Demand for power in the Middle East is rising rapidly over the medium and long-term. Growing populations, a drive towards energy-intensive industries and subsidies to end-users have pushed up electricity consumption.

Between 2009 and 2010, power demand increased in every GCC country. On average, peak power increased by 5.5 per cent, with the highest increase registered in Qatar at 12.2 per cent. Regional governments responded by investing heavily in electricity generation capacity building programmes and improving transmission and distribution networks. The capacity-building boom led to increasing amounts of hydrocarbon reserves being burnt to run power plants. Some states even imported fuel to satisfy domestic demand.

Burning hydrocarbons for power generation wastes resources that could otherwise be left in reserves for future use or sold internationally at a profit. Kuwait and the UAE are net importers of natural gas, while Saudi Arabia uses around the same amount of gas that it produces.

The incentives are clear to diversify into alternative energy projects to meet future demand. Adopting energy saving initiatives such as efficiency and conservation will also be key to keeping the region’s consumption in check. Unlike the US and Western Europe, most energy is consumed by residential customers in the Middle East at 54 per cent. The figure is 32 per cent in Western Europe and 40 per cent in the US.

Energy conservation efforts must focus on residential users through awareness, incentives, regulation and smart metering. Commercial users, which account for 29 per cent of energy consumption, can be tackled through regulation and financial incentives. The same is true for the industrial sector.

According to research by New York-based management consultancy Oliver Wyman, the Middle East region could potentially reduce fuel consumption by more than a quarter in 2030 from 94,000 kilotonnes of oil equivalent (ktoe) to 68,600 ktoe. Under a more aggressive “technical potential” scenario, energy consumption could be more than halved by 2030.

As the largest energy market in the region, Saudi Arabia has much to gain from conserving energy. By 2030, Saudi Arabia is expected to consume 572 terawatt hours (TWh) of electricity, which will cost $57.2bn in fuel. Under the same model, if energy saving measures are introduced, power consumption is likely to fall to 417TWh in a low-case scenario saving $15.4bn and 252TWh under a technical scenario saving $32bn.

While the incentives to adopt energy-saving measures have existed in the Middle East for many years, it is only recently that governments have introduced initiatives. Saudi Arabia introduced a national energy efficiency programme and the UAE unveiled a national programme to deal with energy efficiency and conservation.

According to the research, there are many barriers to achieving large energy savings, including the ways in which the benefits are quantified and allocated to each market player. In addition, the Middle East suffers from additional hurdles, including a lack of consumer awareness and incentives and its low priority for most governments. Increasing subsidies would make a big impact on energy consumption, but the issue remains highly political with few governments willing to reform tariffs to end-users.