Is the Gulf doing enough to meet its future energy needs?

Changing public-sector priorities are paving the way for increased energy diversification throughout the Middle East, as Neha Bhatia reports

SPECIAL REPORTS, Sectors

Energy investments in the Middle East and North Africa (MENA) could reach $1tn over the course of five years, it was announced this March.

Arab Petroleum Investments Corporation (APICORP), in its MENA Energy Investments Outlook report, stated that global investments towards the sector dropped by 24% in 2016 compared to 2015. However, energy investments in the MENA region are expected to increase by 7% in 2017, compared to last year.

The report adds: “Governments continue to make investments in the energy sector a priority, and it is expected that a number of critical projects will be executed and completed successfully over the course of the next five years.

“Plans for power projects are at the top of the five-year agenda in many countries.”

APICORP’s report says that energy investments worth $174bn have been committed in the GCC, representing more than 50% of MENA’s total share, and it is altogether likely that this figure will increase over the next decade.

Oman, for instance, anticipates power demand to exceed supply by 2022, and is accordingly directing its resources towards bridging the expected gap. In its Seven-Year Outlook Statement for the period between 2017 and 2023, Oman Power and Water Procurement Co (OPWP) reveals that between December 2021 and March 2022, “four power stations reach the expiry of their P(W)PAs [power (and water) purchase agreements], […] resulting in a capacity loss of 1,954MW (megawatts)”, even as electricity demand “continues to grow at a steady pace”.

The statement adds: “With contracted capacity at 7,394MW in 2022, the need for additional capacity under the expected demand scenario is nearly 1,300MW in 2022, and nearly 1,800MW in 2023.

“In addition to the new 800MW IPP [independent power producer] to be procured in 2021, OPWP intends to procure additional capacity to cover the remaining deficit against the capacity target in 2022.”

OPWP says the procurement process will allow “plants with expiring contracts to bid competitively with new-build contenders for new contracts”.

Indeed, the regional energy sector will have witnessed significant changes by the time OPWP’s 2021 project bid is released. This February, Ventures Onsite revealed in a report that $100bn of the GCC’s $320bn power projects – across all stages of development – are focussed on the renewable and alternative energy sector. Between 85% and 90% of future renewable energy projects will utilise solar energy, for which the UAE, Saudi Arabia, and Kuwait are the largest markets. Renewable and alternative energy sources, such as wind, biomass, and coal – as well as nuclear-powered plants – are also gaining traction in the region.

“Government initiatives to encourage [diversification] include setting up credible and time-bound energy targets, backed by dedicated policies and sound regulatory frameworks,” Ventures Onsite adds.

It would be fair to say that – led by Dubai – the UAE is driving energy diversification initiatives in the GCC. Construction works for Emirates Nuclear Energy Corporation’s (ENEC) Barakah nuclear power plant are 79% complete, with 95% of its Unit 1 ready.

Meanwhile, as part of the Dubai Clean Energy Strategy 2050, up to 7% of the emirate’s energy is to be drawn from clean energy sources, with equally ambitious targets in place for 2030 (25%) and 2050 (75%).  The strategy also includes, among other initiatives, the establishment of a $27bn (AED100bn) Green Energy Fund – launched at the World Green Economy Summit (WGES) in October 2016 – and consistent investments in the Mohammed bin Rashid Al Maktoum Solar Park (MBR Solar Park), the 200MW Phase 2 of which was inaugurated this March.

GCC member states are also directing their funds towards the research and development of renewable energy models. One such example is King Abdullah City for Atomic and Renewable Energy (KA CARE), which is tasked with preparing a roadmap for Saudi Arabia’s transition away from oil-led energy growth. In 2012, KA CARE announced plans to invest $109bn (SAR408.7bn) for the production of – among other types – 41GW of solar energy by 2032.

An APICORP report released in February 2016 states that, owing to the high investment required “to reach this ambitious target”, it was “highly unlikely” that the kingdom would meet its immediate renewable goals. However, market factors have shifted in the year since the report’s publication, and in a study published this May, APICORP says a change finally appears to be underway in Saudi Arabia.

“While the main obstacle behind renewable deployment in most countries is financial, the kingdom’s original renewable plan never kicked off, due to preferred reliance on conventional power plants to meet the increase in electricity demand and the absence of supporting policy frameworks for renewable programmes to succeed,” APICORP adds.

“The new Ministry of Energy and Industry will take charge of the country’s renewable-energy programme. The Renewable Energy Project Development Office (Repdo), a dedicated unit to oversee the programme, will report to a renewable-energy steering committee chaired by Minister Khalid Al-Falih. Repdo has already shortlisted companies for the first round of projects, aimed at tendering 300MW of photovoltaic (PV) and 400MW of wind as IPP projects.

“The government is clearly signalling to the market its strong desire to kick-start its renewable-energy programme, and tenders are expected to be signed in a few months.”

Incidentally, APICORP states global oil companies are reducing their Middle East operations in light of contemporary geopolitical, contractual, and economic dynamics. This tectonic shift in market patterns, coupled with regional governments’ intent to diversify their long-term economic prospects, may well drive required changes in the region’s energy development landscape.

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