Blessed with abundant renewable resources, the Middle East and North Africa is at the forefront of green energy development and has been moving away from hydrocarbon reliance for more than a decade.
Now, as technology enables the capture of ever-greater quantities of energy from solar, wind and water systems, this region and its developers are offering increasingly compelling investment opportunities.
More renewable projects are needed to meet the ambitious targets set by countries in the region, which amount to 80 GW of renewable capacity by 20301, according to the International Renewable Energy Agency, that’s up from around 28 GW now, and implies billions of dollars of investment over the coming years.
The region is well positioned for success, benefitting from land availability, plentiful sunshine and high wind speeds in some geographies, low capital and labour costs and a good track record of delivering return on investment. Solar and wind projects are proliferating, offering investor potential, while new opportunities are emerging in green hydrogen and waste-to-energy projects.
The region’s energy sector also remains attractive to foreign and local investors, because of a favourable global business environment and proactive sustainable and environment regulatory changes. However, financing these capital- intensive projects is still a challenge.
It’s important not to underestimate the scale of the challenge and the total investment needed. Meeting the targets will require the establishment of policy2, regulatory, technical and economic frameworks that can enable the scaled-up deployment of renewables, IRENA says.
Approximately USD35 billion of investment in renewables3 will be needed across the region to meet committed projects over the next five years, says Abbas Husain, Managing Director, Project & Export Finance at Standard Chartered. While some areas like the Gulf Cooperation Council countries are attracting finance, it will also be important to facilitate funding to countries like Egypt, Iraq, and Nigeria.
“The region has the key ingredients,” says Mr. Husain. “Working to attract private capital is very important to accelerate renewable deployment and embrace the energy transition. It’s important for companies, development banks, multilaterals and export agencies to come together.”
Obtaining finance is critical for developers to do more in this region and for transforming opportunities into action. Within this, collaboration is key and public–private partnerships have a crucial role to play.
Moreover, Islamic Finance which advocates financing and investing in real economy sectors to develop communities and societies could also play a major role in financing renewable energy projects. At the same time, it can create an opportunity for both governments and businesses to diversify their investment capital and provide a new asset class featuring a balanced risk-sharing element for issuers, and fixed-income returns for investors.
Financing the transition
Helping the transition to net zero is a key pillar of Standard Chartered’s strategy, with a commitment to support up to USD35 billion of clean technology and renewable projects by the end of 2024. Activity so far underscores how keen investors are to be involved. Between January 2020 and the end of this year, Standard Chartered will have completed 10 power deals across MENA – eight of them for renewables.
Last year the bank was involved in the USD1 billion financing of the world’s largest solar project4 in Abu Dhabi, working with EDF Renewables and Jinko Power. Located in Al Dhafra, 35 kilometres south of Abu Dhabi City, the solar photovoltaic plant spans over 20 square kilometres of desert climate area and aims to provide the equivalent electricity to power more than 160,000 local households. Upon full commercial operation, the 2GW plant is expected to reduce Abu Dhabi’s CO2 emissions by more than 2.4 million metric tons per year, equivalent to removing approximately 470,000 cars from the road.
Hydrogen is also attracting investor interest as a major part of the future energy mix. Globally, the development of green hydrogen will require investment5 of around USD15 trillion between now and 2050, peaking in the late 2030s at around USD800 billion a year, according to the Energy Transitions Commission.
The MENA region already has many renewable-based green hydrogen projects poised for the coming years6, including a renewable ammonia project in Saudi Arabia and Oman’s Sohar port.
A joint venture between Air Products, ACWA Power and NEOM, gave rise to a USD5 billion deal for a green hydrogen-based ammonia production facility7 powered by renewable energy. The project is sited in NEOM, a new model for sustainable living located in the north west corner of Saudi Arabia and will produce green ammonia for export to global markets.
Putting waste to use
Waste to energy technologies8 are also ripe for investment and are garnering renewed focus. Countries including Saudi Arabia, UAE, Qatar, Bahrain, and Kuwait are among the world’s largest waste producers per capita and the region produces more than 150 million tons per year.
Such projects are hoped to deal with as much as 45 per cent of Dubai’s waste9. In 2021, Standard Chartered was part of a consortium of lenders to finance the USD1.2 billion Dubai Waste-to-Energy Project10, one of the largest waste-to-energy plants in the world.
While great strides are being made, and some finance is flowing, more needs to be done. For investors coming to the region, there are challenges in navigating the local jurisdictions, but these can be aided and overcome with public-private partnerships and local knowledge and networks. New regulations will be needed and government flexibility and intervention in preparing the legal framework for future developments.
Ambitious governmental targets are part of the solution, and with hydrogen, waste-generated energy and nuclear reaction being added to the mix, investors have multiple opportunities to invest in emerging technologies as well as more traditional ones like wind and solar.
“There’s a huge amount of potential,” says Mr. Husain. “Slowly and steadily we are seeing a rise in the involvement of private capital. The multilaterals, export credit agencies and bilaterals have sown the seeds and with strong partnerships more investment should flow.”
This article is based on themes discussed during a panel at Standard Chartered’s recent Global Credit Conference: Opportunities from Disruption. View the recording.