Middle East in prime position to grow renewable sector
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.