Renewable energy sources hold great promise in the Gulf countries, but the region is at risk of falling behind as investment in the sector rises globally, according to a new study from consultancy firm Strategy& Middle East.
Globally, Strategy& expects annual investments into renewable energy to grow by $130 billion, compared to 2016 figures, reaching around $370 billion in 2020. It estimates that the cumulative investment total between 2016 and 2020 will reach $1.5 trillion globally.
Despite great potential, so far Gulf Cooperative Countries (GCC) have made little investment in renewables technology, say the study's authors. Developing nations now account for almost half of all investments in the sector, but the GCC injected less than $1 billion into renewables as recently as 2016. Investments within GCC's renewable energy is set to reach just $16 billion by 2020, with a cumulative total of $40 billion between 2016 and 2020 but much lower than the global average.
“The case for rapid deployment of renewable energy in the GCC is compelling. The GCC has ample solar and wind resources, a regional gas shortage along with growing domestic demand for hydrocarbons as fuel and feedstock, and an affordable means of financing renewable energy,” says Raed Kombargi, a partner with Strategy& Middle East.
Still, there are major structural and institutional factors influencing the region’s current underinvestment into renewable energy—such as generous fuel subsidies and a local preference for building large conventional plants to meet growing demand, rather than many smaller renewables projects.
Other issues include unclear regulatory and policy frameworks that discourage the development of renewables.
To catch up to the world and unlock potential in renewables, Strategy& outlined a number of actions that GCC governments should focus on in building a framework promoting investment. Those actions included, among others, reforming fossil fuel and energy subsidies and reallocating financial resources; broadening the range of financing instruments available; unifying regional standards for the sector; and developing regulatory capabilities with regards to renewables.
“To further take advantage of the renewables opportunities will require considerable funds and commitment, along with a careful approach that minimizes risk,” said Shihab Elborai, principal with Strategy& Middle East.