Middle East and North Africa attract overseas low carbon investors

A new research report by international law firm Ashurst has shown growing interest in the Middle East and North Africa (MENA) region from G20 investors in renewable energy, energy transition and decarbonisation technologies – but companies in the region lag behind their overseas counterparts.

The report, Powering Change: Energy in Transition, compiles the views of more than 2,000 senior business leaders from across G20 countries on the changing global energy market as it seeks to meet rising energy demand and a drive towards decarbonisation.

Despite the Middle East's position as a global oil and gas powerhouse, it was identified as the second most popular region for low carbon investment by G20 respondents for current and planned investment, just behind North America.

Companies based in Asia-Pacific and Latin America are the biggest investors in the energy transition in the Middle East, with 33% and 32% respectively doing so, according to their executives. A strong showing of European companies (37%) is also currently investing in the Middle East or plan to do so in the next five years. Meanwhile, Asia-Pacific and Latin America investors also see North Africa as an attractive market, with 35% and 38% respectively currently invested, committed to invest or considering the region in the next five years reflecting the more advanced wind and solar markets in Egypt and Morocco.

In terms of potential new markets, North Africa was the joint second most popular region that G20 investors were considering over the next five years, led by respondents from Argentina (31%), India (30%) and Saudi Arabia (24%). The development of large-scale solar power in North Africa and interconnectors to Europe has been a much discussed and highly attractive proposition to European markets looking to diversify their power sources.

However, companies in the Middle East are less likely to invest in their home market. Only 18% of executives in the region said they currently invest, have committed to invest or are considering investing in the energy transition in the Middle East in the next five years.

Notably, only 34% of respondents from Saudi Arabia expect their organisation's investment in traditional energy investments (eg coal, gas, oil) to flow into the energy transition in the next year, which is a stark contrast to the global average of 62%, and the lowest of all countries surveyed. Across the G20, 94% of respondents expect their organisation's investment in the energy transition to increase over the next five years, with the average increase expected to be 43%.

Although the Middle East as a whole is seeing investment in the energy transition, there is huge disparity on a country-by-country basis.

For example, the UAE is currently developing one of the largest solar energy plants in the world, Mohammed Bin Rashid Solar Park, even though the region remains dependent on fossil fuels. Meanwhile, Saudi Arabia has seen stunted investment, with 44% of respondents there pointing to the lack of available incentives and subsidies as the leading cause.

David Wadham, Ashurst's Global Co-head of Power & Utilities, says: ‘It is indisputable that investment in renewable energy and decarbonisation technologies is on the rise. Although there are notable market variations, we see this as the dominant trend in the energy sector across the board. Across the globe there is significant pressure on governments, corporates and financial institutions to take action now.’

 ‘The outlook for MENA is no different. The region has historically experienced strong demand growth and while perhaps slower than some other regions to turn to renewables, the region is now very much in the vanguard of cost-effective, large-scale low carbon power production.’

David Charlier, Ashurst's Head of Middle East, adds: ‘Considering the huge renewable energy resources available in the region it is not surprising that the Middle East and North Africa ranked so highly for current and future investment. Added to that, the record-breaking low prices of solar in the region make the technology incredibly attractive to developers.’

‘With large solar projects underway, like those in the UAE and planned in Morocco and Algeria, as well as the much discussed interconnectors to Europe, it is clear that global investors appreciate the low carbon potential in the region despite it being the centre of the world’s oil and gas trade.’