Low oil prices present an opportunity for some parts of the Middle East energy sector.
I run Enviromena; we build solar power plants throughout the region and we expect an over 1,000-percent rise in solar deployment in 2016.
A sharp fall in the price of hydrocarbons is assumed to have a negative effect on the global deployment of solar energy, as conventional energy becomes more affordable compared to the falling cost of installing and maintaining solar plants. On the contrary, falling oil revenues incentivise GCC governments to supply low-cost solar energy to the grid, as it is an efficient way to reduce their tightened budget spending on energy subsidies. A significant percentage of GCC GDP is spent on subsidising traditional forms of energy production (6 percent and 10 percent of GDP in the UAE and KSA respectively).
2015 saw record low prices for solar energy in the UAE and Jordan, two countries that are aggressively pursuing large-scale solar deployment to alleviate dependency on higher cost alternatives. With over one gigawatt of projects expected to be awarded across MENA in 2016, solar is allowing the region to address its growing energy demand in a fashion that does not require additional spend on energy subsidies.
2016 will be the year in which several hundred megawatts of new solar capacity will be added to the Jordanian grid. Historically, Jordan had addressed its power needs through subsidised Egyptian gas piped in via Syria, which has been disrupted in both countries. Today, the production cost of imported hydrocarbon-based electricity in Jordan is approximately 19 US cents per kilowatt-hour, compared to solar at 6.5 US cents. As a cheaper, more secure, and more reliable source of electricity, solar will continue to play an increasingly larger role in Jordan’s power portfolio. And with excellent solar resource and proactive government programmes, it would not be surprising to see Jordan become an exporter of solar electricity to its neighbours in the long term.
The UAE has been a clear pioneer in the adaptation of solar technologies, starting with the connection of the first utility scale solar plant in the region in Abu Dhabi in 2008. In 2015, Dubai awarded a record-setting low-cost tariff with phase one of the Mohammed Bin Rashid Al Maktoum Solar Park at 5.6 US cents per kilowatt-hour. This price proved that the private sector can deliver unsubsidised solar power at a cheaper price than the majority of traditional forms of energy currently being used in the UAE. I believe this was a catalyst for the announcement of 800MW solar plant in Dubai for 2016, and has made the UAE a leader in the regional race for solar capacity, for now.
His Highness Mohamed Bin Rashid Al Maktoum’s recently announced plans for all rooftops to have solar by 2030 further highlights Dubai’s commitment to renewable energy and the commercial viability of solar.
Reduced oil revenue in 2016 will likely see government spending cuts across the region. Energy subsidies represent one of the largest and least efficient allocations of government money, but also one of the most difficult to roll back. By delivering low-cost electricity and freeing up budgets from subsidies, solar deployment can play an active role in regional economic reform and diversification.
So despite low oil prices, 2016 is expected to be a record-setting year for Enviromena and the MENA solar industry.
Sami Khoreibi, CEO of Enviromena