Saudi Arabia and the UAE will continue investing in renewable energy to help meet national climate goals, a report from S&P Global Ratings suggests.
The nations are both pushing the sustainability agenda with the upcoming 28th UN Conference of the Parties, more commonly known as COP28, to be held in Dubai at the end of the year and Saudi Arabia is targeting to generate 50% of its electricity from renewables by 2023 as part of its Vision 2030.
Both Saudi Arabia and the UAE are Islamic finance hubs, which may see a considerable portion of renewable energy investments take the form of Shariah compliant investments. According to Fitch Ratings, Islamic financing accounted for 84% and 29% of total sector financing in Saudi Arabia and the UAE respectively in 2021.
“We expect the region to invest significantly in renewables as the decade progresses … Decarbonizing the power sector by making significant investments in renewables is part of the national objective for achieving net-zero targets in both the UAE and Saudi Arabia,” Terry Ellis, a credit analyst at S&P Global Ratings, commented.
According to Terry, the power sector looms large in most national plans for decarbonization for the region, which is one of the largest sources of emissions globally.
The S&P report suggests that solar photovoltaic (PV) power is a particularly good fit although installed capacity remains low compared with many other regions, further highlighting the demand for such projects. The rating agency considers solar PV plants to be more predictable and simpler to operate and maintain than other power-generating assets
According to Sofia Bensaid, an associate director of infrastructure and project finance at S&P, the existence of public–private partnership (PPP) frameworks in Saudi Arabia and the UAE makes project finance an obvious choice for funding deployment of solar PV projects.
As part of Vision 2030, the Saudi government approved the Private Sector Participation Law on the 17th March 2021 which came into effect in July the same year. The UAE government had a head start in the development of its PPP framework with the cabinet issuing a resolution on a procedures manual outlining a general framework for PPP in 2017.
In a recent development, the UAE Ministry of Finance announced on the 27th February this year that it will introduce federal entities to the mechanism regulating PPP in the country.
“The new mechanism enhances the efficiency of implementing government projects and improves the quality of services provided to the public … The new mechanism also enhances the financing capacity of the federal government and identifies new opportunities for cooperation with the private sector to execute projects within the public–private partnerships [PPP] concept,” Younis Haji Al Khoori, the undersecretary of the UAE Ministry of Finance, commented.