We expect MENA markets will strengthen their efforts to cut domestic oil and gas consumption in the power sector to boost hydrocarbon exports over the near-to-medium term. High energy commodity prices and the increased demand for non-Russian hydrocarbons in Western Europe will likely reinforce many MENA markets' efforts to reduce their oil and gas consumption, weighing on conventional thermal power growth while supporting investment in solar and wind power. With energy prices roughly doubling since early 2021, the profitability of oil and natural gas exports has drastically increased. Hosting some of the world's largest hydrocarbon exporters, the MENA region stands to gain significant capital inflows through its already robust energy commodity exports. In an effort to further capitalise on this potential, a number of markets including Saudi Arabia and Iran have introduced targets aiming to reduce domestic hydrocarbon consumption and free up more product for export. Compounding this, the Russian invasion of Ukraine has proven to be a formidable market disruptor, spurring on a surge in public pressure and internal political will among Western markets to reduce or eliminate their procurement of Russian hydrocarbons. This would leave hydrocarbon producers in the MENA region at an advantageous position to leverage the increased demand for their products. As a result, we expect these factors to strengthen the business case for power sector diversification among MENA markets seeking to cut domestic oil and gas consumption. This would be particularly beneficial for the non-hydropower renewables sector, offering not only an alternative source of electricity, but also an avenue to attract greater foreign direct investment in the infrastructure sector.
We expect robust operational, economic and political risks to prevent the completion of new nuclear power projects outside of the United Arab Emirates (UAE), with only one new nuclear power plant coming online in the region over the next decade. There are currently five nuclear power projects in the pipeline across four markets in the MENA region, with a cumulative capacity of nearly 11.5GW. However, we consider the risk of lengthy delays and cost overruns to pose a significant threat to the eventual deployment of most of these plants, and have not factored any of these nuclear plants apart from the UAE's Barakah Nuclear Power Plant (NPP) into our forecasts.
The Barakah NPP is the only nuclear project in the region's pipeline considered low-risk, scoring 9.4 out of a possible 10 on our Project Risk Metric (PRM). This metric has been formulated to quantify a range of risk factors facing projects in our Infrastructure Key Projects Database inclusive of aspects such as financing, construction, energy policy, size and power type. Nuclear power projects tend to be large in size, high in cost, take considerable time to develop, require a large amount of highly specialised personnel and equipment and are heavily regulated to ensure safety. These factors compound the risk of timely completion in markets more prone to economic and political instability and reliant on imported equipment and skilled personnel, such as many of those in the MENA region. As a result, these projects face a significantly higher risk of delays and/or cancellation; something which is reflected in the low average PRM score of nuclear power projects in the region which comes in at only 3.8 excluding the Barakah NPP.
Despite rapid growth in the sub-sector, non-hydropower renewables will make up a conservative portion of the region's total power supply between 2022 and 2031. The region has long relied on conventional thermal generation to supply its electricity demand, with investment in non-hydropower renewables only becoming regionally significant in recent years. Looking ahead, we expect non-hydropower renewables to be the region's fastest-growing sub-sector throughout the foreseeable future, with capacity and generation expanding at average rates of 12.8% and 12.1% year-on-year respectively from 2022 to 2031; making it the fastest-growing region in the world for renewables. This growth will be centred almost exclusively around the deployment of new solar and wind power plants, supported by several of the region's governments which aim to diversify their electricity supply and free up hydrocarbons for export. Added to that, these power types will also be used by some markets, such as Saudi Arabia, to attract foreign investment into the sector which is heavily dominated by state owned enterprises across the region.
However, despite net renewables capacity growth of 39.8GW more than tripling the region's renewables capacity by 2031, conventional thermal power will remain dominant in the sector making up more than 90% of total generation compared to renewables' 4.9% by the end of our forecast period.
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