Think the Gulf's Only Energy Export Is Oil? Think Again.
WHY YOU SHOULD CARE
The Middle East’s most diversified economy is making a fresh bet on the future.
By Nick Fouriezos
Asia’s booming economies are contributing more than half of the world’s economic growth each year. And China and India aren’t the only ones driving those gains. A communist nation is betting on private and foreign education; a post-Soviet country is emerging as a fintech power; a country born out of war is growing as a connectivity hub; an outsourcing-dependent economy is turning to the creative arts; and an oil giant is exporting green tech. These are the New Asian Tigers.
When Majid Al-Suwaidi landed in Aruba in 2016, the United Arab Emirates consulate general to New York may have seemed as unlikely a guest as any to the tiny Caribbean island. His home nation and Aruba are separated by more than 12,000 kilometers (roughly 7,500 miles) as the crow flies. And the former oil company geologist wasn’t vacationing, like most tourists there, but had come to discuss business — the business of renewable energy, including solar panels and wind farms.
Despite their geographic separation, there were some similarities. Like Aruba, the UAE is small, roughly the size of South Carolina. And from a resources standpoint, it is similarly isolated, importing about 80 percent of its food and forced to desalinate much of its water. “One of the things that has always struck me in visiting these small island states is their real vulnerability and their dependence on imports,” Al-Suwaidi reflects. Those shared vulnerabilities with the Caribbean are part of the reason the UAE — known for boasting the seventh-largest oil reserves in the world — announced in January of last year that it was investing $50 million to fund renewable energy projects in the region, in countries including Antigua and Barbuda, the Bahamas, Barbados, Dominica and St. Vincent and the Grenadines.
It’s just one of the many creative investments the Gulf country is attempting while building a more sustainable future, an especially important lesson after huge decreases in barrel prices in recent years showed how fragile the market for oil can be. The stated goals for the fund are twofold: to increase the use and resilience for renewable energy in the Caribbean and to expand local technical experience in setting up such projects. But they are also serving as testing grounds for the UAE’s own engineers and scientists, an asset that will be useful as the UAE aims to generate 27 percent of its domestic energy needs from clean energy by 2021, and 75 percent by 2050. This shift marks the latest leap toward the future by the Middle East’s most diversified economy, after it successfully transformed Dubai into a financial services and media industry hub in the 2000s. Once again, the UAE wants to stay ahead of the curve.
The UAE has a history of doing this: They are a country that really understands energy and understands infrastructure.
Nick Sangermano, CohnReznick Capital, a financial advisory firm for renewable energy and sustainability industries
The expansion into the islands builds on work being done at home with the Masdar Institute, a UAE university founded in 2013 that partners with the Massachusetts Institute of Technology to focus on environmental and sustainability research. And it adds to other global “energy diplomacy” projects, including hundreds of millions of dollars invested everywhere from the Maldives and Samoa to Niger and Iran since 2014. “The impact on the communities can be really huge because that frees up savings in diesel costs,” Al-Suwaidi says. “And these islands have a lot of development needs, so every penny counts.”
Of course, the work isn’t only altruistic. The UAE benefits from its soft power influence, building up positive relationships that could pay dividends down the road, whether through trade agreements or other economic supports. The UAE deserves credit for operating in the space for years, even when the price of solar and wind seemed prohibitively expensive, says Nick Sangermano, a managing director for CohnReznick Capital, a financial advisory firm for renewable energy and sustainability industries. But while a wealthy country, Sangermano says, the UAE does not take capital for granted: “They’re not throwing away money, in other words. They are thoroughly commercial people.” The UAE is trying a wholesale different approach to global investment, Sangermano says, and there are profits to be made. “I use the term ‘infrastructure leapfrogging.’ Don’t follow what America or Europe did: Don’t go into a coal plant and replace it with a diesel plant, and then a natural gas plant and a solar farm — go right to the solar farm. Rather than starting with old technology, go straight to the well-proven, but innovative, technology.”
There are more than a few challenges in implementing wind farm and solar technology in the Caribbean. Many of the islands have an uncertain legal and regulatory framework, says Patrick Schmidt, a counsel to Hills Stern & Morley, a boutique law firm representing clients in transactions to the Caribbean and Latin America. “The laws have to be very clear,” Schmidt says. Competition is rampant: China, the U.S. and European nations like Germany and Spain have interests in promoting renewables here, particularly after last year’s hurricane season (and even Tesla is in the game, last September committing to send hundreds of its Powerwall battery systems to power solar panels). However, developers often shy away from providing capital to the region because it’s hard for it to scale up: It may only require 5 to 10 megawatts to power an entire island, which limits profit potential. “One tiny island can’t connect with another tiny island. You’re kind of wed to that smallness,” says Schmidt. Also, electric utility companies are nervous about embracing alternative energy too closely, since their current business model is based on diesel — a situation the former prime minister of Aruba Mike Eman described as asking “a turkey to help you make Thanksgiving dinner.”
Then again, those roadblocks aren’t as foreboding to the UAE as to other investors in renewable projects. As Al-Suwaidi points out, the $50 million is relative chump change compared to more than a billion spent in foreign aid energy endeavors since 2013. While private developers need a big check to warrant development, the UAE can afford to be patient with doing smaller-scale projects like the ones the Caribbean offers. “They spotted a gap,” Sangermano says. “The UAE has a history of doing this: They are a country that really understands energy and understands infrastructure.”