The growing impact of desalination
- From: Vol 3, Issue 5 (May 2002)
- Category: General
- Region: Middle East
- Country: United Arab Emirates
- Related Companies: AES Corporation, ANZ Investment Bank, Bank of Tokyo-Mitsubishi, Barclays Capital, Citibank, CMS Energy, Credit Suisse First Boston, Doosan Heavy Industries, EDF, Fichtner, Fisia Italimpianti, International Power, Kepco, KfW, Marubeni, Mitsui & Co., National Bank of Abu Dhabi, Royal Bank of Scotland, RWE, Sidem, Siemens, Steag, Tepco, Total, Tractebel and White & Case
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As the long talked-of crisis in water availability becomes a reality in the world’s most pressed regions, the need to fully exploit every supply option is becoming ever more urgent. Among these options, the long established technology of desalination appears to be enjoying a period of unprecedented expansion.
In terms of the worldwide demand for water, its impact to date has been relatively insignificant – around 26Mm3/d (or 6.87 billion gallons per day) of installed or contracted capacity in around 13,600 plants in 120 different countries. If plants in the bidding and planning stage are taken into account, this rises to around 31Mm3/d (or 8.3 billion gallons per day) in just over 14,000 units. Well-researched industry figures forecast a rising trend with nearly 40Mm3/d of operating or contracted output by 2010.
The lion’s share of this capacity will be in those countries with two things in common – poor occurrence of natural raw water and an ability to meet the relatively high costs of desalination. This is definitely the case in the Middle East where the Gulf Co-operation Council (GCC) states currently account for around 50% of global desalinated water production.
That said, however, costs are generally coming down, influenced by developments in technology and innovative financing approaches including moves to privatisation. A move towards more economic
construction and operation is being successfully applied to large projects that provide both electricity and potable water.
For a financial community well used to the proven technology and minimal risks of independent power projects (IPPs), there is a perception of higher risk associated with such dual-purpose plants, or IWPPs (independent water and power projects).
Nevertheless, despite the perception of higher risks, even after the events of 11 September, power and desalination projects have been successfully closed in the Middle East, says Douglas Strong, director and head of infrastructure and mining with ANZ Investment Bank.
Indeed, such perceptions seem to have done little to stem the flow of contracts, leading International Desalination Association (IDA) director Leon Awerbuch to tell a conference audience last year that “the desalination market is outperforming even the most optimistic recent projections”. Awerbuch, who is also president of the Cairo-based Leading Edge Technologies, went on to suggest that the challenge in the near future for the power and desalination industry would be to provide desalinated seawater at $0.50/m3 and electricity at $0.02/kWh.
These prices may be some way off but the figures offered for production at Abu Dhabi’s Al Taweelah A2 plant are certainly in the range at $0.70/m3 and $0.0246/kWh.
Abu Dhabi is at the forefront of the wave of expansion in desalination/power projects and has been particularly forward-looking in introducing private finance and new technologies. The concept of the
IWPP has found acceptance in the Middle East as a whole and Abu Dhabi was first to use this framework for a power and water project at Al Taweelah A2.
The project is seen as proof that privatisation can bring economic and competitive solutions. Awarded to CMS Energy of the US, the dual-purpose plant generates 710MW of power and uses the multi-stage flash (MSF) distillation process to produce 50MIGD (227,000m3/d) of desalinated water.
Contractors Doosan Heavy Industries & Construction and Germany’s Siemens finished construction of the plant earlier this year, five months ahead of schedule. Al Taweelah A2 includes what is thought to be the world’s largest evaporator at 90m long, 30m wide and 15m high, a factor which enabled construction to end prior to target. The debt portion of the project – amounting to $596 million – has been provided by a syndicate of international banks, headed by Barclays.
Al Taweelah A2 is just one of four major dual-purpose plants in the emirate state’s national strategy for water and power. All four – the other three are Al Taweelah A1, Shuweihat and Umm al-Nar – are structured around some form of private sector participation and all incorporate some degree of innovation or advance on past practices.
Al Taweelah A1 can claim two firsts with its introduction of large-scale multi-effect distillation (MED) as the desalination process and its requirement that the private sector partners to the BOO (build own operate) contract acquire an existing plant as part of the deal.
TotalFinaElf of France and Belgium’s Tractebel have jointly agreed to expand the existing output of 255MW and 29.2MIGD (133,000m3/d) to 1350MW and 84MIGD (380,000m3/d) respectively. France’s Sidem is responsible for the MED technology. The $1.5 billion project is due to be completed by the middle of next year.
The largest of these four IWPPs is Shuweihat, a $1.64 billion greenfield scheme based on a gas-fired combined cycle power plant which will generate 1500MW of power and 100MIGD (454,000m3/d) of desalinated water using the widely applied MSF technology.
The BOO contract, awarded to CMS Energy and International Power last August, includes a 20-year power and water purchase agreement between the private sector partners and the Abu Dhabi Water and Electricity Authority (ADWEA) and an O&M agreement for a similar period commencing when construction is complete. The plant is planned to commence commercial operation in August 2004.
CMS and International Power will each invest around $80 million and will jointly own 40% of the project equity, the remainder residing with ADWEA.
Quoted product output prices for Shuweihat are $0.69/m3 for water and $0.025/kWh for power. Engineering, procurement and construction (EPC) has been let to a consortium of Siemens and Fisia Italimpianti. The latter is to deliver what are said to be the largest MSF units ever built, six units of 76,000m3/d.
The financing for Shuweihat was arranged by Barclays Capital, Citibank, Abu Dhabi Investment Company, Bank of Tokyo-Mitsubishi, KfW, National Bank of Abu Dhabi and Royal Bank of Scotland.
A similar contract form is also being used for Abu Dhabi’s fourth IWPP. However, Umm al-Nar looks rather more complex than its three predecessors.
Like Al Taweelah A1, the contract involves acquisition of an existing complex and significantly expanding both the power and water output. However, in this case the existing plant includes some MED desalination units commissioned by Sidem only last year and a 62.5MIGD (284,000m3/d) MSF plant still under construction by Doosan.
Current output of the Umm al- Nar Power Company, a wholly owned subsidiary of ADWEA, is 1148MW and 92MIGD (418,000m3/d). This is to be expanded to 1750MW and 150MIGD (680,000m3/d) by the time the whole plant becomes operational, planned for the summer of 2006. The first new power units should be commissioned a year earlier.
The successful private sector partner will, as at Shuweihat, take a 40% share in the new BOO project company with the remainder being held, directly or indirectly, by ADWEA. Bids are due in at the end of the third quarter with full commercial close of the deal anticipated in the first half of next year.
A number of companies and consortia have been invited to submit offers including Tractebel/Enelpower, International Power/Mitsui/Tepco, TotalFinaElf, EDF, RWE, Steag, AES Corporation, Marubeni, and Kepco. Project advisors are Fichtner Consulting (technical), Credit Suisse First Boston (financial) and White & Case (legal).
Other Gulf states
While progress has been particularly notable in Abu Dhabi, similar pressures for power and water are driving contracts forward in the other UAE states and elsewhere in the Gulf. Last year saw major awards in Oman, Qatar and Kuwait.
In the case of Qatar, a mid-2001 award to AES Corporation was the country’s first IWPP. The $750 million Ras Laffan complex will produce 750MW of power and 40MIGD (182,000m3/d) of water. All output will be sold to the Qatar General Electricity and Water Corporation by a joint utility company in which AES has a 55% stake.
Another first was recorded in Kuwait when an international consortium entered into a concession agreement for a membrane treatment plant to produce 375,000m3/d of potable and non-potable (irrigation) water from treated wastewater. The $390 million Sulaibiya complex will combine ultrafiltration and microfiltration pre-treatment with the world’s largest brackish water reverse osmosis (RO) plant.
These are all major contracts but the region is of course dominated by Saudi Arabia. Already the home for over 17% of the world’s entire desalination output, the Kingdom is nevertheless faced with a capacity shortfall with demand projected to double by 2010. Necessary expenditure over the next 20 years is said to be in the region of SR180 billion ($48 billion).
This will back renovations, new plant construction and operation of a system that currently produces over 3000MW of power and nearly 3Mm3/d of water from 193 units in 30 plants. Nearly a third of that water and half of the power comes from the massive Al Jubail complex, operating successfully since 1982.
Saudi Arabia’s unequalled experience with dual-purpose plants has not, until recently, involved private sector investment. However, faced with the enormous needs, there are very positive indications of a changed approach. Over a year ago, desalination and power generation were omitted from a list of infrastructure activities closed to foreign investors and last July saw creation of a separate Ministry for Water Affairs (see GWI, Vol. 2, Issue 8, p.8).
The Saline Water Conversion Corporation (SWCC), long time overseer of Saudi Arabia’s water and power plants, will remain an independent organisation but, in common with all other water-related agencies, it will come under the wing of the new ministry and the new water minister will chair the SWCC board.
“The potential for PSP in the Kingdom of Saudi Arabia’s new power and desalination projects is an attractive prospect”, says ANZ’s Strong. “However, it will provide a substantial challenge to the market in meeting the financial requirements”. Within this framework, the Sumitomo Corporation has already proposed and been licensed to supply $2.2 billion of additional capacity – 700MW and 730,000m3/d – at Jubail and separate agreements will see considerably more capacity constructed by major oil companies as part of a core scheme for gas development.
This expansion in the desalination market comes at the end of a decade that has seen a remarkable upturn in demand for RO plants. According to a 1998 IDA inventory, the period 1987 to 1997 ended with MSF and RO each contributing around 10Mm3/d to installed global capacity but over that same period the added RO production was nearly three times the additional output from MSF plants. In comparison, the other technologies being applied – namely vapour compression, electrodialysis and MED – made only small impact on the market, each contributing around 1Mm3/d or less.
The popularity of MED has increased to some extent due to the development of plants capable of operating at lower temperatures, decreasing the scaling and corrosion tendencies that led to the initial swing to MSF. However, the advantage of lower temperature operation is somewhat annulled by the associated need for additional heat transfer surface area, so increasing the physical size of the plant.
The impact of RO has been significant because it uses electrical energy rather than electricity plus heat. Since its commercial introduction in the 1970s, there has been almost continuous improvement in membranes. They now allow higher rates of water throughput, are better at rejecting salts and have longer service lives, all contributing to lower plant costs. Further efficiencies are obtained by using energy recovery devices that convert the pressure in the concentrate stream to other forms of useable energy in the plant.
These advantages are highly relevant to addressing a fundamental difficulty of power production/desalination economics, especially in the Gulf. Whereas water demand remains fairly constant throughout the year, the demand for electricity is much greater over the summer period. In the remaining eight months of the year, it can be only 30 to 40% of this peak demand, meaning that the generating plant can be running at less than 50% capacity for this extended period.
This has led to the concept of so called ‘hybrid’ plants in which a distillation process, usually MSF, is linked to the main generating units but RO units are installed to run on off-peak electricity. In such cases, the MSF and RO product waters are typically blended to obtain a suitable water quality for distribution.
Further cost advantages have resulted from other developments in membrane technology. ‘Looser’ nanofiltration membranes, while not having the ability of an RO membrane to reject chlorides, are highly efficient at softening the input water by removing calcium and magnesium salts. When used upstream of the RO plant, they have the potential to significantly reduce desalination costs and can bring similar advantages when used in conjunction with a distillation process. In the latter case, the prior softening can allow the distillation maximum temperature to be increased from the 95-110°C range to 120-125°C, increasing water production by between 15 and 45%.
Such technical developments have opened the way to more economic plant design, based around the central need to match power and water production to demand in each of these separate areas.
Designers can be faced with complex questions when production ratios vary from around 5MW to 20MW of installed capacity for each 4500m3/d with MSF plants and between 0.8MW and 1.5MW per 4500m3/d in plants using the RO process. On the demand side, the Gulf countries are currently seeing demand for water outstripping that for electricity with the former rising in some countries by as much as 10% a year.
In conjunction with the growing acceptance of BOO and BOOT schemes, the technical advances mean that client authorities can leave such complex choices to their private sector partners, relying on fierce international competition to give them the most economic solution. To this they can add the reduction in front-end costs when the developer funds, builds and operates the plant, leaving the client only to pay for the water as it is produced.