Gulf Nations Invest To Accelerate Deployment Of Renewable Energy – Study


Despite their dependence on the oil and gas industry, the Gulf nations have all announced new targets or renewed their commitment to the Paris Agreement in the past two years. As one of the largest sources of emissions, the power sector looms large in most national plans for decarbonization. S&P Global Ratings expects to see significant investment in renewables during the current decade.


The two largest economies–the United Arab Emirates (UAE) and Saudi Arabia–continue to lead climate-related efforts in the Gulf Cooperation Council (GCC) region. As of year-end 2021, about 90% of the region’s established renewable energy capacity was in these countries, with the UAE alone representing 77%. They have also committed to updated targets as part of renewed efforts to reach net zero.


Although net-zero strategies encompass other initiatives, S&P Global Ratings focuses here on the GCC’s renewables sector. The governments of Saudi Arabia and the UAE have announced their intention to continue to invest in this space. We believe plans to establish a renewables sector could help them in their efforts to achieve their climate goals.


Government-related entities have taken the lead on procurement, inviting local and international developers to bid for tenders. Most developers then finance the assets on a nonrecourse basis, which means using substantial commercial bank debt. However, the UAE and Saudi Arabia have both established public-private partnership frameworks, making project finance an obvious choice for funding deployment. As the energy transition in the region progresses, we expect to see more renewables projects tapping the capital markets for financing, including a growing number of solar PV projects. In our global portfolio of solar PV projects, the key credit qualities include the timing of and budget for maintenance, availability, and good management of solar panel degradation.


Renewables Are Part Of Most GCC Nations’ Climate Roadmaps

The Paris Agreement requires all signatories to set and maintain goals, known as nationally determined contributions (NDCs; see table 1). Although their circumstances differ, all the governments in the region have publicly announced their net zero targets and are looking to deploy renewable energy to meet the climate commitments in their NDCs. The power sector is a key source of emissions. The UAE and Saudi Arabia–which produce the most greenhouse gas (GHG) emissions in the GCC in absolute terms–have made the largest investments in renewables. Their governments are among the many globally to have publicly announced their net zero targets, and a roadmap toward net zero.

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In 2022, in its second NDC, the UAE increased its target for reducing GHG emissions to 31% by 2030, relative to its BAU scenario. Its earlier commitment was to a reduction of 23.5% against the BAU level. Under the new NDC, the UAE will limit emissions in 2030 to 208 million metric tons of carbon dioxide equivalent (CO2e), relative to the 301.2 million metric tons of CO2e emissions predicted under its BAU scenario.

The UAE’s Renewable Energy Strategy 2050 states that decarbonization of the power sector is a key priority. Organizations like the International Renewable Energy Agency (IRENA) do not include nuclear power in their datasets on renewable energy; the UAE, by contrast, includes nuclear and renewables in its definition of “clean energy.” The UAE’s goal is to have clean energy provide 30% of its energy mix by 2030, and 50% by 2050 (see chart 1).

In 2021, Saudi Arabia announced an update to its NDC. By 2030, it now intends to reduce, avoid, and remove annual emissions of 278 million tons of CO2e. The NDC uses the base year of 2019. To achieve this objective, it aims to generate about 50% of its power from renewable sources by 2030. Saudi Arabia has also set its net zero targets for 2060.

Deployed Capacity Is Mostly Solar

To date, GCC countries have used solar generation more than any other renewable technology. As of 2021, 97% of the installed capacity for renewables in the GCC is related to solar power (source: IRENA; see chart 2). Conditions for solar power generation in the region are excellent because of:

  • High levels of solar radiation and sunlight hours all year round;
  • Ample land on which to install PV panels; and
  • Production and demand being well-matched, as both generation and consumption peak in the daytime, and in the summer.

The Al Dhafra plant, in Abu Dhabi, is expected to be fully operational in 2023 and will be one of the world’s largest single-site solar plants. When commissioned by Emirates Water and Electricity Co. PJSC (EWEC) and its partners, the plant will have a capacity of 2.1 GW and will cut CO2 emissions by about 2.4 million tons a year. EWEC has also recently announced the Al Ajban Solar PV project tender, which would enhance its solar PV installed capacity by a further 1,500 MW.

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Other Decarbonization Options Are Being Explored

Although solar is the dominant form of renewable energy generation in most of the GCC, some countries–Bahrain, Kuwait, Saudi Arabia, and Oman–had also incorporated wind farms into their energy mix by the end of 2021. Dumat Al-Jandal, Saudi Arabia’s first wind farm, is the region’s largest wind asset in operation, according to the Saudi Green Initiative (SGI). It is expected to displace nearly a million tons of CO2 per year. The commissioning of this 400 MW project significantly increased the country’s total renewable energy capacity. Saudi Arabia is also developing larger wind projects at Yanbu (700 MW capacity), Wa’ad Al Shamal (500 MW capacity), and Al-Ghat (600 MW capacity).

We expect investment in renewable energy for hydrogen production to ramp up alongside investment in pure power facilities. Where hydrogen is generated using renewable energy sources such as wind and solar (instead of natural gas), it is defined as green hydrogen. Saudi Arabia plans to build one of the world’s largest green hydrogen plants, powered by over 4 GW of solar and wind energy and expected to come on stream by 2025. The plant, part of the Neom project, is forecast to produce 650 tons of green hydrogen per day and 1.2 million tons of green ammonia per year.

Abu Dhabi-based renewable energy company Masdar entered into a strategic alliance with Engie S.A. to explore the co-development of a UAE-based green hydrogen hub. The two companies are looking to develop projects with a capacity of at least 2 GW by 2030, and to invest a total of US$5 billion in the region. Masdar’s ambition is to expand its renewable energy capacity globally to at least 100GW by 2030, and to become a leader in clean energy and green hydrogen.

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Switching To Renewables Has Economic Advantages

Subsidizing electricity for consumer use is common in the region, but the rising cost of such subsidies is putting pressure on budgets. PV plants produce electricity more cheaply than thermal power plants, especially since the Russia-Ukraine war caused oil and gas prices to surge. The planned move to increase the share of renewable assets in the energy mix will therefore reduce the cost of domestic power generation. The switch to renewables will also free up oil and gas resources for export.

Other Regions Have Outpaced The GCC On Renewable Capacity

According to IRENA, renewables represented 38.3% of total electricity capacity, globally, in 2021. In the EU, the equivalent figure was 52.5% (see chart 4). For the UAE, renewables represented just 7.2% of total capacity (see chart 5).

GCC countries are still investing in nonrenewable, but lower-emission, power projects, to support the expected growth in demand while limiting emissions. For example, in the UAE, the Dubai Electricity & Water Authority has converted its Hassyan Power Complex to run on natural gas instead of coal. The UAE also hosts the only nuclear power generation facility in the GCC region–which it includes within its renewable energy targets. The Barakah nuclear power plant will eventually have four units in operation and will then have capacity to generate 5.6 GW. According to Emirates Nuclear Energy Corp., as of December 2022, the plant’s power generation had increased to 4.2 GW. This followed the third unit coming into operation.

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