UAE: The future of cleantech?

It is unfortunate that the initiatives of the Gulf Cooperation Council toward cleantech were far overshadowed during the last 18 months by the news coverage of volatile oil prices and massive real estate projects in Dubai.

The Middle East (especially the member countries of the GCC) holds vast opportunities for investors in cleantech. There are billions of dollars that have been pledged to “greening the gulf” by the United Arab Emirates, Bahrain and Qatar, among others.

But the United Arab Emirates holds the greatest promise for cleantech investment. Not only is the UAE visionary, proactive and cash-rich, it statistically is the country in the most need of ecological reform. 

In March of 2008, the World Wildlife Fund (WWF) released data that revealed that the average person in the United Arab Emirates puts more demand on the global ecosystem than any other country, giving it the world’s largest per-capita ecological footprint.

The WWF rankings are measured in global hectares—the area of biologically productive land and sea needed to provide the resources consumed by an average person. The UAE's ecological footprint measured 11.9 global hectares per person, compared to a global average of 2.2 hectares a person. Even the United States measured 9.6 hectares per person. 

One of the largest contributor factors to this ranking is the use of water. Roughly 25 percent of water in the Gulf region has already been consumed, according to reports about energy consumption in the UAE. One-fifth of the water is being used for power generation. 

That problem is likely to get worse, as energy demand is rising more rapidly in the UAE than in the world at large. The International Energy Agency estimates world energy demand is estimated to increase by 45 percent in 2030, but current estimates suggest that the domestic demand for power in the UAE will more than double by 2020.

According to The World Energy Council, the Gulf will require 100 gigawatts of additional power to meet demand. Estimated costs range from $900 million for Bahrain, $800 million for Oman, $600 million for Qatar, $15 billion for the Kingdom of Saudi Arabia, and up to $10 billion for the United Arab Emirates. 

As is the style of the UAE, the government announced mega projects and major financial backing to reduce their environmental impact through green building laws and the creation of a zero-carbon, zero-waste, car-free city development project. Private equity investors in the region also began to buy interests in solar, wind and biodiesel.

But soon after these announcements the world stopped due the the economic crisis.

During my last trip to Dubai I was acutely aware that for the first time in many years I could hear the prayer calls coming from the mosques. I mention this because it highlights the dramatic decrease in building activity. 

But a lesson has been learned, and it is one that will supplement the government's cleantech initiative going forward, ensuring the Emirates emerges as the leader in cleantech implementation and investment opportunities.

Speaking with both investors and real estate developers over the last few months, I have come to realize there has been a paradigm shift with respect to the concept of a real estate asset. There is a movement away from the traditional income-per-tenant model, to a more sustainable income stream, namely energy production. 

Over and over I heard the same concept: This downturn highlights the need to secure a more stable income stream from real estate.

Hence, while the UAE Government has created a mandate to reduce the carbon footprint of the country, I think it will be the demand for stable income by developers that will truly drive demand far above expectations going forward for cleantech in the region. 

Given the technology now exists, it only seems logical that any new construction will be thought of as an independent power generation stations almost as much as they will be thought of as income-producing assets through occupancy. Why wouldn’t a builder incorporate solar panels, wind turbines and energy efficiency systems in order to secure a stable stream of income? 

I will take this concept one step further as food for thought: redundancy. Many of us in the West became intensely aware how quickly life as we know it can grind to a halt without power through the massive Northeast blackout of 2003. Traffic backed up, commerce stopped, people were stranded, air traffic controllers panicked. Those who did not experience the blackout first hand would have been amazed at how quickly things deteriorated. 

The Gulf Cooperation Council has the advantage of basically starting from scratch when it comes to urban planning versus much of the world grappling with space issues and inferior infrastructure. Those problems make it much more difficult to execute quickly on the creation of a redundant system. 

Such an enviable position once again supports the concept that the GCC can surpass every expectation of implementing a cleantech revolution. As many of us look forward, past the current economic crisis and to the future of cleantech, I suggest gazing toward the horizon of the Middle
East. One must remember that the history of the Middle East is actually based in the entrepreneurial spirit that created trade.

Over the last decade, the UAE has been a leader in various industries: leisure, real estate, and finance to name a few. I have no doubt the UAE will led in the development and implementation of cleantech and suggest investors evaluate both local investments as well as investment in those companies that would benefit as suppliers to the region.

Robert Pardi heads Evolvence Capital’s cleantech investment initiatives and has over a decade of investment and entrepreneurial experience, including as a portfolio manager for the Abu Dhabi Investment Authority.

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