Renewables in Morocco

In 2009, Morocco started the process for a long-term structural change in the country’s energy system. The country shifted its energy focus and clean energy became the cornerstone of its energy strategy. Morocco had strong incentives to do so. Unlike other countries in North Africa, Morocco has limited access to fossil fuels and imports more than 95 per cent of its energy needs. Like most countries in Africa, however, Morocco faces a high rate of growth in domestic energy consumption – between 2002 and 2012 consumption grew 7.2 per cent annually on average and it is projected to double by 2020 and quadruple by 2030, according to the Office National de l’Electricité et de l’Eau Potable (ONEE).

The development of renewable energy was an obvious choice given Morocco’s key geographical features. Access to the Atlantic Ocean and the Mediterranean Sea benefits wind farm projects, while the Saharan desert has high levels of irradiation fitting the requirements for viable solar power projects.

Morocco’s energy strategy goes beyond the satisfaction of its domestic energy consumption. Securing its energy independence is a key priority for the country but Morocco’s ambitious strategy goes even further, aiming to turn the country into a key player in the export of electricity. Its geographical position gives the country access to the sub-region and European markets – for example, interconnections currently exist with Spain and Algeria.

Morocco’s ambitions have been mapped out through defined renewable energy plans and an overhaul of the renewable energy legal and regulatory framework.
 

Renewable energy plans

Solar plan

In 2009, Morocco launched the Moroccan Solar Plan, an ambitious national initiative to develop solar energy, which aims to build 2,000 MW of solar installed capacity by 2020. Five sites were identified to implement such plan, with each project named “Noor” for “light” in Arabic: Ouarzazate, Ain Bni Mathar, Foum Al Oued, Boujdour and Sebkhat Tah.

The 160 MW concentrated solar power (CSP) plant for Phase I of the Noor Ouarzazate project generated first power earlier this year. The construction of Phase II of the Noor Ouarzazate project, which involves the building of a CSP parabolic trough project with a capacity of around 200 MW with storage, is currently underway. Such project is expected to be completed in 2017. Phase III of the Noor Ouarzazate project (also under construction) involves the building of a CSP tower project with a capacity of around 150 MW with storage. Such project is expected to be completed in 2018.

The tender for the Noor PV I trio of photovoltaic (PV) solar projects with a combined capacity of up to 170 MW is currently ongoing. These projects are Phase IV of the Noor Ouarzazate project and the Noor Laayoune and Noor Boujdour projects in the regions of the Sahara. According to IJGlobal, it has emerged from the tariff read-out on 23 May 2016 that ACWA Power and Fotowatio Renewable Ventures (FRV) have submitted competing bids within a fraction of a cent of each other, i.e. MAD 0.04615 per kWh (USD 0.04797/kWh) and MAD 0.4629/kWh (USD 0.04810/kWh), respectively. These competitive bids illustrate the decline in the solar bid prices, in particular in the PV segment.

In addition, expressions of interest for the first 400 MW Noor Midelt complex were submitted in early 2016, while Noor Tata submissions are expected to be called later this year.

Wind plan

Morocco aims to increase the country’s installed capacity of wind energy from 280 MW in 2010 to 2,000 MW in 2020.

Since 2010, a series of wind farm projects have been launched to increase the country’s production of energy from wind. These projects include: Tarfaya (300 MW, with a phased commissioning which ended in December 2014), Akhfenir (200 MW, with 100 MW commissioned in 2013 and 100 MW expected to be commissioned in 2016) and Jbel Khalladi (120 MW, expected to be commissioned in 2016).

To help boost the production of energy from wind, the Moroccan Integrated Wind Energy Project was also launched in 2010, with 1000 MW additional capacity to be installed across six energy from wind projects: Taza (150 MW, expected to be commissioned in 2017) and five wind projects totalling 850 MW won in March 2016 through tender by the consortium comprising Enel Green Power, Siemens and Nareva Holding – those five projects being Tanger II (100 MW), Boujdour (100 MW), Tiskrad (300 MW), Midelt (150 MW) et Jbel Lahdid (200 MW) and expected to be commissioned between 2017 and 2020.

Hydropower

A target of installed capacity from hydropower has also been set at 2,000 MW by 2020. This shows a political willingness to develop hydropower, however, it is fair to say that the focus on this renewable energy has been less intense. This is largely due to the level of installed capacity of hydropower already exceeding 1,700 MW in 2010 (i.e. significantly higher than the installed capacity for solar and wind energy at that time) but also the legal and regulatory framework applicable to large hydropower projects, which is considered by many to be outdated. It is worth noting, however, that a draft law proposing amendments to Law No. 10-95 in relation to water was issued last year and aims to modernise the framework, as Law No. 13-09 relating to renewable energies (the Renewable Energy Law) does not apply to large hydropower projects (please see below for more details on this law).

Two large hydropower projects are expected to be developed and commissioned by the end of 2020: the 125 MW El Menzel hydropower project and the 350 MW Abdelmoumen hydropower project.

A number of small-scale hydropower projects with installed capacity of less than 12 MW have been developed or are under development using the framework of the Renewable Energy Law – for example, the Asfalou, Ouljet Essoltane and Tilougguit projects. Further, the Renewable Energy Law has recently been amended to bring hydropower plants with an installed capacity of less than 30 MW (the cap was previously set at 12 MW) within the ambit of the Renewable Energy Law and this should help boost the development of new hydropower projects over the next few years.

Increased ambitions and other initiatives

Diversification of the sources of energy production continues to be a strategic priority for Morocco. Based on its recent successes in the development of renewable energy projects, Morocco raised its renewable energy target from 42 per cent of the total national energy production by 2020 to 52 per cent by 2030. Further laws and regulations are expected to be issued in the near future to enable Morocco to meet this target. Massive investments in the renewable sector – for an amount of USD 30 billion according to the Minister of Energy, Mines, Water and Environment – will continue to be made in the country over the next 15 years.

In addition to wind, solar and hydro, other renewable technologies are increasingly being used on a smaller scale. For example, a recently completed energy production project from landfill biogas in Fez has been lauded as a successful model for bioelectric facilities in the region as a whole. The electrical output from the plant supplies 30 per cent of the city’s energy requirements for street lighting. There is also an ongoing study in relation to a similar project to recover biogas from landfill waste in the town of Oujda. The Ministry of Energy, Mines, Water and Environment is also considering the development of a national strategy for biomass.

The EnergiPro programme is a tool, managed by ONEE, promoting investment by large industrial consumers in the development of installations which will produce electricity from renewable sources to satisfy their own energy needs. Under this programme, ONEE ensures the transmission of the electricity produced throughout the grid network at a fixed rate and the purchase of any excess of electricity produced at favourable tariffs.

In addition to the production of renewable energy, energy efficiency is a major part of Morocco’s energy strategy – as outlined in its National Plan for Energy launched in 2009. Morocco’s energy strategy aims to save 12 per cent of energy consumption in 2020 and 15 per cent in 2030. Programmes have been put in place to introduce energy efficiency techniques in certain economic sectors – for example, the solar water heater programme (PROMASOL) which is funded by the United Nations.

Alongside the development of renewable energy and energy efficiency, massive investments are being made to develop and strengthen the electricity transportation network and the interconnections, to cater for the expected increase in the production of electricity.
 

The Renewable Energy Law

Liberalisation of the renewable energy sector

Renewable energy is regulated by the Renewable Energy Law which was published in 2010 and revised by Law No. 58-15 published earlier this year.

The Renewable Energy Law liberalised the renewable energy sector and constituted a major step towards the modernisation of the Moroccan legal and regulatory framework, a necessary development to enable the promotion of renewable energy and to help Morocco achieve its targets.

Previously, the Office National de l’Electricité (ONE) had the monopoly for the generation of electricity. The Renewable Energy Law now permits renewable electricity to be generated and exported by private entities, public entities and individuals (article 2 of the Renewable Energy Law).

The Renewable Energy Law applies to all renewable energies including wind, solar, geothermal, tidal and biomass; however, the Renewable Energy Law expressly excludes from its ambit hydropower plants with an installed capacity greater than 30 MW (article 1 of the Renewable Energy Law). Law No. 58-15 increased this threshold of exclusion in respect of hydropower plants from 12 MW to 30 MW, to match the characteristics of the sites available.

It should be noted that there is no feed-in tariffs in Morocco, under which a set payment is made to entities generating electricity from renewable sources.

Regimes applicable to renewable projects

The Renewable Energy Law introduced a number of regimes – the regime applicable to a contemplated project depends on its installed capacity.

The first regime applies to installations producing electricity from renewables with installed capacity of at least 2 MW. Under the regime, an authorisation is required for the development, operation, extension of capacity or modification of any such installations (article 3 of the Renewable Energy Law).

For the development of any new renewable project, a provisional authorisation is required prior to undertaking such project. To obtain a provisional authorisation, the operator must be incorporated in Morocco and meet certain technical and financial criteria. The operator must obtain a final authorisation for the operation of the project within two months of completion of the works and such final authorisation is valid for a maximum period of 25 years, renewable once for the same duration (articles 8 to 13 of the Renewable Energy Law). At the expiry of such period of validity, the relevant installations and the site revert to the State free of charge (article 7 of the Renewable Energy Law). Alternatively, the public administration may require the decommissioning of the installations at the cost of the operator (article 7 of the Renewable Energy Law). It is worth noting that wind and solar projects with an installed capacity of 2 MW or higher can only be undertaken in certain sites chosen by the authorities (a
Article 7 of the Renewable Energy Law).

It should be noted that these references to the low voltage national electricity grid have been introduced through Law No. 58-15, in order to boost the development of small-scale installations and in particular PV installations.

The terms and conditions applicable to connection to the national electricity grid are set out in an agreement entered into between the operator and the entity managing the national electricity grid (currently ONEE) (article 24 of the Renewable Energy Law). In practice, two agreements are entered into with ONEE: an access agreement setting out the terms and conditions of the access to the grid and the transportation of electricity and a connection agreement setting out the terms and conditions of the carrying out of the connection.

Exporting from Morocco electricity generated from renewable projects

The operator of an installation producing electricity from renewable sources which is connected to the medium, high and very high voltage national electricity grid is permitted to export such electricity (article 27 of the Renewable Energy Law).

Electricity must be exported through the national electricity grid and the interconnections. If the capacity of the grid or the interconnections are insufficient, the entity managing the national electricity grid (currently ONEE) may enter into an agreement with the operator to permit the operator to build and use direct lines to transport the electricity that operator produces (article 28 of the Renewable Energy Law).

Any operator exporting electricity must pay to the State an annual charge calculated in relation to the portion of energy exported (article 29 of the Renewable Energy Law).

Key Moroccan authorities

In addition to the Ministry of Energy, Mines, Water and Environment, the following Moroccan authorities, agencies and other entities have a key role in the renewable sector in Morocco.

Moroccan Agency for Solar Energy (MASEN)

MASEN was established in 2010 to oversee the promotion and development of solar projects and to contribute to the development of Moroccan expertise in the solar sector.

MASEN looks set to play an increasingly important role in the renewable sector. In 2015 the King of Morocco issued instructions to put MASEN in charge of the promotion and development of all renewable energies including solar, wind and hydro. MASEN and ONEE will also work more closely under a new strategic unified leadership, aimed at enabling Morocco to achieve its ambitious targets in the sector. Further laws and regulations are expected to be issued in the near future, to implement those instructions from the King of Morocco.

Office national de l’électricité et de l’eau potable (ONEE)

ONEE was established in 2011 by bringing together the Office national de l’électricité and the Office national de l’eau potable. ONEE is primarily in charge of:

• the public service of production, transportation and distribution of electricity
• the satisfaction of the national electricity consumption;
• the management and development of the national electricity grid; and
• the promotion and development of renewable energies generally.

Autorité Nationale de Régulation de l’Electricité (ANRE)

Draft Law 48-15, currently being considered by the Parliament, contemplates the establishment of a new authority, the Autorité Nationale de Régulation de l’Electricité (ANRE), to oversee the functioning of the free electricity market and to regulate the access of the operators to the national electricity grid. The authority’s powers would include setting the tariffs applicable to the use of the grid, approving multi-annual investment programmes for the national electricity grid and interconnections, and approving the grid code setting out the technical parameters for the access to the grid.

Agence Nationale pour le Développement des Energies renouvelables et de l'efficacité énergétique (ADEREE)

ADEREE was established in 2010 (by replacing the Centre de Développement des Energies Renouvelables) to implement Morocco’s national plan for renewable energy and energy efficiency. ADEREE proposes programmes for the development of renewable energy and energy efficiency and proposes geographical areas suitable for the development of wind and solar projects.

Société d'Investissements Energétiques (SIE)

SIE is the financial arm of the State responsible for the implementation of the energy strategy. SIE’s role is to promote the development of new energy sectors through investment and project development in Morocco.

Key structural features of large renewable projects

Contractual and financing structure

The contractual and financing structure of large renewable projects in Morocco largely follows the project financing model:

• a special purpose vehicle (SPV) is incorporated in Morocco to build, develop and operate the project;
• sub-contracts are entered into with sub-contractors to build and operate the plant;
• long-term power purchase agreements are signed by the SPV with ONEE or MASEN (as the case may be); and
• the costs of the project are met by a mixture of equity and debt.

Morocco is seen by financiers and investors as a relatively stable country in which to invest – Standard & Poor’s credit rating for Morocco currently stands at BBB- with stable outlook and Moody’s credit rating for Morocco was last set at Ba1 with stable outlook. It is therefore not surprising to see that international financial institutions have been very active in the financing of renewable projects in the country. Moroccan banks and financial institutions have also played a key role in the financing of energy projects, in particular in relation to wind farm projects.

For example, IFIs such as the African Development Bank, the European Investment Bank and Kreditanstalt für Wiederaufbau have been involved in one or more of the first three Phases of the Noor Ouarzazate solar projects

Another example is the 120 MW Khalladi wind farm which reached financial close in 2015. This project developed by a consortium led by ACWA Power is funded by the European Bank for Reconstruction and Development (EBRD), the Clean Technology Fund (CTF) and Banque Marocaine du Commerce Exterieur (BMCE). It is one of the first private renewable energy projects in Morocco to be developed under the provisions of the Renewable Energy Law, allowing producers to sell electricity directly to clients (mainly industrial companies) connected to the national electricity grid. This project relies on commercial offtake agreements with no support from the State.

On the equity side, ONEE or MASEN may take a minority shareholding stake in the SPV alongside national and international developers.

Structure of solar power projects 

Solar power projects in Morocco (and in particular those outside the Western Sahara) have unusual structuring features worth noting.

On the debt financing side, the project vehicle is financed by MASEN using funds from IFIs: IFIs lend funds to MASEN on a bilateral basis (the IFIs benefitting from a guarantee granted by the State) and MASEN on-lends the proceeds of such funds to the project vehicle to develop and construct the solar plant. Like any project financing provider, MASEN benefits from a security package over the shares in, and assets of, the project vehicle. From the project vehicle’s perspective, the complexity of this financing structure necessitates the management of a number of issues. For example, MASEN acts as long-term offtaker of all electricity generated by the project, minority shareholder in the project vehicle but also senior debt provider to the project vehicle which raises a certain number of risks associated with these conflicting roles. Another example is the consolidation of the requirements from various IFIs which may conflict with each other. These challenges were settled in the documentation agreed for Phase I of the Noor Ouarzazate solar project and this documentation has been used as a template for the subsequent phases of the solar programme. This on-lending structure achieves a cost of debt lower than that which an SPV would be able to obtain on the local or international market and lowers as a result the price of the electricity produced by the operators, which ultimately benefits Morocco.

Interestingly, the project vehicle must sell all electricity it produces to MASEN (and not ONEE) through a long-term power purchase agreement, with the price based on the tariff tendered by the bidder and calculated to cover the costs of the project plus a return for the shareholders. MASEN then on-sells the electricity to ONEE under separate arrangements at a lower tariff. MASEN benefits from State subsidies (which may be funded by IFIs such as in Phase I of the Noor Ouarzazate solar project where World Bank approved a loan of USD 200 million to Morocco for this purpose) which mitigate the effect of the shortfall between the tariff paid by MASEN to the project vehicle and the tariff received by MASEN from ONEE.

Conclusion

Morocco’s renewable energy strategy has made the country more visible to international investors in the energy sector. Ernst & Young ranked Morocco #14 in its renewable energy country attractiveness index in May 2016 and the 22nd session of the Conference of the Parties (COP 22) to the United Nations Framework Convention on Climate Change (UNFCCC) is expected to take place in Morocco later this year. Within only a few years, Morocco has become an African superpower and a key global player in the renewable energy world. Raising its renewable energy target from 42 per cent of the total national energy production by 2020 to 52 per cent by 2030, and the significant level of investment required to achieve this, will consolidate Morocco’s position on the renewable market and ensure that the country remains at the forefront of the renewables sector.

Morocco has far reaching ambitions. The establishment of ANRE, an independent public authority, will, once implemented, demonstrate the strong commitment of Morocco in favour of the liberalisation of the renewable energy market, and points to a possible liberalisation of the wider electricity market itself in the future.

Renewable energy has been the tool used to kick-start Morocco’s energy transition. According to the Ministry of Energy, Mines, Water and Environment, 2,760 MW of additional installed capacity have been developed between 2009 and 2015 and 3,753 Km of high and very high voltage power lines have been built between 2009 and 2014. Strong political support, a clear and defined roadmap and the backing of international institutions have been critical to the process. Undoubtedly, Morocco’s success story should inspire other countries in Africa.

Ashurst LLP advised ACWA Power (the winning bidder) on the first three Phases of the Noor Ouarzazate project