The Middle East's electricity woes

Article Summary
Power outages are frequent across the Middle East, with government subsidies promoting patterns of overconsumption.

Citizens throughout the Middle East are suffering from ongoing power outages, without a glimmer of hope that the situation will improve in the near future. Hisham Khatib, an Arab electricity expert, spoke about this phenomenon at the opening of the 12th annual POWER-GEN Middle East & WaterWorld Middle East conference in Abu Dhabi in October 2014. This article summarizes the findings of the conference and, given the importance of the electricity sector to the region, focuses on potential for change if modern policies are adopted.

Khatib said that he expects the challenges of the last few decades to continue and that citizens will continue to suffer for the following reasons: the rapidly increasing growth of annual consumption; the increasingly urgent need for investment; the ongoing and widespread reliance on petroleum products for power generation, despite the limited attempts to utilize alternative sources of energy; the continued shortage of natural gas, which is the best fuel to generate electricity; the continuous security threats to power and energy networks and their supplies in several regional countries; the lack of adequate regional networks; and the slow progress toward diversifying the sources of power generation.

Over the past decades, power generation in the Middle East has increased by around 6-8% per year, up to 5-10% in some countries. It is notable, meanwhile, that the global annual rate of power generation has only increased by around 2.5% annually. The high rates of power consumption in the region can be attributed to the following factors: the increase in population growth; steep government subsidies for electrical power, provided at a cheaper rate than the actual cost price; limited attempts to rationalize consumption; and the soaring temperatures in the summer in Gulf states.

Throughout the region, government energy subsidies are adversely affecting the electricity sector. Subsidies lead to increased consumption rates, in addition to delays and disruption in using energy alternatives and modern, energy-saving technologies. Subsidies provided by Middle Eastern states, in total worth roughly $500 billion, are equivalent to about half of the subsidies provided by all governments in the rest of the world. In the region, subsidies to the energy sector constitute around 8.4% of the gross national product of oil-exporting countries and around 6.3% of oil-importing countries.

It goes without saying that these subsidies have become a heavy burden on Middle Eastern economies. The annual cost of electricity subsidies has increased to $65 billion, a figure equivalent to about a quarter of government subsidies to the energy sector in general. These subsidies help the rich more than they do the poor. However, it is possible to help poor people by subsidizing only the first band of consumption. There are currently only a few proposals to reduce subsidies by Middle Eastern governments, despite the importance of gradually lifting them.

It is clear that the continuing rise of electricity consumption in the region is leading to increasing investment. In the period 2014-18, to increase electricity capacity by around 120 gigawatts, new investments worth around $140 billion will be required. For example, Gulf states will require $73 billion in investments to provide 66 additional gigawatts; countries in the Levant will need around $44 billion to provide 34 gigawatts; and the Maghreb states will need $23 billion to provide around 20 gigawatts. If distribution costs are included, Middle Eastern states will require a total investment of around $230 billion.

The Middle East continues to face difficulties in obtaining the necessary funds to invest in the energy sector. Governments are hesitant to finance power plants, tending to prioritize financing educational, health and social services. Instead, the prevailing trend is to have power plants constructed by independent investors from the private sector, reaching agreements with the government for the purchase of energy, not including the cost of fuel. How private investments fund power stations can be broken down as such: 30% from the capital raised and 70% as debts.

The available electrical power in the Middle East during 2013 reached about 120-220 gigawatts in the Gulf states, 65 gigawatts in the Levant and 35 gigawatts in the Maghreb.

Almost all Middle Eastern countries suffer from power shortages and outages. Even the capital cities of some oil-producing countries suffer daily power outages for hours. This is primarily due to excessive consumption stemming from government subsidies, as well as the poor management of the electricity sector, scarcity of investments and rampant corruption.

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Found in: oil, middle east, gulf states, energy, electrical outages
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