Middle East in prime po­si­tion to grow re­new­able sec­tor

The Pak Banker - - 6BUSINESS -

The Middle East is in a prime po­si­tion to grow its re­new­able en­ergy sec­tor, says a re­port on 'Fi­nanc­ing the Fu­ture of En­ergy'. Low oil prices and the cost com­pet­i­tive­ness of re­new­ables is en­cour­ag­ing gov­ern­ments to turn to it as a hedge against fos­sil fuel price volatil­ity, the re­port said.

"This, com­bined with gov­ern­ments' long-term am­bi­tions for greater en­ergy in­de­pen­dence by de­car­bon­is­ing their economies, will be the key driv­ers for the tran­si­tion to a clean en­ergy world. The re­port re­asserts that even in the cur­rent eco­nomic cli­mate, global en­ergy de­mand is out­strip­ping to­day's sup­ply," says NBAD's Fi­nanc­ing the Fu­ture of En­ergy an an­nual re­port.

Launched at the Global Fi­nan­cial Mar­kets Fo­rum in Abu Dhabi, the re­port was pro­duced by NBAD with con­tri­bu­tions from the Univer­sity of Cam­bridge and PwC Abu Dhabi's Sus­tain­abil­ity and Re­new­ables team. The re­port found that clos­ing this gap would re­quire $48 tril­lion of in­vest­ment over the next 20 years, with re­new­ables play­ing a crit­i­cal role in the en­ergy mix of the fu­ture.

The se­cond edi­tion of the Na­tional Bank of Abu Dhabi re­port said the past year has seen a num­ber of fac­tors con­verg­ing to pro­mote re­new­able en­ergy and fi­nan­cial in­sti­tu­tions have an im­por­tant role to play in pro­mot­ing the growth of this sec­tor through en­gage­ment with pub­lic and pri­vate sec­tor stake­hold­ers to cre­ate a more en­ergy ef­fi­cient econ­omy.

To­tal global in­vest­ment in clean en­ergy reached $329 bil­lion in 2015. The Middle East So­lar In­dus­try As­so­ci­a­tion es­ti­mates that in­vest­ments in util­ity-scale so­lar parks across Mena to­talled just over one per cent of this in 2015, but is set to in­crease its share of the global mar­ket. Given the scale of the gap be­tween en­ergy de­mand and pro­duc­tion across Mena, the fund­ing re­quire­ments for re­new­able projects will grow rapidly in the com­ing years.

The MENA re­gion is for­tu­nate to have a long-es­tab­lished model for mo­bil­is­ing pri­vate sec­tor ex­per­tise and in­vest­ment; the in­de­pen­dent power pro­duc­tion struc­ture (IPP). Typ­i­cal cap­i­tal struc­tures are based on long tenor fund­ing which seek to match the eco­nomic life of the un­der­ly­ing as­set. Tra­di­tion­ally, this has been sourced from banks, as was the case in Dubai.

How­ever, with the ma­jor­ity of util­ity-scale re­new­able projects wed­ded to this or sim­i­lar struc­tures, we fore­see the po­ten­tial for ca­pac­ity con­straints and the need for height­ened fi­nan­cial in­no­va­tion.

Alex Thursby, NBAD's group chief ex­ec­u­tive of­fi­cer, said on Thurs­day the ques­tion on ev­ery­one's mind is: will the low oil price en­vi­ron­ment stall the growth of re­new­ables? We don't be­lieve so, he said.

The un­der­ly­ing driv­ers for re­new­ables are long term and strong, par­tic­u­larly across the West-East Cor­ri­dor, he said. Con­sumer de­mand is shift­ing to a pref­er­ence for clean en­ergy, gov­ern­ments are push­ing hard for pol­icy change to de­car­bonise their economies, sub­si­dies for fos­sil fu­els are com­ing off and re­new­ables have be­come cost com­pet­i­tive against hy­dro­car­bons with new tech­nolo­gies, such as bat­tery stor­age of clean en­ergy, po­ten­tially adding to this ad­van­tage.

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