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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.

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Support mechanisms for the renewable energy sector in the Middle East and North Africa

Support for renewable energy development in OECD countries most often takes the form of feed-in tariffs and net metering as these are measures which address the issue of cash flow during a project’s life cycle. To help decision makers attract private investment and limit public expenses, an optimal mix of support mechanisms must be selected to guide private investment to the renewable energy sector, ensuring profitability for the investor and minimum cost for the government. These measures are specific to renewable energy projects and have been developed specifically to attract investors to renewable energy power generation. In the MENA region, a number of countries are implementing some support measures, but they vary in consistency across the region. A perfect incentives scheme as such does not exist. The optimal incentives scheme for a country needs to take into account national circumstances such as a country’s renewable energy potential, its energy policy framework, the existence of non-economic barriers, the degree of market liberalisation and its energy system infrastructure. These exogenous features are all likely to influence the effectiveness of any national incentive scheme.

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