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Renewed thrust

By Mark Lazell January 2012

German companies are stealing a march by committing to long-term renewable energy projects in the Gulf. But with the world economy stuck in the doldrums and conventional energy seen as the easy option for recovery, what future do 'green' technologies have in the region?
The World Future Energy Summit (WFES) convenes in Abu Dhabi later this month at a time when the global energy industry has much to consider.

Saudi Aramco president and chief executive Khalid al Falih succinctly summed up the prevailing mood in the oil and gas industry last month when he indicated to delegates at the World Petroleum Congress in Doha that the world's current economic woes would put alternative energy sources such as solar and nuclear power on the back burner, for now at least.

"New economic realities leave neither the resources nor the resolve to make massive investment in idealistic but unrealistic energy programmes," he told the gathering. The head of the world's largest oil producer added that there was currently a shift in environmental priorities "including the fact that climate change has been superceded on the global agenda by the need for economic recovery, job creation and fiscal discipline", and argued that there was no sign of hydrocarbons assuming a diminished role in the global economy.

"Rather than the supply scarcity many predicted we have adequate oil and gas supplies today," he explained, pointing out that "the world now has even more time for the gradual but meaningful development of renewables, and for them to overcome technical, economic, environmental and consumer acceptance obstacles by competing on a level playing field."

While al Falih was apparently throwing tepid water on the short-term prospects for renewable energy, its proponents were busy generating their own publicity in the run-up to the WFES.

Last month, German president Christian Wulff dropped in on Masdar, Abu Dhabi's showcase renewable energy project whose scope has been scaled back in time. Wulff's visit, following that of chancellor Dr Angela Merkel in May 2010, served to highlight the faith Germany has in the region's market potential.

It also helps justify the strategic thinking of German companies, who clearly view the Gulf as fertile ground for not only testing and developing these technologies, but also marketing them regionally.

Several German companies currently have collaborative projects with Masdar at home and in Abu Dhabi. E.ON has a joint venture focusing on carbon capture and storage, as well as equity investment and technical development of projects in emerging markets. Meanwhile, Masdar runs a company in Germany which develops and produces thin-film solar products and solutions.

Of all German companies, however, diversified engineering giant Siemens has taken the boldest step by far to date. It plans to open the first phase of a new Middle East headquarters at Masdar by mid-2013. Eventually, its base will accommodate 2,000 staff.

Siemens ' Middle East chief executive, Erich Kaeser, recently told The Gulf that the move reflected the Company's confidence in the Gulf's renewable energy potential, and an intention to collaborate more closely with Masdar. President Wulff made special reference to the tie up during his visit, commenting that the long-term strategic partnership was "an example of how cooperation between our nations can be successful."

By nurturing relationships with Germany technology giants, the UAE - one of the world's first major oil producing countries to ratify the Kyoto Protocol on climate change, in 2005 - hopes some of the European country's expertise in and enthusiasm for renewable energy rubs off. While Germany already produces about one fifth of its electricity from renewable sources, the emirate of Abu Dhabi is targeting a more modest seven per cent.

Sensing broader regional opportunities, a delegation of German renewable energy companies will visit Saudi Arabia next May.

German renewable energy companies can expect greater competition going forward, not least from China. Despite its country's poor environmental track record and apparently insatiable demand for conventional coal, oil and gas, Asia's fastest-growing economy is home to a growing community of renewable energy technology companies hungry to export their expertise. Masdar chief executive Dr Sultan al Jaber recently described China as a 'renewable energy superpower', a tag that will probably be reinforced when Chinese premier Wen Jiabao addresses the opening ceremony of the WFES on 16 January.

To what extent Chinese firms find the Gulf a happy hunting ground for renewable energy technologies is unclear, despite the potential which has lured the Germans.

Most observers agree that renewable energy must play a bigger role in meeting the Gulf Co-operation Council's (GCC) power demand, expected to grow at about seven per cent annually for the next 20 years. Governments and national oil producers in the Gulf recognise the issues too - harnessing solar and wind energy to generate power would free up more oil and gas for export, rather than burning a valuable commodity in power stations.

In Saudi Arabia - whose oil minister Ali al Naimi is said to be a big fan of solar power - the 2011 budget made provision for $133 million in renewable energy investments, which it hopes will help go some way to meeting eight per cent annual electricity demand growth. Even Saudi Aramco's al Falih stressed at WPC that his Company was not against renewables - "but that they needed to be done prudently and pragmatically."

While big ticket renewable energy projects are rather thin on the ground in the Gulf - the massive $600 million Shams solar power initiative being built at Masdar a notable exception - they are expected to feature more prominently in the energy mix further down the line.

Global management consultancy A T Kearney recently stated that photovoltaic solar energy systems 'would likely to outperform all other power generation technologies by 2030' - according to draft designs, these systems are being earmarked to provide power for World Cup football stadia in Qatar in 2022.

Longer-term regulatory changes in favour of reducing carbon emissions and improving energy efficiency in countries with soaring energy demand - such as China, India and Brazil - could further play into the hands of renewable energy companies around the world, including the Gulf, as more environmentally-friendly alternatives to hydrocarbons are mandated.

Then again, a recent report by oil major ExxonMobil, cited by investment consultancy Kuwait Financial Centre (Markaz), estimated that 95 per cent of all Middle East energy demand will still be met by oil or gas in 2040, suggesting a dichotomy between environmental conscience and economic reality will remain firmly in place well beyond current global events.

Nevertheless, supporters of renewable energy supporters will continue to press their case, and the region's environmental credentials will come under perhaps the greatest scrutiny yet next November when Doha hosts the 18th UN Climate Change Conference. In advance of that, and with the words of the Saudi Aramco chief's words ringing in their ears, the Gulf's policy makers and industrialists have much to ponder in the UAE capital later this month.

© The Gulf 2012