CEO Paddy Padmanathan discusses ties with Silk Road Fund to create the world’s largest single-site CSP and expansion into the Indonesian market.
In an exclusive interview with Asian Power, the president and CEO of Saudi Arabian utility ACWA Power, Paddy Padmanathan, shared the company’s expansion to the rest of Asia with its entry into Indonesia and a glimpse on the company's bid to build the world’s largest single-site concentrated solar power (CSP) project.
Can you give us your top three priorities for ACWA Power’s generation side?
At ACWA Power, our main priority is to ensure the reliable delivery of energy and where relevant desalinated water at the lowest possible cost utilising a bulk capacity on long term offtake contract model. For every project we undertake, we rigorously focus on reducing the cost of each and every component that contributes to tariff and work with our partners and supply chain to not market price any input but to assess real cost and apply a reasonable risk reflective margin and profit.
Secondly, we prioritise on identifying, evaluating, allocating, mitigating and managing risks in each project at each phase of the transaction from origination, development, construction, commissioning, operation and maintenance and finally decommissioning. And thirdly we seek to maximise local content in what we get built and what we use to operate and maintain the plant and create local employment opportunities at all stages of the transaction in order to maximise the impact on the social and economic development of the communities and countries we invest in, given that our investments have a time horizon of several decades and our returns are only assured throughcontinued growth and prosperity of the countries we invest in.
What’s behind ACWA Power’s expansion to Indonesia?
As an investor, owner and operator with a long term mind-set and given the capital intensity of our business, we recognised at the outset the importance of establishing a balanced portfolio of assets across a wide geography over time to become resilient as a business through diversity.
Having now established a presence in a few countries across four geographies; Turkey, Morocco, South Africa and Vietnam beyond our home region; that of Saudi Arabia and the neighbouring counties within the GCC and Egypt and Jordan, we are now expanding in each geography to other countries which show a steady growth in demand for power generation capacity, which welcome foreign private investment in their power sector and who have a demonstrable track record of honouring contracts and where one can efficiently operate to deliver power at sufficiently low cost to endure the test of time.
Now that we have secured our first two developments in Vietnam, we are ready to expand to the next country in the Southeast Asian region and Indonesia to us is a very logical choice that fits all our criteria and thus our move to establish an office and start to identify opportunities.
What opportunities do you see in Indonesia’s power sector?
A country of 255 million people with per capita electricity consumption rate of just 1 MWh compared to say South Korea’s 11 MWh per capita or even Vietnam’s 1.6 MWh per capita and an installed generation capacity of just 59GW and a projected demand growth rate of 6.87% per annum, the Government of Indonesia has published a plan to add 56 GW within the next decade. Given the range of resources available spanning from geothermal, solar, wind, gas and coal, we see a major opportunity to establish a business of a significant size to develop, own and operate a multi fuel portfolio and grow that business along with the social and economic growth and development of the country.
What factors led to Silk Road Fund’s investment in ACWA Power’s concentrated solar power project in the UAE?
ACWA Power has an established strategy of sharing investments with like-minded value adding partners. Having already established a close relationship with the Silk Road Fund through an equity investment partnership on the 2,400MW ultra-supercritical Hassyan Coal fired power plant also at Dubai, they were a natural partner to then bring into this iconic and strategic project, the largest single renewable energy project underway in the world today, the Noor Energy 1 plant. It has a total investment cost in excess of $5b to reliably deliver electricity 24 hours a day for the next 35 years, generated entirely through solar energy at a price of 7.2 cents/kWh which is competitive shoulder to shoulder with the cost of electricity generated with gas as fuel on a combined cycle generation plant.
How significant is the power demand that ACWA Power aims to address with the Salalah II IPP-Greenfield Project?
By 2021, peak energy demand in the Dhofar region of Oman is expected to reach 700 MW. ACWA Power’s project, Salalah II IPP, of 445 MW capacity will cater for over 60% of this demand thus eliminate the need for intra region transfers.
What is your outlook on the power sectors in the Middle East and the rest of Asia?
With a young population growing into the economically active age group and with population itself growing right across the Middle East and Asian region, demand for electricity is steadily increasing all driven by industrialisation, employment generation and expansion of social services. Also, driven by the compelling need to decarbonise as much of human activity as possible and with the wide range of options technology is giving us spanning from electric vehicles to electrification of industrial processes, the per capita consumption of electricity is increasing in this region even as efficiency of utilisation of electricity by devices ranging from the light bulb to air conditioners is reducing consumption per unit of GDP which thus is contributing to a net growth rate in excess of 4 to 6% in demand right across the regions.
In addition to the need driven by growth in generation capacity, the significant underinvestment in power generation sector in the last few decades also means the existing fleet is aging and now requiring replacement. Also with technology having made significant advance, the existing fleet is also inefficient in utilising the valuable resource of fossil fuels compared to the equipment available today giving yet another reason to replace them.
All governments across the region have also recognised the need to eliminate unsustainable subsidies, increase efficiency and reduce the cost of electricity by selecting the most appropriate fuel mix which now means an increasing level of renewable energy in the mix and to utilise the resources of the private sector not just to supply the technology and get plants built but to get the private sector to finance, build, own and operate assets and deliver the required kilowatt hours. We therefore see an attractive and rapidly growing market which allows ACWA Power to grow with the countries of the region to utilise the ingenuity of the private sector to reliably deliver electricity at the lowest possible cost and in the process support the countries to localise technology, generate employment and develop communities.
Do you know more about this story? Contact us anonymously through this link.