Why would countries in a hydrocarbon-rich region like the Gulf invest in green and clean energies to power their economies when they have a wealth of resources at their disposal?
Countries in Europe, the Middle East and Africa (EMEA) invested $94.4 billion (Dh346.64 billion) in renewable energy in 2010. Worldwide, investment in clean energy jumped 30 per cent to $243 billion in 2011, up from $186 billion in 2010.
According to the United Nations Environment Programme, new investment in renewable energy for the Middle East and Africa region in 2010 grew 104 per cent to $5 billion.
The Dubai Government last week launched a Dh12-billion Solar Power Park that will produce 1,000 megawatts of power when completed by 2030. This comes as Abu Dhabi is investing billions in solar and nuclear power.
For nearly 70 years, hydrocarbons helped power the emergence of Gulf countries as some of the most vibrant economies in the world. However, it seems like they are moving away from the basic ingredients that powered their success. But why? Is there a proper business case?
In some cases, it would appear that they are investing more in renewable energy than in the oil and gas sector — the main drivers of the region's economies.
Dr Nasser Saeedi, chief economist at the Dubai International Financial Centre (DIFC), says, "The economic case for continued growth and diversification of energy across the Middle East and North Africa [Mena] region remains, especially in the context of demographic change that is driving increased demand for power generation."
At present, the Mena region has 146 gigawatts of installed capacity for electricity generation. With demand forecast to grow at more than 7 per cent per year for the next decade, Mena countries are less prepared than their governments may realise; they will need to build 80 to 90 gigawatts of new capacity by 2017 to meet demand. The need for new energy sources to meet such demand is particularly acute in most of the countries in North Africa and the Levant.
Investment drivers
"Key drivers for clean energy investment in the region [with varying degrees by country] include growing budgetary pressures from subsidies; rising energy demand; energy security; and concerns over carbon footprint and pollution levels," Saeedi says.
The region's hydrocarbons producing countries have displayed some of the fastest yearly growth in energy demand in the world, such as: 5.9 per cent in Saudi Arabia, 7.5 per cent in the UAE and 13.4 per cent in Qatar. GCC petroleum consumption grew 5 per cent per year between 2000 and 2009, a rate exceeding the Organisation for Economic Cooperation and Development (OECD) average which, between 2000 to 2007, registered a 0.2 per cent decline.
Saudi Arabia and the UAE along with their GCC neighbours have maintained fuel subsidies despite persistent high world oil prices of the past few years, and the subsidies have discouraged conservation or efficiency. High subsidy levels have led to high-energy intensive production and consumption patterns and growing budgetary burdens, Dr Saeedi noted.
"Governments across the region are under growing pressure to meet the energy demands of young and growing populations and industrial expansion and development whilst at the same time balancing environmental and pollution concerns," he said.
The Mena region is particularly vulnerable to climate change especially in terms of global warming, reduced precipitation and rise in sea levels. Water supply sources in the Arab world, two-thirds of which originate outside the region, are being stretched to their limits.
The economic costs of environmental degradation are high in the region, varying from 2.1 per cent of GDP in Tunisia, to as high as 7.1 per cent of GDP in Iran.
"This high cost of environmental degradation spills into public finances, household budgets, the competitiveness of the economy, and inter-generational equity," Dr Saeedi said.
"Mena region is becoming a significant contributor in terms of greenhouse emissions. Currently it represents about 6 per cent of global greenhouse gas emissions, but we have the fastest rising regional per capita emissions in the world. The region's emissions grew 5 times faster than the global average from 1990-2005."
The abundance of natural and solar power creates opportunities for investment in renewable energy, industry observers say. "Saudi Arabia's Rub Al Khali region [the Empty Quarter] receives enough sunlight to power two earths. We just need to find an efficient and commercially viable way of harnessing that energy," Vahid Fotuhi, chairman of the Emirates Solar Industry Association, says.
He said that with an abundance of year-round sunlight, as well as pockets of geothermal activity, the potential for renewable energy in the Middle East is vast.
"We have all the ingredients we need to make renewable energy a success in the Middle East. I'm confident that it's not a question of ‘if' but rather ‘when'," he added.
Challenges
However, rapid urbanisation, especially the new and emerging concrete jungles are becoming a major environment headache for governments in the Middle East.
Thomas Braig, head of the EcoCommercial Building Programe EMEA and Bayer Material Science, said: "Any active climate protection strategy must take buildings into account — their operation is responsible for 40 per cent of global energy needs and 30 percent of global greenhouse gas emissions.
"But the issue is not about single structures, the debate concerns entire cities. By 2030, they are expected to account for 73 per cent of global energy consumption — and 87 per cent of consumption in the United States and 83 per cent in China.
"Cost-effective low-energy and zero-emissions buildings are already commercially viable, but their implementation needs effective cooperation at the initial planning stage between engineers, property developers and government authorities."
Business case
Economic case for continued growth and diversification of energy across MENA remains, especially in the context of demographic change that is driving increased demand for power generation. Clean energy sector development and growth requires creation of a critical mass of industry participants committed to working together in a coordinated way.
"The challenge facing the world today is to meet its increasingly large energy needs while minimising the damage to the environment. This is why, while striving to bridge its energy deficit, the world must necessarily increase the share of clean, sustainable, new and renewable energy sources," Dr Farooq Abdullah, India's minister for new and renewable energy, said in a recent interview.
"I am confident that renewable energy is an idea whose time has come. There is an unmistakable shift from the use of conventional energy to renewable sources of energy."
The UAE has a renewable energy target of 7 per cent by 2020. The majority of this capacity is likely to be solar although there are also plans to develop some wind capacity as well. Abu Dhabi has also established a renewable energy agency Masdar which is responsible for encouraging and developing projects within the country as well as oversees investments in clean energy.
Dr Saeedi says, "End of cheap oil and perceived higher nuclear energy risk will give impetus to clean energy."
Vahid Fotuhi said that investment in research and development in the renewable energy sector will help drive down costs as well as improve profits for investors. He continued: "We have seen the price of solar and wind systems drop by over 50 per cent over the past few years, while the cost of conventional electricity has gone up. "This means that renewables are becoming increasingly competitive and attractive for investors. From a job creation point of view, research shows that for every one megawatt of solar energy, 15 jobs would be created across the entire value chain."
Regulations
"There are two factors that need to be put in place for renewable energy to truly take off," added Fotuhi. "First, there needs to be rules and regulations governing the implementation of renewable projects, and secondly, governments need to provide support in the form of ‘green subsidies' to help the industry get on its feet."
No country in the region has a clear policy base comparable to more developed markets. However, a large proportion of the expected capacity will be commissioned via a combination of auctions and tenders, and renewable energy targets. Currently these targets are the only clear indication as to each country's intent.
Dr Nasser Saeedi says, "Policy remains the single most important driver for clean energy investments. International experience suggests that critical factors for building a new industry sector include the development of a comprehensive policy and regulatory framework to support clean energy sector."
In response to the green movement, the UAE has also undertaken a number of initiatives. In 2006, the Abu Dhabi government launched a $22 billion (Dh80.78 billion) Masdar initiative that includes creation of a carbon-neutral city — Masdar City — and Masdar Institute to develop local talent and technology for green economy.
In 2008, the Dubai Government made thermal insulation mandatory to make buildings more green and energy efficient. Around that time Jebel Ali Free Zone began to encourage companies to install solar panels to power their premises.
Last week, the Dubai Government launched the Dh12-billion Mohammad Bin Rashid Solar Park to develop a 1,000 megawatt power plant.
His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, also unveiled the UAE Strategy for Green Development — a comprehensive roadmap for the development of green economy, green technology and green product that will eventually help the country produce and export green products.
Shaikh Mohammad said, "Our goal from this national initiative is clear, that is to build an economy that protects the environment as well as an environment that supports the growth of the economy. We in the UAE, within the vision 2021, are striving to build a diversified economy based on knowledge and innovation through which we can provide excellent employment opportunities to our citizens.
"Through this, we can protect our natural and environmental resources, and strengthen our competitive position in global markets, especially in the areas of renewable energy products and technologies on the green economy. We are serious about the transformation of our development process to reach the first positions on the global level. During the next nine years and up to the year 2021, we will launch a range of initiatives and projects in all areas to achieve our goal."
Through this initiative, the UAE aims to become one of the world leaders in this area as well as a centre for the export and re-export of green products and technologies, and to maintain a sustainable environment to support long-term economic growth.
Dr Rashid Ahmad Bin Fahd, Minister of Environment and Water, said, "The strategy also emphasises the importance of adopting a model in which development relies on an economy that is based on knowledge and innovation through investment in sciences, technology and researches. It also highlights the importance of achieving balanced development through sustainable sources of energy, which will secure a strong position for the UAE in the field of renewable and alternative energy."
Shaji Ul Mulk, Chairman of Mulk Enpar, a Sharjah-based solar panel producer, said, "This is the news of the decade. Being in this business for the last ten years, we have been trying to develop local talent and technologies to support the growth of the green industries. This announcement is music to my ears."
He said, the government's move will be a boon for the environment and green industries.
The Green Economy Initiative includes six major fields covering a wide range of legislation, policies, programmes and projects.
- $243b: global clean energy investment in 2010
- $186b: global clean energy investment in 2009
- $94.4b: clean energy investment in EMEA in 2010
