Pivoting from a world run by fossil-fuels to one that’s powered by renewable energy is going to be a challenge – but one that countries in the Middle East are determined to undertake.
The power sector, and more generally the energy sector, is in the midst of a major rapid transformation. Green goals have become a cornerstone for the Gulf Cooperation Council (GCC) and the Saudi National Vision 2030.
Globally, Bloomberg New Energy Finance (BNEF) estimates USD13.3 trillion will be invested in new power generation assets by 20501. Renewables will account for 77 per cent of the investment, with wind attracting USD5.3 trillion, solar USD4.2 trillion and USD843 billion going to batteries.
Last year, investment in clean energy reached USD332 billion, the fifth consecutive year investments had exceeded USD300 billion globally according to Bloomberg New Energy Finance (BNEF)2. The Middle East is no exception. “In the Middle East and North Africa, solar and wind will eventually undercut cheap domestic gas and oil,” BNEF said in its latest report. “Together with new nuclear plants, they push the region’s electricity mix to 39 per cent zero-carbon by 2050.”
The appetite to finance transition is also clear in the region. According to an HSBC Energy in Transition MENAT report, 86 per cent of respondents identified it was critical for the Middle East to develop competent and integrated local supply chains to propel their energy transformation. 69 per cent said they were confident the region had the right financial vehicles in place to facilitate the needed investment towards more sustainable forms of energy.
Issuers and investors are already incorporating climate change and sustainability goals into their decision-making and strategies. The HSBC Sustainable Finance and Investor 2019 MENA report found that large shifts in capital allocations are coming, in response to sustainability issues. 85 per cent of issuers in the Middle East expect to reallocate capital noticeably in the next five years. 49 per cent of issuers say they may issue labelled bonds in the future, while a unique proportion of investors reckon them less risky and producing better returns than ordinary bonds3.
In the Middle East, Saudi Arabia, the region’s largest economy, is playing a leading role in the renewable energy push. In 2019 the Kingdom said it aims to develop and install 60 gigawatts of clean power sources over the next decade- enough to power 45 million homes. Around 30 per cent of the power mix is to be supplied by renewables by 2030, with the remainder to be sourced from gas and some nuclear.
The Kingdom is committed to be able to develop a dynamic economy that is not reliant on the ebbs and flows of global oil markets by 2030. International firms are paying attention to the growing market, with more than 16 bidders, according to S&P Global Platts, with a combined market cap of more than USD220 billion, taking part in a Saudi auction for seven solar photovoltaics (PV) projects in January 2019. The projects with a combined capacity of 1.51GW are expected to attract USD1.51 billion of international investment4.
The Kingdom is also pursuing its renewable energy goals to help meet its commitments to the Paris Agreement, which entails cutting down on 130 million tons of CO2 equivalent per year by 20305. The energy transition ambition is clear.
2 New Energy Outlook 2019
3 Sustainable Financing and Investing Survey 2019, www.sustainablefinance.hsbc.com
4 Renewable Energy Project Development Office
5 King Abdullah Petroleum Studies and Research Center (KAPSARC)