BMI View: Recent blackouts across Kuwait have drawn attention to the significant challenges that the Kuwaiti power sector is facing in the years ahead. With power generation struggling t o keep up with growing demand, much greater levels of investment are urgently needed. However, with the sector almost wholly state-owned and operated, and the regulatory and political landscape remaining highly restrictive , attracting major investment will be difficult unless the government presses ahead with significant reform .
Significant changes are on the cards in the Kuwaiti power sector over the coming years, as the government attempts to spur investment into the country's ageing infrastructure. Kuwait's first public-private partnership (PPP) for the construction of the 1.5-gigawatt Al-Zour power and desalination plant has the potential to set a precedent for greater private sector engagement within Kuwait's infrastructure and power industries, which has the potential to lead to an influx of investment.At the same time, the government is attempting to scale back its generous regime of energy subsidies, which have led to overconsumption and waste. Despite the potential, significant roadblocks continue to lie in the way, not least those presented by the emirate's dysfunctional political establishment.
Conventional thermal sources have long been the dominant fuel for energy generation in Kuwait, and despite some government efforts to diversify the sector, oil and gas will remain the dominant energy source over the coming years. Following the Fukushima tragedy in 2011, Kuwait ordered the National Nuclear Energy Committee to be dissolved and officially abandoned its pursuit of nuclear power. However, the country is nevertheless aiming to reduce its domestic oil consumption in an effort to free up additional barrels for export, with many power projects that are planned or under construction set to use gas.
The electricity and water ministry is aiming to more than double generating and desalination capacity by 2017 to cater for growing demand and an estimated USD2.5bn is expected to be invested over the medium term. In addition to sanctioning the Al-Zour PPP, the government has set ambitious targets with regard to the use of renewable energy and has announced a number of new projects to build the country's capacity in this regard. We remain cautious about the emirate's willingness to take the political steps needed to facilitate such rapid progress however, and our forecasts for the sector are significantly more modest.
Key Trends And Developments
The Al-Zour power and water desalination plant has supplied its first megawatt of electricity to Kuwait's national grid, just 18 months after construction began on the project in December 2013. The achievement represents a significant milestone in the plant's construction, which is set to be complete by the end of 2016, and is expected to produce 1500 megawatt (MW) of electricity. The power plant, financed through Kuwait's first ever public-private partnership, is 40% owned by a consortium comprising ENGIE, Sumitomo Corporation and A. H. Al Sagar & Brothers.
The Kuwait Institute for Scientific Research (KISR), which is spearheading much of the country's drive to invest in renewable energy, has launched three projects to produce power from renewable energy sources. The projects include a thermal station with capacity of 50MW, a photovoltaic solar station with capacity of 10MW and a wind power station with a capacity of 10MW. The government has also announced it intends to build a 70MW solar power facility in the Al-Shaqaya area, to become operational by 2016. Additionally, the country aims to build 100 new solar-powered fuelling stations by 2020, at a rate of 20 per year.
During the period 2015-2024, Kuwait's overall power generation is expected to reach 95.3T terawatts (TWh). Driving this growth are annual gains in gas-fired and oil-fired generation, with the former expected to outpace the latter as the government looks to focus the power sector on gas in an effort to free up oil for export.
Following an estimated 5.2% increase in 2012 real GDP, BMI forecast average annual growth of 3.6% between 2015 and 2024. The population is expected to rise from 2.7mn in 2014 to 4.3mn by 2024, with net power consumption to increase from an estimated 54.7TWh to 82.6TWh over the same period.