Placing too much emphasis on tariffs may detract from the long-term value and sustainability of projects
It is essential that projects can be fully and satisfactorily delivered throughout at all stages including finance, development, construction, operational and that they ultimately provide the level of expected performance and reliability over the long-term (say 30 years typically), asserts Mohammed Al Hajjaj, CEO-KSA, Engie, in this special OpEd (Opinion-Editorial) in www.logisticsgulf.com
The decline in photovoltaic (PV) technology costs has driven an increase in solar energy adoption, to achieve the long-term decarbonization objectives and success of the procurement programmes.
Solar energy projects are gaining strong momentum in Saudi Arabia, driven by ambitious net zero goals that have led to consistent initiatives across the Kingdom. The GCC nations contribute over 10% to the total renewable energy capacity of the MENA region with the majority of this capacity, around 90%, is attributed to solar photovoltaic (PV) technology, with concentrated solar power (CSP) making up an additional 4%. Most of these renewable energy projects are located in the UAE, Qatar, and Saudi Arabia.
In fact, placing too much emphasis on tariffs may detract from the long-term value and sustainability these projects offer while putting certain key stakeholders at risk. This focus could hinder broader climate goals, which aim to balance economic efficiency with environmental protection and sustainable growth.
To ensure that tariffs do not overshadow these objectives, aligning with Environmental, Social, and Governance (ESG) guidelines becomes crucial. Extensive metrics and ESG requirements, like those outlined in the European Union’s Corporate Sustainability Reporting Directive (CSRD), are essential to addressing long terms sustainable development as we accelerate the energy transition.
Beyond tariffs
These guidelines encourage organizations to go beyond short-term financial factors, like tariffs, and consider the broader impacts of their operations on environmental and social sustainability.
By committing to these ESG frameworks, companies enhance transparency and accountability in their sustainability efforts, which may, in turn, influence tariff policies that are better aligned with long-term environmental objectives.
Building on this approach, we have conducted a strategic double materiality assessment at the Group level to align with the new CSRD regulatory requirements and European Sustainability Reporting Standards (ESRS).
The CSRD, an initiative by the European Commission, aims to enhance the transparency of non-financial information disclosed by companies. It’s intended to strengthen reporting requirements, ensuring comprehensive details about the company’s Environmental, Social and Governance (ESG) impacts are thoroughly communicated.
Complementing this, the ESRS has been developed by the European Financial Reporting Advisory Group. These standards serve as a roadmap for companies, providing detailed instructions on how to report their sustainability performance effectively and accurately.
ESG issues
By focusing on double materiality, we identified key Environmental, Social, and Governance (ESG) issues that not only shape our socio-environmental impact but also influence our financial performance. 17 key issues have been prioritized to ensure we stay aligned with evolving regulations while driving meaningful, sustainable outcomes across our operations.
In the Middle East, ESG reporting varies significantly across companies and countries, often depending on each company’s willingness to disclose ESG details. While some align with Global Reporting Initiative (GRI) standards, like the CSRD, the lack of consistency hampers comparability and can erode investor confidence.
This inconsistency makes it difficult to evaluate renewable projects on equal terms across the region. A potential solution would be to implement a standardized system, as seen in Europe, to ensure uniformity, highlight operational differences, and emphasize sustainability efforts. This would also enhance transparency, regulatory compliance, and help companies avoid potential issues.
Academic studies indicate that companies adhering to ESG standards demonstrate resilience, specifically companies that consistently implement robust ESG strategies tend to see significantly better financial outcomes, achieving total shareholder returns that are 2.6 times higher and operating margins that are 4.7 times greater than those of companies with only moderate ESG performance.
In an era where the global landscape is perpetually evolving due to economic and geopolitical factors, companies committed to ESG principles are more likely to thrive. Investors, financiers, and policymakers extensively utilize ESG data to evaluate a company’s risk exposure and predict future financial performance.
Empowering society
Concurrently, this data empowers society and consumers to make informed decisions about their consumption and investment choices, guiding them toward companies with robust adherence to ESG standards. For energy companies, collaborating with providers regulated by the CSRD can significantly reduce long-term financial and operational risks.
Compliance with CSRD ensures responsible sourcing, fair labor practices, and minimal environmental impact throughout the project lifecycle. By prioritizing partnerships with CSRD-accredited developers, Saudi Arabia can attract responsible investments, cultivate a green economy, and enhance their global reputation as sustainability champions.
PPP
Case-to-point is displayed as the Abu Dhabi government completed the Nojoom project’s second phase in partnership with ENGIE. This public-private partnership (PPP) project intends to achieve substantial electricity savings of nearly 2,400 million kWh and reduce power consumption by about 74% over its 12-year concession.
Collaborating with solar and energy storage solution partners solely based on tariffs could result in unforeseen costs and potentially jeopardize sustainability objectives. Decision-makers in the GCC must prioritize long-term value and environmental stewardship by partnering with CSRD-compliant providers.
Investing in sustainable solar energy is not just a financial decision but an investment in a brighter, more prosperous future for the region, involving a wide range of key stakeholders (debt financiers, investors, developers, contractors, suppliers, off-takers, and more) with the potential for significant growth and development.
