302 Int. J. Transitions and Innovation Systems, Vol. 1, No. 3, 2011

Copyright © 2011 Inderscience Enterprises Ltd.

An empirical insight into the functionality of emerging sustainable innovation systems: the case of renewable energy in oil-rich Saudi Arabia

Yasser M. Al-Saleh INSEAD, Innovation and Policy Initiative, P.O. Box 48049, Abu Dhabi, United Arab Emirates E-mail: yasser.alsaleh@INSEAD.edu

Abstract: The underlying premise of this paper is that it is in the best long-term interests for major oil-producing countries to support the development and diffusion of renewable energy technologies. Since there have only been a limited number of sustainability transition studies which have drawn upon the theoretical concepts that have recently been articulated within the realm of innovation studies, this paper makes use of the dominant theoretical concepts related to the functions of innovation systems in order to examine the potential establishment of a sizable renewable energy industry in the Kingdom of Saudi Arabia. Not only does the paper reveals a number of ominous signs of weakness that currently impede a transition towards renewables in this oil-rich country, but it also provides recommendations that have the potential to support the future development of a well-functioning sustainable innovation system.

Keywords: sustainability transitions; systems of innovation; Saudi Arabia.

Reference to this paper should be made as follows: Al-Saleh, Y.M. (2011) ‘An empirical insight into the functionality of emerging sustainable innovation systems: the case of renewable energy in oil-rich Saudi Arabia’, Int. J. Transitions and Innovation Systems, Vol. 1, No. 3, pp.302–320.

Biographical notes: Yasser Al-Saleh was awarded a PhD from the Manchester Institute of Innovation Research, University of Manchester (UK). Prior to joining INSEAD Innovation and Policy Initiative, he worked as a Post-Doctoral Fellow at the Masdar Institute of Science and Technology. He has a First Class Honours undergraduate degree in Engineering (Southampton), and has completed an MSc (Eng.) in Engineering Project Management (Leeds) with distinction. His current research interests include sustainable energy policy, sustainability transitions, foresight and innovation studies.

1 Introduction

Continuous use of fossil fuels (i.e., oil, natural gas and coal) is set to face several challenges, some of which include depletion of world’s finite natural resources, climate change and other environmental concerns, geopolitical and potential military conflicts as well as significant rise in energy prices. Such challenges indicate an unsustainable situation that needs to be remedied with a sense of urgency. In response to such challenges, a wide-spread enthusiasm has been growing with regard to the transition

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towards more sustainable energy systems. A close look into innovation actitivies within todays’ energy systems around the world confirms a remarkable diversification in terms of energy sources and an intensification of the deployment of sustainable innovation solutions. Renewable energy technologies, in particular, are becoming internationally recognised as a vital contribution towards attaining sustainable energy systems.

In response to the mounting global concerns over environmental issues, pressures of a growing world population, compounded by ever increasing per-capita energy use and the depletion of supplies of hydrocarbon-based fossil fuels, major oil-producers need to consider renewing their competitiveness and become active players in the global renewable energy market. It would make sense that now, whilst money from oil sales is available, it is the appropriate time for these countries to spur sustainable innovations that would contribute towards the establishment of their renewable energy industries. Not only do such countries need to consider adopting such sustainable energy means to further secure their energy and economic futures, but the potential key role that these countries could play in achieving a healthier future for generations to come should not be overlooked. In this regard, an interesting case to consider is that of the principal oil superpower, the Kingdom of Saudi Arabia whose economy continues to be almost entirely reliant upon oil sales. Whilst possessing at least a quarter of the world’s proven oil reserves and one of the world’s fastest growth rates for domestic energy needs, it is also a nation that is blessed with abundant solar radiation and a reasonable wind resource. Despite its several – yet somewhat tentative – undertakings in the field of renewables since the 1970s, the country’s massive renewable energy resources have not yet been sufficiently exploited (Al-Saleh, 2007).

This paper suggests that an emprical investigation, guided by the functions approach that is borrowed from innovation studies, should help to explore a range of drivers and barriers currently affecting the establishment of a sizable renewable energy industry in Saudi Arabia. Here, it is perhaps worth noting that the long-term process of changing from fossil-based energy systems into more sustainable ones, could be seen as a long-term process of technological change, the analysis of which has long been the prime focus of innovation studies in general. Nonetheless, a large number of studies that examine the prospects of sustainable energy continues to overlook the theoretical concepts that have recently been articulated within the realm of innovation studies (Al-Saleh, 2010; Foxon and Pearson, 2008). This paper aims to address such concerns, as it presents an empirical functional-orientated analysis of the prospects of establishing renewable energy industries within a major oil-producing country, with the ultimate premise of identifying policy-making factors that have the potential to affect the promotion of such sustainable innovation systems. In this paper, firstly, succinct introductions to the notion of sustainable innovation as well as the adopted theoretical framework and research methodology are provided. Next, the functionality of the Saudi energy system is examined and evaluated in more detail, with the help of empirical information emerging from in-depth interviews conducted with 15 high-level stakeholders. The paper then identifies a list of mechanisms that could either induce (drive) or block (hinder) the diffusion process with regard to renewables, before deriving policy recommendations that may expedite the diffusion of such sustainable energy technologies. Given that information and policies concerning the Saudi energy sector is not readily available in the public domain, it is hoped that this paper will provide interesting insights into the current situation.

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2 Sustainable innovation

Sustainable development emphasises the long-term compatibility of environmental, social and economic dimensions/pillars of human well-being. Based on probably the most frequently quoted definition, the concept of sustainability, and in particular sustainable development, is defined as “[…] development that meets the needs of the present without compromising the ability of future generations to meet their own needs” [World Commission on Environment and Development, (1987), p.8]. In the field of energy, it appears that only a few energy sources – i.e., strictly speaking, renewables – might come close to fulfilling all of the three pillars of sustainability. In recent years, there has been a rapidly-growing interest in the premise of renewable energy as a direct response to a wide range of global concerns over deteriorating environmental conditions and the ongoing depletion of the world’s finite natural resources. Consequently, a wide-spread enthusiasm has been growing with regard to the transition towards more sustainable systems of production and consumption in order to meet today’s needs without compromising those of future generations. Such an urgent transition would essentially involve ‘innovation’ leading to more sustainable technological and institutional processes and systems, i.e., sustainable innovation (Foxon and Pearson, 2008). In other words, sustainable innovation could be defined as the creation of new market spaces, new processes, products or services, in ways that would incorporate the environmental, social and economic dimensions of sustainability.

Since sustainable innovation is a critical pre-condition for achieving sustainable development, any novel attempt to examine and explain the systemic processes by which sustainable innovation takes place is useful, on both theoretical and policy-making fronts. It is interesting, however, to note that when observing the policy-making front, sustainability and innovation have – until quite recently – been addressed through discrete policy regimes that are based on distinct rationales for policy intervention. In essence, this paper aims to answer recent calls made by scholars (including Al-Saleh, 2010; Foxon and Pearson, 2008) in order to bring these two regimes closer by applying innovation systems thinking to examine the dynamics of sustainability transitions.

3 Functions in innovation systems

The system of innovation (SI) approach was articulated in the mid-1980 initially at the national level, but it was then widely adopted by scholars and analysts in order to examine the innovation process from a local perspective, as well as regional, technological and sectoral levels. As affirmed by Carlsson and Stankiewicz (1991), where the SI boundaries are drawn depends on the circumstances and the scope of the study under consideration. Generally speaking, however, the SI approach has changed the analytical perspective of the innovation studies from the traditional linear models (e.g., that of a ‘technology push’ and ‘market pull’ or of ‘basic research – applied research – development – diffusion’) to a systemic view of interaction among different actors (Edquist, 2005). Despite the existence of other dominant theoretical concepts that could help explain the innovation process – such as the socio-technical perspective (e.g., Shackley and Green, 2007) and multi-level perspective (Geels, 2002) – the SI perspective is often acknowledged as the comprehensive approach that allows a transition of the

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rationale for policy intervention from the typically limited approach of ‘market failures’ to a more appropriate ‘systemic failures’ one (Al-Saleh, 2010).

Whilst definitions tend to vary, depending on the characteristics of the system being considered, an SI can be generally described as “[…] the network of institutions in public and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies” [Freeman, (1987), p.1]. It is notable that SI studies have traditionally focused on identifying systemic failures as a result of analysing structural elements (e.g., actors and their competence), whilst overlooking the dynamics of the respective SI. Since the interest of this paper lies in creating insights into the dynamics – and policy-orientated factors – that determine the establishment of renewable energy industries, an attempt to analyse the dynamics of the SI approach adopted is needed. Here, it is worth noting that in a remarkable attempt to go beyond structural components and in order to describe the underlying processes, a number of scholars (e.g., Bergek and Jacobsson, 2003; Johnson, 2001; Johnson and Jacobsson, 2001) have focused on the key processes that need to be served for an emerging SI to perform well. These key processes are labelled ‘functions of innovation systems’ or ‘system functions’, and represent the most important factors that arguably could influence the development and widespread diffusion of the technology under consideration. It is argued that a well-functioning SI is a requirement for the technology under consideration to be developed and widely diffused (Negro and Hekkert, 2008). Moreover, bearing in mind that policy makers tend to find it difficult to extract sufficiently practical guidelines from conventional SI studies, Bergek et al. (2008a, p.409) argue that “It is in these processes [i.e., system functions] where policy makers may need to intervene, not necessarily the set-up of the structural components”.

Apparently, given the enormous recent interest with regard to the system functions approach, a large number of function lists have appeared in the SI literature (e.g., Bergek et al., 2008a; Liu and White, 2001; Markard and Truffer, 2008). The most comprehensive – and empirically tested – set appears to be a system function list that has recently emerged as a result of several empirical studies at Utrecht University in the Netherlands (e.g., Hekkert al., 2007; Negro, 2007; Negro and Hekkert, 2008; Negro et al., 2008). Based on these studies, the following is a brief discussion of the proposed system functions.

3.1 Function 1: entrepreneurial activities

The role of the entrepreneur is to turn the potential of new circumstances into concrete actions that generate, realise and take advantage of business opportunities. Entrepreneurs can either be new entrants with visions of business opportunities in new markets, or incumbent companies who diversify their business strategies to take advantage of new developments. The role of entrepreneurs is indeed of prime importance to the performance of the innovation system, because their risky experiments are needed to cope with the huge uncertainties that result from evolving combinations of knowledge development, applications and markets. It should be recognised here that the success of an emerging innovation system largely depends on the existence of vibrant entrepreneurial experimentations and variety creation (Bergek et al., 2005). Broadly speaking, new technological SIs are typically built ‘bottom-up’ by entrepreneurial activities that develop a new technology and bring it to the market.

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3.2 Function 2: knowledge development (learning)

Mechanisms of learning are at the heart of the SI approach. In this regard, Lundvall (1992, p.1) believes that “[…] the most fundamental resource in the modern economy is knowledge and, accordingly, the most important process is learning”. Edquist (1997) further argues that it is important to analyse the knowledge base and learning aspects of innovation systems, including – where possible – systems of formal research and development (R&D), patents, education and training, as well as the processes of learning that are embedded in routine economic activities.

3.3 Function 3: knowledge diffusion through networks

Edquist (1997, p.6) states that “Not only is the creation of new knowledge crucial but so is its accessibility, i.e., its distribution and its utilisation within systems of innovation”. The essential characteristic of networks is to exchange information and diffuse both explicit and tacit knowledge. For instance, when discussing the prospects of establishing renewable energy industries, one could argue the importance of a widespread knowledge of renewable energy technologies as well as an awareness with regard to recent energy and environmental concerns.

3.4 Function 4: guidance for the search

This function “[…] refers to those activities within the innovation system that can positively affect the visibility and clarity of specific wants among technology users” [Hekkert et al., (2007), p.423]. Relevant examples exist in the form of some governments’ settings of renewables targets. Such an action could lead to enhancing the credibility of renewable energy, stimulating the allocation of resources and generating momentum for change towards sustainable energy options.

3.5 Function 5: market formation

Since new technologies – sometimes characterised as ‘technological discontinuities’ – tend to find it difficult to compete with incumbent technologies, it may be necessary to create protected spaces for the new technologies. This could be achieved either through

1 the creation of a temporary competitive advantage, e.g., by introducing favourable tax regimes

2 the formation of temporary niche markets for specific applications of the technology.

Within the latter environments, not only can actors, including entrepreneurs, learn about – and exchange – knowledge about the new technology (Functions 2 and 3), but expectations can also be fulfilled and developed (Function 4). In essence, these ‘nursing markets’ pave the way for opening a ‘learning space’ in which these technological options can find a place to form, before successful ‘mass markets’ might evolve (Bergek et al., 2008b).

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3.6 Function 6: resource mobilisation

A range of different resources need to be mobilised for an SI to evolve and successfully develop. Resources in terms of finance and competence (i.e., human) capital, as well as complementary assets (e.g., services and network infrastructure) are undoubtedly vital inputs to all activities within the respective SI. When examining the case of renewable energy technologies, the abundant availability of the respective natural energy ‘resource’ is also an important factor.

3.7 Function 7: creation of legitimacy

It is often argued that, in order for a new technology to develop well, it needs to become part of an incumbent regime. This is of particular significance for technologies with potential disruptiveness because parties with vested interests may oppose this force of ‘creative destruction.’ Advocacy coalitions are, therefore, needed to both counteract any change resistance and to facilitate the process of legitimising new technological options and/or trajectories1. Sabatier (1988) describes advocacy coalitions as being made up of actors sharing a specific set of beliefs who seek to influence the political agenda in line with those beliefs, in competition with other coalitions. In fact, it has been suggested that such advocacy coalitions can function as a catalyst as they could put new technologies on the agenda (Function 4), and perhaps lobby for favourable tax regimes (Function 5) or additional resources (Function 6).

Clearly, these functions are not independent of each other, as changes in one function may lead to changes in others. In fact, Negro (2007, p.17) further suggests that it is the interaction of these functions with each other that leads to “[…] a build-up of virtuous cycles that trigger the development, diffusion and implementation of an emerging technology”. Moreover, it is often recommended that all of the above-mentioned functions need to be served for an emerging SI to perform well. Nonetheless, borrowing from the underlying assumptions of evolutionary economics, it is imperative to recognise that no theoretical optimum exists. In the words of Markard and Truffer (2008, p.601), “[…] there is no optimal structure to assure a well performing [innovation] system”. Whilst a consideration of these functions provides some broad indication as to how well an SI functions, they should be interpreted as guidelines as opposed to ‘a must-have set’ of functions. The simple reason is – as conceded by the evolutionary economic theorist Nelson (2007) – that the range of possibilities for any economic activity is constantly changing and growing in a way that cannot be predicted or specified in great detail.

A policy-related explanation was provided half-a-century ago by Lindblom (1959, p.86) when he asserted, in his renowned paper The Science of Muddling Through, that: “[…] making policy is at best a very rough process… Policy-making is a process of successive experimentation on some desired objectives in which what is desired itself continues to change under reconsideration”. Having stated that, one could presume that the more (and better) functions are served, the better the performance of the receptive SI is likely to be, and hence, hopefully, the better the development, the diffusion and the implementation of innovations will be. This argument is based on the assumption that the fundamental goal of the SI is to pursue innovation processes, i.e., to develop, diffuse and utilise innovations (Edquist, 2005; Johnson, 2001). Therefore, this set of functions

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provides a structure to describe the innovation processes, contributes to understanding how SI emerge and transform, and – perhaps most importantly – how these systems could be stimulated appropriately to successfully support the establishment of emerging SIs.

Having shed some light on the theoretical framework that will be used for analysing the empirical findings of this research, it is now appropriate to discuss in detail the methodology design of this empirical endeavour.

4 Research methodology

In total, 15 in-depth interviews were conducted (13 over the period 1 September to 12 November, 2008; while the remaining two were conducted to further supplement existing data on the 14 and 17 May, 2009). The selection criterion was that an interviewee should have either influence over, or a great deal of expertise in, Saudi energy policy processes. Amongst the interviewees were two Saudi Princes and two members of the Saudi Consultative Council (i.e., Shura Council). The interviewees include two Saudi Professors, with an interest in renewable energy applications, as well as Saudi senior managers from both the private sector and public sectors. In addition, there were a couple of non-Saudi experts who essentially fitted the latter ‘expertise’ criterion, but not the former one of ‘influence’. One of the international interviewees was actively involved with a major solar technology transfer programme that was an R&D joint-venture between Saudi Arabia and Germany over the period 1986-1995, whilst the other interviewee advises the Saudi leadership on a regular basis on policy matters related to energy and economics. Table 1 demonstrates some background information about the interviewees.

Table 1 Background information about the interviewees

Category Variable No. of interviewees

Saudi 13 Nationality

Non-Saudi 2

Public sector 9

Private sector 4

Main affiliation

Academia 2

Doctoral Degree 5

Masters Degree 8

Highest academic qualification

Bachelor Degree 2

Due to access constraints, a couple of the interviews were conducted by telephone as opposed to a face-to-face basis. It has been suggested by Frey and Oishi (1995) that, whilst observing body language and the gestures of the interviewees would be impossible when conducting interviews by telephone, the tone of voice could serve as an alternative assessment indicator of the validity of the respondents’ answers.

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For the purpose of this research, the author opted for the use of ‘semi-structured’ interviews because these ensure a focused approach whilst offering more flexibility in allowing one to modify questions in order to explore new ideas raised by the respondents during the interview. Moreover, since the target population was comprised of individuals from different backgrounds, it might be necessary to vary the interview questions slightly sometimes, according to the interviewee’s knowledge of the subject. The underlying aim of these interviews was to gather informed opinions on whether or not the current Saudi energy system and its innovation-related capabilities are sufficiently ‘primed’ to enable the establishment of a major renewable energy industry in this oil-rich country. In addition, an effort was made in order to examine the potential drivers and barriers that could either enable or inhibit the emergence of a well-functioning renewables SI in the Kingdom of Saudi Arabia.

It should be noted that the research area under consideration deals with topics which in country like Saudi Arabia are potentially sensitive. For instance, addressing certain themes in the interviews may result in respondents trying to avoid politically sensitive questions. It is here that the consideration and observance of ethical practices is particularly relevant. Renzetti and Lee (1993) point out that, especially when researching sensitive areas, investigators must ensure the anonymity of the respondents. In other words, at the start of the interview, the interviewer needs to emphasise that the interviewees’ identities will not be divulged in the paper. This strategy was applied, and it helped to gain the confidence of the respondents, and increase the likelihood of them expressing their views more openly in an environment where no specific answer is seen as being right or wrong. Moreover, with the consent of the interviewees, notes were taken during the actual interviews, all of which were also tape-recorded before being transcribed.

The results of these semi-structured interviews were analysed manually by identifying emerging themes, as well as figuring out the similarities and differences between the responses of the interviewees. This analysis was carried out in a qualitative fashion whilst taking into account the SI-based theoretical framework adopted, which was presented in Section 3. It should be noted here that assessing innovation-related capabilities activities within well-established systems is usually carried out in a quantitative fashion. For instance, for analysing the variety in entrepreneurial experiments, one would hope to study the number of adopted technological approaches and applications. It was impossible to conduct such quantitative analysis as part of this research given the very early stage of development of the Saudi renewable energy sector, not to mention the non-existence of relevant data sources within Saudi Arabia.

5 Assessing the functionality of the Saudi energy system

The section provides an empirical assessment of how well each of the previously identified seven functions (i.e., key processes) is currently fulfilled in the Saudi energy system. In essence, these seven functions – which collectively influence the development and widespread diffusion of the technologies under consideration – need to be in operation for an emerging SI to perform well. Following this assessment, an attempt will also be made to pinpoint the mechanisms that could either induce (drive) or block (hinder) a development in terms of the desired functional patterns.

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5.1 Function 1: entrepreneurial activities

As explained in Section 3.1, entrepreneurs are actors that can either be new small entrants with visions of business opportunities in new markets, or large incumbent companies who diversify their business strategies to take advantage of new developments. Unfortunately, however, both types are lacking in the Kingdom of Saudi Arabia, especially within its energy industry. Whilst the act of entrepreneurship is often associated with true uncertainties, almost 50% of the interviewed stakeholders mentioned that the Saudi private sector – in general – tends to avoid investing in new and/or risky businesses. This could indicate the prevalence of risk aversion as well as a lack of entrepreneurial spirit and mindset – and hence a dearth of entrepreneurial initiatives – on the part of individuals and organisations within the Kingdom. Moreover, with the absence of a unified organisation for entrepreneurs and SME (i.e., small and medium size enterprises) support and development, most of Saudi SMEs face a number of problems in terms of operating within the country. Among the identified concerns was a lack of adequate funding sources, ineffective incubators and overly bureaucratic dealings with the governmental authorities, as well as difficulties in both obtaining market information and recruiting competent labour within Saudi Arabia.

Moreover, despite the announced intentions of developing a diversified and private-sector driven economy in Saudi Arabia, our interviewees have observed that the private sector continues to be viewed as being in a subservient relationship with the government, as opposed of being the dominant force. Such a political economy setting translates into the government’s domination of the private sector, with the state representing the main source of direct or indirect income in the country. The situation is further intensified within the power sector, where government contracts are the only source of profit for private companies, which – by the way – have only recently been allowed to construct some power and water projects. The interviews further revealed the existence of a number of small Saudi private firms that – on request – can import and sell solar systems. Whilst the existence of these companies has never been documented in the scholarly literature, it has been asserted by many interviewees that their very small capital base limits any entrepreneurial potential.

Since the presence of active entrepreneurs is often considered to be as the prime indicator for the performance of an SI, and bearing in mind the apparent absence of both entrepreneurial experimentation and renewables-orientated entrepreneurs within the Saudi energy system, no Saudi renewable energy innovation is expected to take place and the respective SI will struggle to come into existence. Nonetheless, it is perhaps worth noting here that when the first function (i.e., F1) stagnates in an SI, causes may be found in the remaining six functions; the existence of which are critical to stimulating innovation. In other words, because entrepreneurial actors rarely innovate alone, a well-functioning SI (in terms of F2 to F7) should eventually lead to a climate in which entrepreneurial activities blossom (Hekkert et al., 2007).

5.2 Function 2: knowledge development (learning)

When asked about the prospects of developing a scientific research and learning capacity in the field of renewables, one of the interviewees responded: “R&D in renewable energy in Saudi Arabia! You must be dreaming! Have you forgotten how obsolete and shameful the Saudi learning experience was with all scientific fields?”. Some practical knowledge

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and experience with regard to solar energy was indeed developed through the two R&D joint-ventures with the USA (i.e., SOLERAS Programme: 1977–1987) and Germany (i.e., HYSOLAR Programme: 1986–1995). Among the projects completed during the SOLERAS programme was the installation of a 350 kW Solar Village Project in 1982, which aimed to provide power to Saudi remote villages not served by an electric power grid. With regard to the HYSOLAR programme, its main aim was described as “…research, development and the demonstration of solar hydrogen production as well as of the utilisation of hydrogen as a source of energy”. According to the HYSOLAR agreement, the overall objective was “…to accomplish the scientific and technological prerequisites for future solar hydrogen production and utilisation of hydrogen” by means of “…long-term orientated cooperation for the transfer of know-how and technology in a high technology field” [Grasse et al., (1992), p.2]. As a result of the HYSOLAR programme, a few pilot solar hydrogen plants were installed in some Saudi universities during the early 1990s.

Since then however, both R&D activities and the assessment of domestic renewable energy resources have largely been halted in Saudi Arabia. This does not suggest an absolute absence of some technical knowledge amongst a rather limited number of Saudi actors (e.g., the few private firms that import, install and maintain solar systems). Here, it is perhaps worth noting that the generation of technological capability within developing nations tends to be a matter of absorbing products and services developed in other countries and developing their knowledge about them over time (Edquist, 2001). Drawing from their experience with the HYSOLAR programme, a couple of the interviewees admitted that the programme had failed in achieving its intended aim of transferring know-how and technology in the solar energy field (i.e., clean energy technology leapfrogging). An identified major contributing factor is the poor absorptive capacity, i.e., that Saudi scientists did – and still – lack appropriate technological capabilities to produce or integrate the transferred technologies themselves. However, the most frequently mentioned reason was a discontinuation of the government interest – and hence support – after the termination of the HYSOLAR programme.

5.3 Function 3: knowledge diffusion through networks

With regard to the knowledge base in terms of renewable energy, all interviewees affirmed that it had almost ceased to exist in the country, as it did not occupy much media and/or educational attention. In the cynical words of one research participant, “Saudi Arabia has the largest announced oil reserves, but it does not have any knowledgeable economists that can read and understand – yet alone write a scholarly paper – about the economics of oil. You can easily imagine the state of our ‘stock of knowledge’ with regard to alternative sources of energy.” Another interviewee went further and adopted a ‘conspiracy theory perspective’ by arguing that: “The level of knowledge of oil and energy-related matters among the Saudi population is one of the least in the world. Thanks to cheap electricity and low water prices, and a tightly-controlled media which is instructed to keep our citizens in the dark so no questions are asked about the ownership and control of our natural resources”. In essence, politics and corruption are thought to be behind the knowledge vacuum of the Saudi public with regard to the subject of energy. With the tight control of the authorities with regard to knowledge distribution, one cannot overemphasise the importance of the Saudi Government’s buy-in of renewables. In

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addition, it has been suggested that Saudi universities need to implement aggressive strategies to enhance their information and communication technology (ICT) infrastructure and work harder to expedite enhancing the knowledge of – and perception with regard to – renewables. Whilst Saudi universities – as a whole – remain as ‘isolated entities’ within the country, King Saud University has received some praise during the interviews. This came in recognition of the country’s largest and oldest university’s recent efforts to disseminate knowledge to the general public, which included establishing a centre for Knowledge Exchange and Technology Transfer. This comes in line with the Government’s recent interests in developing a knowledge-base society.

5.4 Function 4: guidance for the search

Saudi Arabia published its first national science and technology policy in 2002, with the aim of raising national R&D funding and increasing the number of Saudi scientists and engineers. Nonetheless, since the announcement of this policy – which has not been updated since then – no major work has been undertaken to translate the aim into strategies, programmes and detailed projects. As far as the subject of green energy is concerned, there are no announced national targets for renewable energy or even carbon emissions reduction on the part of the Kingdom of Saudi Arabia. Moreover, none of the interviewees declared that there are plans – or even informal discussions within the Saudi leadership – to set such commitments in the near future. As a matter of fact, a couple of the interviewees referred to an earlier statement made by the Saudi Oil Minister describing renewable energy as a ‘nightmare scenario,’ as the world’s worst ever official statement about renewable energy. This is indeed not to suggest that he has never talked about the country’s solar potential, but that such a comment usually comes within a sentence or two after either a long victorious speech about the country’s future oil production capability, or warnings about placing high hopes on non-oil energy sources.

It is also perhaps of relevance here to report on the interviewees’ responses when they were asked whether or not pursuing renewable energy would conflict with the strategic interests of Saudi Arabia. Disappointedly, almost all of the interviewees affirmed the prevalence of the negative attitude towards renewables among mainstream policymakers representing the Saudi energy sector. As put frankly by one of the interviewees, “History tells us that the companies producing steam engines did not campaign for electric motors, so don’t expect Saudi Aramco [i.e., the state-owned national oil company of Saudi Arabia] or even oil-based economies to lead a transition towards renewable energy because they will do everything in their power to frustrate it”. On the personal level, however, there have been differing views on the subject. Whilst eight interviewees fully supported the government’s present majority view, seven of the interviewees thought that pursuing renewables could be compatible with the country’s strategic interests for a number of reasons. Many Saudi interviewees argued that there will always be a market for oil, and Saudi Arabia will always be able to sell it to the world markets, which will continue to seek for more oil. Some therefore indicated that if renewable energy was used to generate domestic power, every saved oil barrel would have much greater value when exported and/or used in the petrochemical industry. Others referred to the subject of the environment in that the fate of Saudi Arabia depends on selling an energy source that is viewed today by many as the main cause of climate change. So, in order to maintain their position in the energy markets, it is in their best interest to look into ways of greening their energy business. In essence, it was argued that doing the right thing should not

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jeopardise the future of the Kingdom’s economy, as it could open new opportunities. For the time being, nuclear power and carbon capture and storage (CCS) technologies seem to fit well within the ‘right thing’ criteria in the Saudi policymaking mindset. The latter option has emerged as being more favourable because many CCS endeavours have an extra dimension of enhanced recovery of oil through injecting CO2 into ageing oil fields.

Nonetheless, a notable project is the King Abdullah University of Science and Technology (KAUST), which was officially inaugurated in September 2009. Two rooftop solar PV plants were installed on the Northern and Southern Laboratories of the KAUST campus. This PV project is a noteworthy development because

1 with a total cost of around US$17 million and an installed capacity of 2MW, it is the largest solar project in Saudi Arabia

2 it is the first on-grid application of solar power in the country.

Indeed, the vast majority of the research participants agreed that there are genuine intentions to make solar energy one of the main scientific fields at KAUST. Moreover, three of the interviewed stakeholders were of the view that the government’s interest in renewables has now been somewhat revived after over a decade of arrest (i.e., since concluding the HYSOLAR programme). The most recent and promising initiative, however, is the King Abdullah City for Atomic and Renewable Energy (KA-CARE), which was established by a royal decree in April 2010. With announced aims of regulating and promoting renewables and peaceful uses of atomic energy, the KA-CARE’s contribution is yet to be realised.

5.5 Function 5: market formation

During the interviews, there was some reference to the government’s intentions to increase the roles of both the private sector and of foreign investors in the Saudi power (i.e., electricity and water) sector, despite the fact that the actual fulfilment of these plans to date has been very slow. According to one of the highly-informed research participants, “Renewables do not stand a chance before the [Saudi] power market is substantially deregulated in order to encourage more realistic pricing, before even thinking about taking into account external costs associated with fossil fuel-based electricity production.” A couple of the interviewees, however, expressed some enthusiasm with regard to the potential incorporation of solar and wind power as part of four economic cities. These integrated cities are now under development in the western part of Saudi Arabia at a cost of more than US$60 billion. In essence, these rather luxurious economic cities – which are be completed around the year 2020 – could provide niche markets for renewable energy technologies, before mass markets might perhaps evolve throughout Saudi Arabia.

5.6 Function 6: resource mobilisation

There is no doubt that human resources are central to research and technological innovation activities. In this regard, it was disappointing to examine the data concerning the number of graduates in S&T fields in Saudi Arabia, which despite a slight improvement over the last decade, is still very low. According to estimates by the Ministry of Higher Education, which were made available by one of the research

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participants, Saudi students within the science and engineering fields currently represent only 18% of tertiary students, compared with 14% in 1998. The overwhelming majority of this group continues to be male. Indeed, the 18% rate is very low when compared with other nations (e.g., more than 40% in the Republic of Korea and Malaysia). One of the targets of the aforementioned tentative Saudi National Policy for Science and Technology is to increase the number of researchers and engineers per 100,000 of the population to only 140 researchers and 53 engineers by 2020. Nonetheless, since Saudi Arabia continues to lag behind the rapidly-developing Asian nations in terms of S&T input and output indicators, all research participants agree that the country does not possess sufficient human resources to promote S&T-based innovations. One the other hand, besides the country’s apparent oil wealth, it is also blessed with abundant solar energy. Evidently, not only that the number of hours of natural sunshine that the country receives is among the highest in the world (Bushnak, 2006), but also the solar irradiance in Saudi Arabia exceeds 2200 kWh/m2 per annum. With regard to the country’s wind energy potential, a number of studies (e.g., Al-Sulaiman and Jamjoum, 1992; Elhadidy and Shaahid, 2009) indicates that the average wind speed exceeds 4 m/s throughout the year in the Eastern, Western and the Northern parts of Saudi Arabia. Nonetheless, the high irradiation resources of the country do increase the attractiveness of solar-based technologies; something which the interviewees agreed upon.

With regard to resources in terms of financial capital, noteworthy allocations were the funds provided in order to establish aforementioned KAUST (that is equipped with a ‘Solar Energy Research Centre’ and PV rooftop plant) and a small centre entitled the Centre of Research Excellence in Renewable Energy (CoRE-RE), which is the first Saudi national research centre in renewable energy. Despite the appealing sound of the latter project, a number of the informed research participants expressed their scepticisms with regard to this endeavour. For example, it is argued that the few academics in charge of this centre are already overwhelmed with their teaching duties. Nonetheless, a more promising initiative is perhaps the King Abdullah Petroleum Studies and Research Centre (KAPSARC), which was established in 2008 by a Royal Decree following a first-of-its-kind US$300 million pledge for climate research by King Abdullah during the opening session of the third-ever OPEC Summit. The heads of state of the OPEC countries gathered in Riyadh for a summit overshadowed by rising oil prices and criticisms that OPEC states were using the needs of other countries to get rich. One of the interviewees saw the announcement of this grant as: “[…] a desperate effort to pacify legitimate criticisms”. Nonetheless, it has to be recognised that such investments are indeed insignificant for an economy that currently calculates its budget at an oil price of US$37 per barrel. According to one interviewee, “Saudi Arabia registered its largest surplus in its history [around US$160 billion] in 2008 when some countries in the G-20 were on the verge of receiving international bailouts in a desperate attempt to contain their budget deficits”.

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Figure 1 The most important inducement and blocking mechanisms in the case of renewable Energy at Saudi Arabia (see online version for colours)

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5.7 Function 7: creation of legitimacy

Bearing in mind the important role of interest groups in legitimising sustainable energy options and ultimately establishing a number of leading renewable energy industries around the world, it must be disappointing to report the absence of such influential groups in Saudi Arabia. The only exception might be the Global Strategic Studies Institute GSSI, which was recently established as the first Saudi Arabian environmental non-governmental organisation (NGO). Nonetheless, a few research participants strongly undermined the worth of such organisations in a country whose policies are entirely governed by a quite authoritarian regime. It was often commented that such interest groups (i.e., advocacy coalitions) can only function in democratic societies, where they could influence political agendas and hence support the diffusion of certain technological options. In the case of Saudi Arabia, the situation is further worsened with the persistence of the ‘oil-centred mentality’ among most of the country’s officials. In this regard, one of the interviewees assured the author of this paper that the vast majority of Saudi senior policymakers tend to view renewable (and nuclear) energy as ‘alternative’ sources of energy that have the future potential to replace oil, and neglect the fact that the world must be able to meet its future energy needs through an amalgam of sources. Whilst oil (along with other fossil fuels) will remain integral, other sources and energy conservation will have a place on the table. He further argued that if the Saudi Government wants to support – yet legitimise – the development of renewable energy sources, they should start by referring to them as ‘other’ or ‘complementary’ – as opposed to ‘alternative’ sources of energy. He added that: “This issue is an important one to address, and it is not just about playing with terminologies… Each [terminology] is actually based on a different philosophical/political stance that would ultimately result in pursuing radically different policies and strategies”.

In short, it would indeed be inappropriate to claim that a fully-fledged renewable energy SI currently exists in Saudi Arabia. The functional analysis of this slowly emerging sector has highlighted a number of ominous signs of weakness (which can be regarded as ‘blocking’ and/or weak ‘inducing’ mechanisms). Based on the findings that have emerged from this empirical research endeavour, Figure 1 summarises the most important inducing and blocking mechanisms, together with their potential bearings on the seven system functions. In essence, the identified blocking mechanisms – which can be regarded as systemic failures that currently impede a transition towards renewables in Saudi Arabia – have undeniably obstructed the formation of powerful functions. On the other hand, the inducement mechanisms (despite their weaknesses at present) have the potential to support the future development of a well-functioning renewables SI. Plotting such simplified diagrams can be useful in linking functional patterns to inducement and blocking mechanisms within an emerging SI. Nevertheless, since it would be impossible to consider all possible mechanisms and/or relationships, care must be taken to avoid including less significant ones (Hekkert et al., 2007). For the purpose of this exercise, judging the significance of the respective mechanisms and relationships – and hence the decision to include them in this figure – is based on the findings of the interviews.

In terms of the identified blocking mechanisms, ‘strong carbon lock-in’, ‘lack of concern for the environment’, ‘limited knowledge of renewables among Saudi leadership and population’ and ‘lack of supporting institutions for innovation (e.g., intellectual property rights and standards)’ appeared to be the four most significant barriers. Carbon lock-in, which is a typical barrier that hinders the development of renewable energy

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industries, essentially refers to the institutional and technological lock-in to current carbon intensive, fossil fuel-based energy systems. For instance, during the interviews, there was frequent mention of the large subsidies for fossil fuel-based electricity generation in Saudi Arabia. Such subsidies essentially ‘lock-out’ the development of new, particularly sustainable, energy technologies, which typically have high unit costs and are yet to benefit from scale economies and learning effects. Thinking in terms of the adopted theoretical framework – as is illustrated in Figure 1 – one can argue that such subsidies have a bearing on the following functions: guidance for the search, market formation, resource mobilisation and the creation of the legitimacy of renewable energy technologies in Saudi Arabia. The fifth most significant systemic barrier appears to be ‘weak network failure,’ which refers to insufficient linkages between the actors involved in the SI. Consequently, possibilities for interactive learning (F2) and knowledge diffusion (F3) are under-utilised, and hence the relevant actors are likely to fail in adapting to new energy-related technological developments. Other identified barriers include: lack of entrepreneurial spirit, weak S&T infrastructure and capabilities, under-developed educational and research capabilities, technical hurdles associated with renewables (mainly intermittency and high costs), lack of democracy and transparency in terms of policymaking and weak advocacy coalition.

6 Concluding remarks

The functional analysis of the emerging Saudi renewables SI reveals a number of significant weaknesses that currently impede a transition towards renewables in the country. One could argue here that policy should focus on remedying poor functionality, i.e., either through adding/increasing the strength of inducement mechanisms or removing/reducing the force of the blocking mechanisms that have such a pervasive effect. Of course, if a particular blocking mechanism influences a number of functions (directly and indirectly) this mechanism should constitute a key focus for entrepreneurial actors and policy makers. Therefore, based on the preceding empirical assessment, derived policy recommendations include: political buy-in of renewables; phasing out of subsidies for fossil fuel-based electricity generation; enhancing knowledge of renewables as well as increasing awareness with of energy and environmental concerns; introducing financial incentives to promote sustainable energy applications; allocating sufficient funds to support the development of renewable energy technologies; restructuring the Saudi power market; enhancing a collaborative culture and entrepreneurial activities among various stakeholders within the Saudi energy SI. In essence, such endeavours should be pursued with a sense of urgency if the Saudi Government has a genuine interest in supporting the development of a well-functioning renewables innovation system, and hence speeding up the diffusion process with regard to sustainable energy innovations in Saudi Arabia. As a final note, this paper, which has provided an SI-based examination of the prospects for sustainable energy within an oil-rich country, is an empirical attempt to highlight the need to join together sustainability and innovation policy-making regimes. It is hoped that this endeavour will pave the way for further studies that make use of innovation-orientated theoretical concepts to examine the dynamics of sustainability transitions.

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Acknowledgements

The author would like to thank the anonymous reviewers for their constructive comments and informed suggestions for improvements.

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Notes 1 When examining the case of renewables, achieving ‘socio-political legitimacy’ is likely to be

of particular significance. This type of legitimacy could be simply understood as being “…the acceptance by key stakeholders, the general public, key opinion leaders and government officials” [Aldrich, (1999), p.230].