As countries around the Middle East explore alternative fuel sources to gas, interest in forms of renewable energy is rising. Although renewable energy as yet cannot provide significant quantities of base-load power, governments are keen to add them to their energy mix and most have set targets for doing so. Abu Dhabi, for example, has committed to producing 7 per cent of its power using renewable sources by 2020. Egypt, meanwhile, intends to produce 20 per cent of its electricity from non-fossil fuel-derived sources of energy by 2020.

By that date about 12 per cent of Egypt’s forecast power demand of 60,000MW will be met by wind farms, and another 8 per cent by hydroelectric schemes, according to the state-run New & Renewable Energy Authority.

In numbers

  • $2.2bn: Cost of the UAE’s fi rst planned hydrogen power plant
  • $300m: Value of TVM Emirates Fund, set up to explore solar, wind and biomass technology
  • 3,500MW: Capacity of Qatar’s planned solar power complex
  • 20 per cent: Proportion of power Egypt hopes to generate from renewables by 2020

Source: MEED

Rising consumption

The decision to embrace forms of renewable energy is largely driven by necessity.

There are several reasons for this. The first is that most Gulf states have dedicated considerable amounts of their gas reserves to long-term export deals, either by pipeline or as shipments of liquefied natural gas. Yet subsequent population increases and the rapid growth of economies during the 2003-08 oil boom have put considerable pressure on local gas resources. A significant contributor to this demand is the power sector – demand for electricity is growing by about 7-9 per cent in many Gulf states and as high as 14 per cent in Qatar.

Of the gas that remains for domestic consumption, the power sector also has to compete with desalination plants and the rapid growth of gas-hungry industries such as petrochemicals and metals production. UK energy consultant Wood Mackenzie has estimated that by 2020 the UAE will be using about 6 billion cubic feet a day (cf/d) of natural gas – more than three times current demand.

Given this scenario, governments and utility companies have few alternatives but to factor renewables energy sources into their plans. Even Qatar, the world’s third largest producer of natural gas, has been boxed into this corner.

Qatar General Electricity & Water Corporation (Kahramaa) is considering a range of alternatives to oil and gas-fired power plants. Projects mooted for the next decade include the construction of 3,500MW of solar power complex, and the building of a nuclear power plant has also been suggested.

A range of small venture capital groups has tapped into the market for renewables in the past few years

Alternatives such as solar energy and wind power are, of course, extremely costly in comparison with plants that run off fossil fuels. But that in itself is seen as an opportunity by many investors in the region, both public and private. The Abu Dhabi Future Energy Company, which is developing a carbon-neutral city known as Masdar City, is investing heavily in fuel technology research, ranging from solar and wind power to hydrogen.

Hydrogen Power Abu Dhabi, a joint venture between Masdar and BP of the UK, hope to tender the main engineering, procurement and construction contract for the world’s biggest hydrogen power plant before the summer. The $2.2bn power plant will break down natural gas supplied by Adnoc, the emirate’s state-owned oil company, into hydrogen and carbon dioxide. The hydrogen will be used to generate about 400MW of power while the carbon dioxide will be sold back to Adnoc for reinjection into its oil and gas fields.

Governments are not the only backers of these initiatives. A range of small venture capital groups has tapped the market for renewables in the past few years, and new funds have been established dedicated to look at alternative forms of energy. One example is the $300m TVM Emirates Fund, a joint venture between two international venture capital groups, which is looking at solar, wind and biomass technologies.

The fund already has a 25 per cent stake in German solar panel and glass manufacturer Scheuten, and plans to set up a satellite branch in Abu Dhabi this year to develop photovoltaic panels and test the regional market. Yet such enterprises are still few and far between in the Gulf. Out of a global total of $119bn invested in the renewables sector in 2008, only $2.6bn came from the Middle East and Africa, according to UN statistics.

The question remains whether funds such as TVM are an exception, or are the start of a new trend. Certainly, before the global financial crisis there was considerable regional interest in renewable energy among the financial community. A survey of high net-worth individuals in 2008 by the US’ Merrill Lynch and France’s Capgemini found that investors in the Middle East put proportionately more of their money into green technologies and sustainable energy research than those from any other region. More than 20 per cent of the average Middle East portfolio was comprised of green investments, nearly double the global average.

But until researchers manage to access this resource, most enterprises will be driven by government money. Solar technology appears to draw the lion’s share of public investment. Masdar has pledged to invest $2bn in photovoltaic technology, with manufacturing plants planned for Taweelah, within Abu Dhabi, and at Ichterhausen in Germany. The state-owned Qatar Science & Technology Park, meanwhile, has announced a $500m investment in a project to manufacture polysilicon, the raw material used to make photovoltaic cells.

Photovoltaic technology offers considerable promise, not least because the capital cost per kilowatt produced has fallen dramatically in the past decade. Yet it remains a technology that is best applied on the small scale, for instance as supplementary power generation sources for houses and cars.

Combined solar

By contrast, concentrating solar power technology (CSP) can already be used to produce electricity on a larger scale, and as such is of more interest to utilities in the Middle East. The most advanced CSP project is Masdar’s Shams-1 plant, which will produce some 100MW of electricity.

Though construction work has yet to begin, it is thought the plant will use a series of parabolic, mirrored troughs to concentrate solar energy on pipes full of oil, which in turn transmit heat to steam turbines. An alternative technology reflects heat onto a central tower. In the Gulf, Dubai and Qatar have also proposed similar schemes, but have yet to tender any projects to date. Elsewhere in the Middle East, however, there are several power plants under development that will use solar energy. For the most part, these are integrated solar combined-cycle (ISCC) projects, which use additional solar units to supplement the electricity produced by gas turbines.

The Yazd power plant in Iran, for example, will derive as much as 67MW, or of its total output of 636MW, from solar energy. Other ISCC plants are being developed in Algeria, Morocco, Egypt and Kuwait.

Egypt, Jordan, Morocco, Algeria, Libya and Iraq all have wind farms under development

All this activity puts the Middle East power sector at the forefront of interest in solar energy, even if most of the technology is currently developed by companies in Germany and Spain. Both countries helped stimulate private investment in solar technology by effectively subsidising electricity produced from renewable resources. Unfortunately, this route is not open to most Arab countries, which already heavily subsidise their oil and gas-derived electricity.

While the climate of the Middle East naturally lends itself to the building of solar energy plants, the potential of other renewables is limited for obvious reasons. Hydropower is already used in Iran and in Egypt, where the Aswan High Dam has been producing some 2,100MW of power since 1967, when it accounted for nearly a half of the country’s electricity production. But there is little potential elsewhere in the region.

Private developments

Wind energy projects, by contrast, can be expected to proliferate in the near future, albeit in limited locations. The UAE has been mulling building a wind farm off the coast of Fujairah, and Oman and Bahrain have a small pilot projects under way, but the real potential lies off the Red Sea and North African coasts. Egypt, Jordan, Morocco, Algeria, Libya and Iraq all have wind farms under development, with about 4,000MW of new capacity either being built or at the feasibility stage.

Perhaps the most favoured spot is the northeast coast of Egypt, where northerly winds are funnelled down the coast of the Gulf of Suez. Egypt plans to have more than 7,000MW of wind power installed by 2020, and has developed an innovative structure for financing
its programme.

While the government expands its existing wind farm at Zafarana, on the Gulf of Suez, it will also be soliciting interest from the private sector. About 10 plants of about 250MW each will tendered over the next seven years to private developers, who will sell electricity to the national grid. The higher cost of electricity in Egypt also gives the government another option for encouraging investors. A feed-in tariff has been drafted that will benefit smaller developers looking to build wind farms that generate less than 50MW.