Renewable energy in the Middle East – a bright future just within reach

The Middle East and North Africa (MENA) get a lion’s share of the earth’s sunlight, with Egypt getting 10.6 hours of sun a day on average. The MENA region’s exposure to the sun, not to mention its spacious deserts, makes it an ideal location for the generation and utilisation of solar power. However, in terms of renewable energy take-up, it is years behind the US, Australia and Europe, including countries that have far less sunshine to spare.

The Clean Energy Business Council (CEBC) wants to turn this imbalance around; it believes that renewable energy could provide a lifeline for MENA countries in the years to come. From its headquarters in Abu Dhabi, the CEBC works to promote and support the growth of renewable and low-carbon energy within the MENA region. Dr Nasser Saidi, Chairman of the association, claims that although the renewable energy market is “in its infancy” now, it has the potential to meet the growing energy requirements of MENA’s large, young and rapidly growing population.

“The MENA region’s size, latitude and geography lends itself to the vast development of both solar and wind power to serve growing MENA energy requirements, as well as those of Europe and Sub-Saharan Africa,” he says. Nevertheless, countries within the region appear to be acting slowly or not at all to replace old fossil fuel power generation with new renewable technologies. Why is this?

“It’s straightforward – because there are plentiful fossil fuels and on top of that, they’re subsidised,” he answers. “There is no income taxation or sales taxes across the Gulf oil producers, meaning there is effectively no taxation and no effective pricing of energy and public utilities. The net result is great energy inefficiency.”

You may ask why the governments of many countries in the Middle East and North Africa reward companies for generating power using some of the world’s oldest, dirtiest and least sustainable processes. It comes down to the fact that MENA is a major source of fossil fuels for the rest of the world, meaning its governments believe an incentive is needed to ensure this valuable energy resource is used to generate domestic power, rather than exported for large profits.

“Oil and gas are viewed as a domestic natural resource,” explains Dr Saidi. “The governments feel that citizens should be partaking of the national wealth, and subsidies are one way of ensuring this happens.”

Fossil fuel subsidies – a worldwide problem

The CEBC sees fossil fuels subsidies as a worldwide problem. Dr Saidi references a recent IMF report, which showed that subsidies for petroleum products, electricity, natural gas and coal reached $480 billion in 2011 on a pre-tax basis, representing 0.7% of global GDP or 2% of total government revenues.

“The same report revealed that the MENA region, which has less than 5% of the world’s population and some 3% of global output, accounts for about 50% of global subsidies,” he adds, incredulous. “Overall, regional energy subsidies totalled more than 8.5% of the region’s GDP and a staggering 22% of total government revenues, with one-half reflecting petroleum product subsidies – it’s a very substantial financial burden.”

The CEBC believes that reducing and removing these subsidies is a matter of great urgency – not simply because they hold back the development of cleaner energy, but because they ultimately disadvantage the countries and their people.

“More is spent on these subsidies than on things such as education,” adds Dr Saidi. “It is a misdirection of resources, particularly when a country has a very young population. These governments should be spending more on education, on health – on things that build up their human capital.”

An economist by trade, Dr Saidi’s view of the MENA region’s energy situation is shaped primarily by financial, not environmental, considerations. He says he is neutral regarding competing generation technologies, but strongly advocates renewable energy for the long-term economic benefits it offers the MENA region.

In his view, oil and gas subsidies simply do not make financial sense. Taking money from sectors that arguably need it more is just one problem; another is that they enable and encourage over-consumption and low energy efficiency.

“People are starting to realise that subsidies are distorting consumption and production choices– MENA countries are consuming too much electricity by partaking in highly energy-intensive activities. This can be seen in Saudi Arabia, which uses more oil than Germany despite the fact it has one quarter of the population and one tenth of the production.”

A ticking time bomb

High domestic consumption is not only wasteful – it is also a major threat to a country’s survival. Dr Saidi reveals a projection that at the current rate of domestic oil consumption, Saudi Arabia – currently the world’s largest producer and exporter of oil – will have no more oil to export by the year 2035. “That’s shocking,” he comments.

“Countries of the GCC [Gulf Cooperation Council] depend on oil exports for up to 85% of government revenue, so running out of oil could equal running out of revenue. They would have nothing to spend.”

Dr Saidi believes the fiscal situation around oil and gas is becoming a policy imperative impossible to ignore. He claims it is beginning to force a gradual reduction of subsidies, towards raising prices to international levels, “although it will take time for that to happen”. This will help clear the path for renewable power – particularly solar – while the implementation of new urban codes and environmental measures will drive further investment into clean energy technologies.

“Removing these subsidies would not only lead to a decline in dangerous and ever-increasing CO2 emissions, but would also allow the renewables markets to develop,” says Dr Saidi.

“These policy distortions, if left unchecked, will continue to create barriers to creating a framework that would attract the necessary renewable energy and clean technology investments to achieve even a limited fraction of the renewable energy potential that our region’s many natural resources offer.”

Renewable energy in the MENA region

Despite the factors currently working against it, renewable energy has managed to put down some strong roots in the MENA region. According to a joint report by IRENA, REN21 and the UAE Ministry of Foreign Affairs entitled the MENA Renewables Status Report 2013, the region currently has:

380.24MW of installed solar photovoltaic (PV) capacity;

182MW of concentrated solar power (CSP);

73.5MMW of power generated from biomass and waste;

17.6GW of hydropower; and

1.1GW of wind power.

These are recorded on the CEBC Interactive Clean Energy Map. This excellent tool is updated continuously and allows you to track the progress of these projects. It shows that the first projects, completed before 2009, were a mixture of small solar PV and larger wind projects in Morocco, Tunisia, Turkey, Jordan, Egypt, Kuwait, Bahrain and the United Arab Emirates. Three of the largest (greater than 1MW) projects becoming operational this year are the:

15MW Nouakchott Solar PV plant in Mauritania;

100MW Shams 1 Solar IPP CSP plant in Abu Dhabi, UAE; and

7MW Amal-West Solar Thermal Steam Production EOR project in Southern Oman.

Dr Saidi refers to a solar power plant under development in Saudi Arabia that is set to become one of the world’s largest. Like many other power plants in Gulf countries, it will also desalinate seawater. In the GCC countries, he explains, more than 95% of the water supply is desalinated seawater. For this reason, many power plants increase their operational efficiency by desalinating water during the night when electricity demand is low.

Setting targets

In addition to existing renewable energy projects, the MENA Renewables Status Report 2013 states there are more than 100 renewable energy projects currently under development. MENA governments have announced an additional expected capacity of renewables that would reach 50GW by 2020 and 107GW by 2030, compared to just 1.7GW in 2011. If all goes to plan, the region could see a 450% increase in non-hydro renewable energy generating capacity within the next few years.

“The current set of projects is very small compared to the future plans of MENA countries,” says Dr Saidi. “Saudi Arabia has announced ambitious plans to take the country to 100% renewable and low-carbon in the coming decades. Jordan is targeting 10% renewable by 2020, Libya is committed to 6% by 2015 and 10% by 2020, and the list goes on.”

Some of these projects are well underway, with the projects mentioned previously playing a significant part.

“In the UAE, which declared a goal of 7% energy needs met by renewables by 2020, Masdar Power has already started three of the biggest renewable power projects in the region,” says Dr Saidi.

“Shams 1, once completed, will have the capacity for 210GW of annual electricity generation. This would make it the world’s largest CSP plant. Noor 1 will hold a capacity of 170GW of annual electricity generation. Finally, Sir Bani Yas will hold several renewable energy projects, including a 30MW wind farm currently in contract negotiations. Overall, the landscape looks positive; however, there is more that could be done and there are still hurdles to overcome.”

Steps in the right direction

MENA’s renewable energy industry may be smaller than those of other regions, but statistics indicate that it is growing faster than most. While worldwide renewable energy investment was 12% lower in 2012 than in 2011, in the MENA region it grew by 40%. According to the MENA Renewables Status Report 2013, regional investment in renewable energy reached US$2.9 billion in 2012, up 650% from 2004.

“The MENA region has been on the radar of international investors for a long time due to:

Its strong renewables resource base offering strong potential scale;

Governments’ consistent statement of a desire for technology leadership; and

The region’s related and impending water scarcity woes that create a clear imperative for clean energy water desalination.

“Indeed, for some time now, financiers have been financing, inter alia, conventional power projects directly linked with water desalination,” comments Dr Saidi.

“However, the lack of renewable energy policies and fossil fuel subsidies still remain. Regrettably, the majority of governments, despite target settings, still do not have clear regulations and feed-in tariffs in place that would be favourable to the industry’s growth.”

The CEBC is working on tackling issues such as access to the market, renewables within utility/energy policy and government support of energy technology and development. Dr Saidi says the association has seen the MENA region governments make some steps in the right direction since its inception, and remains optimistic about the region’s potential.

Competitive advantage

While it tends to lag behind more developed nations, Dr Saidi believes the MENA region is far ahead of Sub-Saharan Africa in terms of renewable energy – the GCC countries in particular. “For example, Morocco is having a wide solar array put in with support from the European Union [EU] and all countries in North Africa have the opportunity to transmit solar-generated power to Europe,” he comments.

“That could provide Europe with cheap renewable energy and, at the same time, allow North African countries to start producing, selling and exporting energy in a more efficient way. So the potential is enormous in my view.”

The MENA region has a competitive advantage in not only its volume of sunshine, but also its close proximity to Europe. Dr Saidi believes the countries within this region should seize upon this advantage to become industry leaders. “MENA countries should become producers and exporters of renewable energy, while also becoming developers and suppliers of clean energy products and services,” he remarks.

“Renewable energy technologies should be developed and tested here through strategic partnerships with countries already advanced in the industry. Indeed, there are already discussions concerning a strategic partnership between China and the UAE.

“It is a great opportunity for Europe and the US too. Instead of testing solar technology in northern climes, where you might get 50 days of sunshine a year, they should be doing it here where there are 360 days of sunshine a year.”

The future of renewable energy

While Dr Saudi is undoubtedly optimistic about the future of renewable energy in the MENA region, he is also realistic. He sees that there is a lot of work to be done before clean generation technology can fully compete with fossil fuels, and the idea of renewable energy replacing non-renewable is but a dream at this point.

“The investments that need to be made are massive; so even if there is large investment in renewable energy up to the year 2050 – and there are projections from the International Energy Agency and BP among others – it would still not constitute more than 15% of total energy usage,” he says.

“So we’re still a long way from renewable energy playing a major role. However, things may change. New clean technologies in other areas, such as electric cars in transport, could further boost our use of renewable energy. But no-one can forecast what technological advances are going to occur.”

Though unfeasible for the moment, Dr Saidi has a dream that, one day, every fossil fuel-burning power plant will be replaced by a solar or wind energy facility.

“Alongside this, cities should be designed and built around using the sun to the maximum extent, for all our living needs. That could be done easily within the GCC and North Africa,” he adds.

The MENA region is a part of the world undergoing significant growth and change in many areas and, in the CEBC’s estimation, its energy landscape could be on the cusp of the largest transformation of all. Get plugged in now, or stand back and watch the sparks fly.

www.cleanenergybusinesscouncil.com

By Juliet Langton

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