Author: Al Emid

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In a conversation with Global Finance, Alex Thursby, group chief executive officer at National Bank of Abu Dhabi, talked about the rise of renewable energy in the land of hydrocarbon. He also offered details on the sizable cost of these alternative energy projects—and what that means for banks in the region.

Global Finance: Your recent report says the sources of power in the region are beginning to change. How so?

Alex Thursby: The first thing is, we see that Abu Dhabi has become a significant energy center not just [for] hydrocarbon but also solar [energy]. We see that the energy mix is going to change going forward. What I mean by that is that [the] energy mix is not just an oil and gas and coal game. It’s oil and gas and coal and solar and wind, [which will] grow phenomenally.

GF: Where does the National Bank of Abu Dhabi fit into this changing landscape?

Thursby: We believe that there is going to be a substantive investment required and that there is a potential funding gap for that investment.

GF: Do you believe the bank will be able to fill that funding gap? It’s a large amount.

Thursby: I don’t think we can fund it all. Our report says somewhere in the region of $45 to $48 billion [will be needed] in the next 20 to 25 years. There is a requirement for banks and the financial services sector…in the Gulf to start to service and find a capital markets solution.

GF: When do you think that will commence?

Thursby: There are things that have to happen. The first thing is that regulators and policymakers need to adjust to make sure that the funding structures that are required for renewables and energy as a whole are not crowded out.

GF: What would crowd them out?

Thursby: The liquidity and capital rules that now apply. It’s much harder for banks to lend long-term.

GF: You’re referring to the capital rules for having certain reserves set aside?

Thursby: Yes. Various capital rules and risk-weighted asset calculations.

GF:  And easing of these requirements would make it easier for banks to supply the funding needed for  alternative energy?

Thursby: From a risk point of view, historical loss on project finance is generally pretty good against other asset classes that the banks hold. I think there is a need to be a little more textured.

The second thing I think that is really important is that debt capital markets educate themselves as to the industry. The third thing that has to happen is that the same has to occur for equity markets.

GF: What is the bank doing to help finance these ambitious projects?

Thursby: Our role is [mani]fold. One, to educate people in the Gulf…by developing a capability to advise clients, particularly on the debt and the debt structuring [side], with a sound understanding of what is a viable model and what is not a viable model. Also, by being able to make the short-term financial instruments that the industry requires.

GF: What would those instruments be?

Thursby: Trade finance and hedging instruments for price risk on solar energy. They’re not all going to come at once. This is what the banks have to do over the period of the next five or 10 years.



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