A new era of solar energy seems to be dawning.

The Middle East and North Africa (MENA) region has long been a tale of two fortunes: The fossil fuel “haves” and “have-nots.” But a new era of solar energy seems to be dawning. Thanks to MENA’s deserts and its year-round sunshine, the public and private sectors are accelerating programs that will provide solar power to not only the region, but also to lucrative markets in Europe. Combine the potential supply with demand as the region’s population grows and the opportunities are as vast as its deserts.

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The outlook hasn’t always been so promising. While solar energy’s potential hasn’t been disputed, its high start-up costs have drawn heavy criticism and have been a big impediment to its development. For the most part, solar energy projects have been relatively small and based in rural, remote area where providing traditional power would be just as costly and unreliable.

But energy experts say the world’s deserts can, and should, become a hotbed of solar power wealth. Equipping some three-thousandths of the world’s deserts (about 90,000 sq. km.) with solar collectors could meet today’s global power demand of 18,000 terrawatt hours a year, according to a report titled, “The Red Book,” by the Desertec Foundation, a solar and wind energy think tank. As for MENA, just 0.3% of the surface of its deserts could deliver 100% of global electricity demand.

Opening Doors

While some constraints remain, the solar industry has moved on since its dark days on the sidelines. Nowhere is this more evident than with concentrating solar-thermal power (CSP) systems, which use lenses and mirrors to attract sunlight and create heat. CSP now has a good track record of large-scale power plants in Spain and the U.S., with plans under way to replicate the technology in other parts of the world. CSP is easily scalable, and unlike photovoltaic power, it uses relatively few high-cost materials. That’s why most experts say CSP has unexploited economies of scale, which could substantially reduce the cost of solar power generation.

What’s more, the European Solar Thermal Electricity Association, an industry group, calculated that adding 20 GW of CSP to the region could generate more than 230,000 jobs, including 40,000 in local manufacturing and 120,000 in construction. Given the region’s high levels of unemployment, CSP would do much more than help extend the life of fossil fuel reserves or optimize oil revenues.

Little wonder then that the region is now awash with national and international projects to boost alternative energy use in general and CSP generation in particular. Many MENA governments, especially those of countries that do not produce oil, are keen to invest in renewable energy. For example, with Jordan and Morocco importing nearly 98% of their energy, renewable energy is their ticket out of energy dependency. But oil-producing countries are also interested, as their fossil fuels supplies become depleted.

“A lot of these projects are proceeding on the basis of government subsidies. That indicates that the real economic case isn’t quite there,” say Eric W. Orts, Wharton legal studies and business ethics professor, who also directs the school’s Initiative for Global Environmental Leadership. “But that doesn’t mean you shouldn’t do them.”

It’s also not stopping the private sector getting involved. The most ambitious of all is from the Desertec Foundation. The brainchild of a group of enlightened scientists (many of them from Germany, which has been a long-time leader in solar technology), Munich-based Desertec wants to develop MENA-based plants that will provide renewable energy power across both the region and Western Europe, half of which coming from CSP and the rest from photovoltaic solar and wind power.

It’s a massive undertaking, costing an estimated US$400 billion. To get the program up and running, a high-voltage direct current transmission grid will need to be built for MENA and Europe, because traditional power lines could not cope with the amount of power being transferred — the current estimate is 100 gigawatts (GW).

Despite its enormity, Desertec’s founders have no intention of letting the project languish on the drawing board. In October last year, 12 shareholders, including utility E.ON, engineering and electronics conglomerate Siemens, reinsurer Munich RE and Deutsche Bank, signed on to the Desertec Industrial Initiative (DII). According to Gerry Wolff, a co-founder of Desertec, it’s encouraging to see such commercial heavyweights supporting the initiative. “We need that sort of technological and organizational expertise to make it happen,” he says.

As part of the deal, each shareholder must invest 150,000 euro a year for the next three years. The contributions will finance the DII’s work, which initially comprises studies and surveys, covering the regulatory and legal environment, financing options, and energy use. In return, the DII’s shareholders get a first-mover advantage — being involved in projects such as Desertec’s essentially enlarges the alternative-energy market, while securing their share of that market.

“Every single one of our shareholders could go to the desert and build a standalone solar power plant. That’s not a challenge,” says Alexander Mohanty, a spokesperson for the DII. “Desertec is much more complex: It’s about linking a huge number of projects and building an inter-continental grid to deliver clean energy to MENA and Europe. It’s a new solar energy era, and our shareholders want to be part of it.”

The DII is not alone in forging ahead with CSP in the region. The World Bank’s Clean Technology Fund (CTF) has raised US$750 million, which is expected to mobilize an additional US$4.85 billion through co-financing. Its plan is to generate 1 GW of CSP across 11 plants in Algeria, Egypt, Jordan, Morocco and Tunisia over the next three to five years, with provision for two transmission projects between MENA and Europe. Jonathan Walters, MENA manager for energy and transport at the World Bank, says the fund is keen to get the ball rolling in CSP by supporting early projects. “Ultimately, we’re not interested in this 1 GW itself, but we are interested in how replicable it is. It will open the door for more capacity and convince investors and governments to back this technology,” he says.

Both projects are taking their cue from existing national plans, of which there is no shortage. One such project is the US$2.7 billion Tunisian Solar Plan, which was launched in October 2009 and covers 40 renewable energy and energy efficiency projects to be implemented between now and 2016. Morocco followed in November with the announcement that it will build 2 GW of CSP across five plants for US$9 billion and the country has been drumming up interest for its first tender in March. Algeria, Egypt and Jordan have also planned substantial CSP capacity. But what makes Desertec and CTF stand out is their aim to link individual plants and national plans into a grid.

Cost Conscious

The immediate goal is to reduce CSP’s cost to the extent that it becomes at least as affordable as wind energy (which is now well established in Egypt, Morocco, Tunisia, Iran and Jordan) and competitive enough with fossil fuel (which tends to be around five to six times cheaper, depending on local energy prices and subsidies.)

Scalability holds the key. The CTF calculated that every doubling of CSP capacity can lead to a cost reduction of between 8% and 15%. “We know that incentives for fossil fuel will wane and that the tide will move in favor of renewable energy,” says Wolff, citing a report published in 2005 by the German Space Agency, which predicted that the turning point will be in 2017. “But until then … solar power will need public support and subsidies.”

For all their enthusiasm, MENA countries lack the technology, expertise and funds to develop CSP on their own. But many see a pragmatic solution. “We know that Europe owns the technologies and MENA owns the resources, so efforts should focus on how to turn this into a win-win situation,” says Samir Hassan, technical director of the Cairo-based Regional Center for Renewable Energy and Energy Efficiency.

Hassan says he is pleased that NAREVA Holding from Morocco joined DII on March 22. Up until then, food manufacturer Cevital of Algeria was the only MENA-based company on board. Another three companies from Spain, Italy and France also joined the fray, and DII says it will bring on more partners in the future.

While most of the shareholders and partners are technology companies, DII’s Mohanty says one of the reasons it has three financial institutions on board is to help attract investors. The CTF calculated that as much as 87% of the cost of electricity produced by a solar thermal plant is related to the initial capital investment cost. “Project finance is a skill and we need to know what will make Desertec attractive to institutional investors, pension funds, private equity, commercial lenders, the kind of return they would expect and so on,” he says.

It’s clear that without a market such as Europe with the purchasing power to pay a premium for green energy, CSP in MENA is unlikely to take off. That partly explains why its development in the region has been so slow up until now, and will be mostly supplied through hybrid plants set to start operating this year, such as Ain Beni Mathar in Morocco (450 MW gas, 20 MW solar), Hassi R’Mel in Algeria (130 MW gas, 25 MW CSP) or Kureimat in Egypt (120 MW gas, 30 MW CSP).

Although much of the capacity planned under Desertec would go toward local consumption, the business model is based on European Union consumers paying a premium for imported green energy. The European Directive on Renewable Energy allows for this, but it won’t be clear until June this year — when individual member states submit their strategies to meet EU renewable energy targets — whether they are prepared to take that route.

Walters of the World Bank says, “Extremely generous concessionary funding” might just about compensate, but such a system wouldn’t be sustainable. Instead, he argues that Europe has a moral obligation to help. “As developing countries, CSP can only be their priority if the rest of the world is prepared to share the costs as well as the benefits,” he says. “The world needs renewable energy and CSP is more likely to be sustainable, but MENA cannot take on the risk of developing it on its own.”

Source: Wharton School of the University of Pennsylvania

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