Foreword The SolarPower Europe Emerging Markets Workstream was launched in March 2018 to identify new avenues for business and cooperation, and to contribute to the global energy transition. Since its creation, the workstream has continued to grow and now comprises 150 experts from more than 70 companies, with a significant portfolio of investments in emerging markets around the world.
In this report we are proud to present our findings on solar investment opportunities in the Middle East and North Africa. It covers markets in Egypt, Jordan, Oman, and Saudi Arabia, and was written by experts from RES4Africa Foundation, Alectris, Finergreen, and EXXERGY. This report provides a general overview of the business environment, major macroeconomic and socio-political trends in each of the four countries. It goes on to elaborate the specific national energy context, key stakeholders, and regulatory frameworks for investments in the solar sector. Finally, the experts make several recommendations for each country that are designed to harness the enormous photovoltaic potential of the region and encourage international investment in the four markets.
Egypt Egypt’s 2016 macroeconomic and structural reforms allowed the country to absorb the shock of the COVID-19 pandemic. However, real growth declined from 5.6% in Financial Year (FY) 2018/19 to 3.6% during FY2019/20, as the COVID-19 crisis caused a year-on-year contraction of 1.7% from April to June (Q4- FY2019/20) (World Bank Group, 2021). In 2020, Egypt was the second largest MENA economy with a total GDP of 363.1 billion US$ and is expected to grow by 2.8% in 2020-21 (IMF, 2021). Key economic sectors, trade, tourism, manufacturing, and agriculture benefited from government support in the form of a series of financial packages and measures. These included a monetary grant to irregular workers and the expansion of existing cash transfer programs in addition to subsidised credit. Further support to the economy came from IMF: Egypt secured 7.8 billion US$: 5 billion US$ in stand-by agreement and 2.8 billion US$ in COVID-19 emergency support (Bloomberg, 2020). This will help Egypt maintain macroeconomic stability while protecting necessary spending to cope with the effects of the pandemic.
Business environment Egypt maintained S&P BB credit rating amid the COVID-19 pandemic. The macroeconomic stability and the monetary and fiscal reforms improved the business climate, facilitated greater access to finance and private sector-led investments, consolidated investor-friendly policies and made business services more efficient. As a result, Egypt ranked 114th out of 190 countries according to the last Doing Business Report (World Bank Group, 2020) gaining six places compared to 2019. It came above the regional average for both starting a business (90) and dealing with construction permits (74). The efforts to turn it into an investment hub placed the country as the second-largest recipient of foreign direct investment (FDI) flows in the MENA region, which in 2019 grew by 11% to 9 billion US$. Although much FDI is still driven by the oil and gas industry, capital is also targeting a range of strategic sectors including renewable energy development.
Jordan Jordan is in a unique position in the MENA region given its relative stability within an otherwise volatile region. It has benefited extensively from international financing. However, this belies several deep-rooted structural problems and Jordan’s economy is characterised by low growth, high unemployment, and growing debt. Since 2018 the Jordanian government have adopted several reforms in attempts to change this dynamic. These include, reforming the laws governing Public-Private Partnerships, public procurement, and domestic revenue mobilisation. However, the slow implementation of these reforms means that their effect on the country’s GDP is yet to be seen.
Electricity infrastructure Jordan’s power generation sector is made up of four companies: Central Electricity Generation Company (CEGCO); Samra Electricity Power Company (SEPCO); Amman East Power Company; and Qatrana Power Company. CEGCO came into being in 1999 when the vertically integrated state utility, NEPCO, was split into a generation company, a distribution company, and a transmission company. Originally CEGCO was state owned but in 2007 it was privatised, and the government sold off 60% of its share. CEGCO currently owns 1,555 MW of generation capacity, 49% of Jordan’s total installed capacity. SEPCO is still entirely state owned and has 888 MW of generation capacity, 28% of Jordan’s total installed capacity. The Amman East Power Company was the first IPP in Jordan when its 370 MW natural gas-diesel hybrid generation project began operating in 2008. The second IPP in Jordan is the Al-Qatrana Power Company which has been in operation since 2010. Its asset is a 373 MW natural gas-diesel hybrid generator as well. Both IPP projects in Jordan operate under a Build-Own-Operate model (NEPCO, 2013). Jordan’s third IPP is currently the world’s largest combustion engine powerplant with a 573 MW capacity and can run on natural gas, light fuel oil and heavy fuel oil. The plant is owned and operated by the Amman Asia Electric Power Company (Larson, A., 2015). Jordan’s latest operational IPP is a 250 MW tri-fuel powerplant. It is designed primarily for operation at peaking, and it allows more flexibility in terms of fuel usage and dispatch. In 2019 a 46 MW solar PV park was retrofitted. The plant is owned and operated by AES Levant Holdings (Wärtsilä, 2021).
Oman Oman, being an oil producing country, suffered a massive setback due to the dual shock of COVID-19 and oil price decrease, resulting in a 6.4% GDP decline in 2020, worse than the 4% drop for MENA region in general. The economic recovery is expected to be sluggish, with GDP growth rising to 1.8% by 2021. This is expected to put more stress on government spending, business, and consumer spending, along with elevated public debt. Public debt has already risen to 81% in 2020 from 60% in 2019 (35% increase) (IMF, 2020).
project acheived financial close in 2020. The 105 MW Amin Solar project was awarded to Marubeni and was commissioned in 2020. There are currently two large-scale open tenders, Manah I and Manah II, which together represent over 1 GW of additional solar PV capacity. Bids for these are due shortly and the OPWP has planned a further 600 MW tender through its Power 2022 programme and a further 700 MW one through the Power 2024 programme (OPWP, 2019). While the OPWP projects have moved on with relative success, the hybrid project tender issued by Tanweer for 11 rural sites with solar-hybrid systems has been under development for over two years. Of the 14 pre-qualified bidders, only one, EDF, submitted a proposal (Informa Markets, 2020). Feedback indicated that the main obstacle was the logisitcal difficulties of managing large portfolios. With the country also being a focus of Green Hydrogen efforts, large scale execution of solar projects is envisaged. As per recent announcements, the state-owned oil and gas company OQ, the Hong Kong based renewable hydrogen developer InterContinental Energy and the Kuwait-based energy investor Enertech are planning to build a green hydrogen plant powered by 25 GW of solar and wind capacity (Paddison, 2021).
Saudi Arabia The Saudi Arabian economy is highly dependent on petroleum sector; roughly 87% of Saudi budget revenues, 90% of export earnings and 42% of GDP comes from the petroleum sector. Starting in 2016 a series of reforms aimed at economic diversification were implemented to increase the labour-force participation of women in the economy, mobilise non-oil revenue and grow services. Since 2016, real growth in non-oil GDP has been significantly stronger than oil GDP. This trend is set to continue with non-oil GDP growth of 4.3% expected in 2021, whilst oil GDP will shrink 0.4% in the sale period (IMF, 2021). As in many countries, COVID 19 had a significant, negative impact on the economy. For Saudi Arabia, this is compounded by lower global oil prices, which created large shortfalls in fiscal and external positions. This is reflected in the 2020 data.
This data is consistent with the overall Middle East region, which has 98% of its primary energy supplied by fossil fuels. Where there is a difference is in the mix between gas and oil. The Middle East energy supply overall comprises natural gas 56% and oil 42%, these figures are 37% and 63% for Saudi Arabia, respectively (IEA, 2018).
Update on solar market demand In 2020 Saudi Arabia had a cumulative installed solar capacity of 515 MW. The country’s annual market is yet to find a sustained rhythm of growth. In 2019, it installed 459 MW which was far more than the combined installations of 2016, 2017, 2018, and 2020 (56MW). However, despite this slow start, the future of solar PV in Saudi Arabia is bright. According to all SolarPower Europe’s scenarios, the market should hit GW-scale in 2023 as efforts increase to fulfil the renewable energy targets in Vision 2030. This rise in annual installations represents a meteoric three figure growth rate between 2021-2023 (SolarPower Europe, 2021). In its Vision 2030 document, Saudi Arabia forecasts that energy consumption would increase threefold between 2016 and 2030. In response to this increased demand, the country plans to develop its own renewable energy market with a target of 9.5 GW by 2030 As part of the market’s development Saudi Arabia will seek to localise a significant proportion of the value chain, including R&D and manufacturing. From these ambitions grew the National Renewable Energy Programme (NREP) which is responsible for carrying out the vision of a national renewable energy industry (Government of Saudi Arabia, 2021)