Accelerating private finance for the Arab renewable energy transition
How the Arab region financial system can help
The Arab region’s financial system is dominated by Gulf Cooperation Council financial institutions and banks in particular. With (around 200% of GDP), the region’s banks are somewhat bigger than average for large emerging market economies, although considerably smaller than financial institutions in the US and Japan. State banks are significant providers of in a number of countries. Direct commercial bank involvement in clean energy and other forms of microfinance in the region is limited. Commercial banks prefer to provide wholesale financing through specialized microcredit providers. State banks run a significant proportion of financial service outlets in several countries, including Syria, Algeria, Tunisia, Egypt and Iraq. In Egypt, the state agricultural bank, The Principal Bank for Development and Agricultural Credit has more than 1200 branches and 23,000 employees throughout the country outside of Cairo, providing deposit services; payments services; foreign currency services and passbooks, machinery and equipment loans and lending for agriculture and other food production enterprises. In Iraq, around 70% of the total national bank branch network is owned by two large state banks, Rafidain and Rasheed. The scale of state banking networks indicates that they will have an important role to play in financing climate adaptation and a distributed clean energy build-out across the Arab region.As the depletes its energy and water resources and pollutes its air faster than any other region in the world, the region’s policymakers have a unique opportunity to show global leadership on enhanced resource efficiency.
Yet there is no clear regional trend towards enhanced energy efficiency. Bahrain’s energy intensity, for example, both in absolute terms and on a per capita basis, is among the highest in the world. GCC fossil-fuel exporters Bahrain and Qatar register some of the world’s highest energy-intensity levels, but also some of the largest declines in energy-intensity rates from even higher levels during the 1990s within the Arab region. This signals a capacity for rapid progress.Since the turn of the century, reductions in energy intensity in the Arab region have been lagging significantly behind those in other regions.
Many of the in the Arab region are well known and documented. Final user motivation to invest in energy-efficiency improvements across sectors depends on end-user energy prices and their energy spending compared to other costs.
In seeking to improve progress towards 100% clean energy, regional investors and policymakers can refer to the three key pillars that underlie both the Sustainable Energy for All (SE4ALL) initiative and the United Nations Sustainable Development Goals (SDGs). These are:- Scaling access to modern energy through electrification and access to modern clean cooking fuels and technologies;
- Doubling the global rate of improvement in energy efficiency; and
- Doubling the share of renewable energy in the global energy mix.
Renewable-energy sources, in particular, solar, wind, and geothermal, are abundant across the region. , such as wind power and Concentrated Solar Power (CSP) and photovoltaic (PV) in Morocco and solar PV power in the UAE, have demonstrated the cost-competitiveness of such technologies if assessed and financed under the right conditions.
Such financing will play a fundamental role in the Arab region’s progress towards sustainable growth and development and enhanced prosperity for all residents. Economic growth across the region would be boosted with access to clean, sustainably sourced and affordable energy. Currently, renewable energy plays only a marginal role in the Arab region’s energy consumption. No other world region plays such a small role in renewable energy, reflecting the Arab region’s globally unparalleled reliance on non-renewable sources. In 2014, renewable energy, including biomass, accounted for some 4% of the region’s final energy consumption. Rapidly falling costs for technologies such as wind and solar power since the late 2000s have slowly begun to reverse the cost disadvantage. The lack of financial market instruments and experience in funding renewable energy projects at utility-scale and micro-level further complicate deployment According to the Fifth Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC), mean annual temperatures in East Africa and the Maghreb states are likely to exceed +2° degrees Celsius above the pre-industrial average with maximum projected increases up to +6°C. This level of regional heating requires major cross-sectoral action. A number of collective commitments at the regional level would support emissions reductions and mitigation of the most severe climate impacts.Massive annual subsidies to the fossil fuel sector distort price signals to all market actors, on global subsidies to the fossil fuel sector. [For more information read this on the Arab region as well as ], hobble energy-efficiency regulation and slow the financial of distributed energy access for all citizens. Redirecting fossil fuel subsidies to cleaner, more efficient and, in the long term, more cost-effective technologies holds potentially vast benefits for citizens, governments and the wider economy. The experience of the G7 group of countries – who have committed to reform fossil fuel subsidies but , indicates the challenges of weaning the sector off subsidies.
For more information please read: How the Arab Region Financial System can help mitigate Climate Change