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Engie stages GCC renewables comeback

6 September 2023

 

France-headquartered utility developer and investor Engie has been largely absent in the GCC region’s renewable energy sector. It has not bid for any solar independent power producer (IPP) contracts in the region since 2016, despite being prequalified to bid for successive tenders in Saudi Arabia over the past few years.

This is set to change as the market establishes a degree of normalisation and veers away from the race to the bottom in pricing, particularly for solar photovoltaic (PV) IPP contracts.

“We have capital to deploy globally, and yes, we have been selective in terms of which projects to bid for,” says Francois-Xavier Boul, Engie’s managing director for renewables in the Middle East and North Africa (Mena) and head of business development for Africa, Middle East and Asia (Amea). 

The company’s prudent fiscal approach has precluded it from competing in previous renewable energy tenders in the GCC, where the likelihood of success in terms of internal rate of return does not match its targets, according to the executive. 

However, Engie’s future approach is changing to match what it perceives to be an improving GCC market, with a certain level of repricing taking place.

For instance, the French utility developer is leading a consortium that aims to bid for the three planned wind IPP projects under the fourth round of Saudi Arabia’s National Renewable Energy Programme (NREP).

“We are actively pursuing those contracts,” Boul tells MEED, adding that his company, which is undergoing a major expansion in terms of employee headcount and presence in the Mena region, has the technical edge to compete for those contracts.

“We will keep an eye on every renewable project, particularly wind IPPs in Saudi Arabia, the UAE and Oman,” says Boul.

He stresses that a degree of price competitiveness and reasonable assumptions from competing developers is good for Engie as well as the offtakers.

“A normalised market offers a more level playing field [for developers]. It is more sustainable, unlike what we’ve seen in the past where there was a lot of competition, very few transactions and a high likelihood of projects incurring some losses.” 

We will keep an eye on every renewable project, particularly wind IPPs in Saudi Arabia, the UAE and Oman
Francois-Xavier Boul, Engie    

Egypt calling

A major wind IPP project in Egypt marks Engie’s return to the Mena region’s renewables scene.

It has teamed up with local firm Orascom Construction and Japan’s Toyota Tsusho Corporation to build a 3,000MW wind farm in West Sohag.

Unlike projects in the GCC that enjoy more than enough liquidity, the Egyptian project will face the all-important question of “How do you make the project bankable?” notes Boul.

The executive acknowledges that this project will require support from export credit agencies and entities such as the European Bank for Reconstruction & Development (EBRD) and Japan International Cooperation Agency (Jica) to take off.

Egypt’s currency status will require “a lot of financial discipline and rigorous sovereign oversight”, Boul says, adding that the project will require a “first-class finance structure”.

Nevertheless, the consortium is expected to kick off the technical feasibility study for the project soon. It will also start a survey campaign following the allocation of land for the project in late August.

The consortium has previously won two contracts to develop wind IPP projects in Egypt. The 262MW Ras Ghareb wind farm is operational, while another 500MW wind project in the Gulf of Suez reached financial close in April. 

Engie’s Amea office is also keeping an eye on projects in Morocco and South Africa, as well as in India, Malaysia, the Philippines and Australia.

Boul says Engie has a fluid decision-making process in terms of capital allocation and evaluates each project against its target returns, which are usually contingent on the project’s risk profile.

“As a global utility provider, we can be selective,” says Boul. “The number of utility projects globally has been rising, but the rate of returns has not always matched the mitigating requirements [for these projects]. Ideally, we are looking for a balance, a win-win situation with offtakers … in an ecosystem that encourages repeat business.”

Cloudy forecast

A more palatable, normalising GCC renewable market does not mean there will be no further challenges, says Boul.

For example, easing solar PV supply chain constraints may mean decreased costs and oversupply, leading to further commoditisation in the market.

“There are remaining variables and it all comes down to the amount of risk developers and contractors are willing to take. As a prudent utility player, we are careful about mitigating and controlling risks.

“Rightly or wrongly, we have not invested in projects we deem too risky and have not incurred losses.”

Photo: ENGIE Green wind farm at Mont de la Grévière (Ardennes)

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Jennifer Aguinaldo

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