Renewable projects reshape energy landscape in Morocco

In recent years, Morocco has been working to reduce its energy dependency via the implementation of renewable energy projects and the rollout of an ambitious oil and gas exploration programme. Morocco, which has experienced a steady increase in energy consumption of about 5-6% every year over the past 25 years, is expected to see its demand quintuple by 2050. Although it is has little oil and gas reserves, Morocco boasts strong potential in renewable energies. It has the potential to produce 6000 MW of wind energy, 5 KWh per sq metre per year in solar and boasts 200 sites for small-scale hydroprojects.

Since the 1990s, reforms have been enacted to liberalise the energy sector and boost private initiative, including the privatisation of Morocco’s oil refining and distribution sectors, the development of private power production through power purchase agreements (PPA) with the National Office of Electricity and Water Supply (Office national de l’eau et de l’électricité, ONEE), and the introduction of delegated management of water and electricity distribution to private operators in big cities.

Energy Imports

Morocco is the largest energy importer in the MENA region. In 2015 the country still imported 97% of its needs in energy – mostly oil and petroleum products – with approximately half of its crude oil sourced from Saudi Arabia. As a result of the sharp decline in global oil prices since mid-2014, Morocco has seen its traditionally-heavy oil bill drop by 28%, from $9.2bn (€8.3bn) in 2014 to $6.6bn (€5.9bn) at the end 2015, resulting in a clear reduction of the country’s trade deficit.

Morocco is home to only one refinery, located in Mohammedia, and operated by the formerly state-owned company Société Anonyme Marocaine de l’Industrie du Raffinage (Samir), which was privatised in 1997 and sold to Saudi-based Corral Petroleum Holding. With refining capacity of about 10m barrels per year, Samir was responsible for two-thirds of Morocco’s consumption in refined oil, which was estimated at 300,000 barrels per day. This came to an end in August 2015 when the company halted production after its suppliers stopped delivering crude oil due to the company’s $450m (€405.1m) debt. After attempts by the main shareholder to reestablish the company, the Court of Casablanca placed Samir into liquidation and named an independent trustee to oversee the company in March 2016.

On June 1, 2016 an appeals court upheld the decision to put Samir into liquidation. Despite attempts by the government to find a buyer for the company its fate is currently unknown. However, regardless of the outcome for the company, authorities already announced their goal of keeping refining activities in Morocco, opening the door to possible nationalisation. “Samir’s liquidation does not mean closure of the refinery. There are potential purchasers, both public and private,” Abdellatif Jouahri, governor of the central bank, told local press. Alternatively, the government has also envisaged the construction of a new refinery in Jorf Lasfar. “We are looking at a partnership with a UAE-based investor and a possible local distributor such as Afriquia. This scheme will imply a $200m (€180.1m) investment, which will only be profitable after five years,” Jouahri added.

Oil Distribution

Oil distribution in Morocco was privatised in the 1990s and is predominantly controlled by Morocco’s Afriquia Gaz, Vivo Energy (under Shell licence) and Total Maroc, which together account for 75% of the market. The remainder is shared between a dozen smaller companies. As part of the government’s new structural reforms, authorities have recently removed a series of costly subsidies borne by Morocco’s compensation fund, including subsidies on fuel and premium petrol in 2014 and gasoil in January 2015, with domestic butane remaining the only subsidised product. In December 2015 authorities implemented the full liberalisation of oil products, leading to a very slight decrease in oil retail prices during the months that followed. “Liberalisation is a positive opportunity for the country and the end-user. The state won’t have to assume the variation of currencies or prices on international markets any longer and the consumer will benefit from the competition between distributors,” Mohamed Raihani, managing director of Shell Maroc, told media.

Exploration

Since the implementation of the new Hydrocarbons Code in 2000, Morocco has drawn increased interest from exploration companies looking to tap into Morocco’s potential in oil and gas. Over the past 15 years, overall investments in oil exploration have amounted to $2bn (€1.8bn), carried out mainly by foreign companies (95%) in conjunction with Morocco’s Mine and Hydrocarbon Office (Office national des mines et des hydrocarbures, ONHYM). To attract investors, Morocco put in place a series of fiscal and non-fiscal incentives, including 10-year exemptions on value-added tax, corporate taxes and duty-free imports for equipment and services. The code provides 75% ownership to the company and 25% to the state via ONHYM. The code obliges concession holders to invest in vocational training.

Investment Trend

As of end-2015 ONHYM reported 39 onshore permits, 79 offshore permits, nine exploitation concessions and four memorandums of understanding in oil shale, which extend over an area of 455,000 sq km. However, Morocco has recently experienced a steep decline in oil exploration investments, which nearly halved from $680m (€612.2m) in 2014 to $380m (€342.1m) in 2015. Despite this slowdown, the sector has seen some developments: 10 wells have been drilled, including one offshore near Essaouira by PXP and Pura Vida, eight in the Gharb basin by Circle Oil and Gulfsands, and one onshore in Tarfaya by San Leon.

Restructuring

As a result of the sharp drop in oil prices, companies have been looking to share exploration investments, leading to some restructuring in the oil exploration business. In 2015 Qatar’s state oil company, Qatar Petroleum, acquired 30% of Chevron’s stake in three offshore drilling areas near Agadir, namely Cap Rhir Deep, Cap Cantin Deep and Cap Walidia Deep. Under the agreement, Chevron retains 45% stakes in the offshore leases, while Morocco keeps a 25% interest. Similarly, Petromaroc sold its shares in Sidi Mokhtar to Sound Energy and Chariot Oil & Gas sold 40% of its interests to Italy’s ENI in an offshore exploration permit near Rabat.

Recent Discoveries

2015 saw the discovery of substantial gas reserves. San Leon found gas at the onshore Tarfaya Block, and has applied alongside ONHYM for a new eight-year exploration licence. Circle Oil announced the discovery of six successful wells from its 2014-15 drilling campaign. The company is set to bring into production one well that will flow at a rate of 4.45m standard cu feet per day (scfd) via the development of a 55-km pipeline to Kenitra.

The company also announced that preliminary drilling results from its Sebou concessions yielded about 8m scfd of natural gas. Similarly, Gulfsands Petroleum declared natural gas was flowing at a rate of 10m scfd at a test well in northern Morocco. “In light of today’s findings, we expect Morocco’s natural gas production potential to increase from 100-200m cu metres to several billion cu metres per year within two to three years,” Adbelkader Amara, minister of energy, told local media. In 2014 Morocco’s natural gas production was still shy of its potential, amounting to 1.6bn scfd, with the main off-takers being the locally-established operators in the Gharb and Essaouira area. In terms of oil, Amina Benkhadra, director at ONHYM, told local media that Morocco’s most promising areas are located in the basins of Gharb in the North and Meskala near Essaouira. She went on to say, “Offshore also shows a sustainable oil potential, but more intensive drilling programmes need to be carried out.”

Shale

Studies conducted in the 1980s highlighted a great potential in oil shale in Morocco, with reserves estimated at 57bn barrels, which would be the world’s sixth-largest supply. Three deposits have been identified to date. The most promising is in Tarfaya and the other two are in Timhadit (Middle Atlas) and Tangiers.

Exploration contracts with major corporations, such as Shell, BP, Chevron, Total and Petrobras, have been signed and an increasing number of other international companies are now eyeing the unconventional potential in Morocco. However, no industrial-scale extraction has begun thus far. Morocco also has potential shale gas reserves in the Anti-Atlas Mountains. Based on a US Energy Information Administration report, Morocco should have 340bn cu metres of technically recoverable shale gas in the Tindouf and Tadla basins. Nonetheless, the lack of water resources in the region and low global prices currently stand in the way of shale gas development.

Electricity

Morocco’s electrical installed capacity amounted to 8160 MW in 2015, up 6.9% compared to 2014, with the implementation of Morocco’s first solar power plant in Ouarzazate. Thermal power stations still produce 66% of Morocco’s electricity, of which 49% is based on coal-fired stations, 16% on gas-fired combined cycle power plants and 6% on oil-fired power plants. COAL Taqa Morocco, a subsidiary of Taqa Group, operates the largest coal-based power plant at Jorf Lasfar, with a capacity of 2056 MW, while ONEE manages three middle-sized coal-based power plants, including two in Mohammedia for a total capacity of 300 MW and one in Jerada (320 MW).

A new 320-MW coal-based power plant is currently under construction in Jerada. Funded via a $250m (€225.1m) Chinese loan, this unit is aimed at replacing the existing and ageing power plant built in the 1970s. In addition, a consortium composed of Morocco’s Nareva, Japan’s Mitsui and France’s Engie is currently building a 1386-MW coal-based power plant in Safi for a total investment of $2.3bn (€2.1bn). The group signed a 30-year electricity purchase agreement with ONEE. Scheduled for completion in 2018, the plant is expected to supply 20% of Morocco’s needs.

Gas To Power

In recent years Morocco has been looking to develop the production of gas-based electricity as a means to diversify Morocco’s energy mix and ensure better flexibility in Morocco’s power generation system. Thus far, Morocco has two gas-fired combined cycle power stations built in the 2000s, including a 385-MW plant in Tahaddart and a 470-MW plant in Ain Beni Mathar. Until 2011, the supply of natural gas had been exclusively ensured by the gas received by Morocco as payment for the transportation of Algerian gas exports through its territory via the Maghreb-Europe pipeline.

However, the country is looking to triple the share of gas in Morocco’s energy mix by 2025. A national plan for liquefied natural gas, estimated at $4.6bn (€4.1bn), was rolled out by the Ministry of Energy in 2014. It includes the implementation of a vast investment programme in infrastructure, including the construction of a methane terminal in Jorf Lasfar, a network of pipelines, as well as four new 400-MW gas-fired combined-cycle power stations.

Ultimately, gas-based electricity generation capacities could increase by 3900 MW. “This growing interest in natural gas is partly due to the projected development of renewable energies, which should account for 42% of Morocco’s power generation in 2020,” Taoufik Laabi, former director of strategy at ONEE, told OBG. “However, as they are intermittent energy sources, renewables will lead to strong variations of production into the grid, which can nevertheless be offset by gas-fired power stations, whose level of production can be rapidly modulated.” Morocco’s thermal power production system also consists of two 300-MW oil-fired power stations, located in Mohammedia and Kenitra.

Electrification 

In 1995 the government set up a national programme of rural electrification ( Programme d’électrification rurale global, PERG), with the goal of generalising electrification throughout the kingdom. In the course of 20 years, Morocco’s rural electrification rate jumped significantly from 15% in 1995 to 98.4% in 2014.

In 2015 ONEE signed an important agreement with the Abu Dhabi-based Masdar to equip 940 rural communes with domestic solar installations in an effort to reach a 99% power coverage rate in Morocco’s rural areas by 2017. “The electrification plan in the 2000s paved the way for a dynamic electricity industry in Morocco. However, despite an increase in domestic consumption, the sector is now looking towards Africa for new business,” Othman Taariji, vice-president for Energy Transfo, told OBG.

Distribution

As Morocco’s electricity utility, ONEE is in charge of Morocco’s transmission system and most of the distribution network, except in three large cities where authorities have opted to delegate management since the 1990s. This is the case in Casablanca with Lydec, a subsidiary of ENGIE, Rabat with REDAL and Tangiers with Amendis.

Other major cities such as Fez or Meknes have their own régie de distribution communale (autonomous municipality-controlled power distribution agencies). However, authorities are looking to streamline power distribution through the creation of regional multi-service agencies in charge of potable water and electricity distribution and urban sanitation.

Interconnection

In 2015 Morocco imported 15% of its electricity from Spain. The countries are connected through two 700-MW submarine cables. A project to reinforce these lines is under way, as is a feasibility study to develop a cable between Morocco and Portugal. Morocco is also connected to Algeria through two transmission lines, with a total capacity of 2400 MW. Additionally, an agreement has been signed between Morocco and Mauritania to study the development of an interconnection line between the two countries as part of a regional energy integration process. In the long term, Morocco is looking to export electricity northwards across the Mediterranean, despite the collapse in 2013 of the Desertec project, a German plan to source 15% of Europe’s energy from North African solar by 2050.

Fearing that Europe’s power grids were not ready for fluctuations in power output from North Africa, investors pulled the plug on that aspect of the Desertec project. However, Morocco still hopes to export clean energy across the Mediterranean. “There is room for industrial integration for wind and solar industries in Morocco,” Anas Kabbaj, general manager at GE, told OBG. “However, the challenge of industrial integration is to offer access to large enough projects and markets over time that provide decent returns on investments. The economies of scale and visibility over time are very important to attract international investments.”

Renewables

In 2008 the government rolled out the National Energy Strategy in a bid to address Morocco’s rising demand in energy. The programme relies on five main pillars: optimise Morocco’s energy mix, accelerate the development of renewable energies, boost energy efficiency, promote foreign direct investments in oil and gas exploration, and promote further regional integration.

Considered one of the MENA region’s most ambitious projects, the initiative targets increasing the country’s share of renewable energy to 42% by 2020 and 52% in 2030. To meet these objectives, Moroccan authorities passed Law No. 13-09 in 2010, which paved the way for the development of private power generation projects and allowed investors to sell electricity directly to private customers. Simultaneously, authorities established the Moroccan Agency for Solar Energy (MASEN), which has a mandate to foster the development of solar in the country. “While there is a significant momentum in renewable energies, some of the most interesting opportunities are still in conventional energy production, mainly due to the dearth of capacity that Morocco and Africa are facing,” Patrick Holenn, business development manager for energy at Jacobs Engineering SA, told OBG.

In September 2015 Morocco amended its renewable energy law in a bid to improve visibility amongst private investors. This introduced a net metering scheme for solar and wind power plants connected to a high-voltage grid and later for those connected to the middle and low-voltage level. Private companies will be able to sell their surplus to the grid, with a cap on 20% of their annual output. Projects in photovoltaics will benefit from the opening of the low-voltage grid to renewable power installations, with conditions of the scheme expected to be detailed in secondary legislation. “Low-voltage photovoltaic projects can potentially add 2000 MW to Morocco’s energy mix by 2020. However, to encourage the development of small-scale private photovoltaic projects, the existing taxation system on renewable energies should be reviewed downward and aligned with the level of taxation currently in force on oil products, around 7%,” Ahmed Squalli, president of AMISOLE, a Moroccan solar industry association, told OBG.

Regarding wind power, “Morocco offers stability, infrastructure and qualified labour at competitive costs,” Jan Pieter Cools, head of Wind Power Morocco at Siemens, told OBG. “Morocco’s energy strategy has shown credibility and there is easy access to promising markets abroad. All this has been decisive for the choice of Morocco as location for our blades factory.”

Regulatory Changes

While regulation has been falling primarily on the state-owned utility ONEE, Law No. 48-15 aims to establish a new independent regulatory institution known as the National Authority for Electricity Regulation (Autorité Nationale de Ré gulation de l’Électricité, ANRE), whose mandate will be to clarify roles and responsibilities of all actors involved in the electricity transmission and distribution networks as well as the management of the medium voltage electrical system. Furthermore, the governance of the renewables sector has been reshuffled in 2015. Morocco’s agency for solar energy, MASEN, which is in charge of overseeing developments only in the solar power sector, saw its scope of supervision extended to include all renewable energy projects.

Energy Efficiency

In 2009 Morocco implemented an energy efficiency programme aimed at reducing its energy consumption by 12% by 2020 and 15% by 2030. The programme is piloted by Morocco’s energy efficiency agency, the National Agency for the Development of Renewable Energy and Energy Efficiency, in charge of setting the norms to reduce gas emissions and sensitise users in the transport, housing and industrial sectors (see Environment chapter).

Nuclear

Morocco has shown an increased interest in developing nuclear power as part of its energy diversification strategy. In 2007 French nuclear power company Areva signed a deal with Morocco’s OCP S.A. to recover uranium from phosphoric acid.

In the same year, Morocco signed a nuclear energy cooperation agreement with France to develop a nuclear power plant near Marrakech. In 2010 authorities announced plans for the development of two nuclear reactors to be built after 2020.

In 2015 the International Atomic Energy Agency reported Morocco’s legal framework for nuclear energy was in compliance with international standards. This prompted the government to approve a draft decree for the creation of a nuclear safety and radiologic agency in September 2015. Currently, Morocco’s nuclear power generation consists solely of a 2-MW nuclear reactor located in Maamore.

Outlook

Set to host the next climate change conference in November 2016, Morocco is expected to use the event as a springboard for its ambitious plan to source 42% of its energy needs from renewables by 2020. In recent years, Morocco has successfully introduced renewables into its energy mix through the development of several wind farms and its first solar plant in Ouarzazate. The country is now looking to share expertise by offering to cooperate on renewable energy projects in neighbouring countries.