PRESENTING THE PRIVATE SECTOR’S VIEW
Investment incentives to spur investment in
renewable energy in the MENA region
8th Meeting of the MENA-OECD Energy TaskForce
March 9 2012
NOTE: Work in progress; draft for comment
MENA-OECD Energy Task Force - MENA-OECD Investment
Programme
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Renewable energy projects – common risks
Investing in renewable energy entails a certain number of risks for the
investor owing to the novelty of the technology and the competition from
traditional energy sources.
Among these are:
 Lack of profitability
 High investment risks
 Client risks
 Political and regulatory risk
 Market risks
 Technical risks associated with novel technology
 Access to finance
These risks form significant barriers to investment
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Investment incentives – removing barriers to
investment
 Objectives:
 take advantage of the private sector's financing capacity
 reduce the cost to the state budget
 increase the share of renewable energies in the national electricity mix
 MENA governments hope to benefit from the positive externalities associated
with renewable energy.
 environmental
 technology transfers
 Increased competitiveness of the domestic energy sector
 improved trade balance for oil importers
 increase in local skilled jobs
 The State thus seeks solutions to a number of issues through removing key
barriers to investment.
 The private investor is to be the ultimate beneficiary of the incentives.
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Investment incentives – typology
Regulatory incentives
 Policies improving the business environment – in general or targeted at specific
sectors
 Liberalisation of a market, regulatory exemptions granted to specific sectors, etc.
 Regulatory incentives generally do not entail major public expenses.
Financial incentives
 Aim at correcting market imperfections and reducing transaction costs for investors
 Soft loans, loan guarantees, capital subsidies, premium and grants.
 Financial incentives generally require public funds or funds from a foreign or
supranational entity.
Tax incentives
 Easing of the tax burden on the investing companies or their employees.
 Different sorts of tax exemptions on items such as import levies, sales tax, valueadded-tax and so on.
 The government manages these incentives to balance the impact on the public
budget with the stimulus effect.
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Disadvantages of investment incentives
 The Energy Task Force is aware that investment incentives potentially
can lead to waste of public resources
 if a wrong investment method is chosen or
 does not lead to productive private sector practices.
 This may occur from the way a given policy action influences future
“rules of the game”.
 The OECD publication "Checklist for Foreign Direct Investment Incentives
Policies" lists the following types of unintended wastefulness resulting from
investment incentives:
• Ineffectiveness
• Inefficiency
• Opportunity costs
• Deadweight loss
• Triggering competition
• Adverse selection
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Stock-taking of cash-flow incentives
used in the MENA region
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An overview of cash-flow incentives
 Cash-flow incentives are incentives that aim to support the investor’s
profitability and cash-flow during the life-time of the project.
 In MENA, the Energy Task Force has identified the following as the most
commonly used:
1. Net metering
2. Power purchase agreements, augmented by competitive bidding
3. Feed-in Tariffs
4. Carbon pricing/Clean Development Mechanism
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Overview of existing incentives for renewable
energy projects in the MENA region
(according to latest available data – please see appendix for more details on
incentives in individual countries)
Public
competitive
bidding

Training
Reduction in
incentives sales taxes
or VAT;
Customs
taxes




Tunisia
UAE

(2012)
Jordan
Morocco
Net
Tradable Capital
Investment
Metering CDM
subsidies, tax credit
grants and
premium

Algeria
Egypt
Feed -in
Tariffs
(project)











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2. General recommendations
for investment incentives
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General recommendations for investment
incentives
General conditions for enhancing the efficiency of investment
incentives
 Investment incentives should be clear and predictable, with transparent
and easily available rules (OECD Investment Declaration).
 Investment incentives should be uniform and non-discriminatory .
 Investment incentives should never be permanent. They should only
remain in place as long as the technology is not competitive.
 Incentives should be continuously monitored to ensure they address the
main barriers encountered by the investor.
 Competitive bidding practices should be used wherever possible.
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3. Recommendations specific
to renewable energies
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Main conclusions on investment incentives
In the course of its discussion, the members of the Energy Task Force
found that:
 Cash-flow incentives work better than one-off incentives in the
power-generation sector, particularly from the investor’s point of
view.
 Governments can take advantage of the incentive arrangements to
set up competitive bidding processes for major projects.
 Competitive bidding will incentivise companies to make an
assessment of the incentive arrangements and help mobilise
financial support.
Note the following observations on risk:
 Feed-in Tariffs place the technology risk on the supplier
 The competitive bidding process puts the risk on the client
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Key recommendations to improve incentives for
renewable energy investments
When implementing renewable energy incentives, authorities should
 Allow independent electricity producers
 Set up independent energy regulators
 Consider renewable energy generation at different sizes and scales
The authorities need to take into account:
 The size of the project/access to finance:
• Incentives which facilitate access to finance (soft loans, loan guarantee, etc..) can lift a
key barrier for large projects
• For small projects, time is crucial for profitability; as a result incentives that accelerate
administrative procedures and prior work is key to unlock investments
 The available expertise and knowledge of the technology:
• Develop expertise on available technologies
• Support local R&D through tax exemptions – in France they have proven to be effective
• Encourage R&D into ways that available technology needs to be adapted to local
conditions (e.g. combating dust particles in solar panels; Kuwait).
• Encourage capacity building to have strong, stable counterparts for the private
investors
• Participate in international co-operation; such as Morocco joining the Implementing
Agreement on Concentrated Solar Power (2011) of the International Energy Agency.
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 Investors need to assess the attractiveness of the investment incentive in the context of
the regulatory framework of each country.
 Renewable energy investment incentives need to be carefully tailored to each country’s
characteristics.
 For oil exporters:
 Conventional incentives/grid parity is not feasible owing to low-price structure,
therefore oil exporters need to look for special incentives, like setting up competitive
bids for public funding.
 These have huge power generation needs and hence need to attract more investment
into new power generation (case of Algeria)
 For oil importers:
 Depending on the electricity tariff structure, the incentives need to be adapted to the
investment they want to attract.
 Morocco, Tunisia, and Jordan; do not find it politically easy to raise the cost of
electricity but they need to diversify their power generation structure/energy mix.
 Hence there is no “one-size-fits-all” solution: all actors in the electricity sector need to
work together and find common solutions.
 The Energy Task Force anticipates that this could create problems with local utilities.
Acknowledgements
MENA – OECD Taskforce would like to thank the following persons for their
contribution to the presentation
Christopher Segar, IEA
Pol Arranz Piera, TTA
Setsuko Wakabayashi, NEDO
Yukitoshi Yamazaki, Sumitomo Metals
Andrew Moorfield, Lloyds Banking Group
Jean-Charles Arrago, Total
Marc Darras, GDF-Suez
Olivier Soupa, Schlumberger
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Contacts
Ania Thiemann
Senior economist/Project manager
MENA-OECD Investment
Programme
Private Sector Development
Division, OECD
Ania.Thiemann@oecd.org
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