Regional Market

158. Renewable energies (RE) contribute a rapidly growing share of the world's energy supply. They encompass all sustainable sources of energy that are captured from natural processes (e.g. solar radiation, wind, water, photosynthesis and geothermal heat flows) without depleting mineral reserves or requiring major land-use engineering. RE are an alternative to conventional fossil and nuclear energy sources.

159. Renewable energies are grouped into five categories, each involving specific technologies:

• Solar (photovoltaic [PV] or concentrated solar power [CSP]) ;

• Wind (offshore or onshore) ;

• Hydroelectricity (small-scale hydro and tidal/ocean) ;

• Biomass (plant-based materials, animal waste and their derivatives) ;

• Geothermal.

Table 1. Global renewable energy potential

Source: Imperial College Centre for Energy Policy and Technology (2002)

160. Renewables are not only an increasingly cost-competitive alternative to conventional energy resources, such as fossil fuels, but are also seen as a tool to address many pressing societal and environmental challenges. The positive externalities associated with renewable energy include:

• Enhancing domestic energy security through unlimited resource supply;

• Mitigating greenhouse gas emissions and climate change;

• Reducing the health and environmental impacts associated with fossil and nuclear energy;

• Fostering technological leadership and innovation;

• Contributing to inclusive economic growth through technology and skills transfers, job creation, territorial development, etc. For example, it is estimated that solar PV plants use on average seven times more labour than coal-fired plants while wind farms use 1.83 times more labour than natural gas-fuelled plants.

161. Since 2010, global investments in RE projects have exceeded investments in fossil fuel-fired plants for the first time, with wind and solar energy growing the fastest. The RE market has globally been characterised by:

• Continued, significant decline in the costs of technologies. Although still high relative to fossil fuels, the costs of wind power generation have fallen 400% since the mid-1980s and the average leveled cost of generating 1 MWh of electricity from photovoltaic panels was one third lower in 2012 than in 201127. This trend is linked to the maturing of technologies, with potential for further cost reductions through innovation and batch production, bringing RE projects closer to competitiveness;

• A major geographic shift in RE investments, from OECD countries to developing economies, which now account for two-thirds of growth. Total RE investments in developed economies in 2012 were down 29% at USD 132 billion, while those in developing economies were up 19% at USD 112 billion, the highest level ever.

162. The Middle East and North Africa, home to half of the world's proven crude oil and a third of its natural gas reserves, boasts some of the world's lowest domestic prices for energy and electricity. This has resulted in alternative energy sources being overlooked for decades.

163. The MENA renewables market remains underdeveloped with the RE share in the region's total energy mix at around 4% (OECD, 2013) despite the highest solar and wind energy potentials in the world. The region has made some tentative advances, but progress overall has been disappointing. RE investments in the region totalled USD 2.9 billion in 2012, only 2.1% of the world total. This figure was up 40% from 2011 and 650% from 200428.

164. Still, the MENA region is slowly emerging as a potentially vibrant market for renewable energy deployment due to:

• Resource endowments. The MENA region offers some of the world's best conditions for developing solar and wind energy: abundant sunshine, low precipitation, large unused areas of flat land accessible by road, and available power transmission infrastructure;

• Potential market size. Rapidly-rising domestic energy demand, above the world average29, caused by population growth, urbanisation and economic expansion (demand side), oil export strategies and improved trade balance for oil-importing countries in a context of high oil prices (supply side), technology and infrastructure opportunities;

• Favourable economics. Given its unrivalled climatic advantages and high level of reliance on oil for power generation, MENA countries may not require the type of subsidies needed in other markets in order to spur market uptake for RE.

165. Other key factors driving regional interest in renewables include: energy security enhancement and water scarcity issues; economic and industrial diversification, new value-chain and employment activities, and technology leadership; and improved environmental footprints. In addition, heightened perception of policy risk in the European market in 2010-2011, due to adverse retroactive policy revision30, led to stronger interest in MENA region opportunities.

166. The region, which needs an estimated USD 30 billion in annual new investment to meet energy needs31, has witnessed heightened investor interest in RE, illustrated by the entrance of large global energy players into the solar market. Important initiatives have made progress in Morocco and the United Arab Emirates32, where investment reached respectively USD 1.1 billion and USD 0.8 billion in 2011.

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27. Sustainable Energy Finance Initiative (SEFI) (2013), Scoping Study on Financial Risk Management Instruments for Renewable Energy Projects, United Nations Environment Programme (UNEP).

28. IRENA (2013), MENA Renewables Status Report.

29. Energy demand in the MENA region will be rising at around 3% annually between 2010 and 2030, with electricity demand growing at a rate of 6% annually over the same period.

30. Across Europe, adverse retroactive changes to RE subsidy programmes have included cuts in solar feed-in tariffs for new projects ranging from 15% in Germany to 70% in the UK. In 2010, Spain and the Czech Republic planned cuts of up to 45% to feed-in tariffs for existing solar projects. Source: The Economist Intelligence Unit (2013), Managing the risk in renewable energy.

31. Electricity demand in the Southern Mediterranean will increase by a factor of 3 in the next 20 years: additional capacity of 200 GW is needed until 2030 to satisfy rising demand. Source: Mabey Nick et al. (2013), Underpinning the MENA Democratic Transition, Delivering Climate, Energy and Resource Security, Third Generation Environmentalism Ltd.

32. In early 2013, the world's largest CSP plant to date was commissioned in the desert of Abu Dhabi (100 MW). The country boasts 10 MW of cumulative solar PV capacity and continues to develop its solar capacity (both PV and CSP).