Rising energy costs could mean bright future for solar

Solar power may be the only answer to the UAE's growing energy demand.

Looking at how much energy Abu Dhabi consumed last year, we could be forgiven for thinking that the global economic slowdown never made it to the UAE. In 2010, peak electricity demand in the capital ballooned by more than 11 per cent, one of the highest rates in the world. And according to official government forecasts, demand is expected to continue growing at a double-digit pace until at least 2019.

The surge in demand is fueled by rapid growth in an industrial sector that includes aluminium smelters and petrochemical plants, residential and commercial mega-projects and higher requirements from ADNOC for oil and gas production. Larger transfers to the Northern Emirates also made up the increase. A spike in oil prices linked to ongoing regional unrest is likely to fan this growth further.

The big question is: Will supply keep up with demand?

Price spikes and shortages mean that traditional sources of power are becoming more expensive. That, in turn, means that the UAE needs to diversify its basket of energy production - and solar is increasingly becoming a more attractive option. In fact, the first day of the 2011 Arabian Power and Water Summit that kicks off in Abu Dhabi on Sunday is dedicated entirely to solar power.

Why do we need alternatives? In part, it is because most of the power plants in the UAE run on natural gas. And despite sitting on the world's fourth largest natural gas reserves, the UAE is finding it hard to get the stuff out of the ground fast enough.

The problem is due to the country's sub-surface DNA. A significant portion of the gas reserves are in associated oil deposits. That makes gas production more challenging; a bit like trying to eat jelly using a straw. Much of the gas is also sour - high in sulphur content - making it more costly to extract and process.

Faced with periodic domestic shortages of gas and an inability to source cheap gas within the region, Abu Dhabi has had to turn to diesel. The trouble with using diesel is that it's more costly and carbon emissions are higher. For example, the cost of producing electricity in Abu Dhabi using a conventional gas-fired power plant is 11 fils per kilowatt hour (kWh). Diesel costs roughly quadruple that amount. In the Northern Emirates, where diesel generators are typically older and less efficient, the cost can be as high as 80 fils/kWh.

As a result, each year the Abu Dhabi Government has to spend billions of dirhams on diesel fuel to keep power plants running during peak demand periods. And as demand continues to rise, so too will the heavy financial burden.

Fortunately, there are some simple steps that can be taken to remedy this energy challenge. One option is to bring utility prices closer to the cost of production and distribution. Right now, the Government subsidises water and electricity costs by as much as 100 per cent depending on the end-user. That means Abu Dhabi residents only pay a fraction of what their European counterparts pay for electricity. So it naturally leads to inefficiencies and wastage. If electricity wasn't so cheap, or in some cases free, people would use it more carefully. Demand could stabilise, thereby putting less strain on reserves. Despite the simplicity of such a policy, it is nevertheless politically sensitive and will probably take several years to roll out.

An easier short-term option is to turn to renewable energy, particularly solar. This country is blessed with at least 350 sunny days a year. And the sun shines exactly when we need it most - when air conditioning units run at full capacity. With an abundance of desert land, there is no shortage of space either.

The leadership of Abu Dhabi has already taken the step of setting an ambitious renewable energy target of 7 per cent by 2020; equivalent to roughly 1,500 megawatts (MW) of renewable energy. The next step is implementation.

Earlier this month, Masdar announced the financial close of the 100 MW Shams 1 project, one of the world's largest concentrated solar power facilities and the first of its kind in the region. The key now is to keep the momentum up and deploy other similar sized solar projects in the coming years.

These solar plants won't only help cushion peak demand, but will also help the country improve its reputation as one of the largest per capita CO2 polluters in the world. The UAE currently produces more than 30 tons of CO2 per capita, second only to Qatar.

Financially, switching to solar power would for the most part be a cheaper alternative than diesel. Large-scale solar power plants can produce electricity at roughly 55 fils per kilowatt hour. Added to that, the cost of solar has dropped by roughly 10 per cent since last year, while diesel prices are expected to creep up in line with rising oil prices.

Of course, solar has its own challenges. For one, the volume of electricity generated by even large-scale solar plants is a fraction of what conventional power plants can produce. And because of the large land requirement, power plants are often far away from urban hubs, and that translates into higher transmission costs.

Despite these hurdles, solar's future looks bright. As prices continue to fall and technology continues to improve, it'll become an increasingly viable and sustainable source of energy. A telling pattern is that regional energy trade shows like the 2011 Arabian Power and Water Summit now adopt a solar component.

By championing solar power today, the government will not only help satisfy its own energy needs but will also position Abu Dhabi as a global leader in the energy of the future.

Vahid Fotuhi is the Chairman of the Emirates Solar Industry Association