Economics of Renewable Energy and Sustainable Development ...adrjs.aduc.ac.ae/Papers/Vol1no1/Razia.pdf · 2012, pp. 22-23). Within the UAE, Dubai’s average household energy consumption

Al Dar Research Journal for Sustainability 1(1), Nov. 2016. http://aduc.ac.ae/adrjs.aspx

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Economics of Renewable Energy and Sustainable Development

In the GCC with a focus on UAE

Razia Irfan

School of Business Administration

Al Dar University College, Dubai, UAE.

Email: [email protected]

Abstract An economic perspective to the sustainability goals of a country importantly rests on the development

of renewable energy sources as a means to achieve growth. Empirical findings recorded in official

reports and related research studiesinclude interesting observations regarding renewable energy

deployment. This research paper discusses the varied global observations made by researchers,

marked by a general consensus on the prevailing issues. There has been worldwide growth in

installed capacity, power generation, innovative technologies, and R & D in the field of renewables,

though with regional differences. As part of global initiatives, the last decade has seen growing

awareness in the GCC region of the need to procure alternative sources of energy. The policy aim of

achieving sustainable development by using a progressively larger share of renewables in the energy

mix is based on growth strategies such as economic diversification that reduces dependence on finite

reserves of hydrocarbons, improved energy efficiency and imposing curbs on wasteful consumption of

energy in the GCC nations.High energy consumption is one of the main concerns of the GCC

countries. Due to the continually growing energy demand and depleting natural reserves of fossil

fuels, some of the GCC countries have become net energy importing countries. Hence, the self-

sufficiency of these countries in terms of fuel supply has decreased drastically over the last few

decades, the main reason being the distortion of the energy balance. Renewable energy will help

restore the energy balance, diversify the energy mix, reduce the strain on national funds for

importation of fuel, improve self-sufficiency and most importantly reduce the ecological footprints.

Subsidy reform is proposed to be one of the main pathways that can help the nation achieve the goals

of sustainable energy development from an economic standpoint, while attracting investors to fund

renewable energy projects is a good strategy for speeding up the transition process. Educating the

nation’s growing population is the way forward to promote efficiency in energy use, encourage the

generation of innovative ideas and technologies, and build awareness on these important issues that

have global impacts.

JEL Classification: A11, A12, A31, E2, H2, H7, I, O, Q3, Q4, Q5

Key terms: Economic Development, Renewable Energy, Sustainability, Energy Transition

1. Introduction The growth strategy pursued by the GCC countries since the early seventies has largely been

that of export-led economic growth with heavy reliance on the energy sector. Excessive dependence

on oil and natural gas reserves that are rapidly depleting, combined with high price volatility in

domestic and international energy markets, has not always been in the best interests of these

economies. Growing awareness among policymakers about these trends and its possible hazards, has

prompted these countries to adopt strategies that can speed up the transition of their economies

towards a more sustainable development.The strategies include economic diversification to reduce

dependence on oil and natural gas, increased investment and deployment of renewable sources in the

energy mix and improved efficiency in the use of energy.

1.1 Background Our Common Future, also known as the Brundtland Report, published by the World

Commission on Environment and Development in 1987 defines sustainable development as

“development that meets the needs of the present without compromising the ability of future

generations to meet their own needs” (International Institute for Sustainable Development , 2016)

IRFAN Economics of Renewable Energy and Sustainable Development

29

Though sustainable development is generally acknowledged as including objectives related to

social equity, economic development and environmental protection, it is often misinterpreted using a

narrow definition that addresses only environmental issues principally climate change. Development

undoubtedly focuses on economic growth. However, a replication of the resource-intensive

development strategies used by developed countries so far, is neither in the best interests of the

developing countries that rely on finite resources such as fossil fuels, nor in the larger interests of

mankind. Thus, there is a need for sustainable development using renewable energy. Renewables

include power from sunshine, water, wind, biomass and wastes. The renewable energy forms most

applicable to countries in the GCC region are primarily solar, wind, geothermal and waste-to-fuel.

1.2 Significance of the Study Economics being a science of choices, an economic perspective to the subject of renewable

energy deployment importantly rests on cost-benefit considerations of RE deployment vis-à-vis

business-as-usual energy policies based on use of finite resources. Though policies promoting

sustainable development using renewables involve environmental, political and social choices as well,

the focus of this paper is on economic aspects. As financial criteria often determine economic

decisions, it is important to focus on the relative costs and benefits of development strategies that

increasingly rely on renewable energy to fuel economic expansion. Some debatable issues that arise,

however, in the use of cost benefit approach to justify higher RE deployment arethe reference group

for assessment of costs and benefits (end-users, investors, the nation or the world), a realistic

monetary value to be used for estimating the external costs of conventional energy generation &

consumption, a monetary value to measure the larger benefits of non-polluting renewable energy

sources such as solar photovoltaic (PV) or wind energy in the GCC region, the point of time at which

costs and benefits are to be assessed (initial construction costs or operational costs during life-cycle of

project, current benefits or benefits to future generations), and social and political implications of

energy pricing reforms, (Twidell & Weir, 2006, pp. 530-532).

This paper attempts to review the various interrelated issues that pertain to the significance of

renewable energy as a means of moving ahead on the path towards sustainable development with a

focus on the GCC countries, UAE in particular.

1.3 Operational Definitions of Terms in the Study The following definitions are provided to enable an improved understanding of the technical

terms used in this paper:

Capital expenditure (CAPEX): It is funds required to acquire new physical assets. It is an expense

where benefit continues over a long period rather than being exhausted in a short period of time.

Energy consumption per capita: It represents the TPES divided by the population of the country.

Energy Intensity: measures the amount of energy (TPES, measured in toe) that a country needs to

generate a unit of GDP.

Levelized Cost of Energy (LCOE):

“The LCOE is the total cost of installing and operating a project expressed in dollars per

kilowatt-hour of electricity generated by the system over its life. It accounts for Installation

costs, Financing costs, Taxes, Operation and maintenance costs, Salvage value, Incentives,

Revenue requirements (for utility financing options only), Quantity of electricity the system

generates over its life.”(National Renewable Energy Laboratory, 2014).

Operational Expenditure (OPEX): It refers to the expenditures required for day-to-day functioning

of business.

Price-gap approach: It takes the difference between world reference prices and domestic energy

prices as the total energy subsidies and support provided within a country.

Purchasing Power Parity: It is adjustments made to the currency exchange rate between countries,

allowing the exchange rate to equal the countries’ purchasing power.

Roadmap: It refers to a plan or strategy intended to achieve a particular goal.

Total Primary Energy Supply: It equals production plus imports minus exports minus international

bunkers ± stock changes.


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2. Review of Related Literature and Studies The pivotal role of renewable energy (RE) in furthering the avowed aim of sustainable

development has been widely discussed in official reports by reputed international bodies, as well as

in research work conducted by independent academicians, scientists and institutional researchers. An

economic perspective to the very same aspects of renewables in relation to sustainable development

often brings out enlightening observations. Interesting inferences emerge from such studies/research

work.

To begin with, an important driving force in the search for cleaner energy options, is the need

to reduce the high global levels of CO2 emissions caused by rapidly rising energy consumption,

especially as witnessed in the GCC region.

Having established a positive correlation between per capita energy use and per capita GDP,

Brown et al., (2011, pp. 19-20) combined principles of ecology, physics and economics to infer that

energy and other resources, if used indiscriminately, can prove to be limiting factors to achieving

sustained economic development. Data from the IEA and WRI demonstrated a positive correlation

between energy use and economic activity for 220 nations over 24 years (1980 to 2003).

“So, per capita GDP can be thought of as an index of an average individual’s share of his or

her country’s economy, and per capita energy use as the power required to sustain that level

of economic activity.” (Brown et al., 2011, p. 20)

High energy use allows economies to grow larger, achieve higher levels of technological

development and raise their living standards, (Brown et al., 2011, p. 22). The trend of rising energy

consumption observed in the GCC region as a consequence of a high pace of economic development

has been highlighted in the OUP Report. Using figures as evidence of a fast rising total primary

energy consumption level by the GCC region as a whole, Kuwait, and Saudi Arabia in particular, the

Report pointed out how the high per capita consumption of primary energy and electricity by UAE,

Bahrain and Qatar has been responsible for a number of difficulties. Excessively high rates of oil and

LNG consumption for domestic energy generation divert these resources away from high-revenue-

generating export markets, thus endangering the fiscal stability of the Gulf economies, (El-Katiri &

Husain 2014, pp. 2-5).

Highlighting the importance of sustainable development, times, Jayaraman, La Torreb, Malik

and Pearson (2015, pp. 1-2), attribute the current global need for sustainable efforts to a combination

of three main factors: rapid economic growth, rising energy demand and environmental impact of

growth-led rise in energy consumption Nations seeking sustainable development according to the

authors, must jointly achieve the multiple objectives of improved economic development, efficiency

in energy consumption and reduction in greenhouse gas.These, in fact, may often be conflicting

objectives, for instance, a sharp rise in GHG emissions is usually the price paid by countries

experiencing rapid economic development. While acknowledging this conflict in objectives, the

authors provide supporting data in an attempt to show the link between a 30 percent growth of world

population between 1990 and 2010, increased energy consumption and the fact that the energy sector

is responsible for more than two-thirds of the GHG emissions prevalent in present.Wasteful patterns

of energy consumption have been highlighted in most of the reports and research articles, (Bachellerie

2012, pp. 22-23).

Within the UAE, Dubai’s average household energy consumption is estimated to be about 5

times higher than that of the average household in UK. Recent research by McKinsey & company,

estimates show that 20% of residential energy consumption is wasteful – mainly due to inefficient

behaviour in energy consumption. The research study suggests ‘behavioural energy efficiency’ as an

opportunity for saving energy, (Ministry of Energy, 2015, p. 147). Among the reasons for high energy

consumption in the UAE are

Desert climate, that requires air-conditioning & cooling for more than half the year

Desalination plants to meet the growing water needs of the country,

Energy-intensive industries, thriving construction sector

High incomes and rising living standards

Most of the literature reviewed for this research paper traces high primary energy

consumption to the growth-led surge in energy demand faced by rapidly developing economies, the

GCC countries in particular.. They further draw similar conclusions regarding the use of cleaner &


31

greener alternative sources of energy to curb the adverse effects of a resource-intensive strategy of

economic development that principally rests on use of finite resources, specifically high-carbon-

emitting fossil fuels.

According to the data analyzed by Juaidi (2016, pp. 1199, 1201) electricity consumption per

capita in the UAE is very high as compared to that in the rest of world, with the electricity

consumption continuing to increase by 13% every year from 2000 to 2013. To reduce CO2 emissions

from the combustion of fossil fuels to obtain electricity, it was suggested that instead of hydrocarbons

the country’s abundant solar resources be utilized for this purpose, promoting a sustainable future

energy system.

The building sector is another important contributor to both economic growth and the

consequential high energy demand. Observations made by Asif (2016, pp.1267-1273) about the UAE

and Saudi Arabia investing a major share of their national funds into the building industry, prompts

him to suggest that dedicating a part of such investment towards the implementation of sustainable

buildings, associated policies and frameworks would further benefit the sustainable development

initiatives, as demonstrated by successful models in the EU. This approach is expected to significantly

reduce emissions and increase energy efficiency considerably by nearly 20% as in the EU model.

Green buildings not only improve energy performance based on international standards, but

more importantly integrate occupants’ health and productivity by reducing pollution and avoiding use

of toxic materials. Buildings in the Masdar City in Abu Dhabi aim to achieve these objectives and

even exceed the international requirements. Significant reductions in carbon footprints, energy

demand and water demand, amongst several other benefits, have proved that this approach is the way

forward to progressive sustainable development, (Mezher & Park 2012, pp. 69-84; Reiche 2010, pp.

378-382).

Energy and water security, being issues of significant concern in relation to a sustainable

future of the GCC economies, also happen to be the driving factors for pursuing renewable energy

initiatives. Delays in deployment of renewable energy projects have been attributed to several aspects

(financial, technological, political, environmental and legislative issues) that have been responsible

for the emerging gap between installed and potential capacities of the renewable energy sector,

(Abdmouleh, Alammari, & Gastli 2015, pp. 1181-1191).

The issue of rapid groundwater reserve depletion is another feature that deserves the much-

needed attention with the implementation of renewable energy projects, particularly the proposed

solar-powered desalination plants. Water footprints of the GCC countries are very high according to

global standards, as the dry arid climate of the region causes a slow replenishment of groundwater

levels that is unable to keep pace with mounting water consumption, . (Saif, Mezher, & Arafat 2014,

pp. 329-332).

According to IRENA, desalination is responsible for nearly 30% of the total energy

consumption in the UAE, with similar rates in other GCC countries all of which mainly use

desalination for meeting their growing water needs. The costs of desalination are mainly due to the

high energy intensity of the process. Desalination uses up large amounts of oil or natural gas which

could have otherwise been exported if an alternative source of energy was procured. In addition to

this, net LNG importing GCC countries, including the UAE, experience a fiscal drain for meeting the

growing demands of the water and power sectors. With a progressive reduction in costs of renewable

energy technologies & continual progress in R&D, both grids connected and off-grid desalination is

estimated to be increasingly cost-competitive, making it more viable from a business viewpoint.

Accounting for opportunity costs, the grid connected PV-RO system is favorable from an economic

standpoint, giving a strong case of large-scale renewable energy integration. In spite of the falling oil

prices, hybrid solar PV-based desalination in remote areas is economically still more competitive than

diesel-based water production in off-grid areas, (IRENA, 2016b, pp. 79-87).

A majority of the literature sources pointed out that energy subsidies and low domestic

pricing are the main drivers behind both wastage of energy and diminished interest of investors to

pursue renewable energy projects, resulting in the observed delay in development and deployment of

such projects, (Ferroukhi 2013, pp. 84-112; Majid 2011, pp. 1-9; Lilliestam & Patt 2015, pp. 8263-

8285).

The IISD claims that energy price reform will help support the economic and socio-political

objectives of diversification of the GCC energy mix. Subsidies can be of different types: the


32

government may directly transfer funds, forego revenue, supply goods/services, or provide price

support. This definition by the Global Subsidies Initiative of the IISD is based on the ASCM and

WTO specifications. The measurement of the exact amount of subsidies is a challenging task,

especially when a particular type of subsidy has not been clearly defined by the provider. Hence, the

use of price-gap approach as a commonly accepted measure of subsidies provided, although this

approach often gives a low estimate. Evaluating the economic, environmental and social impacts of a

certain type of subsidy enables the decision-makers to opt for/against continuation of the existing

subsidy policy. The rise in share of energy cost in GDP, reduced investment in the energy sector, and

growth of hidden inflation have all been attributed to the rising energy consumption rate, (Charles,

Moerenhout, & Bridle 2014, pp. 5-7).

Subsidies, paired with the abundance of hydrocarbons, are considered to be the main barrier

to renewable energy development in the GCC, resulting in the reluctance of both governments and

investors to spend money on the necessary technologies. Increasing domestic fossil-fuel prices is

anticipated to improve cost recovery models by increasing electricity tariffs, consequently improving

the response of investors to the renewable energy market. Thus, more investment will result in

reduced cost in renewable technologies, promoting further investment and displacement of the

distorted reliance on conventional fossil-fuels, (Charles et al., 2014, pp. 22-26).

Apart from subsidies, Munawwar and Ghedira (2014, pp. 3199-3200) identify a range of

factors that have been affecting rates of RE project development; the absence of broader regulatory

frameworks and policies, financial challenges due to large, risky capital expenditures, and long-run

investments with delayed returns. Technical difficulties also arise due to the high average

temperatures in the UAE and the GCC region, along with dust affecting the optimal efficacy of the

solar plant equipment. Being a newly developed industry in the GCC region, RE sector is marked by a

dearth of professionals with technical knowledge and a shortage of experienced personnel. These

shortcomings are slowing down project development, deployment and R&D in this area, (Munawwar

& Ghedira 2014, pp. 3199-3200; Gastli & Armendáriz 2013, pp. 8-10).

3. Methodology In the course of this research, a wide variety of literary sources were used to obtain quality

information in the form of studies by experts, researchers and scientists, for a well-rounded discussion

and analysis of the topic.

3.1 Sources The main sources included official reports published by reputed international organizations

and by various relevant ministries of the UAE. Local public libraries were also searched for books on

relevant topics. The latest data and information from the IEA, IRENA, IISD, Masdar Institute and the

UAE Ministry of Energy have been invaluable in the preparation of tables and graphs in this

paper.Online journal article databases were searched, including the IDEAS Search engine for the

RePEc database, the largest online source for papers on economics. Google Scholar was also used for

acquiring data on the amount of reputed journal articles and books published on relevant topics.

3.2 Inclusion Criteria The inclusion criteria incorporates only the literature that was published by reputed

organizations and government bodies.Another important inclusion criterion adopted was that the

literature used should not be older than 10 years, though mostly only those published in the last 5

years were considered. This was done mainly due to the nature of the data involved; advancement in

technology, changes in policies and new initiatives have resulted in frequent changes in statistical

data. Hence, in an attempt to ensure the reliability and accuracy of the analysis and the conclusions

drawn, only the latest available information has been incorporated. However, some of the data

included in this paper may be 2 to 3 years old due to the time lag that exists between data collection,

assimilation and final publication of the same by the concerned organization.

3.3 Exclusion Criteria The area of focus of this research being conducted is the GCC region, therefore information


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relating to non-GCC countries of even the MENA region has been excluded. There is an enormous

amount of research conducted on the renewable energy and sustainability strategies implemented in

the developed Western countries of the world, but this has been excluded due to the region-specific

nature of certain variable that affect the economics of energy.Some relevant papers that were based on

conference proceedings were found to make inadequate referencing (inaccessibility of complete

original articles on which research findings were based), and hence were excluded based on concern

about reliability of information they incorporate.

3.4 Results The RePEc database was first searched with the search terms “economics of renewable

energy in GCC” only and no filters were applied on year of publication, so as to estimate the number

of sources available on the topic. Only seven articles were found in this preliminary search. Once the

inclusion criteria of the last seven years were applied, only six articles remained. The Google Scholar

search engine was searched with the same key words and the filter of five years, and returned with

4,150 articles. However, many of the articles were irrelevant, so the advanced search was modified to

shortlist articles that had ‘renewable energy in the GCC’ in the title, with the aim of obtaining more

specific results. Hence, the search engine returned with only twelve relevant articles. These articles

were then manually searched for relevance to economic implications of an energy transition.

Consequently, only eight of the twelve articles found were useful. Further, some useful citations

mentioned in the reference list of the selected journal articles were also included.

4. Findings of the Study

4.1 High Energy Consumption The GCC countries have been known to have unusually high levels of energy consumption in

comparison with the world average.

Figure 1: Energy Consumption per capita of the GCC countries

compared to the world average in (2013)

Source: International Energy Agency, (2016)

Figure 1uses the ratio of total primary energy supply (TPES) to population of the countries to

measure per capita energy consumption levels, which are relatively higher in the GCC as compared to

the corresponding world and OECD figures. This is attributed to rapid economic growth, sharp rise in

population due to largeinflux of migrant workers, industrialization, urbanization and rising living

standards. Another observation that may be made fromFigure 1 shows Qatar as having the highest per

capita consumption (18.52 toe) among the GCC countries in 2013, followed by Kuwait and Bahrain.

As regards historical trends of per capita consumption for the period between early seventies, when

most of GCC nations embarked on the path towards rapid economic development, and the year 2015

as shown in Figure 2, there is a general trend of increase in per capita energy consumption for all six

countries in the region, though with some inter-country differences. The trend line for Qatar shows

the largest and sharpest rise among the six countries in the GCC, in spite of fluctuations that can be

observed over the stated period. The other fivecountries too have shown fluctuations. The trend line

for KSA is the least steep and has the least fluctuations.

0

5

10

15

20

World OECD UAE Saudi Kuwait Bahrain Oman Qatar

1.9 4.2

7.44 6.67

10.41 10.3

6.7

18.52

TPES

/po

p.(

toe

/cap

ita)


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Figure 2: Energy Consumption per capita for GCC countries from (1970s to 2010s)

(TPES/population (toe per capita))


The same fact of rising energy consumption is also highlighted by the primary energy

intensity data as presented in Figure 3, when measured in relation to the country’s GDP.

Figure 3: Energy Intensity (TPES/GDP(PPP)) (toe/thousand 2005 USD)

of the GCC countries from (1970s to 2010s)


The high levels of energy consumption (total and per capita) are largely responsible for the

fall in self-sufficiency of these countries in terms of ratio of energy production to energy

consumption, as can be observed in Figure 4. The consequent implications of these unfavorable trends

in terms of falling oil and gas reserves go against the very objectives of sustainable development in


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the GCC region.

Figure 4: Energy Consumption per capita for GCC countries from (1970s to 2010s)

TPES/population (toe per capita)


4.2 Rising Levels of CO2 Emissions High levels of CO2emissions are usually the inevitable consequence of high primary energy

consumption levels. The positive correlation between increase in TPES and rising GHG emissions

(CO2 in particular) has been a global phenomenon. The GCC region, however, has been marked by

one of the highest levels of carbon emissions in the world. The per capita CO2 emissions of GCC

countries in 2013 were higher than the world average (Figure 5) as estimated by IEA (2015). Among

the six GCC nations; Qatar and Kuwait had the highest CO2 emissions per capita (33.38 t and 24.96 t

respectively)

Figure 5: CO2 emissions per capita of the GCC countries compared to

the world average (2013)


4.3 Subsidies / Fossil Fuel Pricing Considering the heavy dependence of the GCC economies on hydrocarbons as a source of

energy to fuel rapid economic development in the region, and as a major source of export revenue,

energy pricing plays a highly significant role in the economic, political and social framework of GCC

countries.

0 10 20 30 40

World

OECD

UAE

Saudi

Kuwait

Bahrain

Oman

Qatar

2.38

2.27

2.41

2.46

2.4

2.06

2.38

1.8

4.52

9.55

17.93

16.39

24.96

21.24

15.95

33.38

CO2/population (t CO2/capita)

CO2/TPES (t CO2/toe)


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Energy subsidies and low fossil fuel pricing is seen traditionally as a means of redistribution

of wealth gained from the sale of domestic resources, especially in favor of the poor. It is perceived

as a “social contract between the leadership groups and the citizens.” (Charles et al., 2014, p. 3)

The energy subsidization figures for the year 2014 in Figure 6 shows that total subsidy as

share of GDP for Saudi Arabia and Oman was as high as 9.5 % and 9 % respectively, while for Qatar

subsidies made up 3% of GDP. For the same year, average subsidization rate for Kuwait & Saudi

Arabia was as high as 81.4% and 78.6% respectively, whilst the rate for UAE was relatively lower at

55.2%.

Figure 6: Energy Subsidization in the GCC (2014)


Another measure of the level of subsidies, probably a better tool of inter-country comparison

as it accounts for differences in size of population, is the amount of subsidy per capita as shown in

Figure 7. In 2014, subsidy per capita was as high as $2754 in Qatar whereas the per capita figure for

Bahrain was $1697

Figure 7: Subsidies per capita ($/population) in the GCC countries (2014)


It is equally important, however, to consider the adverse impact of low fossil fuel pricing in

GCC countries. There has been a loss of revenue in the form of opportunity cost of export earnings

forgone due to non-competitive domestic prices which have been lower than international prices,

creating fiscal pressures for the economies of the region. Another major unfavorable consequence is

the overconsumption of energy. Electricity consumption has been increasing at about 7% per annum

in these countries, causing a rapid decline in domestic resources and consequently the use of imported

diesel and gasoline for electricity generation, (Alnaser & Alnaser, 2011, pp. 3074-3098). The increase

in transport fuel consumption being witnessed is also being arguably traced to energy subsidies.

Between 2007 & 2011, total transport fuel consumption found to increase by about 60%, (Charles et

55.2

78.6

81.4

59.9

63.6

68.8

4.4

9.5

5.1

6.7

9

3

0 20 40 60 80 100

UAE

Saudi

Kuwait

Bahrain

Oman

Qatar

Total subsidy as share of GDP(%)

Average subsidization rate(%)

1868

2428 2528

1697 1775

2754

0

500

1000

1500

2000

2500

3000

UAE Saudi Kuwait Bahrain Oman Qatar


37

al., 2014, pp 1-26).

High subsidization rates of fossil fuels deter renewable energy deployment. Renewable

energy investment is marked by high upfront costs of capital construction, making it a less attractive

option as compared to investment in conventional energy sector. Fossil fuel subsidies accentuate this

phenomenon, further reducing the already low competitiveness of renewable energy deployment. An

interesting observation, though, is the fact that extensive research and development on innovative RE

technologies have enabled nations to devise cost-effective methods of energy generation. Thus the

upfront investment costs of RE today are much lower than they used to be in the past. Besides, if the

low operational costs of RE as compared to that of fossil fuels are taken into consideration, RE

becomes an even more attractive option.

4.4 Making a Case for Renewable Energy

A case for increase in renewable energy deployment can be made from two perspectives.The

undesirable effects of overdependence on finite resources are in itself adequate justification for the

need to speed up transition in favor of alternative sources of energy. Environmental degradation,

increase in health costs, and rising global temperatures have been faced as a worldwide consequence

of growing greenhouse gas emissions due to combustion of fossil fuels.

A second standpoint is the actual and potential benefits of higher renewable energy

deployment. Besides furthering the broader goal of sustainable development, the favorable outcomes

of investment in RE technologies and RE deployment more specifically relate to four main areas: job

creation, reduction of CO2 emissions, savings in fuel consumption, and savings in water withdrawal,

(Meltzer, Hultman & Langley 2014, pp. 40-50).

Various aspects of employment created by the renewable energy sector have been explored by

way of data and analysis. Reliable facts and figures providing empirical evidence of jobs created in

renewable energy sector are found in existing studies, (Strietska-llina et al., 2011; UN Industrial

Development Organization and Global Green Growth Institute, 2015; Greenpeace, 2014 and 2015) as

cited by IRENA, 2016a, p. 39). An estimate by IRENA (2016a, p. 38-39) provides a figure of 7.7

million jobs (direct and indirect) that were supported worldwide by renewable energy sector in 2014,

indicating an increase of 18% over the year 2013. Of this employment, the largest increase was

observed in China (3.39 million) and Brazil (0.93 million). Of the RE technologies, Solar PV has

been the main contributor (2.5 million jobs) to the employment growth in 2014. Achieving the RE

targets for the GCC could create a yearly average of 140,000 direct jobs till 2030.

As estimated by IRENA (2016b, pp. 70-77), GCC countries could achieve fossil fuel savings

of 2.4 billion barrels of oil equivalent cumulatively between 2015 and 2030 based on RE plans for

2030 (projected RE capacity of 80GW). This can result in overall savings of USD 55to 87 billion

depending on the prices of oil and gas. Further, reduced fossil fuel consumption due to use of

renewables in the GCC, will potentially reduce carbon emissions by a cumulative total of

approximately 1 Gt by 2030, thus reducing the per capita carbon footprint by 8%. The expected

positive effect in terms of reduction in water withdrawal is estimated at 16% (11 trillion of water per

year), (IRENA, 2016b, p. 16).

4.5 Reviewing progress in renewables At the global level, there has been substantial progress in renewable energy capacity

generation, share of RE in the energy mix and innovative research in the field. Figure 8 demonstrates

the proportion of renewable energy in the TFEC globally.

Figure 8: Total Final Energy Consumption Globally

Source: International Energy Agency, 2016


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Figure 9 presents a global overview that provides evidence on progress made in installed RE capacity

(till the year 2015).

Figure 9: Global Overview of Total Installed Capacity of All

Renewable Energy Technologies (2015)

Source: International Renewable Energy Agency, (2016)

Observations made from Figure 10 and Table 1 also substantiate the marked progress in installed RE

power capacity worldwide between the years 2000 and 2015.

Figure 10: Installed Renewable Energy Power Capacity of the World from (2000-2015)



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Table 1 shows the RE global indicators according to the various available technologies

Table 1: Renewable Energy Global Indicators (2008, 2012, 2015)

Source: REN21, (2015)

In comparison with the rest of the world, progress in the area of renewables has been made

relatively recently in the GCC region. Higher RE deployment is being pursued in most of the 6

countries in the region, with the UAE and Saudi Arabia playing the role of trendsetters.

Figure 11 indicates the rise in installed RE power capacity in the GCC region. Solar PV and CSP

technologies have taken the lead, as may be observed from the graph.

Figure 11: Installed Renewable Energy Power Capacity of the GCC (2008 – 2015)


In corroboration of the several RE initiatives taken by the GCC countries, the various RE

projects, the completed and planned, have been included along with corresponding capacity figures in

Selected renewable energy global indicators 2008 2012 2015

Investment in new renewable capacity (annual) (Million USD) 182 256 285

Renewables power capacity (existing) (GWe) 1,140 1,470 1,849

Hydropower capacity (existing) (GWe) 885 990 1,064

Wind power capacity (existing) (GWe) 121 283 433

Solar PV capacity (grid-connected) (GWe) 16 100 227

Solar hot water capacity (existing) (GWth) 130 255 435

Ethanol production (annual) (109 litres) 67 83 98

Biodiesel production (annual) (109 litres) 12 22.5 30

Countries with policy targets for RE use 79 138 173


40

Table 2.

Table 2: Renewable Energy Projects in the GCC (2013 with updates)

Source: International Renewable Energy Agency, (2016); Ferroukhi et al., (2013)

While the initiatives and achievements made so far in the GCC region in the area of

renewable energy deployment as part of sustainability objectives are encouraging, there is need to

speed up and intensify the measures in this regard.

Among the best practices in renewable deployment (solar and wind energy in particular)

found globally, mention may be made of China which has made the global highest progress in solar

and wind energy. Cochin Airport in Kerala (a Southern State of India), where solar PV was initiated

in 2013 on a small scale and subsequently expanded to successfully meets all the energy needs of the

Airport , has also emerged as a source of inspiration for countries attempting to switch to renewables.

Another example is that of Singapore. Beginning with ‘the first Singapore Green Plan’ that was

released in 1992 followed by ‘Sustainable Singapore Blueprint’ in 2009, the country has set goals for

sustainable development to be achieved by 2030. A mix of regulations, policies and standards has

been established in addition to customer awareness programs and information management on all

environmental issues in Singapore. Brazil is still another example of high performance in RE

deployment, with a high share of biofuel production and conventional hydro-electric power. (BP,

2015)

Within UAE, the Dubai Supreme Council of Energy launched a DSM (Energy Demand Side

Management) strategy which involves specially designed mechanisms based on international practices

& includes increasing public awareness, capacity-building, adequate policy & regulatory frameworks,

information systems & advanced financing mechanisms.DSM is expected to reduce strain on national

resources, encouraging the authorities to divert the funds thus released to other beneficial uses,

including Renewable Energy initiatives, (Ministry of Energy, 2015, pp. 127, 134).

Country Completed Projects

Capacity in

MW Projects planned

Capacity

in MW

Bahrain BAPCO 5 Waste to Energy 25

Solar PV 5

Kuwait AlAbdiya ISCC Projext 60

Solar Therma 50

Wind Turbine 10

Shagaya PV 10

Qatar Waste to Energy 40 Kahramaa Solar Power Plant 230

Al Duhail Solar PV Park 10

Oman Solar Thermal EOR plant 7 Solar Thermal EOR plant 100

Dhofar Wind Farm 50

Saudi Rooftop PV 2 ARAMCO off grid 300

KAPSARC Phase 1 4 Duba ISCC Power Plant 50

KAPSARC Phase 2 2 Waad al shamaal ISCC 50

PN Univ Solar water heating 17 Al-Aflaj Solar PV Park 50

Aramco North park PV 11 Al-Khafji PV 10

Jubail & Yanbu PV 50

KA CARE PV plant across country 500

Others 300

UAE Masdar City Solar Park 10 Sir Bani Yas Wind Energy 30

Shams 1 CSP 100 Solar Power Plant RAK 40

Mohammaed Bin Rashid Project 1 13 Mohammaed Bin Rashid Project 2 200

Mohammaed Bin Rashid Project 3 800

Waste to Energy TAQA 100

Waste to Energy Bee'ah 83

Noor 1 Solar PV Plant 350


41

5. Conclusions Taking into consideration the relatively shorter period, as compared to the developed

countries, that has elapsed since the GCC countries set off on their path to economic growth during

the post-oil era, the low achievement rates in renewable energy deployment may be well-justified.

Also, the recent initiatives taken by the GCC region as a whole and by trendsetters such as the UAE &

Saudi Arabia are commendable. However, issues such as the continually rising energy demand,

increase in energy consumption coupled with a fall in oil and natural gas reserves, are a cause for

concern. While the awareness that has been created on the subject of need to use alternative energy

sources is a step in the right direction, there is a need to further enhance this awareness. A more

intensive state-led campaign promoting the realization of the gravity of the situation needs to be

launched in each of the GCC countries. Various alternative strategies may be adopted to ensure

greater involvement of the private sector too. The significance of the energy transition from

conventional forms to renewables has to be highlighted so as to gain wider acceptance at all levels –

individual users, key decision makers, organizations in the private and public sectors, and government

bodies. The energy transition phase that the current generation is going through, demands the use of

sound change management strategies. Creation & realization of the sense of urgency is the need of the

hour.

6. Recommendations As part of awareness generation, the economic, ecological and social benefits of RE

deployment certainly need to be highlighted, but attention must also be placed on education and

training as these can be useful in meeting RE objectives. The efforts and actions taken so far in this

direction need to be intensified. All streams of education at high school and undergraduate levels in

particular must introduce or accentuate the level of learning and skills in sustainable development

with a sharp focus on the importance of renewable energy. A mandatory approach may be

implemented to ensurethat every school, college, and university graduate be equipped with adequate

knowledge and awareness of the empirical fact that the issue of renewables is most likely to have a

lasting impact on their own future and that of the generations to come. Assignments, projects,

discussions, class presentations with greater student involvement will not only improve the knowledge

base of the GCC population, but more importantly, it is very likely to serve as a platform for new

ideas, innovative solutions & technological breakthroughs. The related and equally important need is

that of greater investments and incentives to be assigned to Research and Development.

Time-bound targets determined by policymakers in relation to share of Renewable Energy in

the energy mix, generation of Renewable Energy capacity, investment in renewables, Renewable

Energy consumption as a percentage of total final energy consumption (TFEC) and similar quantified

targets are undoubtedly critical to furthering RE deployment goals. Nonetheless, it is equally

important to avoid setting over-ambitious targets. It is an observed phenomenon that as the actual

achievement rates move further away from the targeted levels of an exercise or goal, the greater the

disincentive effect on the players. Large gaps between targets and achievements often become

demotivating factors and play a mitigating role. Target-setting should therefore be realistic and

rational, so that even a modest or reasonable achievement rate induces & encourages the players to

improve performance and excel in successive periods.

Another suggestion is that of setting state-led binding targets. Within a regulatory framework,

this also applies to the targets relating to capacity-generation, consumption of RE (as a percent of

TFEC) or MTOE. Industry-specific targeted, monitored and measured experimental projects

introduced on a small-scale and implemented in chosen sectors based on viability can improve

success rates. The RE deployment levels can then be gradually expanded and heightened, in high-

responding units/sectors.

There is also a concomitant need to acknowledge the existence of a time lag between the high

cost investment of RE technologies, and the realization of financial gains and macroeconomic benefits

that may be expected to accrue from RE deployment. Though future estimates and projections in this

regard may involve the element of uncertainty, some success stories provide evidence of long-term

benefits of RE deployment. Empirical observation in cases such as Cochin International Airport in


42

India, Singapore, China and Brazil shows that projects initiated at modest levels at the set-up stage

can make unprecedented gains and have widespread trickle-down benefits that may exceeded

expectations.

The subject of fossil fuel subsidies, though debatable and politically sensitive, is extremely

significant with implications that are as sanguine as they are real. The detailed discussion & emerging

conclusions from the various analyses of fossil-fuel subsidies, helps to infer that fossil-fuel subsidies

certainly impair the economic competitiveness, of RE in more that one way. Building up on the line of

argument presented by many authors, a policy of subsidy reform, rather than complete elimination of

these subsidies, is more likely to meet the desired objectives.

Under the current global scenarioand in the GCC particularly, the high share of fossil-fuels in

the energy mix causes the fossil-fuel subsidies on thermal power generation and subsidized price to

consumers stand out as prominent. Gradual reduction of the subsidies against a backdrop of falling

shares of conventional energy in the energy mix is less likely to evoke resentment, social discontent or

sudden macroeconomic impact. The government funds freed due to reduced fossil-fuel subsidy can

then be re-allocated to RE incentives such as subsidies.

A comparison of the relative costs of renewable energy and fossil fuels indicates that though

upfront costs of construction are higher in the case of RE, the operational costs (fuel costs in

particular) of renewables are much lower, (Breyer & Reib, 2014, pp. 4047-4055). Taking into

consideration the ‘CAPEX’ relative to ‘OPEX ’ operational costs levels for RE vis-à-vis fossil-fuels,

incentives extended to attract private investors towards RE by lightening their capital cost of

construction will help. Such a strategy is likely to attract private investors that normally shy away

from the high capital cost of construction of RE technologies. Thus, the high R & D and set-up costs

can be shared by the government and private sector based on mutually agreeable and viable

mechanisms. In some cases, the state / public sector utility providers may initially bear a major share

of the cost burden as a stop-gap approach with the longer term welfare and economic objectives in

view. Energy transition towards RE undeniably has multiple advantages in terms of economic,

environmental and social interests at the macroeconomic level.

Figure 12: Comparative Estimates for CAPEX and OPEX

of Renewable Technologies (2015)

Source: Lazard’s Levelized Cost of Energy Analysis (2015)

Subsequently, once capital costs of construction are taken care of, a realistic market-based

pricing of the RE provided to consumers is likely to bring fairly high returns to investors, bearing in

mind the low operational costs of renewables including cost of fuel. Another argument in favor of this

strategy is that all users of the RE (the groups that are normally supported with subsidies, as well as

those that are not) may uniformly pay a moderately low price of the energy generated from renewable

sources, while at the same time precluding or minimizing the need for energy subsidies of any kind. A

larger share of RE in the energy mix will automatically make heavy costs of fossil-fuel subsidies

irrelevant.

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List of Abbreviations

CSP Concentrated Solar Power

GCC Gulf Cooperation Council

GDP Gross Domestic Product

GHG Greenhouse Gas

GSI Global Subsidies Initiative

IEA International Energy Agency

IISD International Institute for Sustainable Development

IPCC Intergovernmental Panel on Climate Change

IRENA International Renewable Energy Agena

KWh Kilowatt hour - a unit of energy

LCOE Levelized Cost of Energy

LNG Liquefied Natural Gas

MEI Ministry of Energy and Industry

MENA Middle East and North Africa region


45

MTOE million tonnes of oil equivalent - unit of energy

PPP Purchasing Power Parity

PV Photovoltaic

RE Renewable Energy

RePEc Research Papers in Economics

RO Reverse Osmosis

tcm ton cubic meters

TFEC Total Final Energy Consumption

toe tons of oil equivalent - 41.868 GJ / 107kCal

TPES Total Primary Energy Supply

UAE United Arab Emirates

UNDP United Nations Development Programme

UNEP United Nations Environment Programme

UNFCC United Nations Framework Convention on Climate Change

UNIDO United Nations Industrial Development Organization

WMO World Meteorological Organization

Documents

Economics of Renewable Energy and Sustainable Development ...adrjs.aduc.ac.ae/Papers/Vol1no1/Razia.pdf · 2012, pp. 22-23). Within the UAE, Dubai’s average household energy consumption