Gulf oil producers scramble to catch up on renewables

When Christofer Rathke visited Saudi Arabia for the first time about five years ago, the CEO of the Solar and Sustainable Energy Fund, who lives in Singapore, informed investors and high-ranking officials of “the next big boom” in renewables. He warned fossil fuels could be “phased out quickly” as renewables will “soon be price competitive.”

The interlocutors of the fund manager expressed interest, but nobody turned the talk into action. “Instead, they all subscribed to the Aramco IPO, which is so ridiculous. I mean, they are doing exactly the wrong thing,” Rathke told Al-Monitor. The stock market listing of the Saudi oil giant in 2019 attracted $29.4 billion of investments.

Earlier this year, a senior official at the Kuwait Petroleum Corporation acknowledged that “Kuwait is not pushing for a quick energy transition,” Petroleum Economist reported. “It is not our plan to suddenly be green and say goodbye to fossil fuels.”

Such a statement is clearly in contradiction with the commitment of the Arab Gulf states, all ranked by the World Bank in the top 16 per capita emitters of carbon dioxide in the world, to the 2015 Paris Agreement that aims at limiting global warming below 2 degrees Celsius (3.6 degrees Fahrenheit) this century.

Although the region’s overwhelming dependence on fossil fuel revenues is unlikely to end and the Climate Action Tracker estimated climate actions taken by the Arab world’s largest economy, Saudi Arabia, are “critically insufficient,” Rathke believes a change of approach is taking place. “They realized they have to move faster,” he said.

Green opportunities

Hit hard by the coronavirus pandemic, the Gulf’s once-prosperous economic model is under threat and policymakers look into renewables opportunities to cut down on costs — for example, power electricity-generating plants with renewables instead of fossil fuels, since Gulf states are gifted with some of the highest solar energy potentials in the world.

In Saudi Arabia, renewables could help slash the cost of producing highly subsidized electricity, 70% of which is used to power armies of air conditioners. The country announced it has started to construct the largest wind farm in the Middle East to supply 70,000 homes with the “most cost-efficient wind energy project in the world” by 2022.

In the United Arab Emirates (UAE), the fourth phase of the Mohammed bin Rashid Al Maktoum Solar Park is expected for 2021 and clean and renewable energy, including from the Barakah Nuclear Power Plant, could generate half of the country’s energy mix by mid-century.

Improving energy efficiency of existing infrastructures and promoting rational electricity consumption should complement these efforts, said Aisha al-Sarihi, a climate policies expert and a nonresident fellow at the Arab Gulf States Institute in Washington.

Gulf states also see opportunities in the emerging global market for hydrogen produced from renewables, though fossil fuels are still significantly cheaper. The world’s largest green hydrogen plant is expected to be built in NEOM, Saudi Arabia’s futuristic city.

At a time when the kingdom’s unemployment rate hit a record high of 15.4%, the prospect of creating up to 750,000 jobs in the labor-intensive renewable energy sector over the next 10 years aligns with the objective to increase the employment of Saudi nationals.

Double-talk and limited citizen participation

Yet environmental activists remain skeptical and accuse Gulf states of double-talk. 

Saudi Arabia is notoriously known for attempting to “censor the discussion around fossil fuel subsidy removal” and fossil fuels explorations never stopped in the UAE. In November, Abu Dhabi celebrated the discovery of new massive oil fields located onshore.

“It is important that any move toward renewables is motivated by a desire to take more responsibility in the global fight against climate change, rather than just the economic incentive of freeing up more fossil fuels for export around the globe,” Greenpeace’s Middle East and North Africa Senior Campaigner Ahmed El Droubi told Al-Monitor.

“GCC [Gulf Cooperation Council] governments must take on a more holistic approach,” he added.

But there is still a substantial way to go. The International Renewable Energy Agency estimated renewables accounted for only 26% of the total power capacity expansion in the Middle East in 2019, nearly three times less than in almost all other regions.

“When youth play online games and see wind turbines, they question why don’t we already have it here?” said Mohammed Alshammari, a young Saudi national who participates in a project that aims at opening youth policymakers' channels of communication and believes a modern education system is vital to raise awareness over environmental issues. 

“So that when electric vehicles enter Saudi Arabia — the ​Public Investment Fund invested in electric carmaker Lucid Motors — people will have the courage to buy it,” he said.

Raising awareness at the population level over the climate change challenge should be a priority, Sarihi told Al-Monitor. “In Europe there is a lot of pressure from the citizens for the governments to do something about the environment and climate change. In the Gulf populations are not putting pressure on governments to take more actions,” he said.

Except in Kuwait, where the parliament plays a significant role in the political life of the emirate, authoritarian monarchical regimes in the Gulf region strictly curtail citizen participation and systematically clamp down on freedom of expression.

Turning tables

US President-elect Joe Biden pledged during his campaign to make the United States “the engine of the world’s clean energy economy,” and Gulf states might then view the US-Gulf economic ties as a channel for win-win partnerships to support their green transition.

But despite American ambitions, a UAE-Saudi-led shift toward renewables in the Gulf is likely to be primarily fueled by technologies produced in China, the world's largest manufacturer of solar panels, lithium-ion batteries and electric vehicles.

“I don't see a US-China competition to supply the Gulf in solar panels; the Americans are unable to supply their own market,” Rathke said. The fund manager also doubts Riyadh’s plans to become a manufacturing center for solar energy given the complexity of the supply chain and China’s decadelong competitive advantage in this sector.

Wang Cheng, commercial attache at the Chinese Embassy to Oman, said China has “already played an important role” in the Gulf's green transition and praised the involvement of Chinese companies in the Mohammed bin Rashid Al Maktoum Solar Park.

According to the Chinese official, Omani businessmen are eager to sign exclusive distribution agreements with Chinese carmakers to import electric vehicles. “More and more Chinese car manufacturers will come to Gulf markets,” Cheng told Al-Monitor.

In the renewable energy era, the tables are turning, and Gulf states that export most of their oil productions to Asian markets could well be just a name on Beijing’s client list by mid-century. Then-Chinese leader Deng Xiaoping quipped during a visit to Inner Mongolia about three decades ago, “The Middle East has its oil, China has rare earths.”