What to watch for at COP 27 - an interview with Robin Mills

The energy consultant says to look for the side deals, takes a stand on Africa's use of its natural gas, and considers possibilities for clean power and power sharing in countries across MENA; solar projects may move forward in Iraq

Energy & Utilities asked prominent energy sector consultant Robin Mills, who is head of Qamar Energy in Dubai, for his take on what to expect from COP 27, the so-called 'African COP' in Egypt. Robin shared some thoughts on the big event in Sharm El Sheikh and on the state of clean energy development in several MENA countries.

E&U   Looking toward COP 27 in Egypt in November, are you anticipating any major policies emerging from it?

RM  There are a few things I’m looking for: carbon trading rules, loss and damage for poorer countries, climate funds, the $100 billion that was committed – will it be met or increased?

Some have said that $80 billion has been provided, but a lot of that is relabelling existing commitments. And there’s been inflation since 2015, so $100bn doesn’t buy what it used to. It was meant to be delivered quickly followed by further commitments, but it still hasn’t turned up in full.

Speaking about this as an African COP, the focus will be on developing countries, on climate finance. The African countries will be asking, what to do about fossil fuel finance.

Africa’s emmissions are per capita minimal. A lot of Africans are asking, why should we not be able to make use of our fossil fuels, in a sensible and limited way, while Europe consumes more fossil fuels and demands that Africa develop them.

E&U   Should Africa be allowed to burn the natural gas that it needs, while the wealthy countries focus on carbon reduction?

RM  Absolutely. You look at Africa’s emissions, and giving universal energy access in Africa, it increases global emissions by 3% or something like that. It’s minor, compared to the human benefit which is huge.

Look at Congo, should they cut down the rainforest? Why not finance them to use natural gas instead, which will have much less devastating consequence.

Look at the Mozambique LNG project, it’s a $20 billion project, they had some financing committed from the UK, and other external financing. I doubt Mozambique LNG would get that external, international finance now.  

So the $20bn is more than the total GDP of Mozambique. Does that mean the developed world is going to step up and give Mozambique $20bn for renewable energy? No, of course not. So, it’s basically saying, we’re not going to give any money at all, it’s up to you guys.

Maybe they’ll get a sliver of the $100bn that’s supposedly floating out there.

I don’t know what the solution is, but instead of blanket bans on fossil fuel finance, is there a more reasonable, flexible and context-specific way?

So that will be a major issue at the Egypt/African summit next month.

E&U   What else?

RM  There’s obviously the whole question of energy volatility and high prices, and how do we reconcile it with climate action.

The whole carbon trading side, globally, is very important.  

A couple other things I would look for which are important. One is, what side deals are there? I would say that’s probably more important than the official COP commitments.

At Glasgow, countries came together in mini-alliances. There is the global methane pledge, which I think came out of Glasgow. There’s the net-0 producers forum, which came afterwards. There was a financial task force on net-zero.

You’ll see these alliances of countries on specific issues. You’ll see corporate groups or national groupings on specific issues, so we may get more of these in Egypt.  

Then, there is the upgrade of the NDCs, per country; we’ve seen a few already but most countries have not done their updates. They’re meant to be updated every five years, so there should have been an update in 2021, so a lot of countries are behind and will feel pressure to update theirs.

And there is the question of what will Egypt do. As the host country Egypt will feel the need to show off some things. Egypt has had a lot of hydrogen project announcements recently, it’s got a carbon capture initiative. I imagine they’ll want to unveil something eye-catching.

E&U   Is Egypt now a net energy exporter or close to it?

RM  They’re a gas exporter, a net oil importer, so they’re probably close to balance or a small net importer. Certainly the situation is far better than it was a couple years ago.

E&U   They’ve opened up an enormous gas field, and have two LNG export facilities.

RM  Yes.

E&U   Does that situation - close to net in oil and gas - have any impact on Egypt’s ability to continue progressing with renewables?

RM  I think they have an issue that their gas demand is a lot, and they’ve built a lot of new gas-fired power plants recently, and that of course is serviced by the new gas field.

Looking out a bit, their gas resources will decline unless they have more discoveries, while demand continues to rise, so they definitely need to increase from other sources.

They have ruled out coal. The Russians are building a nuclear plant but it just broke ground, so will it be complete in any reasonable time?

And there are renewables, which are currently small but they’re announcing projects quickly. So yes, I think it will lead to a push to speed up renewables.

E&U   Right now, 2% of Egypt’s power supply is from solar, but that’s going to be growing rapidly, because they have a lot coming on-line in the next few years. And wind, the country has both solar and wind. Their goal is 42% of power from renewable sources in 2035, are they on track to achieve it?

RM   So, if they’re at about 2% today, in 13 years they’ve got to add 40%, say 3% per year. They’ve basically got to add their current installed renewables or even more, every year. So it’s in the range of 1 GW per year or a little more.

It’s doable, it’s not easy. They have the land and sun, it’s just keeping up the scale of investment, and the scale of procurement at a quick pace over that period.

E&U   Will they be able to finance it with their LNG revenue?

RM  Egypt is perennially short of finance. So they’ll have to look for international investment. As long as they keep paying their bills it’s ok. In principle, solar is cheap, so I would think current revenues ought to be covering the cost at least of the new solar.

E&U   What about Egypt’s hydrogen projects?

RM  They have a huge number of projects, probably more than anyone in the world except maybe Australia. A couple weeks ago they announced something like eight sizeable projects in one week.

Whether many will happen is unknown. Only one has gone to FID.

E&U   These are mostly green hydrogen, along the Gulf of Suez, solar and wind power. In Egypt, the power need is so great, are they going to have renewable power to spare to produce hydrogen?

RM  These are dedicated projects. Will they have a grid connection to export surplus? I think that would make sense. But then you get into problems like European rules, which means they can’t blend it. So I think we will probably have to see them as separate, the renewables for electricity, and the hydrogen on top.

It’s different financing, because the hydrogen projects are almost all export-oriented, so their financing depends on the export market.

E&U   Turning to the UAE, they have three enormous solar parks now coming to completion over the next five years or so. Do you see more such utility-scale solar projects forthcoming?

RM  I think that’s clearly so for Abu Dhabi, which has a lot of land. Look at the Al Dhafra project, it’s 2 GW, and the new Al Ajban project is 1.5 GW. I would expect that everything is going to be in that 1-2 GW range. I think they will keep tendering things like that at a good rate.

The UAE has indicated, it’s not going to build any more gas-fired power, beyond what is currently under construction. They’ve not said this publically, but it’s been expressed semi-publically at conferences and so forth. I wouldn’t say it’s an official position, but one that people have said is likely.

Speaking of Dubai, DEWA just announced Phase 6 of the MBR Solar Park, and looking at the current rate of progress toward completing the 5 GW site, they should get there by 2026 or ’27, versus the original 2030 target.

I am curious, will they stop there? Will they expand it or open a new location?

Because Dubai’s total demand now is 10 GW or so. They want to be 100% clean by 2050, so they would have to build at least one more of similar size, and probably more than that because the city is growing,

Are they planning for this? Do they have another location? Another big site, or smaller sites? I don’t know but I’ll be curious to see what comes out of DEWA. Because 2030 is not very far away now.

E&U   Are they going to leave natural gas in the ground as they move more and more to renewables?

RM  There’s a lot of gas development in Abu Dhabi, offshore gas particularly, they’re still a major gas producer, industry is expanding, and they have the new gas export facility at Fujairah. So gas demand for power will go down, but they’ll reallocate for industry and for export.

They have targeted self-sufficiency by 2030. They might still import but they would say that they are capable of self-sufficiency, in natural gas.

E&U   Could Dubai, or the UAE more generally, be doing a lot more in terms of energy efficiency, demand reduction, and other activities on that side of the ledger?

RM  They could and should. I think there was good momentum a few years back with the subsidy reform of energy and water.

In 2010 Dubai raised prices, introduced a tiered tariff. In 2015 Abu Dhabi raised prices although they’re still somewhat subsidized, and there have been some adjustments since.

At that point, when the Dubai Supreme Council of Energy (DSCE) was set up, it was really a big topic, they did talk about it a lot, and did some substantial improvements.

But since then it’s gone rather quiet. Energy efficiency and the building codes have improved a lot, but they could go further.

It’s not glamorous, energy efficiency never is, although Ras Al Khaimah has a pretty active energy efficiency program.

E&U   Looking at Saudi Arabia, is energy efficiency big news at all?

RM  Actually yes, Saudi Arabia is more active on that. They didn’t do as much subsidy reform, but they do have a very active, ongoing energy efficiency program, across all sectors of the government.

Their argument was, people use too much energy. If we raise prices then people won’t be able to pay. So we have to go the other way around, improve efficiency and then we can raise prices. I’m not totally convinced by that, because until they raise prices people won’t fall in line.

So my impression of the program is it’s a bit technocratic. Saying, if you use a better motor then you will save on the energy efficiency. It’s a kind of ‘nitty gritty’ way of going about it.

E&U   Do you see the Saudis being as ambitious with renewables as the Emiratis are?

RM  I think they’re more ambitious now. Delivery is still well short, but their targets are more ambitious. The 2030 target is very aggressive. They want to have 30% renewables, 70% gas, in the power sector by 2030.

E&U   Saudi Arabia does not export natural gas, all production is intended for the domestic market, and the price is highly controlled. So Saudis don’t pay the global price for gas. How does that impact their power sector and their motive to develop renewables?

RM  They sell gas to the power sector at $1.25. It was increased a few years back but it’s still very low. They also sell oil to the power sector again at a low level, something like $15/barrel.

So it’s difficult for the power sector to say that renewables are competitive.

I think now the idea is, we’ll just set renewable targets, and the power sector will have to install them. And this will free up oil for export, and gas for more industrial use with higher value added.

So, there’s not mandates, but the 70/30 target, which is a target they’re supposed to work towards.

E&U   Is the government ready to subsidize renewable energy development?

RM  Renewable energy development is managed by SEC, which is a state company, so it’s not subsidized exactly, but it’s full of subsidy because it’s getting cheap oil and gas.

SEC has accumulated a lot of losses over time, because it’s not selling power at competitive prices. At some point the government took those onto its balance sheet. Will they have to do it again as they build more renewables?

Suddenly renewables are very cheap, per kWh. So, given that the tariffs are so low, the renewables shouldn’t need a subsidy.

E&U   Will the Saudis start building big solar parks like the Emiratis?

RM  They’re smaller in Saudi Arabia, anywhere from 10 to 300 to 700 MW, and more scattered. I think the initial idea was, to look at remote areas, which are using diesel today, and to put solar near that to cut diesel use. There’s one big one today, Sudair PV being built by ACWA Power.

But to meet the renewable targets they’re going to have to build at a bigger scale. It’s also a project management issue, to manage 10 small projects with a complicated process for each one. It’s much easier to bid out a couple gigawatts to one company.

In Saudi Arabia, 30% of projects are tendered through REPDO (the Renewable Energy Project Development Organization), and 70% will be developed by the PIF (Public Investment Fund). The tendering will give them an idea of what the market price is, so they can set them appropriately.

E&U   Talking about the PIF leads to consideration of its project NEOM, which is committed to producing green hydrogen. Meanwhile blue hydrogen is under the auspices of Aramco, which has announced several projects.

Some argue that with the price of gas volatile, and the cost of green hydrogen presumably falling over time, blue hydrogen might be left behind.

Could Saudi Arabia be an exception to this? With its control on the price of natural gas, can the Saudis make blue hydrogen viable, when others might not be able to?

RM   I find those arguments are mixing cost and price, and they’re different things. Gas prices today globally are very high because Russia has cut off supply. Does that mean that costs to produce gas have gone up? No. Qatar was producing for $1 per MMBTU last June, and they’re still producing for that. The fact that they can sell for it for $5 next year, and $30 this year, makes no difference to their production cost.

So, if you want to make blue hydrogen in Europe, your cost has gone through the roof because you have to buy very expensive gas. Saudi Arabia doesn’t export gas, so they can leave it in the ground, or direct it to industry or something locally, or use it to produce blue hydrogen for export. There is no connection to the world gas price, whatever that happens to be.

Now there is an issue, how expensive is their gas production? Can they make an economic case to make hydrogen, and would that be competitive against green hydrogen?

E&U   So the key issue is the actual cost of production of blue hydrogen?

RM  Yes. So green hydrogen, in a very good location, let’s say by the late 2020s, is $2 per kilo optimistically, about $16-17 MMBTU,

Can blue hydrogen beat that? Yes, if the production cost of gas is low, it should be able to.

E&U   So blue hydrogen is potentially a viable business for Aramco?

RM  It seems to me yes, in the short to medium term.

E&U   Apparently the green hydrogen plant at NEOM is now under construction. Can the renewable energy resources be built quickly for that?

RM  Yes. It’s planned to be solar and wind, which is why it’s such a good location.

The hard part is the offtake. They have offtake from Air Products but who then does Air Products sell to? And the electrolysers, it’s a very large order, so it’s a question of how quickly ThyssenKrupp can satisfy the order.

So what is Air Products going to do with it? It appears that, partly, they want to reduce diesel use within Saudi Arabia. And they will make ammonia for export. So let’s see.

It’s certainly easier to have a domestic market, as the cost of transporting hydrogen is high.

E&U   Looking at Morocco, what will be that country’s equation for achieving energy independence with high levels of renewables? Will they need to develop more pipeline and cable export capacity?

RM  It’s interesting that Morocco often gets a good ‘green rating’ because of its renewables, but it’s a big user of coal, more than half of power generation is from coal, and it’s imported.

They’re now importing gas from Spain. They generally import power from Spain, although I think recently they’ve moved to being an exporter. 

However they have very good conditions for renewables. There’s a proposed subsea power cable project, meant to take renewable power to the UK, there are three investors.

E&U   Looking at Iraq, hopefully there will be greater political stability going forward. Is there hope for putting a plan in place to make progress on its power problems?

RM  The new government is not transformational; it may be ineffective like previous governments, which is not greatly encouraging. I don’t think anything will be encouraging until there’s a big shift in Iraqi politics.

Iraq’s problem with electricity is not a problem with plans, the plans are fine. It’s execution. They have some renewables planned, which will help. I expect some of those will move ahead eventually.

They tendered about 700 MW, in several projects, and these could move forward quickly if they finalize it. They’ve been working on this for several years, so hopefully it can move forward now.

E&U   The Middle East is interested in connecting national grids. Egypt wants to be a regional power supplier. Jordan and Saudi Arabia are planning to supply Iraq. Will there be a continuing movement in this, with a growing network of high voltage cables across the region?

RM  Most of these projects are normal transmission voltage, 400-440 kV, not really high voltage long distance cables of 800-1000 kV.

There’s a GCC connection, there’s a Saudi-Egypt connection, now they’re saying next year to finish that. The Jordan-Iraq link has been talked about for years, maybe now it’s moving ahead. There are a couple Saudi-Iraq links, a GCC-Iraq link, there is Saudi-Jordan, while Iran supplies Iraq, and Turkey also supplies Iraq.

So there’s more and more connections, none of them are very big. The Saudi-Eqypt is the biggest at 3 GW, so the connection is significant. The Jordan-Iraq is something like 150 MW, so it’s minor. So there could be a lot more power trade in the region.

E&U   Is that something that should happen?

RM  It should.  But I think countries are weary of being dependent on their neighbors for electricity. In the case of Iraq, it must be. But other countries don’t want to be dependent, so that limits the value of interconnection.

Each one is going to build up all of its own generating capacity, to meet its needs. If it’s more convenient to import from a neighbor, it will, but it will keep its own power in reserve.

It’s not like Europe, where historically France was an exporter, so other countries didn’t need to build up their own generation so much because they could rely on France.

E&U   What about the GCC’s power sharing scheme?

RM  Again, that is approximately 1 GW. There’s no country in the GCC thinking, for example, my demand is 10, I will generate 9 and rely on the grid for the rest… Everyone is seeking to generate up to demand plus reserve, and possibly buy some from the grid when needed.

But it’s not on a commercial basis. It’s a kind of bi-lateral balancing.

It’s not like you can say, the cost of power on the GCC grid today is 5 cents, and my generating costs are six cents. So I’ll turn off my generators and buy from the gird today. There’s no market like that.

It’s not like Europe where there’s a very systematic market, in which you can choose your cheapest source on an hour-by-hour basis.

E&U   What needs to happen to create that sort of market and gain those efficiencies?

RM  Oman is launching an electricity market; it will be a traded electricity market. It will be interesting to see how that works, because we will finally have an idea, where does the market value power?

If it works well the others could follow. But for the moment there are power subsidies, there are gas subsidies, oil subsidies, the gas price is different in different countries, and then there are the end user subsidies.

So what is the true cost of power? It’s very hard to say.

You could say, for example, Qatar sells gas to the power sector for $1, the UAE sells to its power sector for $3, so which one has cheaper power is an artifact of how they decide to set the gas price.

If the UAE wants to go to Qatar and say, we’ll buy your electricity because it’s cheaper, then Qatar would be giving subsidized electricity to the UAE.

E&U   So there needs to be more fundamental energy market reform before we see more of a regional power marker?

RM  Yes.

E&U   Do you see any emerging role for Israel in regional power markets?

RM  There is a project to build a renewable site in Jordan for export to Israel, which is a UAE-backed project. Then there’s an Eastern Med connection to link Israel, Egypt, and Cyprus, then to Greece. That will be interesting because it will link into the European power system.

There’s two separate projects, one that links Egypt and Cyprus, one that links Israel and Cyprus; Euro-Africa, and Euro-Asia. The EU has put up some money for these.

E&U   When the world comes to Egypt next month, will it be impressed with what it sees happening with clean energy in the Middle East?

RM  Yes. I think, looking at current numbers, it’s not very impressive. You have to look ahead a bit, to where it will be by 2025, with renewables, with hydrogen, then it looks impressive.

I mean, look at Al Dhafra in the the UAE, it’s 2 GW, the biggest single site solar project in the world. It’s impressive. And the hydrogen projects in Egypt, if you think a lot of them are going to happen, it’s massive.

E&U   Robin thanks very much for your insights. 
RM  My pleasure.