UAE. ‘Renewable Energy: Seeds of Change’, a whitepaper by Deloitte Middle East, finds that the recent changes in regional policies towards renewable energy will create an abundance of opportunities for private sector companies in the GCC, in the near and long term.
As an oil producing region, the Middle East has long been considered a net emitter of carbon. However, the Deloitte Whitepaper indicates that this perception now appears to be changing as the region takes steps to embrace renewable energy. Many GCC governments have already announced plans to capitalize on renewable energy. Saudi Arabia, Kuwait, and Oman have each stated plans to produce at least 10% of their energy from sustainable sources by 2020. Whereas Dubai and Abu Dhabi each set targets of producing 5% and 7% respectively of their energy from solar and renewable sources by 2030.
While energy independence is one reason for the shift to renewables, the opportunity costs of burning oil is becoming increasingly difficult to ignore, Energy experts at Deloitte say. They cite that Saudi Arabia alone is estimated to be diverting 800,000 barrels of its daily oil production to oil burning power plants. At current market prices of US$ 120 per barrel, this amounts to up to US$ 35 billion in lost oil revenue per annum as a result of not selling oil to foreign markets.
“In the near term, we expect to see several policy announcements and a push towards green energy production being stimulated at the national and governmental levels,” said Declan Hayes, Managing Director, Renewable Energy & Cleantech, Deloitte Middle East. “This is because it is the Governments and National companies themselves who are currently bearing the impact of the costs and who see the financial incentive to initiate change,” he added.
In light of the ongoing changes in the renewable energy sector, the Deloitte whitepaper outlines several near and medium term topics to appear, over and above policy announcements and a push towards green energy production. The Deloitte whitepaper finds that given sufficient projects, the additional burst of activity in the Middle East will serve as good incentive for large multinational renewable energy companies and component manufacturers alike to consider establishing presence and production centers in the region.
Over the medium term, the Deloitte whitepaper outlines several key themes which are expected to emerge:
Gradual removal of oil subsidies in favor of a free market mechanism
While any move that would negatively impact the subsidization of electricity produced from oil is expected to face a potential social backlash, a gradual increase in the price of oil to more fairly reflect market values seems to be an inevitable step. A decrease in oil input price subsidies would serve to simultaneously reduce the opportunity costs of lost oil revenues (i.e. oil not already sold to foreign markets), while also reducing the local demand for oil and its derivative products, the Deloitte whitepaper predicts.
Consideration of feed-in tariffs and/or tax benefits to encourage renewable energy production
The introduction of feed-in tariffs to provide a guaranteed stream of income for electricity generated by the private sector would serve to stimulate the private sector into considering renewable energy adoption.
Opportunities for companies adapting technology to better suit the desert environment
By developing technology that is able to better withstand the dust, sand, wind, high temperatures and low water levels that characterize the desert environment in most of the Middle East, companies may realize a first mover’s advantage to mass adoption.
Market forces and a changing competitive landscape are providing compelling reasons to consider alternative sources of energy. As such, many short term and medium term opportunities will continue to surface and impact the GCC region.
To read more on the whitepaper download it from ‘Renewable Energy: Seeds of Change’.
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About Deloitte & Touche (M.E.):
Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is the first Arab professional services firm established in the Middle East region with uninterrupted presence for over 85 years.
Deloitte is among the region’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through 26 offices in 15 countries with over 2,500 partners, directors and staff. It is a Tier 1 Tax advisor in the GCC region (International Tax Review World Tax 2010, 2011 and 2012 Rankings) and was recognized as the 2010 Best Consulting Firm of the Year in the Complinet GCC Compliance Awards.
In 2011, the firm received the Middle East Training & Development Excellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW).