Military and Strategic Journal
Issued by the Directorate of Morale Guidance at the General Command of the Armed Forces
United Arab Emirates
Founded in August 1971

2019-05-01

GCC Embraces Renewable Energy

Renewable energy has seen tremendous demand growth in the Gulf Cooperation Council (GCC) region over the past decade. From small-scale pilot projects, renewable project pipeline has now grown to almost 7 gigawatts (GW) of new power generation capacity.  In fact, the region has proven that solar energy can beat conventional energy costs with record-breaking bids at energy auctions in the UAE and Saudi Arabia (KSA) during 2016-2018. With increasing population and steadily growing economies in the region, renewables continue growing fast and promise to boost the region’s power supply in the years ahead. 
 
Much of the GCC’s wealth and socio-economic development relies on its oil and gas resources. With recent demand fluctuations, renewable energy holds vast potential for the region in cutting fuel costs, reducing carbon emissions, conserving water, and creating jobs. To reduce dependence on oil, GCC governments are seeking to diversify their economy against the backdrop of fast-growing domestic energy demand and a desire to safeguard hydrocarbon export revenues for the future. The growing investments into renewables also prove the region recognises the need to plan for the post-oil era, when demand for fossil fuels might subside regardless of supply outlooks.
 
Abundance of Resources
The GCC region has considerable renewable energy potential, particularly for solar photovoltaic (PV) generation. By housing around 79 per cent of the GCC’s installed solar PV capacity, the UAE has managed to attract low-cost solar PV projects without offering subsidies. Although the resource base for Concentrated Solar Power (CSP) is less optimal in the arid region, some sites rival other CSP-deploying regions. Contrary to common perceptions, some GCC countries, particularly Kuwait, Oman, and Saudi Arabia also have good wind resources. 
 
Moving Forward
Renewable energy implementation has come a long way in the region, with each country having its own green vision, sizable market, and readiness. Yet the overall picture is very dynamic, while the UAE and KSA stand out, many interesting projects are also seen in Kuwait and Oman. 
 
Renewable energy outlook looks promising with plans and targets being translated into concrete policies and projects, especially in biggest markets UAE and KSA. The slow-paced development in other GCC countries might get an extra push as cost-competitive projects keep coming online. By the end of 2017, the region had some 146 GW of installed power capacity, of which renewable energy accounted for less than 1 per cent (867 megawatts, MW), with the UAE accounting for 68 per cent total renewable capacity in 2018. It was followed by KSA (16 per cent) and Kuwait (9 per cent). Although this was far from the capacity planned, renewable saw a fourfold increase from 2014. 
 
With almost 91 per cent of the projects in the pipeline stage, installed capacity is dominated by a handful of utility-scale solar projects, of which Solar PV and CSP provide 94 per cent capacity. The CSP capacity is currently located in the UAE, Kuwait and Saudi Arabia. Plans to expand wind power in KSA and Oman should raise wind capacity over the coming decade.
 
A Positive Outlook 
Looking forward, the GCC is poised for a significant acceleration in renewable energy deployment, led by the UAE, Oman and Kuwait. The new renewable power generation capacity is expected to reach around 7 GW by early 2020s. Solar PV dominates the regional renewable with three-fourth of project pipeline being SPV, followed by CSP (10 per cent - wholly accounted for by the UAE), and wind projects (9 per cent - in KSA and Oman). Most of the renewables demand is expected from the GCC’s largest energy markets — the UAE where the market is most mature and from KSA where policy amendments are focusing on renewables. Meanwhile, Oman is expected to contribute about 1GW-thermal in 2019 through solar-assisted enhanced oil recovery.

The country has also demonstrated an interest in solar and wind energy as alternatives to domestic gas supply. Whereas, Oman and KSA also demonstrate that wind resources, onshore and offshore, could complement solar power.
 
Costs Drop to Record Lows 
Favourable financing conditions, declining technology costs, and well-designed auctions have brought renewables into the mainstream in recent years. Although a considerable size of investments goes to large stand-alone projects, GCC countries are also investing in the value chain including project developers, manufacturing companies, and research and development initiatives. The UAE is a top spender on renewables, but experts say as deployment picks up, investment flows will likely be distributed more evenly in the region.
 
Globally, the increasing cost-competitiveness of renewable energy technologies has been most apparent in the large-scale grid-connected markets. Improving technologies, access to low-cost finance, greater rates of deployment, increased familiarity with technologies and better understanding among the stakeholders have all resulted in lowering costs for utility-scale projects as well.

While cost trends in GCC have been consistent with the international market, well-designed auctions here have helped in lowering costs and were used to award 3,500 MW of renewable energy projects since 2015. Other optimistic factors include investor confidence, the strategic benefits of entering a promising market, low taxes, and minimal land and grid-connection costs.
 
Although not as low as the winning bid of 2.34 U.S. cents/kWh by ACWA Power for the 300 MW Sakaka project in Saudi Arabia, large scale Solar PV projects in Dubai have seen record-low bids in 2014 at 5.98 US cents/kWh for a 200 MW project and again a few years later at 2.99 U.S. cents/kWh for an 800 MW venture. Meanwhile, costs of CSP projects are also coming down; reportedly, the cost per kWh for 700 MW Phase IV of Dubai Solar Park was just 7.3 U.S. cents. Since Oman and Saudi reportedly have even better solar irradiation, similar projects there should permit even lower prices.
 
As Figure 1 shows, Solar PV is emerging as the cheapest renewable energy source in the GCC, beating natural gas, LNG, oil, coal and nuclear. Meanwhile, CSP costs are also less than what utility providers like Dubai Electricity and Water Authority pay for gas-based options. CSP is a dispatchable alternative even for peak evening demand with its 15 hours of storage. As noted, the wind is another option in Oman and Saudi Arabia, as four bids submitted for the 400 MW Dumat Al-Jandal wind project in Saudi were reported to be between 2.13 U.S. cents/ kWh and 3.39 U.S. cents/kWh (the project is yet to be awarded).
 
Socio-Economic Benefits of Renewables
A closer look at regions power system reveals huge socio-economic benefits from renewable adoption. Countries in the region can not only achieve fossil-fuel savings, emission reductions and create jobs. According to IRENA, if the region achieves the set renewable energy targets and plans by 2020, it can save 354 million barrels of oil equivalent in fossil fuel consumption in the power sector; reduce emission by 136 metric tonnes of carbon dioxide (MtCO2); create 220,500 direct jobs; and reduce water withdrawal and associated fuel extraction by 11.5 trillion litres. Considering these projections, KSA could account for about 40 per cent GCC wide savings, followed by the UAE with 39 per cent. 
 
The agency also projects that solar sector will provide 89 per cent of renewable energy jobs by 2030, as the deployment of around 40 GW of utility-scale solar PV across the GCC could create 124,000 jobs (Figure 2) and small-scale rooftop solar category could employ 23,000 people, mostly in the UAE and Oman. In addition, CSP project construction, operation and maintenance, and manufacturing could create over 50,000 jobs. While wind energy generation in Saudi, Oman and Kuwait can also generate jobs, and waste-to-energy sector may account for 6 per cent of jobs created.
 
Energy Efficiency in Renewables
GCC governments have shown increasing attention to improving energy efficiency by adopting targets to reduce energy/water consumption and greenhouse gas (GHG) emissions.

Measures to reach these targets include green building codes, incentives for electric and public transport, fuel efficiency standards, actions toward energy-intensive industries, and reforms of the energy and water sectors. Energy efficiency also remains a prime driver of variable renewable energy integration. Perhaps, measures like time-dependent tariffs, a vehicle to grid solutions, thermal and electric storage, smart appliances and grids can accelerate the adoption of demand-side management. This can accommodate the electric load to the generation profile of variable renewable energy.
 
A Promising Future 
While the market for distributed generation might play an important role in future, until now most renewable energy projects in the GCC are of utility-scale, and mainly devised through central planning and implemented by independent power producers. Going forward, distributed generation might get prominence in the on-grid environment, as it is no longer suitable only for remote areas such as islands, mountains, deserts and off-grid oil & gas developments. Distributed generation may grow further with reforms in utility tariff schemes and incentives for self-generation, and long-term policies to liberalise regional electricity market structures.
 
A Perfect Synergy of Supply, Demand and Policy
Admittedly, the Middle East has long been, for all intents and purposes, a bastion of conventional energy provision, but luckily it’s a region that is as blessed in its renewable resources as in hydrocarbons. With domestic demand rising, the need for cheaper and cleaner energy is sparking the rapid development of renewable energy supplies. Championed by governments who are looking ahead and seeing which way the wind is blowing, the GCC is hoping to see 7GW of new power generation capacity in place within the next few years.
 
Reference Text/Photo:
Article based on IRENA Market Analysis 
GCC 2019
 

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