UAE, Saudi Arabia to drive Mena $209b power sector expansion

The Middle East and North Africa region will need to invest $209 billion in the power sector over the next five years as total investments in the region's energy sector could reach $1 trillion in next five years, an industry forecast said.
The power sector will account for the largest share at 36 per cent of the total energy sector investment, spurred by growing electricity demand and greater momentum for renewable energy, said the latest Mena Power Investment Outlook 2019-2023 report issued by The Arab Petroleum Investments Corporation (Apicorp), a multilateral development financial institution.
During the five-year period, Mena region will need to install 88GW of power generation capacity, said the report.
While electricity demand growth to slow over the medium term leading to some overbuilding, renewable energy will account for 34 per cent of power investments in the region.
According the report, close to 87GW of generation capacity is currently under execution, driven by the UAE (19 per cent), followed by Saudi Arabia (17 per cent) and Egypt (16 per cent). This is expected to translate into $142 billion for power generation, and approximately $68 billion for transmission and distribution, said the report.
The UAE needs to invest at least $16.2 billion to meet the expected additional 8GW capacity requirement over the medium term while Saudi Arabia has ambitious plans to diversify its electricity generation mix with considerable renewable and nuclear capacities.
The UAE is pushing strongly to diversify its energy sources in the power mix; and Apicorp estimates that nearly 14GW of capacity additions are already in execution.
Saeed Mohammed Al Tayer, MD & CEO of Dubai's utility said Dewa is working to achieve the Dubai Clean Energy Strategy 2050 to provide 75 per cent of Dubai's total power output from clean energy by 2050. "To achieve this, Dewa launched several renewable programmes and initiatives, including the Mohammed bin Rashid Al Maktoum Solar Park, the largest single-site solar park in the world. Based the Independent Power Producer (IPP) model, it will have a production capacity of 5,000MW by 2030 with investments totalling Dh50 billion," said Al Tayer.
"The UAE has aggregate peak demand of around 20 GW, with the largest portion of demand coming from the commercial sector, reflecting the growing services orientation of the economy," said Andy Barrett, Senior Advisor - Global Gas and Power at global information provider IHS Markit.
Between 2019 and 2023, Mena power capacity will need to expand by an average of four per cent each year, which corresponds to 88GW by 2023, to meet rising consumption and pent-up demand, said Dr. Leila Benali, Chief Economist at Apicorp. "Highly leveraged power projects in the region continue to be largely financed based on non-recourse or limited recourse structure, with debt-equity ratios in the 60:40 to 80:20 range, even 85:15 for lower risk profile projects backed by strong government payment guarantee," said Dr Benali.
"While the government remains involved at different phases of power projects, even in PPPs, the private sector is critical for risk management due to its track record in performance, technology and cost efficiency that it provides for financing," said the report.
Mustafa Ansari, Senior Economist at Apicorp, said greater participation and financing from the private sector is imperative to the energy sectors growth; as more evenly shared responsibility in financing will ensure a reliable supply of competitively priced power. "The energy sector represents significant opportunities for private sector financing in the long term."
According to the report, between 2007 and 2017, electricity consumption in the region increased by 5.6 per cent compound annual growth rate driven by rapid economic growth, industrialisation, rising income levels, high population growth rates and urbanisation, all coupled with low electricity prices.
- issacjohn@khaleejtimes.com