July 9, 2018
The UAE’s energy future: A long-term strategy beyond hydrocarbons
The world’s largest single-site solar park and the world’s first attempt at a carbon neutral, self-sustainable city can both be found in what might seem to be an unlikely location: the heart of the Arabian Gulf. Both projects are funded by and located in the United Arab Emirates (UAE), a geographically small state that holds some of the world’s largest oil reserves. However, regardless of its abundance of oil, the UAE is investing heavily in renewable energy and hopes to diversify its power generation mixture, primarily towards renewable sources, by 2050.
The question is, does this project represent an environmentally progressive plan, an attempt to maximize hydrocarbon revenues, or a mixture of both? And how do the UAE’s sustainable ambitions relate to the country’s long-term goals of economic diversification and technological advancement?
For all the prosperity oil has enabled, the UAE has seemingly acknowledged that oil alone will not remain a sustainable driver of economic success forever. To prepare for that eventuality, the UAE has spearheaded a number of programs to diversify its economy and reduce its reliance on oil. These measures are already materializing in the form of growing domestic tourism and finance sectors, which the UAE hopes may one day take over for oil as the economy’s primary catalyst.
As part of this diversification plan, the UAE announced last year its Energy Strategy 2050, which outlines the role that renewable energy will play in its future. According to the plan, by 2050 44 percent of domestic power will be generated by clean energy, 38 percent by gas, 12 percent by coal, and 6 percent by nuclear power, all in the hopes of reducing the carbon footprint of the UAE’s power generation by 70 percent. Government investments to achieve these ambitions are expected to total almost $160 billion.
The UAE’s enthusiasm for renewables may be driven by a simple reality: the UAE is well endowed with them. In addition to renewables being consistent with the UAE’s broader goals of modernization and diversification, the UAE is well suited to shift toward renewable sources given its high amounts of sunshine: the UAE averages 350 days of sunlight every year with over ten hours of sunlight per day, enough to power a substantial solar fleet.
As an element of economic diversification, the UAE will need to continue to create high-paying jobs for its citizens, especially a growing youth population—34 percent of the UAE’s population is under the age of 25. The UAE’s youth unemployment rate is almost 10 percent, and while this is low compared to its Gulf neighbors, it still may require the UAE to prioritize job creation in future diversification models. Renewable energy projects have the capacity to grow in both size and profitability as the current youth generation reaches adulthood, potentially serving as a valuable source of high paying jobs. In the US, a more mature renewable energy market, jobs in solar and wind are currently the fastest growing professions, with opportunities for work in design, management, instillation, and maintenance. As a result, building an educated renewable energy workforce would contribute not only to achieving domestic power independence, but also to facilitating economic growth and creating new jobs.
Being a leader in renewable energy also works towards a more intangible element of the UAE’s diversification policy—being on the cutting edge of technology and development. Large projects like Masdar City, a carbon-neutral city, and the Mohammed bin Rashid Solar Park draw international attention to the UAE and highlight its progress. The soft-power value of technological leadership is difficult to quantify, but plays an important role in the UAE’s long-term goals.
From a political standpoint, comprehensive domestic renewable capacity would help insulate the UAE’s power sector from the whims of geopolitics and other unforeseen circumstances, perhaps reducing the salience of domestic energy needs as a foreign policy issue.
While the UAE’s domestic energy aspirations are certainly commendable, another important factor in the decision is likely the prospect of exporting, rather than consuming, more hydrocarbons.
With renewables satisfying an increasing proportion of domestic consumption, the UAE could export more hydrocarbons, maximizing its potential export revenues regardless of trends in future energy markets. After a substantial initial investment, the cycle of renewable energy projects enabling more exports may mature to be increasingly self-sufficient: increased hydrocarbon revenues help fund more renewable power projects, which enable even higher hydrocarbon revenues, and so on.
In Saudi Arabia, 680,000 barrels of oil are burned per day in the heat of summer to meet domestic power needs; if those barrels were exported instead, they would increase government revenue by almost $50 million per day. The UAE re-injects large portions of its natural gas into oilfields to be used for in extensive oil recovery techniques—relieving the burden of natural gas to meet domestic electricity demand would increase its availability for oil recovery, as well as general exports.
In addition to the role of gas in enhancing oil extraction, exports will also be benefited by a transition towards electric vehicles. Incentive programs are currently underway to help accelerate the rise of electric vehicles in the UAE: in Dubai, electric vehicles can be charged for free, electric vehicles have no vehicle registration or renewal fees, and half of Dubai’s taxi fleet is planned to be electric by 2021, while charging station infrastructure is being expanded in Abu Dhabi. A thriving electric vehicle market would reduce the UAE’s domestic oil consumption of almost 1 million barrels per day, another step towards augmented export revenues.
Together, these plans combine towards an overall maximization of hydrocarbon revenues through increased oil extraction, increased exportable gas reserves, and decreased oil consumption. The projects necessary to the success of the UAE’s economic diversification goals often require significant up-front investment—a maximization of hydrocarbon revenues helps ensure those investments remain feasible.
The UAE’s planned transition away from fossil fuels is not only compatible with, but actively beneficial to its self-interest—it helps the UAE solidify itself as a technological leader, provides opportunities for economic growth, takes advantage of the UAE’s climate and capital availability, and frees up more hydrocarbons for export. Despite the importance of hydrocarbons in this strategy, it also has a clear eye towards the day when those hydrocarbons are no longer the world’s dominant energy source. This plan equips the UAE for that future by capitalizing on the energy markets that still exist today.
Herbert Crowther is an intern at the Atlantic Council Global Energy Center.
Image: Masdar City under construction in January 2012, Abu Dhabi, United Arab Emirates (photo by Jan Seifert).