Report: Middle East needs to invest $500bn in power infrastructure

15 December 2008 – Middle East states will need to invest as much as $500bn into their power infrastructure by 2030 to avoid electricity shortages that could hamper economic growth, according to a research study.

“While investments are estimated to be more than $500bn by 2030 for the region, forecasting of energy demand is not accurate. Many countries are still behind in forecasting and capacity planning,” AT Kearney Middle East’s Managing Director Dirk Buchta said in a statement.

“At the same time, several countries in the region lag behind in their infrastructure planning. Increasing supply-demand imbalances, power outages and soaring electricity prices might be the consequence,” said the global strategic management consulting firm in the report.

Rapid economic and population growth is putting pressure on regional utilities to add power generation capacity to avoid increasing supply-demand imbalances, power outages and soaring prices, AT Kearney said.

At only four per cent annually, growth of power generation capacity is lagging behind the region’s economic growth rate of seven per cent, according to the consultancy firm.

Growing demographics and wealth in the Middle East will lead to a constant increase of demand for electricity in the foreseeable future, the report said.

A further challenge is how to calculate the necessary energy efficiency increase, as utility companies in the Middle East face energy sector losses of more than 10 percent through theft and faulty systems. A lack of metering and governance leads to situations, where utility facilities are not aware of where they lose energy – and subsequently – money.

“The structures within the electricity portfolios of the regional utility companies need to change significantly towards alternative energy sources like solar, wind and nuclear,” said Dr Goetz Wehberg, from the Global Utilities Practice of AT Kearney.

“In addition to large scale solar farms, smaller local units such as photovoltaic home installations must evolve for future use. “

Although many Middle East countries are discussing ambitious renewable targets – for example, achieving a 20 per cent share of renewables in 2020 like in the EU – the regulatory framework and funding of such investments are open in most cases. Initiatives such as Masdar are only a preliminary step in leveraging the region’s solar power potential.

Key growth areas for future electricity supply are tourist hubs, economic cities and industrial zones.

The six Economic Cities of Saudi Arabia for example, will have a future metro population of several million people and investment requirements for electricity generation of more than $4bn.

Industrial zones such as Jubail and Yanbu in Saudi Arabia are expected to double in size within the next five years, with investments in utilities infrastructure also expected to increase. Additionally, countries such as Bahrain are running out of oil and need to secure energy supply for the future. Other nations such as Jordan extensively rely on energy imports already and want to decrease their dependency.

“A sound demand forecast, capacity planning and regulatory management will be key to avoid power outages in the region in the future,” said Dr Wehberg.

“To better balance supply and demand within the region and prospectively with Europe, the transmission grids in the Middle East need to become more integrated,” he added.