x Abu Dhabi, UAESaturday 25 November 2017

Fuel for Thought: Cheapest solar power in the world? Only in months with a R in them

The widely publicised figure of 2.42 US cents per kilowatt-hour in Wednesday's Sweihan bid is complicated and does not reflect the complex pricing of solar energy.

While a consumer may purchase watermelon throughout the year, the cheapest time is likely going to be in the summer when the fruit is in season and in high supply. Solar pricing works similarly, but the price changes with demand instead. Rick Wilking / Reuters
While a consumer may purchase watermelon throughout the year, the cheapest time is likely going to be in the summer when the fruit is in season and in high supply. Solar pricing works similarly, but the price changes with demand instead. Rick Wilking / Reuters

The news about the costs of Abu Dhabi’s latest solar project is not a clear-cut figure, and it also means that it isn’t necessarily the world’s cheapest power produced from solar energy.

The numbers that were announced are based on a weighted levelised energy costs (LEC). One source put it simply as a “blended tariff between the widely reported off-season tariff at 2.42 US cents per kilowatt hour and a high summer tariff”.

While a consumer may purchase watermelon throughout the year, the cheapest time is likely going to be in the summer when the fruit is in season. But it isn’t accurate to say that the seasonal price is how much you spend for your regular purchase – you must factor in the out-of-season price as well.

Abu Dhabi Water and Electricity Company shows on its website that the non-weighted cost of the Marubeni/Jinko bid for the Sweihan solar project is 2.94 cents per kWh. While that doesn’t beat out Chile’s record at 2.91 cents, it will still be one of the cheapest solar power plants in the world.

Remember, Abu Dhabi will pay 1.6 times more than 2.42 cents during the peak months from June to September.

I also mentioned in a previous piece that other variables helped bring down the cost of solar in Abu Dhabi, such as the internal rate of return (IRR). Abu Dhabi’s utility set the IRR at 7 per cent, whereas Dubai chose a 10 per cent standard. Mohammed Atif, the Middle East and Africa regional manager for the energy consultancy DNV GL, said in September that this helps companies deliver a lower tariff.

So while Abu Dhabi may, in fact, have only the second lowest price for solar energy in the world, solar still beats its competitors. BNEF estimates a new natural gas plant in the Middle East would deliver power at 3 cents per kWh, more than 2 per cent more than the pricetag of Abu Dhabi’s Sweihan solar plant.​

lgraves@thenational.ae

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