Economic Update

Despite holding substantial oil reserves, Kuwait is stepping up its efforts to develop alternative sources of energy. In mid-June the government announced it was inviting bids for the construction of Shagaya, a renewable energy park, as part of its plan to generate 15% of its electricity through non-oil sources by 2030.


Hydrocarbons account for more than 90% of Kuwait’s GDP and around 80% of government revenue. Oil production stands at about 3m barrels per day (bdp), with domestic consumption at around 476,000 bpd, according to the 2013 BP Statistic Review of World Energy. Local demand for oil has increased over the past decade, jumping 67% between 2002 and 2012. Domestic use is expected to continue to grow, with demand for power – which is generated largely by oil-burning plants – rising by 6-8% each year, the Ministry of Electricity and Water (MEW) has said.

The state has moved to increase its focus on renewable energy in the past few years, with Eyad Ali Al Falah, assistant undersecretary for technical services at the MEW, telling Bloomberg in November 2011 that Kuwait was committed to meeting 10% of its domestic energy demand through renewable energy by 2020. More recently, government officials have stated that 15% by 2030 is the target.

The challenges Kuwait faces in rolling out new developments have prompted some analysts to describe the government’s clean energy targets as unrealistic. Feasibility issues and delays in wide-scale adoption of green technology have also slowed the development of renewable energy over the years. A number of solar facilities were constructed under the state’s first Renewable Energy Programme, which ran from 1975 to 1988, while the Kuwait Institute for Scientific Research (KISR) explored the possibility of building wind farms across the state.

The programme was abandoned in light of the high price of materials and an abundance of oil, but green technology has since become more cost-effective. Solar panels in particular have become more efficient and less expensive, as pointed out in a 2013 study by Mohamed Hadi of the Kuwait Council of Ministers and two academics, Refaat Abdel-Razek and Walid Chakroun. The authors looked at the possibility of installing building-integrated photovoltaic modules on the roofs of Kuwaiti homes and found that the payback period was around seven years.

Today the most promising renewables project is the 100-sq-km Shagaya energy park, which is located west of Kuwait City and should have the capacity to generate 70 MW of energy once the first phase is completed in 2016. Solar thermal energy will account for 50 MW, while the balance will be generated by wind and photovoltaic sources, according to international media reports. The second and third phases are expected to have the capacity to generate an additional 930 MW and 1000 MW of power, respectively. The government expects the project to be completed by 2030.

While petroleum is likely to maintain its position as Kuwait’s primary source of energy, Shagaya marks an important first step. The park is also expected to be instrumental in attracting foreign investment to Kuwait. Salem Al Hajrad, head of research at the KISR, told the international press that 37 companies have already pre-qualified to bid for the park’s development.

The Shagaya project will be well-placed to tap into the rapidly advancing technology needed for renewable energy development. While government support will play a key part in driving the renewables segment forward, investor interest in Kuwait’s green energy programme is already growing, suggesting efforts to diversify its economy and boost oil exports are on track.