The low prices submitted for Abu Dhabi’s solar energy project at Sweihan were staggering, but they aren’t entirely realistic – at least not yet.
Imagine being on the market for a new car. You want the best deal and the dealership wants to have record sales. In the United States, car ads flood the media touting a vehicle is available for “as low as”. However, there isn’t a flat price for a new car as it is based on various criteria such as the buyer’s income and credit score. The salesman calculates this, gives a number and then a negotiation for a better deal begins.
Next a cash back opportunity becomes available, shaving off thousands from the overall purchase which helps to get closer to the “as low as” price on TV.
The same sort of thing is happening for Abu Dhabi’s 350-megawatt solar project in Sweihan.
A consortium of Japan’s Marubeni and China’s Jinko came in saying that they could produce solar power in the emirate costing the power utility, Abu Dhabi Electricity and Water Authority (Adwea), as little as 2.42 US cents per kilowatt hour. Next up was Abu Dhabi’s very own Masdar, with its partners, touting a price of 2.54 cents.
This drove many in the industry to question the possibility of such a price, but the thing to bear in mind is that Adwea is offering a rebate of sorts. Once the plant begins producing electricity, Adwea will pay 1.6 times more for the power during the peak months from June to September, according to the guidelines set out in the request for proposal obtained by The National.
“I think the coverage of this as 2.42 cents per kWh solar is probably misleading,” said Jenny Chase, solar analyst for Bloomberg New Energy Finance. She said the higher payment during the summer months was a positive move similar to other countries with successful renewable energy programmes.
South Africa pays nearly three times more than the awarded bid price for power delivered during the evening peak demand. The current solar world record holder, Chile, tenders different blocks depending on the time of delivery — meaning the utility pays more during certain times.
Adwea set the project’s internal rate of return at 7 per cent, unlike Dubai’s 10 per cent standard. Mohammed Atif, the Middle East and Africa regional manager for energy consultancy DNV GL, said this could present an opportunity to submit a lower offer.
While the low numbers coming in for the solar sector may not be a world record when all is said and done, these prices are still cheaper than power generation from natural gas, which runs around 6 cents.
But are these new guidelines the beginning of a UAE demand response programme?
Under such programmes, producers are paid more for power that they produce at peak times.
Electricity demand in the Mena region is set to continue growing by 7 per cent annually, and a heightened focus on power generation is a necessity.
Abu Dhabi’s peak electricity generation passed 10 gigawatts for the first time four years ago, with 80 per cent of that for the emirate itself, while the rest was exported to its neighbouring emirates. Only Saudi Arabia and Kuwait have peak electricity generations greater than 10GW, according to Adwea.
The problem is there needs to be enough power to generate for those times, like in summer when everyone is using an air conditioner, when the rest of the year that power sits idle.
But a demand response programme is about cutting the peak, said Mr Atif. “If in those months you’re paying more for power, you want to make that energy as available as possible,” he said.
Using cheaper solar during those months will cut the need for more natural gas to fill the increased power demand. There is also another reason — by paying more for peak-period power, Adwea basically incentivises plant operators to ensure that maintenance — which includes optimisation — is done outside that time period.
This may also give a producer more of a push to make tweaks to boost production. Mr Atif said it could change the whole operational paradigm.
Whether or not solar power in the UAE will really be provided at prices as low as the numbers released last week doesn’t negate the fact that solar power in the UAE is cheap. But what will be interesting is if Abu Dhabi’s ‘summer months special” make their way into other places throughout the region.
LeAnne Graves covers renewable energy for The National.
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