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Climate Change & Development Policy 28–29 September 2012 Helsinki, Finland
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T F A R D This is a paper submitted for presentation at UNU-WIDER conference on ‘Climate Change and Development Policy’, held in Helsinki on 28–29 September 2012. This is not a formal publication of UNU-WIDER and may reflect work-in-progress. If you wish to cite this, please request permission directly from the author(s).
Innovation systems for renewable energy in the MENA: A comparative perspective on Egypt and Morocco
Georgeta Vidican German Development Institute, Bonn, Germany
[email protected]
Paper prepared for the UN-WIDER Conference on Climate Change and Development Policy Helsinki, Finland, 28-29 September 2012
1.
Introduction
Developing countries are currently facing daunting challenges for ‘catching up’ in a socially and environmentally sustainable way. Economic growth is needed to sustain an increasing population, and new sources of energy have to be explored to satisfy mounting demand. Know-how and technology development is required for catching-up and competing in the global economy. Job creation through private sector development is also necessary to reduce high levels of unemployment. Climate change mitigation efforts add another dimension, that of transforming the economies through environmentallysound solutions. Within this context renewable energy sources, abundant in most developing countries, could be a channel for socially and environmentally inclusive development. As the experience of other countries shows, catching-up requires not only transfer of knowledge on existing/mature technologies in established industries, but also innovation and entry into new industries. Yet, there is currently limited research on assessing what it takes for developing countries to cultivate such capabilities and to set-up an innovation system that supports renewable energy deployment and private sector development. This paper makes a first attempt to examine the emerging innovation system for renewable energy in Egypt and Morocco, where concerns for satisfying increasing energy demand and for stimulating private sector development have become more acute in light of recent political changes. Using the sustainabilityoriented innovation system (SOIS) conceptual framework developed by Altenburg and Pegels (2012) and the traditional innovation system framework (B. A. Lundvall, 1992) we do more than describe the role of different stakeholders and institutions involved in the development of the renewable energy sector (a core analytical approach within the traditional innovation systems literature). Rather, this paper delves deeper into comparing and contrasting the complex governance of the innovation system around renewable energy in Egypt and Morocco, the type of policies considered and the rationale behind them. This analysis allows us to hypothesise on how these early choices are likely to shape emerging technological trajectories in the larger region. The research questions to be explored are: How does the renewable energy agenda influence the emergence and functioning of the innovation system in these countries? What factors affect policy choices and how are different interests managed in the decision-making process? Egypt and Morocco are particularly interesting cases to examine for several reasons. These countries, located in the sun-belt and south of the Mediterranean Sea have excellent renewable energy sources (high solar irradiation and wind speed). Energy demand has been increasing rapidly in both countries, with energy security having become a serious concern. Cross-Mediterarranean energy initiatives as well as inter-regional energy trade open up opportunities for diversifying the energy mix and entering new markets. Morocco’s dependency on imports for more than 95% of its energy needs makes the transition to renewables especially relevant. At the same time, high levels of subsidization and soaring unemployment, as well as low competitiveness in the private sector, limited technological capabilities and weak institutions, pose long-term development challenges. Renewable energy could offer an opportunity to tackle these challenges while developing an innovation system to support the acquisition of technological capabilities and ensure long-term competitiveness. The governance of the development process is 2
especially interesting to examine given that vested interests exist in the conventional energy system and that a transition entails a reallocation of rents between different stakeholders. At the same time, careful balancing between market and government failures is especially important. The data for this analysis derives from qualitative research conducted in Egypt in October 2011 and in Morocco in May 2012, based on semi-structured interviews with key stakeholders in the renewable energy sector. The information from qualitative interviews is supplemented with literature on renewable energy developments and the political economy in the MENA region. The paper is organised as follows; we start by describing the conceptual framework. We then offer a brief overview of current developments and strategic approaches to the development of renewable energy in Egypt and Morocco. Further, we discuss the innovation system in each of the two countries and probe into the core aspects of the SOIS with respect to the governance system and the type of policies considered for supporting the transformation process. Lastly, we develop comparative perspectives on these two cases and draw concluding remarks on implications for their development trajectories.
2.
The Sustainability-oriented Innovation Systems conceptual framework
The sustainability-oriented innovation systems conceptual framework (SoIS) (Altenburg & Pegels, 2012; Stamm, Dantas, Fischer, Ganguly, & Rennkamp, 2009) builds on evolutionary innovation systems research (B. A. Lundvall, 1992) but places stronger emphasis on governance and introduces additional dimensions relevant to sustainability transition. The starting point when discussing about innovation in the context of renewable energy technologies is the need to accelerate development and deployment to avoid transgression of planetary boundaries and the collapse of major ecosystems. In pursuing these objectives, SoIS are confronted with particularly severe market failures. While innovation system research traditionally concentrates on such failures, in the context of SoIS they receive a higher dimension. As the authors argue, first, market economies allow economic agents to externalise environmental costs which then have to be borne by the society as a whole and by future generations. Second, SoIS need to disrupt unsustainable technological trajectories and foster the development of sustainable substitutes which in some cases may require more than a decade or two to become competitive. Supporting these clean technologies of the future is fraught with coordination and information failures (Altenburg and Pegels 2012). The presence of these multiple market failures has important ramifications for policy and future technologies. In particular, they call for a more active guiding role of governments; require a distinctive range of policy instruments; and may result in diverging national technological trajectories reflecting specific societal preferences, power constellations and policy frameworks. To analyse the process of innovation and the inherent dynamics, conventional innovation system studies have used a rather systematic approach by inquiring into the structure of the system (i.e. the major components including stakeholders and networks, technologies and knowledge, institutions) and the main processes (i.e. functions) considered important for innovation. Figure 1 illustrates these different components. In this paper we use the analytical framework, but we place stronger emphasis on the
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elements considered to be more important for the SoIS conceptual approach, namely institutions, the role of Government and governance processes. Figure 1: Innovation System structure and functions
Note: The inner circle reflects the ‘structure’ of the innovation system, while the outer circle illustrates the ‘functions’ of the system. Source: Based on Bergek et al. (2008), Jacobsson and Bergek (2004), Suurs (2009).
Innovation systems for renewable energy technologies need to take into consideration several other dimensions when compared to other technologies (see Table 1). These new dimensions make it possible to better understand the dynamics within the innovation system in the context of the “green technoeconomic paradigm shift” (Freeman, 1992). In the SoIS conceptual framework, the government plays a more prominent role in supporting the innovation process and ‘guiding the search’ for sustainable and inclusive development solutions. This suggests that institutional mechanisms to strengthen “embedded autonomy” (Evans, 1995) in the government become more important. The governance aspect becomes, therefore, critical for accelerating the transition to renewable energy. Given that renewable energy developments depend to a considerable extent on policy-makers´ assumptions about future and on political settlements between groups and conflicting interests, coordinated government efforts are needed.
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Table 1: New dimensions that the SoIS brings to the literature High demands on governance Need to overcome multiple market failures in developing and deploying technologies.
New policies for internalising environmental costs Internalizing environmental costs through policies such as carbon tax, fossil-fuel subsidy removal.
Consensus on the overall direction of change has to be built and political settlements are needed to compensate losers from reform.
Policies to support deployment of renewable energy technologies, using instruments such as feed-intariffs.
Divergence of national technological trajectories Need to take into account that the specialisation paths of different countries are expected to diverge because technology choices are strongly driven by national policies, reflecting national preferences and political settlements.
Change needs to happen under considerable time pressure while the gestation period for technologies is long. Need to harmonise national and international policy frameworks. Source: Based on Altenburg & Pegels (2012)
The first new dimension, ‘high demands on governance’, emerges from specific context that defines sustainability transition, specifically: -
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The presence of multiple market failures in developing new technologies far ahead of their commercial viability. Addressing these issues requires abilities to select the ‘right’ technologies and to manage subsidies such that political capture is avoided or minimized. The need for political consensus (i.e. creating legitimacy by building advocacy coalitions for the technology) is also important given that such a development processes presupposes trade-offs among different stakeholders. Hence, political settlements are needed to compensate losers from reform, which is especially important in the case of energy subsidies. Considerable time pressure imposed by climate change evolutions adds another dimension, which can increase future costs if not taken into account. The need to harmonise national and international policy frameworks, which highlights that national policies are not sufficient to drive the low-carbon transition. This becomes quite evident in MENA in the context of the cross-Mediterranean energy market integration driven by clean energy exports from the southern-Mediterranean countries. Such a regional approach to sustainability transition requires harmonized policies and regulations across the European Union (EU) and MENA countries, in order to enlarge the market for clean energy and to reduce investment risks.
The other dimensions also underline the specifics of sustainable innovation but will be discussed less in this paper. The second dimension highlighted in Table 1, ‘new policies for internalising environmental costs’ highlights that policy makers need to carefully choose the most efficient and effective measures given their respective country backgrounds, such as cap and trade systems or pollution taxes. Such policies are favourable because of their technology neutrality and because they would encourage the reduction of consumption and production subsidies for fossil-fuels. The third dimension, ‘divergence of national technological trajectories’, argues that such an outcome occurs because environmental 5
technology choices depend considerably on national policies, which in turn differ considerably among countries, reflecting specific national preferences and political settlements. For these reasons, understanding the local context in which the energy transition is taking place is essential.
3.
Renewable energy - a necessity for Egypt and Morocco
In the wake of Arab Spring, the world economic crisis and increases in fossil fuel prices, the importance of renewable energy, which is abundant in the MENA region, become more prominent in these countries. At the same time, concerns with high capital costs and safety reduced the prominence of nuclear energy, a usual competitor to renewables in the national energy strategies. The urgency of diversifying the energy mix is present across MENA countries that are not endowed with fossil-fuel reserves. This is the case for both Egypt and Morocco, although Egypt disposes of natural gas reserves. But Morocco imports more than 95% of its energy needs. In both these countries, energy demand is expected to increase by 6-7% annually, and to triple by 2030. For Morocco, this means that approximately 200 GW of power will have to be added by 2020. To satisfy this increasing demand, changes in the energy system are needed to address the technical specificities of renewables, with respect to their suitability to centralized and decentralized generation. The overall conditions for renewable energy development in these countries is highly favourable. First, solar insolation and wind speed are among the best worldwide.1 Second, in addition to favourable environmental conditions, these countries also have lower labour costs, which, as estimated by the United States Department of Energy, reduce the overall cost of generating electricity from Concentrated Solar Power (CSP) in North Africa by nearly 25% as compared to southern Spain (Norton Rose, 2010). Lower generation costs would also be achieved for solar photovoltaics (PV) and for wind energy. The specific socio-economic situation of these countries also brings additional challenges to the forefront. High unemployment rates especially among the young educated youth means that job creation is one of the most pressing priorities for policy makers. Moreover, low technological capabilities in terms of R&D and innovation persists across the MENA region. Hence, renewable energy deployment in these countries has to emphasize industrial integration and the development of an innovation led economy in order to achieve long-term competitiveness. Extensive subsidization of fossil-fuels, both at the level of production and consumption, has the effect of preventing the shift to other technologies, promoting over-consumption, and generally resulting in lockin. The share of energy subsidies in GDP in Egypt is very high, about 6%, the 6th highest worldwide (after Iran, Russia, Saudi Arabia, India and China) (OECD/IAE 2010). Since Egypt is not a major fossil-fuel exporter, the budgetary pressures from maintaining this subsidy regime is immense. Renewable energy became part of the agenda for these countries only a few years ago. In 2008 the Ministry of Electricity and Energy (MoEE) of Egypt set the 2020 target of 20% electricity generation 1
Direct solar irradiation level in Egypt is 2,800 kWh/m2/y and in Morocco it is 2,600 kWh/m2/y. For comparison, in Spain, the second largest market for renewable energy in Europe, the solar irradiation level is 2,250 kWh/m2/y (DLR, 2005).
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from renewable energy. In order to reach this target several technologies are being considered, while concerns about cost and resource availability favour some technologies over others. As a result the MoEE is aiming to install 7.2 GW of wind power in Egypt by 2020. Already a total of 545 MW of wind capacity have been installed along the Red Sea coast and 20 MW of CSP which is part of the Kuraymat power plant (an Integrated Solar Combined Cycle Plant, ISCC). The plans for solar energy are less ambitious, with a 2017 target for an installed capacity of 100 MW of CSP and 40 MW of PV. The New and Renewable Energy Authority (NREA) is tasked with the implementation of the renewable energy targets. The renewable energy targets of Morocco, set in 2009, aim to achieve 28% electricity generation by 2020, representing 2 GW of solar power and 2 GW of wind. The implementation of the renewable energy targets is the responsibility of three main agencies, two of which have been created for this purpose: the Moroccan Agency for Solar Energy (MASEN) which is also responsible for setting the regulatory framework to achieve these objectives, the National Agency for the Development of Renewable Energy and Energy Efficiency (ADEREE) and the national utility company, the National Electricity Agency (ONE). Morocco’s landmark project is the 500 MW CSP plant to be developed in Ouarzazate, which would be the largest such plant worldwide. The first phase of this project, 160 MW, has already been commissioned, and is due to break ground at the end of 2012. An additional 20 MW of CSP has been installed in Ain Beni Mathar (an ISCC power plant). With respect to wind power, almost 300 MW has been installed along the coast of the Mediterranean and the Atlantic, and an additional 850 MW are under development. The impetus for renewable energy developments in the southern Mediterranean countries came also from the opportunities envisaged by concepts such as DESERTEC and the Mediterranean Solar Plan (MSP) of the Union for the Mediterranean (UfM). The driver for these initiatives is the potential that MENA countries have in generating clean energy beyond their domestic needs exporting it to EU countries who need additional capacity to satisfy their renewable energy and emission reduction targets. Given that technology providers and investment potential are concentrated in the northern-Mediterranean countries, international stakeholders are critical for the development of the renewable energy sectors in both Egypt and Morocco.
4.
Data collection
This analysis is based primarily on data collected through semi-structured interviews with experts in the renewable energy sector. More extensive research has been conducted in Egypt between October – November 2011, over a number of 40 interviews with representatives of different types of stakeholders. Preliminary research was carried out in Morocco in May 2012, with stakeholders from 22 organisations. Table 2 provides a summary of the interviews by type of stakeholders. The information gathered from these interviews was complemented with data from secondary sources, i.e. academic publications, reports.
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Table 2: Summary of interviews by type of stakeholders Type of stakeholders Government agency Private sector companies Industry associations Academia and research Development cooperation / international agency Total
5.
Egypt 8 14 1 7 10 40
Morocco 3 9 1 3 7 22
The emerging innovation systems in Egypt and Morocco
In this section we briefly discuss the innovation system in Egypt and Morocco, from the perspective of the main actors involved and the main innovation processes (i.e. the innovation functions). We are particularly concerned with aspects related to the governance of the innovation process, the proposed policies, and the development trajectory that starts to take shape. Given the emerging nature of renewable energy sector in these two countries, the innovation systems are under-developed, with several missing elements. Hence, it becomes relevant to explore current dynamics in the innovation process in order to identify existing gaps and triggers to future developments. 5.1 The SoIS in Egypt The structure of the system Actors and networks The range of stakeholders involved in the emerging renewable energy sector in Egypt is not yet very large and their leverage in advancing the sustainability transition varies. We can identify four main categories of stakeholders involved, directly or indirectly, in affecting the future of renewables in Egypt. First, the Government, through the Ministry of Electricity and Energy (MoEE) and the New and Renewable Energy Authority (NREA) play a critical role in influencing the pace with which renewable energy can be integrated in the energy mix and the level of legitimacy necessary for encouraging renewables to become an economic driver. As discussed above the SoIS requires a stronger involvement of the government in the development process. As such, the government also plays a key role in leadership (setting long-term sustainability and innovation agenda and policy commitments), as well as in brokerage (facilitating the building of networks and coalitions between actors) (Foxon, Pearson, Makuch, & Mata, 2005). The MoEE manages several affiliated companies that represent the various energy-related activities in Egypt. The Ministry is directly subordinated to the Supreme Energy Council (SEC), a ministerial committee established in 1979 to oversee Egypt´s energy sector. The SEC´s mandate includes developing energy strategies to support Egypt´s economic and social development policies, as well as energy efficiency objectives, and providing guidance for energy reform. To demonstrate its commitment to integrating renewables into the energy mix, the SEC approved a plan to supply 20% of the total electricity generated from renewables by 2020, including 12% from wind, 4% from solar and 4% from hydro-power. But, without a national strategy for renewable energy and energy efficiency, the decision-making process is perceived to be slow and tedious (Vidican, 2012). Interviews with Government and stakeholders in the 8
private sector reveal that one main regulatory challenge to integrating renewables in the energy mix in Egypt is the “culture of central electricity generation” present in state utilities. The main reason is that Egypt has only limited experience with independent power producers (IPPs). More recently, however, under pressure to speed up the development process, IPPs have been reconsidered, although no regulatory measures have yet been taken in this direction (Vidican, 2012). Without a strong mandate, long-term strategy, and financial resources set aside for renewable energy investments, the MoEE´s support for the sustainability transition remains limited. Inside the MoEE, the New and Renewable Energy Authority (NREA) established in 1985, concentrates the expertise in renewable energy. NREA is coordinating Egypt´s process of reaching its 20% renewable energy target by 2020. But, as interview partners have repeatedly mentioned, existing capabilities within NREA, as well as its organisational structure pose challenges to developing the renewable energy sector. NREA presents conflicts of interest regarding its planning, developing, operating and regulating roles. The agency is mandated to develop renewable energy projects on its own and also to invite the private sector to invest in renewables in Egypt and to develop the corresponding regulatory framework (Vidican 2012). According to most interviewees, this is one of the strongest barriers to the development of renewables in Egypt; major organisational changes are needed to induce more clarity in the required procedures. An organisation like NREA would require increased independence and flexibility in decisionmaking. The private sector in Egypt is represented by two main types of firms: large internationally competitive companies, and small and medium enterprises active in various sector. In these early stages of the renewable energy sector the involvement of the local private sector has been minimal; only a handful of large companies have been active especially in civil works and in engineering, procurement and construction (EPC), i.e. Orascom Construction Industries and El Sewedy. National Steel Fabrication (NSF) and Sewedy Wind Group (SWEG) have invested in manufacturing facilities for wind turbines. A small share of other parts and components are also provided locally, but the organisation of a local supply chain has not been pursued yet. Because of the underdeveloped local market and unpredictable institutional environment, small companies find it difficult to become part of this emerging sector. Information regarding new developments, institutional and regulatory changes are also not trickling down to these companies. Established networks between policy makers and larger companies, remnants from the previous regime, do not exist for other type of companies. Networks between different stakeholders for sharing information and identifying cooperation opportunities are critical for an emerging sector. But, for the renewable energy sector in Egypt networking channels are quite underdeveloped. The Egyptian Wind Energy Association facilitates the exchange of technical information, expertise and experience in the wind energy sector, primarily through the organisation of conferences and workshops with regional and international experts. But, the association has not yet established itself as an important stakeholder and industry lobbyist for the wind energy sector. Nor has it managed to bring to the table a varied set of stakeholders and to foster a closer exchange of information between the private sector and research institutions, a major shortcoming which will be discussed further. The solar energy sector is lacking entirely a platform of communication for companies involved in this sector (or interested to become part of the value chain). This void in the organisational landscape of stakeholders sharing similar interests is problematic also for establishing legitimacy of the renewable energy sector. 9
Aside from the institutional organisations, individual experts and professionals are critical for providing the knowledge base and expertise, as well as for creating the necessary links between different stakeholders in the professional and political circles. In Egypt there is a handful of such experts primarily in academia. However, one core challenge is the lack of political clout to push forward concrete policies for renewable energy development and deployment. In contrast to the innovation system in more advanced economies, for Egypt (as well as for other MENA countries), development cooperation agencies play a very important role both in terms of providing necessary financing, but also in providing technical and policy advice. German development cooperation has been especially relevant in the area of renewable energy in Egypt, along with EU and World Bank. Organisations such as GIZ and KfW, the German development cooperation implementing agencies, as well as DESERTEC Foundation and the UfM are highly present and involved with increasing awareness on renewable energy but also offering technical advice to NREA and MoEE, among others. In addition, the Cairo based Regional Centre for Renewable Energy and Energy Efficiency (RCREEE) is the result of external effort to create a centre of policy expertise in this domain for the larger MENA region. Knowledge and technologies Initiatives to expand the level of practical and theoretical knowledge in Egypt do exist but they have been limited to date. Local universities, in particular Cairo University and Ain-Shams University offer courses on renewable energy technologies but mostly from theoretical aspects. Cooperation with the private sector is also insufficient, this being an important factor for the development of an innovation system elsewhere (Lam, 2011; B.-A. Lundvall, Vang, Joseph, & Chaminade, 2009; Mowery, 2004). The joint Master program that emerged in 2010 from the cooperation between Cairo University and Kassel University in Germany, REMENA, aims to bridge this gap by offering applied and interdisciplinary education in renewable energy to a limited group of students from the MENA region (as well as Germany). Still, integration of local companies in the education process, through internships and research projects, for instance, has been limited so far. The reason could well be the currently small renewables market in Egypt, and the institutional uncertainties that define the present investment environment, which prevent smaller companies to focus their activities on these technologies. Due to its lower costs as compared to other clean technologies, wind energy has prevailed in Egypt in terms of installed capacity. CSP has emerged, however, due to its potential for large-scale electricity generation and its applications especially for water desalination. Solar PV, regardless of its lower cost as compared to CSP, has not been embraced yet in Egypt, with the exception of isolated decentralized applications. Yet, its potential is underestimated by Egyptian policy makers, both for large-scale as well as for small-scale decentralised and decentralised applications. University programs, however, approach education more broadly and local companies also show interest in a diversified set of technologies. Institutions Egypt has currently no price incentives for renewable energy, such as feed-in-tariffs (FIT). Rather projects are awarded on a competitive bidding process perceived to lead to quicker cost reduction and hence be less costly for the government. In addition, other incentive mechanisms have been put in place to support renewable energy deployment: (a) an exemption from custom duties on wind and solar equipment; (b) the finalization of land use policy for renewable energy developers; (c) the acceptance of 10
foreign denominated PPAs; (d) the confirmation of central bank guarantees for all build-own-operate (BOO) projects; (e) the support of developers with environmental, social and defence permits and clearances (CIF 2010, WB study 2012). These incentives have been applied primarily to wind energy projects, given their prevalence. The New Electricity Law, which has been has been accepted for parliamentary review in 2011 precluded private sector investors from making large investments because of the long time required to approve it. Given recent political changes and Egypt´s long transition period, no major regulatory decisions about the renewable energy sector are expected in the short or medium terms (Vidican 2012). Key innovation processes The development of the renewable energy innovation system is in very early stages. Hence, in this analysis we focus on factors that could either promote or inhibit the development of a functioning innovation system. Table 3 provides a synthesis of the factors that influence the development of renewable energy sector in Egypt. Table 3: Inducement and blocking mechanisms for the emerging renewable energy innovation system in Egypt Guidance of the search
Inducement mechanisms -National target of 20% renewable energy by 2020. -Commitment towards renewable energy exemplified through existing projects in wind energy and solar.
Market formation
-The New Electricity Law could offer attractive conditions for investment. -The national target could enable the creation of a local renewable energy market.
Entrepreneurial activities
-The investment potential of large national companies can trigger the creation of a local industry.
Knowledge development (learning)
-Collaborations with foreign universities and research institutes. -New training programs at universities and for professionals in the area of renewables. -Various international workshops and conferences organised locally.
Knowledge diffusion
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Blocking mechanisms -Policymaking and strategic decisionmaking are not transparent and are hampered by political instability. -Lack of a national strategy for industry and technology development. -Lack of opportunities for local companies to leverage the national renewable energy target for market development. -Lack of supportive incentives for solar and wind power. -Large subsidies for conventional energy. -Delays in regulatory and institutional arrangements. -Unclear organisational structure for NREA, which results in delays in rolling out projects. -Lack of start-up finance. -Mistrust amongst actors due to clientelistic business relations. -Lack of technical standards and quality control. -Limited opportunities for SMEs to enter the new industry. -Limited R&D funding to support technological adaptation. -Non-existence of national research laboratories, testing and certification centers. -Lack of collaborations between actors (including those from government and academia).
Resource mobilisation
-Availability of extensive solar and wind energy resources. -Financing from international donors for existing projects.
Creation of legitimacy
-Reference projects, such as Kuraymat power plant have been implemented. -International visibility by adhering to DESERTEC´s vision and cooperating with UfM in the development of the Mediterranean Solar Plan. -Hosting the regional centre RCREEE.
-Lack of dissemination of information on renewables to the larger population. -High pressure on the national budget due to political instability, economic crisis and subsidies. -Underdeveloped human capital (lack of renewable energy experts and skilled workforce). -Lack of knowledge of (and hence confidence in) renewables on the part of investors and banks. -Vested interests in fossil fuels. -High levels of fossil fuel subsidies. -Lack of strong lobby groups for renewables. -Low confidence in and awareness about renewable energy. -Limited curricula on renewables in schools at different levels and few training programs for professionals.
5.2 The SoIS in Morocco The structure of the system Actors and networks The organisational landscape around renewable energy developments is more diverse in Morocco, facilitated by a higher political stability and consistent efforts towards diversifying the energy mix. The Ministry for Energy, Mines, Water and Environment (MEMEE) is responsible for the development and implementation of government policy in the areas of energy, mines and geology. In the area of energy MEMEE is in change of developing energy strategies, managing and developing of energy projects, energy access for urban and rural areas, conducting economic analyses and strategic impact assessment. As reflected by interviews, the initial decision regarding the National Energy Strategy has been made by the Royal Court and then MEMEE became responsible of its implementation, specifically the Department of Electricity and Renewable Energy. The National Office for Electricity (ONE) is the national utility, under the supervision of MEMEE. ONE operates as a single buyer and owns the transmission and most of distribution grid. The electricity market in Morocco is much more open as compared to Egypt. Since 2008, power plants with capacities up to 50 MW can also be built and operated by private enterprises (through IPPs) without prior authorization from ONE, and above 50 MW on the condition that the project was subject to open tendering and all generated power is sold to ONE. However, IPPs still have to rely on ONE’s cooperation as there is no regulatory authority established in Morocco. Given that there is no FIT in Morocco, to incentivize deployment of renewable energy at large-scale, ONE issued the “EnergiPro” offer to large industrial customers that aimed at investing in self-generation of renewable energy. The offer includes: (a) wheeling of energy produced from renewables to any point 12
of consumption using ONE’s transmission grid; (b) purchase of all excess energy by ONE according to a fixed tariff structure (an average tariff of 0.39 MAD (Moroccan Dirhams)/kWh). The Moroccan Agency for Solar Energy (MASEN) has been created in 2009 and has been tasked with the implementation of the 2000 MW solar plan. MASEN is currently playing a very important role in the development of the solar sector through several activities: designing integrated solar development projects; conducting technical, economic and financial studies; seeking ways for industrial integration for each solar project; project management; developing infrastructure to support connection of power plants to electricity grids; promoting the solar program internationally. So far, MASEN’s activities have focused especially on the preparation and implementation of the 160 MW CSP plant at Ouarzazate, project which is funded mainly by concessional financing. Another relevant player in the renewable energy sector in Morocco is the Renewable Energies and Energy Efficiency Agency (ADEREE), former Centre for Renewable Energies Development (CDER). ADEREE was created in 2009 (Law 16-09) through the reorganisation of CDER. While MASEN’s responsibility is with the implementation of the solar plan, ADEREE has been tasked to address primarily aspects related to energy efficiency and wind energy, but also with the promotion of renewable energy in general. The Energy Investment Society (SIE) was created in 2010 to support the implementation of the renewable energy target, with an investment capital of 1 billion MAD. Financial resources for SIE derive from the Energy Development Fund (FDE), which has been created from donations from the Kingdom of Saudi Arabia ($500 Million), United Arab Emirates ($300 Million) and the Moroccan Hassan II Fund for Economic and Social Development ($200 Million). These funds dedicated entirely to renewable energy create a more positive investment environment in Morocco, as compared to Egypt. Similarly as in the case of Egypt, international development cooperation actors play a critical role in Morocco too, in providing not only funding for project implementation, but most importantly technical expertise and policy advice. Among these organisations, GIZ, KfW and World Bank have been most active. With respect to networks, Morocco has also developed a more solid enterprise networking platforms which allows private sector players to have a stronger voice in policy-makers forums. In particular, the Moroccan National Federation of Electricity and Elecronics (FENELEC) was created in 1997 by combing two major associations of private power sector. FENELEC now comprises of 326 member companies, representing over 95% of the products and services of the national electrical and electronic sector, and accounting for a workforce of 65,000 people. There are five different industry associations under the umbrella of FENELEC, one of which is the Solar Industries Association and Wind (AMISOLE). The members of AMISOLE are primarily small and medium enterprises in the solar energy sector. From discussions with some of the members, it appears that AMISOLE has been quite active in lobbying for the interests of the sector and that the association is often invited to policy making debates. Knowledge and technologies To support the National Energy Strategy, with regard to the formation of a local knowledge base, the MEMEE has launched in 2010 an industry study for the specification of skills needed in all sectors 13
affected by energy efficiency. Results from this study should offer more precise information regarding the necessary training programs at different levels, to be integrated in professional formation programs and in local universities. At a sectoral level, in an effort to support the development of a local clean energy industry, the government, under the initiative called, “The National Pact for the Industrial Emergence” (The Pact), has supported the creation of integrated industrial platforms. The Oujda Technopark is one project focused on industrial cluster formation, which comprises of six thematic areas. One thematic area is the proposed creation of Kyoto Park and Clean Tech Industries on an area of 127 hectares, focused on the promotion of clean energy industries, in particular: wind energy (blade and tower manufacturing), solar energy (PV panels, trackers, mirrors, and R&D), and energy efficiency (low consumption lighting systems, solar water heaters). To support the formation of industrial clusters, Morocco has also adopted, in June 2009, a strategy to boost innovation, the Moroccan Innovation Strategy, build around four main pillars: governance, infrastructure, financing and mobilization of talents. This strategy has several axis, focused on both identifying financing instruments for innovative research (through the Moroccan Centre for Innovation), as well as building innovation capacity within a selected group of local universities (i.e. Mohammed V University in Rabat Agdal, Cadi Ayyad of Marrakesh, Mohammed Ben Abdellah in Fez, and Hassan II Ain Chok University in Casablanca). In addition, a positive development in Morocco has been the creation of the Research Institute for Solar Energy and Renewable Energy (IRESEN) in 2011. IRESEN has as objective to bring together fundamental R&D and applied science at national level, to develop innovation and to encourage networking. The mission of IRESEN is to conduct technology surveys, to issue targeted calls for proposals, to realize pilot projects, and to conduct project management (IRESEN 2012). IRESEN’s activities are still in early stages, but it has already launched two calls for projects, requiring collaboration between the private sector and local universities (IRESEN, 2012). Interest in building local technological capabilities in Morocco has also been expressed by the European Union (EU), which seeks to develop a particularly close relationship with the country (European Commission, 2012). In particular, research cooperation between EU and Morocco has been governed by the ‘Agreement on scientific and technical cooperation between the European Union and the Kingdom of Morocco’ signed in 2003 (EC Agreement, 2004). Cooperation also can take place within the EU’s cooperation activities with the group of Mediterranean Partner Countries (Egypt, Israel, Jordan, Lebanon, Morocco, Palestine, Syria, Tunisia and Turkey). Institutions Similarly as for the case of Egypt, no specific price incentives for renewable energy have been enacted. According to the Renewable Energy Law, most the generated electricity must be sold to the national electric utility ONE for the domestic market. But, the law also specifies that the MASEN can sell electricity to public or private operators on national and exports markets (WB study 2012). Exports to the EU are especially interesting to Morocco given the cross-Mediterranean initiatives such as DESERTEC and MSP and its proximity to Spain. Yet, the currently the export option is rather limited, mainly because
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the EU Directive 2009/29/EC 2 faces the following challenges: (a) the directive needs to be transferred into national laws, which so far experienced delays; (b) approvals in each respective jurisdictions are required to use the electricity generated in non-member countries against the country compliance with the renewable energy targets; and (c) the EU Directive itself, which in Article 9 sets up certain time limitations on when renewable energy generated in non-member countries can count towards domestic renewable energy targets (WB study 2012, p. 22). This aspect makes it evident how important the international dimension is for the development of renewable energy sector in MENA. The national policy and regulatory framework has been considerably improved over the past few years. Several laws have been enacted to support the renewable energy development, in particular for large scale projects. Among these, the most important ones are: (1) Law 16-08 passed in 2008, raising the ceiling for self-generation by industrial producers from 10 MW to 50 MW, for both wind and solar energy technologies; (2) Law 13-09 on renewable energy, adopted by the Government Council on March 12, 2009, and voted by Parliament in January 2010. The law authorizes the production of electricity from renewables by ONE as well as other moral or physical legal entities. This Law also defines the basic framework for renewable energy production, transmission and marketing. The existing limitation in the institutional framework in Morocco is that current regulations allow only for the connection to the grid of medium and high voltage renewable energy applications. This means that, for instance, smaller scale roof-top installations are not supported under the current laws, preventing the development of a local market. But, revisions of the regulations are considered, as indicated in interviews with local experts. Key innovation processes As in the case of Egypt, Table 4 illustrates the main inducement and blocking mechanisms for the innovation system in Morocco, along the main functional dynamics of the system. As we discuss in the next section, several interesting contrasts emerge between these two cases. Table 4: Inducement and blocking mechanisms for the emerging renewable energy innovation system in Morocco Guidance of the search
Market formation
2
Inducement mechanisms -National target of 24% renewable energy by 2020 (2 GW solar energy and 2 GW wind energy). -Commitment towards renewable energy reflected by projects such as Oarzazate and several national initiatives to support the implementation of the national renewable energy target (i.e. MASEN, IRESEN, ADEREE). -The national target and commissioning of upcoming
Explain the Directive
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Blocking mechanisms -A comprehensive national level strategy is currently lacking, for industrial and technology development. -The market for small and medium scale solar projects is not yet enabled. Hence, local companies cannot leverage the national renewable energy target.
-Lack of a FIT for solar and wind. -Closed market for small and medium
Entrepreneurial activities
Knowledge development (learning)
Knowledge diffusion
Resource mobilisation
Creation of legitimacy
projects, such as the 500 MW of solar energy and 850 MW of wind energy. -ONE has implemented the fixed tariff structure for renewable energy from large-scale producers. -A legal framework to enable the creation of a local market for large-scale renewable energy projects. -The existing investment funds for energy projects offer a window for entrepreneurial activities. -Attractive national innovation strategy and planning of CleanTech cluster development, which could spur entrepreneurship. -The establishment of IRESEN is likely to stimulate knowledge development and R&D. -Collaborations with foreign universities and research institutes. -New training programs at universities and for professionals in the area of renewables. -Various international workshops and conferences organised locally.
-Availability of extensive solar and wind energy resources. -Financing from international donors for existing projects as well as from SIE. -Studies have been conducted to identify the human resources needs associated with the planned renewable energy developments. -Reference projects, such as Ain Beni Mathar power plant and rural electrification programs have been implemented. -International visibility by adhering to DESERTEC´s vision and cooperating with UfM in the development of the Mediterranean Solar Plan. -Strong industry association lobbying for the needs of local companies.
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size solar projects, which prevents local SMEs from entering the market. -Unpredictable market growth beyond the 2 MW solar energy and 2 MW wind energy.
-Lack of start-up finance. -Lack of technical standards and quality control. -Limited opportunities for SMEs to enter the new industry.
-Limited R&D funding to support technological adaptation. -Lack of a cooperative culture in technology development and R&D. -Scattered research activities on technology adaptation.
-Limited dissemination of information on renewables to the larger population. -Limited opportunites for technology transfer due to lack of low content rules in existing renewable energy projects (with the exception of solar water heaters). -Less developed human capital (lack of renewable energy experts and skilled workforce). -Limited knowledge of (and hence confidence in) renewables on the part of investors and banks.
-Lack of a clear road-map for industrial and technology development. -Low confidence in and awareness about renewable energy. -Limited curricula on renewables in schools at different levels and few training programs for professionals.
6. Comparative perspectives on the innovation systems in Egypt and Morocco From this comparative analysis, we can distinguish several aspects that illustrate differences in the development trajectories for renewable energy in these two countries. To illustrate these aspects we discuss below the main aspects that revels the governance of the development process with respect to the role of the government and the institutional structure. The solid institutional developments that took place in Morocco over the past few years, with respect to legislations and organisational restructuring, points to a much stronger government commitment for renewable energy. In particular, clear responsibility and more authority has been built into the decisionmaking structure of the new organisations that were created and reorganized for this purpose. In addition, a more decentralized energy sector encourages more private sector participation, facilitating investments in renewable energy. The commitment of the Royal quarters for the National Energy Strategy in Morocco, is therefore in contrast with the high level of political instability in Egypt, which has detracted attention from the urgency of renewable energy developments. Ultimately, the governance of the innovation system in Egypt has been much weaker, with limited coordination among existing developments plans and the stated renewable energy targets. In Egypt, too much control is currently concentrated in the MoEE, slowing down the decision making process and placing too much responsibility in NREA as the sole organisation in charge with implementing the renewable energy plans. At the same time, NREA is not well prepared to engage in this process and lacks professional and organisational capabilities. In Morocco, the approach has been different, very much focused on building institutional capacity and providing more space for decisionmaking for the responsible stakeholders. Industrial integration is a critical component of the renewable energy sector development in these countries, given the need to provide jobs for a high level of educated unemployed youth and to upgrade technological capabilities and achieve higher economic competitiveness. In both countries the private sector is, however, poorly developed to take up the challenge easily. Hence, targeted policies are needed in the form of local content provisions in current project tenders, supply chain development policies, and technology transfer mechanisms. While similarities exist with respect to current challenges, differences can be identified with respect to the industrial base. In Egypt, for example, private sector actors are stronger than in the case of Morocco; several large scale companies are present that are competitive internationally in areas that are part of the value chain for solar and wind, hence offering higher opportunities for industrial development (given the need for larger investments). But, political instability and much more entrenched interests in the status-quo prevent large institutional changes from taking place. Existing agencies seem ill-equipped to push forward drastic reforms. At the same time, while know-how exists in several universities and research institutes, there is no platform of cooperation between them or with the private sector. In Morocco, the industrial structure is focused primarily on SMEs that are perhaps more competitive comparatively, due to efforts in place to raise the competitiveness of their exports for the EU market. In Morocco, however, the political actors are much stronger and committed as opposed to Egypt, which means that the development of the sector can be accelerated. Yet, in both countries, there is currently a bias in renewable energy development programs towards largescale electricity generation, as opposed to small-scale generation (i.e. roof-top PV installation). The 17
implication is that the SME sector has limited opportunities to engage in the development of the sector. Hence, opportunities for local industrial integration are restricted. Nevertheless, as the experience of other countries shows, most jobs are expected to be created in this segment (installation of small systems) (IRESEN, 2012). While the institutional framework favours the engagement of large companies, an additional drawback (especially for Morocco where the presence of large companies as project development or civil works is more limited) is that foreign companies have a clear advantage in the tendering process, due to longer experience in the market and access to technology. Moreover, limited attention has been given to implementing technology transfer mechanisms and using local content rules to allow for a higher involvement of local companies in the sector development. Ultimately, more consideration should be given to these aspects as the formation of an innovation system could be compromised given the global dynamics in the renewable energy sector. With respect to innovation and R&D capabilities, the establishment of IRESEN in Morocco could develop into a role model for the region, although it remains to be seen how successful it can be and what it can contribute with. But, for once, it has managed to trigger interest from both private sector and academia in cooperating. More efforts, however, in stimulating long-term international research cooperation and technology transfer opportunities are critical for building capabilities in technological adaptation to local environmental conditions in both countries.
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