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Renewable energy sources offer the next big leap in the Middle East

By Alice Johnson
It's no secret that the Middle East is rich in non-renewable resources. However, with domestic electricity consumption increasing and populations and incomes across the region rising, concern is growing over future energy sources and how renewables can be successfully - and quickly - introduced.

BP statistics show the Middle East had more than 54% of the world's proven oil reserves and 40.5% of the world's natural gas reserves at the end of 2010; while the global final fossil fuel energy consumption rate stood at 81% in 2007. Renewable energy in the Middle East, however, accounted for less than 0.05% of the world's share, despite its huge solar resources.

This current renewable energy rate won't scratch the surface of the growing power requirements in the region. According to a Deloitte white paper, electricity consumption will increase at an annual rate of 2.5% between 2007 and 2035; and the BP Energy Outlook 2030 shows that the region's share of global consumption will more than triple, from 5% in 1990 to 17% by 2030.

So with rising domestic power consumption even in Qatar and Oman where it's projected to grow at double-digit CAGR from 2011 to 2014, how can the region focus on exports of its natural reserves rather than using them for domestic purposes?

The answer may lie in renewable energy, which - while current production is negligible - holds huge potential for meeting the 47% growth of domestic energy consumption in the GCC.

"There is a large potential for renewable resources in the Middle East which until a few years back, have remained largely untapped. This is especially true for solar power, which could be deployed almost anywhere in the region; and although the wind regime is generally modest, there are areas with exceptional wind potential," Frank Wouters, Director, Masdar Power, told Zawya.

According to a recent report released by the UAE Chapter of the International Chamber of Commerce (ICC-UAE), the UAE's green market alone will be worth USD 2.74 trillion by 2020, up from its previous estimate of USD 1.37 trillion.

"Almost all countries in the MENA region are presently discovering the potential for renewable energy and are developing policies to support their market introduction. Not only countries without substantial indigenous fossil fuel reserves, such as Jordan or Morocco, but even oil nations such as Saudi Arabia, Libya and Kuwait are seriously considering the deployment of renewable energy in the power mix," Wouters said.

Announced in June 2010, the Shams One 100MW CSP solar field is currently 80% complete and is due for completion at the end of 2012. The first onshore wind farm is also planned for the UAE's Sir Bani Yas island, with a projected production capacity of 30MW.

Additionally, Saudi Arabia opened the world's biggest solar plant last year, with a capacity of producing 864,000 kilowatts of energy from its 6,000 solar cells.

"Oil-rich nations see solar as a means of protecting wealth by preserving reserves for export, rather than consuming resources locally," a January 2012 Ernst & Young report stated, also citing Dubai's USD 3.26 billion investment in solar power (2012 to 2015) and Saudi Arabia's USD 800 million investment in solar energy plants. Saudi Arabia has double the amount of solar radiation levels than are found in Europe; this is estimated to generate 9,000 TWh of electricity per day. The Saudi Electricity Company (SEC) has also stated that renewables are set to meet between 10% and 15% of the Kingdom's energy needs in the next decade, to address the 40% use of fossil fuels for domestic use and the 4.3% annual increase in electricity demand to 2023 (Saudi Ministry of Water and Electricity).

A Costly Initiative?

For any natural-resource-rich country, renewables pose an expensive investment, with solar energy approximately five to 10 times more expensive than conventional sources. However, while still more expensive than non-renewable energy sources, the cost has dropped in recent years - a reduction that's set to continue.

"The prices are going down every day. Now renewable is much cheaper than a year ago; it's almost 5% cheaper, but of course it's still more expensive than traditional ones, especially for KSA and UAE," Eren Engur, Business Development Manager, ME&A, Canadian Solar, told Zawya.

"People do not have to pay much on oil and electricity and other things [in the Middle East]; so once you pop up and say 'look we have solar energy', you have to pay this amount, it scares people, because today they don't pay this much. So it's not feasible for them," he said.

However, according to Wouters, the falling cost of installing solar capabilities is more significant than this: "With the rapidly declining cost of PV [photovoltaic] cells, solar energy can already compete with expensive peak power, which is being generated on a large scale in the region using expensive diesel," he said.

In 2009, the one-off installation cost of solar PV panels was more than USD 2 per unit of generating capacity, falling to USD 1.50 in 2011. Ernst & Young forecast last year that this drop will continue further, meaning the cost will drop to USD 1 by 2013.

Returns from investing in renewable energy, however, depend upon regulatory frameworks. Traditional non-renewable power sources are heavily subsidised by governments in the region, and while this is changing, introducing 'green' energy may also necessitate 'green subsidies' in the beginning - something that's already been proposed in the UAE.

"There are selected places where renewable energy can compete with conventional power, such as wind energy in the Egyptian Zaafarana region and a healthy return can be expected there. In other regions, renewable energy is competing with often subsidized conventional power, and then in return also requires a subsidy," Wouters said.

The Egyptian Zaafarana wind farm has a capacity of more than 430MW, which produces 300GWh per annum and saves more than 180,000 tonnes of CO2 emissions.

"For the foreseeable future (at least in the next decade)," Wouters continued, "All of the renewable energy generated in the UAE will be used to cater for the growing domestic energy needs."

Reports show that a typical Abu Dhabi resident consumes 41kW of electricity per year; this is compared to 11.4kW in the USA and just 6kW per person in Japan and Germany. Power demand is set to increase by 7% to 8% annually in the coming years and the GCC is set to spend USD 45 billion in the next three years to increase capacity, according to Kuwait Financial Centre, or Markaz.

For Robert Li, General Manager of Asia-Pacific, Zhongli Talesun Solar Company, investing in solar will be crucial to address the region's oil-dependent power systems.

"Solar is a very good investment... no doubt financially in the Middle East and the region the oil is there and the main incomes for these countries is oil. Maybe now it is OK, but in 50 years maybe it will run out; so renewable energy will be very important here," he told Zawya on the sidelines of the World Future Energy Summit in Abu Dhabi recently.

For the UAE at least, solar and wind projects remain priority investments, with a future aim of supplying domestic demand and cutting subsidies in turn.

"Our mandate is to continue investing in projects, primarily in solar and wind as they are the most relevant and abundant renewable sources of energy for the UAE," Wouters said.

Investment in the Middle East's renewable energy market is also set to increase as the number of prospective projects reaches completion and the renewable infrastructure is established. With increasing domestic power needs being addressed by renewables in the future, natural resource exports are set to increase in the region, in turn slicing government subsidies.

"Everyone is looking at renewables in these areas [Middle East] because before, the markets for renewables were in Europe and in the USA. So there will be investment in the Middle East and Africa where there are large spaces," Robert said.

© Zawya 2012