The governments of the GCC can encourage the uptake of solar by creating regulations and phasing out energy subsidies. Those working in the solar industry say there is an urgent need for governments to clarify regulations that will enable the industry to grow, while subsidies are cited as a barrier due to the cheap power citizens enjoy.

Regulations underpin the market and give it clear direction that will enable growth. For the GCC, regulation governing small-scale solar is yet to be rolled out, and this is hampering growth. In particular, regulations covering grid connections are missing.

Laying foundations

Within the Middle East and North Africa (Mena), it is no coincidence that the two countries having the most success with renewable energy are the ones with regulation in place – Morocco and Jordan. They are also both energy importers, so there was an urgent need to lay the foundations for the renewable energy market.

In the GCC, Dubai is closest to formalising regulations, but companies say the emirate still needs to provide clarity. It has relied, so far, on existing legislation that governs conventional independent power projects, and it was hoped Dubai would announce regulations around solar in late 2014. An announcement in early 2015 is more likely, although the power-purchase agreement (PPA) has become an open secret; it is expected to opt for net metering rather than a feed-in tariff.

Tim Armsby, a partner at UK-headquartered legal firm Eversheds, says that as well as the PPA, strong renewables-focused regulation needs to consider other elements, such as:

• The overall legal environment to encourage uptake. This needs to cover small-scale residential and commercial projects through to utility-scale schemes.
• Clear local ownership rules for companies entering the market. If a firm can take on multiple small-scale projects, the requirement for a local partner to have a 51 per cent stake may be a hindrance.
• Land permits to allow a project to move forwards quickly. Securing the rights to lease land can be harder when projects require the use of private land or where ownership is unclear.

With some of the lowest energy prices in the world, subsidies also need to be tackled. According to figures from the Washington-based IMF, the richest 20 per cent of the population gets six times more benefit from energy subsidies than the poorest 20 per cent. This is because they tend to have more consumable goods and live in larger properties.

Many Mena countries spend between 10 and 20 per cent of their annual GDP on energy subsidies, keeping prices below market rates. It is estimated that globally, fossil fuel subsidies cost $600bn a year, with almost $300bn of that in Mena. Of that, most is spent by the GCC. In comparison, global clean energy subsidies amount to $100bn.

There is a strong argument that cheap energy prices encourage wasteful use, leading to higher greenhouse gas emissions, as more fossil fuel is used to meet higher demand. This is borne out by high electricity and water usage in the region. In Abu Dhabi for instance, residential consumption of electricity is approximately 10 times higher than the world average, while water use is about 560 litres a day per household, roughly 4-5 times the world average.

The IMF estimates that globally, if post-tax subsidies were removed, carbon dioxide emissions would fall by about 15 per cent, or 5 billion tonnes.

“In the GCC, I don’t see subsidies as a barrier to renewable energy because [the region] is used to subsidies and they would be required again [initially for renewables],” says Armsby. “But subsidies do encourage energy inefficiency. If subsidies were removed, consumption would go down.”

Brave move

In November, Abu Dhabi announced that from January prices will rise, with time of day charging for businesses and up to 40 per cent higher prices for expats. Nationals will continue to pay the current rate for electricity, with high users being charged 9 per cent more on their excess usage. In December, Sharjah’s Federal Electricity & Water Authority followed suit, with prices rising from January 2015. The fee rise would drop Sharjah’s water subsidy from 70 per cent to 55 per cent.

The IMF says a well-structured reform programme to end subsidies takes about five years to complete, and Nasser Saidi, president of Nasser Saidi & Associates, and former chief economist at the Dubai International Financial Centre, argues that with energy prices closer to market rates, now is the time to start removing carbon-based subsidies.

“The GCC and other Mena oil exporters should seize the opportunity of lower oil prices to phase out subsidies, reduce their budgetary burdens and remove the distortions they force on consumption and production decisions,” he says.

Savings brought about by cutting subsidies could be diverted to education and health. “It’s shocking that we’re spending more on fuel subsidies than [these sectors],” he says.