From experimentation to transformation – Clean energy is the Middle East’s economic gamechanger of the decade

With COP26 just around the corner in November, there is a lot of talk about the need for ‘transformational’ approaches to combat climate change. The window to reduce global emissions to manageable levels is rapidly closing, which means that efforts to do so must become more ambitious and wide-ranging to be effective in time.

For the Middle East, innovation and investment around renewables has ramped up partly in response to this global environmental need, and partly because it is an economic necessity. The ‘double crisis’ of oil price shocks of recent years, plus the massive decline in global energy demand during the pandemic (a 4% drop – the biggest since World War 2), have proven beyond a doubt that tying an economy to a resource prone to price fluctuations makes it vulnerable. In 2021, we are now seeing how the region’s transition towards renewables has gone beyond the experimentation phase, and has become transformational.

Turning the dial up – Middle East investment priority shifts further in renewables’ favour

We’ve spoken repeatedly and at length in our monthly updates about how the investment priority of Middle East governments has been shifting away from hydrocarbons and towards renewables for some time now. 2021 continues to show this trend in black and white – In the first half of the year, not a single oil-powered or gas-fuelled power station contract was awarded across the entire Middle East and North Africa region. By contrast, a further $2.8 billion of renewable energy project contracts were awarded here. Furthermore, another $21.5 billion-worth of renewable projects are at the contract tendering stage, with awards likely to be secured in 2021 and early 2022.

While carbon-neutral and net-zero targets are important, concrete investment figures like this tell an even more compelling story. They show that national green strategies being produced across the region have teeth, and that they are paving the way for a genuine energy transition that is speeding up.

Saudi Arabia leads the Green Hydrogen charge

Currently, renewables make up 7% of the Middle East North Africa region’s power production capacity, accounting for 28GW. However, right now a further 98GW of new renewable capacity is planned, with almost half of it likely to come online by 2025.

While plenty of countries in the region have strong renewable ambitions and plans (Algeria, for example, has $42.1bn of projects planned) it is Saudi Arabia that is the frontrunner in making such plans actually materialise. Of its $18 billion renewable project pipeline, $13 billion are either awarded, or otherwise in or close to the tendering stage.

While solar and wind are high priorities in delivering new clean energy capacity, the development of green hydrogen is the latest prospective vehicle for driving the nation’s overall renewable ambitions forward. This month, Bloomberg New Energy Finance (BNEF) announced its prediction that hydrogen produced by clean energy will represent an $11 trillion global market over the next 30 years. For Saudi Arabia, with its ideal solar energy producing conditions, extensive public-private R&D capacity and improving logistical muscle, there is a real opportunity to move quickly to become a world leader in this nascent market.

Accordingly, the King Abdullah Petroleum Studies and Research Center (KAPSARC) is working with the King Abdullah University of Science and Technology (KAUST) to explore both long-time opportunities and quickly realisable deployments for green hydrogen. Already we’ve seen NEOM announce a joint venture with Hyzon Motors and Modern Group plan to supply 10,000 zero-emission, hydrogen-fuelled commercial trucks for the GCC market. While of course the $500 billion ‘giga project’ of NEOM itself is also being designed as a 100% clean energy entity, with clean hydrogen playing a central role.

Middle East-Asia links signal further hydrogen push

The development of clean hydrogen is not just a Saudi Arabian venture either, but a growing priority across the region. The prospect of replacing hydrocarbon-based fuel with hydrogen fuel – and hence decarbonising sizeable parts of different industrial sectors – makes green hydrogen an enticing approach for ME nations looking to boost their sustainability quickly without sacrificing economic growth.

As 2021 progresses, we’re seeing more instances of countries within the region looking to solidify their green hydrogen production capacity and support infrastructure, while also building export links with other nations. This month, Oman established a national hydrogen alliance, designed to bring 13 institutions from across the public and private sectors to develop the industry as a unified whole. This move demonstrates the top-down endorsement of green hydrogen from the highest levels of Omani government and business.

While in the UAE, the Abu Dhabi National Oil Co (ADNOC) announced a new trade partnership with Idemitsu, which is the second largest petroleum refiner in Japan, to sell it blue ammonia. Created using hydrogen manufactured through steam methane reforming, blue ammonia is currently one of the easiest ways to store and transport hydrogen. This is the second agreement between Adnoc and a Japanese company on the sale of blue ammonia. For the UAE, this is another important step in the journey towards the maturation of its national green hydrogen industry, to the point where it is a world-leading exporter of hydrogen product, expertise and capacity production.

Faster adoption and distribution – Renewables will set the pace of ME economic transformation in the 2020s.

As this year unfolds, all indications are that it will be a record-breaking year for renewable adoption in the Middle East and North Africa. Renewables have proven their resilience during the pandemic, while also proving their attraction as a more stable long-term alternative to hydrocarbon reliance. With green hydrogen generating more interest across the region and further abroad, multiple ME nations have a unique opportunity to establish themselves as early market leaders in this small but high-potential industry. So far, everything points towards them understanding this opportunity, and mobilising their considerable resources to secure it. 

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