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ANALYSIS

Islamic finance new option for solar power: report

DUBAI, July 2, 2019

Islamic finance is considered one of the new options for solar financing apart from conventional loans, bonds and equity schemes, said professional services firm Deloitte in a new report.

One of the popular finance techniques, Green Sukuk, which are Shariah-compliant green bonds, has recently been used in five renewable energy projects in Malaysia (as at December 2018). Indonesia has also launched the world’s first sovereign Green Sukuk bonds (for $1.25 billion) in February 2018, whose proceeds will partially finance renewable energy projects.

Meanwhile, global new investment in clean energy almost increased by 66 per cent from $200 billion in 2008 to $332 billion in 2018, with a maximum investment per MW in solar sector compared to the rest of renewable energy sources, the report said.

This is largely due to a drastic decrease in required capital cost thereby reducing the total investment in solar to $130 billion in 2018, added the report, citing a study by Bloomberg NEF.

Looking at the GCC region, the 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).

Renewable energy financing in the GCC region generally has long tenures with high debt-equity-ratios (more than 70 per cent). However the rise of the green bond market is seen as one of the innovative financing methods with the National bank of Abu Dhabi issuing the first green bond in the Middle East valued at $587 million in 2017.

GCC focus

The GCC region is expected to witness drastic rise in renewable energy deployment. Led by the UAE, Oman and KSA, nearly 7 GW of new renewable power generation capacity is expected to become operational by the early 2020s, the report said, citing the Renewable Energy Market Analysis: GCC 2019 by Irena.

According to Irena, the Solar PV remains the dominant technology in the GCC’s project pipeline, with a share of over 75 per cent, followed by concentrated solar power (CSP) at 10 per cent (all of which accounted by a single project in the UAE) and 9 per cent share for wind projects, primarily in Saudi Arabia and Oman. Solar assisted enhanced oil recovery in Oman is also expected to contribute about 1 gigawatt-thermal (GWth) in 2019.

GCC countries are investing in the renewable energy value chain including project developers, manufacturing companies, and research and development initiatives.

Although the bulk of investments to date are concentrated in the UAE, as deployment picks up, investment flows will likely be distributed more evenly among the countries in the region.

Saudi Arabia’s 300 MW solar PV Sakaka project, the first utility scale project in the country, was awarded at 2.34 $cent/kWh and began construction in November 2018, (Source: MESIA, Solar Outlook Report 2019).

Mena

The Middle East will require additional power capacity of 267 GW by 2030, an increase of 66 per cent, as reported by Siemens.

Investment in renewable energy projects within the Mena region has seen an upward trend due to rise in clean energy-based electricity demand coupled with factors such as growing population, economic growth, decreased cost of solar energy, and increased industrial activity.

Solar energy has continued to gain momentum both globally and in the Mena region. As of the first half of 2018, over 470 GW of solar photovoltaic (PV) was installed worldwide of which 100 GW was added in 2017.

The 200 MW Kom Ombo solar PV project in Egypt and Jordan’s Round 3 PV auction received bids below 3 US cents/kWh. In addition, the Egyptian government has requested bids no higher than 2.5 US cents/kWh for the ongoing 600 MW solar PV West of Nile tender.

The biggest solar projects to be financed included the 800MW Noor Midelt PV and solar thermal portfolio in Morocco, at an estimated $2.4 billion and, Dubai Electricity and Water Authority (Dewa) in UAE Phase IV is 950MW and has a total project cost of $4.36 billion.

Morocco’s 580 MW Noor II and III projects at the Ouarzazate solar complex will be one of the largest in the world to consist of PV and CSP.

Concentrated solar power in Mena

Despite Mena region’s contribution standing at a mere 7 per cent of the global Concentrated Solar Power (CSP) generation of 5 GW, countries such as Morocco, Oman and the UAE are early adopters of the large scale CSP, while other countries like Egypt, Jordan and Kuwait have or are looking to implement utility scale projects, the report said, citing MESIA. – TradeArabia News Service




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