Rising Electricity Demand Requires New Thinking on Gulf Grids
This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.
The demand for power is rising in the Middle East and North Africa (MENA) region; the 2023 Electricity Market Report by the International Energy Agency (IEA) estimates that this demand will grow at an annual rate of 2 percent in the 2023–25 period. Most of this growth is driven by Iraq, Iran and Gulf Cooperation Council (GCC) countries, notably Saudi Arabia, Oman, and the United Arab Emirates (UAE). For these countries, the same report expects electricity consumption to increase, on average, by 2–3 percent between 2022 and 2025. The main drivers of this are population growth, and specific uses such as cooling and water desalination.
The effects of climate change, such as a higher number days when maximum temperatures exceed 35 degrees Celsius, are driving demand upwards in the region. But measures to boost energy efficiency are also on the rise. A recent IEA study based on temperature projection models shows how these trends are particularly affecting the region. For example, Saudi Arabia has accelerated the roll-out of smart meters in the country while partially reviewing its electricity tariffs to support more rational consumption patterns. If these measures were maintained and widened throughout the region, the growth of demand for electricity would potentially be mitigated. The Emirate of Dubai currently has over two million smart meters installed. Oman also has a national smart meter programme overseen by the Authority of Public Services Regulation, which aims at installing 1.2 million smart meters by 2025, covering all of the country’s electricity consumers.
At the same time, oil and gas remain dominant in the MENA region, with natural gas playing a prominent role. During 2023–25, the IEA expects gas-fired power to generate the most electrical capacity. For instance, in 2024, the same IEA report predicts that two thirds of the 60 gigawatt (GW) capacity being added to the whole Middle East region are expected to come from natural gas, with the rest being split between nuclear and renewables. At the same time, these countries are seeing the effects of renewable energy sources being increasingly deployed, in particular solar photovoltaics (PV).
Between 2023 and 2028, the IEA predicts that the Gulf region is expected to increase its renewable power generation capacity by over 40 GW. This represents almost half of Saudi Arabia’s current power generation and is more than the total power generated by the UAE today. This growth is dominated by utility-scale solar PV. In addition, the report cited that hydrogen also represents around 13 percent of extra renewable power capacity, mainly enabled by government-backed incentives to stimulate hydrogen trade. Other factors supporting the growth of renewables for hydrogen include high levels of solar irradiation, land availability, and port infrastructure.
While this growth remains impressive, it could increase faster. Possible strategies to further accelerate growth might include encouraging more competition between utility providers, introducing domestic tariffs that reflect individual users’ costs, addressing contractual issues with existing fossil fuel providers, and better supporting power storage systems to be flexible.
Cross-border electricity trading can also improve the deployment of renewables. However, international connections in the Gulf today only represent a small proportion of each country’s electricity consumption. The six-member GCC Interconnection Authority, which has the remit to do this, was established in 2001, but as of 2024 has only been able to support 1.2 GW of capacity. The recent linking of Iraq to the network through Kuwait, and ongoing discussions about a Saudi–Iraqi connection, would strengthen the region’s interconnectedness in terms of power generation.
Of course, regional particularities need to be considered, for example consumption patterns related to climatic conditions. Innovative economic models are needed to address the need for system flexibility as a result of changes in peak demand between seasons, and between day and night. While leaders in the GCC are looking into the diversification of power supplies without compromising grid stability—whether through renewables or nuclear—leaders in Iran and Iraq face a growing mismatch between supply and demand.
For instance, in 2021, Iran had to face a 12 GW gap between peak summer demand and supply. Severe droughts limited hydropower in a country that generates 4.6 percent of its electricity from that source. Although there were also other factors at play, both domestic and external, the effects of climate change and limited diversification in the power generation sector cannot be discounted as factors limiting the overall resilience of the current system. Neighbouring Iraq also faced similar challenges, despite the domestic context being different. Nevertheless, both countries are investigating whether renewable power capacity can be developed faster. For example, Iran has set a 2025 target for 10 GW of renewables, while Iraq is looking into linking oil and gas investments with large-scale renewables projects. However, it is worth pointing out that reforms in the electricity market remain a key prerequisite to address the power sector crisis.
There can be no large-scale transformations in electricity markets without adequate reforms. In the Gulf, there remain vast opportunities related to tariffs and subsidies. While investments in renewables in the region have been enabled by the active involvement of governments (where land availability and permissions enable large-scale projects, such as in Oman and the UAE), tariff and subsidy reforms should remain a priority. Otherwise, current and future renewables projects will not be financially viable. Reforms such as these would also allow utility companies in the region to recoup their costs and allow for investments in the grid infrastructure. These investments would pave the way for further renewables to be developed and deployed, such as decentralised solar PV.
The dynamics surrounding power markets in the MENA region require addressing a series of priorities that sometimes come into conflict with each other. Governments are expected to provide secure, reliable, and affordable electricity to all. In a geographical area significantly affected by the effects of climate change, the need to mitigate these impacts is probably more pressing than in any other region. Climate change not only creates new patterns in demand, with a heightened need for cooling and desalination, but it also affects the resilience of the power system itself. Higher temperatures, droughts, higher sea levels, or flash floods can all significantly affect operations on the supply side and reduce output. This is not limited to conventional power generation (oil and gas); nuclear and solar PV units can also be affected.
In this challenging regional context, where priorities are continuously shifting, it remains important that the climate crisis increasingly plays a central role in how regional leaders think about their future energy systems. Climate change has significantly increased the complexity of power markets. It is essential to pay more attention to how systems are planned and designed, and how they must operate in the face of new demands.
Photo: Emirates Nuclear Energy Corporation
