Will GCC’s Renewable Energy Projects Feel The Oil Drop Pinch?

The sharp drop in crude oil prices over the last 10 months has caused chaos in the energy markets, with oil-exporting countries, in particular, struggling to cope with new price lows.

While oil prices have stopped their free-fall and have steadily stabilised since touching near-six year lows in January, most GCC countries have emphasised that any bearing on planned energy projects will be minimal.

“We expect there to be minimal impact from falling oil prices on planned renewable projects,” agreed Mohammed Atif, regional manager, Energy, Middle East, DNV GL.

“There is a possibility that renewable projects are accelerated in order to allow oil/gas exporting states to boost exports of high value refined products,” he said.

Micheal Taylor, senior analyst at the International Renewable Energy Agency (IRENA) also stressed that current low oil prices have to put be in the context of long-term investment in the energy sector.

“Prices are always volatile; they are just as likely to go up as down. But for long-term investments, you have to think what are the costs going to be over 20 years. The advantage with renewables is that you can lock in costs over that time period and you are not exposed to price volatility,” he explained.

Most development in renewable energy is happening in the power generation sector and currently, only five per cent of electricity globally is generated using oil.

“The overall message is that the drop in oil prices doesn’t affect the fundamental competitiveness of renewable energy. It could cause policy markers to delay actions which are essential because the pressure is off, but the reality is that nothing has changed,” said Taylor.

Reda El Chaar, chairman, Access Power MEA, added: “If anything, the recent drop in oil prices serves as a reminder that countries need to expand their energy mix and take renewable energy projects more seriously.”

GROWING TARGETS

Mirroring the growth of renewables worldwide, the GCC region has also set new targets, focusing specifically on solar because of regional weather conditions.

The UAE has been particularly ambitious with its renewable energy strategy, with Abu Dhabi-based clean energy company Masdar playing a major role in funding and developing wind and solar projects across the world.

The UAE capital, which also serves as the headquarters for IRENA, has committed to secure seven per cent of its total energy needs from renewable sources by 2020.

Neighbouring Dubai recently increased its targets, and aims to have renewables contribute to seven per cent of its energy mix by 2020 and 15 per cent by 2030, up from one per cent and five per cent respectively.

Saeed Mohammad Al Tayer, managing director and CEO of Dubai Water and Electricity Authority (DEWA) credited the hike to falling costs within the solar generation sector.

Earlier this year, the emirate doubled the size of its planned solar plant to 200 MW after a consortium led by Saudi Arabia-based ACWA Power and Spanish engineering firm TSK offered what they claimed was the cheapest cost ever proposed to generate solar power.

The project, part of the second phase of Mohammed Bin Rashid Al Maktoum Solar Park, is the largest utility scale solar plant in the world tendered in a single phase, ACWA said.

Upon completion, the plant will produce enough electricity to power 30,000 homes every year, and will reduce carbon emissions by 469,650 tonnes of CO2 equivalent emissions for every year of operation.

“Dubai’s limited oil reserves provide a strong incentive for the emirate to develop alternative energy products. The government is aware of that and has done a good job diversifying its energy mix,” said El Chaar.

But while the UAE has been powering ahead with its renewable energy programme, Saudi has pushed back its targets.

In 2012, the Kingdom said it would install 17 GW of nuclear power and around 41 GW of solar capacity by 2032. However, speaking at the recent World Future Energy Summit in Abu Dhabi, Hashim Yamani, president of the King Abdullah City for Atomic and Renewable Energy, said that the plan has been delayed by seven years.

“We have revised the outlook together with our stakeholders to focus on 2040 as the major milestone for long-term energy planning in Saudi Arabia,” he said without offering further details.

The UAE has been moving faster than its peers for a while, admitted DNV GL’s Atif. “The UAE is driven by a vision of a more sustainable energy future and therefore many of its decisions are driven by a long-term vision.

“Saudi Arabia may well have slowed down its renewable programme principally because the initial targets set are enormous by any country’s standard,” he explained.

ROADBLOCKS PERSIST

While there is a big pool of money available to finance the right projects, well-resourced and experienced developers are required to take early- stage project risk and turn good concepts into bankable projects.

“Finding such developers remains one of the key challenges facing the renewable energy sector,” said El Chaar.

The sheer speed at which the sector is moving – with costs dropping and technology developing – is great, but it is also creating a challenge in terms of awareness and understanding, added Taylor.

“Now it’s not so much a question of the cost competitiveness. It’s about a realisation of just how cheap these technologies are. There is a significant time lag between this being real on the ground and understood by experts and the wider understanding by the public,” he said.

“We also have to deal with bringing down costs across the entire value chain, not just equipment, where you have a lot of smaller players.”

IRENA is also aiming to address policy change through its member states.

“You need to have the correct legal framework in place and there has to be coordination between planning and environment and energy security. And typically, this isn’t done particularly well,” he explained.

“When we want to see a generalisation of deployment, all those little barriers can slow it down, which means the market doesn’t take off and sustain itself.”