By Ed Attwood
The ramping down of electricity subsidies and the subsequent pressure on Gulf government budgets could — finally — prove to be a tipping point for solar power, says Abdul Latif Jameel Energy boss Robert De Diego Arozamena
I think we’re kidding ourselves when we live in a subsidised environment,” says Roberto De Diego Arozamena.
For Arozamena, the man who is spearheading Saudi conglomerate Abdul Latif Jameel’s push into renewable energy, the Gulf’s recent roll-back of subsidies could prove to be the tipping point for greater solar power use in the region.
“There’s been no perceived economic benefit [from solar] because electricity is subsidised,” he adds. “Now, as you move that subsidy towards the retail side of things, and also as you start to price electricity generation at standard field prices, then solar is very competitive.”
The catalyst for renewed hope for renewables has been the collapse in the oil price. That has left policymakers across the Gulf struggling to cope with a new era of budget deficits, forcing them to remove subsidies for both citizens and industries.
Last week, the Abu Dhabi-based International Renewable Energy Agency (IRENA) said that simply by achieving the green energy targets they have already set themselves, the six GCC nations could save as much $87bn by 2030 from the subsequent lower consumption of oil and gas.
“The price [to produce electricity] is stable over a long period of time — it’s not fluctuating like the cost of fuel,” Arozamena adds. “And you’re also not depending on third parties. You’re generating your own electricity in your own geography, so you don’t have to deal with imports from different countries. It makes you more free.”
Until now, Abdul Latif Jameel (ALJ) has perhaps been known better as one of the world’s largest Toyota distributors. The company, founded 70 years ago by chairman Mohammed Abdul Latif Jameel’s late father, now distributes cars in ten countries and is one of Saudi Arabia’s most recognisable brands. Its Bab Rizq Jameel programme has helped to create nearly half a million job opportunities across the MENA region. But more recently, ALJ has also focussed on diversification, creating a joint venture with Dubai developer Emaar in 2014 to develop top-drawer property projects.
At around the same time Abdul Latif Jameel Energy was born, with Arozamena, a Spanish national with extensive experience in the telecoms and cleantech fields, taking over as CEO. The company’s current focus is on photovoltaic (PV) panels, through its joint venture with — and then purchase of — Spanish solar project developer Fotowatio Renewable Ventures (FRV).
The acquisition leaves ALJ Energy with a 4.3 gigawatt (GW) pipeline of PV power projects across the world, with the geographical split roughly equal between South America, Australia and the Middle East and South Africa.
In the Gulf, the UAE has been leading the charge when it comes to actual development of solar power capacity. Back in 2013, Abu Dhabi’s Masdar opened Shams 1, a 100 megawatt (MW) concentrating solar power (CSP) that reports suggest is actually producing 125MW capacity on peak days.
The Dubai Electricity and Water Authority (DEWA)’s Mohammed Bin Rashid Al Maktoum solar park was expected to reach 3,000MW of capacity by 2030, but the government lifted that target to 5,000MW in December. In total, the emirate is planning for 25 percent of its electricity to be generated from solar in 15 years’ time.
Speaking during the World Future Energy Congress in Abu Dhabi last week, the UAE’s Minister of Environment and Water, Rashid Bin Fahd, said that the country has a whole was set to exceed what he described as a ‘conservative’ plan to have 24 percent of its electricity coming from renewable energy sources by 2021.
Dubai’s solar power plans are already breaking records. In November 2014, Saudi Arabia’s ACWA Power won a bid for a 100MW PV project at the city’s solar park by bidding at just 5.8 US cents per kilowatt hour. That sum was a world record, drawing scepticism from many in the global industry that any firm could make the project viable on that price. Arozamena points out that some of the tenders for the hugely competitive bid were priced at 11 cents/kWh, showing the huge discrepancy between solar players.
“Here in Dubai, the conditions to achieve those prices were multiple,” he says. “One of them was very low development expenses. Dubai has assigned a piece of land, the substation is on the site, it’s a flat piece of land and it’s close to Dubai.
“The financing was very aggressive from local banks, and the tenor was 25 years. All these things combined together — plus good pricing from EPC [engineering, procurement and construction] and equipment providers — allowed us to achieve that price.”
ALJ Energy, which had the second-lowest price bid for that tender, is right now sharpening its pencil for the third phase of the same project — an 800MW plant.
“Next time round, the price will continue to go down and we expect that price to be beat in the next round,” Arozamena says. “It’s not going to go to zero, obviously, and will eventually taper off because of manufacturing costs. At the same time as the modules improve in efficiency, then the unit cost goes down. That has an effect on the whole plant — there’s less cabling, less structure.”
Elsewhere in the Gulf, the story is not quite so strong. Saudi Arabia has had lofty ambitions when it comes to renewable energy. Back in 2012, the King Abdullah City for Atomic and Renewable Energy (KA-Care) — the body tasked with weaning the kingdom away from the expensive practice of burning oil to produce electricity — announced that it would spend almost $110bn on 41 gigawatts (GW) of capacity in a bid to supply a third of Saudi Arabia’s electricity by 2032.
Since then, however, the only news that has come out of the country is a delay on that target to 2040. In 2014, the man tasked with bringing those solar energy goals to fruition, KA-Care’s Khalid Al Sulaiman, quit and no replacement has been named.
Arozamena argues that Saudi Arabia’s solar future is assured — but it’s just a question of time.
“Saudi Arabia is a consensus-based society — many different entities have to agree as to how to implement the programme,” he explains. “But I think they are serious about it — they have huge capabilities in terms of sun and land.
“They have a higher population than other countries in the region, so they have higher power needs and greater desalination requirements. It’s just a matter of when.”
To date, Saudi Arabia’s addiction to burning off its precious oil wealth in its power plants has been fed by subsidies. State-owned utility Saudi Electricity Company’s calculations over the cost of electricity are based on the artificially low price of its feedstock, but an announcement made after the 2016 budget was published made it clear that the subsidy for this fuel would be phased out.
“As that gets normalised, the business case for renewable energy is apparent,” Arozamena says. “It’s already there, it’s a matter of being able to understand that when you are using a barrel of oil to burn for electricity, that’s a barrel of oil you’re not selling in the [export] market.”
That being said, there are signs that the Saudi government is putting its renewable energy plans back into gear. As part of the 2016 budget announcement, a new line item was introduced by the Ministry of Finance, including an allocation for KA-Care. Any plan to push on with green energy or nuclear power plans would also fit in with the government’s stated aims to conserve its natural resources.
As a Saudi company, ALJ Energy is hoping to play its part in the country’s greener future. It is building a new logistics centre in King Abdullah Economic City, just north of Jeddah and Arozamena is also not ruling out the possibility of building a manufacturing plant in the kingdom.
“We will only set up a manufacturing facility if it’s world-class cost, and if we’re able to manufacture in Saudi for export,” he explains. “If we’re able to do that, then we’ll naturally address the local market when the programme starts. But we will not invest in manufacturing at a higher cost than the price of the panels we are buying today because then the jobs would not be sustainable.”
As well as the DEWA solar park tender, ALJ Energy will also be bidding on projects as diverse as Abu Dhabi’s 350MW PV project in Sweihan and plants in Morocco this year.
“There’s more in Egypt, but there we are being cautious because of the exchange rate,” Arozamena says. “And there might be more in Jordan. We’re progressing well in sub-Saharan Africa, and bidding more in South Africa as well.
“Then, outside of the region, we’ve submitted a bid in Peru, we’ll be submitting in Mexico. We have several solar projects and possibly one wind project we’ll be presenting to the Mexican government in the first quarter. Probably by the end of January, we’ll connect our 70MW plant in Moree, Australia, and we’ll continue to bid in India and Pakistan.”
For the future, the CEO says he will be drawing on the FRV’s expertise in wind energy, and is also considering new technologies from around the world. The parent company has already founded a water and food security lab at the Massachusetts Institute of Technology (MIT), and a particular area of focus is likely to be solar desalination, an areas which is being pioneered by Abu Dhabi’s Masdar.
Solar desalination could prove a game-changer in the Gulf, where the process is vital, yet hugely expensive, even without the removal of subsidies. The aim, the CEO says, is to find a way to halve the amount of energy usually used in the reverse osmosis (RO) process.
“We are looking at other new technologies,” Arozamena says. “Probably within this year, we’ll open a pilot plant somewhere in Saudi Arabia where we can test those technologies.”
He is also planning to raise ALJ Energy’s staff numbers from the 80 people currently at FRV to more than 125 by the end of this year. However, the CEO does not say when the division is likely to break even.
“It’s not going to take too long. Our business model is to develop the plants, finance them, build them, and once they are operational, we sell the assets and keep the operation and maintenance,” Arozamena adds.
“We should be a significant contributor to the group and in different areas — not only in generation but also waste management, oil recovery services, and desalination. The idea is not to sell technology — we want to sell services.”