United States: Harnessing The Middle East’s Sun Power: Views From The Experts

First published in BGreen, July 2011

As Emirates Solar Industry Association (ESIA) members congregate for their board meeting, BGreen sneaks in for a few questions on one of the region's most talked about up-and-coming power sources: solar.

BG: Why have solar energy costs been traditionally so expensive?

Karel: That has mainly to do with volume in the industry. There have not been sufficient incentives put into place to drive the volume up and therefore the cost down.

Browning: Before, when you were paying 60 cents/gallon for gas, solar was just proportionally higher. Now with energy and opportunity costs being so high, that's not the case anymore. Take Saudi Arabia; why do they look at solar today? They have a booming population now that they did not have ten years ago and a rapidly expanding industrial base with increasing demand for power. Domestically, their energy costs are going through the roof. Meanwhile, the opportunity costs of using oil pumped out of the ground to produce electricity in the country, when oil is underwriting under 4$ a barrel and tittering over 100$ on an international market, are being reconsidered. Solar energy in the grand scheme starts looking a lot cheaper than it was ten years ago.

BG: So it's getting cheaper?

Browning: Well, cheaper on a production basis but also cheaper relative to other things. The delta between the cost of solar and the cost of traditional fossil fuels is narrowing. So more people will look at it. Whereas 5-10 years ago the PV production scale was much smaller, now you have massive production so the economies of scale are being enjoyed driving down prices and revealing new technologies. And different countries are reaching a point where they have grid parity.

Karel: For example Japan. Japan is already on grid parity. Currently it is cheaper for them to produce electricity from solar than getting it from a fossil fuel plant. But for other countries where you have your fossil fuels subsidised, or in Saudi Arabia where you have an enormous opportunity cost, it makes all the sense in the world to move toward solar. You can sell your oil on the international market at international prices and use solar at home. Even if solar is more expensive to produce then burning your own oil, in the end you're still making more money.

Also, people often have skewed comparisons of solar. The profile of solar costs is a lot of investment upfront but no operation or fuel costs for the next 20-30 years. Traditional energy has limited investment upfront but continuous operation and fuel costs thereafter. So if you compare them long-term, often it's not expensive but people are misled into believing it is because of the upfront cost.

Browning: With solar you have to look at the total costs of ownership over time. In this market, people look at immediate returns. When you look at solar in this region it takes a sense of projecting ahead over time to see the payback. Otherwise, there's no perceived immediate return on investment.

BG: So the fact that solar has not been more developed in the region despite the fact that we have the resources is a question of immediate returns?

Browning: It's a combination. There's also the issue of policy. But basically, they just have not had to do it. There's monopolised power authorities across the region that are built around being the single source of energy provider. The idea of distributed power - that someone else would connect to their grid - is a foreign concept. Therefore, there is no policy, no training and no human resources for solar and as a result there is no market for solar. Whatever does get done is usually a trophy project to demonstrate it can be done but there's no follow up system.

BG: Do you see that changing, especially with Saudi Arabia's recent solar plans?

Karel: Saudi Arabia is changing because they've realised they are leaving money of the table by not engaging in solar. In the UAE, you don't see it that much yet because electricity generation was traditionally based on gas which was very cheap. But as international prices rise, you see more questions asked on what alternative energies are available to the country? Very slowly, the market will change. But there's a lot of education to still be done for policymakers.

Steve: In the Middle East, we do lack a firm set renewable energy policies. At Masdar Institute we are interested in identifying the most effective policies for solar in the UAE and the region. In Europe, you have the feed-in tariffs that have been very effective. In the US, several states have adopted renewable energy quotas or portfolio standards that have attracted utility scale investment. This has led to integration across the solar supply chain because scale becomes very important. In the Emirates, we have a situation where we're looking broadly at all these different contexts to actually see what makes the most sense locally. The key theme, however, is that we need policies that will drive technology adoption until eventually certain technologies become cost-competitive on their own merits.

Jon: And following recent events in Japan, people are seriously reviewing their nuclear plans. Therefore, I think we'll see solar development accelerating because one of the advantages of solar is that it can be installed very quickly. In Saudi in particularly, they have a huge and immediate demand for power and solar could be rolled out very quickly there.

BG: So solar versus nuclear?

Vahid: Both have their merits. Nuclear is very well suited to provide base-load electricity over a 40-50 year period. But it takes over a decade to develop a nuclear program and the costs are going up due to the new safety measures that are set to be introduced following the Fukushima disaster. In comparison, large-scale solar systems can be deployed in a matter of months and costs are continuously going down. While they tend to be much smaller than nuclear plants in terms of capacity, they are well suited to satisfy 'peak demand' during the daytime. In a way, the two technologies complement each other: solar can meet your peak demand while nuclear could satisfy your base-load demand.

BG: What about nuclear waste?

Vahid: Nuclear waste has been a concern since day one. Companies and research institutes around the world have been working on this concern. At some point in the future we will see innovations that allow nuclear waste to be self-consumed at the plant. This is where the industry is heading.

BG: What's the best incentive system to encourage solar power usage in the UAE and the region?

Steven: First you need to consider whether subsidies for fossil-based power generation can be reduced in order to make renewable energy more competitive. Following this consideration I would say that a well-designed feed-in tariff is an attractive incentive system to encourage distributed solar installation. At the utility scale, however, quotas or portfolio standards can be useful for promoting large scale solar energy deployment. Within this context one can consider innovative approaches such as New Jersey's solar renewable energy credit system (SREC), which couples specific requirements for solar energy with a market mechanism that causes the most efficient suppliers of solar energy to help meet large scale solar energy deployment.

Jon: If you look back historically before renewables arrived in the region, a lot of the power generation base here was directly procured by the government or implemented through an IPP structure. Utility-scale renewable energy can be done in those ways as well. The key distinguishing feature is the tariff compared to that applicable for, say, gas which is cheaper. You have to find a way to bridge that gap because the off-takers want to pay the same price for electricity no matter how it is generated. There are plenty of alternatives and governments of the region are looking at them all. And it may not be a uniform answer across the region.

BG: Can solar power be the key to avoiding worse environmental damage than what has already been inflicted on the planet by traditional energy sources?

Steve: Recently, Masdar Institute held a panel on the sidelines of the Intergovernmental Panel on Climate Change's (IPCC) release of the Special Report on Renewable Energy and Climate Change Mitigation (SRREN). We discussed the fact that several different clean energy technologies must be implemented to bring greenhouse gas emissions to levels that will prevent global temperature increases and related climate change that would be potentially devastating to society in the future. Solar technologies are one such set of technologies but we also have to consider the reality that we're not going to eliminate fossil-based power. Therefore, approaches such as carbon capture and sequestration are also very relevant. Depending on geographic context, clean energy technologies for harvesting wind, hydro and other primary energy resources are also required. Solar definitely plays an important role but there's not just one key group of technologies. Many will have to come together.

Karel: The contribution of solar is very small but it is very visual. Therefore, it helps to create a public awareness. It makes the issue of cleaner energy very tangible engaging people to think of what they can do for the environment.

Jon: I agree. The advantage of solar is that it can appear everywhere. You can put it on cars, on the side of buildings, on rooftops – anywhere. And if everyone can get used to having solar in their lives it can make a difference. But people don't yet understand that. That's the mission of ESIA; to encourage people to bring solar into their lives on a daily basis.

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