North African Renewables Are Quietly Becoming a Gulf Investment Story

The headline still reads as European energy companies investing in North African solar. The actual cap table tells a slightly different story, which is that several Gulf funds have, over the past two years, taken meaningful minority and in a few cases majority positions in renewables projects across North Africa. The European logos are still on the press releases. The check is, increasingly often, Gulf.

Why the Gulf is buying

Several reasons converge. The Gulf needs to deploy capital into renewables both for portfolio reasons and for political reasons; the regional sovereign mandates have grown sharper on this over the past few cycles. North Africa offers projects that are larger than the in-Gulf opportunity at the same stage of development, and at price points that the Gulf funds find attractive. The grid-export potential to Europe, while still constrained, is on a long-term trajectory the funds find compelling enough to underwrite.

There is also an underdiscussed pan-Arab industrial logic to the move. A Gulf-funded, North-African-located renewable build that exports power to Europe and Africa is, structurally, a piece of regional industrial infrastructure that earlier eras of pan-Arab economic coordination talked about and rarely built. This generation of allocators are building it, in pieces, on commercial terms, without the rhetoric. The absence of the rhetoric is a feature.

How local governments are responding

Variably. Some of the host governments have noticed the cap-table reality and have been pleasant about it, on the view that capital is capital and a project that gets built is more valuable than a project that gets perfectly attributed. Others have noticed and have started asking questions about local content, local ownership minimums, and the conditions under which strategic infrastructure can be held by non-domestic capital.

The questions are not unreasonable. They are also not, in most cases, the kind of question that derails a deal. The funds are sophisticated enough to come in with a local partner who satisfies the formal requirement, and the local partner is sophisticated enough to know that the partnership is more useful to them than the strict optics of full local ownership would be.

What this looks like in five years

In five years, several of the largest North African renewables projects will have been built with capital that the press releases at groundbreaking attributed to European or American sponsors. The actual register, by then, will be Gulf-heavy. Some of the press will catch up. Most will not, because the press tends to write about the groundbreaking and not the cap-table reorganisation that happens in year three. The reorganisation will still be there, and the regional industrial story it produces will still be there.

A pan-Arab industrial spine that runs through renewables and is funded out of Gulf capital is, on the long view, the kind of structural shift that is much easier to spot in retrospect than to call in advance. We are calling it now, in this magazine, with the usual caveat that two of the funds we are watching are going to lose money on at least one of the projects in question. That is also part of how the spine gets built.