- The abundance of renewable resources in the region, coupled with negligible environmental impact, are the key enablers for renewable energy adoption in the region.
- Most Arab nations have announced big ticket renewable energy projects and have set ambitious renewable energy targets to reduce dependence on the oil economy.
- However, apart from diversifying their energy base, Arab governments can utilize this opportunity to address macro issues such as youth unemployment, and lack of entrepreneurial and R&D ecosystems in the region, and build a more sustainable future.
Arab region has been a late but strong starter on renewable energy bandwagon: While the developed countries of the Western world have a significant head-start when it comes to embracing renewable energy technologies, the Arab world has been late to join the race. This lack of initiative was largely driven by easy availability non-renewable energy resources, which get heavy government subsidies creating an entry barrier to ‘relatively expensive’ alternate energy sources. This was also backed by lack of technological knowledge and policy framework in many countries.
In the last few years, the region has made strong progress towards adopting renewable energy and many countries in the MENA region have acknowledged the potential of renewable energy to ensure sustainable energy sources for many years to come. The major factors that are driving the growth of Renewable energy in the region:
1. Energy security for net-oil importers: With growing population and rapid urbanization, energy demand in the region is increasing faster than ever. The demand growth is driven by increasing need for electricity for domestic use and devices, heating, cooling, and desalination of water. Meeting this demand will become even more difficult for most countries considering the rising oil prices. Therefore, investing in alternate sources of energy can help these countries ensure energy security for future. This is the key driver for growth of renewable energy in countries that are net-oil importers.
Chart 1: Renewable Energy Investments - Oil Importers vs Oil Exporters
Source: Arab Business Review, REN21
Net-Oil Importing countries: Djibouti, Israel, Jordan, Lebanon, Malta, Morocco, Palestinian Territories, and Tunisia
Net-Oil Exporting countries: Algeria, Bahrain, Egypt, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Syria, UAE, Yemen
2. Substitute for domestic oil usage for net-oil exporters: For countries that are net-exporters of oil such as Saudi Arabia, Kuwait, and UAE renewable energy sources can be used to substitute the oil used for domestic electricity generation. With the declining cost of modern renewable energy technologies this investment makes even more sense as it can boost present oil-export volumes, while ensuring a sustainable solution for domestic energy consumption for future.
3. Abundance of renewable resources: While the Arab region is characterized by its rich oil and gas reserves, the abundance of renewable resources in the region had gone unnoticed until very recently. Due to its geographical location, the region gets highly concentrated sunlight and has several sites with suitable wind speeds for developing highly efficient wind farms.
4. Favourable policy frameworks: As per REN21, by mid-2013 all 21 MENA countries had set renewable energy policy targets, and 18 countries had introduced renewable energy promotion policies to help achieve their respective targets. If all the countries are able to meet their targets, the renewable energy capacity of the region will reach a massive 107 GW up from 2012 levels of approximately 1.7 GW.
Chart 2: Projected Non-Hydro Renewable Energy Capacity in the MENA Region
5. Reducing environmental footprint: According to World Bank, 85% of GHG emissions in the MENA region come from energy production, transformation and use. Gradual substitution of oil based domestic energy – which has significantly high carbon emissions – with renewable energy is definitely the right prescription for MENA economies, which are often criticized for doing little towards pushing the sustainability agenda.
With all these factors combining to create an ecosystem that will drive renewable energy growth in the region, governments in the region have the opportunity to build a local supply-chain for the renewable energy industry.
This will enable them to address several macro challenges by taking steps such as:
- Breeding local entrepreneurs: The governments should create more business opportunities for local entrepreneurs, so that they can be a part of this growth story and reduce dependence on expats in the long run. For example: The Saudi Government has created an environment. For example, the Tunisian Government launched the PROSOL programme in 2005 aimed at building local solar energy supply chain, while revitalizing the solar thermal market in the country. Encouraged by the Government’s initiative TuNur Ltd. – a joint partnership between a group of Tunisian investors and UK-based Nur Energie, aimed at constructing a 2,000 megawatt Concentrated Solar Power (CSP) plant in 2015. This project is expected to create 1,500 direct and 20,000 indirect jobs for the manufacturing and operation of the plant.
- Creating an efficient R&D ecosystem: While extensive R&D programs related to the renewable energy are being undertaken across the globe and the governments have an option to buy the solutions, there is still scope for improvising and localising the available technologies to deliver best results in the atmospheric conditions that prevail in the Arab region. The Government can take this opportunity to facilitate local R&D by investing in the required infrastructure.
- Skilled employment: The government can also invest in institutions that can support the demand for skilled workforce required by this industry. This will help them address the problem of youth unemployment which most of the MENA countries are facing right now.
Case Study: Local Content Promotion by Saudi Arabia
In 2012, Saudi Arabia unveiled its renewable energy targets of installing 54 GW of renewable energy by 2032, which break down as 25 GW of concentrated solar power (CSP), 16 GW of solar photovoltaic (PV), 9 GW of wind 3 GW of waste to energy, and 1 GW of geothermal energy.
While achieving these targets, the government also plans to address the larger goal of boosting the local economy, and has come out with a white paper detailing the proposed competitive procurement process. The procurement has been designed to not only get the most competitive price for the projects, but it also has check-in mechanisms to ensure promotion of local content. Some of the salient features of the procurement programme are:
Project bids will be assessed based on price as well as “rated criteria,” which include the developer’s financial capability, experience, development status, and the project’s local content. The rated criteria will have 30% weightage in the overall bid score.
- The local content will be evaluated as a percentage of local spend from the overall project budget, and bidders achieving 60% local content will be rated highest.
- The local content requirement will encourage bidders to launch joint ventures with local players and establish manufacturing plants, which will give a fillip to the local economy.
- The project winners will also be required to invest back in the local economy through training facilities, research advice, and procurement from local manufacturers.
- Two separate funds sourced by taxing project revenue have been created to train local employees on solar PV and CSP technologies, and fund local renewable energy R&D projects.
- Developers are incentivized for employing local labour – employers who are top 5% in terms of local jobs will be compensated higher than average for every employee.
We believe that these features can help Saudi Arabia address its larger problems of unemployment and lack of entrepreneurship culture, to a certain extent and other MENA countries facing similar problems can learn from them.
Source: REN21, K.A.CARE