The MENA region has great potential to emerge as a major blue and green hydrogen-exporting region due to the combination of low-cost gas resources and low-cost renewable energy, according to the MENA Power Investment Outlook 2020-2024 by Arab Petroleum Investments Corporation (APICORP)
Saudi Arabia and Morocco have already taken measurable steps to bolster their position as low-cost exporters of blue and green hydrogen, as well as net-zero ammonia and other low-carbon products.
Another key trend noted by the report is the expected uptick in planned investments directed to power transmission and distribution projects in several countries over the next five years, driven by the rise of renewables and focus on boosting regional interconnectivity.
The role of the private sector and financing in the power sector however is still largely dependent on sector reforms and government guarantees.
Shift in power demand
The health, economic and financial fallout stemming from the COVID-19 pandemic has cost the global economy an estimated US$1 trillion, and its impact was felt disproportionately and differently across various sectors. In the power sector, the pandemic underscored the criticality of stable electricity supplies and digital services to the economy and had a tangible effect on power demand across its three major sectors – residential, commercial and industrial sectors.
In MENA markets, the residential sector accounts for 41% of the total power demand, followed by industrial and commercial sectors at 21% and 20%, respectively, with the remaining 18% comprised of other sectors such as agriculture and transport, as well as network losses.
Dr Ahmed Ali Attiga, CEO of APICORP, commented, “As part of our vision to support the sustainable development of the Arab energy sector, APICORP will continue to support key projects and promising technologies that contribute to meeting these strategic regional objectives and ensure a more sustainable energy future for the region.”
Dr Leila R. Benali, chief economist at APICORP, said, “In addition to becoming a more interconnected power market, the MENA region holds vast potential as an exporter for net-zero products, especially given the shift towards electrification from sources such as hydrogen and ammonia. This ultimately should be the vision that policymakers strive to achieve.”
Shift in power supply mix
The impact of the COVID-19 pandemic and oil price volatility led to a steady increase in the share of renewables and nuclear technologies in the power supply mix worldwide. The main accelerators for this increased penetration in the MENA region are twofold: the unprecedented cost declines in renewable energy, and governments’ renewable energy targets – which range from 13-52% of installed capacity by 2030.
However, the intermittency of renewable power sources and lack of grid-scale storage solutions means that fossil fuels – namely natural gas – and nuclear, will remain indispensable in the power supply mix in the foreseeable future. Furthermore, the penetration of renewable power in many parts of the world still largely depends on the efficacy of the relevant policies, subsidies and regulations.
Natural gas continues to be the primary energy source in the power generation mix in many MENA countries, making up more than 90% of the power generation mix in Egypt, the UAE and Algeria, and almost two-thirds of the power generation mix in Saudi Arabia. The rise of renewables, however, has eroded its share, falling by 2% in favor of solar PV in Egypt, and by 9% in favor of solar PV and the partially operational coal and nuclear power plants in the UAE. Similarly, Morocco saw the share of oil and coal in the power generation mix fall by 2% and 3%, respectively, in favor of solar PV, wind and hydropower. In Jordan, natural gas saw a 5% drop in favor of solar PV and wind power.
Impact of COVID-19 on investments in power projects
As noted in APICORP’s MENA Energy Investment Outlook 2020-2024 published in April, committed power sector investments held steady compared to the 2019-2023 outlook. Planned investments on the other hand decreased by around US$114bn – a 33% drop – partly due to several planned projects moving to committed status in 2020.
Planned projects represent almost two-thirds of the total value of the current 2020-2024 MENA power sector’s project pipeline. Mirroring global trends, renewables currently own the largest share of planned and committed power projects for the period in terms of value at around one-third (32%) of total investments, followed by oil- and gas-fired power plants at nearly one-quarter (27%) of total investments, nuclear power (15%) and coal (3%).
