Morocco turns to renewable resources and natural gas to diversify its energy mix

 

Morocco has long depended on international markets to fulfil its energy generation needs. Unlike nearby countries such as Algeria and Libya, Morocco has not had the advantage of large-scale hydrocarbons reserves to fuel its economic development. Although this has left the country vulnerable to fluctuating global oil prices, it has also led policymakers to make strategic decisions regarding future generation capacity. As such, Morocco has embarked on a major rollout of renewable energy sources, alongside the modernisation and expansion of its electricity transmission and distribution networks and an acceleration of its hydrocarbons exploration efforts. The country is also looking to phase out its pollutant fossil fuel generation infrastructure for cleaner natural gas. These measures aim to reduce energy imports and carbon emissions, two critical long-term goals for the sector.

Energy Goals

Since the government embarked on a programme to incorporate renewables into the energy mix in 2008, the country’s generation capacity has changed significantly, with solar and wind power infrastructure playing an increasingly important role. Although Morocco still relies largely on fossil fuel power plants, there are also plans to expand natural gas capacity in the years ahead.

This is particularly crucial as energy consumption continues to rise. Morocco’s development in the past two decades has led to the emergence of new industrial sectors and an expansion in economic activity, resulting in the growth of the middle class and a rise in income for this section of the population, affecting consumption patterns throughout the economy. As such, Morocco’s total primary energy consumption rose at a compound annual growth rate (CAGR) of 5% between 2004 and 2018, compounding the need to boost generation capacity.

However, the country must strike a balance between meeting its future energy demand and promoting efficient usage. In 2016 the government committed to reducing greenhouse emissions by 17% in 2030 under the Paris Agreement, and have provisionally agreed to a further 25% reduction in emissions over the same period if the necessary international support mechanisms are put in place.

Accomplishing these goals will require a significant amount of investment, and will also depend on the government’s capacity to implement regulatory reforms and effectively manage the series of energy-related projects in the pipeline.

Since the government embarked on a programme to incorporate renewables into the energy mix in 2008, the country’s generation capacity has changed significantly, with solar and wind power infrastructure playing an increasingly important role.

Structure & Oversight

The main government body responsible for managing the sector is the Ministry of Energy, Mining and the Environment (Ministère de l’Energie, des Mines et de l’ Environnement, MEME), which is charged with overall policy making. The National Office of Hydrocarbons and Mines (Office Nationale des Hydrocarbures et des Mines, ONHYM) is tasked with handling the processing of contracts for mining and oil and gas exploration projects, as well as supporting international firms looking to enter the kingdom’s energy sector. Another key player is the main utilities company, the National Office for Electricity and Drinking Water (Office National de l’Electricité et de l’Eau Potable, ONEE), which manages the production, transmission and distribution of electricity, and water access and infrastructure. In 2018 ONEE’s power stations produced 10,911 GWh of electricity, accounting for 31.8% of the country’s total output. Additionally, several independent power producers are active in the kingdom, including Taqa Morocco, which operates the coal-fired plant at Jorf Lasfar. In 2018 Jorf Lasfar produced 14,772 GWh of electricity, accounting for 42.8% of the country’s total output.

The government’s focus on renewables has brought a host of new state entities to the forefront of Morocco’s energy sector. One key player is the Moroccan Agency for Sustainable Energy (l’Agence Marocaine pour l’Energie Durable, Masen), formerly known as the Moroccan Solar Agency, which was established in 2010 and plays a critical role in developing solar energy projects. The Moroccan Agency for Energy Efficiency is charged with directing the country’s energy efficiency strategy across the business, industrial and residential sectors.

Although the government initially aimed for a 12% reduction in electricity consumption by 2020 and a 15% reduction by 2030, these targets were revised in 2017 as part of the National Energy Efficiency Strategy, which set the more ambitious goal of a 20% reduction in electricity usage by 2030.

In order to advance these efforts, the National Authority for the Regulation of Electricity was established to act as an independent watchdog for the electricity segment. Although the decree to create the organisation was passed in 2016, the regulator became fully operational in 2019. Its main tasks include overseeing competition in the electricity market, ensuring producers have fair access to transport infrastructure and establishing tariffs.

Performance

The energy sector is highly dependent on coal, oil and gas imports. In 2018 the installed power generation capacity totalled 10,938 MW and its overall production was recorded at 34,519 GWh, according to ONEE. The majority of electricity was produced by thermal generation, which accounted for 27,653 GWh, a 3.9% increase on 2017. Of this total, the country’s four coal-fuelled power stations contributed 21,260 GWh, an additional 5197 GWh originated from two gas-fired, combined-cycle power plants and 1028 GWh was produced by oil-based thermal generation.

Although coal, oil and gas still account for most of the energy mix, hydroelectric power production rose by 42.9% from 1184 GWh in 2017 to 1693 GWh in 2018. Additionally, solar energy output rose by 128.8% that same period, from 415.3 GWh to 950.2 GWh. Wind power production grew by 26.6%, from 3034.8 GWh to 3840.7 GWh.

Trade Balance

While the energy sector plays a significant role in Morocco’s economy, it continues to rely on imports for the majority of its supply. The country spent Dh76.4bn ($8bn) on energy imports in 2019, down 7.2% from Dh82.3bn ($8.6bn) the previous year. Nevertheless, the energy sector accounted for 15.6% of total imports in 2019. The financial resources required to secure annual energy consumption has meant that the country is highly dependent on global energy markets.

According to the most recent figures from MEME, 91.7% of Morocco’s energy was provided by imports in 2018, which has substantial implications for the country’s annual budget planning and trade balance. Although the country has been able to take advantage of lower international oil prices since mid-2014, which have enabled it to reduce its fossil fuel subsidies, unpredictable global economic conditions – compounded by tensions between the US and Iran in early 2020 – have highlighted the potential for further disturbances in energy markets in the shorter term and Morocco’s need to reduce its exposure to international energy markets.

Electricity

As the country’s economy has developed, electricity consumption has risen, with demand increasing at a CAGR of 5.7% between 1998 and 2018. Per capita electricity consumption grew by 134.7% over the same period, from 453 KWh to 1063 KWh. Although demand continues to rise, it has slowed slightly in recent years due to government measures to encourage a reduction in electricity usage. In 2014 ONEE signed a programme contract with the government aimed at restoring the organisation’s financial viability, which involved tariff adjustments to encourage customers to reduce their consumption of electricity.

Rural electricity supply has improved significantly, rising from 45% in 2000 to 99.6% in 2018. In 2018 ONEE claimed that it had been able to connect 40,000 villages across the country as part of its rural electrification plan launched in 1995, with 513 villages and 13,800 homes connected in 2018 alone. In order to connect isolated communities, the authorities are increasingly turning to off-the-grid methods, with some 71,000 homes using small-scale solar energy kits to supply electricity.

Investment Drive

In addition to extending the reach of electricity access, investment is also being directed at modernising and improving the country’s existing production, transmission and generation infrastructure. In July 2019 ONEE approved a Dh51.6bn ($5.4bn) investment programme, which will run until 2023. Approximately Dh8.6bn ($896m) was allocated to thermal and renewable energy generation projects, and Dh8.7bn ($906.3m) was earmarked for regional electricity interconnection projects between Mauritania and southern Morocco, and between Portugal and the north of the country. In addition, Dh4.2bn ($437.6m) will be directed to rural electrification programmes across the country, while the remaining Dh25.5bn ($2.7bn) will be allocated to the water segment.

Investment has also been directed towards the creation of new regional transmission links. In May 2019 the authorities signed an agreement with the government of Spain to develop a new electricity line between the two countries. This will be the third electricity line between Morocco and its northern neighbour. The project comes in the wake of recent efforts to expand electricity trading ties with European partners. In 2018 the country signed a deal with the European Internal Electricity market, which includes Germany, Portugal, Spain and France. Additionally, in 2015 Morocco and Portugal signed a deal to construct a 1000-MW transmission cable connecting the two countries.

Water

Much like the electricity segment, water access and distribution infrastructure have also benefitted from Morocco’s economic development, attracting expansion projects across different regions of the country. Much of this has been geared towards improving water access in rural areas, although significant investment has also been directed to upgrading water treatment systems in order to increase access in urban and industrial areas. For example, in 2016 the African Development Bank approved a €88.8m loan to improve water provision in the country’s north-west. The project included improvements to water treatment systems supplying larger cities such as Rabat and Casablanca, as well as nearby smaller towns and rural areas.

Of the Dh25.5bn ($2.7bn) earmarked by ONEE to upgrade water treatment and distribution systems between 2019 and 2023, Dh15.2bn ($1.6bn) has been set aside to improve water supply in urban areas through the construction of 3400 metres of new piping. In addition, Dh5.7bn ($593.8m) will be allocated to increasing water distribution in rural areas, supplying an additional 308,000 people. According to government estimates, these measures will expand rural water access to 99.3% of the population. The remaining Dh4.6bn ($479.2m) will fund the construction of 64 new water treatment units.

Renewable Resources

Although the country continues to search for viable hydrocarbons reserves, it has also accelerated the development of renewable energy. According to local media, the country is on track to have renewables supply around 42% of its installed power generation capacity by the end of 2020 and 52% by 2030, objectives set by the National Energy Strategy in 2009.

Morocco’s geographic location and climate conditions give it a strategic advantage in the renewable energy segment. According to government estimates, the country has around 3000 hours of sunlight per day and an annual solar energy potential of 5 KWh per sq metre. Morocco also has significant wind generation potential, measured at approximately 5000 TWh per year, and a potential useful capacity of 25,000 MW. The most recent ONEE figures stated that the country had an installed capacity of roughly 1770 MW in hydroelectricity generation, 1220 MW in wind power and 711 MW in solar energy as of the end of 2018.

While the implementation of the National Energy Strategy has already brought many changes to the structure of Morocco’s generation infrastructure in the last decade, the country is still likely to face some difficulties in meeting its ambitious energy targets. “The biggest challenge will be reaching the goal of 52% renewables on the grid by 2030,” Taoufik Laabi, general manager of local consultancy Glob Energy Conseil, told OBG. “Not only will the pace of existing projects need to be accelerated, but additional medium-sized projects will need to be developed alongside an updated regulatory framework.”

These measures will require considerable financial commitment. According to the International Energy Agency (IEA), Morocco is expected to require as much as $30bn to achieve its stated renewables goals by 2030. As such, the country has sought funding and assistance from both international companies and multilateral organisations in order to develop its renewables capacity.

Solar

Morocco’s renewable energy drive has made considerable strides in recent years. A major development, and the first of its kind in the country, was the completion of the first stage of the 580-MW Noor Ouarzazate concentrated solar power unit, which began operation in 2016. Noor I has a generation capacity of 160 MW and was delivered by Saudi developer ACWA Power. In 2018 Noor Ouarzazate II, III and IV became operational, adding 200 MW, 150 MW and 70 MW, respectively.

Other significant solar projects are already in progress, including the Noor Midelt solar generation project, which is set to be built in the Atlas Mountains. The development will be funded by a host of multilateral institutions, such as the World Bank, the European Commission, the Clean Technology Fund and the African Development Fund. The project will involve the construction of 800 MW of solar generation capacity and is estimated to cost $781m. The tender was launched by Masen, and will comprise a hybrid system with both photovoltaic and concentrated solar generation technologies.

Sector players are confident that partnerships with multilateral institutions will help accelerate the country’s renewables agenda. “The Clean Technology Fund, which supports large infrastructure projects with low greenhouse gas emissions, has seen promising results, with more than 85 projects already registered worldwide and more in the pipeline. It has contributed significantly to helping Morocco reach its objective of 52% renewable energy consumption by 2030,” Badis Derradji, regional managing director of Saudi Arabia-headquartered power generation company ACWA Power, told OBG.

In May 2019 a consortium of French energy company EDF Renewables, Abu Dhabi-based firm Masdar and Morocco’s Green Energy of Africa were awarded a contract to construct the first section of the Noor Midelt plant. In June 2019 the Moroccan authorities launched the pre-qualification phase of the second section of the project, which will include 230 MW of solar generation capacity. Industry stakeholders are confident that these developments will enable the country to meet its aim of 42% renewables on the grid in the short-term future. “With these two projects and what has already been accomplished at the Noor Ouarzazate development, Morocco should be able to achieve its 2020 goal in the next few years, even if these projects do not come on-line until 2022 or 2023,” Laabi told OBG.

Wind & Hydropower

Alongside promising developments in the solar segment, Morocco continues to expand its wind and hydropower generation capacity. The Integrated Wind Energy Programme was launched in 2010 with the aim of establishing 2000 MW of annual wind energy capacity by 2020. As a result of these efforts, wind generation grew 10-fold from 0.3 TWh in 2007 to 3 TWh in 2017. With 1207 MW of capacity across 12 wind farms as of 2018 and 1330 MW set to come on-line between 2019 and 2021, Morocco is on track to achieve its goal.

A considerable amount of new capacity will be installed as part of the government’s plans to develop five wind farms with a combined capacity of 850 MW. The new sites will be located in Midelt, with a capacity of 180 MW; Essaouira (200 MW); Tarfaya (100 MW); Tangier (70 MW); and Boujdour (300 MW). In November 2019 Masen and ONEE announced that an agreement had been signed with Morocco’s Nareva Holding and Italian firm Enel Green Power for the construction of the Dh4bn ($416.7m) wind farm at Boujdour.

Additionally, in December 2019 the authorities signed a deal with a consortium of Japanese contractor Mitsui and France’s EDF to construct the first phase of the 150-MW Taza Wind Park, located 12 km north of the town of Taza in the north of the country. The first phase will bring 87 MW of wind generation capacity on-line and is set to be completed in late 2021. It will comprise 27 general electrical wind turbines with a capacity of roughly 3.2 MW each. According to the authorities, the first phase of the park will result in the removal of 200,000 tonnes of CO₂ emissions. Local media reported that the project is budgeted at a total of Dh2.5bn ($260.5m).

Although hydropower generation has been in place in Morocco since the 1960s, new dams are expected to open in the coming years. According to the most recent IEA figures, the country had roughly 1770 MW of installed hydropower capacity in 2017. While there is little scope for new largescale hydroelectric power stations, several small and medium-sized projects are in progress.

The largest project currently underway is the Dh3.8bn ($395.9m) Abdelmoumen pumped storage station in Taroudant, which is expected to commence operations in the first half of 2022. The authorities have also identified sites for 300 MW of small-scale hydropower projects.

Upstream

Alongside efforts to expand its renewables capacity, Morocco is taking steps to develop upstream exploration in order to reduce reliance on energy imports and provide more revenue for the sector. Although confirmed oil and gas discoveries have been minimal, the country is one of the region’s least explored areas in terms of hydrocarbons resources, highlighting the possibility for future discoveries. To this end, the government has sought to establish favourable fiscal conditions to encourage upstream operations. Furthermore, through ONHYM, the country has accelerated its investment promotion efforts, which has helped to attract international interest in both onshore and offshore exploration projects. In 2018 the upstream sector received a total of Dh27.5bn ($2.9bn) in investment, according to ONHYM. Foreign upstream operators, which accounted for 90% of these investments, had been allocated 70 exploration permits and 10 exploitation licences.

Natural Gas

Morocco is looking to increase its use of natural gas as a substitute for some of its coal and fuel oil generation capacity. In addition to reducing the use of pollutant fuels, a rise in gas-powered plants would provide the flexibility needed for Morocco to prepare for greater use of renewables, as supply can often be inconsistent.

The country began using natural gas to power some of its industry in 2004, and has been importing gas from neighbouring Algeria since 2005 to power some of its units. The Tahaddart power plant, Morocco’s first gas-powered unit, has a 384-MW capacity. In 2009 the kingdom began operating a second plant at Ain Beni Mahtar, which has a capacity of 452 MW.

As of February 2020 all of Morocco’s imported natural gas came from Algeria, transported via the Maghreb-Europe pipeline, which carries Algerian natural gas to Spain and Portugal. Morocco imports approximately 600m cu metres of natural gas per year under a 10-year contract signed with Sonatrach in 2001, Algeria’s state-owned energy company. The kingdom also receives an additional 500m cu metres of Algerian gas transported through Moroccan territory. While the agreement with Sonatrach has enabled Morocco to supply its two gas-fuelled plants, as of early 2020 there had been no indication whether the agreement would be renewed or extended beyond its expiration date of 2021.

Additionally, in January 2020 UK industrial firm Sound Energy announced that it had received approval from the Moroccan government to build and operate a 120-km gas pipeline, which will connect a proposed new gas treatment plant and compression station to the Maghreb-Europe pipeline. By 2030 Morocco aims to add 2400 MW of combined-cycle technology to expand its gas-fuelled power generation capacity, as well as increase its use of natural gas in energy-intensive industries.

To this end, there are plans to develop a new liquefied natural gas (LNG) import terminal, two 1200-MW, combined-cycle power plants, an onshore regasification unit and a pipeline to link the terminal to the Maghreb-Europe pipeline. The terminal is set to be built in Jorf Lasfar, on Morocco’s Atlantic coast, and the two new power plants will be located in Jorf Lasfar and Kenitra, respectively. Overall, the gas-to-power project is estimated to require approximately $4.5bn in investment. Although the tender for the gas-linked infrastructure was expected to be launched in 2019, the project was delayed and, as of February 2020, there had been no further updates on the tender’s progress.

In order for these projects to run smoothly and to attract further investment in the up, the country will need to ensure that a robust regulatory framework is in place for the use of gas by both the power sector and industrial clients, as well as transportation and pricing. “Studies are being implemented to establish the legal framework. Once this has been done, a gas code will be submitted to Parliament for approval,” Laabi told OBG. “In any case, a new gas-fired power plant is needed imminently in order to offset the intermittent nature of renewable energy.”

Outlook

The energy sector is poised for promising medium-term growth as it continues to receive significant public and private investment to expand generation capacity and distribution networks. At the same time, efforts to increase the role of renewable resources and natural gas in the country’s energy mix are set to lower the energy import bill and reduce fossil fuel emissions. However, in order to ensure that private investment objectives are met, upgrades to the sector’s regulatory framework will need to be completed.

Meanwhile, ongoing hydrocarbons exploration efforts are likely to continue to support the expanding upstream sector, particularly as much of the country’s territory remains underexplored (see analysis). Morocco has already shown that it can be a reliable partner in the exploration and development of hydrocarbons resources, and the policies it is currently pursuing should help the country reduce its reliance on energy imports in the years ahead.

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The Report: Morocco 2020

Energy & Utilities chapter from The Report: Morocco 2020

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