High energy intensity in the Middle East
Five reasons why the sands of time are running out!
The Arabian Gulf countries’ economic success is undeniably founded on oil & gas exports, energy intensive industries and lifestyles. Yet, the time is right to take a closer look at energy efficiency. Many decision makers are now seriously embracing efficiency improvements – for good reasons.
As the summer heat kicks off in the Middle East, cooling loads in buildings reach their annual peak levels once again. As 70% of energy demand in Gulf countries typically comes from commercial and residential sectors, this puts a heavy burden on utilities, grid infrastructure and government budgets.
The reality is that the whole region needs to implement energy efficiency improvements now. Here are five main reasons, which explain how energy efficiency is gaining market acceptance in the Middle East:
1. Energy price increases are inevitable
The Gulf countries’ heavily subsidized energy prices are starting to impact government budgets, while record-high energy intensity threatens economic competitiveness. Take, for example, Abu Dhabi, where an estimated $4 billion were spent last year alone to support low energy prices. The direct subsidy makes up for more than 50% of true electricity costs of end consumers. Next to subsidies, the necessary high investments in generation capacity and grid extensions in order to meet demand are taking their toll.
To escape this Catch-22 situation, governments are looking into price increases for commercial and residential users (Dubai for example introduced a slab tariff with surcharges and Abu Dhabi is piloting a peak-demand pricing scheme). Similarly, energy intensive industrial facilities are exposed to increasing feedstock, electricity and fuel charge markups.
2. Decision makers recognize energy efficiency benefits
As supply constraints and price incentives turn into reality, productivity improvements become attractive. Apart from reducing their operational costs and enhancing asset life, major players in many sectors embrace efficiency measures because of reputational benefits: Energy efficiency is ‘en vogue’ in the Middle East. Leaders are keen to rebrand their cities as modern commercial hubs with the focus on tourism, trade, transportation and real estate. Not least since mega-events such as the Qatar FIFA World Cup in 2022 and the Dubai World Expo 2020 are attracting international spotlights in order to observe the progress on the green agenda.
Aside from operational excellence and green marketing, energy efficiency is a bare necessity for the region’s less hydrocarbon-rich countries: Jordan, Lebanon, Pakistan and also Egypt are examples where high energy costs and supply shortages are major drivers. Here, efficiency enhancements are an imperative to avoid power cuts during peak hours due to over-stressed grids.
3. The policy framework is changing
The tendency for early policy roadmaps and pledges to be more vivid on glossy paper than in reality is changing. Research institutes, energy councils and associations are increasingly following through on policy development: Saudi Arabia implemented a national competence center to revise regulations and market mechanisms. Dubai is looking into demand-side programs and energy performance contracts (ESCO) for buildings and Abu Dhabi has an integrated energy efficiency strategy under development.
Green building codes have become mandatory for new constructions in various Gulf markets, while efficiency regulations are also tightened for existing buildings. Minimum efficiency performance standards (MEPS) are being discussed for electrical equipment and are already in place for household air conditioning units. Also, we should not forget that the UAE already ranks third worldwide (behind the U.S and China) with more than 800 registered or certified buildings under the Leadership in Energy and Environmental Design (LEED) benchmark.
4. Massive efficiency potential
Since Gulf economies experience some of the world’s highest energy and carbon intensity ratios, saving potentials are evidently substantial. Calculations claim possible reductions of almost 30% in total primary energy consumption compared to the baseline for Gulf countries by 2030 – and this is a scenario where only moderate policies and efficiency measures are adopted.
Even though the macroeconomic rationale for energy efficiency is inherent to enhance competitiveness and free up hydrocarbon exports, various barriers preventing a quick adoption still persist: As long as regulation and price incentives are not implemented on all levels, purchasing managers might refrain from opting in on efficient products and systems, as long as there is an alternative with lower upfront costs.
5. Energy efficiency becomes a purchasing criterion
Times have changed in the design and purchasing departments of Middle Eastern utilities, industrials and developers. As operational cost savings gain importance, customers are developing a deeper understanding of efficiency best-practices and are doing their homework on benchmarking. Progressively, system efficiency turns out to be an important criterion in tender evaluations. Customers also require more advanced commercial terms, such as energy performance contracting with guaranteed savings and shared risks.
Energy management systems are being applied gradually and early adopters have already certified some of their operations with the new ISO 50001 standard. Increasing investments are seen in efficient district cooling, waste heat recovery, flaring reduction, gas turbine and boiler optimization. Efficient variable-speed drive power for pumping applications, fans and compressors is now a standard upgrade with attractive payback times.
There is no doubt that the Middle East has started to move up the efficiency curve. What do you think? Post your opinion in the comments section below!