Italian EPC contractor, Enerray, a unit of Italy-based industrial group Maccaferri, is busily expanding its activities in the MENAT (Middle East, North African and Turkey) region.
Head of Sales & Business Development, Antonio Capua Banfo talks about what it is like for an Italian company operating there, the challenges and opportunities present, the advantages of certain technologies, and the differences between building PV projects there, compared to Europe.
pv magazine: What attracted Enerray to the MENAT region?
Antonio Capua Banfo: The energy sector in MENAT has been dominated by fossil fuels in the past, but nowadays the region is undergoing an important shift towards solar energy, due to the lower costs of PV systems and, at the same time, an increase in the price of oil. Consequently, many Middle Eastern countries are putting in place ambitious renewable energy programs, particularly due to the increasing rate of electrification and energy demand.
The low prices for solar energy have led policy-makers, regulators and industry leaders to take a number of steps to increase and accelerate the adoption of solar power throughout the MENAT region. Most notably, countries that were late to adopt solar-energy strategies and policies, have now put forward ambitious targets. Countries with solar plans in place in terms of megawatts installed have substantially increased those targets.
Finally, scaling up the size of solar projects has allowed nations to capture value across the value chain. The low tariffs led to further solar-energy capacity announcements across the region (e.g. Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, UAE), and all these countries are targeting large-scale project announcements in 2018 and early 2019. However, it isn’t just large commercial-scale projects that are gaining momentum. Commercial and industrial rooftop solar started to show growth trends across the MENAT region. Jordan, Oman, Saudi Arabia and the UAE are at different stages of establishing or operating regulatory frameworks, and pushing for meaningful megawatts of rooftop PV installations in 2018 and 2019.
What are the challenges and opportunities in the Middle Eastern solar market from your perspective? Which market is most interesting?
2018 will see a massive roll-out of solar energy in the MENAT region. This will be achieved through: a high number of tenders announced for large-scale solar; abundant opportunities for distributed solar in the Commercial and Industrial (C&I) and rooftop solar segment; further adoption of Electric Vehicles (EVs) and green mobility; first of a kind opportunities for storage using different storage technologies; and potential new regulatory frameworks for wheeling and energy management.
Today’s renewable energy industry in the MENAT region is, thus, experiencing rapid growth, coupled with the many challenges that any new industry faces. Global economic conditions, shifting priorities and local capacity limitations are impacting the success rate of renewable energy deployment across the region, for instance. However, equally evident is the fact that renewable energy is no longer the talk of the future, but in fact the business of the present.
Governments have understood this shift, helped by Customer Oriented Processes (COP) and other programs; and are consequently abolishing government support for fossil and nuclear energies in their countries in favor of non-subsidized renewables. The private sector is no longer hesitant to work in the challenging MENAT market, but is in fact fully committed and on the ground, ready to provide the best technologies at the most competitive prices; and with local involvement to meet the requirements of governments and the markets across the region.
By being involved in development, or sometimes acting as co-investors, Enerray gets involved in solar projects during the early stages. This serves to significantly boost our Engineering Procurement and Construction (EPC) activities, and bring a competitive advantage to the projects developed.
Enerray itself started out as a pure EPC contractor, but now we are moving to a mixed business model, evaluating case by case the specific projects, and often acting as developer and/or investor.
For a solar EPC, margins are very compressed, independently from the complexities of every single market. With the current level of market competition, nearly the 100% of key component price drop goes to the client. Of course, more projects can be realized worldwide with a lower capital expenditure (CAPEX), so we would say that we do have a positive indirect effect.
Utility-scale projects will probably become bigger and bigger, and contracts will be more segmented. This implies high turnover, but also high risks, because an EPC has to work with very low margins, facing many unexpected problems during the construction phase. As for the distributed generation (DG) segment, we would say that margins are not particularly high, but risks are also limited.
Fierce competition is increasingly lowering prices, so it can happen that companies, which are not so well-structured will win tenders. However, a price will be paid in terms of construction quality.
For us, the most interesting markets are Saudi Arabia, Turkey, Tunisia, Egypt, Jordan, the UAE, Morocco, Oman, and Algeria.
What are the main differences in building PV projects in the Middle East versus Europe?
MENAT is new to the renewables industry, particularly compared to Europe, and there are many differences between the two markets. The extreme environmental conditions in the former are challenging, due to wind, erosion, high temperatures and a lack of water both for the construction and operation phases, which influence the quality and hours of manpower. For example, in the MENAT region, workers cannot work between 10 am and 3 pm during summer, due to high temperatures and humidity. As such, they have to work at night to respect scheduled deadlines. Companies have to plan to respect the particular climatic conditions of the desert area in which the PV systems will be installed, including: designing for temperatures exceeding 50°C; components with mechanical protection against dust; and working shifts in the cooler hours of the day.
The region has an abundance of renewable energy resources (solar radiation in particular), and space: two important prerequisites for the successful development of utility-scale facilities.
While Europe is lacking sites for the development of large-scale projects, it has demonstrated how a well structured regulatory framework can support individual investments in renewable energy, for example via rooftop installations. In comparison to Europe, where legal frameworks are well established, feed-in tariffs fixed per period, clear permitting processes, and competitive financing available, it is much more complicated to develop projects in the MENAT region, which has very limited visibility regarding tariffs. Also, while there have been breakthroughs in recent years in local infrastructure for renewables, construction costs remain high.
The huge potential of the MENAT region will certainly be unlocked with the further development of an enabling policy environment.
What are project costs like in the Middle East versus Europe?
The Middle East has spaces that offer the possibility for bigger installations, compared to Europe. Utility-scale solar plants allow for economies of scale (for instance a 50 MWp solar plant has a minor MWp cost, compared to a 5 MWp solar plant). Regarding installation, in the Middle East, manpower is cheaper than in Europe, so installation costs are lower. Moreover, contrary to the Middle East, in Europe there is anti-dumping regulation on imported PV panels, which increases their cost. The prices of power purchase agreements (PPAs) are also very low in the Middle East, so even the costs of a PV plant have to be aligned. In Europe, there are not such cheap PPAs, since European materials are more expensive. However, operation and maintenance (O&M) costs in the Middle East are more expensive than in Europe, not due to manpower, but because the PV plants require more frequent maintenance, to respect the contracted performance (for example, more panel cleanings).
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Which modules and inverters perform better in MENAT?
The main difference between PV panels is efficiency. Efficiency is not, however, a quality indicator, but rather a simple ratio between production and covered area. Monocrystalline modules boasts the highest efficiency: it goes from 15 to 20% efficiency and, to produce a power of 1 KWp, needs about six square meters. As a type of solution, it is decidedly the most expensive one, among the traditional ones, and is used when there are optimal irradiation conditions, and when we want to maximize the exploitation of the available area. In fact, it needs a smaller surface.
Polycrystalline modules have slightly lower efficiencies – around 13% – and needs a slightly larger surface to produce 1 KWp of power: about eight square meters. The polycrystalline module represents a good compromise between costs, covered area, production and efficiency.
Finally, thin film modules have the lowest production efficiency: around 6%. This type will need medium-sized surfaces to produce a KWp of PV power: up to about 20 square meters (in the case of the use of amorphous silicon). Despite the lower efficiency which, as aforementioned is not a sign of quality, but a ratio between production and surface, this type of panel has a high diffusion on the market. In fact, it has the double advantage of greater affordability – its production costs less – and it has a greater versatility of use. It also integrates effectively on big roofs not well exposed to the sun's rays, which are not optimally oriented. Among the advantages of thin film there is also that of “working” well with high temperatures.
Centralized inverters are generally used in large PV systems and we prefer them for these kind of installations. Indeed in Egypt for our 116 MWp plant, and in Jordan for our 23 MWp plant, we have chosen this technology. The main benefits are the great power, and low cost of installation and maintenance. Centralized inverters are simple to use. They are suitable for uniform solar fields for orientation, inclination and shading conditions. Instead, string inverters are more used in medium-sized PV plants up to sizes of 5-10 MWp, since for utility-scale systems, too many components would need to be installed.
How do you deal with O&M issues like dust and cleaning, particularly in areas where access to water is limited?
The sandstorms dirty the PV modules frequently, so cleaning must be done up to 12 times a year. But the lack of water can be replaced with automatic cleaning brush systems for ground mounted installations, or air compressed robots for solar rooftops with up to 45° inclination.
What is it like securing financing for these projects?
Private investors and multilateral banks and funds. Investors need government commitment for establishing feed-in tariffs and feed-in laws for the long term. Overall investment returns have dropped dramatically over the last three years, in part due to price competition. Every new tender in places like Dubai breaks a new record for tariffs. This maturing of the market has happened far quicker than was the case in the U.S. and Europe. The implications are significant for a wide range of stakeholders, especially for investors, who need to lower their expectations.
How easy is it for an Italian company to enter such Middle Eastern markets, like Egypt and Dubai?
People in the MENAT region know the quality and value of ‘Made in Italy’ products and services, and they can appreciate an international consolidated track record in EPC and O&M, which Enerray has acquired over 11 years. Indeed, despite the problems the Italian PV market faced after the phase out of FITs in 2014, and the difficult access to credit for customers, due to the economic crisis, we have managed to both expand our global portfolio, and continue to operate in the Italian PV market.
We have also installed over 80 MWp of turnkey PV rooftop systems for a total of over 180 plants. This experience will help us in MENAT, where our target is also rooftop systems. We carefully install the PV plants, with particular attention to design.
Enerray is the direct result of an aware, forward-looking approach of the Maccaferri Industrial Group, a corporation active in the most advanced industrial sectors since 1879, with a turnover of over €1.2 billion, 4,747 employees and 58 factories worldwide, making it one of the most important economic players in Europe. In 2017, Enerray celebrated 10 years of activity with excellent results: a € 130 million turnover despite the challenging global economic scenario.
The key reasons for our success is a “win to win” logic when entering a new country, such as collaborating with both other Italian, and local, players. For example, we entered into a joint venture with a Saudi company, in order to enter the Middle Easter market, and we operate in the Turkish market via a 50% joint venture (Tekno Ray Solar) with local company Tekno.
Enerray also launched a partnership with European non-profit associations active in the MENA region, in 2016, to increase brand awareness and business opportunities; to facilitate the rapid deployment of utility-scale renewable energy projects in MENAT desert areas; and to promote renewable energy in Southern-Mediterranean countries as a cost-effective, sustainable, and reliable energy strategy to meet growing energy demand.
To date, we have completed major PV installations in several MENA regions, including 33 MWp in Jordan and 130 MWp in Turkey. In the United Arab Emirates, we have a dedicated branch office in Dubai, which has won a 1 MWp rooftop PV project in Fujairah), Egypt (as developer, sponsor, EPC and O&M Contractor for 116 MWp in Benban), and many others, like Tunisia and Morocco. And in Cameroon, we are developing a 30 MWp ground-mounted PV plant.
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There are current trends and new developments in the industry. The development of technology never stops and the need to face new challenges has led Enerray to develop other solar technologies such as: Concentrated Solar Power (CSP); and off-grid solutions.
Regarding CSP, Enerray is working with some important European and local research institutions (Enea, Iresen, Euronovia, Fraunhofer, Cic Energigune), to develop a 1.5 MWe plant in Morocco with an innovative Thermal Energy Storage System (TES). In this case, there has been synergy with another company of the Maccaferri Industrial Group, Exergy, that provided the system’s turbine. The plant has already been constructed and will be activated soon.
Off-grid technology is also very important in bringing solar energy to those countries and regions the power grid cannot reach. MENAT regions are very interesting for off-grid solutions. The access to water is one of the most challenging issues when we are talking about global development. Solar panels generate maximum power in full sun conditions, which is typically when larger quantities of water are needed. This is why “sun-synchronous” matching solar is an obvious economical choice, and generate solar water pump, over engine driven generators for most places where there is no electrical grid. Owners of solar water pump systems enjoy reliable water supplies that require no fuel and very little maintenance.
Enerray, through Plug the Sun, can offer the above mentioned solutions in different sizes.
Enerray operates in the global off-grid market through the company, Plug the Sun, a JV between Enerray and the Honk Kong based company Fast Power. The company is young, but very active and is working on different projects, from Latin America to South East Asia, for the installation of thousands of solar home systems (SHS).
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