MENA power sector needs $209bn worth of investments until 2023

The Middle East and North Africa (MENA) region will need to invest $209bn in the power sector over the next five years to support demand, a new report issued by the Arab Petroleum Investments Corporation (APICORP) has found.

Between 2019 and 2023, APICORP estimates that investment in the region’s energy sector could reach $1 trillion, with the power sector accounting for the largest share at 36 per cent.

Overall, the MENA region will require the addition of 88GW by the end of 2023 to meet demand growth, the report said.

Governments have been accelerating their investment plans with 87GW of capacity additions already at execution stage, driven by the UAE (19 per cent) and Saudi Arabia (17 per cent).

This is expected to translate into $142bn for power generation, and approximately $68bn for transmission and distribution, the report added.

Leila Benali, chief economist at APICORP, said: “We estimate that 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.”

During the period between 2007 and 2017, electricity consumption in the MENA region increased by 5.6 per cent annually driven by rapid economic growth, industrialisation, rising income levels, high population growth rates and urbanisation, all coupled with low electricity prices.

Outside the GCC, countries have been struggling to keep up with growing demand.

Looking ahead, APICORP forecasts that over the next five years, electricity demand growth will slow to around 3.8 per cent.

The report indicated that domestic demand slowdown and the ensuing overbuilding are anticipated to continue in Saudi Arabia, even as it embarks on transforming its power sector.

Saudi has ambitious plans to diversify its electricity generation mix with considerable renewable and nuclear capacities.

Meanwhile the UAE needs to invest at least $16.2bn 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 and APICORP estimates that nearly 14GW of capacity additions are already in execution.

“We have observed that a large share of the funding requirements in MENA’s energy sector will go to the power sector, of which renewables account for a substantial share of around 34 per cent,” said Benali.

“However, across the region, the policy signals, change in business models and investment/credit support required in grids and storage to accompany the introduction of renewables are yet to be seen,” she added.

The report also stressed that participation and financing from the private sector is “imperative” to the energy sector’s growth.

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, it said.

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.”