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Middle East solar dream in danger of early burn out

Aug. 12 2019 — With abundant sunshine, the Middle East and North Africa should be global leaders in solar power. But slowing electricity demand growth and an uncertain economic outlook across the region may hold back investment, experts warn.

Arab Petroleum Investments Corporation lowered by 20% its estimate of spending on power generation over the next five years in the region, in a report last month, citing reduced economic and population growth forecasts and higher electricity prices. Egypt – the region’s most populous Arab country – five years ago suffered blackouts due to electricity shortages. It is now facing overbuilding new capacity, Apicorp said.

Annual Middle East power demand will grow by an average 2.3% over the next five years, down from 3.4% for 2013 to 2018, according to S&P Global Platts Analytics. Saudi Electricity Co., which accounts for about 70% of the country’s total installed generating capacity, reported a 2.2% drop in electricity demand for last year as electricity prices to end users rose as a result of a reform.

“Declining costs represent an opportunity for renewables in the region [but] it would be less pressing to invest in renewables when you have domestic gas and also policies that are being so successful in curbing power demand growth,” said Bruno Brunetti, S&P Global Platts Analytics’ head of global power planning.

Hydrocarbons hard to shift

Weakening appetite for solar could shatter plans for the region’s oil producers to divert more fossil fuels from power generation into exports. Saudi Arabia – the world’s largest exporter of crude – plans to use renewables such as solar to reduce the almost 500,000 b/d of crude used for power generation and industry. Natural gas is the dominant fuel used to produce electricity in the region, accounting for more than three quarters of all projects underway in Saudi Arabia, Egypt and Iraq, according to Apicorp.

Experts are now closely watching Dubai Electricity & Water Authority (DEWA) ahead of its imminent tender results for the 900 MW fifth-phase expansion of the Mohammed bin Rashid al-Maktoum solar park, with bids due by August 22. Depending on the bids, solar tariffs could go below 2 cents per kilowatt hour for the DEWA project, compared with 2.4 cents/kWh for natural gas, according to Vahid Fotuhi, managing director at Access Power, a Dubai-based power project developer.

“A more moderate power demand growth outlook could limit the appetite for renewables development, especially as the pipeline of the projects is only now starting to more clearly shape up,” Brunetti said. “Our global power plant database shows the amount of gas-fired projects in development across the region is very large and quite stable.”

UAE breaking records

Despite the potential for solar in the region, the industry remains small. The share of renewables in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE was equal to 0.6% of total electricity capacity at the end of last year, or 867 MW, according to the International Renewable Energy Agency. Led by the UAE, Oman and Kuwait, almost 7 GW of renewable power generation capacity is planned to come online by the early 2020s, IRENA estimates.

Meanwhile, renewable energy accounts for 34% of total planned and committed power investments in the Middle East and North Africa, compared with 31% in 2018 and 22% in 2017, according to Apicorp. The region is expected to add 74 GW of total electricity generation capacity within the next five years, it estimated.

Renewables capacity in MENA region, existing and planned

“Rather than cancelling renewables projects, countries will favor lower-cost technologies like PV and wind,” Apicorp said in response to questions.

However, the UAE has managed to keep breaking records on solar costs. In 2017, DEWA’s phase four of its solar park in the Dubai desert achieved a record low bid of 7.3 cents/kWh for 700 MW of concentrated solar power and Abu Dhabi’s Sweihan photovoltaic solar project broke an all-time low of 2.4 cents/kWh.

DEWA issued a tender for the fifth phase expansion after receiving letters of intent from 64 companies.

“We could see a world record in September,” said Access Power’s Fotuhi. “Solar is displacing other hydrocarbons.”