With the era of 'easy oil' coming to an end, is solar energy the only option left for the ME?
Driven by an energy-hungry population and unstable oil prices, countries in the Gulf and the wider MENA region are investing in various green energy options, with a focus on in solar energy.
The Middle East could see more than $50 billion investment in its solar power sector by 2020, according to report by Middle East Solar Industry Association (MESIA).
The report found that new renewable projects, providing around 37,000 megawatts (MW) of energy, are to be commissioned by the end of this decade. Solar energy projects are forecast to provide around 12,000MW to 15,000MW of power.
Saudi Arabia is the largest solar power market in the region with plans to install 23,900MW of renewable energy by 2020. The Kingdom announced plans to spend around $109 billion on solar, in a bid to shift power generation to renewable sources.
The UAE too has been stepping up investment in solar. Last year Abu Dhabi launched Shams 1 – the world’s largest concentrated solar power plant (CSP) in operation. The 100MW plant, located in the western region of Abu Dhabi, generates enough clean energy to power 20,000 homes in the UAE. Dubai too opened the first phase of a 13 MW photovoltaic park last year, which has the capacity to generate 1,000MW of power when completed.
Despite being abundantly blessed with sun throughout the year, countries in the MENA region have traditionally shied away from investing in solar, citing reasons of commercial unviability in the long term.
But attitudes have drastically changed in last few years. Experts point out that a combination of rising population and declining oil reserves has increased the appeal of renewables.
“The traditional dependence on hydrocarbons was driven by what can be termed as an ‘easy oil, easy go’ phenomenon – where the major hydrocarbon producers were finding it relatively easy to get oil and gas from existing sources (as compared to global counterparts), at low costs; while at
the same time, the alternate sources of demand for energy were minimal,” says Abhay Bhargava, head, energy and power systems practice, Middle East and North Africa, Frost & Sullivan.
However, a decline in output from existing production reserves and a need for economic diversification have pushed oil-exporting nations to focus on alternative means of energy, he says.
Diminishing production costs have also made solar a viable option for countries in the Middle East.
“Prices of solar have come down by 50 per cent in the last two years and this has made it more viable,” says Vahid Fotuhi, president of the Middle East Solar industry Association (MESIA).
“As the industry grew, more companies and manufacturers, including China, have entered this sector and this has really pushed down the price. As the manufacturing capacity goes up, the cost will come down.”
CHALLENGES IN ADOPTING SOLAR ENERGY
Despite solar energy’s current adoption rate in the region, the industry still faces some operational challenges.
“The combination of heat, dust and humidity is a major challenge that can typically reduce the achievable efficiency of modules, which could endanger the cost competitiveness and financial feasibility of a proposed project,” says Bhargava.
However, he points out that a bigger challenge that solar would face in the region would be to prove its financial feasibility when compared to electricity generated through subsidised hydrocarbons.
“The region has conventionally proven to have some of the lowest rates for electricity in the world, and this exerts pressure on solar energy developers to deliver electricity that can compete with conventional sources,” he says.
A lack of regulation and a quality framework also poses a challenge to the development of solar power generation in the region, according to Fotuhi.
Experts say that bringing in benchmarks and standards could be instrumental for the sector’s growth.
“Regulations can play a role in streamlining the procurement process even if FIT or similar mechanisms are not utilised,” says Tim Armsby, partner at Eversheds.
“In addition regulations provide confidence to the market can also establish industry standards. If one looks at the pipeline of renewable energy projects in procurement across the Middle East, it is those countries, such as Jordan and Morocco, which have a clear regulatory framework that are in the lead at the moment.”
NECESSARY TALENT TO DRIVE SOLAR FORWARD
Fotuhi says that there is a considerable talent shortage in solar in the region, with not enough trained professionals.
But it might not have a drastic effect on the growth of industry in the future, he says.
“If demand is there, supply will materialise. There is a huge talent pool in Europe and in India, which are all nearby. We will be able to get talent but projects will take a little longer.”
Bhargava also asserts that a talent shortage will only be an issue if all the proposed investments come online simultaneously.
“At the moment, it appears that the various governments are working towards a steady and controlled investment outlay with regards to solar energy, in an attempt to minimise supply chain issues. However, a spurt in demand for energy, on account of politico-social factors could challenge these plans,” he says.
“Secondly, the dip in solar investment in Europe has led to an excess capacity of sorts with regards to both labour and products, and this could provide a solution for the pending challenges.
“In the long term though, the region needs to focus on developing local skills, to ensure that their economies can extract maximum gains from these proposed investments.”
As investments in solar industry gain traction in the Gulf, experts foresee a healthy rise in solar’s contribution to the region’s energy mix in a decade.
“Taking into consideration announced targets and wishlists on the part of the MENA countries, we could expect solar to contribute anywhere between seven to 10 per cent of the total energy mix in the region, with nuclear energy being the other major gainer in this period,” says Bhargava.
But despite all its challenges, solar energy can offer the Gulf some significant benefits such as economic diversification, conservation oil for exports and reduction of carbon emissions.
“The key challenge, arguably, is having in place a sustainable, as in long term and viable renewable energy policy, which those committing their funds and resources can rely on,” says Michelle Davies, a partner at Eversheds.