The Arab Petroleum Investments Corporation (APICORP), a multilateral development financial institution, issued a white paper, titled “The Energy Transition: Reshaping Investments and Strategies,” outlining key recommendations for the sustainable growth of the energy sector in the MENA region in light of the transition towards a low-carbon world.
Based on the outcomes of a strategic roundtable that brought together 40 high-level industry experts from the energy and financial sector, including representatives of government, multilateral organisations and the private sector, the recommendations encompass sustaining energy investments; enhancing finance, improving regulations, pricing carbon, bolstering efficiency and re-educating the public on misconceptions surrounding the hydrocarbon industry.
Dr. Ahmed Ali Attiga, CEO of APICORP, said, “In this age of rapid evolution for the energy industry, greater stakeholder collaboration between leaders of the energy and finance markets is of critical importance. At the APICORP workshop on Energy Transition, the participants identified the need for countries to develop new regulatory models with higher standards of governance to create the right incentives and enable higher private sector participation. This involves outlining clear and specific national and local environmental concerns, setting targets and establishing independent authorities to oversee the implementation of the entire process.”
“The actionable and achievable recommendations outlined in APICORP’s white paper provide a roadmap that would help the industry that has long served as a cornerstone of the region’s economies enter the next decade as a relevant and positive disruptor,” Dr. Attiga noted.
Leila Benali, APICORP chief economist and head of strategy, energy economics and sustainability, said, “The transition towards a low-carbon world is perhaps the energy market’s biggest shift in nearly a century. For the MENA region to keep pace and truly unlock the massive potential of its vast energy resources, countries need to act swiftly and engage the private sector to proactively adapt and innovate, especially in this period of increasing competition for attracting capital.”
The five key recommendations by the experts include:
IMPROVING ACCESS TO FINANCE
To meet the demand for capital in the energy sector, the accessibility and diversity of investments must improve by creating a more supportive ecosystem with new financial and commercial models that enable greater private sector penetration. This will allow the private sector to fill the gaps that energy majors, national oil companies (NOCs) and governments cannot meet alone and enable better risk sharing.
While the renewable energy industry has certainly benefitted from tailored financing mechanisms - such as mini-perms, green bonds, standardisation and aggregation of projects, soft loans and crowdfunding - the rest of the energy value chain is lagging behind.
Furthermore, the region’s evolving position on the global financial stage presents the opportunity to optimise capital structure, gain access to international capital markets and diversify long-term strategic financing options.
Simplified, stable and transparent regulation will increase investor sentiment and confidence. While energy subsidy reforms may lead to higher prices, investors in different technologies or parts of the value chain always prefer a transparent and consistent regulatory regime that will provide assurance on the absence of future potential distortive policies and ad-hoc changes.
INTRODUCING CARBON PRICING
Carbon pricing is needed to steer the industry towards lowering carbon emissions and encourage the adoption of low-carbon fuels including fossil and technologies. In the context of investments in a low-carbon world, a price on carbon is essentially born from the need to level the playing field for energy technologies and provide visibility for finance stakeholders.
To improve risk appetite, it is imperative to improve energy efficiency across the value chain for both supply and demand and streamline operations to maximise value out of energy assets. Attempts to integrate the hydrocarbon supply chain will also diversify the sector with more sophisticated value-added products, as well as attract and develop a more specialised and skilled labour force.
At a time when all fuels and technologies will be needed to manage an effective energy transition, negative sentiment around hydrocarbons is impeding the sector’s ability to attract the necessary financing and talent, both of which lie at the core of a sustainable, innovative and growing energy mix. Hence, re-educating the public about the energy industry and its role in development is critical to facilitate a better understanding of the complexities around the industry and an appreciation of its value in the energy transition.