The Middle East has Until Recently Produced Very Little by Way of Solar Energy
Despite some of the highest solar irradiance levels in the world, the Middle East has until recently produced very little by way of solar energy. According to a recent report by Middle East Solar Industry Association, as of 2013, there were more solar power plants built in the tiny central European state of Slovenia than all of the Middle East combined. From 2006 until 2013, only 70MW of solar PV projects were awarded across the region. In 2014, a record number of solar projects were awarded in the Middle East with a combined capacity of 294 MW, a four-fold increase over the previous seven years combined.
The lion’s share of those projects were in Jordan where 12 ground-mounted projects were awarded as part of the Hashemite Kingdom’s first round of solar IPP tenders along with a number of large-scale ground mounted projects. But also Kuwait, Qatar, Egypt and Dubai enter the market with several projects of their own, thus underscoring the fact that solar has truly and finally taken off across the entire MENA region.
In point of fact, there are two factors fueling the sharp rise in solar projects in the MENA region. First, the price of solar systems has dropped dramatically since 2009 when the first large-scale solar project in the Middle East was unveiled by Masdar in Abu Dhabi. The installation cost of utility-scale solar PV power plants have fallen from roughly USD7.00/watt in 2008 to less than USD1.50/watt in 2014.
This amounts to more than a 75 percent cost reduction. It means that for the same budget as a 10 MW solar PV power plant in 2008, a plant five times larger can be built today without having to spend a penny more. As a result of this cost reduction, solar energy is now competitive with the wholesale price of electricity in many jurisdictions in the Middle East. One example is the recent Dubai Electricity & Water Authority (DEWA) tender for a 100 MW solar PV power plant. DEWA was able to secure a 25-year electricity tariff of approximately USD0.06/ kWh. This tariff is broadly in line with the price of generating power from natural gas, the staple fuel for much of the region’s power generation infrastructure.
Most notably, for solar to soar to new heights, government regulators will need to do their part and adopt policies that promote solar energy
Solar is Able to Compete on Commercial Grounds
To add, even with the 45 percent drop in oil prices witnessed in 2014, solar power remains competitive. For one, oil accounts for only 5 percent of global electricity production, according to the International Energy Agency. In the Middle East, the majority of the electricity generated comes from natural gas.
Nonetheless, solar is able to compete on commercial grounds. For example, the price of the electricity from the second phase of the Sheikh Mohammed bin Rashid solar park in Dubai is equivalent to a conventional power plant burning oil priced at roughly USD20 per barrel. Solar power has three added benefits over fossil fuel power plants. First, solar power plants produce almost no CO2 emissions whereas oil-based power plants, particularly fuel-oil plants generate hydrogen sulphide (H2S) or carbon dioxide (CO2).
This leads to smog and pollution which is bad for both the environment and the health of the communities. Second, oil is very unpredictable. Over the past year, oil prices shot up to nearly USD120/barrel and then come crashing down to below USD60/barrel. Power plant operators do not like such vast swings in fuel prices since up to 50 percent of the cost of a fossil power plant is the expense of the fuel over the life of the plant.
Solar power on the other hand is much more predictable; the fuel price is always the same: zero. Finally, solar and oil operate based on opposite drivers. With fossil fuels such as oil and natural gas, as demand goes up, so do prices. With solar, as consumption goes up, prices come down thanks to economies of scale. And so as demand for solar continues to balloon in the region, prices will continue to drop regardless of the price fluctuations in oil prices.