Disruption in equipment supply chain and low oil prices due to COVID-19 to hinder short-term development of renewables in Middle East

The COVID-19 pandemic has disrupted the international supply chain and reduced demand for crude oil, consequently denting government revenues in the Middle East region. It is likely to impact the renewable energy market dynamics in the region in the short term, says GlobalData, a leading data and analytics company.

Somik Das, Senior Power Analyst at GlobalData, comments: “The demand for oil and gas is expected to remain low in the short term, which will have a significant impact on budget outlays for the next year. Logic suggests that low oil price is bad news for the renewables energy sector – lower oil and gas prices will make energy transition to cleaner fuels difficult and unviable in the short term.”

The current economic conditions will increase the cost of capital for renewable projects due to the competitive pressure of the fall in oil prices.

Das continues: “Although low prices are detrimental to the deployment of renewable energy projects, governments are unlikely to completely move away from supporting the market. The ultimate impact will depend on a range of factors, including the length and severity of the epidemic, global economic recovery, market dynamics, and the government stimulus packages.”

The reduction in revenues could force governments to prevent the uptake of new projects.

Das concludes: “Power utilities are heavily subsidized by the government and a drop-off in fiscal support could impact their profitability and bankability. The Middle East lacks a strong localized manufacturing industry, which has resulted in its dependence on import of power equipment. Closure of manufacturing plants in China has had an impact on the projects under construction in the region, which is further compounded by the implementation of stringent lockdown measures by the respective governments of several countries in the region. Hence all this is likely to cause worries for the sector in this part of the world.”

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