Sunny prospects for Middle East energy
Abundant sunshine provides Middle Eastern countries with a significant competitive advantage in the race for solar energy. Fluctuating hydrocarbon prices combined with surging energy demand in Arab countries and cheaper solar energy production costs are encouraging new solar power ventures in the region.
Sunlight, like hydrocarbons, is plentiful in the Middle East. Saudi Arabia, for example, has one of the highest irradiation levels on Earth, according to the website NatureAsia.
Despite this enormous potential, only a few countries in the region have tapped into this infinite source of energy, something that might change as the energy sector undergoes significant shifts.
“Solar power is gaining momentum in the Middle East, where many Arab countries fall on the solar sunbelt,” says Yumna Madi, a co-founder of Egypt-based Karm Solar, which was established in 2011.
A major obstacle to the development of solar energy in the Middle East has been easy accessibility to oil and natural gas. This largely explains why, in 2013, there were more solar power plants in the small European state of Slovenia than in the entire Middle East, according to the Middle East Solar Industry Association (MESIA).
Until recently, oil-rich Arab countries could afford to heavily subsidise the petroleum sector, even at the cost of decreasing profits. Saudi Arabia alone could have made $43.8 billion in additional oil revenues in 2013 if not for its growing domestic consumption, according to an article by Vicente Lopez-Ibor Mayor, former commissioner of the National Energy Commission of Spain and chairman of Lightsource Renewable Energy, a European solar energy power company.
But with domestic budgets spiralling out of control, inefficient energy policies are becoming more difficult to sustain. In Saudi Arabia, oil accounts for more than 65% of all electricity production; in Kuwait 71%; in Lebanon 94%; and in Yemen 100%, according to Mayor.
“The fact that oil is subsidised puts a bigger burden on regional oil importing countries such as Egypt and Jordan and Morocco, which are pushing for solar energy projects. There is a lot of interest in other countries such as Saudi Arabia, Qatar and the UAE, which is financing the Masdar City project,” Madi said.
Masdar City, managed by a subsidiary of the Abu Dhabi government, is an energy-efficient community powered by a 22-hectare field of solar panels.
Among other factors contributing to the growing interest in renewable energy is instability in oil markets, which in the past two years has seen prices fluctuate from $100 to $45 a barrel. Uncertainty has an adverse effect on power plant operators who rely on fossil fuels, making solar power even more attractive, given that sunshine is a highly predicable energy source.
The declining price of solar systems is a further inducement.
“The installation costs of utility-scale solar PV (photovoltaic system) power plants have fallen from roughly $7 per watt in 2008 to less than $1.50 per watt. This amounts to more than a 75% cost reduction. It means that for the same budget as a 10 megawatt (MW) solar PV power even with the 45% drop in oil prices witnessed in 2014, solar power remains competitive,” says the MESIA report.
This means that the price of the electricity from the second phase of the Sheikh Mohammed bin Rashid Al Maktoum solar park in Dubai, which is scheduled to be online in April 2017, is equivalent to burning oil priced at about $20 per barrel. “The price of solar energy is becoming at par with fossil fuel,” agrees Madi.
Investment in solar projects will reach $2.7 billion in the Middle East and North Africa (MENA) region in 2015, according to figures provided by MESIA. ”Jordan is one country leading the way,” says Madi, in part through its feed-in-tariff programme, which promotes investment in and production of renewable energy sources by connecting private producers to the national electricity grid.
Jordan also has issued tenders for a number of ground-mounted solar projects that are projected to generate 300 gigawatt hours of clean electricity, enough to power nearly 1 million households.
Egypt’s Ministry of Electricity has kick-started a programme to develop 2,000MW large-scale solar PV power projects, Madi said.
Saudi Arabia also is joining the solar foray. Saudi Aramco announced it will invest in solar in order to diversify the kingdom’s energy sources. Investments worth more than $100 billion are in the pipeline, according to Mayor, with the goal of generating one-third of Saudi Arabia’s electricity by 2032.
In economic terms, harnessing solar energy is simply a means for Arab countries to exploit an unparalleled competitive advantage. Instead of being laggards, Arab countries could become leaders in renewable energy.