Despite the high costs associated with clean energy, decision-makers and industry experts are confident that alternative power generation projects will become both desirable and economically viable. Governments in the region are making concerted efforts to push the alternative energy agenda.

Several dedicated state organisations have been created to oversee and implement plans to reduce reliance on fossil fuels. The New & Renewable Energy Authority (NREA) in Egypt, New Energy Algeria (Neal) and the newly established Executive Agency for Renewable Energies in Libya have all been formed to increase the proportion of power generated from non-conventional resources.

Egypt, Morocco, Tunisia and Jordan have implemented, or are planning to implement, wind farm projects. Solar-hybrid power plants are being developed in Algeria, Egypt and Morocco. Countries in the Gulf are also starting to look at renewable energy sources.

Qatar’s masterplan for its power and water sectors, which is being prepared by a Dutch consortium of Kema and Royal Haskoning, will look into the use of alternative energies. Saudi Arabia has set up the Centre of Research Excellence in Renewable Energy to study the use of hydrogen, methanol and fuel cells, as well as solar and wind energy. And the UAE is leading the way on reducing the amount of carbon used in construction with projects such as Dubai’s Lighthouse Tower and the Masdar Institute of Science & Technology in Abu Dhabi.

With high levels of sunshine and wind, the region is perfectly positioned to develop successful renewable energy projects. Algeria aims to produce 10 per cent of its electricity from renewable energy sources by 2020, while Egypt has set a target of 20 per cent in the same period. ‘Algeria has the biggest solar thermal potential in the world more than four times world energy consumption,’ says Tewfik Hasni, president and general manager of Neal.

For countries such as Morocco, Jordan, Syria and Lebanon, which do not possess signi-ficant hydrocarbons reserves and consequently rely on imported fossil fuels, renewables could provide an effective alternative energy source. Even hydrocarbon-rich countries stand to benefit economically from diversifying their energy portfolio. Using solar, wind or hydro energy for power generation allows oil and gas-producing states to divert greater volumes of fossil fuels to the export market. Increasingly, energy security is also becoming a key consideration.

‘It is about securing energy supply in the face of high oil prices and international fluctuations in energy markets,’ says Bothaina Rashed, general manager of planning and follow-up at NREA. ‘There is added value if you export oil and natural gas or use it in the petrochemicals industry. This is better than burning it for electricity.’

The economic viability of renewable energy projects therefore depends on several factors, not least of which is the cost of fossil fuels used in conventional generation. As the price of oil increases, renewables become more economically viable. ‘With lower fuel prices, it is a subsidised business,’ says a senior energy consultant.

High capital and production costs, coupled with low returns, are still the main deterrents for developers and contractors considering alternative energy projects. However, costs vary depending on the technology used and the abundance of the relevant energy source.

‘In the short term, [the region] should concentrate on cheaper technologies such as solar thermal,’ says Paolo Frankl, head of the renewable energy unit at the International Energy Agency (IEA). ‘From a more strategic view if capital is available they should invest in photovoltaic technology, which allows for the direct conversion of solar energy to electricity. This is far too expensive today.’

But even photovoltaic applications could prove economical under certain conditions. The potential of solar panels in the electri-fication of remote and rural areas not connected to the national grid is particularly high. ‘It can be cost-competitive for off-grid applications because it costs more to bring electricity via the usual network than by installing expensive photovoltaic systems,’ says Frankl.

It is different for wind farms. ‘This is cost-competitive even now,’ he says. ‘Wind has a much lower installation cost four to five times lower than photovoltaic.’

However, the lack of consistency in power generation using wind may bring additional costs. ‘Solar thermal power plants secure production 24 hours a day,’ says Hasni. ‘Wind generates power for just one-third of the year. For the other two-thirds, generation should be secured using other sources such as diesel.’

Costs are projected to fall with improvements in technology and the creation of economies of scale. For now, governments will need to provide incentives for potential investors in renewable energy projects. Algeria, for example, has adopted a feed-in law under which utilities are obliged to buy electricity from renewable sources. Such laws set a tariff that utilities must pay for renewable electricity purchased from private generators.

Egypt too is examining ways it can attract private investment into alternative energy. NREA, together with the Electricity and Petroleum ministries, is preparing legislation designed to encourage investors. It is due to be ratified by parliament in early 2008.

‘We have to submit some incentives to cover the difference between renewable production costs and the costs of conventional electricity,’ says Rashed. ‘It is important, however, that financial incentives, if they are adopted, are only temporary, in order to encourage developers and contractors to invest their money sooner rather than later.’

A significant barrier to investment in renewable energy across the region is the subsidised price of electricity, which keeps returns on investment minimal. ‘The government has adopted policies concerning the gradual increase of electricity prices, but it will take time before they reach the actual cost of production,’ says Rashed. ‘If you compare costs without a tariff with actual production costs, wind electricity could be competitive.’

While comparisons between renewable and conventional production costs are available for members of the OECD, figures for countries in the Middle East and North Africa have yet to be compiled. They will differ significantly from costs in OECD countries because of the cheaper conventional feedstock costs and differing levels of renewable source availability.

Industry experts agree that in theory the targets that countries such as Egypt and Algeria have set themselves for renewable energy production are achievable. Success will depend on the determination and political will of the authorities.

Globally, there is a move towards adopting more environmentally friendly energy policies, which will impact on the Middle East and North Africa. A report published this week by accountants Ernst & Young says worldwide demand for renewables is increasing at an unprecedented rate. In 2006, the market was estimated to be worth $100,000 million, and this is predicted to increase to $750,000 million by 2016. In the long run, external pressure may play an important role in ensuring that renewable energy policies are implemented.

For North African countries such as Algeria, which plans to export 6,000 MW of electricity from renewables to Europe by 2020, the EU’s position on alternative energy will be key. In March, the European Council adopted an action plan that commits the EU to achieving at least a 20 per cent reduction in greenhouse gas emissions from 1990 levels by 2020. The council has also set a binding target of a 20 per cent share of renewable energy in the EU’s overall energy consumption by 2020.

For now, European environmental incentives do not directly affect generation in North Africa. ‘Feed-in laws only apply to production inside the borders of a country, so power producers from other countries cannot get incentives,’ says Hasni.

Even with greater economic incentives, the potential for renewable energy to replace fossil fuels should not be over-estimated. ‘Conventional resources will continue to dominate for the next 50 years,’ says Rashed.

The 20 per cent targets set by the EU, its member states and Egypt are more or less a ceiling that is unlikely to be exceeded. ‘Because of their intermittent nature, there is a limit to the penetration of renewables,’ says Rashed.

While there may be a limit to how much of a difference renewable energy can make, its environmental credentials are solid. And with time, its economic competitiveness may also grow.