During the boom from 2001 to 2008, Dubai’s electricity demand grew at 10 per cent or more annually. In the last year before the crash – 2007 – it soared by a remarkable 17 per cent. It was a considerable achievement that the city did not suffer the power cuts that continue to bedevil neighbouring Sharjah.
But with its oil production declining to modest levels and nearly all its gas imported from Abu Dhabi and Qatar, Dubai’s energy fate was no longer in its own hands.
The national situation was changing, too: growing environmental awareness was perhaps influenced by a younger generation of expatriates. A leadership searching for diversification away from oil and new sources of employment seized on alternative energy.
In 2010, prevented by politics from securing new supplies from its neighbours, Dubai began importing costly liquefied natural gas. At some 10 times the price of its legacy supplies, this made it clear that a new approach was needed. Dubai now had to think like thrifty Singapore.
The emirate established its Supreme Council for Energy, tasking the enthusiastic veteran Shell executive Nejib Zaafrani with designing an energy strategy. The plan foresees diversification away from natural gas as the sole fuel for power generation, to be augmented with solar, nuclear and, less comfortably for the climate, possibly coal.
But a critical component of the plan – and the most interesting, for its implications for the rest of the Gulf – is the emphasis on energy efficiency. Of course, Dubai’s neighbours have had conservation campaigns. Kuwait sends residents text messages during the summer when its grid is becoming dangerously overloaded. Abu Dhabi has begun showing the full (unsubsidised) cost on electricity bills, with expats enjoying a 50 per cent subsidy and UAE citizens paying only 14 per cent of the true cost.
But the key difference is Dubai’s willingness to drive consumer behaviour through prices. Having kept electricity tariffs flat since 1998, in March 2008, the emirate increased them and introduced higher rates for heavy consumers. From January last year, prices went up again and a surcharge was introduced to cover the cost of LNG.
This has had an effect: although population growth has kept overall consumption rising, electricity use per resident has been dropping some six per cent annually, while the city’s water consumption has fallen overall. This has allowed Dubai to delay its huge 1.6GW Hassyan power plant. Efficiency is intended to save 30 per cent of business-as-usual consumption by 2030.
Dubai’s success or otherwise in reducing energy demand is key for the whole Gulf. (…) The emirate’s energy transformation is driven by economics much more than environmentalism. It has to show that proper pricing of resources will drive sustainability in a desert city of air conditioning and desalination.
Robin M. Mills, The Financial Times (click to read full article)
Robin Mills is head of consulting at Manaar Energy and author of The Myth of the Oil Crisis and Capturing Carbon.
Copyright: The Financial Times Limited 2012.