|15 July, 2019

MENA power sector requires $209bln investment over 5 years: report

Power sector continues to evolve throughout the Middle East

Image used for illustrative purpose. Power plant,Energy power station.

Image used for illustrative purpose. Power plant,Energy power station.

Gettyimages

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

Between 2019 and 2023, 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, APICORP noted in its report MENA Power Investment Outlook 2019-2023.

“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,” said, Dr. Leila Benali, Chief Economist at 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.

“We also estimate that MENA power capacity will need to expand by an average of 4 percent each year between 2019 and 2023, which corresponds to 88GW by 2023, to meet rising consumption and pent-up demand. Highly leveraged power projects in the region continue to be largely financed based on non-recourse or limited recourse structure, with debt-equity ratios in the 60:40 to 80:20 range, even 85:15 for lower risk profile projects backed by strong government payment guarantee,” Benali said.

Renewable energy investments

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 tremendous 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.

“From a business model perspective, Jordan and Morocco have so far led the region with their renewable initiatives. Morocco’s target for renewable energy as a share of total generation is ambitious, standing at 42 percent by 2020,” Benali said.

“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 MENA region will need to install 88GW of generation capacity over the period 2019-23. This is expected to translate into $142 billion for generation, and approximately 68 billion for transmission & distribution (T&D).

Private Sector

The private sector is critical for risk management due to its track record in performance, technology and cost efficiency that it provides for financing.

“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,” Mustafa Ansari, Senior Economist at APICORP said regarding the private sector's involvement.

(Reporting by Seban Scaria; editing by Daniel Luiz)

Seban.scaria@refinitiv.com 

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© ZAWYA 2019

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