Wednesday, September 22, 2021

Power Sector Diversification To Drive Growth In UAE

We expect notable shifts in the United Arab Emirates’ (UAE) power mix over the coming decade as the government remains committed to diversifying away from gas-fired power generation. Nuclear and solar power will be the main focus of development in the UAE’s power sector over the coming decade, and will see rapid expansion over the coming years. The market will see particularly strong growth in solar power as diversification forms a key component of the government’s goal conserve domestic hydrocarbon reserves for export. Mechanisms to support renewables investment will encourage ongoing growth in the sub-sector, including state financial support, energy production payments, utility quota obligations and capacity targets. With this robust financial and regulatory support, we expect more than 40% of all capacity coming online in the UAE between 2021 and 2030 to come from solar power plants, though its intermittent nature will somewhat limit it overall contribution towards the country’s total generation mix.

For nuclear power, ongoing progress on the construction of the third and fourth units at the Barakah Nuclear Plant informs out bullish outlook on the project’s timely completion, which we expect will drive up nuclear capacity by 4.2GW between 2021 and 2023. With an efficiency in excess of 70% of total rated capacity, this will have a significant impact on overall generation, and greatly boost the share of nuclear power in the UAE’s overall generation mix from an estimated 6.9% in 2020 to 23.4% by 2030. Added to that, we expect the UAE to be the only market in the Middle East and North Africa (MENA) region to successfully complete the installation of new nuclear power capacity within our forecast period to 2030; boosting its overall net growth in power capacity beyond that of any other MENA market.

Thermal power will also register strong growth over the coming decade to remain dominant in both capacity and generation in the overall power mix. Coal-fired power will grow significantly with the completion of the 3.6GW Hassyan Coal Power project, whose first unit came online in 2020. However, despite the government’s power sector diversification aspirations, gas-fired power will still remain the driving force for growth the market’s thermal power sector. Given its highly competitive cost dynamics and the easy availability of feedstock, we forecast more than 60% of new thermal power generation to come from gas-fired power plants between 2021 and 2030. Despite the introduction of nuclear power eroding gas-fired generation’s share of total output from an estimated 87% in 2020 to less than 65% by 2023, we note that gas power plants will still retain the largest market share of any individual power type in the market.

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