Clean energy projects in Mideast struggle for funds

Green energy initiatives in the Middle East are too big to be funded by financial institutions as several projects run into hundreds of millions of dollars, said bankers.

Frank Beckers, head of project finance and advisory, First Abu Dhabi Bank, said the Middle East has taken a leading role in implementing large-scale green projects. The targets set by the region are so big that the financial sector will require additional resources to cater to the needs of green projects.

Addressing a panel discussion at the World Green Economy Summit in Dubai on Wednesday, he said local banks are supporting such initiatives but fail to cope up with the huge demand.

In the Middle East, he said renewable energy projects can attract more investors with the help of green bonds. "All these projects are worth several hundreds of millions of dollars and are good enough to attract the green bond market," he said.

In the UAE, the Dubai Electricity and Water Authority (Dewa) alone is investing Dh81 billion in renewable and clean energy projects in addition to billions of dirhams worth of projects being executed by Abu Dhabi and other regional governments. Dubai has also launched a green fund to raise Dh100 billion as part of its long-term investment strategy in renewables.

During the discussion, bankers predicted that the issuance of green bonds is likely to increase as demand for financing green projects is increasing more than predicted while costs are on the decline.

Green bonds worth $81 billion were issued last year, a massive increase from $3 billion issued in 2012, said Hajir Naghdy, senior head of Macquaire Capital, Asia and Middle East.

Naghdy said there are tremendous opportunities for green bonds in the UAE, thanks to Dubai and the efforts spearheaded by Dewa.

"Five years ago, the renewable sector was in its infancy in terms of financing and green projects were struggling to attract investments. Investors were feeling the shock waves of the global crisis. Debt markets were constrained due to regulatory changes and equity markets retreated to safer options. But today, it's a different picture because a lot of financial institutions have started looking at opportunities in this sector and new funds have been set up across Asia and Europe," he said.

According to Bloomberg New Energy Finance analysis, green bonds issuance is set to reach $135 billion by the end of 2017. Robert Todd, global head for renewables and cleantech at HSBC, said the green bond market this year can see a drop in capital costs and emergence of new players. "We've seen appetite from investors to subscribe to these bonds. They tend to be oversubscribed heavily."

Naghdy pointed out that the cost of capital has fallen as project delivery risk has decreased and banks are now comfortable lending to such projects. The technical expertise required for such projects is also available today.

Citing the example of Dubai, Naghdy said the emirate has a strong pipeline of green projects being delivered or slated to be delivered. He said the investment community has become more educated in green infrastructure, which has enabled banks to assess and price risks more prudently. Hence, numerous green funds have been set up and billions of dollars are being invested.

Source: Khaleej Times