The emergence of US shale gas combined with global falls in the price of oil is encouraging Middle East hydrocarbon developers to look at renewable technologies as viable short and medium-term options.
Solar power, it would seem, has a particularly bright future in the region. The Middle East is blessed by some of the highest solar irradiance levels in the world. But this resource, up until recently, has largely been ignored as energy companies have focussed on abundant and easily accessible oil and gas reservoirs. Global economics are changing, though, and there are signs that solar development is on the up.
The size of the solar prize in the Middle East has traditionally been very small. From 2006 until 2013, only 70MW of solar PV projects were awarded across the region, according to research from the Middle East Solar Industry Association (Mesia). As of 2013, there were more solar power plants built in the tiny central European state of Slovenia than all of the Middle East combined. But the situation is changing – and fast.
In 2014 alone, a record number of solar projects were awarded in the Middle East, with a combined capacity of 294MW, a four-fold increase over the previous seven years combined. So what exactly is going on?
“For the past 70 years, the potential of solar energy has been overshadowed by another form of energy: hydrocarbons,” says Vahid Fotuhi, president of Mesia. “Thanks to their superior capacity factor and 'dispatchability', oil and gas have held a duopoly in the region. Hitherto it has been cheaper and more reliable for utility companies to draw on the region's abundant and easily accessible oil and gas reserves rather than have to have to determine how to unlock their vast solar resources.
“Luckily the situation is changing, rapidly,” he says.
There are two factors fuelling the sharp rise in solar projects in the Middle East and North Africa region, according to a report by Mesia release earlier this year. First, the price of solar systems has dropped dramatically since 2009, when the first large-scale solar project in the Middle East was unveiled by renewable energy and sustainable technology specialist Masdar in Adu Dhabi. The installation cost of utility-scale solar PV power plants has fallen from roughly $7/watt in 2008 to less than $1.50/watt in 2014, according to the Mesia document.
As a result of this cost reduction, solar energy is now competitive with the wholesale price of electricity in may parts of the Middle East and North Africa. One example is the recent Dubai Electricity & Water Authority tender for a 100MW solar PV plant. Dewa was able to secure a 25-year tariff of approximately $0.06/kWh, broadly in line with the price of generating power from natural gas.
At the same time as solar prices are coming down, says the Mesia report, the cost of electricity from natural gas is going up. In the UAE, the cost of producing or importing natural gas has historically been around the $2.00/MMBtu. But that has risen to $8.00/MMBtu due to high concentrations of hydrogen sulphide, or carbon dioxide. LNG imports, meanwhile, cost more than $12.00/MMBtu. Gas pipelines have also been disrupted by regional conflicts, adding to increased costs. By comparison, says Mesia, the cost of solar today in the region is equivalent to burning natural gas at around $4.00MMBtu.
This trend towards solar is showing no sign of abating. In 2015, Mesia predicts that more than 1,500MW worth of solar projects will be tendered. Projects are expected to become much bigger – typically going from 1-10MW to 10-100MW. Also, the market for solar is expected to expand from countries such as United Arab Emirates to other nations including Jordan and Morocco. Even Saudi Arabia is expected to get in on the act.
Also, the Mesia report says that niche segments within the solar industry are expected to emerge, with more specialised companies making the most of decentralised energy markets.
Some major projects are planned to come on-stream in 2015. The Kom Ombo project in Egypt will result in a 200MW peak (MWp) project being established, while the Noor II parabolic trough project will see a similar sized plant established in Morocco. In UAE, meanwhile, the MBRAM solar park phase 2 and the Utico FZ project will see 100MWp and 40MWp added respectively. In total, says Mesia, solar projects worth $2.7 billion are set to be unveiled in the region in 2015.
So, after many years of dark skies, the sun is starting to shine on the Middle East solar sector.