The Middle East and North Africa region has seen electricity demand rise 6-8% annually for the last ten years, which is among the highest growth rates in the world. To meet this demand, Middle Eastern countries have committed to major capacity expansion plans. In 2015, Qatar, the UAE, Saudi Arabia, Kuwait, Bahrain and Oman collectively added approximately 7GW of net utility-scale power capacity.
Additionally, almost all Middle Eastern countries have been implementing energy-subsidy reforms in the last three years. The elimination of fuel and electricity subsidies in particular will help relieve the fiscal pressure that both energy importers and producers are experiencing, and it will also reveal the true cost of fossil-fuel electricity generation, facilitating the competition with renewables on an economic basis.
Renewable energy landscape: While renewable energy remains underdeveloped in the Middle East, countries in the region continue to make headlines with competitive tenders that set record-low solar and wind energy prices. For example, Dubai and Abu Dhabi’s PV auctions logged $30/MWh and $29/MWh respectively in 2016, with the region’s world-class resources, continuously declining costs of solar and wind systems and availability of cheap financing being among the most important factors behind these low bids.
Moreover, net importing countries (NICs) are pushing renewable energy development to diversify the import-dependent energy mix and address the power deficit. Saudi Arabia renewed its commitment to clean energy by launching Vision 2030, a new roadmap for restructuring the economy from state-driven to private-sector led. Jordan has also made significant progress in opening its market and attracting interest from private developers, and the UAE’s “green energy” commitment is supported by climate considerations and the paucity of domestic gas reserves. Asset-finance investment in renewables: Middle Eastern governments have prioritised investments in renewable power generation to meet rising electricity demand. By 2015, renewable energy investment had ballooned to almost 12 times its 2004 levels, despite the plunge in fossil-fuel commodity prices.
Between 2004 and 2016, almost $3bn was invested in renewable energy in the region, with 90% of investments going into solar. Solar power investments notably topped $1bn for a second year in 2016, totalling to $1.6bn, which is almost 140 times greater than investments in 2014 ($11.2mn). Countries in the Middle East are also some of the hottest markets for solar thermal electricity generation worldwide, as it offers firm turbine-generated power and 4-12 hours of storage capacity.
Overall, Middle Eastern countries are prioritising capacity expansion plans to meet rapidly rising demand for electricity. There are, however, different challenges and constraints that they need to tackle to continue to spur growth of renewable energy:
– Currency devaluation, bureaucracy, local content requirements and the lack of commitment on behalf of energy producers are the major challenges renewable energy is facing in the region.
– The establishment of a solid regulatory framework and the restructuring of the power sector are major barriers to overall development in the region.
– Energy-exporting countries still lag behind in the development of renewable energy.
– Renewable energy investments hit a record in 2015, despite the plunge in fossil-fuel commodity prices. The strong activity was mostly driven by solar installations, with solar thermal accounting for about half of it.
– Middle Eastern countries are shifting away from feed-in-tariffs and towards competitive auctions, and they continue to set global benchmarks for solar and wind development. In 2016, Abu Dhabi led the way with a record low for PV prices at $29/MWh, and Dubai followed at $30/MWh.
– The declining costs of solar and wind systems, coupled with energy subsidy reforms, are creating a new energy and economic reality in Middle Eastern economies. Today, a solar plant generates electricity more cheaply than a baseload gas plant in countries that import LNG. In countries that heavily subsidise fuel prices, like Saudi Arabia, solar energy is the cheapest way of meeting power-demand peaks. Between 2004 and 2016, almost $3bn was invested in renewable energy in the region.