Mapping the Middle East’s $100 Billion Clean Energy Revolution

Middle East

Last month, Abu Dhabi played host to the 24th World Energy Congress. Unlike previous editions of this event, the focus of this year’s conference was not on developments in oil refining technologies, downstream innovations, or global crude prices but on a world after hydrocarbons.

The opening session of the conference was fittingly titled ‘Beyond Petroleum’. Next month the United Arab Emirates will again show its willingness to look forward to a low carbon future, hosting the Solar Asset Management conference in Dubai. This event, which aims to chart progress in renewable energy development and forecast future trends in an emerging field, will provide an ample opportunity for regional investors, government officials, and energy analysts to explore new renewable products suited to the region’s unique energy landscape.

Both events speak to a greater willingness in the Middle East and North Africa to engage with the realities of climate change and increasing global demand for low carbon energy production. A range of factors have put these issues on the agenda for regional powers. In the first instance, a combination of lower global oil prices and falling costs of renewable energy technology have made non-hydrocarbon energy production a more financially attractive option globally.

According to the International Renewable Energy Agency (IRENA), solar photovoltaic module prices have fallen by around 80% over the last decade, whilst wind turbine prices have fallen by 40%. Oil and gas exporting economies, as a range of ‘Vision’ projects in the Gulf states rightly acknowledge, also face significant economic challenges related to dependence on hydrocarbon revenues.

According to the Observatory of Economic Complexity, a monitor of international trade data, 87% of Qatari, 95% of Iraqi, 50% of Emirati, 75% of Saudi and 75% of Iranian exports are oil and gas based. As a global energy transition appears on the horizon, states in the region are seeking to diversify their economies and invest in emerging sectors of economic development.

According to the Observatory of Economic Complexity, a monitor of international trade data, 87% of Qatari, 95% of Iraqi, 50% of Emirati, 75% of Saudi and 75% of Iranian exports are oil and gas based. As a global energy transition appears on the horizon, states in the region are seeking to diversify their economies and invest in emerging sectors of economic development.

A focus on clean energy investment has proved a useful place to start. Though energy shortages have not tended to be a problem in a region well-endowed with energy supplies, governments also fear that population growth and economic advancement are driving up energy demand at record levels. As populations and salaries grow, demand for electric goods, transportation and infrastructure do too. Even basic services in the region are highly dependent on energy intensive processes.

Much of the region relies on complex, high energy desalination technology to obtain its supply of clean water.  According to the Middle East Solar Industry Association, electricity demand grows by 8% annually in the Gulf States. The Middle East region is expected to require an additional 267 Gigawatts of power annually by 2030.
 

According to the Middle East Solar Industry Association, electricity demand grows by 8% annually in the Gulf States. The Middle East region is expected to require an additional 267 Gigawatts of power annually by 2030.

Finally, governments and citizens have become better informed and increasingly alarmed by the potential regional effects of climate change. According to the Intergovernmental Panel on Climate Change, Oman is at acute risk of deadly heatwaves and Bahrain will likely suffer significant losses under the tide of rising sea levels. Lower rates or precipitation, higher median temperatures, and a decline in arable land will have significant effects on a region which has long struggled against the effects of a harsh climate.

According to the Intergovernmental Panel on Climate Change, Oman is at acute risk of deadly heatwaves and Bahrain will likely suffer significant losses under the tide of rising sea levels.

Regional actors are slowly beginning to respond to this multi-faceted crisis. States have set ambitious clean energy targets. Morocco hopes that by 2020, 42% of installed power generation capacity will be renewable. Saudi Arabia has pledged that, by 2032, 50% of electricity will come from non-hydrocarbon resources.


Saudi Arabia’s Energy Minister Prince Abdulaziz Bin Salman speaks during the opening ceremony of the 24th World Energy Congress in the UAE capital Abu Dhabi /AFP

Last month, Riyadh’s Renewable Energy Project Development Office outlined plans to launch tenders for its third round of an ambitious National Renewable Energy Programme before the end of 2019. The UAE’s Energy Strategy 2050 includes a commitment to increase the contribution of clean energy in the total energy mix to 50% and reduce the carbon footprint of power generation by 70%. On a regional level, a so-called Pan Arab Strategy for the Development of Renewable Energy was negotiated in 2013.

Adopted at the third Arab Economic and Social Development Summit by the Arab League, the Strategy created a foundation for regional co-operation to drive renewable energy production in the Arab world. Leaders committed to increasing the region’s installed renewable power generation capacity to 80 Gigawatts by 2030. However, as observers of international climate politics are all too aware, commitments on carbon emission reduction and renewable energy production often fail to generate policy outcomes.

Yet a range of positive developments indicate that talk may be turning to action in the Middle East and North Africa. Regional financial institutions have begun to shift investments away from hydrocarbon assets and into renewable energy. Particularly important in this regard are the actions of the region’s expanding sovereign wealth funds.

Pitchbook, an Investment research firm, specialising in tracking sovereign wealth fund investments, noted that in 2018, $6.36 USD of sovereign wealth investments billion went into hydrocarbon industries, compared to $5.81 billion in the renewable energy sector, the narrowest margin in the past decade.

In 2018, the Abu Dhabi Investment Authority; (ADIA) the Emirati Investment Fund, Mubadala Investment; Saudi Arabia’s Public Investment Fund (PIF) and Norway’s Sovereign Wealth Fund agreed to a framework called One Planet, pledging to add climate change considerations into their investment decisions.

Gulf Wealth Funds have been central to this shift. In 2018, the Abu Dhabi Investment Authority; (ADIA) the Emirati Investment Fund, Mubadala Investment; Saudi Arabia’s Public Investment Fund (PIF) and Norway’s Sovereign Wealth Fund agreed to a framework called One Planet, pledging to add climate change considerations into their investment decisions.

ADIA has built a sizeable renewable energy portfolio in recent years through investments in green energy companies such as India’s Renew Power and Greenko and Britain’s Green Investment Bank. The PIF recently invested $1 billion in Lucid Motors, an electric vehicle maker and has worked with the Japanese technology conglomerate Soft Bank on a range of large-scale solar projects. According to IRENA, in 2016 $11 billion USD was invested in renewable energy across the Arab region, compared to just $1.2 billion USD in 2008, a nine-fold increase.
 

The UAE has led the way in terms of clean energy production. It produces 58% of the region’s solar energy and recently opened Noor Abu Dhabi, the world’s largest solar project. Noor generates nearly 1.2 gigawatts of electricity, enough to provide power for 90,000 people annually.

On the ground, increasing financial interests have translated into the development of ambitious renewable energy projects. The UAE has led the way in terms of clean energy production. It produces 58% of the region’s solar energy and recently opened Noor Abu Dhabi, the world’s largest solar project. Noor generates nearly 1.2 gigawatts of electricity, enough to provide power for 90,000 people annually. The project contains 3.2 million solar panels and is set to reduce Abu Dhabi’s CO2 emissions by 1 million metric tons.

A new report by the Middle East Solar Industry Association values the region’s solar market at $20 billion USD and forecasts another $15 billion worth of projects coming online within the next 5 years. The Middle East Economic Digest, a regional finance forecaster, estimates that $100 billion worth of renewable projects are under study, design, or in execution in the region.
 

The Middle East Economic Digest, a regional finance forecaster, estimates that $100 billion worth of renewable projects are under study, design, or in execution in the region.

The Middle East and North Africa could reap considerable benefits from a green energy transition. As Oxford Energy, a UK energy research centre notes, the region enjoys ‘almost unrivalled climatic advantages, particularly in solar energy’. Solarplaza, a Dutch consultancy organising next month’s Solar Conference in Dubai notes that ‘almost all countries in the region experience an all year-round sunshine, providing breeding grounds for solar development.’

A June report by IRENA estimates that if ambitious energy targets are met, the region could save 354 million barrels of oil by 2030, create 220,000 jobs in the energy sector and reduce the power sector’s carbon dioxide emissions by 22%. Avoiding the most serious consequences of climate change would significantly reduce the chances of regional conflict, food scarcity and land loss.

Yet challenges remain ahead. It will be difficult to ween regional elites off of their almost insatiable appetite for hydrocarbon revenues. Any energy transition will need to be carefully managed for the sake of social stability which has long been built on the back of oil and gas rents.

The region’s comparatively low skilled workforce may struggle with a technological transition, especially facing stiff competition from international green technology rivals like China, the United States and Europe. Yet to fail to act would prove even more disastrous.

The Middle East and North Africa has made significant progress in the production of clean energy in recent years. Continuing on this path holds out significant opportunities for a region concerned about a global ecological crisis and seeking to diversify economically. Turning away risks even more acute ecological, social and financial costs.

 

The views expressed in this article do not necessarily reflect those of Al Bawaba News.

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