Saudi Arabia's stimulus package to build new housing will also be a test of the commitment to renewable energy in the kingdom.
A test for new energy and Saudi's housing needs
As the wave of unrest sweeps through the Middle East, many Arab governments have been quick to adopt policies aimed at addressing social needs. Saudi Arabia is no exception. Last month, King Abdullah unveiled two successive rounds of stimulus packages worth nearly $136 billion (Dh499billion).
One of the more eye-catching measures involves the construction of 500,000 new homes by 2015 at a cost of $67 billion. These new units come on top of the 300,000 homes already being built annually by the government. The announcement was greeted with jubilation on the streets of Riyadh.
These homes are clearly necessary. But they will come with some unexpected costs, namely powering them.
Some 60 per cent of Saudis are under the age of 25, and one of their primary concerns is the lack of available housing. To keep up with the rapidly growing population, the country will require 1.65 million new homes by 2015, according to Banque Saudi Fransi.
One of the consequences of this social measure is the strain it will put on the kingdom's already stretched electricity network. Despite having the world's largest reserves of oil, Saudi Arabia finds itself in the uncomfortable position of having one of the world's smallest reserves of spare capacity in power generation, as supply struggles to keep up with galloping demand.
The government estimates that it will need 7,000 to 8,000 megawatts of additional power generation capacity to account for the new home construction. This would involve a budget of some $8 billion each year over the next decade, according to the minister for electricity.
In effect, the cost of powering all these homes will be greater than the capital cost required to build them. Even once the additional power plants are built there is still the thorny issue of finding the fuel to operate them.
Already Saudi Arabia burns close to 1 million barrels per day of hydrocarbons for domestic power generation, including 500,000 barrels per day of its coveted crude oil. If the government's expansionary plans go ahead, this volume would double over the next decade, resulting in a significant environmental and financial burden. Oil supplied to power plants domestically at the transfer rate of $4 a barrel is oil that could otherwise be sold on international markets at over $100 a barrel. The Saudi Electricity and Cogeneration Regulatory Authority (ECRA) estimates that the country loses at least $13 billion annually by selling oil domestically at subsidised prices, compared to what it would fetch internationally. And as oil prices continue to climb, so will the opportunity cost.
The best way to reduce the environmental and financial burden of having to build more power plants - and thus use more carbon-heavy oil domestically - is to hike prices. This would immediately cut waste and force people to conserve. But given the current political climate, such a measure would be optimistic at best. There is, however, another policy which could be equally effective and also politically acceptable. Saudi's General Housing Authority (GHA), which oversees the housing sector, could follow the examples set by Abu Dhabi and Dubai in implementing strict regulations aimed at making new building more energy efficient and environmentally-friendly.
Currently, the long-term energy costs, or "life cycle" costs, of building residential units are ignored in Saudi Arabia. Builders have little incentive to incorporate energy conservation designs even if the extra capital cost is minimal. If strict regulations were in place, this would change.
For example, GHA could adopt a policy that requires newly-built homes to have walls that are 30 per cent thicker than current norms. Thick walls are like heat storage units. After cooling at night, the walls begin to pick up heat as the outside air temperature increases. The thick walls store this heat, from outside to inside as the day progresses. Because the interior surface of the wall remains cool during the day, so does the building and its occupants. This would dramatically cut down on air conditioning which is the primary source of electricity usage in Saudi homes.
Incorporating cast earth into the fabric of the wall, as is the case with the buildings in Abu Dhabi's Masdar City, would accentuate the heat storage even more. It's no coincidence that before the era of air conditioning, homes in this region all had thick walls made of cast earth.
Other measures could involve mandatory shading on all windows and applying a thin metallic layer on the roof that would repel sunlight. All of these measures would keep the sun out, thus reducing the heat transfer into the home and cut down on air conditioning.
On the flip side, there are ways of turning the force of sun to the home's advantage. Solar thermal systems installed on the roof could provide hot water all year round without any need for electricity, as is currently the case with several hotels in Dubai. Additionally, solar district cooling systems could be adopted to provide clean and cost-effective air conditioning for an entire compound, as is being developed in Masdar City.
These simple building standards would dramatically reduce the government's long-term electricity bills. At the same time, it would ensure that more of the kingdom's precious hydrocarbons are preserved for future generations.
Vahid Fotuhi is Chairman of the Emirates Solar Industry Association (ESIA)