A new era of energy finance is emerging – and it’s a greener one. Seismic shifts in nations’ low carbon plans are highlighted by the carbon neutral goal by 2060 announced last week by China, the world’s largest energy consumer. And in the Middle East, Saudi Arabia’s new Circular Carbon Economy (CCE) roadmap has just received support from the G20, while Dubai said it cut CO2 emissions by 22 per cent in 2019. So, how does finance fit into this new picture? In short, it’s a critical vehicle to making the Middle East’s energy transition an economic and environmental success.
This means rethinking the traditional and more linear investments into fossil fuels to instead craft a melting pot of financings for fossil fuels, renewables and low-carbon growth projects. Regional appetite for green financial support is growing – loud and clear.
Ramping up
It’s been a busy month, with a lot of firsts. For one, Saudi Arabia completed its first green bond sale. The world’s biggest oil exporter and OPEC linchpin made its mark in green finance with state-controlled power giant Saudi Electricity Company’s (SEC) $1.3bn deal with regional and international lenders in September. To the west, Egypt secured the Middle East and North Africa’s (MENA) first green sovereign bond last month. The Arab world’s most populous country pulled in orders of nearly five times the $750mn size1 – a coveted nod of global confidence in the region’s plans.
These recent deals are building on a foundation of significant progress in recent years. Last year saw the UAE’s Noor Energy 1 secure $2.7bn to develop a 950MW concentrated solar plant (CSP) and photovoltaic (PV) project south of Dubai. This marked the first certified deal under the Climate Bonds Standard in the Middle East.2 And in recent years, the UAE’s Barakah nuclear power plant is the first in the Arab world, while Abu Dhabi’s Al Reyadah carbon, capture and storage (CCS) project, is the world’s first for a steel production plant.
Leadership potential
The green finance market has taken new shape in recent years. In 2019, global green bond market issuances hit a record high of $258.9bn – up 51 per cent year-on-year, according to the Climate Bonds Initiative.
As this historically niche area of finance moves into the mainstream, the Middle East has an opportunity to position itself as an influential player. Potential certainly abounds. For one, Frost & Sullivan’s recent analysis reveals that solar PV will generate $182bn investment in the Middle East’s renewables market by 2025.
Of this rising demand, the Middle East’s influence so far is greatest in green sukuks, which are sharia-compliant bonds. Total green sukuk volumes worldwide more than tripled year-on-year to $4.3bn in 2019, the Climate Bonds Initiative detailed. The UAE and Saudi Arabia spearheaded this growth, followed by Indonesia and Malaysia. To give a sense of scale, the UAE’s volume roughly quadrupled that of Malaysia.
For now, the US, China and France top the leaderboard of activity in the global green bonds market. Can a nation from the Middle East – a region eager to become a leader in green energy – add its name to the top ten more active market participants this decade? With the right financial guidance, we believe so.
ESG matters – a lot
The value of environmental, social and governance (ESG) in investment processes is also gaining strength in the Middle East, especially among regional sovereigns, revealed a global study by Invesco. The study found that 67 per cent of sovereign wealth funds in the region have an ESG policy – up from 30 per cent in 2017. Ramping up ESG in the investment environment – be it for fossil fuels or renewables – means quickly improving the quality of ESG data. More than half (57 per cent) of Middle East sovereigns cited this as their main hurdle.
Importantly, don’t let talk of green finance draw all the attention away from investing in the Middle East’s fossil fuel market. Despite increasing talk of peak oil within the next decade, giving fossil fuels a cold financial shoulder would seriously jeopardize global energy security – a cornerstone of our civilization. For now, financiers have a delicate balance to master; spur both green and traditional energy finance as the Middle East’s melting pot finds its feet.
This means rethinking the traditional and more linear investments into fossil fuels to instead craft a melting pot of financings for fossil fuels, renewables and low-carbon growth projects. Regional appetite for green financial support is growing – loud and clear.
Ramping up
It’s been a busy month, with a lot of firsts. For one, Saudi Arabia completed its first green bond sale. The world’s biggest oil exporter and OPEC linchpin made its mark in green finance with state-controlled power giant Saudi Electricity Company’s (SEC) $1.3bn deal with regional and international lenders in September. To the west, Egypt secured the Middle East and North Africa’s (MENA) first green sovereign bond last month. The Arab world’s most populous country pulled in orders of nearly five times the $750mn size1 – a coveted nod of global confidence in the region’s plans.
These recent deals are building on a foundation of significant progress in recent years. Last year saw the UAE’s Noor Energy 1 secure $2.7bn to develop a 950MW concentrated solar plant (CSP) and photovoltaic (PV) project south of Dubai. This marked the first certified deal under the Climate Bonds Standard in the Middle East.2 And in recent years, the UAE’s Barakah nuclear power plant is the first in the Arab world, while Abu Dhabi’s Al Reyadah carbon, capture and storage (CCS) project, is the world’s first for a steel production plant.
Leadership potential
The green finance market has taken new shape in recent years. In 2019, global green bond market issuances hit a record high of $258.9bn – up 51 per cent year-on-year, according to the Climate Bonds Initiative.
As this historically niche area of finance moves into the mainstream, the Middle East has an opportunity to position itself as an influential player. Potential certainly abounds. For one, Frost & Sullivan’s recent analysis reveals that solar PV will generate $182bn investment in the Middle East’s renewables market by 2025.
Of this rising demand, the Middle East’s influence so far is greatest in green sukuks, which are sharia-compliant bonds. Total green sukuk volumes worldwide more than tripled year-on-year to $4.3bn in 2019, the Climate Bonds Initiative detailed. The UAE and Saudi Arabia spearheaded this growth, followed by Indonesia and Malaysia. To give a sense of scale, the UAE’s volume roughly quadrupled that of Malaysia.
For now, the US, China and France top the leaderboard of activity in the global green bonds market. Can a nation from the Middle East – a region eager to become a leader in green energy – add its name to the top ten more active market participants this decade? With the right financial guidance, we believe so.
ESG matters – a lot
The value of environmental, social and governance (ESG) in investment processes is also gaining strength in the Middle East, especially among regional sovereigns, revealed a global study by Invesco. The study found that 67 per cent of sovereign wealth funds in the region have an ESG policy – up from 30 per cent in 2017. Ramping up ESG in the investment environment – be it for fossil fuels or renewables – means quickly improving the quality of ESG data. More than half (57 per cent) of Middle East sovereigns cited this as their main hurdle.
Importantly, don’t let talk of green finance draw all the attention away from investing in the Middle East’s fossil fuel market. Despite increasing talk of peak oil within the next decade, giving fossil fuels a cold financial shoulder would seriously jeopardize global energy security – a cornerstone of our civilization. For now, financiers have a delicate balance to master; spur both green and traditional energy finance as the Middle East’s melting pot finds its feet.
Source Link: www.omanobserver.om
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