Final Report Summary - TRANSOLAR (Assessing the conditions for a region-wide TRANsition to SOLAR energy in the Mediterranean)
The Middle East and North Africa (MENA) hold one of the largest and best solar energy potential in the world. Developing solar energy is capital intensive, therefore demanding high initial costs that Mediterranean countries cannot afford alone. Efforts have concentrated on how to scale-up solar energy investment to targeted countries. No specific attention has been devoted to the problem of ‘how a region-wide transition to solar energy can be achieved in the Mediterranean’. This research project examines the processes of socio-technical transition to solar energy in the Mediterranean region with a specific focus on (a) sector policy reform; (b) investment risks and project financing; (c) the limits and potential of regional cooperation.
To achieve these research objectives, the fellow developed a model that allows to explore how domestic versus regional/multilateral governance structures impact upon policy reform, investment risks, infrastructure investment needed for a sustained transition to solar electricity in the MENA. The fellow conducted extensive fieldwork with public and private stakeholders, targeting mainly three issues – namely the recent negative policy developments and regional barriers hindering solar energy investments in the MENA; multilateral climate finance directed to the MENA; and the successful case of Morocco, which is the first country that moved a large-scale solar power plant project (Ouarzazate Noor 1) from preparation to construction (nearly completed) and very soon to operation. The fellow conducted a fieldwork in Rabat, Morocco in order to perform interviews with the relevant national authorities. The fellow conducted interviews at in Washington D.C. US, in order to gather technical knowledge from the team which manages concessional finance under the MENA CSP Scaling-up Initiative financed by Climate Investment Funds. The fellow had several working meetings and interviews at the Energy, Division, Union for the Mediterranean in Barcelona; and several working meetings, interviews or tele-meetings with experts from institutions such as Climate Policy Initiative Europe, the German Development Institute, and the World Bank. He participated in EU-MENA regional cooperation activities under the joint presidency of Jordan and the European Commission. He also participated in a number of targeted conferences organised by e.g. the International Energy Agency-SolarPaces, Desertec, the World Bank, Carbon Expo, and European Investment Bank-FEMIP.
The fellow joined the Euro-Med Extended Technical Committee and Senior Officials’ Meeting on renewable energy and energy efficiency, where MENA and European government representatives meet technical agencies, industry stakeholders, development banks as well as other international organisations. The fellow successfully led a bid on behalf of the host organisation to receive the official status of UNFCCC observer organisation. The fellow was elected as a new member of the Catalonia Expert Group on Climate Change. The details of this project’s results can be found in the following publications: “Electricity transition in the Middle East and North Africa: A de-risking governance approach”, Journal of Cleaner Production (special issue), available online, and in press (with G. Frisari and G. Vidican); “Policy and markets in the MENA: The nexus between governance and renewable energy finance”, Energy Procedia, volume 69, 2015; “Renewable energy in the MENA: Why did the Desertec approach fail?”, in R. Looney (ed.), The Routledge Handbook of Transitions to Energy and Climate Security, Abingdon/New York: Routledge, forthcoming (with G. Escribano). Other two specialist publications are being revised and finalised, respectively, taking into account the feedback received at the final stage of the project. To disseminate his research results, the fellow performed outreach with scientists, experts and representatives from institutions such as the World Bank, Climate Policy Initiative, the World Energy Council, Stanford University, and MENA public and private stakeholders. This project’s findings have inspired a survey on the barriers behind clean energy investments in the Mediterranean region, to be conducted by RES4MED (i.e. one of the more active industry stakeholders in the MENA).
This research project has shown that (i) despite its abundant and high-quality solar energy resources, the MENA region still attracts limited investments compared to the global total renewable energy investment. High upfront costs and investment risks still remain critical barriers for investments in solar infrastructure technologies in the region. A shift to solar energy is taking place to a limited extent so far. This research project has also shown (ii) the reasons why dominant approaches (e.g. the so-called Desertec approach) failed to boost a region-wide transition to solar energy in the MENA region. The lack of public acceptance of a vision based on electricity export towards Europe coupled with the changing political situation in several MENA countries resulted in the lack of a clear project pipeline across the region. Especially the initial Desertec vision failed to address the huge power generation challenge that MENA countries have to deal with at domestic level.
This research project has also shown that (iii) multilateral cooperation with Morocco is unfortunately the only prevailing success case in the region so far; but a very telling case in terms of advancements of policy, finance and infrastructure. The government’s solar strategy for the electricity sector, coupled with concessional finance, effectively impacted upon the downside risk of solar energy investments. Morocco is the first country that moved a large-scale solar power plant project (Ouarzazate Noor 1) from preparation to construction (nearly completed) and very soon operation. (iv) At policy level, positive developments depended on a clear policy commitment of the government to develop solar electricity, a strong domestic institutional capacity to transform commitment into concrete projects, as well as a strong commitment of development finance institutions. (v) At project level, lower financing cost depended on concessional finance provided by multiple lenders, proactive policy de-risking efforts taken at domestic level, and the competitive auction.
The results of this research project have important socio-economic implications. Bilateral/regional/multilateral cooperation has too often focused on the political level, forgetting that policy reform and low-carbon project financing are still lagging behind in the MENA region. By contrast, this research project has built fresh knowledge on how to facilitate a wider transition to solar energy in the MENA region. The research project’s findings lend qualitative-quantitative support to the argument that adequate domestic policy can reduce investment risks, further unlocking concessional finance and reducing the private investors’ required return from a project. In other words, if governments of MENA countries would pursue any efforts in implementing or enhancing investment de-risking policies, they could reduce the risks of solar energy investments and eventually driving financing costs down. This research project also suggested that electricity policy legacies and practices are hard to change in the Middle East and North Africa. Thus technical and financial assistance should target especially those areas that have, among other, a particular investment de-risking potential: capacity-building on project assessment, project finance, grid management, public procurement, and local value chains.
To achieve these research objectives, the fellow developed a model that allows to explore how domestic versus regional/multilateral governance structures impact upon policy reform, investment risks, infrastructure investment needed for a sustained transition to solar electricity in the MENA. The fellow conducted extensive fieldwork with public and private stakeholders, targeting mainly three issues – namely the recent negative policy developments and regional barriers hindering solar energy investments in the MENA; multilateral climate finance directed to the MENA; and the successful case of Morocco, which is the first country that moved a large-scale solar power plant project (Ouarzazate Noor 1) from preparation to construction (nearly completed) and very soon to operation. The fellow conducted a fieldwork in Rabat, Morocco in order to perform interviews with the relevant national authorities. The fellow conducted interviews at in Washington D.C. US, in order to gather technical knowledge from the team which manages concessional finance under the MENA CSP Scaling-up Initiative financed by Climate Investment Funds. The fellow had several working meetings and interviews at the Energy, Division, Union for the Mediterranean in Barcelona; and several working meetings, interviews or tele-meetings with experts from institutions such as Climate Policy Initiative Europe, the German Development Institute, and the World Bank. He participated in EU-MENA regional cooperation activities under the joint presidency of Jordan and the European Commission. He also participated in a number of targeted conferences organised by e.g. the International Energy Agency-SolarPaces, Desertec, the World Bank, Carbon Expo, and European Investment Bank-FEMIP.
The fellow joined the Euro-Med Extended Technical Committee and Senior Officials’ Meeting on renewable energy and energy efficiency, where MENA and European government representatives meet technical agencies, industry stakeholders, development banks as well as other international organisations. The fellow successfully led a bid on behalf of the host organisation to receive the official status of UNFCCC observer organisation. The fellow was elected as a new member of the Catalonia Expert Group on Climate Change. The details of this project’s results can be found in the following publications: “Electricity transition in the Middle East and North Africa: A de-risking governance approach”, Journal of Cleaner Production (special issue), available online, and in press (with G. Frisari and G. Vidican); “Policy and markets in the MENA: The nexus between governance and renewable energy finance”, Energy Procedia, volume 69, 2015; “Renewable energy in the MENA: Why did the Desertec approach fail?”, in R. Looney (ed.), The Routledge Handbook of Transitions to Energy and Climate Security, Abingdon/New York: Routledge, forthcoming (with G. Escribano). Other two specialist publications are being revised and finalised, respectively, taking into account the feedback received at the final stage of the project. To disseminate his research results, the fellow performed outreach with scientists, experts and representatives from institutions such as the World Bank, Climate Policy Initiative, the World Energy Council, Stanford University, and MENA public and private stakeholders. This project’s findings have inspired a survey on the barriers behind clean energy investments in the Mediterranean region, to be conducted by RES4MED (i.e. one of the more active industry stakeholders in the MENA).
This research project has shown that (i) despite its abundant and high-quality solar energy resources, the MENA region still attracts limited investments compared to the global total renewable energy investment. High upfront costs and investment risks still remain critical barriers for investments in solar infrastructure technologies in the region. A shift to solar energy is taking place to a limited extent so far. This research project has also shown (ii) the reasons why dominant approaches (e.g. the so-called Desertec approach) failed to boost a region-wide transition to solar energy in the MENA region. The lack of public acceptance of a vision based on electricity export towards Europe coupled with the changing political situation in several MENA countries resulted in the lack of a clear project pipeline across the region. Especially the initial Desertec vision failed to address the huge power generation challenge that MENA countries have to deal with at domestic level.
This research project has also shown that (iii) multilateral cooperation with Morocco is unfortunately the only prevailing success case in the region so far; but a very telling case in terms of advancements of policy, finance and infrastructure. The government’s solar strategy for the electricity sector, coupled with concessional finance, effectively impacted upon the downside risk of solar energy investments. Morocco is the first country that moved a large-scale solar power plant project (Ouarzazate Noor 1) from preparation to construction (nearly completed) and very soon operation. (iv) At policy level, positive developments depended on a clear policy commitment of the government to develop solar electricity, a strong domestic institutional capacity to transform commitment into concrete projects, as well as a strong commitment of development finance institutions. (v) At project level, lower financing cost depended on concessional finance provided by multiple lenders, proactive policy de-risking efforts taken at domestic level, and the competitive auction.
The results of this research project have important socio-economic implications. Bilateral/regional/multilateral cooperation has too often focused on the political level, forgetting that policy reform and low-carbon project financing are still lagging behind in the MENA region. By contrast, this research project has built fresh knowledge on how to facilitate a wider transition to solar energy in the MENA region. The research project’s findings lend qualitative-quantitative support to the argument that adequate domestic policy can reduce investment risks, further unlocking concessional finance and reducing the private investors’ required return from a project. In other words, if governments of MENA countries would pursue any efforts in implementing or enhancing investment de-risking policies, they could reduce the risks of solar energy investments and eventually driving financing costs down. This research project also suggested that electricity policy legacies and practices are hard to change in the Middle East and North Africa. Thus technical and financial assistance should target especially those areas that have, among other, a particular investment de-risking potential: capacity-building on project assessment, project finance, grid management, public procurement, and local value chains.