Investment growth in electricity generation in the Gulf Cooperation Council (GCC) is primarily supported by targets to increase the share of renewable energy and improve the efficiency of fossil-fuel-based capacity, said Fitch Ratings in a recent report.
For instance, Saudi Arabia’s Vision 2030 and Green Finance Framework set out targets for private and foreign investment in green energy generation, aiming for renewable energy to comprise 50 percent of output by 2030, with about 60 percent of new capacity coming from solar and 40 percent from wind. Saudi Arabia also aims to replace inefficient oil-fired power stations with combined cycle gas turbines that can operate at over 60 percent efficiency.
Meanwhile, Abu Dhabi also plans to build 18GW of solar photovoltaic capacity by 2035.
Ownership structure and financing risks
Both Saudi Arabia and Abu Dhabi are currently using a model where 60 percent of power project ownership is through companies directly or indirectly held by the government – for example, via government-related entities like the Public Investment Fund and Abu Dhabi Developmental Holding Company – with the remaining 40 percent owned by international energy or construction companies.
Fitch noted that contract risks in these projects in Saudi Arabia are limited to operational and construction risks under Saudi power agreements. However, untested legal frameworks and limited step-in rights could pose constraints for financing single-asset risks, potentially reducing access to power project financing.
“Financing for these new generation projects is mostly corporate-type lending provided by consortia of banks, local and regional, but with an increasing number of foreign banks involved to help diversify funding,” added Fitch.
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Grid expansion investments to reach $1.8 billion
Reaching the targets to increase the contribution of renewable energy in GCC electricity generation will require significant network infrastructure build-out. The GCC has established the Gulf Cooperation Council Interconnection Authority to regulate electricity transmission and distribution in the region, prevent power outages through a balancing mechanism, introduce power trading including renewables and help energy security.
The company estimates that investments related to the expansion of the existing grid between 2023-2028 will reach $1.8 billion. Furthermore, Saudi Electricity and other national electricity companies are investing in their grids to connect new generation capacity, as well as focusing on digitalization and battery energy storage systems.
