x Abu Dhabi, UAEFriday 21 July 2017

Shadow cast over big solar project

Desertec's plan to create a huge renewables sector in North Africa and export energy to Europe may be slowed by the Arab Spring.

The Ain Beni Mathar solar plant near the Algerian border provides 13 per cent of Morocco's energy needs. Morocco has so far been most receptive to the Desertec initiative, which was established two years ago. Abdelhak Senna / AFP
The Ain Beni Mathar solar plant near the Algerian border provides 13 per cent of Morocco's energy needs. Morocco has so far been most receptive to the Desertec initiative, which was established two years ago. Abdelhak Senna / AFP

The Arab Spring has been well received around the world, not least in Europe. Ties across the Mediterranean have historically been close, and events on either side of the sea will be noticed on the other.

This will increasingly be so if one player in the energy sector has its way. Desertec, an initiative backed by a plethora of companies including Deutsche Bank and Munich Re is hoping to bring to life a renewable-energy sector in North Africa big enough to supply the local market and customers in Europe. The list of Desertec backers reflects Germany's role as a leader in solar-energy development.

But progress in establishing democratic societies in the Arab world might slow the implementation of the concept, which already has its doubters because of its scale and an apparent lack of details.

The Desertec concept is based on a simple physical fact - more energy falls on the world's deserts in six hours of sunlight than the world consumes in a year.

Energy-hungry and environmentally conscious Europecan match this impressive statistic with a target of equal proportion. By 2050, the harnessing of sun and wind energy in North Africa should provide the EU with 15 per cent of its energy, while satisfying the entire domestic market in the Maghreb countries.

The price of this ambition could amount to €400 billion (Dh2.02 trillion), according to Dii, the project management company set up to support the vision.

A scheme of such proportions faces numerous obstacles.

For electricity from North Africa to reach the European market, it needs a grid to connect the end user with the source.

The connection between Europe and North Africa has already been established, as Morocco is linked with Spain by a transmission cable spanning the Strait of Gibraltar.

Electricity transported over long distances is subject to losses, however, so power originating from other Maghreb countries may need alternative routes, which have yet to be created.

More important, a market that provides producers of renewable energy with the opportunity to sell their electricity at a profit must come into life.

"If you can create a well-functioning market that is connected to remote markets, that will normally drive costs down, you get more players, and they will be eager and compete," says Paul van Son, the chief executive at Dii. Desertec's backers believe that if the project is executed on a proper scale, the project will be economically viable.

"Economics of scale is the most important driver," says Mr van Son.

A market can develop only if the right regulatory framework and the right market incentives are in place. But the political changes ushered in by this year's popular uprisings in Tunisia, Egypt and Libya have focused attention elsewhere.

Renewables are "a new energy era, which require new forms of regulation", says Samuel Ciszuk, an energy analyst for IHS Global Insight. "And that requires the sort of political work to build regulation. Right now, the new governments in place in Tunisia and Egypt, and hopefully in Libya, will be preoccupied with constitutional issues for at least the next three years. There won't be enough focusing capability to build a framework."

Typically in the Arab world, electricity is sold to consumers at a subsidised rate. At current prices, renewables would not be profitable in the domestic market, as solar and wind-generated electricity is expensive.

Even though the Maghreb countries are increasingly short of hydrocarbons and are keen to find alternative sources of energy, cutting subsidies for electricity would be politically sensitive, as it would substantially eat into the disposable income of ordinary citizens.

As economic hardship was a prime motivator for this year's protests, governments will be extremely reluctant to tinker with the status quo.

Without an adequate return from the market, the economic case building up renewables capacity is not strong, believes Mr Ciszuk.

"Although there is a potential from a generation point of view to finding new resources badly needed domestically, economically it doesn't look that attractive right now," Mr Ciszuk says.

Mr van Son agrees.

"There is a long way to go to create a market in which the renewables can flourish," agrees Mr van Son, who is nevertheless unconcerned about Desertec's prospects. "We have a long-term roll-out plan for the future, for transmission and distribution and for market developments in the Middle East and North Africa and Europe. That's not influenced by political changes," he says.

Dii will finish designing its roll-out plan by the end of next year. In the meantime, it will be investing in pilot projects, the first being a 150-megawatt solar project in Morocco.

But with North African countries desperate to increase their power generating capacity and diversify their energy mix, time and money might not be on Desertec's side. Interest in nuclear power in the region is growing, and a broad move towards that power source might undermine the momentum towards renewables.

"It makes sense to have your eggs in several baskets, so one thing doesn't necessarily preclude the other, but right now, there is more of an economic incentive to try and go nuclear, when you are trying to wriggle out of a dependence on hydrocarbons," says Mr Ciszuk.

Fortunately for Desertec, building a nuclear power industry from scratch is a hugely complicated task. But if the initiative chooses to look to the future, overlooking short-term political developments, it might want to put nuclear energy on its list of potential obstacles.

business@thenational.ae

twitter: Follow and share our breaking business news. Follow us