Every country in the Middle East and North Africa (Mena) region has embarked on ambitious plans to transform their power and water sectors, which are interlinked due to the need to treat and reuse wastewater and supplement potable water supplies by desalting sea water.

Such a mammoth undertaking requires the alignment of government, industry, financial institutions, the private sector, academia and civil society. Collaboration is vital as we live in an era where the way in which electricity is produced and consumed is changing, as is the role of stakeholders.

The electricity sector, both on the supply and demand side, is in the early stages of a revolution, led by an array of technological advances but also fuelled by mounting concern about climate change and the impact of rising levels of carbon emissions. This revolution is happening alongside efforts to transform the economies of each nation. Across the region, the imperative is to reduce government expenditure and create jobs for the youthful population.

Electricity demand

The introduction of technologies that increase efficiency in industrial processes is set to reduce the power load. The ability to traffic electrons and data down the same wire, and the advances in computing power at a fraction of what it cost before, mean that, even in a world that is becoming increasingly ‘electric’, the rate at which electricity demand is rising is dramatically reduced. The shape of the daily load curve, the amplitude and duration of peak electricity are also changing.

Spectacular advances in renewable energy generation technology have led to cost reductions on an exponential scale. In a region abundant with renewable energy resources such as Mena, and even with subsidised or low-cost fossil fuel (a practice that will no longer be supported in this era of focus on efficient utilisation of resources and conservation of income), renewable energy is the cheapest option for supplying electricity while the sun is shining and/or the wind is blowing, on a standalone basis. Indeed, it is the use of fossil fuels to generate electricity to fulfill this segment of the demand curve that now requires subsidies.

Significant progress has already taken place towards meeting these targets

Throughout the Mena region, the energy mix is being revised, with specific targets for renewable energy.

Significant progress has already taken place towards meeting these targets. Saudi Arabia recently released a request for qualifications for companies to bid for 700MW of wind and solar projects; the kingdom’s generation goal is at least 9.5GW from renewable energy by 2030. Jordan has entered into multiple agreements for a total of 1,000MW of solar projects to be operational by 2018. Last November saw the award of a 176MW photovoltaic (PV) plant in Morocco, as part of the NOOR solar programme, which aims to develop a solar capacity of 2GW by 2020. Already, 165MW of electricity generated from solar energy is powering thousands of homes during the day and for three hours into the night in Morocco. The largest PV facility in the region, Dubai Electricity & Water Authority’s 200MW plant, dispatches electricity to 50,000 homes and displaces 214,000 tonnes of carbon a year.

All of these projects have been developed by the private sector with the energy capacity procured through transparent competitive tender processes on an independent power plant long-term offtake contract basis. These developments provide insights into the future of not only the broadening energy mix in the Mena region, but also how rapidly the environment has evolved to attract private sector investment.

As the sector’s transformation takes root, we expect to see the following elements play a vital role:

? Regulation: To encourage economic development and meet energy targets, governments in the region have deployed a variety of legal and regulatory instruments to promote and support public-private partnerships (PPPs).

Greater involvement of the private sector through the PPP model is setting the stage for increasing investment in the region, and the development of legal mechanisms to support infrastructure investment. While some countries in the region are still developing the necessary legislation to bring about this change in roles, others have not only drawn up the required laws but have initiated transparent competitive procurement processes and broken ground on new projects with companies offering world-record-low tariffs.

? Technology: Technology will play a vital role in further reducing tariffs by improving efficiency and reducing installation cost. Highly efficient renewable energy sources, cheaper storage, smarter grids and technologies that capture greenhouse gasses effectively will be vital in advancing the industry in the region, and supporting commitments to abate climate change.

Increasing private sector involvement in the region’s power sector will create employment opportunities

Increasing private sector involvement in the region’s power sector will create employment opportunities

For solar energy, expect the hybridisation of PV and CSP technologies to be implemented, optimising costs by combining the economic benefits of PV technology’s lower unit cost and CSP technology’s storage capability to deliver reliable electricity following the daily demand profile day and night. As levels of deployment of CSP technology increase and more participants enter the supply chain, capital costs will come down, as has been the case with PV.

Significant advances in reducing energy consumption in seawater desalination, wastewater treatment and the integration of renewable energy with desalination technologies offer much promise in revolutionising potable water supplies. These advances will also assist with the urgent need to reduce carbon emissions from a sector that the International Energy Agency predicts will account for 16 per cent of total electricity consumption by 2040.

? Cost competitiveness: While the cost of electricity to consumers will increase due to the progressive removal of subsidies, the rise will not be as much as it would have been otherwise, given that the real (unsubsidised) cost of electricity generation will continue to come down. Cost reductions will deliver benefits to the economies of all Mena nations, regardless of whether they are importers or exporters of fossil fuel.

The transformation of electricity generation and reduction in energy intensity will drive efficiency in the sector. Furthermore, increasing private sector involvement will create meaningful employment opportunities and lead to higher levels of localisation as industrial capacity expands.

? Research and development: A greater focus on research and development of technologies that leverage regional resources will result in further advances, with facilities such as KAUST and the Masdar Institute deploying significant resources to find a broader range of fit-for-purpose solutions.

The transformation of energy systems in the region over the next two decades requires a holistic approach, looking at every element of the chain, from technology to finance to human capital to legal frameworks. In the realignment of the economies of the Mena region, the power sector alone will absorb in excess of $200bn of investment over the next five years.

Acwa Power will continue to support the region’s plans to diversify the energy mix, increase efficiency and reduce carbon emissions, as well as helping each country to keep its commitment to contain the increase in the Earth’s temperature to below 2 degrees centigrade.

Paddy Padmanathan is president and CEO of Acwa Power, a developer, investor, co-owner and operator of a portfolio of power generation and desalinated water production plants, with a presence in 11 countries