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A new oil for the region

Alessandro Leona, Milan ofce, and Koosha Kaveh, Dubai ofce

Over the past 30 years, Middle East and North Arica

(MENA) regions total energy consumption has grown

aster than that o any other region in the world,

because o energy intensive industry expansion,growing population and energy subsidies. According to

IEA and ESMAP4, energy intensity in MENA has grown

aster than GDP in the last 15 years, resulting in a 14 percent increase in energy intensity,

whereas most OECD (Organization or Economic Co-operation and Development)

countries have experienced steady declines in the same period. This is true or both

resource-rich countries like Bahrain, Iran, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, Syria,

and UAE and resource-poor countries such as Jordan, Yemen and Lebanon where

energy intensities are comparable to OECD standards, as other countries in the MENA

region: Algeria, Egypt, Oman, Israel, Morocco, and Tunisia.

Moreover, energy consumption is the most signifcant source o pollution and, in terms

o particulate matter (PM10) concentrations, MENA represents the second most polluted

region in the world ater South Asia and the highest CO2 producer per dollar o output.The energy sector in the MENA region is historically based on subsidies, whose costs have

become extremely high and no longer sustainable (e.g. they represented, on average, 7

percent o 2006 GDP and one fth o government annual spending). MENA countries

have a great opportunity: rapidly catching up with western standard technologies, to

fnance the accelerated expansion o their economies, through resources coming rom

a widespread adoption o energy efciency schemes. Energy efciency is an area where

little eort has been dedicated so ar, but it will certainly attract, in the short term, the

attention o government agencies, consumers, industrial players, technology providers

and investors5.

Energy subsidies are surely one o the frst areas to address. Currently, most MENA

countries subsidise electricity and all countries do the same with hydrocarbon products,as a way to redistribute oil profts. Some industries strongly rely on subsidies or their

existence, hence reducing overall value or their country. Little eort is being made by

consumers to reduce energy wastes, since energy prices in some MENA countries do not

even reect marginal generation costs.

In order to cut o electricity subsidies without causing social problems, an organised

set o actions could be thought through. First o all, a dierentiation o tari schemes

by income (having poor segments adhere to a social tari), by hour group (peak vs. o

peak), and by service continuity (e.g. special premium tari or uninterruptible supply).

Some o the tari incentives should be directed to energy efciency investments both

in industrial sectors (e.g. requency drives or motors, high efciency plants, efcient

cooling equipment or thermal insulation) and in residential (e.g. compact uorescent

lamps, A class appliances or insulation). In this latter area, some o the results o the

MED-ENEC6 program can already be appreciated. In addition, energy waste should be

penalised by introducing progressive tari schemes based on total consumption per

point o delivery or by banning inefcient products like incandescent lamps. Last but

not least, renewable sel generation should be promoted through eed-in tari schemes

or photovoltaic, mini wind turbine and trigeneration.

Instead o subsidising running costs, some o the incentives could be directed to energy

efciency investments that would in turn reduce social costs e.g. housing insulation,

lighting efciency, better appliances , increase GDP thanks to lower production costs,

develop a new industry, and reduce pollution. An example is Masdar, the zero carbon city,

situated in the Abu Dhabi emirate, which will become the new Silicon Valley or clean,

green and alternative energy, besides providing useul ideas to other regions in the world.

With the aim o promoting investments in energy efciency, most countries have created

Energy Service Companies (ESCOs), which diagnose energy consumption and suggest

5 To urther deepen the topic,please reer to Infrastructures andnew energies: from planning torealization (www.valuepartners.com), Value Partners contributionto the 9th Italian Energy Summit,organised in Milan in September2009 by Il Sole 24Ore.

6 Energy efciency program inthe construction sector in theMediterranean, a co-operationbetween European Union EnergyInitiative ater Kyoto andMediterranean area countries.

4 International Energy Agency andEnergy Sector Management As-sistance Program (established bythe World Bank and the UnitedNations Development Program)

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possible counter measures. Some o these companies only require a change o behaviour

in energy usage to reduce waste. Others require upront investments, such as co-

generation, motor requency drives or photovoltaic roos, which the ESCO can acilitate

having access to external unding. In return, the energy saving repays the upront

investment and, in the long run, becomes an advantage that the end-client keeps.

Another area o intervention in the MENA region relates to system efciency. Transmission

losses in the area account or an average 14 percent, against OECD standards o 7-8

percent (distribution alone weighing an average 10 percent): considering an overall

installed capacity o 130 GW, reducing losses to an aordable 10 percent would ree up 7

GW o capacity, with overall savings o US$ 2-3 billion and 50 million tons o avoided CO2.

Moreover, the power generation park in the MENA region is strongly relying on ossil uels,

and thereore poses ageing problems and pays little attention to emissions and generation

efciency.

All these measures have to be introduced in an orderly manner, taking into consideration

structural dierences country by country and applying a ramework o analysing,planning, enabling, communicating, deploying and monitoring. In such an eort, a strong

role will be played by national energy agencies, research institutes, investors, engineers

and consultants, working in close contact with governments or issuing energy plans,

laws and decrees, and scouting or undings, investors and R&D programs, to recruit and

train uture generations o energy efciency specialists.