From Oil to Renewables: Investment Trends in the Middle Eastern Energy Sector

The IEA estimates that by the end of 2024, the Middle East will have invested around $175 in its energy sector. Of which, 15% will be invested in clean energy. In the Announced Pledges Scenario (APS), the region’s clean energy investment will more than triple compared to 2024 figures. 

The Middle East is a region long known for its oil wealth, with several of the world’s top oil producers calling it home. These countries include Saudi Arabia, the United Arab Emirates (UAE), Iraq, Iran, and Kuwait. According to the International Energy Agency (IEA), a massive chunk of the region’s investments is still being injected into fossil fuel supply. As of the latest available data, only 20 cents go to clean energy investment for every $1 investment in fossil fuels.

Though fossil fuels still dominate energy investment, the trend is shifting.

The IEA estimates that by the end of 2024, the Middle East will have invested around $175 in its energy sector. Of which, 15% will be invested in clean energy. In the Announced Pledges Scenario (APS), the region’s clean energy investment will more than triple compared to 2024 figures. This means that by the end of the decade, every $1 invested in fossil fuels would be matched by 70 cents of clean energy investment.

Large-scale renewable projects

Ambitious strategies and commitments are driving this development. For instance, Saudi Arabia, Bahrain, and Kuwait aim to achieve net-zero emissions by 2060, while the UAE and Oman target reaching this ideal scenario by 2050. 

In the region, solar energy is particularly a priority, as evidenced by major projects like the 2.6 GW Al Shuaibah Solar Power Plant in Saudi Arabia. 

Meanwhile, the UAE has the Mohammed bin Rashid Al Maktoum Solar Park. The plant, which has a planned capacity of 5 GW by 2030, is poised to be the largest single-site solar park in the world. Once completed, the facility — with a total investment of AED 50 billion — will save more than 6.5 million tonnes of carbon emissions every year.

Apart from solar energy, many countries in the Middle East are also leveraging their vast desert landscapes to invest in and harness wind energy.

Saudi Arabia’s 400MW Dumat Al Jandal is a flagship project in the region. It’s set to be the country’s first wind farm and the largest in the region, displacing nearly 1 million tonnes of carbon emissions annually. The wind farm is made possible with an estimated investment of $500 million.

The Middle East is also ramping up investments in blue and green hydrogen. These efforts come on top of securing critical minerals essential for clean energy technologies like batteries and renewable energy infrastructure. For example, Saudi Arabia has launched a $182 million mineral exploration incentive programme, aiming to secure the materials necessary for its clean energy transition.

Public-private synergy

The IEA report titled World Energy Investment 2024 shows that globally, most investments in the energy sector comes from corporates. However, when compared with advanced economies, emerging market and developing economies see a more pronounced efforts from governments or state-owned enterprises (SOEs). About 50% of all energy investments in these countries, including those in the Middle East, came from governments or SOEs. 

In the Middle East, the rise of investment funds is also driving change in the energy sector.

During last year’s COP28, hosted by the UAE, the country launched Alterra. It’s a $30 billion climate-focused investment initiative that aims to mobilise capital for clean energy projects, particularly in developing countries. By 2030, it hopes to attract up to $250 billion. 

At a recently held high-level roundtable talk during New York Climate Week, Dr. Sultan Al Jaber, the UAE Minister of Industry and Advanced Technology and the fund’s chairman, noted that Alterra is actively attracting more investors. These investors collectively support renewable energy projects with a capacity of over 40 GW.

“Since our launch, [w]e have placed $6.5 billion with our partners BlackRock, TPG, and Brookfield, with a significant portion helping to create emerging market funds focused on climate-transition investments,” he remarked.

The International Monetary Fund and the World Bank have previously emphasised the importance of public-private partnerships. They acknowledge that public-private risk-sharing can further nurture private climate investments, especially in EMDEs.

ESG reporting

To further entice investors, many Middle East countries have also introduced Environmental, Social, and Governance (ESG) reporting guidelines. The goal is to enhance transparency and attract socially conscious investors. 

For example, Bahrain Bourse, in partnership with the country’s Central Bank, implemented voluntary ESG reporting in 2020. Meanwhile, Oman’s Muscat Stock Exchange unveiled voluntary ESG disclosure guidelines last year; mandatory reporting is slated for 2025.

This push toward ESG aligns with the overall trend seen in the region, where both the public and private sectors are doing their part in accelerating energy transition through investments.