Financing the clean energy transformation
25 DEC 2016
Bader Al Lamki, Executive Director, Clean Energy, Masdar
The renewable energy sector has passed the point at which its future growth no longer remains dependent on public subsidy and ideological factors. The evidence for this is clear; renewables have achieved the critical mass needed to complement conventional energy sources in the energy mix.
Global investment is at record levels, reaching nearly US$300 billion in 2015, a five-fold increase compared with 2004, according to the International Renewable Energy Agency. And while the International Energy Agency predicts consumption of all modern fuels to rise as global energy demand jumps 30% by 2040, renewables are expected to experience the fastest consumption growth by far.
Technological innovation, operational experience and economies of scale are making solar and wind power increasingly cost-competitive, and more and more compelling as investment opportunities. But now is not the time for complacency.
At least US$100 billion of extra investment is needed each year to double the share of renewables in the global energy mix by 2030. That’s assuming countries honour their spending pledges under the Paris Agreement, and that the current rate of industry investment is maintained.
And with the developing world accounting for the majority of the anticipated global energy demand growth, much of the missing capital will be needed in regions like the Middle East & North Africa.
We must therefore take full advantage of the record investment in renewables, not to mention the recent record-low prices for solar-generated electricity, to chart a course towards financing the future growth of the sector in the most efficient and effective way possible.
Strategies to achieve this will be keenly debated at Abu Dhabi Sustainability Week in January; the event will be one of the first global industry platforms to be held after the international climate change conference, COP22, in Marrakech.
In truth, the principles of investments are relatively simple. Investors normally start by asking a number of basic questions: Is the technology proven and therefore bankable; in other words, will a bank provide a loan to develop the project? What are the operational risks? What regulatory safeguards are in place, and will they stay there throughout the life of the project?
In the UAE and other parts of the Middle East, public-private partnerships – where both the independent developer and the government entity are shareholders in the project – have paved the way for large-scale clean energy plants.
The Mohammed Bin Rashid Al Maktoum Solar Park in Dubai is a case in point. Having a reliable electricity customer in place – in this case, state-backed off-taker and co-investor Dubai Electricity & Water Authority (DEWA) – allowed the project’s bidders to propose extremely competitive tariffs. A transparent tendering process also gave investors greater confidence to accept risk.
Investment conditions in other countries are not necessarily as stable, due to a range of factors including regulatory changes, currency fluctuations, lack of transparency, limitations to the scope of the off-take agreements, or the added complexity of the asset under development, such as the need to fund publicly owned infrastructure besides the power plant itself.
To finance renewable energy in such environments, investors must either demand higher returns or employ ‘de-risking’ strategies to make the proposition more attractive. These may include hedging structures, mezzanine financing, financial derivatives, or strategies around tax efficiency.
The track record of companies including Masdar in renewable energy investment over the last ten years has demonstrated the importance of scale and operational experience.
As markets mature, the players in those markets also evolve. Here in the UAE, the National Bank of Abu Dhabi recently committed US$10 billion to renewable energy investments over the next ten years, while DEWA is planning its own US$27 billion renewables fund.
Shams 1 in Abu Dhabi was the first renewable energy development in the Middle East to secure project financing from private banks. But banks aren’t the only source of finance. The Organisation for Economic Cooperation and Development (OECD) estimates that as much as US$2.8 trillion per annum could be available from pension funds and insurance companies for renewable energy investment, for example.
More widespread adoption of corporate social responsibility standards is also promoting greater sustainability awareness in the investment community, which arguably has knock-on benefits for the renewable energy sector.
An estimated US$4.5 trillion has been invested across emerging markets over the last decade in development projects that comply with the International Finance Corporation’s Performance Standards, an initiative aimed at integrating sustainability into business and banking practice. Global stock exchanges increasingly rely on these standards to construct their sustainability indices – a trend that could influence how institutional investors allocate about US$120 trillion in assets, encouraging the wider integration of clean technologies in the private sector.
Ultimately, there is no silver bullet to the challenge of securing more investment for renewable energy. It hinges on fundamental principles of due diligence, and the ability of developers, investors and various other stakeholders to both define and balance risk and reward.
It also demands leadership and collaboration.
One hundred and ninety four countries party to the UN Framework Convention on Climate Change came together to create the Green Climate Fund (GCF) in 2010 to promote low-emission and climate-resistant projects in developing countries.
At COP22, the GCF announced that it had received board approval earlier this year to take its first loss, allowing it to work in higher-risk environments, directing funds to least-developed countries vulnerable to the effects of climate change, and to attract more private finance. The Fund’s current private sector portfolio is expected to unlock nearly US$10 billion in on-ground investment.
Here in the Arab world, the dramatic shift in attitudes towards the opportunities of renewable energy wouldn’t have been possible without the bold ambition of the UAE to diversify its economy, and the pace-setting innovation and willingness to invest of companies like Masdar.
Abu Dhabi Sustainability Week in January will be the first opportunity after COP22 in Marrakech to put all the available funding tools on the table, to examine how they can be more effectively combined to raise the additional capital needed to deliver on our climate change mitigation targets, and to ensure more clean energy investment reaches the places where it is most needed.
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01 SEP 2020
ADSW: A shining example of the UAE tackling global challenges
In a world dominated by self-interest and an endless chase of quick wins, where quid pro quo is the rule rather than the exception, voluntary acts that are intended to serve the greater good tend to raise eyebrows.
In this context, the UAE’s proactive approach to shaping a better future has made the world sit up and take notice. After all, why would a country that can comfortably rely on its oil revenues deploy clean energy solutions and become an active advocate of sustainability at home and abroad?
The answer is simple. It stems from the values that the founding fathers of the UAE, led by the late Sheikh Zayed, instilled in their people from the early days of the federation. They taught us that working for the benefit of the human race is the ultimate achievement to which anyone can aspire.
Our leadership today upholds this legacy and has shouldered the responsibility of advancing a sustainable development paradigm that leaves no one behind.
One way of doing so is to create platforms that promote sustainability across the board, such as the annual Abu Dhabi Sustainability Week (ADSW).
Over the course of 11 years, ADSW has carved a niche for itself as a dynamic sustainability solution-focused global platform that serves as a springboard for green innovations and mega projects.
Our last event drew a record 38,000 people representing 170 countries, including heads of state, ministers, investors and experts. Commercial projects valued at $11 billion were announced during the week, indicating that ADSW has become one of the world’s largest and most influential sustainability gatherings.
Events such as the International Renewable Energy Agency (Irena) Assembly, the Atlantic Council Global Energy Forum, the Future Sustainability Summit and the World Future Energy Summit strongly advocate global action towards renewable energy solutions. And through the Abu Dhabi Sustainable Finance Forum, ADSW promotes investments in sustainability ventures and raises awareness about responsible and sustainable production and consumption patterns.
The highlight of the week is the Zayed Sustainability Prize, that invites the world’s most sustainable innovators to compete for a cash prize and honours to translate their environment-friendly concepts into reality. The prize has a solid track record of supporting innovative solutions that have benefited millions over the past decade.
For its part, the Ministry of Climate Change and Environment hosts the Climate Innovations Exchange (Clix) every year during ADSW. Clix offers young start-ups and innovators from across the globe a platform to present their solutions to environmental challenges and facilitates partnerships between start-ups and investors. Its inaugural edition last year featured 27 innovations and investors expressed their intent to fund projects to the tune of $17.5 million in the first year. In 2019, the number of innovations surged to 41 and investment intent saw a corresponding increase to $53.9 million.
ADSW presents to the world a shining example of the UAE’s active involvement in tackling the challenges faced by the international community – an approach that reflects the visionary mindset of our leaders.
Recognising that global concerns can only be addressed through concerted action, the UAE has committed to generating the momentum needed to build a sustainable future for all. We invite the world to participate in ADSW 2020 from January 11 to 20, and to join us in empowering humanity to leapfrog into a new era of sustainability.
Dr Thani Al Zeyoudi is the UAE Minister of Climate Change and Environment
24 NOV 2016
ADSW 2017: First advisory council amidst renewable growth
Abu Dhabi Sustainability Week (ADSW), the Middle East’s largest gathering on sustainability, will host an elite group of industry experts to advise on the event’s continued success in translating the global mandate for renewable energy and clean technologies into concerted policy and business action.
Held every January, ADSW welcomes heads of state, government ministers and international trade delegations – among a diversity of other stakeholders – to address the world’s most critical sustainability issues on the themes of Policy, Leadership, Business, Academic Research, and Community Awareness.
The first ADSW Advisory Council will take place on January 17, the day after the event’s formal opening ceremony, and every year thereafter. It will also follow Global Action Day, a high-level event aimed at translating global aspirations for sustainability into practical and innovative policy, investment, technology and partnership solutions.
The Council’s membership comprises both international and Middle East-based opinion leaders, all long-standing supporters of and speakers at ADSW and in many cases, passionate advocates of the Zayed Future Energy Prize, which distributes an annual prize fund of US$4 million to exceptional companies, individuals and schools implementing renewable energy and sustainability solutions.
The Council members are Adnan Amin, Director General of the International Renewable Energy Agency (IRENA); Rachel Kyte, Chief Executive Officer of Sustainable Energy for All (SEforALL) and Special Representative of the United Nations Secretary-General for SEforALL; Her Excellency Razan Khalifa Al Mubarak, Secretary General of the Environment Agency – Abu Dhabi; Dr Fatih Birol, Executive Director, International Energy Agency; Marie Jose Nadeau, Chair of the World Energy Council; Michael Liebreich, Founder and Chairman of the Advisory Board, Bloomberg New Energy Finance, and Board Member, Transport for London; David Sandalow, Inaugural Fellow, Columbia University; Professor Jeffrey Sachs, Professor of Sustainable Development, The Earth Institute, Columbia University; Dr Saif Al Sayari, Acting Director General, Abu Dhabi Water & Electricity Authority; Dayae Oudghiri, Management Board Member of the Moroccan Agency for Solar Energy (MASEN); Jonathon Porritt, Founder Director, Forum for the Future; and His Excellency Dr Nasser Saidi, Chairman of the Clean Energy Business Council.
ADSW 2016 received nearly 36,000 attendees representing 170 countries, 382 exhibiting companies, more than 200 high-level speakers and 80 government ministers.
“As a global platform for addressing the interconnected challenges of clean energy, water and sustainable development, Abu Dhabi Sustainability Week has developed lasting partnerships with many of the world’s most admired experts and opinion formers on sustainability issues,” said Mohamed Jameel Al Ramahi, Chief Executive Officer of Masdar, Abu Dhabi’s renewable energy company and the host of ADSW.
“As we mark ten years of the World Future Energy Summit in 2017 and embark on the next decade of our expansion at Masdar, it is an honour to bring together some of our must trusted associates in charting the future evolution of the MENA region’s largest sustainability gathering.
“The guidance of the ADSW Advisory Council, representing the broadest cross-section of the sustainability domain, will ensure that ADSW continues to set the action-agenda from both a policy and business perspective – this is particularly important now that the clean energy sector has moved from the margins into the mainstream as a dynamic, commercially viable growth market,” Al Ramahi added.
ADSW 2017 takes places on the theme ‘Practical Steps Towards a Sustainable Future’ from January 12-21. The opening ceremony will initiate four days of presentations, discussions and workshops on a range of pressing topics across energy, water and waste. These include strategies to drive investment, implementation of the Paris Agreement, and the challenges of adapting existing infrastructure to the new market reality of small-scale, distributed power.
“As a long-standing supporter of ADSW and a keen advocate of the UAE’s efforts to advance the clean energy agenda, I am delighted to deepen my involvement in ADSW, and to help chart the course of its continued success,” said Michael Liebreich, Founder and Chairman of the Advisory Board, Bloomberg New Energy Finance, and Board Member, Transport for London.
“Bloomberg New Energy Finance’s research has shown developing countries are overtaking the wealthiest economies in attracting clean energy investment, with the Middle East & North Africa playing a growing role. The global profile of ADSW is valuable in bringing emerging market opportunities to a wider stage, thereby enabling greater cooperation between developed and developing economies.”
ADSW 2017 will be the first global platform to debate practical approaches to the outcomes of COP22, the first UN climate summit to be held in the MENA region, with the agenda informed by the challenges of both emerging markets and developed economies, as well as the practical lessons they have learnt.
ADSW 2017 will also be an opportunity to reflect on the response to the Masdar Gen Z Global Sustainability Survey, unveiled at COP22, the first international study on the attitudes of 18-25-year-olds, the demographic cohort known as Generation Z, towards climate change, sustainability and renewable energy.
25 DEC 2016
One to watch Saudi Arabia
When Saudi Arabia launched its Vision 2030 earlier this year, the solar industry, almost collectively, took notice. As any industry veteran will tell you, Saudi Arabia was always spoken of in speculative terms at conferences, and in private. Vision 2030 – with its initial goal of delivering 9.5 gigawatts (GW) of solar – effectively changed that.
To say that Saudi Arabia has the potential to emerge as a solar energy powerhouse, is no longer speculation. What makes Vision 2030 and the King Salman Renewable Energy Initiative different from previous programs announced by the country, is that they represent the highest level commitment to renewable energy ever seen from the Kingdom. The “initial” target suggests that the country will grow its renewable energy capacity in increments, taking advantage of future cost declines and efficiency improvements, while also leaving the door open for emerging technologies.
Many observers also point to the fact that the Vision 2030 commits to guaranteeing “the competitiveness of renewable energy through the gradual liberalization of the fuel market.” This is clear evidence that the government fully intends to deliver on its renewable energy goals.
Subsidies for conventional fuels tend to hinder the adoption of renewables in many net energy exporting countries, for the simple reason that renewables simply cannot compete on an uneven playing field where subsidized oil is fueling domestic power generation. By liberalizing the fuel market, Saudi Arabia will effectively grant renewable energy technologies a level playing field on which to successfully compete against conventional generation, as they currently do in other markets.
And as the industry awaits the launch of the King Salman Renewable Energy Initiative and the tangible timelines that will go with it, the Kingdom would do well to take three steps to avoid the pitfalls that other fast-emerging markets have faced, in order to reach its goals.
First, Saudi Arabia should consider taking a consultative approach while developing its renewable energy policy framework by leaning on capable, credible industry partners to share their expertise. This will help the country avoid the steep learning curve that others have sometimes stumbled down from. A rapidly ramped-up renewable energy strategy comes with its own regulatory, economic, and technical challenges, and there are a number of case studies from around the world that demonstrate how things must – or, conversely, mustn’t – be done.
Second, the Kingdom should consider diversifying its renewable energy portfolio with provisions for application-focused commercial and industrial (C&I) projects. For instance, it could go above and beyond establishing a utility-focused solar program, and provide long-term solar energy targets for certain, energy-intensive industrial sectors such as agriculture, cement, steel, and petrochemical manufacturing. Encouraging some of the country’s heaviest consumers of electricity to invest in offsetting their energy needs with solar, will deliver the immediate benefit of taking the pressure off existing utility-scale power generation assets.
Similarly, the energy-intensive desalination sector could, quite feasibly, move towards the use of Reverse Osmosis technology which can easily be powered by solar photovoltaic (PV) technology. Additionally, the Kingdom’s use of diesel generation in off-grid areas, also offers opportunities to introduce hybrid – solar-diesel – applications.
And finally, it will be critical for the authorities overseeing the Initiative to underpin its success by engaging with lenders and financiers. When you consider that the cost of financing still accounts for a large chunk of the Levelized Cost of Electricity, it will be critical for Saudi Arabia to facilitate competitive finance.
In fact, it will be particularly important for banks and lenders based in the Kingdom to better understand the solar energy industry, ensuring that they’re comfortable with providing competitive financing for the program. Encouraging locally-based lenders to participate also allows the Kingdom to reap broader economic benefits from the program.
Saudi Arabia is on the cusp of fully embracing its potential to harness its most abundant energy resource – sunlight. A collaborative, multi-pronged strategy can only accelerate its success.
Dr. Raed Bkayrat is the Vice President of Business Development for First Solar in the Middle East.