Renewable Energies in the Middle East and North Africa

Policies to Support Private Investment

image of Renewable Energies in the Middle East and North Africa

The combined effects of the economic crisis and the recent popular uprisings in parts of the Middle East and North Africa have brought social and economic challenges back to the centre of attention of policy makers. For governments searching to create jobs, to satisfy the growing energy demand of their populations and to diversify their economies, the appeal of renewable energies is strong. However, the right policy framework and support need to be put in place if the region wants to attract private investment in the sector and reap the benefits of its favourable resource endowment, especially as regards solar and wind energy.

This report makes the case for a stronger deployment of renewables in the Middle East and North Africa and identifies the appropriate support policies required to stimulate the necessary private investment. An assessment of existing policy frameworks in the region and examples from OECD good practice are used as pointers to help guide policy makers in their choices.  

The analysis contained in this report suggests that support policies targeting the life cycle of renewable energy projects such as feed-in tariffs and power purchase agreements are more effective and less distortive than policies subsidising the initial investment, such as cost reductions. The optimal incentive scheme provides investors with stability through a guaranteed but declining minimum return while imposing enough market risk to foster technological progress.



Key Energy Task Force recommendations: The right mix of support measures for renewable energy projects

The design and implementation of support mechanisms and investment incentives vary across countries and there is no single optimal incentive scheme for renewable energy projects. The choice of the right policy tool for attracting private investors is crucial as public resources could be unnecessarily wasted if an inappropriate incentive is implemented. Cash-flow incentives have a higher impact on the decision to invest in renewable energy power generation. Among the incentive schemes identified in the report, power purchase agreements are considered most useful, in the right conditions. Various investment incentives such as feed-in tariffs, net metering, competitive bidding, power purchasing agreements and quotas, or combinations of these, are evaluated for their effectiveness.


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