Overview and Trends
in the Power Sector

The Case of the Gulf States

The future is electric

Global electricity demand is expected to rise 80% by 2040 1, driven by the electrification of various sectors. However, the sources of this electricity remain a subject of heated debate, particularly in hydrocarbon-rich Gulf Arab states.

Hefty renewable energy targets have dominated news and government announcements in the Gulf in recent years. However, Gulf economies and domestic power consumption remain almost entirely dependent on fossil fuels. Electricity consumption continues to rise as economic growth drives a race for thermal generation capacity, with renewable energy plans remaining slow to materialise.

Diversifying the Gulf’s power mix is an extensive mission. Gulf states sit on a vast supply of hydrocarbon reserves. Revenues from these reserves have driven the region’s economies and played a central role in dictating the region’s political and economic dynamics. However, Gulf states are rich in other natural resources, with abundant renewable energy potential. These states have announced lofty targets for the deployment of renewable energy systems. The targets range from 15% to 50% of electricity generation by 2030. Despite a slow start, implementation is gaining momentum.

December 16, 2022

Key Takeaways:

  • Electricity demand growth in the Gulf has fallen slightly. But several indicators imply that growth in electricity demand will recover to high levels in the future.
  • Renewable energy deployment in Gulf states is gaining momentum driven by several factors, including freeing hydrocarbons, especially oil, for exports, and increasing energy security and job creation.
  • Gulf states have an opportunity to fast-track renewable energy tenders and project development, mostly due to higher financing prospects and lower project development risks.

The Gulf’s current available power generation capacity is approximately 165 Gigawatts (GW), up from 154 GW in 2018, which accounts for half of the Middle East’s estimated total installed capacity. Peak electricity demand in the Gulf was in the vicinity of 120 GW in 2020 2.

Electricity demand growth in the Gulf has fallen slightly since 2016. Before this, the region’s peak electricity demand grew at unsustainable rates. Annual growth in peak demand averaged 7% to 11% from 2005 to 2015, and then dropped to 3% from 2016 to 2020 3. Historically, fuel and electricity subsidies, resulting in low electricity tariffs, have led to a wasteful increase in electricity consumption. This has caused a rise in domestic consumption of fossil fuels, the dominant source for power generation in the Gulf. Domestic reliance on subsidised fossil fuels has strained governments’ budgets and decreased the attractiveness and bankability of investments in low-carbon technologies, including renewables.

Despite the decreased peak demand growth rate, several indicators imply that growth in electricity demand will recover to high levels in the future. These factors include:

  • Economic growth, which is still strongly linked to energy consumption (the two have not yet decoupled in GCC member states 4, unlike in Organisation for Economic Co-operation and Development (OECD) countries, where electricity demand has flattened)
  • Water scarcity
  • Rising temperatures and subsequent rising demand for cooling
  • Electrification of sectors, including transportation
  • Digitisation and the addition of data centres

Figure 1. Gulf peak demand annual growth rate

Demand growth has been driving a race to increase installed generation capacity, mainly in thermal generation. This generation is consuming a larger share of fossil fuels, diverted from exports. The annual growth rate of installed generation capacity in the Gulf is 7%, although it exceeded 9.5% 5 from 2005 till 2015. This compares to a global rate of 6% for thermal generation.6  

Gulf electricity generation, demand and dominant fuel sources for power
generation in 2020

Data source: WERA, DEWA, EWEC, QEWC, OPWP, Kuwait MEW, MEES

Despite available reserve margins, the increase in peak demand at extreme temperatures has driven power outages in cities in Kuwait, intensifying efforts to secure installed capacity. The state has a pipeline of eight additional power plants with a combined generation capacity of 17.3 GW planned for operation by 2035.

According to data from the International Energy Agency (IEA), the residential sector was the highest electricity consumer in the Gulf in 2019, accounting for approximately 41% of total electricity consumption, followed by the commercial and governmental sectors at a combined 34%. The residential sector is currently the highest consumer across all Gulf states except Bahrain, where the industrial sector consumes the most, followed by the residential sector. In 2015, the largest consumers in the United Arab Emirates (UAE) were the commercial and governmental sectors, with the residential sector coming in a close second. The Covid-19 pandemic has shifted consumption towards the residential sector in the UAE. Buildings constitute the largest electricity consumer, with air conditioning making up the highest share of electricity consumption. Thus, electricity consumption increases as temperatures rise.

Most sectors in the Gulf have seen an upward trend in electricity consumption. Exceptions are Saudi Arabia, where the residential sector’s consumption has been decreasing and commercial and governmental sector consumption has mostly stagnated since 2015, and Qatar, where the industrial sector has been mostly flat since 2015. The agricultural sector has generally plateaued across all Gulf states.


1 International Energy Agency (IEA) (2021). “World Energy Outlook 2021”. https://www.iea.org/reports/world-energy-outlook-2021 

2  Calculated by Author as per data from Saudi Water and Electricity Regulatory Authority (WERA), Dubai Electricity and Water Authority (DEWA), Emirates Water and Electricity Company (EWEC), Qatar Electricity and Water Company (QEWC), Oman Power and Water Procurement Company (OPWP), Kuwait Ministry of Electricity (MEW), MEES.

3 Ibid.

4 Howarth, N., Galeotti, M., Lanza, A. et al. (2017). “Energy Consumption and Economic Development in the GCC: An International Sectoral Analysis”. Energy Transit 1: 6. https://doi.org/10.1007/s41825-017-0006-3

5 Calculated by Author as per data from WERA, DEWA, EWEC, QEWC, OPWP, Kuwait MEW, MEES.

6 IEA (2021). “Electricity Market Report: January 2021”.

7 Including solar photovoltaic, concentrated solar power, onshore wind and bioenergy.

8 International Renewable Energy Agency (IRENA) (2021). “Renewable Energy Capacity Statistics 2021”. https://www.irena.org/publications/2021/March/Renewable-Capacity-Statistics-2021 

9 Ibid. 

10 IRENA (2019). “Five Reasons why Countries in the Region are Turning to Renewables”. 20 October. https://www.irena.org/newsroom/articles/2019/Oct/Five-Reasons-Why-Countries-in-the-Arabian-Gulf-are-Turning-to-Renewables

11 National Academies of Sciences, Engineering, and Medicine (2010). “The Power of Renewables: Opportunities and Challenges for China and the United States”. https://doi.org/10.17226/12987

12 Pew Research Center (2019). “US Public Views on Climate and Energy”. https://www.pewresearch.org/science/2019/11/25/u-s-public-views-on-climate-and-energy/ 

13 Dobrotkova, Z., Surana, K. and Audinet, P. (2018). “The Price of Solar Energy: Comparing Competitive Auctions for Utility-scale Solar PV in Developing Countries”. Energy Policy 118. https://www.sciencedirect.com/science/article/abs/pii/S0301421518301708 

14 IRENA (2017). “Renewable Energy Auctions: Analysing 2016”. https://www.irena.org/publications/2017/Jun/Renewable-Energy-Auctions-Analysing-2016 

15 IRENA (2019). “Renewable Energy Auctions: Status and Trends Beyond Price”. https://www.irena.org/publications/2019/Dec/Renewable-energy-auctions-Status-and-trends-beyond-price

16 Kingdom of Saudi Arabia (2021). “Public Investment Fund Program 2021-2025”https://www.vision2030.gov.sa/media/mdppqvmv/v2030_pif_2025_en.pdf  

17 EIA (2019). “Most Utility-Scale Solar Photovoltaic Power Plants are 5 Megawatts or smaller”.https://www.eia.gov/todayinenergy/detail.php?id=38272#

18 Bolinger, M., Seel, J., et al. (2021). “Utility-Scale Solar 2021 Edition”. Lawrence Berkeley National Laboratory.  https://emp.lbl.gov/sites/default/files/utility_scale_solar_2021_edition_slides.pdf 

19 EIA (2019). op. cit.

20 Hove, A. (2020). “Current direction for renewable energy in China”. The Oxford Institute for Energy Studies. https://www.oxfordenergy.org/wpcms/wp-content/uploads/2020/06/Current-direction-for-renewable-energy-in-China.pdf 

21 Al Saidi, M. (2020). “From Economic to Extrinsic Values of Sustainable Energy: Prestige, Neo-Rentierism, and Geopolitics of the Energy Transition in the Arabian Peninsula”. Energies 2020, 13(21): 5545. https://www.mdpi.com/1996-1073/13/21/5545