NCB Capital, the investment banking arm of National Commercial Bank, Saudi Arabia's largest bank, believes that the GCC countries are well positioned to diversify their energy sources and consumption patterns and that political will is shifting to develop nuclear energy and exploit a competitive advantage in solar energy to achieve this. High economic growth in the region and energy-intensive lifestyles have driven a rapidly growing demand for energy in the GCC. This has not only resulted in environmental pressures but also highlighted the increasingly sharp trade-off between booming domestic fuel consumption and the ability to export oil. At the same time, the growing awareness of global warming has the led to more and more of ‘green' agenda being incorporated by energy policy internationally. So far, Abu Dhabi has taken the lead in addressing the problem both with nuclear energy and with ‘green' architecture in its ground-breaking Masdar City project, which is due to be the first zero-carbon human habitation powered completely by renewable energy. A number of other initiatives are being adopted across the region. However, the current crisis has complicated the implementation of the alternative energy agenda. Dr. Jarmo Kotilaine, chief economist at NCB Capital, said “with private funding drying up in the current economic crisis, impetus is on regional governments to provide financing for renewable energy projects.” “This would enable the GCC to diversify its energy portfolio and retain its influence in the global energy market for a long time to come. Such government leadership promises continuity for many key initiatives,” he added. By capitalizing on its comparative advantage in solar energy, for example, the region can foster economic diversification, research and job-creation. In all these areas, the advantages of renewables far outweigh those of nuclear energy. “In principle, solar energy could evolve into a strategic equivalent of oil allowing the GCC countries to establish themselves as leading exporters of electricity and solar technology alike. But such large scale projects should be coupled with measures like cap-and-trade schemes or carbon taxes,” Kotilaine said. A number of challenges remain to be overcome because renewable energy can be expected to attain critical mass in the Gulf: “Setting a price on carbon is essential for removing imperfections in the market for energy and thereby encouraging ‘green' energy sources. By putting a price on pollution, governments could make the markets more efficient and thereby provide a more competitive platform for energy producers.” The NCB Capital's research further concludes that: • Alternative energy, by promising an unusually wide range of benefits, has a potentially critical role to play in the ongoing process of economic diversification in the Gulf. • Traditional energy companies, with their expertise and large financial resources, can play a leading role in diversifying energy generation in Gulf, thereby boosting their own flexibility and longer-term profitability. • Ultimately, the Gulf countries have an opportunity to consolidate their leadership in the global energy market by adding a pioneering role in alternative energy to their traditional dominance in hydrocarbons. – SG A full analysis of NCB Capital's views entitled “The evolving GCC energy landscape” can be read at www.ncbc.com. #### For further information, contact: Dr. Jarmo Kotilaine Stewart Prosser Chief Economist Prosser Associates NCB Capital +973 3947 8960 + 44 7917 664610 __
