With population growth, expanding public sectors, and rising industrialization, power demand is soaring in the Middle East, surpassing previous expectations and capacity build-ups. 

Over the next few years, we’ll need new power plants to power data centers, manufacturing, and the electrification of buildings and vehicles. Even AI, increasingly adopted across industries in the region, runs on energy-intensive infrastructure.

Demand for cooling and desalinated water has also risen significantly as extreme weather events, such as heatwaves and droughts, have become more frequent. 

The growth in power demand is happening as studies and experts have made clear the world’s climate goals will only be possible if the overall electricity demand is reduced. 

EXACERBATE CLIMATE CHANGE

Will increased energy demand make the climate crisis even worse?

“Increasing power demand has the potential to exacerbate climate change if we do not transition to clean and renewable sources,” says Steve Severance, Director of Growth at Masdar City. 

“We will need to add considerably more renewable energy if we want to sustain future manufacturing of things such as electric vehicles and power data centers,” he adds.

Today, AI has become an integral part of our daily digital lives. Businesses rely on AI to create and provide products and services more efficiently. However, using AI in our everyday activities also increases energy consumption. For instance, training a large language model consumes enormous electricity to power data centers.

“AI applications, especially those involving large datasets and complex algorithms, can demand significant computational power, leading to higher energy usage. Data centers, which support AI operations, may also contribute to this increase in energy consumption,” says Matthew Smith, Head of School, Energy, Geoscience, Infrastructure and Society at Heriot-Watt University, Dubai.

AI is escalating energy demand in mature markets like the US, leading to recurrent upward revisions in year-on-year long-term forecasts. 

“The energy intensity of AI applications is significantly higher than conventional alternatives – for example, GenAI inquiries through a GPT consume 10 to 15 times more energy than a Google search,” says Joerg Mayrguendter, Partner at Kearney Middle East & Africa – Energy and Process Industries Practice. “Despite continuous improvement of computing and cooling power efficiency, we can expect the increasing deployment of AI to boost power consumption in the Middle East. And inversely, sufficient clean, affordable, and reliable energy will be a crucial enabler to make the Middle East a leading AI hub.” 

In such a scenario, Smith adds that countries must prioritize energy-efficient AI infrastructure and sustainable practices to address the pressing challenges of increased energy consumption.

Increased power demand is part of a vicious cycle contributing to climate change, says Megan Ferrando, a non-resident scholar at the Middle East Institute. “As the Middle East sees more intense heat waves, the demand for generators to fuel air conditioners also increases. This puts pressure on energy supply while increasing carbon emissions, contributing to further global heating.”

SHARE OF RENEWABLES

The region’s reliance on fossil fuels remains significant. Nearly 95% of the electricity generated in the Middle East comes from natural gas and oil – the highest share in the world.

Although there’s huge momentum behind renewables in the region, with ever-cheaper solar leading the way, it’s not enough yet to match the growing electricity demand.

“The share of renewable energy in the total energy supply of countries in the Middle East is still far too low to counter the devastating effects of the climate crisis effectively,” says Ferrando. “Many conflict-affected countries such as Iraq, Yemen, and Syria do not receive the investments required to boost renewable energy development.”

Transition-related spending is gradually increasing in the region, but the shortfall will only widen as demand is spiking due to rapid economic growth. Many industrial processes, including steelmaking, cement, and chemicals, require fossil fuels for high-temperature heat.

“Much of the UAE’s energy mix relies on fossil fuels, but work is underway to transition to clean and renewable energy. In the meantime, offsetting carbon emissions, including emissions related to energy use, is just as important,” says Severance.

The region has abundant renewable energy, but industries require a reliable, continuous power supply independent of the weather. “This means that energy supply and demand must match—from multi-year capacity planning to minute-accurate grid balancing—resonating with the previous question’s topic on the unity of generation, storage, and grid,” says Mayrguendter.

Market developments, such as the recent annual battery storage growth rates of above 50% across Europe, demonstrate that the short-duration energy storage question might have found a scalable technology answer; however, he adds, the long-duration energy storage question is still open, at least where pumped storage hydro is not an option. 

According to Smith, Head of School, Energy, Geoscience, Infrastructure and Society at Heriot-Watt University, Dubai, the Middle East experienced a substantial 16.6% increase in renewable energy generation capacity in 2023. “Achieving sustainable energy targets necessitates strengthening institutions, policies, and skills.” 

“The region must continue prioritizing significant financing and strong international cooperation to accelerate the energy transition. Investments in power grids, generation, flexibility, and storage are essential,” adds Smith.

OPTIMIZING NEW POWER DEMAND

Like other countries, the Middle East has committed to net zero emissions. The focus is on optimizing new power demand around clean sources. Few countries are developing plans to build low-carbon energy industries.

“Countries are supporting clean energy initiatives, like the NEOM green hydrogen project in Saudi Arabia. That project is about using solar to produce and export hydrogen to Europe. Many of these countries have also invested in nuclear, so it’s not just renewables, it’s other forms of clean energy, and the question now is how do they transition their economic model?” says Rasha Hasaneen, Chief Product and Sustainability Officer at AspenTech.

Circling back to AI’s increase in energy consumption, Severance says AI can be a double-edged sword. “Companies developing AI are often on the forefront of sustainability, and many AI applications are focused on reducing energy consumption and making power and transportation systems more efficient.”

“So while AI systems use energy, the companies developing the technology are, in many ways, compensating for that increased demand, which is great news for the energy transition,” he adds.

Similarly, Hasaneen says the benefit of using AI far outweighs the energy consumed by using AI. “In industrial applications, we’re talking about processes that consume terawatts of energy. If you make even a one percent improvement in the energy efficiency of those processes, the energy saved is far more than the energy needed to run AI.”

“GenAI and large language models consume large amounts of energy, but there are more traditional AI applications that can provide some of the biggest value in industrial AI and are not heavy energy consumers.”  

In the meantime, although power demand is soaring, utilities and authorities in the region are expanding power infrastructure to stay ahead of the curve. In the UAE, for example, projected growth for renewable generation output for the next six years is expected to exceed growth in demand significantly, even in conservative scenarios. 

“Drawing parallels from markets that are a couple of steps ahead in the journey of renewables penetration like Germany, however, the challenge of sheer capacity ramp-up will need to be matched by ensuring that all parts of infrastructure fit together—generation, but also storage and grid,” says Mayrguendter.