Financing the Energy Transition 2025

Africa2.3 2.4Middle East Historically, countries in the Middle East have relied heavily on fossil fuels, with oil, natural gas and coal accounting for about 95% of electricity generated in 2022.16 However, regional sentiment is changing, with more countries setting net-zero emission targets. In the Middle East, eight countries have set net-zero targets.17 The Middle East’s energy sector is dominated by national oil companies (NOCs). As a result, 20 cents are invested in clean energy for every dollar spent on fossil fuels.18 Fossil fuel revenues are crucial for government budgets, representing nearly 90% of revenues in Iraq and over 70% in Oman and Bahrain.19 Shifting away from these sources poses significant economic and political challenges for less advanced economies. More advanced economies, such as the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia, have established plans to leverage their resources and implement their vision of increasing non-oil revenues, with ambitious renewable targets set for 2030. However, these diversification plans are heavily dependent on the governments’ oil and gas revenues and are therefore vulnerable to shocks in the market, such as the price of oil per barrel. Political instability in some countries of the Middle East region deters foreign capital and clean energy investment. Investors are cautious about long-term projects in politically unstable areas, with higher returns required to compensate for higher risks. Country risk premiums can be as high as 24% for Lebanon, for example, while politically stable countries such as UAE, Qatar and the Kingdom of Saudi Arabia offer higher investment certainty and associated risk premiums of around 1%.20 The Middle East’s energy sector is dominated by national oil companies (NOCs), but more advanced economies in the region have established ambitious renewable targets set for 2030. In Africa, 11 countries have set net-zero targets;21 however it is difficult to mobilize investment at scale to deploy energy transition technologies. In North Africa, meeting Nationally Determined Contribution (NDC) targets by 2030 requires around $25.7 billion annually, but current climate-related investments represent just 23% of this amount.22 For Africa, driving investment in the energy transition is a multifaceted challenge that involves addressing economic, social and regulatory factors, among others. Many African countries still face significant energy access challenges. Currently, 600 million Africans lack access to electricity, creating significant barriers to healthcare, education, productivity, digital inclusivity and ultimately job creation. The continent is naturally endowed with vast renewable energy resources including solar, wind, hydro and geothermal, all of which could be harnessed for both local consumption and export. However, high cost of capital prevents deployment of energy transition technologies, making them too expensive for local consumers. Strategies to drive the energy transition agenda for Africa include: –Fostering the continent’s abundant natural resources. –Support from governments to create conducive policy and regulatory frameworks that support the energy transition, such as feed-in tariffs and tax incentives. –Leveraging both public and private investments and financing mechanisms. –Enhancing long-term access to low-cost capital. In North Africa, meeting Nationally Determined Contribution (NDC) targets by 2030 requires around $25.7 billion annually, but current climate- related investments represent just 23% of this amount. For a world map denoting which countries fall within which regions, see Annex. Financing the Energy Transition: Meeting a Rapidly Evolving Electricity Demand 14