Wed. Nov 30th, 2022
Solar panels in a row in the desert
enlarge / An illustration of what will become the Mohammed bin Rashid Al Maktoum Solar Park (Phase III).

In recent years, massive solar projects proposed for the Middle East have made headlines with extremely low prices. Developers have announced agreements to sell their solar power for just 2.34¢ per kilowatt hour (kWh) – lower than the lowest prices in the US and far below the average 6¢ per kilowatt hour the US praised last September.

A team of researchers from the Khalifa University of Science and Technology in Abu Dhabi, United Arab Emirates, and the Arctic Renewable Energy Center in Tromsø, Norway, tried to find out whether these prizes were real, simply heavily subsidized by local governments, or loss leaders. for developers looking to make headlines and secure more valuable contracts along the way.

What they learned was that the numbers posted in four of the most recent solar projects in the Middle East were likely real, with some reasonable help from favorable government policies. Yet the numbers seem real for the region; not all cost savings are likely to be transferred to other parts of the world.

“Some observers have speculated that the money was essentially given free of charge to the project developers to hit milestones in the prizes,” the researcher wrote. “Our analysis shows that such extreme assumptions are not necessary to achieve reported prices under the current conditions.”

What contributes to these low prices?

The researchers mainly looked at four solar installations and the associated Power Purchase Agreements (PPAs). While most solar developers may not reveal what it actually costs to buy, install and connect a solar power plant, the PPA can be used to reverse engineer the cost to install a project. , in some cases. If there are significant hidden subsidies or the developer doesn’t care that a PPA price is below cost, then the PPA doesn’t tell us much.

Two of the four solar installations the researchers looked at are located at Mohammed Bin Rashid al Maktoum Solar Park (MBR Solar Park). Phase II of the MBR Solar Park is a 200 MW installation that was announced in 2015 and achieved a PPA of 5.84¢ per kWh. Phase III, announced in June 2017, will add another 800 MW to the park and sell its electricity at 2.99¢ per kWh. In addition, a May 2017 project in Abu Dhabi called Sweihan will build 1,177 MW and sell that electricity for 2.94¢ per kWh. Finally, in March 2018, the Sakaka solar park in Northern Saudi Arabia was announced with a PPA price of 2.34¢ per kWh.

The researchers’ paper, published this week in Nature, shows that five things caused these low prices. First, the cost of solar panels is clearly falling, especially after the Chinese government recently canceled a solar panel subsidy program in that country, causing demand in China to fall.

Labor costs are another factor. “Since local contractors take on most construction jobs and pay for construction work and even some skilled crafts reported as less than US$5 by local sources, we believe a 50 percent reduction in labor costs from the U.S. benchmark is an reasonable and perhaps even a conservative estimate,” the researchers write. That’s not necessarily something other countries should want to repeat: High-paying construction jobs are an essential part of the solar advantage.

The other three factors leading to extremely low solar prices in the Middle East are easy financing at low interest rates, low taxes and “low but positive profit margins,” the researchers write. None of these factors are guaranteed for solar projects in other parts of the world, but creating an environment where all three exist is not exclusive to the Middle East.

Middle East vs. elsewhere

There were a few other conditions to create low solar prices in the Middle East, but the researchers argued that similar conditions could be found in the US. First, locating your solar farm in an extremely sunny area (such as Abu Dhabi or Phoenix, Arizona) can reduce costs because those solar panels produce electricity almost every day, thus reducing downtime costs. This is especially true if your panel can track the sun’s movements, an increasingly cost-effective option.

The researchers also noted that in the Middle East, it was rumored that “developers did not have to factor in land costs that could be around $5,000 per acre in the United States.” In addition, in some cases “vertically integrated state utilities are also involved as partners” [and]…are assumed to bear the costs of network interconnection and access roads as infrastructure development projects.”

However, this doesn’t necessarily mean an advantage the Middle East has over the US, the researchers say, because the southwestern United States can offer similar cheap land and transmission conditions. Sites in that region “appear to have achieved many of the same savings by building along the transmission infrastructure of soon-to-be-decommissioned coal-fired power plants.”

The researchers admit that solar projects here in the US are openly subsidized with a 30 percent investment tax credit, but at least one Nevada solar power plant has declared less than 3¢ kWh of energy even after the effect of the 30 percent tax is REMOVED. In addition, US developers face a 30 percent import tariff on the cheapest solar panels imported from China, so some of the subsidy effect is negated by this tax.

The researchers conclude that “unsubsidized prices below 3¢ kWh are achievable when the right combination of local conditions is achieved and that the minimum for solar energy prices is expected to continue to fall (with some delay expected as interest rates rise). increase) with hardware costs, barring a significant change in the financial industry’s perception of solar profitability.”

Still, they write, government intervention is necessary in one area of ​​solar development: that is, to help the industry access low-cost financing comparable to what other “less risky” investments in fossil fuel infrastructure have. receive. “Such a strategic energy planning mindset, where governments intervene not to subsidize, but merely to enable and encourage investment in technologies believed to be of value to society, is an essential element of low electricity prices and may provide guidance on how the spread of low solar prices to other markets continues.”

Nature Energy, 2018. https://doi.org/10.1038/s41560-018-0256-3. (About DOIs).

By akfire1

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