Financial and investment Overview
Q6 How will the level of investment in cleantech in the different areas of MENA change over the next five years?
This year, we extended the finance and investment section and included additional questions to gauge market sentiment and to understand the sources of funds that can be deployed in the region. It also aims to provide investors and financiers with an understanding of the opportunities in the MENA cleantech sector.
The GCC is the most optimistic of the three as 91% of respondents expect that investment in cleantech in this area will increase or increase strongly over the next five years. This is due to the large-scale plans and cleantech programs that have been announced and due to budget allocations.
The Levant, with the exception of Jordan, is least optimistic about investment, with a third saying that investment will either stay the same or decline.
Financing for cleantech is not available in most cases because of country risk. Jordan is the only country here to have progressed in the areas of policy framework and financing. It has strong projects on the ground as well as in the pipeline.
While 77% expect investment to increase in North Africa and there is strong optimism, financing and country risk remain high for this area.
Q7 What is the most effective mechanism to attract private sector investment to renewables in MENA?
Almost half of the 2013 survey respondents said that FITs were the best way to attract investment into the region’s cleantech sector. This year, FITs are not in fashion as only 14% of the respondents consider them as the best way to attract private investment. Though FITs remain the method of choice for countries such as Jordan, public-private partnerships (PPPs) or independent power producers (IPPs) set the pace in the GCC. For example, Dubai has recently announced IPP financing of its new 100MW solar project.
This year, the preferred route of attracting private investment into cleantech is allocating projects to IPPs through a government-sponsored bidding mechanism. Though a more complex route, it provides investors with better hedging ability against risk. The straightforward method of PPP creation has moved into the second spot vacated by FITs and is followed by two interesting ideas that are new to the region. Renewable portfolio standards (RPS) is a regulation that requires electric utilities and other retail electric providers to supply a specified minimum amount of customer load with electricity from eligible renewable energy sources. And with the Green Electricity Certificate Obligation scheme, electricity suppliers are legally obliged to purchase a proportion of their electricity from renewable sources. In addition to selling green electricity to the consumer, they can sell these renewables obligation certificates to another supplier who has failed to meet their quota. Whether these regulations come into force remains to be seen, but our respondents have begun to demand them.
Mechanism to attract private sector investment
Q8 What will be the most important source of equity investment for cleantech in the three MENA Areas over the next three years?
It comes as no surprise that two-thirds of the respondents expect the GCC to raise equity financing via their governments and domestic private investors, as the area does not have a sizeable private ownership of utilities and power-generating companies. GCC governments have an excellent opportunity to bring in private investors into the cleantech sector. However, regulation will take time, though there are several examples of PPP companies operating in the conventional energy sector.
In contrast, only a third of the respondents said that North African governments and domestic investors will be the source of equity investment into the cleantech sector, while half of them said the same about equity investment in the Levant. These two areas are more open for equity investments by international investors. More than half the respondents said that international investors will be the source of equity investment in North Africa and almost 40% said the same for the Levant. It may be challenging to assume that investment in the Levant will come from international sources because of country risk, but it is most likely to happen for Jordan, which is the most politically stable country there.
Q9 What will be the most important source of debt financing for cleantech in the MENA Region over the next three years?
Continuing with the sentiment expressed for equity financing, respondents expect the GCC to raise cleantech debt internally while North Africa is expected to pursue international lenders aggressively. The Levant will rely the most on multilateral lending agencies such as the World Bank. Contrary to expectations, respondents do not believe that the GCC, the largest sukuk market in the world, will choose this route aggressively for cleantech. This might be because they underestimate the sukuk market or because the ticket sizes for most projects in the GCC are too big for standard issuances.