Several energy-importing countries in Middle East and North Africa continue to accelerate the development of their renewable energy sectors as they aim to curb fuel imports. More limited fossil fuel production and a reliance on fuel imports to meet domestic demand and rising import bills have pushed Egypt, Morocco and Jordan, for example, to diversify their energy sources.

On the other hand, the recent fall in oil prices has caused several regional oil-producing governments to rethink their public subsidy programs and move toward rewriting their social contracts, cracking open the door for residential and commercial solar developers. The most important example is the United Arab Emirates through their Shams Dubai program.

While Governments have taken steps to stimulate the development of renewable energy in their respective countries, Multilateral Development Banks (MDBs) and development agencies are playing an important role in funding projects.

Multilateral Development Banks interest in investing in Middle East and North Africa is high because they recognize that energy and development go hand in hand, with proper access to electricity being one of the main drivers of sustainable economic growth. Moreover these banks have no problem to finance renewable energy projects with lending terms of 20 years or more, because in these countries there is a strong development mandate. This interest in renewable energy has led to a steady stream of internationally competitive tenders, which have significantly lowered the sales prices of renewable energy through PPA contracts. These tenders are mainly focused on utility scale projects, while residential and commercial PV plants are having more difficulties to spread in a wide manner.

The reason is due to the fact that for decades, national governments, mainly in Middle East, have heavily subsidized domestic fuel and electricity prices with the stated purpose of promoting economic growth and providing a social safety net through the surplus distribution of nationalized oil production. These tariff structures therefore offer a disincentive to developing distributed solar, while solar energy should be incentivized to reduce the electricity bill.

Source: International Monetary Fund, GTM Research

Many countries in Middle East and North Africa implemented and are currently looking to implement energy reforms to cut energy subsidies in order to reduce pressure on government spending.

Sources:
International Monetary Fund, GTM Research, MESIA Outlook 2018