Our blogs Blogs home
Energy in Transition

Energy in Transition


Renewables, Economic Development and Lessons from South Africa for the Middle East

The Middle East and North African region is experiencing increasing levels of investment in the renewable energy sector. Markets such as Morocco, Egypt and Jordan have advanced their programs significantly whilst the countries in the Gulf region are beginning to follow suit in a bigger way.

Back in 2011 the UAE embarked on the Masdar City 10MW PV plant and also built the Shams 1 CSP plant in Abu Dhabi. Renewable targets have been announced in Kuwait, the UAE, Saudi Arabia and Oman for example. Iran has also established a feed in tariff regime and aims to have over 5GW of renewable installed by 2020; there is a renewed understanding of commitments to limit carbon emissions with intended national determinations signed up to, during the COP 21 meeting.

Many countries have also stated their aim to capture knowledge and use renewable investments to develop a green industry. In doing so the hope is that this will create jobs, innovation and contribute to economic growth. There have been some important developments; the establishment of Masdar Institute in Abu Dhabi, QStec in Qatar, investors in Saudi Arabia such as ACWA, Abdul Lateef Jameel etc. The Juffali group has also invested in PV manufacturing capacity and formed partnerships with wind turbine manufacturers.

There have been many sceptics on how much economic benefit a renewables program can bring to the economies of the Middle East. The concern is that a renewables program will simply result in the procurement of expensive subsidized energy with the majority of material being imported. Recently, it seems the ‘expensiveness’ issue has been severely challenged with the latest Dubai Electricity and Water Authority (DEWA) solar PV bid attracting USc 2.99/kWh competing directly with fossil fuel generation. On the ability of the Middle East to develop its renewable labor force, educational institutions, manufacturing industries etc one can look to the example of South Africa.

In the Middle East and Africa region, South Africa’s utility scale renewable sector is the most mature in the region, and therefore offers a useful example for markets wishing to grow their sectors rapidly. South Africa is also an interesting example of a country which has combined its renewable program with the development of a domestic renewables industry.

Since it was established in 2011, the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) in South Africa has procured over 6GW in five bidding rounds (around 2GW has reached commercial operation) and a further 6GW of planned developments have already been announced by the government. The results have been highly impressive; firstly, the price of renewable generation such as solar PV has been driven down in every round:

Atif_blog graph

Source: Greencape market intelligence report 2016

Decreases in tariffs from RE technologies have been a result of increases in global RE generation capacity and South Africa’s own successes through its REIPPPP.

What is noteworthy is the local content requirement in the South Africa programme.  Local content requires successful projects to spend a certain portion of total project value on locally produced components of the project (such as solar PV panels, or wind towers), as a way of ensuring that local manufacturing and assembly are supported by investments being made into the sector. Over subsequent bidding windows, the country has successfully increased its local content contribution. These are shown in the following figure.

Atif_blog graph 2

The REIPPPP’s local content requirements present a significant investment opportunity of R65 billion for both local and international players that include, amongst others:

  • OEMs
  • Contract manufacturers
  • Local equipment suppliers
  • Local and international investors
  • Local skills base (in terms of skills transfer)
  • Academic and research institutions (in terms of skills and technology transfer)

The results have been commendable in South Africa where an entire green-tech industry has sprouted in the Western Cape. Investors from all over the world have opened manufacturing plants, special investment incentives have been introduced, universities provide relevant training and research, green finance has positioned itself there as well as other renewable industry organizations.

A recent report published by IRENA states that “The equipment in almost all renewable projects in the GCC is manufactured by foreign companies.” There are companies like Almaden building their 100MW panel manufacturing plant which is a great sign as well as the other companies mentioned in the beginning of this article but the local imprint is still to be seen in a bigger way. IRENA also states that it believes the GCC region could add around 140,000 renewable related jobs every year.

To summarize, South Africa has the most mature renewables market in the MEA region and has successfully seen reductions in renewable energy costs in each bidding round. Simultaneously, its local content policies have resulted in round by round increases in local content. This has resulted in both domestic and foreign investment, increase in local employment, research and development, and effectively a green-tech industry. This is definitely a model that the Middle Eastern countries should look towards if they want to develop local industries on the back of a renewables program.

DNV GL has offices in South Africa, Egypt, Oman, United Arab Emirates and the Kingdom of Saudi Arabia. Through our network of experts we are a bridge taking the learnings and knowledge from the South Africa market into the MENA markets and also assisting investors from the MENA region with their investments in Southern Africa. Much can be learned from the experience in South Africa to the benefit of MENA countries embarking on their own renewables programs

0 Comments Add your comment

Reply with your comment

Your email address will not be published. Required fields are marked *