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Abu Dhabi Funds Clean Energy Loans

It was announced on the 18th of January 2015 that IRENA (International Renewable Energy Agency) along with the Abu Dhabi Fund for Development, at their 5th convention, the United Arab Emirates capital Abu Dhabi would be lending out $57 million in an attempt to bring electricity to five developing countries that are currently “off the grid.” This is part of a larger effort to loan out $350 million over seven years to finance renewable energy for developing countries.

Abu Dhabi Clean Energy

These loans would go to countries like Argentina, Cuba, Iran, Mauritania and St. Vincent and the Grenadines and the grace period on these loans would be longer than typical loans, and they would have lower interest rates than standard market rates. Those providing the loans say that this is an attempt to provide less wealthy countries the opportunity to advance their productivity and quality of life with affordable loans. These loans are to be financed jointly by IRENA and ADFD who will provide 50% of the capital and the other 50% to be financed by banks/international financial institutions, and other development partners.

This is great news for developing countries looking to get to the economic level of their developed neighbors and at some point production of good from these companies may increase competition between countries to drive down the cost of goods. This move will also be very beneficial to Abu Dhabi. Abu Dhabi, the capitol of the UAE, is the wealthiest of the seven shiekhdoms and is also home to Abu Dhabi National Oil Company, ranked 11th in oil production in the world.

Some might wonder what a large oil producing entity is doing handing out loans for clean energy. Firstly, since these are loans with interest Abu Dhabi will be receiving money in the long term just for loaning money out. Secondly and possibly more surprisingly, many Middle Eastern countries are, by percentage of energy created from oil, the largest petroleum consumers in the world. In addition to promoting and funding renewable energy in developing countries, Abu Dhabi began operating the worlds largest solar power plant in March 2013. Because Middle Eastern countries have an abundance of oil, and sadly some of the greatest oil dependency, they can adopt clean energy practices and make available more of their product to be exported for greater profit. This is a very smart move to create revenue and also look good in the public eye. In fact this is one way in which the Middle East can begin to improve it’s world image. The transition from fossil fuel use to renewable sources is already proving to be a slow one, made faster by advancement in technology. To provide loans to countries trying to get a green start in energy and to participate in the transition themselves Middle Eastern states can begin to remedy the harmful impact of carbon emissions and encourage other countries to do the same. To become a role model for such nations as the United States and European nations would be to potentially reverse the perception that many people have of the Middle East as being backwards or uncivilized. This also may give other Gulf nations such as Yemen, Lebanon, Kuwait, and Saudi Arabia the direction they need to reduce their petroleum dependency. With more of their product available for export global prices could see drops. This would have both positive and negative effects on the world market. Positive effects would include lower average costs for consumers in America and perhaps an easier transition to green energy. Negative effects are more difficult to foretell but are not limited to weakening smaller regimes that are dependent on oil export like Russia and Iran, Americans that have invested in alternate carbon based fuels expecting oil prices to continue their upward trend, and less profoundly the large oil producing nations of the Middle East because they no longer see the same profit from oil production.

Because geopolitics is somewhat based on speculation there is not necessarily a sure set of outcomes generated by the actions of Abu Dhabi. But we can hope that these loans being offered may lead to positive regional and eventually global change for the betterment of the environment and quality of life for the average global citizen.

Resources:

http://www.forbes.com/pictures/mef45ikjd/11-abu-dhabi-national-oil-co-2-9-million-barrels-per-day-13/

http://news.yahoo.com/abu-dhabi-fund-offers-57-mn-loans-clean-193325733.html

http://www.irena.org/News/Description.aspx?NType=A&mnu=cat&PriMenuID=16&CatID=84&News_ID=348

http://www.aljazeera.com/indepth/opinion/2014/12/can-solar-power-replace-oil-mid-201412752357541154.html

http://www.forbes.com/sites/natalierobehmed/2013/09/03/the-middle-east-turns-to-solar-energy/

http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-4

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21 Comments

  1. mdsmith910 says:

    I had no idea that Middle Eastern countries are some of the largest consumers of petroleum products. It will be interesting to see how the 5 countries are able to make the most out of those loans. Hopefully these loans will also provide people with jobs (environmental engineers, electrical engineers, etc.)

    • nsumi3 says:

      I’m with you, but it does make sense when you think about it. The US has an addiction to oil, but this has never rivaled our dependence on coal, of which we have large domestic sources, for the majority of our energy production. This is a reassuring sign that steps are being made toward clean energy in the Middle East, hopefully inspiring more action here at home.

  2. jjacob7 says:

    It’s interesting that these oil-based Gulf economies have amassed such wealth from their exports but are dependent on oil themselves. It almost seems that investment in clean energy R&D is the next step for countries like the UAE. Oil consumption might decrease more precipitously in coming decades, especially in developed countries, so the void created by a potential decrease in revenues in OPEC states must be filled somehow.

  3. cryan3232 says:

    I think that the investment in neighboring countries is a positive step in terms of clean energy in the region. While the post mentions that UAE is gaining interest on this move and ultimately will benefit financially from it, developing neighboring countries should produce more consumers in the region. With that being said, I had no clue that the Middle East was such a large consumer of oil and it does make me skeptical that if this is not done correctly it may lead to even higher consumption of energy in this form, rather than more progressive alternatives.

  4. ashumway3 says:

    You bring up an interesting point about energy dependence in the Middle East. We always hear on the news about how reliant the US is on foreign oil, but I never considered the effects of energy consumption in the Middle East. I’m excited to see that even though the UAE has a plethora of petroleum reserves and continues to profit massively from oil, they are still interested in investing in renewable energy sources.

  5. jenglish7 says:

    I find it intriguing that the move to transition to clean energy by countries such as the UAE and Saudi Arabia are both reactive steps in response to present economic and political conditions, in addition to being proactive moves in planning for future markets. Oil-export countries have made such a massive amount of capital in international trade that they are poised very well to secure future profit even with the advent of clean energy tech and subsequent diminishing demand for oil. I am reminded of a quote by a Saudi Arabian official who mentioned that their long-term plan was to push clean energy to rapidly industrialize developing countries, thus ensuring demand for petroleum in plastics and manufacturing.

  6. Travis says:

    I also didn’t know that Middle Eastern companies consumed as much petroleum products as they did. People always see them as being the producers of petroleum, not the consumers. Hopefully the loans being provided will help to create new sources of energy, thereby decreasing the Middle Eastern region’s dependency on petroleum. That would make the opportunity cost of selling their petroleum smaller which will in some way or another open up new market opportunities and greater profit. However, the downside of loans is that you always have to pay them back, with interest. Before countries receive these loans, they need to perform a cost analysis. They need to ask themselves, “Will our rate of return for this loan be as large as we want it to be?” If the interest rates are higher than the rate at which the country is receiving profit from the loan, then countries will end up in debt if they aren’t careful.

  7. coreilly says:

    Looks like everyone seems to be thinking the same thing. We always see ourselves as big oil users so it is very interesting to see that the Middle East is among the largest oil users in the world. I think this is great for those countries that are essentially off the grid. It could potentially provide many jobs for many people as well as increase the standard of living in those countries. I’m sure it isn’t cheap for those countries to invest in the UAE like that but in the long run I think it could be advantageous for everyone involved.

  8. lmoghimi3 says:

    It is extremely smart for these big oil countries to start diversifying not only their economy, but also their technology. Oil can be very unstable a we have seen recently with the unprecedented price drop and there is always the fact you will eventually run out. Adding in clean energy gives room to grow in the future and will hopefully become a trend among other countries.

  9. vlobo3 says:

    It is really nice to see an article showing some of the positive projects that are taking place in the Middle East. Like many of my peers, I also had no idea that the Middle East had such a large consumption of petroleum. But, I’m glad that they are deciding to spend their money in ways to hopefully help other forming countries, as well as themselves, become more independent from oil. I also like that you touched on how the UAE could be an example for the adoption of greener fuel sources to some of the less stable countries that surround it, as well as some larger countries in Europe and the US, who have a large dependency on oil. I hope that this project continues in a positive direction and that many countries gain advantages from it.

  10. jackjenkins2015 says:

    Wow, this definitely gave some insight about the oil production and consumption that I (and clearly many others, based on the comments) did not realize. I think the investment in clean and renewable energy is incredibly important for the future of our planet, and hopefully the influence of Abu Dhabi’s practices will spill into the US. Also, I am interested to see the future impacts of these loans to developing countries. It can really do them a lot of good, and with lower interest rates they can actually have time to make some money before paying back loans. I hope actions like this have a positive outcome and perhaps countries like our own will learn from these opportunities and have similar positive responses.

  11. elenajoy92 says:

    This a great post showing a positive action by people in the Middle East region. However, you state in the blog that this could potentially lower prices for petroleum in exported to countries. If this is true, I don’t agree that it will help expand renewable energy as a main power source since using the alternative would be cheaper. Currently, even though there is a general understanding of the negative effects on our planet, we are still not completely relying on renewable energy because it is more costly. This could be further exacerbated with lower prices. If the U.A.E. is able to further research and develop more cost effective renewable energy sources with this additional income, they could make these sources more feasible in their country and others (another positive move on their part!)

  12. elenajoy92 says:

    This is a great post about a positive action by people in the Middle East. The blog states that this could possibly lower petroleum prices in exported-to countries and provide further expansion of renewable energy as a main power source. However, if the prices decrease, these countries would further depend on petroleum since developing and using renewable sources would not be cost effective. Currently, this is the main impediment to more frequent use of renewable energy. If the U.A.E. were to research and develop lower cost renewable energy sources and processes with this additional revenue, they could definitely make this option more feasible in their country and abroad. I hope this also comes to happen!

  13. owest3 says:

    Abu Dhabi is definitely raising the bar when it comes to clean energy. It is shocking to hear this story amongst all the violent activity currently happening in the Middle East. This is definitely a positive note on the side that at least not all countries in the Middle East are being affected by the war. Abu Dhabi has become a role model for reaching out to underdeveloped countries. I think more countries in Europe and the United States should follow in Abu Dhabi’s footsteps.

  14. kimpgt says:

    It is great that Abu Dhabi is funding such a large project for multiple years. The economic stimulation is great for those countries; especially for the world as it could potentially drive down products’ prices, like oil. Converting to cleaner methods is great for the planet and profitable while receiving good publicity with the rest of the world. Abu Dhabi seems to be using its wealth and influence for the greater good and to promote their neighboring economies while still receiving profit.

  15. lalaninatl says:

    I suppose having tons of oil at your disposal might make you dependent upon it but I like that they are finally trying to seek alternative and cleaner methods of using energy. I might be that they are also trying to improve the environment because maybe becoming greener will help stop desertification.

  16. khospedales3 says:

    It is interesting to see that a country most Westerners would label as “backward society” is making progressive initiatives that we in this country struggle to gather support for. Nationalist attitudes can really distort perceptions of things.

  17. apabst3 says:

    This was a very informative article. I had no idea how much oil the middle east used as well as how they are making strides to wain off their dependence on oil. I think it is very important that the middle east is beginning to invest in solar power because if the world sees the world’s top oil provider investing in solar energy it may boost solar energy in other countries. As many people have already said it looks as though Abu Dhabi is becoming a role model in energy reform. Hopefully the US and the rest of the world will follow Abu Dhabi and begin investing in solar energy.

  18. emartin36 says:

    I find this to be a win-win for Abu Dhabi and the countries they are choosing to help. However, I also find it necessary to closely watch and control how those countries use these funds. If the money goes towards strictly renewable and sustainable energy, then the loan is worth it. Hopefully the developing countries will be better off due to their increased access to energy sources. The world does not have a choice but to make the switch to clean and renewable energy sources as the oil reserves run scarce and pollution continues to cause damage to the environment.

  19. missypittard says:

    There appears to be no down this transaction. I’m incredibly happy to know this has taken place. As someone who works in the oil industry, I’ve observed quite the array of negative opinions in regards to “Big Oil,” but what always seems to be missing from the conversation is the path to renewable energy. These oil conglomerates are the ones who are going to be paving the way to a sustainable future. By and large the resources to develop new greener technology is being conducted by the big name oil companies, and yet, get a bad rep for raking in the revenue. This agreement to fund renewable loans is a win-win for developing countries, the UAE, and our society as a whole, as we work towards a sustainable future.

  20. nrassam3 says:

    UAE has always been supporting developing countries and lending its arm to the poor. After the invasion of Iraq in 2003, UAE quickly built a hospital in Baghdad to support the poor for free when the Iraqi government was not even capable of supporting its own people. It is seldom to see Arab kingdoms to be generous to other countries like the UAE people do.

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