UAE invests in low carbon future

UAE has for long recognised the threat of climate change and hence pursued alternative means for producing the power needed to fuel its economy. UAE’s clear strategy has been driven by Masdar to deliver pioneering projects using cutting-edge clean energy technologies that are commercially viable and bankable. The broader commercialisation is taken on by strong industrial players supported by the banking sector, which too is taking the transition forward. The strategic intent combined with technology commercialisation support and financing are paving the way for multibillion project investments.

Strong commitment to energy transition

UAE has a clear understanding about the threat of climate change and already long ago started scouting alternative means for producing the power needed to fuel its economy. This forward-looking approach has been focusing on building resilient pathways for new industries, new jobs, and long-term sustainable economic growth in line with the energy transition.

The search begun already over 15 years ago; investments were directed in nascent renewables technologies through Masdar, which is a clean energy pioneer targeted in positioning the UAE at the forefront of the worldwide energy transition. Masdar has developed projects in more than 40 countries across six continents; the committed or planned investments in worldwide projects add up to more than AED 110 billion (USD 30 billion). For example, Masdar has invested in 11 renewable energy projects in the United States alone totalling nearly 2GW across Texas, New Mexico, Nebraska, and California. [i]

The UAE will require AED 2.5 trillion (USD 681 billion) in investment to finance its transition to a net zero economy. The strong business sector is supported therein by UAE’s banking sector which is playing a vital role in supporting the transition to a greener economy. One notable commitment is the financial sector’s pledge to mobilize AED 1 trillion (USD 272 billion) in sustainable finance by 2030. The impact of these sustainable finance products on promoting environmentally friendly initiatives is significant in funding renewable energy, encouraging energy efficiency, supporting sustainable infrastructure, creating market incentives and raising awareness. [ii] The impact of these sustainable finance products is significant in promoting environmentally friendly initiatives - yet overshadowed by emissions generated by the exported products.

Zero-carbon is moving forward at scale

In the UAE, the strategic commitment has translated into action. The UAE is the first country in the Middle East to operate a zero-carbon commercial scale nuclear power. The final unit of the Barakah Nuclear Energy Plant’s was connected to the transmission grid in March 2024 adding another 1,400 megawatts of clean electricity capacity. This multi-unit nuclear power plant with a total nameplate capacity of 5,600 megawatts supplies up to 25% of UAE's electricity and prevents up to 22 million tons of carbon emissions every year, equivalent to removing 4.8 million cars from the roads. [iii] Nuclear energy program is hence significantly contributing to the decarbonization of the UAE’s power sector as well as reinforcing energy security and grid resilience.

The UAE is also leading in large solar power plants; it operates three of the largest and lowest cost solar plants in the world at 1.35 cents per kilowatt hour. The Mohammed bin Rashid Al Maktoum Solar Park, the largest single-site solar park in the world, will reduce more than 6.5 million tons of carbon emissions annually when completed, hence contributing to Dubai’s net-zero strategy. ⁱ

The UAE aspires global leadership in low carbon hydrogen and its derivatives; targeting 25% market share in key import markets by 2030 with an initial focus on Japan, South Korea, India, and Europe. The National Hydrogen Strategy forecasts local demand of low-carbon hydrogen to reach 2.7 million tonnes per annum by 2031. Sizeable projects are well on the way and include large-scale green hydrogen production, green ammonia production, and green steel production. For example, Abu Dhabi has announced plans for a $1 billion Helios Industry facility to produce green hydrogen and ammonia. The facility will be powered by an 800 MW solar photovoltaic plant (PV) and is expected to produce annually 200,000 tonnes of green ammonia for export once completed. Even the project's initial phase is sizeable as it includes a 300 MW solar PV plant and an estimated annual 35,000 tonnes ammonia production facility.[iv]

From fossils towards more diverse mix

Countries which have historically enjoyed geopolitical influence due to their fossil fuels are likely to see their positions challenged when energy transition proceeds. The UAE fortunately belongs to the highly exposed and highly resilient countries, which have the capacity to reinvent their economy, adapt to the transition and even benefit from it. The already on-going economic diversification and decarbonization strategy of the UAE shows how forward-looking long-term decision-making can reduce risks. The energy policy of the UAE foresees a 44% share of clean energy and 70% decarbonization of the economy by 2050. [v]

Despite these efforts and anticipated progress even UAE will be challenged by China, the renewable energy superpower. China is by far the largest global manufacturer of clean energy technologies such as wind turbine components, crystalline silicon PV modules, and lithium-ion battery cells. Moreover, China is well positioned in the critical energy metal supply chains; it is dominating the supply of rare earth metals and graphite as well as the main player in processing of lithium, cobalt and copper. Interestingly, the top three producer countries account for 50% - 90% of mining and processing of the six critical materials whereas the share of the OPEC in world oil production is just 40%.[vi]

Major global shifts ahead

The energy transition will gradually cause a huge shift away from coal, oil and gas to renewable generation firmed by storage solutions and followed by electrification and decarbonization of hard-to-abate sectors. This shift will radically increase our dependence on critical minerals and energy metals: copper, lithium, graphite, nickel, cobalt and rare earths. Globally, Chile dominates copper, Australia lithium, Democratic Republic of Congo is rich in cobalt – and China is a leading player in the battery value chain. The expected rapid surge in demand will outplay supply – especially towards 2030 – because it is difficult to build new mines fast enough.

The net zero targets require fast action and huge investments, which to date have plateaued amid the energy crisis and geopolitical tensions. Despite the broad progress on clean sustainable energy, challenges remain due to not only nascent technologies, critical supply chains and geopolitical shifts but also renewed focus on energy security. Amidst all the uncertainties, we might be relying on oil and gas for somewhat longer than anticipated in the most ambitious net zero strategies.

When improving the existing assets and moving forward with the clean transition, Rejlers Abu Dhabi is well positioned to support investment planning, engineering and project execution – welcome!

Jarmo Suominen, SVP, Middle East Region and General Manager Abu Dhabi Branch

Marita Niemelä, SVP, Sustainable Energy Solutions, Rejlers Finland

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[i] https://www.uae-embassy.org/sites/default/files/2024-04/Climate_White%20Paper_04.27.2024.pdf

[ii] https://assets.kpmg.com/content/dam/kpmg/ae/pdf-2024/04/eco-financing-the-future.pdf

[iii] https://www.enec.gov.ae/barakah-plant/

[iv] https://www.worldfutureenergysummit.com/content/dam/sitebuilder/rxae/worldfutureenergysummit/docs/Hydrogen-report-02.pdf.coredownload.133678005.pdf

[v] https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2019/Jan/Global_commission_geopolitics_new_world_2019.pdf?rev=a12555f7a34b4258bf70de9cb9ca654c

[vi] https://www3.weforum.org/docs/WEF_Energy_Transition_and_Geopolitics_2024.pdf