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    MENA Power Regional Overview: Thermal Power To Remain Dominant Despite Rapid Solar Growth


    September 22, 2021 - Fitch Solutions Sector Intelligence

     

      THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

      MENA Power Regional Overview: Thermal Power To Remain Dominant Despite Rapid Solar Growth

      • 22 Sep 2021
      • MENA (Region)
      • Power

      Key View

      • Thermal power will remain dominant in the electricity mix across the MENA region, accounting for over 90% of its total annual electricity generation throughout our forecast period to 2030.
      • Solar power will drive growth in the region's non-hydropower renewables sector over the next decade, offering attractive investment opportunities for both public and private sector participants in the region.
      • The UAE and Iran will be the only MENA markets to utilise nuclear power within our forecast period, despite numerous nuclear power projects underway across the region.

      Thermal power will remain dominant in the electricity mix across the Middle East and North Africa (MENA) region, accounting for over 90% of its total annual electricity generation throughout our forecast period to 2030. We expect natural gas to remain by far the most prolific electricity source in the region, with a robust and still-growing fleet of gas-fired power plants, competitive cost-dynamics, and vast gas reserves supporting the sub-sector. The chart below highlights our view that Saudi Arabia, Iran and Egypt will be the region's leading markers for net growth in thermal power generation over the coming decade, increasing output by 90.1TWh, 86.8TWh and 85.0TWh, respectively, by 2030 when compared to 2020 levels. Gas-fired power will drive the majority of thermal generation growth in each of these markets, which will offset reductions in oil-fired power production in Iran as the republic seeks to free up crude reserves for export. Conversely, in addition to gas-fired power, we expect continued growth in oil-fired power output in Saudi Arabia as the market employs fuel-switching to use heavy fuel oil (HFO), allowing for both oil power generation and crude exports to rise over the coming years.

      Saudi, Iran And Egypt Lead MENA Thermal Power Expansion
      MENA - Net Growth In Thermal Power Generation By Type, TWh

      f = Fitch Solutions forecast. Source: EIA, IRENA, National sources, Fitch Solutions

      We expect solar power to drive growth in the region's non-hydropower renewables sector over the next decade, offering attractive investment opportunities for both public and private sector participants in the region. Investment in large-scale solar power plants has risen sharply over recent years, given that the MENA region has some of the world's highest solar irradiation levels, rapid growth in electricity demand and vast open spaces near urban centres where electricity demand is concentrated. Since the introduction of renewables auctions, solar power tariffs in the region have become some of the lowest in the world. As a result, we expect numerous markets such as the UAE, Egypt, Saudi Arabia, Morocco and Iran to rapidly expand investment in new solar power capacity, motivated by plans to diversify their power sectors and, in some cases, to reign in crude oil consumption to free up additional reserves for export. Overall, we forecast over 26.4GW of new solar power capacity to come online between 2021 and 2030, making up more than 73% of all non-hydropower renewables growth in the region over that time frame.

      Solar Power To Drive MENA Renewables Growth
      MENA Region - Net Growth In Non-Hydropower Renewables Capacity By Type, MW

      e/f = Fitch Solutions estimate/forecast. Source: EIA, IRENA, Fitch Solutions

      We expect the United Arab Emirates (UAE) and Iran to be the only MENA markets to utilise nuclear power within the coming decade, despite numerous nuclear power projects underway across the region. While nuclear power has been of interest to a number of markets in the region, the early stages in which many these projects remain have informed our bearish outlook on the prospects for their completion within our forecast period. The only new nuclear power plant which we have factored into our forecasts for the region this quarter is the UAE's 5.6GW Barakah Nuclear Power Plant. The project is in its final stages of construction, with its first two reactors already having reached completion and its remaining units scheduled to come online before end-2021.

      Along with the UAE, three other MENA markets currently have nuclear power projects in the pipeline. The second phase of Iran's Bushehr Nuclear Power Plant is currently the only other nuclear power project to have reached construction in earnest, though this has mainly been concentrated around concrete pouring for foundations and buildings, with no evidence of work starting on the reactor itself. While the project is scheduled for completion in 2026, the high likelihood of delays and cost overruns inform our decision not to factor this plant into our current forecasts. Similarly, Egypt has begun laying foundations for its four reactors at the New El-Dabaa Nuclear Power Plant. In mid-2021, the government announced that it had revised the plant's scheduled completion date back from 2028 to 2030 due to delays in the pre-construction phase, reinforcing our bearish outlook on the prospect of it entering commercial operations within our forecast period to 2030. All remaining projects, which include further reactors planned in Iran and Saudi Arabia, have not yet entered the construction phase, and have scheduled completion dates set either beyond or in the latter part of our forecast period. As a result, we do not factor these projects into our forecasts, and expect nuclear power to play only a marginal role in the regional power sector over the coming decade.

      MENA Nuclear Power Projects
      Country Project Name Size (MW) Companies Status Scheduled Construction End Status Notes
      UAE Barakah Nuclear Power Plant, Abu Dhabi 5600 Hilal Bil Badi & Partners Contracting Company[Construction]{United Arab Emirates},Emirates Nuclear Energy Corporation (ENEC)[Sponsor]{United Arab Emirates},Abu Dhabi Government[Sponsor]{United Arab Emirates},EDF[Sponsor]{France},Doosan Heavy Industries & Construction Co.[Construction]{South Korea},Hyundai Engineering and Construction Co Ltd.[Construction]{South Korea},Samsung Engineering[Construction]{South Korea},Korea Electric Power Corporation (KEPCO)[Sponsor]{South Korea},Korea Exim Bank[Financier]{South Korea},Bechtel Corporation[Consultant/Project Management]{United States},Framatome[Consultant/Project Management]{France},Government of United Arab Emirates[Sponsor]{United Arab Emirates} Under construction 2021 June 2021: Units 1 and 2 online; construction on units 3 and 4 reached 94% and 89% completion respectively.
      Iran Bushehr Nuclear Power Plant - Phase II, Bushehr 2114 Atomic Energy Organisation of Iran[Sponsor]{Iran},Rosatom[Construction]{Russia} Under construction 2026 April 2021: Construction on units 2 and 3 reached 12%
      Iran Darkhovin Nuclear Power Plant, Shadegan, Khuzestan 360 Atomic Energy Organization of Iran (AEOI)[Sponsor]{Iran} At planning stage na No notable progress registered recently
      Saudi Arabia K A CARE Nuclear Power Project, Gulf Coast 2800 King Abdullah City for Atomic and Renewable Energy[Sponsor]{Saudi Arabia},Worley Limited[Consultant/Project Management]{Australia},Assystem[Consultant/Project Management]{France} At planning stage na Project in early pre-construction phase
      Egypt New El-Dabaa Nuclear Power Plant, Matruh 4800 Hassan Allam[Construction]{Egypt},Petrojet[Construction]{Egypt},Government of Egypt[Sponsor]{Egypt},Nuclear Power Plant Authority (NPAA)[Operator]{Egypt},Rosatom[Sponsor]{Russia},Government of Russia[Sponsor]{Russia},Ministry of Electricity and Renewable Energy of Russia[Sponsor]{Russia},Arab Contractors[Construction]{Egypt} At planning stage 2030 Expected completion date pushed back 2 years to 2030 following pre-construction delays.
      Source: Fitch Solutions Key Projects Database
      This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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