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Although the GCC nations are positioning themselves for a key role in alternative energy, they, like the rest of the world, face a number of challenges in their quest to embrace non-conventional sources.
Take for instance the estimates quoted at the World Future Energy Summit in Abu Dhabi this year. The amount of global investments required for balancing hydrocarbons and renewables in the world's overall energy mix by 2050 is $45 trillion.
Judging by current trends, this looks very daunting. For example, problems in planning and grid connections have continued to plague wind energy. In Central Europe, only one of the five planned projects has been implemented. However, the situation is evolving fast, and while the shift in the political climate in favour of renewables may be slower than many had hopes, it is looking increasingly firm and irreversible, says Dr Jarmo Kotilaine chief economist at Saudi-based National Commercial Bank (NCB) Capital.
However, the achievements in renewable energy and the limelight that the sector has managed to attract over the past couple of years could be undone if oil prices relapse below the $50/barrel range and linger there for the next few years, Dr Kotilaine says. While unlikely, such a scenario cannot be completely ruled out in the event of renewed economic weakness or a looser supply balance.
In spite of the risks, current projections point to a relatively short period of oil price weakness and the tight demand-supply balance could lead to their relatively speedy recovery once economic growth resumes. At the same time, increasing research and enhanced scale of production would drive down the cost of power from renewables.
This is an area where the Gulf countries with their focus on education and superior financial resources can make a particularly important contribution, he says.
Greater innovation in both development and delivery are also bound to take place. For example, in transport, significant progress has been made in producing battery operated cars and the infrastructure necessary to sustain them.
In all these the private sector has to assume a prominent role. But, why is the private sector not so enthusiastic about non-conventional energy?
A major issue that has been keeping private investors away from alternative energy sources is the lack of concrete assurance on the carbon price. Steps to rectify this are a necessary precondition for substantial financial commitments. Policy initiatives in the form of taxes on emission are required to make the market mechanism work better. By putting a price on pollution, governments can make markets more efficient by reducing externalities and providing a more competitive platform for alternative energy producers, Dr Kotilaine says.
Another aspect that requires attention is that the current moves toward alternative energy (excluding biofuels) are mainly geared toward electricity generation and fuel for industries.
However, transport fuel from renewable sources, such as solar batteries is still a long way ahead. For the Gulf, this is particularly a critical constraint. With oil cheap because of high subsidies, the contribution of transport to carbon emissions is very high and the situation is not likely to change soon. Nevertheless, an increasing number of steps are being taken by automotive producers to develop hybrid and battery-operated cars.
Although wind energy may remain the exclusive focus in the short term, solar power may begin to attract more serious attention over time as both countries have sizeable desert areas. This promises potential advantages to the GCC. If Masdar, Abu Dhabi's $22-billion ambitious project, succeeds, there will be ample opportunities for replicating the experience overseas and accessing potentially large markets elsewhere.
Although the drive toward renewables will be very gradual, major energy companies will have to play a key role in ensuring a smooth transition from hydrocarbons to renewables. One reason is their expertise in energy production. Their capabilities in developing sustainable and viable energy projects from alternative sources are likely to be critical and certainly offer considerable synergies and cost advantages. For example, certain processes and equipment used in offshore drilling might prove helpful to the GCC in exploiting offshore wind energy where the depth of the Arabian Sea poses problems.
The technology in floating oil storage platforms, theoretically, can be used in setting up wind turbines on the sea.
Yet another reason for traditional energy companies to be included in the quest for renewable energy technology is the large amount of funds they could direct toward research and development. Combined with their existing expertise, this could prove crucial in establishing competitive technologies. Lastly, renewables will complement rather than compete with the core operations of major energy companies and boost their long-term sustainability and profitability.
In addition, with their financial and political clout, these companies could help bring about new regulations and incentives for renewable energy. Bringing them on board the renewables platform could thus help alleviate friction and offer a more inclusive way of bringing about a 'green' path to economic development across the globe, says Dr Kotilaine.
Companies such as BP and Shell have already established units to explore alternative energy. Chevron claims to be the world's largest producer of geothermal energy while Saudi Aramco is adopting alternative energy sources such as solar power at its pumping stations and oil fields. These companies could help reduce carbon emissions in the short-term through technologies such as carbon capture and storage.
