The UAE and Saudi Arabia prepare to raise more than USD 1.5 billion by the end of 2014 to finance new solar energy projects and reshape the future of renewable energy in the region.
Both nations are major oil producers in OPEC and are heavily reliant on hydrocarbons to meet their own energy requirements. However, they have been forced to reconsider their approach to domestic energy production, due to strong demographic growth, high population growth rates, rapid urbanisation and solid economic growth. As a result, they have witnessed significant demand growth for energy and electricity.
Major oil-exporting countries are making a big push towards clean energy projects as a cheaper alternative to meet growing domestic requirements, while at the same time crude oil can thence be diverted to the export market.
Investment in renewable energy projects in MENA climbed by 40 percent last year to reach USD 2.9 billion. More than 100 renewable energy projects are in different stages of development and could attract funds of up to USD 13 billion in the coming years.
UAE and Saudi Arabia are seeking to add 1,000MW of solar capacity, sufficient to feed 200,000 homes. The billion dollar projects would be financed through loans and export credits. Partnerships between well-known local and foreign expert companies would be encouraged as they are expected to receive strong support from financial institutions.
By 2032, Saudi Arabia aims to generate about 41,000 MW, equivalent to about a third of its total power output, from solar energy.
The plan may seem ambitious as the country’s current solar capacity is only 16 MW, trailing far behind other regional countries such as Egypt, Morocco, Algeria and the UAE. Obtaining funds from traditional commercial banks, to finance the projects may pose a challenge as those lenders generally seek to limit exposure to renewable energy projects.
The hesitation of traditional lenders to advance funds towards renewable energy projects will allow plenty of opportunity for Islamic bonds to help finance these projects.