Morocco secures $314M loan for energy transition

From the newsletter

Morocco's national electricity and water utility company, ONEE, has secured a $314 million loan from the European Bank for Reconstruction and Development (EBRD). The funding is structured as a Sustainability-Linked Loan (SLL) and is the first one by a utility in the region. It will be used as a case study for sustainable financing.

• Morocco has ambitious renewable energy targets. It plans to more than double its current share of power generation from renewables to 52% by 2030 and 80% by 2050.

• Over the last 10 years, Morocco has focused on renewable energy investments, more than doubling its renewable energy capacity from 2.1 GW to 5.4 GW. This ranks it third in Africa, behind South Africa at 10.6 GW and Egypt at 6.7 GW.

More details

• The financing targets to strengthen the financial stability of ONEE, accelerate its transition to clean energy, and diversify its capital sourcing. The loan will be used exclusively to finance energy efficiency, develop sustainable electrical infrastructure, and strengthen ONEE's ability to tackle climate and economic challenges.

• The loan will also finance technical assistance programmes. This will help develop a digital roadmap to modernise the electricity sector and implement policies that allow private sector participation in transmission lines.

• Since the COVID-19 crisis, electricity demand in Morocco has significantly increased, as the economy rebounds. The country has relied on expensive fossil fuels to power its grid which has strained its utility company resources. This has prompted ONEE to seek solutions to enhance its financial resilience and ensure a stable electricity supply.

• In 2024, electricity consumption rose by 3% and is expected to grow at the same rate until 2027. The country has been ramping up its renewable energy generation capacity, and in 2024, it accounted for 24% of electricity consumed. Coal-fired power remains the primary source of power, with a share of 60% in total electricity supply. However, coal generation is expected to decline by 2.5% annually for the next three years, with its share in electricity easing to almost 50% by 2027.

• Morocco saw financial commitment to its electricity grid increase fivefold in its 2024 budget, rising from $99 million to $498 million. This is in addition to investments in mega renewable energy projects, such as wind and solar. It also plans to invest $2.7 billion in the green energy sector over the next five years.   

• Private sector investments have gone a notch higher. Chinese companies, in particular, are setting up mega-infrastructural projects in electric vehicle and battery manufacturing. These will need more clean power to capture export markets. As such, manufacturing facilities are being established with renewable energy plants to meet export market requirements, particularly in Europe.

• Morocco is also targeting electricity supply to foreign markets in Europe and those in the West African Power Pool. It is building a subsea interconnector to the UK and a transmission line to Mauritania. There is plentiful renewable energy potential in the form of sunlight and wind in the deserts and coastlines that Morocco intends to exploit. 

• The IEA projects renewable generation to grow by 16% on average until 2027, with its share rising from 24% in 2024 to 35% in 2027. Solar PV generation is expected to grow rapidly, with an average annual growth rate of 57% in 2025-2027, while wind is projected to grow at an average of 15% per year.

Our take

• While the funding amount is substantial, Morocco's demand for renewables is much bigger. According to World Bank estimates, around $52.8 billion is needed for Morocco to reach net-zero emissions by the 2050s. 

• But this goal won't be achieved overnight, it's a gradual process. When looked at through a different lens, the EBRD funding represents roughly 15% of the average annual investment Morocco needs to achieve its 2050 goals. This, in addition to the $2.7 billion planned for investments over the next five years, puts Morocco on the right path. While the 2030 goal may be challenging due to the long timelines associated with energy projects, the 2050 target appears more attainable.

• However more is needed, especially in policy and regulations. The policy that allows private sector investments in transmission lines needs to be fast-tracked. This will not only unlock additional funding sources but also facilitate the efficient integration and distribution of renewable energy.