MENA needs $180bn investment to build power generating capacity

Electricity consumption in the Arab world has increased ten-fold since 1980

Dewa's Jebel Ali power station. Dewa

The Middle East and North Africa (MENA) will need investments of approximately $180 billion to add power generating capacity at 7.4 per cent a year until 2021, which corresponds to additions of more than 130GW, according to estimates by Arab Petroleum Investments Corporation (Apicorp).

"Governments continue to meet this challenge by expediting projects and upgrading their infrastructure to meet increasing demand, while also encouraging the private sector to join as partners and financiers in power generation," said the report Electricity Trading in MENA – Huge Potential but Far Behind.

“Electricity demand continues to grow rapidly in the Arab world, where consumption has increase 10-fold since 1980. This surge can be attributed to several factors, including population growth, urbanisation, industrialisation and electricity prices made artificially low through government subsidies,” the monthly research report said.

But, the report said, another option is also available to them: they can cooperate with their neighbours and explore further the potential of electricity trade as a supplement to their capacity additions.

The report said the region has several interconnections, yet trade remains minimal and often only takes place in response to emergencies and power cuts. The GCC countries are connected by the Gulf Cooperation Council Interconnection Authority (GCCIA) since 2011. The benefits of regional electricity trading include improved energy security, economic benefits as a result of higher efficiencies and reduced investments in capacity, as well as greater institutional cooperation.

According to the World Bank, electricity trade could save the Arab world between US$17 billion and $25bn and reduce required capacity by 33GW through better mutual utilisation of capacity – while the GCCIA estimates that GCC trade could achieve savings of up to $24bn by 2038. At the same time, chronic technical, institutional and political barriers are major impediments to trading in the region, whose networks are expected to remain among the most under-utilised in the world for this purpose.

Electricity trading can provide significant economic gains at times when GCC governments’ revenues have been falling.

According to the GCCIA, the interconnector's economic benefits surpassed $400m in 2016, with the majority of benefits deriving from installed capacity savings. At the same time, it will facilitate more efficient utilisation of capacity – where the World Bank estimates that the region's utilisation rate of generating capacity (capacity factor) stands at only 42 per cent while that of the interconnection capacity is around 10 per cent.

Despite the desire to foster greater cooperation and improve regional electricity trade, many challenges have impeded progress, such as energy security as a key national priority for all countries in the region.

Other challenges include absence of strong institutional capacity and a clear regulatory framework, and limited spare capacity – especially during peak demand.

“The region will need to continue to invest heavily in generating capacity as well as transmission infrastructure to meet rising demand and subsidy reform and diversification of fuel mix are issues in the region that have yet to be fully resolved,” the report said.