GCC eyes Islamic finance to fund renewable projects: report

Islamic finance will play a significant role in the financing of solar and other alternative energy projects being developed in the GCC, as the region is likely to witness drastic rise in renewable energy deployment, consultancy firm Deloitte said in a recent report.

“The adoption of green sukuk as one of alternatives to several traditional financing techniques will rise due to factors such as increasing number of solar projects, lower capital cost, faster, favorable green energy policies, along with preference towards Shariah-compliant instruments,” it noted.

Currently, renewable energy financing in the GCC region has long tenures with high debt-equity-ratios of more than 70 percent. 

Meanwhile, renewable energy is gaining impetus as part of focused approach in every country’s economic growth policy, particularly the Middle East. Led by the UAE, Saudi Arabia and Oman, nearly seven gigawatts (GW) of new renewable power generation capacity is expected to become operational by early 2020s.

Citing IRENA, the report said that solar PV remains the dominant technology in the GCC’s project pipeline, with a share of over 75 percent, followed by CSP at 10 percent and nine percent share for wind projects, primarily in Saudi Arabia and Oman. 

Although the bulk of investments to date are concentrated in the UAE, investment flows will likely be distributed more evenly among the GCC countries as deployment picks up, Deloitte said.

Earlier this year, Dr Khalid bin Saleh Al Sultan, president of the King Abdullah Atomic and Renewable Energy City said that Saudi Arabia aims to produce 60 GW of renewable energy, including 40 GW from solar energy and 20 GW from wind and other sources by 2030.