GCC states must cut subsidies

31 March 2010

Increasing power tariffs will pave the way to reduced usage as well as creating new capacity investments

The biggest challenge facing GCC utilities over the next decade is probably not delivering on the required $137bn in capacity building programmes by 2020, but securing the necessary feedstock for new projects.

Peak power demand growth will average 8 per cent across the GCC over the next decade, while the average growth for desalination demand will stand at 7 per cent.

The region’s tightening gas market has resulted in a significant hike in the cost of electricity production in much of the GCC. Both Sharjah and Dubai have responded by raising water and electricity tariffs in recent years.

It is also forcing utilities to assess alternative feedstocks, with different countries adopting different approaches.

In Saudi Arabia, liquid fuels will increase their share of the market while the UAE will build the GCC’s first nuclear power plant. Oman may be set to break the mould by building the Gulf’s first coal-fired power plant.

MEED believes that the region’s governments need to take a pragmatic approach to the pricing of power and water and the way it builds new projects. Increasing the cost of utilities may well lead to reduced usage in what is one of the most energy inefficient regions in the world.

This would reduce the need for new capacity and avoid any shortfall in funding for new projects. In a best-case scenario, any excess income could be used to subsidise new hydrogen, solar or wind power projects.

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