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New Energy World™
New Energy World™ embraces the whole energy industry as it connects and converges to address the decarbonisation challenge. It covers progress being made across the industry, from the dynamics under way to reduce emissions in oil and gas, through improvements to the efficiency of energy conversion and use, to cutting-edge initiatives in renewable and low-carbon technologies.
Long way to go for renewables in the Middle East
8/11/2023
8 min read
Feature
The Middle East energy transition tends to be slow and piecemeal compared to momentum in many other countries. But there are signs of development, tempered by the need for new policy and regulation, and the urgency for a calmer political and investment environment. New Energy World Features Editor Brian Davis reports.
Despite the promise of major additions of renewable capacity in coming years, the Middle East and North Africa (MENA) region remains wedded to its fossil fuel reserves and oil wealth. Although there are signs of change on the horizon.
In 2022, thermal power provided by coal, oil and gas accounted for about 90% of the region’s power capacity, according to GlobalData. Looking ahead, its analysts expect fossil fuels will continue to dominate and forecast that thermal power will still account for 70% of capacity in 2035.
According to the International Energy Agency’s (IEA) World Energy Outlook 2023 report, natural gas and oil made up 94% of the region’s electricity mix last year. Its Stated Policies Energy Scenario (STEPS) suggests this figure is likely to dip to just over 60% for MENA by 2050, still lagging well behind the net zero ambitions of leading players in Europe and the US.
If the region would keep to its pledges in accordance with the IEA’s more optimistic Announced Pledges Scenario (APS) – based on individual government promises – clean energy investment would rise fourfold to nearly $80bn by 2030, taking clean energy investment to about half of the total for power generation.
However, weaning the Middle East off its appetite for ‘black gold’ will be no mean task.
Significant challenges
New Energy World asked Dr Rahmat Poudineh, Director of Research, Electricity Programme, at the Oxford Institute for Energy Studies (OIES), what he considers to be the main challenges for renewables development in the Middle East, given its current reliance on fossil fuel resources. ‘The established dominance of fossil fuels in the Middle East energy mix poses a significant challenge. Reducing reliance on oil and gas reserves while promoting renewable energy requires careful planning and a gradual transition strategy,’ was his response.
Poudineh stresses the need to phase out energy subsidies, which are common in many MENA countries: ‘It is essential to create a level playing field for renewable energy. Subsidies for fossil fuels can deter investment in renewable alternatives and lead to inefficiencies in energy consumption.’
In fact, the latest IEA World Energy Outlook mentions that some countries in the region, such as Kuwait, announced plans in 2023 to extend existing petroleum subsidies to shield consumers from higher prices.
Furthermore, Poudineh suggests that: ‘Political stability and a long-term commitment to renewable energy goals are necessary for sustained development. The lack of stability can disrupt the renewable energy sector’s growth.’ Here again, the current political hiatus in the region does not give confidence of political stability in the short term, given key OPEC players like Iran, Iraq and others.
The OIES analyst also suggests: ‘Governments in the MENA region need to establish policies that promote renewable investments, including incentives and favourable permitting processes. As regulatory certainty is essential to attract both domestic and foreign investors.’
Some are already taking action in this direction, as highlighted in the Box below.
Saudi Arabia, Bahrain and Kuwait have announced goals to reach net zero emissions by 2060, while the United Arab Emirates (UAE) and Oman target 2050. Moreover, the UAE has set a 19% emissions reduction target for 2030 relative to 2019 levels.
‘Political stability and a long-term commitment to renewable energy goals are necessary for sustained development. The lack of stability can disrupt the renewable energy sector’s growth.’ – Dr Rahmat Poudineh, Director of Research, Electricity Programme, at the Oxford Institute for Energy Studies
There is also a significant challenge around the lack of grid infrastructure with capacity for renewable energy integration in a wide and often remotely distributed system. ‘The MENA region needs to upgrade and modernise grid infrastructure to accommodate intermittent renewable sources and ensure grid stability as important considerations,’ Poudineh states.
Not to mention a significant skills gap. ‘MENA countries need to invest in training programmes and educational institutions to develop a workforce capable of supporting the renewable energy sector,’ he maintains.
Let’s look at some regions in more detail, based on the authoritative Middle East Solar Industry Association’s (MESIA) Solar Outlook Report 2023.
Saudi Arabia
According to MESIA, Saudi Arabia aims to add 10 GW of renewable electricity generating capacity by 2027, with solar PV leading the way. The government has also announced plans to develop another 2.3 GW of renewable capacity through bilateral contracts under its Public Investment Fund.
The Saudi Water and Electricity Regulatory Authority has approved a regulatory framework for renewable energy for self-consumption. Meanwhile, the state-owned petroleum company Saudi Aramco has published its first sustainability report, aiming to reduce emissions by at least 15% by 2035 (compared to 2018), and aims to install 12 GW of renewable energy projects within that period.
Key projects announced by the Saudi Energy Procurement Company include the 700 MW Yanbu, 600 MW Al Ghat and 500 MW Waad Al Shamal wind energy projects; and two solar projects, the 1.1 GW Al Hanakiya and 400 MW Tabarjal project and the second Shuaiba solar power station, with a capacity of 2,060 MW. In 2022, the Saudi Ministry of Energy awarded power purchase agreements (PPAs) for two solar projects with a combined capacity of 1,000 MW, located in the Riyadah region.
The kingdom also plans to introduce a greenhouse gas certificates market to help reduce carbon emissions.
United Arab Emirates
The United Arab Emirates (UAE) has been investing significantly in renewable energy technologies to diversify its energy mix. Dubai has set targets to increase electricity from renewable sources to achieve at least 25% of electricity output by 2030 and 50% by 2050, including nuclear power. Large-scale renewable projects underway include the Mohammed bin Rashid Al Maktoum (MBR) Solar Park, which plans to produce 5 GW of solar power by 2030, with the UAE achieving net zero by 2050.
The Ministry of Energy and Infrastructure has announced the adoption of a federal law to regulate the connection of distributed renewable energy production units to the grid. And the Department of Energy in Abu Dhabi, in cooperation with the UAE Environment Agency, launched new regulations to encourage the energy transition in 2022.
Bahrain
Bahrain has pledged to increase the renewable energy share of its total energy mix to 20% by 2035, with a mix of solar, wind energy and waste-to-energy projects. Under the Renewable Energy Action Plan, the country is encouraging renewable developments in many sectors, with policies for net-metering, feed-in-tariffs, and a Renewable Energy Mandate for New Buildings (yet to be implemented).
Bahrain is targeting net zero emissions by 2060. Residential solar photovoltaic (PV) installations are subsidised by the government and the tariffs are low, whereas the industrial sector is highly dependent on natural gas for electricity generation.
Egypt
Egypt has announced plans to boost the share of renewable energy in its electricity energy mix to 50% by 2035, from 20% in 2022 including 2% solar energy, 12% wind and 6% hydropower. The majority of renewable energy growth is expected to come through independent power producer (IPP) contracts.
Key projects include the Masdar, Infinity Power and Hassan Allam Utilities’ 10 GW wind energy project; and the ACWA Power, Egypt’s New and Renewable Energy Authority and Egyptian Electricity Transmission Company’s 10 GW wind energy project.
Morocco
Morocco added 203 MW of renewable energy capacity in 2022, generating 20% of capacity with 1.5 GW wind power and 830 MW solar, not including hydroelectric power (1.7 GW). The Moroccan parliament has approved a draft law for the self-production of electric energy.
Moroccan businesses can also generate solar power through ‘wheeling’, since medium voltage interconnection is now possible for developers serving the commercial and industrial sectors. Morocco aims to produce 52% of its energy from renewable sources by 2030.
Jordan
Jordan has made significant strides in the development of its renewable energy sector, increasing its share of renewables in electricity generation to 30% in 2022. Jordan currently leads the Arab world in terms of renewable energy adoption, with Morocco in second place and Egypt in third.
In May 2022, Jordan’s Ministry of Energy agreed to set up a framework for wind and solar projects with a capacity of more than 1 MW. The Ministry of Energy subsidises residential PV and heat pump systems. There are customs exemptions for electric vehicles (EVs), and licences can be issued for green hydrogen and e-methane production. ‘Regulation will be crucial in supporting this transition and should be regularly updated to incorporate new technologies,’ said Mohammad Shehadeh, CCO of Philadelphia Solar, in the MESIA report.
Iran
Iran had a total renewable energy capacity of about 1 GW at the end of 2022. However, the share of renewables in the electricity mix is just 1.1%. Iran’s latest National Development Plan aims to increase renewable capacity to 10 GW, of which 4 GW will come from solar.
Initially, the government permitted private companies to develop utility-scale solar projects independently by facilitating PPAs with the national electricity grid. Recently, the government introduced new regulations maintaining that the installation of utility-scale solar projects should be done only through tenders organised by the government.
The primary mechanism to promote renewables in Iran is the feed-in-tariff for small-scale residential, commercial and industrial installations. The Renewable Energy and Energy Efficiency organisation of Iran (SATBA) is developing new hydrogen regulations. There are also discussions about developing Iran as an energy hub once sanctions are lifted.
Iraq
There is a continued absence of renewable energy legislation in Iraq, perhaps understandable given an unstable electricity supply and political instability. Although in 2022 investment was invited for a 755 MW renewable project (solar) in several locations in a reverse auction on Iraq’s Ministry of Electricity & National Investment Commission website.
Green hydrogen challenges
The MENA region also has potential to become an important player in green hydrogen production and export. ‘The region’s favourable conditions for renewable energy generation, especially solar, can make it a competitive player in the global green hydrogen market,’ says Poudineh.
Here again there are challenges. ‘Water scarcity is a concern in many parts of the MENA region, so efficient water management and technology solutions, such as desalination, would be necessary to ensure sustainable hydrogen production. The development of infrastructure for green hydrogen production and distribution is also a significant undertaking,’ he remarks.
What’s more, MENA countries with heavy dependence on oil and gas revenues may face challenges in diversifying their economies. ‘Transitioning to hydrogen export requires a significant shift in economic focus and can be politically and economically challenging,’ he suggests.
Finally, there is the issue of carbon emissions. ‘Producing low-carbon or green hydrogen requires addressing carbon emissions from hydrogen production processes, like steam reforming. Implementing carbon capture and storage (CCS) technologies adds complexity and costs to projects,’ says Poudineh.
Indeed, despite progress in some countries, there appears to be no easy middle ground upon which the Middle East can transition effectively to low carbon, and ideally net zero, by mid-century.
