Fulfilling the region’s clean-energy promise
Fulfilling the region’s clean-energy promise
The Middle East and North Africa might have the natural attributes to become a renewable-energy hub, but policymakers have yet to put in place the framework required to stimulate investment.
Of 40 countries ranked in a renewables index developed by Ernst & Young, only three were from the region and none were even in the top half: Egypt ranked 27th, Morocco 30th and Tunisia 34th. In the solar index, a resource where the region has a natural comparative advantage, the only Middle East and North Africa (Mena) country ranked was Morocco. In the concentrated-solar-power ranking, Morocco did retain the ninth place (Tunisia was 12th and Egypt 19th), up by two places. The improvement in ranking was attributed to the World Bank’s approval of US$297 million (Dh1.09 billion) of financing for a 500 megawatt concentrated-solar-power plant to be built south-east of Marrakech.
The report states that “despite reasonable progress, a healthy project pipeline and significant partnerships … the region suffers from the lack of international investment, and currently an apparent lack of willingness by policy setters to implement the necessary support”.
The report also pointed out the impressive efforts made by countries in the region to increase the proportion of renewable energy in their overall power production. Abu Dhabi committed to a $15bn investment to meet its target of 7 per cent of its electricity coming from renewables by 2020 and is constructing Masdar City, a $22bn project that will rely on renewable sources to achieve its “carbon-friendly” status.
To achieve a 10 per cent target by 2020, Saudi Arabia committed $100bn in nuclear and renewable energy development. Meanwhile, Oman invested in concentrated-solar-power technology, with low-output – 10-50 megawatt – demonstration projects planned and larger facilities producing as much as 200 megawatts possible.
So why, then, were these countries not on the list? The recurring issue has been the lack of a renewable-energy and clean-technology policy framework and implementation strategy. International experience suggests that critical factors for building a new industry sector include the development of a comprehensive policy and regulatory framework to support the sector.
Unfortunately, no country in the region has a clear policy framework comparable to more developed markets. Currently, a large proportion of the expected clean-energy capacity will be commissioned via a combination of auctions and tenders to reach renewable-energy targets. But targets are not a substitute for a strategy and a framework for private and public action.
Financial incentives for investing in clean energy and clean technology are required to kick-start the industry in the region. According to Bloomberg New Energy Finance, only $840m was invested in clean energy in Mena last year, a fraction of the $260bn invested globally. By contrast, fossil-fuel subsidies remain most prevalent in the Middle East, amounting in 2010 to $166bn, or 41 per cent of the global total, with average subsidy rates between 55 per cent in Egypt to 76 per cent in Saudi Arabia.
The answer is gradually to phase out fossil-fuel subsidies and introduce financial and other incentives for clean energy. In addition, Mena countries need to introduce legal and regulatory frameworks for public-private partnerships. Mena countries have taken note of the need for effective policy action and are taking steps in that direction. The UAE, with an aim to be a regional leader in renewable energy, is reviewing multiple incentive structures to encourage public and private investment. Saudi Arabia is introducing a law for renewable energy that will include a solar-energy feed-in tariff similar to what has been used across Europe.
Other countries have lagged. Oman’s well-established public-private partnership regime has been the key to significant international investment in the past. But limited government initiatives and support of renewable energy have not encouraged the country’s clean-energy industry.
A regional Clean Energy Business Council has been set up as a forum to harness the capacities of the private and public sectors at a local and regional level while benefiting from international experience to promote clean technology. As awareness of the need for effective policy grows, the council aims to assist governments in developing the policy frameworks that would also attract investors.
Nasser Saidi is the chief economist of the Dubai International Financial Centre and chairman of the Clean Energy Business Council