A new decade begins for renewable power in the Middle East and North Africa

18 Jan 2020
A new decade begins for renewable power in the Middle East and North Africa

By Dr. Steven Griffiths

The Middle East and North Africa (Mena) energy sector continues to grow while at the same time adjusting to a global energy transition toward much higher shares of clean energy, particularly in the power sector. According to the Arab Petroleum Investments Corporation (Apicorp), Mena energy systems investments will reach as high as $1 trillion between 2019 and 2023 with more than a third of this investment coming from the regional power sector. Within the power sector, approximately one third of new generation capacity is expected to come from renewable energy, predominantly in the form of solar and wind power. While this is impressive for a region that still is predominantly powered by the combustion of fossil fuels, it pales in comparison to the 68 per cent of new power generation capacity that derived from renewables globally in 2018.

Although the Mena region is somewhat lagging compared to global benchmarks for renewable energy in the power sector, or renewable power, progress is being made. The driving force for renewable power across the region is its cost competitiveness relative to other forms of power generation. A rapid decline in the tariffs quoted for bids received in renewable power tenders, particularly in the Gulf countries, has made renewables increasingly attractive for new power generation capacity. The United Arab Emirates (UAE) and Saudi Arabia continue to award tender bids for utility-scale solar PV projects with quoted tariffs that just a few years ago would have been considered impossibly low.

The most recent such award was announced by the Dubai Water and Electricity Authority (Dewa) for a 25-year, utility-scale solar PV power purchase agreement to deliver electricity in 2021 at approximately 1.7 $cents/kWh for the 900MW Phase V of the Mohammed bin Rashid Al Maktoum (MBR) Solar Park. The award was made to Saudi energy company ACWA Power and has an electricity tariff that is about 70 per cent lower than the 5.84 $cents/kWh tariff of the winning bid for Phase II of the MBR Solar Park, which in 2015 was considered by many as unrealistically low.

 The sub-2 $cents/kWh tariff in Dubai follows Saudi Arabia’s awarded bid tariff of 2.34 $cents/kWh for the 300MW Sakaka solar PV project, which itself was a record low utility-scale solar PV tariff as recently as February 2018. Abu Dhabi’s Emirates Water & Electricity Company (Ewec) will be announcing in early 2020 the tender award winner for its planned 2GW solar PV plant (Solar PV2) that will commence operation in 2022. There is almost no doubt that the awarded electricity tariff will be close to, if not lower than, the awarded tariff for MBR Phase V. Importantly, it is not just the wealthy Gulf countries that are benefiting from such low renewable energy prices. In North Africa, Tunisia and Egypt both awarded utility-scale solar PV projects in October 2019 with electricity tariffs of less than 2.5 $cents/kWh.

The rapidly falling cost of renewable power in the region relates in part to the continued cost reduction of established technologies. However, new technology innovations, such as the higher-efficiency bifacial solar panels being used in recently awarded Egyptian tenders, are also being introduced to drive down costs. In addition to technology considerations, access to low-cost financing is important given that financing costs typically account for about half of the levelised cost of electricity for a utility-scale PV or onshore wind project.

While inexpensive debt financing for renewable energy projects has become the norm for Gulf countries, the ability to obtain such financing is anything but certain for less politically and economically stable MENA countries. Therefore, sustainable investment finance will be an important consideration for many MENA countries in the coming years. In 2018, 69 per cent of Mena clean energy investment was from foreign investors with 65 per cent of this investment from development banks. Therefore, sustainable financing from the region’s major development investors, such as the European Investment Bank, World Bank, KfW (Germany), AFD (France) and the European Bank for Reconstruction and Development, is needed. As a promising sign, the European Investment Bank has stated that it will end financing for fossil fuel energy projects from the end of 2021 and focus on clean energy. Such sustainable finance ambitions are building globally as climate concerns mount. This will in turn support further progress in renewable power across the region.

Looking ahead to 2020, the growth of renewable power in the MENA region will undoubtedly continue, underpinned by positive developments in technology, policy and financing. Countries such as Jordan and Morocco, both ranked by Bloomberg New Energy among the top 10 emerging markets for clean energy investment in 2019, will continue to progress with renewable power based on their leadership in policy, regulation and supportive electricity sector structures.

However, the MENA region’s advance in renewable power depends significantly on those countries with the largest regional electricity markets. Within this context, the UAE, Saudi Arabia and Egypt will be deploying the most new power generation capacity in the region in the coming five years and are among the MENA countries with the most ambitious long-term plans for renewable power. Specifically, the UAE has a target of 44 per cent of its power capacity from renewables by 2050, Saudi Arabia has a target of 27.3GW of renewable power by 2023 and 58.7GW by 2030, and Egypt has a target of 20 per cent of its power capacity from renewables by 2022 and 42 per cent by 2035.

These three countries, with continued growth in their power sectors and demonstrated abilities to acquire low cost renewable power, are well positioned to make significant contributions to the region’s renewables progress in the coming decade. However, they will need to prepare their electricity sectors for the flexibility required to integrate the high shares of intermittent renewable energy that are planned. In recognition of this need, Ewec in the UAE has already allowed an optional bid for battery storage capacity in its tender for Solar PV2.

While such energy storage will be increasingly prevalent in regional renewable power tenders, it is just one means of achieving electricity system flexibility. Other options that electricity system planners will need to consider include flexible operation of existing power plants, electricity grid reinforcement and extension, smart grid technologies and demand response from electricity consumers. Hence, in the decade ahead, system-level planning will be the key focus for Mena countries with the strongest commitments to renewable power.

Author:
Dr. Steven Griffiths
Senior Vice President, Research and Development
Professor of Practice
Khalifa University of Science and Technology
Email: [email protected]

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