Gulf renewables boom or bust Webinar 28 th

Gulf renewables – boom or bust? Webinar 28 th September 2017

Renewables in GCC members

MENA’s renewables, closed greenfield deals

MENA’s renewables, closed greenfield deals

GCC’s project pipeline

Panel inspiratia Chair: Daniel Atzori Head of Research Moody's Investors Service Christopher Bredholt Vice President – Senior Analyst Herbert Smith Freehills Silke Goldberg Partner DNV GL – Energy Elisa Cataldo Senior Consultant – Renewables Advisory MENA Vector Cuatro Group Antonio Caro Morales Middle East & North Africa Manager

Gulf renewables: outlook and credit risks Christopher Bredholt, Vice President – Senior Analyst, Infrastructure Finance SEPTEMBER, 2017

Moody’s current GCC sovereign ratings Gulf Renewables: Outlook & Credit Risks, September 2017

GCC – Key Credit Views CORE OUTLOOK DOWNSIDE FACTORS » » » Tail risks from ongoing regional and domestic political tensions Oil prices below the fiscal breakeven; public spending cuts and policy uncertainty Weakening of confidence impacting economic growth and loan performance » » Oil prices close to fiscal break-even; ongoing commitment towards public spending and financial support for government-related issuers (GRIs) Strong capital buffers supported by robust pre -provision earnings generation UPSIDE FACTORS » » » High oil prices that are sustainably above fiscal break- even; growth in non-hydrocarbon sectors Faster-than-expected progress on structural reforms Substantive reductions in borrower, industry and depositor concentrations in banks Gulf Renewables: Outlook & Credit Risks, September 2017

GCC has high electricity demand growth Fossil fuel consumption has grown in tandem 400 Saudi Arabia UAE OECD 500 Kuwait Qatar 400 300 200 100 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 300 Oil & natural gas consumption, indexed Saudi Arabia UAE OECD Kuwait Qatar 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 500 Electricity generation, indexed Source: BP Statistical Review of World Energy 2017 Gulf Renewables: Outlook & Credit Risks, September 2017

Targets to diversify generation mix… Predictability in renewables implementation will be important Kuwait (Aa 2 stable) Qatar (Aa 3 negative) Target to increase share of renewable generation to 15% to be reached by 2030 Target of 20% capacity from renewable sources by 2030 Saudi Arabia (A 1 stable) Vision 2030 targets: 9. 5 GW renewables by 2030; goal that a significant portion of the renewable energy value chain will be based in Saudi Arabia; increased private sector participation in power sector INDC under the UNFCCC: 130 m tonnes of CO 2 avoided by 2030 annually UAE (Aa 2 stable) UAE Energy Strategy 2050 aims to cut CO 2 emissions by 70 per cent, increase clean energy use by 50 per cent and improve energy efficiency by 40 per cent; target of 44% clean energy by 2050 Dubai: Clean Energy Strategy 2050 targets 7% total power output from clean energy by 2020, 25% by 2030 and 75% by 2050 Abu Dhabi: 7% of power generation capacity from renewables by 2020 Sources: UNFCCC; Saudi Arabia Vision 2030; Kuwait Institute for Scientific Research; Dubai Clean Energy Strategy 2050; UAE Ministry of Energy; Qatar Ministry of Energy and Industry; Press reports Note: INDC = Intended Nationally Determined Contribution; UNFCCC = United Nations Framework Convention on Climate Change Gulf Renewables: Outlook & Credit Risks, September 2017

…but pressure to implement may vary Levels of sovereign wealth and fiscal break-even oil prices Source: IMF; Moody’s Gulf Renewables: Outlook & Credit Risks, September 2017

GCC Renewables: Opportunities and challenges Competitive Economics • Abundant solar resource and land availability, together with declining equipment costs, makes solar a competitive proposition vs. fossil fuels. Recent auctions in Dubai and Abu Dhabi have achieved record low pricing for solar PPAs at $29. 9 and $24. 2 per MWh. • New support systems and regulations, without an established track record across economic cycles, are a credit challenge facing renewables projects in the GCC, though we note experience with IWPPs. Highly-rated sovereigns and state owned offtakers • Benign sovereign credit environment and offtakers related to government is credit positive for renewable energy projects in the GCC; in addition, project stakes retained by the state-owned entities may be supportive. • Extent to which the costs of renewable support are fully reflected in the system and accepted by the end consumer is an important consideration. Government controlled tariffs have not always allowed for utility full cost recovery and may encourage resistance to agenda. Support for privatization agenda and IPPs Government goals to diversify energy mix and increase private sector participation in the sector are positive, though pace will depend on politics and oil price. Project finance opportunities, including sukuk Targets suggest a robust pipeline of future projects, which will garner interest from regional investors; assets are compatible with Shariah principles of sustainability. • Nascent regulatory frameworks Cost recovery for utilities Shallow domestic supply chains • Availability of qualified operators and manufacturers is key for plant performance and operating expenditure. GCC markets will depend on imports for the main technology in medium term; governments may seek to impose local content requirements. • Harsh desert operating environment • Certain operating challenges not seen in Europe, in particular labour availability and extreme temperatures and dust which, for solar, have a negative impact on plant efficiency. Gulf Renewables: Outlook & Credit Risks, September 2017

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HERBERT SMITH FREEHILLS Silke Goldberg Partner

The Middle East Increasing Energy Consumption • Growing population in the region • • Increasing demographic urbanisation Investment coupled with an increasing focus on demand side management Renewable energy on the rise • Specific focus on wind and solar sources: abundance of sun • and available land Diversification away from oil and gas – particularly where reliant on imports • Trend towards “mega” projects – economies of scale

GCC renewable/clean energy targets Jurisdiction Target Dubai 1 7% by 2020, 25% by 2030, 75% by 2050 Saudi Arabia 3. 34 GW by 2020, 9. 5 GW by 2023 Oman 10% by 2020 Bahrain 255 MW by 2025, 700 MW by 2030 Qatar 2% by 2020 Kuwait 15% by 2030 1 Dubai and UAE policy targets include renewable and nuclear energy

Large scale projects pipeline UAE: • 1. 17 GW Sweihan solar PV: Financial close May 2017 • 800 MW PV MBR Solar Park Phase 3: Financial close June 2017 • 700 MW CSP MBR Solar Park Phase 4: Awarded to ACWA Power and Shanghai Electric in September 2017 Saudi Arabia: • 300 MW Sakaka solar PV: Bids due 2 October 2017 • 400 MW Dumat Al Jandal wind: Bids due January 2018 • Round 2, 1. 02 GW: Due to commence Q 4 2017 / Q 1 2018 – 620 MW of solar + 400 MW of wind

Projects pipeline Oman: • • 200 MW solar PV project being considered by OPWP 50 MW wind project being developed by Masdar Bahrain: • 100 MW solar to be tendered in February 2018 according to EWA – may be through a feed-in-tariff programme Qatar: • 200 MW solar project being developed by Qatar Petroleum and Qatar Electricity and Water Company, potential 500 MW extension Kuwait: • • 1 GW Al Dibdibah solar scheme being procured by Kuwait National Petroleum Company CSP, solar PV and wind projects at the Al-Shagaya renewable energy complex, being developed by the Kuwait Institute for Scientific Research and MEW

GCC renewables energy policies Country Regulatory Feed-in tariff/premiu m payment Bahrain Kuwait Oman Qatar Saudi Arabia UAE Electric utility quota/ obligation/R PS Net metering/net billing Transport obligation/ mandate Fiscal incentives and public financing Heat obligation/ mandate Tradable REC Tendering Capital subsidy, grant, or rebate Investment or production tax credits Reductions in sales, energy, VAT or other taxes Energy production payment Public investment, loans, or grants

RES and market design • • Structured support for policy aims required • Policy tools? • Role of auctions vs Fi. Ts: • Auctions – run the risk of unrealistically low PPAs and impact class of bidders (Dubai – MBR Solar Park? ) • Fi. Ts – risk of long term subsidy dependence but stable investment basis (EU, but also Morocco? ) • Hybrid policy mechnanisms – more likely to support diversity of bidders and project size Experience in other jurisdiction has shown: subsidised energy costs are often a barrier to investment

RES and market design • IPP Model «competition for markets» model with contract award and offtake governed by long-term PPAs as most basic level of competition • IPP Model prevalent in GCC • GCC sector reform could lead to more widespread competition in due course • Oman, Saudi, and UAE: • Some liberalisation progress – independent regulators and (legal) unbundling efforts • Contrast to liberalised energy sector in EU in which a range of RES projects have been successful

RES AND MARKET DESIGN • RES can have pivotal role in sector reform: • In relation to single buyer models: Namibian example • In relation to market design: UK and EU examples • Co-ordinated approach of all stakeholder institutions • • Advent of subsidy free RES projects in Europe- will there be a domino effect? • Availability of technology will impact GCC market design Technology leapfrog: RES market in EU was developed pre- storage, smart metering and demand side response mechanisms

DNV GL Energy Elisa Cataldo Senior Consultant – Renewable Advisory MENA

Introduction Dubai target 75 % energy to from clean sources by 2050 67 GW of RE under development in MENA GCC countries are on the ‘Global Sunbelt’- high solar irradiation. 60% surface have excellent suitability for solar PV – 1%, could create 470 GW additional power capacity! Sufficient wind resources in MENA and Egypt with prime locations Main driver for clean energy: fall in the cost of renewable energy technologies, particularly PV solar Utilities need additional 150, 901 MW (50% extra capacity) to reach 439, 662 MW by 2020 and meet expected demand Dubai net-metering model for Shams rooftop programme: customers can reduce electricity bills by producing solar energy Off-grid solar to be adopted in rural areas or by oil companies to reduce carbon emissions and costs when generating electricity. Solar for enhanced oil recovery projects in Oman and Kuwait.

Solar market trends in MENA region Dubai target 75 % energy to from clean sources by 2050 DNV GL survey: status of the solar market, based on participants’ knowledge and experience in MENA Country potential

Correlation of potential and grid status of countries Dubai target 75 % energy to from clean sources by 2050

Suitable technology application in solar MENA • 40% responded that utility scale projects are the most suitable application for solar energy and to ensure the energy transition in MENA region. • Utility scale projects might be predominant due to their ability to meet the requirement in a short time. • Desalination plants using solar energy are already operating in the emirate of Abu Dhabi and those pilot projects were commissioned in November 2015.

Saudi Arabia’s 700 MW solar PV and wind auction programme Saudi Arabia announced the Rf. P for 700 MW of wind and solar projects in April 2017 Qualified 51 companies from 128 applications, 27 to bid for a 300 MW solar project and 24 for a 400 MW wind farm. Sakaka Solar PV plant - 300 MW • The Sakaka Solar PV plant is the Kingdom’s first utility scale Solar • • PV power plant project. 27 shortlisted bidders, for the 300 MW 25 years PPA and bidders are required to meet local content targets as outlined in the RFP of this 100 percent private IPP program. The close out date in September 2017. The announcement of the winning bid will follow in November 2017. Saudi Arabia will develop a buyer-focused market, through the separation of the administrative and financial functions of SEC, alongside separately developing its generation, transmission and distribution activities. Competitive framework in “shaping an attractive environment for investors in line with Saudi Vision 2030 and the National Transformation Program 2020” 400 MW Wind Power Project in Dumat Al Jandal • The 400 MW wind power in Dumat Al Jandal is located in the Al Jouf region of Saudi Arabia. • Dumat Al Jandal’s project will become the Kingdom’s first utility- scale wind project, part of round one of the National Renewable Energy Program (NREP)[7]. • 25 companies qualified. Close in January 2018. • Technical criteria for round one NREP projects include a 30% local content requirement. • 20 years PPA and bidders are required to meet local content targets

Vector Cuatro Antonio Caro Morales Middle East & North Africa Manager

MENA regional outlook • Oil price volatility in 2016 has continued into 2017, moderating the region’s economic growth • Growth in the region is forecast to recover to a 3. 1% pace this year, with oil importers registering the strongest gains • More than US$200 billion worth of investment in the coming years • More than 67 gigawatts (GW) of clean energy projects are currently at the design and study stage • Governments are looking to private investors to help develop power assets

Saudi Arabia focus • Saudi Arabia is one of the world’s biggest oil producers. Now is seeking up to $50 bn of investment in solar and wind energy. • Saudi Arabia aims to generate 9. 5 gigawatts (GW) of electricity from renewable energy annually by 2023 involving 60 projects. • First round will be to generate 700 MW of renewable energy: • • 300 MW solar project developed in Sakaka, in the Al-Jouf province 400 MW wind project developed in Dumat al-Jandal, Al Jouf region.

Saudi Arabia Solar Resource Wind Resource

Saudi Arabia tenders • Oil price volatility in 2016 has continued into 2017, moderating the region’s economic growth • Growth in the region is forecast to recover to a 3. 1% pace this year, with oil importers registering the strongest gains. • More than US$200 billion worth of investment in the coming years • More than 67 gigawatts (GW) of clean energy projects are currently at the design and study stage • Governments are looking to private investors to help develop power assets

Q & A