Financing ‘remains a problem’ for stretched MENA power sector

While the demand for power in the MENA region is expected to double by 2030, financing remains a problem according to a new report published by the London-based Middle East Association. Alan Mackie, the editor of the Middle East Business Focus 2010, highlights how the latest projections indicate that demand in the Middle East and North Africa (MENA) will necessitate the installation of at least another 250GW of new capacity.

“The ‘oil states’ consume, on average, ten times more electricity per capita than the region’s poorer, populous states – and there is little evidence of the gap narrowing,” writes Mackie in an article for the Global Arab Network. “This is because these states provide their citizens with cheap, subsidised electricity and have to contend with the huge power demands of providing desalinated water. The poorer states have had a natural tendency to subsidise electricity, restricted by the straightjacket of Structural Adjustment Programmes. In the case of Egypt, the resulting structural reduction in demand in the mid-1990s led to a significant, and permanent, lowering of consumption patterns and, consequently, the country’s future capacity requirement.”
Mackie goes on to highlight how under-investment in reserve capacity has meant the Gulf Cooperation Council (GCC) states, which make up roughly a third of the MENA market, have been running to a standstill to keep up with demand. “55GW of new capacity is planned by 2015, boosting the current 75GW capacity by 80 per cent and desalinated water production is to double to more than five billion gallons a day,” writes Mackie. “One solution to dealing with peak load spikes – the cause of the outages – has been to build easy-to-install gas-turbine generation, rather than more economical but more expensive options, such as steam or combined-cycle power generation. However, installing ever-more capacity is not a solution. Flattening the peak load curve through ‘smart’ pricing – charging more for peak consumption – or offering incentives for off-peak consumption can greatly ease pressures on capacity.”
However, Mackie says that the GCC states have been reluctant to cede control of electricity pricing, which is viewed as a political prerogative, and have looked at other ways to make savings. “The most effective ways to overcome shortages are conservation – taking the path to lower consumption already adopted by Egypt – and evening out consumption peaks,” he writes. “These measures would do more than anything to relieve the region’s chronic lack of capacity.”

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