SPECIAL FEATURE
PRIVATE SECTOR: A LEADING FORCE IN GLOBAL ENERGY TRANSITION
A
ll around the world governments and leaders are acknowledging the
urgent need to address global climate change and decarbonizing economies. All OPEC Fund member countries are
signatories of the Paris Agreement, and are working to diversify their energy economies. In March, Saudi Arabia launched two initiatives to collectively plant 50 billion trees as well as to propel the Middle East region toward achieving more than 10 percent of global carbon emissions reduction targets. The UAE is bidding to host the COP28. Aligned with all the efforts by
countries to move towards a more sustainable energy future, the OPEC Fund's private sector department has also been increasing its role in the energy transition. “We have been at the forefront of advocating for access to affordable, clean energy for many years and are participating in landmark projects which exemplify cooperation between governments, development finance institutions and private sector actors,” says Tareq Alnassar, OPEC Fund’s Assistant Director-General for Private Sector and Trade Finance Operations. It is estimated that around US$30-40 trillion in investments will be allocated to the markets to support the energy transition. The International Renewable Energy Agency (IRENA), in a recent analysis1
suggests that to put the world
on track with the objectives of the Paris Agreement, cumulative investment in renewable energy needs to reach US$27 trillion in the 2016-2050 period. Who is going to fund this energy transition? “To a great
extent, the private sector,” says Alnassar. “With public funds allocated
Jordan's Tafila Wind Farm; Richard Egobi (right) and Tareq Alnassar (below left)
to more urgent needs, such as the COVID-19 pandemic, public resources are scarcer than ever. Mobilizing private capital for investments is not an easy task due to the perceived risks and challenges involved. However, the private sector, along with the governments and international development finance institutions, can play a leading role to fill the funding gap. On our part, as the development finance community, we should support countries in their bid to increase renewable energy penetration in line with SDG 7. Such intervention needs to include a focus on electricity sector root problems, like grid stability issues, high level of transmission losses, energy storage, and the need for local currency power purchase agreements to hedge foreign exchange risks in order to ensure proper implementation and sustainable results.” The OPEC Fund’s most comprehensive impact in the renewable energy sector to date has been in Jordan. The country has been at the forefront of renewable energy deployment in the Middle East since 2012 with the implementation of the Renewable Energy Law in 2010, which aims to diversify Jordan’s energy mix. As a result, the OPEC Fund and other development finance institutions, led by the World Bank’s International Finance Corporation (IFC), co-financed the country’s first renewable energy project: the 117 MW capacity Tafila Wind Farm, with a total investment of nearly US$300 million. The successful launch of Tafila and the valuable lessons learned from project implementation, catalyzed many other projects so that today, renewable energy projects represent 20 percent of Jordan’s overall generating capacity. The OPEC Fund has also participated in financing three solar
PV plants with the capacity to generate approximately 250 MW in Jordan in the following years. OPEC Fund’s Senior Investment Manager Richard Egobi believes our co-financing with other development partners has been critical to this transition in Jordan. “Such landmark projects sometimes help to open up markets and encourage other market players to enter. This is the power of partnerships,” says Egobi. Another stand-out example of our engagement in the renewable sector is in Egypt. Recently, the OPEC Fund extended a long term loan towards the development of the 200 MW Kom Ombo Solar Power Plant (see pages 23-24). The project will help Egypt achieve its target of increasing the share of renewable energy generation to 42 percent by 2035. According to the Egypt Renewable Energy Outlook2
report,
pursuing higher shares of renewable energy could reduce the country’s energy bill by up to US$900 million annually in 2030. “This financing further demonstrates
our commitment to supporting energy transition in emerging markets. We offered the much-needed, exceptionally long term financing to improve the bankability of the project and to ensure that the project’s tariff was affordable,” says Egobi. Even more importantly, he notes: “The OPEC Fund extended the flexibility and adaptability required to structure and close the financing despite challenges associated with COVID-19.”
1
Global energy transformation: a roadmap to 2050 (2019 edition):
https://bit.ly/3CirEyM
2
Egypt Renewable Energy Outlook:
https://bit.ly/3ClAAU9
9
PHOTO: HAGOP
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