2 November 2009
The world's financial powerhouses are already queuing up to back the next big concentrated solar power market.
By Oliver Balch
In Arabic, Maghreb literally translates as: 'Land of the sunset'. But a new project under consideration by the World Bank could see this expansive region of Arab-speaking North Africa become better known for sunup rather than sundown. Blessed with high direct normal irradiation (DNI) and on Europe’s doorstep, the Middle East and North Africa hold potential as a pivotal CSP market.
The Clean Technology Fund, which provides scale-up financing for low carbon technologies, is finalising a proposal to develop one gigawatt (GW) of concentrated solar power (CSP) in the region over the next six to eight years.
The Bank’s regional investment plan envisions between eight and ten commercial-scale power plants in the Maghreb and neighbouring Mashreq, the area of the Middle East between Iran and the Mediterranean.
The project’s proponents say the initiative will provide a catalyst for private sector investment, leading to 5GW of installed CSP capacity by 2025.
Under the Clean Technology Fund’s initial investment plan, the World Bank would provide around $750mn in co-financing – roughly 10 percent of the project’s US$6-8bn (€4 - 5.4bn) total funding requirement.
The Fund’s governing committee is scheduled to consider the project in early December, the World Bank’s senior environment specialist Chandrasekar Govindarajalu tells CSP Today. The proposal follows a similar investment plan for CSP in South Africa, which gained approval on 28 October.
Funding opportunities
At present, Morocco, Algeria, Tunisia, Egypt, Lebanon and Jordan are all eligible for project financing under the terms of the World Bank’s Clean Technology Fund. Syria and Libya are excluded, but they could potentially access technical assistance from the World Bank for a solar scale-up programme.
The World Bank is working closely with the African Development Bank to get the project off the ground. The list of other finance partners includes multilateral and bilateral lenders such as the Arab and Islamic Funds, the European Investment Bank and Germany’s Kreditanstalt für Wiederaufbau.
Other potential sources of financing might include public and private debt and equity, European Union neighbourhood funds, bilateral lending from within the region and tax breaks by domestic governments.
If the idea sounds far-fetched, then recent developments may persuade otherwise. Three combined-cycle pilot projects are already underway: Iberdrola’s 40MW Kuraymat facility in Egypt and its 25MW Hassi R'Mel plant in Algeria, plus Aberner’s 20MW Ain-Beni-Mathar facility in Morocco.
Domestic governments in the region are also getting in on the act. Egypt, Morocco and Tunisia all recently introduced renewable energy development plans that hold potential for advanced solar technologies.
“These countries already have experience. Now they are looking to develop CSP on a large scale”, says Govindarajalu.
The International Renewable Agency;s (IRENA) decision earlier this year to set up its headquarters in the United Arab Emirates provides further indication of the region’s emergence as a serious player in the non-conventional energy sector. IRENA will base its headquarters in Abu Dhabi’s Masdar City, a US$22bn (€15bn) construction project that is due to become the world’s first entirely renewable-powered city when completed in 2015.
Private sector buy-in
Signals from the private sector further substantiate the role the Middle Eastern and North African markets will likely play in the development of CSP.
A consortium of major European companies and banks recently launched a three-year feasibility study to assess the potential of a string of CSP projects across the region. Known as the Desertec Industrial Initiative, the group counts German energy giants RWE and E.ON as well as Spain’s CSP developer Abengoa Solar among its dozen participants.
“These are serious companies. If anyone can do this, it’s them”, argues Gerry Wolff, a representative of the non-profit organisation Desertec UK.
The international consortium, which established a formal holding company in October, anticipates investments of nearly $600mn over the next 40 years.
A number of reasons are attracting developers and policy makers to CSP’s potential in North Africa and the Middle East. The region's physical attributes are almost unparalleled for CSP: almost undisturbed sunshine, high radiation, low precipitation and plenty of uninhabited flat land.
Demand side factors are catching investors’ attention. Since the 1980’s, total energy consumption by MENA countries has grown faster than any other global region, according to a recent World Bank report. Energy intensity (per capita energy demand as a percentage of GDP) is a staggering 40 percent higher than the global average.
CSP ties therefore ties into the objective of the region’s governments to obtain long-term energy security through energy diversification, explains Govindarajalu.
The proximity of the Maghreb and Mashreq countries to continental Europe makes the market additionally attractive. Most notably, a scale-up CSP programme would have close synergies with efforts by southern European states to trade green electricity with their neighbours.
CSP developers in North Africa and the Middle East would be particularly well placed to take advantage of the so-called Mediterranean Solar Plan. If successful, this energy integration scheme would see large-scale solar power production linked to enhanced transmission networks in the Mediterranean region.
Multilateral development banks “could play a key role in financing” CSP’s development given the dependency of the Mediterranean Solar Plan on sharing costs and benefits between all partners, notes a preliminary paper by the World Bank.
Needless to say, the ambitious project faces some hurdles. Chief among them are access to finance, commitment by national governments and access to European markets, says Govindarajalu.
Other systemic barriers exist. Not least of these are fossil fuel energy subsidies. The absence of specific policies to promote the commercialisation of CSP also features highly.
Nevertheless, a ‘yes’ vote from the Clean Technology Fund’s trust fund committee in December would catapult the Maghreb and Mashreq regions onto the CSP world map. There is a famous Arabic saying that runs: “Every sun has to set”. In this case, CSP could just be the exception.
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