Analysts did not expect solar costs, even in excellent locations such as the UAE, to fall so low until 2030. How have bidders now achieved such sharp savings?
Robin Mills: Remarkable solar bids in Dubai should spur on other Gulf nations
“Dubai shatters solar price records”, “Dubai solar bid awes market players”, read headlines in November 2014, when the Dubai Electricity and Water Authority (Dewa) received bids for the second phase of the Sheikh Mohammed Bin Rashid Al Maktoum solar park.
Now, just a year and a half later, bids for the third phase have halved this cost: from 5.98 cents per kilowatt hour to 2.99 cents. Electricity companies and policymakers across the region need to wake up to this sudden sunrise.
The low bid was no anomaly – the other bids were only slightly higher. And the plant is on a big scale – 800 megawatts (MW), which with 213MW from the first two phases, will take solar power to 9 per cent of Dewa’s generating capacity as soon as 2020.
Analysts did not expect solar costs, even in excellent locations such as the UAE, to fall so low until 2030. How have bidders now achieved such sharp savings? A move to auctions and away from the German model of guaranteed premium prices has driven developers to compete aggressively.
Solar panel prices are down about 12 per cent over the past year, with new, more efficient technologies in development. More importantly, the large scale allows for economies in procurement and installation experience. Dewa’s creditworthiness and the new understanding of solar photovoltaic (PV) power as a low-risk business allow for most of the capital to be financed by banks, at cheap rates.
Even so, the developers are probably accepting low returns on their equity. Continuing reductions in panel and installation costs will have at least to balance future rises in interest rates.
At the 2.99 cent price bid in Dubai, it would make sense to use solar power simply to save fuel, whenever gas costs more than about $4 per million British thermal units (MMBtu), or oil costs more than $23 per barrel. Oil currently sells for around $48 per barrel and spot liquefied natural gas for around $5.80 per MMBtu. The bid is also well below Dewa’s basic rate of 29.5 fils (8 cents) per kilowatt hour. Gulf utilities could economically install enough solar power to meet their entire demand at least in winter daytime.
Gas-fired power plants would still be required to meet the usual peak in demand in early evenings in summer, when air conditioning, lights and TV run in homes as people return from work while the sun is setting.
To avoid building new gas generation entirely, utilities such as Dewa can combine solar with demand management, encouraging industries and householders to run equipment and appliances at other times than early evening. They can store energy in various ways – as electricity in batteries, as chilled water to be used later for air conditioning, or in desalinated water made in winter and saved for summer.
Adwea is expecting proposals on a 350MW solar PV plant at Sweihan by September 19. Even though its plant is smaller than Dubai’s, and its first large-scale PV installation, it will no doubt be keen to match Dubai’s price.
Egypt, Jordan and Morocco have also made good progress in their own solar bids. But the rest of the GCC has been slow to follow the UAE. Saudi Arabia’s new transformation plan include 9.5 gigawatts (9,500 megawatts) of renewable energy by 2030, an unambitious target which is equivalent to installing less than one of Dubai’s plants each year from now on. Qatar recently announced plans for a 1 gigawatt solar installation, but something like it has been talked about since at least 2014.
Hopefully the remarkable bids achieved by Dewa will spur others on. That, plus a little innovation, will see the Gulf’s solar sector breaking more records and setting the global pace – saving money, fuel and pollution.
Robin Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis.
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