There is no doubt that 2016 was a milestone year for utility-scale solar in the Middle East.
The UAE set – and then reset – the benchmark for low-cost solar electricity; Saudi Arabia made its highest level commitment to investing in solar; and Jordan commissioned its largest utility-scale solar power plant and announced plans to tender a new round of projects.
In fact, these three countries alone account for over 2 gigawatts (GW) of projects at stages ranging from operational to those out to tender.
It is clear that 2016 was the proverbial ‘tipping point’ for solar in the region, the year in which solar energy effectively shrugged off the ‘new energy’ label. Solar energy has technologically and economically matured and is now recognised as being able to stand shoulder-to-shoulder with conventional power generation, which is a significant achievement in itself.
But what does the region need to do in 2017 to build on its achievements?
First, it must revisit the need for feed-in tariffs (FiTs) in the utility-scale solar segment. Although increasingly uncommon, they do exist and one could argue that the region is now mature enough to make FiTs redundant and to allow market forces to dictate the cost of solar electricity.
While a FiT program is an excellent option for a market looking to rapidly scale up its solar energy portfolio, it isn’t necessarily the most competitive choice. Mature solar energy markets such as China, Germany, France and Japan, are doing away with FiTs and are in favor of tender-based procurement mechanisms where developers compete, based on price and other factors, to secure a license to sell electricity to the utilities. This ensures that pricing is driven by market factors and by the competitiveness of the developers.
Furthermore, the region need not look far when considering tender models: one of the most sophisticated solar energy tenders came out of the UAE, where the emirate of Abu Dhabi’s utility (the Abu Dhabi Water and Electricity Authority (ADWEA)) effectively established a new global benchmark for procuring solar electricity. It did so by issuing a well-structured tender – for a minimum of 350 megawatts (MW), with the actual project expected to be substantially bigger, which placed value on energy yield and not just capacity-based costs, allowing it to ensure that it will secure itself a world-class solar asset at the lowest possible cost.
Similarly, the French tender system has been praised for encouraging developers to be both cost and carbon competitive. While most competitive tenders focus on price and technical compliance, France’s Agence de L’Environnement et de la Maîtrise de l’Energie (ADEME) has designed a system to ensure that developers use the lowest carbon technologies to power their plants by placing a premium on projects using PV modules with lower carbon footprints. In other words, developers that wanted to win a power purchase agreement (PPA) in France needed to compete on more than just price – they needed to compete on the environmental sustainability of their projects.
Secondly, the region must pay more attention to applications. For instance, discussions about commercial and industrial solar need to evolve from being focused on relatively straightforward rooftop and carport installations to include emerging models that are more sophisticated. As an example, some grid operators in the Middle East allow independent power producers (IPPs) to sell electricity directly to their customers in exchange for a transmission fee, called a ‘wheeling charge’. Where legislation permits – and market factors justify – there should be no reason why a remotely located solar power plant cannot supply clean electricity to offset the power consumed by a large manufacturing facility located dozens, or even hundreds, of kilometres away, as part of a commercial PPA.
Desalination is another area where solar energy can add value. Notably, the MENA region accounts for about 38 percent of the world’s desalination capacity.
To meet the rising demand for water in a region that is typically arid, governments have turned to large scale desalination and wastewater treatment. Desalination’s energy-intensity presents an opportunity for solar energy to contribute towards fuel savings, while significantly reducing the region’s carbon footprint.
Finally, the region must do more to fully leverage the development of human capital in the solar energy space. Every solar energy project that is completed must represent the creation of new skill-sets for the local community, whether in engineering, construction, or the operating and maintaining of these power plants. Solar energy offers the region’s governments a unique opportunity: the chance to create both short- and long-term employment, while diversifying their energy portfolios with low cost, clean energy.
His Highness Sheikh Mohammed bin Rashid Al Maktoum, the Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai, once said, “Time is on your side to produce and prosper, so don’t stop until you seize the opportunity”. This statement is now more relevant than ever to the region and its solar energy industry.
When it comes to solar, now is the time for the Middle East to seize the opportunity.
Ahmed S. Nada, Vice President and regional executive – Middle East at First Solar