The energy sector is the beating heart behind virtually all economic activity. It’s often also the first sector to react (or overreact) to economic and political turmoil making it a tough sector to pin down. The sector is made up of both fossil fuels and renewables, along with everything in between, including nuclear energy and hydrogen. Despite the sector’s complexity, there are some clear trends driving investment globally, and within the UAE. While the growth of ESG investing continues with the global push for a Clean Energy Transition, isolationism continues to impact energy investment strategies in the short term. Let’s take a brief look at the state of play.
The energy sector has had to cope with some near-term headwinds of late. Renewables have been hardest hit, namely with the new US administration’s stance on oil. Within the EU, political uncertainty in Germany and France has also threatened to weigh on clean energy investment, and European climate transition progress. Despite these challenges, according to Bird & Bird, global clean energy investment doubled in 2024, exceeding USD$3 trillion for the first time. With energy demand increasing worldwide, this should drive investment in 2025 to meet that need. Similarly, renewables are also poised for significant growth in 2025, driven by increased demand, government support from most nations, and corporate commitments from countless ESG-focused multinationals.
In 2024, solar panels in 2025 are now 30% cheaper than 2 years ago, and the cost of battery minerals also continues to fall rapidly. These trends, despite political headwinds, are here to stay in 2025, with solar and wind continuing to dominate the clean transition. And it’s not just solar and wind, the number of low-emissions hydrogen projects has also doubled in 2024 with governments having announced approximately €90 billion in policy support over the past year. Then there is the all-encompassing effect of AI on the sector, which is helping improve grid efficiency, data sharing, and supporting the renewables integration into the grid. With the global network of wind turbines estimated to produce more than 400 billion data points per year, this is great news for the sector.
According to BNEF, cleaner power generation has the potential to drive the bulk of ‘the aggressive emissions cuts needed this side of 2030’. However, this would mean renewables capacity would need to triple between now and the end of the decade.
To tackle this challenge, the UAE recently took the pledge (alongside 125 other nations) to triple renewable energy capacity by 2030 at COP28. In 2024 recent progress has backed up this pledge with action, with the MENA market predicted to emerge as a major player in the renewables space during 2025. In fact, countries in the MENA region will add 62GW of renewable energy capacity over the next five years, according to the IEA. The MENA region has massive potential says the World Bank to harness solar and wind, estimating that 22-26% of all the solar energy that hits the Earth is concentrated in this region. Couple this with vast areas of land currently not being used for human activity and MENA looks increasingly attractive to clean energy investment.
UAE challenges remain
Back in 2021, the UAE became the first Middle East and North Africa (MENA) country to announce a net zero 2050 strategic initiative. Last year, the UAE achieved growth of 70 percent in installed renewable energy capacity, which reached 6.1 gigawatts. However, this production accounted for just 27.83% of the UAE’s total energy mix. This significant disconnect was highlighted in a recent ‘Energy Barometer’ of national respondents who cited clear challenges to a friction-free energy transition, even despite recent rapid progress. Respondents ranked the three biggest barriers to the UAE achieving its net zero 2050 target as:
In addition to the top three barriers to net zero in the UAE, 20% of the energy barometer respondents also highlighted inflexible and complex regulation, planning, and licensing procedures as the biggest barrier to the deployment of renewable energy in the UAE. Furthermore, for energy-related projects, securing planning consent for smaller, decentralized projects, particularly related to the building and residential sectors is far harder. This challenge shows that while the will to achieve Net Zero is there, the UAE still lacks some of the accelerators needed to help boost progress. Thankfully there are some recent game-changing initiatives to help integrate SMEs into the clean energy and net zero transition. success story, most notably the UAE Climate Hub.
SMEs and entrepreneurs are key drivers of the green and digital transitions according to the OECD. To better support them, the Abu Dhabi Future Energy Company – Masdar and other partners launched the SME Climate Hub for MENA. The hub is designed to help businesses with under 500 employees make a globally recognized climate commitment and be counted in the United Nations-backed Race to Zero campaign. Hana Al Rostamani, Group Chief Executive Officer of First Abu Dhabi Bank, highlights that ‘Integrating businesses into the net zero transition is fundamental to achieving global climate goals, and SMEs must be part of this effort’. With Abu Dhabi Future Energy Company (Masdar) being the UAE’s official clean energy champion, and one of the largest companies of its kind in the world, the SME hub should be a great catalyst for SME integration.
The UAE government aims to invest AED 600 billion by 2050 to meet growing energy demand and ensure sustainable growth for the country’s economy. This includes the UAE’s pledge to invest an additional US$50 billion by 2032 to scale up climate action through the deployment of clean energy solutions. In recent years, clean power growth in the UAE has been dominated by Nuclear and Solar generation. The UAE Energy Strategy 2050 targets an energy mix that combines renewable, nuclear, and clean energy sources to meet the UAE’s economic requirements and environmental goals as follows:
It’s clear that with an ambitious national net zero strategy and a strong ecosystem of start-ups, SMEs, and growing demand for clean energy investments, the UAE energy sector is alive and well, and increasingly sustainable
