Sustainable finance Can Sukuk become a driver of solar and green energy growth? Deloitte Islamic finance Insights Series In the Middle East Leading by engaging since 1926

Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Contents

04 05 06 07 Foreword from Deloitte Foreword from ISRA Acknowledgments Executive summary

08 09 11 17 Research methodology Introduction Market development Industry and business and investment trends leaders’ outlook

21 28 29 31 Islamic financing strategy Business practice and Conclusion Appendix A: Growth drivers support initiatives and market dynamics

56 57 Appendix B: Abbreviations Appendix C: Thought leadership reports

03 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Foreword from Deloitte

This is the second Deloitte renewable Resource thought leadership, senior energy report that examines the industry managers that serve clients in the solar investment trends, regulatory policy, sector space in our region, Deloitte industry stakeholders, financing strategies Middle East (ME) Islamic finance and success stories that help drive the Knowledge Center (IFKC) survey value proposition for Islamic financing conducted in 2017, interviews and options. industry group discussions as well as country cases built by associate research While the demand for sustainable energy- institutions. efficient sources continue to increase in many countries around the world, I am most grateful to my fellow colleagues security of sustainable finance and at Deloitte ME and Malaysia, and all responsible investment in the sector associate research institutes represents a main challenge. Solar energy acknowledged in this report. continues to enter mainstream utilization Dr. Hatim El Tahir, FCISI in several Organization of Islamic As economic growth and population Director, Islamic finance Group Cooperation (OIC) countries in the regions increase in the 10 countries and regions Leader, Deloitte ME IFKC analyzed in this report (MENA, Asia and reviewed, solar and green energy will likely Deloitte & Touche (M.E.) Europe). grow in scale and scope and will certainly require huge capital to fund. The issues Energy efficiency and green energy and industry growth trends in this report concepts have been embraced and may stimulate debate as to how Islamic deployed in the national visionary finance can become central to these strategies. A clear trend is the growing growing investment opportunities and importance of Islamic finance as an help identify some of the key financing alternative funding choice for many strategies/structures which can be further countries and governments, supported by improved to respond to increasing needs Multinational Development Banks (MDBs) for capital. and local industry supporting initiatives (technical and financial). I hope you enjoy reading this report.

The methodology for developing this set of issues and trends emerged from data analytics from Deloitte’s Energy and

04 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Foreword from ISRA

The Paris Agreement on Climate Change projects. In the field of Islamic finance, marks a key turning point in the global green Sukuk has emerged as a Shariah- energy transition. More than 178 nations compliant instrument for the same have ratified the United Nations purpose. Framework Convention on Climate Change (UNFCCC), which mainly aims to Malaysia and Indonesia are among the consolidate efforts to address the threat first countries to issue this type of Sukuk. of climate change. In Malaysia, the first corporate green Sukuk worth RM 250 million, was issued One of the most important provisions of by Tadau Energy Sdn Bhd to partly finance the Paris Convention is to promote large-scale solar construction. Meanwhile, renewable and sustainable energy. This Indonesia issued US$ 1.25 billion of not only has a direct impact on economic sovereign green Sukuk, whose revenues and social development, it is also will be partly used to finance renewable environmentally friendly. More energy projects. The increase in the Professor Mohamad Akram Laldin importantly, the use of “green” energy has adoption of green Sukuk to finance Executive Director become an integral part of the UN’s renewable energy projects is attributable International Shariah Research Sustainable Development Goals (SDGs), to the following factors: the increase in Academy for Islamic finance which have been incorporated into the renewable energy projects, particularly economic growth plans of many nations. solar energy projects, the low capital It also contributes to several policy costs, and the fact that it is a Shariah- objectives, such as developing new compliant instrument. industries and products, creating new jobs, reducing emissions of polluting This report, which is jointly produced by gases and providing affordable and ISRA and Deloitte Middle East, highlights reliable clean energy. the importance of renewable and alternative energy by presenting the According to the Bloomberg NEF report, experiences of selected countries in this global investment is focusing strongly on field. The report also emphasizes the role investing in renewable and clean energy. of Sukuk in sustainable development and For example, investments into global renewable energy projects, particularly clean energy recorded an increase from solar projects. The report is expected to US$ 200 billion in 2008 to US$ 332 billion raise stakeholders’ awareness on in 2018. This is due to lower investment investment in renewable energy projects costs in green energy, especially solar. through Shariah-compliant financing instruments particularly green Sukuk. Several countries have also recently witnessed a remarkable development in I would like to take this opportunity to renewable energy investments. In the express my gratitude to Deloitte Middle countries of the Gulf Cooperation Council East for collaborating with us in producing (GCC), for example, the renewable energy this report. My profound thanks also go target has become an integral part of to all the contributors to this report. national determined contributions and Congratulations to the production team falls within the objectives of UNFCC. from ISRA and Deloitte Middle East for this great achievement. This report would It is worth noting that issuances of green not have been possible without your bonds have become part of the current earnest support. forms of financing for renewable energy

05 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Acknowledgments

We extend our gratitude and appreciation to the respondents of our online survey Solar energy continues to enter questionnaire and Deloitte professionals who contributed to this report. We are mainstream utilization in several also grateful to fellow colleagues and practitioners who contributed in Organization of Islamic Cooperation developing the country cases and stimulated our discussion themes which (OIC) countries in the regions analyzed helped improve the depth of the research scope and industry analysis. in this report (MENA, Asia and Europe).

Project contributors Deloitte team Industry contributors & associate • Dr. Hatim El Tahir, Director researchers • Sakinah Jamil, Senior Manager • Professor Yelena Kalyuzhnova, Vice Dean • Sajida Ali, Consultant (International), Henley Business School, • Faisal Hamid, Consultant Director, the Center for Euro-Asian Studies, the University of Reading. ISRA team • Dr. Irum Saba, Assistant Professor, • Associate Prof. Dr. Said Bouheraoua, Center of Excellence in Islamic finance Director of Research Development and (CEIF), Institute of Business Innovation Department Administration, Pakistan • Dr. Salma Sairally, Research Consultant • Dr. Nihat Gumus, Ibn Haldun University - • Dr. Marjan Muhammad, Head of Department of Management, Istanbul, Research, Quality Assurance Office Turkey

Supported by

06 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Executive summary

The drive to promote green energy in Over the years, and in particular in the Over the years, and in many countries, together with reducing markets we considered, Islamic finance solar technology costs and maturing has emerged as a key player to fund particular in the markets practices, have attracted strategic social and infrastructure projects and we considered, Islamic investors into the sector primarily driven offers various innovative Shariah- by return and sustainable investment compliant structures to both large and finance has emerged as a principles. Owing to such factors, almost small-scale enterprises in different key player to fund social all countries analyzed are either sectors of the economies. Evidently, and infrastructure increasing their current solar capacities or these structures are also used in installing new plants to achieve its clearly financing several major solar projects in projects and offers set energy efficiency strategies. the Middle East and North Africa (MENA), various innovative Asia and Europe. Countries such as Malaysia and Indonesia Shariah-compliant which are considered highly coal This report provides an in depth analysis structures to both large dependent economies have started to of the key driving factors of going green and small-scale drastically decrease their government in these selected groups of counties and sponsored subsidies towards discusses the value proposition of Islamic enterprises in different conventional energy sources to drive their financing strategy, as well as present sectors of the economies. focus towards non-conventional sources, anchor transactions and structures used with solar the being prime focus. in these countries.

With such focused approach by various The analysis also covers the global governments, the majority of the group energy landscape, and concludes with countries researched have seen a rising discussions on regulatory and investment trend in investments through both policy support in these group countries. conventional and Islamic finance methods A summary of the industry outlook is primarily driven by international presented addressing the various developers and strategic national challenges and opportunities faced by investors. This has also encouraged many solar developers and investors which other investors to engage in scale solar could help improve business practices and green energy projects, thereby and investment strategies. enjoying benefits offered by their respective governments.

07 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Research methodology

The report includes 10 The ‘Solar report’ is a follow up issue of Present Islamic finance instruments such our ‘renewable industry study’ in which as ‘Solar Sukuk’ serve as a catalyst for country cases in Asia we examined the prospects of Islamic funding solar projects in the OIC (Malaysia, Indonesia, finance as a source of financing solar marketplace. projects in several OIC markets based on Pakistan), Middle East three geographical regions: Asia, Middle Figure 1: Percentage of participating (Kingdom of Saudi Arabia, East and Europe. respondents based on different geographical regions United Arab Emirates, We have unearthed vital and interesting 2.50% Bahrain, Jordan and findings and provided industry analysis 5.76% Morocco), and Europe through our ‘triangular study approach’: regulatory environment, markets and 5.04% (Turkey and Kazakhstan). practices, and business supporting We examined the size of institutions. This allowed us to form practical policy and practice 26.26% global solar projects and recommendations as how to Islamic finance gap, along with finance can lead by assuming a natural 60.44% regulatory and policy role in financing the ‘real economy sector of energy. development in the We looked at the challenges and needs of selected countries. Asia Middle East & key solar stakeholders, articulating a North Africa (MENA) possible ‘way forward plan’ for connecting Sub-Saharan Africa Europe Islamic finance investors, solar energy Others operators, energy distributors and other stakeholders.

Almost The report includes 10 country cases in Asia (Malaysia, Indonesia, Pakistan), Middle East (Kingdom of Saudi Arabia, 60.44% United Arab Emirates, Bahrain, Jordan and of respondents were from Asia Morocco), and Europe (Turkey and Kazakhstan). We examined the size of global solar projects and finance gap, Followed by the MENA region with along with regulatory and policy development in the selected countries. 26.62% The report also features highlights on the of total respondents role of the International Renewable Energy Agency (IRENA) and the Islamic Development Bank (IsDB) in the MENA region and other industry and multilateral organizations. 5.76% of respondents were from Europe

08 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Introduction

In the past decade, the world has witnessed a pressing need for a major Looking at the Gulf Cooperation transformation from conventional energy sources to renewables starting with Council (GCC) region, the renewable planned efforts in limiting the global temperature rise to below 20ºC for the energy market has seen an upward present century. According to the International Energy Agency (IEA) World trend in recent years with all countries Energy Outlook 2018, rising disposable incomes and an additional 1.7 billion incorporating renewable energy people – mostly added to urban areas in developing economies have pushed up targets in their National Determined global energy demand by more than a quarter to 2040. Contributions (NDCs) under the United

While the prevalent approach followed by Nations Framework Convention on many countries is to decrease their energy-related carbon emissions, a key Climate Change (UNFCC). driver for climate change is arriving at a universal agreement on improving energy billion in 2008 to US$ 332 billion in 2018, market is seen as one of the innovative efficiency along with faster adoption levels with a maximum investment per MW in financing methods with the National bank for renewable energy as their primary solar sector compared to the rest of of Abu Dhabi issuing the first green bond source. renewable energy sources. This is largely in the Middle East valued at US$ 587 due to a drastic decrease in required million in 2017. 3 IRENA reported that the global capital cost thereby reducing the total renewable energy capacity more than investment in solar to US$ 130 billion in Islamic finance is considered one of the doubled in the last decade from 1,060 2018, as reported by Bloomberg NEF. new options for solar financing apart from MW in 2008 to 2,179 MW in 2017 1. This conventional loans, bonds and equity provides an additional thrust to the overall Looking at the Gulf Cooperation Council schemes. One of the popular finance appeal of renewable energy as one of the (GCC) region, the renewable energy techniques, Green Sukuk, which are preferred areas for investing in the future. market has seen an upward trend in Shariah-compliant green bonds, have recent years with all countries recently been used in five renewable Increasing renewable energy deployment incorporating renewable energy targets in energy projects in Malaysia (as at by various countries contributes to their National Determined Contributions December 2018). Indonesia has also numerous policy objectives, including (NDCs) under the United Nations launched the world’s first sovereign Green boosting national energy security and Framework Convention on Climate Sukuk bonds (for US$ 1.25 billion) in economic growth, creating jobs, Change (UNFCC). February 2018, whose proceeds will developing new industries, reducing partially finance renewable energy emissions and local pollution, and Renewable energy financing in the GCC projects. providing affordable and reliable energy. 2 region generally has long tenures with high debt-equity-ratios (more than 70%). Global new investment in clean energy However the rise of the green bond almost increased by 66% from US$ 200

09 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Overall, the adoption of Green Sukuk as Cost declines for key technologies have Global investment in solar projects has one of alternatives to several traditional influenced finance flows in the renewable increased dramatically to reach US$ 161 financing techniques will rise due to energy space. Lower solar and wind billion in 2017 as shown in Figures 2 factors such as increasing number of power costs were key contributors which and 3. solar projects, lower capital cost, faster, reduced the total value of renewable favorable green energy policies, along with energy investment in 2015 and 2016, as preference towards Shariah-compliant each dollar of investment financed more instruments. capacity than in previous years. 4 Global clean Global solar energy landscape However, global clean energy investment Renewable energy is gaining impetus reached US$ 332.1 billion in 2018, energy investment these days as part of focused approach in according to Bloomberg NEF. in 2018 every country’s economic growth policy. It is considered one of the many ways to Global new solar energy investment US$ 332.1 achieve a country’s development ambition Investments in renewables have billion and to meet the increased demand for continued to increase each year and power with emphasis on developing the continue to make remarkable progress. infrastructure needed to meet the According to the Frankfurt School-UNEP demands of the future. Centre Annual Global Trends in Renewable Energy Investment 2018 Increasing global prosperity drives growth report, global investment in renewable in energy demand. According to IRENA’s energy went up by 2% in 2017 to report on global landscape of renewable US$ 279.8 billion, taking cumulative Global new energy finance 2018, global annual investment since 2010 to US$ 2.2 trillion. investment in renewable energy rose This rise in capital expenditure took place investment in steadily in 2013-2015, peaking at US$ 330 in a context of further decrease in the cost billion in 2015 before falling to US$ 263 of wind and solar that made it possible to solar in 2018 billion in 2016. While annual investment buy megawatts of equipment more US$ 131 declined in 2016, capacity additions in the cheaply than ever before. same year were up from 2015. This was billion partially due to declining costs, time lag Solar power gained prominence in 2017 between financial closure (i.e. the time of as total installed capacity from new solar investment) and the completion of power projects stood at 98 gigawatts, construction, after which an installation which was more than total of new coal, becomes operational. gas, and nuclear plants put together. 5

Figure 2: Global new investment in solar photovoltaic (PV) (US$ billion), 2017 Figure 3: Global investment of renewable energy by sector by 2017 (US$ billion) 200

180 179 Solar 161 161 160 158 Wind 107 145 140 140 137 Biomass &

n 120 Waste-to- 5 o

i 120 l l

i energy

b 103

$ 100 S Small hydro 3 U 80 62 64 60 Biofuels 2 38 40 Geothermal 2 22 20

0 Marine 0.2 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 40 80 120 160

Source: BloombergNEF

10 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Market development and investment trends Majority of the financial support has come Developed countries have benefitted In 2017, emerging through government-backed programs from market and product designs that boosted by the willingness of initially took off in emerging countries. For markets accounted for development financial institutions (DFI’s) example, renewable energy auctions are a 63% of global new to advise and fund these projects. As an trend that emerging markets embraced example, the World Bank Group’s lending first and that have brought steep price investment in renewable arm the International Finance declines in renewable prices across the energy, widening the Corporation (IFC) has provided nearly globe. investment gap with US$ 6 billion in capital for 250 renewable energy projects in emerging markets A combination of enabling trends and developed countries to (5 GW solar and 4 GW wind) 6. demand trends are helping solar and a record high. wind compete on par with conventional Technology trends sources and win (Deloitte analysis). Technology is accelerating the deployment of renewables: Automation Solar energy growth and advanced manufacturing are improving the production and operation Enabling trends Demand trends of renewables by reducing the costs and time of deploying renewable energy Lower solar cost Focused approach by government to support growth systems. Artificial Intelligence (AI) can of non-conventional energy sources improve weather forecasting, optimizing Expanding investor Population growth, increasing economy and climate the use of renewable resources whereas interest changes are fueling demand for power Blockchain can enable energy attribute certificate (EAC) markets to help resolve Technology innovation Persistent energy deficit trust and bureaucratic hurdles. Advanced materials have potential to transform the materials in solar panels and wind Investment trends by regions turbines (Deloitte analysis). A report published by IRENA: Unlocking Renewable Energy Investment: The Role Emerging markets of Risk Mitigation and Structured Finance In 2017, emerging markets accounted (2016), identifies the main risks and for 63% of global new investment in barriers to renewable energy investment renewable energy, widening the and provides policy makers and public investment gap with developed countries finance institutions with a strong portfolio to a record high. of measures, instruments and tools (see Figure 4) that can be used in combination China recorded the highest growth for to mobilize private investment at scale. solar and wind segments along with capacities marking above 100 GW for Investment in renewable energy both in 2017. China accounted for over projects – GCC half of new solar additions and two thirds The renewable energy projects in GCC are of global PV production in 2017. concentrated in the UAE. According to

11 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

IRENA’s renewable energy market analysis GCC 2019 report, investment trends in After a lean year in 2016, renewable renewable energy projects in the GCC spiked in 2011 with US$ 765 million energy investments again picked up invested in the UAE’s 100 MW Shams 1 CSP plant, which became operational in in 2017, mainly in three large-scale 2013. Investment activity dropped in 2012. Because of increasing government solar projects in the UAE. In Dubai’s interest and falling technology costs, investment in new projects rose in 2015, Mohammed Bin Rashid Al Maktoum and included US$ 326 million in the UAE’s 200 MW Mohammed bin Rashid Al Solar Park, the 950 MW solar PV Phase Maktoum Solar Park Phase II, US$ 400 million in the Shagaya project in Kuwait III and the 700 MW CSP Phase IV and US$ 600 million in Oman’s 1 GWth Miraah Solar EOR project. received investments of US$ 940

After a lean year in 2016, renewable million and US$ 3,870 million energy investments again picked up in 2017, mainly in three large-scale solar respectively as reported by IRENA. projects in the UAE. In Dubai’s Mohammed Bin Rashid Al Maktoum Solar Park, the 950 MW solar PV Phase III and the 700 MW CSP Phase IV received investments of US$ 940 million and US$ 3,870 million respectively as reported by IRENA.

In Abu Dhabi, about US$ 870 million was invested in the 1,177 MW Noor Abu Dhabi solar PV plant in Sweihan.

Figure 4: Policies, tools and instruments that reduce renewable energy barriers and mitigate risks

Structured finance mechanisms and tools

• Standardization Financial risk mitigation instruments • Aggregation • Securitization • Green bonds • Guarantees • Yieldcos Enabling possibilities and tools • Currency hedging instruments • Liquidity facilities • Resource risk mitigation • Financial policies and regulations • Project preparation facilities • Project facilitation tools Scalability • On-lending facilities Low High • Hybrid structures

Source: IRENA, 2018

12 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

I. MENA The Middle East will require additional power capacity of 267 GW by 2030, an increase of 66%, as reported by Siemens. The following tables highlight the market growth trends and list some of the key solar projects and capacity.

Morocco, Jordan and Egypt are Industry investment trends PV West of Nile tender. including large scale CSPs in • Investment in renewable energy • The biggest solar projects to be their energy mix projects within the MENA region financed included the 800MW Noor has seen an upward trend due to Midelt PV and solar thermal portfolio rise in clean energy-based electricity in Morocco, at an estimated US$ 2.4 demand coupled with factors such billion and, Dubai Electricity and Morocco planned to construct as growing population, economic Water Authority (Dewa) in UAE Phase 800 MW project valued at US$ growth, decreased cost of solar IV is 950MW and has a total project 2.4 billion energy, and increased industrial cost of US$ 4.36 billion. activity. • Morocco’s 580 MW Noor II and III • Solar energy has continued to gain projects at the Ouarzazate solar momentum both globally and in the complex, one of the largest in the MENA region. As of the first half of world to consist of PV and CSP. 2018, over 470 GW of solar • Concentrated solar power in MENA: photovoltaic (PV) was installed Despite MENA region’s contribution worldwide of which 100 GW was standing at a mere 7% of the global added in 2017. Concentrated Solar Power CSP’s • The 200 MW Kom Ombo solar PV generation of 5 GW, countries such project in Egypt and Jordan’s Round 3 as Morocco, Oman and the UAE are PV auction received bids below 3 early adopters of the large scale CSP, US$ cent/kWh. In addition, the while other countries like Egypt, Egyptian government has requested Jordan and Kuwait have or are bids no higher than 2.5 US$ cent/ looking to implement utility scale kWh for the ongoing 600 MW solar projects (Source: MESIA).

MENA solar projects

Project Country Capacity (MW) Status CREG PV IPP Algeria 150 – Solar PV EPC Algeria 50 – Algeria PV Algeria 4000 Announced West Nile PV IPP Egypt 600 – West Nile PV IPP 2 Egypt 200 – Round 3 Solar PV Jordan 150 – RAI Solar PV Jordan 50 Awarded Noor Midelt PV Morocco 800 – ANME Solar Park Tunisia 1700 Announced Tunisia Authorization Scheme Tunisia 64 Awarded Tunisia PV - Round 1 Auction Tunisia 500 – Tunisia PV - Round 2 Auction Tunisia 70 – Solar IPP project GCC country 900 – Solar IPP GCC country 2 GW – 12 Solar PV projects GCC country – –

Source: MESIA, Solar Outlook Report 2019 and other 13 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

GCC focus

GCC region is expected to add Industry investment trends • GCC countries are investing in the 7 GW of new renewable energy • The GCC region is expected to renewable energy value chain witness drastic rise in renewable including project developers, energy deployment. Led by the UAE, manufacturing companies, and Oman and KSA, nearly 7 GW of new research and development initiatives. KSA’s 300 MW project began renewable power generation capacity Although the bulk of investments to construction in November 2018 is expected to become operational date are concentrated in the UAE, as by the early 2020s. deployment picks up, investment • According to IRENA, the Solar PV flows will likely be distributed more remains the dominant technology in evenly among the countries in the the GCC’s project pipeline, with a region. share of over 75%, followed by CSP at • Saudi Arabia’s 300 MW solar PV 10% (all of which accounted by a Sakaka project, the first utility scale single project in the UAE) and 9% project in the country, was awarded share for wind projects, primarily in at 2.34 US$ cent/kWh and began Saudi Arabia and Oman. Solar- construction in November 2018, assisted enhanced oil recovery in (Source: MESIA, Solar Outlook Report Oman is also expected to contribute 2019). about 1 gigawatt-thermal (GWth) in 2019.

GCC: Installed renewable energy capacity at end of 2018

Country Photovoltaic (PV) Concentrated Total renewable Share of RE in total Solar Power (CSP) energy electricity capacity Saudi Arabia 89 50 142 0.2% United Arab Emirates 487 100 589 2.0% Bahrain 5 0 6 0.1% Kuwait 19 50 79 0.4% Oman 8 0 8 0.1% Qatar 5 0 43 0.4%

Source: IRENA, Renewable Energy Market Analysis: GCC 2019

14 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Utility-scale renewable energy projects in the GCC as of January 2019

Country Project/site Technology Size (MW) Details Mohammed bin CSP 700 • The project has been considered as the world’s largest CSP Rashid Al Maktoum plant, expected to cost US$ 3.87 billion (AED 14.2 billion) to Solar Park, Phase IV build in stages starting in 2020 Solar PV 250 • Assumed to start in 2020 with additional scope of CSP plant in November 2018 Mohammed bin Solar PV 600 • Construction begun in 2017 United Arab Rashid Al Maktoum (of 800) • Shuaa Energy 2 developed the project which is a joint venture Emirates Solar Park, Phase III between DEWA (60% stake) and a Masdar-led consortium 200 (Dubai) which also includes Electricité de France’s subsidiary, EDF (of 800) Energies Nouvelles

Mohammed bin Solar PV 200 • The project has been developed by ACWA Power and TSK and Rashid Al Maktoum operational since March 2017 Solar Park, Phase II Mohammed bin Solar PV 13 • The first phase of the Solar Park was a 13 MW PV plant Rashid Al Maktoum completed by First Solar in late 2013 Solar Park, Phase I

United Arab Noor Abu Dhabi, Solar PV 1,177 • Under construction in 2019 at an average price of 2.94 US$ Emirates Sweihan cents/kWh (Abu Dhabi) Shams 1 CSP 100 • Completed in 2013 Miraah Solar Solar 1000 • Miraah is a 1 GW solar thermal plant that creates steam for Thermal thermal (GWth) enhanced oil recovery. The first four blocks (100 MW) were completed in February 2018. • Under construction: 100 MW complete, delivering 660 tonnes of steam/day as of February 2018 Oman Ibri PV Plant Solar PV 500 • The Oman Power and Water Procurement company (OPWP) has shortlisted the three bidders in November 2018 for the US$ 500 million project PDO Amin PV Plant Solar PV 100 • A joint Japanese-Omani consortium has been announced in Nov 2018 to build a landmark 100 megawatt solar photovoltaic Independent Power Producer (IPP) Sakaka Solar PV 300 • The US$ 302 million facility will begin commercial operations Saudi in August 2019 which is backed by is a 25-year PPA with the Arabia Saudi power procurement company Al-Kharsaag Solar PV 900 • To be completed by 2020 (first 350 MW) Qatar • The project is structured as a 25-year build, own, operate, and transfer (BOOT) public-private partnership with Kahramaa Shagaya CSP 50 • Completed Solar PV 10 • Completed Kuwait Al Dibdibah/ Solar PV 1,200 - • The US$ 1.2 billion project is owned by Kuwait National Shagaya Phase II 1,500 Petroleum Company (KNPC). Bidders expected to construct the project and perform O&M for 25 years Askar Landfill Solar PV 100 • Askar PV on a landfill: three bids were submitted in December 2018. EWA will be the sole offtaker of the project for a period of 20 years. The lowest tariff was submitted by ACWA Power: Bahrain US$ 4.92 US$ cents/kWh with an alternative bid of US$ 3.89 US$ cents/kWh

Al Dur Solar-wind 5 – hybrid

Source: IRENA, Renewable Energy Market Analysis: GCC 2019 15 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

II. Asia

China leads with US$ 126 billion Industry investment trends installed (more than the whole world investment • The East Asia-Pacific region was the market as recently as 2014), and dominant destination for renewable solar investment of US$ 86.5 billion, energy investment which witnessed up 58%. rapid growth from US$ 64 billion in • Indonesia was the prominent Indonesia witnessed US$ 1 2013 to US$ 114 billion in 2015, country in Asia within the geothermal billion worth of investment for before a dip to US$ 88 billion in energy space with total of US$ 1 RE projects 2016. billion worth of investment. Almost • According to Frankfurt School-UNEP 60% is contributed by Supreme Centre Global Trends in Renewable Energy Muara Laboh geothermal Energy Investment 2018 report, project of 80MW. China was the leading country for • Pakistan continued to attract renewable energy investment in investment in non-hydro renewables, 2017 which accounted for US$ 126.6 particularly large-scale and small- billion, contributing to 45% of the scale solar, but its total of $695 global total. There was an million, while up 42% on 2016, was extraordinary solar boom in that far below the average of $1.7 billion country in 2017, with some 53GW achieved in 2014 and 2015. 7

III. Europe

Renewable energy sector Industry investment trends • The European Union (EU) will require employs about 1.2 million people • Europe shows that renewable energy investment of around US$ 76.5 can reach very high penetration at billion annually to achieve 34 per low cost. By 2050, renewables will cent renewables in its power mix make up 87% of the electricity mix, by 2030, according to IRENA. The European Investment with wind and solar playing dominant • Turkey’s renewable energy sector Bank has supported solar role, according to Bloomberg Nuclear will attract nearly US$ 28 billion photovoltaic projects Energy Finance. investments by 2020, according to a • By 2050, Germany will be running on new report by the World Bank’s IFC wind and solar, and 84% renewables, arm. but it has the highest emissions in • Some US$ 16.4 billion of these Europe. investments will be made in wind • By 2025, UK will have added 158 GW power, US$ 7.4 billion in solar energy, of wind and solar and US$3.4 billion in geothermal • According to IRENA, the renewable energy and US$ 560 million in hydro energy sector employs about 1.2 power, according to data compiled million people in Europe. This figure by state-run Anadolu Agency. would increase substantially with a doubling of the renewable share by 2030.

16 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Industry and business leaders’ outlook

This section summarizes the feedback Figure 6: Aside from solar energy, what other Apart from solar, from our online survey questionnaire renewable energy projects exist in your country/region? which aims at understanding how Islamic geothermal is the finance as an option could be considered primary renewable to fund solar energy projects. The target 36% 35% audience consisted of executives from energy source followed organizations whose primary industry was by Windmill and Biofuel oil and gas production, solar generation, which substantiates banking, asset management or professional services. strategies to invest and undertake renewable I. Industry information and factors involved energy projects in future. 12% 17% Figure 5: What is the estimate of solar energy contribution to energy generation in your country? Geothermal Windmill Biofuel Other (please specify) 4.32% • Apart from solar, geothermal is the primary renewable energy source 23.74% 71.94% followed by Windmill and Biofuel which substantiates strategies to invest and undertake renewable energy projects in future. • As reported by IRENA, there is ample evidence that the Solar PV and wind power dominate global spending on new renewables projects, moving from 83% of total finance in 2013, to 93% of total

Less than 5% More than 5% renewable energy investment in 2016. • Therefore, solar projects can be seen as Non-existent an important asset, underpinning economic growth of the countries. • Majority of respondents believe that share of solar energy in their country’s total energy generation has been low despite having considerable amount of support from their governments. • This is evident from the fact that non- hydro renewables comprise only 11% of the gross energy consumption compared to 29.7% for petroleum products. 8

17 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Figure 7: Which factors have most influenced the growth of solar energy projects in your • Awareness of the benefits of renewable country? energy and investment incentives are considered two key factors influencing Regulatory and policy support 23% solar energy growth with more than 50% of respondents indicating the same. Awareness of the benefits 26% of renewable energy • The economic viability is the major influencer to the growth of solar energy. Economic/investment incentives 26% While 60% attribute to the technological suitability, financing structures and Renewable energy and low cost 21%% public awareness and community support.

Other 4% II. Policy development and regulation

0% 5% 10% 15% 20% 25% 30% Figure 9: Is there a defined solar energy strategy/initiative in your market/ jurisdiction? Figure 8: Which factors do you think will influence the growth of solar energy projects in your country? 10.07%

The economic viability 28% 38.85% 30.94%

The profiles of participants 9% and developers

The financing structures 21%

Technology suitability 19%

Public awareness and community 20% 20.14% support and acceptability Yes No Other 3% Some progress in place Not sure

0% 5% 10% 15% 20% 25% 30% • Majority (~70%) of industry experts comprehend about presence of solar energy strategy in their market. Awareness of the benefits of renewable • This indicates that the countries’ governments are starting to make room energy and investment incentives are for more solar projects in the coming future. This hopefully will result in considered two key factors influencing significant change in the solar energy market. solar energy growth with more than 50% of respondents indicating the same.

18 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Figure 10: What is the level of regulation and III. Islamic finance as an alternative Less than 20 % of government support/guidance relating to option to Solar projects solar energy in your country/region? respondents were Figure 12: Which of the following is more 6.47% 7.91% engaged in Islamic suitable to solar financing projects? 9.35% financing of a solar 45% 43% project. Factors such 40% 35% as technological 30% improvements, demand 25% 23% for innovative ways of 20% 17% 15% 35.97% financing will see an 10% 40.29% 10% 7% upward trend in the 5% 0% future. Traditional Public Climate Public Other Non-existent At an early stage bank funding funds private Figure 13: Have you or a member of your Developing stage Maturing level syndicates partnerships team, or any affiliate organization, Not sure (PPPs) engaged in Islamic financing of a solar project? • Large number of respondents have • Most of the respondents (43%) believe 0.72% witnessed government support on Public Private Partnerships (PPPs) are 5.04% regulation and guidance, with many suitable for financing projects followed other leaders considering it to be at the by traditional bank syndicates and public 16.55% nascent stage with very little progress. funding. 20.14% • Results indicate that governments are • Few respondents (7%) suggested active in shaping solar energy strategies that Islamic finance instruments like in several countries around the world. Mudarabah and Sukuk would be the ideal way to invest in solar projects.

Figure 11: What types of support and policy would you be interested in seeing to consider solar energy in your business? 57.55%

Yes No Regulatory improvement 24% Planning to in the near future

Public awareness and Not considering Islamic finance as a source education of all stakeholders 28% of finance Other Economic incentives, government 31% subsidies including tax incentives • Less than 20% of respondents were Enabling of the foreign engaged in Islamic financing of a solar 14% investment environment project. Factors such as technological improvements, demand for innovative Other 3% ways of financing will see an upward trend in the future. 0% 5% 10% 15% 20% 25% 30% 35%

• Majority (83%) of respondents expect to see improvement in regulatory, economic incentives, government subsidies and awareness and education which will help them consider solar in their business.

19 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Figure 14: If you are considering Islamic Many government Finance for solar projects, which of these Opportunities options suit you more? agencies offer financial • Government policies Many countries have formulated explicit support in terms of tax 8.63% solar focused regulatory policies along exemptions, incentivizing with ambitious RE targets SMEs engaged in RE 28.78% • Declining capital cost project development, Large number of investors have shown interest to invest in solar sector owing providing incentives for to decline in cost of capital required citizens to adopt RE with support from industry and government based electrification • Use of unproductive land areas programs in their 62.59% Many countries have started to utilize localities and buildings. available unproductive lands in the Equity-based financing, where the financier countries to set up solar plants takes an equity stake in the project • Financial support Debt-based financing, where investors take a Many government agencies offer dividend/return on their investment financial support in terms of tax Other exemptions, incentivizing SMEs engaged in RE project development, • Investment in equity-based and debt- providing incentives for citizens to based investments (collectively ~90%) adopt RE based electrification programs are considered best options for in their localities and buildings investing in solar. • A small amount of respondents Challenges suggested that diversified option • Lack of available government between debt and equity could be a resources good method rather than investing State owned utilities in some countries solely in one type of financial want to keep a firm grasp over the instrument. power sector and are hesitant to liberalize their energy sectors • Unrealistic expectations Countries need to set expectations for tender prices based on their own risk profiles, not on tender results achieved in other countries • Subsidy reform In the long run, energy subsidies are unsustainable, hence, long term reform is a necessary measure that will help countries become energy independent. However, reform, if not implemented with an adequate safety net to protect the poorest segments, may cause public unrest

20 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Islamic financing strategy

Solar and green energy financing UiTM Solar Power Sdn Bhd decisions have been affected by the In April 2018, UiTM Solar Power Sdn Bhd, an indirect subsidiary of Universiti Teknologi continuing global credit crush impact such Mara, issued Green SRI Sukuk of up to RM240 million to finance the development and as banking regulatory capital operation of the 50MW utility solar power plant in Gambang, Pahang. It is the first requirements, which triggered corporates institute of higher learning in the world to issue a Green SRI Sukuk. to actively seek alternative financing sources such as green bonds and green Transaction details Murabahah Sukuk private equity investments and other methods. Issuer UiTM Solar Power Sdn Bhd Country Malaysia This section discusses key Islamic finance The green SRI Sukuk will finance a 50MW utility solar power structures, supported by regional and Use of proceeds Multilateral Development Banks (MDBs) in plant in Gambang, Pahang, Malaysia. the regions studied. It also proposes Rating AA- by Malaysian Rating Corporation Berhad (“MARC”) Sukuk as a practical asset class for funding Facility Green SRI Sukuk solar projects and analyzes its merits and Issue size MYR 222.3 million (US$ 56.8 million) factors rendering it a driver of boosting green economy in MENA and Asia. Tenor 18 years Issue date 27 April 2018 Going Green: Anchor solar projects Islamic structure Murabahah (via Tawarruq arrangement)

Republic of Indonesia Green In March 2018, the Republic of Indonesia issued a 5-year green Wakalah Sukuk which financing also marked as the Republic’s first issuance under its recently established Green Bond and Green Sukuk framework.

Transaction details Wakalah

Issuer Perusahaan Penerbit SBSN Indonesia III (“PPSI-III”) Sustainable projects Country Indonesia To finance or re-finance expenditure directly related to eligible green projects, including renewable energy, Use of proceeds sustainable transport, waste management, climate-related projects and green buildings Social cohesion Rating Baa3 by Moody’s, BBB- by S&P and BBB by Fitch and inclusion Facility Green Sukuk US$ 3.0 billion Wakalah Sukuk Issue size Tranche 1: US$ 1,250 million Tranche 2: US$ 1,750 million

Tranche 1: 5 years Environmental Tenor Tranche 2: 10 years Tranche 1: 3.75% per annum Profit rate Tranche 2: 4.40% per annum Issue date 1 March 2018 Islamic structure Wakalah

21 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

In October 2017, Mudajaya Group Berhad (Sinar Kamiri Sdn Bhd) In January 2018, Sinar Kamiri Sdn Bhd, an indirect subsidiary of Mudajaya Group Quantum Solar Park Berhad, issued a Green SRI Sukuk of up to RM245 million for purposes of financing the (Semenanjung) Sdn Bhd construction/development of a 49MW solar photovoltaic facility in Sungai Siput, Perak. issued one of the world’s largest Green SRI Sukuk Transaction details Wakalah of up to RM1 billion for Issuer Mudajaya Group Berhad (Sinar Kamiri Sdn Bhd) purposes of financing the Country Malaysia To finance a largescale 49MW solar PV plant in Sungai construction of three Use of proceeds Siput, Perak (Malaysia). large-scale solar Tier-1 (RAM Holdings, AA-IS (Malaysian Rating Rating photovoltaic plants in Corporation Bhd) Kedah, Melaka and Facility Green SRI Sukuk Terengganu. Issue size MYR 245 million (US$ 62.8 million) Tenor 18 years Issue date 30 January 2018 Islamic structure Wakalah Bi Al-Istithmar

Quantum Solar Park (Semenanjung) Sdn Bhd In October 2017, Quantum Solar Park (Semenanjung) Sdn Bhd issued one of the world’s largest Green SRI Sukuk of up to RM1 billion for purposes of financing the construction of three large-scale solar photovoltaic plants in Kedah, Melaka and Terengganu. This is the largest solar power project of its kind in South-East Asia and will generate about 282,000MWh of electricity to Tenaga Nasional Bhd yearly for a period of 21 years.

Transaction details Murabahah

Issuer Quantum Solar Park (Semenanjung) Sdn Bhd (“QSP Semenanjung”) Country Malaysia To finance the construction of three large-scale solar Use of proceeds photovoltaic plants in Kedah, Melaka and Terengganu. Rating AA- by Malaysian Rating Corporation Berhad (“MARC”) Facility Green SRI Sukuk Issue size RM1.0 billion (US$ 236.5 million) Tenor 1.5 years – 17.5 years Issue date 6 October 2017 Islamic structure Murabahah

22 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

PNB Merdeka Ventures Sdn Bhd Jordan Islamic Bank invests in solar In December 2017, the Malaysian government linked investment institution Permodalan power as part of social responsibility Nasional Berhad (PNB) launched its MYR 2 billion green Sukuk programme to fund its Jordan Islamic Bank (JIB) has inaugurated 83-storey office space which forms part of the Merdeka PNB118 tower project within the largest rooftop PV project in Jordan a the Warisan Merdeka. 2.7MW rooftop solar project in Sahab, King Abdullah II Industrial City.

Transaction details Murabahah & Wakalah The project took nine months to complete. The cost of constructing the plant was Issuer PNB Merdeka Ventures Sdn Bhd approximately JOD 1.4 million (US$ 1.97 Country Malaysia million) and the cost recovery period of To fund the construction of 83-storey green building, the plant is estimated to be approximately Use of proceeds Merdeka PNB118 Tower. one and a half years. Rating – Solar energy project financed by IFC Facility Green SRI Sukuk Issue size RM2 billion (US$ 480 million) Tenor 15 year Issue date 29 December 2017 Islamic structure Murabahah (via Tawarruq arrangement) and Wakalah The IFC committed a record of US$ 2 billion to support the Middle East and North Africa private sector, boost innovation, drive Tadau Energy Sdn Bhd economic growth, and create jobs. In July 2017, Tadau Energy Sdn Bhd, a Malaysian-based renewable energy and sustainable technology investment firm, issued the world’s first Green SRI Sukuk of up to It focused on supporting power RM250 million to finance the construction of large scale solar (“LSS”) photovoltaic power and renewable energy projects, plants in Kudat, Sabah. and helping entrepreneurs. Among key projects in FY18 were a US$ 653 million financing package for a Transaction details Istisna’ and Ijarah landmark solar array in Egypt, the first green-bonds program in Issuer Tadau Energy Sdn Bhd Lebanon and the Levant, and a Country Malaysia solar project in Gaza, the first To finance the construction of a 50MW Solar Photovoltaic privately financed energy project in Use of proceeds power plant in Sabah, Malaysia. more than a decade, as reported Rating AA3 by RAM Rating Services Berhad by IFC. Facility Green SRI Sukuk The IFC has also invested more Issue size RM250 million (US$ 59.2 million) than US$ 300 million to support Tenor 2 to 16 years clean energy options in Jordan, enabling well over US$ 1 billion in Profit rate 5.20-6.55% per annum private sector investments in Issue date July 2017 Jordan’s power distribution and Islamic structure Istisna’ (manufacturing sale) and Ijarah (leasing) generation sectors, including solar power.

23 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Between 2012 and 2015, Islamic Development Bank (IsDB) solar energy initiatives The IsDB provided financing for the energy sector, supporting four renewable energy development projects The IsDB is an ardent supporter of Restrictive Mudarabah financing. green energy projects, having invested Under this mode of financing, the IsDB and six energy-efficiency billions into the sector as a group. It provides capital to Mudarib (in this projects. has approved financing of various case, TSKB) to invest in business development projects in different enterprises, as per the agreed criteria. countries. Among the projects This approach eliminated the need for approved for financing, are several IsDB to enter into individual financing solar energy projects (see table on agreements for each sub-project page 25). 9 being financed and gave a lot of freedom to TSKB as the local Between 2012 and 2015, the IsDB executing agency. provided financing for the energy sector, supporting four renewable- Solar panel projects energy development projects and six The facility has also supported smaller energy-efficiency projects. The IsDB projects that allow companies to extended a Financing Facility approach generate their own electricity. One which worked through an beneficiary was Prokon, an implementing partner: The Turkiye engineering manufacturing company Sinai Kalkinma (TSKB, known in English located just outside Ankara. In March as the Industrial Development Bank 2013, Prokon installed 2,040 solar of Turkey). panels on the roof of its workshop. Solar power has huge potential in The combined costs of the projects Turkey especially as the panels amounted to US$ 641.2 million of generate around 75-95 MW during which IsDB provided US$ 100 million. the peak months of July and August. All ten projects are already proving to Between April 2013 and February be successful with the energy efficient 2016, Prokon generated around 1,835 projects having already decreased MWh from the panels in total. The greenhouse emissions by 1,006,000 process has been so successful that tonnes, surpassing their target of Prokon now sells energy back to the decreasing emissions by 300,000 National Grid. Prokon have also tonnes. pursued development of other solar powered equipment such as solar- A new approach in Islamic tracking systems that enable panels Financing to rotate and ‘follow’ the sun thereby This was the first time IsDB used generating more power.

24 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Several solar energy projects approved for financing by IsDB

Project Country Size of support Year Details

Solar Energy for Mali US$ 4 January The objective of the project is to enhance the capacity rural development million 2018 of Mali in rural electrification by establishing a project under sustainable model for rural electrification, which reverse linkage provides affordable and reliable electricity to rural communities in the country. The project will Increase the installed capacity of solar energy by 14%; from 15 MW in 2015 to 17.42 MW in 2021.

Mohammed bin Dubai US$ 170 June Non-sovereign project financing participation in the Rashid Al Maktoum million 2017 Dewa 800 MW Photo-voltaic Solar Power Plant – Solar Park Phase III”

Scatec solar Egypt US$ 24 June Scatec Solar is developing six projects in the Egyptian projects million 2017 FiT program, in partnership with prominent international investors including Norfund and Africa 50. The projects will have a total installed generation capacity 300MW and will all be based in Benban Solar Park. The total cost of the projects will be funded by sponsor equity and senior financing provided by the EBRD, IsDB, FMO and the ICD.

Alfanar project Egypt US$ 28.5 June To build a 50MW solar PV power plant in the Benban million 2017 Solar Park in southern Egypt. The total project will be funded with equity and debt. Equity funding will be provided by Alfanar Company, while the senior financing will be provided by the EBRD and the ICD.

Solar Power Plant – Jordan US$ 5 December Support for construction of a solar power plant which King Hussein Cancer million 2016 is expected to contribute to the sustainability and Center Expansion financial resource optimization of the “King Hussein Project Cancer Center (KHCC) Expansion Project” in Jordan.

Source: Islamic Development Bank (IsDB)

25 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

European Investment Bank (EIB) Asian Development Bank (ADB) African Development Bank (AFDB)

Mediterranean Solar Plan – The Asia Solar Energy Initiative The Sustainable Energy Fund Project Preparation Initiative (ASEI) for Africa (SEFA) (MSP-PPI) This initiative of the Asian Multi-donor trust fund Initiative of the European Development Bank helps enable administered by the African Investment Bank (EIB), together solar-generated electricity to Development Bank to support with the European Commission, compete with the retail rate from small- and medium-scale KfW, and the Union for the mainstream networks currently Renewable Energy (RE) and Energy Mediterranean. dominated by fossil fuel sources. Efficiency (EE) projects in Africa. Consequently, developing The Mediterranean Solar Plan countries benefit economically A pan-African Private Equity Project Preparation Initiative (MSP- from local solar manufacturing and Fund (PEF) solely focused on PPI) aims to accelerate the associated industries while small/medium (5-50 MW) implementation of renewable strengthening their energy independent power projects from energy and energy efficiency security. solar, wind, biomass, hydro as well projects in several Mediterranean as some geothermal and stranded partner countries (Algeria, Egypt, Innovative Finance: Asia gas technologies. Palestine, Jordan, Lebanon, Accelerated Solar Energy Morocco and Tunisia). Development Fund (AASEDF) The AFDB has supported the The AASEDF boosts solar energy development of two solar power Supported Ouarzazate solar growth in the region through plants Ouarzazate solar complex complex in Morocco private sector participation by (Noor I and Noor II) by US$ 265 The EIB has supported solar keeping transaction and million at a total cost of € 2.048 photovoltaic projects. The bank is opportunity costs low while solar billion with a cumulative capacity of behind development of first large technology remains at the pre- 800 MW, under a public-private solar project in North Africa, the commercial stage. Ultimately, such partnership (PPP). The investment massive concentrated solar power support helps unburden end- is part of the Bank’s continued project at Ouarzazate, Morocco. A consumers of the initial high cost support to Morocco’s US$ 3 billion financial commitment of € 300 of solar power. Noor solar energy program. million was signed by the European Investment Bank (EIB), the Development Agency for France (AFD), KfW Entwicklungsbank (KfW) and MASEN, promoter of the Ouarzazate solar complex in Morocco.

26 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Considering solar Sukuk asset Improving Grid Network through solar Sukuk structure 10 The increasing use of Independent Power Producer (IPP) and Power Purchase Project overview Transaction highlights Agreements (PPAs) in many countries including those analyzed is welcome news 1. Gulf Municipality (GM) - project Construction phase for the Islamic financing strategy as this originator is seeking finance to build a • A special purpose vehicle (SPV) will be helps identify and quantity both business 100 MW solar plant (Gulf Solar Farm). set up to act as trustee of Sukuk holders and financial risks to design structures 2. GM aims to procure an Independent (also known as investors). that balance with risk sharing and, asset- Power Project (IPP) to build the project • Gulf Solar Sukuk (SPV) signs an Istisna’ backed and ownership transfer elements asset in one of its suitable sites. contract with the project originator (GM), designed in the structure. This is 3. GM will purchase the Renewable to construct the project asset (Gulf Solar important to ensure that all stakeholders’ Energy Certificates (RECs), through Farm). interests are safeguarded. its affiliate; Gulf Electricity & Water • A tech know-how developer (First Gulf Authority (GEWA). Solar LTD) will deliver the project asset. Sale-based, lease-based, and equity- 4. GEWA will enter with Gulf Solar (service • Upon completion (two years), title and based Shariah-compliant financing manager) into a Power Purchase asset ownership pass to the Gulf Solar structures such as Murabaha, Ijarah, Agreement (PPA). Sukuk (SPV). Mudarabah respectively can be designed Operation phase to reflect the solar project risks and • GM (the project originator) will also sign a timeline requirements, in the different Forward Ijarah with Gulf Solar Sukuk to phases of the project life-time. lease the Solar Farm. • The completion of the solar plant, Gulf Evidently, solar asset Sukuk financing Solar Sukuk (SPV) leases the solar farm to brings benefits and skills along the entire project originator (GM). value chain. Its transactional structure, as • Both parties are subject to a purchase seen in the below proposed structure, is undertaking where the project originator divided in different phases to reflect the (GM) will repurchase the solar farm from level of the project implementation and the Gulf Solar Sukuk (SPV). capital expenditure. Figure 15: A proposed project structure of Gulf Solar Sukuk of US$ 100 million The proposed solar Sukuk structure in Figure 15 illustrates the suitability of Phase 1: Construction Phase 2: Operation Sukuk in addressing developers and investors’ interest alike. Issuers Investors

1 7 e

s 5 Gulf Municipality (GM) g a n i e l

Sukuk holders t e t a r

n R e

4 e t i s m GEWA 6 e s Power Purchase r c Gulf Solar a Agreement (PPA) n e a Sukuk Ltd y

for 20 years h 2 n (SPV) 2 e

2 e t g 8 i n d e a

Gulf Solar Farm Gulf r h C

Site c

(GSF) Solar x e

k c

Forward Ijarah contract o 3 t s

f

FirstGulf Solar Limited l

Istisna’ contract u

(FGS) – Developer G

Istisna’ contract Forward Ijarah

022 years 20 years 20

1. Asset originator (GM) 5. Financers (Sukuk holders) 2. The project asset (GSF) 6. Special Purpose Vehicle (SPV) 3. Developer (FGS LTD) 7. Credit enhancement institution 4. Electricity distributor–off taker (GEWA) 8. Service manager (Gulf Solar)

27 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Business practice and support initiatives

The following table highlights key government and financial institutions providing business, technical and financial support to MENA, Asia and Europe:

MENA Asia Europe Business practice Saudi Arabia Malaysia Europe • King Abdullah Center for Atomic and Renewable Energy • Malaysian Photovoltaic Industry • ESTELA: European Solar (KACARE) Association (MPIA) Thermal Electricity Association • Renewable Energy Project Development Office (REPDO) • Centre for Education and • European Renewable Energy • Saudi Arabia Solar Industry Association (SASIA) Training in Renewable Energy Council • Saudi Standards, Quality and Metrology Organization (SASO) and Energy Efficiency (CETREE), • IEA - International Energy UAE University Science Malaysia, Agency • International Renewable Energy Agency (IRENA) Penang. • European Photovoltaic Industry • Abu Dhabi Future Energy Company (Masdar) Indonesia Association • Dubai Supreme Council of Energy • USAID’s Indonesia Clean Energy • European Solar Thermal • Middle East Solar Industry Association (MESIA) Development (ICED) Industry Federation • Clean Energy Business Council MENA (CEBC) • Indonesia Renewable Energy • International Solar Energy • Ras Al Khaimah Research and Innovation Centre (RAK-RIC) Society (METI) Society (ISES) Bahrain • Energizing Development (EnDev) • European PPP Expertise Centre • Sustainable Energy Unit (SEU) Pakistan (EPEC) • National action plans for renewable energy (NREAP) • Pakistan Solar Association (PSA). Turkey Jordan • Econoler, IRG & USAID – • Renewable Energy Development • Jordan Enterprise Development Corporation (JEDCO) Pakistan and Information Centre (YEGEM) Morocco • Alternative Energy Development • Turkish Energy Foundation • Moroccan Agency of Sustainable Energy (MASEN). Board (AEDB) • Ege University- Solar Energy • National Agency for the Development of Renewable Energy • Renewable & Alternative Energy Institute and Energy Efficiency (AMEE) Association of Pakistan (REAP) • Istanbul Technical University – • Moroccan Association of Solar Industries and Windmills Energy Institute – Solar Car (Amisola). Team • Research Agency for Solar Energy and Renewable Energies • Scientific and Technological (IRESEN) Research Council of Turkey – Energy Institute

Financial initiatives and policies Saudi Arabia Malaysia Europe • Taqnia Energy- KSA • Green Technology Financing • European Investment Bank • Saudi Arabia’s Public Investment Fund (PIF) Scheme (GTFS) Turkey UAE • GreenTech Catalyst Sdn Bhd • The European Bank for • Abu Dhabi Fund for Development (ADFD) Indonesia Reconstruction and • Dubai Green Fund (DGF) • Indonesian Infrastructure Development (EBRD) • Mubadala Investment Company Guarantee Fund Kazakhstan Bahrain • PT Indonesia Infrastructure • Kazakhstan Renewable Energy • First Energy Bank – Bahrain Finance Financing Facility (KazREFF) Jordan • Indonesian Independent Power • Jordan Renewable Energy and Energy Efficiency Fund (JREEEF) Producers Association • Higher Council for Science and Technology Industrial • Indonesia Solar Energy Lending Research and Development Fund Program (ISL) • Asia Development Bank (ADB) Pakistan • Meezan Bank

28 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Conclusion

Key messages

Balanced commercial and New innovative project Disruptive innovation social financing strategy financing strategies and sustainable finance

Financing solar and renewable energy Governments and private sector Energy and solar companies need to be projects in countries studied are enterprises are under increasing pressure mindful of the disruptive technological challenged with environmental and to provide sustainable and competitive and regulatory and policy reforms which climate set of rules such as responsible energy prices to meet growing economies are shaping the industry investment investment guidelines, green energy and energy demands. This will require new space, and hence develop commercially principles, sustainable finance, social innovative project financing strategies to viable and sustainable financing impact attributes and investment access a diversity of international investors structures. governance, more than ever. Success in and perhaps tap into Islamic financial achieving a balanced commercial and Institutional investors. social financing strategy will require inclusive industry stakeholders partnerships that embrace sustainable finance and responsible investment.

As this report illustrates, solar energy The increasing acceptance and the Hence, in the coming few years, Islamic developers and investors alike now have adoption of Islamic finance across the finance will be considered as one of the enviable structures of Islamic finance to countries studied, indicated that both primary financing strategies and in boost growth of green energy in the energy operators and investors are taking particular, in the GCC, Jordan, Egypt, countries we studied. The drive for advantage of the equity-based financing Malaysia, Indonesia and Pakistan. Other more Sukuk and other Islamic financing model. Different Shariah-compliant countries will follow suit as the market structures such as Murabah, Ijarah and financing structures have been used for matures and become a driver of green Mudaraba in greenfield projects will different phases of solar projects. In economy in these regions. continue to play a key role in the solar particular, Sukuk stands out as a popular industry investment landscape. asset class amongst international investors. In the coming few years, UAE and KSA collectively will be leading Islamic finance will be the GCC region with maximum number of Due to such available offerings, both considered as one of solar projects currently active or developers and investors have announced by their key industry players, implemented Islamic financing strategies the primary financing followed by Bahrain and other nations. in their project financing and plant strategies. investments, thereby boosting their Jordan and Morocco have started acceptance levels across the world. Many reversing their energy mix toward international agencies have started to Renewable Energy (RE) after realizing its reap the benefits offered by Shariah potential in coming years. A similar compliant financing options which lowers approach is observed by Indonesia and their debt to equity ratios for capital Malaysia as well to continue with their intensive projects. sustainable energy development plan.

29

Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Appendix A: Growth drivers and market dynamics

To increase traction for sustainable investment in renewables, IRENA, being a global renewable agency, anticipated strong foreseeable growth for RE projects in the Middle East and as a result, collaborated with the Abu Dhabi Fund for Development (ADFD) to support replicable, scalable and transformative projects in developing countries. ADFD committed US$ 350 million in concessional loans, over seven annual funding cycle, to renewable energy projects recommended by IRENA.

Some of the projects supported by IRENA are listed below:

Country Name of project Capacity Loan Value Project description (MW) (US$ million) Guyana Hinterland 5.2 MW US$ 8 million Project by Ministry of Public infrastructure to install grid- Electrification connected solar PV systems; Benefit targeted at 34,700 Programme people Togo Dapaong 30 MW 30 MW US$ 15 million Project by Togolese Rural Electrification and Renewable Solar Project Energies Agency to construct 30 MW project; benefit targeted at 700,00 people Mauritius Solar power kit 10 MW US$ 10 million Project by Central Electricity Board to install grid-tied solar PV systems on rooftops of low-income households; Benefit targeted at 30,000 people Rwanda Ignite Rwanda 7.5 MW US$ 15 million Project by joint venture between Ignite Power and Government of Rwanda to distribute and install 500,000 solar home systems through an affordable payment scheme; Benefit targeted at 2.5 million people Niger Rural electrification 2.1 MW US$ 10 million Project by Government of Niger to install solar PV mini- of 100 villages grids and individual solar home systems in 100 isolated villages Republic of the Renewable/Hybrid 4.6 MW US$ 11 million Project by Government to install Solar PV mini-grids on Marshall Islands Microgrid Portfolio four islands; Benefit targeted at 15,000 people Seychelles Ile de Romainville 5 MW US$ 8.5 million Project by Government of Seychelles to install solar PV Solar Park plant integrated with an existing wind farm Antigua and Transformation and 4 MW US$ 15 million Project by Government to install hybrid solar PV and Barbuda Resilience Building of wind project the Water Sector Burkina Faso Rural Electrification 3.6 MW US$ 10 million Project by Government to install solar plant; Benefit Project targeted at 12,400 households Cabo Verde, 100% Renewable 2 MW US$ 8 million Project by Government to install hybrid wind and solar Island of Brava Energy Island Solution PV project Senegal Renewable Energy for 2 MW US$ 13 million Project by Government to install solar mini-grid project; Rural Electrification Benefit targeted at 100 remote villages Cuba Grid connected 10 MW US$ 15 million Project by Government to install solar PV mini-plants; Solar PV Project Benefit targeted at 5,300 people Mali Hybrid Renewable 4 MW US$ 9 million Project by Government to install solar power mini grids; Energy Systems for Benefit targeted at 120,000 people Rural Electrification Sierra Leone Freetown Solar Park 6 MW US$ 9 million Project by Government to install solar power plant; Benefit targeted at 15,000 people

Source: IRENA 31 S 3 E U C u 2 c s o t o n A Key solar projects Industry statistics Country GDP a i o n u m a E b i l c n e b • D • G U • • • • A •

i M s i 2 c c N M b ( I S P M R N S i f b D u n n n s n i i o a a h h 0 r i e S n t u o o o b P v s l s W a o l o d p p l l a 2 a n a i e a t v t o l

k a l r h o $ a j a a i a D a ( r m n 0 e e e r s t r c i W i e a n r c c l l

o c w t

m c h l y l o a p

A s m e

i i m e e P t o u t t o 3 a a

t o

d b y y d b ( V | p r m f n o m

e b C w

b

u

l e

8 ( ( ) i r p d r c C n r l I I . S p i

r

e e e e e R R S s

a o

D t

P 2 e B r

d n n 2

E E n o e w a i

h ) l n a e

e (

N N 0 i l n . S B n P e a a n w

w 1 5 u A A e 2 e i V r s b r k n 8 k a a

r , , 0

i P g

, 7 u a

g a , : b

b 2 2 1

R

e 2 e a k S s y n 3 l 0 0 l 7 a 5 e

0 e n r

w . b d o 1 1 1 k s : s s 1 e

e

e f h 8 8

U

4 - C 7 r c i 1 b i n ) ) i a o

h S S ) d : : G a

t

m a $ P 5 2 t

i s W A o : o n

) 8 % e e 2

l

n t

b 9 d a a . U 2 y

l d r i v n e r

o i f t

O S T s s s r ( D ( I s P I P i o p t o P h e o s h r v P P l l o k P e o l a a a e A s a

r n

s n r f b d

k r

) r o g Key industry growth drivers Key industry players Population )

a s . g e v

i s

’ n e w r o s e

y e i

s d n

e r I

n i c e o n d t e

e A w g t h e l v d d r o e r r • ( m • T 9 • • • • • • •

i e r W e

a

e

P c v o r A E E C s p p o c a i t D E A D L F I G F s g e r

n t r n e t p , h o t p o a o e a a a o n l n m e p n r o u b r y o u u r a e 4 v r t e e w o i i r v v r i o n l o

r a

d e r l e

t u s m c e g l b b a e c s e i g s i n

l o o l

h o j c n c e w r

r i

d c 0 r p e n

t n s i r a a t

f e e i l a d D g g r r p a i o e r d l n o r o

s y t e

c e o b

i a i i a a e i

i c t B n y

n m t e c

0 p a r o

u c s h r t u t r P s e E S r p i w b b o n t i g e r s i n n a

g i n c t r t g c a n f t u s u t l o e e u y l l s , e y e r e i a h

n y g t

h t e e y e b c

t

i n r d p n n

1 r

l i W r g d n l

c

e

r k o E

a o ( P e

a c e i C (

g f g a D i s r r t a y

t M d ,

i r i t h t f n

n o F o

e

4 r a s y r c o n o n t g

e

i g g 2 E u i o r w u m a P t i w o

m t a c m a v m r d o i u

o o p a

0 W e 5 n s s n U t P o m t l l i e s e n

e a v t i t s f u r h 1 e t r e

d c p A

w d

i y r A o A r r e g

r

n ?

a t r a 7

o n a g

e i a

s C

a h A e j ) o r t a & P l E g e j ) e n n

o m h n l o n i r e g o

a v s l i

r

n c

E

n ) d v d o r

y r m W e o r o

b n u o e t e n e n i e

e u f s r t l d a ( d n n f f a a r e r e a y E e s e n

c

e s u g n

c a t t r

n w t W r m I i m o e r h y e v i P c n g m l t i t

f e n e e r P E y e d e i o

n e A

r g e C n s n

f U s a n b

t ) t l A o s t u s E w

u e T b • c T y c • • l • • a

e o o h h q t u s g ( r a f e w P E a t p D c t g w c T T E E A r E I i i h a a a n m i o o e e g n u l o e n r h h n l m a i o o n b n u i o i e l W k p e r e l t t v e

u u n c v a i d e e v w l l u d c U U b y

r p c e t

i i

e i e p h

o i c n b n n e y r

l m d

E s e

t r p

e a u l d U U E A A c n a D r i - r a i o

n o o r c t t e C

e a o i r r h n o ’ i l s 2 t g r r a o E E t A A , s d i w c e h

n l

o

s ) n e e i y y f a a o t u C m m r t h

0 ’

s o i E E v

c s

a m l j h h t i e s o ’ ’ r r t r E n f s s o e l t n o o 1 a a

n t y

’

d s b o

s y e p l r a a s w s

f W r

c W w e y

d v n n e 5 r r p . a i

I e i r a o i

n o s s a n t p s

P p e e

c n t h n e t . ,

l e f l a s r E

n a

l

h n l t

o s a a a i r u l P

i r o a a e a P p s r t t i

s i n n b C t e o d e n , i m a t g l n

g y

r r

n

r r r

e e t r a r a t a c d m e i e s , p l c

- b a e

g n h c i n o h

a d s r r C W s b t v p o r o t D c h

t y

l e l t

e

j D r g t r e l e o a a o

e i o i a p o o r e s t t r

i a o n o e

d

a E d e s

h e c t p c a g d p

a f t n u m c w r m u s I e

n t o n W

s e l t

e t n o c P e a s o h e t t o y e d b e s o s m

e w g .

c h d t p

e f d

s d d p P l r o w r f A t

a c i f r , o t r t i a a a E e v e

a

i s b o

u l

n

h o l o i

A t r A n a e a t m r a i e

n g t a p l

n y e s p r o h c e a r e h -

I e p u b y a r r r

n P s d p e l i

y . t g t n , c o t

a a n n

e e d u e

n p t u

o i b o f

d l P

i i A o t h v n l c ( d a c t r x e a v e o g

c r a

r l A e

s S h s e a D n e b a e o o p r p t

m d e S i e e n

. c r

D

h s m e

r o . l

s

u s r a e a h l r d

h

e a l a i h

. s b y e a i i t o t i W f a e c r

c r t a g a

t g l s m y

i a D

r t y n e y t

j z h A r t n h l r u , b n

e h o i r s E

e e

e e C

t a h j e b e a a ( e a a e l a c i i

w r s C a S d

a

f

h t o a s m n n v o r c u m t W o a h i . r d E t

c ) n g

- b i m t d t i t u

g o f 1 n p a e W b e a D

o y o a

i e t

g t r

g n p d n l r t i t s o G

a h h y e t A r h h e s

e t t a

d i 2 n

e d a o t W

) l n t e r n f y h 5 d o b o u j . y o e - i r s y Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Regulatory development and Financiers and investors policies Name of Investment Capacity Project Project description • Dubai has established one of the world’s project value period most effective regulatory environments Mohammed – Total capacity 2012-2030 Project was awarded to a to cultivate the growth of the solar- bin Rashid 5GW, Phase consortium between Masdar, energy sector. Al Maktoum 3 of 800 MW and EDF partnering with • All the solar IPPs in the UAE are backed Solar Park DEWA with bid value at by a government guarantee from the US$ 0.0299/kWh relevant Department of Finance (DOF). Without this guarantee, the projects will Noor Abu US$ 3.2 1,117 MW Up to 2019 Project was awarded to be a lot less bankable. Dhabi billion DEWA and a consortium of • Dubai has issued regulation targeted to plant Japan’s Marubeni Corp and achieve this goal including a mandate China’s JinkoSolar Holding that all new buildings must heat 75% of water by solar energy. The Emirate’s Shams Dubai initiative is promoting Industry initiatives Opportunities small-scale urban solar generation and has already developed 18.7 MW of rooftop solar generation. Through the • In January 2019, the Khalifa University of • The country’s clean-energy targets rank Shams Dubai initiative, the city is hoping Science and Technology, the Abu Dhabi among the world’s most ambitious, to increase rooftop and small-scale solar Transmission and Dispatch company aiming to achieve 24% clean-energy generation. (TRANSCO) and the Manitoba Hydro generation by 2021, with solar-power as International (MHI) of Canada, signed a the second-largest source of clean- collaboration agreement for building an energy power after nuclear. industrial-level software to monitor, • The UAE has already made significant predict, and interact with network progress towards these goals, tripling operators in real time and enable solar-energy generation since 2015. renewable energy integration with the UAE power system.

Islamic finance potential in the solar energy sector

Type of Name of Size of Islamic Acceptance Investment Description Islamic project investment lenders level of Islamic type Finance finance Istisna 800 MW - A US$ 242 Apicorp and High Co-investment • The US$ 940 million financing will Ijarah Mohammed million Islamic IsDB were the be used for the development of bin Rashid Al loan sole lenders in the third phase of the Mohammed Maktoum A US$ 2.84 the Islamic bin Rashid Al Maktoum solar project million Islamic tranche photovoltaic power plant in Seih standby facility Al-Dilal, around 50 km south of Dubai. • The deal includes : - A US$ 242 million Islamic loan - A US$ 2.84 million Islamic standby facility

Main hurdle is lack of liquidity among Islamic banks, However, UAE government’s support for Shariah-compliant project finance will increase its investment appeal among investors

Source: IJ Global, Mohammed bin Rashid Al Maktoum Solar PV Phase III (800MW), February 2019

33 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Country case 2: Kingdom of Saudi Arabia (KSA)

Solar energy sector in KSA market in Saudi Arabia is in the growth KSA Overview stage driven by rapid growth in electricity The Kingdom of Saudi Arabia (KSA) demand. represents an attractive market for renewables due to its market size, The development of Saudi Arabia’s solar resource potential, land availability and energy sector is one of the primary high-energy demand. objectives of Vision 2030. In February 2017, the Kingdom launched the National Power demand in the Kingdom is growing Renewable Energy Programme (NREP), 8% annually, forcing state-run Saudi administered by the newly created Electricity, the Gulf’s largest utility Renewable Energy Project Development company, to spend billions of dollars on Office (REPDO). projects to add capacity. The solar power

Economic indicators

P

n Industry highlights D o

US$ 683.738 i G 32,938,213

t y a l r t billion u million • The solar power market in Saudi Arabia is n p u GDP (World Bank, 2017) o Total population

o in the growth stage driven by rapid P

C (World Bank, 2017) growth in electricity demand. • KSA has a pipeline of 12 projects for

s 2019 with the biggest one having a • Installed renewables-based r • Saudi Electricity Company e

y 600MW capacity. (Announced by REPDO capacity (IRENA, 2018): 142 (SEC) a

l s in Jan 19). p c

i MW • King Abdullah City for Atomic y t

r • The NREP will target 700 MW, 1.02GW s i • Share of renewables in total t and Renewable Energy t s

a and 1.73GW respectively across the u

t installed power generation • Renewable Energy Project d s

n three rounds starting 2017. The NREP y capacity (IRENA, 2018): 0.2% i Development Office (REPDO)

r y t will target a further 6.05GW by 2023. s • Project pipeline as of e • ACWA Power u K • It has targeted to develop 3.45 GW of d November 2018: 700 MW n I renewable energy by 2020 under its wind and solar PV power by National Transformation Program as well 2019/2020 • Rising domestic oil as developing 9.5 GW which is ~10% of consumption total capacity of renewable energy • Young citizens’ entry into capacity by 2023. This will be done s

• Sakaka (Solar PV) r job market

e through 60 projects, investing between v

• Waad Al-Shamal (CSP) i • Reduced solar panel

r US$ 30 billion and US$ 50 billion, with d • Solar energy plan - 3 GW production costs h

solar power as primary segment. t s consisting of 30 solar and • Increasing demand for energy t w c o

e sources to deliver strategic r

j wind projects g o

r

• New Taif energy project y infrastructure projects p r

t r

• NREP Round 2 projects (12 s • Government and policy a l u o projects over 7 sites) d support s n

i

y • Strong industrial base such as y e e K

K oil and gas and petrochemicals • Access to governments specialized funds

34 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Regulatory development and Financiers and investors In January 2019, Saudi policies Arabia announced plans • A memorandum of understanding (MOU) to develop a US$ 2 billion Saudi Arabia’s Vision 2030 and the has been signed between the Crown National Transformation Program (NTP) Prince of Saudi Arabia and Japan-based solar and carbon black clearly outline ambitious renewable SoftBank founder Masayoshi Son to integrated complex in the energy goals under the King Salman establish the world’s largest solar PV heart of the Kingdom. Renewable Energy Initiative. energy project by 2030.

• The Renewable Energy Project Development Office (REPDO): established to oversee the country's Industry support renewables program, chose the bids submitted by the local developer and • In January 2019, King Abdullah City for Japanese engineering firm over the Atomic and Renewable Energy (KACARE) world's cheapest bids for a solar project signed a MoU and partnership with the submitted by a consortium led by Abu Saudi Technical Institute for Electricity Dhabi clean energy firm Masdar and its Services in Riyadh. The agreement entails French partner EDF. cooperation for training and • The Electricity and Cogeneration development in the field of renewable Regulatory Authority in Saudi Arabia energy and benefiting from the existing (ECRA) has prepared a Small Photovoltaic capabilities and expertise of both parties. Solar System Regulation, setting out the • In January 2019, Saudi Arabia announced framework for the connection of Small plans to develop a US$ 2 billion solar and Scale Solar PV Systems to the carbon black integrated complex in the Distribution System. heart of the Kingdom. The deal was • SASO adopts new IEC standards: Saudi struck between Saudi Arabia’s National Standards, Quality and Metrology Industrial Clusters Development Program Organization (SASO) signed technical (NICDP) and the Kingdom’s diversified cooperation agreements with Saudi manufacturing company SABIC, in Aramco and SEC in 2016 to collaborate partnership with China’s Longi and South on energy efficiency and consumption Korea’s OCI. rationalization programs, and to exchange experiences in the development and management of engineering standards. Challenges and opportunities • Saudi Arabia issues rules for small-scale solar energy generation: In 2017, Saudi Opportunities Challenges Arabia has issued a regulatory 1. Easy availability of finance 1. Uncertainty of large projects framework for electricity consumers to operate their own, small-scale solar 2. Significant investment in value chain 2. Solar prices competiveness power generating systems and export unused power to the national grid. The 3. Presence of key players 3. High capital expenditure rules will cover small photovoltaic 4. Feed-in-tariff 4. Large installation area facilities with generating capacity of no more than 2 MW. Consumers will have their excess electricity offset against their future consumption and after a year, they will receive cash payments at a tariff approved by the authority.

35 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Country case 3: Kingdom of Bahrain

Solar energy sector in Bahrain nearly 4 GW, of which just 6 MW stems Kingdom of Overview from renewable sources (5 MW of solar The Kingdom of Bahrain is a small-scale PV and 1 MW of wind). Bahrain producer of crude oil, refined oil products and natural gas with its energy sector Rapid population growth and industrial largely dependent on fossil fuels. development are the main drivers of the increase in power demand, which is However, the government foresees the addressed by expanding existing need to diversify its energy supply in the conventional power plants to supply near future. As a result, Bahrain has an residential and industrial end users, such installed electricity generating capacity of as Aluminum Bahrain (Alba).

Economic indicators

P Industry highlights D n o G i US$ 35.307 1,503,091 t y a r l t

billion u million

n • The Kingdom’s economic growth has p u Total population (CBB, 2018) GDP (World Bank, 2017) o o been reinforced by a secure energy P C system, which has seen a corresponding growth in energy demand. • As per the National energy efficiency • Installed renewables-based • Bahrain petroleum company plan, over the past twenty years,

capacity (IRENA, 2017): 6 MW (Bapco) s Bahrain’s total primary energy supply r

• Share of renewables in total e • Electricity and water authority grew by 4.2%, total final energy

y s a l c installed power generation (EWA)

i consumption grew by 5.3%, and non- p t

s y i capacity (IRENA, 2017): 0.1%. • Tatweer petroleum industrial electricity consumption grew r t t a • Project pipeline as of s • National oil & Gas authority t by 6.6% per year. The difference in u s

d y November 2018: 100 MW • KP smart solar energy demand and supply growth has placed n r i t

s solar PV power by 2019 y Bahrain increasing strain on the energy system. u e d • Solar energy target 2025 K • Solar One Bahrain Currently the country’s power generation n I (MESIA): 255 MW (PV) and system relies explicitly on natural gas, 700 MW (2030) (Renewables) which is a scarce and diminishing resource. • Integrating renewable energy in the s • Population growth and rapid r

e energy mix can help Bahrain optimize

v industrial development i

r the use of indigenous gas resources,

d • Focused government

• Bahrain PV Park s h reduce greenhouse gas emissions, make t t approach for solar projects

c • Al Dur PV Plant and Al Dur

w the economy more competitive, e j o • Conducive regulatory and

Wind Farm r o r g decrease electricity peak demand, and

p investment environment y • Askar solar PV on a landfill r r improve energy security in the long-term. t

a • Increasing demand for s l o u

s energy and power supply d

n y i

e projects y K e K

36 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Regulatory development and Financiers and investors policies Name of Investment Capacity Project Project description • Oil and gas accounts for majority of project value period country’s current consumption and US$ 360 100 MW 2019 Project is developed Bahrain exports, but several initiatives are Bahrain million Petroleum Company (BAPCO) undertaken to reach 255 MW of PV by PV Park US$ 720 200 MW Not Not disclosed 2025, as per National Renewable Energy million disclosed Action Plan (NREAP), namely Net Metering – enacted in January 2018. Al Dur PV US$ 17.18 Total 5 MW Not Not disclosed • The country has provided renewable Plant and million (Solar 3 MW) disclosed energy-based mandates for buildings Al Dur through tender based FiT schemes which Wind Farm will have rooftops of government BAPCO US$ 25 5 MW Not BAPCO plan to fund buildings tendered in batches to harness township million disclosed distributed power plant solar energy. of Awali • The government is working with local banks to encourage them to provide financial support to individuals willing to install solar plants and trying to increase Key initiatives public awareness about solar energy. Challenges and opportunities • To diversify the Kingdom’s energy supply, the cabinet adopted the National • Bahrain has identified seven key • Bahrain faces several challenges in Renewable Energy Action Plan (NREAP) initiatives that can be implemented along ensuring sustainability and security of its and the National Energy Efficiency Action with setting a target of 5% renewables in energy needs. These include its limited Plan (NEEAP) in early 2017. The NREAP the energy mix by 2025 and to 10% by resources of fossil fuel compared with its highlights feasible renewable energy 2035 neighbors; a very high per capita options for the country, and proposes • In January 2017, the Bahrain cabinet consumption of electricity & water and targets, policies and initiatives for approved the development of a 100 MW its international, regional and local implementation. It sets a national solar plant project in Bahrain commitments towards clean renewable energy target of 5% by 2025 • A consortium comprising Saudi-based environment, energy efficiency and and 10% by 2035. The envisioned ACWA, Japanese contractor Mitsui & renewable energy. renewable energy mix comprises of Company and Bahrain industrial In addition, the size of the country solar, wind and waste-to-energy conglomerate AlMoayyed has won the represents a challenge as solar energy technologies. The NEEAP sets a national contract for the construction and projects are space consuming. energy efficiency target of 6% by 2025. It operation of a 100 MW independent • Therefore, there is a need to diversify its aims for efficiency improvements in both solar power plant in the Kingdom energy mix by resorting to renewable energy supply and demand through 22 energy and energy conservation by initiatives across all economic sectors improving efficiency measures. (SEU, 2017). • Abu Dhabi Future Energy emerged as • Bahrain economic vision 2030: one of the potential bidders for Bahrain’s Protecting our natural environment will 100 MW solar project thereby, include implementing energy-efficiency progressing on its efforts to reach the regulations (e.g., for buildings and target of 5% renewables in the energy electrical appliances); and directing mix by 2025. investments to technologies that reduce carbon emissions, minimize pollution and promote the sourcing of more sustainable energy”.

37 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Country case 4: Jordan

Solar energy sector in Jordan and 7 kWh per square metre (m2), which Jordan Overview potentially equates to at least 1,000 GWh Jordan relies heavily on imports for its per year. energy resources to meet its domestic demand for fossil fuels. These imports The country has developed a master account for more than 40% of the strategy of energy sector for the period country’s budget. 2007-2020 in which the country targets 10% electricity generation from Jordan is one of many countries located in renewables by 2020, amounting to 1,850 the Solar Belt region, creating great MW, of which 800 MW is wind, 1,000 MW potential for harnessing solar energy. The PV and 50 MW is waste-to-energy. average solar radiation ranges between 5

Economic indicators

P n D

US$ 40.068 o

i 9,702,353 G

t y a l r

t billion million u n p

u GDP (World Bank, 2017) Total population o o P

C (World Bank, 2017)

• The total capacity of installed • Jordanian Renewable Energy

renewable power generation and Energy Efficiency Fund s r

e

s in Jordan, excluding (JREEEF) y c i a t hydropower, is approximately l • Ministry of Energy and s p i

t 550 MW divided between y Mineral Resources a r t t s s solar PV (347 MW), wind (197 • The Jordan Chamber of u y r d

t MW) and biogas (3.5 Industry’s Factories Support n s i

u

MW).(IRENA) y Program d e n K I • Clean energy target (2020):10% of total energy mix, MESIA

s • Key country in solar-belt r e

v region i r d

• 200 MW by direct proposal • Government subsidies s h t t c submission-stage I (12 • Tax exemption e w j o

o • Conducive regulatory and

projects, nine of which are at r r g

p

investment environment Ma’an, first quarter (Q1) 2016 y r r a t l

- 100 MW at Qweira/GCC s o u s

Grant (2017) d y n i e

K - 100 MW small-scale PV y e

rooftops in pipeline K

38 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Industry highlights

• As Jordan is highly dependent on fossil fuels, its government plans to boost electricity generation capacity from renewable sources up from the current 18 MW to 1.8GW by 2020, setting a target of 10% of primary energy demand from renewable energy by 2020. Jordan is in the process of adopting NEEAP and plans to achieve a 20% reduction of primary energy consumption by 2020.

• Status of renewable energy in Jordan National renewable Market potential Industrial assets energy plans • 10% renewables in • Implemented renewable energy • Well established power generation by projects (1,132 MW) by 2018 leading industrial sector 2020 (1,850 MW) to O&M value creation • Expertise in • Renewable Energy • Net-metering numerous basic and Energy Efficiency • Feed-in tariff components Law passed in 2012 • Wheeling application and direct proposal submission

Source: IRENA, 2018

• In the short-to-medium term, the Government expects to construct the first concentrated solar power (CSP) demonstration project and is considering Aqaba and the south east of Jordan for this purpose.

Regulatory development and policies

Government support mechanisms • The Government of Jordan (GoJ) is continuously improving the policy framework and has introduced different instruments to attract and increase private investments in the energy sector to operate various utility scale projects (AFEX, 2016). To meet its respective targets, the following instruments and mechanisms were implemented:

Mechanism Description

Feed-in tariff FiT especially for solar PV and CSP projects not exceeding 500 MW. The prices were described as a “ceiling tariff” without indicating any tranches in size.

Independent Fully unbundled power sector with separate ownership of regulator generation, transmission, and distribution. In addition, private investors can partially own and operate utility scale RE power plants.

Subsidies Jordan decreased subsidy reforms in electricity sector. Most effected reform businesses were Jordanian banks and hotels which an annual increase of 15% every year. Due to this dramatic tariff increase, many RE projects are expected to be deployed in these two sectors soon (AFEX, 2016).

Other Jordan has established rules specifying RE and EE systems will be supporting able to qualify for full exemption from sales tax. Jordan also measures introduced scheme for submission of direct proposals for the development of utility scale RE projects to the GoJ, which provides guidance to identify appropriate sites for implementation (AFEX, 2016).

39 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Financiers and investors Challenges and opportunities

Previous and ongoing solar energy projects in Jordan • Concentrated solar power (CSP): Potential investments in the installation Technology Previous and ongoing projects of a CSP project, which would generate Solar PV • 35 MW of small-scale systems (2015) more than 250 MW of electric power in • 20 MW at Al Mafraq (2015) the Ma’an development zone. • 10 MW at Aqaba (2015) • Solar PV - Opportunities for local • 10 MW at Al Mafraq (2015) manufacturing: Grid capacity and land • 5 MW at Azraq (2015) access are two major challenges • 200 MW by direct proposal submission-stage I (12 projects, hindering the renewable energy nine of which are at Ma’an, first quarter (Q1) 2016, PPA deployment sector in Jordan. However, signed between NEPCO and Masdar) the National Electric Power Company - 200 MW by direct proposal submission-stage II north and (NEPCO) is planning to add a further 1 east Jordan (2016-2017) GW through the US$ 160 million Green - 100 MW at Qweira/GCC Grant (2017) Corridor project by the end 2019. The • 100 MW small-scale PV rooftops in pipeline Ministry of Energy and Mineral Resources decided to delay the announcement of the successful bidder in Jordan’s Round 3 Financial support PV and wind auction. Name of institution Description

JREEEF • Designed to boost RE efficiency initiatives • Targets SMEs RE enterprises • Source fund from general budget, foreign investment and grants from GCC & EU • Covers interest rates and guarantees to loans for enterprises in partnership with the Jordan Guarantee Loans company Jordan Enterprise • Support start-up and SMEs companies by allowing up to Development 80% of equity in their RE projects with a focus on industrial, Corporation (JEDCO) service and agribusiness sectors • Require 10% return on profits

Jordan Chamber of • Non-refundable capital subsidy for SMEs to install either Industry Factories solar PV or solar water heaters Support Program • Subsidy covers up to 35% of the product costs, if imported, and up to 50% if the product is Jordanian made

Higher Council for • Provide grants up to EUR 32,792 for solar PV project Science and Technology Industrial Research and Development Fund (IRDF)

40 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Country case 5: Morocco

Solar energy sector in Morocco Morocco has an abundant source of solar Morocco Overview energy, with an average solar potential of Morocco imports around 91% of its 5.5KWh/m2/day. To tap into this potential, energy demand which includes the country launched the Moroccan Solar conventional resources such as crude oil Plan in 2009, which foresees an increase and oil products, coal, natural gas and in installed capacity of both concentrated electricity. solar power (CSP) and photovoltaics (PV) to 14% of total installed capacity, The country has pledged to increase its RE representing at least 2,000 MW by 2020. capacity to 42% of total installed capacity by 2020 for a total of 6,000 MW and to 52% by 2030.

Economic indicators

P

n Industry highlights D

US$ 109,709 o i G 35,739,580

t y a r l

t billion million u • As of 2015, renewable energy in Morocco n p

u GDP (World Bank, 2017) Total population o

o represented 32% of its capacity mix P

C (World Bank, 2017) driven mainly by hydroelectricity and solar power. The country has pledged to increase its RE capacity to 42% of total

• ONEE (Office National de

s • Solar energy targets installed capacity by 2020 for a total of c

i l'Electricité et de l'Eau

t (2020): 2 GW (Solar), MESIA

s 6,000 MW and to 52% by 2030. s i r Potable) t

(2030): 5 GW (Solar), MESIA e

a • It has formulated a facilitative RE legal y t • Moroccan Agency for Solar a s l framework, through the declaration of y p

r Energy (MASEN) y t RE law 13-09, which has opened the r s

t • L'Association Marocaine u s market for the production and d u

n des Industries Solaires et d I commercialization of RE sources by n

i Eoliennes (AMISOLE)

y public and private entities.

e • Ministry of Energy, Mining, K Water and Environment (MEMEE) • Quarazate - 580 MW • MIDELT – 600 MW

• TATA – 600 MW s

r • Favorable and conducive s e

t • AIN BENI MAHTAR – 420 MW v c i investment guidelines. r e

j • SEBKHATE TAH – 500 MW d

o • Focused approach by r • FOUM AL QUAD – 500 MW h t p

government r • Boujdour – 100 MW w a o l

r • Attractive investment o g

s

y destination y r t e s K u d n i

y e K

41 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Noor Ouarzazate Solar Regulatory development and Financiers and investors Power Plant Project policies with power generating • To achieve its target, an investment of • The Moroccan Government has been approximately US$ 9 billion was planned, capacity of 580 MW praised for the substantial efforts it has involving several projects totaling to uses both CSP and PV made to strengthen the legal and more than 3,00 MW. regulatory framework for developing technologies wherein two • Noor Ouarzazate Solar Power Plant renewables. Project with power generating capacity of of the power plants use • Law No. 13-09 on Renewable Energy was 580 MW uses both CSP and PV parabolic trough power promulgated in 2010, the aim of which is technologies wherein two of the power to deregulate the renewable energy plants use parabolic trough power plants; one is a solar sector in Morocco by providing a plants; one is a solar tower power plant tower power plant and framework for private producers to and the other is a photovoltaic power produce and export green electricity. the other is a plant. Depending on the capacity of IPPs, this • The Noor project was budgeted at a total photovoltaic power plant. law sets the subjugation of IPPs to a prior cost of US$ 2.2 billion. The country’s notification for generating capacity drive to develop a renewable energy ranging between 20 kW and 2 MW, and a industry and its stable government and prior authorization for a capacity equal economy helped in securing the to or higher than 2 MW. necessary funding for the project. • The Moroccan Agency for Solar Energy • Key financiers included MASEN which MASEN (established in 2010) is issued green bonds for an amount of responsible to ensure the 1.15 billion dirhams (US$ 114.4 million), implementation of the Moroccan Solar the German government-owned Plan which includes, managing the solar development bank Kreditanstalt für projects of the country, building a Wiederaufbau (KfW), World Bank, Clean national expertise in the field of solar Technology Fund, African Development energy and playing a major role in Bank (AfDB), European Union, European developing energy policies on an Investment Bank (EIB), and Agence international scale. Française de Développement (AFD). • The National Agency for the Development of Renewable Energy and Energy Efficiency aims to contribute to the implementation of government policy on renewable energy and energy efficiency. • The Moroccan Association of Solar Industries and Windmills (Amisola) was created to promote the interests of industrialists and Moroccan professionals working in the renewable energy sector. • A Research Agency for Solar Energy and Renewable Energies (IRESEN) was established in 2011 for carrying out R&D in the area of solar energy and renewables. The missions of IRESEN include: - Supporting R&D in renewable energy - Developing pilot installations and demonstration platforms - Transforming research activities into industrial outcomes

42 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Country case 6: Malaysia

Solar energy sector in Malaysia project or an investment tax allowance Malaysia Overview on qualified capital expenditure incurred • Malaysia’s location within the Sunbelt is to be set against 100% of statutory one of the driving factors responsible for income for five years. intensified awareness with average solar In 2016, 111 projects in renewable energy received is between 1400 to 1900 energy with total investments of RM 1.9 kWh/m2 annually with the highest solar billion were approved. Out of the total, radiation estimated at 6.8 kWh/m2. RM 1.7 billion (88%) were from domestic sources and RM 233.8 million (12%) were As a result, Government of Malaysia from foreign sources. These projects provides immense boost for projects were expected to create 615 with either tax exemption of 100% on employment opportunities in this sub- statutory income for ten years for a sector.

Economic indicators

P

n Industry highlights D

US$ 314,710 o 31,624,264 i G

t y a r l

t billion million u • Malaysian government introduced the n p

u GDP (World Bank, 2017) Total population o

o National Green Technology Policy in April P

C (World Bank, 2017) 2009 which provides guidance and create new opportunities for businesses

and industries to bring a positive impact s s • Malaysia has installed • 81 projects - RM 588 million t c i c to the economic growth. t e

s capacity of solar power at j i o

t • Malaysian government has enacted the r

a 15 MW in 2017 p t

Renewable Energy Act in 2011 to s r

a y l

r implement the Feed-in-Tariff (FiT) system o t s s which enables individuals and companies u y d e

n to apply and become eligible producers K I and those who qualify are granted feed- in approvals by SEDA. The feed-in • Ministry of Energy, Science, • Favorable Islamic finance approval holder enters into a renewable Technology, Environment & structure energy power purchase agreement with Climate Change (MESTECC) • Tax exemption offered by the utility and all electricity produced s r thereafter enjoys guaranteed offtake by • Energy Commission (EC) e government for solar projects

v i s

r the utility. r • Sustainable Energy • Great demand for solar d e

y Development Authority of h power cells due to local a t l w p

Malaysia (SEDA) economical production cost o y r r g t

• Tenaga Nasional Berhad s y r u

(TNB) t d s n u i

• SIRIM Berhad d y n e

• Yayasan Hijau Malaysia i

K y

(YaHijau) e • Malaysian Green Technology K Corporation (GreenTech Malaysia)

43 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Regulatory development and Financiers and investors policies • The approved renewable energy investments include 81 projects (RM 588.8 million) that The fundamental guide in the Energy will generate energy from solar power, 12 projects (RM 145.7 million) from biogas, 10 Sector’s development is based on the projects (RM 806.6 million) from mini-hydro and six projects (RM 343.6 million) from three principal energy objectives of the biomass as the sources of energy generation. National Energy Policy of 1979, namely: • As of December 2017, 15.13 MW of Solar PV capacity has been installed in Malaysia, • The supply objective: to ensure and there is a total of 354.21 MW installed capacity of Solar PV in Malaysia from 2012 adequate, secure and cost-effective to 2017, as shown in the below table. energy supply through developing and utilizing alternative sources of energy Investment installed capacity Installed capacity (MW) of plants (both non-renewable and renewable) (MW) of commissioned in progress from within and outside the country. The installation value focus of policy initiatives, particularly with Other RE Solar PV Other RE Solar PV respect to crude oil and gas, were aimed at both extending the life of domestic 2012 62.66 31.54 0 0 depletable energy resources, as well as 2013 6.58 106.99 0 0.01 diversifying away from oil dependence to 2014 13.6 64.87 0 0.04 include other forms of fuel resources. • The utilization objective: to promote 2015 31 60.28 0 0.58 efficient utilization of energy and 2016 46.96 75.4 2.4 3.57 discourage uneconomical and non- productive patterns of energy 2017 22.54 15.13 59.9 36.22 consumption. 2018 0 0 180.36 2.23 • The environmental objective: to minimize the negative environmental 2019 0 0 131.9 0 impacts on the energy supply chain i.e. 2020 0 0 183.69 0 energy production, conservation, transportation and utilization. Total 183.34 354.21 558.24 42.65

Challenges Key solar projects

Name of Capacity Project period Project description The use of renewable energy project/Company resources faces numerous challenges. • Generation of energy from renewable UMILE Ltd Liability 49 MW Not disclosed Planned to setup solar plant in resources is economically unattractive Partnership Pasir Mas, Kelantan due to the availability of cheaper Company alternative energy and high cost of Scatec Solar, 3 PV solar Not disclosed Along with Tenaga Nasional energy generation. ItraMAS, Maltech parks – Berhad (TNB), planned to • Lack of reliable information on potential and Cam Lite 200 MW construct 3 PV plants in north, supply of renewable energy at the east and south region of Malaysia national level. • Little traction for energy from the Northwest Electric 61 MW 2018 Signed EPC agreement with renewable resources due to weak public Power Design Malaysian PV developer UiTM awareness on the positive attributes of Institute (NWEPDI) Solar Power to construct Solar renewable energy. project in Rembau, Negeri Sembilan Hanwha Energy 48 MW Not disclosed Secured contract to build solar Corp park in Perlis, Malaysia BGMC 30 MW Not disclosed Secured contract to build solar International Ltd and PV in Kedah and Sabah region and Bina Puri 5 MW Holdings Bhd

44 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Country case 7: Indonesia

Solar energy sector in Indonesia uncertainties, and the abundant supply of Indonesia Overview cheap coal & other natural resources. The overall use of renewable energy constitutes about 12% of Indonesia’s The ambitious undertaking by the current energy mix with solar energy government to raise renewable energy potential largely untapped contributing at sources to at least 23% of Indonesia’s less than 1% of the total energy mix. energy needs by 2025 (7% geothermal, 10% bioenergy, 3% water, and 3% other Potential investors were deterred from NREs) and 31% by 2050 certainly calls for entering the market in the past due to fuel significant investments from different subsidies, low electricity tariffs, logistical stakeholders. challenges, complex regulations, legal

Economic indicators Industry highlights

P

n • Indonesia is the largest energy user in D o

US$ 1.016 i 263,991,379 G t the ASEAN, accounting for nearly 40% of a y l r t trillion u million the market’s total energy consumption. n p o u GDP (World Bank, 2017) Total population In a business-as-usual outlook, the P o

C (World Bank, 2017) country’s energy consumption is expected to grow by another 80% by 2030.

s

s c • Perusahaan Listrik Negara • Indonesia’s renewable energy sources i t s

t US$ 1 billion c r

s (PLN) e e i are also considerable. The country is j t

Total renewable energy y o a a

r • The Ministry of Energy and l

t endowed with significant potential for p s investment p

r Mineral Resources of the y

y hydropower (75,000 MW) while only r a r l t t

s Republic of Indonesia o

s 0.07% is being currently utilized; s u u

d y d (MOEMR) geothermal energy (29,544 MW) with e n n I i K • House of Representatives only 5% being currently utilized; solar y

e (Dewan Perwakilan Rakyat –

K (207.8 GWp) with only a small amount of DPR) 16 MW being utilized; bioenergy (32,654 • Plan to develop 5,000 MW MW) with only 86.23 MW being utilized; of solar plants wind (60.6 GW) and ocean (17.9 GW).

s • In PLN’s Electricity Business Plan 2017– • Favorable Islamic finance r s e t 2026 (known as the RUPTL), Indonesia c v structure i e r j

d plans to implement a program of “solar

o • Abundant renewable

r h p

t power plants for 1,000 islands/ resources r w a l o • Depletion of fossil energy locations”. This program aims to develop r o g s

resources solar photovoltaic (PV) power plants in y y r e t • High cost of oil-based energy remote islands and other locations K s

u facing transmission line expansion or

d generation n i

• National emission targets transportation access issues. Under the y

e RUPTL, the plan is to develop up to K 5,000MW of solar power plants by 2025.

45 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

The ambitious Regulatory development and Challenges and opportunities undertaking by the policies government to raise The renewable energy sector still • Several regulations have been issued on faces several challenges, including: renewable energy renewable energy for power plants, • Complex pricing mechanism including solar energy, to help accelerate sources to at least 23% of • Lack of research funding private sector development of solar • Insufficient finance especially lack of Indonesia’s energy needs power plants. longer term lending from the banking • One of these regulations includes by 2025 (7% geothermal, sector Minister of Energy and Mineral • Land procurement difficulties for 10% bioenergy, 3% water, Resources (MEMR) , who improved the developing large-scale power plant and 3% other NREs) and incentives introduced in the 2013 policy, including the quota capacities and facilities 31% by 2050 certainly purchase tariffs, and revises the required • Uncoordinated planning between calls for significant level of local content in the development ministries/agencies involved that of solar photovoltaic plants. impinges on the viability of specific investments from • The MoEMR issued three new projects different stakeholders. regulations in 2017 related to investment • Procedural delays in land acquisition in the Indonesian power and New and licensing that impede project Renewable Energy (NRE) sector to implementation and raise the perception further improve and accelerate of risk for potential investors investment flow in the industry. The regulations specifically tackle certain key In the recent years, there have been areas of regulatory uncertainty relevant several incentives which aim at to the power sector. attracting more investment into the - Improves the risk allocation between NRE sector such as: PLN and independent power producers • Feed-in tariffs that require PLN to (IPPs) in power purchase agreements purchase electricity from renewable (PPAs) energy producers at predictable prices - Amends the maximum price payable by (which vary from one area to the other). IPPs for natural gas • Government guarantees by the - Utilization of New and RE for Electricity Indonesia Infrastructure Guarantee Fund Supply relating to the purchase of (IIGF) that provide guarantees for the electricity from renewable sources. construction and operation of power plants in public-private partnerships Financiers and investors (PPPs). • Tax holidays and income tax reductions made available for renewable energy • The ambitious undertaking by the projects. government to raise renewable energy sources to at least 23% of Indonesia’s energy needs by 2025 (7% geothermal, 10% bioenergy, 3% water, and 3% other NREs) and 31% by 2050 certainly calls for significant investments from different stakeholders. • The MoEMR in its Roadmap for Accelerated Development of New and Renewable Energy 2015-2025 expects that investment in the order of 1,600 trillion rupiah will be required by 2025 (475 trillion rupiah for geothermal, 645 trillion-rupiah bioenergy, 320 trillion rupiah for hydro, and 160 trillion rupiah for new energy).

46 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Islamic finance potential in the solar energy sector

Type of Islamic Name of project Investment Description finance value Sukuk One Solar Watt Per Person – In 2012, two Brisbane-based solar companies, i.e. the Solar Guys Program International and Mitabu Australia proposed to fund its 250 MW of clean and renewable solar power project in Indonesia called ‘One Solar Watt Per Person program’ using Sukuk after securing a Memorandum of Understanding (MoU) with Indonesia’s Ministry of Energy and Mineral Resources. The program was planned to deliver one watt of solar power for every man, woman and child in Indonesia.

Green Sukuk Green projects ranging from US$ In February 2018, the Government of Indonesia, through its SPV renewable energy to waste 1.25 billion Perusahaan Penerbit Surat Berharga Syariah Negara Indonesia, management issued a 5-year Sukuk based on Wakalah Bil-Istithmar structure, the first global sovereign green Sukuk issuance.

Green Sukuk More than half of the Sukuk’s US$ In February 2019, Indonesia issues US$ 2.27 billion global green value was backed with state 2.27 billion Sukuk. It marked the second time that the government banked on assets in the form of land and the global Sukuk market after it became the first sovereign green buildings as underlying assets, Sukuk issuer last year, which raised US$ 1.25 billion. while 49% of the Sukuk’s value was backed with ongoing or future infrastructure projects.

In the recent years, there have been several incentives which aim at attracting more investment into the NRE sector.

47 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Country case 8: Pakistan

Solar energy sector in Pakistan In Pakistan, there have been Islamic Pakistan Overview project financing structures for long term Pakistan’s geography and location financing for the Energy Sector since 2011 promises a huge natural potential for (though mostly not for Renewable Energy). power production through Solar Energy generation. For example, in 2015, Meezan Bank provided a rated listed Retail Sukuk for NEPRA (National Electric Power Regulatory long term financing of PKR 22 billion Authority) is the main federal regulator (US$ 210 million) to Karachi Electric Ltd. established in 1992 that issues licenses for every power project.

Economic indicators Industry highlights

P n • Pakistan’s tremendous natural solar D o

US$ 304.952 i 197,015,955 G t

potential is best described by the high a y l r u t billion million Global Horizontal Irradiation (GHI) figures p n o u GDP (World Bank, 2017) Total population observed in its different provinces, with P o

C (World Bank, 2017) the highest being in Sindh, Balochistan and Punjab. • Pakistan is a developing Muslim country

s c

i with a growing Islamic finance industry,

s • 24 solar projects – 556 MW

t

US$ 695 t s s c i t and has tremendous resource potential t c e j a e j

t million o for solar, wind, hydro and biogas r s o

r Total renewable p y

p projects. Frequent power shortages (of r r

t r investment a s l

a up to 6000 MW) are listed as one of the l o u s o d

s primary hindrances for its industrial

n y I y e e

K productivity, and yet less than 1% of its K electrical power is generated by renewable means (other than hydro). • The Alternative Energy The government of Pakistan has Development Board (AEDB) announced Islamic financing as their

s s • National Electric Power • High mean sunshine per day r r priority for financing infrastructure e e

Regulatory Authority v

y • Large number of favorable i projects and has set a target of a r l

(NEPRA) d government policies for p

producing 5% of the country’s energy h y

• Private Power t r energy sector

t needs using renewables by 2030. w s

Infrastructure Board (PPIB) o • Growing Islamic finance u r d g • National Transportation

n sector y i

r t y and Dispatch Company s e u K (NTDC) d n i

• Central Power Purchasing y

Agency (CCPA) e K

48 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Regulatory development and policies Financiers and investors

Name of Functions • It is proposed that Sukuk structures for authority Renewable Energy (including solar NEPRA (National • Main federal regulator energy) financing need to be developed. Electric Power • Issues licenses for power project • Note that, in Pakistan, there have been Regulatory • Regulatory framework for competitive environment Islamic project financing structures for Authority) • Formulate tariff for electric power long term financing for the Energy Sector since 2011 (though mostly not for PPIB (Private • Window Facilitator to promote private sector participation Renewable Energy). Power • Facilitates investors in launching power sector projects • With the efforts of Econoler and its Infrastructure • Executes Implementation Agreements (IAs) with project Client, IRG (International Resource Board) sponsors and issues sovereign guarantees on behalf of the Group), and funding from USAID, the 3- Government of Pakistan year Energy Efficiency and Capacity (EEC) project was launched in Pakistan. Alternative Energy • Representing agency of the Pakistan Federal government, offers • The EEC project will identify potential Development Federal Government guarantees to projects initiated under firms, which can become ESCOs (Energy Board (AEDB) provincial Letter of Intent (LOI) sector contracting services for RE/energy efficiency) in Pakistan. Post that, the Energy • Generate, supply and distribute renewable, hydro and thermal objective is to competitively select best Department of energy. GOSED is also responsible for prospective planning, suited entities to provide energy the Government policy formulation and conservation strategies efficiency to private and state-owned of Sindh (referred industries and aid them with managerial to as GOSED) and technical staff trainings.

Central Power • Responsible for implementing and administering the ‘Single Purchasing Agency Buyer Plus’ market mechanism in Power agreements, to lead to (CCPA) competitive market operations

NTDC (National • Main Grid Supplier in Pakistan Transportation and Dispatch Company)

Pakistan is a developing Muslim country with a growing Islamic finance industry, and has tremendous resource potential for solar, wind, hydro and biogas projects.

49 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Challenges Islamic finance potential

• Some of the key challenges to Solar • In April 2016, Pakistani banks arranged a financing via Islamic finance structures, in ten-year Islamic Sukuk worth US$ 955 Pakistan, are explained below: million for a hydropower plant, the The relative cost of Solar energy largest-ever energy deal using Islamic production in Pakistan: financing in the country so far. • Although Pakistan’s Alternative Energy • This landmark energy Sukuk could be a Development Board (AEDB) does offer door opener for more to come and facilitation to IPPs to obtain NEPRA Sukuk will be seen as a catalyst project licenses for solar and wind power financing method for green economy in projects, and offers several incentives to the country and elsewhere in the World. private producers (such as tax cuts, duty waver on imported machinery, guaranteed government purchase etc.), a key challenge in Pakistan is that without This landmark energy Sukuk could be government subsidies, the cost of Solar or Wind generated electricity is a door opener for more to come and significantly higher than that of other sources. Sukuk will be seen as a catalyst project • The fact is that investors in Renewable Energy demand high ROI to compensate financing method for green economy for high risk of solar projects. RE solar projects typically have huge Capex costs in the country and elsewhere in the (are capital intensive), and much of the parts and infrastructure need to be World. imported.

Islamic finance potential in the solar energy sector

Type of Islamic Name of project Investment value Description finance Retail Sukuk Not disclosed PKR 22 billion Meezan bank provided fund to Karachi Electric Ltd in 2015

Sukuk Not disclosed • PKR 5.5 billion MBP provided series of funds to • PKR 6 billion • Lalpir Power Ltd (2013 & 2014) • PKR 13.73 billion • KAPCO Ltd (2011, 2012 & 2013) • Hub Power Co Ltd (2011, 2012 & 2013) Not disclosed Not disclosed PKR 9.83 billion Meezan bank provide syndicated finance to Hartfod Alternative Energy Ltd for Wind power-based production Sukuk Not disclosed PKR 2 billion MBL offered sukuk based finance to Lalpir Pvt Ltd

Not disclosed Not disclosed • PKR 39.8 billion MBL offered syndicated project finance to below companies • PKR 54.67 billion • Sui Southern Gas Company • Sui Northern Gas Pipeline

50 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Country case 9: Turkey

Solar energy sector in Turkey Turkey already has an Islamic banking Turkey Overview sector, which provides financing solar According to the Solar Energy Potential energy projects through Islamic finance. Map for Turkey published in 2008, the For instance, Turkiye Finance Participation total potential is above 500 GWh. Banks provides funds for the procurement of the equipment to be used in The total number of solar energy plants as construction of solar plants with of July 2017 was 1773. As of September concessional terms as well as with 2017, the total installed capacity was 2,246 maturities up to five years. MW. The biggest plant is the one that is operated by Kayseri Organized Industrial Center with an installed capacity of 50 MW.

Economic indicators

P Industry highlights n D

US$ 851.549 o 80,810,525 i G

t y a r l

t billion million u • Demand for energy and natural n p

u GDP (World Bank, 2017) Total population o resources increases due to a growing o P

C (Turkstat, 2017) economy and the population growth in Turkey. Over recent years, Turkey has

seen the fastest growth in energy s

c • Established Islamic finance i

t US$ 2.2 billion demand in the OECD, and according to s

i structure t Renewable energy IEA forecasts, is set to double its energy a

t • Enabling regulatory

s investment 2017

use over the next decade.

y environment r • Turkey is a net energy importer country, t

s • Growing industry

u depending on such imports for 73% of

d infrastructure and n

I its energy needs. This high rate of energy institutions

s dependence has been the main driving

r • Government and policy e force behind the formulation and v

i

s support r r implementation of new policies to • Ministry of Energy d e • Strong manufacturing y h commission local and renewable energy t a • EMRA (EPDK) l industries w p

resources. • EUAS (Electricity Generation o y r • Increasing demand for r g t Company – EGC) • Most of the plants are unlicensed ones s y alternative energy supplies r u

t with capacity equal and below one MW. d s • Access to MDB's capital such n u i Recently, the Minister of Energy has

d

y as European Bank for n e i announced that the 10-year target is to

K

y Reconstruction and

e install 10 GW solar energy capacity.

K Development (EBRD)

s

t • More than 1,773 solar c e

j plants o r p

r a l o s

y e K

51 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Regulatory development and Financiers and investors policies Name of Investment Capacity Project Project description • The regulatory infrastructure for energy project/ value period as well as solar energy market in Turkey Company consists of legal arrangements with Solar plant in US$ 1.3 1,000 Not In 2017, Kalyon-Hanwha Group institutions. There are laws on electricity Konya – billion MWh disclosed consortium won tender to natural gas, petroleum, LPG, renewable Kayapınar build solar project in Konya energy, nuclear power plants and Kanyapnar geothermal energy markets which are applied via the support of few bylaws Four solar Not 950 KWh Not Metropolitan Municipality of and communiques that are guided by plants disclosed disclosed Antalya launched SP plant to the decisions of the Council of Ministers be used for irrigation and/or High Planning Council and Six solar Not 1.44 Not Metropolitan Municipality of Ministry of Energy. In addition, the Energy plants disclosed MWh disclosed Izmir announced to install sic Market Regulatory Authority (EMRA) has SP plants the mandate to make secondary regulations for and to supervise energy Buyukcekmece Not 250 KWh Not Metropolitan Municipality of markets. plant disclosed disclosed Istanbul will install SP plant

Challenges

• Macro-risks • High installation and operation costs • Technological over-dependence on foreign resources • Limited knowhow • Need for increased government support

Islamic finance potentials

Proposed Islamic finance transactional features • Islamic finance with its asset-based structure, which promotes risk sharing, Issuance Issue price US$ 1 billion might be a viable alternative for financing Tenor Proposed a 10-year tenor Solar energy projects. • The Mudharabah and Musharakah Proposed periodic payment: Change in Energy financing structures seem to be an Coupon rate Price Index + 4% appropriate for solar energy projects. Payable semiannually Transaction • In addition, Istisna’ as well as Ijarah Payments Settlement options structures may also be used for solar terms Currency US$ energy production purposes. • For instance, Turkiye Finance Solar Energy Plants with capacity of 1GW to be Participation Banks provides funds for Underlying asset produced in Konya, Karman and Antalya the procurement of the equipment to be Regions of Turkey used in construction of solar plants with Governing law British Law and Turkish Law concessional terms as well as with maturities up to five years. Listing Borsa Istanbul • Solar energy projects can be regarded as Regulatory Listing Requirements as suggested by Capital Regulatory approval infrastructure projects for the financing and legal Markets Board of Turkey, Borsa Istanbul of which Sukuk may be an appropriate Subject to the regulations of the locations Regulations tool. where the Sukuk is listed

52 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Country case 10: Kazakhstan

Solar energy sector in Kazakhstan including thermal power plants, Kazakhstan Overview hydroelectric power, wind power, and The current total cumulative installed solar power plants at 0.5 MW. capacity of solar energy in country is approximately 0.5 MW with 28 solar power There is clear evidence of government’s stations with total capacity of 713.5 MW awareness and explicit strong planned by 2020. commitment to support renewable energy. Favorable policies and regulation The country's electric power potential is for renewable energy generation, including represented by 76 power plants with an feed-in tariffs and tax reductions present installed capacity of 20.5 GW as of 2013, favorable conditions for external investors.

Economic indicators

P

n Industry highlights

D

o

US$ 162.887 i 18,037,646

G

t

a

y

l

r

t b illion u million • Renewable sources such as wind, solar,

n

p

o u GDP (World Bank, 2017) Total population small hydro and bioenergy currently

P

o

C (World Bank, 2017) contribute less than 1% of Kazakhstan’s energy mix. • There is considerable potential in

s

• T otal solar energy– r • T he Ministry of Industry and

s renewable power generation and the

e

c

i 0.5 MW power plant y New Technology t government expects the total share of

a

s

l

i

p t • K azatomprom JSC renewable power generation to rise to

a

y

t

r

s

t

11% by 2030 with 1,040 MW of

s

y

r

u

t renewable energy capacity by 2020.

d

s

n

u i • The recent economic growth increased

d

y

n

e

I demand for additional energy in order to

K ensure economic growth. In this context, the use of renewable resources to cover the gap between supply and demand

s • E stablished Islamic finance becomes attractive. • 0 .5 MW power plant r

e

v • H igh solar radiance range • Kazakhstan has areas with high • 2 8 solar power plants i

r

s

d t insolation that could be suitable for solar planned by 2020 with total

c

h

e

t j capacity of 713 MW power, particularly in the south of the

o

w

r

o country, receiving between 2200 and

p

r

g

r

a 3000 hours of sunlight per year, which

y

l

r

o

t

s equals 1300-1800 kW/m² annually.

s

u

y

e d • Both concentrated solar thermal and

K

n

i solar photovoltaic (PV) have potential.

y

e There is a 2 MW solar PV plant near.

K

53 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Regulatory development and Financiers and investors policies • Even though being an attractive potential • The EBRD is financing the 50 MW • The Law “On Support of Usage of for solar, volume of proprietary funds in Burnoye Solar-2 project in Kazakhstan in Renewable Energy Resources”, July 2009, investments has decreased by KZT 34 partnership with the multilateral Clean provides state support for green energy billion in 2017. Technology Fund (CTF), coming as part of producers. It provides state incentives for • However, despite unfavorable conditions, a comprehensive US$ 200 million EBRD producers of renewable energy. Solar DAO is planning to expand in both renewable energy-financing framework Europe and Asia, with Kazakhstan being for Kazakhstan. envisioned as one of the largest potential • To date, the EBRD has invested € 1.7 target markets. Solar DAO founders, billion in sustainable energy and Islamic finance potentials UNISOLEX LLC, are already participating resources. in construction of two PV solar plants, • Solar energy’s share in the emerging • There is clear evidence of government’s 1.06 MW in Kyzylorda and 10 MW in field of renewable energy has been just awareness and explicit strong Almaty. slightly above 57 MW (as of September commitment to support renewable • The EBRD has been active in financing 2016). In 2017, there were six operating energy. Favorable policies and regulation the construction of solar parks in and 15 projected solar power stations for renewable energy generation, Kazakhstan by having established across the country. including feed-in tariffs and tax Burnoye Solar 1 in Zhambyl region • The Kazakh investment company KB reductions present favorable conditions in April 2014; it is planning to start Enterprises (an investment firm for external investors. construction of Burnoye Solar 2, to be in specializing in the development of solar, • The involvement of Islamic investment in the same region, both with a capacity of wind, hydro and biomass projects) is the solar projects financing is largely 50 MW. The bank will grant a US$ 44.5 planning the construction of a 100 MW focused on developing natural million loan in partnership with the CTF. solar power plant near Kabanbay, ecosystem related to Shariah compliant Tselinograd District, at a cost of investment strategy in clean energy. US$ 165 million.

The involvement of Islamic investment in the solar projects financing is largely focused on developing natural ecosystem related to Shariah compliant investment strategy in clean energy.

54 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Challenges The EBRD has been active in financing the Main barriers to renewable energy penetration are: construction of solar Factors Description parks in Kazakhstan by Market • Highly controlled energy • Missing market infrastructure having established failure sector • High investment requirements Burnoye Solar 1 in • Restricted access to • Fossil fuel subsidies technology • Trade barriers Zhambyl region • Lack of competition in April 2014. • High transaction costs

Economic • High payback period • High up-front capital costs for and Financial • Lack of access to capital investors • Small market size • Lack of investor interest from • Lack of access to credit to the private sector consumers • Lack of investor interest from • Low electricity tariffs the public sector • High discount rates • Lack of financial resources • Lack of instruments

Institutional • Lack of involvement of • Long and complicated stakeholders in decision bureaucratic procedures making regarding the issuance of • Lack of private sector building permits participation • Lack of expertise and • Lack of a legal and regulatory awareness within authorities, framework especially at the local level • Problems in realizing financial • Lack of a stable institutional incentives framework

Technical • Lack of infrastructure • Lack of skilled • Lack of specialized technology personnel/training facilities for the needs of Kazakhstani • Lack of entrepreneurs market • Lack of R&D culture • Lack of domestic • Product not reliable manufacturing industry • Inefficient technologies PVs/Wind turbines • Lack of experience

Social • Lack of consumer acceptance • Lack of social acceptance for of the product some Renewable Energy Technologies (RETs) • Low consumer awareness

55 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Appendix B: Abbreviations

Abbreviations Expansion Abbreviations Expansion

AED United Arab Emirates Dirham KZT Kazakhstani Tenge

AUD Australian Dollar MASEN Moroccan Agency for Solar Energy

CSP Concentrated Solar Power MENA Middle East and North Africa

ESCA Electric System Cascade Analysis MESIA Middle East Solar Industry Association

EWEC Emirates Water and Electricity Company MW Mega Watt

EU European Union NEF New Energy Finance Limited

GCC Gulf Cooperation Council OIC The Organization of the Islamic Cooperation

GDP Gross Domestic Product PPA Power Purchase Agreements

GW Giga Watt PKR Pakistani Rupee

GWh Gigawatt hour PLN Perusahaan Listrik Negara

ICMA International Capital Market Association PV Photovoltaic

IEA International Energy Agency UAE United Arab Emirates

IPP Independent Power Producers UK United Kingdom

IRENA International Renewable Energy Agency UNEP United Nations Environment Program

IsDB Islamic Development Bank US United States

KSA Kingdom of Saudi Arabia USAID U.S. Agency for International Development

KWh Kilowatt hour

Endnotes 1. IRENA (2018), Renewable Energy Statistics 6. MESIA, Solar Energy Outlook 2019 2018, Abu Dhabi. 7. Frankfurt School-UNEP Centre Global Trends 2. REN21, Renewable 2018 Global Status Report in Renewable Energy Investment 2018 3. IRENA (2019), ‘Renewable Energy Market 8. Economist Intelligence Unit (EIU) Analysis: GCC 2019’. IRENA, Abu Dhabi 9. Islamic Development Bank (IsDB) 4. IRENA and CPI (2018), Global Landscape of 10. Developed by Deloitte IFKC and published in Renewable Energy Finance, 2018, Abu Dhabi the IIFM’s Annual Sukuk Report, 7th edition, 5. Frankfurt School-UNEP Centre, Global trends in 2018 renewable energy investment 2018

56 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Appendix C: Thought leadership reports

Sukuk in focus: the Islamic finance : Scalable necessity for global and sustainable funding common practices”. source for social The report discusses the drive infrastructure to promote efforts to enhance The whitepaper examines the the functionality of Islamic key enablers of building an capital markets amidst the effective Islamic finance increasingly fragmented investment structure as a Islamic financial marketplace source of social infrastructure financing.

Responsible Investment: Corporate Sukuk: Building New thinking for financing the ecosystem to finance renewable energy sustainable infrastructure The Renewable Energy report The whitepaper attempts to presents an analysis of the address some of the key main drivers and factors for regulatory and practice issues building the business case of a that Corporate Sukuk the new new thinking to finance asset class may encounter. sustainable development in the energy and renewable energy sectors.

About the Deloitte Middle East Islamic Finance Knowledge Center (IFKC): Deloitte ME Islamic Finance Knowledge Center (IFKC) is a global knowledge management center of excellence and Islamic finance thought leadership think tank that provide market knowledge and practice insights to the Islamic financial service industry.

Leveraging on Deloitte Analytics, its market intelligence and applied research, the Center imparts knowledge, skills, and innovation in products and services with a prime objective to promoting and implementing change in Islamic finance practices around the world. As a result, the IFKC represents a one-stop shop for practitioners who seek to acquire knowledge and competency in different areas of technical expertise and Islamic finance practice.

57 Sustainable finance | Can Sukuk become a driver of solar and green energy growth?

Key contacts

Joe El Fadl Khaled Hilmi Aejaz Ahmed Irshad Mahmood Partner Lead Partner Partner Partner Regional FSI Leader FSI Consulting Risk Advisory Audit & Assurance Tel: +961 1 364 700 Tel +971 4 376 8888 Tel + 96612828400 Tel +973 17 214490 [email protected] [email protected] [email protected] [email protected]

Nipun Srivastava Nauman Ahmed Akbar Ahmed Dr. Hatim El Tahir Director Partner Clients & Industries Director Financial Advisory ME Tax Leader Leader Deloitte IFKC ME Leader Tel +971 56 6882507 Tel +966 1 3 887 3739 Tel+971 4 376 8888 Tel +973 17 214490 [email protected] [email protected] [email protected] [email protected]

Vishal Rander Director Project & Infrastructure Finance Tel +971 4 506 4939 [email protected]

58

This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities. DTTL (also referred to as “Deloitte Global”) and each of its member firms are legally separate and independent entities. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more.

Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. Our network of member firms in more than 150 countries and territories, serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 280,000 people make an impact that matters at www.deloitte.com.

Deloitte & Touche (M.E.) (DME) would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte & Touche (M.E.) accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

DME is a licensed member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is a leading professional services firm established in the Middle East region with uninterrupted presence since 1926. DME’s presence in the Middle East region is established through its affiliated independent legal entities, which are licensed to operate and to provide services under the applicable laws and regulations of the relevant country. DME’s affiliates and related entities cannot oblige each other and/or DME, and when providing services, each affiliate and related entity engages directly and independently with its own clients and shall only be liable for its own acts or omissions and not those of any other affiliate.

DME provides audit and assurance, tax, consulting, financial advisory and risk advisory services through 25 offices in 14 countries with more than 3,300 partners, directors and staff. It has also received numerous awards in the last few years which include, Middle East Best Continuity and Resilience provider (2016), World Tax Awards (2017), Best Advisory and Consultancy Firm (2016), the Middle East Training & Development Excellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW), as well as the best CSR integrated organization.

© 2019 Deloitte & Touche (M.E.). All rights reserved.