As Algeria tenders its 150-MW solar plant this week, investors should ask themselves: with the Arab Spring making its way into an “Arab Summer,” is the winter of large-scale solar at hhttp://theenergycollective.com/node/62107/editand? Over the last few years, North Africa has been heralded by clean energy advocates as the future of solar electricity production and the solution to the electricity needs of the Mediterranean and, perhaps one day in the coming decades, all of Europe. As the region faces a seemingly endless surge of uprisings and social protests, though, the risk associated with multi-billion dollar investments in the Sahara’s nascent industry is rising.
The very nature of solar development in North Africa – part extractive industry and part infrastructural project – has always posed a kind of challenge. Massive capital investment is required, the technology is rapidly changing, and the exorbitant prices of solar electricity mean it cannot truly compete in a free market environment. A closer look at North Africa’s peculiarly structured national projects leaves one to wonder where the electricity will be sold, how it will be transmitted, where it will be transmitted, how quickly the CSP-PV cocktail will become outdated, and what precisely will induce consumers to pay over 10 cents more per kilowatt hour for their electricity.
The Arab Spring has made private investors more wary of these kinds of solar investments. Still, a recent UN-sponsored report concluded that renewables investment in Africa increased 384% in 2010. This investment increase was largely funneled to wind projects in Egypt, and the massive solar projects that tendered last year in Morocco, Tunisia, and Algeria might have foreshadowed a veritable flood of solar investment in 2011 and 2012. But the Arab Spring has changed all that.
Lest anyone use this analysis to blame the Arab uprisings for stalling the DESERTEC dream, beware. If recent events in the region prove anything about the industry, it is that national solar plans in North Africa are not sound investments to begin with. Solar investment in the region is, at its heart, politically driven. This kind of investment was always unlikely to develop the private sector in North African countries; the only private players in these PPP-structured projects are the investors, and even then sometimes their independence comes with question marks. Instead, the projects’ investment models enhance the patronage networks and connected lending that World Bank economists decried in a recent study: “From privilege to competition: unlocking private led growth in the Middle East and North Africa.”
Political risk notwithstanding, the vision of North African solar plans remains alive. The costs of necessary infrastructure already bore by many North African governments are too great to allow the projects to fail altogether. Plus, there is a real electricity deficit that needs addressing, no matter what regime is in power. What the Arab Spring means for solar energy is that perhaps now North African governments will have to alter their investor preferences from European multinationals to companies from their own MENA region. This spells the potential for the rise of economic and technical cooperation with the Arab Gulf.
Photo by Wikimedia.
–This post was written by Keily Miller, Research Associate at the Baker Institute Energy Forum, where I work.–