Growing GCC electricity demand poses future challenges, Moody's report

Unprecedented economic and demographic growth is creating a strain on power supplies in the region.

Philipp Lotter, Senior Vice President at Moody's Middle East Limited in Dubai (DIFC), says:

"Moody's believes that these exceptional growth trends are likely to challenge local utilities, which will need to install significant additional capacity to meet rising demand."

"Power shortages and temporary blackouts have already been seen in certain countries with tight supply margins, and these are likely to increase, particularly where utilities are operationally and financially unable to fully execute their expansion plans," he adds.

According to estimates, up to $50bn could be spent in the GCC countries by 2015 for increased generation capacity of nearly 60,000 megawatts. Additional substantial investments will also be needed to update transmission and distribution networks.

Alternative energy sources, such as renewable and nuclear energy, are being investigated by the governments to meet the increased demand, particularly as some countries run short of gas and the region's fuel mix remains over-exposed to gas and oil.

Furthermore, continued government support, the involvement of private operators, a unified electricity grid, and more regulatory transparency could help ease the burden.

"Ultimately, players in those markets that provide greater transparency in their regulatory framework and tariff-setting, and share some of the expansion burdens with private sector operators will be better positioned to embrace the future demands of the sector," explains Mr Lotter.

Despite these challenges, the credit outlook for the sector is mostly stable. Moody's rates four electric utilities -- Dubai Electricity & Water Authority (DEWA), Abu Dhabi National Energy Company (TAQA), Saudi Electricity Company (SEC) and Oman Power & Water Procurement Company (OPWP) -- in three GCC countries, all of which benefit from strong government support and the strategic importance they play in supporting the economic growth in the countries where they operate.