As governments around the world begin to come to terms with the reality of climate change, the shift towards a green economy amongst the world’s major powers is gathering pace.
Leading the race has always been Europe. In line with its commitment to the Paris Agreement, the EU aims to be climate-neutral by 2050, an objective which now forms the core of the European Green Deal.
In addition, Chinese President Xi Jinping committed the world’s second-biggest economy to carbon neutrality by 2060 in a surprise announcement at the UN General Assembly last year. This new development will be a game changer for the global energy industry.
And now, under the Biden administration the United States is now realigning its vision towards a green economy. In addition to re-joining the Paris Climate Agreement, President Biden has announced ambitious plans to base the post-COVID economic recovery of the US on a green revolution, with a $2 trillion climate plan and the creation of hundreds of thousands of ‘green jobs’ through the development of the green tech industry, in a bid to compete with China’s current dominance of the sector.
The timing of all this is no coincidence. Aside from the fact that climate change is starting to demonstrate measurable economic costs to nations around the world, from wildfires to cyclones, drought, flooding and more, a major catalyst for change has been the plummeting costs of renewable energy, which is now starting to undercut fossil fuels such as coal and natural gas in terms of energy production costs. Recognising this, developing nations are investing in renewable energy infrastructure instead of fossil fuels to meet their growing energy needs.
In the GCC region this shift has been especially notable, as governments seek to diversify away from fossil-fuel based economies and stay ahead of the curve on green energy. The UAE strongly signalled its intentions by hosting the headquarters of the International Renewable Energy Agency (IRENA) in Abu Dhabi’s Masdar City upon its founding in 2009. In addition, it has allocated over $163 billion to meet its goal of increasing the share of clean energy sources in its total grid capacity to 50% (44% renewable and 6% nuclear) by 2050.
So far, it has delivered on its promises. Two of the biggest solar parks in the world are now located in the Emirates – the Mohammed bin Rashid Al Maktoum (MBR) Solar Park, launched in 2012, and the Noor Abu Dhabi solar park, which began operations in April 2019.
Their efforts are now bearing fruit – in 2020, the Dubai Electricity and Water Authority (DEWA) announced a 9% increase in Dubai’s share of clean energy in 2020, exceeding its target of 7%, with a further ambition to achieve 75% by 2050.
With the shift in government policies and the decreasing costs of renewables, we are rapidly reaching a tipping point where the shift to green energy will accelerate exponentially, and there are likely to be big rewards for those smart enough to invest in green technologies now.
Green Hydrogen
The rapid proliferation of wind and solar has brought a new energy player into the game – green hydrogen. The hydrogen economy refers to the concept of using hydrogen as a low-carbon energy resource to replace fossil fuels as a source of heat and electricity for buildings and vehicles. A hydrogen fuel cell combines hydrogen and oxygen to produce electricity and heat, with the only by product being water.
The traditional challenge for hydrogen has been the high energy costs associated with its production, which has so far mostly been powered by fossil fuels such as natural gas. However, the production of ‘green hydrogen’, which is achieved using clean energy at the source of production, is rapidly growing as governments wake up to the sector’s potential.
President Biden has announced plans to use renewable energy to produce hydrogen that costs less than natural gas. The EU will invest $430 billion in green hydrogen by 2030 to help achieve the goals of its Green Deal. In 2020, Saudi Arabia announced plans to build a $5 billion green hydrogen plant powered by 4 gigawatts of wind and solar power, which would be the biggest of its kind in the world.
Chile, Japan, Germany and Australia are all making major investments into green hydrogen. According to the Hydrogen Council, the global hydrogen market could be valued at $2.5 trillion by 2050, supplying up to 18% of global energy demands.
All of these developments are being reflected in the financial markets. Swissquote’s Hydrogen Economy structured product achieved 170% returns since its inception in February 2020, easily outperforming the S&P500. The Alps Clean Energy ETF, a fund based on alternative energy equities, gained 21.8% YTD, whilst the First Trust NASDAQ Clean Green Energy ETF, focusing on companies in biofuels, solar energy and advanced batteries, rose 20% YTD.
While the Middle East markets lack the sophisticated investment tools offered by more advanced markets, there are still many options available for investing in the renewable energy industry, from ETFs to equities, or investments in one of the Middle East’s start-up funds that aim to improve diversification in the hydrogen economy and sustainability with long to medium terms.
Though the percentage of growth will differ from country to country, there is still huge potential for growth in the sector, especially in the UAE, Saudi Arabia, and emerging markets in Asia as well.
