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Wed 17 Jul 2019 03:01 PM

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$209bn MENA power investment needed over next five years

Arab Petroleum Investments Corporation estimates that investment in the MENA energy sector could reach $1trn

$209bn MENA power investment needed over next five years

The MENA region will need to invest $209 billion in the power sector over the next five years, according to a new report by The Arab Petroleum Investments Corporation (APICORP).

The latest MENA Power Investment Outlook 2019-2023 estimates that investment in the MENA energy sector could reach $1 trillion, with the power sector accounting for the largest share at 36 percent, spurred by growing electricity demand and greater momentum for renewable energy.

Dr Leila Benali, chief economist at APICORP, said: “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 percent.”

“We also estimate that MENA power capacity will need to expand by an average of 4 percent each year between 2019 and 2023 to meet rising consumption and pent-up demand," added Benali.

According to APICORP, the power sector continues to evolve throughout the MENA region, driven by the need for countries to meet demand growth, diversify their economies and create efficiencies.

The MENA region will require the addition of 88GW by the end of 2023 to meet demand growth.

Governments have been accelerating their investment plans and APICORP estimates that 87GW of capacity additions are already at execution stage. This is expected to translate into $142 billion for power generation, and approximately $68 billion for transmission and distribution.

The report noted that while the government remains involved at different phases of power projects, the private sector is critical for risk management due to its track record in performance, technology and cost efficiency that it provides for financing.

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.”

During 2007 and 2017, electricity consumption in the MENA region increased by 5.6 percent 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.

APICORP predicts that close to $350 billion could be invested in MENA’s power sector in the next five years, with renewable energy accounting for 34 percent of power investment, or 12 percent of total energy investment.

Renewable energy developments in the Arab world have gained momentum in recent years, driven primarily by governments that recognise the urgency of tackling rising demand for energy coupled with the declining costs of solar PV.

Close to 87GW of generation capacity is currently under execution, driven by the UAE (19 percent), followed by Saudi Arabia (17 percent) and Egypt (16 percent).

The report indicates that Saudi Arabia has ambitious plans to diversify its electricity generation mix with considerable renewable and nuclear capacities.

It added that the UAE needs to invest at least $16.2 billion 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.

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