Fresh investment in renewable energy development in Kuwait

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A newly signed deal will see the creation of Kuwait’s first solar-thermal energy generation station. The project is viewed as a crucial step towards achieving the country’s goal of increasing the share of renewables in the country’s energy mix and boosting private investment in the sector.

A contract for the new solar-thermal energy project was signed in September between the state-funded Kuwait Institute for Scientific Research (KISR) and Spain’s TSK Group, which is charged with developing and operating the facility.

Renewables agenda

The $385m solar-fuelled plant will be built in the Al Shagaya desert area, close to the border with Saudi Arabia and Iraq and roughly 60 km from the capital, Kuwait City. With the capacity to produce up to 50 MW, the station is expected to be integrated into Kuwait’s existing electrical network by December 2017.

The plant is part of the first phase of a wider initiative aimed at creating a technology park in the area, dedicated to the production of electricity from renewable energy resources. Phase one also includes two other renewable-based projects, according to media reports – a 10-MW solar photovoltaic (PV) station and a 10-MW wind power station.

According to KISR, the park will eventually be home to 1100 MW of solar-thermal generation capacity, 750 MW of solar PV and 150 MW of wind power, with an added focus on renewable research.

Another solar-thermal project high on the government’s agenda is the Al Abdaliyah Integrated Solar Combined Cycle plant, which is set to be built in the south-west of the country. The plant will have a total capacity of 280 MW, of which 60 MW will be generated from solar power.

The facility is being developed under a build-operate-transfer scheme that provides a 25-year concession backed by an energy conversion and power-purchase agreement with the Ministry of Electricity and Water.

After the government called for expressions of interest last year, the names of pre-qualified companies are expected to be released by the end of the year, according to media reports.

A joint project with Germany has also been proposed to develop a 15-MW wind power plant, with a separate 10-MW solar-powered electricity station also reportedly in the pipeline.

Energy imperative

Kuwait’s energy diversification goals were mapped out in late 2012, when Sheikh Sabah Al Ahmed Al Jaber Al Sabah announced plans to generate 5% of the country’s electricity through renewables by 2020 and 15% by 2030.

Energy security remains a strategic priority for Kuwait, which boasts one of the highest rates of per capita energy consumption in the world, with domestic demand for electricity more than doubling in the decade to 2013.

According to the World Bank, the country was the world’s fourth-largest per capita consumer of electricity in 2011, with a growing economy and an increasingly wealthy population driving demand for heavily subsidised power supplies.

The government currently covers the cost of electricity by as much as 93%, according to ratings agency Capital Standards, with the price per unit unchanged since 1966, when the subsidy was first introduced.

Constitutional considerations

While private sector link-ups appear to be the key to addressing gaps in Kuwait’s energy mix, the way in which such agreements are structured can create some hurdles for international investors.

According to Article 21 of Kuwait’s constitution, all natural resources and the revenue they generate are the purview of the state; and while legislation dating back to 2001 has largely enabled Kuwait to facilitate foreign direct investment and fast-track infrastructure development, the approach to private sector participation continues to evolve.

Indeed, the country was among the last in the region to dedicate a larger role to the private sector in its electricity segment, and some previous initiatives with private sector involvement have generated a mixed response in local media. 

While agreements with foreign firms were previously structured using an engineering, procurement and construction model, the Al Subiya project – a 2000-MW oil-fired power plant built by South Korea's Hyundai Heavy Industries and the US-based GE, which opened in 2011 – functioned under a build-own-operate structure, leaving operational control of the facility in the hands of a foreign entity for a period of seven years.

That this latest contract with TSK Group for the new solar-thermal plant also includes an operational dimension suggests that Kuwait’s approach to private sector involvement, at the very least in terms of renewables, could be shifting. 

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