Thursday, 25th January 2018

Energy: The geopolitics of renewable resources

The application of renewable energy (RE) to replace hydrocarbons in generating electricity could provide an end to the Gulf’s ‘resource curse’, but right now the region lacks some of the tools needed to cope with the new era. Just as oil prices were hitting a three-year high in mid-January, the world’s RE industry was gathering in Abu Dhabi for the International Renewable Energy Agency (Irena)’s annual summit. The fact that the world’s most important sustainable energy agency is based in the Gulf still feels slightly counter-intuitive and incongruous – although it builds on a legacy endowed by the UAE’s founding president Sheikh Zayed Bin Sultan Al-Nahyan. A region that, for all its talk of diversification, still relies heavily on oil and natural gas output to sustain itself would appear to have little incentive to promote RE. Yet there clearly is a self-interest: governments know they cannot afford to continue to subsidise fuel and electricity supplies at past levels (GSN 1,009/17). Every barrel of crude or cubic metre of gas used domestically is an export-earning opportunity lost. And as the cost of RE continues to fall to the point of being price competitive with conventional fuel sources, there is an ever more powerful incentive to exploit abundant solar power.

Irena’s presence is a signal that the UAE is taking RE very seriously indeed. Environment and climate change minister Thani Ahmed Al-Zeyoudi said the federation wants Irena to take on a bigger role in the future. This is backed by big RE players – and Irena backers – like Germany. There seems to be an unstoppable momentum but, if that is the case, there are important issues that have yet to be discussed widely in the region but which will have to be confronted sooner or later. The rise of green energy is not just a matter of changing the way cars or air conditioning units are powered. For the Gulf, the switch away from hydrocarbons raises a host of fundamental issues which, if badly handled, could yet pose a serious, even existential, threat to regimes across the region.

At the macro-level, changing global trade and investment patterns could undermine the Gulf’s often central position in international affairs. New cartels could emerge among countries that control the supplies of raw materials and technology necessary for RE technology. Oil producers will have to decide what to do with their ‘legacy assets’ as they become obsolete.

Domestically, the advent of distributed (offgrid) power generation could undermine powerful local champions, including utility companies; this could, in time, make electricity planning more difficult. In Dubai’s Jebel Ali port and free zone, its manager DP World is installing solar photovoltaic (PV) panels on rooftops at 20 sites, which will in time provide a large chunk of the free zone’s power supply. As more independent producers emerge, the role for Dubai Electricity and Water Authority will shrink – but it will still need to have the capacity to act as an electricity provider of last resort.

State authorities must also manage the need for large-scale investment in new infrastructure, including e-charging stations for vehicles to replace existing fuel stations. In the future, recharging of electric cars will be done at home as well as on the road, which will require the rollout of smart charging infrastructure so the grid is not overwhelmed when everyone gets back from work in the evening and plugs in their car. Most fundamentally, the region’s energy exporters will need to find new sources of revenue and new drivers of economic activity as consumers and businesses move away from oil and gas-guzzling technology. That wholesale remodelling of oil-exporting economies could prove politically and socially disruptive.

There are positive impacts, beyond cleaner air and (perhaps) cheaper electricity. If the world starts to care less about ensuring access to oil and gas, there ought to be less competition among global powers in the Gulf region, of the sort that has been at the heart of political conflict for decades.

These are big issues which it is not possible to address quickly. Irena has set a ball rolling by announcing a new panel to examine such issues: the Global Commission on the Geopolitics of Energy Transformation was launched at the summit on 14 January. It will be chaired by former Iceland president Olafur Grimsson; another 11 members are due to be announced in the near future. It will report in January 2019, at the next Irena summit.

That ought to signal the start of the process. It is now possible to see a plausible way in which the Gulf can end its ‘resource curse’ era. This is likely to be gradual rather than sudden and different areas of activity will change at different rates – unlike road transport and electricity provision, RE has yet to provide good alternatives for shipping and aviation. Change is undoubtedly coming in the next few years and decades, but it is doubtful whether the region is well prepared for the consequences of that shift. Addressing the issues will require engagement across many areas of government, business and society. The Gulf still lacks the sort of civic structures and room for public debate that could enable that engagement to take place in a controlled way. Issue 1052, 25/01/2018

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