- $152 billion of investment needed to add 117GW of generating capacity, and $108 billion in transmission and distribution
- As governments prioritise power sector investment, regulatory and fiscal measures will also be required to manage rising levels of demand
- Broad range of outlooks for different parts of the region, with ability to raise finance for investment impacted by varying levels of political and economic risk
- Significant emphasis placed on renewable energy to meet capacity requirements
Dammam – Saudi Arabia, 17th April 2018: — The Arab Petroleum Investments Corporation (APICORP), the multilateral development bank focused on the energy sector, today published its latest research report, which this month focuses on the regional power sector. The report forecasts that the MENA region will require $260 billion of investment to meet rising and suppressed electricity demand.
In the GCC, governments have coped well with rising electricity demand. However, 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; and while economic growth 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.
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 the 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, subsidizing 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; Qatar will need to invest around $9bn to add 4.2GW to meet rising demand in the medium term: $6bn in generation and $3bn in transmission and distribution; Oman’s 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.
Elsewhere, historic and ongoing geopolitical issues are creating different challenges for the countries concerned. Iran is likely to need an additional 25GW over the next five years (almost a third of its current capacity), which APICORP estimates will cost approximately $50bn. Currently, only 12GW worth of projects are in execution, so Iran will clearly need to accelerate its investment to meet rising demand. However, the government has not been successful in attracting much needed foreign investments due to several political and economic challenges, not least uncertainty over the possible re-imposition of sanctions.
In Iraq, the government is prioritising the power sector, following loss of generation and transmission during the war against the so called Islamic State, which has made the generating capacity of the country difficult to assess. APICORP estimates that capacity at the end of 2017 stood at 17GW, meaning an additional 12GW of power-generation capacity is required over the next five years, amounting to $39bn of investment. Transmission and distribution will be especially important, to ensure adequate power delivery and a reduction in power outages. However, ongoing regional disputes, as well as the outcome of the upcoming elections, will cloud the investment outlook.
APICORP estimates that Egypt will need to invest $28bn in power generation and a further $18bn in transmission and development. This would increase capacity in MENA’s most populous country by 22GW to reach 60GW in 2022. Egypt’s historic gas supply issues are likely to be alleviated by the development of the recent discoveries, and the bulk of this investment will therefore be in gas fired power stations: indeed, three 4.8GW combined-cycle gas-power plants, which will be among the largest in the world, are expected to come on line this year. All told, APICORP estimates that 25GW of capacity is in execution in Egypt and ready for commissioning, meaning the country should be on track to meet its requirements by 2022.
The rest of the Mashreq region will need at least 3GW of additional capacity within the next five years, amounting to $7bn of investment. Jordan already has 1GW of capacity additions under execution, nearly half in renewable energy. This falls slightly short of the 2.1GW that APICORP estimates the country will need to add by 2022. Lebanon’s major concerns will revolve around reforming electricity prices and investing in generation and adequate transmission and distribution infrastructure to alleviate frequent power outages
In the Maghreb region, renewable energy will be at the forefront of governments’ plans to increase power capacity. APICORP estimates that 2.5GW of renewables will be added. Morocco and Tunisia are moving steadily to diversify away from costly fuel imports. Algeria, on the other hand, is still struggling to kick-start its ambitious solar programme.
Algeria is one of a few countries in the region that has more power-generation capacity construction underway than is needed. It raised capacity by a third in the past five years and still has plans for further expansion. Required capacity over the period is 7GW, needing $15bn of investment for both generation and T&D. Currently, 8GW is in execution.
Ghassan Al-Akwaa, Energy Sector Specialist at APICORP, commented: “Fiscal challenges have meant that governments are no longer able to support the provision of cheap power. 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. Already, electricity demand growth forecasts in Saudi Arabia has been dramatically revised downwards to 1.5-2% in the next five years, down from over 5-6%. At the same time, there is a growing role of Independent Power Producers (IPPs) in the region’s power sector. Governments have limited options in the medium-term and IPPs will continue to be at the forefront of governments’ strategies to add generating capacities, which will provide significant relief to government finances and state utilities”
Mustafa Ansari, Senior Economist, added: “Success in implementing key power projects and attracting the necessary investment will vary across the region. The GCC governments will continue to cope well with rising demand, using price reforms as an effective tool. Renewable energy projects will also continue to be at the forefront of long-term government plans to diversify generation capacity. Meanwhile, in other parts of the region, the challenge to meet electricity demand is more serious: political instability and inadequate investments will continue to result in power shortages, damaging their economies and frustrating their citizens.”