yemen. It is a gateway to Africa through its connection to Ethiopia, Sudan and so on. It can provide the potential for exchange of cheap hydropower with GCC countries.
We have signed an MoU with Yemen’s ministry of energy, and we are forming a team to study these possibilities.
To the east, we are looking into possibilities of interconnecting India and Pakistan. These are a bit further away, but we think there is also a lot of potential there.
Our long-term vision is to connect with Europe for their big energy demand in the winter. They need heating in the winter, while we need cooling in the summer. That puts us in a good position for exchange. We could connect through Jordan, Turkey and then the Balkans.

How much money have the interconnections saved?
The savings we are generating are increasing year after year. In 2016, the recorded saving was USD 409 million for all member states.
These savings come from the reduction of core investment and reductions in the cost of operations, fuels, utilising the connector and sharing of reserves. That is an increase from USD 290 million in 2015. Every year there is more reliance and more utilisation of the interconnector. We are hoping to increase the benefits each year. The overall savings for the past three years have exceeded USD 1 billion.

Are GCC countries taking sufficient steps to meet their domestic demands for power?
The GCC countries are always building capacity to meet ever-soaring electricity peak demands. Keep in mind that our peak load only happens in the summer and only for a few hours per day. The demand is not constant; it usually has two peaks and two minimums within 24 hours.
During these variations, there is a lot of capacity that is idle. This means either the power generation facilities are producing at a very low level, which makes it very inefficient, or they are shut down and you have all this investment that is not doing anything. However, if you have these kinds of interconnectors, you can always find opportunities to sell this power and make your investment worthwhile.
There are many windows of opportunity. We have done several studies on that in the GCC. If you look just within the GCC countries, we can still save more than USD 30 billion over 25 years if we just use opportunities between the GCC. When we open up to other regions, we are talking about many more billions in savings.
In terms of investment in the new interconnections expansion, it is not expected that the coming new projects will be fully financed by governments like the GCC interconnector was. These kinds of projects need to have economic viability and then they will be financeable through normal financial models by the private sector or through public-private partnership. I think that the private sector will play a very big part in the future. This is why we are reaching out to the private sector.
Next year, we are arranging an international conference on investment in the electricity sector, where participation of the private sector will be significant. It will focus on investment in the power business, and we will reflect on the kind of opportunities that we will see with these kinds of expansions.

Who are you targeting as your main clientele as investors?
It will be a mixture of investment funds, banks, private enterprises and perhaps even the public. Additionally, the governments may decide to invest in some strategic parts of the expansions.
We have had lots of interest. I gave a webinar recently on these kinds of expansions, organised by the Edison Electricity Institute [EEI] in USA, and the participants were many investors, such as Citigroup and others. There is a lot of interest in this kind of expansion. However, the key is to make this an economically viable project. We need to package it in a way that it is sellable and makes money so that it can pay back the investment.

Do you think the model where governments heavily subsidise electricity consumption for consumers in Saudi and across the Gulf is sustainable?
In my opinion I do not think it is a sustainable model. It puts lots of pressure on GCC governments. GCC governments are realising that. We have recently seen reforms in subsidies in all of the GCC, whether it is oil and gas or electricity subsidies. Almost all the GCC countries have now put plans in place to remove subsidies, or at least restructure them, and focus on supporting a very narrow sector of nationals who are in need of this support.
In Bahrain, for instance, if you are a Bahraini, you can get subsidised electricity only for your own house, and that is for specific levels. If you go beyond a certain level, then you have to pay almost the full price. However, all the other sectors have to pay the real cost of electricity. That is a more economically sustainable model.
I think the same thing is happening in all GCC countries. It will make it a much healthier sector in this way. For the GCCIA, it will make sense to have proper power trading that reflects the real price of electricity because electricity prices are currently distorted because of the subsidies. The ball is rolling; it will be much better in a few years.

Where are the current biggest trade flows of energy?
It is hard to tell because it is flowing back and forth dynamically. We do the energy settlement every week, but do any financial settlement at the end of the year. I can say that five of the countries were very active in trading during last year. Saudi Arabia was one of the active ones. I think this year they are very keen to utilise all opportunities to bring value to the electricity sector. Saudi Electricity Company, for instance, has large generation capacities. They are making big efforts to utilise these kinds of assets.

Will Saudi Arabia have the capacity to generate power from gas or renewable energy in the future and move away from its oil dependency?
I think gas will always be part of the energy mix. Even if renewables are available, there is still the long-term vision that gas provides. For Saudi Arabia, they sometimes need to use oil during peak times, but only for limited specific periods if the load cannot be fully met by gas-fired plants. In those limited cases, they have to resort to oil.
In the long term, Saudi Arabia is planning to avoid oil dependency and have alternative power sources. Saudi plans on building 9.5 GW of solar by 2023, which would really replace at least some part of the oil-fired usage. On the longer term, Saudi Arabia is targeting to build 41 GW of solar power as part of a targeted 54 GW of alternate and renewable energy development by 2040.
We are fortunate here that our peak demands occur during the hottest times when the sun is shining. Solar plants make sense for us. I think over the long term for Saudi, the new energies that are coming in – renewables, geothermal, nuclear – will ultimately reduce or replace oil-fired power plants.
However, gas will still be there but at a lower percentage. There is no forecast that gas will be out of the picture. Gas is considered cleaner with its new technologies.

Can electricity generated from solar power in the future be stored successfully and kept for deployment later?
Storage solutions are very important. There are considerations being done by some of the GCC countries, especially Saudi Arabia, and UAE of the means to store this energy. There are studies about different technologies, whether it be pumped storage, batteries or other available storage technologies. This would bring opportunities of producing in off-peak times for usage in peak times.
Overall, I think this will lead to a comprehensive flexible system with different technologies and fuel sources. The diversity will give much more energy security to the overall power system. Energy security is a very important aspect that all the GCC members are considering, especially Saudi Arabia.
The GCC interconnector plays a big role in contributing to energy security by providing not only emergency support in power shortages, but also the opportunity to import power on a commercial basis. There is always some excess power available in the neighbourhood that can be imported.

Are smart grids and smart meters something that are being considered?
I think the future is about smart grids and about being more efficient. We are having a joint conference with EEI next year. We are already preparing for that. The focus will be energy efficiencies and how interconnectors can contribute to more efficient investments in the power sector and more efficient operations.
We were supposed to have it this year, but we decided to delay it until next year so that we could really prepare for it. We are targeting key global figures, both private and public, to come and participate in this conference. Most of our member countries have plans for smart technology, but some of them are more ahead than others.
Saudi Arabia is also employing lots of new technology. There is a push for smart grids here in Saudi Arabia. We can consider Saudi Arabia as one of the leaders in the GCC when it comes to new technologies and smart grids.

What are your immediate goals for this year and the next?
There are opportunities to develop grid-scale solar projects and connect them to the GCC interconnector so that we can serve more than one client. Grid-scale means it is not one connected to houses. This is a major difference between what we are doing here compared to Europe where micro-grids are connected to houses. Here we are considering power plants with 300-400 MW that are connected to the grid.
We are also looking to develop opportunities for the GCCIA in new technologies that serve our purposes, especially energy efficiency and smart grids. We are also reviewing our commercial model to become more efficient as an organisation. Hopefully, some changes will be happening, probably not in 2017, but in 2018.

Does the fact that Saudi Arabia is much bigger than Bahrain or Qatar mean that it requires much greater investment to upgrade compared to those countries?
Definitely, but the payback is also bigger. If you save on this kind of bigger system, the savings are huge. In this sense, there is more drive to be more efficient and to be on top of technologies because the payback is really huge. You can save a lot of the investment just by operating the grid in a smart way.

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