With an abundance of hydrocarbons yet to be extracted, conventional wisdom in the Middle East suggests that the region is not interested in the low-carbon energy alternatives taking root in Europe and North America. However, new conventional wisdom says otherwise. One-hundred years after William Knox D’Arcy struck oil at Masjid-i-Sulaiman in Iran, the World Future Energy Summit in Abu Dhabi established a vision for a cleaner, more sustainable Middle East.

The emphasis for 2008 is on demonstrating that the available technologies – such as carbon capture and storage (CCS), biofuels and solar energy – are viable and cost-effective options. Pioneering projects, such as the Masdar zero-carbon city in Abu Dhabi, have set out to prove that combining the latest technologies with optimum use of local natural resources will provide for sustainable development.

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At the centre of the Masdar initiative is the development of a stunningly ambitious and well-planned project to create a zero-carbon, zero-waste city in the heart of the desert.

With the start of construction imminent, Masdar has developed a multi-faceted approach to sustainability, featuring photovoltaic-powered transport, concentrated solar power energy production, wind power and solar-powered cooling systems.

CCS technology will also be deployed for carbon management and the city will recycle all of its waste into usable products or energy. CCS has been hailed as an important, if not essential, method of reducing carbon emissions.

However, with no tangible domestic or international legal framework to set industrial standards for geological storage, there has been hesitation to proceed with CCS demonstration: a crucial step on the path to making it an attractive financing opportunity and, of course, to full scale deployment.

Regulatory development

Recently, the UK government announced a consultation on the appropriate regulatory regime for CCS on the UK continental shelf, and the EU Commission published a draft directive on geological storage (by coincidence on the last day of the World Future Energy Summit). In the Middle East, similar regulatory developments will be needed to provide developers with certainty in respect of storage requirements.

The key issues facing CCS in 2008 are whether it is legal to inject carbon dioxide into geological structures (whether as part of enhanced oil refinery or merely to store it), whether it will be profitable, and consideration of the long-term stewardship of the stored carbon. While the skills and technology are readily available, industry is asking for a roadmap for deployment that clearly states any liabilities or limitations.

Capture fitted plants produce electricity less efficiently than non-capture plants, so developers need policy markers to address this economic disadvantage. Enhanced oil recovery may help as a revenue stream, but is unlikely to be enough to bridge the gap in itself.

Speakers at the summit urged governments to consider subsidies and carbon taxes, but internationally there is more that can be done. The profitability and attractiveness of CCS may depend on its qualification, under the Kyoto Protocol, as a clean development mechanism (CDM).

Under Kyoto, the tradable certified emission reductions (CERs) generated from deployment of CCS technology would provide a strong incentive to the power industry. CCS has yet to be approved under the CDM framework and is on the agenda for the critical next meeting of the parties at Poznan, Poland later this year.

Using the captured carbon in enhanced oil recovery further increases the profitability of CCS. Carbon dioxide can be used to replace the natural gas injected into oil reservoirs to maintain pressure and increase the recovery rate up to 60%. This could allow access to previously unrecovered hydrocarbon reserves while providing a safe and suitable storage site for the carbon.

Long-term liability is, however, a significant issue with the carbon being effectively stored underground for an indeterminate and substantial period of time. The question of who will assume responsibility for storage in the future is complex and unclear, potentially involving mechanisms such as governmental agreements or even insurance contracts. This issue is truly international: significant leakage would impact upon the global environment, and geological storage sites are likely to cross territorial boundaries.

Demonstrations of storage are currently under way, with Statoil’s successful Sleipner CO2 project in Norway, BP’s In Salah project in Algeria and Total’s impending Lacq Basin pilot project in France. BP has plans to demonstrate full-chain CCS as a significant part of its Abu Dhabi Future Energy Project in collaboration with Hydrogen Energy.

Biofuels

The main issue facing biofuels in 2008 is the growing public concern over the trade-off between resources for fuel or for food. Speakers highlighted that negative press has caused movement towards supporting electrical means of automation and distressed the biofuels market.

Conventional fuel is, however, in high demand and will not cope with the burden without the help of alternative fuels. A revolution on a commercial scale is needed and fuels that can deliver performance and emission reductions will lead the market.

First-generation biofuels can expect more support from governments in 2008 with increases in blending rates and positive public promotion. Manufacturers of these biofuels will need to be sensitive to ‘sustainable’ issues and conduct adequate environmental and social impact assessments of their feedstock sources.

However, in the absence of an accepted set of international rules on sustainability, this is likely to remain an issue for parties to deal with on a contractual basis. Over the past couple of years, the industry has developed bespoke contract wording to provide for sustainable biofuels and this trend is likely to continue.

In terms of global markets, as one of the three major markets for biofuel use, the EU has further increased targets for biofuel this year, despite having not met its previous commitment. Brazil, on the other hand, has the most developed biofuels industry and has been increasing its exports. The most potential growth, however, is expected in the US, with new legislation due this year.

Second-generation biofuels dominated the presentations with technologies such as biomass-to-liquid (BTL) and cellulosic ethanol production showing the most promise for fuel-dependent industries. Despite successful demonstrations of this technology, such as the three Abengoa plants in Spain and the US, second-generation biofuels face some of the same challenges as CCS in coming to the market.

The lack of support from a regulatory framework leaves inherent risks in the investment, production and purchase of these fuels. Therefore the main progress of 2008 will be developing a suitable legal framework and further consideration of financial incentives such as governmental subsidies.

Large-scale solar

In pursuit of developing a sustainable city, Masdar is leading the way in solar energy. With a variety of advanced technologies, Masdar aims to provide most of the project’s energy demands using solar power. This year, prospective investors will be given the opportunity to build, own and operate one of Masdar’s first 100MW concentrated solar power (CSP) plants in Abu Dhabi.

Masdar is also one of the first to undertake major photovoltaic panel field tests to evaluate its performance and efficiency in the Abu Dhabi environment. As part of its zero-carbon initiative, Masdar city will use photovoltaic technology to power the construction process as well as to provide a large proportion of the city’s total energy demand. Personal rapid transport will also be powered by photovoltaic installations and water will be sourced from a solar-powered desalination plant.

CSP technology will provide electricity and heat to power absorption chillers for cooling systems. Masdar further hopes to export clean energy out of the city to surrounding areas such as Abu Dhabi. However, one of the major obstacles for solar energy in 2008 is the high cost of developing solar-energy plants.

As one of the first large-scale operations of its kind, the Masdar CSP plant should drive such costs down and allow for the cost-efficient deployment of solar technology to the UAE and abroad. Financial incentives may also play a key role in bolstering solar energy development and speakers have highlighted the need for governmental subsidies to support the manufacturers.

Financial innovation

It is apparent that the renewable energy sector needs more international consensus and better thought-out industrial policies, and there is working proof that economic growth and sustainable development do go together. With renewable energies only forming 2% of the debt capital markets, significant financial innovation is also needed.

Masdar will lead the way for sustainable development but in 2008 the industrial drivers will be legislation, public opinion and financing. Large-scale demonstrations of renewable technology will also play a significant role in encouraging investment and increasing cost-efficiency.

 

IN FOCUS:

ENVIRONMENTAL TECHNOLOGY FD– PROJECTS2003-2007

  • Between January 2003 and November 2007, a total of 941 investment projects from 534 companies were recorded
  • The average growth in investment projects was 52% a year
  • The average number of jobs created per project was 139
  • The leading sector was alternative/renewable energy, which accounted for 59% of projects
  • The leading business activity was manufacturing, which accounted for 45% of projects
  • The top 10 companies accounted for 12% of all investment projects with BP (UK), Vestas Wind Systems (Denmark) and Abengoa (Spain) among the top 10 companies
  • The top three source markets for outward investment were Germany, the US and Spain, providing 16%, 14% and 8% of investment projects, respectively

 

Source: OCO Global