China’s state-owned Silk Road Fund completed its acquisition of a 49% stake in the Saudi Arabia-based ACWA Power Renewable Energy Holding in May. First announced in June 2019, the formalized commercial partnership highlights China’s growing influence in the renewable energy sphere of Gulf Arab states. The global economic slowdown presents Chinese entities with a cost-effective opportunity to strengthen their commercial presence in the region’s renewable energy market and other strategic sectors related to critical infrastructure.
A long-standing importer of hydrocarbon commodities, China more recently has carved out roles as a preferred technology partner and public health leader across the Middle East. The Chinese technology firm Huawei oversees 5G development projects in the Gulf states, while the genomics company BGI helped to open a coronavirus testing facility in Abu Dhabi. Some analysts in U.S. foreign policy circles worry that expanding Chinese influence within a number of the Gulf’s strategic sectors poses security risks.
Demand for Renewables
China is poised to secure its position as a leading financier, developer, and operator in the Gulf’s renewable energy market. The total installed renewable energy capacity in Gulf Arab countries increased by approximately 313% from 2014 to 2018. Saudi Arabia and the United Arab Emirates – the region’s two largest economies, which contain a combined population of around 45 million residents – sit at the center of the region’s demand for renewable energy. Facing budgetary constraints, regional governments need local and international partners to help achieve their energy goals.
“The global economic slowdown presents Chinese entities with a cost-effective opportunity to expand investments in strategic sectors across the Gulf region.”
Greater use of renewables would help Saudi Arabia manage an expected threefold increase in local energy consumption over the next decade. Saudi Vision 2030 set a target of generating 9.5 gigawatts of renewable energy by 2023 – an ambitious expansion of the country’s 142 megawatt capacity as of 2019. A National Renewable Energy Program and the King Salman Renewable Energy Initiative offer a road map for scaling up the country’s renewable energy industry.
The UAE’s Energy Strategy 2050 seeks to double the contribution of clean energy in the country’s total energy mix over the next three decades. Emirati officials hope the strategy will result in approximately $191 billion in savings, in addition to helping achieve environmental goals. Abu Dhabi’s state-owned investment company Mubadala owns Masdar – a renewable energy developer and investor that has invested $4.5 billion in global solar and wind projects since 2006.
ACWA Power – a major developer, investor, and operator of power generation and desalination plants in Saudi Arabia and other countries in the Middle East and North Africa – functions as a key conduit for Chinese influence in Gulf energy and critical infrastructure projects. As Saudi Arabia eased restrictions on private sector involvement in the electricity and desalination industries during the early 2000s, ACWA Power capitalized on the growing Saudi market and emerged as a global utility developer. The company’s shareholders consist of several Saudi conglomerates and government entities, including the Public Investment Fund and the Saudi Public Pension Agency. The company expects renewable energy projects to constitute 70% of its portfolio by 2030, up from 23% in 2019.
In addition to its partnership with the Silk Road Fund, ACWA Power signed strategic agreements with several Chinese commercial entities in 2019. The company inked deals with Power China, China Gezhouba Group Company, and Bank of China at the second Belt and Road Forum in May 2019. Paddy Padmanathan, ACWA Power’s president and chief executive officer, described the collaboration as “beyond merely conducting business – it is a reflection of the robust Saudi-Chinese ties that … will open new doors of collaboration on future and grander projects across the world.” Earlier in 2019, ACWA Power and Huawei agreed to improve the efficiency and performance of solar photovoltaic energy projects, such as Saudi Arabia’s Sakaka solar project, the first utility-scale solar power plant in the country. The two companies also plan to cooperate over the digitalization of power plant management.
Chinese funds and firms are active participants in massive renewable energy projects in the UAE. Dubai Electricity and Water Authority selected a consortium led by ACWA Power and the Silk Road Fund to implement the fourth phase of its Mohammed bin Rashid Al Maktoum Solar Park. The solar park aims to produce 5 gigawatts and attract around $13.6 billion in investments by 2030. China’s Jinko Solar Holding is a co-developer of the $871.1 million Noor Abu Dhabi solar plant in Sweihan – a facility that will be capable of producing 1.2 gigawatts of power. Moreover, Masdar officials hope to expand the company’s involvement in Belt and Road Initiative projects, building on equity partnerships like that of Masdar and the China Resources Group’s holdings of the Dudgeon Offshore Wind Farm in the United Kingdom.
China likewise is an important source of financing for renewable energy projects in the Gulf. Chinese banks comprise five of the eight international banks financing Mohammed bin Rashid Al Maktoum Solar Park in Dubai; Jinko Solar holds 20% equity in the Noor Abu Dhabi solar plant project. In March, the Asian Infrastructure Investment Bank agreed to become a lender for the 500-megawatt Ibri II solar power project in Oman. The $60 million investment is the Chinese bank’s first renewable energy project financing in the Gulf Arab region.
Given the economic slowdown from the coronavirus pandemic and oil market outlook, readily available supplies of cheap debt and willing equity partners will become central components of public-private partnerships in the Gulf. Regional governments are likely to revisit plans to privatize power facilities, desalination plants, and other state assets. This may permit Chinese entities to scoop up bargain assets that pave the way for decades of commercial involvement in the region’s critical infrastructure. Deals akin to Oman’s government raising $1 billion by selling a 49% stake in the Oman Electricity Transmission Company to the State Grid Corporation of China may become more common.
Toward a Greener Future
Chinese firms can continue to export technology-based support and services, even if plans for hard infrastructure projects stall. “Digital infrastructure projects remain feasible in an environment where resources are even more constrained,” wrote Jude Blanchette and Jonathan Hillman in a piece about the Digital Silk Road for the Center for Strategic and International Studies. During a videoconference in May, the Dubai Electricity and Water Authority and Huawei explored how to expand cooperation over artificial intelligence and digital transformation. The discussion followed a strategic summit held by the Dubai Electricity and Water Authority and Huawei in August 2019.
The oil price rout and the global economic downturn may partially delay investments in renewable energy. In oil- and gas-producing countries that depend on government spending and anchor investments from state-owned entities to encourage nascent industries, this scenario is especially likely. However, the global trend toward greater adoption of renewable energy has not disappeared, nor has China lost interest in the Gulf’s green potential.