The region has received some of the lowest renewable-energy prices awarded globally for both photovoltaic (PV) and wind power; and with some of the best resources in the world, renewables have great potential in the Arab world. But this needs governments to rise to the challenge and improve the regulatory environment to attract investment in one of the fastest-growing energy markets, said APICORP.Renewable energy

With power demand across the region expected to grow at 9.9 percent year until 2020, governments are keen to increase the share of renewables in the power mix. A shortage of gas and in some countries, increasing reliance on liquid fuels, a key product for export, has also added to the urgency of energy diversification while environmental concerns increase.

Mixed progress

But progress has been mixed, as net energy importers and net energy exporters face different realities. To support their renewable sectors, countries such as Jordan and Egypt introduced feed-in tariffs tax exemptions and PPAs. On the other hand, energy-exporting countries have done little to incorporate renewables, as they continue to rely on cheap-to-extract conventional sources to meet rising electricity demand.

Falling technology prices have given some countries an opportunity to move towards increasingly cost-competitive renewable energy, while government support, like in other parts of the world, will be instrumental in driving the growth of renewables in the region.

Masdar, in the UAE, announced that it will build a 200MW PV plant for the Ministry of Energy and Mineral Resources but no details have been provided. The UAE has shown a serious commitment to developing solar energy.

The 100MW Shams CSP plant has been operational since 2014 in Abu Dhabi. The cost of the project was USD 600 million and was financed by international banks, including BNP Paribas, National Bank of Abu Dhabi and Mizuho.

On the other hand, Masdar’s ambitious Nour project, which aims to develop 300MW of PV, continues to face delays. In Dubai, the 13MW Phase I of Dubai’s solar park was completed in 2013. The 200MW Phase II has been awarded and will come online in 2017 while Phase III is in the tendering process, with plans to bring 800MW online by 2020.

The Dubai Electricity and Water Authority aims to have 7 percent of Dubai’s generation from renewables by 2020. Additionally, Dubai introduced net-metering in 2014 to promote small-scale solar in the residential sector. By 2030, Dubai will require all rooftops to have solar panels as part of a strategy to generate 75 percent of electricity from solar by 2050.

Sticking to hydrocarbons

Other net-exporting countries are struggling to kick start their programmes. Large oil or ga reserves and cheap extraction costs mean that hydrocarbons continue to meet rising demand in countries like Saudi Arabia, Kuwait and Qatar. Policy uncertainty and the lack of an efficient regulatory framework are mainly responsible for slow progress.Oil refinery

In 2012, the King Abdullah City for Atomic and Renewable Energy announced plans to invest USD 109 billion to produce 41GW of solar by 2032. But little progress has been made so far. Given the large amount of investment required to reach this ambitious target, it is highly unlikely that the government will meet its renewable targets for now.

Other countries, such as Kuwait, have declared a 15 percent renewable energy target by 2020 but has only selected preferred bidders for its 50MW Al Shagaya CSP plant, while Qatar, Oman and Bahrain have made minor investments with no significant additions expected soon, said APICORP.

Subsidies and market structure

Despite many claims that renewable energy will never reach its potential unless subsidies are phased out, fuel subsidies are not the main constraint for renewable development and other factors play a more important role.

One problem lies in the electricity market structure in Arab countries. Almost all rely on a state-owned wholesale buyer to buy and sell electricity. Government wholesale buyers decide the purchase price of electricity from generators as well as the selling price to consumers, the APICORP report observed.Power line

If governments want to keep prices low for end-consumers, there is nothing to prevent them from incentivising renewable-energy sources in the same way they subsidise conventional sources.

Net-importing countries, driven by their desire to reduce dependency on fuel imports even in a period of low oil prices, will continue to lead in investment and deployment of renewable energy. But financing is becoming more challenging in the current environment and these countries need to continue developing their regulatory framework to attract investment into this sector.

For net-exporting countries, with the exception of the UAE, renewables will take a back seat as they continue to rely primarily on conventional sources for additional capacity in the coming years and will use demand-side efficiency and price reform as measures to tackle rising consumption.

 

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