Forecast
- Geography and demographic challenges have made parts of the Middle East and North Africa a prime location for solar power installations.
- While solar will not supplant the role of hydrocarbons, it will enable countries such as Morocco and Jordan to improve energy security and potentially become electricity exporters.
- Countries such as Saudi Arabia and the United Arab Emirates will seek to maintain their position as energy exporters, in part by adopting strategies likely to include renewables development.
Analysis
Deserts are seemingly obvious places to locate solar technology.
In fact, the swath of desert stretching from the Atlantic Ocean, across
North Africa and the Arabian Peninsula, to the Persian Gulf has vast
solar potential. But until recently it has not been economically
feasible, or even necessary, to develop the renewable resource. In many
areas, geographic constraints such as rough terrain have made solar
projects impractical.
Only now has a combination of demographic pressure, low oil prices
and technological readiness primed Middle Eastern and North African
states for more investment in solar power. For countries such as Jordan
and Morocco, renewable energy may offer a path toward greater energy
independence. Others, such as Saudi Arabia and the United Arab Emirates,
are interested in exporting renewable energy technology and financing
solar projects abroad.
The steady price decline of solar power generation infrastructure,
especially photovoltaic cells, is making the renewable option more
viable for North African and Middle Eastern states, a region where the
sun shines in abundance. Not only is the technology becoming more
affordable, but operational costs after construction are also minimal
when compared with hydrocarbon-based generation. As a result, several
countries in the Middle East and North Africa are focusing on solar
power as a means to satisfy rising electricity demand, make cuts to
unsustainable government subsidy programs and reduce dependence on
energy imports.
Solar will not replace hydrocarbons as the region's primary energy
source, but where markets can meet national goals and strategies, it has
the potential to help some countries diversify their power sources.
Given the region's growing energy demand, interest and investment in
solar generation there will increase in the near and medium term.
Jordan and Morocco: Energy Importers
Jordan,
a relatively stable kingdom in a largely tumultuous region, is
vulnerable to demographic challenges. The nation imports more than 95
percent of its energy at a cost of roughly 16 percent of its gross
domestic product. Its energy dependence makes it somewhat vulnerable: In
2011 and 2012, disruptions in natural gas supplies from Egypt caused
Jordan to deplete its energy reserves entirely. The problem arose again
in 2013, when oil imports from Iraq were interrupted. Uncertain energy
supplies have the potential to stoke unrest in the country, where energy
costs are heavily subsidized by the monarchy. After all, an erratic
domestic electricity supply has been among the main aggravators of
social upheaval in nearby Lebanon, Iraq and Egypt. Jordan subsequently
made efforts to diversify its sources of electricity by increasing solar
capacity, and in recent years it added wind and nuclear generation. If
Jordan is to meet its goal of relying on renewables for a full 20
percent of its generation capacity by 2018, solar will play a major
role.
Numerous projects, large and small, are underway in Jordan, from
installing solar panels on the rooftops of homes to building large solar
parks with 200-megawatt capacities. Jordan has made the bidding process
for renewable energy projects relatively easy, which has attracted
companies from around the world. Jordan will be unable to reach its
lofty goals on its own; public-private partnerships will be crucial to
the growth of the renewable energy sector.
Much like Jordan, Morocco imports most of its energy — about 90
percent. The similarly stable nation is also looking to renewables,
especially solar power, to increase energy security and lower energy
costs. But Morocco is taking the idea a step further by building what
will be the world's largest power plant using concentrated solar
technology, which employs mirrors or lenses to focus sunlight that
generates heat to power turbines. The first phase of the project, the
Noor Solar Complex near the city of Ouarzazate, opened earlier this
year. Morocco has set a lofty goal: to have renewables account for half
its electricity production by 2025 (solar would satisfy about a third of
the demand). The nation even aims to become an electricity exporter. Of
course, the scale of its projects requires large tenders, requiring
international investment and limiting the participation of domestic
companies.
Morocco's burgeoning solar sector still faces some challenges, not
least of which is the need for a reliable storage method, all the more
important since sunlight is a naturally fluctuating power source. Still,
with its geographic advantages and relative social stability, Morocco
appears to be in prime position to exploit its solar power potential.
Egypt: Growing Demand
Egypt's political, security and financial institutions are not as
stable as those of Morocco or Jordan, and in Egypt the threat of social
unrest is more potent. But industry publications still tout the country
as a potential hot spot for renewable energy investment. Egypt's massive
population creates an enormous energy demand, which may strain the
government's budget but also opens up opportunities to invest in
technologies to meet the growing need.
Egypt's energy woes are not new. Production has steadily declined because of a lack of investment in domestic oil and natural gas operations.
Meanwhile, domestic energy demand has risen. But President Abdel Fattah
al-Sisi has implemented reforms that have attracted renewed investment
to the natural gas sector, with projects such as Eni's Zohr natural gas
field being fast-tracked.
Renewable energy will not necessarily meet all of the public's most
urgent needs. Cooking fuel, for instance, has sometimes been in short
supply, and solar power will not directly resolve that problem. Still,
preventing summer brownouts (now all too common in Egypt) is a priority
for the government, which has lost much of its popular support. Improved
natural gas production can help provide a more consistent electricity
supply, but with demand expected to climb, there is room for additional
forms of power generation. Recent agreements signed with Japan and South
Korea to develop solar power and associated projects indicate that
Egypt is looking beyond traditional relationships to further the
renewables energy sector, though both European and regional players such
as Saudi Arabia and the United Arab Emirates are still active
investors.
Saudi Arabia, UAE and Algeria: Exporters Remain Exporters
Saudi Arabia relies on oil for electricity production, and it faces
rising domestic demand for electricity at a time when low oil prices
have put significant financial strain on the government. Its domestic
fuel consumption is following an unsustainable trend. Using over 3
million barrels of oil per day domestically, Saudi Arabia is already the
largest global consumer of petroleum for power production. About a
third of its daily oil consumption is used to fuel power plants. Without
additional sources of generation to satisfy climbing electricity
demand, the share of oil consumed by electricity generation would climb.
Although Saudi Arabia is gradually implementing subsidy reforms
designed to reduce domestic energy demand, it still will develop energy
alternatives, which is where solar power could come into play. Under
current goals, renewables would account for 8 percent of electricity
production by 2020 and 15 percent by 2030, with solar power accounting
for the majority of that increase. In the past, however, Saudi Arabia
has lengthened the timelines for such targets.
Yet Riyadh has made significant strides in exporting solar
technology. Saudi company ACWA Power is involved in multiple projects in
the region (Morocco and Jordan) and farther away (South Africa and
Turkey). Saudi Arabian Oil Co., the national oil company, has even
expressed interest in developing solar export capability. With plans to
add solar technology production facilities, Riyadh could maintain its
role as a regional solar exporter, especially as its domestic solar
power sector continues to develop. ACWA Power has gained a regional
reputation as having sufficient economies of scale to underbid other
major solar power firms, mostly Western or East Asian companies. This
helped ACWA Power win large bids such as the first phase of Morocco's
Noor plant and the Mohammed bin Rashid solar park in the United Arab
Emirates.
The United Arab Emirates, meanwhile, has positioned itself as a
renewable energy financier and development hub. It is the home of the
International Renewable Energy Agency, and it hosts important
conferences focused on both renewable and nonrenewable energy.
Furthermore, it has used its ample hydrocarbon largesse to develop
unique large- and small-scale renewable projects in ways that less
resource-rich countries such as Morocco, Jordan and Egypt cannot match.
The United Arab Emirates has established itself as a regional leader in
solar power in part because of its greater ability to adopt the
technology (both domestically and through partnerships with other
countries) and to fund projects throughout the world. Masdar, the
country's renewable energy arm, is connected with the Mubadala
Development Co., one of the country's smaller sovereign wealth funds.
Masdar is involved in projects throughout the Middle East, Africa, South
America and Europe and on islands in the Pacific.
Algeria, a leading natural gas producer, has ambitious plans to
follow a similar path with solar energy. Renewable power installations
totaling 22 gigawatts of capacity — 13 gigawatts of that solar — are
proposed to go online by 2030. That is enough power to meet nearly a
quarter of domestic needs while still reserving a significant portion
for exports. But exporting renewable power will require substantial
research and investment into solving the problem of insufficient energy
storage, which is a barrier to incorporating large amounts of variable
renewable power worldwide. Algeria will require foreign investment and
cooperation to meet its grand plans. While Algeria is more stable than
some of its neighbors, such as Libya, its government is in a slow leadership transition,
and the risk of instability caused by protests relating to development
and distribution of energy resources is high. Nonetheless, the country
has made strides toward attracting the necessary investment to build out
its solar capacity. With over 250 megawatts of capacity installed in
2015 and work occurring at additional sites in 2016, Algeria is moving
toward its target of 15 percent of electricity being generated by solar
by 2020.
Keeping Things in Perspective
Solar power's role in the region is poised to grow. The technology
is nearing grid parity, the point at which it costs the same or less
than the traditional technologies that feed the electrical grid. And
solar's cost will likely come down even more. Until energy storage
technology improves, however, incorporation of renewables into
electricity grids will be somewhat constrained, especially for the full
use of larger planned projects.
Although it will stay subordinate to hydrocarbons, solar is primed
to become a more prominent part of the energy mix in the Middle East and
North Africa. Its development offers investment opportunities that,
while limited to well-capitalized entities, could eventually shift a
portion of energy dependence in the region. In the shorter term, solar
projects may actually create dependence on other countries for some
nations, but they will also nurture the nascent renewable energy sectors
in which domestic companies are eager to invest. In time, solar
projects could help states diversify their sources of electrical power
and become more energy independent.
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