IEMed Mediterranean Yearbook 2010


Panorama: The Mediterranean Year

Economy and Territory

Culture and Society


The Mediterranean Solar Plan: Opportunities and Limits for Integration and Development

José María Marín Quemada

Professor of Applied Economics and Economic Policy
Director, Research Group on International Political Economy and Energy
Universidad Nacional de Educación a Distancia (UNED), Madrid

Gonzalo Escribano Francés

Lecturer in Applied Economics and Economic Policy
Research Group on International Political Economy and Energy
UNED, Madrid

In recent years, the deployment of renewable energies has emerged as one of the pillars of Community energy policy. The EU’s Mediterranean neighbourhood has enormous solar and wind power potential, and the Mediterranean Partner Countries (MPCs) have expressed interest in harnessing it. These overlapping interests explain the attention received by the Mediterranean Solar Plan. This article will argue that the Plan is an opportunity to deepen Euro-Mediterranean integration and to promote the economic development of the MPCs, providing certain current limitations are addressed and resolved. To this end, it is doubly useful to view the Solar Plan as a programme for development and regional integration that requires cooperation between the two shores of the Mediterranean.

The Solar Plan is one of six projects mentioned in the annex to the Paris Declaration. Despite the plan’s name and its emphasis on solar energy, the Declaration calls for the mobilisation of all alternative energy sources in order to enable the export of green electricity generated in the MPCs to the EU. Such mobilisation hinges on a series of complementary projects, such as the development of renewable electricity generation facilities, the construction of high-capacity transmission lines to transport the green electricity to the EU, upgrades of the MPCs power grids and intra-regional interconnections, natural gas development to supplement the renewable energies, a desalination plan and, finally, the implementation of training and technical and technological cooperation programmes by the EU.

The construction of wind and photovoltaic farms and solar thermal plants is the Plan’s most visible feature, raising the question of which option should be given priority. To date, solar thermal technology has been deployed only modestly on the southern shore of the Mediterranean. Consequently, the short-term option currently under consideration is to support the implementation of new demo projects with a view to promoting the technology in the medium and long term once it has reached technological maturity. Wind power generation is closer to the profitability threshold. A wind power plan could thus be undertaken in the short term. Indeed, there is high potential for such a plan in Morocco, Algeria, Egypt and Turkey. As for photovoltaic energy, there is major potential for its use in rural areas and decentralised facilities. It could moreover have a significant impact on energy poverty. Further down the road, the large-scale installation of solar thermal plants in isolated regions and the roll-out of off-shore wind power are being considered.

However, for green electricity to be exported to the EU, high-capacity HVDC (high-voltage direct current) transmission lines must be built. If infrastructure to interconnect the MPCs and Mediterranean Europe, as well Mediterranean Europe and the rest of the continent, is not developed, it will not be possible to export electricity from the MPCs. Whilst this issue has received little attention, it is one of the key limitations facing the Plan. It is moreover closely related to the need for upgrades in the MPCs’ power grids and intra-regional interconnections. If efforts are not made to interconnect the MPCs both amongst themselves and with the EU, the Solar Plan will not play a structural role in the region. Additionally, the MPCs’ grids are weaker than Europe’s and their connection to the latter along with an increased share of renewable energies will require the modernisation of their electrical systems. This is because renewable energies are grid-intensive and require a more flexible system. Another of the Plan’s complementary projects is the construction of desalination plants powered by renewable energies, since desalination processes both use significant amounts of power and require synergy between both applications.

If efforts are not made to interconnect the MPCs both amongst themselves and with the EU, the Solar Plan will not play a structural role in the region

The need to manage renewable energies may also require natural gas infrastructure in the short term, in order to supplement renewable energies when they are unable to meet spikes in demand. This notwithstanding, in the long term solar thermal technology can be used for the large-scale development of plants with molten salt storage systems, thereby reducing the need for supplementary energy. However, above all, the large-scale deployment of renewable energies in MPCs requires training and technical and technological cooperation programmes on the use and development of these energies, as well as on managing and regulating the energy sector and renewable energies. This is one of the main conditions for renewable energies to be able to contribute significantly to the economic development of the MPCs. The other is the existence of an adequate framework to ensure legal certainty.

In addition to physical infrastructure, the deployment of renewable energies will require a predictable regulatory framework and stimuli to help them reach the profitability threshold. It will also require a stable institutional environment to attract the major investments involved in such a capital-intensive project. An analysis of the incentives and legal measures taken to date by the MPCs in the sphere of renewable energies shows some progress, albeit at very uneven rates. Major legal and institutional barriers still exist in all the MPCs that should be addressed with technical cooperation and training programmes in order to improve the legal framework and build the capacity of regulatory bodies and authorities.

One of the main aspects of the regulatory framework is the compensation it provides for renewable energies. The most widespread regulatory method in the EU is the “feed-in tariff” (FIT). FITs are also used in Algeria, Egypt, Israel and Turkey and are currently being studied in Morocco, Tunisia and Syria. The main question is who should foot the bill for the “green bonus” built into FITs, the MPCs themselves or the EU member states. The FITs would be a major burden for the MPCs and their application to ever-increasing amounts of green electricity could be limited. Indeed, the only viable way to pay for the FITs would seem to be to export some of the green electricity to the EU. European firms have proposed applying lower FITs to green electricity imported from the MPCs than those applied inside the EU, arguing that the southern Mediterranean’s facilities, especially its solar facilities, are more competitive. From an economic vantage point, the idea of punishing the MPCs for their competitive edge, that is, of pursuing FIT-based protectionist policies rather than encouraging the development of such obvious comparative advantages as hours of sunlight and wind or abundant idle land, is a weak one.

70% of green power generation facilities in the MPCs will be financed with private funding under a model based on free market access and FITs

There are some doubts regarding the source of financing for this project, as current Euro-Mediterranean funds have already been earmarked and are insufficient to implement the Solar Plan, although the FEMIP (the EIB’s Facility for Euro-Mediterranean Investment and Partnership) and ENPI (European Neighbourhood and Partnership Instrument) could play a catalytic role. The Plan’s solution is to seek both public and private funding, including EU funds and loans from the EIB and other international financial institutions, such as the World Bank or African Development Bank. Although the international financial situation is not conducive to the mobilisation of funds, a distinction should be drawn between generation facilities and transmission lines on the one hand and training and cooperation programmes on the other. According to estimates by the Observatoire Méditerranéen de l’Énergie (OME), 70% of green power generation facilities in the MPCs will be financed with private funding under a model based on free market access and FITs. Financing for the MPC-EU lines could be provided by a firm jointly owned by the national grid operators and the EIB. Public private partnerships (PPPs) would seem to be well suited to projects involving major outlays (solar power plants, wind farms) and have already been used in the region for such purposes.

The training and technical and technological cooperation programmes could be financed with EU and bilateral cooperation development funds and are one of the key conditions for ensuring that efforts have a significant impact on the development of the MPCs. If local labour is not trained, it will not be possible to offshore parts of the wind turbine, mirror and photovoltaic panel manufacturing processes, plants will be built and operated without the transfer of know-how or technology and the lion’s share of the jobs created will remain in the EU. The MPCs must not be limited to hosting the facilities and carrying out only the simplest maintenance processes, which create few jobs. Likewise, electricity market institutions and infrastructure must be dramatically modernised if they are to be able to manage the generation and transport of large amounts of renewable energy. In addition to the financing of transmission lines and interconnections, effective integration of the energy markets requires regulatory convergence and technical standards to ensure the interoperability of the national systems.

One key factor for attracting investments is the level of incentives built into the Plan. To this end, FIT-based discrimination could affect the deployment of these energies in the MPCs if the differences in the spheres of legal certainty and regulatory risk cannot be offset by the greater competitiveness of renewable energies in the MPCs: resorting to FIT-based protectionism would seriously contradict the idea of the Plan as a driver of development in the MPCs. Finally, from a human development perspective, in addition to the export of green electricity to the EU, the Plan must include the fight against energy poverty as one of its main components and serve as a tool for economic development. In sum, if the Solar Plan is not conceived of as a global strategy for contributing to the development of the MPCs, and if it does not take into account everything needed to this end, it could wind up little more than a Euro-centric exercise in serving the EU’s own environmental and economic interests without any significant impact on the development of the MPCs or sub-regional integration.