Looking to solar to diversify the energy mix

Spurred by ambitious targets for expansion over the next 15 years and a government committed to a sustainability agenda, the solar energy sector in Dubai offers opportunities for investors and potential savings for consumers. The country’s first solar energy generation plant fed power into the grid for the first time in 2013, and the successful bidder for the second phase of the solar programme has been announced.

New Generation

Mohammad bin Rashid Al Maktoum Solar Park, in Seih Al Dahal, is the 60-sq-km site dedicated to solar energy production. The Dh124m ($33.75m) contract to build phase one, a 13-MW plant, was awarded to the US firm First Solar in October 2012, and it became operational a year later. At that time it was the biggest photovoltaic (PV) plant in the region. First Solar installed 152,880 panels on a 24-ha site, enough to power more than 500 homes. The plant, which is owned and operated by Dubai Electricity and Water Authority (DEWA), is capable of producing 24 GWh per year of clean solar energy. Completion of DEWA 13 MW, as the plant is now known, brought First Solar’s total installed PV capacity worldwide to 8 GW. Elsewhere in the region, Masdar, Abu Dhabi’s clean energy company, has a 10-MW PV plant at its headquarters, and in August 2014 First Solar signed a contract to build, own and operate the biggest PV station in the Middle East to date, a 52.5-MW plant in Jordan.

Phase Two

The second phase in Dubai will be almost four times as large as the Jordan project, with 200 MW of installed capacity. DEWA has awarded the project to the winning bidder among 24 short-listed international bids for the scheme submitted by qualified independent power producers. A contract worth Dh250m ($68.05m) to construct a sub-station to connect phase two to the grid was awarded in September 2014, according to DEWA, which said it expected to see the plant operational by the second quarter of 2017. Under the Dubai Integrated Energy Strategy (DIES) Mohammad bin Rashid Al Maktoum Solar Park is set to generate 2600 MW by 2030, enough to provide power to 200,000 homes. This is expected to represent 15% of Dubai’s installed capacity by then, according to DEWA.

Solar Power

Although the DEWA 13 MW plant relies on PV generation, alternatives are being considered for future phases of the solar park. In January 2014 DEWA signed a memorandum of understanding with Swedish concentrating solar power (CSP) company Cleanergy, and by October 2014 it had begun building a CSP research and development facility at the solar park with engineering contractor Al Futtaim Carillion. The facility consists of 10 dish units with total installed capacity of 110 KW. The facility will be used to test and monitor the CSP technology in Dubai’s environment to assess the feasibility of more wide-scale deployment. The dishes are designed to track the sun and reflect the heat into Stirling engines, which run on heat rather than fossil fuels. The purpose of the operational facility is not only to gather data, but also to show potential investors how the technology works under Dubai’s conditions. An example of how CSP can work on a large scale can be seen in California, where the Ivanpah CSP station is capable of providing power to 250,000 homes. Ivanpah has an installed capacity of 392 MW, making it the world’s largest CSP plant.

Regional Comparisons

Dubai is not the only place in the Middle East investing in solar technology. Abu Dhabi’s Masdar completed the 100-MW Shams 1 CSP plant in 2013 as part of its plan to have 7% of its power generation capacity come from renewables by 2020. In Saudi Arabia, the King Abdullah City for Nuclear and Renewable Energy (KA-CARE) has announced that it was planning to generate 50 GW from renewables by 2032, with solar CSP accounting for 25 GW and solar PV for 16 GW of installed capacity in the kingdom. In a separate development, Bloomberg reported in May 2014 that Saudi Arabia’s national oil company, Saudi Aramco, was making its own plans to generate 300 MW in solar power in remote areas of the country.

Price Comparisons

The economics of solar generation leave experts divided. Some argue that with the advent of mega-projects, the price of component parts will fall and become more affordable, but there is also a view that in a region enjoying extremely low prices for liquefied natural gas or crude oil feedstock, solar will always be priced out of the energy generation market. “If you have built 60 GW of solar production in the region, it is going to have an impact on manufacturers and it will bring costs down,” Omar Iqtidar, managing director and head of Middle East investment banking at Citigroup Global Markets, told OBG.

The levelised cost of energy of approximately $0.0585 per kWh achieved by DEWA for the 200-MW project proves that solar can be developed in the region at very competitive prices already at present.

Ambitious Plans

Although Dubai has only taken its first steps in the implementation of its solar plans, some energy experts believe it has the potential to succeed. “They have the land, they have the ambition and they have the experience of completing amazing construction projects, such as Palm Jumeirah,” Imtiaz Mahtab, vice-president of the Middle East Solar Industry Association (MESIA), told OBG. “We believe this programme can change the energy mix completely. Dubai is the only government that is also leading the region in demand-side management, such as price increases and an energy-efficiency programme.” As Dubai and the wider GCC region press ahead with solar projects, new industries are being created locally. In October 2014, Chinese PV panel manufacturer Chang Zhou Almaden announced it was building a Dh110m ($29.94m) factory at Silicon Oasis Free Zone to produce 400,000 PV panels a year to serve markets in the Middle East.

Trade-Offs

For major net exporters of hydrocarbons, such as Abu Dhabi and Saudi Arabia, a driving factor behind investing in renewables is the replacement of crude oil as a power generation feedstock. Every barrel of oil sold to a domestic power station for $2 that could have been exported for $108 in 2013, or even $50 in early 2015, represents a loss of potential revenue. As a net importer, Dubai’s concern is more about reducing its reliance on feedstock bought from other countries and keeping generation costs down. However, imports are not necessarily more expensive than self-generated energy. In 2008, the year UAE became a net importer of gas, the International Energy Agency reported that Qatar was selling its gas through the Dolphin pipeline for just $1.30 per million British thermal units (mBtu). Japan, on the other hand, is buying gas from Qatar and the UAE for $17 per mBtu. Even allowing for slight increases in the price paid to Qatar, it is clear that local solar production is difficult to justify on the basis of price alone under current conditions.

Rooftop Solar

Although mega-projects tend to dominate much of the discussion about solar, at the local level Dubai is also drawing up plans to allow property owners to install solar panels on their roofs and feed the electricity they produce into the grid. The enabling legislation was approved in late 2014. DEWA published in January 2015 the technical standard and launched a scheme to identify eligible equipment manufacturers. Also, “Dubai Municipality has an initiative to install solar water heaters on rooftops. Once this starts, and as production increases, prices will come down and heaters will be available for a cheaper rate,” Ashish Saraf, editor of BG reen Magazine, told OBG. “There’s this myth that sustainability is expensive, but people don’t understand that when you implement a sustainable model, the return on investment is high.”

Localisation

According to Iqtidar, in the future the development of smaller-scale, more local energy generation could help to create socket parity, or electricity that has a levelised cost lower than buying it from the utility companies. “More people are now generating and selling to the grid around the world,” he told OBG. “A few years ago, this was an interesting prospect for affluent Californians, but in a few years it may be that governments will not have to pay high feed-in tariffs, but that there will be socket parity, resulting in big utility companies shutting down.” If that vision becomes a reality in the emirate, the abundance of available sun may allow solar to play a major part in a localised grid.