DEWA Ushers in a New Era for Solar
ACWA Power's contract to build 200MW sets a new global benchmark for solar photovoltaic
Dubai’s Electricity and Water Authority (DEWA) raised a lot of eyebrows around the world when it announced the results of its tender for Phase 2 of the Sheikh Mohammed Bin Rashid Al Maktoum Solar Park programme.
Most observers expected the 100MWp project to be awarded to Saudi Arabia’s ACWA Power. But DEWA surprised everyone when they revealed that they had in fact doubled the size of the project and awarded ACWA Power with a 260MWp (or 200MWac) project.
What was equally startling was the tariff they had secured for the 25-year term of this project. At $5.85 cents/kWh, this is officially the lowest-cost solar PV project in the world.
Considering that DEWA’s only previous experience with solar was a 13MWp EPC project, the fact that they have now awarded a project that is 20 times larger at a tariff that is lower than anything else in the world, is nothing short of spectacular.
The increased level of confidence shown by lenders in financing solar projects in MENA has played an important role. In the case of ACWA Power’s offer to DEWA, a consortium of regional banks led by Saudi Arabia’s National Commercial Bank (NCB) and Abu Dhabi’s First Gulf Bank PJSC (FGB) agreed to finance a whopping 86% of the project’s cost.
The group will borrow funds at about 160 basis points over the London Interbank Offered Rate for the first year, with an all-inclusive cost of funds averaging about 4% over LIBOR for the life of the loan. If this appetite on behalf of banks is sustained we will see many more solar projects secure financing in this region.
Once this project is completed in April 2017, the solar portion within DEWA’s network will increase to 1.7%. This is far above the 1% by 2020 target that DEWA had set for itself. DEWA has subsequently left open the possibility of revising its 2030 solar capacity target which stands at 5%.
Considering the bold steps it has taken in doubling the latest phase of the Sheikh Mohammed Bin Rashid Solar Park, it would not be beyond the realm of imagination if His Excellency Saeed Al Tayer, managing director of DEWA, were to announce that Dubai is doubling its 2030 target to 10%. This would send a powerful message to other regional governments that solar is a commercially and technically attractive solution for power generation.
Luckily, the shift towards solar is a phenomenon that is being witnessed across the MENA region. From Morocco to Saudi Arabia, solar projects are being unveiled and duly awarded at an unprecedented pace. A newly-launched report by the Middle East Solar Industry Association (MESIA) finds that in 2015 there will be some 1,800MW of solar projects launched in the MENA region worth $2.7 bn. Considering that, in the first half of January 2015 some 550MW in solar projects have already been awarded, the 1,800MW target looks well within reach.
The dawn of solar energy has finally arrived in MENA.