Cheapest electricity since 1998 set for Abu Dhabi

Abu Dhabi's next big power plant will generate the cheapest electricity the emirate's utility has secured for 12 years.

Abu Dhabi's next big power plant will generate the emirate's cheapest electricity since 1998.

The Dh5 billion (US$1.36bn) Shuweihat 3 project will reduce financial pressure on the capital's subsidised electricity sector.

It also shows Abu Dhabi still has enough cheap natural gas to support at least one more major power project after almost tripling generating capacity in 10 years.

A consortium of Japan's Sumitomo and Korea Electric Power Corporation (KEPCO) will build and partly own Shuweihat 3 on the western coastline by 2014, the Abu Dhabi Water and Electricity Authority (ADWEA) announced yesterday.The huge power station will have capacity to generate 1,600 megawatts, equal to almost 18 per cent of peak electricity demand, but will not desalinate water.

Factoring in the cost of the plant and the price ADWEA will pay for fuel, the new plant will generate electricity at an average cost of as little as 10 fils per kilowatt-hour (kwh) when operating at full capacity, said Sheikh Diab bin Zayed Al Nahyan, the chairman of ADWEA.

That represents a fraction of the cost of producing electricity from gas in other markets, reflecting a subsidised fuel price and ADWEA's success in securing a low-cost construction contract.

The calculated rate is "a record price equal to the price of a kilowatt in the first project carried out by the commission in 1998", Sheikh Diab told the state news agency WAM. "Shuweihat 3 has obtained the best offer under the most difficult conditions set by ADWEA," he said.

The announcement marks a rare instance of ADWEA disclosing its cost of generating electricity, and was released as the authority is lobbying the Government to raise electricity prices. The new plant is unlikely to lower utility bills.

Mohammed al Bowardi, the Secretary General of the Executive Council, said on September 27 a decision on the power price proposal would be made in four to six weeks.

Analysts estimate it costs ADWEA between 18 and 25 fils to generate each kwh of electricity when demand rises in the summer. But most consumers are charged a flat rate of only 15 fils per kwh, while Emiratis pay 5 fils.

Shuweihat 3 will generate 100mw more electricity than Shuweihat 2, ADWEA's Dh8bn plant that starts operations next summer, but the newest project will cost 38 per cent less, partly because it will not include a desalination plant.

Even without desalination, the plant's cost is far lower than global benchmarks.

The cost of each kilowatt of generating capacity at Shuweihat 3 amounts to $851, a 22.6 per cent discount to a global average published this year by the International Energy Agency.

The contract confirms KEPCO's new prominence in Abu Dhabi's energy industry, after it was awarded a Dh73.46bn contract in December last year to build the country's first four nuclear power stations.

It represents the first entry of a Korean company into the small group of European and Japanese companies that have dominated Abu Dhabi's conventional power sector for the past 10 years.

"The deal will greatly boost KEPCO's standing in the UAE electricity market that is emerging as a key market in the Middle East region," the company said yesterday.