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The $1.2-billion GCC power grid, set to start trial operations by year-end, would ease regional pressures and ensure greater inter-connectability at a time when runaway power demand is threatening blackouts across the region.
Phase one of the GCC interconnection grid, which will ultimately link the power networks of all six GCC states, will be fully operational in the first quarter of 2009 once all tests have been completed.
The first phase of the project will see the interconnection of four GCC states - Kuwait, Bahrain, Qatar and Saudi Arabia - with Oman and the UAE to be connected by the end of 2010 in two subsequent phases.
Industry estimates put the amount of investment needed for the GCC power and water sectors at as much as $120 billion over the next 10 years.
The grid will allow the transfer of electricity between GCC states to utilise excess capacity and limit the need for new investments in additional power generation capacity.
The network will boost efficiency and reliability by ensuring uninterrupted electricity supplies.
The project's second phase, the connection of the UAE and Oman, has already been completed, with phase three, covering the construction of an electrical substation and an overhead line in Abu Dhabi, under implementation.
As part of phase three, the GCC Interconnection Authority (GCCIA) has awarded National Contracting Company (NCC), of Saudi Arabia, an estimated $70 million contract to build the overhead line from Sila in western Abu Dhabi to the capital.
Once up and running, the grid is set to pave the way for the development of a regional energy market, which in turn could lead to lower electricity prices.
The GCCIA is also in the final stages of awarding a contract for the utilisation of the grid's fibre optic cables for telecommunications purposes.
Under the plan, the authority would lease cable capacity to telecommunications providers to generate additional revenues.
According to estimates, up to $50 billion could be spent in the GCC countries by 2015 for increased generation capacity of nearly 60,000 megawatts.
Large investments will be required to ensure the continuity of power to the Arabian Gulf region due to growing electricity demand, says Moody's rating agency.
Unprecedented economic and demographic growth is creating a strain on power supplies in the region.
The region faces risks such as cost inflation and the resultant financing uncertainties, heavy investment driven expansion, fuel procurement problems, expected power shortages and blackouts, government-set tariffs, and lack of regulatory structure.
"Moody's believes that these exceptional growth trends are likely to challenge local utilities, which will need to instal significant additional capacity to meet rising demand," says Philipp Lotter, Dubai-based senior vice president at Moody's.
Alternative energy sources, such as renewable and nuclear energy, are being investigated by the governments to meet the increased demand, particularly as some countries run short of gas and the region's fuel mix remains over-exposed to gas and oil.
Furthermore, continued government support, the involvement of private operators, a unified electricity grid, and more regulatory transparency could help ease the burden.
Ultimately, players in those markets that provide greater transparency in their regulatory framework and tariff-setting, and share some of the expansion burdens with private sector operators will be better positioned to embrace the future demands of the sector.
Despite these challenges, the outlook for the sector is mostly stable.
"Moody's also recognises that the GCC unified grid will not put the main utilities under any competitive pressures, as the ultimate goal of the unified grid is to allow the utilities to mitigate the negative effects of unexpected power shortages, as well as improve profitability margins through a more efficient cost management," Lotter says.
The ability to hike installed capacity in a timely manner and identify suppliers in an already stretched global market would require local utilities to accurately predict future power demand.
Project financing arrangements remained particularly under-used and were likely to increase substantially, as banks, which have been the predominant source of debt, would not be capable of catering to the future funding requirements or larger magnitude.
On fuel procurement, Moody's says many countries with vast hydrocarbon reserves were struggling to feed their growing domestic power sectors, either due to gas shortages (vis-ˆ-vis oil) or the need for significant infrastructure enhancement to bring existing reserves to production.
As the majority of new plants to be built by 2015 would be gas-fuelled, current gas feedstock arrangements may not be sufficient to meet additional future demand, posing a major challenge for regional utilities.
