3 PAIRING COAL WITH SOLAR: THE UAE’S FRAGMENTED …
75
to compete favorably in the Gulf. Reforms of subsidies on competing fuels
also increased the relative attractions of solar.
In the UAE, solar is viewed as a clean power source that frees the state
from dependence on imported fuel and associated political risks, while
providing reputational benefits. But even in the sunny Gulf climate solar
generation’s intermittency requires backup from thermal generation or
grid storage to render it a substitution option for gas.
The drop in cost has been dramatic. In 2016, solar bids came in under
6 US cents per kWh. A year later, bids halved to just under 3 cents/kWh
and halved again in 2019 to around 1.5 cents/kWh. By comparison, gas
purchased for $5/mmBtu produces electricity in a modern CCGT at 3.5–
4.5 cents/kWh. 53 Current prices allow solar investments to underprice
gas-fired generation on the basis of fuel savings alone. 54
In unsubsidized markets with privately held gas generation—such as
in parts of the United States—the idling of gas-fired power in favor of
solar serves to reduce the capacity factor of the plants whose output
is displaced. The idling undercuts the displaced plant’s profitability and
leaves investors holding a partially stranded asset. In the UAE, however,
reducing demand for subsidized gas relieves government spending on
imports. Amendments to subsidy accounting rules in 2016 provided
further advantage to solar by requiring utility planners to consider the
full opportunity cost of forgone hydrocarbon exports, rather than valuing
gas as a waste product. 55
In the UAE and Saudi Arabia, numerous PV solar installations–planned
and under construction—have achieved power sales tariffs under 3 US
cents per kWh. For instance, the Mohamed bin Rashid Solar Park Phase
II array in Dubai reached a power purchase price of 2.99 cents per kWh,
while the Sweihan solar project in Abu Dhabi reached 2.94 cents and
Saudi Arabia’s Sakaka project achieved 2.34 cents. In October 2019,
Dubai announced it had accepted a bid to build 900 MW of solar PV
within the fifth phase of the MbR plant selling power for just 1.7 cents
per kWh. 56 Abu Dhabi was reported to have received a bid of 1.35 cents
per kWh for a planned 2 GW PV installation. 57
Ultra-low solar power purchase prices in the Gulf are a factor of the
state bearing the costs of land and transmission, while reaping the effects
of falling costs that have rendered PV modules just a third of the cost of
a typical project. Apostoleris et al. have added further factors to this list
for the Gulf, including zero sales tax, zero cost for environmental permits
or grid connections, labor costs less than half those in developed states,
75
to compete favorably in the Gulf. Reforms of subsidies on competing fuels
also increased the relative attractions of solar.
In the UAE, solar is viewed as a clean power source that frees the state
from dependence on imported fuel and associated political risks, while
providing reputational benefits. But even in the sunny Gulf climate solar
generation’s intermittency requires backup from thermal generation or
grid storage to render it a substitution option for gas.
The drop in cost has been dramatic. In 2016, solar bids came in under
6 US cents per kWh. A year later, bids halved to just under 3 cents/kWh
and halved again in 2019 to around 1.5 cents/kWh. By comparison, gas
purchased for $5/mmBtu produces electricity in a modern CCGT at 3.5–
4.5 cents/kWh. 53 Current prices allow solar investments to underprice
gas-fired generation on the basis of fuel savings alone. 54
In unsubsidized markets with privately held gas generation—such as
in parts of the United States—the idling of gas-fired power in favor of
solar serves to reduce the capacity factor of the plants whose output
is displaced. The idling undercuts the displaced plant’s profitability and
leaves investors holding a partially stranded asset. In the UAE, however,
reducing demand for subsidized gas relieves government spending on
imports. Amendments to subsidy accounting rules in 2016 provided
further advantage to solar by requiring utility planners to consider the
full opportunity cost of forgone hydrocarbon exports, rather than valuing
gas as a waste product. 55
In the UAE and Saudi Arabia, numerous PV solar installations–planned
and under construction—have achieved power sales tariffs under 3 US
cents per kWh. For instance, the Mohamed bin Rashid Solar Park Phase
II array in Dubai reached a power purchase price of 2.99 cents per kWh,
while the Sweihan solar project in Abu Dhabi reached 2.94 cents and
Saudi Arabia’s Sakaka project achieved 2.34 cents. In October 2019,
Dubai announced it had accepted a bid to build 900 MW of solar PV
within the fifth phase of the MbR plant selling power for just 1.7 cents
per kWh. 56 Abu Dhabi was reported to have received a bid of 1.35 cents
per kWh for a planned 2 GW PV installation. 57
Ultra-low solar power purchase prices in the Gulf are a factor of the
state bearing the costs of land and transmission, while reaping the effects
of falling costs that have rendered PV modules just a third of the cost of
a typical project. Apostoleris et al. have added further factors to this list
for the Gulf, including zero sales tax, zero cost for environmental permits
or grid connections, labor costs less than half those in developed states,