Capital markets may fund GCC solar projects in future: S&P

As the GCC begins to invest more in renewable energy, capital markets are expected to play a "bigger role" in funding the ambitious solar power projects, S&P Ratings said in a recent report.

"We have yet to see any major renewable projects funded by the capital markets, that is, by project bonds. However, looking at the size of more recently announced projects, we believe the capital markets can play a more important role in funding some of these projects in the near future," the ratings agency said.

While none of the projects announced to date in the region has been funded via capital markets, S&P said there is a possibility of some bank-funded deals being refinanced via capital markets once they are operational.

According to the report, some issuers are also likely to resort to the nascent green bond market to diversify their investor base.

"The market has grown by 80 percent a year over the past five years and we expect it to continue expanding at a fast pace," S&P said.

While there might be a natural GCC investor market for green finance, it expects that GCC issuers may combine green and vanilla sukuk features in any green financings they undertake, effectively tapping into two distinct liquidity pools.

In 2017, Malaysia-based Tadau Energy became the first green sukuk issuer when it raised 250 million Malaysian ringgit in funding for a solar project.

"We expect some GCC-based issuers to follow suit over the next two years," the ratings agency said.

Some of the GCC’s major solar power projects include the 200,000MW Saudi Arabia's SoftBank solar project, 5,000MW Dubai solar park, 1,177MW Abu Dhabi Sweihan plant, and 1,000 MW Kuwait project.