Morocco’s transition to renewable energies to accelerate amid high hydrocarbons prices

To:

Al-Monitor Pro Members

From:

Francisco Serrano

Journalist and analyst specialized in North Africa

Date:

Nov. 16, 2022

Bottom Line:

Although a trailblazer in renewable energy, Morocco still runs on imported fossil fuels. War in Ukraine and global price volatility have made energy imports weigh heavily on the budget. Despite missing some of its own targets, the country is on track to have renewable sources account for more electricity generation than fossil fuels by 2025. This will increase energy independence, alleviate costs and reduce the carbon footprint of business operations. But ambitions to clean up electricity generation will require Morocco to curtail coal-fueled power.

Background Facts: 
  • In June 2022, Morocco opened its 14th wind farm near Taza in the country’s northwest. The first phase of the Dh2.4 billion ($233.6 million) project raised renewable generation capacity by 82MW. The Taza wind farm — set to have 150MW once completed — will be the only renewable capacity added during 2022. But it has taken Morocco’s renewable installed capacity to 4137MW or 38.2% of its total energy mix.
  • This is below the government’s earlier goal of having 42% of generation capacity from renewables by 2020. Sector authorities now expect to reach the 2020 goal in 2023 and to have renewables account for 52% of the mix by 2025.
  • Morocco announced an upward review of objectives in late 2021. The previous goal aimed to have 52% of energy mix based on renewable energies by the end of this decade. Authorities now believe that by 2030 Morocco can have 64.3% of total generation capacity based on renewables. By this point, the total installed capacity will be 20254MW. Looking into the future, authorities want renewables to account for 80% of generation capacity by 2050.
  • This will have a significant impact on the budget. Morocco imports 90% of all the hydrocarbons it consumes — mostly coal, oil, natural gas and petroleum products. But its geography and climate are natural assets for renewable energy production. It has an average solar potential of 5 kilowatt hours per square meter per day and a wind generation potential of nearly 5,000 terawatt/hours annually. Wind-based generation potential is estimated at 25000MW.
  • The current environment of high energy prices will likely accelerate the energy transition. In the first nine months of 2022, imports of energy products cost Dh114.7 billion ($10.4 billion), a Dh62.8 billion (US$5.7 billion) increase compared to the same period in 2021. Incorporating renewables will reduce energy dependence from 97% in 2018 to 82% by 2030.
  • Since the 2009 launch of its National Energy Strategy, Morocco has set up the legal and institutional framework to develop renewables. Amongst other bodies, it established the Moroccan Agency for Sustainable Energy (MASEN) to drive project development and private investment.
  • It also approved law 48-15 in 2016 to allow private producers to generate renewable energy and sell it directly to private customers. However, the establishment of the sector’s regulator — charged with overseeing competition, setting tariffs and ensuring access to electricity transport infrastructure — was delayed for procedural reasons until 2019, and the new National Electricity Regulation Authority (ANRE) only began operating in late 2020. This has deferred private producers’ access to the medium-tension electricity market.
  • But the country’s track record has been attracting private investment into large-scale projects. The 580MW Noor solar power complex, the world’s largest solar power complex, began operating in Ouarzazate in 2016 and has become a symbol of the country’s achievements. Renewable generation capacity is currently divided between 1423MW of wind generation, 825MW of solar and more than 1800MW of hydropower.
  • The transition is about more than accessing cheaper energy. Morocco has agreed, under the Paris Agreement, to reduce its greenhouse gas emissions by 17% below business-as-usual levels by the year 2030, and to reduce them by a further 25% if international financial support is made available. Because the electricity generation sector is one of the main sources of greenhouse gases in Morocco, reducing its carbon footprint through renewable energy will be key for the country to keep its pledges.
  • A successful energy transition will require cutting coal-based electricity production. The country has continued to invest in coal-powered generation, which has made Morocco’s power sector one of the world’s most carbon intensive, churning out 600 tons of CO2 per GWh in 2020, according to the World Bank.
  • This has environmental and economic impacts. A report by Greenpeace in 2018 estimated that air pollution linked to coal power plants killed 5,100 people and cuts 0.9% of GDP annually.
  • As recently as 2020, the Office National de l’Electricité et de l’Eau Potable (ONEE), the country’s utility, extended its Power Purchase agreement with the Jorf Lasfar coal-fueled power station for an additional 17 years, until 2044.
  • The Jorf Lasfar power plant is a key energy asset for Morocco, accounting for over 40% of its annual electricity needs. But it is also a major source of pollution, underlying the challenges and difficult choices Morocco will need to make in its efforts to reduce carbon pollution and clean up electricity generation.
  • Morocco and other nations pledged in 2021 not to build additional coal plants. But plans to phase out coal remain unclear. New coal-fueled power plants were commissioned in recent years, and coal accounted for more than 4GW or roughly 39% of power generation capacity as of 2021.
  • Over time, natural gas will substitute some of Morocco’s coal generation. Besides reducing pollution, it will give the power network the flexibility to deal with the intermittence that comes with renewables. Morocco has set the goal of adding 2400MW of gas-fueled generation by 2030 and extending the use of natural gas in energy-intensive manufacturing.
  • The use of cleaner natural gas as a substitute for some coal generation capacity will reduce pollution and allow the flexibility to handle the intermittence that comes with renewables. At the moment, only 17% of electricity generation capacity is based on natural gas.
  • More broadly, renewable energy produced in Morocco has a market beyond fulfilling the country’s own goals. During the ongoing COP27 climate summit in Egypt, Morocco signed a memorandum of understanding with Portugal, Spain, France and Germany to further integrate renewable energy into the continent’s energy grid.
  • Completing the transition to renewables and cleaner energy will cost money. Even before adopting higher ambitions, the International Energy Agency had estimated in 2019 that Morocco would require $30 billion just to achieve its 2030 renewable goals. The World Bank has estimated that Morocco will require $78 billion to be on its way toward a low-carbon economy by the 2050s.
Alternative Scenarios:

Scenario 1: Morocco achieves all its renewable energy goals but remains excessively dependent on coal. However, the development of its gas-generation capacity lags behind, marred by high import prices and low domestic gas production. Given increasing industrialization and population growth, policymakers opt to sustain over 20% to 25% of total electricity generation capacity based on coal, given its reliability and relatively low cost. This is both a victory and a defeat. Morocco’s abundant clean energy allows several sectors to decarbonize and the government to keep its renewable energy pledges, and encourages the development of clean energy exports into European markets. But the lingering presence of significant coal generation capacity continues to impact air quality and livelihoods, weakening greenhouse-reduction goals.

Despite the rising financial and political rejection of coal use, the war in Ukraine seems to be delaying the global move away from coal generation. This will likely recede once volatility in energy markets weakens. But the timeline for this to happen remains uncertain.

Scenario 2: Renewable generation targets for 2030 and 2050 are not met. Private investment in renewable energy in Morocco slows down over the coming years, driven by competition from other countries as well as an overall retreat of financial flows into emerging markets. The electricity mix remains highly dependent on imported fossil fuels, especially coal, weighing down annual budgets and impacting pollution-reduction efforts. Although renewable generation is part of the electricity mix, it doesn’t surpass the 50% threshold in terms of installed capacity and much less in terms of annual electricity output. Moroccan businesses using fossil-fueled electricity face dwindling export markets, as Europe adopts a carbon tax on imports.

We find this scenario unlikely. Morocco’s experience in the sector over the past decade and the economic and regulatory environment it has set up are likely to continue to drive renewable energy development.

Conclusion - Most Likely Scenario:

Morocco reaches 2030 and 2050 renewable energy goals, albeit with a one- to three-year lag, and reduces coal generation to a bare minimum. Investment continues to flow into the sector, incorporating a variety of innovative financing mechanisms and financing structures, making ample use of green bonds and public-private partnerships. The electricity regulator quickly establishes a detailed regulatory framework and pricing roadmap that accelerate additional investment into Morocco’s renewables sector.

While a residual 20% to 30% of generation capacity is still based on fossil fuels by 2050, the development of natural gas has allowed the country to reduce coal generation to below 5% to 10% of total capacity, before eventually phasing it out in the following decade. Liquified natural gas (LNG) imports and moderate domestic gas production account for most of the fossil fuel generation. Decarbonization of manufacturing gives Morocco a regional advantage to export goods into Europe and other markets. Electricity exports to the EU help those countries to fulfill their decarbonization and environmental goals and provide Morocco with an additional source of export revenues.

Contributor Background:

Francisco Serrano is a writer and analyst who focuses mainly on North Africa. He has been published in several outlets, including Foreign Policy, World Politics Review and the Middle East Institute. His second book, "As Ruínas da Década," about the past decade in the Middle East, was published in March 2022.

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