< Previous20 Utilities Middle East / June 2020 www.utilities-me.com COVER FEATUREPOWERING AHEAD As several countries embark on a phased process to ease their lockdowns, what lies ahead for the utilities industry? How fast can the industry recover from the damage caused by the global outbreak of coronavirus? Last month, the CEO of the Emirates Nuclear Energy Corporation (ENEC), Mohamed Al Hammadi, came out to announce that operations at the UAE’s pioneering Barakah nuclear plant are “on sched- ule” despite the Covid-19 outbreak. Although confi rmed cases of coronavirus in UAE had reached 24,190 by press time, the UAE’s Barakah nuclear power plant has not recorded a single case among its 700 employees, accord- ing to the CEO. In a virtual fi reside chat held last month with Frederick Kempe, president and CEO of the Atlantic Council Global Energy Center, Al Ham- madi claimed that despite the pandemic, the corporation was in the “advanced stages” of starting up the fi rst of the facility’s four reactors. “In response to the global Covid-19 pandemic and following the guidance of the UAE’s lead- ership, we came together with our partners to swiftly implement a range of measures to ensure the health, safety and wellbeing of our employ- ees,” he said. “Covid-19 has been a tremendous challenge for all of us; however, I am proud of our teams’ response and fortunate to be able to say that we have not experienced a single positive case of Covid-19 at the Barakah site.” GCC utilities have not reported any disrup- tions in their normal operations as a result of the coronavirus outbreak, with most of them lever- aging their online platforms to ensure contin- ued service delivery. In fact, last month, Dubai Electricity and Water Authority (DEWA) signed a 25-year power purchase agreement (PPA) with Saudi Arabia’s ACWA Power for 900MW Phase 5 of the Moham- med bin Rashid Al Maktoum Solar Park (MBR Solar Park). The PPA was signed by MD & CEO of DEWA, Saeed Mohammed Al Tayer, and chairman of ACWA Power, Mohammad Abunayyan, during a video conferencing session, marking a continua- tion of business activities despite the outbreak of the coronavirus (COVID-19) pandemic. A consortium of ACWA Power and Gulf Invest- ment Corporation were chosen as the preferred bidder to build and operate Phase 5 of the solar park in November 2019. DEWA received the lowest bid of $1.6953 cents per kilowatt hour (kW/h) for the phase, marking a world record. DEWA in partnership with the consortium led by ACWA Power and Gulf Investment Corpora- tion had established Shuaa Energy 3, in which it owns 60%, and the consortium owns the remaining 40%. During a roundtable with reporters shortly before the lockdown in March, Joseph Anis, president & CEO, Middle East, North Africa & South Asia, GE Gas Power, said that the company, which has operations in 130 countries, had made no revisions to its growth forecast or sales pro- jections for this year following the disruption to global supply chains due to the rapid spread of the novel coronavirus. GE has been working to ensure the safety of employees and maintain business continuity www.utilities-me.com June 2020 / Utilities Middle East 21 COVER FEATUREamid the health scare, Mr Anis said at the time. “The beauty of a global supply chain is that we do have suppliers all over the world across the globe, so we aren’t really tied into one area per se or one supplier,” he said. “There are always multiple vendors qualifi ed so a lot of work has been done to ensure that we don’t have any delays and we’ve been looking at that early on to ensure that we can support all of our projects from a supply chain standpoint.” Despite the optimism, events in the past few weeks seem to have given the utilities indus- try a generally grim outlook, with some proj- ects being shelved indefi nitely both globally and within the region. Last month, General Electric reported a steep decline in fi rst-quarter revenue as the industrial giant took a hit from the coronavirus pandemic. The company posted revenue of $20.524bn, which represents a year-over-year decline of 8%, with the aviation business being the most aff ected. On an adjusted per-share basis, the company earned 5 cents. That was below a Refi n- itiv estimate of 8 cents per share. GE also suff ered a $1bn blow to its cash fl ow during the quarter. CEO Larry Culp said in a statement that the company was eyeing cost cuts of more than $2bn along with $3bn in cash preservation to cushion the coronavirus blow. GE’s earnings release also In response to the global Covid-19 pandemic and following the guidance of the UAE’s leadership, we came together with our partners to swiftly implement a range of measures to ensure the health, safety and wellbeing of our employees.” Mohamed Al Hammadi, ENEC. 22 Utilities Middle East / June 2020 www.utilities-me.com COVER FEATUREindicated the industrial giant expects this quar- ter to be worse than the fi rst. “The second quarter will be the fi rst full quarter with pressure from COVID-19, and GE expects that its fi nancial results will decline sequentially,” he says. GE reported $3.6bn in revenue from its power unit in the previous quarter. GE in March cut its profi t forecast and said its outfl ow of cash could reach $2 billion in the fi rst quarter. Global power plant operators continue to change procedures at their facilities, including pushing back scheduled maintenance, due to lockdowns and quarantines associated with the coronavirus pandemic. The changes are impacting companies such as General Electric (GE) and Siemens, which are major service providers to power plants, at a time when these global companies already are taking a revenue hit due to COVID-19. Maintenance of power plant generation equipment is a major revenue source for Sie- There are always multi- ple vendors qualifi ed so a lot of work has been done to ensure that we don’t have any delays and we’ve been looking at that early on to ensure that we can support all of our projects from a supply chain stand- point.” Joseph Anis, GE. mens, GE, and other equipment manufacturers. The eff ects of the coronavirus pandemic are leading to a reduction in leverage headroom for 2020-2021 across EMEA utilities, but rating actions have been limited so far and Fitch Rat- ings does not expect many under its current rating cases. Utilities have felt a relatively low impact from the outbreak compared with other sectors, but some eff ects deriving from the pandemic are visible, including substantially lower electric- ity and gas demand, lower prices and potential increase in bad debts, operational challenges, and higher scope for regulatory and political adverse actions. The impact from the eff ects of the pandemic is low for pure networks, which are generally insulated from volume and price risk. Where present, volume risk is generally recovered with some time lag. The impact is also fairly limited for top Euro- pean integrated utilities, which in the past fi ve www.utilities-me.com June 2020 / Utilities Middle East 23 COVER FEATUREof the year. Lower demand will push less effi cient thermal plants out of the merit order, while depressed electricity prices will aff ect all generation busi- nesses, with sharp drops in margins for price- taker sources like hydro or nuclear, according to Fitch Ratings. Contracted renewables benefi t from prior- ity of dispatch, and their exposure to market prices is negligible or, where the total achieved price is related to market price trends, gener- ally manageable. The overall decrease in demand is the result of a sharp drop in commercial and industrial demand and an increase in household con- sumption, which has much higher unitary mar- gins and customer stickiness. Supply generally accounts for 5%-15% of inte- grated companies’ EBITDA and ultimately the impact for companies will depend on their market positioning and the split of customers between business and households. “We believe bad debts and timing of receiv- ables collection will be an issue for utilities, and even companies with limited impact at EBITDA level could experience large cash drains at work- ing-capital level, although we expect this to be recovered through the rating horizon,” says Fitch Ratings. “We are not aware of operational disrup- tions, and companies are operating their assets normally, as governments’ lockdown provi- sions do not apply to essential services like those provided by utilities. Investments in dig- italization are also mitigating the operational impact of the crisis.” Nevertheless, there could be delays in the implementation of capex, mainly due to capex suppliers and logistic problems. This would postpone the achievement of targeted growth, although it could give some relief to free cash fl ow in the short term. We also expect delays in asset disposals where transactions have not yet closed. “We believe the situation has signifi cantly increased the risk of adverse political and regu- latory interventions. So far the measures intro- duced by governments are mainly aimed at pre- venting utilities from cutting supply for custom- ers with overdue bills for a certain period,” says Fitch Ratings. Several utilities have cited COVID-19 as a risk factor to their earnings in recent fi lings with the U.S. Securities and Exchange Commission (SEC), including Xcel Energy, CMS Energy Corp., and American Electric Power (AEP). We believe bad debts and timing of receivables col- lection will be an issue for utilities, and even companies with limited impact at EBITDA level could experience large cash drains at working-capital level, although we expect this to be recovered through the rating horizon.” Fitch Ratings. years have shifted their business profi le towards defensive regulated networks and contracted renewables. Merchant business represents on average 20%-25% of EBITDA for these companies. The crisis is expected to more tangibly aff ect inte- grated companies with large merchant genera- tion and supply exposure and, even more, pure gencos, although this is expected to drive rating actions only in some cases. Countries with stricter lockdowns includ- ing Italy, Spain and France, are experiencing a reduction in electricity demand peaking at 15%- 25%, which will represent a strong hit for the whole of 2020 and probably beyond. Together with low commodity prices (gas in particular, which is the price-setting technology in several countries), this is putting strong pres- sure on electricity prices across Europe, which have dropped by around 20% since beginning 24 Utilities Middle East / June 2020 www.utilities-me.com COVER FEATURE Covid-19 has been a tremendous challenge for all of us; however, I am proud of our teams’ response and for- tunate to be able to say that we have not experienced a single positive case of Covid-19 at the Barakah site.” Mohamed Al Hammadi, ENEC. “This is a rapidly evolving situation that could lead to extended disruption of economic activ- ity in our markets,” AEP said in its fi ling. “We have instituted measures to ensure our supply chain remains open to us; however, there could be global shortages that will impact our mainte- nance and capital programs that we currently cannot anticipate.” Utilities say that some work can be postponed without an impact on the power grid as power loads have fallen. Critical work is still being per- formed—several nuclear power plants are still performing scheduled refuelling outages— though utilities for the most part have only essential personnel on-site. Siemens CEO Joe Kaeser earlier this month said the company would not cut jobs due to the pandemic, but the company is experienc- ing negative impacts from the coronavirus. Sie- mens Gamesa Renewable Energy (SGRE) said it would withdraw its fi nancial guidance for this year. SGRE in a statement April 21 said the “uncertainty associated with COVID-19” was “compounding challenges in India and North- ern Europe.” SGRE said “COVID-19 disruptions” in its supply chain, manufacturing operations, proj- ect execution, and commercial activity had “pri- marily aff ected and adversely impacted the sit- uation” in its onshore wind power business. The company said off shore and service operations also could experience disruptions in the next several months. Siemens Gamesa last month confi rmed it is furloughing workers at two manufacturing plants “for three to four weeks” due to supply chain issues caused by the coronavirus. Danish wind turbine manufacturer Vestas on April 20 said it would lay off about 400 workers, and also suspend its fi nancial guidance for 2020, due to disruptions from the pandemic, includ- ing installations, manufacturing, and supply chain issues. Vestas, the world’s largest wind turbine man- ufacturer, said jobs related to “technology proj- ects” would be impacted as the company instead focuses on delivering wind turbines through the rest of this year. “Simultaneously, and due to the extraordi- nary situation from the pandemic, additional measures are needed to ensure the organiza- tion executes as strongly as possible on our order backlog and customer commitments in 2020. To this end, Vestas intends to reduce its workforce across functions in Denmark that do not directly support 2020 deliveries,” Vestas said. www.utilities-me.com June 2020 / Utilities Middle East 25 COVER FEATUREVestas said most of the layoff s would be at the company’s locations in Lem and Aarhus, Den- mark. Vestas employs about 25,000 workers worldwide, with about 4,000 in Denmark. The renewable energy sector is experiencing widespread impacts from the pandemic. Research and consultancy fi rm Wood Mackenzie last week said as much as 150 GW of wind and solar power projects in the Asia-Pacifi c region could be cancelled or delayed between now and 2024 if the “coronavi- rus-led recession” continued past this year. “The extent of the coronavirus impact on Asia Pacifi c markets is key to the future growth of the renewables sector,” Alex Whitworth, a research director at Wood Mackenzie, said in an April 22 statement. “Over the last fi ve years (2015–2019), the Asia Pacifi c region accounted for over three- quarters of global power demand growth, while leading the world in wind and solar capacity installations. The coming months will be crucial to determine if the region is moving towards a rapid recovery or extended recession future.” The energy analysts at BloombergNEF (BNEF) have downgraded their expectations for the solar, wind, and energy storage sectors for the year. The group says it had cut its forecast for global solar demand capacity additions in 2020 by 16%, in large part because the sector relies heavily on demand in China, where there have been widespread impacts due to the coronavirus. BNEF had expected solar capacity additions to reach around 121-152 GW this year. It has low- ered that forecast to between 108-143 GW. A drop in 2020 would be the fi rst annual decline in solar capacity additions in at least 30 years. The group says the wind energy industry should fare better, but noted there is “consid- erable downside risk” to its original 2020 fore- casts for new wind installations. Its original fore- cast called for as much as 75.4 GW of new wind deployments this year. Energy storage companies could have supply chain disruptions as well. BNEF says it expects to cut its forecast for growth in the sector by at least 4% in 2020. We are not aware of oper- ational disruptions, and companies are operating their assets normally, as governments’ lockdown provisions do not apply to essential services like those provided by utilities. Invest- ments in digitalization are also mitigating the opera- tional impact of the crisis.” Fitch Ratings. 26 Utilities Middle East / June 2020 www.utilities-me.com COVER FEATUREA SPECIAL REPORT FROM UTILITIES MIDDLE EAST Traditional energy network substations are evolving into digital substations, with major breakthroughs that may provide enormous gains for GCC utilities p30 Advancing power transmission A look at the current status of transmission system tools and technologies p 32 DIGITAL SUBSTATIONS SPOTLIGHT: • A virtual face-to-face video interview • The perfect platform for your senior region- al representative to address his professional peers in the region and articulate your organ- isations unique and distinct brand message at this vital time for the industry THE PANEL: • A virtual Roundtable • Elevate the size, scope and complexity of a key topic, or challenge the industry is facing and discuss the ‘best-of-class’ solutions that the industry should be making themselves aware of with a table of your professional peers FOR MORE INFORMATION, CONTACT: Mohsin Raza Sales Manager M: +971 52 309 2706 E: mohsin.raza@itp.com We are experiencing a signi cant increase in tra c and engage- ment across all our digital channels, so we are launching 3 new digital Special Features to help you connect with, engage with and inspire the largest audience of downstream professionals in the Middle East at this extremely important time. Digital Reach - 233,934 - Industry Professionals Every Month WEBINAR: • Harnessing its industry leading reputation and market leading database, Utilities Middle East will design, manage and promote a compelling, insightful and truly engaging webinar • The perfect forum to deliver tangible, business critical information CONNECT | ENGAGE | INSPIRE SPECIAL REPORT www.utilities-me.com June 2020 / Utilities Middle East 29 Baset Asaba, Editor Email: baset.asaba@itp.com Editor’s leader Smart substations for grid stability With an energy basket, tomorrow’s grid needs intelligent networks made up of intelligent substations Smart meters have grabbed a lot of the limelight when it comes to the smart grid. But, let’s face it, next-generation intelligence in substations is the fulcrum for bringing more renewable energy into the electrical distribution network. Smart meters delivered intelligence to the grid’s end points, but increasing intelligence in substations via smarter intelligent elec- tronic devices (IEDs) will enable regional supervisory control and data acquisi- tion (SCADA) systems to more effectively manage power supply and demand in grid segments that contain renewable energy sources. There’s no denying that renewable energy sources like solar and wind pre- sent a greater control challenge for main- taining a reliable, dependable electrical supply system. The very nature of renew- able energy sources is quite different from the traditional power generation plants that have formed the grid’s foundation for the last century and more. Unlike the massive power-genera- tion plants fired by fossil fuels, renewable energy can be sourced from a plant as small as several solar panels on a home or a few wind turbines on the side of a hill behind a new subdivision. In addition, the traditional power grid can be characterised as many demand points with a relatively few supply points. On the other hand, a smart grid with sig- nificant renewable energy will have many demand points while also starting to tilt toward a greater number of smaller energy sources that are closer in proximity to end consumers. In fact, micro-grids are already being deployed and have demonstrated their worth. Many experts expect that the imple- mentation of micro-grids to increase because their scale is well-suited to the scale of most renewable energy sources. The lack of predictability from renewa- ble sources and the larger number of pro- ducers are both difficult to handle within the traditional grid, which has unidirec- tional communication flowing from a cen- tralised hub. Information about the level of demand and the production level from multiple points of supply needs to be communi- cated to the central supply-and-demand management system, and then back out to the power sources and other grid resources that manage power delivery. In cases of high demand, dispatcha- ble power sources will need to be told to ramp up. In cases where demand is low or renewable generation is high, dispatchable power sources could ramp down, or renew- able sources could be instructed to store their excess produced energy for a high- demand situation. Grid resources, such as IEDs in substations, will need to be told how to manage all of this power routing. It is clear that the smart grid will need to seamlessly blend these divergent power sources—traditional power-generation plants and renewable sources—in a way where they will complement and opti- mise each other’s strengths while mini- mising their weaknesses. Doing so will cer- tainly make the smart grid of tomorrow a much more complex place, introducing new control challenges that can be over- come by a more intelligent infrastructure, particularly at the substation level. As such, it will require a large increase in comput- ing power. Greater computing power and intelli- gence could be implemented in a few dif- ferent places, including at the central level, the regional SCADA system that manages supply and demand, or at a more distributed level (distribution and trans- mission substations). While adding intel- ligence at the central level may intuitively make more sense at first, it will require that more and more data be communi- cated from the distributed points back to the central level as production and demand points invade the grid. This information is being used to trans- form the power delivery industry in ways that saves costs and improves reliability. With the implementation of Smart Grid technologies like the ones described above, along with other initiatives that utility companies are executing like storm hardening and distribution automation, we are heading towards a grid with signifi- cantly higher reliability.Next >