Embracing Solar Power – What can MENA nations learn from the World?

Embracing Solar Power

  • MENA countries have come out with ambitious solar energy targets that can created a stir in the global solar markets.
  • The targets are justified considering the advantages of solar energy adoption of these countries
  • However, with solar energy revolution loosing direction at the global level, the MENA countries have the luxury of learning from the mistakes made by early adopters. 

As discussed in our previous article on renewable energy in Middle East, the region has come alive to the idea of adopting renewable energy and solar energy is the form of renewable energy which most countries are keen on investing-in in a big way. According to the Mena Solar Energy Report 2014, published by MEED, the region is expected to have solar capacity of 15,000 MW of solar energy by the end of the decade. This is significant growth compared with current installed capacity of 271 MW as of January 2014.

Embracing Solar Power1Source: GreenProphet.com

Adoption of solar energy brings along many advantages for Arab countries, some of which are:

  • Long term energy security
  • Efficient utilization of higher irradiance
  • Environment friendly energy
  • Employment generation
  • Attract foreign investment
  • Access to latest technology

The solar power revolution in the region was started mainly by net-oil importing countries such as Turkey, Morocco, Tunisia, and Lebanon and now nearly all the countries have joined in led by Saudi Arabia. Most countries have pretty ambitious targets, and see solar power taking a meaningful place in their energy mix. While these targets underline the right intent of MENA governments towards solar energy, achieving these targets in the most beneficial way is going to be a challenge for most of these countries.

Globally, the solar power revolution is sort of loosing direction, with projects in several countries failing due to poor economics, policy instability, and quality issues. Big solar power promoters such as Germany, US, Japan, and Australia are discovering that successful, profitable and sustainable adoption of solar power is easier to talk about than to achieve.

  • Germany, the world’s flag bearer for solar power adoption is already witnessing a decline in newly installed capacity as the subsidies phase out in the coming years. According to a Forbes article, even after years of solar power subsidies Germany’s residential electricity cost is about USD 0.34/kWh, one of the highest rates in the world. About USD 0.07/kWh goes directly to subsidizing renewables, which is actually higher than the wholesale electricity price in Europe. To make matters worse, billing rates are expected to rise another 40% by 2020. As a result, more than 300,000 households per year are seeing their electricity shut off because they cannot afford the bills. The subsidizing approach has clearly not worked for Germany.
  • United States where the solar panel generating capacity exploded from 83 megawatts in 2003 to 7,266 megawatts in 2012 is now discovering that the poor quality solar PV panels from China are failing raising a big question on quality and sustainability of the installed capacity. SolarBuyer, a company based in Marlborough, Mass., discovered defect rates of 5.5% to 22% during audits of 50 Chinese factories during 2012 and 2013.
  • In Japan, when public confidence in nuclear energy weakened after Fukushima disaster in 2011, the government turned to solar energy giving huge subsidies which led a rush of developers with plans to deliver solar energy equivalent to 21 nuclear reactors. However, due to lack of experience and expertise the developers are now facing issues such as lack of funds, grid capacity limitations, land permit issues, wait lists for Japanese brand equipment and a shortage of qualified technicians. As a result only around 20% of the projects are able to supply energy to the grids and the deficit is expected to cost the utilities USD 3.5 billion annually on coal and gas imports.
  • In Australia, another proponent of solar energy for a long time, the government is looking to withdraw its earlier announced renewable energy targets midway. This policy instability has killed investor confidence in Australian renewable energy sector and several projects and under a risk of being scrapped or lay unfinished due to lack of investment.

As the MENA governments start to traverse the solar path it is essential for them to learn from these global experiences and they have in place proper policies and initiatives that can help them avoid known failures. The major check-points that come out of the above examples are:

  1. The policy focus should be on increasing efficiency of solar power projects and not solely rely on subsidies through feed-in tariffs. Achieving this should be easier than in countries such as Germany and Italy, because the Arab region gets one of the best solar irradiance in the world.
  2. The quality of solar installations should not be compromised for cost, and there should be proper control over the quality of equipment being used. Qatar Solar Energy Company has presented the perfect example in this case by setting a solar PV manufacturing plant which will satisfy local demand as well as give them complete control over quality of equipment.
  3. Transparent tendering and ongoing monitoring process is essential, to ensure that projects are awarded to only capable vendors are completed within planned time and cost.
  4. Policy stability is required to attract and sustain investor confidence.

The Sun has always shown brightly over the Arab world and it has the potential to remain an energy leader in the world – only if realized properly.

The article was originally published at: Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

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Renewable Energy Adoption: Why it means much more than a simple diversification of energy base for the Arab nations

Renewable Energy Adoption

 

  • The abundance of renewable resources in the region, coupled with negligible environmental impact, are the key enablers for renewable energy adoption in the region.
  • Most Arab nations have announced big ticket renewable energy projects and have set ambitious renewable energy targets to reduce dependence on the oil economy.
  • However, apart from diversifying their energy base, Arab governments can utilize this opportunity to address macro issues such as youth unemployment, and lack of entrepreneurial and R&D ecosystems in the region, and build a more sustainable future.

Arab region has been a late but strong starter on renewable energy bandwagon: While the developed countries of the Western world have a significant head-start when it comes to embracing renewable energy technologies, the Arab world has been late to join the race. This lack of initiative was largely driven by easy availability non-renewable energy resources, which get heavy government subsidies creating an entry barrier to ‘relatively expensive’ alternate energy sources. This was also backed by lack of technological knowledge and policy framework in many countries.

In the last few years, the region has made strong progress towards adopting renewable energy and many countries in the MENA region have acknowledged the potential of renewable energy to ensure sustainable energy sources for many years to come. The major factors that are driving the growth of Renewable energy in the region:

1. Energy security for net-oil importers: With growing population and rapid urbanization, energy demand in the region is increasing faster than ever. The demand growth is driven by increasing need for electricity for domestic use and devices, heating, cooling, and desalination of water. Meeting this demand will become even more difficult for most countries considering the rising oil prices. Therefore, investing in alternate sources of energy can help these countries ensure energy security for future. This is the key driver for growth of renewable energy in countries that are net-oil importers.

Chart 1: Renewable Energy Investments – Oil Importers vs Oil Exporters

Renewable Energy Adoption 1

Source: Arab Business Review, REN21

Net-Oil Importing countries: Djibouti, Israel, Jordan, Lebanon, Malta, Morocco, Palestinian Territories, and Tunisia

Net-Oil Exporting countries: Algeria, Bahrain, Egypt, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Syria, UAE, Yemen

2. Substitute for domestic oil usage for net-oil exporters: For countries that are net-exporters of oil such as Saudi Arabia, Kuwait, and UAE renewable energy sources can be used to substitute the oil used for domestic electricity generation. With the declining cost of modern renewable energy technologies this investment makes even more sense as it can boost present oil-export volumes, while ensuring a sustainable solution for domestic energy consumption for future.

3. Abundance of renewable resources: While the Arab region is characterized by its rich oil and gas reserves, the abundance of renewable resources in the region had gone unnoticed until very recently. Due to its geographical location, the region gets highly concentrated sunlight and has several sites with suitable wind speeds for developing highly efficient wind farms.

4. Favourable policy frameworks: As per REN21, by mid-2013 all 21 MENA countries had set renewable energy policy targets, and 18 countries had introduced renewable energy promotion policies to help achieve their respective targets. If all the countries are able to meet their targets, the renewable energy capacity of the region will reach a massive 107 GW up from 2012 levels of approximately 1.7 GW.

Chart 2: Projected Non-Hydro Renewable Energy Capacity in the MENA Region

Renewable Energy Adoption 2

Source: REN21

5. Reducing environmental footprint: According to World Bank, 85% of GHG emissions in the MENA region come from energy production, transformation and use. Gradual substitution of oil based domestic energy – which has significantly high carbon emissions – with renewable energy is definitely the right prescription for MENA economies, which are often criticized for doing little towards pushing the sustainability agenda.

With all these factors combining to create an ecosystem that will drive renewable energy growth in the region, governments in the region have the opportunity to build a local supply-chain for the renewable energy industry.

This will enable them to address several macro challenges by taking steps such as:

  • Breeding local entrepreneurs: The governments should create more business opportunities for local entrepreneurs, so that they can be a part of this growth story and reduce dependence on expats in the long run. For example: The Saudi Government has created an environment. For example, the Tunisian Government launched the PROSOL programme in 2005 aimed at building local solar energy supply chain, while revitalizing the solar thermal market in the country. Encouraged by the Government’s initiative TuNur Ltd. – a joint partnership between a group of Tunisian investors and UK-based Nur Energie, aimed at constructing a 2,000 megawatt Concentrated Solar Power (CSP) plant in 2015. This project is expected to create 1,500 direct and 20,000 indirect jobs for the manufacturing and operation of the plant.
  • Creating an efficient R&D ecosystem: While extensive R&D programs related to the renewable energy are being undertaken across the globe and the governments have an option to buy the solutions, there is still scope for improvising and localising the available technologies to deliver best results in the atmospheric conditions that prevail in the Arab region. The Government can take this opportunity to facilitate local R&D by investing in the required infrastructure.
  • Skilled employment: The government can also invest in institutions that can support the demand for skilled workforce required by this industry. This will help them address the problem of youth unemployment which most of the MENA countries are facing right now.

Case Study: Local Content Promotion by Saudi Arabia

In 2012, Saudi Arabia unveiled its renewable energy targets of installing 54 GW of renewable energy by 2032, which break down as 25 GW of concentrated solar power (CSP), 16 GW of solar photovoltaic (PV), 9 GW of wind 3 GW of waste to energy, and 1 GW of geothermal energy.

While achieving these targets, the government also plans to address the larger goal of boosting the local economy, and has come out with a white paper detailing the proposed competitive procurement process. The procurement has been designed to not only get the most competitive price for the projects, but it also has check-in mechanisms to ensure promotion of local content. Some of the salient features of the procurement programme are:

  1. Project bids will be assessed based on price as well as “rated criteria,” which include the developer’s financial capability, experience, development status, and the project’s local content. The rated criteria will have 30% weightage in the overall bid score.
    • The local content will be evaluated as a percentage of local spend from the overall project budget, and bidders achieving 60% local content will be rated highest.
    • The local content requirement will encourage bidders to launch joint ventures with local players and establish manufacturing plants, which will give a fillip to the local economy.
  2. The project winners will also be required to invest back in the local economy through training facilities, research advice, and procurement from local manufacturers.
  3. Two separate funds sourced by taxing project revenue have been created to train local employees on solar PV and CSP technologies, and fund local renewable energy R&D projects.
  4. Developers are incentivized for employing local labour – employers who are top 5% in terms of local jobs will be compensated higher than average for every employee.

We believe that these features can help Saudi Arabia address its larger problems of unemployment and lack of entrepreneurship culture, to a certain extent and other MENA countries facing similar problems can learn from them.

SourceREN21, K.A.CARE

The article was originally published at: Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review