Megabucks for megawatts: How Morocco sold donors on its billion-dollar solar gamble

A few years ago, King Mohammed VI of Morocco, the richest monarch in Africa, decided that his country should turn toward the sun. His advisers drafted an ambitious national energy strategy, aimed at generating 42 percent of the country’s electricity from renewable sources by 2020. Its flagship project comprised a complex of four solar power plants using cutting-edge technology to generate hundreds of megawatts of electricity. In May 2013, the king personally traveled into the desert to launch construction of the first plant. Skeptics within government ministries and donor agencies quietly noted the weak points in the plan. Morocco is a lower-middle-income country with multiple competing priorities, and many of its 34 million people still live in poverty. In effect, Morocco would be footing the bill for providing two global goods, reduced carbon pollution and early stage eco-technology development. Why should Moroccan taxpayers, poor households or struggling local industries pay extra for solar-generated power when available conventional alternatives were significantly cheaper? “We had a big debate with the Ministry of Finance about this,” recalled Said Mouline, who heads ADEREE, the national renewable energy agency. “Per capita, Moroccans only emit a 10th as much [carbon dioxide] as Americans do, and the electricity produced by the first power plant came out at twice the market price.” The key to winning the argument was to think longer term and refocus on the bigger picture, he said. “You need to have a 20 or 30-year time horizon in energy policy. Also, you need to think in terms of strategy, not projects. This is a long-term strategy to cut national energy import bills, reduce energy dependence, generate employment in a promising sector and develop one of the poorest regions in the country,” the energy official explained. A global model for sustainable economic growth Morocco produces no oil or gas, and currently imports over 95 percent of its total energy needs, making its economy vulnerable to hikes in global energy prices, Mouline pointed out. Over the past two decades, Morocco has connected nearly all of its villages to the grid. By 2030, demand for electricity is expected to quadruple. “Some people say that concentrated solar power is expensive, but if you look at the history of fossil fuel subsidies, which reached $5 billion in 2012, and more specifically the excessive use of heavy fuel oil subsidies for power generation, then the introduction of the solar subsidy scheme can be considered an innovative way to phase out fossil fuel subsidies and hedge against fuel price volatility in the long term,” agreed an energy specialist within the World Bank, who asked not to be named. Meanwhile, donor headquarters see the project as a global model for how rich countries can help developing countries — and themselves — to continue growing economically without causing runaway climate change, which, in the words of World Bank Group President Jim Yong Kim, would have “disastrous consequences” for everyone. North Africa is already feeling the effects of climate change. According to a recent World Bank study, “data show that dramatic climate changes, heat and weather extremes are already impacting people, damaging crops and coastlines, and putting food, water and energy security at risk.” For Morocco, the coming decades will likely bring a series of heat waves, droughts and floods that will eventually make crop cultivation and even grazing impossible in entire swathes of the country’s territory. Taken as a whole, the Moroccan solar plan aims to avoid 3.7 million tons of carbon dioxide emissions every year. Building the four power plants of the Ouarzazate complex in particular will lower the cost of the centerpiece technology — concentrated solar power — worldwide. The technology is able to store energy for several hours and release it on demand, which many other types of renewable energy are unable to do. Already, each successive tender has brought prices down, sending production costs down to $0.15 per kilowatt in the latest bid. “The objective was always to take this technology up to scale so it can go global,” said Jonathan Walters, an adviser with the program. Past efforts failed, but Morocco’s ambitious plan bucks trend The plants currently under construction already draw 15 percent of their financing from commercial sources, and some experts believe that the technology could become fully commercially competitive within as little as five years. For now, however, concentrated solar power is still an emerging technology. Some past efforts to build large plants elsewhere have struggled with considerable cost and time overruns, and Morocco’s desert complex is several times bigger than anything ever attempted before. Will Morocco actually be able to pull this off? So far, the answer seems to be yes. The first power plant is nearing completion within budget and on time, the second and third are under construction, and the fourth was recently put up for tender. Donors laud the public-private partnership approach, which has aligned the incentives of all players involved; for example, the technical risk is borne by the private companies in charge of actual construction. Donor officials interviewed for this article concurred that MASEN, a state-owned company established to manage the wider $9 billion Moroccan Solar Program, has been key to its success to date. MASEN is tasked with delivering at least 2,000 megawatts of power to the grid by 2020 and has been coordinating donors, managing the tender process and overseeing construction at Ouarzazate. The four power plants are tendered individually, with consortiums of private companies competing to construct and subsequently operate each plant. “First, we need to recognize that MASEN has an excellent team,” commented Adama Moussa, a power engineer with the African Development Bank who works closely with the company. “They are very good at managing and coordinating, very proactive [and] very competent.” Speaking off the record, insiders reported that as a lean stand-alone organization, MASEN is unencumbered by the red tape and inertia afflicting many other public institutions in the country. In addition, Morocco’s perceived political stability and the hereditary king’s personal engagement implicitly guarantee the long-term continuity of the broader policy, legal and regulatory framework. This is a crucial selling point for the private consortiums involved, whose profitability relies on MASEN purchasing electricity over decades at the price set out in the original tender bids. ‘Tough love’ approach in donor coordination At present, seven donors — AfDB, Clean Technology Fund, French Development Agency, World Bank, European Investment Bank, KfW Entwicklungsbank and the EU — are supporting the second phase of the program. Between them, they will put nearly $2 billion on the table to finance the construction of power plants two and three. While grant finance from the European Neighborhood Facility and the German Ministry of Environment, plus an interest subsidy from the German Ministry for Economic Cooperation and Development, or BMZ, were essential in getting the project off the ground in the first place, the lion’s share of international assistance is in the form of loans. How do you coordinate seven donors, each with their own policies, procedures and little egos? Dayae Oudghiri, who has worked with MASEN from day one, described a “tough love” approach. “We shared ideas and got valuable feedback, but we never let donors lead instead of us. We reminded them every time that we were the client,” she said. Building a reputation for credibility in the early days was key. “We had a clear and transparent approach, stuck to our own timelines, and were very passionate. Over time, we were able to create a trust relationship,” Oudghiri said. The sheer size of the project also helps. “Decisions need to be taken every week, and MASEN sets deadlines,” revealed Jan Schilling, who runs KfW’s solar team in Morocco. “At the end of the day, we donors have to react, else the whole project grinds to a stop. The huge sums involved in themselves also generate momentum within the funding agencies. There is strong pressure for this to move forward.” Nevertheless, the beginnings were far from easy. “This was a first not only for the host government, but also for many donors,” said Yacine Fal, the AfDB’s resident representative, recalling protracted struggles over how to harmonize procurement procedures. In particular, Moroccan negotiators’ insistence on sourcing many inputs locally to promote the emergence of a national solar industry had “raised thoughts, if not concerns,” she recalled. While the jury is still out on whether Morocco will become a global player in concentrated solar power technology, and the first plant has yet to actually produce electricity, donors are already beginning to celebrate the program as a success. “This is one of our star projects, and one of the biggest solar projects in the world,” Fal enthused. “It’s important to have this demonstration effect. This is in line with what we hope to develop across the continent.” Solar complex ‘a test case’ for climate change negotiations Hakima El Haite, Morocco’s environment minister, recently told a panel of World Bank experts in Rabat that limiting warming to 2 degrees — a global target considered very ambitious politically, but dangerously high from a climate science perspective — will require developed countries to reduce CO2 emissions by 80 percent by 2050, and poorer nations to cut back by 20 percent. “All countries must participate,” she demanded, pointing to Morocco’s number one ranking in a recent global climate policy index. “We need to change the development model, but the transition to a green economy will cost money.” A few decades from now, program adviser Walter believes concentrated solar power mega-complexes like the one now being built at Ouarzazate could form the cornerstone of a grand regional energy and development deal in which North African countries provide electrical power to Europe through long distance transmission lines. “This could be a growth and employment opportunity for all of North Africa,” he said. “But Europe needs to adjust its subsidy regimes and drop its import barriers.” Whether decision-makers in Brussels will decide to open European energy markets is uncertain, cautioned Inga Boie, an energy policy expert with the German Fraunhofer Institute. “There is no joint strategy from [the] EU side concerning electricity imports from North African countries. Renewable energy policy discussions on [the] EU level are quite intense, and the outcome is not clear yet,” she wrote in an email. Meanwhile, climate change experts worldwide are keeping a close eye on what is happening in the Moroccan desert. Currently, the burning of fossil fuels to generate electricity accounts for over 40 percent of man-made CO2 emissions, and global electricity demand is projected to more than double by 2030. In this context, the Ouarzazate solar complex could be a model for how the developing world can provide renewable energy and reduce emissions with financing from wealthier countries — if donors agree to foot the bill. “This is a test case in terms of global climate change negotiations,” Walters concluded. Check out more insights and analysis for global development leaders like you, and sign up as an Executive Member to receive the information you need for your organization to thrive.