Wind farm market booms in the region

02 November 2009

The construction of a series of wind farms across the Middle East and North Africa signals the start of a period of growth for the sector as governments increasingly seek to harness this free resource

Wind energy projects with a total capacity of 4,000MW are under way or subject to feasibility studies in the Middle East and North Africa, according to research by regional projects tracker MEED Projects. But governments in the region say this is just the beginning.

“Egypt plans to have 20 per cent of its energy from renewable sources by 2020,” says Hafez el-Salmawy, managing director of the Egyptian Electric Utility & Consumer Protection Regulatory Agency. “Hydro power will be 6 per cent and the remaining 14 per cent will come 12 per cent from wind energy and 2 per cent from other sources.”

This means Egypt alone plans to have 7,200MW of wind energy by 2020. “This will be provided through three mechanisms,” says El-Salmawy. “The first from the New & Renewable Energy Association [NREA] relies on a model based on soft financing from international counterparts and other governments.”

This mechanism involves the NREA being the developer and awarding engineering, procurement and construction (EPC) contracts to suppliers. It currently owns a 430MW plant at Zafarana in the Gulf of Suez and plans to expand this to 1,230MW by 2014. It then plans to add 200MW a year of extra capacity between 2015 and 2020, taking total generation capacity at the site to 2,200MW.

Private sector

Cairo’s second mechanism for delivering wind-power generating capacity is through 10, 250MW plants to be built by private developers, which will sell electricity to the national grid at a predetermined price once completed.

The first site is out to tender and the subsequent six will be let in pairs, with the last three tendered together in 2017. “It is a fully private approach and a developer will be able to bid for more than one 250MW project but cannot split a project into smaller sites,” says El-Salmawy.

The remaining 2,500MW will come from a feed-in tariff targeting small and medium-sized developers for wind farms generating less than 50MW. The developers will sell their output to one of the country’s electricity distribution or transmission companies.

The emerging market in electricity funding is being made possible by Egypt’s new energy legislation, which is expected to become law in 2010. This will establish a competitive electricity market with private sector participation and encourage the use of renewable energy.

Currently, the Egyptian Electricity Trans-mission Company (EETC) buys power from Egypt’s five utilities before selling it on to high-voltage and medium-voltage users, as well as nine distribution companies. Under the new framework, public and private generating companies will be able to enter into deals with end-users independently of the government.

The new law also establishes a renewable-energy fund, which would enable the government to partially subsidise the cost of electricity for consumers. El-Salmawy says the money to support the fund could come from the reduction in subsidies to oil and gas consumers.

“For each 1 per cent increase in wind power at $0.11/kWh, it means a 2.5 per cent increase in the end consumer price, so it is not a substantial increase,” he says.

Jordan is also establishing its own renewable-energy fund under new legislation. “It [the legislation] should be approved by parliament in 2010,” says Yacoub Marar, head of renewable energy at Jordan’s Energy & Mineral Resources Ministry.

According to Marar, negotiations with the preferred bidder for Jordan’s first wind project at Al-Khamshah, producing 30MW, are in the final stages. MEED understands the bidder is a consortium of Greek firms Terna Energy and Vector Aeolian Parks, with the local Enara Energy Investments. A farm at a second site at Fujeij is also being planned.

“At Al-Khamshah, we are in negotiation with the bidder,” says Marar. “At Fujeij, we are still collecting information about companies [potential contractors]. After that we will issue the request for proposals.

Expansion plans

If these two schemes are a success, the government will move on to developing another 400MW of capacity by building three plants at Al-Harir, Wadi Araba and Maan. “They are all separate projects, but if that project [Al-Khamshah] is successful, it will affect the others,” says Marar.

Developers say legislative change like those in Jordan and Egypt are critical to making wind energy successful. “Legislation is important,” says Ali Neyzi, vice-president and head of Middle East and Turkey for Danish wind energy developer Vestas. “If you want to be connected to the grid, there must be legislation and some sort of pricing mechanism. This is a big barrier. Commercially, we need feed-in tariffs or some other payment system.”

Feed-in tariffs are guaranteed prices the energy generator will receive for supplying the grid, and are designed to balance the capital cost involved in building the renewable generation capacity. The cost varies depending on the size of the project site but Neyzi says a feed-in tariff of E0.1/kWh is attractive for investors. Turkey is currently amending its legislation to increase the tariff from E0.055 to E0.08/kWh.

Algeria is the only country in the region that has so far introduced a feed-in tariff, but countries where wind energy makes a substantial contribution to the grid, such as Germany, Italy, Denmark and Spain, have had these systems in place for years.

“It is practical to have a feed-in tariff system because it makes it a level playing field for every-body,” says Neyzi.

“Wind is only a small percentage of the mix in the Middle East…so regionally there is huge scope for growth”

Ali Neyzi, head of Middle East and Turkey, Vestas

Support for governments that implement these tariffs is available from the EU and international organisations. The World Bank Global Environment Fund (GEF) is already supporting many of the region’s wind energy projects.

“If the government sets an attractive tariff and subsidises it through those sources, it is not too big a burden on the government, and on the other hand it creates a level and fair way of doing business,” says Neyzi.

In July, Vestas established a Middle East base in Turkey and an office in Beirut, such is its confidence that the market will grow. Like other major wind-energy companies, it is already bidding for projects in the region and is encouraging governments to further their commitment to wind energy.  

“There is huge potential and we are expecting 2,000MW [of new capacity] a year just in Turkey,” says Neyzi. “We see potential for wind power in almost all Middle East countries. At the most, wind is only a small percentage of the mix in the Middle East, but there are countries in Europe that have up to 20 per cent of their total requirement coming from wind, so it means we know regionally there is huge scope for growth.”

Egypt, Jordan, Morocco, Algeria, Libya and Iraq all have wind farms under development and international firms from established markets such as Denmark, Germany, Spain and the US are keen to be involved.

“[Spain’s] Gamesa is building projects in Morocco, Egypt and Tunis and is planning to extend its activity to other Middle East and North African countries,” says a spokesman for Gamesa.

Overcoming barriers

The firm has just started work on the 37MW second phase of the Tangier wind farm in Morocco. Completion of the first 107MW phase is scheduled for the end of the year.

In addition to the wind power projects under way in the region, Oman and Bahrain have announced pilot schemes. “We are following all of them,” says Neyzi.

Meeting political figures is key to Vestas’s regional strategy. It is keen to win projects but it is also seeking to co-operate with governments to create optimum market conditions to promote the growth of the sector.

“Our job is to go to governments in the region, try to get their support and to start the legislative process, and to try and help them build up wind data and establish the potential of the country,” says Neyzi. “Of course, we are also supplying the product, we are doing installation and turnkey projects, and we would like to do long-term service agreements, usually with a 20-year lifespan.”

Wind data is an issue for developers considering schemes. Most like to have at least a year’s worth of data collected to establish the likely capacity and efficiency of the farms. This seldom exists in the region.

Meteorological data is usually recorded on towers no greater than 10 metres tall, but wind turbines can be 100 metres tall.

“Good wind data is lacking in the region,” says Neyzi. “Most countries do not have measurements or, if they do, they are from the old meteorological stations at 10 metres.

“In this sector, we like to have 60-metre masts for measurements collected for one year to give business case certainty.

“However, countries are starting to measure. Wind is clean, free, competitive, predictable and fast to ramp up. In a year we will probably have 50 projects measured. The market is about to boom.”

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