GCC dependency on IPPs set to grow

Lower revenue streams from oil and gas will force GCC governments to turn to independent power producers (IPP) to help meet rising electricity demand, the Arab Petroleum Investment Corporation (Apicorp) said in its latest report.

In its September Energy Research paper, Apicorp forecasts an 8% yearly increase in GCC power demand through 2020, which would necessitate investments of USD 85 billion and an addition of 69 GW in capacity.

As the collapse of oil prices has put a strain on the respective GCC governments’ budgets, forcing them to be more selective in their budget allocations, countries such as Kuwait, the UAE and Saudi Arabia are expected to turn to IPPs in an effort to free up financial resources while at the same ensuring that growing electricity demands are met.

However, the IPPs being in a position of strength can “prove distorting and inefficient in the longer term,” Apicorp said, as the power purchase agreements are generally signed for a duration of between 15 and 30 years. With demand expected to flatten beyond 2020, the regional governments “could find themselves with overcapacity and costly obligations,” the report added. As such, Apicorp recommended IPPs be “properly managed” in order to prevent their solutions from becoming a “quick fix” to supply-side problems.