Engie transforms to drive energy transition

Engie transforms to drive energy transition
Published: 20 November 2018 - 8:03 a.m.
By: Baset Asaba

When Saudi Arabia launched a tender for its first ever utility scale wind project last year, a 400MW plant in the Kingdom’s Al Jouf region, France headquartered ENGIE was one of the four companies shortlisted for the project.

The $500mn project is expected to kick-start a paradigm shift in Saudi Arabia’s power generation, as the Kingdom moves to embrace clean sources of energy with an ambitious 9.5GW renewable energy capacity on the horizons by 2023.

But that’s not all. The project provides a nearly perfect platform for international utilities companies to make their mark in the fast rising renewable energy market in the GCC and entire Middle East. It is an opportunity fittingly aligned for ENGIE’s ongoing transformation as a Group.

In today’s fast evolving global utilities landscape, every major utilities company is looking to position itself as the ultimate embodiment of innovation. ENGIE, is one such a company. ENGIE epitomises the modern utility; dexterous and keen to re-invent itself to keep its relevance while maintaining its weight in the industry.

With more than 30GW capacity under its portfolio, ENGIE is now determined to cut loose from its past ways of doing business in order to cope with the rapidly evolving energy transformation. The group is cutting itself away from its conventional power past and steering into a leadership role in the global clean energy future.

Like several of its European peers, ENGIE has been backing away from oil and gas production and it in May secured a $3.9bn deal for its assets with Neptune Energy, a private equity-backed company headed by Sam Laidlaw, the former chief executive of Centrica of the UK.

ENGIE, which is 29% owned by the French state, is going ahead to cut costs and refocus on renewable energy and digitalisation. In 2015, ENGIE announced its decision to stop new investments in coal plants, and to dispose of $17bn in assets to reinvest into projects that promote low-carbon, distributed-energy. The company also announced it will invest $25bn in renewable energies, energy services such as heating and cooling networks, and decentralised energy technology.

The 200 year old Paris-listed company has been active in the Gulf region for more than 30 years generating 30GW of power and around 5 million m3 of desalinated water. It operates 20 power plants in the region including three in Bahrain, one in Kuwait, six in Oman, two in Qatar, three in Saudi Arabia and five in the UAE.

A sixth power plant in the UAE is under construction in Mirfa region of Abu Dhabi and is expected to be commissioned by the end of this year, Arbola said. Another power plant in Saudi Arabia is also under construction.

The group has a 20% stake in six power and seawater desalination plants in the UAE, operating a total production capacity of 8.8 GW (on 18 GW of total production in the country) and 2.5 million m3/day of desalination. It has also been involved in liquefied natural gas (LNG) distribution since August 2013, when it delivered its first LGN carrier in Dubai.

“In response to today’s energy needs, we have reprofiled ENGIE to focus its resources on areas of business where the Group has a competitive edge; those that have a future in a world of energy defined by carbon reduction, decentralisation and digitalisation,” says Sébastien Arbola, CEO, ENGIE Middle East, South & Central Asia and Turkey (MESCAT) Business Unit (BU).

“We are now engaged in a very broad strategy aimed at expanding our core businesses of energy supply, especially green electricity, energy infrastructures, by which I mean power transmission and supply grids and energy storage, and services in the form of integrated solutions delivered to our local authority, business and domestic customers.”

ENGIE is not alone in this new adventure. Several international power companies operating within the region such as GE, EDF, Siemens, ABB, ACWA Power and Ansaldo Energy among others, have had to reimagine themselves over the past years. This has meant innovating solutions that cater to the GCC’s growing renewable energy market.

Renewable energy is expected to continue to attract a growing share of investment in new electricity generation capacity, especially as their levelised cost of electricity (LCOE) generation continues to drop. Some $370bn is forecast worldwide in 2020, up 50% on 2016, according to Strategy&. A big chunk of this investment is slated for the GCC, although the region still falls behind developed countries such as Germany, and developing economies such as Chile, Mexico, Morocco, and South Africa.

The research group Frost & Sullivan says that global investment in renewable energy will hit $228.3bn in 2018, with growth slightly down on 2017 as a result of China’s decision to slow the rate of growth in its solar sector.

Although structural and institutional challenges for renewables have led to underinvestment, the GCC has several factors that make rapid deployment of renewables an attractive opportunity, says Dr. Raed Kombargi is a Partner with Strategy&.

“These include plentiful, high-yield renewable resources; a natural gas shortage; and an established independent power plant (IPP) model, which makes cheap, long-term project finance available and can attract the necessary private and foreign investors,” says Kombargi.

“But capitalising on that opportunity requires a considerable financial and policy commitment. GCC governments must avoid a short-term, haphazard approach that will result in an inefficient supply mix or renewables plants disconnected from national energy strategy.”

He says that to avoid such risks, GCC governments should set ambitious and realistic renewable energy targets that are grounded in a comprehensive and integrated national energy plan, clarify the national energy governance framework and define institutional roles and accountabilities.

Since the start of 2016, ENGIE has sold or closed more than 10GW out of 16GW of coal production, brought 6GW of renewable energy online and secured a further 6GW. Low-carbon activities now represent more than 90% of earnings before interest, taxation and amortisation, ahead of target, says the company.

As part of its plan, ENGIE aimed to sell off $17bn of fossil fuel-focused assets between 2016 and 2018 and reinvest the proceeds in renewables and energy services. Following the sales of liquefied natural gas assets to Total for $1.5bn in November and of a coal plant in Australia in December for $800mn, 90% of those disposals are now complete.

The Group is now looking to actively take part in tenders for large scale renewable energy projects in Dubai, Abu Dhabi, Bahrain and Oman.

But even as the GCC utilities plan investments to the tune of $100bn in renewable energy over the next five years to boost current power supply, serious concerns remain over power intermittency especially in the absence of utility scale storage. This and several other considerations continue to make a strong case for digitalisation and smart grids.

“The world today has more machines than there are people, and a lot of useful information is coming out of these machines. When you connect the two, you can unlock a huge amount of productivity that can take this industry to a whole new level,” says Mostafa AlGuezeri, managing director, ABB, the United Arab Emirates.

As major utility companies chart the course to growth and returns through digital transformation, the global number of devices being managed by utility companies is projected to grow to 1.53 billion in 2020. But this is just the beginning of this industry’s transformation.

GCC utilities are determined to unlock the full potential of deploying digital solutions across the entire electric power eco-system. The deployment of smart grids in the GCC is expected to help the region save up to $10bn in infrastructural investment by 2020, according to industry analysts.

Renewable energy and digitalisation go hand in hand, and these are two areas where ENGIE is determined to channel more investments. ENGIE is already growing strongly in three business sectors; at more than 5% in power generation, 2% in infrastructures and 9% in services.

So, according to ENGIE’s Arbola, the goal now is to amplify that growth and boost ENGIE’s profitability. “I am very happy and confident about the growth prospects of the Group going forward. ENGIE is well on the way to a successful transformation, and the Middle East region will be central to this.”

The Group has gone through significant changes since Isabelle Kocher took charge in 2016, becoming as she did the first French female chief executive in Paris’s CAC 40 stock market index. As part of her three-year plan that will run to the end of 2018, the company has cut costs, reduced its exposure to carbon-intensive industries and from markets most exposed to fluctuating prices.

The Group’s exposure to renewable energy, regulated markets and digital technologies is expected to increase further over the next few years.

“It is [now] more about the pace of growth,” says Kocher, in a recent interview with the Financial Times. “Fundamentally we have done the most important part in terms of repositioning. And we have been extremely clear on the businesses we intend to make a difference on.”

ENGIE was among the first utility companies to use the Independent Power Producer (IPP) model in the GCC and it is also the leader in terms of capacity. In the UAE, the company is closely working with Abu Dhabi Water and Electricity Authority (ADWEA) and has five gas-fired power plants in Al Taweelah, Shuweihat, Umm Al Nar and Fujairah.

Last year, commercial operations began at the $1.46bn Mirfa independent water and power plant (IWPP) with a capacity of 1,600MW and 52 million gallons of desalinated water per day. ENGIE holds a 20% equity interest in the project while ADWEA has 60% and Abu Dhabi Financial Group the rest 20%.

“The focus now is to add in the elements of conservation and efficiency in everything we do, in every product that we install because that is the trend,” says Arbola. “Future demand is more about preservation of resources, efficiency, decoupling, renewables, battery storage, electric vehicles and power electricity interconnection. These are areas we are determined to address and we can only do that by getting closer to our customers.”

ENGIE is a major player in highly efficient cooling networks, that are typically 50% more energy efficient than individual cooling solutions and generate 50% less CO2. ENGIE operates more than 250 low-carbon urban heating and cooling networks in 13 countries, including some of the most emblematic European district cooling systems, in places such as the London Olympic Park, the cities of Paris, Marseille, Barcelona, Lisbon, and also worldwide in countries such as Malaysia.

Last year, ENGIE acquired a 40% stake in National Central Cooling Company PJSC (Tabreed) from Mubadala Investment Company (Mubadala). Through the partnership with Mubadala, Tabreed is now expected to become one of ENGIE’s main regional development platforms, besides existing operations in Western Europe, North America and South-East Asia. The Group also expects to lead a rapid growth, through Tabreed, in new emerging markets like India, Egypt and Turkey.

Also, last year, ENGIE acquired Netherland based EV-Box, one of the world’s leading electric vehicle charging services providers with over 40,000 charging stations in service. And to further make its mark in the fast growing electric vehicle industry, in June, ENGIE unveiled a new EV Home tariff that offers 100% renewable electricity and free driving miles for electric vehicle owners, alongside a new EV home charging solution.

“That vehicle to grid concept is part of all of those things that combine for a holistic approach to decentralised and mobile production. For such as EVs, charging structures and grid put together in terms of actual investment, we have a total of 50,000 charging stations already and growing faster and around that we are trying to build a business,” says Arbola.

The Group is keen on leveraging its expertise to support the GCC’s growing interest in pumped storage hydroelectricity and battery storage as part of a wider push for decentralised power generation.

In June, ENGIE unveiled a new battery energy storage – pumped hydro facility in Bavaria, Germany, following an investment of more than $26mn on the site. In addition to changing and upgrading some equipment at one of the pumped hydro plants, ENGIE constructed a 12.5MW battery storage system at the site. Nearly 40,000 (39,600) batteries are housed in 180 racks, with each battery of about 67kWh capacity. Three 20kV transformers feed power into the local grid, maintained and operated by network operator Bayernwerke AG.

“New technologies like battery storage with short reaction time complement the existing proven technologies and are a key element for the future energy system,” says Arbola. “Our goal is to reduce CO2 [emissions] as much as possible without jeopardising our competitiveness”.

Moving forward, Arbola says that due to the speed at which technology is evolving, more investments will be channelled into scientific Research and Development (R&D) rather than just technology development.

“Instead of being somebody that does what we call techno watch for the arrivals of the next few years, we are setting R&D in the science space, which is to say that we are looking into the future a bit more than we did in the past and that is in respect of all our businesses, renewables, services, everything,” says Arbola.

“We are cognisant of the fact that there are often too many technologies arriving and too many options to consider. This quickly evolving situation means dedication of R&D investment is slightly different than previously observed.”

Click here to add your comment

Please add your comment below
Name
Country
Email
Your email address will not be published
Captcha