By Florian Neuhof
Providers of rental, small scale power generation are looking at a bright future in Middle East's expanding market
Rapidly increasing demand for electricity is a hallmark of the Middle East, which is undergoing economic and social change at a rapid pace, and utilities are left struggling to match power generation and grid capacity.
It is little wonder then that power companies rely on temporary power providers to paper over the cracks in the supply. These cracks widen considerably during the during the summer months, with demand peaking during the hot daytime hours, when domestic users ramp up air conditioning units, and industry likewise needs to keep their factories cooled.
“Summer is a demanding time for utility companies in the region. As the temperature soars so of course does the use of electricity. We regularly work with utility companies in order to ensure that sufficient power is readily available and supplied consistently throughout the season,” says Phil Burns, managing director at Aggreko.
One example of work is the company’s task to supply the Saudi Electricity Company (SEC) with 100MW of temporary power. Under the scope of the contract, Aggreko provided power to six sites in the Qassim region, north of the capital Riyadh, with 80MW being supplied at 13.8 kV and 20MW being supplied at 33 kV to suit the requirements of the local substations.
In Q1, 2010, the company agreed to supply the Oman Power and Water Procurement Company (OPWP) with 117MW across five sites during the three months of the peak summer period.
RSS have also benefitted from the peak load, delivering generation capacity as a result of outages to companies in the UAE’s northern emirates during summer. In addition, it supplied rental power to the Hail power plant in Saudi Arabia, staving off power cuts in the city. Peter den Boogert, general manager of power projects at RSS, refers to this as “peak shaving”, a term usually used by those intent on curbing consumption, thus reducing the peak load.
Countries in the region vary in regards to the extent of power outages, says the RSS man.
“There are power outages in the Gulf region every summer, particularly in the UAE, Saudi Arabia, Oman, Qatar and Kuwait. Moreover, the Middle East and North Africa in general are experiencing power outages all year round. This is particularly true in Iraq, Yemen, Afghanistan, Syria, Jordan, Egypt and Algeria due to the lack of power infrastructure,” specifies den Boogert.
Apart from chasing the peak load, utilities are busy sizing up to meet the sustained increase in demand. But building up a power infrastructure is no easy task, and delays and bottlenecks are not uncommon.
“There are three core elements that should fulfilled in building the utility infrastructure, the power plant, the distribution network and funding. Because of these three elements, we are seeing delays in power infrastructure and rental power is needed to bridge the gap between supply and demand,” says den Boogert.
Utilities are of course not the only ones making use of temporary power. “There are three major sectors that propel the rental power business in the region: utilities, construction and oil & gas,” says den Boogert.
Appetite for construction
The construction sector has taken a beating during the economic downturn, even if strong declines in some places where offset by government investment programmes in countries such as Saudi Arabia.
“Before the recession, the construction industry was our second largest sector in the Middle East. Difficult economic times meant that we had to move away from this market, as many projects came to a standstill and were cancelled,” says Burns.
Aggreko is not the only company that has felt the reverberations of the construction industry’s bursting bubble.
The downturn hit business hard, Wassim Abou Shaar, general manager at Cummins, a provider of rented generators that also sells the equipment, was free to admit when interviewed in July last year. A big chunk of the company’s revenue is generated from the construction business, and thus the sharp decline in building activity in the Middle East did not pass Cummins by unnoticed.
“Our sales went down by 30 percent year on year in 2009. But now we are catching up quickly,” said Abou Shaar.
He is not alone in believing that things are now looking up, and recent decisions in the sporting sphere will provide an additional boost.
“The construction industry in the Middle East has definitely seen an incline over the past few months. And of course, with the recent news that Qatar has won the 2022 FIFA World Cup, we anticipate a busy few years in Qatar as they begin construction on the many stadiums and hotels needed to host the event,” says Burns.
And the economic situation in recent years has not been all bad for rental power providers, argues Aggreko. “Rental power became a popular option for companies in all industries during the downturn, as companies tried to prevent large capital expenditure outputs,” says the managing director.
RSS sees Iraq, Afghanistan, Saudi Arabia, UAE and Qatar, as their biggest markets, while Aggreko point to Oman, Saudi Arabia and Yemen in particular. Cummins’s Abu Shaar was keen to elaborate on Iraq, where his company has been working hard to keep the US military powered. This has been a valuable source of revenue in recent years as business elsewhere shrunk.
Based in the harsh desert climate of Iraq and Afghanistan without access to a reliable grid, US and coalition forces have a huge demand for small-scale power stations as well as machine engines.
“What made the difference for us was that we cater for almost the entire Middle East from our headquarters here in Dubai, so if market slows down a little bit in UAE, for instance, it can pick up in Afghanistan, in Iraq,” said Abou Shaar. “In Iraq and Afghanistan, our clients are the military. All these camps need power for their soldiers, and they won’t compromise. They need the power now and they need reliable power, they need reliable products.”
To service the equipment, the company even had permanent staff stationed in Iraq. “During the peak times, we had a team based with the military in the camps. We had about 20 engineers with managers and the logistics in the camps, just to support the end users and our equipment. This way, thousands of units were sold in Iraq, and now we are doing the same in Afghanistan.”
Aggreko emphasise the events industry as an area of growth over the past 18 months. “In the Middle East, we have provided power to the Bahrain Grand Prix since its inception in 2004 and the Dubai Rugby 7s for over a decade,” says Burns.
“Dubai and Abu Dhabi are the most active in the event industry, followed by Qatar and Saudi Arabia. The event industry for RSS market constitutes approximately 15 percent of RSS business which is mainly driven by exhibitions, concerts and sporting events,” adds den Boogert, whose company supplied temporary power to the Formula 1 in Abu Dhabi. Overall, RSS expects that Middle East business will grow by 20 percent in 2011.
One of the trends that will accompany this growth is an increasing emphasis on fuel diversification. “Rather than relying on one type of fuel, they are looking to expand their generation capacity to include two or more fuel types,” says Burns. “For example, one of our customers, a cement company in Ras Al Khaimah, had their own gas-powered turbine but they contracted a diesel-powered package f to provide additional capacity to their facility.”