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25Alternative Energy as a New Factor of Economic Growth in the MENA
Abstract. The Middle East and North Africa are not only the largest "custodian" of primary energy resources, but also their largest "energy sinker". The extremely high energy intensity of regional GDP is a consequence of subsidizing energy which is part of the "social contract". Excessive energy spending reduce the export potential of many countries and slows GDP growth. The way out of this situation is the accelerated development of alternative energy.
Keywords: renewable energy, energy subsidies, solar energy, wind energy, Middle East, North Africa, energy exports.
In the Middle East and North Africa region, the energy consumption model that has existed for many years can become an insurmountable obstacle to economic growth both in the net energy exporting countries and in the importing countries. This region is not only the main supplier of primary energy resources and the main "custodian" of the world's fossil fuel reserves, but also the main "energy sinker" because regional governments, first, subsidize the price of energy against the laws of the market, encouraging excessive consumption, and second, extremely energy-intensive projects of industrialization and diversification, relying on the low cost of local energy resources.
Subsidies in the region are an important part of the "social contract" and are regarded as an inalienable right of the members of the ummah. They reached gigantic proportions: its annual volume is close to 250 billion dollars in the region -half of the energy subsidies all over the world, 8.5% of regional GDP and 22% of all government spending1. The first world "five" leaders of energy subsidies -Kuwait, Iran, Saudi Arabia, Qatar, Egypt2. By distorting price ratios, subsidies not only lead to energy waste (in Qatar, for example, electricity is released to the indigenous population for free), but also completely eliminate the possibility of investing not only in RES, but also in traditional energy, contribute to smuggling and even the deficit of subsidized energy sources, negatively affect the economic growth. Unless appropriate measures are taken, Kuwait, for example, may soon, by some estimates, cease to be an oil exporter.
The authorities awareness of the negative impact of subsidies on basic macroeconomic indicators has generated a wave of slow and "dosed" reform in the countries of the region.
1 Subsidies Reform in MENA., P. 5 / https: //www.imf.org/external/ns/es.aspx? Id = 276
2 Ibid.
Table 1
Reform of energy subsidies in the Middle East and North Africa
Country Recent measures Basic mitigation measures Next steps
Egypt 2012-2013: prices for petrol with octane number 95 for expensive cars increased by 112 percent; for fuel oil for non-energy-intensive industries - by 33 percent and for energy-intensive industries by 50 percent. January 2013: Electricity prices for households increased by an average of 16 percent, natural gas and fuel oil prices for electricity generation rose by a third. July 2014: prices for fuel and natural gas increased by 40-78 percent; tariffs for electricity increased by 20-50 percent. Refusal to change tariffs for electricity for the category with the lowest consumption. Expand the coverage of social security for a larger number of households. Completion of the distribution of smart cards. Expansion of priority social programs and targeted cash transfers.
Jordan June 2012: increase of electricity tariffs in certain sectors (banks, telecommunications, hotels, extractive industries) and for large national corporations and households. November 2012: refusal of subsidies for fuel. January 2013: The mechanism for monthly adjustment of fuel prices was restored. August 2013 and January 2014: for certain groups of consumers, electricity tariffs increased by 7.5-15 percent. Monetary transfers to families with incomes below a certain level (70 percent of the population), if oil prices rise above $100. Gradual increase in electricity tariffs and development of new energy sources with lower generation costs.
Yemen 2011-2012: gasoline prices increased by 66 percent, and prices for diesel fuel and kerosene doubled. 2013: Unified prices for diesel fuel for all consumers, including in the electricity generation sector, were introduced. June 2014: private sector companies are allowed to directly import diesel fuel for their own needs at world prices. The coverage of the Social Welfare Fund (FSB) has increased by another 500,000 families. Further reduction of energy subsidies due to a gradual increase in fuel prices. Strengthening support through the expansion of the FSB.
Country Recent measures Basic mitigation measures Next steps
Mauritania May 2012: a new formula for the automatic setting of prices for diesel fuel was introduced, which ensured bringing domestic prices for fuel to international levels. January 2012: tariffs for electricity for the service sector were increased. Gradual reorientation of social protection systems to targeted remittance programs. Ensure the automatic application of the pricing formula for diesel fuel. Elimination of subsidies for electricity and gas. Formation of a nationwide money transfer program.
Morocco June 2012: Diesel prices increased by 14 percent, gasoline by 20 percent, and industrial fuel by 27 percent. September 2013: the introduction of a mechanism for the partial indexation of certain petroleum products. As a result, diesel fuel prices increased by 8.5 percent, gasoline by 4.8 percent, and industrial fuel by 14.2 percent. January 2014: abolition of subsidies for gasoline and industrial fuels, their prices are revised twice a month. February 2014: subsidies for diesel fuel per unit of output were reduced with an additional quarterly reduction announced before the end of 2014. Gradual strengthening of existing social protection systems and their targeting to vulnerable groups through improved education, health care and assistance to poor widows and disabled people. Support of public transport. Continue the comprehensive reform of subsidies in combination with cash transfers and other social assistance programs.
Sudan June 2012: prices for gasoline, diesel and liquefied petroleum gas increased by 47 percent, 23 percent and 15 percent, respectively; liberalization of prices for aviation fuel. September 2013: diesel fuel prices increased by 74.7 percent, gasoline - by 68.0 percent, and by liquefied petroleum gas - by 66.7 percent. Wages in the public sector increased by about 100 Sudanese pounds; a monthly distribution of grants of 150 Sudanese pounds to some 500,000 poor urban families; reduction in health insurance contributions for some 500,000 poor families; as well as the cancellation of school fees and the use of transport for the disabled population. Gradual abolition of other subsidies for petroleum products and other basic products, while strengthening social protection systems at the expense of higher social costs and a more coherent and more targeted social network.
Country Recent measures Basic mitigation measures Next steps
Tunisia September 2012: prices for gasoline and diesel fuel and electricity tariffs increased by an average of 7 percent. March 2013: further increase in prices by 7-8 percent on average for the same products. The introduction of an additional electricity tariff for vital needs for households consuming less than 100 kWh per month. Formation of a new social housing program for those in need. Gradual abolition of energy subsidies due to increased tariffs for electricity and fuel prices. Introduction of a new strategy of targeted support for households.
Source: Subsidies Reform in MENA., P. 5 / http: //www.imf.org/external/ns/es.aspx? Id = 276
Meanwhile, in line with the ongoing trend of energy-intensive economic growth, the annual increase in energy consumption in the region will be 7% in 2015-20403. Its provision will require an annual investment of $30 billion, and their share in GDP will increase steadily, as the main source of regional GDP -energy exports is stagnate or even reduced in primary energy exports.
The development of alternative energy (RES and NPP) is the only way to avoid the "energy curse" of this region abounding in the cheapest energy resources. The conditions for this are exceptionally favorable: the region accounts for 26% of the solar energy reaching the surface of the Earth4. One square kilometer of the territory receives radiant energy equivalent to 2 million barrels of oil a year. The total wind potential of the region is also the largest in the world. Morocco, Egypt and Tunisia are leading the world to the potential of wind energy5.
Changing economic and political conditions in the region opened the door for investment in RES (including foreign ones). ExxonMobil estimates that in the period 2015-2025 they amount to $16 billion (64% of all investments in the regional energy sector)6. The generation of electricity from RES for this period should increase by 127%, while from oil - by 14%, from gas - by 26%, the total electricity generation will increase by 21%7.
In Saudi Arabia, accelerated development of RES is primarily a means of avoiding catastrophic consequences for the trade balance in the near future. Currently, from production of 12 million barrels of oil daily, 3 million barrels are spent on generating electricity, and 9 million barrels are exported8. By 2030, the country will need 7 million barrels of electricity for demographic and economic growth, given that the production level will be 14 million barrels, and
3 World Energy Outlook 2016. IEA. P., 2017, p. 415.
4 Squire Sanders. The Future for Renewable Energy in the MENA Region. Clean Energy Pipeline. www. cleanenenergypipeline.com/.../the%20future (access date 15.01.2018).
5 Ibid.
6 Outlook for Energy ExxonMobil corporate.exxonmobil.com/en/energy/energy-outlook
7 Squire Sanders. The Future for Renewable Energy in the MENA Region. Clean Energy Pipeline. www. cleanenenergypipeline.com/..,/the%20future (access date 15.01.2018).
8 Ibid.
an increase of 2 million barrels will require an additional investment of 6 billion dollars9. The export of oil, therefore, will be reduced by 22%, and the revenue part of the state budget - by 19%10. To avoid such a scenario, the government began to take vigorous measures under the auspices of a specially created state agency (KA CARE) with great powers. The Agency has set truly revolutionary tasks: by 2036 to increase the share of electricity from non-carbon sources to 50% (35% - helio, 5% - wind, 8% - nuclear, 2% - other)11. This plan has acquired a real economic basis after a threefold fall in the price of oil in 2014, a twofold reduction in capital expenditures in alternative energy in 2010-2015 and decisive measures to liberalize the domestic energy market.
The energy situation in Jordan is directly opposite to the situation in Saudi Arabia, but its positive development also requires accelerated implementation of renewable energy sources. Jordan imports 96% of the energy consumed, 80% of which comes from Egypt via the Trans-Arab gas pipeline. In the context of recent political developments in the region, supplies were extremely volatile, which led to frequent blackouts with the need for alternative purchases of expensive diesel fuel for power plants.
Unlike other countries in the region, Jordan has no problem with domestic pricing, so the country was the first in the Middle East to introduce a "green" tariff. This circumstance, coupled with the high cost of fossil fuels, makes the country attractive for investors. Jordan has embarked on the development of a five-billion grant (from Saudi Arabia, the United Arab Emirates, Qatar, Kuwait and the World Bank) for large-scale construction of renewable energy facilities. According to government plans, by 2020, 10% of the country's electricity will be produced from renewable sources, and in the longer term - 100%. All new capacities will function exclusively on the basis of RES12.
The situation in Morocco is similar to the situation in Jordan. The country imports 95% of the energy consumed. Energy imports account for half of all import costs, and the trade deficit has exceeded one-third of GDP.
Morocco ranks first in the world in terms of growth rates in renewable energy and investment in renewable energy sources per capita. RES share in the energy consumption should reach 40% by 2032 g of13. The country is completing the construction of the world's largest solar power plant worth 9 billion dollars. The investment is exclusively foreign because Morocco is an active participant in the international project "Desertec", which includes increasing exports to Europe of electricity generated at numerous solar stations in the Sahara. In addition to increasing satisfaction of its own electricity needs, Morocco, almost completely
9 A roadmap for Renewable Energy in the Middle East and North Africa https://www.oxfordenergy.org/ wpcms/wp.../01/MEP-6.pdf .
10 Ibid.
11 Squire Sanders. The Future for Renewable Energy in the MENA Region. Clean Energy Pipeline. www. cleanenenergypipeline.com/./the%20future (access date 15.01.2018).
12 Ibid.
deprived of other energy resources, intends to become its exporter. In addition to solar energy, Morocco is increasing (also the world's highest rates) the capacity of wind power. In terms of wind generation, this small country is the 11th in the world.
In the UAE, 80% of electricity is generated from imported Qatar natural gas through the Dolphin pipeline, which frees up additional oil for export at world prices (which are six times higher than domestic ones). Therefore, renewable energy sources are experiencing serious competition from cheap gas from the neighboring state. Nevertheless, all emirates lay the advanced rates ofdevelopment of power generation on the basis of renewable energy in the long-term plans. In Abu Dhabi, where 90% of the Federation's oil reserves are concentrated, it is planned to increase the share of renewable energy in the energy balance to 7% by 2020, and in Dubai, where oil ended in 2015, to 5% by 203014. The emphasis here is on the widespread introduction of autonomous solar panels in private households, which will make it possible not to increase subsidized tariffs and not offset the comparative advantages of local power-intensive industries (aluminum smelting, cement production, electrochemistry).
Kuwait, like Saudi Arabia, seeks to free up the maximum oil for export. For electricity generation country consumes 350 thousand Barrels of 3 Mill. Barrels of oil produced15. Emir of Kuwait set the task to bring the proportion of renewable energy in electricity generation to 15% by 2030, at which will give further 12.5 Mill. Barrels exported annually (approximately 0.8 bln. US$ at price of $60 per barrel)16. Almost all "clean" electricity will be produced, beginning in 2020, in the world's first energy eco-park "Shagaya" with a total installed capacity of 2 GW. (approximately - the Bratsk Hydroelectric Power Station).
Qatar, which owns 15% of the world's natural gas reserves (the cheapest in the world) and is the world's largest producer and exporter of LNG, finds it economically beneficial to develop RES. In 2018 the construction of the world's largest solar power station (twice as powerful as the current largest solar station in Morocco) is being completed, and $20 billion has been invested in its construction, which will increase the share of RE in power generation to just 16%, with the prospect of raising to 20% by 202417.
For Tunisia, proximity to Europe, association with the EU and pro-Western policies is a decisive incentive for European investments in RES with the prospect of exporting electricity under the "Desertec" program. By 2030, it is planned to increase the share of RES in the generation of electrical energy to 40%18.
14 Squire Sanders. The Future for Renewable Energy in the MENA Region. Clean Energy Pipeline. www.cleanenenergypipeline.com/..,/the%20future (access date 15.01.2018).
15 A roadmap for Renewable Energy in the Middle East and North Africa https://www.oxfordenergy.org/ wpcms/wp.../01/MEP-6.pdf .
16 Ibid.
17 Squire Sanders. The Future for Renewable Energy in the MENA Region. Clean Energy Pipeline.
www.cleanenenergypipeline.com/..,/the%20future (access date 15.01.2018).
The size of investment in RES in Israel is second only to Morocco in the region. Imports of energy carriers to this country, almost completely devoid of them and located in an unfriendly environment, is possible only through the Mediterranean and from extremely remote (non-Muslim) countries. Israel already has a leading position on autonomous power supply for private households from renewable energy sources, for technical innovations in solar energy, but against the background of large total electricity production, the share of RES in its generation is still relatively low - only 10% is expected by 202019.
Iran, which generates 40% of the electricity in the Gulf region, provides its needs by own production only 90%20. The country faces the task of accelerating the growth of the electric power industry. Possessing huge reserves of all fuel resources, Iran in its long-term plans gives preference to RES. Natural prerequisites for their development are exceptionally favorable: according to the total year-round solar radiation and the availability of cheap undeveloped desert areas necessary for the construction of large "farms", Iran is not inferior to the Arabian countries.
Iran managed to attract multibillion-dollar foreign investment for the implementation of large-scale solar energy projects. The input capacity will be included in the emerging unified energy system of Iran, Armenia, Georgia, Azerbaijan and Russia to cover peak loads. The share of solar power stations in the total power generation will grow from zero in 2014 to 7% by 202421.
In Turkey, the fuel and energy balance is 90% carbon and at the same time 82% is formed on the basis of imported fuel22. Electricity generation in 2013 was 73% carbon, 25% was provided by hydroelectric power stations and only 2% -new RES23. Such a structure of energy balance and a high degree of dependence on energy imports is dangerous for sustainable economic development, which dictates the need for faster development of alternative energy sources. In the same direction, the country is being pushed by the EU requirements, the candidate for entry into which it is, on bringing in compliance with the norms of this organization the volumes of carbon dioxide emissions, the level of energy efficiency, the transfer of transport for electricity, energy legislation and tariff policy. Therefore, priority is given to the development of renewable energy in national energy programs. By 2023 Turkey intends to reduce the proportion of 50% FCS in the structure of the power generation, increase to 27% HPP fraction and up to 23% - RES share24. The capacity of the HPP for 2013-2023 will increase
19 Squire Sanders. The Future for Renewable Energy in the MENA Region. Clean Energy Pipeline. www.cleanenenergypipeline.com/.../the%20future (access date 15.01.2018).
20 Renewable Energy in Iran www.satba.gov.ir/suna_content/media/..,/5196_orig.pdf?t ... (access date 12/01/2018)
21 Ibid.
22 National Renewable Energy Action Plan for Turkey www.ebrd.com/.../turkey-national-renewable-energy-action (access date 11/01/2018)
23 Ibid.
by 53%, wind power - by 625%, geothermal - by 223%, biomass energy - by 346%25. Solar energy will develop from the ground up and by 2023 its capacity will amount to a quarter of wind power capacity26.
An analysis of the current state of alternative energy in the MENA leads to the conclusion that RES is not only a decisive direction in achieving economic and environmental security in the region, but also a significant factor in future economic growth. The development of RE promotes the optimal use of specific local natural conditions and "comparative advantages", involves the territories that were not used earlier, provides for their settlement, creates new jobs and markets and expands the region's export potential.
References
1. A roadmap for Renewable Energy in the Middle East and North Africa https://www. oxfordenergy.org/wpcms/wp.. ./01/MEP-6.pdf.
2. National Renewable Energy Action Plan for Turkey www.ebrd.com/./ turkey-national-renewable-energy-action-.
3. Outlook for Energy ExxonMobil corporate.exxonmobil.com/en/energy/ energy-outlook
4. Renewables 2016. Global Status Report. Ren 21 Secretariat. P., 2
5. Renewable Energy in Iran www.satba.gov.ir/suna_content/media/.../5196_orig. pdf?t...
6. Squire Sanders. The Future for Renewable Energy in the MENA Region. Clean Energy Pipeline. www.cleanenenergypipeline.com/.. ./the%20future%20for%20r...
7. Subsidies Reform in MENA., p.5/https://www.imf.org/external/ns/es.aspx?id=276 Energy Outlook 2016. IEA. P., 2017. 8. World Energy Outlook 2016. IEA, P., 2017.
25 National Renewable Energy Action Plan for Turkey www.ebrd.com/.../turkey-national-renewable-energy-
action(access date 11/01/2018)
