Arab world steps up renewable energy

Arab world steps up renewable energy

Giancarlo Strocchia
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Traditionally producers and consumers of fossil fuels, many Arab countries are starting ambitious programmes to develop solar and wind sources, even though legislation remains uncertain and perplexed international investors tend to delay plant construction.

It is not uncommon for Arab countries to consider renewable energy. Over the last decade, various nations have announced long and medium-term development plans for “alternative‘ installations to fossil resources, of which they have an abundant supply. The energy demand in the region has been calculated to increase at an annual rate of 7.4% until 2021. This is also why, in the face of increasing concerns over the environment, work  is needed towards greater energy diversification. As net energy importers and exporters operate under different circumstances, progress has been uncertain. To support renewable energy, states such as Jordan and Egypt have introduced Feed-in Tariffs (FiT), tax abatements and Power-Purchase Agreements (PPA). At the same time, however, energy exporter nations (with the exception of the UAE) have done little to supplement renewable energy, and continue to count on conventional sources with lower extraction costs to meet the growing demand for electricity. However, the situation appears to be about to change: Saudi Arabia, in particular, finally seems ready to call tenders for wind and solar panel farms over the coming year. A fall in the cost of technology has enabled some countries to move towards increasingly competitive renewable energy cost-wise. In the meantime, government support (as in other parts of the world) will become a fundamental tool to develop the renewable sector in the area.

The energy demand in the region has been calculated to increase at an annual rate of 7.4% until 2021. This is also why, in the face of increasing concerns over the environment, work is needed towards greater energy diversification

Top of the league are Morocco, Jordan and the UAE

A greater dependency on fuel imports to meet internal demand and the increased cost of imports have driven Morocco and Jordan to clearly diversify their energy sources. The Moroccan government is on the verge of achieving its objective to produce 2 GW of solar energy and 2 GW of wind energy by 2020, whereas its current wind capacity is over 750 MV. The driving force behind this major growth in wind capacity in recent years has been the start-up in 2014 of the 300 MW wind project in Tarfaya. The country has, however, gone further. It has recently awarded five wind projects for a total of 850 MW. As regards solar energy, phase 1 of the Noor concentrated solar power project (CSP) was commissioned in 2016. Noor-2 and Noor-3 are expected to reach a total of 350 MW by the end of 2017. Once complete, Noor will be the largest CSP model in the world. Jordan’s choice to commission the 117 MW, Tafila wind project in the second half of 2015 has been fundamental. The country is also waiting for two other major developments in the wind sector. First and foremost will be the start-up in 2018 of Fujeij, the 89 MW, Korean wind project by Kepco.  Secondly, the 86 MW, Al Rajefwind project, financed by the European Bank for Reconstruction and Development (EBRD), will have been launched by 2019. The country will increase its initial objective of 600 MW of solar power to 1 GW by 2020.  This year, the 103 MW, Quweira photovoltaic plant will begin production in southern Jordan. Lastly, we mustn’t forget the numerous, smaller solar plants currently being developed in the country, each with a capacity of approximately 50 MW.

The Egyptian plan and Saudi initiative

Egypt’s ambitious plan envisages the development of 2.5 GW of  wind energy, 1.7 GW of photovoltaic energy and a CSP capacity of 100 MW by 2020. However, the plan is proving rather complex. Its wind capacity recently increased by 35% with the addition of the 200 MW from Gebel El Zeit, bringing the country’s total capacity for renewable energy to over 900 MW (approximately 800 MW from wind energy). Plans for renewable energy have also benefitted from the major contract awarded to Siemens to develop 12 wind farms with a total capacity of 2 GW. Although the Egyptian market is followed with great interest, the country’s current economic situation, the lack of foreign resources and the weak Egyptian pound are all sources of concern for international investors. Saudi Arabia has, for its part, announced programmes of investments in renewables worth between 30-50 billion dollars by 2023, in order to achieve its objective of a 10 GW capacity for wind and solar energy. This replaces the 2012 King Abdullah City for Atomic and Renewable Energy (K.A.CARE) energy plans, which envisaged an investment of 109 billion dollars to produce 54 GW of renewable and nuclear energy by 2032. This never really got off the ground, due to a marked preference for conventional energy installations in response to the increased demand for electricity. The Renewable Energy Project Development Office (Repdo), the department set up to supervise the new programme, will report to a management committee for renewable energy, chaired by Minister Khalid Al-Falih. Repdo has already selected the companies taking part in the first phase, with 300 MW of photovoltaic energy and 400 MW of wind energy at stake in projects for independent power producers (IPP) The Ministry also announced that, at the end of the year, it will launch a second round of tenders for 400 MW of wind energy and 620 MW of photovoltaic energy. The government is clearly showing the market its desire to promote the programme to support renewable energy. The tenders are expected in the coming months.

New policies to support the development of clean energy

As the nations gradually accelerate their development in the renewable sector, legislation is improving significantly. Jordan was the first country to introduce feed-in tariffs in 2012.  Egypt also has an FiT programme, which appears rather muddled at present. It is still too soon to understand the reaction of potential investors and whether they will be able to ensure an adequate return on investments. Morocco has no FiT policies, even though it launched a similar programme called EnergiPro in 2006. The latter envisaged the opportunity for industrial consumers to invest in renewable energies, whereas the state-owned utility guaranteed it would purchase any surplus power at favourable tariffs. Other economic support mechanisms in the region included tax relief, net metering and capital grants. Legislation, on the other hand, envisages standards for renewable energy and national objectives. However, the main incentives for private promotors will continue to be the government-backed, long-term, PPA contracts. The latter, together with the competitive prices in the area, will be the main spur.

A continual fall in costs

In the final analysis, renewable energy will be successful, if costs are competitive. The IEA (International Energy Agency) estimated a 30% decrease in the average, global costs for onshore wind energy, whereas photovoltaic solar costs slumped 70% between 2010 and 2015. The agency expects a further fall in photovoltaic and wind costs of 25% and 15%, respectively, by 2021. These cost savings are mainly a result of technological developments and of the economies of scale due to increased production in Asia. Constant investments and additional capacities will also result in further cost reductions. Nevertheless, other export countries are finding difficulties in starting up their programmes. Large oil and gas reserves and contained extraction costs have ensured the demand for hydrocarbons continues to grow in countries such as Kuwait, Qatar and Algeria. This slow progress is due mainly to the uncertainty of their policies and lack of an efficient, legislative framework. Kuwait’s declared objective is to achieve 5% of renewable energy by 2020, but it only has the 50 MW CSP installation in Al-Shagaya currently in the pipeline. Masdar will construct a 50 MW wind farm in Harweel, Oman. At the same time, the government has put forward proposals to develop 200 MW of photovoltaic energy. Other countries, such as Qater and Bahrain, have made minor investments in renewable energy, but nothing significant is envisaged for the near future. A short time ago, the Algerian government announced it wanted to develop approximately 4 GW of photovoltaic energy as part of an ambitious programme, which envisages developing 22 GW of renewable energy by 2030.

An apparently inexorable growth

Different reasons are, however, encouraging international observers to be cautiously optimistic for the future of renewable energy. The net importer states, such as Morocco and Jordan, will continue to lead the race for renewable energy to reduce dependency on fuel imports, even though oil prices have fallen. Nevertheless, in the current panorama, it is increasingly difficult to obtain funding, and these countries will have to continue to develop their own legislative framework in order to attract investments in the sector. The percentage of renewable energy within the energy mix of net exporter states (with the sole exception of the UAE) remains rather slim. These states are continuing to rely mainly on conventional resources to increase their capacity over the next few years, and will make use of the effective demand and price reform as measures to face the increasing need for electricity. Nevertheless, we finally have some encouraging signs of programmes starting up to develop renewables. To achieve this objective, the governments will have to accept the challenge and improve the situation in terms of regulations and investments, in order to attract investments in one of the most rapidly growing energy markets.