Renewable Energy Sector Advances in the Gulf

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Renewable Energy Sector Advances in the Gulf

Published on 16 Nov 2022

Key Takeaways:

  • Gulf states boast a strong renewable energy resource base in terms of solar irradiance levels and wind speed.
  • Gulf states have invested in major renewable energy projects regionally and globally as part of their diversification strategies.
  • Several factors including favourable finance terms for renewable projects, a high borrowing capacity for renewable project developers and sizeable mega-projects have each supported the deployment of utility-scale installed renewable energy capacity.
  • However, the industry faces barriers related to subsidy retention, grid capacity, tendering and distributed generation.

Enablers of Renewable Energy Development

Abundance of renewable energy resources
The Gulf has predictable high insolation levels, thus enabling investment in several solar energy technologies, including solar photovoltaics (PV), and concentrated solar power (CSP). The annual average solar irradiance per square metre in Gulf states is equivalent to 1.1 barrels of oil 1. The Global Horizontal Irradiance (GHI) in the region is estimated to range from 2,000 to 2,500 kWh/sq metre annually 2. By comparison, the average GHI in Germany from 1998 to 2018 stood at almost half of the region’s lower GHI range with just 1088 kWh/sq metre annually 3. GHI varies across the region with certain states having very favourable conditions. For instance, the UAE has annual GHI levels around 2,200 kWh/sq metre, whereas the GHI for Saudi Arabia and Oman exceeds 2,200 kWh/sq metre per year 4. Kuwait’s irradiance levels are highest in June and July 5, which coincides with the peak demand period for energy use.

Notwithstanding the positives above, the region’s high temperatures have had a negative impact on solar PV systems. This is as the PV modules’ yield is inversely proportional to temperatures, given that the modules’ standard test conditions are at 25°C. The Gulf’s dusty environment and rising temperatures create an opportunity for research and development to ameliorate PV modules.

In the wind power sector, several Gulf states can provide commercially viable wind speeds for utility-scale projects, namely Saudi Arabia, Oman, Bahrain and Qatar. Kuwait’s annual wind power is viable for medium-scale wind production 6.

Geothermal energy, produced through the heat of the Earth’s sub-surface, remains largely under-explored, but could have significant potential in the Gulf states, especially given these states’ extensive drilling experience. Closed-loop technology projects could potentially be developed at lower costs than in other regions, and some ongoing oil and gas production processes could be repurposed toward geothermal energy production. Geothermal energy can be used for baseload power generation and could power desalination plants and provide district cooling. Ground-source heat pumps could also have significant cooling potential in Gulf states.

Government backing of projects
The dominant type of renewable energy model deployed in the Gulf is the 'mega-project.' These projects benefit from economies of scale and government-backing of finance and development. Mega-projects are the best route to help the Gulf meet its ambitious targets and diversify its energy systems. Utility-scale renewable energy plants in the pipeline at various development stages – in operation, awarded, tendered and in the process of being tendered until the year 2023 – have a combined capacity of 13.64 GW and exceed $9bn in project value 7.

Gulf states have invested in sizeable renewable energy projects regionally and globally as part of their diversification strategies. Three types of renewable energy investment models have been recorded: 1) mergers and acquisitions, 2) foreign investments, and 3) equity investments.

The Gulf’s Sovereign Wealth Funds (SWFs) have viewed renewable energy project development as presenting profitable investment opportunities, with long-term cash flows matching long-term return prospects 8.

Saudi Arabia and the UAE have backed renewable energy giants ACWA Power and Masdar (also known as Abu Dhabi Future Energy Company). Saudi Arabia’s Public Investment Fund (PIF) holds a 50% stake in ACWA Power. Meanwhile, Masdar was wholly owned by Abu Dhabi’s Mubadala Investment Company from 2006 until 2021. In December 2021, Abu Dhabi’s National Energy Company (TAQA) acquired a 43% stake and Abu Dhabi’s National Oil Company (ADNOC) acquired a 24% stake, while Mubadala retained the remaining 33%. The new shareholders, along with Masdar, contribute a combined existing and committed renewable energy capacity of more than 23 GW.

While Saudi Arabia’s economic model remains closely linked to hydrocarbons, PIF-backed ACWA Power is gaining market share in the renewable energy sphere regionally and globally. The power and water desalination developer, owner and operator has built a renewable energy portfolio across a dozen countries, with a total installed capacity exceeding 3.2 GW, valued at more than $10.45bn 9.

Among renewable energy plants in the Gulf, ACWA Power, as the project developer with the largest regional share, has a total capacity of 3.95 GW, while Masdar, the region’s largest developer, holds 1.5 GW. In March 2022, Saudi Arabia’s energy ministry awarded two projects with 1 GW in capacity each, valued at a combined $666million, to be built in Al Rass and Saad. Additionally, ACWA is currently planning two solar photovoltaic projects of 2.3 GW in Shuaiba and Rabigh, under the second round of PIF’s renewable energy deployment. Qatar’s first solar PV plant, Al Kharsaah, with 800 MW in capacity, is under development. The project developer is a consortium between Total and Marubeni (40%), alongside Siraj Energy (60%). The latter is a Joint Venture between Qatar Petroleum (40%) and QEWC (Qatar Electricity & Water Company (60%).

Borrowing ability and favourable financing terms
Renewable energy projects require large capital investments and are typically financed on a project-finance basis, the main financing method in large and expensive infrastructure projects. In this financial model, an independent legal entity, or Special Purpose Vehicle (SPV), is established as a subsidiary company to undertake project development and raise funds. Project finance is most often executed through long-term project loans. The financing is a combination of debt provided by lenders and equity provided by shareholders. The SPV needs to ensure cash flow covers principal debt and provides profit to creditors and shareholders, in order to secure adequate returns, long-term off-take, or power purchase agreements (PPAs) with low counterparty credit risks.

Saudi Arabia and the UAE have witnessed record-low prices in utility-scale solar project auctions, boosting the appetite for renewable energy and promising extremely cheap electricity provision. These prices are listed in Figure 1.

Figure 1. Levelised cost of electricity renewable energy auctions in the Gulf Source: Compiled by author

A comparison with respect to the global weighted average of the levelised cost of electricity 10 (LCOE) is portrayed in Figure 2.

These record low prices are a result of a combination of factors including: 1) the availability of equity and borrowing ability; 2) low debt servicing costs; 3) long PPA tenures; 4) counterparty credit worthiness; 5) low land costs; and 6) low taxes.

Gulf states are set to record a sharp rebound in oil revenues, which could provide even more investment opportunity for renewable energy deployment. Infrastructure projects are linked to government spending, and the 2021 and 2022 oil price rebounds put the Gulf states on track for economic growth. Oil prices have recovered from the impact of the Covid-19 pandemic and soared to levels unmatched since 2014; they crossed $101 per barrel at the end of February 2022, following Russia’s invasion of Ukraine. 

Figure 2. Global LCOE for solar PV compared to that in the Gulf  Source: Global figures: Lazard; Gulf figures: weighted average computed by authors from Saudi Arabia and the UAE’s auctions

Globally, geopolitical risk is high, making oil prices very volatile. According to HSBC, an oil price of $100 per barrel would increase Gulf export revenues by $150bn, leading to the region’s biggest fiscal surplus in a decade and providing Gulf states with budget surpluses 11.

Countries with stable fiscal balances are well-positioned to tap into foreign debt issuance, as in the case of Saudi Arabia and the UAE. Historically, limited political risk and favourable macro-economic conditions in the Gulf, including the US dollar currency pegs, have contributed to the states’ borrowing abilities, although at different levels. 

In typical auctions of independent power producers (IPPs), the private entity oversees raising funds to reach financial closure and develop the project. Yet, in many Gulf projects, particularly within the UAE, the renewable energy projects take the form of public-private partnerships (PPPs), where the public entity, i.e. the government, acts as a co-lender or equity provider, making the project a co-finance project. This applies to the Mohammad Bin Rashid Al Maktoum Solar Park phase III. In this phase, project equity is split between the state-owned electricity utility DEWA, which has a 60% stake, and a private sector developer with 40%. 12

Gulf states are also providing long tenure for off-take agreements. Whereas PPAs are commonly signed for a period of 10 to 25 years, Gulf states have been signing agreements ranging from a period of 25 years for most projects to 35 years in the case of the Mohammad Bin Rashid Al Maktoum Solar Park phase IV 700 MW CSP project. This project has a finance loan period ranging from 22 to 25 years 13. This compares favorably internationally as in India, typical debt terms are 14 years 14, whereas in Mexico and Guatemala, PPAs have been signed for 15 years. Long tenure for off-take agreements allows for long-term cash-flows for developers.

Availability of land
The availability of vast, cheap land in the Gulf is a key pillar of renewable energy project development. Across the globe, hidden costs associated with land lease and land disputes, coupled with decreased interest among landowners to lease their land, have substantially pushed up project costs. Site control is a fundamental aspect of renewable energy project development, since loss of site control can cause projects to be cancelled. Typically, site control is an operating cost paid to the landowner as part of a right to use the land, a lease agreement or an option to purchase the land. Development costs are lower when the land cost is lower or when fees are completely waived. Other costs can involve potential claims, mortgages and disputes over property ownership.

Low land costs could imply that land earmarked for renewable energy projects in the Gulf carry only a symbolic purchase price. Yet, land availability in the UAE falls within soft costs and is considered a prime factor in reducing prices of solar PV auctions 15. Aside from the costs, community disputes and social resistance over project development - especially hydropower plants and wind farms - have been recorded in many parts of the world. These disagreements have often been prolonged, requiring dispute resolution mechanisms and town hall meetings.

Opportunity costs are also present in countries with scarce land. Restrictions on land use can then be put in place by governments, such as in agricultural land, land developed for mineral extraction, land used for waste disposal, land classified as urban areas or land for leisure and tourism. These limitations may reduce project capacity, extend development timelines or increase construction costs.

Barriers to Renewable Energy Development

Subsidy Retention
Low-cost fossil fuel-powered generation has hindered renewable energy investments. The annual cost of fossil fuels and electricity subsidies in the Gulf crossed $30bn in 2015. In 2011, Dubai Electricity and Water Authority (DEWA) was the first utility in the region to restructure tariffs to reflect the cost of recovery. Following the drop in oil prices in 2014, Gulf states embarked on a pricing reform journey 16 at different paces and success levels. Qatar raised electricity and water tariffs for expats in the second half of 2015, while Bahrain increased these rates in 2016 17. Oman hiked electricity tariffs for large consumers in government, commerce and industry in 2017. Meanwhile, the government in Saudi Arabia implemented a gradual elimination of subsidies. In the case of the UAE, prices have gone up in previous years - especially for expatriates – and electricity consumption continued to rise. The use of a flat rate pricing structure instead of time-of-use has led to wasteful consumption in peak periods, when emphasis should be on lowering demand.

The rebound in oil prices may not secure public approval for subsidies elimination, but these subsidies will continue to impede the implementation of low-carbon technologies to the detriment of the Gulf’s climate commitments, most notably Saudi Arabia and the UAE’s net-zero pledges. These pledges may serve to rally public support for tariff-restructuring as part of the sustainability and diversification plans. However, safeguarding economic growth entails channeling part of these subsidies 18 towards ensuring business competitiveness.

Grid limitations
Transitioning to renewable energy, especially solar and wind, could create a new set of challenges for the Gulf’s power grid. Investments in the Middle East power sector from 2021 to 2025 are estimated to reach $250bn and constitute the highest share of investments across energy sectors 19. Yet investments in transmission and distribution networks have been chronically low compared to investments in generation capacity, which needs to be addressed. Within the transmission and distribution sectors, conventional methods of balancing supply and demand are unsustainable with the integration of renewable energy 20 The power grids will therefore need to be expanded, upgraded and modernised. Grid limitations are posing major operational challenges to the integration of variable renewable energy systems. Renewable energy projects have been developed at a faster pace than power grids, a trend that is common across the globe, including in China and the US 21. In Australia, grid limitations caused 2019 renewable energy investments to be half those of the year prior 22. In India, renewable energy curtailment is common due to transmission congestion and system inflexibility, among other factors 23. The weak grid impact on renewable energy deployment in the Middle East is clearly evident in Jordan. The country is at the forefront of renewable energy deployment in the region, with 20% of renewable energy generation capacity. However, it had to suspend utility-scale renewable energy auctions and licenses early in 2019 to assess and improve the electricity network 24.

Reliance on intermittent wind and solar generation 25 causes low system inertia 26 in cases where power grid modernisation investments are insufficient 27. Aligning generation and transmission plans and modernising grid infrastructure enable a low-cost integration of renewables. Major investments in system flexibility 28, scalability and energy storage systems would also be required when the share of renewables in the power mix increases. This would help manage intermittencies of renewable energy resources and mitigate potential power supply disruptions 29.

Renewable energy integration also requires implementing forecasting and grid integration centres and re-skilling grid operators to manage variable generation.

The Gulf Cooperation Council Interconnection Authority (GCCIA), which links the six member states’ power grids, could promote system flexibility and optimise variable renewable energy integration. Although the interconnection grid was completed in 2011, it only operates at 5% of its capacity and is mainly used in emergency modes to avert blackouts though bilateral capacity trade.

Tender delays
Auctions have set the pace for renewable energy deployment in the Gulf but delays in project announcements and award are costly and risk derailing renewable energy ambitions. The slow process may increase risk aversion among investors. Additionally, the current tendering design and process on a project-by-project basis is a costly and slow path to hike cumulative capacity. Private developers favour a pipeline of projects and visibility over upcoming opportunities under a tender process. Project pipelines offer investors and developers greater opportunity to enter the Gulf market and increase the prospects of reward following bidding costs and due diligence 30.   

In the current tendering framework, the regulator or project owner selects the technology and capacity under a single-site project. Co-location of plants and technology-neutral tenders have yet to make an entry into the Gulf market.

The off-take agreements are signed on a take-or-pay basis, increasing the risk of payments for curtailed power. The purchase of dispatchable electricity will promote the use of energy storage systems in front-of-meter models, which will be necessary for the future integration of variable renewable energy. Since auctions are conducted on a project-by-project basis, they can also be designed to align the development of generation capacity with that of grid infrastructure, thereby reducing curtailment risks 31.

Lower emphasis on distributed generation
The need for rapid deployment of renewable energy should prompt the use of various implementation models. Chief among these models is distributed, small-scale generation, which has the advantage of reducing grid expansion needs. But the share of these models among overall renewables capacities remains low, with their deployment predominantly taking place in off-grid settings.

Spiking electricity consumption in buildings also needs to be addressed, not only with efficiency measures, but also in the promotion of distributed renewable energy generation. Small-scale models have the additional benefit of raising consumers’ energy awareness and changing their behaviour towards energy conservation.

Some incentives and regulations are in place for the promotion of small-scale systems in the Gulf. The UAE has adopted net-metering policies and Dubai has developed the Shams Solar Programme, aiming to have solar energy systems on every rooftop by 2030. Saudi Arabia’s Water and Electricity Regulatory Authority has developed a framework for small-scale PV systems ranging from 1 KW to 2 MW. Oman, on the other hand, has enacted feed-in tariffs under the Sahim scheme to enable financial compensation for renewable power exported to the grid.

Financial incentives and possibly redirection of subsidies into small-scale renewable energy would increase cumulative renewable energy capacity while creating jobs and improving business competitiveness when implemented for commercial and industrial consumers. Capacity limitations in facilities where electricity consumption levels are high are also inhibiting the deployment of distributed renewable energy systems, especially for heavy commercial and industrial consumers.

Conclusion

The Gulf states boast several enablers of renewable energy deployment, including the availability of vast, cheap land, significant renewable resources and predictable high insolation levels. These factors, in addition to favourable finance terms, have enabled investment in several renewable energy technologies.

The dominant type of renewable energy model deployed in the Gulf is the 'mega-projects', which benefit from economies of scale and government-backing of finance and development.

Saudi Arabia and the UAE have witnessed record-low prices in utility-scale solar project auctions. These record low prices are a result of a combination of factors, such as equity and borrowing ability; low debt servicing costs; and long PPA tenures; among others.

Yet, some barriers need to be mitigated to meet the ambitious renewable energy targets. These include: 1) the retention of fossil fuel subsidies which hinder investments in low-carbon technologies; 2) grid limitations and bottlenecks in the integration of variable renewable energy; 3) delays in project announcements, tendering and award which could reduce investors’ appetite, and 4) the lower emphasize on distributed generation.

Project Location
Al-Shagaya (100 km west of Kuwait City)

Project Name
Al-Shagaya

Project Type
Mixed

Project Capacity
70MV

Project Owner
KISR

Project Location
Al-Askar

Project Name
Askar

Project Type
Solar

Project Capacity
100 MV

Project Owner
Electricity and Water Authority, Bahrain (EWA)

Project Location
Al-Kharsaah

Project Name
Al Kharsaah Solar PV IPP Project

Project Type
Solar PV

Project Capacity
800 MW

Project Owner
Qatar General Electricity and Water
Corporation (Kahramaa)

Project Location
Abu Dhabi

Project Name
Al Dhafra Solar PV

Project Type
Solar PV (crystalline, bifacial solar
technology)

Project Capacity
2000 MW

Project Owner
EWEC

Project Location
Dubai

Project Name
Mohammed Bin Rashid Al Maktoum
Solar Park Phase 1

Project Type
Solar PV

Project Capacity
13 MW

Project Owner
DEWA

Project Location
Dubai

Project Name
Mohammed Bin Rashid Al Maktoum
Solar Park Phase 2

Project Type
Solar PV

Project Capacity
200 MW

Project Owner
DEWA

Project Location
Dubai

Project Name
Mohammed Bin Rashid Al Maktoum
Solar Park Phase 3

Project Type
Solar PV

Project Capacity
800 MW

Project Owner
DEWA

Project Location
Dubai

Project Name
Mohammed Bin Rashid Al Maktoum
Solar Park Phase 4

Project Type
CSP and PV

Project Capacity
950 MW

Project Owner
DEWA

Project Location
Dubai

Project Name
Mohammed Bin Rashid Al Maktoum
Solar Park Phase 5

Project Type
Solar

Project Capacity
900 MW

Project Owner
DEWA

Project Location
Sweihan, Abu Dhabi

Project Name
Noor Abu Dhabi Solar Power Project

Project Type
Solar Power Plant

Project Capacity
1200 MW

Project Owner
EWEC

Project Location
Abu Dhabi

Project Name
Masdar Solar Scheme Shams 1 Project

Project Type
CSP

Project Capacity
100 MW

Project Owner
Masdar

Project Location
Abu Dhabi

Project Name
Masdar Solar Scheme Shams 2 Project

Project Type
CSP

Project Capacity
100 MW

Project Owner
Masdar

Project Location
Sweihan, Abu Dhabi

Project Name
Noor Abu Dhabi

Project Type
Solar

Project Capacity
1180 MW

Project Owner
EWEC

Project Location
300km west of Muscat

Project Name
Ibri II Solar IPP

Project Type
Solar PV

Project Capacity
500 MW

Project Owner
OPWP

Project Location
Ad Dakhiliyah

Project Name
Manah Solar I & Manah Solar II

Project Type
Solar PV

Project Capacity
1000 MW

Project Owner
OPWP

Project Location
Near Nimr (300 km northeast of Salalah)

Project Name
Amin Solar PV IPP

Project Type
Solar PV

Project Capacity
100 MW

Project Owner
Petroleum Development Oman (PDO)

Project Location
Dhofar

Project Name
Dhofar Wind Project

Project Type
Wind

Project Capacity
50 MW

Project Owner
Masdar

Project Location
Makkah, Saudi Arabia

Project Name
Rabigh Solar PV IPP Project

Project Type
Solar PV

Project Capacity
300 MW

Project Owner
Marubeni Cooperation

Project Location
120 km south of Jeddah, Western Saudi Arabia

Project Name
Al-Shuaibah Solar Power Plant

Project Type
Solar PV

Project Capacity
600 MW

Project Location
Jeddah

Project Name
Jeddah Solar Power Plant

Project Type
Solar PV

Project Capacity
300 MW

Project Owner
SPPC

Project Location
Al Madinah

Project Name
Medina PV IPP project

Project Type
Solar PV

Project Capacity
50 MW

Project Owner
Desert Technologies

Project Location
Sudair, Riyadh, Saudi Arabia

Project Name
Sudair solar power project

Project Type
PV solar power

Project Capacity
1500 MW

Project Owner
ACWA power

Project Location
Rafha

Project Name
Rafha PV IPP

Project Type
Solar PV

Project Capacity
20 MW

Project Owner
Desert Technologies

Project Location
Sakaka City, Al Jouf Province

Project Name
Sakaka Photovoltaic Solar Project

Project Type
Solar PV

Project Capacity
300 MW

Project Owner
Saudi Power Procurement Company

Project Location
Al Jawf Province

Project Name
Dumat Al Jandal Wind Power Project

Project Type
Wind Farm

Project Capacity
400 MW

Project Owner
Masdar

Project Location
Qurayyat

Project Name
Al Qurayyat Solar Power Plant

Project Type
Solar PV

Project Capacity
200 MW

References

1 Mas’ud, A., Wirba, A., et al. (2018). “Solar Energy Potentials and Benefits in the Gulf Cooperation Council Countries: A Review of Substantial Issues”. Energies 2018, 11(2): 372. https://www.mdpi.com/1996-1073/11/2/372 

2 IRENA, League of Arab States, RECREE (2014). Pan-Arab Renewable Energy Strategy 2030. https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2014/IRENA_Pan-Arab_Strategy_June-2014.pdf?la=en&hash=74FA7DF20D841A3CF197C4791E74D18B52F8AB23

3 Fraunhofer ISE (2021). Recent Facts about Photovoltaics in Germany. https://www.ise.fraunhofer.de/content/dam/ise/en/documents/publications/studies/recent-facts-about-photovoltaics-in-germany.pdf 

4 RENA (2019). Renewable Energy Market Analysis: GCC 2019. https://www.irena.org/publications/2019/jan/renewable-energy-market-analysis-gcc-2019

5 Mas’ud, A., Wirba, A., et.al, (2018). op. cit. 

6  Al-Salem, K., Neelamani, S., Al-Nassar, W. (2018). “Wind Energy Map for Arabian Gulf”. Natural Resources 09(05): 212–228. https://www.researchgate.net/publication/325467975_WIND_ENERGY_MAP_OF_ARABIAN_GULF

7 Calculated by Author. Project details are listed in Annex I.

8 IRENA (2019). Renewable Energy Market Analysis: GCC 2019. https://www.irena.org/publications/2019/jan/renewable-energy-market-analysis-gcc-2019

9 Castlereagh Associates (2019). “Saudi Arabia’s new renewables giant”. 24 January 2020.https://defence.pk/pdf/threads/saudi-arabias-new-renewables-energy-giant.662817/ 

10 LCOE refers to the net present cost of electricity for a power generation plant over its lifetime.

11 HSBC Global Research (2022). “GCC Energy States: Oil at 100”. 24 February 2022.

12 IRENA (2017). Renewable Energy Auctions: Analysing 2016.https://www.irena.org/publications/2017/Jun/Renewable-Energy-Auctions-Analysing-2016

13 IRENA (2019). Renewable Energy Market Analysis: GCC 2019.https://www.irena.org/publications/2019/jan/renewable-energy-market-analysis-gcc-2019

14 International Finance Corporation (2012). “Utility-scale Solar Power Plants”.https://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/sustainability-at-ifc/publications/publications_handbook_solarpowerplants 

15 IRENA (2017). op. cit.

16 Moerenhout, T. (2021). “Fuel and Electricity Reform for Economic Sustainability in the Gulf”. In: Luciani, G. and Moerenhout, T. (eds) When Can Oil Economies Be Deemed Sustainable?. The Political Economy of the Middle East. Palgrave Macmillan. https://doi.org/10.1007/978-981-15-5728-6_8

17 Karne, J., Monaldi, F. (2017). “Oil Prices, Political Instability, and Energy Subsidy Reform in MENA Oil Exporters”. Rice University Center for Energy Studies. https://www.bakerinstitute.org/media/files/files/0660db8a/CES-pub-QLC_Subsidies-042517.pdf 

18 Arab Petroleum Investments Corporation (2021). “Leveraging Energy Storage Systems in MENA”. https://www.apicorp.org/wp-content/uploads/2021/12/Leveraging_Energy_Storage_in_MENA_EN_FINAL.pdf

19 Arab Petroleum Investments Corporation (2021). “MENA Energy Investment Outlook 2021-2025”. https://www.apicorp.org/media-centre/publications/ 

20 Ibid.

21 National Academies of Sciences, Engineering, and Medicine (2010). “The Power of Renewables: Opportunities and Challenges for China and the United States”. https://doi.org/10.17226/12987

22 Wood Mackenzie (2020). “Grid congestion chokes renewables investments in Eastern Australia”. https://www.woodmac.com/press-releases/grid-congestion-chokes-renewables-investments-in-eastern-australia/ 

23 Government of India Ministry of Power (2017). “Greening the Grid: Pathways to Integrate 175 Gigawatts of Renewable Energy into India Electric Grid”. https://www.nrel.gov/docs/fy17osti/68530.pdf

24 PV Magazine (2019). “Jordan suspends renewables auctions, new licenses for projects over 1 MW”. 28 January 2019. http://surl.li/blkfz

25 Intermittent renewable energy, also known as variable renewable energy, such as wind and solar, are renewable energy sources that are not constantly dispatchable due to their fluctuating nature.

26 Inertia refers to the energy stored in large rotating generators, which gives these generators the ability to retain rotation. A power network with low inertia is unstable and vulnerable to black-outs. 

27 General Electric (2021). Pathways to faster decarbonization in the GCC’s power sector. https://www.ge.com/content/dam/gepower-new/global/en_US/downloads/gas-new-site/future-of-energy/whitepaper-pathways-for-decarb-GEA35042-.pdf 

28 The ability of a power system to respond quickly to variations in supply and demand.

29 Petroleum Investments Corporation (2021). Leveraging Energy Storage Systems in MENA. https://www.apicorp.org/wp-content/uploads/2021/12/Leveraging_Energy_Storage_in_MENA_EN_FINAL.pdf 

30 Hamilton, K. (2011). “Investing in Renewable Energy in the MENA Region: Financier Perspectives”. London: The Royal Institute of International Affairs. https://www.chathamhouse.org/sites/default/files/0611hamilton.pdf

31 IRENA (2019). Renewable Energy Auctions: Status and Trends Beyond Price.
https://www.irena.org/publications/2019/Dec/Renewable-energy-auctions-Status-and-trends-beyond-price



Overview and Trends in the Power Sector

The Case of the Gulf States
View the story

Overview and Trends
in the Power Sector

The Case of the Gulf States

The future is electric

Global electricity demand is expected to rise 80% by 2040 1, driven by the electrification of various sectors. However, the sources of this electricity remain a subject of heated debate, particularly in hydrocarbon-rich Gulf Arab states.

Hefty renewable energy targets have dominated news and government announcements in the Gulf in recent years. However, Gulf economies and domestic power consumption remain almost entirely dependent on fossil fuels. Electricity consumption continues to rise as economic growth drives a race for thermal generation capacity, with renewable energy plans remaining slow to materialise.

Diversifying the Gulf’s power mix is an extensive mission. Gulf states sit on a vast supply of hydrocarbon reserves. Revenues from these reserves have driven the region’s economies and played a central role in dictating the region’s political and economic dynamics. However, Gulf states are rich in other natural resources, with abundant renewable energy potential. These states have announced lofty targets for the deployment of renewable energy systems. The targets range from 15% to 50% of electricity generation by 2030. Despite a slow start, implementation is gaining momentum.

December 16, 2022

Key Takeaways:

  • Electricity demand growth in the Gulf has fallen slightly. But several indicators imply that growth in electricity demand will recover to high levels in the future.
  • Renewable energy deployment in Gulf states is gaining momentum driven by several factors, including freeing hydrocarbons, especially oil, for exports, and increasing energy security and job creation.
  • Gulf states have an opportunity to fast-track renewable energy tenders and project development, mostly due to higher financing prospects and lower project development risks.

The Gulf’s current available power generation capacity is approximately 165 Gigawatts (GW), up from 154 GW in 2018, which accounts for half of the Middle East’s estimated total installed capacity. Peak electricity demand in the Gulf was in the vicinity of 120 GW in 2020 2.

Electricity demand growth in the Gulf has fallen slightly since 2016. Before this, the region’s peak electricity demand grew at unsustainable rates. Annual growth in peak demand averaged 7% to 11% from 2005 to 2015, and then dropped to 3% from 2016 to 2020 3. Historically, fuel and electricity subsidies, resulting in low electricity tariffs, have led to a wasteful increase in electricity consumption. This has caused a rise in domestic consumption of fossil fuels, the dominant source for power generation in the Gulf. Domestic reliance on subsidised fossil fuels has strained governments’ budgets and decreased the attractiveness and bankability of investments in low-carbon technologies, including renewables.

Despite the decreased peak demand growth rate, several indicators imply that growth in electricity demand will recover to high levels in the future. These factors include:

  • Economic growth, which is still strongly linked to energy consumption (the two have not yet decoupled in GCC member states 4, unlike in Organisation for Economic Co-operation and Development (OECD) countries, where electricity demand has flattened)
  • Water scarcity
  • Rising temperatures and subsequent rising demand for cooling
  • Electrification of sectors, including transportation
  • Digitisation and the addition of data centres

Figure 1. Gulf peak demand annual growth rate

Demand growth has been driving a race to increase installed generation capacity, mainly in thermal generation. This generation is consuming a larger share of fossil fuels, diverted from exports. The annual growth rate of installed generation capacity in the Gulf is 7%, although it exceeded 9.5% 5 from 2005 till 2015. This compares to a global rate of 6% for thermal generation.6  

Gulf electricity generation, demand and dominant fuel sources for power
generation in 2020

Data source: WERA, DEWA, EWEC, QEWC, OPWP, Kuwait MEW, MEES

Despite available reserve margins, the increase in peak demand at extreme temperatures has driven power outages in cities in Kuwait, intensifying efforts to secure installed capacity. The state has a pipeline of eight additional power plants with a combined generation capacity of 17.3 GW planned for operation by 2035.

According to data from the International Energy Agency (IEA), the residential sector was the highest electricity consumer in the Gulf in 2019, accounting for approximately 41% of total electricity consumption, followed by the commercial and governmental sectors at a combined 34%. The residential sector is currently the highest consumer across all Gulf states except Bahrain, where the industrial sector consumes the most, followed by the residential sector. In 2015, the largest consumers in the United Arab Emirates (UAE) were the commercial and governmental sectors, with the residential sector coming in a close second. The Covid-19 pandemic has shifted consumption towards the residential sector in the UAE. Buildings constitute the largest electricity consumer, with air conditioning making up the highest share of electricity consumption. Thus, electricity consumption increases as temperatures rise.

Most sectors in the Gulf have seen an upward trend in electricity consumption. Exceptions are Saudi Arabia, where the residential sector’s consumption has been decreasing and commercial and governmental sector consumption has mostly stagnated since 2015, and Qatar, where the industrial sector has been mostly flat since 2015. The agricultural sector has generally plateaued across all Gulf states.

References

1 International Energy Agency (IEA) (2021). “World Energy Outlook 2021”. https://www.iea.org/reports/world-energy-outlook-2021 

2  Calculated by Author as per data from Saudi Water and Electricity Regulatory Authority (WERA), Dubai Electricity and Water Authority (DEWA), Emirates Water and Electricity Company (EWEC), Qatar Electricity and Water Company (QEWC), Oman Power and Water Procurement Company (OPWP), Kuwait Ministry of Electricity (MEW), MEES.

3 Ibid.

4 Howarth, N., Galeotti, M., Lanza, A. et al. (2017). “Energy Consumption and Economic Development in the GCC: An International Sectoral Analysis”. Energy Transit 1: 6. https://doi.org/10.1007/s41825-017-0006-3

5 Calculated by Author as per data from WERA, DEWA, EWEC, QEWC, OPWP, Kuwait MEW, MEES.

6 IEA (2021). “Electricity Market Report: January 2021”.
https://iea.blob.core.windows.net/assets/d75d928b-9448-4c9b-b13d-6a92145af5a3/ElectricityMarketReport_January2022.pdf

7 Including solar photovoltaic, concentrated solar power, onshore wind and bioenergy.

8 International Renewable Energy Agency (IRENA) (2021). “Renewable Energy Capacity Statistics 2021”. https://www.irena.org/publications/2021/March/Renewable-Capacity-Statistics-2021 

9 Ibid. 

10 IRENA (2019). “Five Reasons why Countries in the Region are Turning to Renewables”. 20 October. https://www.irena.org/newsroom/articles/2019/Oct/Five-Reasons-Why-Countries-in-the-Arabian-Gulf-are-Turning-to-Renewables

11 National Academies of Sciences, Engineering, and Medicine (2010). “The Power of Renewables: Opportunities and Challenges for China and the United States”. https://doi.org/10.17226/12987

12 Pew Research Center (2019). “US Public Views on Climate and Energy”. https://www.pewresearch.org/science/2019/11/25/u-s-public-views-on-climate-and-energy/ 

13 Dobrotkova, Z., Surana, K. and Audinet, P. (2018). “The Price of Solar Energy: Comparing Competitive Auctions for Utility-scale Solar PV in Developing Countries”. Energy Policy 118. https://www.sciencedirect.com/science/article/abs/pii/S0301421518301708 

14 IRENA (2017). “Renewable Energy Auctions: Analysing 2016”. https://www.irena.org/publications/2017/Jun/Renewable-Energy-Auctions-Analysing-2016 

15 IRENA (2019). “Renewable Energy Auctions: Status and Trends Beyond Price”. https://www.irena.org/publications/2019/Dec/Renewable-energy-auctions-Status-and-trends-beyond-price

16 Kingdom of Saudi Arabia (2021). “Public Investment Fund Program 2021-2025”https://www.vision2030.gov.sa/media/mdppqvmv/v2030_pif_2025_en.pdf  

17 EIA (2019). “Most Utility-Scale Solar Photovoltaic Power Plants are 5 Megawatts or smaller”.https://www.eia.gov/todayinenergy/detail.php?id=38272#

18 Bolinger, M., Seel, J., et al. (2021). “Utility-Scale Solar 2021 Edition”. Lawrence Berkeley National Laboratory.  https://emp.lbl.gov/sites/default/files/utility_scale_solar_2021_edition_slides.pdf 

19 EIA (2019). op. cit.

20 Hove, A. (2020). “Current direction for renewable energy in China”. The Oxford Institute for Energy Studies. https://www.oxfordenergy.org/wpcms/wp-content/uploads/2020/06/Current-direction-for-renewable-energy-in-China.pdf 

21 Al Saidi, M. (2020). “From Economic to Extrinsic Values of Sustainable Energy: Prestige, Neo-Rentierism, and Geopolitics of the Energy Transition in the Arabian Peninsula”. Energies 2020, 13(21): 5545. https://www.mdpi.com/1996-1073/13/21/5545 



The Future of Sustainable Finance and Green Economies in the MENA Region

The Role of Sustainability in Driving Growth and Development
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The Future of
Sustainable Finance
and Green Economies
in the MENA Region

The Role of Sustainability
in Driving Growth and Development

Introduction

There can be little doubt that the world is moving towards the end of the hydrocarbon era, though the pace and nature of the energy transition are still playing out. From a climate perspective, the transition cannot happen soon enough. While the weight of global public opinion seems in favour of rapid, almost overnight, change, the mechanics of bringing about that change will be both timely and complex.

Hydrocarbon consuming and producing countries are introducing and implementing a range of policies to cut greenhouse gas (GHG) emissions in line with Net Zero commitments made at successive Conference of Parties (COP) Summits, while making considerable efforts to ‘green’ their economies . Naturally, the approaches to cutting emissions differ between producing and consuming countries, especially when the former economies are highly dependent upon hydrocarbon revenues. Despite efforts to diversify, Gulf Arab state economies remain reliant upon exports of oil and gas and this will continue to be the main source of revenue for decades to come.

Over the past decade, the Gulf Arab states have taken several steps to not only diversify their economies, as reflected in Figure 1, but also to green them. These have included policies and interventions to support the adoption of sustainable infrastructure throughout the region; creation of an enabling environment to encourage sustainable finance; and, of course, the deployment of renewables, which is detailed in our Leapfrogging to Renewable Energy report. Other states in the region, such as Egypt, Jordan and Morocco, have followed a similar course too, though perhaps with less fanfare.

Saudi Arabia and the United Arab Emirates (UAE) have established high-profile flagship projects, including NEOM and Masdar, which are intended to showcase their commitment to greening the future while simultaneously highlighting their ambitions to leapfrog older industrial economies - which continue to need hydrocarbons. While wealthier Gulf Arab states might be better positioned to hasten the pace of their energy transitions given natural advantages such as extended hours of sunlight; small population size; considerable sovereign wealth funds (SWFs) and an ability to introduce necessary but unpopular policies and measures with little resistance, they will continue to be restrained by reliance upon oil and gas exports.

This report provides a snapshot of Gulf Arab states’, Egyptian, Jordanian and Moroccan efforts at greening their economies. This selection of countries has been determined by the availability of data and not deliberate exclusion.

As noted below, definitions of a green economy remain fluid and can often change, according to the particulars of each given context. At best, it is an all-encompassing concept and pervades essential aspects of a country’s economy. Countries and regions have differing definitions of “green economies” as well as various elements that have been included under their green economy strategies. SRMG THINK has conducted an extensive review of the strategies launched in the countries covered in this report. We have concluded the most efficient and accurate way to define “green economies” is through looking at two key components: sustainable finance and sustainable infrastructure.

Section one: Green economies

The United Nations Environment Programme (UNEP) defines a green economy as low carbon, resource efficient and socially inclusive. It generates prosperity while maintaining the natural systems that sustain humanity , moving away from production and consumption behaviours that disproportionately burden the environment. The concept has been adopted as a strategic priority for governments and organisations around the world, as leaders – and societies – recognise that current economic systems and processes are incompatible with long-term development goals.

The green economy agenda straddles environment and economy and sits in tandem with sustainable development. It focuses on using targeted public expenditure, policy reforms, and changes to taxation and regulations to support green investment which, in turn, enables sustainable economic growth. Hence, the terms green and sustainable are often used interchangeably by policymakers, analysts and practitioners.

There are multiple definitions of and frameworks for a green economy; however, it is broadly agreed that a green economy prioritises the development of economic activities, infrastructure, and assets – through both public and private investment – that enables lower carbon emissions and pollution; greater energy and resource efficiency; and the preservation of biodiversity and ecosystems to ensure that natural capital remains in place for future generations . There is also consensus that green economies emphasise skills, employment, and the positive social impact of the environment, as well as the importance of people’s well-being.

SRMG THINK has focused on two key elements of green economies: finance and infrastructure. Greening economies require significant capital to finance technological developments, such as smart electrical grids, renewable energy sources, electrification of transport and resource-efficient buildings. These economies also require an innovative approach to develop new, and to adapt existing, infrastructure to serve the changing needs of societies. As noted above, Gulf Arab states are suitably positioned to green their economies and manage energy transition, but the pace and sequencing of both processes will be critical to achieving success. One area in which they have begun to make progress is sustainable finance.

Section two: Sustainable finance

Green bonds are a key facet of sustainable finance. They fund projects that support energy development, sustainable resource management, clean transport and climate change adaptation. They also finance projects linked to biodiversity conservation and pollution prevention or mitigation. Investors looking to improve their environmental credentials can purchase these bonds with the proceeds tied directly to specific green or social projects.

Similar types of green bonds and loans include sustainability linked bonds (SLBs), green loans and sustainability linked loans (SLLs). SLBs are aimed at sustainable practices, and their proceeds are directed to general corporate capacity for achieving climate or sustainability goals rather than being earmarked for specific sustainability linked projects. SLBs are also a combination of social and green bonds, with social bond proceeds financing projects that directly address specific social issues or advance social causes.

SLLs are pro-ESG debt mechanisms where the loan is granted with the aim of incentivising the borrower to improve its sustainable practices. These loans are tied to sustainability performance targets (SPTs), which are determined at the outset by the lender and borrower. The borrower’s sustainability performance is measured over the course of the loan with interest rates reducing if the borrower’s predetermined SPTs are met or if their ESG rating improves.

While green bonds, green loans, SLBs and SLLs have taken off globally, this sector is still relatively new and requires additional development and regulation. There is need for greater transparency for investors in ensuring that the funds are utilised for green projects. The success rate and actual impact of green and social schemes are also under question. A final constraint is setting clearly defined and meaningful SPTs and designing an accurate metric for their success and implementation, which is examined via external review. However, this process remains a work in progress and parties have yet to reach meaningful consensus.

Since the European Investment Bank issued the first green bond in 2007, valued at $807 million, the green bond market has expanded; it was estimated to be worth $1.1 trillion by the end of 2021. Nearly 1500 issuers were registered at the end of 2021, a 50% increase on end-2020, at which point the market was valued at only $290 billion. This exponential growth demonstrates significant investor and corporate interest in supporting ESG-friendly initiatives.

Sustainable finance in the Middle East and North Africa (MENA)

Interest in green investment and financing across the Middle East region is growing in line with global trends. Its success, however, will be dependent on the fostering of an enabling environment; this will be shaped by factors such as national sustainability pledges, finance strategies, reporting standards, financial disclosure of climate risk standards, and standards for sustainable investment products.

Growth in sustainable finance in the MENA region in recent years has been impressive, as this report details below. However, Figure 2 illustrates the extent to which sustainable finance in countries such as the US, China, Germany and France has advanced, in comparison to which the Gulf region lags behind. For example, in 2021, France issued $52,730m in sustainable bonds compared to the GCC region’s $10,030m. The largest deal in Germany was valued at $7,292m, where the largest deal in the GCC was worth $2,500m.

Figure 2: Global sustainable bond issuance 2021 (billion US$)

Source: Environmental Finance, Sustainable Bonds Insight 2022; and Environmental Finance Data, https://efdata.org/

Table 1 provides an overview of the sustainable finance environment in the MENA region. It points to positive developments; however, more can be done when it comes to countries’ approaches to sustainable finance. For example, while all countries, except Egypt, have pledged sustainability targets, only the UAE, Egypt and Morocco have established Green Finance Strategies. It is notable that all countries, except Oman, have instituted corporate sustainability standards (GRI), and yet none have instituted financial disclosure of climate risks standards (TCFD), though this is under development in Egypt.
The institutional frameworks and processes which have enabled other regions to fast-track sustainable finance in a short period of time could be more robust and consistent in MENA. However, a closer inspection of bond and loan issuances over the past few years shows a growing appetite among public and private investors and if states are able to meet this with the necessary frameworks and regulations, a wider-scale movement into green investments is likely.

Sustainable bonds
The Gulf region issued its first green bonds in 2017 and it remains an underdeveloped market. Only one sovereign green bond has been issued in the MENA region - by Egypt in 2020, valued at $750m - and bond issuances, to date, remain the almost exclusive preserve of financial institutions. The market has yet to reach a point of maturity where issuers come from a wide range of participants such as sovereign, supranational, municipal, financial institution, agency and corporations.

The value of green bond issuing markets in the Gulf Arab states is small compared to the major players, which have engaged in the market since 2007. For example, Figure 7 shows that the value of bond issuances during 2021 in the US was $83,587m, Germany $58,336m and the Gulf Arab states $9,896m.

However, issuances from the Gulf Arab states have increased substantially from $587m in 2017 to $9,821m in 2021. The market has grown nearly 16-fold in the space of three years.

Figure 3: Green bond issuing markets, 2021 (US$ million)

Green bonds dominated the Middle East market until SLBs first appeared in 2020. During that year, green bonds were issued at a value of $1,996m and SLBs issued at $1,350m. However, in 2021, SLBs outvalued green bonds at $7,509m compared to $2,311m. While the bond market experienced overall growth in 2021, SLBs outvalued green bonds three-fold. It is too early to appreciate the factors behind the growing spread, but the most likely explanation is that green bonds are required to directly finance climate or green projects, whereas SLBs can be used for wider purposes. Unlike green bonds, SLBs target a wider investor base and have financial or structural characteristics that vary depending on whether the issuer meets certain pre-defined key performance indicators (KPIs), which are assessed against certain sustainability performance targets (SPTs). SLBs may be used for application in a general corporate setting or for other purposes; therefore, the Use of Proceeds (UoP) is not a determinant in its categorisation as an SLB. If an SLB is issued, the issuer will be committing to improvements in the sustainability outcomes of its business within a pre-agreed timeline. As such, SLBs are forward-looking, performance-based instruments and though sustainability-linked, they can be characterised as ‘green-lite’.

Figure 5: MENA green bonds by type of issuer, 2018-22 (%)

Given that the bond market in the MENA region is still evolving, it is unsurprising that there are fewer types of bond issuers than in more mature markets. Global bond markets were previously dominated by financial institutions and municipal governments, but there has been a discernible shift towards supranationals and corporations, which now comprise approximately two-thirds of the market. Sovereign issuers have also become important participants since 2020 and now comprise 10% of the market. In the MENA region, corporate issuers are the biggest players, comprising 38% of bond issuance, followed by financial institutions (29%). The composition of issuers will likely follow global trends, if regional governments develop a more enabling environment and efforts to green economies are tied to specific green projects.

Issuers of bonds agree to allocate funds raised to finance or refinance eligible projects or assets according to specific categories. Sustainable bond UoPs are often categorised as green, social or blue. Green bonds are committed to environmental or climate projects, such as investing in renewable energy. Social bonds are committed to social impact projects, such as investing in low-cost housing. Blue bonds are committed to marine or water projects, such as investing in the transition to sustainable fish stock. Finally, sustainability bonds are committed to a mix of social and green impact projects. These projects are often aligned with the UN Sustainable Development Goals (SDGs).

Figure 6 gives a very clear indication that UoPs in total bonds issued since 2017 have been committed to all four categories, but mostly concentrated in environmental and climate projects (89%) in the form of renewables, energy efficiency and pollution prevention and control. Social bond UoPs - which include projects in socioeconomic advancement and empowerment; access to essential services; affordable housing; affordable bank infrastructure; and employment generation through the potential effect of SME financing and microfinance - amount to an 11% spread, while blue and sustainability bond UoPs score just a meager 1%.

Sustainable loans
The Gulf region issued its first sustainable loan in 2018. The value of sustainable loans grew from $2,075m in 2018 to $2,690m in 2019 before dropping to $1,092m in 2020 and hitting a high of $9,706m in 2021. The growth in sustainable loans was five-fold between 2017-2021 and gives a clear indication that the market for sustainable finance is expanding at pace. While the volume of growth lags far behind that of other regions, the speed of growth is accelerating, and MENA governments are also moving quickly to enhance their sustainable finance architecture.

Figure 8 shows that the spread among sustainable loans follows the same trend as sustainability bonds in that the value of SLL growth has started to outpace green loans. However, the increase did not become apparent until 2021, after SLLs had made a very modest debut in 2019, retreated in 2020 in line with green loans – in response to the global pandemic – and then burst on to the scene. There have been no recorded SLLs in 2022 to date, and so it is difficult to determine the overall trend. Nevertheless, given that SLLs share the same wide spectrum as SLBs, they are likely to outpace green loans over the next few years.

Green loan borrowers between 2018-2022 came from 10 sectors and the three most significant according to value were financial (18%), renewable (17%), and real estate (17%). It is notable that non-renewable energy, public transportation and utilities represented 9% each.

Figure 10: MENA use of proceeds for green loans, 2018-22 (%)

Figure 9: MENA green loans by sector, 2018-22 (%)

Sustainable loan UoPs operate in the same way as sustainable bond UoPs. The proceeds of a green loan must be applied for green projects. All designated green projects should provide clear environmental benefits which are assessed, quantified, measured and reported. SSLs, however, incentivise borrowers to improve sustainability over the term of the loan by achieving pre-agreed ESG-related KPIs.

Figure 10, which details the UoPs for green loans between 2018-22, shows clearly that green buildings and renewable energy projects were the largest beneficiary of loans (75%), while sustainable water management, biodiversity conservation and clean transport received 8% each.

Section three: Sustainable infrastructure

When looking at the definition of sustainable infrastructure and green infrastructure its clear the definitions of the concept of sustainable infrastructure is universally applicable, while that of green infrastructure has been conceived in temperate climates where rivers, streams, and canals are commonplace, rather than in harsh arid environments. Nevertheless, this report uses both terms interchangeably, recognising that MENA governments have shown a clear ambition to create green infrastructure in new and rapidly developing cities. As such, green infrastructure is considered a vital component of planning policies, particularly as governments work to realise their commitments under international frameworks, such as COP26 and the Paris Agreement. Shifts in public policy and private investment decisions help ensure that climate resilience and environmental considerations are accepted and are critical factors in developing all sectors of the economy. This fact has been reflected in the number of green initiatives undertaken by MENA governments, particularly since the mid-2000s.

Figure 11: Number of green initiatives in the GCC, 1995-2019

Since the mid-2000s, regional governments have announced and introduced a series of major initiatives intended to help diversify their economies and tackle the intensifying challenge of climate change. As such, we can discern a trend towards an increase in the number and scope of major sustainable projects. Figure 11 shows that the number of initiatives increased from 11 between 2005-2009, to 18 for the period 2015-2019. This trend has strengthened since 2020 in response to the increase in the frequency and intensity of climate events, the Covid-19 pandemic and COP26. Given that Egypt and the UAE will host COP27 and COP28 respectively, green initiatives will be at the forefront of regional policies at a critical moment in the international community’s response to the climate crisis.

Another discernible trend has been the broadening scope of green initiatives, which started with relatively modest ambition most likely guided by economic rather than environmental factors. For example, in 2008, Abu Dhabi Urban Planning Council launched Estidama with the goal of achieving national sustainability by targeting residential areas and buildings, governmental entities, and commerce. In 2011, Dubai Municipality’s Green Buildings Specifications became mandatory for new government buildings. And in 2012, Sheikh Mohammed bin Rashid al-Maktoum launched Dubai’s Green Initiative. Since 2015, the ambitions of regional states have grown significantly, reflecting the urgency of climate change and their own increasing prominence within the issue on the global stage. For example, in 2021, Qatar Energy launched its new Sustainability Strategy which establishes several targets in line with the goals of the Paris Agreement. The strategy stipulates deploying dedicated Carbon Capture and Storage (CCS) facilities to capture more than 7 million tons per annum (mtpa) of CO2 in Qatar. It sets a clear direction towards reducing the emissions intensity of Qatar’s LNG facilities by 25% and of its upstream facilities by at least 15%; and reducing flare intensity across upstream facilities by more than 75%. Furthermore, it sets out a target to eliminate routine flaring by 2030 and limit fugitive methane emissions along the gas value chain by setting a methane intensity target of 0.2% across all facilities by 2025.

Saudi Arabia in November 2021 announced the Saudi Green Initiative (SGI) and the Middle East Green Initiative. These are pledged to reduce emissions, plant 50 billion trees, and protect the land and sea. For example, the SGI will see the rehabilitation of 40 million hectares of degraded land and increase the percentage of protected areas across the kingdom to more than 30% of the total land area. The first wave of more than 60 initiatives announced under SGI, which was unveiled at the October 2021 Saudi Green Initiative Forum, represent over SAR 700 billion (US$ 186.6) investment to contribute to the growth of the green economy. These initiatives include the following:

A national study is currently underway to develop the masterplan for planting 10 billion trees, which is aimed to contribute to mitigating the impact and risks of climate change by increasing vegetation cover, protecting soil and vegetation from degradation, and improving air quality.

Mangrove Plantation Pilot at Jeddah Islamic Port (JIP) will contribute to cleaning seawater, enriching biodiversity and restoring aquatic life.

Ecological Restoration Pilot in Shaaran Nature Reserve seeks to restore 100 hectares, which will be used to test several approaches to ecological rehabilitation in arid environments.

Green Mosques initiative will plant 30,000 trees across 100 mosques, irrigated with water recycled from ablution.

Planting 45 million agricultural trees in mountain terraces will increase economic return from agriculture by 30%, implement rainwater harvesting to irrigate crops, and create 5,000 job opportunities.

Planting 4 million lemon trees with treated wastewater will contribute to fruit self-sufficiency by up to 45%.

In March 2022, PIF announced that five Saudi businesses (Saudia; Saudi Aramoco; Maaden; Acwa Power and NEOM) would become the first partners of the MENA region’s voluntary carbon market.

The region began establishing sustainable projects in 2006, one of the most notable of which is Masdar City in Abu Dhabi. This comprises a growing clean-tech cluster, business free zone and residential neighbourhood with restaurants, shops and public green spaces. Masdar has invested over $1.7 billion of equity across projects in the city, focusing on mature technologies in solar and wind power, with a total value over $6.4 billion. Elsewhere, Kuwait developed the 20 hectare Al Shaheed park in four successive stages (2013-17), reclaiming and revamping a portion of the former Green Belt, a series of gardens built from 1961-64 between the old city of Kuwait and its expansion. Oman’s first wind-based power project, Dhofar Wind farm – which has generation capacity of 50 MW - commenced commercial operation in 2019. In Saudi Arabia, King Salman Park was launched in 2019 and on completion, it will be the largest urban park in the world, covering an area of 13.3 square kilometres on the grounds of the old airport in Riyadh.

The authors of this report surveyed green infrastructure by project type between the years 2012-2021. We can discern that “green cities” are the overwhelming beneficiary of green infrastructure investments (88.71%). This finding gives a clear indication that new cities such as Masdar City, and green cities under construction such as NEOM, will draw investment and resource away from more established cities intent on greening infrastructure. Figure 12 – which details green infrastructure by type of project - assigns very low values to renewable energy (3.16%), transport (7.34%), water (0.01%), wastewater (0.09%), waste management (0.52%), and green public space (0.15%). These findings reveal the risks associated with concentrating sustainable infrastructure projects primarily in green cities and may be attributed to a surge in more recent projects to green major cities, such as Riyadh, Muscat, Cairo and Kuwait.

Figure 13: GCC and Egypt value of sustainable infrastructure projects, 2012-21 (US$ million)

The findings in Figure 14 reinforce the analyses drawn from Figures 19 and 20. Sovereign wealth funds, in particular PIF, dominate the ownership pattern of sustainable projects in the region. They have secured 83.6%, while the military (5.8%), government agencies (4.3%) and public companies (3.5%) own the remaining projects.

Figure 12: MENA green infrastructure by type of project, 2012-21 (%)

An assessment of the value of sustainable infrastructure projects in the GCC and Egypt between 2012-21 - as shown in Figure 13 - reveals that the committed value increased from a relatively low base of $412m in 2012 to $13.6bn in 2013, $75.464bn in 2015 and peaked at $500bn in 2017. After several fallow years, it increased to $175.28bn in 2021. The peaks signify substantive allocations of funding for Saudi Arabia’s NEOM City ($500bn) and The Line ($150bn), and Egypt’s high-speed electric railway network ($23bn).

Figure 14: GCC and Egypt sustainable infrastructure projects by owner type 2012-21 (%)

KING SALMAN PARK

King Salman Park was launched in March 2019 as part of a $23bn project to create vast, open green spaces in Riyadh that will enable sustainable communities, provide up to 70,000 new jobs and push action against climate change.

Designed by Omrania and managed by the King Salman Park Foundation, it aims to improve quality of life for residents and visitors in line with Saudi Arabia’s Vision 2030 goals of promoting a healthy society. Its design focuses on mixed-use developments, integrating the park with its urban surroundings, and offers a number of sporting, cultural, artistic and recreational facilities. Once complete, it will be the largest urban park in the world – at 5 square miles – boasting 1 million trees and green spaces covering more than 11.6km2. The Park is expected to contribute to increasing vegetation and raising the rate per capita of green spaces, with direct benefits to the environment and climate.

Located on the grounds of the old airport in Riyadh, it is purposefully accessible to the entire city within thirty minutes and will link to five new metro stations and ten bus rapid transit stations; its mobility strategy caters for walking, cycling, autonomous and sustainable modes of public transport.

Construction has commenced with contracts worth $1.02bn recently awarded to a group of national companies to begin implementing parts of the project. With a completion date of 2024-25, it forms part of the broader strategy of ‘greening’ Riyadh enough to lower its ambient temperature by 2°C.

EGYPT – AL MAHSAMA AGRICULTURAL
DRAINAGE TREATMENT, RECYCLING
AND REUSE PLANT

This award-winning $100m water treatment and distribution plant was inaugurated in April 2021. Completed in just one year, it is one of the world’s largest water reclamation plants and will contribute significantly to combating water scarcity in Egypt. Located on the banks of the Suez Canal in Ismailia Governorate, the plant was designed to reverse the declining ecology of the El Temsah Lake – west of the Canal – which has become heavily polluted by run-off from farming. With capacity to treat up to 1m cubic metres of water per day – mainly agricultural drainage - the plant has been constructed vertically to make maximum use of space. The treated water will irrigate 70,000 acres of land in central Sinai and will also be used in land reclamation projects.

The plant forms an integral part of Cairo’s strategy to develop the Sinai region through creating sustainable urban communities and job opportunities, as well as developing farmland. The project is owned by the Egyptian government and its Engineering Authority for the Egyptian Armed Forces, designed and managed by Khatib & Alami, and constructed by Metito Overseas Limited and Hassan Allam Holding.



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