For the third time in a decade, solar energy prices are tumbling in the Arabian Gulf. As demand for solar installations picks up dramatically, so falls the cost of solar energy, particularly in the Middle East.
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When it comes to the cost of energy from new power plants, onshore wind and utility-scale solar are now the cheapest sources, costing less than gas, geothermal, coal or nuclear. Ten years ago, solar was the most expensive option for building a new power plant.
In a paper published in Progress in Photovoltaics, KU researchers Dr. Harry Apostoleris, Post-Doctoral Fellow, Dr. Amal Al Ghaferi, Associate Professor, and Prof. Matteo Chiesa, Professor, show how local conditions and global macroeconomic factors have conspired to bring solar energy into a new realm of extreme affordability in the Middle East.
They argue that the Gulf market, especially the United Arab Emirates and Saudi Arabia, represents the leading edge of the global learning curve and offers a window into the likely near future of large-scale photovoltaics around the world.
As with most technologies, the more people invested in solar power, the cheaper it became. The Middle East has emerged as a global leader in photovoltaic deployment and pricing, with large utility-scale projects launched across the region.
In a previous study, the KU research team found that rapidly declining hardware prices, local business conditions, and access to generous financing packages were the major factors contributing to the low prices, with the market validating that assessment. Global average prices in comparable climates around the world have declined to nearly match the prices observed in the Gulf region, but now, countries in the GCC are seeing a new drop in prices. It is at this point that the researchers believe solar energy has solidified itself as the economically favorable energy source, continuing impressive price drops that began in 2016.
“If pricing at this level spreads around the world, simple business sense would suggest a rapid decarbonization of electricity generation, where coal and gas plants are retired as quickly as possible and replaced with photovoltaics, simply to save money,” explained Dr. Apostoleris. “The target of deep decarbonization by 2030 being held up by many climate scientists and advocates would suddenly enter the realm of feasibility with far less disruptive interventions than were previously believed necessary.”
Global learning curves are part of the cause of these price drops. The more that solar panels were produced, the more the technologies improved and economies of scale came into play. Fossil fuels in comparison can’t compete with this pace. Additionally, sunshine is free and in the Middle East, practically guaranteed every day. The costs of tapping into this solar power was bound to decline sharply as technology improved and the industry grew.
“The UAE leadership also deserves credit for recognizing the potential of solar energy and investing in it when many countries and entities were still sceptical,” said Dr. Apostoleris. “This is one of the main reasons why the UAE is ahead of the global curve in solar energy adoption.”
Often, the low prices are also secured as part of tenders for projects only implemented a couple years later, which further drives down prices for the projects to come after.
“Auction bids have been characterized by forward-looking cost projections—developers will tend to bid not based on the market price of hardware at the time of bidding, but on the prices they expect to pay a year or more in the future when the hardware is actually being ordered,” explained Dr. Apostoleris. “As strong downward pricing trends continue, this pattern of aggressive forward-bidding can be expected to hold.”
Additionally, the prominence of major international players in the Gulf’s solar development is helping to realize below-market costs. Large firms with an established presence in the region have relatively lower costs of doing business and are able to set their prices for large orders of hardware to a significant degree, and even factor in reputational elements—the ‘bragging rights’—of landing a large contract and gaining market share. Coupled with generous financing packages and a consistent solar resource, the low cost of solar energy in the Gulf begins to make sense.
“It is possible that developers accept lower margins in exchange for a benefit that larger projects provide for their overall business model,” explained Dr. Apostoleris. “The developer has its own learning curve, and building larger projects allows it to move faster down this learning curve and reduce its costs for future projects.”
For the KU researchers, the solar energy economics in the Gulf follow the same general patterns as global trends, but at a substantially advanced pace. They regard this as evidence that trends in the Gulf are best viewed not as an aberration but as an indicator of the how the global market is likely to evolve in the future.
“As the future increasingly appears to be one of previously unimaginably cheap energy, the future trajectory of this industry is exceptionally promising,” said Dr. Apostoleris. “This would herald a revolution in not only solar energy but in the energy sector generally, with a new age of ultra-cheap electricity transforming our lives, economies and environment. With such dramatic change on the horizon, it makes sense to consider the next steps to take full advantage of the coming energy transformation.”
In any energy revolution, there will be opportunities as well as challenges. Renewable energies are notoriously inconsistent throughout the day and the year, although less so in regions blessed with almost constant sunshine, such as the Middle East. The existing power grids don’t have the ability to distribute power from renewables over long distances, and storing power for use during the nights when power generation from solar is impossible is another major concern. These challenges of intermittency and geography are not insurmountable, but they do require investment to develop and build the necessary infrastructure.
“There are myriad ways to modify our energy systems to enhance the value of this low-cost solar electricity,” said Dr. Apostoleris. “This is before considering the potential of demand-side management strategies that aim to shift the energy demand curve to match the solar generation curve, minimizing the need for storage. However, this is a challenge that must be met not only from a technical perspective but also from that of society more broadly.”
It is clear that the Gulf solar market can offer a window into the likely future trajectory of photovoltaics globally. While the KU researchers point to a future of immense benefit, they also point out the challenges the market will face along the way. Thankfully, the region’s solar energy pioneers are rising to the challenge.
“Interestingly, in recent months, solar panel prices have actually risen for the first time in a decade,” added Dr. Apostoleris. “This seems to be caused by a bottleneck in the supply of polysilicon, the raw material for solar cells, as global demand increases. This might be an opportunity for the UAE to move into polysilicon production, leveraging cheap clean energy and the country’s central location to become a supplier, not just a consumer, of the solar industry.”
Researchers at Khalifa University are supporting the UAE in its advancement of regional knowledge and leadership in renewable energy, as the country announces ambitious and defined renewable energy targets. Innovative research taking place at Khalifa University is driving down costs and increasing the efficiency of solar cells, investigating the effects of climate change on renewable energy production, and even demonstrating the ability to provide solar energy 24/7.
24 May 2021