The Sweihan park in the United Arab Emirates and the first installations in the Benban complex in Egypt contributed half of the MENA region’s installed capacity in 2018, illustrating the importance of large PV parks to drive demand growth in the region. In 2019, these two countries will again contribute the bulk of the region’s PV additions, but we will also see growth in other markets, both through large-scale projects resulting from tenders, as well as distributed generation.
As the UAE and Egypt consolidate their positions as major PV markets in the region in 2019, neighboring countries are following suit. Awarded and announced tenders show how regulators across the region seek to benefit from the low bid prices for PV projects attained in previous tenders. By the end of 2018, 3.6 GW of PV projects had been awarded in tenders across the region, with the vast majority either fully installed or under construction.
Tenders drive demand
The bidding dynamics accelerated in 2017 and 2018 and will continue in 2019, when projects will be awarded in Algeria, Kuwait, Morocco, Oman, and Tunisia, among others. Whether Saudi Arabia will launch tenders is, at the time of writing, still an unknown with high potential impact on PV demand outlook. Exactly how 2019 tenders will impact market growth in the following year will depend heavily on the timing of the bid processes and the financial close of projects.
Regulators will seek continued bids below $30/MWh but will closely evaluate the viability of the lowest bidders. Developers in the region have had to develop patience over the past years, as bid processes often wind up slower than first anticipated. Despite many tender delays, fierce competition in bids, and low prices achieved, developers and suppliers still form various consortia to target new tenders, or secure direct proposal projects.
In parallel with the massive PV projects that quickly make a dent in the overall energy mix, another trend is shaping up. As much as one quarter of MENA’s PV installations in 2019 will, according to our forecast, not come from large utility PV projects, but from distributed generation. First mover markets like Jordan and Dubai have spearheaded supportive policies for commercial and residential PV systems, and regulators across the region have picked up the trend.
In the past two years, Oman, Saudi Arabia, Egypt, Morocco, Tunisia, and others have launched rooftop PV programs. Each approach is different, either focusing on feed-in tariffs or net metering, but the objectives are to lower the cost of the electricity system and secure reliable power in areas where supply fails to meet peak loads. The main challenges for most programs remain financing and low competitiveness of self-consumption when retail power prices are still highly subsidized. Outside of Jordan and Dubai, distributed PV generation is still a nascent market.
A growing number of companies seek opportunities in the distributed solar segment, and business models are still developing. Most systems currently installed are owned by the end-user, but third-party models are spreading, as shown by large wheeling projects in Jordan (like French IPP Neoen for telecommunications provider Orange) or on-site rooftops in Dubai (like Siraj Power for Al Abbar Aluminium).
Long term revenues
Developers of distributed PV in emerging markets still report that commercial banks are not providing adequate financing for relatively small investments such as PV systems. Therefore, companies that target long-term revenues from a third-party ownership model first need to aggregate larger portfolios to raise financing at a lower cost. Successful companies therefore need strong financial backing. International Finance Corporation disclosures state that dedicated distributed generation developer Dubai-based Yellow Door Energy is in the process of securing an equity investment of up to $30 million from the IFC – although the company reports that these talks are ongoing. As developers push to grow portfolios of attractive PPA and leasing contracts, competition intensifies, which will spur rapid growth of third-party financed distributed generation in 2019.
PV installations in MENA quadrupled in 2018 on the back of the massive solar parks in UAE and Egypt. For 2019 and 2020, the project pipeline promises a steady flow of new PV, while outlook hinges on the evolution of tenders in 2019. Several factors will decide future regional growth, such as the twists and turns in Saudi Arabia’s solar plans. Adding to the utility PV projects, distributed generation is set to grow, in particular in the 2020s as subsidies are phased out. Solar has proven itself a competitive source of generation, and it is clear that regional stakeholders will seek to raise the share of PV in electricity mix.
This article was updated on 21/1/2019 to reflect additional information provided by Yellow Door Energy.
The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
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