The Gulf Cooperation Council (GCC) region is witnessing a surge in electricity investment, driven by ambitious renewable energy targets, according to a recent report by Fitch Ratings [1]. The report highlights that the growth in investment is primarily supported by the GCC’s commitment to increasing the share of renewable energy and improving the efficiency of fossil-fuel-based capacity.
Saudi Arabia’s Vision 2030 and Green Finance Framework are at the forefront of this transformation. The Kingdom aims to generate 50% of its energy from renewable sources by 2030, with approximately 60% of the new capacity coming from solar power and 40% from wind energy. Additionally, Saudi Arabia plans to replace inefficient oil-fired power stations with combined cycle gas turbines that can operate at over 60% efficiency.
Abu Dhabi is also making significant strides in renewable energy, with plans to build 18GW of solar photovoltaic capacity by 2035. Both Saudi Arabia and Abu Dhabi are utilizing a model where 60% of power project ownership is through government-related entities, such as the Public Investment Fund and Abu Dhabi Developmental Holding Company, with the remaining 40% owned by international energy or construction companies.
The report notes that contract risks in these projects are limited to operational and construction risks under Saudi power agreements. However, untested legal frameworks and limited step-in rights could pose constraints for financing single-asset risks, potentially reducing access to power project financing. These new generation projects are mostly financed by corporate-type lending, by consortia of banks, both local and regional, with an increasing number of foreign banks involved to diversify funding.
To achieve the renewable energy targets, a significant network infrastructure build-out is required. The GCC has established the Gulf Cooperation Council Interconnection Authority to regulate electricity transmission and distribution in the region, prevent power outages through a balancing mechanism, introduce power trading, including renewables, and enhance energy security. Investments related to the expansion of the existing grid between 2023 and 2028 are estimated to reach $1.8 billion.
Furthermore, national electricity companies like Saudi Electricity are investing in their grids to connect new generation capacity, focusing on digitalization and battery energy storage systems. These efforts are expected to play a crucial role in meeting the renewable energy targets and driving sustainable growth in the GCC’s electricity sector.
Sources:
[1] Renewable Energy Targets Drive Electricity Investment Growth in GCC. https://economymiddleeast.com/news/renewable-energy-targets-boost-electricity-investment-growth-in-gcc-says-fitch/