Renewables - Looking at energy alternatives

30 December 2010

Increasing demand for the region’s hydrocarbons resources is encouraging Middle East governments to turn their attention to alternative energy sources

Until recently, the Middle East largely ignored the potential for renewable energy. The reasons for this are clear – with 56 per cent of the world’s oil reserves and 40 per cent of global natural gas deposits, countries had little incentive to consider alternative options for power generation.

Adopting a feed-in tariff … incentive scheme would provide a major boost to the sector

But spurred on by growing domestic demand for power and water, depleting hydrocarbon reserves and the desire to continue exporting oil and gas, the region’s governments are now taking major steps towards green energy. The development of renewable power projects will play a major role in the decade ahead.

Renewables targets for the Middle East and North Africa

Several countries have already set themselves targets for the contribution of renewable energy to their total power production by 2020. Morocco has been the most ambitious with a 40 per cent target. Egypt is aiming to reach a 20 per cent contribution, while Jordan is looking at about 10 per cent. The UAE, which faces a rapid rise in electricity demand and is also investing heavily in nuclear power, is aiming for renewables to account for 7 per cent of total power supply by 2020.

Egypt and Morocco were early movers into the renewable energy sector. Egypt has already installed 545MW in wind power capacity at Zafarana and has significant solar capacity, including a 20MW solar thermal project at Kuraymat, in operation. By 2020, it intends to have expanded these projects significantly and developed new projects in the East and West Nile areas. Morocco plans to develop a further 420MW in wind capacity over the next few years at Akhfenir, Bab el-Oued, Haouma and Khallad Jbel, along with a 500MW solar thermal project at Ouarzazate.

In the GCC, Oman is also moving ahead with plans for a landmark solar energy project, while Bahrain, Kuwait, Dubai and Qatar are at early stages in the development of individual solar projects and carrying out feasibility studies for renewables schemes. In April, Saudi Arabia announced plans to establish a scientific centre for renewable and nuclear energy in Riyadh.

But it is Abu Dhabi that stands out as the Gulf’s leader in renewable energy and the emirate is now renowned the world over as a hub for sustainable power as a result of its multibillion-dollar plans to build a carbon-neutral city. Abu Dhabi is home to the region’s first commercial-scale photovoltaic solar project and will be the first in the GCC to develop a major solar-thermal facility when its 100MW Shams 1 project comes online. The Masdar City scheme, although massively scaled back from its original form, is indicative of the emirate’s commitment to renewable energy. It will build on this reputation over the next decade.

Despite the ambitious targets set out for the sector, there are several hurdles that need to be overcome if renewable power is to achieve its potential in the Middle East. Each megawatt of renewable power costs much more to produce than a MW of power generated by traditional means. In Europe and elsewhere in the West, sustainable power has flourished due to state support for the sector. Whether governments in the Middle East are also prepared to do this will determine the role and size of the renewables market by 2020.

As yet, none of the states’ governments have developed a feed-in tariff that guarantees developers access to electricity distribution networks and long-term power purchase contracts at prices typically higher than those for traditional power.

Developers are keen for such mechanisms to be drawn up, but governments remain hesitant. Yet, adopting a feed-in tariff or a similar renewables incentive scheme would provide a major boost to the sector.

Abu Dhabi announced plans to introduce a feed-in tariff in the emirate in 2009, but it has still to materialise and Egypt has spoken of similar plans, although as yet, nothing has been finalised.

Financial backing for renewables industry in the Middle East

The region also has little experience in terms of commercial lending for green energy projects, but the participation of the private sector and support from the banking community will be crucial to the development of the renewables sector. Governments will need to ensure that alternative energy projects are attractive to lenders. Long-term power purchase agreements and government guarantees are therefore vitally important.

Although renewable power schemes cannot meet base-load requirements for electricity, the Middle East stands to gain much from an active green energy sector, including the creation of a manufacturing sector to feed the supply chain.

In reality, most governments will likely fall short of their 2020 targets due to delays in establishing the right legislation and the pioneering nature of the technology. But the steps taken in the years ahead will lay the foundations that governments will be able to build on in future decades.

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