MENA to invest $670B in renewable energy over next 25 years

Published December 8th, 2015 - 02:56 GMT

Led by major diversified energy initiatives undertaken by the GCC, Middle East countries are expected to invest $670 billion, which is more than eight per cent of the global spending, in renewable energy over the next 25 years.

According to estimates, there will be $12.2 trillion in cumulative spending worldwide towards power alone to 2040 with renewables taking the lion's share at 65 per cent, which is roughly $8 trillion.

In the region, the UAE has already taken a major initiative by announcing in November plans to invest $35 billion to diversify its energy resources for power generation.

UAE Minister of Energy Suhail bin Mohammed Faraj Al Mazroui has said the UAE aims to decrease dependence on natural gas from around 100 per cent of power generation now to 70 per cent by 2021.

The UAE's largest push in diversified energy supplies has been its $40 billion investment in civil nuclear energy, with one 1.4-gigawatt reactor planned to come online each year between 2017 and 2020, according to a report by the International Renewable Energy Agency and Masdar Institute published in April.

The UAE seeks to achieve at least 10 per cent use of renewable energy in its energy mix by 2030, saving around $ 1.9 billion annually, according to a recent Irena report. The country could also reduce carbon dioxide emissions by 29 mega-tonnes per year, and reduce health and environmental costs by $1 billion to $3.7 billion annually by 2030.

"Meeting all stated renewable energy targets in the GCC countries would save four billion barrels of oil and reduce emissions by 1.2 gigatonnes between now and 2030," the Irena said. Worldwide, investments in solar is expected to account for $3.7 trillion, wind at $2.4 trillion and fossil fuels at $2.6 trillion.

"Global investments in energy efficiency have ranged from $130 billion to $300 billion/pa in recent years. By 2035, we are anticipating $8 to $14 trillion in investments - or $550 billion-plus in annual spending - both to meet growth in demand and make the transition to a lower-carbon economy. We believe that there is significant 'low hanging fruit' potential given that 80 per cent of energy is lost along the value chain, every dollar spent means $2-$4 in lifetime cost savings, and two-thirds of the economic potential to improve energy efficiency remains untapped. Investing in efficiency will also reduce mid- to long-term exposure to the risk of stranded assets vis-a-vis fossil fuels," according to a recent report from BofA Merrill Lynch Global Research. By 2030, researchers estimate that the cost of climate change and air pollution combined will rise to 3.2 per cent of global GDP, with the world's least-developed markets forecast to bear the brunt, suffering losses of up to 11 per cent of their GDP. But major economies will also take a hit, as extremes of weather and the associated damage - droughts, floods and more severe storms - could wipe out two per cent of the US' GDP by 2030, while similar effects could cost China $1.2 trillion.

BofA Merrill Lynch estimates that the world requires around $93 trillion of investment in low-carbon infrastructure through 2030, or $6.2 trillion annually to achieve global growth expectations. Sixty per cent of this will take place in emerging market. China requires $450 billion per year, and India needs $165 billion annually through 2030 to meet climate targets. This translates into an additional $650 to $860 billion in investments pa through 2030, and up to 85 per cent of that must come from private capital.   

"Green Bonds, fixed income instruments where proceeds are earmarked for environmental solutions, are key to mobilising private capital for environmental needs. They provide derisking, scale and liquidity for climate finance in both developed and emerging economies. Green Bonds and other innovations could enable around $120 billion of incremental annual investment by 2020," the BofA Merrill Lynch report said.

It said 2015, the fourth consecutive record year for Green Bond issuance, saw $42.3 billion issued through November 27, surpassing $38 billion of issuance in 2014, the year Green Bonds took off.

"We expect issuance of $50-$60 billion of Green Bonds in 2016, implying a cumulative annual growth rate of 10-30 per cent."

By Isaac John

 


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