MENA: Energy storage’s final frontier?

• ‍Oil interests in the Middle East and North Africa has slowed uptake of renewables & storage
• But MENA plans to increase utility-scale wind and solar by five-fold by 2030
• Israel leading on storage deployment, but widespread policy change needed

The Middle East and North Africa [MENA] region is the final frontier for the energy storage industry. Data shows that it is an area that produces very little renewable energy when compared to other parts of the world. For example, if we take the Middle East alone, as the graph below shows, in 2020, it was the region producing the smallest amount of renewable energy in the world – while Asia produced more than 3,000 terawatt hours, and Europe and North America each produced more than 1,000 terawatt hours, the Middle East, in contrast, was at the bottom of the pile, producing only around 50 terawatt hours.

It's unsurprising that MENA has been slow to adopt renewable energy and energy storage facilities. For decades, the Middle East in particular has derived much of its wealth from its reserves of oil and gas. Producing fossil fuels in the region has typically come at a low cost and consequently there has been a lack of government legislation aimed at incentivising other types of energy consumption. Indeed, a number of countries in the MENA region are among the world’s largest oil producing nations.

First, let’s identify exactly which nations are considered part of the MENA region. There is some dispute about which countries are part of MENA, but for the purposes of this article, we’ll include those countries that the World Bank defines as being members of the region, namely: Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Malta, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, the United Arab Emirates (UAE), the West Bank and Gaza, and Yemen.

By way of illustrating exactly how significant the contribution of the oil and gas industry has been to the economies of many MENA countries, it is worth pointing out that five of the countries mentioned above appear in the list of the 10 largest oil producing countries, namely Saudi Arabia, Iraq, Iran, the UAE and Kuwait.

But times are changing. The MENA region has plans to increase the amount of utility-scale solar and wind power in operation by five-fold by 2030, up from 12GW to 60.9GW. By 2050, more than two-thirds of the MENA region’s electricity will be generated by solar and wind – solar’s share will be around 50 per cent, with a quarter of that generated by hybrid solar-storage plants.

In order to meet renewable energy targets in MENA, the deployment of wide-scale energy storage will be crucial. As the Arab Petroleum Investments Corporation (APICORP) has highlighted, storage will be essential for “firming the power capacity, building flexibility, and ensuring power systems stability”.

However, there are several major barriers to the further deployment of energy storage in MENA countries. They include:

1. Underinvestment in transmission and distribution

According to APICORP, only 8-12 per cent of power investments in the region are dedicated to transmission and distribution (T&D) compared to a global average of 20 per cent. APICORP argues that, if energy storage is to be considered part of the T&D value chain under any regulatory framework, “more investments need to be diverted to grid reinforcements in light of increased integration of VREs [variable renewable energy]”.

2. Storage is still viewed as an emerging technology in MENA

The private sector in MENA associate storage with high technology and financing risks. Accordingly, storage projects might require more equity spending when compared to conventional power and renewables projects for the short to medium term, according to APICORP.

3. Energy policies in MENA lack clear definitions or regulations for storage

The lack of comprehensive regulation hinders ESS deployment and increases investors’ risk-aversion.

4. The limitations of the Single-Buyer Model

The single-buyer model (SBM) characterizes MENA’s power market structures, with approximately 60 per cent of countries having only one vertically integrated electricity utility, the majority of which are state-owned entities. Although, the private sector is becoming increasingly engaged within the SBM, mostly through Independent Power Producer (IPPs) models, state shares remain dominant. Governments’ influence over the power sector has limited the prospects for subsidy reforms and private sector engagement, according to APICORP.

Israel leading the way on storage

Despite these barriers, a number of MENA countries have made progress regarding the wider deployment of energy storage. The most successful, perhaps unsurprisingly given it is the MENA country with the second largest economy and a relatively small amount of revenue derived from oil and gas, is Israel. However, there have also been recent developments in the field of energy storage in Saudi Arabia, UAE, Egypt and Oman. Here, Energy Storage Report rounds-up the current state of play in each of these countries.

Israel‍

In January this year, Bar-Ilan University and the Technion-Israel Institute of Technology won $28 million in funding from the Israeli Ministry of Energy to establish a national energy storage research institute. In addition to the Israeli government funding, Bar-Ilan University and the Technion–Israel Institute of Technology will invest $8 million in the project. Meanwhile, in May 2022, Israel-headquartered specialty minerals company ICL Group created a dedicated internal unit focused on energy storage, which it says is in response to increasing demand for lithium-ion batteries “destined for electric vehicles and other energy storage offerings”. A statement added: “The company swiftly adjusted its organisational structure and developed a global, multidisciplinary team to address these opportunities." Also, last year, energy storage system provider Sungrow Power Supply agreed a deal with infrastructure company Afcon to supply a “liquid cooled energy storage system” for a 16MW / 64MWh project in Israel. The project will be Israel’s “largest standalone energy storage plant”, a Sungrow statement said, and will be integrated with the Dalia Power Station, believed to be the largest privately contracted power plant in Israel. Sungrow was also selected by Israeli independent power producer Enlight to supply a 430MWh liquid-cooled energy storage system at a solar project in Israel. In other developments, back in 2021, Israel’s Finance Ministry awarded a contract to infrastructure group Shikun & Binui Energy to develop a 300MW solar-storage project near the desert town of Dimona. Also in 2021, a 1MW / 3.2MWh Powin storage system was installed at Israel’s first utility-scale microgrid energy storage project, at a kibbutz. The project was developed in partnership with BL Energy, a subsidiary of Israeli company Blilious Group, for Israeli renewable energy company Nofar Energy.

UAE

In 2021, Engie and Masdar formed a strategic alliance to look at co-developing a $5billion 2GW green hydrogen hub in the United Arab Emirates. French utility Engie said the partnership aimed to capture synergies with the Abu Dhabi-based Masdar so that the pair can establish a prominent position in the UAE’s hydrogen market. 

Egypt

In a move aimed at reducing the use of diesel, at the end of last year project developer JUWI commissioned a solar-storage hybrid project at Centamin’s Sukari Gold Mine in Egypt, around 400 kilometers south of the COP27 conference venue in Sharm El-Sheikh. The energy system consists of a 36 MW solar farm and a 7.5 MW battery-energy storage system that have been integrated into the existing diesel power station. 

Oman

It was announced that DEME Group and OQ Alternative Energy are developing a green hydrogen plant to use electricity from wind and solar farms in Duqm, Oman. The first phase of the electrolyser is set to have capacity of up to 500MW. 

Drastic need for change of policy on storage

However, these developments are relatively piecemeal when taken in the context of the region as a whole. There is a drastic need for policy change that will facilitate the wider deployment of storage. Recommendations include:

1. Ensuring energy storage is defined as a distinct asset category separate from generation, transmission, and distribution value chains. This is essential in the implementation of any future regulation governing storage, according to APICORP.

2. Adopting a comprehensive regulatory framework with specific energy storage targets in national energy policies This would set achievable targets and timelines to drive energy storage deployment.

3. Amend the net-metering scheme when the share of renewables in the power mix becomes significant Net metering is an electricity billing system that allows consumers who generate some or all of their own electricity to use that electricity anytime, instead of when it is generated – amending such schemes would ensure they do not create barriers to energy storage while maintaining incentives for distributed renewable energy.

4. Create more incentives to attract private sector investments This could include tax credits, tax exemptions, accelerated depreciation [the depreciation of fixed assets at a faster rate early in their useful lives - this type of depreciation reduces the amount of taxable income early in the life of an asset, so that tax liabilities are deferred into later periods], and government equity ownership.

5. Endorse the eligibility of energy storage in green financing facilities This would further incentivise investment in storage by making clear its contribution to environmental sustainability goals.

DNV has forecast that, by 2050, wind and solar will provide 69 per cent of electricity in the MENA region, with solar contributing almost 50 per cent, of which a quarter will be attributable to solar and storage plants. But this may be a conservative estimate, the introduction of new policies focussed on furthering the deployment of energy storage in the region would result in it playing a much more significant role in the provision of electricity in MENA.

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