16 August 2012
The role of renewable energy in the energy mix for both developed and developing countries is rapidly increasing, driven primarily by mounting energy demand, increase in fossil-fuel prices and the need to respond to climate change concerns. Within this context, the abundance of solar and wind energy resources in the North African countries are likely to offer opportunities to satisfy both local energy demand as well as that of European countries through exports. To this end, the DESERTEC concept, the Mediterranean Solar Plan and the DESERTEC Industrial Initiative (Dii), explore venues for cross-Mediterranean energy integration from various perspectives: private sector investment, institutional aspects, and economic development.
Yet, given the socio-economic challenges that countries in the North African region are confronting with following the Arab Spring uprisings, the success of these efforts can be achieved only if renewable energy can address their development needs with respect to private sector development, innovation capabilities and job creation.
A recent study from the German Development Institute (DIE) explores these aspects through the lens of Egypt, the largest market in North Africa, with a strong industrial base and a strategic role in the Middle East and North Africa region. The geographic position of Egypt makes physical exports of green electricity difficult across the Mediterranean Sea. But, the presence of excellent conditions for the generation of clean electricity (high solar insolation and wind speed) suggests that renewables could be of strategic importance for Egypt and the larger region.
With particular reference to the potential for building local capabilities in wind and solar energy in Egypt, results from the study show that several niche markets could be developed, especially in the wind energy sector. The presence of a few large globally competitive firms has facilitated the localization of parts of the value chain and opened up venues for acquiring know-how in more technologically advanced manufacturing processes. But, political instability and a limited local market, has increased risks for both local and international investors. Local technological capabilities in the solar energy sector are lower in the short and medium term, but vast opportunities exist with respect to research and development for technological adaptation to local environmental conditions.
Aside from the prolonged political instability following the ousting of former president, Hosni Mubarak in February 2011, unsustainable levels of fossil-fuel subsidization also reduce political commitment to renewables, which then become comparatively much more expensive than the conventional alternatives. Therefore, the study argues that to support the transition to renewable energy, a new social contract is needed that aims for more effective allocation of energy subsidies. Large and inefficient energy subsidies act as disincentives for domestic and international investors who might want to invest in renewable energy. Subsidies also drain resources that could be used for other goals, such as supporting market creation or making social investments. The lack of a domestic market means that local companies cannot risk investing, while the absence of a clear vision of how to integrate renewables into the energy system and the economy hinders efforts to build technological capabilities at different levels.
Written by Dr. Georgeta Vidican, Senior Researcher with the German Development Institute in the department of Competiveness and Social Development.