Why Change is Needed
The Middle East power generation mix is set to become more diverse
With MENA witnessing significant political and social unrest in the past, especially since 2000, there has been a negative impact on infrastructure investments. However, the same trend is now expected to become a driver for investment in infrastructure, and specifically power.
This positive scenario is due to governments to bring stability, through a well-established model of infrastructure enhancement that leads to economic development, creation of job opportunities and improvement in living standards.
Backed by this stabilisation drive, energy project investments are likely to grow at a rate of 8.3% annually, adding almost 156 GW to installed capacity between 2015 and 2019 from the current installed capacity of 234 GW in 2013.
Around 43% of the planned capacity addition will be created by the six countries of the Gulf Cooperation Council (GCC) - the United Arab Emirates (UAE), Qatar, the Kingdom of Saudi Arabia (KSA), Kuwait, Oman and Bahrain.
The Middle East and North Africa (MENA) is host to some of the highest per capita energy intensive countries in the world. With the region aiming to diversify their economies, shore up GDP, and boost living standards, this is only expected to continue rising through the year 2020.
This is also reflected in the growth in power demand in the region, which is projected to increase by 7% annually until 2020.
Demand growth is also expected to be fuelled by a confluence of key factors, namely:
- Population growth – estimated to rise from 354.6mn in 2013 to 388.9mn by 2018.
- Urbanisation – By 2025, more than 90% of the total population in four MENA countries are forecasted to move to/reside in urban areas: Bahrain (90%), Kuwait (98.6%), Lebanon (90%), and Qatar (96.97%).
Economic development – MENA’s GDP is expected to increase from $2.8 trillion in 2014 to about $3.5 trillion by 2018.
- Industrialisation – Over $490bn worth of industrial projects (chemicals, Oil and Gas, Industrial) have been planned between 2014 and 2018 (including both the years).
This expected increase in demand would create significant opportunities for power generation projects across the region, based on not just conventional sources (hydrocarbons), but also alternative sources. This is owing to the fact that conventional sources of supply are not geared for the same rate of growth.
For example, in MENA, liquids (crude oil and other liquids) production is expected to grow at a CAGR of 1% while gas production is likely to grow at a CAGR of 3.3% between 2010 and 2020. Comparing this to the 7% growth in demand for power over the same period, it is evident that there is a significant need for change, and an incorporation of alternative energy into the regional energy mix.
According to a study by the Arab Petroleum Investment Corporation (APICORP), energy investment of $186bn will be required in MENA between 2015 and 2019 to meet the growing power generation needs.
While alternative energy only forms 0.64% of the total energy mix in 2013, its share is expected to grow to 9-11% by 2020, as part of a pool that itself would increase from 1.5 GW to just over 40 GW (about 62% solar and 38% wind) over the same period across the MENA region.
This is predominantly backed by increased adoption of renewable energy in countries that are currently net hydrocarbon importers, and are seeking a reduction in excessive reliance on import of hydrocarbons to meet the increasing need for power.
What makes this easier is the fact that the region is also host to very favourable conditions for wind and solar based power.