Economic Update

The UAE may seem like the last place on earth to find alternate, “green” energy projects, as its 4m residents contently sit on around 8% of the world’s proven oil reserves. Nonetheless, such initiatives are getting off their feet in the Emirates these days – and Dubai, saddled with excess cash, a construction boom and a flare for the unconventional, might well become a leader in this field.

Although at present, an environmentally friendly energy policy is in its infancy, climate change has been a controversial topic for years. The global pro-environment lobby has been pushing doomsday scenarios of catastrophic world failure for some time, while traditional industries, like oil and auto, often dismiss global warming as speculation.

But mild as the immediate effects of climate change are on the population and vast as the great wealth of oil and gas under their soil, the UAE has started to look into a future where environmental conditions and the amount of oil are not so favourable. As a result, a nascent renewable energy industry is slowly emerging.

In many ways, the UAE is a perfect place for new energy technology to cut its teeth. The country has a couple of the most vital ingredients for the most well-known renewable energies – sun and wind. Sunshine graces the Emirates for over 300 days in the year, eliminating one of the key difficulties with solar power – that of intermittent sunshine.

Wind is also plentiful in the northern emirates. The eastern tip, flanked by Fujairah and Ras al-Khaimah, gets plenty of wind off the Indian Ocean. Even Dubai has a propensity for a stiff offshore breeze.

“The UAE has enormous potential for using wind turbines in generating power for its requirements,” said Jacques Audouard, project development manager from the Wind Turbines Business Unit in Jeumont SA, France. “The strength of winds blowing in the Emirates could be utilised for generating electricity.”

The usual confounding factors of renewable energy – the expense and difficulty of changing existing power generation equipment – matter less in the UAE, too. The country is in the midst of a massive building boom and needs to build additional power generation infrastructure to keep pace.

From Abu Dhabi to Ras al-Khaimah, the UAE is throwing up a tourist infrastructure, residences, and business spaces at break neck speed. In Dubai alone, at least 34 new five star hotels are set to be built by 2009. As it is, Dubai’s power plants are strained, a possible cause of the massive citywide blackout seen last June. There is tremendous potential for new energy sources to be used to meet the demand for ever-expanding generating capacity.

The scarily high upfront price of new energy technology is also not a compelling argument in the Emirates, where the economy has more liquidity than it knows what to do with.

Taking advantage of some of these fortuitous natural and economic circumstances, the UAE has taken some small steps to diversify away from hydrocarbons. Recently the government set up its first renewable energy department, and this year it ratified the Kyoto Agreement, designed to reduce greenhouse gas emissions worldwide. In February 2006, Dubai will host the Middle East Electricity Exhibition & Conference, which has renewable energy as one of its main pillars.

“Even as an oil-producing country, we know that renewable energies are our future,” explained an official in the Ministry for Electricity and Water recently.

A few homes and apartment buildings in Dubai have already started generating at least some of their energy needs from solar panels, while Dubai’s al-Bustan Rotana Hotel was one of the first in the region to use solar energy for water heating, starting back in 1998. As reported by Gulf News, the 80 solar panels on the hotel produce 24,000 litres of hot water each day.

Elsewhere, the Arabian Peninsula’s first wind power plant was recently set up on the UAE’s Sir Baniyas Island. Plans are also already afoot for extensive wind farms in the energy-poor northern emirates, which currently depend on Abu Dhabi and Oman to provide gas for electricity.

According to the UAE government web site, the country plans to generate half its energy requirements from renewable resources by the year 2050.

Yet in 2005, there is still a long way to go. Even with all the sun, wind, money and need for new capacity, the UAE remains firmly tied to its hydrocarbons. Oil and gas are still relatively cheap in the country, and despite the high oil prices, this is not set to change anytime soon.

In fact, with schemes such as the Dolphin project, the pipeline designed to bring natural gas from Qatar to the UAE and Oman, the future shift to a renewable energy policy remains distant. Having the prospect of virtually unlimited cheap Qatari gas flowing in, the UAE has little economic incentive to switch to solar or wind on any large scale.

Politically as well, the will isn’t there. While small-scale renewable energy programmes exist, there is little chance of more substantive change without a major government drive to push solar or wind initiatives through. Yet, as the UAE depends on oil (Abu Dhabi generates about 70% of its GDP from oil, the UAE as a whole, 30%), any technology that will challenge hydrocarbons is not likely to be embraced with open arms by the government. Saudi Arabia has gone on record in the past saying that any international charter to reduce reliance on oil is a threat to its national security – and the UAE’s stance is not likely to be too different.

This means that in the short term renewable energy projects will probably remain on the periphery of the UAE’s energy economy. Most probably, solar and wind power in the country will retain their potential, but will only be novelties in the current energy infrastructure.