Something is stirring in the sunlit fields of the Middle East and across the arid landscapes of North Africa. In a region where oil is king, solar power is emerging. Though several obstacles stand in the way of a renewable takeover in the region, countries in the Middle East and North Africa (MENA) are beginning to appreciate that investment in renewable energy may be the key to future prosperity. It is in the United States’ best interest to get involved in the region’s solar development now while MENA countries are hungry for outside investment.
The statistics point to a renewable energy revolution. Renewables in MENA have doubled to 40 gigawatts (GW) in the last decade. Between 2008 and 2018, Middle Eastern investment in solar increased 12-fold. Bolstering this effort are the Gulf Cooperation Council (GCC) countries, with plans to establish nearly 7 GW of new renewable power generation capacity by the early 2020s. With this newfound fervor for renewable energy, investment in the MENA region could hit $1 trillion in the next few years.
There are two causes behind this push for renewables. First, the recent collapse in oil prices reminded Middle Eastern countries that overreliance on oil revenue is dangerous. This precipitous dependency is exacerbated by the growing consensus amongst the global community that the future is in renewable energy. Second, MENA governments are starting to appreciate the fact that, aside from oil, their region is blessed with another resource: sunlight. Several Middle Eastern countries have taken notice.
United Arab Emirates:
The United Arab Emirates (UAE) is leading the charge in solar development. Solar power in the UAE constitutes 58% of the solar project market share in the MENA region. The Emiratis have launched two mammoth solar projects in recent years, including the 1,177 mega-watt Sweihan Solar Photovoltaic (PV) project and the massive 5 GW Mohammad bin Rashid Al Maktoum Solar Park. Solar has also become a larger focus in the utility sector, with the Emirates Water and Electricity Co. spearheading a 2 GW solar project in Al Dhafra set for completion in 2022.
Last year, the Egyptian government commissioned the Benban solar complex, a large, 1.5 GW project that will eventually include 41 individual projects. The government hopes renewables will account for 20% of its electricity mix by 2022 and 42% by 2035. However, considerable work is needed to achieve these goals. Domestic energy demand is expected to increase dramatically by 2030. In order to meet their goals, Egyptian authorities will need to help facilitate a more competitive electricity market, while slashing antiquated fuel and electricity subsidies.
Despite arriving late to the solar scene, Saudi Arabia has established itself as an emerging solar contender. To prove it means business, the Saudi government launched the $28 billion Saudi Industrial Development Fund to fuel future renewable energy projects. The Saudi Renewable Energy Project Development Office has also launched a bidding program for 60 pre-qualified companies to bid for various solar project contracts.
Several obstacles could stand in the way of solar adoption across MENA.
First, continued turmoil and conflict across the Middle East may dissuade outside investors. In Iraq, the country’s energy minister blames protests for the government’s inability to meet the goal of meeting 20% of demand with renewables by 2030. Additionally, the Egyptian government had to purchase solar power at above-market rates to lure hesitant investors, given the country’s instability.
Second, several MENA countries are prone to over-promising and under-delivering. For example, in 2018, Muhammad bin Salman, crown prince of Saudi Arabia, struck a deal with Japanese conglomerate SoftBank to build the world’s largest solar-power-generation project. Six months later, the project was nixed. Concerns over MENA partners’ ability to follow-through on renewable energy deals has the potential to scare off outside investors, threatening the capital necessary for solar expansion.
Finally, oil is cheap right now, which may persuade some MENA countries from pivoting to more expensive renewables. Furthermore, a depressed oil market will result in lower state revenues across the Middle East, potentially disincentivizing the development of future solar projects.
MENA governments must take several key steps in order to secure a renewable-rich future.
First, governments across MENA need to restructure their fossil fuel subsidy programs, reassessing what they are subsidizing and the economic effects of these subsidies. Though the oil industry will remain the center of many MENA economies in the decades to come, shifting traditional oil subsidies to the solar market is a necessary step if MENA countries hope to sustain solar development.
As seen in Egypt and other MENA countries, slashing fuel and electricity subsidies is not easy. After subsidies, the cost of fossil fuel is significantly lower than renewables, and cutting subsidies would likely be met by considerable political backlash. In 2015, Saudi Arabia slashed fuel and electricity subsidies causing the regular gas price to increase by 67% and electricity tariffs by 35%.
However, without cutting fuel and electricity subsidies, renewables will never compete with carbon-based energy. As an example, in 2012, Saudi Arabia’s domestic price for electricity from fossil fuels post-subsidy stood at US¢1.3 per kilowatt-hour (kWh), while solar electricity cost between US¢11-¢48 per kWh, a significant price difference.
Second, MENA governments need to set realistic goals and clear expectations. Lofty development targets that stand a small chance of being reached are a turn-off to foreign investors. Finally, MENA governments must strive to better collaborate with the private sector and the international community, leveraging resources from international organizations like the World Bank and foreign investors.
Challenges and Opportunities for the US:
The pursuit of solar power in the MENA region has several implications for the US. First, a greater embrace of solar may result in lower oil production from MENA countries over the long run. As government subsidies for the oil market begin to shift towards renewables, oil companies across the Middle East may begin to decrease production. This change in production will invariably lead to price changes and may incentivize higher production in the US.
Second, MENA countries are hungry for international investment in solar projects. This presents an opportunity for the US solar industry to finance projects abroad and share technology with Middle Eastern partners. This bilateral relationship stands to bolster the solar industry on both sides of the Atlantic and may even spark greater solar investment within the US as well.
The future of solar power in the MENA region is a bright one. Though there will inevitably be growing pains, it would behoove the US to play a role in it.