Middle East: Energy transition

The Middle East’s energy transition has increasingly moved beyond the era of pilot schemes and memoranda of understanding. In the Gulf Cooperation Council (GCC) region, national economic diversification mandates are contributing to increased active procurement, construction, and commissioning across large-scale infrastructure projects.

The regional landscape includes significant, vertically integrated utility assets. This is what the construction landscape looks like across Saudi Arabia, the United Arab Emirates (UAE), Oman, and Qatar:

• Saudi Arabia is leveraging its sovereign wealth funding to build greenfield utility complexes. The contracting model here requires significant supply chain security and international project execution.
• The UAE is increasingly focusing on commercial viability, co-locating upstream clean power generation directly with downstream industrial offtake and maritime export hubs.
• Oman has adopted a structured concession model managed by Hydrogen Oman (Hydrom). The model includes the allocation of large areas of land for projects focused on low-carbon fuel production and export.
• Qatar’s strategy links renewable energy development with its liquefied natural gas (LNG) expansion programs. The twin pillars of the program – utility-scale solar and blue ammonia – are intended to reduce the carbon intensity of domestic power generation and industrial operations.

The scope of energy transition projects is often complex because energy transition assets may combine developing technologies, variable energy inputs, and steady-state chemical processing, such as green ammonia synthesis.

A. Evolution of contracting models

Regional developers and state-backed entities are increasingly adopting three primary alternative contracting frameworks.

• Multi-stage and early contractor involvement (ECI): Contractors are engaged during the Front-End Engineering Design phase via a reimbursable or cost-plus mechanism.
• Split engineering, procurement, and construction (EPC) and multi-lot contracting: Projects are unbundled into distinct packages, including an upstream power package, a process or synthesis package, and a logistics or infrastructure package.
• Collaborative and target-cost deliveries: Some giga-projects are experimenting with target-cost structures under which savings are shared if the project finishes under budget and additional costs are shared up to a pre-agreed cap if costs exceed the agreed budget. 

B. Risks arising from these evolving models

While these collaborative and split frameworks may help prevent procurement challenges, they can also introduce different areas of project-delivery risk.

• Interface density and integration gaps: When a project is split into multiple lots without a single overarching EPC wrap, the employer effectively steps into the role of integration manager. If a project fails to deliver the specific output, questions may arise regarding responsibility across multiple interfaces, with the employer managing coordination among those interfaces.
• Technology and performance warranty deficits: Many next-generation utility assets rely on recently scaled-up technologies, such as high-capacity proton exchange membranes or alkaline electrolyzers. Some tier-one contractors may be unwilling to provide standard wraps on ultimate performance outputs. In these instances, technology performance risk may be allocated to Original Equipment Manufacturers (OEMs), whose liability caps are typically limited to a fraction of the total contract value.
• Supply chain concentration and multi-tier exposure: The simultaneous execution of large-scale capital programs across the region has strained the global supply chain for long-lead specialized equipment. Under ECI or multi-stage models, cost volatility during the prolonged definition phase can cause the intended price to increase materially before the execution phase begins.
• Dispute-resolution complexity in hybrid structures: As these projects are highly integrated, a single technical failure can give rise to challenges involving multiple stakeholders. Traditional dispute-resolution clauses developed for bilateral project structures may not fully address these multi-party arrangements. Where contracts do not include multi-party arbitration joinder provisions and tiered escalation frameworks, projects can encounter parallel arbitration proceedings or other complexities.

A. Intermittent power supply vs. steady-state degradation

Electrolyzers and battery cells can degrade prematurely when subjected to frequent, rapid cycling caused by intermittent solar and wind inputs.

• Risk: Contractors may be unwilling to guarantee an end-of-life performance threshold if the employer’s upstream power supply fluctuates outside specified parameters. Conversely, employers may be reluctant to accept an asset that degrades within a few years of commissioning.
• Mitigation: Dynamic performance guarantee test runs may be used in place of static, absolute performance guarantees, allowing a contractor’s performance obligations to be tied to a sliding scale or matrix of variables that accounts for actual power-input quality, ambient desert temperatures, and raw-water purity.

B. Unproven technology scale-up and performance wraps

Scaling technology from a 10-megawatt pilot plant to a two-gigawatt industrial complex can alter the physical and chemical dynamics of the asset.

• Risk: Tier-one EPC contractors are increasingly unwilling to provide a single, comprehensive performance wrap on the final output.
• Mitigation: Contracts may be structured to split the physical construction risk from the process technology risk.

C. Design changes during procurement

The technical specifications of key components, such as electrolyzer stack configurations or battery cell chemistry, frequently change between contract execution and procurement because next-generation energy technologies continue to evolve during the procurement phase.

• Risk: If an OEM upgrades its product line mid-project, the original engineering design may require revision, potentially giving rise to variation orders, design rework claims, supply chain bottlenecks, and other project-delivery challenges.
• Mitigation: Rather than specifying a highly detailed, fixed mechanical design at contract execution, the employer may utilize performance-based specifications (for example, defining what the equipment must achieve in terms of efficiency, output, and safety, instead of its exact physical dimensions).

D. Complex system commissioning and interface responsibility

The commissioning of an energy transition asset typically involves a coordinated sequence in which upstream power generation, storage, and downstream chemical synthesis plants must be synchronized.

• Risk: If the final product fails to meet the required purity standards during commissioning, identifying the root cause can be difficult.
• Mitigation: Contracts may include a joint commissioning protocol governed by an independent, third-party engineer whose determinations on technical fault are contractually binding in the short term to keep the project moving. This can be paired with a detailed interface matrix attached to the relevant package contracts. If issues arise, responsibility may be assessed by reference to whether data recorded at the boundary point fell within the agreed matrix parameters.

The concurrent execution of Saudi Arabia’s giga-projects, the UAE’s industrial net-zero clusters, Oman’s Hydrom land blocks, and Qatar’s LNG-linked solar expansion has contributed to increased competition for capital deployment.

This project pipeline, together with ongoing maritime logistics disruption in the Red Sea and the Strait of Hormuz, has shifted the conversation from “how to finance these projects” to “how to physically build them on schedule.”

A. Acute logistics and supply chain pressures

• Extended lead times for long-lead items (LLIs): The global surge in energy transition projects has saturated manufacturing capacity for high-voltage direct current transformers, switchgear, utility-scale battery energy storage systems, and specialized valves.
• Maritime rerouting and cost volatility: Geopolitical developments in regional maritime chokepoints have disrupted shipping predictability. This exposure is amplified in the GCC region. Long‑lead equipment is typically imported by sea through the Strait of Hormuz, the region’s primary maritime gateway. Qatar, for example, has no maritime alternative. Any disruption or closure can delay a broad range of import‑dependent packages simultaneously, creating knock-on effects across projects and supply chains.

B. Commercial and contractual mitigations

In response to these delivery pressures, project owners and EPC contractors are deploying focused commercial frameworks.

• Direct LLI novation and advance sourcing: Employers are increasingly moving away from the approach of waiting until the execution phase of an EPC contract to order long-lead electrical components. When the main EPC contractor is ultimately appointed, these pre-existing purchase orders are novated (transferred) directly into the contractor’s scope.
• Structured indexation and price fluctuations clauses: Modern contracts tend to incorporate formulaic fluctuation clauses tied to transparent regional and international price indices, such as the London Metal Exchange for copper and aluminum or local data for concrete and steel.
• Sourcing diversification and local hubbing: To mitigate maritime transit risk, developers are increasingly leaning on supply localization initiatives, such as Saudi Arabia’s National Industrial Development and Logistics Program (NIDLP) and the UAE’s Make it in the Emirates framework.

Structural, regulatory, and financial misalignments can create challenges on Middle Eastern energy transition projects. In the UAE, Saudi Arabia, Qatar, and Oman, these macro-level friction points may give rise to contractual, commercial, and project-delivery complexities.

A. Regulatory shifts and environmental compliance

The transition from net-zero goals to enforceable statutory frameworks has been accompanied by an evolving regulatory landscape. Landmark legislation, such as the UAE’s Federal Decree-Law No. 11 of 2024 on the Reduction of Climate Change Effects, together with the implementation of sustainability-focused building standards and frameworks (eg, Saudi Building Code 1001 (Sustainability) and the Mostadam framework), has highlighted the importance of ongoing compliance monitoring and adaptation. 

• Risk: Energy transition assets may face regulatory changes mid-construction. If a municipality or federal body issues a new mandate regarding embodied carbon limits, mandatory construction waste diversion rates, or updated fire safety codes for commercial battery storage, it can create a localized gridlock. Employers may argue that contractors must absorb the consequences under general compliance with law boilerplate clauses, while contractors may claim that they constitute a formal change in law or variation that entitles them to an extension of time and associated prolongation costs. 
• Mitigation: Standard compliance with law clauses may be insufficient for modern energy projects. Contracts may append a highly detailed regulatory baseline matrix as of the contract execution date. This matrix can be used to define precisely which green building certifications, carbon accounting standards, and permitting structures are included in the baseline price and to allocate responsibility for statutory changes introduced after contract execution that affect design parameters or material specifications. Such changes may be expressly identified as compensable employer variations.

B. Real estate, concession boundaries, and environmental conditions

Land allocation and site conditions are increasingly important because large-scale energy transition projects often require substantial surface areas.

• Risk: Contractors may encounter unforeseen subsurface conditions that affect automated pile-driving schedules for solar trackers. Furthermore, micro-siting conflicts may arise where neighboring plots generate heavy dust emissions or create unexpected wind-wake interference.
• Mitigation: Comprehensive light detection and ranging surveys and geotechnical investigations can be conducted before tendering. Contractually, the International Federation of Consulting Engineers Silver Book (EPC/Turnkey) allocation of subsurface risk to the contractor may be reviewed and modified where appropriate. Parties may also implement geotechnical baseline reports that establish measurable parameters for soil composition.

C. Financial closures, offtake mismatches and cost escalation

The financial architecture of these assets depends on alignment between the EPC contract and the downstream power purchase agreement (PPA) or hydrogen offtake agreement.

• Risk: If an asset’s commercial operation date (COD) is delayed, it can trigger a domino effect. The project company may face liquidated damages from the sovereign offtaker. The employer may seek to pass these losses through to the construction contractor via delay liquidated damages (DLDs). However, because DLDs are typically capped at 10% of the contract value, the employer may retain a portion of the financial exposure, creating potential misalignment between project-level and contractor-level liabilities, particularly in connection with gross negligence or willful misconduct.
• Mitigation: Contracts may seek to align the PPA and the EPC framework through mechanisms such as target COD buffers, giving the construction schedule a 60-to-90-day buffer before PPA-level penalties apply.

As energy transition projects continue to develop across the region, stakeholders may place less reliance on traditional construction playbooks and focus on integration, early risk management, and localized regulatory understanding.

A. Project owners and developers: Supply chain and site-boundary considerations

• Two-stage procurement structures: Owners may consider alternatives to standard competitive tendering based on incomplete engineering designs. Engaging a tier-one contractor early via a reimbursable model creates opportunity for both parties to refine the balance-of-plant design and address technology interfaces before committing to a fixed commercial price.
• Direct pre-procurement and novation of LLIs: Owners may utilize their own balance sheets to purchase critical assets during the conceptual design phase. Securing factory production slots early can support project scheduling and COD objectives.
• Early management of cross-border and site-boundary risks: For large-scale concession projects, owners may seek to establish clear spatial and environmental protections within their master concession agreements.

B. EPC contractors: Re-engineer risk management and localization considerations

• Evaluation of performance-wrap provisions: Contractors may review boilerplate clauses that require guarantees relating to the ultimate chemical or electrical output of developing or recently scaled-up technologies.
• Collaboration with technology providers: The line between construction contractors and technology providers has become increasingly interconnected. Strategic alliances and other collaborative arrangements may support integration and access to constrained equipment supply chains.
• Alignment with national localization mandates: To participate in large-scale tenders, contractors may consider integrating their operations within domestic industrialization initiatives, such as Saudi Arabia’s NIDLP and the UAE’s Make it in the Emirates frameworks.