3.12 Saudi Arabia’s Efforts to Increase Energy Efficiency

BOX 3.12

Saudi Arabia’s Efforts to Increase Energy Efficiency

In Saudi Arabia, the National Energy Efficiency Program (NEEP) was launched in 2003 and defined eight policy objectives to increase energy efficiency (mostly electricity) by 30 percent from 2005 levels by 2030. It targeted mainly the industrial sector but included measures to increase energy efficiency in the residential sector as well. Among them were the introduction of energy audits, energy efficiency labels, and standards and labeling for appliances. Measures to reduce the demand for energy included the installation of high-efficiency air conditioners and the introduction of a construction code to improve insulations of buildings. NEEP also introduced a program to disseminate energy efficiency information and raise awareness as well as technical and managerial training through workshops and seminars.

In October 2010, NEEP was transferred to a permanent entity, the Saudi Energy Efficiency Center (SEEC), that continued the mission to “reduce energy consumption and improve energy efficiency to achieve the lowest possible energy intensity” (Fawkes 2014). It coordinates all activities related to energy consumption efficiency improvement between governmental and nongovernmental stakeholders and launched the Saudi Energy Efficiency Program (SEEP) in 2012. In addition to the foci of NEEP on the industrial and the buildings sector, SEEP also included measures targeting the transportation sector. However, unlike the previous program, SEEP’s guiding principles do not include price reforms (Arab News 2014).

Since its inception, SEEP has partnered with foreign governments and international organizations and has introduced various regulations to raise energy efficiency in the three sectors that are its focus:

• In the industrial sector, SEEP established energy intensity targets based on international benchmarks for especially energy-intensive industries such as the petrochemical, cement, and steel industries. Preceding these efforts, it developed a baseline assessment of a large number of companies from various sectors and stages of production. Further actions included the issuance of standards for electric motors, with a minimum standard prescribed since 2015 and an update of the regulation in 2018. • In the buildings sector, standards for thermal insulation were issued, the Saudi Building

Code has been amended, and feasibility studies for moving the energy use intensity to international best practices have been constructed. Furthermore, several standards were issued and continuously enhanced for different appliances that account for a high share of energy use, such as air conditioners, water heaters, lighting products, and white goods (for example, refrigerators, freezers, and washing machines). These efforts were supplemented by clear labeling schemes. • In the transportation sector, to improve energy efficiency, SEEP issued a fuel economy standard in 2014 for light-duty vehicles, implementing it in January 2016, supplemented by fuel economy labels. A second phase is being planned.

It also introduced standards for tirerolling resistance, and regulations for heavy-duty vehicles were assessed.

at a given price. Other possibilities could be to use (a) dynamic electricity prices so that retail prices follow wholesale prices that fluctuate over time and hence can incentivize energy-consumption behavior; or (b) tax-based instruments like rebates or tax credits to promote energy efficiency.

Regulatory mechanisms to push energy efficiency can come in the form of mandatory efficiency targets. These can be supplemented by measures like the assignment of a qualified energy manager to companies or groups of companies in a sector, reporting obligations for those companies or regular audits. Carrying out such inspections would require thorough training of staff and a clear communication of mandatory efficiency targets. Furthermore, the implementation of such targets may need a phasing-in period to allow companies, especially SMEs, to adjust to these requirements with investments in appropriate infrastructure.

Voluntary initiatives to increase energy efficiency should be supported by providing incentives and knowledge. A range of less-restrictive measures includes the promotion of voluntary goals for energy efficiency or the introduction of an energy savings insurance mechanism that mitigates risks for SMEs when implementing energy-efficiency measures. These measures may be confronted with less resistance and hence may be easier to implement or support. To provide support for companies that engage in such voluntary actions, governments in the Middle East and North Africa could organize conferences to induce knowledge spillovers among participants or introduce special certificates for products manufactured in participating plants.

Switching to Renewable Energies

Currently the energy mix in the Middle East and North Africa region is heavily skewed toward fossil fuel sources, primarily from oil and gas. Gas accounts for 48 percent of electricity generation, oil for 44 percent, coal for 5 percent, and renewables for only 3 percent (Menichetti et al. 2019). Even in Morocco—“a front-runner” in investing in solar energy— renewable energy accounts for only 9 percent of electric power generation. Around 12 percent of manufacturing firms surveyed in the most recent wave of the World Bank Enterprise Surveys declared that they had adopted more climate-friendly energy generation on-site, compared with about 16 percent in the Western Balkans and the Central Europe and Baltic states.

Broader adoption of renewables, both produced by dedicated power plants and produced by energy consumers themselves, requires a mix of economic, regulatory, and investment incentives. However, fossil fuel energy subsidies are a major barrier to investment in renewables.

An approach that combines removal of fossil fuel energy subsidies with investment and initial tariff subsidies could be a viable way to induce a switch in the Middle East and North Africa’s energy mix. Saudi Arabia, for example, has established a regulatory and investment framework in its Vision 2030 document, which was first revealed in 2016 (Rashad 2016) and highlights the development of the Saudi solar energy sector, financed through its US$2 trillion sovereign fund (Zafar 2020b).

Support measures to increase energy from renewable sources in the Middle East and North Africa could include tax breaks for both producers and consumers of renewable energy. Or the construction of solar plants, wind parks, or hydro plants could be supported through provision of low-interest loans guaranteed by the government. Similarly, bond issuances that include tax exemptions for the interest repaid to investors can be used to raise the needed investments.

The support of supranational organizations can also be crucial—in both financial and knowledge transfer terms—for low- and middleincome countries in the region, as was the case for the Ouarzazate Solar Power Station (also called Noor Power Station) in Morocco. Substantial investments, with the support of the World Bank Group’s International Finance Corporation playing a crucial role, are also under way in Egypt, the first of which is the Benban Solar Park in southern Egypt with a capacity of 1,465 megawatts (MW).

Geographically, the Middle East and North Africa is well suited to produce energy from renewable sources such as solar and wind energy. Large parts of the region are highly suitable for large-scale solar projects given their high photovoltaic power potential (map 3.2). With their vast stretches of bare land, the region’s economies are also highly suitable for wind farms, and they have accelerated their efforts to increase the share of renewable sources in their energy mix. Box 3.13 provides some regional examples of economies that have initiated adoption of renewables to meet ambitious goals to increase the share of energy produced from renewable sources.

Although renewable energy sources contribute to cleaner air, air pollution can also impair the efficiency of solar energy-generating equipment such as photovoltaic panels. Similar to cloud cover, aerosol emissions affect solar radiation reaching the surface by absorbing and scattering sunlight, thereby decreasing energy yields. Moreover, the accumulation of dust (fine airborne particles) on the surface of panels physically obstructs radiation from reaching the photovoltaic cells, diminishing efficiency. These reductions can be substantial. In China, for example, the potential of photovoltaic panels between 1960 and 2015 was reduced by 11–15 percent on average because of elevated air pollution (Sweerts et al. 2019). In especially polluted eastern and northern