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Here comes the sun

Renewables make perfect sense in the Mideast Gulf. Policymakers need to get serious about them in 2017

The Middle East is finally turning its gaze towards renewables and 2017 could see an acceleration in development across the region. Solar-photovoltaic (PV) projects are particularly promising, given the region's climate, and offer a genuinely attractive long-term opportunity for economic development.

There are signs of progress. In 2015 and 2016, for example, bid rounds for Dubai's al-Maktoum PV Solar Park, the emirate's largest renewable-energy demonstration project, achieved the lowest bids on record - globally. Cost bids in 2016 were as low as $0.02.99 per kilowatt hour for the project's 800-megawatt third phase, a world-record low and well beneath the cost of conventional fossil-fuel plants in the emirate, including coal.

Growth in solar capacity should, in turn, drive down the cost of electricity storage, helping overcome the limitations of solar, wind and other intermittent renewables. Qatar, Oman, Saudi Arabia and other Gulf oil and gas producers have their own research and development initiatives, including demonstration projects for niche technologies. They include alternative-vehicle fuels, solar-powered electric mobility, and concentrating solar power for desalination plants and enhanced-oil-recovery projects.

These initiatives should provide the framework for policymakers to integrate renewables into the energy-supply mix next year. The reasons for doing so are compelling: on the one hand, domestic energy demand is growing; and, on the other, meeting this need with an increasing proportion of renewable energy frees up oil and gas for the more lucrative export market. Low oil prices, meanwhile, have strengthened the business case for more sustainable long-term planning in the Gulf's domestic energy markets, given their unhealthily high dependence on export revenues from fossil-fuel sales.

But the prospects for renewables across the wider Gulf region vary widely - and 2017 will not be different. Neither Iraq, given its domestic conflict, nor Iran, in the immediate aftermath of the lifting of secondary sanctions, are likely developers. But the more politically stable member states of the Gulf Cooperation Council, particularly smaller economies such as the UAE and Qatar, offer much more potential, with more advanced markets and political support. Other economic benefits - like job creation - further increase the appeal of alternative energy and energy efficiency.

Other countries will take longer to change. Saudi Arabia, potentially the largest market for a range of renewables technologies, including solar, wind and geothermal power, is still struggling to establish a policy framework for the deployment of renewables. Its economy is built on state-monopoly oil projects, and Saudi Arabia has reduced and delayed targets for diversifying the electricity mix: rather than aiming to produce half of its electricity from non-hydro-carbon energy resources by 2032, it now says it will achieve a 10% share by 2040. Rules that limit private and foreign investment in domestic energy sectors, as well as tariffs, are barriers policymakers will need to tackle in the region, particularly in less open markets like Saudi Arabia and Kuwait.

The Gulf countries are late starters in alternative energy, because of the dominance of the oil and gas industry, consumer subsides that made fossil fuels cheap, non-existent policy frameworks and the widespread failure of their governments to encourage economic diversification. But this will change, not least out of economic necessity.

While oil prices remain low, the Gulf's governments must urgently find ways of cutting state expenditure. In a region as rich in sun as in oil this should be a manageable task, and it could start in 2017 - assuming policymakers can establish a robust platform for investment.

This article is part of Outlook 2017, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here

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