Major investments are underway in Bahrain to reinforce the electricity grid and broaden distribution as the kingdom tries to keep up with increasing demand for power.
This comes at a time when the government is inching forward with reforms of its subsidies, but lowering oil prices may force the country to reduce expenditure further.
A bill was approved last year to gradually reduce utility subsidies for the business sector, according to officials. Customers whose annual consumption of electricity exceeds 250,000 KWh will see their per-KWh tariff rise by BD0.001 ($0.003) each year from the current rate of BD0.016 ($0.042). Similarly, the water tariff for business users who consume more than 1000 cu meters per month will increase by BD0.10 ($0.26) per cu meter.
The kingdom is also planning to ramp up investments in the utility sector. Energy Minister Abdul Hussein Ali Mirza announced plans at the end of December to invest up to BD1.5bn ($4bn) through to 2019, with the bulk of the funds being directed to increasing Bahrain’s current installed power capacity of just less than 4000 MW.
While this is sufficient to meet peak demand in the height of the summer – with the maximum load recorded on the network close to 3000 MW at the end of August, according to the Electricity and Water Authority (EWA) – it leaves limited spare capacity to make up for any generation loss due to maintenance works or systems failures.
The World Bank data shows that by 2020 energy demand within the kingdom will reach 19,706 GWh. Until then, Bahrain is expected to experience a monthly peak demand of 4312 MW. Electricity demand is growing by 7-10% per annum, driven by population growth and the needs of the industrial sector.
The cornerstone of the program is a $1.3bn project to build the second phase of the Al Dur gas-fired power station, which will more than double the facility’s existing capacity of 1200 MW by adding a further 1500 MW to output by 2019. Although the project is set to begin next year, question marks still hang over the financing of the development.
Mirza told OBG in an interview mid-2014 that the government was in the process of making strategic finance decisions for phase II of the Al Dur power plant. “The question is now whether it will be tendered to the private sector as was the case with the previous three stations,” he had added.
The spending program, to be overseen by the EWA, will also include an upgrade of the main transmission network to 400KV and the construction of a series of transmission stations, with the total cost budgeted at nearly BD280m ($740m), which will be funded by the GCC support program.
Renewable projects warming up
Bahrain is also developing renewable energy sources to reduce its carbon emissions and fuel input costs, with hopes that the cost of solar infrastructure will eventually lower, making it more cost-effective in comparison to subsidized conventional utilities.
The EWA issued a tender late last year for a 5MW pilot hybrid facility using both wind and solar energy to generate power, to be located near the Al Dur Power and Water Plant. In mid-2014, another 5MW solar plant was commissioned at the oil town of Awali, with the station owned by the Bahrain Petroleum Company (BAPCO). The facility is being developed as a joint venture with the National Oil and Gas Authority (NOGA), Caspian Energy Holdings and Petra Solar.
Under the Kingdom’s blueprint for social and economic development, named Vision 2030, up to 7% of its energy needs are to be met by renewable sources within 15 years. The construction of the pilot projects is expected to lay the groundwork for the renewable strategy, Mirza told OBG.
An extended period of low hydrocarbon prices may, however, put pressure on renewable energy investments as cheap input costs for conventional generation plants potentially reduces the appeal of new solar projects for private investors.
This could be at least partially offset by the government’s implemented plans to gradually reduce utility annual subsidies, which come in at about BD350m ($921.9m) for the electricity and water sectors. However, subsidy reforms remain a sensitive area for the government despite IMF recommendations that the funds could be more effectively targeted to alleviate poverty. The total bill for subsidies reached BD1.28bn ($3.4bn) in 2013.
Oxford Business Group