Acwa Power
There is a widespread misconception that the Gulf lacks interest in renewable energy investment because it boasts abundant hydrocarbon reserves and low production costs.
In reality major Opec+ members, particularly Saudi Arabia and the UAE, are implementing some of the world’s most sophisticated strategies to invest heavily in the energy transition, while preserving their crucial oil production capacity.
In fact Saudi Arabia – often cast as a villain in international climate negotiations – has one of the region’s most ambitious domestic energy diversification plans.
This year, the kingdom’s energy ministry plans to present a comprehensive integrated strategy to generate 50 percent of Saudi Arabia’s domestic power needs from renewable energy and the remaining 50 percent from gas by 2030.
Previously criticised for its poor rate of renewable energy investment, Saudi Arabia has shifted gears by investing a staggering $50 billion in renewable projects between 2023 and 2026.
Around $15 billion will be spent this year, building on last year’s record instalment of around 3.7 gigawatts (GW) of renewable capacity from solar power plants. Some 6.5GW of renewable power is connected to the grid, a capacity that is expected to double by the end of this year.
Moreover in 2024-25, Saudi Arabia plans to proceed with 40GW of renewable power projects – 25.2GW of solar and 16GW of wind.
The kingdom also intends to achieve a net zero target by 2060.
So, why is the world’s top oil exporter investing so heavily in the energy transition?
The answer is simple: to be realistic and pragmatic. With a firm belief that the world requires more energy from all sources, Saudi Arabia, like other Gulf governments, views the energy transition as an energy addition exercise.
By diversifying its domestic energy mix, the kingdom will be able to free up approximately 1 million barrels per day (bpd) of oil which can be exported.
The UAE, post-Cop28
After hosting a successful Cop28 climate summit in Dubai, the UAE is striving to lead by example, demonstrating that achieving 100 percent clean power generation by 2050 is possible.
The government has announced plans to invest $54 billion in renewable energy projects by 2030 and is committed to spending around $160 billion on renewable energy and low-carbon technologies, which will help achieve its national net zero target by 2050.
What sets the UAE apart from other countries in the region in clean energy is its nuclear power, which can supply about a third of the country’s electricity demand with zero emissions.
On the renewable energy front, Abu Dhabi’s Masdar, which was established nearly two decades ago, has been leading in terms of investment in the renewable sector both domestically and abroad.
By 2030 the UAE is targeting around 14 GW of renewable energy capacity.
At CERAWeek last week, Adnoc’s CEO Sultan al-Jaber explained how the UAE leadership is pursuing a pragmatic “and-and” approach, extending its energy leadership in oil and gas to renewables, nuclear, chemicals and low-carbon energies.
“We know that by 2035 this planet will have almost 9 billion people. In line with this growth, oil demand will increase from 103 to at least 109 million barrels per day,” he said.
Taking this two-pronged approach, the UAE is now working to boost oil production capacity to 5 million bpd by 2027, a level which may be boosted to 5.5 million bpd by 2030, according to sources familiar with the matter.
While international oil companies globally have been making u-turns in their transition strategies (mainly due to a lack of profitability), state energy companies in the Gulf have strong mandates from their governments to continue on their path towards diversification.
However, that doesn’t mean they are not open to tweaking policies along the way.
Hydrogen hype
As with any change in energy policy, demand and costs must be carefully considered, particularly in light of the excitement around new fuels such as hydrogen.
Gulf national oil corporations have carefully positioned themselves to capitalise on opportunities while also distancing themselves from unfeasible ventures, aiming to play a role that goes beyond just exporting hydrocarbons.
For example, due to a lack of demand and the absence of offtake agreements from buyers, CEO Amin Nasser announced that Saudi Aramco has significantly reduced its target for blue ammonia (used as a carrier to transport hydrogen) to 2.5 million tonnes per year by 2030 from 11 million tonnes per year in 2027.
That target could be further reduced if the offtake agreements don’t pick up.
Amena Bakr is head of Middle East energy & Opec+ Insights at Kpler
