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Issue Brief June 5, 2024

Policy memo: What will it take to make the MENA region a renewable energy powerhouse?

By Shihab Elborai, Anthony Yammine, and Pavel Popikov

Saudi Arabia and its Gulf Cooperation Council (GCC) neighbors stand as a pivotal force in the global energy landscape. Beyond their stature as premier fossil fuel producers and exporters, these nations play a crucial role in effectively coordinating and regulating the production and sale of oil globally. Through strategic measures, they have endeavored for decades to stabilize prices and maintain a consistent oil supply to the international market. In doing so, they mitigate the risks of excessive price volatility that could undermine demand or deter essential investment in supply.

At a time of rapid growth in renewable energies such as solar and wind, it would be easy to write off the region (as some are doing) as a waning power, both in terms of energy and geopolitics. After all, how good can the outlook be for petrostates in a world focused on moving to net-zero emissions? In our view, the opposite is true: the region is well placed to become not just a major source of renewable energy, but also a central and indispensable player in the global energy transition, uniquely able to balance supply and demand for all types of energy, both hydrocarbons, and renewables.

Saudi Arabia and other GCC countries are already moving in this direction, perhaps faster than many outside the region realize, thanks to a powerful mix of investment, infrastructure, and political determination. They have a unique opportunity to take the lead in putting the world on a more sustainable energy footing while simultaneously diversifying and enriching their economies.

A critical question is whether and how the other countries in the region follow their lead. A new phase of cooperation within MENA will be needed if the potential for the region in a reconfigured energy setup is to be realized.

Natural and geographical advantages

GCC countries are in a strong starting position for the energy transition in large part because of their natural advantages. Thanks to abundant sunshine and wind, they can produce and export renewable energies at a consistently lower cost than any other region. For example, Saudi Arabia’s Al Shuaiba project is projected to generate solar energy at a levelized cost of electricity (LCOE) of 1.04 US cents per kilowatt hour, which is just one-fifth of the 2023 global average for solar photovoltaic (PV) energy. This is followed by the United Arab Emirates’ 2 gigawatt (GW) Al Dhafra Solar PV project, which can produce solar energy at a price as low as 1.35 US cents per kilowatt-hour.

The abundance of both fossil and renewable resources means that, at every point on the path from a hydrocarbon-based energy system to a fully decarbonized one, GCC countries can deliver the cheapest configuration for the desired CO2 emissions level without compromising on energy security. In other words, they are well placed to continue with their role of balancing supply and demand—not just with oil and gas, but in a new, green era with a full range of energy resources, both renewable and traditional.

Other advantages are the region’s central geographical location, which provides comparatively easy access to large import markets in both Europe and Asia, as well as to developing markets such as those within Africa, and a ready supply of capital to help finance the transition. Moreover, the closely regulated single-buyer market in GCC countries, which grants regulators greater control over the whole electricity system, enables them to efficiently enact state policy and ensure a choreographed deployment of supply and transmission investments.

A Saudi man walks on a street past a field of solar panels at the King Abdulaziz City of Sciences and Technology, Al-Oyeynah Research Station. REUTERS/Fahad Shadeed

Uneven prospects in the region

For the GCC alone, as we write in our recently published book, Arabian Gambit, these advantages provide the opportunity to become a global force in green hydrogen, recycled plastics, artificial proteins, and even some low-energy manufacturing, among other prospects. For instance, we estimate that every million tonnes of recycled plastics produced could create around 1,450 jobs and contribute US$650 million directly to the GCC’s gross domestic product. Furthermore, attracting 10 percent of global manufacturing in high-potential products could bring up to US$300 billion in foreign direct investment and create 150,000 new jobs, while also unlocking US$25 billion in nonoil exports and offsetting 75 million tonnes of CO2-equivalent emissions annually. Where does that leave other countries in MENA—a region that is particularly exposed to climate change as well as to global efforts to mitigate it?

It’s important to draw some distinctions between countries: MENA is not a monolith and can be distinguished into three groups based on national governmental budget and net energy exports. The first group consists of countries with a budget surplus and large net energy exporters, such as Saudi Arabia, the UAE, Kuwait, and Qatar. With their strong financial position, they can invest heavily in renewable energy infrastructure. The second group consists of countries with a budget deficit, but are net energy exporters, such as Oman, Libya, and Algeria. These countries might face challenges in transitioning to renewable sources of energy due to budget constraints. Egypt is a country in this category, but it has already made significant progress in the renewable transition despite similar constraints. The third group consists of countries with a budget deficit which are net energy importers such as Morocco, Jordan, and Lebanon. Morocco and Jordan focus heavily on renewable transition and have considerable potential to become significant hubs for renewable energies.

The push into renewables in many of these countries is impressive. The International Energy Agency (IEA) estimates that, over the past decade, North Africa has managed to increase its renewable energy production by 40 percent. Countries like Egypt and Morocco are leading in solar and wind energy production outside the GCC, according to the IEA. Egypt alone added 25.5 GW of new generating capacity between 2015 and 2019, including 1 GW of solar PV and nearly 840 megawatts (MW) of new wind capacity—and in the process, went from chronic power shortages to having a 25 percent surplus of electricity supply. Morocco, meanwhile, accounts for three-quarters of the region’s renewable electricity production growth. Home to one of the largest solar farms in the world, the Noor Ouarzazate complex, Morocco is on track to increase the share of renewables in electricity to 60 percent to 65 percent by 2030, according to IEA estimates. Jordan has also been developing substantial solar and wind projects.

Collaborative energy framework

Much more still needs to be done to press home the renewable energy advantages that the whole MENA region has—and help those countries still lagging accelerate their energy transition. Wind and solar energy are only the beginning: even when countries have renewable resources and land on which to build installations, they lack some of the other attributes that are needed, including long-term finance, trust of investors and other potential stakeholders, appropriate regulatory regimes, and the government offtake that will make these installations viable.

This is where the GCC countries can help, taking the lead to build a collaborative energy framework and network across the region. The GCC members have a natural edge through their access to capital and the stability that allows for long-term investments that some other countries in the region may lack—and they can be the prime movers and facilitators of such a network.

There are multiple opportunities for greater collaboration. These include opportunities to integrate more renewables overall: creating possibilities to balance loads by exchanging renewable energy with neighboring countries, building out renewable energy infrastructure, and, potentially, marketing jointly to other regions such as Europe. GCC countries could facilitate the transfer of technology and expertise to other MENA countries, focusing on training and capacity building in renewable technologies. They can do so by fostering joint ventures and public-private partnerships with local companies and government agencies in those countries.

Further, the GCC countries can lead in developing a harmonized regulatory framework for renewables that encourages investments across the region. Harmonization of renewable energy practices and standards among MENA countries would be a big step forward to greater cooperation. For financing, GCC countries could develop a foreign direct investment approach, stepping in to help, where useful. They can establish a MENA renewable fund to support projects in countries with budget deficits and high solar or wind potential and use this to drive demand for the export of components manufactured in the GCC. For manufacturing, for example, GCC countries could help finance and develop the capacity to produce solar and wind turbines elsewhere in the region. If the cooperation develops strongly, it could even give rise to the creation of a clean energy souk, or marketplace, that brings together all the different elements under a single umbrella.

Some of this is already starting to happen, particularly on the investment front. Saudi Arabia is heavily investing in the renewable transition of MENA countries. The Saudi firm ACWA Power is looking to ramp up investments in both Egypt and Morocco to further clean energy projects there. This includes setting up a 200 MW solar project in Kom Ombo, Egypt, and a 150 MW solar plant as part of the Noor Ouarzazate solar complex in Morocco. The UAE also is driving large investments in solar and wind projects in Egypt, Morocco, and Jordan. In Egypt, Abu Dhabi’s Masdar signed an agreement to build a US$10 billion wind farm, and AMEA Power completed a US$1.1 billion deal to deploy 1 GW of wind and solar energy. Further, AMEA Power has won a contract to build two solar power plants in Morocco, and Masdar is set to develop a 1 GW wind project in Jordan. Additionally, Arab Petroleum Investments Corporation has taken a 20 percent stake in a major Jordanian wind project.

This is just the beginning, and more can be done to promote ties and further cooperation in clean energy across the MENA region. Much is at stake and much can be gained: the energy transition amounts to a larger regional reset as a global clean energy powerhouse. For all their differences, MENA countries have the essential components required to step into the new role. Now they need to take decisive steps toward realizing that potential.

Dr. Shihab Elborai and Anthony Yammine are partners, and Pavel Popikov is a manager, at Strategy& Middle East, a strategy consultancy part of the PwC network.

Image: A general view of the Benban plant of photovoltaic solar panels in Aswan, Egypt, November 17, 2019. Picture taken November 17, 2019. REUTERS/Amr Abdallah Dalsh