To find out more about the region’s latest trends and forecasts, New Energy Update invited key project partners to the MENA New Energy CSP, PV, wind and energy storage conference and exhibition held in Dubai this year.
The Middle East and North Africa (MENA) is rapidly emerging as one of the most exciting new regions worldwide for renewable energy development, with plans for major CSP, PV and wind procurements in many markets. Countries such the United Arab Emirates (UAE) have already drawn significant interest through ongoing procurement programmes, and as development finance institution (DFI) funding gives way to more traditional financing there is growing appetite for projects elsewhere.
Winners and losers in the region
The MENA region has had a chequered history of renewables adoption to date.
But as Wim Alen, senior vice president of business development at Engie, points out: “It’s not so much about winners and losers, it’s merely about early adopters and followers. We have, clearly, a number of countries which have been spearheading the adoption of renewables if you look across the MENA region. We can say the UAE was certainly at the forefront, starting very small with an 11 MW [of PV] a number of years ago.”
Since then, he says, the UAE has been testing the waters with new technologies, for such as CSP, and increasing the scale of projects. This has helped the market benefit from economies of scale and improved learning. “The UAE was instrumental in showing to the world what prices you can achieve when you deploy well-designed tenders,” says Erik Becker, manager for Middle East and North Africa infrastructure at the World Bank Group’s International Finance Corporation (IFC).
Jordan, in contrast, has invested heavily in the planning of projects to develop tender programs with a minimum of trial and error. The latest example of this is in its current battery storage tender, which has seen 25 companies pre-qualifying. “They moved ahead without any support mechanism in place, and really managed to be rewarded,” notes Becker.
Morocco, meanwhile, has adopted various strategies for renewables procurement. Wind projects have been procur Assessment of storage Dr Andrea Lovato, vice president and head of renewable development for ACWA Power, sees continuing opportunities for CSP alongside the move to distributed energy. “I would not see batteries in competition with CSP,” he says. Instead, “CSP competes with combined cycle [gas plants].”
Alen confirms that batteries and CSP-based storage will likely occupy separate niches in MENA.
“Batteries are not yet at a level where they can be applied at the scale CSP where can be deployed,” he says. “Battery storage is merely something to manage constraints at a given point in time.”
Growth potential Overall, the largest opportunity in the region is expected to come from Saudi Arabia. The country is discussing procurement of 9.3 GW of utility-scale solar and wind by 2025, says Lovato, along with CSP capacity that could be procured next year. The country is also opening up to distributed systems and microgrids.
The exact scale of this opportunity might depend not only on the support available for renewables but also on the phasing out of diesel subsidies, particularly for generation systems in off-grid environments. But Lovato said Saudi Arabia may have the potential to export renewably-produced electricity in the same way as it currently exports oil.
Elsewhere, Oman is emerging as a promising market for wind and solar, the UAE is looking for 5.4 GW of capacity near Dubai and demand for renewables is growing in Jordan, Egypt and Morocco. Beyond these frontrunning markets, “Algeria is a country that is very interesting in terms of renewables,” says Lovato, and Tunisia offers potential for market development.
One particularly interesting opportunity is the storage tender in Jordan. Al Azzam confirms that the tender would focus on a site in the north of the country and not in Ma’an as originally announced. The structure of the contracts would be more like a lease agreement than a PPA, she says. “We will allow the developers to submit comments on this agreement because we want to learn from this,” she says.
Technical and financial offers are due in in July 2018, she says ed on a traditional request-for-proposals basis, while the Moroccan Agency for Sustainable Energy “looked into more challenging technology, with CSP, and funding which was provided by DFIs,” says Alen.
On top of this, developers have been permitted to sign independent power-purchase agreements (PPAs) with industrial off-takers. “We have seen different models across the region,” says Alen. “All of them had their challenges at the beginning.”
Early adopters may have seen delays in projects reaching financial close and commissioning, he says. But the upside is that other MENA markets have been able to learn from the experience of these early adopters. Newer markets are thus able to ramp up more quickly, he says. “Countries are beginning to talk to each other and learn from each other,” comments Becker.
How projects are funded
One of the early challenges facing MENA markets was on the financing side, according to Becker. Project financing is generally seen as a good way to fund large infrastructure projects, but it comes with high transaction costs, making it unsuitable for MENA projects that were split into lots.
To assist MENA developers, the IFC came up with a financing model that preserved many of the benefits of project finance but was more streamlined and thus had lower transaction costs. Another problem that has been seen in Jordan is that the main resource centres for wind generation are far from where energy is consumed.
Jordan is overcoming this by balancing wind projects with distributed generation, particularly solar, says Amani Al Azzam, Secretary General of Jordan’s Ministry of Energy and Mineral Resources. The country is also planning upgrades to the grid, including the development of ‘green corridors’ linking production and consumption centres. “It’s one of the main challenges,” Al Azzam says. “We have to make sure there are no stability challenges.”
One potential issue that does not seem to have materialised in a significant way is the impact of harsh desert conditions on solar plants. According to Sami Khoreibi, CEO of Enviromena Power Systems, a photovoltaic system integrator which manages 700 MW of solar power across eight countries, dust storms are an issue to be wary of.
But their impact on production is no worse than that of cloud clover in more northerly latitudes. “You do have to keep the modules clean,” Khoreibi says, but “it’s like a window-washing schedule in a building. Ultimately it is quite straightforward to model.”
The shift to distributed systems
Distributed energy generation is growing in importance across the MENA region, says Khoreibi. This is being driven by cost.
“We are a much lower-cost technology compared to retail electricity,” he says. “In Dubai, for example, solar is being produced at 25% to 40% lower cost than retail electricity.”
Similar to what has happened with project finance, Khoreibi says there is growing standardisation of lease agreements for distributed projects. “Once we see full standardisation of commercial agreements, we expect to see a very significant rollout, starting out with Dubai,” he says. “We’re talking about gigawatts across these programmes.”
The UAE alone has more than 1 GW of potential small-scale solar capacity, he says. The Saudi Arabian market has also recently opened up to small-scale solar, and opportunities exist in Oman and Bahrain. Oman’s programme includes an opportunity to integrate solar panels with storage and make a profit from energy pricing arbitrage.
Assessment of storage
Dr Andrea Lovato, vice president and head of renewable development for ACWA Power, sees continuing opportunities for CSP alongside the move to distributed energy. “I would not see batteries in competition with CSP,” he says. Instead, “CSP competes with combined cycle [gas plants].”
Alen confirms that batteries and CSP-based storage will likely occupy separate niches in MENA. “Batteries are not yet at a level where they can be applied at the scale CSP where can be deployed,” he says. “Battery storage is merely something to manage constraints at a given point in time.” Growth potential Overall, the largest opportunity in the region is expected to come from Saudi Arabia. The country is discussing procurement of 9.3 GW of utility-scale solar and wind by 2025, says Lovato, along with CSP capacity that could be procured next year. The country is also opening up to distributed systems and microgrids.
The exact scale of this opportunity might depend not only on the support available for renewables but also on the phasing out of diesel subsidies, particularly for generation systems in off-grid environments. But Lovato said Saudi Arabia may have the potential to export renewably-produced electricity in the same way as it currently exports oil.
Elsewhere, Oman is emerging as a promising market for wind and solar, the UAE is looking for 5.4 GW of capacity near Dubai and demand for renewables is growing in Jordan, Egypt and Morocco. Beyond these frontrunning markets, “Algeria is a country that is very interesting in terms of renewables,” says Lovato, and Tunisia offers potential for market development.
One particularly interesting opportunity is the storage tender in Jordan. Al Azzam confirms that the tender would focus on a site in the north of the country and not in Ma’an as originally announced. The structure of the contracts would be more like a lease agreement than a PPA, she says. “We will allow the developers to submit comments on this agreement because we want to learn from this,” she says.
What programmes work best?
While having roughly homogeneous climatic conditions, the MENA region offers a range of contrasting models for renewable energy adoption. Alen says this diversity of models is understandable. “There is no one-sizefits-all kind of programme anymore,” he says. “It all will depend on where you sit. If you’re in the UAE with a fully interconnected system, it makes a lot of sense to invest in large-scale projects because you can capture economies of scale and ride the cost curve.”
But in markets such as Saudi Arabia or Oman, which are not yet fully grid interconnected, a more decentralised adoption model might be more appropriate. There is also growing diversity in the energy markets on offer across MENA. While all MENA markets currently operate on a single offtaker basis, in Oman there are moves to introduce a spot market which may create opportunities for decentralised renewable generation.
Similarly, the UAE is moving to bring in net metering. On the procurement side, meanwhile, MENA markets are following a global trend away from feed-in tariffs and towards competitive tenders and reverse auctions. “Both options have their merits,” says Alen.