Policy Research Reports
Powering the Future of MENA – Energy Transition Country Profiles: Review of Data and Literature
No.
PRR 58
Publisher
ERF
Date
March, 2025
Background
The Middle East and North Africa (MENA) region stands at a critical crossroads in its energy transition. As home to between 48.3% and 58% of the world’s oil reserves and over 43% of global gas reserves, MENA countries have long depended on fossil fuel exports for economic stability. However, with increasing global commitments to decarbonization, declining oil and gas demand, and mounting climate change vulnerabilities, the region must rapidly adapt. Despite policy commitments to renewable energy (RE), the region’s RE share remains critically low, contributing only 0.4% to the total primary energy mix, with non-hydro renewables making up just 6% of total energy generation. Many MENA economies have not fully leveraged their fossil fuel wealth to develop diversified, resilient economies. Instead, they remain rentier states, highly dependent on external markets for revenue. Energy demand across MENA is rising at an annual rate of 1.9%, creating an urgent need to expand renewable energy infrastructure to meet future consumption needs sustainably.
A key driver of the energy transition in MENA is the role of micro, small, and medium-sized enterprises (MSMEs), which make up 90% of businesses in several countries and play a significant role in economic activity, employment, and innovation. MSMEs can be instrumental in advancing RE adoption, particularly in decentralized energy systems such as solar microgrids, energy efficiency technologies, and distributed power generation. Their contributions extend beyond economic benefits, as they help reduce dependence on fossil fuels, lower carbon emissions, and create sustainable employment opportunities. However, despite their potential, MSMEs in MENA face substantial barriers, including limited access to climate finance, regulatory inefficiencies, and inadequate infrastructure. Without targeted policies and financial mechanisms to support them, their role in the transition will remain constrained.
Methods
The research employs a comprehensive mixed-methods approach to examine MENA’s energy transition. A thorough literature review analyzes existing policies, regulatory frameworks, and economic conditions across the region. Country-specific case studies provide in-depth assessments of energy trends, policy implementation, financing mechanisms, and MSME involvement in RE adoption in six selected countries: Egypt, Jordan, Lebanon, Morocco, Sudan, and Tunisia. To understand the key players shaping the energy landscape, the study conducts stakeholder mapping, identifying the roles of governments, financial institutions, international organizations, and private sector actors. Quantitative data analysis is also employed to evaluate energy consumption patterns, RE investments, employment trends, and MSME contributions using national and international datasets. Finally, a comparative policy assessment highlights differences in RE policies, financing strategies, and economic incentives across the six countries, identifying best practices and areas for improvement.
Findings and Recommendations
The study finds that the MENA region faces significant challenges in its energy transition, including an over-reliance on fossil fuels, inadequate grid infrastructure, high regulatory and financial barriers, and growing electricity demand, particularly for space cooling and desalination. However, it also identifies opportunities for transformation, such as the region’s abundant solar and wind resources, declining costs of RE technologies, and increasing international support for green investments. While some countries, such as the UAE, Egypt, and Morocco, have demonstrated leadership in RE development, others lag behind due to political instability, weak governance, or financial constraints.
Examining the six selected countries, the report highlights Egypt’s ambitious RE targets under its Integrated Sustainable Energy Strategy 2035, which aims to achieve 42% RE in electricity generation. Egypt has undertaken major projects, such as the Benban Solar Park and new wind energy installations, but challenges persist, including policy inconsistencies, financial barriers, and continued reliance on natural gas. Jordan has emerged as a regional leader in solar and wind energy, despite having limited natural resources, due to strong government policies that encourage private-sector participation through net metering and wheeling mechanisms. However, high financing costs remain a major challenge for MSMEs seeking to expand RE adoption. Lebanon’s energy sector is severely constrained by political instability and economic crises, limiting RE expansion. Although some MSMEs have adopted small-scale solar solutions to cope with unreliable grid electricity, widespread adoption is hindered by financial instability and lack of infrastructure. Morocco stands out as one of the most successful RE adopters in MENA, benefiting from a strong policy framework and government support for solar and wind projects. MSMEs in Morocco actively participate in RE supply chains, particularly in solar manufacturing, but challenges remain in financing and grid integration. Sudan, despite its vast renewable energy potential, struggles with political instability, weak governance, and lack of investment, preventing significant RE progress. MSMEs in Sudan face severe barriers in accessing financing and reliable energy sources, though small-scale solar microgrids hold promise for rural electrification. Tunisia has made progress in RE development through regulatory reforms and financial incentives. MSMEs in Tunisia are particularly active in distributed solar solutions, but economic volatility and regulatory delays pose obstacles to large-scale RE expansion.
The study underscores the critical role of MSMEs in advancing MENA’s energy transition. These enterprises contribute to decentralized energy solutions, energy efficiency improvements, and innovation in green technologies. However, access to finance remains a major constraint. MSMEs face difficulties in securing climate finance due to a lack of tailored financial products, stringent collateral requirements, and regulatory hurdles. Governments must create targeted incentives, such as tax breaks, concessional loans, and subsidies, to encourage MSME participation in RE markets.
One of the most pressing issues in MENA’s energy transition is financing. While investment in RE has grown significantly—from $1.2 billion in 2008 to $11 billion in 2016—financing gaps persist, particularly for small-scale and off-grid projects. Public-private partnerships, sovereign green bonds, and international climate funds could help bridge this gap. The report also highlights the role of digitalization in accelerating the energy transition. Digital technologies such as smart meters, blockchain-enabled energy trading, and AI-driven grid management can enhance RE adoption, improve efficiency, and create new market opportunities. MSMEs can leverage digital platforms to access financing, monitor energy consumption, and participate in decentralized energy markets. However, policymakers must ensure that digitalization efforts are inclusive and accessible to smaller enterprises.
To advance the energy transition, the report provides key policy recommendations. Governments should establish clear and stable regulatory frameworks for RE investments, phase out fossil fuel subsidies, and reallocate funds toward RE development. They must also introduce financial instruments tailored to MSMEs, including low-interest loans, green bonds, and grants. Policymakers should invest in energy infrastructure, particularly in grid modernization, energy storage, and smart grids. MSMEs should actively invest in energy efficiency measures, form partnerships with financial institutions, and advocate for policy reforms that support small-scale energy producers. International stakeholders can contribute by providing technical assistance, capacity-building programs, and facilitating cross-border energy trade to enhance regional energy security.
The study concludes that while the MENA region still lags behind global standards in RE adoption, there is significant potential for transformation. Countries that have implemented strong policy frameworks and investment strategies, such as Morocco and the UAE, demonstrate that a successful transition is possible. However, broader institutional reforms, financial mechanisms, and capacity-building initiatives are needed to accelerate RE deployment across the region. MSMEs, as key drivers of economic activity and employment, must be at the center of this transition. By addressing policy, financial, and infrastructural barriers, MENA can harness its renewable energy potential, create sustainable economic opportunities, and secure a resilient, low-carbon future.
Conclusion
The MENA region’s energy transition is imperative for economic diversification, climate resilience, and sustainable development. While some countries have made significant progress in RE adoption, others lag due to political, financial, and regulatory constraints. MSMEs can play a transformative role in accelerating this transition, provided they receive adequate policy support and financial access. Targeted policy interventions, investment in digital energy solutions, and enhanced regional cooperation will be crucial in shaping a sustainable and prosperous energy future for MENA.
Speakers
Sara Ragab
PhD Program, Hubert H. Humphrey School of...
Authors
Esraa Mahmoud
Ph.D. Student, Humphrey School of Public Affairs,...