Certain of the projections and other information set forth in this section have been derived from external sources, including information published by our Sponsors. The basis and underlying assumptions of these projections and other information may differ materially from those used in connection with our Computer Model and our other projections set forth in this Offering Memorandum. We believe that these industry publications, surveys and forecasts used in connection with the preparation of this Offering Memorandum are reliable but we have not independently verified them and cannot guarantee their accuracy or completeness. The projections and other forwardâ€‘looking statements in this section are not guarantees of future performance and actual results could differ materially from the projections and forwardâ€‘looking statements. Numerous factors could cause or contribute to such differences, including the risks referred to in 'Risk Factors'.
The following chart sets out how the power and water generation, transmission and distribution sectors are organized in Abu Dhabi under the Privatization Program.
Power Generation and Water Desalination
The Government of Abu Dhabi, through EWEC, implements the Privatization Program on a “build, own and operate” basis. Since 1999, 14 power and water projects (either combined or standalone power and standalone water) have been procured under the Privatization Program. Of these 14 projects, three are under construction and 11 are in operation.
In addition to these projects, EWEC purchases energy from two standalone solar projects, being Shams CSP (100 MW) and Masdar City PV (10 MW), both originally procured by Masdar. Furthermore, the 5.6 GW nuclear power plant under construction at Barakah was procured separately by the Government of Abu Dhabi, however, EWEC has contracted to purchase its power output and available capacity under a separate power purchase agreement. One of the plant’s four units is currently in commercial operation with the others expected to achieve commercial operation in the coming years.
EWEC is a public joint-stock company incorporated under the Federal Laws and the laws of the Emirate of Abu Dhabi pursuant to the EWEC Law and registered in the Commercial Register and holder of commercial license No. CN-1002479, with its registered office in the City of Abu Dhabi, Emirate of Abu Dhabi. It is a wholly-owned subsidiary of ADPower.
EWEC is regulated by the DoE, which is responsible for strategic planning for the entire energy sector in Abu Dhabi, regulating the energy sector in all respects and issuing licenses to all institutions, entities and companies working in the energy sector.
EWEC is the sole buyer and seller of electricity and water output in Abu Dhabi. Under the terms of its license, EWEC is required to ensure that there is sufficient production capacity to meet all reasonable demands for electricity and water in Abu Dhabi and engage in the economical purchase of electricity and water production from producers under various power and water purchase agreements (or power purchase agreements or water purchase agreements) in Abu Dhabi, which typically have a term of 25 to 30 years. EWEC sells the power and water output to the distribution companies and charges the distribution companies for electricity and water delivered through the TRANSCO networks under a bulk supply tariff. In addition, EWEC purchases the gas fuel from fuel suppliers for some of the producers and handles financial settlements with all stakeholders.
TRANSCO is a wholly-owned subsidiary of TAQA and is the sole electricity and water transmission licensee in Abu Dhabi. TRANSCO’s core business is the development, network planning, construction, operation and maintenance of both high-voltage power and water transmission networks within Abu Dhabi and, where required, the wider UAE.
TRANSCO receives income comprised of:
(a) charges applied for the use of the electricity and water transmission system in Abu Dhabi, which are calculated in accordance with the formula set out in the license granted to TRANSCO by the DoE and are set for each regulatory period; and
(b) service charges for the transmission of water and electricity from TRANSCO’s transmission infrastructure to the Sharjah Electricity and Water Authority (“SEWA”) and Etihad Water and Electricity (“Etihad WE”), which transmit and supply the power and water in Sharjah (in the case of SEWA) and Ras Al Khaimah, Fujairah, Umm al Quwain and Ajman (together with Sharjah, the “Northern Emirates”), respectively. These service charges are calculated by reference to the costs associated with the operation of the dedicated assets.
Transmission of Power
Power is carried through a network of transmission lines connected to substations across Abu Dhabi and to SEWA and Etihad WE. In addition, TRANSCO also operates in Saudi Arabia and Oman through the Gulf Cooperation Council Interconnection Authority system.
Transmission of Water
TRANSCO transports large volumes of water from the water desalination companies to the two distribution companies in Abu Dhabi. The water transmission system consists of main pipelines that range in size from 500 mm to 1,600 mm in diameter and are made predominantly of cement-lined ductile iron and carbon steel and partly glass-reinforced plastic.
There are two distribution companies in Abu Dhabi:
1. Abu Dhabi Distribution Company (“ADDC”) is a public joint-stock company wholly owned by TAQA, located in Abu Dhabi; and
2. Al Ain Distribution Company (“AADC” and, together with ADDC, the “DisCos”) is a public joint-stock company wholly owned by TAQA, located in the city of Al Ain.
ADDC and AADC are exclusively responsible for the low voltage (33 kV, 22 kV, and 11 kV) power lines that distribute power from the transmission system to homes and businesses and for the distribution pipelines that distribute water from the transmission system to homes and businesses.
Both companies have significant areas served by overhead lines, although major towns and cities are served by underground networks.
Distribution of Water
The water distribution systems operated by AADC and ADDC are predominantly composed of cement-lined ductile iron pipelines ranging in diameter from 80 mm to 1,200 mm, with high-density polyethylene pipelines also increasingly being employed.
In March 1998, the Government of Abu Dhabi established ADWEA to implement a major water and electricity sector restructuring, refurbishment and expansion program in Abu Dhabi. To achieve these goals, ADWEA undertook the Privatization Program with a view to reducing costs and increasing fuel efficiency through market competition. The unbundling of the power and water sector began in 1998 under the Water and Electricity Law with the aims being to:
(a) improve availability and efficiencies while improving service standards;
(b) provide safe, secure and reliable water and electricity supply;
(c) encourage private sector participation in the sector and transfer of knowledge and expertise;
(d) maximize returns from the sale of governmentâ€‘owned assets;
(e) develop employment and training opportunities for UAE nationals; and
(f) support the development plan of Abu Dhabi.
Recent additional aims also include the promotion of low carbon and renewable energy projects and achieving the lowest procurement cost possible.
Accordingly, the Privatization Program was undertaken by ADWEA and overseen by the Regulation and Supervision Bureau. It was implemented through existing power plant asset sales and greenfield projects since the late 1990s based on a 60:40 partnership between the Government of Abu Dhabi and foreign operators. Pursuant to this process, ADWEA divested 40% of its interest in each of its facilities to consortia formed by international developers (as provided below). ADWEA subsequently transferred 90% of its remaining interest in most (but not all) of these facilities to TAQA, as such facilities neared completion. As such, further private sector participation in the power and water sector was achieved through this transfer of ownership interest from ADWEA to TAQA, and a subsequent initial public offering by TAQA in 2005.
The electricity sector was recently restructured with the establishment of new entities and reallocation of roles and responsibilities.
In February 2018, the Government of Abu Dhabi promulgated Law No. 11 of 2018 which, among other matters, established the DoE. The DoE is tasked with replacing the functions, and assuming the rights and obligations of ADWEA and the Regulation and Supervision Bureau, including in relation to the Privatization Program.
In November 2018, the Government of Abu Dhabi promulgated Law No. 20 of 2018 which, among other matters, established EWEC. EWEC is tasked with replacing the functions and assuming the rights and obligations, of ADWEC, including in relation to the Privatization Program.
In January 2019, the Government of Abu Dhabi promulgated Law No. 3 of 2019 which, among other matters, provides for the assets of the DoE to be transferred to ADPower, including the assets in relation to the Privatization Program.
The following chart shows the ownership arrangements between the various entities involved in the Privatization Program (although as an exception to the below, TAQA has a lower than 60% shareholding in the F3, Taweelah RO and Al Dhafra Solar PV IWPPs).
Approximately half of the current power generation capacity under the Privatization Program has been successfully installed through greenfield investment. The power sector in Abu Dhabi is known as a “single buyer model” because there is no competitive pool arrangement, and all production output is purchased by EWEC as the “single buyer”. The Privatization Program is one of the largest in the Middle East.
The DoE regulates the power and water industry in Abu Dhabi. Its duties concern the water, wastewater and electricity sector of Abu Dhabi only. It is responsible for enforcing the relevant sector laws through the licensing of activities to various participant companies who undertake a “Regulated Activity” in the sector. Regulated Activities include the generation, transmission, distribution and sale of electricity.
In its capacity as regulator, the DoE also monitors, modifies where needed and enforces conditions in licenses to participant companies. Additionally, it has the power to establish and monitor technical, performance, safety and customer standards. Participant companies that wish to dispose of any or all of their assets, or purchase the assets of another generator, transmitter or distributor, must first obtain approval from the DoE. By way of summary, the scope of the DoE’s responsibilities, as regulator and in respect of the electricity and water sector, includes the following:
(a) to ensure the security of the supply of electricity and water in Abu Dhabi;
(b) to ensure the connection and supply of electricity and water to all consumers on reasonable demand;
(c) to ensure the availability of health and safety guidance regarding electricity and water supply to the public;
(d) to publish information relating to standards of performance by licensed operators;
(e) to take account of national and international environmental standards and consult with environmental bodies in the Emirate of Abu Dhabi when necessary in relation to consumer and industry interests and others with special needs in connection with the cost and method of supply and the use of appliances and fittings;
(f) to promote competition in the electricity and water sector;
(g) to ensure the operation and development of a safe, efficient and economic sector in Abu Dhabi; and
(h) to protect the interests of consumers as to the terms and conditions and price of supply of electricity and water.
Although the DoE is the sole regulator of electricity in Abu Dhabi, there are several other electricity authorities that operate within the UAE, including the Dubai Electricity and Water Authority, SEWA and Etihad WE, each of whom provides electricity and water in their own respective emirate or emirates (in the case of Etihad WE) but do not sell electricity or water directly to customers within other emirates.
We are also subject to environmental regulation by the Environment Agency—Abu Dhabi, which is the governmental body charged with introducing and monitoring environmental standards with respect to, among other things, water and air quality, water treatment, and disposal. We are further governed through a set of environmental standards under our financing arrangements and are committed to protecting the environment in line with the Equator Principles.
As part of the Land Lease between ourselves and ADPower, upon expiry or early termination, if EWEC has not purchased our plant from us, we have a legal obligation, at our sole cost and expense, to demolish and remove our plant and any residual wastes from the land, fill all excavations and return the surface to grade.