Electricity Prices Remain Subsidised Even as Clean Power Costs Fall
Electricity prices across the Middle East and North Africa remain largely disconnected from underlying costs. The International Energy Agency’s report The Future of Electricity in the Middle East and North Africa shows that widespread subsidies continue to suppress prices, even as the cost of producing electricity from solar and wind has fallen sharply.
In Numbers
● Electricity prices below cost in most countries: End-user electricity prices in many MENA markets remain below the cost of supply due to fuel and power subsidies.
● Solar PV among the cheapest new generation options: Utility-scale solar photovoltaic power is consistently identified as one of the lowest-cost sources of new electricity in the region.
● Desalination demand rising sharply: Electricity-based desalination is set to become a major new source of power demand, adding to system costs and price pressure.
What Changed
The IEA finds that the gap between electricity prices and actual system costs persists, despite major reductions in renewable generation costs. Clean power technologies can now deliver new electricity at lower cost than fossil fuel alternatives in many cases. However, low administered electricity prices weaken incentives for efficiency and delay cost-reflective investment decisions. Rising electricity demand from cooling and desalination further increases the cost burden on power systems.
Why It Matters
In the IEA’s global electricity futures analysis, distorted price signals are a critical barrier to efficient power system transitions. When electricity prices do not reflect costs, demand growth accelerates and investment signals weaken. Falling renewable costs improve the economics of clean power, but pricing and subsidy structures determine whether these savings translate into system resilience, fiscal sustainability, and emissions reductions at the global level.
Why Africa Should Care
Many African countries also manage electricity affordability through subsidies. As demand grows, keeping prices below cost can increase fiscal pressure and constrain investment in grids and generation. The rapid decline in renewable costs strengthens the case for expanding clean power, but only if pricing frameworks support cost recovery. Without reform, low electricity prices risk undermining reliability and slowing progress toward affordable and sustainable power systems.
