Key fact

Rabat aims to generate 42 per cent of the country’s electricity from renewable power by 2020

Source: MEED

As the largest energy importer in North Africa, buying in 95 per cent of its fuel needs and 15 per cent of its power requirements, Morocco has made developing its renewable energy sector a priority.

With electricity consumption expected to double by 2020 and quadruple by 2040, the country’s dependence on imports is unsustainable. Development of renewable energy is favoured, not only because it can address these supply issues, but also because Morocco’s electricity interconnections with Spain and Algeria mean it is well placed to sell excess electricity generation – often a problem in grids with large amounts of variable renewable energy – to North Africa and Europe.

Morocco’s energy targets

Rabat’s intention is that the 2020 targets will be mostly met through wind and solar power projects, with each contributing at least 2GW in installed generating capacity by 2020.

There are already several wind farms in operation in Morocco, which have a combined generating capacity of 280MW. A further 720MW-worth of wind projects are at various stages of development, including the country’s largest scheme, the 300MW Tarfaya wind independent power project (IPP). This project is currently stalled at the tariff negotiation stage, but is soon expected to be approved by the client, Office National de l’Electricite (One), with financial close expected by mid-2011.

[Morrocco has] put in place a regulatory regime that’s attractive to investors and lenders

Investment banker

In addition to the 1GW of schemes already under way, in June 2010 One launched its Moroccan Integrated Wind Energy Programme. The programme commits to a further five projects that will add another 1GW in wind capacity before 2020. The schemes are the Taza and Sendouk projects, which will both have a capacity of 150MW; the 300MW Baida Koudia II and Tiskrad wind farms; and the 100MW Boujdour project.

Morocco power sector fuel sources
2008
Coal 47.1
Electricity imports 18
Diesel and fuel oil 16.6
Natural gas 11.6
Renewable energy 6.7
Source: Office National de l’Electricite

Taza was the first tendered and attracted 26 expressions of interest to One’s request for qualification (RFQ) in December. It will be developed on a build-own-operate-transfer basis, with One agreeing a 20-year power purchase agreement (PPA) with the eventual developer.

Until recently, One acted as an electricity monopoly in Morocco. Most wind farms in the country have been tendered through the body, as it controls access to the national grid. However, Moroccan law permits large consumers of power to build renewables schemes to meet their own electricity needs and grants them access to the grid. To boost investment in alternative energy projects, private power production limits were raised from 10MW to 50MW in 2008.

Morocco power sector fuel sources
2009
Coal 42.2
Electricity imports 19.3
Diesel and fuel oil 13.6
Natural gas 13
Renewable energy 11.9
Source: Office National de l’Electricite

One’s stranglehold on Morocco’s electricity market was further loosened last year, when the government passed a renewable energy law that created the Moroccan Agency for Solar Energy (Masen). The body is charged with delivering Rabat’s solar energy plan to install 2GW of solar capacity by 2020.

It took over the tender process from One for the first project to be developed under the solar plan, the 500MW Ouarzazate scheme, which will use a combination of thermal solar and photovoltaic solar technology and is being built in phases.

The first phase will be based on concentrated solar power (CSP) parabolic trough technologies and will have a minimum capacity of 125MW. It will not be Morocco’s first CSP plant. Spain’s Abengoa Solar already operates a 450MW integrated solar combined cycle plant, a hybrid system that comprises a 420MW gas plant and a 30MW parabolic trough CSP plant. The first phase is expected to start up in 2014.

Subsequent phases will be launched over the next two years to achieve an operational target of 500MW by 2015. At least one of these phases will be dedicated to photovoltaic technologies and another to CSP tower technologies.

The tender process has attracted much attention, with 180 firms responding to a call for expressions of interest and 18 international consortiums responding to the RFQ. In January, Masen prequalified four bidding teams for the 500MW project.

The selected developer will design, build, operate, maintain and finance either a single project or a cluster of facilities.

Solar project roll-out

Following on from Ouarzazate, there are a further four schemes to be tendered by Masen as part of the solar plan, all scheduled to be operational by 2019. Those schemes are the 500MW Foum el-Oued and Sebkha Tah projects; the 100MW Boujdour solar facility; and the 400MW solar complex planned for Ain Beni Mathar.

As the first project in the programme, Ouarzazate is expected to operate under the IPP model, with the developer signing a 25 year PPA with Masen. In an October 2010 briefing note on the Moroccan plan for solar energy, international law firm Norton Rose says this is a positive move as “the One PPA has been accepted by the market as a bankable document”.

A large number of international firms … are putting money into the country [with] a return on investment

Anne Lapierre, Norton Rose

“I think the primary reason [Morocco is an attractive investment opportunity] is they have put in place a regulatory regime that’s attractive to investors and lenders and have a well-defined strategy to what they’re trying to achieve,” says one investment banker working with the Ouarzazate bidders. “They’re adapting the IPP template, trying to make the market as risk-free as possible.”

The One IPP model works through a tender process, where bidders submit technical and financial bids and shortlists are made from these. Subsequently tariff bids are opened and the final selection is based on this. The tariffs proposed by developers for renewable projects are typically going to be higher than those One pays to traditional power plants, based on electricity market prices. If the tariff has been set too low, the Moroccan government has pledged to step in and compensate developers.

Investor-friendly

With reductions to feed-in tariffs being discussed in France, Germany, Spain and Italy, in the wake of the global financial crisis, the One PPA makes Morocco’s renewable sector a relatively investor-friendly environment.

The Norton Rose briefing note states that “whereas change in law is an equity and perhaps debt risk in jurisdictions with feed-in tariffs, under the One PPA model this risk is assumed by the power purchaser”.

Yet, as much as the One PPA model is attractive, analysts say it will not spur mass investment in renewable schemes in Morocco.

“The tender process for a PPA is costly and time-consuming,” says Anne Lapierre, energy partner for Norton Rose, who advised bidders on several of Morocco’s key energy schemes. “A feed-in tariff of some kind would really open up the market to allow large-scale development of renewables, as you don’t need to negotiate [a] feed-in tariff, it’s a fixed regime. You then don’t need to go through that costly tender process.”

Feed-in tariff

Morocco’s new renewable energy law, which is due to come in to place in 2013, does not expressly commit to introducing a feed-in tariff, but it does promise that “an appropriate and supportive tax and financial system will be put in place”. At the World Future Energy Summit held in Abu Dhabi in January, Amina Benkhadra, minister of energy, mines, water and environment, said the law, will include a feed-in tariff. Such intentions show that Rabat is committed to easing One’s monopoly on the renewables sector to allow private investment.

Regardless of the model One eventually chooses, the outlook for Morocco’s renewables sector is positive. Lapierre says the high level of interest shown in Taza and Ouarzazate are due to wider confidence in Rabat’s commitment to renewable energy rather than just confidence in the paperwork for power agreements.

“There are a large number of international firms, many of them French due to historical links, that are putting money into the country and [getting] a return on their investments,” says Lapierre. “It really is seen as one of the stand-out countries in the region in which to do business.”

An April 2010 report by international law firm Freshfields Bruckhaus Deringer identified Morocco, Tunisia and Egypt as offering the most promise for the Middle East’s renewable sector, citing stable regulatory regimes and long-term renewables strategies as key reasons for their early successes. By aiming to generate 42 per cent of the country’s electricity from renewable sources by 2020, Morocco is by far the most ambitious of any in the region.

For Rabat to hit this target, the swift financial close of Tarfaya, Taza and the first stage of Ouarzazate will be crucial. If these can be built successfully with private-sector investment, and a feed-in tariff can be introduced that wins the confidence of investors, then Morocco will be able to transform its energy sector, reducing its dependence on others to meet fuel needs.