Yet wind-energy potential in some of these countries is significant, with Egypt alone estimated to be capable of producing 20GW. A few projects are slowly coming to the market, but the region badly needs private investors. "These countries are generally quite serious about wind and solar and will bring more projects to the market," says Jonathan Walters, sector manager for MENA energy and transport at the World Bank, which provides loans and assistance to developing countries. "We will see a lot of private investment. The state’s role in the electricity market is not sustainable."
In the short term, however, with political instability as it is, the state has an important role in nurturing nascent wind markets. "Potential investors mostly want to wait and see what happens or want assurances that they will be covered," notes Walters. "At the World Bank, we are being asked to play more of a role in helping to mitigate perceived risks, for example, by providing guarantees or political-risk insurance as a member of public-private partnerships."
Indeed, multilateral financial institutions and development banks are key to kick-starting wind markets in the southern Mediterranean. Financing terms are more generous than in developed markets, with some institutions even able to issue grants.
"The approach to financing a wind farm in the region would be the classic emerging-market infrastructure asset approach," says Eriks Atvars, global head of power and environment project and commodity finance at Unicredit Corporate & Investment Banking. "While in developed countries you might be able to do a 100% non-recourse project-finance loan supported by a feed-in tariff, in these countries, financing will require strong involvement of the sovereign government, export credit agencies, the International Finance Corporation and other development banks for the foreseeable future." Unicredit has not yet financed a wind project in the region, although it has advised bidders participating in Moroccan wind-farm concession tenders.
German investment and development bank KfW is leading the financing of a landmark wind farm in the MENA region — the 200MW Gulf of El-Zayt project — with a loan of €192 million. The European Investment Bank (EIB) is also contributing to the project, with a €50 million loan, while the Egyptian government is providing counterpart funding of €68.5 million. The European Commission is involved too, via a €30 million grant. Because the Gulf of El-Zayt project is a public-sector initiative, there are no issues of risk allocation between public and private financers, notes Kurt Hildebrand, head of KfW’s climate and environment division for MENA.
While Egypt has issued tenders for privately funded wind farms, none has yet begun implementation. "There is some discussion about whether and how to involve private investors once the Gulf of El-Zayt project becomes operational," says Hildebrand. "With political changes and instabilities there is some reluctance on the part of the private sector to take on risk, but the government wants and needs more private-sector involvement if it is to meet its ambitious targets."
Most MENA project financing has so far been channelled toward Egypt and Morocco, the number one and two wind markets in the region. Tunisia and Jordan have also attracted financing, but to a lesser extent.
While its wind-energy potential is far more limited than Egypt’s, Morocco boasts North Africa’s most well-developed framework for financing wind-energy projects. "In Morocco, the financial sector is well developed and open and is getting the clear message that the country wants the development of wind and solar energy," says Hildebrand. "There is a very clear and credible commitment that assures people that the payments that have to come from the government to support renewable energy will come." Egypt aside, Hildebrand sees political commitment to renewable energy elsewhere in the MENA region as less secure.
Morocco’s finance framework and its strategy of actively seeking private players to construct and operate wind farms have already drawn a diverse group of investors. Alongside domestic corporations and commercial banks, international investors have included utility GDF Suez, wind development firm Theolia and cement manufacturer Lafarge — all from France — as well as Italgen, the power-generation division of cement manufacturer Italcementi.
As with many wind markets, finance is needed to expand and upgrade electricity-transmission networks if MENA’s potential is to be fully exploited. One major deal in this area involved a $220 million (€153 million) World Bank loan, awarded last year to help develop Egypt’s infrastructure and to connect wind parks in the Gulf of Suez and Gulf of El-Zayt to the national network. Meanwhile, the EIB has provided a €260 million loan to strengthen and expand the grid and to connect wind farms being constructed on Egypt’s Red Sea coast.
Transmission grids are expected to remain in public hands. One exception may be trans-Mediterranean lines built to deliver power from the MENA region for sale in European markets. An example is Italian renewable-energy group Moncada’s planned merchant lines, which will import a combination of renewable and conventional power, generated in Tunisia and Albania.
"Something that is much discussed at the moment is to what extent the sovereign funds from the Gulf area could begin to finance projects," says KfW’s Hildebrand. "So far they have tended to be more traditional in their orientation although I have the feeling you will see them coming in more and more. In the immediate term, I would think individual commercial banks that know the market would be the first to come in. General private-equity funds are likely to remain focused on industrial countries with feed-in tariffs."
Financiers are naturally keen on wind projects with a good risk-return profile. "One of the things important to international investors is a solid legal framework and this is not ready throughout MENA, from Morocco to Bahrain," says Nimer Abuali, head of cleantech for the MENA region at financial consultants Ernst & Young.
Atvars of Unicredit adds that banks will also require assurances that non-financial constraints and risks have been addressed. "They will need a track record to see how the grid deals with renewable energy," he says. "In North Africa, there are environmental and technical issues. Electronic turbine components are sensitive and sand ingress and cooling can be an issue."
AMBITIOUS TARGET ATTRACTS INVESTORS BUT LOAN GUARANTEES ARE KEY TO TURKISH WIND
Emerging wind markets in the Mediterranean are not found exclusively on its southern shores. To the east, Turkey has a target to achieve 20GW of installed wind capacity by 2023.
With such ambitions, the country has attracted the attention of some international investors, despite the challenges to deal-making that remain within this market. A number of Turkish wind farms have secured finance, but the non-recourse project-finance deals seen in Western Europe are not a feature here.
"Export credit agencies have been supportive of exports to Turkey, but financings are typically counter-guaranteed by a local bank that has a relationship to the Turkish corporation doing the project," says Eriks Atvars of financial firm Unicredit.
Due to issues with contract structures and the functioning of Turkey’s energy market — with the resultant volatility in tariff prices — wind-farm deals primarily involve Turkish corporations.
However, organisations like the European Investment Bank, the European Bank for Reconstruction and Development and the International Finance Corporation are helping to ensure wind energy develops in this eastern corner of the Mediterranean.