S&P Global Ratings predicts an increase in renewable energy sector investments in the GCC region over the next five years. Noting a rise in sustainable energy solutions, with a particular focus on clean energy investments, S&P said this shift is driven by GCC countries’ objectives to decrease their dependence on oil and gas and facilitate the exportation of clean energy in the future.
Following the 2023 UN Climate Change Conference or COP28, GCC countries have raised their decarbonization targets and allocated significant capital toward this goal. The power sector, being one of the largest sources of emissions, plays a significant role in most national decarbonization plans.
The UAE has established a US$30 billion fund dedicated to the energy transition, while Abu Dhabi National Oil Company has announced an increased budget of US$23 billion, up from US$15 billion last year, for the development of its carbon management platform both domestically and internationally.
The rating agency also anticipates a substantial influx of new reverse-osmosis water desalination plants in the region. These plants are preferred due to their lower energy consumption compared to thermal technology. As an example, Abu Dhabi has set a target to meet more than 90% of its water demand through reverse-osmosis plants by 2030.
S&P Global Ratings believes the GCC region is well-positioned to contribute to the global energy transition, thanks to its access to capital and abundant availability of low-cost renewable energy sources. It is anticipated that GCC corporate and infrastructure firms can meet higher refinancing needs and interest costs in 2024 — due to an improvement in operating performance starting from 2023, particularly for oil, gas, and chemicals companies, as well as continued growth in the non-oil sectors.
“The level of total reported debt among both green and renewable energy (GRE) and non-GRE issuers in the region remains relatively stable. Despite significant spending requirements, aggregate reported debt is expected to remain largely unchanged in 2024 and 2025 under our base-case scenario.
“At the same time, we project that the combined earnings before interest, taxes, depreciation, and amortization (EBITDA) of rated GCC companies will increase by approximately 5—10% over the next two years.” The rating agency stated it will closely monitor the evolution of EBITDA interest coverage ratios for the most highly leveraged companies at the lower end of the rating spectrum, as well as those that need to refinance a substantial portion of their capital structure in 2024. If these companies operating in cyclical sectors and making significant investments experience an increase in their leverage metrics, it could lead to rating pressure.
