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Renewable costs continue to fall

Huge slide has the Middle East on the verge of a new era, says IRENA's Michael Taylor

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IRENA's Michael Taylor
IRENA's Michael Taylor

By Michael Taylor, Analyst, Renewable Energy Cost Status and Outlook at the International Renewable Energy Agency (IRENA)

Among the most transformative events of the current decade has been the dramatic, and sustained, improvement in the competitiveness of renewable power generation technologies. Everywhere, including in the Middle East, renewables – if not already more competitive than was widely recognised – have benefited from a virtuous cycle of increased deployment leading to technology improvements and falling costs.

This cost-competitiveness has reached historic levels. Biomass for power, hydropower, geothermal and onshore wind can all now provide electricity competitively compared to fossil fuel-fired generation, without financial support. This is even more striking given that renewable technologies do not face a level playing field as the health costs and local and global environmental costs of fossil fuels are not adequately priced.

Installed costs for onshore wind, solar PV and concentrating solar power (CSP) have continued to fall, while their performance has improved. Biomass, geothermal and hydropower have provided low-cost electricity – where untapped economic resources exist – for many years.

Renewables are now competing head-to-head with fossil fuels around the world. The story of increased competitiveness, however, remains a nuanced one. This is because the levelised cost of electricity (LCOE) of renewable power generation projects span a wide range, due to site-specific cost factors (e.g., availability of existing infrastructure, grid connection costs, local labour rates, etc.) and the fact the quality of the renewable resource varies from one site to another.

However, what is clear from IRENA’s analysis of 15,000 utility-scale projects and over 740,000 small-scale solar PV systems, is that most renewable energy projects being built today, even with less mature technologies, are highly competitive.

What is truly exciting for the Middle East – and indeed throughout the sunbelt – is the rapid cost declines for solar PV given the world-class solar resources throughout the region. Solar PV module prices in 2014 were around 75% lower than at the end of 2009. Between 2010 and 2014 the total installed costs of utility-scale PV systems have fallen by 29% to 65%, depending on the region.

The LCOE of utility-scale solar PV has fallen by half in four years. The most competitive projects are now regularly delivering electricity for just $0.08 per kWh without financial support, compared to a range of $0.045 to $0.14/kWh for fossil fuel power.

The Middle East, with its strong civil engineering sector and access (in many cases) to low financing costs is witnessing the beginning of a new era of power generation. The recent tender of the Dubai Electricity and Water Authority, ably demonstrates this shift. With a tender price for 100MW of under $0.06/kWh, this project comfortably undercuts alternatives.

With growing populations, but abundant solar resources, meeting demand growth with solar PV will now increasingly be the economic option. For oil producing nations in the Middle East that use substantial quantities for power generation, adding solar PV is increasingly the quickest, least risky way to add export capacity and revenue.

The Middle East has traditionally not had significant deployment of renewables, but the meeting of excellent solar resources, falling PV costs, local civil engineering and financing expertise is about to change all that. The future of renewables in the Middle East is indeed bright.

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