Comments - Sustainable Business Financing

Perspective: Cost-competitive renewables in the spotlight

Abu Dhabi, 19 June 2016

Have you noticed a subtle shift in the media’s coverage of renewables over the past few months? Whilst COP 21 and the international community’s commitments to reduce GHG emissions sets the policy backdrop, and of course the need to decarbonise the global economy remains as pressing as ever, it seems to us that renewables are increasingly being profiled in a new light: one with a much greater emphasis on clean energy’s cost competitiveness where its role in the energy mix of the future is as much based on sound economics as on environmental imperatives - Irena says renewable energy costs set to tumble as UAE plays major role.
This shouldn’t surprise us in the GCC. Dubai’s last two forays into utility scale solar projects have brought world record low tariffs (albeit the sub 3 cents per kWh levellised cost for Dubai’s latest project hasn’t yet been confirmed). Many in the industry expect an even lower tariff for the Abu Dhabi Sweihan solar project which is currently in procurement.

So what is driving this?

In the photovoltaic sector, up-sizing projects allowing economies of scale has accelerated the ever-reducing cost of solar unit costs and cyclically low commodity prices have helped to minimise the costs that make up the balance of plant. But other drivers have been important, such as the availability to GCC states of low cost and long tenor capital and the emergence of a super-competitive market of regional renewable developers.

DEWA - Dubai’s state-owned utility - has announced plans for the procurement of a concentrated solar power project and has already set out its expectation that the project’s tariff will be a new low.
Can Dubai achieve a hat trick of world records for its renewables projects? Given its track record, we certainly wouldn’t bet against this.
To find out more on NBAD’s view, read our Financing the Future of Energy Report.

Nathan Weatherstone, Head of Sustainable Business

For previous comments on sustainability news, please click here.

A paradigm shift in the cost of renewables?

Dubai, 3 May 2016

If a week is a long time in politics, then things tends to move at a more sedate pace in the field of utilities procurement although events over the past few days have the potential to turn the industry on its head in the GCC. If the results of the latest round of competitive tendering in Dubai are confirmed - for Phase III of the Mohammed bin Rashid Al Maktoum solar park - then the 3 cents per kWh offered by a consortium of Masdar, Abdul Latif Jameel and Fotowatio Renewable Ventures will be a world record low tariff. Industry commentators no longer have need to question the place of renewables in the future energy mix but may instead begin to question at what level of tariff the economic viability of delivering solar becomes impaired.

From a market perspective, consider this. Based on the information released to date, five tenderers submitted proposals. Five well respected and internationally successful consortia. The divergence between the most and least competitive was a 49% and there was a 21% variance between first and second place. To some extent, this is indicative of a regional market in utility scale solar photovoltaics that has yet to reach maturity.

But more generally, what does this mean? In March 2015, we commissioned our Financing the Future of Energy report from the University of Cambridge and PricewaterhouseCoopers. This told us that the then world record PV tariff – at the time just under six cents per kilowatt hour at the time – was the equivalent of generating power using oil at ten dollars per barrel or gas at five dollars per million BTU. I called PwC yesterday for an update and although the current tariffs are not related to their earlier work in a linear way and they are still crunching the numbers, they think that the equivalent values might come out at around five dollars for oil and between two and a half and three dollars for gas. At these levels, the debate around the economic competitiveness of solar is over.

Last year, our thinking was that cost is no longer a reason not to proceed with renewables. Now it appears to us that cost - low cost - is a positive motivation to promote more renewables, particularly photovoltaics at utility scale. That’s quite a shift in a short space of time. With Abu Dhabi having recently launched a solar project procurement, we’ll find out later this year if the trend for declining costs and increasing competitiveness is enduring.

Nathan Weatherstone, Head of Sustainable Business