US$48T Needed To Meet Global Power Demand Over The Next Two Decades

NBAD report identifies the need for innovative approaches to financing energy infrastructure to meet future demand.

• Energy demand in the Gulf to triple in the next fifteen years far outstripping today’s supply.
• Closing the global energy gap will require US$48 trillion of investment over the next 20 years in projects that provide additional energy generation capacity and improve the efficiency of energy use.
• More than half of the investment in new electricity generation worldwide is in renewables – solar PV will be at price grid parity in 80% of countries in the next two years.
• Gains made from energy efficiency are as great as the benefits of increased generation – with some industrial applications of energy efficiency delivering 100% payback in five years.
• This puts the Gulf at the centre of a significant new opportunity in energy.

These findings are set out in the NBAD: Financing the Future of Energy Report which was launched today at the Global Financial Markets Forum in Abu Dhabi. The report, commissioned by NBAD, the Middle East’s leading bank, from the University of Cambridge and PwC, and in collaboration with Masdar, sets out the changing nature of the global energy mix over the next decade which will see an increased contribution from renewables. The report highlights the growing demand for sustainable energy; the technologies that are most likely to close the supply-demand gap; and the scale of financing required.

“We should not underestimate the scale of the task that is facing us all” stated Alex Thursby, CEO NBAD. “To meet the significant demand for energy globally – in particular across the West-East Corridor, the rapidly growing super-region that stretches from Africa through the Middle East to Asia – we need to develop innovative approaches to financing energy projects. The future gap in energy demand and supply presents a real opportunity for the banking sector and the Financing the Future of Energy Report marks the start of a strategy to learn, collaborate more and to make a real contribution to helping this region meet its own energy challenges. At NBAD we want to understand better what the real drivers are so we can respond to them effectively and be a positive force, accelerating the transition to a much needed new world of energy.”

The report provides the evidence base from which the financial services sector can develop innovative financing structures and products to meet this significant opportunity and support the growth of the low carbon economy. It also provides insights into how the financial community can engage with public and private sector stakeholders to create a more integrated energy mix for the future.

“The strategy we have set ourselves at NBAD is to expand our presence along the West-East Corridor and this report provides a platform for to us to engage the key decision makers in the region and develop new financial structures that will ultimately convert the trends into bankable solutions.” said Nathan Weatherstone, Executive Director, Project Finance Advisory.

In response to the scale of the opportunity set out in the research, NBAD has established a dedicated team, under senior leadership, to evaluate and create new financing products that will support the development of renewable energy. The team will embark on an engagement programme with key regulators, policy makers and industry players to capture up to date market trends and promote continued partnership and shared learning between the renewables and finance industries.

A transition is underway

Report proposition:

• The countries of the GCC are energy driven economies: historically, that has meant oil and gas exclusively. But the energy system of the future will not be the same as the past. A transition is underway for renewables and low carbon technologies to become an increasingly important and established part of the mix.
• This represents an opportunity for the Gulf region to reduce the energy intensity and carbon intensity of its economies; diversifying the industrial base, increasing skills, reducing emissions.
• There is also a real opportunity for the financial services sector to develop the appropriate products and services to support the development of the energy industry.

Four main pillars of the report:

• Pillar one: the scale of the opportunity is large in renewables. Demand for energy is growing rapidly, resulting in a looming gap between the supply and demand, globally and in the region. Filling that gap will require substantial new generation capacity, as well as an increasing focus on efficient use of energy. For the last few years, global investment in renewable power generation has exceeded that in conventional technologies (coal, gas, oil). Because of rising energy demand and the increasing competitiveness of renewables, the current low price of oil will not significantly impact the continuing growth of renewables. The industry is now measurable in hundreds of billions of dollars a year, perhaps even a trillion.
• Pillar two: renewable energy technologies are now proven and cost-effective. Solar PV and on-shore wind power, in many cases, have achieved grid parity. The latest solar PV project tendered in Dubai returned a low bid that set a new global benchmark and is competitive with oil at US$10/barrel and gas at US$5/MMBtu. In parallel, there is also growing awareness that the gains to be made from promoting energy efficiency represent an enormous economic opportunity (including for industrial applications which can offer compelling returns).
• Pillar three: investors and developers see a global stage for projects. Whilst the particular characteristics of demand and supply are local, the opportunity is global. Decarbonising economies is now a global theme and developing economies have the opportunity to leap straight to sustainable energy solutions. Building up strong regional expertise, such as now exists in Masdar in Abu Dhabi, will help GCC countries compete in the global marketplace for new energy solutions.
• Pillar four: realising the opportunity will require collaboration between policymakers and financial institutions. Because of the scale of ambition and sheer level of investment, there will be a major role for the private sector and, by extension, financiers. Governments will be required to engage with the financial community to facilitate the realisation of their policy ambitions. The financial services sector has the opportunity to develop innovative finance structures to support the energy industry’s shift towards a new energy system.

Methodology of the report:

Three forms of evidence were used in this report:

• Firstly, the report draws on global analyses from energy expert bodies and academic studies to present the core trends and context of supply and demand behind the changing nature of global and regional energy systems.
• Secondly, the scenarios presented in the report draw on the Future Technology Transformation model developed by the University of Cambridge, derived from many previous academic studies and a solid regional and global database of energy investment trajectories.
• Thirdly, the report draws upon a wide range of interviews conducted in Abu Dhabi during the period October 2014 to January 2015, covering key policy, energy sector, project developer and banking industry stakeholders.

The report can be downloaded in English, and the Executive Summary in English and Arabic, from www.nbad.com/futureofenergy

About NBAD
The National Bank of Abu Dhabi (NBAD) has one of the largest networks in the UAE, with an expanding network of 125 branches and cash offices and more than 585 ATMs across the country. NBAD’s growing international network consists of about 60 branches and offices in 18 countries stretching across five continents from the Far East to the Americas, giving it the largest global network among all UAE banks.

Since 2009, NBAD has been ranked consecutively as one of the World’s 50 Safest Banks by the prestigious Global Finance magazine, which also named NBAD the Safest Bank in the Emerging Markets and the Middle East.

NBAD is rated senior long term/short term AA-/A-1+ by Standard & Poor's (S&P), Aa3/P1 by Moody’s, AA-/F1+ by Fitch, A+ by Rating and Investment Information Inc (R&I) Japan, and AAA by RAM (Malaysia) giving it one of the strongest combined rating of any Global financial institution.

A comprehensive financial institution, NBAD offers a range of banking services including retail, investment and Islamic banking. NBAD grows strategically toward its vision to be recognised as the World’s Best Arab Bank. For more information, visit www.nbad.com.

About PwC Middle East
PwC helps organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries with more than 195,000 people who are committed to delivering quality in assurance, tax and advisory services. For more information, visit www.pwc.com. Established in the Middle East for 40 years, PwC has firms in Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, the Palestinian territories, Qatar, Saudi Arabia and the United Arab Emirates, with around 3,000 people. For more information, visit www.pwc.com/me.

About Masdar
Masdar is Abu Dhabi’s multi-faceted renewable energy company advancing the development, commercialisation and deployment of sustainable energy technologies and solutions. The company serves as a link between today’s fossil-fuel economy and the energy economy of the future. Backed by the Mubadala Development Company, the strategic investment company of the government of Abu Dhabi, Masdar is dedicated to the emirate’s long-term vision for the future of energy. For more information,visit www.masdar.ae.

About CISL
The University of Cambridge Institute for Sustainability Leadership (CISL) brings together business, government and academia to find solutions to critical sustainability challenges.

Capitalising on the world-class, multidisciplinary strengths of the University of Cambridge, CISL deepens leaders’ insight and understanding through its executive programmes, builds deep, strategic engagement with leadership companies, and creates opportunities for collaborative enquiry and action through its business platforms.

Over 26 years, we have developed a leadership network with more than 6,000 alumni from leading global organisations and an expert team of Fellows, Senior Associates and staff.

HRH The Prince of Wales is the patron of CISL and has inspired and supported many of our initiatives. For more information, visit www.cisl.cam.ac.uk.

About 4CMR
Cambridge Centre for Climate Change Mitigation Research (4CMR)
The Cambridge Centre for Climate Change Mitigation Research (4CMR) produces interdisciplinary scholarly research to identify and assess policies that reduce the risks of climate change while allowing for global economic development. We do this through the study of both mitigation (reducing climate change) and adaptation (reducing the risks when climate change does occur). At the heart of our research is the development of integrated models that allow for the complexity of social and physical processes to emerge through linking knowledge of economic, environmental, energy, land and public health. We also work with public and private sector organisations to apply our research in facilitating design and adoption of effective policies and practices. For more information, visit www.4cmr.group.cam.ac.uk.