UK ditches Morocco subsea power plan

From the newsletter

The British government has rejected the $34 billion Xlinks Morocco-UK power project, citing its misalignment with the government’s mission to build homegrown power solutions. Once touted as a project of “national significance” by the former UK government, its ambitious mission is now in limbo or worse, with $117 million already having been invested.

• This project was one of the largest power initiatives ever planned between two countries. They sought to construct 11,500 MW of solar and wind power and 22,250 MWh of battery storage to supply calls million homes in the UK.

• The cancellation calls into question the viability of mega power projects. Are they too complex and risky, especially when they involve cross borders and depend on long-term government commitments that can shift with changing political priorities?

More details

• The Xlinks project aimed at decarbonising the UK electricity sector and was planned to go live by 2031. The project would have harnessed Moroccan renewable energy via what would have been the world's longest high-voltage direct current subsea power cable, spanning 3,800 km. 

• The project faced considerable back-and-forth, primarily from the UK government, due to regulatory hurdles. However, it had received significant interest from major energy companies such as Abu Dhabi oil-backed TAQA, TotalEnergies, Octopus, GE Vernova, and AF. Xlinks' chair, Dave Lewis, was confident of the project's progress, stating that they had received demand from lenders to participate in the construction phase. He added that the company is now exploring alternative ways to unlock the project's potential.

• The project intended to use a Contract for Difference (CfD), a mechanism where the UK government would guarantee a "strike price" for electricity supplied. If market prices fall below this, the UK government pays the difference; if they rise above it, Xlinks (the generator) pays back. This arrangement was to provide a stable and predictable revenue stream for the project, de-risking the investment for developers and lenders by protecting them from volatile market prices.

• Morocco has already tested electricity export to Spain via a subsea cable. Though it is more than 100 times shorter than the one proposed by Xlinks to the UK. In 2023, Morocco earned at least $36 million in electricity exports to Spain. Demand for electricity in Europe is making it strike power deals with North African countries for its energy security and green transition. Egypt is pursuing power exports via sea cables to Greece, and Tunisia wants to set up solar farms to export electricity to the European Union.

• Mega-projects in Africa often encounter numerous challenges that often stall or are completely abandoned, usually due to issues with financing and overall viability. However, for this particular project in Morocco, the challenges seem to stem more from political interests, with the UK claiming the reason for cancellation is a lack of alignment, a stance completely different from the former regime, which had cited it as a project of national significance.

• While this was a major first attempt at long-distance subsea power transfer, it raises many questions about those under development in other countries. Will they suffer a similar fate after heavily investing in technical and feasibility studies? While undersea power projects face these technicalities, on-land high-voltage projects are progressing with less friction. Egypt is building a 1,200 km overhead transmission line to Saudi Arabia, with operations expected by the end of the year.

Our take

• Countries should approach bilateral agreements with openness and caution. Deals should be structured to be legally binding, to avoid a repeat of issues witnessed with the Xlinks project.

• There is also the issue of economic benefits arising from a project's construction to completion. Countries should ensure that agreements lead to shared benefits for all parties involved. This means distributing the economic impact. For example, the country hosting a power plant could source materials from the partner country.

• While Xlinks' chair and lenders maintain confidence in the project's progression, alternative markets should be secured in case the UK completely abandons the deal. Neighbouring countries like Morocco and Spain could serve as alternative markets.