IN DEPTH: Record low Dubai price raises hopes for regional solar

It was a deal that made the global solar industry sit up and take notice.

When Saudi Arabia’s Acwa Power and Spanish partner TSK won the contract to build a 200MW project in Dubai at a world-record subsidy-free low price of $58.50/MWh in January, many wondered if the sector had turned a corner in terms of costs.

After all, the winning bid for the second phase of the Mohammad Bin Rashid Al Maktoum solar park — the largest-ever single-project solar tender — came in $20-30/MWh lower than the cost of natural-gas generation in the emirate, according to International Renewable Energy Association director-general Adnan Amin.

So was the Dubai deal an indication that low-cost PV is about to take hold across the Middle East and North Africa (Mena) region?

“I wouldn’t go that far, because I don’t think the number... is realistic, based on the experience and the track record of installations in the area,” says Jalel Hamila, vice-president of sales in Mena for Chinese manufacturer JA Solar. “It was more someone who wanted to take the lead in having an aggressive level to set the bar very high or very low, depending on how you look at it.”

The bid was “an outlier”, agrees IHS senior analyst Josefin Berg, noting that most of the other bids came in at the $80-90/MWh range. And several factors — including Acwa’s offer to double the size of the Dubai Electricity and Water Authority’s initial 100MW proposal — played a key role in driving the price so low.

“It was possible because of how Acwa Power structured the project, how they get financing — it’s all in the details when you’re putting together bids like this, and if you really want to win. And how badly you want to win and what margins you expect,” Berg says. “It was definitely a combination of specific circumstances.”

Bids are expected to remain low for the 800MW third tender round of the 3GW project, which is due to take place in the third quarter of this year.

“I think $50-60/MWh could be a target [in the years ahead], but to have it set now, it’s very aggressive,” says Hamila, noting that as local developers gain experience, prices could be reduced further in the next two or three years. “I just think it’s not the right place for that number right now.”

The long-term solar outlook for the sun-drenched region is certainly promising.

The Middle East Solar Industry Association expects roughly 1.8GW of fresh capacity to be awarded to developers across 11 countries in 2015. That’s a huge jump from the 294MW awarded to developers in 2014, which in itself was a fourfold jump from the preceding seven years combined.

IHS expects about 900MW to be installed throughout Mena this year. Roughly 300MW of that will be built in Algeria, which aims to install 13.5GW of PV by 2030 through a feed-in tariff (FIT) scheme.

About two thirds of the remaining 600MW will be built in the Levant, primarily in Jordan and Israel. Jordan looks particularly promising, with 200MW of power-purchase agreements (PPAs) signed in 2014 and the authorities wrapping up a 200MW solar tender in mid-May, receiving 24 bids ranging from $60-130/MWh.

“If you’re looking at what’s going to be installed, Jordan is a pretty strong market,” says Berg.

Nabih Cherradi, chief technology officer at Jeddah-based renewables developer Desert Technologies — which has a 700MW PV pipeline — believes there will be a lot of projects up for grabs in Jordan and Egypt over the next four to five years.

“[Both countries] have a huge need for power. They have blackouts daily,” he says. “And the cost of the power is extremely high.”

IHS believes Egypt — which introduced a new FIT system in November 2014 — is the biggest future market in the Levant. The authorities there plan to award roughly 2GW of utility-scale projects and 300MW of rooftop capacity in its first FIT round, which will run until 2017.

“We have pretty big expectations [in Egypt], we see a lot of things happening there. But financing is going to be an issue,” says Berg, arguing that in the early stages of the country’s PV build-out, a lot of money will come through multilateral deals, as investors will remain wary until the authorities start signing PPAs.

“And it’s probably going to take a bit longer than the original plan. They thought they could do 2GW in two years, but we think it will probably take to 2020 until they get all that done.”

Financing has also been problematic in Morocco, which has been the leading renewables player in the region, with Western lenders balking at the prospect of funding utility-scale solar projects in the nation’s disputed Western Sahara region.

However, the country aims to install 2GW of solar by 2020 to help offset rising energy demand and its high reliance on fossil-fuel imports.

In the Arabian peninsula, opportunities appear limited, in the short term at least.

Dubai, Kuwait, Oman — I don’t see them really expanding into solar that much. They’re going to be smaller markets,” says Hamila.

Saudi Arabia recently pushed back its long-established 41GW installation target by eight years to 2040, amid few signs of movement in a country with plenty of solar potential.

“We see Saudi Arabia as being a big potential market, but not near-term, because there’s not enough internal political drivers to really get the solar programme started,” says Berg.

However, the region’s PV developers are already jockeying for position in the country.

“The question is not if it’s going to happen, but when,” says Cherradi. “Today [Saudi Arabia] is sleeping, but it’s going to wake up. And when it wakes up, we should be there and ready.”