Over the next five years, the MENA region will need to invest $209 billion in the power sector according to the latest MENA Power Investment Outlook 2019-2023 report issued by The Arab Petroleum Investments Corporation (APICORP), a multilateral development financial institution. Between 2019 and 2023, APICORP estimates that investment in the MENA energy sector could reach $1 trillion, with the power sector accounting for the largest share at 36%, spurred by growing electricity demand and greater momentum for renewable energy, noted the report. 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%." "We also estimate that MENA power capacity will need to expand by an average of 4% 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," he further said. 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. While the government remains involved at different phases of power projects, even in PPPs, the private sector is critical for risk management due to its track record in performance, technology and cost efficiency that it provides for financing. Speaking about the private sector's involvement, 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." APICORP anticipates governments and central authorities to continue to remain involved particularly in central generation and transmission, and it has noticed some forays of private sector into distributed power through aggregating sites or clusters and leasing. During the period between 2007 and 2017, electricity consumption in the MENA region increased by 5.6% compound annual growth rate (CAGR) driven by rapid economic growth, industrialization, rising income levels, high population growth rates and urbanization, all coupled with low electricity prices. Outside the GCC, countries have been struggling to keep up with growing demand. In both cases, the trajectory of demand growth meant that the model was unsustainable for governments, and - in a few cases – created suboptimal electricity systems. Efforts to promote energy efficiency and support the public with smarter and more responsible consumption, whilst tackling infrastructural and regulatory hurdles are equally important. Consequently, APICORP forecasts that over the next five years, electricity demand growth will slow to around 3.8% CAGR. 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% of power investment, or 12% of total energy investment. Renewable energy developments in the Arab world have gained tremendous momentum in recent years, driven primarily by governments that recognize 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% by 2020. 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," added Benali. Close to 87GW of generation capacity is currently under execution, driven by the UAE (19%), followed by Saudi Arabia (17%) and Egypt (16%), respectively The report indicates that Saudi Arabia has ambitious plans to diversify its electricity generation mix with considerable renewable and nuclear capacities. Demand slow down and the ensuing overbuilding are anticipated to continue in the Kingdom, even as it embarks on transforming its power sector. The report noted that the most influential factors slowing domestic demand in Saudi Arabia have arguably been policy driven. Elsewhere, 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. In Egypt, demand for electricity grew at a rate of 4.6% CAGR in the period between 2015 and 2017 and is expected to rise to 5.1% by 2023. APICORP projects that Egypt will need to invest $20 billion in power generation and a further $10 billion in transmission and distribution (T&D). This would help increase capacity in MENA's most populous country to 63GW by 2023. Meanwhile in Iraq, there continues to be a gap between demand growth and available generating capacity. The country still faces power outages, and hence providing reliable electricity is at the heart of the government's plans. APICORP forecasts that Iraq will need to invest $21 billion in generation over the next five years to take capacity up to 30GW. — SG
