Sustainable energy finance is an untapped potential in the MENA region
By Mouayed Makhlouf
For the people of the Middle East and North Africa (MENA), climate change isn’t some abstract concept. It’s happening now.
Drought, rising temperature, and dwindling water supplies have already begun to affect the region and, as global temperatures continue to rise, things are expected to get worse.
It’s against that backdrop that world leaders met in Marrakesh, Morocco in November for their annual summit on climate change.
The leaders focused on grand solutions to global warming, like renewable energy projects, and rightly so. But it’s important to remember in the battle against climate change that there is also place for solutions that involve the efforts of everyday individuals, and not just experts.
The leaders further showed that the implementation of the Paris Agreement is underway and that the constructive spirit of multilateral cooperation on climate change continues.
One of the most effective of those is sustainable energy financing, which sees banks provide loans to businesses and homeowners who want to invest in eco-friendly technology, like solar panels, super-efficient boilers, and advanced methods for treating wastewater.
While individual projects might be relatively small, added together they are an important way of cutting greenhouse gas emissions and conserving resources. What’s more, the loans help to channel much-needed capital to businesses, especially the small and medium enterprises that form the backbone of most economies in the Middle East and North Africa.
Crucially, investments in sustainable energy don’t only make sense for companies and homeowners from an environmental perspective. They’re also good for the bottom line. In countries where grid electricity is more expensive, like Lebanon, Jordan and the West Bank and Gaza, investments in solar panels pay for themselves in as little as three years. In many other regional countries, the payback periods are under 10 years.
That represents a remarkable change from just a few years ago, when building owners would have to wait decades to recoup their money. That change has been driven in part by the plunging cost of technology. One Oxford University study says the price of solar panels has dropped 10 percent a year since the 1980s and is likely to continue falling.
Sustainable energy finance isn’t only a boon for borrowers, it’s also great for lenders. It helps banks tap into a whole new market of clients and diversify their business. The market, too, is massive.
A new study from the IFC for example, found that in Egypt, Jordan, and Morocco alone, the potential for climate-smart investments—which include improvements in efficiency, waste collection, and transport—could total $146 billion between now and 2030.
But for the sector to reach its potential, several things need to happen.
First, banks need to embrace sustainable energy financing as a strategic priority. Second, lenders need to educate potential borrowers about how investing in renewable technology and energy efficiency can help them save money. Thirdly, they need to forge partnerships with energy auditors and the companies that supply eco-friendly technology and link them with borrowers.
Governments also have an important role to play. States can set targets for energy efficiency, which would encourage private sector investments. Officials can establish clear frameworks for sustainable energy lending, which would give banks the confidence they need to jump into the market. Central banks can offer preferential rates for on-lending to banks that provide eco-friendly loans.
Finally, while this is admittedly a loaded political issue, governments can reduce subsidies on fossil fuels, which would encourage homeowners and businesses to use as little water, energy, and heat as possible.
These are not measures that can wait. There is a growing consensus that humanity will be hard-pressed to limit the global rise in temperatures to 2 degrees Celsius—considered the tipping point for a climate catastrophe. We need to leverage every tool we have to cut greenhouse gas emissions, and sustainable energy financing is an important one.
Mouayed Makhlouf is Director of the Middle East and North Africa at IFC, a member of the World Bank Group.