The UAE and other Gulf oil producers need to set up major diesel generator projects to take advantage of a rapid growth in demand for such machines because of a steady expansion in the power sector.
The government-controlled Emirates Industrial Bank (EIB) made the proposal on the grounds regional nations rely heavily on imported generators and such industries constitute a major part of small and medium enterprises (SMEs) that are vital for the diversification of their oil-reliant economies.
In its monthly economic bulletin, EIB said demand for such generators in the UAE leaped by 40 per cent to Dh1.23 billion in 2008 because of the high growth in power consumption due to an upsurge in construction and other sectors.
“Given the large demand for diesel electricity generator sets not only in the UAE but in the wider region extending from Iran, Iraq to Northern and Eastern Africa, there is potential for domestic manufacturing,” it said.
“The lead to manufacturing can be made by initiating assembling such units, to be followed by component manufacture as well. Assembly production means that diesel generators are well suited to small and medium enterprises. This obviously refers to small size units,” it added.
EIB said investors need to consider the region’s potential for both domestic and re-export markets for diesel generators when deciding to set up such industries.
It noted that for the small generator units, there is a higher re-export than domestic demand, which has been growing robustly.
“There is every indication of strong demand in the country and the region, and the two together could make domestic production viable.”
The study said with increasing domestic demand, the electricity industry in UAE has been growing consistently each successive year.
It said the UAE economy has not only seen increased production and installed capacity, but also structural changes and technological improvements.
Given the abundance of resources natural oil and gas, the fifth largest in the world, the UAE is a natural producer of electricity.
“However, distribution certainly remains a challenge where electricity has to be carried to each remote corner of the country,” EIB said.
“This is true for any country with large rural areas home to some isolated inhabitation – all of which are not easily brought under a common grid. Consequently, there is demand for generating electricity outside the main distribution grid. Diesel usage for producing electricity in the UAE (and in the entire Gulf) is overwhelmingly produced from gas.”
The study noted that there are no hydro or nuclear plants in the region and that nearly 97 per cent of the power production reportedly uses gas. The remaining three per cent is produced by generation sets run by diesel or steam turbines.
It said that associate gas, being a by-product of crude oil, provides a virtually free source of electricity production. But it said there is difficulty in transporting gas to power facilities on islands and other remote areas.
Diesel, it said, is a far more costly source of producing electricity, but is the obvious choice for smaller auxiliary requirements of electricity generation because of the easy portability of the fuel.
“There are several plants in the northern areas of the UAE which have to rely on diesel as a raw material because of lack of easy availability of gas… gas is not easily available in those areas and consequently production of electricity there is highly dependent on diesel fuel. Almost an estimated 75 per cent of the electricity production in the Northern Emirates is from diesel oil,” EIB said.
“The western areas are more easily connected on a common grid for electricity transmission as these are closer to the large electricity production units in Abu Dhabi. However, the need for diesel electricity generators comes not only from electric companies for further distribution, but there is also a large consumer demand for locations or situations viewed to be in an ‘island’ mode, namely those that cannot be temporarily or permanently connected to a fixed grid, including ships, mobile homes, isolated rural locations and land under fresh development.”
The study showed demand for diesel generators comes from several sources, with the small capacity units being widely used for emergency power as backups.
However, many also have a secondary function of feeding power to utility grids during peak periods or when there is a shortage of large power generators.
Demand from ships is particularly significant to provide electricity not only for on-board electric appliance and gadgets but sometimes also for the main propulsion.
The report said the UAE is a major regional market for maritime equipment, and diesel electricity generators find a substantial demand. Furthermore, diesel generators are in demand at construction sites which may not yet have a connection to the grid or may have a heavy temporary load requirement during the construction period.
Besides this, there is also demand for smaller units for recreational purposes including those for camping in remote areas, it said.
“Since there is no domestic production yet, net import figures (imports minus re-exports) very accurately reflect the demand,” EIB said.
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