The countries of the southern Mediterranean have, in theory, excellent conditions in which to develop renewable energies. But regulations and risk-fearing investors are hampering progress. EurActiv’s partner El País – Planeta Futuro reports.
To the south of the Med, wind is in abundance and solar power is obviously a more than feasible option, but they are still not used to the extent which they could be. This is perfectly illustrated by Tunisia, where “renewable energy only represents 3% of total electricity produced”, explained Julien Mauduit, head of operations at the European Bank for Reconstruction and Development (EBRD). A project coordinated by the EBRD and the Union for the Mediterranean (UfM) intends to encourage private industry to tap into this potential.
The initiative is called the Private Renewable Energy Framework (SPREF) and the EBRD expects to provide around €250 million in loans to foster private energy projects in Morocco, Tunisia, Egypt and Jordan. At the same time, the bank will provide technical assistance to those countries in order to adapt legislation and encourage the private sector to participate.
However, industry experts have pinpointed major obstacles that could hamper progress. These include the significant subsidies that fossil fuels still get and the capacity of electricity grids to cope with the fluctuations in production inherent with variable energy sources like solar and wind.
The bank expects to provide between $250-900 million needed to finance the scheme. The rest of the finance will come from private sources and mixed entities like the Clean Technology Fund, which will throw in $35 million, and the Global Environment Facility, which has promised $15 million. Kevin Bortz, EBRD’S representative in the UfM project, explained that the institution had “a mandate” to provide a third of financing in order to leverage further funding from the private sector. “Eventually, commercial banks should feel more comfortable taking on this sort of risk,” he predicted.
The project comes in the wake of the Paris climate summit and the Mediterranean nations have already begun taking steps to reduce their carbon output, said UfM’s Jorge Borrego. He cited Tunisia’s renewable energy law, as well as that of Morocco’s, which since 2009 has allowed private energy companies to sell energy to other private companies.
Borrego also mentioned how both Morocco and Egypt have set up agencies dedicated to renewable energies. With these changes in mind, Morocco wants to be getting 40% of its energy by 2020, while Egypt has set a target of 20% within the same timeframe. Jordan intends to be producing 1,800 MWs from solar and wind power by 2020. In Tunisia, the goal is 30% by 2030.
However, these targets are at risk of going unfulfilled because of the respective countries’ laws, chief among which is the continued granting of subsidies to non-renewable sources. “It’s time to implement the reforms [putting an end to subsidies] and for the population to accept them. If prices are not sufficiently high [for fossil fuels], then renewables will not be competitive,” warned Mauduit. He added that there is still no regulatory framework that supports the development of the sector.
Furthermore, investors still see high risk in financing such private projects. “The state generally offers less risk. National electricity companies are normally a safer bet and private companies are riskier,” said Peter Gish, Director-General of UPC Renewables North Africa, which specialises in renewable energy sources and is taking part in the project. Obviously, the higher the perceived risk, the more difficult it is to secure profitable agreements. This is why the EBRD has “intervened to finance the project”, in order to reduce this uncertainty.
Under current conditions, “we need to have long-term financing for the project to be profitable”, said Abdelatiff Nasserdine, head of Infra-Invest, a company involved with managing ARIF, an infrastructure investment fund for sub-Saharan Africa and the north of the continent.
In a private market where renewable energies have been lacking, banks have only been willing to finance those companies that “can guarantee long-term [supply purchase] agreements with big electricity consumers,” said Nasserdine. Few companies can make this commitment long-term, normally to “big industrial clients with strong credit rating”. Once banks take on the risk of financing medium-term agreements, of “five years”, then it is hoped that SMEs will finally become interested in the renewables sector.
In Morocco’s case, its rules only allow renewable energy to be sold to “customers at high and very high voltage”, which normally means sales are limited to big manufacturers.
These companies need an uninterrupted supply of energy, which also makes them a safer bet for financers. One of the projects in which Infra-Invest is participating is the construction of a wind farm in Khalladi, Morocco, which is expected to produce 120 MWs.
Other challenges, to do with the operation of the power grid, almost always rest in public hands. The EBRD’s Mauduit said that the grid should be upgraded “in order to cope with fluctuations in energy production that is caused by the variable nature of renewable energy sources”.
In any case, the challenges listed above have not stopped the increase in the use of alternative fuel sources and regulation reforms are still proceeding across the width of the Med. The momentum gained by the success of the COP21 summit is driving these countries to set ambitious targets; whether those goals can be met remains to be seen.