Mena to invest $209bn on power generation until 2023 as demand swells

Mena energy sector investment could reach $1 trillion, with power sector accounting for 36% of spending, Apicorp says

The GCC governments are developing new solar power plants as part of their strategy to increase renewable energy output. Courtesy Government of Dubai
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Middle East and North African economies have to invest $209 billion (Dh767bn) in the power sector over the next five years to meet growing electricity demand as they continue spending on renewable energy projects.

Overall investment in the Mena energy sector could reach $1 trillion between 2019 and 2023, with the power sector accounting for the largest share of the spending at 36 per cent, The Arab Petroleum Investments Corporation (Apicorp) said in its latest Mena Power Investment Outlook report.

The power sector will continue to evolve throughout Mena, primarily driven by the need to meet demand growth and the push by regional governments to develop the non-oil sector as they continue to pursue their economic diversification agenda, the energy-focused multilateral development financial institution said in the report released on Sunday.

Mena will require the addition of 88 gigawatts by the end of 2023 to meet demand. Governments have already been accelerating their investment plans and Apicorp estimates that 87GW of capacity additions are already at execution stage. The UAE accounts for 19 per cent, Saudi Arabia 17 per cent and Egypt for 16 per cent share of the ongoing schemes.

The projects at execution stage translate into $142bn of investments into power generation, and approximately $68bn of spending on transmission and distribution network, Apicorp noted.

"[The] Mena power capacity will need to expand by an average of 4 per cent each year between 2019 and 2023, which corresponds to 88GW by 2023, to meet rising consumption and pent-up demand," said Leila Benali, the chief economist at Apicorp.

Countries across the Mena region, especially the six-member economic bloc of GCC, have invested heavily in electricity generayion projects as they push to diversify their economies away from oil. Saudi Arabia and the UAE, the two biggest Arab economies, are pursuing ambitious power generation targets to meet future demand. The region has also opened up power generation projects for private sector investment, which helps reduce governments’ burden of financing such schemes.

Although governments remain involved at different phases of power projects, even in public-private partnership deals, the private sector is critical for risk management due to its track record in performance, technology and cost efficiency that it provides for financing, Apicorp noted.

“Greater participation and financing from the private sector is imperative to the energy sector's growth; as more evenly shared responsibility in financing will ensure a reliable supply of competitively priced power,” said Mustafa Ansari, senior economist at Apicorp. “The energy sector represents significant opportunities for private sector financing in the long term.”

Renewable energy has taken the centre stage in the Mena region as its oil-rich economies move away from using hydrocarbons for producing electricity as they free up more oil for export.

The UAE, which aims to generate 27 per cent of its energy from clean sources by 2021, has taken the lead in the Arabian Gulf with several renewable energy projects underway in the country. In 2017, the government announced its ambitions to cut carbon dioxide emissions by 70 per cent by 2050, increase clean energy use by 50 per cent and improve energy efficiency by 40 per cent by the middle of this century, which is estimated result in savings of Dh700bn.

Apicorp projects that renewable energy will account for 34 per cent of total power sector investments across the Mena region over the next five years.

“From a business model perspective, Jordan and Morocco have so far led the region with their renewable initiatives," Ms Benali said. "Morocco’s target for renewable energy as a share of total generation is [however] ambitious, standing at 42 per cent by 2020," she noted.