Delivering renewable energy investments in MENA Region Roberto Vigotti RES4MED Secretary General The MENA Energy Transition: How to get investments right? 6 May 2015 Brussels RES4MED Association Renewable Energy Solutions for the Mediterranean is a not for profit association created in 2012: Platform for public-private dialogue on renewable energy issues in the Mediterranean Advisor and facilitator to Regional Institutions, local Governments and Regulatory bodies Network of international leading utilities, industries, TSO, agencies, technical service providers and academia, actively engaged in the Southern and Eastern Mediterranean (SEMED) countries Supporter members Ordinary members Associated partners Academia 2 1
Mission, Strategy and Membership Mission Support the deployment of renewable energies, both large scale and distributed energy, facilitating their integration in domestic and regional markets to satisfy local energy needs Strategy Market intelligence Awareness and institutional advocacy through dialogue with Southern and Eastern Mediterranean (SEMED) governments and regulators Capacity building and training, disseminating best-practices and procedures on RES regulation, policies, standardization, operation Membership Reformed governance of the Association aimed at streamlining the decision making process Internationalization of the Association through MoU, joint programs and ad-hoc alliances with southern energy companies Involvement of technology partners active in the SEMED countries, keeping a neutral technology focus 3 RES4MED s International Network and Partners A strategic positioning RES4MED s strategy is shared with a truly international network while activities are implemented in collaboration with leading Med partners International Network International Partners 4 2
Vision of RE deployment in Mediterranean up to 2014 Opportunities and benefits for a massive renewable deployment in Southern Med countries were identified by institutional and industrial stakeholders, embedding a consistent import of energy to Europe for their bankability When RES4MED was created, the vision of South Med as a green energy reservoir for EU started to be challenged and today does not hold anymore The Mediterranean energy context The two shores of the Mediterranean Sea have to respond to different sets of challenges Stable Power System Overcapacity RES integration North Economic downturn and energy efficiency measures slowed power demand increase Key Elements Sluggish demand growth Little investment needed in new additional capacity Decommissioning inflexible surplus capacity will require very high investments in the long run Dynamic power systems GDP growth Increasing energy demand (5-9%) South SEMCs in a phase of political transition; rapid rising electricity demand requires solutions Key Elements Strong energy demand growth (increase by 81% for 2010 to 2050) Population boom Large general investment needed in the short term 6 3
Renewable energy targets in SEMED area TURKEY ALGERIA TUNISIA 30% LEBANON MOROCCO 42% 27% 30% 12% 10% 20% JORDAN TARGET BY 2020 TARGET BY 2023 TARGET BY 2030 EGYPT WIND RENEWABLE ENERGY INVESTMENTS** Cumulative public and private investments in RES power plants to reach country targets SOLAR HYDRO BIOMASS 10 Billion 2,8 Billion 2 Billion 10 Billion GEOTHERMAL MOROCCO TUNISIA JORDAN EGYPT *Targetas % of: total installedcapacity (Morocco);electricitymix (Algeria,Egypt, Tunisia,Turkey);totalenergysupply (Lebanon);primaryenergy (Jordan) **RES4MED internal estimation: conservative investment level on the basis of average and technology specific unitarycapex. Tunisia: only private sector, assuming that public derisking measures are implemented, (UNDP, ANME, Tunisia:Derisking Renewable Energy Investment, 2015) Renewables as a mainstream solution Renewable Energies: successful key features 1. RE can be cost competitive or even cheaper than conventional energy and their investment cost is decreasing, also in MENA 2. RE technology manufacturing is labour intensive (for instance 3 jobs are created for each MW of Wind installed and 4 jobs for PV 1 ) thus contributing to socio-economic local growth 3. In particular PV and Wind can be planned and built in a short period of time to respond to growing energy shortages 4. Among the portfolio solutions that contribute to energy security of supply 5. An optimized mix of RE and flexibility tools (storage, demand side management, interconnections, production forecasting tools, flexible conventional generation) can deliver reliable energy all the time Renewables are now an essential part of the global mix 1) Eurobserver, The State of Renewable Energies in Europe, 2013 (based on 2012 data and EU countries) 8 4
Industrial Perspective to address RES growth Main barriers to the deployment of RE in MENA Stability of revenue stream is crucial for project bankability PPAs are appropriate schemes for large scale projects either for off-take models or tenders practices For small scale projects Feedin-Tariffs can be more efficient than PPA Limited banks experience in RES finance 13% Subsidies for fossil-based energy Phase out high fossil fuel 16% energy subsidies Create a regulatory framework which enhance competition among technologies Others 8% Cost of the technology 24% Specific training courses ensure skilled local workforce Develop a local RES Industry Governm. policy framework & Establish consistent long Regulation term strategies and 39% plans Introduce the necessary stable and clear legislation promoting legal certainty Promote adequate support schemes for RES/EE to trigger new private investments Governments can address directly most of the key identified barriers. The RE industry is reducing Capex and O&M costs, and in dialogue with institutions proposes business models, jobs and local value chain, training 9 Source: EY, MENA Cleantech Survey 2013 RE supporting policies in MENA Region IPP Public Competitive Bidding Direct Proposal Submission Feed-in Tariffs Net Metering EPC Contracting At least 5 countries 2 countries 2 countries 5 countries More than 15 countries Source: RCREEE, 2015 5
Supporting Policies for Large-scale Projects Feed-in Tariffs 1. Feed-in Tariffs 2. IPP Public Competitive Bidding: IPP Public Competitive 1. IPP Public Competitive Bidding: Wind target: 2,500 Bidding MW Wind Direct Target: Proposal 1,000 Submission: MW Tendered: 250 MW Wind Round Tendered: 1: 13 PPAs 1,000 concluded MW at $0.17 per Solar kwh Target: for 210MW 1,000 MW aggregate PV capacity Solar Tendered: 510 MW 2. Law 13-09: Round Third-Party 2: 34 proposal Supply received (50MW each), totaling 1700 MW. Only 4 proposals will be selected (200 MW) Source: RCREEE, 2015 What has been working Up to the end of 2014 Recent long-term remuneration contract prices (Auctions and FITs) Germany 67-100 $/MWh Onshore wind Utility PV US 48 $/MWh Chile 89 $/MWh 85 $/MWh US ~75 $/MWh Ireland 69 $/MWh UK 75-120 $/MWh Brazil 54 $/MWh Brazil 81 $/MWh UK 120 $/MWh Egypt 41 $/MWh SA 76 $/MWh 60 $/MWh Turkey 73 $/MWh Dubai <60 $/MWh SA 76 $/MWh China 80-100 $/MWh India 88 $/MWh Australia 65 $/MWh Souce: IEA, 2015 The combination of technology cost reduction, better resources and appropriate regulatory framework attract investments, in particular, long-term PPAs and price competition are effective drivers RE can be competitive with new fossil fuel plants even with low oil prices A new benchmark for Solar PV and Wind established early 2015 thanks to competitive auction system in MENA Region. International competitive auctions seem to bring more efficient solutions and widely diffuse benefits for the industrial development of the country itself : a good example of Public Private Partnership 12 6
What has been working Up to the end of 2014 A new benchmark for RE in MENA region The bidding process for the 200 MW solar PV project in Dubai and the bidding process for 250 MW wind in Egypt send a clear signals of how cheap RE can be delivered representing a new benchmark in the MENA The successful bid by Acwa Power for 200 MW of solar PV at 5.98 cents $/kwh is the lowest ever in the world and the lowest six bidders were below 9 cents $ and below expectations Solar in GCC can compete with gas even if the price is as low as 4.5 $/MMBtu or oil as low as 25 $/barrel Gas can t compete with $0.06/kWh even with 4$/ MMBtu. So DEWA ACWA auction price is absolutely a game changer, even if controversial The successful bid by GDF/Toyota/Orascom for 250 MW wind farm at 4.91 cents $/kwh is the lowest ever in the world and the competitors like Mainstream RE, EnelGP and Acwa Power offered in the range of 4.5 and 4.99 cents $/kwh Source: IRENA, Renewable Energy and Gas: Implications for the GCC power sector, 2015 13 Supporting Policies for Small-scale Projects National Energy Efficiency and Renewable Energy Action (NEEREA) offers low-interest loans as low as 0.6% with a repayment period of as long as 14 years for Net-metering decentralized combined PV systems with grant Net-metering and high retail and bank loan electricity prices 15 MW of PV installed PV installation for selfconsumption already at grid parity, today more than 15 MW have been installed Source: RCREEE, 2015 7
Top 3 technologies in terms of market potential over the next five years for each MENA Area A significant shift in the expectations of industry executives during the last 12 months with regard to the growth of clean technologies : water suddenly first, passing solar, former leader.. Source: E&Y, MENA Cleantech Survey Report, 2015 Expectations on solar technology Which category of solar photovoltaic technology will experience the highest new installation volume (MW) over the next three years? Solar photovoltaic category growth expectations Contenders:commercial rooftop, residential rooftop, industrial rooftop and utility scale. Of these, utility scale is the top technology that is expected to be deployed across the markets of the GCC, the Levant and North Africa. This is not surprising as regional power utilities are expected to take the lead in the spread of photovoltaic technology Source: E&Y, MENA Cleantech Survey Report, 2015 8
Main barriers to RE investments by MENA Areas Most important barriers/challenges to the development of cleantech 2014 Insufficient government policy largest, and growing barrier. The sharp decline in prices not considered significant; other barriers differs widely like grid infrastructure (3-14%), insufficient private financing ( 4-9%) Source: E&Y, MENA Cleantech Survey Report, 2015 Main drivers to RE investments by MENA Areas Main drivers of cleantech growth - the three most important drivers for each area Increasing energy demand due to population growth has moved to second in North Africa and third in the GCC and the Levant. North Africa has different priorities and drivers of demand from the GCC and the Levant, which show noteworthy similarities. Government policy remains the top driver across the region. Source: E&Y, MENA Cleantech Survey Report, 2015 9
Financial and investment overview How will the level of investment in cleantech in the different areas of MENA change over the next five years? GCC most optimistic as 91% increase or increase strongly ; while 77% expect increase in NA, financing and country risk remain high Source: E&Y, MENA Cleantech Survey Report, 2015 Most effective mechanism to attract private sector investment to RE in MENA Drastic change also in the preference, as a year ago FIT was best for 50%, while now IPP in gov.ent bidding, though a more complex route, provides investors with better hedging ability against risk. RPS requiring utilities to supply a specific minimum amount of costumer loads with eligible RE- is a new interesting idea in the region. 10
Industrial Perspective to address RES growth RES Regulatory Framework Overview lesson learned Advantages Disadvantages Feed in Tariffs e.g.: Italy Germany Greece France Attractive even for low-risk investors Impressive capacity boost generated by this solution Simple structure, applicable to mass market technologies: E.g. decentralize energy No meritocratic approach Wrong tariff setting can lead to RES underor over- development vs. target Limited adaptability: in case of technology rapid evolution, many changes required In case of large premium offered, high system cost PPA trough Auctions e.g.: Brazil South Africa Effective use of budget Specific capacity targets can be set Meritocratic mechanism with cheapest and higher quality projects selected Learning effect over time for both parties Risk of not prequalified players to underbid disrupting competition Remuneration value strongly linked to competition level Not pre-defined when a player decides to enter Not adequate for small size projects Two different approaches to develop renewables were selected globally with substantial different effects on the national energy systems 21 Equity investments in clean technologies What will be the most important source of equity investment for cleantech in the three MENA Areas over the next three years? GCC are expected to raise equity financing via their governments and domestic private investors (2/3) as the area does not have a sizeable private ownership of utilities and power-generating companies. GCC governments have an excellent opportunity to bring in private investors into the cleantech sector. NA and Levant see mostly international investors. Source: E&Y, MENA Cleantech Survey Report, 2015 11
Model for structuring large project financing A SPV established through which finance can flow. The SPV contracts both EPC and O&M to carry on the project. Government provides a PPA, ensuring there is an off-take of the generated energy at a price that makes the business case for investment viable. Energy sold to grid and to paying consumers. Purple box factors enhance the case. Investments risks are properly shared. Securing energy investments in the MENA Region A EURELECTRIC 8-step Action Plan (1/2) KEY MESSAGES 1. Make regulatory agencies fit for purpose: put in place an enabling regulatory environment: While arbitrating fairly between consumers, producers and investors, regulators should put in lace clear rules that boost investors confidence in generation and infrastructure projects 2. Enable cost-reflective energy prices remove domestic electricity subsidies: Phasing out subsidies, ensuring fair prices that reflect the real cost of electricity products and improving efficient energy use have become imperative to stimulate investment to attain the domestic growth goals 3. Formulate sound and transparent energy policies: Investors need transparency on national energy strategies, on markets, the choices made in this context, and the rationale for those choices 4. Facilitate technical and political coordination and cooperation on grid investments: It is important to urgently develop and enhance new and existing interconnectors in the region in order to ensure security of supply for interconnected coupled countries and to support economic optimization 12
Securing energy investments in the MENA Region A EURELECTRIC 8-step Action Plan (2/2) KEY MESSAGES 5. Open market structures, in particular for RES generation projects: Deregulation within national and regional energy markets is important to allow free entry and exit of new players and to create and facilitate competition among providers, in particular for the development of largescale RES generation projects 6. Design and implement the right financing mechanisms to stimulate exploring the RES potential: MENA country governments should design the right investment incentives that drive private investment to take advantage of the private sector s financing capacity, to profit from technology transfers and to benefit from positive environmental externalities 7. Improve education and technological transfer: There is a need to develop strategy further by providing dedicated training for key energy decision makers within the MENA countries in order to improve competence and share knowledge and information between EU member states and the region 8. Enhance the EU-MENA Energy Cooperation: extend the Energy Community concept towards the South: Within the framework of the Energy Union, there is now a clear opportunity for the EU to become more aware of its role and influence in the MENA region and start thinking about long-term engagement Thanks for your attention! Contacts roberto.vigotti@res4med.org flavia.lichiavi@res4med.org 13