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Faculty of Economics

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Krane, J.

An expensive diversion: Abu Dhabi's renewables investments in the context of its natural gas shortage


Abstract: In the midst of a shortage of natural gas, Abu Dhabi has launched an investment into renewable energy. Why? Will renewables allow the Persian Gulf sheikhdom to meet rising electricity demand without simultaneous increases in conventional power? No. Even in one of the world’s sunniest places – but not one of its windiest – conventional solar generation is unable to handle a demand peak that extends past sundown. Renewables offer an intermittent electricity supply at a much higher average cost than the existing gasfired system. Abu Dhabi will be neither able to forgo construction of a single conventional generating plant, nor reduce its reliance on gas imports from Qatar. The contribution to energy security will be negligible. This paper finds two main benefits, among several limitations. First, renewables may allow reduced fuel consumption in conventional power plants, which will cut carbon emissions and burning of expensive backup fuels. Second, the highly publicized investment has improved the regime’s international image, bringing acclaim as a leader in clean energy, despite its status as a key OPEC oil producer. In the political context of a rentier monarchy, such prestige is as an important source of domestic legitimacy.

Keywords: renewables, natural gas, energy security, subsidies, Abu Dhabi, United Arab Emirates, Persian Gulf, GCC, OPEC, rentier state, monarchy

JEL Codes: O13 P42 Q41 Q42 Q48


EPRG Paper Link: 1218

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