Pushing the solar agenda
As an emerging market, the Middle East has the opportunity to learn from other leading markets like Germany and benefit from their industry’s know-how
During the last six years, global PV system costs decreased by half. By 2020 a further decrease of 40% is expected and will reach a global average of $5-8 cents per kWh. Whereas we do not expect tremendous drops of the material costs (Si, aluminum, glass), technology and efficiency can be further improved resulting in a lower LCOE. The LCOE for utility scale solar PV installations in UAE is in the range of $5-10 cents per kWh and lower than in Germany for example.
Speaking about incentives models, Dubai focuses on a PPA approach (Power Purchase Agreement) for utility scale projects and net metering scheme for rooftop PV installations. Looking at Europe’s experience, the largest boost for solar (both utility scale and residential) was given by Feed-in-Tariffs schemes, which can be an alternative in the Middle East region. Net metering scheme is a good solution, with credit transfers from month to month, resulting in an attractive payback time on CAPEX of 6 years for large industrial and commercial installations based on current tariffs.
Despite being among the largest producers of fossil fuels worldwide, UAE and other countries in the Middle East are turning their attention to renewable energy and sustainability as they seek to satisfy growing demands for energy. Through the Abu Dhabi Fund for Development (ADFD), UAE committed to concessional financing of up to $350mn to renewable energy projects.
The upcoming U.N. Climate Change Conference in Paris (COP21), marks a global tipping point in the fight against climate change and the increased use of renewable energies. Around 170 developed and developing countries worldwide submitted well in advance of COP21 their ambitious pledges to reduce carbon emissions, representing around 90% of the global greenhouse gas emissions. The UAE clearly aims to stronger diversify their electricity mix and has set a target of increasing clean energy contribution to the total energy mix from 0.2% in 2014 to 24% by 2021. With 40% of global energy related CO2 emissions coming from the power sector, the widespread deployment of carbon-free, zero-harm and affordable energy sources represents the only path for bringing emissions under control while powering the world. Solar energy fits the bill.
Partnerships are crucial for the solar industry in Middle East. As an emerging market, the Middle East has the opportunity to learn from other leading markets like Germany and benefit from their industry’s know-how. For instance, together with Viridis Holding, an asset management and investment company, REC has jointly submitted an expression of interest to the Dubai Electricity and Water Authority (DEWA) to submit a competitive bid for a part of the remaining 800 megawatts (MW) at the Mohammed Bin Rashid Al Maktoum Solar Park.
Seizing the moment
Of all the renewable energies, solar is getting cheaper the fastest. With photovoltaic systems now costing half what they did just six years ago, solar energy is achieving grid parity in more and more regions. By 2020 a further decrease of 40% is expected and will reach a global average of $5-8 cents per kWh. Germany’s Fraunhofer Institute predicts solar will be the world’s most common energy source by 2050, powering 40% of global electricity needs, at generation costs as low as 2-4 eurocents per kWh. The LCOE for utility scale solar PV installations in UAE is in the range of $5-10 cents per kWh and lower than in Germany for example.
Despite the ongoing transition from policy-driven to economics-driven energy markets, renewable energies still need stable and reliable targets, mechanisms and commitments by governments.
Policy changes and reversals create uncertainty and slow investment. A phase out of fossil fuel subsidies step by step is required to increase transparency and a fair comparison with renewable energies. Fossil fuel industries received $550bn in subsidies in 2013, four times more than renewable. Allocation of increased budgets to further incentivise renewable energies and support related emerging technologies like storage and smart metering. Establish a carbon market to ensure a real price for CO2 emissions and consider climate costs of fossil fuel energy of up to $0.13 per kWh. The average price for global energy-related CO2 emissions in a carbon market is $7 per ton of CO2, while in markets with fossil-fuel consumption subsidies the incentive is equivalent to $115 per ton of CO2 on average.
Countries in the Middle East clearly aim to diversify their energy mix to include more clean and renewable energy sources.
Impressive solar projects like the Sheikh Mohammed bin Rashid Al Maktoum Solar Park, with a planned capacity of 1GW by 2019 and 3GW by 2030, are symbolic of a wider push toward solar energy in the region, despite being among the largest producers of fossil fuels worldwide. Same is demonstrated by the already submitted pledges in advance of COP21. Therefore we expect a bright future for solar in the Middle East. IHS expects that the market will take off in 2017, passing the 1GW mark of new installations, and reaching almost 2GW in 2019.
Luc Grare is the senior vice president for sales and marketing at REC.