The trendiest term in the energy realm could be diversification, and a major player in diversifying the global energy mix is the renewables sector.
Look at it this way: internet searches for “energy diversification” spiked in December 2011, according to Google Trends. The analytical tool calculates how often a particular search item is entered relative to the total search volume across various global regions and languages.
Investment in the sector reached a record US$317.9 billion in 2011, but the following two years saw declines. Global renewable energy investments dropped in 2012 to $286.2bn and last year declined further at $254bn.
Move ahead to mid-2013, and “energy diversification” was once again a rising search term. But was that popular interest a precursor to a renewed investment climate?
It’s a little too early to tell.
Although this year’s figures have not been released, the International Energy Agency (IEA) said last month that renewable energy technologies were gaining ground at a rapid pace. This is, in part, helped by falling costs and subsidies which were estimated at $120bn last year.
One example comes from Germany as it began cutting renewable energy subsidies that had been in place since 1991 and grown to cost the government €24bn a year, according to Germany’s ministry of economy.
The German chancellor, Angela Merkel, began making strides to increase the country’s renewable energy power generation from about 27 per cent to 80 per cent by 2050.
The IEA's World Energy Outlook 2014 said that renewables, in addition to nuclear energy, would hold an equal place in the world energy supply by 2040 with oil, natural gas and coal.
However, sentiment is shifting somewhat. In a World Bank paper, “The Impact of Lower Oil Prices on Renewable Energy”, the 45 per cent slide in crude this year is expected to hurt the economic viability of renewable energy technologies for large-scale projects.
Small-scale and rural applications are less likely to be affected, according to the report.
Solar and wind could be major players next year, according to the global energy consultancy GlobalData. Of the global renewable energy mix, onshore wind is expected to make up 40 per cent and solar photovoltaic (PV) is expected to grow from 20 per cent to more than 30 per cent by 2025.
Naturally solar energy would be expected to play an even larger role in the Mena region. The World Bank estimates that the region receives between 22 and 26 per cent of all solar energy hitting the earth. This is equivalent to a potential for solar energy per square kilometre annually to the energy produced from 1 million to 2 million barrels of oil.
GlobalData projects that over the next two decades, $40-60 million of solar investment could funnel into the Mena region. A vital component to a renewable energy surge is governmental policy. Solar energy in the UAE makes up less than 1 per cent of the country’s total installed power generation, but the government has increased solar initiatives considerably since 2000. The country plans to diversify its energy mix by incorporating clean energy projects that will total 24 per cent by 2020.
The Solar GCC Alliance said UAE facilities accounted for more than half of the solar power capacity in the GCC and Levant. While the country failed to add any additional renewable energy capacityto the grid this year, it did make international waves in the industry. The biggest news came from the tender of the second phase of the Mohammed bin Rashid Al Maktoum solar park.
The Riyadh-based Acwa Power bid an unprecedented and unsubsidised 5.98 US cents per kilowatt hour (kWh) for the 100 megawatt (MW) phase with the second lowest bid coming in at 6.13 cents. Previously, the lowest bids seen in solar power were found in Brazil and India at 8 and 9 cents per kWh.
Moritz Borgmann, a partner at the Berlin-based consultancy Apricum, said that this was a major turning point for not only the UAE but the region. “This tender was a welcome opportunity for the international PV developer community and many aspiring local players, starved by years of unfulfilled hopes for large-scale projects in the Gulf region,” he said.
The Abu Dhabi-based International Renewable Energy Agency (Irena) said that the low bids signalled the cost competitiveness of renewables.
“While the low tender does not necessarily indicate a global breakthrough, a project that is tendered at under 6 cents per kWh is a clear signal that the downward renewable energy price trends we are witnessing in other parts of the world are now coming to the UAE,” said Dolf Gielen, the Irena director of innovation and technology.
Ankit Mathur, GlobalData’s project manager for alternative energy, said that the UAE government needed to drive technology so local manufacturers could play a larger role in the country’s renewable energy sector.
“The Gulf has turned interested into renewable energy and started rolling out five and 10 year plans,” the analyst said.
“Governments, in order to give the best possible push to renewable energy, are also asking many companies to bring manufacturing facilities.”
GlobalData said that 3-4 gigawatts of solar will be installed in the Mena region by next year. What underpins this expectation is the likelihood of a coming boom in solar manufacturing in the region.
“We see the solar supply chain to be the most dynamic,” said Mr Mathur.
What could be the biggest news on the UAE horizon is the possibility of a renewable energy feed-in tariff (FiT), or a financial mechanism to help jump-start renewable energy.
Under a FiT, long-term agreements are made based on how much it would cost to produce renewable energy and feed it into the national grid. This makes investing more attractive as producers are shielded from some of the risks in renewable energy production as well as offering a cost-comparative scenario to that of conventional power generation such as natural gas or coal.
A FiT would provide a financial incentive to get renewable energy off the ground.
“Once all these policies are in place, local manufacturers will play a significant role,” Mr Mathur said. The short-term outlook for the UAE, according to GlobalData, could put 100MW of renewable energy come online next year. Mr Mathur sees that breaking down as 70 per cent solar and 30 per cent wind power.
About 90MW to 100MW of solar capacity could be added to the UAE’s grid by 2017, but GlobalData does not foresee any additional wind projects coming online between 2015 and 2017.
GlobalData said that in order for there to be renewable energy connectivity to the grid, the infrastructure needed to be built, which required government legislation.
“Renewable energy targets set by the UAE can only be achieved by implementing government policies,” Mr Mathur said.
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