October 26, 2017 by Fatma Abusief
Solar power is getting so cheap that even Gulf Arab states awash in crude oil are embracing the renewable resource. Their motive is as much to keep selling fossil fuels as it is to rein in their carbon emissions.
With almost 30 percent of the world’s oil reserves and some of the lowest costs of production, Arab countries in the Persian Gulf will probably rely for years to come on crude exports as a pillar of their prosperity. But improvements in solar technology mean it will be cost effective to exploit the region’s abundant sunshine instead of burning their oil and natural gas to run power plants. That could allow them to export more and boost their haul of petrodollars.
Why would oil-rich countries shift to renewables?
Electricity use in Gulf Arab nations has surged by 6 percent a year on average since 2000, driven by expanding populations and growth in energy-intensive industries, Ada Perniceni, a Dubai-based partner at consultant A.T. Kearney, said in a May report. Governments are seeking more efficient ways of satisfying this rising demand, and the increasing afford ability of renewables is making solar and wind power a bigger part of the region’s energy mix.
By the end of 2020, the Middle East and North Africa are forecast to have 24.1 gigawatts of wind and solar capacity –- almost six times the 4.2 gigawatts installed as of last year, according to Bloomberg New Energy Finance. The additions will require $27.4 billion of investment, BNEF said in May.
The risk that oil prices may fall adds to the pressure on Gulf Arab producers to maximize their earnings by exporting more of their crude instead of burning it. Saudi Arabia’s use of electricity and desalinated water is so high that the country burns crude to meet half of its domestic power and water demand, according to A.T. Kearney’s Perniceni. If the kingdom doesn’t curb demand or invest in alternative energy sources, local needs could absorb most of its hydrocarbon production within 10 to 20 years, she said.
The shift toward renewables by the six member states of the Gulf Cooperation Council would also help diversify their economies. Saudi Arabia is seeking to curb its reliance on crude exports under its Vision 2030 strategic plan, on which Crown Prince Mohammed bin Salman has staked his personal prestige.
What plans do Gulf Arab countries have for renewables?
Here’s what each of the GCC countries is doing to harness greener sources of energy:
Saudi Arabia: The world’s biggest oil exporter aims to build about 3.45 gigawatts of solar and wind plants by 2020. It wants to be able to produce 9.5 gigawatts, or some 10 percent of its generating capacity, from renewables by 2023. The energy ministry targets an estimated $30 billion to $50 billion in renewables investment over the next six years. United Arab Emirates: The U.A.E. plans for renewables to make up 44 percent of its energy mix by 2050, with gas, coal and nuclear contributing the rest. It’s earmarking 600 billion dirhams ($163 billion) in spending to diversify its supply. In March, the emirate of Dubai completed the second phase of what it expects will be the world’s largest solar park by 2030. Kuwait: The Ministry of Electricity and Water foresees a tripling of domestic energy demand by 2030 and targets producing 15 percent of its electricity from solar and wind power by then. Qatar: The biggest exporter of liquefied natural gas aims to get 1.8 gigawatts, or 16 percent, of its power generation from solar by 2020, rising to 10 gigawatts by 2030, BNEF reported in May. It currently has no utility-scale solar projects. Bahrain: The smallest of the GCC countries needs to increase its generating capacity by 6 percent a year to keep pace with demand, according to the multilateral Arab Petroleum Investments Corp. Bahrain aims for renewables to contribute 5 percent of its electricity by 2020, IRENA says. Oman: Oman has several solar projects underway, including a program encouraging the use of rooftop solar panels. California-based GlassPoint Solar Inc. is building a 1-gigawatt solar-thermal facility to turn water into steam for injection into oil fields to enhance the recovery of crude.
Why the regional race for cheapest renewables?
Saudi Arabia has received the world’s cheapest offer for supply of solar power. Electricite de France SA and Abu Dhabi’s Masdar made a joint bid to provide electricity from a 300-megawatt photovoltaic plant for as little as 1.79 cents a kilowatt hour, the Saudi energy ministry said in October. If awarded, that would beat the previous record low of 2.42 cents a kilowatt-hour set in Abu Dhabi in March. The Abu Dhabi offer had in turn beaten Dubai’s record from May 2016 for solar power at 2.99 cents a kilowatt-hour.
These rates may not capture the full cost of supplies in the peak summer season, but they do reflect improvements in technology that are leading to better cost savings globally. Rivalries among Arab Gulf monarchies to secure the cheapest deals for solar power may also put pressure on providers to low-ball bids.
In Saudi Arabia, companies are looking to solar as a way to hedge the risk of rising power prices if the government cuts energy subsidies as part of its planned economic reforms, according to one of the kingdom’s biggest plant developers. “Everybody is very convinced that electricity prices are going to be reformed over the next three years,’’ ACWA Power International Chief Executive Officer Paddy Padmanathan said in an Oct. 20 interview in Paris. “That means only one thing: that tariffs are going to go up.’’
What about Middle East countries outside the oil patch?
Oil-importing nations elsewhere in the Middle East are also pushing into renewables, mostly to pare bills for imported fossil fuels. Egypt, the most populous Arab nation, plans to generate 20 percent of its electricity from renewables by 2022, with wind providing 12 percent, hydropower 5.8 percent, and solar 2.2 percent. Egypt’s solar industry alone has attracted $1.8 billion of investment. Jordan seeks to boost its renewables capacity by almost five times in the next three years. Morocco plans to generate 42 percent of its energy from renewables by 2020, much of it wind power, and 52 percent by 2030, the country’s former energy minister said in October 2016.