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Falling costs offer new hope for renewables' future

Cost has traditionally been cited as one of the primary barriers to switching from fossil-based energy sources like oil, coal and gas to renewable energy sources such as solar, wind and geothermal. But the narrative seems to be changing fast.

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Renewable energy, Hydropower, Geothermal, Fossil fuels, Nuclear Energy, Wind energy, IRENA, Solar photovoltaic

Plummeting costs of renewable energy technologies are making an energy transition in the GCC not only possible, but actually less expensive than the alternative.

While some renewable energy sources such as hydropower, geothermal and some forms of modern biomass have been broadly competitive with fossil fuels and nuclear energy for some time, solar photovoltaics (PV) and onshore wind energy have also now emerged as cost-competitive options.

As deployment of renewable power generation technologies accelerates, a continuous and relentless improvement in their competitiveness has also been maintained throughout the recent years. This has led to the fact that in virtually every region of the world, bioenergy for power, hydropower, geothermal and onshore wind projects commissioned in 2016 and 2017 largely fell within the range of fossil fuel-fired electricity generation costs.

With very rapid reductions in solar PV module and balance of system costs, utility-scale solar PV is now increasingly competing head-to-head with alternatives – and without financial support, according to a recent report by the International Renewable Energy Agency (IRENA).

Offshore wind power and CSP, despite having significantly lower installed capacity compared to other renewable technologies, have also seen their costs fall, with auction results in 2016 and 2017 indicating that they too are on track to achieve cost competitiveness for projects commissioned between 2020 and 2022.

The cost of generating power from onshore wind has fallen by around a quarter since 2010, with solar photovoltaic (PV) electricity costs falling by 73% in that time.

A new cost analysis from IRENA also highlights that solar PV costs are expected to halve by 2020. The best onshore wind and solar PV projects could be delivering electricity for an equivalent of USD 3 cents per kilowatt hour (kWh), or less within the next two years.

Global weighted average costs over the last 12 months for onshore wind and solar PV currently stand at USD 6 cents and USD 10 cents per kWh respectively, with recent auction results suggesting future projects will significantly undercut these averages. The report highlights that onshore wind is now routinely commissioned for USD 4 cents per kWh. The current cost spectrum for fossil fuel power generation ranges from USD 5-17 cents per kWh.

“This new dynamic signals a significant shift in the energy paradigm,” says Adnan Z. Amin, IRENA Director-General. “These cost declines across technologies are unprecedented and representative of the degree to which renewable energy is disrupting the global energy system.”

The findings note that by 2019, the best onshore wind and solar PV projects will be delivering electricity for a USD 3 cents per kWh, significantly below the current cost of power from fossil fuels.

“Turning to renewables for new power generation is not simply an environmentally conscious decision, it is now – overwhelmingly – a smart economic one,” adds Mr. Amin. “Governments around the world are recognising this potential and forging ahead with low-carbon economic agendas underpinned by renewables-based energy systems. We expect the transition to gather further momentum, supporting jobs, growth, improved health, national resilience and climate mitigation around the world in 2018 and beyond.”

The report also highlights that auction results are signalling that offshore wind and concentrating solar power projects commissioned in the period between 2020-22 will cost in the range of USD 6-10 cents per kWh, supporting accelerated deployment globally. IRENA projects that all renewable energy technologies will compete with fossils on price by 2020.

Historically, technology improvements have been vital to the performance increases and installed cost reductions which have, in addition to industrialisation of the sector and economies of scale, made solar and wind power technologies competitive.

Competitive procurement, amid globalisation of the renewable power market, has emerged more recently as another key driver, according the IRENA report. Along with this comes the emergence of a large base of experienced medium-to-large project developers, actively seeking new markets around the world.

The confluence of these factors is increasingly driving cost reductions for renewables, with effects that will only grow in magnitude in 2018 and beyond. Continuous technology innovation remains a constant in the renewable power generation market.

According to IRENA, in today’s low equipment cost era, technology innovations that unlock efficiencies in manufacturing, as well as power generation equipment — in terms of performance improvements or installed cost reductions — will take on increasing importance.

Bigger wind turbines with larger swept areas harvest more electricity from the same resource. New solar PV cell architectures offer greater efficiency. Real-time data and ‘big data’ have enhanced predictive maintenance and reduced operation and maintenance (O&M) costs. These are just a few examples of the continuous innovation driving reductions in installed costs, unlocking performance improvements and reducing O&M costs.

Technology improvements, therefore, remain a key part of the cost reduction potential for renewable power. At the same time, the maturity and proven track record of renewable power technologies now reduces project risk, significantly lowering the cost of capital. These trends are part of a larger dynamic across the power generation sector, prompting a rapid transition in the way the industry functions.

In many parts of the world, renewable power technologies now offer the lowest cost source of new power generation. In the past, typically, there was a framework offering direct financial support, often tailored to individual technologies such as solar PV, and even segments such as varying support for residential, commercial and utility-scale sectors, sometimes differentiated by other factors such as whether they are building-integrated or not.

Saudi Arabia, the world’s biggest exporter of crude oil, is already moving a step closer toward the construction of its first utility-scale wind-power project.

The Kingdom’s energy ministry has shortlisted 25 companies in a tender to build the 400MW (megawatt) plant at Dumat Al Jandal in the Kingdom’s north western Al Jouf region.

Saudi Arabia plans to develop 30 solar and wind projects over the next 10 years as part of a $50bn programme to boost power generation and cut its oil consumption. The country will produce 10% of its power from renewable energy by 2023.

Last year, Saudi Arabia received offers to supply solar electricity for the cheapest prices ever recorded, marking the start of a programme to diversify the oil producer’s domestic energy supplies away from fossil fuels.

Abu Dhabi’s Masdar and Electricite de France SA bid to supply power from a 300-megawatt photovoltaic plant for as little as 6.69736 halalas a kilowatt hour, or 1.79 cents. If awarded, that would beat the previous record for a solar project in Abu Dhabi for 2.42 cents a kilowatt-hour.

The plant will be the first awarded under the renewables programme, which targets 9,500MW of electricity generation capacity using solar and wind by 2030. The project is set to start producing power by June 2019, according to the bid.

Saudi power-plant developer ACWA Power made the second-lowest bid at 8.7815 halalas per kilowatt-hour, and a group led by Marubeni Corp. made the third-lowest bid. The two have been shortlisted by Saudi Arabia’s Renewable Energy Project Development Office (REPDO) to develop the solar PV projects in Sakaka, Al Jouf.

In Oman, the Oman Power and Water Procurement (OPWP), the company responsible for procuring new capacity for power and water and for purchasing and selling them, is looking for consultants to undertake an assessment of the wind resource availability. This is expected to give a push to the Sultanate’s initiatives to diversify its energy mix through the use of renewable in its energy supply.

Banking on storage and efficiency

The Middle East is expected to require a total of 483 gigawatts (GW) of power generation capacity by 2035, an addition of 277 GW from 2016, according to a new energy outlook report by Siemens.

Within this, the share of renewables in the power mix is expected to more than triple from 5.6 percent (16.7 GW) in 2016 to 20.6 percent (100 GW) in 2035.

This increase highlights the need for reliable and efficient energy storage solutions, as well as mixed power generation sources to overcome the intermittent nature of renewables and achieve grid stability.

Based on the Siemens’ ‘Middle East Power: Outlook 2035’ report, despite the growing share of renewables natural gas is expected remain the No. 1 source for power generation in the region, representing 60% of installed capacity through 2035.

With economic diversification and population growth accelerating, the growth in power demand in the region - approximately 3.3% per year – will be realised predominantly through increasingly efficient natural gas-fired power plants.

Capacity additions will primarily be highly efficient Combined Cycle Power Plants (CCPPs), which are expected to dominate the regional and global electric power plant landscape by 2030. The report also assessed upcoming challenges to the diversification of energy sources as well as enablers such as digitalisation and decentralised energy systems.

“A reliable, efficient, flexible and affordable power supply is the backbone of economic and social development in the Middle East. While the energy mix will see significant diversification over the next 20 years, natural gas will remain the prime energy source for power generation in 2035,” says Dietmar Siersdorfer, CEO, Siemens Middle East and UAE.

“We expect the majority of new electric power generation capacity to be via highly efficient combined-cycle power plants, but renewables will also gain a substantially increased share of the energy mix.”

There is also greater potential if CCPPs are considered in place of planned steam power plants. Aside from new capacity additions, an additional 45GW could also be realised through efficiencies brought about by upgrading facilities older than 30 years.

Solar power is expected to account for additions of around 61GW by 2035, and the report highlights significant potential for wind power generation in Saudi Arabia and Egypt, but notes that this potential is not entirely reflected in the moderate capacity additions expected.

Furthermore, cost-competitive storage solutions continue to remain an obstacle for widespread adoption of renewable energy technologies. Aside from PV panels, Siemens has positioned itself as a one-stop supplier of all key components of solar power plants.

“The convergence of technologies is promising a paradigm shift in the way we produce and consume energy, and there is no question that the Middle East will be at the heart of the transformation taking place,” says Mohamed Jameel Al Ramahi, Chief Executive Officer of Masdar, which contributed to the report.

A key enabler identified by the report is digitalisation. A gas turbine can produce 30 gigabytes of data per day, and the report points out that using digitalisation tools to harness this data and use it intelligently will be an important factor in increasing the efficiency and flexibility of energy supply, while decreasing production costs.

“Digitalisation is a very essential part of the future energy landscape, and turning big data into smart data will enable us to be more reliable, energy efficient and cost effective,” said Siersdorfer. “However, we must remember that with greater interconnectivity, use of data analytics and cloud technologies comes greater exposure to cyber security threats so organisations need to be well prepared.”

The report also highlights a growing mix between centralised and distributed power systems, with evolving demands reshaping the energy landscape to include smaller, decentralised power plants which service a specific function to the grid.

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