x Abu Dhabi, UAEThursday 18 January 2018

Grappling with the global power crisis

As the GCC exemplifies, even affluent and energy-rich nations can face power shortages. But it's a worldwide problem.

As many Gulf residents are painfully aware, electricity is a scarce commodity throughout most of the region, with summer power cuts, long waits for utility hookups at residences and cancelled commercial and industrial developments affecting the ebb and flow of daily life. But the GCC is far from the only region thus afflicted. Large swathes of Asia, Africa and the Caribbean, and even some European outposts, are also short of power. Nor are the shortages restricted to war zones with devastated infrastructure, failed states and impoverished third world economies. As the GCC exemplifies, some of the most affluent and energy-rich nations on earth can be afflicted by power cuts and all the other inconveniences of insufficient electricity supplies. China and India, the world's two biggest emerging economies, face similar difficulties. The effect on the already shaky world economy could surpass mere inconvenience. In the US, a 115 per cent jump in electricity consumption since 1973, compared to a 15 per cent increase in oil use, can be explained by the extra power gobbled by computers, plasma screens and mobile phones. But in China, a manufacturing boom to supply consumer goods to the world has driven that country's sustained surge in power demand. Now, with electricity rationed in more than half of China's provinces, reports are surfacing of factory owners closing plants they cannot afford to keep running with diesel generators - the final straw for businesses already under financial pressure on several fronts. "China's manufacturing sector is facing tough challenges due to the slowdown in the global economy, rising production costs, tight credit conditions, power shortages and currency appreciation," Lehman Brothers economists wrote in a recent research note. Aluminium smelting, which requires huge amounts of electricity, has been hit hard by worldwide power shortages, shrinking the supply of metal for drink cans and jet aircraft. Rio Tinto Group, the world's second-largest aluminium producer, said in July that a US$3 billion (Dh11bn) Abu Dhabi smelting project was "dead" because the Government could not spare gas to generate power for the development. The company also suspended work on a $2.7bn project in South Africa, which recently declared a national emergency over its power crisis. "The Middle East was seen as the most attractive place to build a smelter in the world," said Graham Birch, a London-based fund manager, highlighting the absurdity of power shortages in energy-rich countries. War, political turmoil and natural disasters of course take their toll, as can readily be seen in Iraq, Lebanon and Afghanistan, whose beleaguered citizens uniformly say that having a reliable electricity supply is their most urgent need, and in central Asia, where summer drought has dried up hydroelectric reservoirs. Another obvious factor making some countries especially prone to electricity shortages is geographical isolation. Thus, island states in the Caribbean, certain Indonesian and Philippine Islands, and the Mediterranean island of Cyprus are short of power. But the factor that all countries with chronic power shortages have in common is state-owned or monopolistic electrical utilities. This points to government and corporate mismanagement as a major cause of electrical insufficiencies. A related problem is fuel subsidies. In the GCC, subsidised gas prices have left gas producers with little incentive to supply the domestic power market. Some power-starved Gulf states, such as the UAE and Oman, have developed gas liquefaction terminals and are exporting gas needed to fuel domestic generating plants. Similarly, in China, coal miners forced to sell coal to power plants at low government-set prices are finding ways to divert production to higher-paying customers or are providing generating stations with substandard fuel. Conversely, Great Britain, an island state, has a healthy electricity supply, helped by the country having privatised its electrical utilities and fully deregulated energy prices. That is not to say that competitive, deregulated power markets cannot run into problems. But most electricity shortages have proved transitory and not due to inherent shortcomings of the market-based system. California just a few years ago developed power shortages while it was deregulating its electricity market. Now it has surplus generating capacity. Continental Europe, a net importer of energy with a partially deregulated electricity market and many state-owned utilities, has by and large escaped power shortages due to the richness and complexity of its interconnected continental electricity grid, and to its varied energy mix. As a whole, the region is well supplied with nuclear and coal-fired power plants to provide baseload capacity, supplemented with gas-fired and hydroelectric plants for peak generation, along with some of the world's biggest wind farms and most extensive deployment of solar panelling. A rich energy mix is also among the strengths of Britain's power system. Countries or regions that rely on just one or two energy sources for power generation are far more vulnerable to physical, political or economic shocks that can cause electricity shortages. Examples are the Gulf region, reliant on oil and gas to fuel power plants, and China, India and South Africa, which all depend heavily on coal-fired generation. Other less common drivers of electricity shortages include fiscal and regulatory regimes that discourage foreign investment in electricity infrastructure, and the rising environmentalist tide. The latter has brought Germany to the brink of disaster, through a pledge to eliminate nuclear power by 2020. In China, international pressure on the country to clean up its environmental act before the recent Beijing Olympic Games has added to the state's power woes. Turkey wants to attract foreign investors to its power sector, which it is privatising. But the transition to a market-based system has been hampered by grandfathered agreements with private investors in power plants who received generous long-term government electricity pricing and purchase guarantees. Denied a level playing field, new investors have been slow to step forward. All these problems can be solved, although it will take time. There are also encouraging signs that some governments are taking the need for change seriously: Saudi Arabia is privatising its electrical utilities, although unfortunately not deregulating power or fuel prices; Turkey is doing both; China, India and some other countries are reducing fuel subsidies; the GCC is developing an interstate electricity grid; a number of countries are offering to export electricity to power-strapped neighbours that are struggling to recover from war or natural disaster, including Turkey, Syria and Iran to Iraq, and Jordan and Egypt to Lebanon. Similarly, UAE and Jordanian companies are developing an integrated gas and power project in Iraq, while China and Russia have promised to build power plants in Tajikistan. Such projects - driven in part by humanitarian concerns and partly by politics - could even spur economic laggards to develop their resources more efficiently. Iran, for instance, will need to speed up gas projects or invest in coal mines to end domestic power shortages and export electricity, and will have to convince sceptical western governments of its commitment to nuclear power, not weapons. ##Power Shortages Worldwide The Americas Bahamas Customers of Bahamas Electricity, a monopoly utility on the majority of the archipelago's islands, complain of frequent power cuts and shoddy service, which they attribute to a bloated corporate bureaucracy and a lack of diversification away from diesel fuel for power generation that is often in short supply on the more remote islands. Blackouts have threatened development in some key Bahamas tourist centres, such as Harbour Island. Dominican Republic The Caribbean island's government, which owns the state's sole electrical utility, blamed a spate of power cuts this year on several power plants being out of service due to lack of fuel, maintenance or failures. Some plants went offline due to unpaid debt the government owed to fuel suppliers. Jamaica The island nation has endured power cuts for decades due to electricity subsidies that discouraged investors from adding generating capacity. Lack of regular maintenance at power plants over the years has led to frequent malfunctions, causing power cuts to increase. Nicaragua The central American country's leftist president Daniel Ortega in May threatened to nationalise the Spanish electricity provider Union Fenosa, blaming it for frequent blackouts. He said the company had breached its concession agreement by failing to invest enough in the energy-starved nation to improve its infrastructure. Europe Cyprus The divided Mediterranean island, a popular tourist destination, hopes reunification between its Greek and Turkish sectors will allow it to import electricity from Turkey in order to rectify a chronic power shortage. Germany The country's pledge to phase out nuclear power by 2020, combined with environmentalist opposition to new coal-fired plants, could leave Germany with a serious electricity deficit in the coming decade. Lithuania The Baltic state agreed to close the second unit of its Ignalina nuclear plant next year over safety concerns, five years after it closed the plant's first unit in order to satisfy EU accession requirements. Its government worries this will cause a severe electricity shortage that will leave the country dependent on Russian gas imports. Turkey Frequent power cuts afflict much of the country following decades of neglect to an antiquated, formerly state-owned electricity generation and transmission system. As part of its campaign to join the EU, Turkey is privatising its power sector. It is moving ahead with plans to build nuclear plants, despite environmental protests. Middle East GCC Widespread power shortages, except in Qatar, are due to the oil-rich region failing to develop its gas reserves fast enough to provide additional fuel supplies needed for power generation. Electricity demand growth has overshot forecasts due to a regional economic boom and related population growth and industrial expansion. Several GCC states, including the top oil exporters Saudi Arabia and the UAE, are seeking to develop nuclear power plants as a long-term solution to electricity shortages. In the short term, they are burning oil in some power plants, reducing potential crude exports. The UAE also imports some gas for its power plants from Qatar. Fuel subsidies throughout the region have discouraged development of gas for domestic consumption. Iran The owner of the world's second-largest gas reserves does not produce enough gas to supply its domestic power needs. It too is developing atomic power, but its controversial nuclear programme, involving uranium enrichment, has prompted the US and other western powers to implement sanctions against the country over fears it could be developing nuclear weapons. The sanctions, together with government inefficiencies and fuel subsidies, have hampered foreign investment that Iran needs for energy development, including electricity projects. It has signed agreements with Armenia and Turkey to import electricity in return for providing those countries with gas. Iran may initially obtain the gas from Turkmenistan. Iraq Decades of war and a lack of infrastructure investment have left the country with a dilapidated power grid that cannot come close to supplying the nation's power needs. Israel The national electrical utility called on the public to minimise energy consumption during summer heat waves in order to avoid power cuts that have plagued the country in recent years. Jordan supplies about 20 megawatts a day of electricity to the Jericho region of the Israeli-occupied West Bank. Lebanon At an international meeting last month, the energy minister Allain Tabourian appealed for power supplies from other countries. Jordan offered to sell its neighbour between 50 and 70 megawatts of electricity a day until the end of next year to help it meet a drastic shortfall. Earlier, Egypt said it would supply Lebanon with 200 megawatts daily. Following decades of civil war and government mismanagement, the country suffers daily power cuts. Many Beirut businesses and apartment blocks use generators to tide them over. Syria Power failures and electricity shortages throughout this summer, one of the warmest in memory, have led to five-hour blackouts in Damascus, whose residents have turned to diesel-fuelled generators. There are unconfirmed reports that the country, normally a regional electricity supplier, has had to suspend power exports to Lebanon and northern Iraq several times in recent months. The government blames US sanctions for its power woes, but an increasing number of critics say the root of the problem is a lack of government planning. Central Asia Afghanistan Most Kabul residents missed watching the Beijing Olympic Games because, seven years after the ouster of the Taliban from their country, they still have no electricity. Afghans are frustrated that the huge influx of international aid into their country has failed to restore power supplies, even in the capital. The US is backing a plan to build a high voltage power line from Kyrgyzstan and Tajikistan through Afghanistan and across the Khyber Pass to Pakistan. Kyrgyzstan and Tajikistan have significant untapped hydroelectric resources, but both Central Asian states are grappling this year with electricity shortages of their own. Kazakhstan The oil-rich country's power suppliers have warned of electricity shortages as early as next year unless immediate steps are taken to boost generating capacity. They want amendments to the country's tax and land codes as well as government loan guarantees to attract investors to the sector. Kyrgyzstan The country introduced electricity rationing last month, including six-hour daily power cuts in its capital, to save electricity for the coming winter. Kyrgyzstan, which relies on hydroelectric plants, discharged too much water from its main reservoir last winter in order to cope with extreme cold. Summer drought has caused reservoir levels to drop further. Tajikistan China will finance and build a $300 million hydroelectric plant here to help alleviate its neighbour's power shortages, and Russia will help to build three plants in return for gas exploration rights. Millions of Tajiks struggled to survive last winter without heating or electricity in their homes, as temperatures in the mountainous nation plunged to minus 20°C. The country also had to reduce power supply to Tajik Aluminium. South Asia Bangladesh The country is experiencing a serious electricity shortage with maximum generating capacity about 36 per cent below peak demand. Load shedding has become the norm, and industrial production has been severely hampered. Textile workers have mounted frequent strikes to protest the situation, as periodic plant closures due to power shortages have reduced their hours of paid employment. India Many parts of the country face acute power shortages due to population growth and rising per capita demand. Coal production, the main source of fuel for power stations, has not kept pace with demand, resulting in frequent power cuts. The situation has become chronic. Nepal The mountainous country's electrical authority last month quadrupled load-shedding power cuts to 16 hours per week from four, even though it usually produces more hydroelectricity during monsoons. Pakistan Countrywide protests against load-shedding have turned violent. Last month, Peshawar residents set fire to the office of Peshawar Electric Supply, angry over daily power cuts that sometimes exceed 10 consecutive hours. Power sector experts have attributed this year's alarming rise in power disruptions to incompetent power authorities and/or deliberate attempts to reduce electricity generation to save money on high-priced fuel oil. East Asia China More than a dozen provinces have rationed electricity in the country's worst summer power shortage in four years. Electricity has been in short supply despite recent power tariff increases and coal price caps. The latter may have backfired, causing coal miners to cut supplies to power plants, or feed them low-quality fuel. The power squeeze in the world's most populous country has resulted from power plants scaling back generation due to soaring coal prices and lagging electricity tariffs. Additional cuts in power generation by hydroelectric plants in drought-struck western China - including Sichuan province, which suffered a major earthquake this year - are exacerbating the shortages. Late last month, China's government suspended most of the country's coal-to-oil projects to free up coal for power generation. Vietnam Prolonged and widespread power cuts in the Mekong Delta are damaging working conditions and closing businesses, and have been blamed for pushing up the price of rice. Seafood processing plants have also been forced to increase product prices after switching to generators that burn expensive fuel. Factory workers have passed out in facilities without air conditioning or fans. Asia-Pacific Indonesia Japanese companies operating in Indonesia lodged a protest with the Indonesian government in July about frequent power cuts that are causing business losses. Power cuts are becoming more common in Java, Indonesia's most populous island, where generating capacity has failed to keep pace with demand. Philippines A power shortage causing brownouts in Western Visayas province has been blamed on environmental activism, which has blocked or delayed electricity projects that are feared hazardous to the environment. Africa Democratic Republic of Congo Manufacturers and food processors in Kinshasa have had to cut back activity due to electricity shortages, which they are blaming for higher product and food prices. The west African nation has failed to develop its vast hydroelectric potential. Ethiopia The east African country's impressive economic growth in the past few years has not been matched by increased power generation capacity. Its government instituted twice-weekly, 15-hour power interruptions this summer. Niger The west African country, a leading world supplier of the nuclear reactor fuel uranium, is suffering blackouts due to disruptions to power imports from neighbouring Nigeria, from which it imports 90 per cent of its electricity. In July, 30,000 demonstrators marched through the nation's capital to protest the power cuts and rising food prices. Nigeria The Opec member, one of Africa's biggest oil producers, suffers from power shortages due to poor electricity infrastructure. Its government has identified power supply as a major hindrance to economic development. Electricity production has stagnated since civilians replaced military rulers in 1999. Iran last month agreed to share nuclear technology with Nigeria to help the country increase power generation. South Africa Africa's biggest economy lost 50bn rand (Dh23.6bn) during a January power crisis that forced the state-owned power utility, Eskom, to declare force majeure, telling its customers is could not guarantee electricity supplies. The crisis was caused by dwindling coal stocks in a country that exports coal, and by government delays in allowing Eskom to build more power stations. It caused a near collapse of the state electricity grid and shut gold and platinum mines for five days, sending precious metal prices soaring on world markets. Subsequently, South Africa's government mandated a 10 per cent cut in electricity supplied to 138 large mining and industrial users. The cut is still in effect. Uganda The country is building heavy-oil fired power plants as a stopgap measure to address persistent power shortages. It is unclear whether the government has a long-term plan. Construction firms have shied away from investing in Uganda due to difficulties in obtaining project financing. Zimbabwe South Africa and Zambia have cut power supplies to the economically and politically troubled east African nation until it pays its bills. The country's ageing power plants are unable to make up the shortfall, leaving most Zimbabweans without electric lighting. tcarlisle@thenational.ae