167. Renewable energy is considered a "frontier" technology sector with its own specific risks.
168. Market failure is common as the information required for developers and investors to assess a project's viability is often unavailable or inadequate. This often results in the risks of a proposed RE project being overstated. Barriers to private sector investment in the RE sector include:
• Lack of profitability due to novelty of technology, limited operational history and track record, high upfront costs, small returns and difficulties accessing finance ;
• Political/legal risks due to unpredictable policy regimes and economically-distorting support mechanisms (e.g. competition from subsidised fossil fuels) ;
• Technology risks resulting in uncertain and/or volatile output (e.g. weather volume-related risks).
169. Grid parity is at hand: rapidly declining technology costs are slowly making solar power an economically viable alternative to oil-fired turbines and off-grid diesel engine generators. In addition, given volatile oil prices, the opportunity costs of consuming oil domestically at subsidised prices for power production compared with the potential revenue from exporting it, can make the economics of replacing domestic consumption with alternative energy sources more attractive.
170. Despite this, RE project development continues to rely on public and soft financing, which plays a central role in reducing the risks of entering specific markets. Private investment in RE is hampered by a sub-optimal energy mix in MENA economies and the absence of cost-reflective energy and electricity tariffs. This is mainly due to low domestic energy pricing, massive consumption subsidies for conventional fossil fuels, and weak support policies for RE deployment.
171. In addition to the financing gap, pending issues in MENA are: access to market; alignment or embedding RE within utility or energy policy; government strategies on both technology development and deployment; and medium-term visibility on transmission and interconnection planning.