Energy 2020 Vision - Oil & Gas
25 December 2017
GULF COUNTRIES DIVERSIFY WITH WIND AND SOLAR
BY 2020, LOW OIL PRICES— EXPECTED TO REMAIN AT OR BELOW THE $60 PER BARREL MARK—WILL SPUR GULF COOPERATION COUNCIL (GCC) COUNTRIES TO DIVERSIFY THEIR ENERGY MIX WITHIN THE POWER SECTOR, USING AUCTIONS TO SUBSIDISE RENEWABLE ENERGY PROJECTS.
The pressure is on for GCC countries—Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman—to diversify away from oil, especially when it comes to electricity production.
The rising domestic demand for oil, especially in the power sector, is hindering the GCC countries’ ability to export oil and causing their economies to contract. In October 2017, the International Monetary Fund (IMF) cut the 2018 GDP forecasts for the GCC states from 2.5 percent to 2.2 percent. Non-oil related economic growth is expected to reach 2.4 percent in 2018—well below the 6.7 percent average seen from 2000-2015. Oil-exporting countries across the broader region saw their fiscal deficits skyrocket from 1.1 percent of GDP in 2014 to 10.6 percent of GDP last year.
GCC countries’ current trajectory is unsustainable. Most have already begun importing LNG because of the shortage in cheap natural gas, further underlining the need for efficient, non-hydrocarbon energy sources in the area. Countries are starting to make renewables realistic through auction-based approaches to subsidies. Through auctions, countries set a target level of investment in renewables and allocate contracts to the most cost-effective bidders. Almost 50 countries have adopted this approach, and almost 30 additional countries are considering following suit.
Although GCC countries have set targets for deployment of renewables at the national or local level, the region has seen little deployment. By 2020, we predict that relatively low oil prices will spur GCC countries to diversify their energy mix within the power sector. As utility-scale installed solar and wind costs continue to decline, they will use renewable energy auctions to begin reaching their deployment targets.
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