The weekend read: The land of the low tender

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From pv magazine 01/2020

It was only five years ago that the lowest LCOEs achieved by solar PV were in India and Brazil, at roughly $0.06/kWh. Then came plans for the world’s largest single-site solar park in Dubai. The second phase of the Mohammed bin Rashid Al Maktoum solar park commanded what was then a jaw-dropping price of $0.0598/kWh for a 100 MW tender via Riyadh-based ACWA Power.

ACWA Power also submitted a bid for an additional 1 GW at a total unsubsidized tariff of $0.054 under a 25-year power purchase agreement. The Dubai Electricity and Water Authority (DEWA) declined, which ACWA Power CEO Paddy Padmanathan said at the time was expected, given that prices were “likely to continue to drop.” And prices did fall by about 70%, with the fifth phase announced last year.

In November, DEWA again announced ACWA Power as the preferred bidder for the 900 MW phase of the Mohammed bin Rashid Al Maktoum site at $0.0169/kWh. The latest phase is expected to come online in a little more than a year, bringing the park’s total capacity from both PV and concentrated solar power to 2.86 GW (713 MW currently producing, with 1.25 GW under construction). But the question is whether these prices are feasible.

The cost of PV modules fell 26% last year, according to the International Renewable Energy Agency. However, Yousef Al Ali, acting executive director of Masdar Clean Energy, said that the cost reduction isn’t just related to modules.

“This reduction applies across the value chain – there’s better financing, structure and more competitive equity,” he said.

But how much lower can EPCs go with the Gulf region’s “new normal”? Ali said that an EPC reaches a point where it simply can’t lower prices any further. Yet for subcontractors, more projects equals more experience, and that leads to additional competitiveness. Ali said that all of this will help to drive down PV prices, as that has been the regional trend over the past few years, anyway.

And this points to a larger trend in the Gulf Cooperation Council (GCC): the size of solar power tenders. In 2015, 100 MW to 200 MW was a big undertaking. But now, tenders have moved beyond megawatts to gigawatts.

A good example of this is the Noor Abu Dhabi project. Its first phase totaled 1.17 GW and came online in late June. The next phase is expected to total 2 GW, however.

The Middle East and North Africa region is expected to build about 4.8 GW of new solar PV this year, up 9% from the 4.4 GW that was added in 2019, according to BloombergNEF.

However, the region still only makes up a small part of the global growth of new-build PV projects, as it is still in an early developmental stage, with significant variations among the six GCC states.

Regional hotspots

Record prices and large-scale tenders have made the United Arab Emirates the frontrunner for the rest of its neighbors to follow. It accounts for the lion’s share of solar PV installations in the Gulf region at 79%, according to the International Renewable Energy Agency (IRENA).

However, even within the UAE, stages of development vary. Most assume that it is the emirate of Dubai that got solar off the ground, although it’s better to say that the emirate actually helped to push solar to the forefront.

It was Abu Dhabi that actually established the first solar plant in the country, with the completion of the 100 MW Shams concentrated solar power plant. The capital also created Masdar City more than a decade ago, which is now home to a number of global companies and organizations. In addition, the Masdar Institute was established in 2007, in collaboration with the Massachusetts Institute of Technology, to focus on advanced energy and sustainable technology.

In 2017, the Masdar Institute merged with the Khalifa University of Science, Technology and Research, as well as the Petroleum Institute, to produce a one-stop education center for the entire energy sector.

Dubai, however, was the first emirate to adopt emirate-level diversification targets, while also liberalizing its energy sector prior to the country-wide mandate that was implemented in mid-2015.

Even ahead of the liberalization of the country’s fuel prices, Dubai had started to roll out its net metering policy to help expand solar power throughout the residential, commercial and industrial sectors. This policy provides a credit for any excess power produced and has resulted in nearly 1,400 installations, totaling 125 MW, as of October.

Net metering made its way to Abu Dhabi in 2018, although there seems to have been little movement since the initial announcement.

Next door in Oman, the authorities only started focusing on solar rooftops in 2017. The Sahim initiative, launched in two phases, was established to add solar PV arrays to homes, as well as public and private buildings. Unlike the net metering seen in the UAE, the Sahim scheme allows customers to sell power back to the grid at the prevailing electricity tariff.

The first phase of the Sahim scheme was designed to allow consumers to install PV systems at their homes or businesses at their own cost, with the ultimate aim of putting PV on 1,000 homes. The second phase will try to drive large-scale deployment of small grid-connected solar PV systems, with a target of around 10% to 30% of residential properties.

The Sultanate has also hosted some interesting large-scale projects, including a 7 MW solar-enhanced oil recovery plant. The Miraah solar plant generates power and steam to help with heavy oil production.

“Solar-powered oil production is a sustainable, long-term solution to meet the Sultanate’s future energy demand and utilize its natural resources most efficiently,” said Raoul Restucci, the managing director for Petroleum Development Oman.

The past year has seen even more momentum, including the awarding of the 500 MW Ibri II solar project. Following this, Oman Power and Water Procurement Co. announced that it would issue another tender, this time totaling at least 1.1 GW of solar PV. The Manah Solar I and II projects will each have generation capacities of 500 MW to 600 MW.

The greatest potential for the region – and the place that still holds the most excitement for investors, developers and manufacturers alike – is in Saudi Arabia. By the end of 2018, the country had only installed about 90 MW of solar PV capacity, but that changed last year with the completion of the Sakaka plant.

However, in September all eyes were on the new energy minister, Prince Abdulaziz bin Salman. He replaced Khalid Al Falih, marking the first-ever move to have the portfolio of the world’s top oil exporter fall under a member of the royal family.

At the mid point of last year, pv magazine reported that it looked like that Saudi Arabia was trying to create a more centralized energy system. But there are always concerns when there is a change in power. However, sources still say that that the new energy minister is committed to ramping up Saudi Arabia’s renewable energy sector.

In August, the country’s Renewable Energy Project Development Office (REPDO) opened bids for the second round of the National Renewable Energy Program. This included six solar PV projects, totaling 1.46 GW, with nearly half of the qualified companies coming from Saudi Arabia. This is important because of the localization targets from the kingdom, which include the 60% localization of renewable energy projects launched this year, up from just 30% in 2017.

Localization helps economies via job creation, but can have negative impacts on costs. And while Saudi Arabia isn’t the only GCC state to have localization targets, there is a concern that there will be a gap in qualified professionals to match the mandated target. “Localization is a must, but there has to be a balance,” said one solar power consultant who works in the kingdom.

Behind the pack

Efforts toward renewable energy are varied throughout the region, with a couple falling short, though for different reasons.

Bahrain has an economic vision for 2030 which looks to diversify away from its oil-based economy, much like many of its GCC neighbors. Yet most of that involves foreign direct investment and financial services. The country has emphasized energy efficiency with some smaller PV projects, such as a 5 MW plant operated by Bahrain Petroleum Co.

Yet Kuwait is a different story altogether. As one developer said, “we’ve been waiting for Kuwait’s so-called 1 GW solar PV project for years now.” Over the past two years, there have been multiple announcements about Kuwait National Petroleum Co.’s (KNPC) Al Dibdibah solar project.

The $1.2 billion project was expected to be awarded in the first quarter of 2018, but in August 2019, KNPC again announced that it was tendering the same project, but this time without an award date.

By LeAnn Graves