27-05-2025
Private sector must absorb premiums to accelerate energy transition
MUSCAT: The global energy transition will not succeed without private-sector willingness to absorb cost premiums, build scalable models and push investment despite current regulatory uncertainties, according to Salih Merghani, Executive Vice President for Energy at Olayan Saudi Holding Company.
Speaking at the Oman Petroleum & Energy Show (OPES) held in Muscat recently, Merghani said that unlike previous shifts in industrial history, today's energy transition demands that companies move away from 'dense, cheap and reliable' fossil fuels to energy sources that are intermittent, complex and often more expensive.
'This is unlike anything we've attempted before. We're transitioning not because the alternatives are more efficient, but because of an environmental imperative. That makes the economics more challenging — and more urgent,' he said.
Merghani noted that although Saudi Arabia and the region offer competitively priced energy, the lack of a comprehensive regulatory framework for decarbonisation is slowing momentum. As a result, private investors must take the lead in developing new mechanisms for green investment.
'In our case, we asked ourselves: why move now? The answer was scalability. The scale exists, the market is forming and our capital has to find a home where it contributes to the long-term shift,' he said.
He cited examples of private investment by Olayan into carbon capture and storage (CCS) technologies and industrial retrofits aimed at reducing emissions in sectors like steel, cement and heavy industry.
'We looked at steel production, for example. Instead of building a new 'green steel' facility from scratch, we worked on retrofitting existing operations to lower their emissions profile significantly,' he explained.
However, he stressed that many low-carbon technologies will not scale without 'offtake guarantees' and financial structures that share the risk across the value chain.
'We realised that if we wanted to accelerate deployment, someone had to accept the premium — whether in the form of higher offtake prices, long-term contracts, or industrial policy support,' he said.
Merghani also highlighted the role of voluntary carbon markets (VCMs), noting that investments under Saudi Arabia's VCM initiative have focused on creating credible carbon credits and building awareness within the private sector.
'We don't yet have taxes or binding emissions caps, but the idea is to integrate carbon into business decision-making through the market. The VCM gives us a way to do that,' he said.
On technology maturity, he pointed out that while solar energy has now reached global scale, other solutions — particularly CCS and sustainable aviation fuels (SAF) — still face barriers.
'We've made strong progress in solar, but CCS and SAF require different economic models. For SAF, the aviation sector may be the last to transition and retrofits must become financially viable at today's cost structures,' he said.
Merghani called for greater collaboration between industrial players, regulators and financiers to unlock the full potential of emerging technologies.
'Financing institutions must be part of the solution. We can't build a project pipeline if the banks and regulators aren't aligned with the pace of transition,' he noted.
He concluded by stressing that while the private sector is ready to lead, market signals and policy coordination must follow if the region is to move from pilot projects to full-scale decarbonisation.
'The technology is here, the investment appetite is real — but if we want this to happen fast, it has to be a shared effort. This transition won't happen under normal conditions. We need to rewire the whole ecosystem,' he said.
