Ali Noureddine
This article has been translated from Arabic.
The main economic challenge caused by the reliance on fossil fuels for energy production is the effect of changing oil derivative prices on the price of electricity production. This is precisely what transpired in 2021, when the average price of a barrel of oil increased by around 68% year over year and fuel consumption soared as economies resumed activity following widespread closures caused by the coronavirus pandemic in 2020.
The Ukraine conflict’s consequences made the situation even worse this year. The average price of a barrel of oil increased by 50% over the previous year due to shortages in Russian energy supply, despite sustained high global demand for oil as the world struggled to recover from the pandemic’s impacts.
As a result, the price of power produced from fossil fuels rises proportionally to every rise in the value of crude oil, putting additional pressure on consumers as well as raising the cost of production in various economic sectors.
The drawbacks of solely relying on fossil fuels
Fluctuations in the cost of electricity production are not the sole difficulties resulting from a reliance on fossil fuels to generate power. The problems grow more severe for countries importing oil derivatives because the amount of hard currencies needed to import fuel increases in parallel to the rise in oil prices, linking these countries’ financial stability to the price of oil.
As a result, economic growth forecasts and the financial stability of oil-importing countries are often linked to expectations in oil prices. Furthermore, oil markets often witness harsh interactions between oil-producing countries, which have a vested interest in higher prices, and oil-importing countries, which push for measures to rein in oil prices.
These issues only underscore the significance of the fact that, according to figures from the International Renewable Energy Agency, the cost of producing electricity using even the cheapest fossil fuels is still four times higher than producing an equal amount of power through renewable energy. In fact, the same figures indicate that the energy generated using renewable energy over the past resulted in about $55 billion in savings.
Thus, with the cost of producing electricity using solar energy has decreased by 88 per cent between 2010 and 2021, the continued use of fossil fuels to generate power has become a far more expensive practice compared to renewable alternatives.
The importance of renewable energy in the Arab region
Today there are ample reasons to push societies toward producing electricity by using renewable energy as an alternative to fossil fuels, but for the countries of the Arab region the need for this direction is more pressing. With the growth rates of populations in these countries surpassing global growth rates, they witness an inordinately high energy demand.
In addition, many oil-importing Arab countries such as Lebanon, Syria, Sudan and Egypt suffer from severe and long-term monetary crises, which are exacerbated with every rise in global prices of basic goods, including oil, as result of increasing pressure on their balance of payments with the rise in the cost of imports.
The Arab region has a wealth of potential for renewable energy, partly because it has the highest solar brightness, or sunlight exposure, across the globe. The Middle East and North Africa region enjoys the benefits of a solar ray with productivity that ranges between 4 and 8 kilowatt-hours per square meter, according to research by the United Nations Environment Program. It is also distinguished by a low occurrence of clouds, which enables it to use sunlight to produce power for most of the year.
The International Renewable Energy Agency’s statistics, which show that every square kilometer in the MENA region receives solar energy yearly equivalent to the output of 5.1 million barrels of oil, may be used to quantify the significance of this renewable energy.
Therefore, it is obvious that the Arab area can benefit significantly from renewable energy, not only by supplying its own population and economic sectors’ energy demands, but also by exporting power to other parts of the world.
It is important to note that certain Arab nations, like Egypt, already have electrical networks that link them to numerous European and African nations. This serves as a foundation for the infrastructure needed to build systems for power export.
Existing renewable energy projects in the Arab region
Even though their strategic location presents Arab countries with numerous advantages in terms of renewable energy, only four nations, namely Egypt, the United Arab Emirates, Saudi Arabia and Morocco, have embarked on ambitious projects in this area.
That is not to say that other Arab countries, do not have programs, small projects, and plans in the works for the production of renewable energy, but such projects are small in scope compared to the volume of their electricity needs. As a result, they continue to remain heavily reliant on fossil fuels for power generation.
Egypt is now significantly ahead of other nations in the area in its use of renewable energy as a power source. Mohamed El-Khayat, head of the Renewable Energy Authority, confirmed that his country had raised the contribution of renewable energy to Egypt’s total electricity production to 20 per cent, the highest proportion in the region compared to other Arab countries.
Egypt is also currently striving to raise this ratio to one-third by 2025 through new projects, which include producing 16 percent of Egyptian electricity from wind energy, 7 per cent from solar cells, and 10 percent from hydroelectric energy. The rest of the energy produced from traditional sources will depend on gas extracted from the Egyptian fields, ensuring the country’s energy self-sufficiency.
On the other hand, the UAE’s energy policy is centered on solar energy projects to achieve its objective of using renewable energy to ensure 50 per cent of the country’s power production by 2050 while depending on nuclear energy to secure an additional 25 per cent of overall electricity production. As a result, just 25 per cent of the UAE’s energy demands will be met by fossil fuels, reducing the country’s dependency on them.
As for Saudi Arabia, last year the kingdom saw the highest growth rate among Arab countries in the generation of electricity through renewable sources, increasing its production of renewable energy by 301 per cent over the previous year.
According to Saudi plans, the contribution of renewable energy to the total locally produced electricity is expected to rise to 30 per cent by 2030, alongside plans to develop electricity delivery networks that would later allow it to export the surplus to neighboring countries.
Morocco is the most ambitious among Arab countries in terms of power production. It had already successfully increased the proportion of electricity produced from renewable sources to 37 per cent in 2021 – wind energy (13.4 per cent), solar energy (7.03 percent) and hydroelectric (16.57 per cent) – and Morocco plans to increase that contribution to 52 per cent by 2030.
Much more is needed
The figures show that these four Arab countries are giving great importance to renewable energy, not only for the sake of economic stability but also to reduce the impact of fossil fuels on the environment.
However, the scope of these projects remains modest considering the opportunities available in the Arab region, given that it is mostly limited to only four countries and absent from the vast majority of other Arab nations in the region.
This is due to the fact that most Arab countries have limited available financial resources that can be invested in renewable energy. In addition, even the four countries leading the transition to renewable energy in the Arab region are suffering from delays in implementing some of the projects stipulated in the official plans. They will likely fail to meet their targets in a timely manner.
As things stand now, countries of the Arab region can best make use of their potential in renewable energy by looking into partnerships with the private sector, which can help attract foreign investments to the energy sector and contribute to generating clean energy at competitive rates.
These countries should also develop an intraregional electrical grid to enable those that have already started to invest in renewable energy to export their surplus energy to countries suffering from power shortages.
A viable option would be to establish joint investment funds that would enable countries with surplus capital to invest funds in clean energy projects in other countries, thus benefiting both parties simultaneously.