New decade ushers in new era for Middle East’s utilities sector
The advent of the 2020s has welcomed in a new era for the region’s rapidly changing energy and utilities sector: the decade of delivery.
The last calendar decade marked the beginning of a fundamental shift for the Middle East and North Africa (Mena) energy market.
For a region in which hydrocarbons have dominated every aspect of industrial and energy production since the 1970s whilst facilitating unprecedented economic growth and development, a drive to diversify energy resources and develop new sources of energy is now forming a central part of energy strategies from the Gulf to North Africa. Most of the alternative energy is planned to come from renewable energy sources.
While a token number of clean energy projects were developed in the early part of the previous decade – including the 100MW concentrated solar power (CSP) project in Abu Dhabi and the 13MW photovoltaic (PV) first phase of Dubai’s Mohammed bin Rashid solar park – little of the talk around the potential for renewables in the Middle East and North Africa turned into actual projects and achievable targets.
The lack of real commitment and action towards planning for integrating renewable energy on a large-scale was not confined to the Middle East. Large international energy conglomerates such as BP and Siemens decided to abandon their renewable energy ventures to focus on core traditional energy activities.
Falling costs
This all started to change in 2015. While regional support for the Paris climate agreement, agreed in December 2015, conveyed a resolve to work to reducing carbon emissions- simple economics has been the primary driver for the uptake in renewable energy across the Mena region.
The cost of developing utility-scale PV solar has fallen by more than 70 per cent since 2010, and costs are continuing to fall as technology improves and competition in the private developer space increases.
In fact, the Middle East has been a primary driver in the dramatic fall in the cost of PV and wind power generation – setting new global records for unsubsidised renewable energy time and time again. This started with Dubai’s first independent power producer (IPP) solar project, the second phase of the MBR solar park.
When Saudi Arabia’s Acwa Power was awarded the contract for the 200MW project in January 2015 for a tariff of $cents5.85 a kilowatt hour (kWh), many energy firms and investors were fiercely critical: this is unsustainable, they said. However, this was the start of a bidding war across the Gulf – with record tariffs being set for almost every new tender.
The decade culminated in the approval of a $1.65cents/kWh tariff for the fifth phase of Dubai’s MBR park – the lowest tariff for an unsubsidised solar scheme to date.
While low interest rates and aggressive pricing from developers have contributed to falling tariffs, the coming decade is set to welcome new technologies, such as bifacial panels and high-efficiency modules, which could half the cost of solar production by 2030.
Delivery
The commitment to developing renewable energy was the central theme at the recent World Future Energy Summit (WFES) in Abu Dhabi, and will be a core element of the Middle East Energy (MEE) event in Dubai from 3-5 March.
While the commitment is now tangible, attention must turn to delivery. According to the latest date from the International Renewable Energy Agency (Irena), in 2017 61 per cent of the global net power additions, 167GW, were from renewable energy resources. By 2018, installed renewable energy capacity globally had reached 2,356GW.
Progress with delivering projects in the Middle East and North Africa has been slower, with installed solar and wind capacities reaching 2,350MW and 434MW respectively in 2017. While the commissioning of 1.4GW of solar projects under Egypt’s feed-in-tariff (FIT) programme in 2019 has significantly increased that figure, the vast majority of planned renewable capacity has yet to be developed.
Saudi Arabia provides the starkest example of the challenge regional governments face in meeting their ambitious clean energy targets. Riyadh has set a target of developing 58.7GW of renewable energy capacity by 2030. To date, however, the kingdom has less than 200MW in operation and 700MW under development.
Local benefits
Turning targets into capacity will be the main focus in the next decade. In addition to attracting private investment to cover the capital cost, the region’s governments will seek to ensure that the transition towards new sources of energy will benefit local people through job creation and knowledge transfer.
Apicorp estimates that $71.4bn investment is required in the Mena region if the ambitious renewable energy targets are to be achieved. Saudi Arabia’s Finance Ministry expects for renewable and alternative energy to create more than 6,000 job opportunities in the construction phase and 730 jobs in the operation stage of the clean energy projects planned in 2020.
Policy support
Establishing the correct regulatory environment and policies to support the integration of significant renewables capacity into the region’s energy sectors is crucial if ambitious energy targets are to be met. While large-scale utility projects will contribute the major share of the region’s clean energy capacity, the adoption of appropriate feed-in-tariff, net-metering and wheel-in agreements will be crucial if individuals and businesses are to play a role in the energy transition.
Providing sufficient infrastructure and investment in grids will also need to be a key priority for utilities, with the impending addition of significant peak-power resources offering a challenge to stable power supply.
The second decade of the 21st century ushered in the creation of the blueprint for the future of the Middle East’s energy sector. The challenge in the third decade is to deliver it.
Energy & Utilities - Middle East and Africa Market Outlook Report 2024.
This must-have report for industry players offers a thorough understanding of the latest developments, challenges, and opportunities in the region, supported by data, analysis, and expert insights.
Latest News
E&U Podcast
Subscribe to our Market Talk podcast for the latest on the key issues and trends in the energy and utilities sector
