Energy transition boosts investment in Middle East power
Population growth and industrial expansion are driving rising energy consumption across the Middle East and North Africa (Mena), putting electricity generation capacity among the highest priorities.
As a result, the region will continue to see large-scale investments in new generation capacity, as well as transmission and distribution networks.
With about $30bn per year of capital spending on major projects, the power sector is one of the strongest and most reliable providers of business and investment opportunities in the region.
But the nature of that investment is changing. In the era of energy transition, it is no longer enough for governments to simply increase production capacity to meet rising demand.
Policymakers are also focused on decarbonising the economy, and on reducing greenhouse gas emissions (GHG). At the same time, increasingly strained public finances are forcing reforms aimed at reducing the cost of subsidising energy and reducing waste.
The biggest transformation is the drive to diversify the region’s energy mix. Faced with a shortage of readily available gas supplies and attracted by the falling cost of technology, nearly all Mena countries are now procuring or planning solar and wind projects. They are also looking at other forms of renewable and alternative energy, from waste-to-energy to nuclear power.
Utilities are also investing in digital data technologies such as the internet of things (IoT), blockchain, smart grids, artificial intelligence (AI), and digital twins, in order to improve efficiency and reduce waste.
Sustainability and energy efficiency are the driving forces behind radical and controversial shifts in policy such as the removal of energy subsidies which have kept energy and water tariffs artificially low for decades.
The subsidy cuts aim to reduce the financial burden on the state, and to encourage consumers to curb their usage, thereby lowering the speed at which new capacity needs to be built.
Procurement models are changing too, with renewed interest in privately developed utility projects in order to spread the capital cost of building new capacity over a longer period.
A much broader privatisation trend is also emerging, whereby governments are looking to sell off assets and unbundle generation, transmission and distribution. This will provide short-term windfalls for cash-strapped governments but will lead to a more efficiently run power sector in the long term.
Covid-19 had a severe impact on the Mena power sector in 2020 and 2021. But as the region recovers fom the pandemic, demand has recovered and the outlook for the regional power projects market is incredibly strong.
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