52480 December 2009 . Number 15 CLEA TECH OLOGY FU D I VESTME T PLA APPROVED FOR CO CE TRATED SOLAR POWER I THE ME A REGIO Roger Coma-Cunill, Chandra Govindarajalu, Silvia Pariente-David, Jonathan Walters1 The International Energy Agency has identified concentrating solar power (CSP) as one of the Introduction: The MENA Clean Technology key technologies that "are at the heart of the Fund Investment Plan proposes co-financing of energy technology revolution because they can $750 million and mobilizes an additional $4.85 make the largest contributions to reducing billion from other sources to accelerate greenhouse gas emissions." However, CSP (like deployment of Concentrated Solar Power (CSP) most new technologies) has higher costs and by investing in the CSP expansion programs of risks than current technologies. Therefore, Algeria, Egypt, Jordan, Morocco and Tunisia. international collaboration is required to accelerate the global deployment of technologies Specifically, the Investment Plan will: like CSP through targeted schemes providing 1-Enable MENA to contribute the benefit of its positive incentives for their adoption at scale. unique geography to global climate change mitigation -- no other region has such a Global and Regional Context: A confluence of favorable combination of physical and market three global and regional factors provides a advantages for CSP; unique opportunity for the Clean Technology 2-Support the deployment of about 1 Gigawatt Fund (CTF) to finance transformational actions of CSP generation capacity, amounting to about in the MENA region. These investments would 15% of the projected CSP global pipeline and a constitute a dominant part of the countries' two-fold increase in the worldwide CSP ambitious strategies for the deployment of low installed capacity; carbon technologies, have the scale to shape the 3-Support associated transmission infrastructure course of global CSP market development, and in the Maghreb and Mashreq for domestic deliver benefits that transcend climate supply and exports, as part of Mediterranean mitigation by providing broader environmental grid enhancement that will enable the scale up and economic co-benefits. of CSP through market integration in the region; 4-Leverage over US$ 3 billion in public and The three enabling factors are: First, CSP is a private investments for CSP power plants, technology that is of particular interest to utilities, thereby almost tripling current global but with unexploited manufacturing scale economies: investments in CSP; and CSP could be cheaper relative to PV on a per 5-Support MENA countries to achieve their kWh basis in most cases and is more scalable development goals of energy security, industrial and more consistent with a centralized and growth and diversification, and regional dispatchable generation model. Its adoption and integration. replication by utilities is therefore more assured. CSP is a relatively simple technology with few 1 high-cost materials or proprietary components. R. Coma-Cunill (JPO, MNSEG); C. Govindarajalu (Senior Energy Specialist, MNSEG); S. Pariente-David (Senior Energy If the demand for CSP is scaled up, then capital Specialist, MNSEG); J. Walters (Sector Manager, Energy and and installation costs can fall very substantially Transport, MNSSD). because of cost savings due to manufacturing at 2-Technical improvements can be realized in scale. certain components and these can be accelerated when companies' R&D respond to increased CSP is a large-scale, proven technology for global demand. For example, between 1991 and generating energy using the power of the sun. 2004, technology advances helped reduce O&M The industry is experiencing growth driven by costs by 30 % and improve annual solar-to- government support schemes, such as tax electricity efficiency by 20 % for parabolic incentives in the US and feed-in tariffs in Spain. trough systems. At the end of 2008, approximately 482 MW of 3-Increased demand will result in more players capacity of commercial plants were in operation in the supply chain, which will reduce and announced projects by the end of 2008 were component costs because of increased in the range of 6-7 GW. However, at the global competition. Larger companies, with experience level, cumulative investment in CSP is still in achieving economies of scale through mass modest compared to investments in other production, are also entering the market in renewable energy technologies. The proposed anticipation of market growth. CTF investment program would almost triple global investments in the technology (see fig. 1). Second, the MENA region has physical attributes that make it particularly promising for CSP scale-up. Figure 1 - Global Investments in Renewable Energy The region has amongst the world's best Technologies (US$ billion) production conditions for solar power: abundant sunshine, low precipitation, and plenty of unused flat land close to road networks and transmission grids. The economies of scale needed for global deployment of CSP can be achieved at the lowest cost of any region. Third, market dynamics in the MENA region can provide a strong enabling environment for large-scale investments: The consumption of electricity in MENA is growing faster than in other regions and countries are looking to scale-up renewable High initial capital costs are the most important energy to diversify their fuel mix away from barrier to the expansion of CSP. As much as 87 hydrocarbons, and to enhance energy security. % of the cost of electricity produced by a solar thermal plant is related to the initial capital Rationale for CTF Co-financing: The proposed investment and installation cost. Therefore, a gigawatt-scale deployment through 11 CSP plant costing $4,000/KW operating at commercial-scale power plants, over a 3-5 year capacity factors of 22-24 % can be around four timeframe, provides the critical mass of times as expensive as combined cycle gas investments necessary for private sector interest, turbine plants. However, there is broad benefit from economies of scale, and for consensus in industry assessments that CSP has organizational learning in diverse operating high cost-reduction potential, due to three conditions. factors: 1- Manufacturers have yet to benefit from Potential for GHG reduction: The proposed project economies of scale, such as longer and more pipeline will avoid or reduce about 1.7 million automated production runs, purchasing power tons of carbon dioxide per year. This is around on sourcing components and materials, and 1% of total energy sector CO2 emissions from bigger R&D budgets. The history of PV suggests these countries. If the program is successful and that doubling of capacity leads to a 20 % replicated, the global benefits would be far reduction in costs. larger. The transformational objective of this investment plan is served not by choosing short- December 2009 Number 15 2 run least-cost approach for GHG emission ESTELA, an industry group, estimates that if 20 reductions at the country level (which could be GW of solar thermal capacity is added in the done through energy efficiency or wind power) Southern Mediterranean countries, a total of but by accelerating cost reduction for a 235,280 jobs would be created including 80,000 technology that could be least-cost globally over in manufacturing (40,000 on site and 40,000 in the longer term, and replicated in other high Europe); 120,000 in construction and 35,280 in GHG emission countries. O&M. Demonstration potential: The program is regional Implementation Potential: MENA countries have in structure, but global in objective. Together taken concrete steps towards power sector with planned capacity additions in the U.S, restructuring, which has contributed to Europe and elsewhere, cost reductions and economic growth and expanded access to institutional learning via this program will electricity. However, sustained absorption of facilitate faster and greater diffusion of this renewable energy in the domestic market is only technology in other countries that have achievable by overcoming systemic barriers, significant potential for CSP. Estimates for such as energy subsidies and lack of policies to realizable CSP potential vary from 20 to 42 GW encourage commercial utility operations--which by 2025 with opportunities in China, India, Iran, the countries considered in this investment plan Israel, Portugal, South Africa, Spain, and the have taken concrete steps to address. In U.S. Other potential markets include Brazil, Morocco, Tunisia and Jordan, energy subsidies Chile, Peru and Argentina. are low by regional standards. Egypt has initiated a reform program for reducing energy Learning curves show the rate of improvement subsidies. Electricity tariffs are also low in in performing a task as a function of time, or the Algeria and the goal is to slowly adjust domestic rate of change in average cost (in hours or energy prices to international levels. Although dollars) as a function of cumulative output. subsidies hamper the CSP market, all the Based on the experience in California, 12 % cost governments envisage that energy efficiency reductions were calculated for each doubling of and renewable energy over the medium to long capacity. Industry interviews show projected term can reduce the burden of high subsidies. cost reduction of 2-3 % reductions annually. Due to rising costs for conventional power and Development impact: For energy importing higher electricity demand, many MENA countries, development of indigenous resources countries have developed targets for renewable is essential to enhance their energy security and energy, and sub-targets for each technology. economic stability. For oil and gas producing Aside from many wind power projects in countries, an energy strategy focused on CSP MENA, CSP may be the next technology utilized and other renewables would help in freeing-up at scale. the increasingly valuable oil and gas resources for more value added utilization such as in Algeria has a national program for renewables industry, for sale in other remunerative aiming to reach 5% of power generation by 2017 domestic and export markets, and for retaining and of achieving 20% by 2030. The long-term option value for future use. Exports of "green goal is to be met primarily from the CSP (70% electricity" would bring economic benefits CSP, 20%wind and 10% PV) ­ placing it among through increased revenues, which will help the world's most ambitious programs. A March finance the acceleration of renewable energy 2004 decree sets incentives for electricity penetration within domestic markets. Scaling-up production from renewable energy plants, of CSP can also provide a catalyst for an increase including a feed-in tariff. in manufacturing in the MENA region. If there is an assured demand for large capacity Egypt has committed to increase the share of additions at the GW scale, manufacturing of renewable energy to 20 % by 2020. A key precision components like the receiver tubes and element is the new Electricity Law's emphasis mirrors may also become viable in the region. on renewable energy - to go to Parliament by December 2009 Number 15 3 early 2010. Under this law, a mechanism mobilizes funds from the export of gas saved by renewable energy. Jordan's energy policies are shaped by its near The regulatory framework and the grid total dependence on imported energy. In infrastructure to support "green" energy trade December 2007, it adopted an energy strategy in the EU and MENA countries are evolving and with an emphasis on renewable energy and uncertain. In the early stages, both sides of the energy efficiency - setting a target of 7% of the Mediterranean will focus on benchmarking of country's energy mix to come from renewables prices and contractual arrangements, i.e. in by 2015 and 10% by 2020. effect "regulation by contract." By providing concessional financing for CSP scale-up, CTF Morocco has set a broad vision for energy buys-down the upfront risk for investors in security since it too is dependent on fuel MENA countries. Significant infrastructure imports. Key elements include: diversifying and bottlenecks are not expected for CSP plants in optimizing its energy mix, reducing the share of MENA countries for domestic use but some oil to 40 % by 2030; making energy efficiency projects need in-country transmission lines improvements a national priority; and (Jordan and Tunisia). A greater challenge is integrating into the regional energy market, trade in power between MENA and Europe. The through enhanced trade within the Maghreb investment plan includes two transmission countries and with the EU. Its November 2009 projects to enable exports to Europe. One in Solar Plan aims at achieving a 42 % share of Jordan reinforces the Mashreq's link to Europe, renewable energy in the power generation and the other connects Tunisia to Italy for North capacity by 2020, with a 2000 MW target for African exports. solar power including CSP by 2030. Result Indicators: The proposed results indicators Tunisia has focused on energy conservation for the investment program would be: since the 1980s and announced a "Tunisian Solar · GHG reductions of at least 1.7 million tons Plan" for 2010-16, including 40 projects in wind, of CO2-equivalent per year; solar, and biomass. Funding is around Euro 2 · Approximately 900 MW of installed CSP billion, with Euro 1.4 billion from the private capacity by 2020; sector. · $4.85 billion of co-finance mobilized, including sufficient concessional financing Additional costs and risk premiums: CSP is not to ensure viability of CSP plants; economically competitive with fossil fuel power · Declining cost of the solar field. generation in the current market. A CSP plant with US$4,000/kW capital cost operating at 30% Contact MNA K&L: capacity factor is 2.46 times as expensive as Emmanuel Mbi, Director, MNA Operational Core combined cycle gas turbines, the most likely Services Unit: choice in most MENA countries. The objective of David Steel, Manager, MNA Development the CTF Investment Plan is to mobilize sufficient Effectiveness Unit: concessional and carbon finance to complement Regional Quick Notes Team: commercial and MDB lending, as well as Omer Karasapan, Roby Fields, Najat Yamouri, and sponsor equity, to bring the cost of CSP Aliya Jalloh electricity within that of wind power. Export of Tel #: (202) 473 8177 part of the energy would require a lower sales price on local markets to achieve the required The MNA Quick Notes are intended to summarize lessons profitability, depending on the quantities to be learned from MNA and other Bank Knowledge and sold in the export market, or reduce the need for Learning activities. The Notes do not necessarily reflect additional donor concessional support. the views of the World Bank, its board or its member countries. December 2009 Number 15 4