Sustainability without sacrifice in the Middle East

02 November 2009

While the Middle East is one of the world’s greatest energy consumers, it is also one of the biggest investors in developing green energy sources and is navigating its way to sustainable growth

With its distinctive blade-like spires, the World Trade Centre in Manama is a striking building by any standards. Yet it is the three wind turbines suspended between its twin towers that have earned the building, and its UK-based architects Atkins, so many plaudits from designers and environmentalists.

But the pioneering innovation has not been easy. While the turbines can be seen spinning when dignitaries are visiting or when Bahrain hosts the Formula One championship each spring, for most of the year they remain static.

The off-the-shelf turbines incorporated into the structure proved harder than was expected to install and operate, and it was not until April 2008, 16 months after the main towers were completed, that they were turned on. And when activated, the turbines have generated harmonic vibrations that have reportedly disturbed people working in the towers.

The most innovative projects typically encounter the toughest engineering problems, and this is particularly true of green projects such as Bahrain’s new trade centre. Such schemes can also incur a high cost. Wind, solar and other alternative energy technologies have developed rapidly over the past decade, yet they are hard-pressed to challenge traditional oil or gas-fired power stations on economic grounds. It is far easier, and cheaper, to plug into the national grid than to put expensive solar panels on the roof.

Cheap fuel

This is particularly true in the Gulf, where oil and gas are plentiful. Saudi Arabia offers its gas to local industry for just $0.75 a million BTUs, less than a quarter of the price of the cheapest European gas. Electricity is equally cheap, in most places heavily subsidised by the state.

But it is exactly this that makes the World Trade Centre such an important and impressive structure. As the first skyscraper in the world to incorporate wind turbines, the project symbolises a radical new direction for Bahrain and its neighbouring Gulf states, often decried as some of the most environmentally unfriendly countries in the world.

The region is the natural home of the sports utility vehicle, and the second-biggest market after the US for Hummers, the biggest gas-guzzlers of all. But in the past five years, some of the heaviest investment in renewable-energy technology, green engineering and environmental science has been made in the Gulf.

This contrast is particularly acute in the UAE, which includes Dubai, the highest per capita user of water in the world, but also hosts Abu Dhabi Future Energy Company (Masdar), one of the biggest investors in renewables. Besides funding a range of alternative-energy research programmes, Masdar is building a $20bn, zero-carbon city that will house 5,000 people and derive all its power from solar, hydrogen and geothermal energy.

“Over time, policies that stimulate growth should be good for the environment”

Property & Environment Research Center report

How sincere are schemes such as Masdar City? Are they merely a marketing gimmick being used by a rapidly industrialising giant to generate better headlines, or do they signal a genuine change in policy? And why are such projects being pursued, when the engineering challenges and costs appear to be so forbidding and their longer-term economics uncertain?

Then there is the prevailing culture of the Gulf. While governments and large corporations have the financial clout to make grandiose statements about sustainability, it is at the level of small businesses and individuals that green attitudes take root. For example, Abu Dhabi is committed to producing 7 per cent of its power using renewable sources by 2020. Yet it could easily cover this amount of energy by just curbing local demand.

By comparison, Singapore has managed to reduce its national energy intensity – a measure of energy consumption per dollar of gross domestic product (GDP) – by 15 per cent since 1990, via a national conservation programme.

By reforming tariff structures and improving public awareness of electricity consumption, the government hopes to reduce its energy use by a further 25 per cent by 2030.

Environmental gains

The idea that waste is an essential by-product of growth is deeply ingrained in many developing countries. But the more recent idea that growth can in turn be good for the environment is gaining traction. Chinese politicians, among others, argue the case for an environmental Kuznets curve, which applies a theory by economist Simon Kuznets originally devised to explain the growth in inequality in industrialising societies. According to the theory, environmental destruction increases as a country’s wealth rises, but then peaks at a certain point before declining.

At a certain level of development, argue proponents of an environmental Kuznets curve, societies can afford sustainable technologies, while high-income citizens have the luxury of paying that little bit extra to live a greener life.

A range of phenomena from deforestation to carbon-dioxide emissions appear to follow a Kuznets curve, according to researchers at the Property & Environment Research Center, a US think tank, which concluded in a 2004 report that emissions appear to peak at a GDP per capita of about $30,000.

“Specifically, over time, policies that stimulate growth, trade liberalisation, economic restructuring and price reform should be good for the environment,” says the report.

If this is the case, then countries such as the UAE, where per capita GDP passed $40,000 in 2008, could follow this curve. And, while hard data on emissions is hard to come by, a threshold in social attitudes certainly appears to have been reached. Companies such as Eco Polymers and EcoSmart Concrete have appeared in the past few years, boasting a range of products from degradable plastics to waterless cleaning products. Private investors are building eco-friendly offices that recycle heat and water as well as generating power.

“Simply curbing demand for power and water could make a major contribution to sustainable growth”

The public sector is moving in the same direction. Dubai launched a pilot scheme for taxis with hybrid engines last year and is pursuing “a complete renovation of all mass transit systems in the emirate with a view to making them environmentally friendly,” says Mattar al-Tayar, chairman of the Roads & Transport Authority.

Dubai Municipality and Dubai Electricity & Water Authority, meanwhile, are drawing up building regulations based on green principles.

In recognition of this activity, in June, the newly formed International Renewable Energy Agency selected the UAE as its headquarters. Of the 136 countries that signed the founding charter of the agency, the government in Abu Dhabi is one of only five to have ratified it.

There has also been a sea change in public policy in neighbouring Gulf states. Qatar is building a $520m waste treatment and recycling plant, to be operated by Singapore’s Keppel Seghers, which will process more than 7,000 tonnes a day of rubbish when it opens this year. It will account for most of the household waste produced on the peninsula.

Waste recycling

Doha has also teamed up with Sheffield University in the UK to set up a research centre for recycled plastics, with a view to developing new polymer products from waste. There is no shortage of raw material. Gulf states currently lead the world in the amount of solid rubbish produced by the average inhabitant, generating 1.5 kilograms a person a day. This compares with an average of 0.7 kg a head for the wider Arab world.

But by far the biggest focus of public expenditure is on alternative sources of energy. Governments across the Middle East are pushing renewables, from Masdar’s solar energy plans to wind farms in Egypt, which intends to have 20 per cent of its electricity derived from renewable resources by 2020.

Egypt’s comparatively low per capita GDP puts it at an unfortunate point on the Kuznets curve, but the country enjoys several natural advantages that make renewable energy an attractive option. The Aswan High Dam has been producing 2.1GW of power since 1967, when it accounted for nearly half of Egypt’s electricity use. The country’s northeast coast is also a good location for wind farms, with the natural funnel of the Gulf of Suez producing strong and steady onshore breezes.

By 2020, about 12 per cent of Egypt’s forecast power demand of 60GW will be met by wind farms, and another 8 per cent by hydro-electric schemes, according to the state-run New & Renewable Energy Authority. 

Even in regional markets that lack abundant natural resources, renewable energy policy is driven by necessity. Rapidly growing populations and the growth of industry has sent energy usage soaring in recent years, as has demand for water, much of which is desalinated by energy-intensive means in the Gulf.

In the UAE, for example, electricity demand was forecast in 2007 to double within five years. And while Abu Dhabi is one of the biggest energy producers in the world, there is a limit to how far it can develop an oil or gas-based electricity sector.

One brake on growth is the availability of natural gas. Until recession hit late last year, gas consumption in the UAE was rising by 10-13 per cent a year, the sharpest growth in the Gulf. UK-based energy consultant Wood Mackenzie estimates 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. Even with supplements coming in by pipeline from Qatar, and accounting for the temporary slowdown in economic growth, local production will be hard pressed to meet demand.

In this context, alternative energy sources are an essential addition. Even nuclear power is being considered, as is the development of clean coal technology. Both Oman and Egypt are pursuing plans for coal-fired plants. And smaller countries with more limited budgets are considering green schemes. Bahrain announced plans in early September to build a small, combined wind and solar power plant, which it hopes to tender in 2010.

At 5MW, the trial scheme will make a only a small dent in the kingdom’s energy and water demand, and solar plants are more expensive than oil-fired power stations. But the technology is developing quickly. The cost of a kilowatt hour of photovoltaic electricity dropped from $0.50 to $0.20 in the decade ending 2005, according to Cambridge Energy Research Associates in the US.

Similar improvements have been seen in concentrating solar power (CSP) technology. Comprising large fields of mirrors, which concentrate sunlight onto a central heat collector, CSP plants have been employed in California since the 1970s yet have only recently been scaled up to a size that can challenge oil or gas-fired power plants.

The 100MW project planned by Masdar will be one of the world’s biggest. The state-owned Abu Dhabi Water & Electricity Research Centre, meanwhile, is pursuing a range of pilot studies of solar power.

While Abu Dhabi’s embrace of green technology is intended to diversify its energy sources, it is looking at the market as a long-term investor as well as a consumer. The estimated $60bn global market in carbon credits is an inviting prospect for Gulf energy producers, which, by reinjecting carbon dioxide into their oil fields, could not only increase output but also become carbon bankers.

Taqa, the Abu Dhabi state-owned energy company, has already bought two depleted oil fields in the Netherlands with this in mind. In 2007, Saudi Arabia created a $300m fund to carry out research and development work on carbon capture.

Green technology is considered a high-risk investment with potentially big rewards. Globally, investment in solar-energy research has tended to move with increases in oil prices, surging in the 1970s and since 2003, as the high cost of oil made alternatives more attractive. The difference between these periods is that during the most recent oil boom, Gulf petro-dollars joined the flow of investment.

Solar technology appears to have excited the most investors. Masdar has pledged to invest $2bn in photovoltaic technology, with manufacturing plants planned for Taweelah, in 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.

Most of these projects rely on state funding, and the proportion of privately financed green projects in the Gulf remains small. This is not that the appetite is not there, however. A survey of high-net-worth individuals in 2008 by Merrill Lynch and 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 green investment, nearly double the global average.

Investment opportunities

While many blame a dearth of venture capital in the Gulf for the lack of privately funded green projects, these figures suggest the funds are there. What is lacking are opportunities. Investors have no reason to put their money into renewable-energy schemes if they are competing with heavily subsidised utility companies.

Subsidies have forced the UAE into a peculiar paradox, with the federal government forced to invest in green technology in an attempt to meet future energy demand, yet unable to meet its current requirements. Despite a law passed in 2008 allowing for private power plants, the Federal Electricity & Water Authority (Fewa) has received no firm offers and has been suffering repeated blackouts in the northern emirates in particular. Electricity subsidies fix local prices at 7.5-33 fils a kilowatt hour, yet market rates for fuels used to generate electricity are as much as 10 times that, according to Fewa.

Without restructuring of tariffs, substantial private investment in renewable technologies is unlikely. Yet the authorities are unwilling to put too heavy a burden on the local population. There is another option, however: conservation. If electricity consumption continues to grow at current rates, nearly 59GW of new generating capacity will be needed by the six GCC states by 2015. This is equivalent to 81 per cent of existing capacity. Simply curbing demand for power and water could make a major contribution to sustainable growth.

In Saudi Arabia, water losses due to leaks and poorly maintained networks accounted for about 35 per cent of all fresh water produced in the kingdom in 2006, according to the World Bank. Add to this the potential savings from Singapore-style conservation programmes, and Middle East countries can work towards sustainability without sacrificing anything more essential than their Hummers.

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