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MENA Needs to Invest $209 Bn in Electricity Over the Next 5 years

MENA Needs to Invest $209 Bn in Electricity Over the Next 5 years

Tuesday, 16 July, 2019 - 11:30
Solar power plant Shams 1 during its official inauguration at Madinat Zayed in Abu Dhabi. (Reuters)
Dubai - Asharq Al-Awsat
The MENA region will need to invest close to $209 billion over the next five years, of which 32 percent will be in transmission and distribution, announced Arab Petroleum Investments Corporation (APICORP).

In a report published recently, APICORP said that the region will require the addition of 88GW by the end of 2023, and between 2019 and 2023, investments in the MENA energy sector could reach $1 trillion.

“The power sector accounts for the largest share at 36 percent, spurred by growing electricity demand and greater momentum for renewable energy.”

APICORP noted that a large share of the funding needs in MENA’s energy sector will go to the power sector, of which renewables account for a substantial share of 34 percent.

The MENA region will need to install 88GW of generation capacity over the period 2019-2023, which is expected to translate into $142 billion for generation, and $68 billion for transmission & distribution (T&D).

The report indicated that the private sector, critical for risk management and for financing, is still largely dependent on sector reforms, as the share of government investments remain high at 78 percent.

Demand slowdown and the ensuing overbuilding are anticipated to continue in countries such as Saudi Arabia, even as the Kingdom embarks on transforming its power sector.

Between 2007 and 2017, electricity consumption in the MENA region increased by 5.6 percent. This was driven by rapid economic growth, industrialisation, rising income levels, high population growth rates and urbanisation; coupled with low electricity prices.

Gulf countries were able to match this growth with proportionate capacity additions, however, countries outside the GCC have been struggling to keep up with growing demand.

“In both cases, the trajectory of demand growth meant that the model was unsustainable for governments, and created, in a few cases, suboptimal electricity systems.”

The provision of reliable and affordable electricity remains important for governments and vital for the stability of countries. It is also important to promote energy efficiency and support the public with smarter and more responsible consumption, whilst tackling infrastructural and regulatory hurdles.

Consequently, APICORP expects that over the next five years, electricity demand growth will slow to around 3.8 percent.

APICORP estimates that in the next five years, close to $350 billion could be invested in the MENA’s power sector with renewable energy accounting for 34 percent of power investment, or 12 percent of total energy investment.

Jordan and Morocco have led the region with their renewable initiatives. Morocco’s target for renewable energy as a share of total generation is amongst the most ambitious in the world, standing at 42 percent by 2020.

At the end of 2018, Saudi Arabia’s installed generation capacity stood at 88.5GW, equivalent to roughly a quarter of the MENA total.

In 2017, Gross peak demand was 70GW putting the country’s reserve margin at a healthy 21 percent. Demand growth has slowed substantially following decades of rapid growth. Slowing population growth has been a major contributing factor and lower than anticipated economic growth also created downward pressure on demand for electricity.

Going forward, the government communicated in the 2019 Fiscal Balance Plan an official timeline for electricity tariffs to be “reflective of supply costs based on consumed fuel prices assuming ideal efficiency”.

UAE launched its Energy Strategy 2050 back in 2017, aiming to double the contribution of clean energy in the total mix to 50 percent by 2050.

Solar power features heavily in its plans and is expected to account for 25 percent of the generation mix once its $13.7 billion solar park is fully commissioned in 2030.

UAE needs to invest at least $16.2 billion to meet the expected additional 8GW capacity requirement over the medium term. The country is pushing strongly to diversify its energy sources in the power mix; “we estimate that nearly 14GW of capacity additions are already in execution.”

As for Egypt, demand for electricity grew at a rate of 4.6 percent between 2015 and 2017 and is expected to rise to 5.1 percent by 2023.

“Egypt will need to invest $20 billion in power generation and a further $10 billion in T&D. This would increase capacity in MENA’s most populous country to 63GW by 2023.”

APICORP estimates that Iraq will need to invest $21 billion in generation over the next five years to take capacity up to 30GW.

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