For some time now, governments in the Middle East and North Africa (MENA Region) have been under pressure to diversify their energy portfolios by bringing in alternative sources of energy to supplement traditional fossil fuel power. Although renewable energy sources are an obvious means by which this diversification can be achieved, to date, the adoption of renewable energy across the MENA Region has been slow.

The reasons for this lack of progress include lack of fair and reasonable feed-in tariffs for renewable energy sources, government subsidies on fossil fuel resources creating barriers to entry, in places, a lack of necessary external investment in the sector, and a lack of urgency and impetus to implement the energy diversification programs.

However, recent policy announcements by a number of governments across the MENA Region1 suggest a new approach - that renewable energy, and clean, efficient technologies, will be a major part of a more diversified energy portfolio in the changing landscape of energy in the region.

In this article we review the key motivators, as we see them behind this shift in government policy. We have examined key jurisdictions within the region and looked at how governments are seeking to effectively embrace a meaningful approach to renewable energy and resource diversity.

While most MENA governments have acknowledged the fundamental role of renewable energy sources in their future energy markets for many years, they are, in truth, yet to make any meaningful headway in reducing their dependency on fossil fuels. Recently however, an increasing number of governments in the region have indicated their intention to invest heavily to achieve ambitious renewable energy targets and have released impressive plans for wind, solar and other energy projects to help achieve those targets.

For example, Jordan is targeting 10% renewable energy in its energy portfolio by 2020, whereas Saudi Arabia has announced that it would like the country to go 100% renewable and low-carbon in the coming decades.
If plans such as these are realised to their full extent (and that remains to be seen) it would suggest that there is a strong support across the MENA Region for renewable energy and clean technology as a means to diversify the current energy portfolios.

The economical and other motivations for counties in the MENA Region to develop a meaningful renewable energy sector are becoming increasingly persuasive. We discuss below a selection of some of the key factors driving this change.

Middle East: pace of growth v finite resources

The Middle East is an ambitious economy, with some countries harbouring staggering plans for growth and development which is affected in various ways by demographic change. The population of Dubai, for example, is expected to double between 2007 and 2020.2 The monumental growth seen to date in places like the UAE and KSA has been traditionally funded and fuelled by exploiting plentiful fossil fuel reserves. These reserves have helped keep prices of commercial development low, attracting investment into the Middle East and facilitating growth across multiple sectors.

However, as these reserves deplete, alternative sources of energy will be needed to supplement them to maintain growth and, indeed, to support a base level of domestic consumption for the existing population of the Middle East through a balanced portfolio of energy assets. Renewable energy is the obvious alternative for numerous reasons, not least of which being geographical suitability.

North Africa: an area of renewed interest from investors

A large inflow of foreign direct investment together with a local and global need to diversify sources of energy supply have seen significant opportunities open up in the renewable sector in Africa.

The climate of African countries is generally well-suited to renewable energy projects and under-developed power generation systems ensure there are real opportunities for projects able to generate power to feed growing national economies.

This need will only increase in future years with strong growth figures predicted and large scale infrastructure projects planned across the continent.

Simple economics

For governments in the MENA Region where fossil fuel resources have been traditionally abundant, there are two main options as to what to do with those resources: they can be consumed in the domestic market or they can be exported to generate revenue to support their economies.

Domestic consumption provides power for residential and commercial premises, businesses and projects etc. Governments have traditionally applied subsidies to lower the cost of power to the end consumer in the domestic market, thus boosting other areas of the economy and facilitating general growth. However, the low price paid by domestic consumers, coupled with the subsidies applied by governments, results in a lower return to governments per barrel of oil produced, compared with the returns achievable if the same barrel of oil was exported to the international community. A recent report calculated that KSA loses up to USD 35 billion per year by burning oil in domestic power plants instead of exporting it for profit.3

If a greater proportion of oil produced were exported instead of consumed in domestic energy production, a gap in the domestic power market would arise. A meaningful source of renewable energy, coupled with achieving efficiencies in key sectors, could help plug that gap.

Political risk

Where a MENA Region country relies on imports of fuel to satisfy its domestic energy needs, it is not uncommon for the supply of a disproportionately large portion of the country's fuel feedstock to come from a handful of pipelines and/or from or through one country. A single terrorist attack to a pipeline, or a change in political attitudes of the supplier, and the supply of fuel could be seriously disrupted. This is to say nothing of the fact that as supplies diminish across the Region, the cost of import will inevitably increase greatly.

These importing countries are aware of the need for them to diversify their portfolios adding, where possible, sources of domestically produced energy to achieve a greater degree of energy independence. Renewable energy is a logical component of the energy mix for many of these countries.

Technological advancement – generating efficiencies

Although most of the countries in the MENA region are geographically well suited for solar power projects and, in certain areas, wind power projects, historically, the cost of installing renewable energy generators has been prohibitively high when compared with fossil fuel alternatives.

As with any new technology, however, it takes a while from first conception for it to become sufficiently fine tuned and efficient so that mass production at affordable value can be achieved. It appears that cost and energy conversion efficiencies, particularly in relation to technologies for solar energy projects, are such that the cost differential between renewable and non-renewable energy plants is becoming much more comparable. Indeed, at the recent World Future Energy Summit 2013 in Abu Dhabi, there were showcases of numerous companies from around the world whose businesses are designed solely to maximise efficiency of energy production and minimise cost of manufacture in photovoltaic cells to compete with fossil fuel businesses on a $ for $ basis. This push is helping to remove one of the main prohibitive factors that has stunted growth of the MENA region renewable energy sector to date.

So what are MENA Region Governments doing about this?

Jordan

Jordan is currently almost totally dependent on imports of fossil fuels to satisfy its energy needs. This is expensive for Jordan and also brings with it energy security concerns. This was brought into sharp focus in recent years when the country suffered acute problems in all of its downstream industries following a number of sabotage attacks on its gas pipeline from Egypt.

Consequently, the government has prioritised the need to change its energy mix, and is now implementing an "Energy Master Strategy" that has at its core a strategic objective to increase the percentage contribution of renewable energy to its total energy consumption needs. It has been estimated that the viable potential for renewable energy for power generation – excluding the more long-term options of solar photovoltaic technologies, hybrid solar/natural gas and an ambitious hydro power scheme - amounts to approximately 3,350 GWh/year. The Energy Master Strategy envisages that 10% of the country's energy will be produced from renewable sources by 2020. With this in mind, a series of new laws and policies have been adopted in recent years.

It is intended that the renewable mix will be around:

  • solar - 60%;
  • wind - 30%; and
  • waste-to-energy (WTE) - 10%.

The most noteworthy new law is the Renewable Energy and Energy Efficiency Law (REEL). This was promulgated by Jordan's Parliament in April 2012 and further develops and refines the previous renewable energy law of 2010.
Under the REEL of 2012, several new initiatives were introduced. This included the following:

  • facilitation of a "Direct Proposal" option, whereby, for projects of less than 500 MW, private sector developers would be able to submit their proposals without having to go through the normal Jordanian compulsory competitive tender process;
  • allowing citizens to sell electricity back to the national grid; and
  • creation of a new Renewable Energy and Energy Efficiency Fund to provide ad hoc funding for the exploitation of renewable energy resources generally, promote initiatives to rationalise energy consumption and promote the development of smaller scale renewable energy facilities.

The "Direct Proposal" option that was first introduced under the 2010 law and then further refined and developed under the 2012 REEL has already been welcomed by the developer community and many companies have already taken the opportunity to make unsolicited proposals for renewable energy projects. It has been reported that the Ministry of Energy & Mineral Resources initially received approximately 100 Direct Proposals but has now reduced the list of possible projects down to around 20.

As part of this initiative, Jordan's Minister of Energy, Alaa Batayneh, announced on 20 February 2013 that Jordan has entered discussions with two private sector companies for the establishment of a 10 MW photovoltaic solar power plant and wind farm with a capacity of 117MW, and that it expects that the negotiations will be completed in April 2013.

The solar plant is to be built by Philadelphia Solar Power Company at a cost of JOD 16 million (approximately USD 23 million). It will be located on the outskirts of Mafraq and will be built on a build-operate-own basis, and should be completed by mid-2014.

The wind farm will be built by local Jordan Wind Power Company at a cost of JOD 205 million (approximately USD 290 million). It will be located on the outskirts of Tafileh and is scheduled for completion by 2014.

Importantly, Mr Batahney calculates that the energy produced by these projects will be available at a cheaper rate per kilowatt/hour than compared with the current average costs of fossil-fuel alternatives.

It is expected that there will be many more announcements, such as this latest news from Mr Batahney, as Jordan explores this element of its Energy Master Strategy, which will be offering domestic and foreign renewable energy firms interesting opportunities in projects across Jordan.

Kingdom of Saudi Arabia

In KSA demand for energy is set to increase to levels that significantly exceed current installed generation capacity. Furthermore, there is a desire to reduce the reliance on domestically produced oil and gas which could be exported if not used for power generation. It has been recently reported that KSA expects to be 100% reliant on renewable energy sources within the next few decades.

In order to achieve this ambitious target, a number of renewable energy projects are already underway in KSA with more in the pipeline. The current focus is on solar power but there are also plans to utilise wind and geothermal energy. These new renewable power generation facilities will gradually replace the oil and gas powered power stations currently prevalent in KSA.

Below is a timeline of recent developments in KSA renewable energy sector

2007

Saudi Electricity Company (SEC) opens the market to independent power producers, offering 20-year power purchase agreements for power generation projects.

2011

King Abdullah City for Atomic and Renewable Energy (KA-CARE) established through a royal decree, as part of the government's strategy to diversify its energy sources.

2012

The KSA Government announced its desire to create a domestic solar industry that could generate up to a third of the nation's electricity by 2032. Plans are already under way to manufacture polysilicon, used in solar panels, in KSA. Joint ventures with international firms to use this polysilicon to construct solar panels are also taking place which, if successful, would create an end-to-end solar industry in KSA.

Plans to develop 41GWs of solar capacity over the next 20 years with 25GWs being installed in the form of solar thermal plants, and the remaining 16GWs being supplied by photovoltaic panels.

Bidders invited to build a large renewable energy plant, with a key component dedicated to solar energy, in Mecca.

2013

KA-CARE released the white paper on "Competitive Procurement Process for the Renewable Energy Program" (White Paper).

There are indications that renewable energy projects will be implemented by developers on a build-own-operate (BOO) basis, as in the conventional power market where SEC awards 20-year contracts. The SEC is the primary producer of electric power in KSA. The SEC, which is majority-owned by the Saudi government, owns the transmission and distribution infrastructure and most generation capacity in KSA. Another key body within the Saudi electricity sector is the Electricity and Co-Generation Regulatory Agency (ECRA), which has long-term plans to deregulate the electricity market, separating generation, transmission, and distribution networks and introducing private competition.

KA-CARE will set up a Sustainable Energy Procurement Company (SEPC) (a standalone government-owned entity) to oversee the tendering process.

Table 1 shows the indicative timeline for the bidding process.4

According to the White Paper:
"The Competitive Procurement Process (CPP) will consist of an Introductory Round which will consist of five to seven projects of varying technologies at pre-packaged sites offered to bidders at locations that can be easily connected to the grid. The timing for the sequential rounds after the Introductory Round is dependent on the length of each preceding round. Subsequent procurement rounds will not commence before contracts are executed for the prior round. Typically, a single procurement round will last between six to ten months depending on the length of time allowed for the preparation of proposals and the length of time required for evaluation. In the case of the Kingdom, more time will be allowed for proponents to develop proposals in the Introductory Round than will ultimately be required in the subsequent rounds. After the nine to twelve month process culminating in the selection of the winners of the Introductory Round, the first full scale procurement round shall be initiated."5

The local content requirements for CSP development in Saudi Arabia are remarkably high. The White Paper states that:
"Local content will be evaluated on the basis of the total money spent on goods and services provided by permanent establishments in the Kingdom as approved by a certification body to be established by K.A.CARE, as well as for training and research and development activities performed in the Kingdom."6

Local content for various "Cost Categories" ranges between 0% (e.g. for construction labour and management) to 100% (for certain equipments such as molten salts and steam turbines and generators). The proposed local content requirements may require further consideration in light of the Kingdom's international obligations under the laws of the World Trade Organisation (WTO). ( see Clyde & Co article on this issue here)

The White Paper is notably silent on the feed in tariffs and how they will be determined and implemented. However, it is expected that the commencement of the CCP for KA-CARE program will be followed by a formal announcement of KSA's first feed-in tariff program. Many stakeholders have called for establishing a fair and reasonable value for this feed-in tariff. However, some commentators have argued that a feed-in tariff guaranteeing a premium for solar and wind power is unlikely to work in KSA's closed economy, where energy costs paid by consumers remain subsidised.

UAE

The huge increase in population in the UAE in the last 15 or so years has caused a corresponding increase in the demand for energy. As most of the electricity generated in the country uses natural gas as feedstock, this growing demand has led the country to become a net importer of natural gas since 2007, when domestic consumption outstripped production for the first time. Despite the economic downturn caused by the financial crisis in 2008, the demand for electricity in the UAE has continued to grow even faster over the past few years. Some commentators have stated that one contributing factor to this position is the heavily subsidised price of electricity (and water) in the UAE, which in turn leads to excessive consumption and waste.

For the reasons highlighted above, the UAE Government has proposed a diversified energy mix that allows electricity generation from oil and gas, renewables and nuclear sources. Due to its geographical location, the UAE has high potential for producing solar energy. Innovation, capital resources and technological breakthroughs make the widespread development and use of renewable energy in the UAE more probable than in some of the other GCC countries.

Dubai and Abu Dhabi aim to become pioneers of renewable energy and clean technologies across the Middle East. In 2007, the UAE Government established the Abu Dhabi Future Energy Company (ADFEC, also more commonly known as Masdar). Masdar's task, amongst other things, is to:

  • invest in promising renewable energy and clean technology companies;
  • reduce carbon emissions through energy efficiency and carbon capture storage; and
  • develop and operate strategic utility-scale renewable power generation projects.

From this mandate came Masdar City, a USD 22 billion development aimed at being one of the most sustainable and carbon neutral cities in the world. Masdar City will host the research and development activities of a number of global energy companies and serve as the headquarters of the International Renewable Energy Agency.

By 2025, it is envisaged that Masdar City will be home to one of the world's leading academic institutions in the fields of advanced alternative energy and environmental technologies. The Masdar Institute of Science and Technology will be at the heart of the home-grown research and development community at Masdar City. With parts of the Institute already in operation, it is envisaged that it will eventually be host to between 600 and 800 Masters and PhD students.

Away from Masdar City, Masdar's most important arm in the drive for renewable energy is Masdar Power. With a mandate focussed on building a portfolio of large scale renewable energy power plants across the globe, Masdar Power is heavily invested in photovoltaic energy, concentrating solar power and offshore and onshore wind technologies. Amongst Masdar Power's most prominent projects on the international scene is its interest in the London Array, which, once completed, will be capable of generating 1GW of energy from 278 wind turbines, making it the largest offshore windfarm in the world.

In the UAE itself, Masdar Power is driving three of the most ambitious renewable power projects in the MENA Region. These are:

  • Shams 1 - developed by Shams Power Company, a 60/40 joint venture between Masdar and Total Abengoa Solar Emirates Investment Company, Shams 1 is a 100MW capacity solar field located 120 kilometres southwest of Abu Dhabi city, extending over an area of 2.5 square kilometres. With over 80% of the construction completed, the solar field will have the capacity, once operational, for 210GW of annual electricity generation, making it the world's largest concentrating solar power plant and the first of any size in the Middle East. Shams 1 is Masdar's first flagship project in the UAE.
  • Noor 1 - located east of Abu Dhabi's second largest city, Al Ain, Noor 1 represents Masdar's second flagship project in the UAE. Extending over 3 square kilometres and with a capacity of 100MW, it will be one of the world's largest photovoltaic plants and will be capable of 170 GW of annual electricity generation by converting sunlight into electricity. Currently undergoing an EPC bid evaluation, Noor 1 will make up the first phase of a 200MW solar power park located in Al Ain.
  • Sir Bani Yas - in June 2009 Masdar entered into a partnership agreement with the Tourism Development & Investment Company to develop several renewable energy projects on Sir Bani Yas, a natural island located 250 kilometres southwest of Abu Dhabi city. The first project which Masdar has embarked upon is the development of a 30MW wind farm for which it is currently concluding EPC contract negotiations.

It is envisaged that once these projects are completed they will become a major contributor to Abu Dhabi's vision of generating at least 7% of its energy needs from renewable sources by 2020.

In 2011, the Dubai authorities announced a major photovoltaic energy project of their own called the Mohammed Bin Rashid Al Maktoum PV Plant. This project was presented as Dubai's first big step towards achieving its own target of producing 5% of its total electricity requirements by 2030 from solar energy.

Libya

Libya effectively obtains all of its power from non-renewable sources, primarily light fuel oil and natural gas. In doing so Libya incurs a number of costs as it reduces the amount of oil and gas that Libya has available to export, thus reducing oil revenues.

Demand for power from both residential and commercial sectors is set to rise as Libya's economic expansion continues following the 2011 revolution. In order to meet future demand in a sustainable manner, the government has introduced a strategic long-term energy sector roadmap which includes:

  • increasing the use of natural gas;
  • establishing energy efficiency programs; and
  • utilising renewable energy sources.

Libya is very well placed to benefit from the development of its renewable energy sector. It has the second highest levels of solar radiation in the world (average solar radiation of 2,470kWh/m2/day), whilst high average wind speeds in several locations also make it an attractive destination for wind farms. With significant oil resources it has the financial capability to invest the required amounts to generate a significant expansion in this sector.

Given the rebuilding process currently underway in Libya, the establishment and growth of the renewable energy sector is understandably not yet a high-level priority. However, following the revolution in 2011 there have been numerous encouraging announcements in relation to the development of Libya's renewable energy sector. The Ministry of Electricity & Renewable Energies in Tripoli has recently announced that they are committed to solar as an energy source and they have targeted 6% of the country's capacity to be met by renewables by 2015 and 10% by 2020.

Certainly Libya will look for external assistance in putting together the basic structure to effectively initiate the growth of the sector.

The Libyan government has further demonstrated its commitment to green energy by the Undersecretary's announcement on 3 January 2013 that a new 650MW solar plant is to be built in Obari in the south of the country.

Other plans announced by the Libyan government for renewable energy include:

  • the building of a factory for thermal heating systems with annual production capacity of 40,000 units;
  • the building of a factory for PV systems with production capacity of 50MW;
  • the building of a solar power station in Hun (Houn); and
  • wind farm projects in Dernah, Al Maqrun, Meslatah, Tarhunah, Asaba, Gallo, Almassara, Alkofra, Tazarbo, Aljufra, Ghatt, Ashwairef and Sabha.

Tanzania

Tanzania is endowed with diverse energy resources including biomass, natural gas, hydro, coal, geothermal, solar and wind, uranium, much of which is untapped. Wood-fuel accounts for up to 90% of total national energy consumption, with about 2% from electricity and 8% from petroleum products.

Whereas Tanzania has plentiful natural gas, coal, hydropower, solar and biomass resource potential, it has one of the world's lowest levels of electricity consumption per capita. Considerable scope exists for accelerating electrification to meet the growing demand especially in the rural areas through off-grid solutions. Investment opportunities exist for developing hydropower dams, solar photovoltaic systems, biomass based co-generation in sugar, wood, and tea factories to provide electricity.

Tanzania's power sector is dominated by a single vertically integrated national utility, Tanzania Electricity Supply Company Ltd (TANESCO). The total grid installed generation capacity for both TANESCO's power plants and private producers is currently at 1,270.74MW, whereby 561MW is generated from TANESCO owned hydro power stations and thermal 658MW. National electricity connectivity is about 14%. The contribution of non-hydro renewable energy for power generation is less than 5%.

Renewable energy resources are expected to play a significant role in the supply of modern energy services in the country in future. This is largely due to their availability, suitability in addressing global concerns surrounding the environment and the need to make energy services available to rural and peri-urban areas where most of these resources exist. At present, the following renewable energy technologies are being developed, promoted and disseminated:

  • small scale hydropower
  • modern biomass technology [co-generation, improved stoves, improved charcoal production, thermal-chemical gasification, briquettes, liquid biofuel production, etc.];
  • solar energy;
  • wind for mechanical and electrical power;
  • development of liquid biofuels to supplement use of petroleum fuels.

Tanzania has a potential of 650MW of geothermal energy with a possibility of more large scale power generation, with temperatures of up to 255 degrees Celsius (dry steam). So far, 50 sites have been identified as suitable for development.

There have also been recent developments in wind power projects in Tanzania. Several sites have been investigated with two potential locations (Makambako and Singida), with average wind speeds of 8m/s.

The Tanzanian government is keen to improve energy security by diversifying it's current energy mix, and is currently evaluating various available options.

Conclusion

Meaningful development of a renewable energy sector is attractive to many Governments across the globe for very differing reasons. A common reason is the drive to reduce carbon emissions and related environmental issues, which is increasingly dominating the thinking of governments.

However, there are other factors which bear influence in the MENA Region, which potentially offer substantial rewards to governments who take the bold step of adopting renewable energy as a key component of their traditionally fossil fuel-dominated energy portfolios. Energy independence and sizeable financial returns are perhaps the two most immediately relevant and influential factors.

MENA Region governments need to take measures to ensure that they have the financial resources to invest in the required infrastructure needed to support renewable and clean energy technologies to avoid the consequence of becoming reliant on imports and other less cash-generative sectors in the future. Forward-looking governments in the MENA Region where fossil fuels are running out should consider taking action whilst their revenue streams from fossil fuel reserves remain steady.

Whether or not the adoption of a renewable energy sector in the MENA Region comes to fruition in the coming years will have to wait to be seen, however all of the indicators are so far positive and the potential rewards would be substantial.

Table 1: Individual procurement timeline4

Commencement (C)

C + 1 month

C + 2 months

C + 3 months

C + 9 months

C + 10 months

C + 12 months

...

Issue white paper;
Open proponent registration

Issue draft RFP and draft PPA for comment followed by technical bidder workshops

Issue EOI/SOO and request for qualification

Issue final RFP to qualified proponents only

Receive responses within 180 days

Evaluate responses, select winners and enter into contracts

Preparation for next procurement round

First projects achieve commercial operation

Footnotes

1In this publication, the term MENA Region covers Algeria, Bahrain, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates, and Yemen. We have also explored the renewable energy market in Tanzania which does not fall within the geographical extension of the MENA Region.
2Reference: Click here
3Reference: Click here
4White Paper p.20
5White Paper, p.12
6White Paper, p.6

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.