Installed generation capacity in MENA region to reach a massive 440GW by 2020
The launch of the first phase of Saudi Arabia’s 9.5GW National Renewable Energy Programme (NREP) early this year provides the latest illustration of the major changes occurring in the Middle East and North African power sector.
This has led to a raft of alternative energy projects being planned or implemented in the region.
MENA Power 2017, a new research report from Middle East business intelligence service MEED shows that governments across the MENA region are making increasing commitments to achieve diversification in their power sectors to improve energy security and reduce reliance on gas imports, including detailed analysis on more than 60GW of planned renewable energy projects.
The move towards integrating renewable energy into development programmes has been facilitated by the sharp drop in photovoltaic (PV) solar technology costs in recent years.
The cost of installing PV solar has fallen by 80 per cent since 2007, and the three major PV solar projects tendered in the UAE since 2015 have all achieved, at the time, word record low tariffs. In particular, the 2.99 $cents a kilowatt hour ($c/KWh) tariff selected for Dubai’s 800MW PV project in 2016 was the first time that the cost of renewables had fallen below conventional fossil fuel plants. In addition to renewables, state utilities are also moving forward with plans for alternative energy, from nuclear power to clean coal.
Another key shift in the region’s power sector is the move towards increased private investment and privatisation in the generation of electricity as governments cut budgets in response to the lower oil price. Saudi Arabia, the largest utilities market, is the leading example of this, with Riyadh preparing to sell off the first 20GW of its generation assets to private investors in 2017. Egypt and Oman are also undertaking preparations to significantly restructure and privatise large parts of their electricity markets.
Increasing demandThe power sector is one of the most active segments in the MENA projects market at present, with few issues more pressing than the need to meet rising demand for electricity. Rapid population growth coupled with industrial and economic expansion are driving a sharp increase in consumption, with peak demand growth averaging 5.2 per cent across the region in 2015. The pressure on governments to deliver uninterrupted electricity for residents and businesses increased further following the political uprisings in 2011, so utilities cannot afford to allow supply to fall out of step with demand.
While the collapse in oil prices since mid-2014 has caused the scaling back or cancelling of many projects deemed nonessential, investments in the power sector have continued to move ahead.
In 2015, the total available capacity reached an estimated 289,861MW for the countries analysed in the MENA Power 2017 report, which was 15 per cent more than the peak demand of 246,742MW. While the total nameplate installed capacity for the 14 countries was 307,164MW, the actual available power was much lower due to out-of-operation plants in countries such as Iraq and Saudi Arabia.
With a minimum 15 per cent recommended reserve margin, representing the amount of unused available capacity at peak load as a percentage of total capacity, the region as a whole is in a race to build new capacity to keep ahead of peak demand growth and maintain sufficient reserve margins.
In the GCC, all of the utilities were able to meet demand in 2015. However, some were in a less comfortable place than others. Abu Dhabi, Bahrain, Kuwait and Saudi Arabia all had reserve margins of less than 15 per cent during peak periods. Kuwait in particular, with a reserve margin of less than 9 per cent, is a race to ensure installed capacity remains ahead of demand.
In the rest of the MENA region, several utilities are facing financial problems, while civil conflict is the main concern for others. Iraq, usage in the short term, faces by far the biggest challenge in meeting demand. In 2015, peak for electricity rose by 21 per cent to reach 21,000MW, 46 per cent higher than the peak output of 13,400MW.
Reserve margins will be put under hotter pressure in the coming years, with nearly all states across the MENA region recording an increase in peak demand in 2015. Libya was the only country that recorded a drop in peak demand in 2015, but it is expected to grow at an average of 5 per cent a year or higher until 2022.
Capacity - building raceTo keep pace with demand forecasts and to restore or maintain reserve margins of at least 15 per cent, most utilities across the region will have to undertake an extensive capacity-building programme in the period up to 2020. According to MEED estimates, installed official generation capacity in the MENA countries analysed will have to rise by almost 150GW to reach 440GW by 2020, an increase of just over 50 per cent on the current available capacity of 290GW.
MEED’s MENA Power 2017 report states that the largest requirement will be in Egypt, where an estimated 27,985MW of new capacity is needed as a result of its rapidly growing population and economic expansion. While Saudi Arabia and Kuwait will require additional capacity of 20,239MW and 5,758MW respectively, the actual newbuild requirement will be much higher because of the need to replace or upgrade existing units on account of age. This will also likely be the case in Libya, where much of the power infrastructure is outdated or has been damaged by fighting.
Iran’s requirement for an estimated 25,600MW of new capacity by 2018 is also due to a combination of rapid population and industrial growth. As Tehran seeks to increase oil exports and encourage private investment in to its development programme, it is likely to require significant additional capacity to meet future demand.
Reducing consumptionIn addition to utilising renewable energy to meet growing demand for power, the region’s utilities are looking at ways to improve energy efficiency and reduce consumption. Efforts are being made to improve efficiency on both the supply and demand side. Curbing electricity consumption and reducing feedstock usage will help preserve gas reserves and also reduce pressure on government finances, which in many cases have been severely reduced by lower oil prices.
On the supply side, utilities are beginning to invest significant capital into improving and upgrading existing power infrastructure. Saudi Arabia, Kuwait and Egypt are all pushing ahead with schemes to upgrade plants to combined-cycle facilities, boosting capacity while using less fuel. There is now a growing trend to choose combined-cycle configurations for new capacity so that the most efficient technology is in place.