Energy and the MENA region
The demand for energy is increasing in countries like China and India. Considering it’s a hotspot for energy resources, countries of the Middle East and North Africa (MENA) region have also seen a sharp increase in their demand for renewable energy. We can safely say that many factors affect this increase like their geographical location, the abundance of fossil fuel reserves in several MENA countries, the existing infrastructure, and historical policy ties. Most of the world looks to the MENA countries for oil and other fossil fuels. This puts a big strain on the countries to keep up with the supply. Renewables could be a perfect alternative to meet some of the challenges facing the MENA countries’ energy systems.
What does it mean to finance energy?
In some cases, it’s defined as “financial solutions for renewable energy, efficient energy projects, and technologies in the energy market.” It has become a topic to be discussed due to the relationship between energy price shocks and financial markets, financing and investment decisions made by energy firms, and carbon finance and green finance. All these studies came together to create a common research theme: energy finance.
You may still be a bit confused. The concept of energy finance remains vague and has no clear definition, which is a reason why the development of the concept is still restrained.
It starts with understanding and studying the links between energy markets and financial markets and then looking at energy products/markets from a financial perspective. If you think about it, perhaps the largest energy market is the oil market, so it would be relevant to base studies on this market. Most studies revolve around the oil market, and these studies look at several different themes when conducting their research, some of which are: Energy and Financial Markets, Pricing Mechanisms, Energy Corporate Finance, Green Finance and Investment, Energy Derivative Markets, and Energy Risk Management.
Why is the cost of financing an important issue for renewable energy?
In general, energy is clearly important for life and plays a leading role in global environmental challenges. Both policymakers and investors have shown great interest in understanding energy finance. Energy is a hot issue central to social and economic well-being. In fact, it is assumed that more than 1 billion people have no access to electricity. Unfortunately, this leads us to the same point: energy is the dominant contributor to climate change.
What are the current trends in renewable energy?
Renewable power capacity grew 8% in 2018, led by wind energy and solar PV, and today, renewables are a mainstream option in the power sector in nearly all parts of the world. Hydropower remains the main contributor to the renewable electricity sector and has grown consistently for many years, and we also see that bio-power, geothermal power and concentrating solar thermal power (CSP) are also contributing to growth. Although many people still believe that renewable energy can save the climate is a myth, renewable energy technologies have been proven reliable and effective in meeting global needs.
How do the rising costs of energy affect us?
The most obvious answer would be that, clearly, we all use energy, and it ain’t cheap. So how can we look for solutions to paying heaps of money for the energy that we consume? Energy Performance Contracting is a commercial agreement structure that allows for capital improvement which permits energy upgrades to be paid from cost reductions generated. Under a performance contract arrangement, an external organization (ESCO), completes a project that results in the production of more efficient energy.
In a nutshell, this external organization swoops in, declares that they will help you reduce the cost of energy and also help you save more for the future. They agree to not receive payment until they complete their project. When it’s all said and done, they actually take their payment from the money that you saved!
How is this guaranteed?
Shared Savings Model Quick Facts –
Performance risk falls upon the ESCO
Credit risk falls upon the ESCO
Facility improvements provided at no initial cost to the building owner
No upfront costs or lines of credit
If there are no immediate financial savings, the ESCO is still responsible for meeting the financial obligations associated with the up front equipment purchases
Once the EPC is paid in full, the facility owner continues to benefit from the energy savings (sharing a portion of the energy profits with the ESCO)
It sounds too good to be true. However, there are other ways to go about saving energy, you just have to find the right ESCO that will set up a plan that fits your best interests.