$260bn investment needed to meet MENA electricity demand over the next 5 years

$260bn investment needed to meet MENA electricity demand over the next 5 years
GUESTROW GERMANY MARCH 07 Electricity pylons stand at sunset on March 7 2011 near Guestrow Germany According to a recent report partially funded by the German government Germanys electricity grid requires an additional 3500km of transmission capability and EUR 6 billion in investment in order to accomodate planned alternative energy projects including solar parks and both landbased and offshore windparks Photo by Sean GallupGetty Images
Published: 18 April 2018 - 6:17 a.m.
By: Baset Asaba

The Middle East and North African (MENA) region will require $260bn of investment in the next five years to meet rising and suppressed electricity demand, a new report by the Arab Petroleum Investments Corporation (APICORP) has revealed.

Although GCC governments have coped well with rising electricity demand, the report says that recent increases in electricity prices in Saudi Arabia will slow demand growth.

In the Mashreq region, inadequate investment and political instability have weighed on the power sector, and persistent blackouts continue to put pressure on governments to take action.

APICORP’s report also notes that electricity demand and consumption have been growing rapidly in the MENA region, driven by population growth and urbanisation, rising income levels, industrialisation, and low electricity prices.

While economic growth in the region has slowed compared with historical highs, the International Monetary Fund still expects an increase of 3.2% in 2018 and 2019, rising to 3.5% in 2022. The region’s population is also expected to grow at an average rate of 1.5% per year in that same period.

In order to meet this rising demand, APICORP estimates that MENA power capacity will need to expand by an average of 6.4% each year between 2018 and 2022, which corresponds to additional capacity of 117GW.

APICORP forecasts that $152 billion will be needed to deliver this additional capacity, with a further US$108 billion needed for transmission and distribution.

“Fiscal challenges have meant that governments are no longer able to support the provision of cheap power,” said Ghassan Al-Akwaa, Energy Sector Specialist at APICORP.

“Many countries are accelerating their price reform plans with the aim of liberalising prices in the short term. While these programmes will aim to reduce the fiscal burden on governments, they will also put downward pressure on power demand.”

Turning to more specific parts of the MENA region, the GCC dominates the landscape. Whilst it currently represents 47%, or 151GW, of current MENA power generating capacity, APICORP forecasts that it will need to invest $55bn to create 43GW of additional generating capacity and another $34bn in transmission and distribution over the next five years.

Some countries in the GCC, notably Saudi Arabia, have also taken steps to control demand, as a means of keeping required levels of investment in capacity at manageable levels.

This was the thinking behind the Saudi Arabian government’s most recent round of price increases, as demand had risen significantly on the back of cheap electricity, and with lower oil revenues, subsidising high levels of consumption is no longer sustainable.

To give an idea of the scale of the increases, Saudi Arabia increased electricity tariffs from SAR0.05/kWh to SAR0.18/kWh for residential consumption levels below 6,000kWh/month.

On the investment side, the required additional generating capacity in the GCC will be found in traditional and renewable forms of power generation. Saudi Arabia will lead the way in both, with the country needing to invest around $21bn, which will increase capacity to 92GW. Saudi Arabia is also kick-starting its renewable-energy initiative, seeking to develop 10GW of solar and wind energy by 2023.

The UAE needs to invest at least $33bn to meet its expected additional 16GW capacity requirement over the medium term.

The country is pushing strongly to diversify its energy sources in the power mix, and APICORP estimates that nearly 10GW of capacity additions are already in execution, including 5.6GW of nuclear.

Solar power also features heavily in the UAE’s plans and is expected to account for 25% of the generation mix once its latest $13.7bn (5GW) solar park is fully commissioned.

In other GCC countries, Kuwait’s generating capacity will need to reach 24GW by 2022, requiring $15bn of investment.

“The GCC governments will continue to cope well with rising demand, using price reforms as an effective tool,” said Mustafa Ansari, Senior Economist. “Renewable energy projects will also continue to be at the forefront of long-term government plans to diversify generation capacity.”

In Oman, rising electricity demand will require an additional 4GW of generating capacity, which APICORP estimates will cost $8bn; and Bahrain will need to grow capacity by 6% per annum, with $3bn of investment to meet capacity additions of 1.4GW, bringing the total to 5.8GW by 2022

Click here to add your comment

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