Transcript
Speaker: Welcome to HSBC Talks Business, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Speaker: Thanks for listening.
Speaker: And now onto today's show.
Speaker: Hello, listeners.
Speaker: My name is Fatma Kalidari, a vice president in HSBC Global Banking
Speaker: responsible for covering GREs, conglomerates, and some financial sponsors as part of Ahmad Hashim's team.
Speaker: Today, we will be zooming into the energy transition journey in the UAE.
Speaker: To do so, we welcome Abu Dhabi National Energy Company, Baqa, the UAE's biggest utility company, which has ambitions to reduce energy emissions whilst also increasing the share of renewable energy they deploy globally through their new arm, Maslub, alongside Adnok and Mubadala.
Speaker: TAQA issued its first green bond earlier this year to help fund its various green projects with the help of HSBC as joint lead manager and book runner.
Speaker: HSBC also acted as joint green structure on TAQA's newly established green finance framework.
Speaker: So how do TAQA's transition goals align with those of the UAE?
Speaker: And what kind of financing and technology is it using to help achieve them?
Speaker: Who better to answer these and other key questions than Stephen Ridlington,
Speaker: the Chief Financial Officer of Taqa, and Ahmed Hashim, HSBC's Head of Coverage, Abu Dhabi.
Speaker: Welcome to you both.
Speaker: Stephen, could you kick us off with an overview of Taqa's energy transition strategy and net zero goals and how they align with the UAE's wider ambitions on cutting emissions and securing a cleaner energy supply?
Speaker: You're Fatima and thank you very much for having me on this podcast.
Speaker: I'm really looking forward to it and looking forward to talking about TACA's transition journey.
Speaker: So look, I think the place to start is the announcement we first made when we set our strategy out to be a low carbon power and water champion.
Speaker: And that is something that you can see in bold visibility whenever you look at our website or any of our materials.
Speaker: That really set the tone for what we wanted to become.
Speaker: And given what we were at the time, and to an extent still are, associated very heavily with oil and gas and thermal generation, that was a pretty bold statement to make.
Speaker: We followed that up, having announced our strategy in 2022, when we announced our ESG strategy.
Speaker: So our corporate strategy came in 21.
Speaker: We started working on that.
Speaker: And then we followed that up with more details on ESG.
Speaker: And our strategy has really six components.
Speaker: I won't go through all of these, but I'll just talk briefly about what they are.
Speaker: Climate change, water and effluence, occupational health and safety, diversity and equal opportunity, local community engagement and corporate governance.
Speaker: Those are the areas that we are seeking to address in our strategy.
Speaker: Let me just talk briefly about one or two of these.
Speaker: So in emissions, which is obviously a key part of this, are GHG emissions.
Speaker: We announced that we wanted to be net zero for scope one and scope two emissions by 2050.
Speaker: And that was done in line with and at the same time as the UAE's own ambitions.
Speaker: And I'll talk a little bit more about how we fit with the UAE in just a couple of minutes.
Speaker: And we also set some interim targets for emissions when we announced the strategy.
Speaker: So a 25% reduction in scope one and scope two of the ESG emissions by 2030.
Speaker: That was the global target, which translated on a UAE basis to a 33% reduction.
Speaker: And that's compared to our 2019 baseline.
Speaker: On clean energy supply, and this was really envisaged in the initial strategy document, but cemented in our ESG strategy,
Speaker: As you mentioned, Fatima, we announced that Mazda will become the single Abu Dhabi champion for renewable growth, where we are working with ADNOC and Lubadla as the partners in Mazda.
Speaker: And we set very ambitious targets, or very ambitious targets have been set to achieve 100 gigawatts of renewable energy by 2030.
Speaker: And for renewable energy to be at least 30% of our total portfolio.
Speaker: So a very clear drive to move the portfolio towards renewable energy.
Speaker: And then we're also supporting others in their efforts to decarbonise.
Speaker: And I'll just mention three examples.
Speaker: So ADNOC.
Speaker: We're partnering with ADNOC in building a subsea cable.
Speaker: which will enable the powering of Adnok's offshore oil and gas operations to be supplied from the grid.
Speaker: And that is not a first in the world, but it's a first in the region.
Speaker: It will result in a significant reduction in carbon production from their offshore power facilities by about 30%, they estimate.
Speaker: And we're doing a similar thing with EGA, the UAE's aluminium smelting plant business.
Speaker: It's one of the largest in the world.
Speaker: And we're also working with them to connect them to the grid and allow them to produce green aluminium in the future.
Speaker: And then we have a very exciting project that we're working with a company called X-Links on, which is taking renewable energy to the UK from Morocco.
Speaker: So it's a project to build a significant amount of renewable energy in Morocco.
Speaker: and then transmit that power through a subsea cable to the UK to provide stable, constant, renewable energy power into the UK national grid.
Speaker: It's an early stage development.
Speaker: It's got a long way to go, but we're very excited to be involved in that as well.
Speaker: So there's a number of areas that we see our ESG strategy in action.
Speaker: Let me finish this question by talking a little bit about how this fits with the UAE.
Speaker: And it's very simple.
Speaker: We are absolutely joined at the hip with the UAE in our decarbonisation and energy transition strategy.
Speaker: As you would expect us to be, given that TAC is the provider of most of the power of water generation transmission and distribution services,
Speaker: here in Abu Dhabi and beyond, it is absolutely crucial that our targets and our ambitions fit with the government's.
Speaker: And we are very much the party that the government has asked to implement the energy transition in Abu Dhabi.
Speaker: So all our targets, we align with the government before we announce them so that we make sure we're consistent across the board with the government.
Speaker: So let me leave it there.
Speaker: That's a little bit of our transition journey, and it's been an exciting one.
Speaker: But as I say, let me leave it there and hand back to you, Fatima.
Speaker: Many thanks for your valuable insights, Stephen, and especially in showcasing Taqa's role in acting as the national champion and its ambitious projects.
Speaker: So, Hashim, moving over to you, perhaps you could offer some thoughts around how Taqa's approach reflects that being taken by the energy sector and the UAE generally.
Speaker: Let me start by thanking you for having me here.
Speaker: I'm very glad to be here with Steve, of course.
Speaker: So Steve put it very well, like the Taqa's approach is representative of the energy sector transition strategy in the UAE, wherein we see the UAE progressing and targeting to diversify its energy supply.
Speaker: with the announced strategies and targets.
Speaker: TACA is heavily involved in the space through its own operations, including TACA's own target, to produce two-thirds of water production from reverse osmosis by 2030.
Speaker: As Steve highlighted, this should be achieved through its investment in Mazda alongside the other shareholders, which is, again, to repeat what Steve would say is naturally aligned with UAE's renewable energy, green hydrogen, and blue hydrogen.
Speaker: These are all reflections of the wider push for clean electrification in the UAE between these entities and the Ministry of Energy and Infrastructure to create sustainable synergies across PNU, transport and logistics sectors.
Speaker: There's no better example than what Steven mentioned about the Emirates Global Aluminium, where the plan is to connect it to the PNU grid, allowing it to access cleaner energy sources.
Speaker: The general direction towards clean energy is also adapted elsewhere, for example, by IDIWA through its project of Mohammed bin Rashid in Maktoum Solar Park and other players in the solar space with Neolador energy continuing to grow its capacity.
Speaker: On the other hand, there is Enoch as another example of the UAE moving towards
Speaker: Clean Energy with its mark on nuclear energy plants and efforts by EWIC to meet 90% of total water demand from low carbon intensive reverse osmosis desalination by 2030.
Speaker: The UAE has also its own very ambitious national hydrogen strategy with milestones for 2031 being set at 1.4 million tons per annum
Speaker: And the target to reach 15 million tons by 2050, where a large portion of this will be the green hydrogen with the risk-based blue hydrogen.
Speaker: I'll just stop here and I hope I covered your question and we'll cover more through the following questions.
Speaker: Thank you, Hashim.
Speaker: You certainly did.
Speaker: Stephen, can you give us some insight into the progress Baqa is making on its own emission targets?
Speaker: How is it doing so and what are Baqa's next steps in that regard?
Speaker: Yeah, sure, Fatima.
Speaker: Well, first of all, let me start with some data.
Speaker: So I mentioned at the beginning that the strategy requires us to reduce GHG emissions by 25% by 2030.
Speaker: And progress to date, if we look at the end of 22, we reduced by 11% compared to that 2019 baseline.
Speaker: So you can see that we're already making significant progress on that front.
Speaker: And in terms of GHG intensity, so emissions as a percentage of revenue, we reduced by 16% in 2022.
Speaker: And these are really very good indicators of the progress that we're making.
Speaker: And let me just divert for a couple of seconds to explain how are we managing to achieve those targets, those significant reductions in emissions.
Speaker: And it's really very simple.
Speaker: And it's a demonstration of TACA's ability to progress the energy transition.
Speaker: So we've got the nuclear plant, ENIC, which Ahmed just mentioned, has come on stream.
Speaker: That has reduced the requirement to provide power and water from thermal sources.
Speaker: And we've also got solar PV coming online.
Speaker: So we don't own the nuclear production, but we do transmit it through the network.
Speaker: We do own the solar PV plants, of which we have now just over three gigawatts in operation or under construction.
Speaker: So those two new sources of clean energy are coming into the system, allowing us to run down the production from thermal gas fire generation.
Speaker: So that is the one factor, the biggest single factor that is allowing that reduction in emissions.
Speaker: And it's a very good example, I think, of the energy transition in action here at TACA.
Speaker: So in terms of what the next steps are, given that background, well, I think there is a very important piece of what we are doing that we really want to make the most of, which is an improvement of our ESG rating.
Speaker: So I think it's fair to say that if we look back three or four years, TACA's ESG rating was poor.
Speaker: We were a laggard in the sector and more broadly.
Speaker: We've really put effort into explaining to the world what we're trying to do in the energy transition and ESG generally.
Speaker: We've seen great results of emissions reductions, as I've just outlined, and that has resulted in multiple ESG rating upgrades from all of the major rating agencies.
Speaker: And it's moved us from a position where we were a laggard, as I said, to a position today where we're certainly a regional leader and we're beginning to push towards being a leader more broadly in international companies.
Speaker: And so that, I think, is one of the next steps that I think we see as being very important to make sure that we continue to deliver on our ESG strategy to enable the world to see us in the way that I think we deserve to be seen as a major player in the energy transition.
Speaker: And, you know, so it's going to be more of the same.
Speaker: It's more of what we've been doing.
Speaker: It's more in alignment with the UAE government and Abu Dhabi.
Speaker: to deliver on our targets, improve ratings, and improve people's perception of TACA going forward.
Speaker: Thanks, Stephen, for that.
Speaker: Definitely, I mean, something that FAQA is working very hard towards achieving their quite ambitious targets.
Speaker: So, FAQA achieved a major landmark earlier this year by issuing its first green bond.
Speaker: What was the rationale behind issuing it at that point in time?
Speaker: And could you give a few details of the key projects it is funding?
Speaker: Sure.
Speaker: Well, if you don't mind, Pat, I'm going to start by blowing our trumpets a little bit, if I may, because I'll talk about why we did it, when we did it, and what it funded in a minute.
Speaker: But let's just talk about the transaction itself, which was, it was our first green bonds.
Speaker: And that was really important to us.
Speaker: It's a very important milestone.
Speaker: We issued at the time, if people can remember back to March, April earlier this year, we were coming out of a very difficult market environment.
Speaker: Taka was the first mover to go into an issue after those very difficult market conditions.
Speaker: And there was some uncertainty in our minds about whether we would be successful or not, but we were courageous.
Speaker: We put our best foot forward and it was a resounding success.
Speaker: I was amazed at how well this bond was received.
Speaker: It was a billion dollars, green bond, 10 years.
Speaker: It was 10 times oversubscribed, which is pretty well unheard of in Taka's terms anyway.
Speaker: It was priced
Speaker: very tightly in line with conventional, reflecting the strong appetite from investors.
Speaker: It was done under a green financing framework, which the team here put together in combination with the banks.
Speaker: And it was that green financial framework was rated by Moody's as SQS2, so a very good green rating.
Speaker: So overall, it was just a resounding success.
Speaker: In terms of what it financed, it financed essentially our investments in Masdar, which was around a billion dollars.
Speaker: So that was what those proceeds were used for.
Speaker: So a very clear investment in a green vehicle for the future.
Speaker: And when we look at what we're going to, we will do more green bonds, I'm sure of that.
Speaker: And they will be to cover a range of different projects that qualify under the Green Financial Framework.
Speaker: So our reverse osmosis projects, which Ahmed has talked about, and I'll come back to again in the later part of our discussion, energy efficiency projects, further investments in NASDAQ potentially.
Speaker: So there'll be a range of projects which qualify.
Speaker: We will use green financing to finance going forward.
Speaker: Thanks, Stephen, for that.
Speaker: Now, moving it a little closer to home and perhaps also tooting our own words here,
Speaker: But how did you find that working with HSBC as joint re-instructor, joint lead manager and book runner on this bond issuance in April 2023?
Speaker: Why did Taqa choose HSBC and are they a frequent partner for you?
Speaker: Sure.
Speaker: Well, first of all, let me start by saying it worked very well.
Speaker: And then let me step back from that to talk a little bit more broadly about how we choose.
Speaker: So we have a group of relationship banks, what we call core banks for Taqa.
Speaker: And HSBC is clearly one of those.
Speaker: There is no question about that.
Speaker: HSBC played a very significant role in assisting us with developing the green financial framework and getting the ratings for that.
Speaker: Played a major role as a book runner and a joint lead manager.
Speaker: in shaping the transaction, helping us with investor presentations and so on.
Speaker: So HSBC sat alongside a number of other of those core banks to assist us in this.
Speaker: And what I would say more generally is that in relation to HSBC and the other banks that played a role is that we can't do this on our own.
Speaker: This has to be a team effort.
Speaker: It has to be a partnership.
Speaker: And the partnership with HSBC for TACA is very strong.
Speaker: And long may that continue, let me say, Fatima, long may it be the case that HSBC will be supporting us in these kinds of transactions going forward.
Speaker: Definitely a longstanding relationship that we have with Paka and its group of project companies, Stephen, and something we're certainly committed as your part in-house partner to continue doing so for your future opportunities and solutions.
Speaker: So moving this conversation a little more of a wider Abu Dhabi perspective,
Speaker: Ahmed, from your experience managing as head of coverage of other Abu Dhabi entities, are you seeing much use of green or other types of sustainable financing solutions in the energy sector in the UAE?
Speaker: And do you expect to see more of those?
Speaker: For the energy sector, first, we witnessed Daqa issue in sustainable performance recently.
Speaker: Daqa, through its project company, also
Speaker: issued a $1.5 billion green bond for the 1.2 gigawatt solar facility in 2022, which is the one I believe that Stephen was referring to.
Speaker: And there is Mazda's issuance dedicated to renewable energy and its distribution and storage, both of which I should see what they're involved in as well.
Speaker: If we look at the recent past, we can see a clear rise in sustainable financing across GREs, including Taqa, as I said, Mazdar, Wubadala, DP World, Antar,
Speaker: corporates such as Najat El-Fotay, and there are also financial institutions such as EDCD, FAB, Emirates MDB, DIV, and CBD, which all issued in sustainable format in 2023.
Speaker: In general, we expect to see the volume of sustainable finance issuances to increase, with many of these to be sustainable transactions, with the use of proceeds being directed towards sustainable categories
Speaker: like renewable energy, energy efficiency, green buildings, clean transportation, as well as many others.
Speaker: Thanks for your feedback, gentlemen.
Speaker: So HSBC's Transition Pathways Survey, released at the start of this year, showed that energy companies in the Middle East were confident about the potential of key net zero technologies.
Speaker: Stephen, could you tell us more about how TAQA is implementing new technologies to support the transition journey?
Speaker: Sure, Fatima.
Speaker: And I'd like to focus here, if I may, mainly on one particular area, which is water.
Speaker: Not always the first thing people think about, but it's obviously very important in this part of the world, and it's a very important business for taco.
Speaker: And the aspect I want to talk about is water desalination.
Speaker: As you may know, most of the drinking and other water in this part of the world comes from seawater desalination.
Speaker: And most of it has been done historically through gas-fired water desalination techniques associated with the gas-fired electricity generation facilities.
Speaker: So you'll see around this part of the world many facilities which are water generation and power generation together.
Speaker: And what we're doing is splitting that and doing more PV, solar, for
Speaker: for power generation, which I've already talked about.
Speaker: That's not new.
Speaker: But we're also doing reverse osmosis, which is a standalone technique for desalinating water.
Speaker: And the thing about reverse osmosis, which I had mentioned earlier, is that it consumes far less power in generating clean drinking water.
Speaker: So it's a very low carbon source of desalination.
Speaker: And it's very easy to deploy.
Speaker: It's been around for some time, but it's a very important part of our business.
Speaker: And we aim to get to a point that by 2030, two thirds of our water desalination is coming from reverse osmosis, which will have a very significant impact on reducing emissions.
Speaker: A couple of examples of that technology in action for TACA, Tooelea, which is our newest reverse osmosis plant.
Speaker: It's 200 MIGD or million imperial gallons per day.
Speaker: which is the measure of the size of these.
Speaker: It also has 70 megawatts of solar on site, providing the power for it.
Speaker: So it's a very, very clean source of desalination.
Speaker: And we've just signed with Engie, one of our partners, a new reverse osmosis plant of 120 MIGD.
Speaker: which reached financial close in May this year and so that's already underway.
Speaker: And I'll mention X-Lynx once again.
Speaker: This is the venture I described, the early stage investment in the project to send renewable power to the UK.
Speaker: And that again, it's not new technology, but the scale of it, it's 10 gigawatts of renewable energy production.
Speaker: and then a very, very long subsea cable from Morocco to the UK.
Speaker: And if that project reaches financial close, as we hope it will, that will be a very major contributor to the energy transition.
Speaker: And it will be, I think, one of the forerunners for other similar projects.
Speaker: So that's just a couple of examples of how we're bringing other technology to bear in our ESG strategy and energy transition.
Speaker: Thanks for sharing those, Stephen.
Speaker: I mean, we live in a world where digitalization and technology is embedded in every sector and the activity that we do.
Speaker: So it's great to hear that Daqa is actually well ahead of that in terms of its activity and its embedment of technology into its transition journey.
Speaker: Ahmed, moving over to you, what similar themes are you seeing across DYE in this space?
Speaker: Look, Fatima, generally, TACA is, of course, spearheading the transition in its sector cluster, giving its standing as a market leader, as you rightly called it, the regional champion in space.
Speaker: In the EU, we are also witnessing key themes across, I'll go back again to nuclear energy,
Speaker: with the completion of the three phases of Phoenix, 5.3 gigawatt nuclear energy grid, with the last phase being operational in 2024, which will then supply around 25% of the new electricity needs.
Speaker: Then you have the renewables, where you have, for example, the U.S. focused on renewable energy source projects to achieve Dubai Clean Energy Strategy 2050 and Dubai Net Zero Carbon Emissions Strategy 2050.
Speaker: In the space of the energy storage projects, there's ALEC Energy through the implementation of the Azeal Thermal Energy Storage Systems in Dubai with a band of around 49,000 kilowatt capacity.
Speaker: And there's also the Amar al-Emarat, a microgrid energy storage project in Sharjah.
Speaker: Then also you have the district cooling technology.
Speaker: where we're both in power and cabri to help increase energy efficiency and reduce emissions as an alternative to the traditional air conditioning.
Speaker: So, as you said, Mike, there are multiple themes and we expect to see more themes in the future with the current focus on that space.
Speaker: Definitely, Hashim.
Speaker: And if there's one place that you can see all that happen and take place, it's certainly the UAE.
Speaker: goes well ahead of its game in terms of bringing knowledge, expertise, and talent on the ground here.
Speaker: With that, I believe we're about out of time.
Speaker: I'd like to take this opportunity to thank you, Stephen and Hashim, for your valuable insights.
Speaker: Stephen, it has been great to hear about all the initiatives Taqa is implementing to help reach its net zero goals of the UAE and globally.
Speaker: And to the audience for taking the time to listen to this podcast.
Speaker: For more insights of today's conversation, do feel free to visit our Transition Pathways website or get in touch with your HSBC representative to learn more.
Speaker: Thank you.
Speaker: Thank you for joining us at HSBC Talks Business.
Speaker: We hope you enjoyed the discussion.
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