The soaring energy demand, owing to the rise of population and the economic growth in the region, challenges the dependency on conventional fossil fuel reserves of GCC countries. The region’s annual energy consumption has rocketed, recording an average growth rate of 6.8 % from 2004 to 2014, which is about 5 % above the global average.
‘GCC governments also anticipate a rapid growth of their populations in the years to come. The size of their territories explains why they must start developing infrastructure in a safe and efficient way,’ Philippe Sébille-Lopez (Géopolia) comments.
The role of renewable energy is indeed indispensable in the Gulf, given its geographical features which include vast desertic areas. Renewable energy is regarded as a solution to improve energy efficiency in the medium/long-term in the region whose traditionally high dependency on fossil fuels makes these countries vulnerable to the fluctuations of the global energy prices, potentially causing sharp declines in revenue from export, followed by budget deficits.
‘Creating norms that would push towards a reduction in energy consumption and a gain in energy efficiency would complement the region’s energy transition in a meaningful way,’ Norma Akoury expands.
‘In the GCC, as is the case globally, most power is being consumed by residential buildings and transportation,’ Mohammed Atif (DNV Dubai) continues.
In fact, the transportation of people and goods represents about 25% of the world’s energy; a consumption that is projected to increase globally by an annual average rate of 1.1 % between 2015 and 2050.
Whilst fossil-fuel-based energy continues to be dominant in transportation, with the increasing focus on electricity as a renewable energy source, the GCC countries have prepared for the new era of sustainable and renewable energy by introducing new regulations and policy frameworks.
Not only will the emphasis on electricity enhance the sustainability of transport and the promotion of cleaner fuels, it will also provide ‘a formidable opportunity to improve energy efficiency, particularly in the Gulf, where privately owned vehicles are at the bases of the transport pyramid, a sector that still uses petroleum as the main source of energy.’ Mohammed Atif affirms.
GCC countries have introduced smart mobility to address the challenges they have experienced and are anticipating. Smart mobility refers to the concept of creating open and connected transportation networks by using innovative digital technologies and solutions, which can move people and freight in more efficient and sustainable ways.
Most GCC governments have included a smart mobility section in their sustainable environment and infrastructure plans. Notably, the introduction of electric vehicles (EVs) in the two most populous countries of the region, Saudi Arabia and UAE, marks the beginning of a new era in the regional mobility landscape.
‘In a world where speed, connection and availability have become essential to businesses and individuals, and given the impact of oil-powered vehicles, Saudi Arabia and the UAE have begun to allow and improve Electric Vehicles (EVs),’ Norma Akoury points out.
Saudi Arabia has allowed the import of electric vehicles for personal use since 2018, and in 2020, the Saudi Standards, Metrology and Quality Organization (SASO) created a certificate of conformity which authorises the manufacturing of electric cars in the Kingdom. In 2022 the launch of Ceer was announced, the Kingdom’s first electric vehicle manufacturer. Furthermore, the relevant regulations concerning electric vehicle chargers (EVCs) specifically have not been fully launched in the country.
The UAE is on its path to becoming one of the leading EVs markets in the world. The country ‘has certainly been at the forefront of innovation and investments. The Emirati government is committed to further enhancing its climate and energy policies and aspires to pair this effort with the improvement of its people and good’s mobility,’ Marthinus Vermeulen (OilSERV) adds.
Directive Number 2 issued by the Dubai Supreme Council of Energy in 2020, for instance, seems to have given the country a driving dynamic. The Directive includes updated policies from the Dubai Green Mobility Strategy 2030, which among other things, aimed at increasing the number of electric and hybrid vehicles in the public sector.
With this Directive, Dubai governmental departments and organisations are compelled to increase their purchase of hybrid and electric vehicles to at least 10 % of their overall annual vehicle procurement by the end of 2024.
In 2021, only a few months after Directive Number 2 was issued, the Emirate’s Road and Transport Authority (RTA) took the strategy further by publishing a plan that aims to reach zero-emission in public transportation by 2050.
The effort to promote the use of EVs has since been expanded to the private sector; RTA and the Dubai Electricity and Water Authority (DEWA) have jointly developed incentives that focus on private EV drivers. To encourage individuals to use EVs, DEWA introduced a number of incentives for the EVs buyers:(i) free access to public parking for two years from the purchase of their vehicle; (ii) free road toll passes (i.e., Salik sticker tag); (iii) free registration. It is understood that not all of these incentives are still in place.
ESG requirements in the public and in the private sectors
In the UAE, public joint-stock companies (PJSCs) listed on the Abu Dhabi Securities Exchange (ADX) or the Dubai Financial Market (DFM) are required to publish an annual sustainability report.
As per the regulation, the report must reflect the company’s long-term strategy and its impact on the environment, and the broader society and economy.’
Specifically, companies must explain how their policies and operations contribute or could contribute to the well-being of their employees, their surrounding community and local suppliers, and to social justice in general. They are also asked what impact their operations have on the local economy and how they plan to improve their overall influence.
Non-listed companies and state-owned companies are also encouraged to adopt ESG frameworks and reporting, although not mandatory.
In Saudi Arabia, the Saudi Stock Exchange (Tadawul) issued detailed ESG Disclosure Guidelines. The guidance documents propose a selection of different reporting options that companies can follow to measure their progress on ESG.
Like in the UAE, all companies, regardless of their listing status are encouraged to implement the Guidelines as soon as possible. In particular, the guidelines emphasize the importance the government gives to ESG and lists competitive advantages that companies can derive from focusing on their sustainable practices, like strengthening financial performance, unlocking new capital, enhancing corporate reputation, branding and deepening investor relations.
In addition to governmental recommendations, non-listed companies receive pressure to improve their ESG performances from customers, co- and sub-contractors as one’s score is interrelated with its business partner’s.
As to renewable energy specifically, Philippe Sébille-Lopez insists on the fact that ‘the regulatory framework can evolve very rapidly.’
For Marthinus Vermeulen, ‘the Gulf region is leading the way in many areas, and from a regulatory point of view, they could potentially be considered as a benchmark for the rest of the world on how quickly they’re moving.’
‘In fact,’ Norma Akoury comments, ‘in the case of Saudi Arabia and the UAE, the centralised decision-making processes make these markets notably effective in the roll out and implementation of new regulations, addressing current issues and following best market practices.’
To some extent, however, the regulatory framework is still developing. Not only must it address issues in a rapidly evolving industry, but it is still largely to be created.
For instance, despite all the interest that hydrogen has sparked, ‘it is not regulated,’ Norma Akoury says. ‘We have seen that the UAE’s Hydrogen Leadership Roadmap targets 25% of the global hydrogen market by 2030, and we look forward to seeing it transcribed in detailed regulations’, she adds.
In this specific sector, Monica Hashemi continues, ‘because there is no specific guideline focusing on hydrogen, companies generally follow the regulations that had been instituted for solar or wind energy, depending on the country.’
However, Monica Hashemi and Norma Akoury agree that ‘quite a few regulations are expected to be rolled out in the field of renewables in 2023.’ Specifically, regulations connected to the use of hydrogen in transport, heating and the industrial sector are expected. In addition, hydrogen having such important prospects for growth, the GC governments will have to develop an investment-friendly strategy.
The GCC region is not the only one to lack a well-defined framework for hydrogen, but regulatory vacuums might suppose too many risks for prospective investors. GCC governments are aware of it and ‘are preparing to tackle this problem,’ Philippe Sébille-Lopez explains.
Specifically, the Abu Dhabi Department of Energy (DoE) and the Dubai Electricity and Water Authority (DEWA) have announced they were developing a hydrogen strategy but have not provided information on what it may contain.��
Indeed, hydrogen has started to receive a great interest from investors who need certainty, clarity and a protective legal and regulatory framework to ensure their investment is protected. ‘The same applies to international senior lenders. They tend to avoid jurisdictions that have regulatory vacuums. They always consider a lack of regulation in a specific area a threat to their participation in any non-recourse project finance transaction,’ Sebastien Bernard explains.
GCC countries have been consistently successful in attracting international investors and lenders thanks to strong regulatory frameworks. ‘It is a formula they are expected to use for hydrogen,’ Sebastien Bernard continues.
The UAE has been contributing to the above policies on a federal level. In as early as 2017, the government instituted preferential green bank loans and green insurance schemes for all UAE citizens who wished to purchase EVs. In parallel and more recently, the UAE is also working with local regulators to ensure the EVCs that are deployed on its territory by private energy companies meet all technical and safety requirements. In this regard, the Dubai Administrative Decision No.1 of 2017, makes it mandatory for all organisations and developers in Dubai, whether public or private, to acquire an official license from DEWA before they install and operate their stations.
On a broader scale, EVs are one of the tangible initiatives which have a positive effect on national communities, and not just corporations. The UAE’s forward-thinking decision on the introduction of progressive EVs policies proved to be a success. Following the implementation of the policies, 20% of the country’s fleet belonging to government agencies are electric vehicles, and more than 240 EVCs have been installed throughout the country, the largest public EVs fleet in the world.
This success has inspired other jurisdictions and the concept is becoming increasingly attractive. Last year, Qatar announced a strategy to establish a network of EVCs across the country, while Oman is expected to open its market to EVs in 2023 and Kuwait is reportedly about to experiment with prototypes.
Despite the promising outlook offered by the projects, financing remains the crux to the smooth execution of the broad energy transition. Consequently, new renewables-compatible initiatives have emerged throughout the region.