Water World

Power and Water -
Some have too little, others too much. But no one can live without water. Ahmed Bin Abbood Al Adawi, the new head of TAQA’s global water operation, talks about the future of the industry

Revenues from the global water industry are predicted to hit nearly half a trillion dollars by 2017, and power and utility companies are jostling for a bigger slice of the cake.

“TAQA is already one of the largest desalination companies in the world,” says Ahmed Bin Abbood Al Adawi, the new head of TAQA’s global water operation. “So we thought why don’t we expand and capture more of the market.”

International research shows the opportunities are there. According to Lucintel, a leading global management consulting and market research firm, “improvements in global economic conditions, especially in emerging economies, [will] drive growth in waste water and sewage treatment markets across the globe”.

Lucintel’s research paper, Global Water Utilities Industry 2012-2017: Trend, Profit, and Forecast Analysis, predicts that growth will reach an estimated US$432 billion within five years. But it notes that, “the market is highly fragmented with a few major players”, and only the companies best placed to react to the “increasing investment in water infrastructure and sewage removal facilities” will cash in.

Just how TAQA has emerged as one of those “best placed” companies lies in its links to Abu Dhabi Water & Electricity Authority (ADWEA) and the UAE Government, says Mr Al Adawi.

“Here, historically, all power and water projects were planned through ADWEA,” he explains. “But in 2011 TAQA was asked to look at its water projects and assess how they would perform as an independent business stream. We were seeing US$800 million a year in revenue coming from our water business, which represented 43% of our total power and water revenue. So we had to ask: what do we think about water as an independent activity?”

A changing industry

Since the 1980s, producing fresh water for Abu Dhabi has been about desalination.

These plants were built alongside power stations because generating electricity also generates heat. This heat then powered technology known as Multi Stage Flash (MSF), turning seawater into tap water. Today, Abu Dhabi produces about 98% of its 880 million imperial gallons per day (MIGD) by using mainly MSF and Multiple Effect Distillation (MED).

But the industry is changing, and it is Mr Al Adawi’s job to ensure TAQA is capable of meeting the many challenges coming down the pipe. Increasing urbanisation and the rapid industrial expansion outlined in the Abu Dhabi Economic Vision 2030 will also see water demand rise. The emirate alone will require 1,150 MIGD by 2021.

By then, Abu Dhabi will also need 20-plus gigawatts (GW) of electricity capacity during the summer. But in the winter that demand is predicted to fall to one third of summer peak. A sensible response would be to reduce electricity capacity in the low season, but Abu Dhabi will still require the 1,150 MIGD of water. And since the desalination plants run off the power stations, where does the water come from if almost three quarters of the power needed to produce it suddenly isn’t there?

Added to that is the UAE’s nuclear energy programme, which will see four reactors coming online between 2018 and 2022. Together, all these developments are forcing the emirate to move towards independent water projects.

“There is a local and regional market shift to independent water projects – a decoupling from power generation,” explains Mr Al Adawi. “Most countries in the region, like the UAE, have a huge power capacity, but it serves a highly seasonal demand. And that makes it expensive and wasteful to ensure steady water production using power plant-based thermal technology. We need a way to ensure steady water production without having to generate unwanted electricity.”

New technology

New technology, it appears, is available to provide the answer. Improvements in reverse osmosis (RO) technology – an alternative desalination technique that uses specially sensitive membranes to filter seawater – have now made it a cheaper alternative.

RO can now desalinate greater quantities of seawater at much cheaper rates, without affecting efficiency or quality, and without the need for huge amounts of energy. Also, once freed from being linked to power stations, independent desalination plants can be sited anywhere along a country’s coast. The UAE is already looking at potential sites in Fujairah and in the Western Region.

“GCC and MENA [Middle East and North Africa] countries worry about water security, so there is a clear need for diverse locations. RO plants are simpler and easier to build and you can site them close to their end users, whereas power plants are hugely expensive. They must serve huge areas and so require a vast infrastructure of transmission lines, substations and power networks. Water is easy: to move it you just build a pipeline,” says Mr Al Adawi.

“Also the water market itself is changing shape, with a new emphasis on wastewater treatment. In the past, countries did not see the need to treat waste water. It ended up being stored in septic tanks or pumped, untreated, directly into the sea. But that approach has had consequences. Across the region, the volume of waste to be stored is becoming huge, and in many sites it is leaking into the groundwater and polluting it. Pumping waste water directly into the sea is also causing huge environmental problems for coastal waters.

“As a result, lots of governments across the region are now looking to waste-water companies to eliminate their environmental problems. They are also interested in waste-water management because proper water treatment provides useful water for irrigation.

“So that is how improving technology and the changing shape of demand have now made an independent water business viable for TAQA,” adds Mr Al Adawi. “We looked at the industry, and found there is a business model there.”

Separate water business

The next step has been to look at the value chains of the business and ask, where do we want to be? And then to lay down a roadmap of how to get there. The strategy that TAQA has decided on is to establish a separate water business, with a geographic reach across MENA as well as India.

The aim will be to build the business organically and through external growth. Organic growth will come through equity stakes in future ADWEA projects locally, and in the MENA region by tendering for owner / operator projects.

External growth will be achieved through acquiring existing plants – both desalination and waste water – and through the acquisition of existing companies if or when they become available.

“TAQA would like to fast-track its presence as a water player,” says Mr Al Adawi. “One way would be to capture market assets. We have a plant-focused strategy, and we want to be developer, owner and operator of desalination and waste-water assets, so we will be looking at opportunities in the region to acquire those assets. The idea is to become present in different markets, to build the operations business, and to build the TAQA brand.” The emphasis will also be on establishing the UAE as a global centre for water industry technology. As TAQA’s presence in the sector grows, the skills and technical know-how it acquires will boost the company’s reputation as a market leader in the industry. This will help expand the country’s industrial base, fulfilling the Economic Vision 2030.

“Abu Dhabi will be our focus for the first two to three years,” says Mr Al Adawi. “At present, our capacity is sufficient. We are meeting the demand. We have capacity of 900 MIGD and demand is 880 MIGD. But we need new capacity to meet projected growth in demand. By 2016-17 we need new desalination capacity equal to 160 MIGD. And for replacement of old capacity to 2030, that will require a further 800 MIGD and will cost over US$5bn. So we need to start now to expand our independent water project. There is an urgency about it.”

Power-plant blueprint

The operational model for the independent water business will follow the power-plant blueprint. This involves TAQA owning a majority shareholding while private investors are invited in to run specific parts of any project, such as undertaking local maintenance.

The mix of TAQA ownership and private investment already operates in eight independent power and water projects in the UAE. In terms of waste-water projects, Abu Dhabi has two major companies treating 860,000 cubic metres a day of waste water, ISTP 1 and 2. ADWEA owns 60% of the plants and foreign investors 40%. But more treatment capacity is required as Abu Dhabi continues to grow.