Yemen had 1 gigawatt of installed electric generating capacity in 2005. Conventional thermal electricity comprises all of Yemen’s electricity generation, which, in 2005, Yemen generated 4.1 billion kilowatthours (Bkwh) of electricity while consuming 3.4 Bkwh. According to Yemen's Public Electricity Corporation (PEC), the country's electricity distribution network is inadequate.

Electricity shortages are seen as limiting economic growth in Yemen. Currently, it is estimated that only 35 percent of the urban population and 5 percent of rural households have access to electricity from the national power grid; only 42 percent of the total population has access to electricity. Even for those connected to the grid, electricity supply is intermittent, with regular blackouts. The government has reached out to international development agencies for new electricity projects and there has been some upgrade and maintenance carried out. However, the demand is still much higher than available capacity.

Under conditions set by the IMF in its lending program, the government has been required to reduce electricity subsidies that are estimated to be around US$50 million per year. Government attempts to raise tariffs have been unpopular and have led to some degree of unrest.

Yemen’s government plans to allocate US$1 billion towards the improvement of its power supply. The Ministry of Electricity and Water (MEW) has plans to increase the country's power generating capacity an additional 1,400 megawatts (MW) by 2010. The government is taking steps to boost generation mainly from gas-fired power stations, but also renewable resources, and nuclear energy.

Long term development of Yemen's power sector includes a reduction in oil dependence, thus maximizing oil for export. Yemen's plans include the construction of several natural gas-fired power stations, expansion of the national power grid, and the introduction of renewables, such as solar energy, to rural areas. In the immediate term, the government is promoting large-scale IPPs in order to increase generation capacity over the next few years. However, achieving this goal may prove difficult.

Yemen's state-owned PEC, under the Ministry of Electricity and Water, operates an estimated 80 percent of the country's generating capacity as well as the national power grid. The remainder of Yemen's electricity is generated by small, off-grid suppliers and privately-owned generators in rural areas. The PEC distributes electricity in the national grid through two 132Kv transmission systems, one serving the northern region of Sanaa-Hodeidah-Aden, the other serving Mukalla and Hadramout.

Over the past decade, the government has taken steps toward alleviating Yemen's electricity shortage, including reform, expansion and integration of the country's power sector through the privatization of all domestic generators (5-20 MW) small-scale privatization and independent (private) power projects (IPPs). Plans to privatize the power stations have been slow in implementation. Currently, Yemen's two largest power plants are the 165-MW power station at Ra's Kanatib, near Al Hodeidah, and the 160-MW station in Al Mukha, south of Al Hodeidah.

In March 2005, Siemens signed a contract to build a 340-MW gas-fired power plant in Yemen for $160 million. The plant will be fueled by natural gas from the Marib field, and is to begin commercial operations in 2008. Ultimately, a total of 1,000 MW in generating capacity is to be built at the Marib site.

Another possible gas-fired power plant is planned for the undeveloped Safar fields. Funding is to come from the Arab Fund for Economic and Social Development, the Saudi Development Fund, and the Yemeni government. The plant is to have a generating capacity of 400 MW and transmission line connecting it to the national grid.

Yemen has recently signed an agreement with the Powered Corporation of Houston to build five nuclear reactors that will generate 5,000 megawatts of energy; construction is scheduled to begin in early 2009. The International Atomic Energy Agency will provide technical help for the use of nuclear energy for producing electricity and water desalting.

To date, much of Yemen's electricity infrastructure improvements have been funded by multilateral development organizations. In 2006, the World Bank approved a $50 million loan to help finance the “Power Sector Project”. The project’s objectives include relieving power constraints, enhancing electricity supply efficiency and strengthening corporate governance in the electricity sector. In 1998, the World Bank and the International Development Foundation (IDF) granted Yemen a $33 million loan for the "Sanaa Emergency Power Project," an upgrade of the Dhaban power plant to 50-MW total capacity (completed in June 2004).The Kuwait-based Arab Fund for Economic & Social Development (AFESD) provided the initial $54 million of the $64 million required for the national grid linkage (completed in July 1997). The AFESD and the Saudi Fund for Development (SFD) are also major backers of the first phase of the Marib power plant project.