Scaling renewable energy
With a heightened focus on alternative energy in the GCC, renewable energy companies must leverage scale to compete and deliver, says, Ferdinand Varga, Managing Director and Senior Partner at Boston Consulting Group (BCG)
As the GCC strives to honour its climate change commitments, attention is firmly focused on transitioning to alternative energy sources. With governments prioritizing a sustainable, climate-resilient future, renewable energy companies have a prominent role to play in the value creation process, although their involvement is by no means simple.
To create value as demands inevitably surge, players’ success hinges on leveraging scale - a challenge that must be addressed before they can compete and deliver.
From a global standpoint, the industry is already witnessing a boom period, which shows little sign of abating. Research by the International Renewable Energy Agency (IRENA) and the International Energy Agency (IEA) shows that renewables installation capacity is projected to grow a compound annual growth rate (CAGR) between 11-19 percent through 2030 to meet clean energy demands, with the GCC directly implicated.
Across the region, countries have made sizeable climate change progress, promoting the production, rollout, and uptake of clean and renewable energy. The UAE has witnessed the Phase 1 commercial launch of Abu Dhabi’s Al Barakah, the first nuclear energy plant to grace the Arab world, and Dubai’s Mohammed bin Rashid Al Maktoum (MBR) Solar Park, the largest concentrated solar energy generating facility globally.
Similarly, in Saudi Arabia, the Dumat Al Jandal Wind Farm is under construction and set to become the biggest of its kind in the Middle East.
Ground-breaking projects in the renewables space, these facilities are the embodiment of sustainability roadmaps their respective nations have implemented. By 2030, the UAE Energy Strategy aims for 30 percent of national energy requirements to come from renewable sources, with Saudi Arabia’s Green Initiative targeting 50 percent by the new decade.
Moreover, the incentive to adopt renewables is emphasized by falling costs year on year. The previous decade culminated in concentrating solar power (CSP) and onshore wind costs dropping by 16 percent and 13 percent, respectively – surpassing the cheapest newest coal options available today to present viable alternatives to traditional, increasingly detrimental energy sources.
Because climate change poses such a severe threat to the global community, successfully overcoming the pressing issues requires a collective effort involving the public and private sectors. Crucially, public-private partnerships (PPPs) can provide invaluable support.
Capable of jointly executing strategies at scale and yielding positive outcomes in shorter timeframes,
PPPs represent an opportunity to concentrate on efficiency and long-term impacts through a combined effort. They can eliminate state budget pressures, maximizing value as the private sector assumes funding requirements’ responsibilities.
They can also be deployed to overcome economic, social, and environmental challenges exacerbating across the region, propelling energy transition agendas on their upward trajectories.
With the above considerations in mind, it is no surprise that private renewable companies will be approached to help meet tomorrow’s regional alternative energy demands. Of course, such change will not be without difficulties, and heightened pressures will accompany increased opportunities.
To date, portfolio expansion and new technologies’ integration have driven scalability, with renewables developers basing their strategies on aspects such as risk diversification and market scale.
However, today’s competitive landscape calls for a new approach, one tailored towards scale benefits. Yet scale does entail several interconnected variables, and the value and levers of scale results are distinguishable in the areas of technology, business models, market maturity, and asset proximity.
For renewables companies, acknowledging this reality is imperative, as is recognizing that building scale is not solely attributed to size. Looking ahead, developers and operators can not only reduce energy costs and improve internal rates of return through their experience and synergies but also derive additional scale benefits – effects.
Renewables companies must capitalize on opportunities ahead by leveraging scale. Without scalability, competing in the evolving industry and delivering value will not be sustainable.