Value generation of future CSP projects in North Africa

Energy Policy 46 (2012) 88–99

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Energy Policy journal homepage: www.elsevier.com/locate/enpol

Value generation of future CSP projects in North Africa Christoph Kost a,n, Maximilian Engelken b, Thomas Schlegl a a

Fraunhofer Institute for Solar Energy Systems ISE, Heidenhofstraße 2, 79110 Freiburg, Germany Fraunhofer Institute for Solar Energy Systems ISE, now: Center for Digital Technology and Management (CDTM), Ludwig-Maximilians-Universit¨ at & Technische Universit¨ at M¨ unchen, Germany

b

a r t i c l e i n f o

a b s t r a c t

Article history: Received 21 November 2011 Received in revised form 13 March 2012 Accepted 14 March 2012 Available online 10 April 2012

This paper discusses the value generation potential for local and international industry in different development scenarios of the concentrating solar power (CSP) market in North Africa until 2030. It analyzes the economic impact resulting from the participation of North African and European companies during construction and operation of CSP plants. The assessment is based on a self-developed solar technologies market development model (STMD) that includes economic and technical requirements and constraints for the creation of a local CSP market. In-depth interviews with industry stakeholders provide specific input, validate the calculations and complement the quantitative model results and conclusions. Long-term potential for locally generated revenues from CSP plant construction are modeled and lead to a share of local revenues of up to 60%. Potential market size of solar power plants in North Africa could reach total revenues of 120 Billion euros and thus demand for components and services contribute to national gross domestic products significantly. Recommendations are given for regional industry cooperation and policy actions for the support of local and international CSP industry in North Africa in order to improve the investment environment and growth of renewable energies in the region. & 2012 Elsevier Ltd. All rights reserved.

Keywords: Concentrating solar power Renewable energy Local manufacturing

1. Introduction Renewable energy generated in North Africa becomes an increasing priority for policy makers from both sides of the Mediterranean Sea, in the MENA (Middle East and North Africa) region as well as in Europe. Algeria, Egypt, Jordan, Morocco and Tunisia face an annual increase in their annual electricity demand of three percent (OME, 2008). All of the countries have announced goals to increase their share of renewable energy production to meet their energy demand in the upcoming 10 to 20 years (Brand and Zingerle, 2011). Several first projects for concentrated solar power (CSP), photovoltaic (PV) and wind power have been successfully implemented in the region to contribute to the wave of the international dissemination of renewable energy technologies. Concentrated solar power, also known as solar thermal power, is a key technology for the concept ‘‘Desertec’’ postulated by the Club of Rome and is nowadays supported by the industrial initiative Dii GmbH (The Club of Rome, 2008; Dii, 2009). North Africa could become a major exporter of solar electricity because higher electricity output resulting from elevated radiation compensates additional costs of energy transportation to Europe (IEA,

2010). The question remains if the region itself profits from renewable energy exports. Goals of a market introduction of renewable energies in the Maghreb countries might be:

 Reduction of dependency from conventional energy resources  Covering the energy demand on a long-term and secure basis    

from own sources Development of a local new industry and create new jobs Additional income from energy export to Europe Reduction of CO2-emissions Economic and ecological optimization of the energy mix

Each country may have different reasons to invest in renewable energy. However a strong motivation to focus on new technologies is to develop new industry branches and provide high-skilled jobs in a dynamically growing sector. CSP is chosen by some decision makers in the region due to its possibility to operate as dispatch power plant if thermal storage is included. As CSP also offers an industry potential, the value generation of CSP will be analyzed with a qualitative and quantitative approach in the following. A strong development of concentrating solar power in North Africa1 requires three essential conditions: (i) the technological

n

Corresponding author: Tel.: þ 49 7 61/4588 5750; fax: þ49 761/4588 9750. E-mail addresses: [email protected] (C. Kost), [email protected] (M. Engelken), [email protected] (T. Schlegl). 0301-4215/$ - see front matter & 2012 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.enpol.2012.03.034

1 Although Jordan does not belong to North Africa geographically, it is analyzed in this study together with Algeria, Egypt, Morocco and Tunisia.

C. Kost et al. / Energy Policy 46 (2012) 88–99

feasibility, (ii) funding for the projects and (iii) benefits for all stakeholders. The technological feasibility is discussed by several studies (cf. Brauch et al., 1998; Trieb, 2005). The problem of funding is not yet solved as the technology is still expensive and comes along with high investment costs (see engagement of the World Bank (cf. CIF, 2010). Kost et al. (2011a), Trieb et al. (2011), Viebahn et al. (2011) and Williges et al. (2010) recently analyze the financing and cost perspective for CSP in an international export case in the next 20 years. Fundamental to funding of projects is the prevailing risk of renewable energy projects in the region as highlighted by Komendantova et al. (2012) and Lilliestam and Ellenbeck (2011). After the so-called Arab spring in the region during 2011 the claim of economic development is a central key for higher welfare and optimistic perspective of the society in North Africa. New investments in construction of the power plants based on renewable sources and their operation will have a positive effect on labor market and the national GDP. Policy driven achievements of creating local markets for renewable energies have been seen for example in Denmark (wind industry), Germany (wind and PV industry) and India (wind industry). In Denmark a broad portfolio for promotion and support of wind industry development contributed to wind technology innovation, large diffusion and international supply by a smaller country (Buen, 2006). In Germany, the EEG (Erneuerbare-Energien-Gesetz, Renewable Energy Act) has set feed-in tariffs for renewable energy sources (PV and wind) that lead to the creation of a green industrial sector with over 367,400 employees in end of 2010 (BMU, 2011). The political framework in India supported the acquisition of technology licenses for the manufacturing of wind turbines by the Indian company Suzlon

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the US states New Mexico and California. The papers calculated the direct and indirect economic benefits and numbers of jobs based on macroeconomic input–output tables. Stoddard et al. (2006) obtained a higher number of jobs (93) during operation of CSP plants compared to conventional power plants (56/13). Calde´s et al. (2009) modeled the number of direct (63,485) and indirect (45,508) jobs of CSP plants under the Spanish Renewable Energy Plan (first 500 MW) with a similar approach. This approach led to a very high amount of jobs related to CSP projects. Vallentin and Viebahn (2010) came up with a bottom-up approach when they tried to forecast the German CSP industry participation in the world market. They analyzed the status quo market shares of German companies in CSP plants and projected these values to future markets. A dynamic CSP industry development related to new power plants and the question about economic opportunities which is frequently repeated in the discussion are not answered for North Africa yet. This research deficit is picked up in the presented paper and the research question to be answered is to quantify the potential of local manufacturing and generated revenues in CSP projects in North Africa. The paper starts with a qualitative survey to find out the expectations of the industry and drivers for a manufacturing market model that covers North Africa. Then a description of the model design is given that is followed by an explanation of the input parameters. Then the results for value generation are presented for different CSP market scenarios in North Africa to quantify and to describe the economic benefit and welfare for the North African economies and societies, with the overall target to create a win–win situation for all involved stakeholders (Fig. 1).

Solar field components, construction & power block:

Complexity, Market requirements high

Receivers

Power Block

EPC

Project development HTF systems medium

Mirrors

Financing Grid connection Storage system

Swivel joints Trackers

Installation works

50 %

75 %

low

Possible share of local manufacturing: 0 %

25 %

Metal support structure & Pylons Assembling Civil Works

100 %

Fig. 1. Industry view on potential of local manufacturing (Normal¼ status, italic ¼ medium target).

that started to produce for the Indian market and created a renewable energy industrial sector (Lewis and Wiser, 2007). In all markets, today’s achievement also was accomplished by a long-term perspective for local markets and the target of the governments to establish own manufacturers and suppliers for components of wind and solar technologies. Looking at the currently active companies in the CSP supply chain, the world market is dominated by companies in the growing markets of Spain and the US as well as companies from Germany. With more countries entering the CSP market, new businesses are created near to the market demand, consequently in locations where new plants are built. CSP value generation analysis is also discussed in the literature: CSP related local manufacturing in the US, Spain and Germany was assessed by studies in the recent years. How CSP future market development in a region will influence the local economies was analyzed by the University of New Mexico (2004) and Stoddard et al. (2006) regarding CSP deployment effects in

This paper is based on findings the authors worked out in a study for the World Bank in 2010 (Fraunhofer and Ernst & Young, 2011).

2. Factors for CSP manufacturing in North Africa During April and September 2010, Fraunhofer Institute for Solar Energy Systems ISE conducted over 20 qualitative interviews with high representatives of companies in the international CSP industry (Spain, France and Germany as well from the US). The goal of these interviews was to assess the factors for CSP manufacturing in North Africa and to integrate the industry perspective on the local CSP market and market potential (see also Fraunhofer and Ernst & Young, 2011). The survey allows assessing the companies’ potential and willingness to local manufacturing and the need for international partners for certain components (Kost et al., 2011b). To get a precise and complete

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C. Kost et al. / Energy Policy 46 (2012) 88–99

picture of the situation the interviews have been conducted with companies from the whole CSP value chain (cf. Fig. 2). The methodology of conducting the interviews with the theory building, design of the surveys and quality criteria is based on Yin (2009) and Flick (2009). The results from the survey can be structured into three areas:

 Expectations about the market growth  Business experiences in North Africa  Potential and drivers for local manufacturing Results of this survey have been accessed by the authors quite critically regarding optimistic promise and overrated expectations on local manufacturing by the companies. The expectations about the market development are relatively clear to the industry even though some companies are rather insecure about the future CSP development. The experts see a global growth in the CSP market which varies strongly in different regions. For North Africa the majority of the experts and industry representatives forecast an accelerating CSP market. Currently there are only 60 MW capacities commissioned. Starting from this low level there will be additional plant capacity installed but at least for the next five to eight years on relatively low level according to the experts. The market ‘‘environment’’ is still too uncertain. Beyond the security and geopolitical issues a key driver for the market development is still not fulfilled: The price for energy in most of the North African countries is still too low to put renewable energies on a high priority of the local politicians’ agenda, except for Morocco, where domestic electricity price is between 0.07 and 0.08 euro/kW/h (Eurelectric, 2007). The experts assess each of the North African countries in terms of market growth and potential entirely different. Algeria is classified as a country with highly difficult investment conditions due to its political system and its security problems. However as a matter of principle the wide landscape and enough financial power from sales of the countrys fossil fuels would offer excellent conditions for CSP. Egypt has an adequate technological know-how, so that already for the current Kuraymat project several local producers are involved. Additionally, local as well as international companies suffer from the problem to find qualified workers in contrast to other countries. However, the political engagement does not exceed announcements for new projects until now. Due to a lack of experiences, answers to Jordan have been only general and without a clear message. Companies see Morocco as the most promising country to invest in CSP in the next years due to a credible political engagement and higher energy prices. Indicators for this are the plans from Moroccan Agency for Solar Energy (MASEN) and the Desertec Industrial Initiative for first power plants in Morocco with a combination of CSP, wind technology and PV (Dii, 2011; MASEN, 2011). Tunisia gained a lot of attention because of the exported oriented industry with close relation to Europe. Almost all experts, especially the company representatives from European industry, can reflect upon relevant experience in local business in North Africa. This enables them to draw a picture about the major problems that slow down the CSP development in the region. The majority of the experts see either rather small or big problems doing business in North Africa. Political, economic and legal conditions can promote or constrain CSP growth. International companies with a long business tradition and plenty of local projects assess local difficulties as rather small ones. They underline reliable local business partners as well as good political relationships as their key success factors. Relevant problems named are payment mentality, safety issues, political uncertainties, corruption, qualification of local workers and deadline compliance. Political risk is named as one

of the most relevant problems as international companies claim to be abandoned to the local authorities in case of payment problems or difficulties with local industry partners. An important issue is to guarantee the security of the workers, especially in Algeria, which makes projects more expensive. It is interesting that the qualification of the local workforce is perceived as a rather small problem as the preponderant number of local workers executes low skill tasks on the construction site. With the quantity of conducted interviews it is possible to draw a picture about the potential and drivers of local manufacturing. EPC companies and project developers already active in the region have local offices. The companies employ local and international workers for their projects. As with conventional power plants, CSP companies expect a large share of project development, management, and engineering will come from international companies with knowledge and experience. A receiver producer sees some critical issues for high technology receiver production in North Africa. Complex and expensive production facilities require a sophisticated technology framework for operation and maintenance. According to the interviews local manufacturing of receivers is problematic, but may be feasible in the long-term. Mirror production requires a large local market to be economically viable. CSP developers explain that the metal support structure could be easily produced in MENA if licenses for the design and assembling are obtained by local companies in the steel transformation industry. Other installation works could also be done locally in the short-term (Summary in Fig. 4). As a whole, the CSP industry reiterates that ‘‘if the local market is large and stable enough, we will produce locally.’’ As the average factory for mirrors as well as for receivers has an output of 200–400 MW per year this is the absolute minimum market size required to motivate companies to invest in local plants. Table 1 shows the output of a typical factory for core CSP components and corresponding jobs and factory investment costs. Two important considerations about shifting production capacities to new location are market size (market demand) and level of industrialization (technology know-how) in the target country where new production capabilities should be created (Kinkel, 2009). Besides the findings for each component and each country, the two drivers will be covered in the later developed model to include market size and level of industrialization in the model analysis. Policy-driven incentives to create a CSP market in North Africa have to target both items because investment decisions of manufacturing capabilities depend on the existence of a predictable and stable market.

3. Dynamic modeling of the value generation potential 3.1. Model introduction To assess different scenarios of CSP manufacturing as well as the share of local and international value generation, a quantitative model and decision tool is used, that will be presented in this chapter. Currently, no model exists with a dynamic approach and the possibility to focus on value generation of solar technologies in the MENA region. Therefore the solar technologies market development model (STMD) with a bottom-up approach was created by Fraunhofer Institute for Solar Energy Systems ISE. The model runs in the Excel environment. With the openly available ‘‘Jobs and Economic Development Impact’’ (JEDI) model by National Renewable Energy Laboratory (NREL, 2010), the assessment of economic impacts and job creation which uses input–output tables is possible in a static

C. Kost et al. / Energy Policy 46 (2012) 88–99

case for a single power plant. The JEDI model does neither include changes and adaptions in the industry nor a dynamic development of local manufacturing in a certain region over time. Due the lack of updated national input–output tables and the need to analyze a long-term development of CSP value generation in a scenario method, only the component specific approach of the JEDI model was chosen in the new STMD model. The unique characteristic of STMD is the used bottom-up approach which compromises a wide range of input parameters and considers the dynamic development of local manufacturing. This approach allows the modeling to be as realistic as possible. Main results of the STMD model analysis used for this paper are to indicate value generation scenarios and the local value generation share of CSP plants in North Africa over the next years. It covers a time horizon by 2030 depending on the framework conditions (scenarios). For this paper the model is adapted to CSP plants, especially parabolic through technology. Job effects are not explicitly calculated for this paper but still significant conclusions can be drawn looking at the value generation scenarios. 3.2. CSP value chain The assessment and STMD model covers all components and services in the CSP value chain from the project development to the final step of plant operation. The CSP value chain indicates many different components like mirrors, receivers, pumps, piping or electronic components which are supplied by very different companies and sectors. Also the role and behavior of the EPC contractor is a key for the plant design as well as for the selection of suppliers (Fig. 2). Revenues from sold electricity generated by the CSP plants are not covered in this paper. Furthermore, effects of electricity distribution from the plant to the consumers are not integrated in the analysis because of dependency between distribution and other sources of electricity generation. Essential players during the technology diffusion in a country such as research and development or political institutions are not included in the analysis either.

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3.3. Model structure The bottom-up approach which was used in the STMD model has the target to calculate economic effects of the CSP development and increase of manufacturing component by component and services by services. At first the status quo of local manufacturing in the year 2010 was determined based on recent ISCCS (Integrated Solar Combined Cycle Systems) plants in the region. This type of plants includes a solar field in a normal combined cycle power plant which produces electricity by 95% of natural gas and only uses solar generated steam in the steam turbine. For this evaluation, project assessments and an investment cost analysis play a major role. To guarantee the comparability, a solar thermal reference plant with the configuration of Andasol (Spain) is used (turbine capacity of 50 MW and 7.5 h thermal storage). The analysis is considered for three different market scenarios (Business as usual, Moderate and Ambitious) derived from existing global CSP market scenarios. It includes the level of know-how and existence of industry capabilities for CSP components. All revenues of local components and services are summarized as generated revenues for the region. The remaining effects are declared as economic benefit for companies (countries) outside the region. The dynamic development of local involvement is calculated with the help of a decision tool, which is a key element of the model. The decision tool makes a decision for each component or service if a component is produced in North Africa or not. All factors are rated in a two-step procedure: Step one is a decision that evaluates the general potential of local manufacturing due to qualitative criteria and expert estimations. Five crucial site specific factors (country specific) influence the decision tool in step one. Important criteria for local manufacturing in the decision tool are:

 General potential for a component to be locally manufactured based on survey findings

 Status quo in first local CSP projects

Table 1 Component specific parameter for typical factories (Source: own research). Components of the value chain

Annual output of a typical factory (GW/year) Investment per factory (in euro) Jobs per factory (Jobs per year)

Core value chain

Elements of CSP value chain

Project Development − Concept Engineering − Geographical Determination − Determination of general requirements

Mirrors

Receiver

Steel structure

HTF

0.2–0.4 GW 30 Mio euro 300 Jobs

0.2–0.4 GW 40 Mio euro 140 Jobs

0.05–0.2 GW 10 Mio euro 70 Jobs

41 GW n.a. n.a.

Materials − − − − − − − −

Concrete Steel Sand Glass Silver Copper Salt Other chemicals

Components − Mirrors − Mounting Structure − Receiver − HTF − Connection piping − Steam generator / heat exchanger − Pumps − Storage System − Power Block − Grid connect.

EPC EPC-Contractor: − Detailed Engineering − Procurement − Construction

Operation − Operation & maintenance of the plant

Finance & Ownership Essential partners

Research & Development Political Institutions Fig. 2. CSP value chain (Source: Fraunhofer and Ernst & Young, 2011).

Distribution − Utility − Transport & distribution of electricity

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C. Kost et al. / Energy Policy 46 (2012) 88–99

are calculated on an annual timeframe for a selected year t between 2010 and 2030. Revenues of sold electricity are not covered by the model. GRtotal ¼

m X

m X

GRcstr, i þ

i¼1

O&M labor, i þ

i¼1

m X

O&M Mat,

i

ð1Þ

i¼1

The sum of generated revenues during construction (GRcstr ¼Expenses for labor and equipment) for all plants in one country is calculated with the total cost for the construction of new plants (Ct) and the volume of new plants (NPt) of each scenario in the year t (for market scenarios see Section 4.1). GRcstr, t ¼ C t nNPt

Fig. 3. Process structure of the STMD model.

Costs for new plants were obtained by using the approach of learning curves and progress ratio (PR) related to the market scenario. GRcstr can also be divided into local (GRcstr,local) and international (GRcstr,int) share that is depending on origin of the components and services. GRcstr ¼ GRcstr,

 Economic and political requirements: tariffs, local content clauses, etc.

 Local know-how and availability of qualified workforce  Adequate level of political, legal and economic stability and security In step two necessary quantitative, economic criteria have to be fulfilled: J

J

J

J

J

J

(Long-term) Market demand: New production or shift of production to new locations is linked with the expectations of the market participants about future sales market for products (see e.g., Kinkel, 2009); (Lewis, 2007). Factory specification: Size and workload. Each component was determined by parameters for the size of a typical factory output and workload to use economically reasonable assumptions for investors. High-technology components like the turbines and generators are indicated as ‘‘international’’ due to limited numbers of large actors. Component specific know-how indices that specify for each component the required know-how necessary to produce a component or product. Maximum limit for local production: Some components received maximum limits to which volume local production is possible. (Example: If mirrors are produced in Egypt, a maximum share of the Egyptian market is supplied by the national company. The remaining demand is supplied from international competitors.) Continuous increase of local production in stable markets as learning, market power and better sales channels improve situation for local companies.

Fig. 3 summaries the input parameters, the decision process in the model and the final output (results) of the model. While the qualitative decision (step one) only decides if a component is manufactured locally or not, the decision step two analyze the economic impact of each component. Now, the quantitative decision (step two) is described in more detail to show the calculation process of the STMD model. The total generated revenues (GRtotal) per year of all CSP plants in North Africa (countries m) are the sum of the generated revenues during construction (GRcstr per country) and expenses for operation consisting of labor (O&Mlabor) and material (O&MMat) while a plant lifetime of 25 years is assumed. All values

ð2Þ

local þGRcstr, int

ð3Þ

The percentage of the locally generated share (r) in North Africa could be then easily stated as share between local and total value. Pm i ¼ 1 GRcstr, local, i r¼ P ð4Þ m i ¼ 1 GRcstr, i The calculation of the total locally generated revenues (GRcstr,local) is based on a component and services specific analysis that sums up all locally generated revenues of all components and services n. GRcstr, local ¼

n X

ðGRcstr, local, i Þ

ð5Þ

i¼1

The share of locally generated revenues is expressed by the function of the market demand and the feasibility of local manufacturing. The decision for ‘‘local’’ or ‘‘international’’ in the STMD model is subject to three constraints: Availability of knowhow for CSP products, local market potential in the next five years and a maximal local supply. Thus the formula of the total generated revenues of each component n in country m is described in (6). GRcstr,

n, m

¼ C t nNPt, m nðSQ n, m þ devSQ n, m Þ

ð6Þ

Subject to KIm ZKIn

ðTechnology know-how levelÞ

ðFSmin, n nonCSP n Þn5 r

5 X

NP t,

m

ðMarket potential of next 5 yearsÞ

t¼1

SQ n, m þ devSQ n,

m r max LSn, m

ðMaximum for local supplyÞ

If all constraints are not fulfilled, then GRcstr,n,m is equal to zero. A summary of used abbreviation are presented in Table 2. 3.4. Output and robustness of the STMD model The transformation of the real world problem ‘‘local manufacturing of CSP’’ into an abstract decision model to quantify the effects has to be implemented carefully on a very detailed level. Therefore some general definitions and simplifications are made in the STMD model to obtain a manageable model: J

While CSP market and technical know-how is increasing in the scenarios, the tool checks in each year which components could be produced locally or not. If a component is indicated as

C. Kost et al. / Energy Policy 46 (2012) 88–99

m n t GRn. GRcstr GRtotal Ct PR NPt O&M O&Mlabor O&MMat r FSmin,n KIn KIm SQn,m devSQn,m maxLSn,m nonCSPn

J

J J

Index of countries Index of components and services Year Generated revenues per component n Generated revenues during construction Generated revenues during total lifetime Cost of construction (start of construction in year t) Progress ration (¼ cost reduction depending on world scenario) New power plants in year t (depending on scenario) Cost for operation and maintenance Labor cost of operation and maintenance Material cost of operation and maintenance Local share of revenues Min. factory size per component Know-how Index Country, related to the BERI index of each country (see BERI 2011) Know-how index component (estimated value in relation height of BERI index Status quo of local share per component Development of Status quo Max. local supply (share) per component Non CSP products produced in same factory

‘‘possible to be produced locally’’ in a country, it will be also produced locally in the future. If a service (construction) or a component were indicated to be produced by a company based in North Africa, the revenue was added to the ‘‘local’’ share. If a component came from a company based abroad, it was added to the ‘‘international’’ share. Purchase of components of a power plant is summarized as ‘‘component and supply chain effects’’ for North Africa. Purchase of services (project development, management, engineering, procurement, construction) is a ‘‘construction related effect’’.

Expenses for operation and maintenance (O&M) are divided into labor for operation and into materials for the replacement of equipment and other materials. The robustness of the STMD model is limited to parameters and scenarios that are included in the model. But this transformation into an abstract model has also some limitations. The model reflects different market scenarios, technology paths and cost expectations, but STMD cannot deal with uncertainties, technology evolution and risk expectations: J J J J

J

Future political and economic uncertainties in North Africa are not considered (war, recession, etc.) Single, independent micro-economic decisions and behavior is not covered by the model. The model gives the potential of local manufacturing due to key influencing factors but not a certain development. The model is limited to parabolic trough plants with the highest maturity of CSP technologies (Fresnel systems and power towers are not included). Side-effects of technical development and competitive markets of other technologies is assumed by increasing know-how and learning, but direct effects of substitution and competition problems are not implemented.

The outcomes are aggregated for all countries over all components and services. Therefore, the modeled average share of local manufacturing is not the maximum of what is possible in the region. Single plants in several countries could have local shares that are higher than the average. Of course, plants with a higher

share of local manufacturing are expected to have a stronger economic and social impact compared to CSP plants with lower shares.

4. Assumptions and input parameter 4.1. CSP market demand: scenarios in North Africa and world-wide Most of the CSP power plants that are in operation in 2011 are located either in Spain or the USA. Also the project pipeline of plants under development or in planning process is large in both countries (up to 18 GW). But many other countries with arid desert areas start to move towards a CSP integrated electricity generation, for example India, Australia and Morocco. To evaluate CSP value generation based on each component in North Africa, the model is calculated for three different market scenarios. A scenario defines the volume of installed CSP capacity per year in each country. Deployment scenarios (see Fig. 4) for North Africa were defined for the period from 2010 to 2030 related to the overall market size in the world scenarios of Greenpeace (2009) with 12 to 342 GW and IEA (2010) with 337 GW: (1) (2a) (2b) (3)

Scenario: Scenario: Scenario: Scenario:

Business as usual (BAU) Moderate Moderate — North Africa Cooperation Ambitious

The scenarios for North Africa cover the market development for each of the five countries (Algeria, Egypt, Jordan, Morocco, Tunisia). Scenario (2b) includes the same market size as in the Scenario Moderate, but the North African is not separated into different country markets. Under a cooperation framework between the five countries regarding common energy policy and industry support the aspect of local markets is not limited on national borders. The constraint of a limited demand market is weakened in this case. The specific findings of this scenario only are shown in the last analysis of local impact (Section 5.3). As explicit numbers for each country were missing, the specific path for CSP was defined for each country by findings from a local survey and literature review to specify the scenario path of each country. Following issues influenced the chosen scenarios: J J J

Definition of national RE strategy for each of the five countries with targets for CSP plants by 2020 Existing technical know-how in the field of CSP: Power plant engineering and construction (civil works) Existing industry capabilities in manufacturing industry of products with comparable features and quality 35 30

installed capacity in GW

Table 2 Abbreviation in equations.

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25 Algeria

20

Egypt 15

Jordan

10

Morocco Tunisia

5 0 2020

2030

BAU

2020

2030

Moderate

2020

2030

Ambitious

Fig. 4. CSP scenarios for North Africa.

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Scenario target of installed capacity by 2020 is 1 GW in the Scenario-BAU, 3 GW in the Scenario Moderate and 5 GW in the Scenario Ambitious. Every country obtained explicitly defined target, see Fig. 4. For the period after 2020, the different market development paths represent 10 to 20% of the world market depending on the scenario. 4.2. Reference plant and cost structure In the model, all new power plants in the region are based on the reference design of a 50 MW parabolic CSP plant with 7.5 h storage based on Andasol 1 layout (see Ferna´ndez-Garcı´a et al., 2010). This design of the reference plant was evaluated to obtain all data about the number or volume of each components, construction costs, component costs and labor effects connected to this plant. Due to the lack of data from North Africa, these cost assumptions from Spain were taken. First tender results from Abu Dhabi do not show large cost benefits of the region recently. The cost forecast starts with a total investment of 280 Mio euros for the construction of the CSP reference plant in year 2010. The five larger cost items have shares between 14% for the power block and 38% for equipment of solar field including heattransfer-fluid (HFT) of the total investment. They also include several sub-services and sub-components (see Table 3). Item

‘‘Equipment Solar Field and HFT System’’ consists of the important CSP components: Mirrors, metal structure, receivers, piping and HTF. Category ‘‘Others’’ (19%) includes the cost parameters: Project development, management, financing and allowances. To calculate the value generation in the North African region, a simulation model of the future construction costs for CSP plants is necessary to obtain annual data for the construction of new plants over the next 20 years. Future cost developments and cost reductions on component and plant level have been modeled by learning curves which are related to the world market growth as determined in the market scenarios of the Greenpeace (2009). Learning curves are based on a historical cost observation whereby the production costs of a new technology decrease by a certain learning factor when production output has doubled. Progress ratios (¼1 — learning factor) for CSP are broken down by findings from the Solar Energy Generating Systems (SEGS) in California with values ranging from 90% for solar field and 98% for conventional plant components (Trieb et al., 2009). These learning curves were adapted to the different cost items of the plant. Since Scenario Ambitious is linked with the Greenpeace (GP) advanced scenario, Scenario Moderate with GP moderate and Scenario BAU with GP reference, cost reductions in Ambitious are larger than cost reductions in BAU and Moderate because of the low market growth in these two latter scenarios (Table 4). The results of the cost reductions are very similar to recently published data of industry association Estela and consultant AT Kearney in June 2010 (see Estela, 2010).

Table 3 Construction cost of a 50 MW CSP power plant with thermal storage in 2010. Source: own research. Cost item in reference CSP plant in euro (h) Labor Cost Site and Solar Field Solar field Site preparation and infrastructure Steel construction Piping Electric installations and others

8.7 16.3 7.0 4.9 11.1

Mio Mio Mio Mio Mio

Equipment Solar Field and HTF System Mirrors Receivers Metal structure Pylons Foundations Trackers (Hydraulics und Electrical Motors) Swivel joints HTF System (piping, insulation, heat exchangers, pumps) Heat transfer fluid Electronics, controls, electrical and solar equipment

17.8 19.9 30.0 3.0 6.0 1.2 2.0 15.0 6.0 7.0

Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio

Thermal storage system Salt Storage tanks Insulation materials Foundations Heat exchangers Pumps Balance of system

14.3 5.1 0.5 1.8 3.9 1.2 2.7

Mio Mio Mio Mio Mio Mio Mio

Conventional plant components and plant system Power block Balance of plant Grid connection

16.0 Mio 15.9 Mio 8.1 Mio

Others Project development Project management (EPC) Financing Other costs (allowances)

8.1 21.6 16.8 8.1

Total cost

Relative value of item (%)

48.0 Mio h

17.1% 3.1 5.8 2.5 1.8 4.0

107.9 Mio h

38.5% 6.4 7.1 10.7 1.1 2.1 0.4 0.7 5.4 2.1 2.5

29.5 Mio h

10.5% 5.1 1.8 0.2 0.6 1.4 0.4 1.0

40.0 Mio h

14.3% 5.7 5.7 2.9

54.6 Mio h Mio Mio Mio Mio

19.5% 2.9 7.7 6.0 2.9

280. Mio h

100.0%

C. Kost et al. / Energy Policy 46 (2012) 88–99

95

4.3. Operation of CSP plants

4.4. Status quo in current CSP projects

Operation and maintenance (O&M) of the plants will add further revenues and jobs to the value generation analysis over a longer time period. Therefore operation period is integrated in the analysis until 2030. Here, wages of employees (500 euros/month) were adapted to the case in North Africa from the US assumptions in the JEDI model. 41 direct jobs for 50 MW per year are considered, compared to about 25 in the JEDI model (NREL 2010), due to lower labor cost and lower productivity in North Africa. This number of workers was assumed in all later plants. Efficiency gains and new methods of O&M planning, however, could decrease this number. Based on lower wages and a higher number of employees per plant, the total annual labor cost for operation is calculated to 1.45 Mio euros per year. Total operation cost for materials and other services are adapted from JEDI model with 2.14 Mio euros per year (Reference in JEDI Model: 57 MW, capacity factor 41%). The locally generated revenues from operation cost for materials and other services were assumed to 0.87 Mio euros in all years (Table 5).

Future market development in North Africa takes off from the current status of CSP projects in the region. The latest commissioning of three ISCCS plants in Algeria, Egypt and Morocco are an important benchmark for the next larger projects. Therefore these projects were analyzed — also by interviews with important stakeholders (Flagsol GmbH, Abener Energia SA, Orascom Construction Industries, Fichtner Solar GmbH) to identify which components are produced locally and services are provided locally. This information from newly installed ISCC plants has been transferred to our virtual 50 MW reference plant with storage (Table 3) to ensure comparability as the ISCC power plants have a quite different plant design compared to future pure solar plants due to the low solar share (approx. 5%). The analysis of the status quo in Morocco and Egypt shows two different exemplary cases in the region: A low and a medium share of local manufacturing respectively (see Fig. 5). These examples indicate the different situations of local manufacturing which depends on many circumstances such as technology selection, engineering design and ownership in Morocco and

Table 4 Learning curves for cost scenarios (Trieb et al. (2009), nown assumption). Cost items

Progress ratio for learning curve (%)

Labor costs: Site and solar field Equipment solar field and HFT system Thermal storage system Conventional plant components Others

98n 90 92 98 90

Cost per 50 MW plant with storage [in Mio euro]

Scenarios BAU Moderate Ambitious

2011

2015

2020

2025

2030

280.0 280.0 280.0

254.3 209.0 204.3

240.0 184.4 181.0

232.6 172.2 166.5

227.0 163.9 156.6

Table 5 Jobs and cost during operation of CSP plant (own calculation, based on NREL (2010)). Values of operation

Local

International

Number of (direct) Jobs Annual labor cost Operation cost for materials and other services

41 1.45 Mio euro 0.87 Mio euro

0 0 euro 1.27 Mio euro

300

Investment in Mio Euro

250

200

150

100

50

0 Labor Cost Site Equipment Solar Thermal Storage Conventional System Plant and Solar Field Field and HTF Components and System Plant System

Morocco (Local)

Egypt (Local)

Others

Total

Reference plant (Total)

Fig. 5. Comparison of the status quo of local manufacturing for CSP projects for virtual reference plants in the MENA region.

C. Kost et al. / Energy Policy 46 (2012) 88–99

Total generated revenues of CSP plants in bn Euro

96

120 100 80 Scenario: BAU 60

Scenario: Moderate Scenario: Ambitious

40 20 0 2015

2020

2025

2030

Fig. 6. Total value generation of CSP plants (cumulated).

Egypt. The Egyptian virtual reference plant (corresponding to Kuraymat) has a local share of over 43% (121 Mio euros) with respect to the total plant cost. The share of components or services imported from international companies is still at 57%. Lower shares of local content at 18% are, however, also found in the region. In the Moroccan case mainly civil and construction works are provided by the local workforce and companies (about 50 Mio euros). This current status was used as the baseline for future projects in the STMD model (Fig. 6).

5. Results and discussion 5.1. Total generated revenues in North Africa during construction and operating the power plant Industrial development is highly important for the success of renewable energy roadmaps in the countries of North Africa. The relevance of this topic could be understood as Egypt and Morocco consider own industry potentials and know-how creation in their national strategies for renewable energies. The total generated revenues include effects of the construction and operation of the plant. In the Scenario Ambitious with installed CSP capacity of 31 GW the total generated revenues will range up to 120 billion euros by 2030. If only 2.1 GW will be installed in the Scenario BAU by 2030, this leads to generated revenues of only 11 billion euros. Generated revenues for companies which are responsible for maintenance and operating the power plant account for a maximum of 10% in the Scenario BAU. In the other scenarios the impact of the operation phase is even lower. The largest share directly refers to the initial planning and construction of the solar plant. In the year 2020 of the Scenario Ambitious, construction of new plants has an impact of 3.9 billion euros and operation adds only 275 Mio euros to the total generated revenues. Compared to an extrapolated annual GDP of 570 billion euros in the five countries in 2020 (annual growth of 3%), generated revenues of 14 billion euros (in the total region in year 2030 of Scenario Ambitious) are a very important economic factor to the region. Later it will be discussed how large the local share of the total generated revenues will be in relation to international imports of CSP components to North Africa.

5.2. Generated revenues of selected components Since the model contains the assessment of each component and services, component specific values over time could be calculated in the bottom-up approach. For the long-term cost

forecast, the model is limited to use five progress ratios for five CSP cost items (see Tables 3 and 4). Construction of the plant consists of a very labor intensive work process. Some examples of these civil works and construction are site preparation and land leveling, collector assembling, construction of the solar field with the connection and isolation of piping tubes as well as the installation of electronic components for measurement and control of the solar field. Expenses for labor related to construction will have a strong economic impact of 26 billion euros in Scenario Ambitious (total: 120 billion euros) by 2030. In the same scenario labor cost are cumulated to almost 5 billion euros by 2020. Demand for components could reach large volumes for CSP key components like mirrors, receivers and metal structure. CSP related services like project development and project management will also be a substantial industry sector. Markets for mirrors, receivers and metal structure could have a yearly volume of 200 to 350 Mio euros in 2020, also in the Scenario Moderate. These values could increase to 600 and 1000 Mio euros in 2030. In Scenario BAU, value generation remains quite low in the region due to low market expectations. Low market demand will have also a dramatic impact on local industry development for component manufacturing. The results for the most important CSP components are summarized in Fig. 7. The outcome of each scenario is also influenced by the different cost reduction in each scenario. Therefore the revenues in the Scenario Ambitious are reduced by the cost reduction which is stronger than in the other scenarios. The chronological progress of component manufacturing is simulated by the STMD model. Table 6 presents the specific year in which a component is started to be produced by a local supply firm according to the modeled framework of market size and available know-how in the different scenarios. The table includes only larger components, but thermal storage is not reflected here, because it can be only supplied partly by local sources (tank, foundation, balance of system). It has to be noticed that this is only a potential path and timeline for local manufacturing. In reality, some difference due to new market decisions and circumstances can appear. Important to notice is that EPC services, project engineering and mirror production change strongly their market behavior because of high dependency on market size.

5.3. Local impact of value generation during construction Local manufacturing and local industry development is politically and economically desirable to bring economic and social development to North Africa. The results based on each component in the STMD model were aggregated to a local and international origin. Fig. 8 provides the breakdown of local and international value generation during construction of CSP plants. By 2020, the revenues of local suppliers in the Scenario BAU sum up to 1.6 billion euros and international suppliers will receive cumulated orders of 3.4 billion euros. In the same period, the Scenario Ambitious increases local revenues up to 8.2 billion euros and international revenues up to 12.1 billion euros. In Scenario Moderate and Ambitious it might be possible to exceed the international imports by local production in 2030 when cumulated numbers are 38.5 billion euros to 36.5 billion euros (Ambitious: 58.0 billion euros to 52.3 billion euros). The calculation of the local share (r) gives the percentage of the whole investment that is localized in the region. Starting with an average value of about 20% of local components and services in 2011, the local share develops very different in each scenario as the assessment will show in the following. The model gives a maximum share of locally generated revenues of 68.2% based on

C. Kost et al. / Energy Policy 46 (2012) 88–99

97

Revenues per component or service in bn Euro

25

Mirrors 20

Receivers Metal structure Project Management (EPC)

15

Labor Cost Site and Solar Field

10

5

0 BAU

Moderate

Ambitious

BAU

Moderate

2020

Ambitious

2030

Fig. 7. Revenues per component in different scenarios by 2030 (cumulated).

Table 6 Component specific timeline for manufacturing with ‘‘first year of local manufacturing’’. Scenario BAU 2011

2012

2014

Steel construction, pylons, foundation, balance of plant, grid connection, financing

EPC (only egypt)

EPC (rest)

Scenario moderate 2011 Steel construction, pylons, foundation, balance of plant, grid connection, financing

2012 EPC

2019 Swivel joints

2019 Receivers

2020 Mirrors

2029 Project Engineering

Scenario ambitious 2011 Steel construction, pylons, foundation, balance of plant, grid connection, financing

2012 EPC

2015 Swivel joints

2015 Receivers

2016 Mirrors

2027 Project engineering

Scenario moderate — North Africa Cooperation 2011 Steel construction, pylons, foundation, balance of plant, grid connection, financing, EPC

2012 Mirrors

2015 Swivel joints

2015 Receivers

2020 Project engineering

Value generation in bn Euro

70 60 50 40 30 20 10 0 local

international

local

2020 Scenario: BAU

international

local

2025 Scenario: Moderate

international 2030

Scenario: Ambitious

Fig. 8. Local and international value generation in different scenarios.

the assumption that some components like turbines or other high technology components will not be produced in North Africa. In the Scenario BAU the highest share of local value is 35%, and it decreases in the long term as demand is also quite low in the following years after 2020. In this scenario, local manufacturing for components does not really take place. Only concrete foundations and metal structures are produced locally. Also civil works and assembling on the site will be done by local workforce and local construction companies (see Fig. 7). In the Scenario Moderate and Ambitious, the local share increases up to almost 60% by 2030 dynamically, because of a

high market demand linked with technological learning after many successful projects and shifting of international production to North Africa. The curves in Fig. 9 show small jumps in the years 2015 to 2020 when key components like mirrors or receivers will start to be produced in the region due to the large market demand in both scenarios. The market demand is predictable for market participants in the model. This includes long-term plans and targets (also financial support) for new CSP in the region. If this assumption could not be fulfilled by the market conditions, the local shares will be much lower because international companies do not build new manufacturing capacities in unstable markets.

C. Kost et al. / Energy Policy 46 (2012) 88–99

Local share of value generation during construciton in %

98

70% 60% 50% 40% 30% 20% 10% 0% 2010

2015

2020

2025

2030

Scenario: BAU

Scenario: Ambitious

Scenario: Moderate

Scenario: Moderate - North Africa cooperation

Fig. 9. Continuous growth of local share for CSP components in North Africa.

As all scenarios are originally calculated on separate market demand for each country and own constraints regarding know-how and CSP manufacturing capacities, a cooperation between the countries is introduced in the model with one common market (scenario 2b). This assumption has an interesting result in the model with political and economic consequences. The dashed line indicates the share of local origin if the countries would create a common market by cooperation and coordination their economic efforts to settle a CSP industry in North Africa. This line always lies above the local values in the other scenario without cooperation. Logically, a larger and more stable market demand lowers the risk for investors and firms to build up know-how and new manufacturing capabilities in the region. Locally producing companies will soon supply more products and services to CSP plants (40% in short-term). The following business example helps to explain this scenario case: A construction company from Egypt with basic CSP knowhow leads a first project in Jordan as EPC contractor. In such a case, barriers of know-how and market size could be skipped earlier with gross-border cooperation than in the presented scenarios without a common market. Also in the long-term the local share with cooperation was calculated 5–10 percentage point above normal scenarios (Moderate: 63% in 2030). That leads to the conclusion that cooperation and a larger market between all countries in North Africa is highly recommended under this perspective. Recent interviews for solar towers and Fresnel systems are similar to the findings from components of parabolic trough, but these results have to be evaluated in a new ongoing research project. Both technologies differ in the components metal support structure, tracking and mirrors in the solar field. These components are seen more simply as they reduce e.g., steel transformation and bending of the mirrors. International companies expect to produce them either locally or internationally depending again on the long-term perspective in the certain market.

6. Conclusion This paper analyzes the influence of CSP value generation on the local and international CSP industry in the countries of North Africa. Qualitative research findings and interview results have been transformed into the STMD model to assess the economic share of generated revenues between the local and international

industry quantitatively. The model approach combines a static investment analysis of CSP plants with a dynamic assessment of manufacturing processes, industry development and cost analysis. Although the model reflects a complex issue of industry development and includes some economic and political uncertainties, the results consider a very important topic for future investment decisions: socio-economic effects of renewable energies. Starting with an analysis on the status quo, this paper highlights the future development of local manufacturing in North African countries. By presenting different market scenarios, the model is adapted to different market environments in North Africa. These different paths influence the creation of local markets for CSP components and CSP services. The total generated revenues including effects of construction and operation of the plant range from 11 billion euros in the Scenario BAU up to 120 billion euros in the Scenario Ambitious until 2030. By technological learning and growth of know-how the local companies will participate with an increasing share (up to 60%) in the CSP market of North Africa. In the Scenario Ambitious the CSP industry could become an important driver for the national economies by adding 58 billion euros to regional economies. A strong economic and political cooperation between the countries adds further local potential to the economic analysis for North Africa. A larger, stable CSP market of five countries with long-term targets to develop their solar industry in cooperation will increase the benefit for the region. This paper is based on an analysis of parabolic trough plants as the market share is the highest and consequently data availability is higher than for other technologies like solar tower and Fresnel systems. Therefore the quantitative and quality results are expected to be similar. But the design and layout of solar field components (in solar towers and Fresnel systems) are expected to be more simply and common (e.g., mirrors, mounting system). Further research on these technologies will target their opportunities in new markets. The role of highly developed companies with experience of critical production processes and technology developers in North Africa is only partly reflected as they are exceptions in the market. The impact of successful niche players is satisfied by the calculation of an average value generation. Estimations on technological know-how of the countries and the technical level of each component are outcomes of the interviews. As these estimations

C. Kost et al. / Energy Policy 46 (2012) 88–99

have an impact on the decision ‘‘local’’ or ‘‘international’’ for each component, the authors carefully qualified these levels and barriers, the findings are restricted to the obtained information and data. Furthermore, additional research is needed to analyze the impact of socio-economic effects, especially total benefits from renewable energies worldwide. The shortcomings of substituted goods (such as conventional power plants) and the net amount of created jobs are fields of high research interest.

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