The GCC region is expected to witness a drastic rise in renewable energy deployment. Nearly 7GW of new renewable power generation capacity is expected to become operational by the early 2020s in the region, including Qatar.
An update on the region’s utility-scale renewable energy projects development showed the first phase of Qatar’s 900MW Al-Kharsaag project is expected to be completed by 2020. The project is structured as a 25-year build, own, operate, and transfer (BOOT) public-private partnership.
Deloitte’s Islamic finance Insights Series on ‘Sustainable Finance’ revealed yesterday that the GCC renewable energy market has seen an upward trend in recent years with all countries incorporating renewable energy targets in their National Determined Contributions (NDCs) under the United Nations Framework Convention on Climate Change (UNFCC).
“Energy efficiency and green energy concepts have been embraced and deployed in the national visionary strategies (of GCC countries). A clear trend is the growing importance of Islamic finance as an alternative funding choice for many countries and governments, supported by Multinational Development Banks (MDBs) and local industry supporting initiatives”, said Dr. Hatim El Tahir, FCISI Director, Islamic Finance Group Leader, Deloitte ME IFKC
Renewable energy financing in the GCC region generally has long tenures with high debt-equity-ratios (more than 70 percent). However, the rise of the green bond market is seen as one of the innovative financing methods one of the lead banks in the region issuing the first green bond in the Middle East valued at $587m in 2017.
Islamic finance is considered one of the new options for solar financing apart from conventional loans, bonds, and equity schemes. One of the popular finance techniques, Green Sukuk, which are Shariah-compliant green bonds, have recently been used in many renewable energy projects. The adoption of Green Sukuk as one of the alternatives to several traditional financing techniques will rise due to factors such as increasing number of solar projects, lower capital cost, faster, favorable green energy policies, along with preference towards Shariah-compliant instruments.
Global new investment in clean energy almost increased by 66 percent from $200bn in 2008 to $332bn in 2018, with a maximum investment per MW in solar sector compared to the rest of renewable energy sources. This is largely due to a drastic decrease in required capital cost thereby reducing the total investment in solar to $130bn in 2018, as reported by Bloomberg NEF.
According to Deloitte, solar energy developers and investors alike now have enviable structures of Islamic finance to boost the growth of green energy in the region. The drive for more Sukuk and other Islamic financing structures such as Murabah, Ijarah, and Mudaraba in greenfield projects will continue to play a key role in the solar industry investment landscape.
The International Finance Corporation (IFC) has committed a record of $2bn to support the Middle East and North Africa private sector, boost innovation, drive economic growth, and create jobs. It focused on supporting power and renewable energy projects, and helping entrepreneurs. Among key projects in FY18 were the first green-bonds program in Lebanon and the Levant, and a solar project in Gaza, the first privately financed energy project in more than a decade. The IFC has also invested more than $300m to support clean energy options in Jordan, enabling well over $1bn in private sector investments in Jordan’s power distribution and generation sectors, including solar power.
Professor Mohamad Akram Laldin Executive Director International Shariah Research Academy for Islamic finance said the global investment is focusing strongly on investing in renewable and clean energy. For example, investments into global clean energy recorded an increase from $200bn in 2008 to $332bn in 2018. This is due to lower investment costs in green energy, especially solar.