Renewables surge as energy transition accelerates

27 August 2021
Energy transition report examines how the shift from fossil fuels is reshaping energy policy and investment in the Middle East and North Africa

Renewable energy project contract awards in 2021 have eclipsed deals for conventional power plant projects as the region's energy diversification agenda gathers pace, according to a new research report from MEED Insight. 

Middle East Energy Transition reports that there were no contract awards for oil-powered or gas-fuelled power stations in the Middle East and North Africa (Mena) region in the first half of 2021, while in the same period, there were about $2.8bn of renewable energy project contract awards in the region. 

From 2017 to 2020, the average value of contract awards for oil- or gas-fuelled power stations in the Mena region was about $4.8bn a year, with some $6.2bn of conventional thermal power plant contract awards made in 2020.

Middle East Energy Transition provides a comprehensive snapshot on how the shift away from fossil fuels is shaping investment and policy in the Middle East, and also at how the region is investing in reducing carbon dioxide emissions. The report is of extremely high value to anyone investing in the energy sector in the region, as well as providing value to contractors, consultants and suppliers in the energy supply chain that are selling products and services to Middle East governments. Learn more about the report here

The stalling of the development of conventional power generation plants in the region is one consequence of an acceleration of efforts to reduce greenhouse gas (GHG) emissions and to diversify the energy sources away from oil and gas. 

Doubts about long-term demand for oil products and growing confidence in the cost effectiveness of renewable energy are also fuelling the region’s energy transition.

Renewables on the rise

The outlook for renewable energy project opportunities in the Mena region is bright.

Some $104bn-worth of renewable energy projects are planned, of which about $21.5bn are at the contract tendering stage and are likely to lead to contract awards in 2021 and 2022.

Of the remaining $82.4bn of planned projects, only about $4.1bn are at an advanced stage of design, with the vast majority, some $78.3bn of projects, still under study. Many of these may not go ahead or could change substantially in scope.

In Algeria, for example, the country's $42.1bn of planned renewables projects is the region’s biggest pipeline, but some $41.9bn are still under study and may not happen.

Opportunities abound, however – particularly in Saudi Arabia. According to the Middle East Energy Transition report, Saudi’s $18bn renewables projects pipeline offers the best prospects, with some $13bn of renewable energy projects at or close to the tendering stage.

The UAE, which far outstrips Saudi Arabia in terms of installed renewable capacity, has only $370m of renewables projects at the bidding stage.

Green hydrogen

The new report identifies hydrogen fuel as an important emerging element in the Middle East's energy landscape.

The use of hydrogen fuel in electricity generation emits only water vapour and no carbon dioxide. Moreover, hydrogen can help decarbonise traditional gas-fired power plants.

The hype surrounding hydrogen, and in particular green hydrogen, has become increasingly hard to ignore as it dominates in industry discussions of oil and gas, renewable energy, mining, and climate change. The opportunity to pivot to green hydrogen is particularly strong in the Mena region.

An estimated $42bn-worth of green hydrogen-related projects are being planned across the Mena region – and project announcements have become increasingly frequent over recent years.

These announcements include both high-level memorandums of understanding (MoUs) comprising studies that are expected to lead to concrete project opportunities in the future, and agreements related to a specific project with general details on the type, location and capacity of the planned facilities.

Energy transition 

Energy transition is now among the highest policy priorities for the Middle East’s oil producers, which have been hard hit by low oil prices since 2015 – a knock that may be exacerbated by the decline in oil demand growth that is predicted by 2040.

In November, the next installment of the Climate Change Summit takes place in Scotland. COP 26 will see political and business leaders come together in Glasgow with scientists and activists to discuss the next iteration of the international Climate Change Agreement, and Middle East governments will play a prominent role in discussions. 

The event coincides with Dubai Expo 2020, which has future energy and future mobility as its themes, and which signals the UAE’s intention, along with Qatar and Saudi Arabia, to be a leading player in the future of global energy.

The shift away from fossil fuels is also one of the biggest challenges facing the region.

Cutting CO2 emissions to net zero, diversifying energy sources away from oil and gas, and reducing consumption to preserve resources requires transformation in all areas of life. At the same time, governments must ensure adequate power and water to meet the needs of growing populations and expanding economies.

Energy demand

Undimmed by the impact of Covid-19, electricity demand is rising by about 5 per cent a year across the Mena region, and with a shortage of gas supplies and the need to decarbonise, expanding renewables capacity is at the top of the region’s energy agenda.

There is plenty of room for growth.

With about 28GW of renewable energy production capacity installed across the region, of which the biggest component is hydropower with 21GW, renewables represent only 7 per cent of the region’s power generation capacity.

But, boosted by falling technology costs, most countries are planning and procuring solar and wind projects. And the world’s biggest and cheapest solar projects are now found in Saudi Arabia, Abu Dhabi and Dubai.

Across the region, governments have set ambitious clean energy targets, with Dubai the most aggressive, aiming for 75 per cent of its energy to come from clean sources by 2050. About 98GW of new renewables capacity is planned across the region, with 39GW due to come on stream by 2025.

One of the region’s objectives is to be a hub for the development of clean technologies. And the desire for a ‘green’ recovery from the Covid-19 pandemic has provided impetus for a wave of ventures and projects to produce hydrogen fuel in the Middle East.

In particular, tapping the region’s abundant supply of low-cost solar energy to sustainably produce ‘green’ hydrogen from water is generating huge interest from governments and investors.

Green hydrogen is in a similar place to the one held by solar energy a decade ago. As with solar in 2011, hydrogen fuel in 2021 is expensive to produce compared with fossil fuels, and there is only a limited market for the fuel.

But tumbling costs and enabling regulations have reduced the risk of investing in renewables. It is a trend that will support the region’s energy diversification as new technology emerges, making clean fuels commercially viable.

Middle East Energy Transition provides a comprehensive snapshot on how the shift away from fossil fuels is shaping investment and policy in the Middle East, and also at how the region is investing in reducing carbon dioxide emissions. The report is of extremely high value to anyone investing in the energy sector in the region, as well as providing value to contractors, consultants and suppliers in the energy supply chain that are selling products and services to Middle East governments. Learn more about the report here

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