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Saudi Arabia’s planned smart city Neom, expected to be home to one million people, is set to issue its first tenders for a renewables power grid later this year. The move underscores the gathering green energy transition taking shape in Middle East countries, as they seek to shift away from their longstanding dependence on oil and gas. And while they profess a desire to contribute to international net-zero ambitions, there are also more hard-headed calculations at play.
Declining oil prices and questions over long-term demand for the commodity, coupled with the need to diversify their hydrocarbon-reliant economies and the falling costs of renewable energy generation are driving heavy investment in a range of power technologies in the Middle East and North Africa (MENA), particularly solar and wind – though, so far, their huge potential has been largely untapped. Globally, MENA has the lowest share of renewable energy as a portion of total energy consumption.
Envisaged as a carbon-neutral city, Neom, located on the Red Sea coast, will boast one of the world’s biggest plants producing green hydrogen – an emerging clean fuel, generated by renewable sources, which could have an instrumental role in global decarbonisation efforts. The $5 billion plant is among a raft of green energy projects the kingdom is advancing – part of a wider bid to promote innovation and enterprise as a means of transforming the country’s economy, the so-called Vision 2030 initiative.
However, the green energy transition across the region will be a gradual one. MENA oil and gas producers will continue to be leading suppliers of world markets for some time to come. In fact, Saudi Arabia and the UAE want to raise their crude production capacity in the next five to eight years. Renewables for the moment at least cannot be delivered at a large enough scale to replace oil and gas, which remain central to MENA economies. Yet multi-billion investments in green energy projects signal a very clear direction of travel.
In a compelling sign of shifting priorities, not a single contract for oil- or gas-fuelled power stations was awarded in the MENA region in first half of 2021, while renewable energy contracts amounted to $2.8 billion, the Middle East Economic Digest, MEED, reported last August. Overall, it said some 104 billion dollars’ worth of renewables projects are planned, with $21.5 billion at the contract tendering stage and likely to lead to contract awards in 2021 and this year.
Saudi Arabia appears to be in the driving seat of the transition: its pipeline of green energy projects valued at $18 billion, some $13 billion of them at or close to tendering stage. Neom’s green hydrogen plant, scheduled to be operational by 2026, is the most high profile facility in the region geared to the production of what many regard as the ‘fuel of future’ – driving manufacturing and transportation, in the process helping economies to slash emissions.
As well as green hydrogen, created from the electrolysis of water, there’s substantial potential to produce low-carbon blue hydrogen, derived from natural gas in a process called steam methane reforming, where most of the carbon by-product is captured and stored. MENA is considered well- placed for blue hydrogen generation because of its low-cost natural gas resources and depleted oil wells providing carbon storage capacity. Moreover, green and blue hydrogen output in the region can be converted to ammonia, ideal for storage and shipping to markets in Europe, the US and Asia.
Industry observers note a wave of investment in Middle East production of hydrogen, suggesting the region has the potential to become a global supply hub for the fuel “in much the same way as it is now for crude oil”. But while hydrogen is currently capturing headlines, there have also been significant developments in more established clean energy sectors, namely solar and wind. In December 2020, funding was secured to build the world’s biggest solar project near Abu Dhabi, using 4 million solar panels to produce enough electricity for 160,000 homes. And in August last year, Saudi Arabia’s first wind farm, the largest in the Middle East, and the first in the kingdom, began generating electricity – its 99 wind turbines supplying 70,000 homes when fully operational.
Across North Africa and the Middle East solar and wind power capacities are being developed. Notably, renewable sources in Morocco account for 37 per cent of its energy needs in 2020. And the region is also employing innovative new technologies to address carbon emission problems and challenges. These include waste-to-energy (WtE) solutions, sourcing electricity from the incineration of rubbish bound for landfill sites; and flare capture, the utilisation of the natural gas burnt off in oil extraction.
WtE projects are being developed by Gulf states whose growing, increasingly wealthy populations are said to generate high per capita levels of waste. A WtE plant in Dubai, one of the largest in the world, is scheduled to provide electricity for 120,000 households. And with MENA accounting for 40 per cent of global flaring, gas capturing projects have a big role in reducing emissions. Iraq, a major oil producer, was the world’s second-worst flaring country after Russia in 2020, but expects to end the practice by 2027, with the help of capture projects. Commissioning of the largest one in the Middle East to date was completed in January. These investments could help to lessen Baghdad’s reliance on gas and electricity imports from Iran, for which it currently requires sanctions waivers.
MENA clearly wants to play its part in stemming the climate crisis. Yet its pragmatic leaders are equally aware that the hydrocarbon business over time offers diminishing returns as the rest of the world switches to greener forms of power. They have begun to shift priorities, employing the latest technologies to start exploiting the region’s enormous renewable resources. While the power produced will be overshadowed by continued fossil fuel output for some time, the green transition is, demonstrably, under way.
Mileson Qiang Guo is an entrepreneur and investor, and the founder of The Institute for Emerging Technologies and Social Impact (ITSI). He founded ITSI to foster debate and discussion about the social impact of emerging technologies amongst industry pioneers and policy leaders. The Institute aims to cultivate original research, share ideas and connect people with the shared goal of harnessing technology for the greatest social and economic benefit.