A “multifaceted” approach is required for the adoption of sustainable energy resources amid the global energy crisis and the fight against climate change, Suhail Al Mazrouei, the UAE's Minister of Energy and Infrastructure, said on Monday.
While the adoption of green energy is accelerating globally, it is “not happening at the speed we aspire for and it would require us to collaborate more with the government and private sector”, Mr Al Mazrouei said at the MEA Energy Week event organised by Siemens Energy.
“We, in the UAE, believe in the reason for acting on climate change, and we believe on the speed of that action,” he said.
“We need to move in a multifaceted [way]. One is reducing our consumption as a country and as individuals. Second, we need to diversify our energy mix, and diversify quickly towards cleaner forms of energy. We need to invest in technology, and we need to create a business case for hydrogen at a scale that allows transformation to happen.”
The UAE is taking the lead regionally and stepping up efforts to hit its target to reach net zero emissions by 2050 through a wide-ranging green strategy focused on a shift to renewable energy and the adoption of new technology.
The Emirates recorded the largest increase in renewable energy capacity worldwide over the past decade, Australia-based aggregator Compare the Market said in a report last month.
Capacity in the country surged to 2,540 megawatts in 2020, from 13MW in 2011, the report found.
Globally, renewables are expected to drive an 8 per cent increase in energy project investment this year to $2.4 trillion, according to the International Energy Agency.
However, the energy sector is facing several challenges, including high inflation, rising interest rates and the Russia-Ukraine conflict, which have affected investment and planning strategies, said Christian Bruch, president and chief executive of Siemens Energy.
“The markets are insecure at the moment. Not every price movement is driven solely by demand and supply; it is also driven a lot by speculation and insecurity,” he said at the event.
“We did not anticipate this or take it seriously. If you take the situation in Ukraine, all of a sudden people really understand that energy security has a consequence.”
Long-term strategic planning in energy infrastructure was not good enough to face a situation where conditions changed substantially, Mr Bruch said.
“We have to confess that all of us did not do a good enough job of doing this, and we have to do this now.”
The situation also highlights the funding gap between nations. Of the 195 signatories to the Paris Agreement on climate change, about 130 have signalled net zero ambitions, yet there is inequality when it comes to resources.
“We have an implementation problem, not an identification problem. We cannot say that we want to decarbonise but don’t want to spend money,” Mr Bruch said.
“We also cannot say that we want all countries to decarbonise and not think about how we can get funds from a richer area to a poorer area.”
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
