Here comes the sun. It's all right.

In a world where even George W. Bush now speaks of 'the serious challenge of global climate change', perhaps it should be no surprise that Abu Dhabi has announced plans to build a 500 mega-watt solar power plant and establish a scientific research centre specialising in renewable energy.

Yet, the issue is not so much the long-term worry of climate change as the short-term problem of avoiding electrical blackouts - although investing in renewable energy also has a symbolic function as part of the UAE's efforts to brand itself as a forward-thinking Arab state.

The conventional wisdom tells us that the GCC states see alternative energy not as an opportunity for research and development, but as a threat to the dominance of oil and gas.

Indeed, one of the explanations often given for Saudi Arabia's behaviour as a relative oil-price dove within the Organisation of Petroleum Exporting Countries (Opec) is that the Kingdom is concerned that if oil prices rise as high as some Opec hawks would like, oil-importers will divert more money into bio-fuels and other alternative energy sources, to the long-term detriment of demand for the Gulf's primary resource.

Well-placed

Yet the Gulf states are exceptionally well-placed to benefit from solar energy. The same hot climate that generates massive demand for air-conditioning and water desalination could help to meet these needs through solar-powered electricity. In fact, Saudi Arabia has been investing in R&D into solar energy since the 1970s. Saudi scientists have designed a solar-powered car and have set up a solar-powered electricity generator, the Solar Village, to power rural villages to the northwest of Riyadh.

While fuel remains very cheap for consumers and businesses, higher international oil prices mean that for the macro-economy the opportunity cost of domestic consumption is greater. Every barrel of oil used to generate the electricity to air-condition an empty room is a barrel of oil that could otherwise be exported.

The average Saudi consumer uses more than four times as much energy - at an estimated 5,722kg of oil equivalent in 2006 - as his Chinese counterpart. Ambitious governmental plans to expand value-added downstream industries such as petrochemicals and aluminium that build on the Gulf's comparative advantages in natural resources will add significantly to domestic demand for oil and gas.

The Middle East is using up more and more of its own major export. Oil consumption in the Middle East rose by 5.4 per cent in 2006 - faster than in any region of the world except China - whereas oil consumption in North America fell by one per cent.

Over the next five years, the Economist Intelligence Unit projects that Middle Eastern oil consumption will rise by an average of 4.8 per cent per year, while world oil consumption grows by a much lower 1.9 per cent.

Faced with surging energy demand, and given the political difficulty of making major cuts to fuel subsidies, the GCC states may find themselves making greater use of alternative energy to supply consumer demand.

The writer is Middle East analyst at the Economist Intelligence Unit.