S&P Global Ratings: Oil Rich Countries Creating Viable Market for Green Finance

by | Feb 19, 2019

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The oil-rich countries of the Gulf Cooperation Council (GCC) are starting to go green, creating the space for a viable market for green finance, according to a new report by S&P Global Ratings. The GCC, like much of the world, has committed to diversifying its economy away from fossil fuels.

The report states that the GCC mainly wants to reduce its dependence on oil, which makes its economy vulnerable to falling oil prices. But it also wants to respond to growing demands for action on climate change from policymakers and multilaterals that seek to encourage financing to achieve the nationally determined contributions set out under the Paris Agreement.

Other takeaways from the report include:

  • Led by the United Arab Emirates, the GCC has been investing in renewables (particularly solar power) over the past few years and already hosts an active and growing renewables market.
  • The UAE’s Nationally Determined Contribution to increase the share of clean energy in its total primary energy mix to 27% by 2021 and the goals of its 2050 Energy Strategy will require an investment of US$163.3 billion over the next 31 years – equivalent to an annual spend of more than US$4.6 billion.
  • While only one green bond has been issued in the region to date – by the National Bank of Abu Dhabi for US$587 million in 2017 – the projected growth of renewable energy capacity to a compound annual growth rate of 179% between 2018 and 2020 could spur transactions funded via green finance, according to the report.
  • Sovereigns, utilities and potentially real estate companies are projected to play a larger part in green bond issuance in the GCC in the future.

Green Finance in the GCC

S&P Global Ratings reports the green bond market has achieved strong growth over the past five years. And despite rising interest rates and a slowdown in new issuance in 2018, green bond issuance still surpassed 2017’s record of $155 billion with 3% growth to $167.3 billion.

Total installed renewable energy capacity in GCC countries by 2018

 

Source: “Renewable Energy Market Analysis: GCC 2019,” International Renewable Energy Agency, January 2019.

After signing the Paris Agreement in 2016, the UAE pledged as part of its nationally determined contribution (NDC) to increase the share of clean energy in its total primary energy mix to 27% by 2021, reduce gas flaring, integrate carbon capture and storage, reform tariffs, deregulate fossil fuel prices, and adopt efficiency standards for buildings and household appliances. Furthermore, the UAE’s Energy Strategy 2050 aims to cut carbon dioxide emissions of power generation by 70%, increase the contribution of clean energy in total energy mix from 25% to 50%, and improve the consumption efficiency of households and corporates by 40% by 2050. Such a transition will require an investment of $163.3 billion over the next 31 years, equivalent to an annual spend of more than $4.6 billion, S&P Global Ratings reports.

Specifically, Abu Dhabi, in its economic strategy through 2030, considers ways to reduce the emirate’s oil dependency and achieve a 65% contribution to GDP from nonoil sectors. Plus, the country also set a target of generating 7% of its energy capacity with renewables by 2020. As for Dubai, its 2050 integrated clean energy strategy plans to increase solar energy to 7% of its total generation mix by 2020, 25% by 2030, and 75% by 2050, the report notes.

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