CHINA’S STRATEGIC DRIVE FOR ENERGY TRANSITION IN WEST ASIA

As Beijing’s diplomatic efforts to mediate conflicts in West Asia have intensified, its strategic initiatives to promote energy transition in the region has also gained significant momentum. From increased trade in the renewable sector to investments in West Asian green energy projects and ventures, China's overarching engagements in the region have created opportunities for greater economic cooperation that are specifically designed to expand economic interests, beyond the traditional oil and gas trade.  In addition to its fossil fuel-oriented interests, Beijing's push to transition West Asian economies toward renewable energy also aims to elevate its own position in the region's economic and geopolitical landscape while also addressing a domestic oversupply problem.

This strategic push for transition provides Beijing with a one-stop solution to two different problems. Firstly, West Asian markets' demand for green technology is increasing rapidly year by year as they try to diversify their energy sources amidst the climate change crisis. West Asia is evolving as a potential major renewable energy market and China seeks to gain an early mover’s advantage that will allow it to maintain a significant competitive edge in the renewable energy sector. Secondly this strategy comes at a time when there are concerns in China about an oversupply of renewable products. While green energy requires substantial financial investment, China has the added advantage of offering these technologies at minimal costs. This however causes an economic conundrum - do West Asia countries focus on enhancing domestic capacities to fuel the energy transition- or seek cheaper options from Beijing to shorten the period of transition?

China’s Green Technology Engagement with West Asia: From Renewables to Nuclear Power

A transition to cleaner sources of energy is profoundly important for the region’s long-term economic and geographical stability, particularly given its status as a major oil and gas supplier. Economies in the region are heavily dependent on energy-based export revenues, which are increasingly under scrutiny due to the significant environmental concerns they cause. In contrast, cleaner energy products are abundant, yet predominantly monopolized by China. Under this background, major economies in West Asia such as the UAE and Saudi Arabia have begun their domestic Energy transition programs named the UAE National Energy Strategy 2050 and Saudi Green Initiative respectively. As a core objective, these programs aim to transition from fossil fuels to renewable energy prioritizing the need for cleaner revenue sources.

Furthermore, these countries have exponentially expanded the imports of renewable energy products in the past few years, particularly from China. Estimates indicate that energy-related trade between China and the region is expected to rise by US$423 billion annually by 2030, with renewables accounting for US$77 billion. West Asian countries are also increasingly importing renewable energy modules from China which is the world’s leading manufacturer of wind turbines and solar panels. In 2023 alone, China exported 14.5 gigawatts (GW) of solar modules to the region, up from 11.4 GW in 2022.

However, China is not solely playing the role of a supplier of goods in the region’s quest for energy transition by supplying critical renewable components for wind, solar, and energy storage projects, but is also deepening its ties by investing in greener state-owned companies Saudi and the UAE. A notable example of this was the acquisition by China's state-owned Silk Road Fund which acquired a 49 percent stake in ACWA Power Renewable Energy Holding. ACWA Power RenewCo is one of Saudi Arabia’s primary renewable energy companies, with significant wind and solar assets in the UAE, South Africa, Jordan, Egypt, and Morocco. This has also opened up more avenues of third-country collaborations between Saudi and China. For instance, Saudi’s ACWA gave an engineering and construction contract to Chint Group, a Chinese company, to construct solar power plants in Southern Egypt.

That said, cooperation among Gulf countries and Beijing have also extended beyond renewable products to include perspectives of collaborating in the field of nuclear energy. Chinese President Xi Jinping and Saudi Arabian Crown Prince Muhammad bin Salman have discussed the potential cooperation and the peaceful use of nuclear energy. In 2023, China National Nuclear Corporation (CNNC), a Chinese state-owned company, bid to build a nuclear power plant in Saudi Arabia. The UAE has also signed MOUs with Chinese companies for nuclear energy operations, in high temperature gas-cooled reactors, and in nuclear fuel supply and investment. Emirates Nuclear Energy Corporation (ENEC), an emirates body which works in the nuclear energy sector, made three such agreements with the Chinese companies like China's Nuclear Power Operations Research Institute, the China National Nuclear Corporation Overseas, and the China Nuclear Energy Industry Corporation. 

This trend signifies a shift in Arab countries' diversified approach towards energy transition, with China actively pushing for its investments across various sectors, from renewables to nuclear power. For countries like Saudi Arabia, securing civil nuclear deals from the Western world has been challenging, making China a key potential partner in this area.  In the green energy sector, China has demonstrated its will to cooperate wherever possible, positioning itself as a crucial player in West Asia’s significant efforts to diversify its energy sources.    

The Strategic nature of China’s push for Energy transition in West Asia

In three major component sectors for renewable energies, —solar, Electric Vehicles (EV) and wind— China is  leading in terms of domestic installations and practical usages. China’s domestic solar additions in 2022 surpassed the combined capacity of the other top markets and added more solar capacity than the US in its entire history, in 2023 alone. In terms of exports, Beijing has rapidly increased its supply to West Asian states like Saudi Arabia, UAE and Oman. The export of Solar panels to countries like Saudi Arabia and UAE have also intensified significantly in the past few years. According to the table below, Saudi Arabia’s imports of Solar Photovoltaic (PV)  modules from China have been increasing in a linear manner year on year leading to substantial imports worth more than 1.3 billion USD in just 2023. Although countries in the region are heavily investing in solar power and other forms of green energy through different players, China’s exports have stepped in at the right time with cheaper alternatives, with the Solar PV modules being a case in point.

Source: EMBER

However, this rapid expansion and production of renewable infrastructure is causing a problem of its own. With China outpacing domestic demand, the excess of renewable energy products and capacity has led to falling domestic prices, including for photovoltaic modules. Amid ongoing trade disputes with Europe and the USA, Beijing can be expected to further re-orient its exports to the emerging markets in West Asia and Africa. Solar panel exports from China to Saudi for instance have already been rising, with an increase of 64% in the first half of 2023 compared to the same period the year prior. Exports to the UAE have also been significant, with Chinese solar equipment now covering around 4% of the country’s annual electricity demand.

This, however, poses some challenging questions for the region's own domestic industrial growth, which is tied to its climate change strategies. By relying heavily on Chinese supply chains and FDI, countries such as Saudi Arabia and the UAE appear to be making a trade-off between harnessing their domestic industries or achieving quicker and cheaper energy transitions. The reliance on external sources for critical energy infrastructure is bound to hinder the development of local expertise and innovation, leading to a dependency on China that could undermine long-term economic stability in times of tensions and conflict.

Nonetheless, Beijing’s multifaceted West Asian strategy aims to increase its influence in an emerging industry, ultimately generating greater strategic and economic value for China. By simultaneously addressing its domestic manufacturing overcapacity and pursuing regional interests by entering the significant West Asian market, it is showcasing its technological prowess and capacity-building capabilities in the green energy sector, positioning itself as a reliable partner for West Asian countries. Through this dual strategy, Beijing views its long-term goal in the West Asian region being interconnected with its energy security strategy, which is becoming increasingly vital to the global economy. This partnership also benefits West Asian states seeking to reduce their overreliance on fossil fuels, with China's affordable and sustainable green energy technologies playing a crucial role. However, questions remain about the sustainability of this approach, as many West Asian states may prefer to increase domestic capacity and indigenous production rather than rely on imports. Moreover, China may not be the only viable partner in green energy; other countries, such as India, are also making significant strides in energy transition. West Asian states may opt for a multipronged approach, enhancing their domestic capacity while diversifying their green technology partnerships, rather than relying solely on China. Irrespective, the shape of West Asia’s energy transition in the long run will also depend on the security dynamics that unfold in the region, with China expected to take a more proactive approach to both the region’s geopolitical security and its energy transition in the immediate future.