Industry Spotlight - Solar Energy

MENA Is Achieving Significant Results in Solar Energy

December 2017

Industry Spotlight - Solar Energy

MENA Is Achieving Significant Results in Solar Energy

December 2017
The Middle East and North Africa's (MENA) solar energy market is witnessing unprecedented developments as government-driven auctioning and net-metering schemes drive down costs and attract investments. Some of the world's lowest solar tariffs can be found in the region today. According to the International Energy Agency (IEA), long-term contract prices for utility-scale PV are as low as USD58/MWh and USD61-USD77/MWh in the UAE and Jordan respectively. In its medium-term report, released in October 2016, the IEA forecast that by 2021 renewable capacity in the MENA region will grow by 78 percent, led by the UAE, Egypt and Morocco.

PV on an upward trajectory

Solar PV is predicted to account for the lion's share of new capacity in the region, especially in Jordan and the UAE, James Kurz, senior consultant at Apricum. The Berlin-based cleantech advisory acted as financial advisor to Swedish advanced materials startup Sol Voltaics in raising USD17 million, bringing in the Saudi Arabian fund Riyadh Valley Company as the lead investor. "We expect a PV market that is much more diversified than CSP and wind. Our forecast is for 1 GW to 1.5 GW of PV to be installed in the MENA region during 2017," Kurz said. "The two largest markets will be Jordan, comprised of IPP tenders, EPC projects and commercial and industrial projects, and the UAE, mainly from DEWA's IPP tender and Shams rooftop programs," he noted. Jordan's Ministry of Energy and Mineral Resources (MEMR) recently invited expressions of interest for 200 MW of PV capacity as part of Round 3 of the direct proposal submissions process that was. "Jordan's Round 1 of the feed-in-tariff (FIT) program has been successful with all projects achieving financial close. The attractive FIT, strong regulatory framework and appropriate contracts are relevant factors," said Gurmeet Kaur, head of projects in the UAE at global law firm Eversheds. "Whilst the country removed the FIT and shifted to an open competitive model in Round 2, the projects were successfully awarded and now in process of reaching financial close. Therefore, for new markets, an approach which starts with a good FIT and then moves to a more competitive open tender is sensible and would balance the interest of both the private and public sector," said Kaur. Jordan was expected to have about 500 MW of installed wind and solar capacity by the end of 2016, according to the Energy and Minerals Regulatory Commission. Overall, the country is targeting 10 percent, or 1,800 MW of renewable capacity by 2020, of which 600 MW will come from solar PV.

Price competitiveness

In the UAE, DEWA's 800 MW-third phase of the 5 GW Mohammed bin Rashid al-Maktoum solar park made headlines in June 2016 for its low tariff of 2.99 US cents/kWh. The project was awarded to a Masdar-led consortium comprising Spanish firms Fotowatio Renewable Ventures and Gransolar. An even lower bid of 2.42 US cents/kWh was submitted for Abu Dhabi's 350 MW Sweihan PV project in September by an Asian consortium, which offered to expand the plant to 1,170 MW at 2.30 US cents/kWh. "There is a clear downward trajectory in tariffs driven by competitive tendering based on lowest cost of energy as well as the continuing decline in costs of PV system components. The next major PV tender in the region is currently underway in Saudi Arabia where the Saudi Electricity Company is tendering 100 MW," Kurz highlighted. At the same time, local installed costs for utility-scale PV have fallen from 7 US cents/Watt in 2008 to less than 1.5 US cents in mid-2015, a drop of almost 75 percent, according to the International Renewable Energy Agency (IRENA). For the price of a 10 MW plant in 2008, the UAE can now build 46 MW, the agency stated in its Renewable Energy Roadmap 2030. "The biggest tenders have been in the UAE, particularly the Sweihan and DEWA Phase III tenders, which will both result in over 1 GW being installed by 2020," said Kurz. "Additional smaller tenders already underway such as those in Jordan, Saudi Arabia, Morocco and Egypt will also drive significant market growth through 2020. In Saudi Arabia particularly, we expect the country to ramp up quickly following its inaugural 100 MW IPP tender being run by the Saudi Electricity Company (SEC)." SEC is currently developing two 50 MW PV IPP plants in Al-Jouf and Rafha in the north of the kingdom and is currently evaluating bids for the projects.

Jordans Round 1 of the feed-in-tariff (FIT) program has been successful with all projects achieving financial close

Secondary markets

Secondary markets for PV in 2017 will be Morocco and Egypt, where larger utility-scale projects are being finally realized, said Kurz. One of the latest projects to be awarded was the 170 MW Noor PV 1 in Ouarzazate, which ACWA Power and Chint consortium won after submitting the lowest tariff at 4.8 US cents/kWh. Egypt, on the other hand, was on the verge of losing investor confidence after a long delay in signing PPAs under Round 1 of the FIT program. However, in mid-October 2016, Egypt's Ministry of Electricity and Renewable Energy (MOERE) finally signed eight PPAs worth for 400 MW of solar capacity, representing a much lower capacity that the original 2.5 GW targeted by 2017. Nearly 80 local and international companies had prequalified at the time. On October 28, 2016, the Ministry launched Round 2 of the program, limiting it to developers who prequalified in Round 1, until it reaches the target capacity of 2,000 for solar and 2,000 MW for wind. If these capacities were not met by Round 1 qualified companies, then the door will be opened for newcomers. A number of changes will apply in Phase Two, according to Dr. Fatma Salah, managing partner at law firm Riad & Riad. These include lower FITS and new local content requirements. For PV projects between 20 MW and 50 MW, tariffs have been reduced from 14.34 US cents/kWh to 8.40 US cents/kWh. Developers will also be required to use a minimum of 30 percent local content in solar projects.

CSP on the agenda

Since Masdar's Shams project, CSP activity has mostly concentrated in Morocco, where the 500 MW Noor Ouarzazate complex is quickly taking shape. But in the last two years, governments across the region have shown increased confidence in the technology. "Morocco will continue to be the CSP hub of the MENA region. However, Gulf countries including Kuwait, UAE and Saudi Arabia already have concrete plans to build CSP projects alongside PV to take advantage of CSP's storage capabilities," Kurz noted. CSP projects at different stages of development are now underway in Kuwait, the UAE, Saudi Arabia, and Morocco. These are a mix of standalone units, hybrid PV-CSP, and integrated combined solar cycle (ISCC) stations. The majority of these plants are initial phases of megaprojects. For example, Kuwait's 50 MW Shagaya CSP, scheduled to come online in early 2018, falls under the first phase of the Shagaya Master Plan. The three-phased multi-technology park is planned to generate 2,000 MW by 2030, including 1,150 MW of CSP, 700 MW of PV, and 140 MW of wind. The first PV and wind plants, each 10 MW, were connected to the grid in November 2016. MENA Solar Market Outlook for 2017 formerly known as MENASOL, pre-order the MENA New Energy 2017 program (Dubai 25-26 April) here Bid, Win and Develop Cash Rich Projects in MENA some of the confirmed speakers include: Dubai's 200 MW solar-tower project also represents the first phase of a larger scheme that aims to deploy 1,000 MW of CSP by 2030. Likewise, Morocco's Noor Midelt, which comprises 800 MW of hybrid solar plants, is part of the government's long-term plan to generate 2,000 MW from solar energy by 2020. In Saudi Arabia, CSP will be used in three ISCC stations-Duba 1, Waad Al Shamal, and Taiba-all being developed by Saudi Electricity Company (SEC). Notably, SEC managed to secure the cheapest cost per installed kilowatt for each of Duba 1 and Waad Al Shamal: less than USD1,600/kW, compared to the average global price of USD5,550/kW for parabolic trough in 2015, based on IRENA estimates.

Dubais 200 MW solar-tower project also represents the first phase of a larger scheme that aims to deploy 1,000 MW of CSP by 2030

Evolving frameworks

According to Aleksi Lumijarvi, program officer at IRENA, current frameworks in the MENA region are largely focused on large-scale individual projects and favor international consortia, an approach which does not encourage development of local value chains. More advanced frameworks were needed to unlock private-sector activity, he said. Clint Dempsey, principal associate in Evershed's banking and finance team, recommends the standardization of documents as an efficient de-risking strategy that can benefit the region's solar industry. "As we have seen with the IFC's scaling solar program, which proved successful in in emerging markets such as Zambia, a standard bankable suite of documents can save an enormous amount of time and cost in achieving financial close." Dempsey expects that green sukuk will open another avenue of funding in region. "I also expect to see commercial banks coming into play in countries such as Jordan, where we have seen successful Round 1 and 2 programs funded by development finance institutions." Dubai Government recently launched the region's first clean-tech focused crowdsourcing platform, Green Deal, to make solar systems accessible for residents and businesses. Moreover, in October, eight commercial banks signed an agreement with the UAE Government and UNEP Finance Initiative to fund renewable energy projects over the next five years. The institutions, which included National Bank of Abu Dhabi and HSBC, pledged to lend, invest in, and facilitate financing to large- and small-scale projects and developers.


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