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UAE and Saudi Arabia to compete for top global ranking in green energy
Al-Monitor Pro Members
Afshin Molavi
Senior Fellow, Johns Hopkins School of Advanced International Studies
Feb. 2, 2023
As the UAE prepares to host COP28, GCC governments are accelerating renewable energy projects at home and through investments abroad. From hydrogen to solar and wind, GCC states and associated entities are leveraging their capital, industrial capacity and networks to build renewable energy to support ambitious emission reduction targets and participate in what is shaping up to be a multi-trillion dollar energy play. The UAE and Saudi Arabia are leading the pack, even as both are ramping up oil production, rejecting the "either-or" view of climate activists in favor of a pragmatic transition that involves both renewables and existing fossil fuels at lower carbon intensities. The UAE will play a particularly significant role as host of COP28. If ambitious plans materialize, by 2050 the UAE and Saudi Arabia could emerge as major green energy providers worldwide.
- With an estimated need of $4 trillion in renewable energy investments by the end of the decade to meet worldwide net zero targets by 2050, the world is on the cusp of a massive rush to invest in green energy projects worldwide.
- Several regional states are actively engaged in large-scale green hydrogen projects, most notably Saudi Arabia, Oman, and the United Arab Emirates. Shell recently took a 35% stake in a major project in Oman that aims to produce 1.8 million metric tons a year of hydrogen. The Saudi mega project, NEOM, aims to build one of the largest green hydrogen plants in the world. Expect competition to heat up in hydrogen production as the UAE, Oman and Saudi Arabia both aim to be top ten hydrogen producers within a decade.
- Oman has announced an ambitious green hydrogen strategy. It aims to produce at least 1 million tons of green hydrogen by 2030, rising to 8 million tons by 2050. Oman has already received interest from several energy majors to invest in its green hydrogen vision. Plans also include building one of the largest green hydrogen plants in the world, to be operational by 2038. The government has estimated that $140 billion of investment will be required to meet its vision. Oman’s geography also benefits its desire to develop both wind and solar energy more rapidly.
- The underlying strategy on renewable energy investment, as outlined by senior officials from several Gulf Arab states over the past year, has focused on a pragmatic mix of continuing to produce and sell oil and gas to meet the world’s rising demand, while using some proceeds from those sales toward renewable energy projects that could ultimately become future revenue export drivers. They reject the “either-or" narrative promoted by some climate activists, arguing that fossil fuels will still be needed to power the world, but smart renewable investments today will allow both the world — and their own states — a smoother transition in a post-fossil fuel world.
- The UAE has been actively engaged in renewable energy investments since the 2009 founding of Masdar, the clean energy investor with projects in more than 40 countries and more than $20 billion in investments. All told, the UAE has invested some $50 billion in renewable energy in more than 70 countries with plans to invest another $50 billion in the next decade. Masdar has announced plans to dramatically ramp up renewable energy capacity worldwide to 100GW by 2030.
- The current UAE Climate Envoy and head of COP28, Sultan Al-Jaber, is well-positioned to lead the pragmatic strategy of ramping up renewables while also ensuring the world’s fossil fuels demands are met. Currently the CEO of Abu Dhabi National Oil Company (ADNOC), he began his career as the CEO of Masdar, the UAE clean energy investor. While at ADNOC, he has actively pursued some of the most ambitious carbon capture and storage initiatives and has pledged $15 billion toward renewable energy. ADNOC plans to increase its carbon capture capacity to 5 million tons/year by 2030 and aims for net zero emissions by 2050.
- On the domestic front, the UAE operates three of the largest and lowest-cost solar plants in the world. It is, by far, the solar leader in the region. It is also the first Middle East country to operate carbon-free nuclear power plants, as well as one of the world’s largest carbon capture utilization and storage facilities (CCUS). The government has pledged a net zero goal by 2050.
- In 2009, after a global competition, the UAE won the right to host the International Renewable Energy Agency (IRENA) — the first major multinational organization to be headquartered in the Middle East. That winning bid spurred a flurry of activity on renewable energy within the UAE. In similar fashion, hosting the upcoming COP28 global climate conference in Dubai later this year has already accelerated renewable energy initiatives both in the UAE and across the world.
- Saudi Aramco, the global oil heavyweight, has allocated $1.5 billion for a sustainability fund to invest in breakthrough climate technologies and has pledged to create 12GW of renewable energy by 2030. The company’s historic ability to execute mega-projects suggests that it still has much more room to grow in building renewable energy.
- The Riyadh-based utility developer, ACWA Power, is emerging as a major renewable energy player worldwide. It currently operates in 13 countries across the Middle East, North Africa and Central and South Asia with a $66 billion portfolio that produces 43 GW of power, more than ⅓ of which is renewable. ACWA has recently announced a new wind farm project in Egypt, the world’s largest single onshore wind project in Uzbekistan, and a solar plant in Makkah.
- Another rising but smaller regional player is AMEA Power, the Dubai-based energy provider with 2GW of clean energy power in 15 countries. It aims to more than double its capacity in the next three years. Meanwhile, Nebras Power of Qatar added to its growing portfolio of renewable projects by taking a 49% stake in a major wind farm in Australia last month. Nebras is also actively engaged in renewables in Jordan and Uzbekistan.
- As Egypt pushes toward its goal of increasing renewable energy sources to 42% by 2035 from roughly 11% now, it will increasingly seek investment from the likes of ACWA Power, Masdar and other Saudi and UAE entities.
Scenario 1: A wide range of incentives and subsidies in Europe and the United States transform the investment market for green energy providers, attracting capital and companies to those markets and pinching growth opportunities for Gulf Arab renewable energy initiatives.
Even if hundreds of billions of dollars flow into Europe and the United States for renewable energy projects as a result of wide-ranging subsidies, the needs are so immense that the world will need to find as many projects as possible, including in the Gulf Arab states. Furthermore, GCC states - most notably UAE and Saudi Arabia, but also Oman and Qatar - have clearly marked renewable energy as a high priority area and will allocate some of their own capital to projects. The GCC states will also be vital bridge builders to developing countries with less access to capital and industrial capacity. Finally, GCC capital and companies like Masdar and ACWA are likely to take part in projects in Western advanced economies. Masdar is already a significant renewables investor in the United States.
Scenario 2: Gulf Arab states decide to pivot away from renewable energy initiatives as a core objective, relegating it to peripheral, as demand for oil and gas continues to rise, particularly in developing and emerging market countries with growing middle classes.
While oil and gas demand is indeed expected to remain strong over the next two decades, the momentum in most GCC states has clearly swung toward a dual track strategy that eschews the ‘either-or’ of fossil fuels or renewables with a ‘both-and’ strategy of producing fossil fuels at lower carbon intensities to meet the world’s demand while also ramping up renewable energy investments both to meet net zero goals and to exploit the growing commercial opportunity for exports.
The writing is on the wall. The world is moving toward a much larger share of renewables in the global energy mix. Still, the world will still need fossil fuels over the next few decades, particularly as developing countries and emerging markets ramp up their demand. Gulf Arab states — notably Saudi Arabia and the UAE — are well-positioned to continue providing fossil fuels to meet the world’s demand, while also investing robustly in renewables to get ahead of future demand while meeting net zero pledges. With the political will to pursue projects combined with industrial capacity and capital, the region could emerge as a significant green energy exporter and investor over the next two decades.
Afshin Molavi has nearly 25 years of experience covering the geo-economics of the Middle East and North Africa and broader emerging markets with postings in Riyadh, Jeddah, Dubai, Tehran and elsewhere. Currently a senior fellow at the Johns Hopkins School of Advanced International Studies in Washington, he has also held various research, reporting, analyst and leadership roles at Reuters, Oxford Analytica, the International Finance Corporation of the World Bank, emerge85 and the New America Foundation. His articles have also appeared in Bloomberg, the Financial Times, the Washington Post and the Journal of Commerce, and he is the founding editor of Emerging World, a Substack newsletter that explores the intersection of emerging markets, globalization and the key global trends shaping our future.
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