Why is the UAE's renewable energy sector attracting more private equity funding?

Cop28 has positioned the Emirates as the top investment destination for energy, says Abu Dhabi investment official

Al Dhafra Solar Photovoltaic power project in Abu Dhabi. The UAE plans to be carbon-neutral by 2050. AFP

A growing number of private equity funds are investing in the UAE’s renewable energy projects and energy transition initiatives, encouraged by an abundance of capital and geopolitical stability.

The Emirates, the Arab world’s second-largest economy, plans to achieve carbon neutrality by 2050.

It hosted the Cop28 climate conference in December, and this introduced many companies and funds to the opportunities in the UAE’s fast-growing clean energy industry, according to experts and officials.

The Emirates is also home to some of the world’s largest sovereign wealth funds, such as the Abu Dhabi Investment Authority and Mubadala Investment Company, that want foreign investors to co-invest in large projects.

“We're seeing a lot of hedge funds wanting to come here in Abu Dhabi, and Dubai,” said Massimo Falcioni, chief competitiveness officer at the Abu Dhabi Investment Office (Adio).

“Cop28 has put the UAE at the top spot” and “convinced [everyone] that this is the place to be for energy”, Mr Falcioni told The National.

“The geopolitical stability of the country guarantees stability in investment,” he added. “Long-term investments require a safe haven to put the money, and this is exactly the place.”

Adio is responsible for attracting and facilitating investment in Abu Dhabi. The government body oversees the investor process from the creation of new legal entities, to the relocation of employees and the initiation of companies' operations in the emirate.

Mr Falcioni said investors from the US, South Korea and Japan had recently shown interest in investing in Abu Dhabi, particularly in its energy sector.

He also said the Abu Dhabi government may set up a development finance institution to provide funding at concessional rates to projects and prototypes.

Abu Dhabi, responsible for nearly all the UAE’s oil and gas production, has been investing heavily in solar, wind and electric vehicle infrastructure to become net-zero by 2050, and shift away from fossil fuel production.

State-run energy company Adnoc aims to become net-zero by 2045, while Masdar plans to have 100 gigawatts of renewable energy capacity by the end of the decade.

As part of efforts to strengthen its industrial sector, the UAE is also focusing on localising the production of equipment and raw materials needed to build a robust renewable energy supply chain.

Global funds are expected to play a role in this.

This month, the Abu Dhabi Department of Economic Development (Added) said it was teaming up with UK-based private equity fund Hycap Group on the production, storage and transport of green hydrogen in the emirate.

Hycap opened its regional headquarters in the Abu Dhabi Global Market (ADGM) in November last year.

“Our venture into the UAE is a strategic decision to place Hycap at the nexus of the world’s emerging green hydrogen hubs,” Jo Bamford, chairman and founding partner of Hycap Group, told The National.

“We are committed to supporting these initiatives by catalysing the hydrogen market.”

The UAE aims to reach hydrogen production of 1.4 million tonnes annually by 2031, and 15 million tonnes a year by 2050.

In December, BlackRock, the world’s largest asset manager, said it would invest up to $400 million in Dubai-based decarbonisation company Positive Zero through a diversified infrastructure fund.

BlackRock is among the institutional investors backing the UAE’s $30 billion climate fund, Alterra, which aims to raise $250 billion globally in the next six years.

Positive Zero, which offers an integrated energy transition platform to its customers, said the UAE has been the company’s most active market, followed by Saudi Arabia and Bahrain.

David Auriau, chief executive of Positive Zero, said the Cop28 climate summit had created a “lot of momentum” in the region with clear mandates for phasing out fossil fuels and tripling renewables by 2030.

“The GCC governments have taken great steps towards adopting favourable regulations that enable businesses to adopt the latest decarbonisation initiatives,” Mr Auriau said.

In January last year, Paris-based private equity firm Ardian opened an office in the ADGM as part of its regional expansion plans.

The firm, which has $160 billion of assets under management worldwide, is exploring opportunities to deploy capital in Mena’s hydrogen industry through Hy24, a hydrogen-focused fund, a senior executive said last year.

“Organisations that have begun navigating their way through the energy transition will need ready access to investment funds,” said Cristopher Sagar, chief engineer, nuclear, Middle East at AtkinsRealis.

“A strong supply of investment funds will enable capital to be spread across required clean energy technologies, which have the most merit financially and the highest carbon dioxide emissions-savings potential,” Mr Sagar said.

Private equity and venture capital transactions in the Middle East renewable energy sector reached $520 million in 2022, up from $100 million in 2021, according to investment data company Preqin.

International funds are no longer coming to the Middle East to raise capital, but to deploy existing capital as the region presents “lucrative opportunities”, said Andrea Zanon, chief executive of WeEmpower Capital.

Growing tension between the US and China – the world's largest economies – will make the Mena region an even more attractive market for cash-rich global investors, Mr Zanon told The National.

They can partner with local investors such as Saudi Arabia's Public Investment Fund and Abu Dhabi's Mubadala to risk-proof their investment, while gaining a “strategic advantage” in the Mena clean energy sector, he added.

Energy transition plans

GCC countries, especially the UAE and Saudi Arabia, have announced ambitious decarbonisation plans which involve phasing out coal and higher spending on solar and hydrogen.

Renewables have become cost-effective in the region with successful project bids in Saudi Arabia and the UAE over the last few years, resulting in record low prices for solar PV and wind.

The UAE aims to triple the share of renewable energy capacity to 14 gigawatts by 2030, while Saudi Arabia plans to have 50 per cent of electricity coming from renewables by the decade’s end.

“Despite their dependence on the oil and gas industry, the Gulf nations have all announced new targets, or renewed their commitments to the Paris Agreement in the past few years,” said Sofia Bensaid, director, infrastructure and project finance ratings at S&P Global Ratings

“And as one of the largest sources of emissions, the power sector looms large in most national plans for decarbonisation,” she said, during an event on Wednesday.