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Middle Eastern Money Oils Wheels of Solar Expansion

The opportunity cost of oil exports is beginning to drive solar expansion in the Mideast Gulf and beyond, according to Mohamad Asad Khan, a senior investment manager at Kuwait’s Enertech. As part of a state organization with access to $300-$400 billion per year, his opinion counts.

“The bottom line now is the opportunity cost of burning oil”, said Khan. “That is the key driver of renewable development here, as countries see domestic consumption from power generation and industrial uses diverting oil production and eating into export earnings…For example, if the world’s biggest oil exporter, Saudi Arabia, does not bring on alternatives — and that means renewables — it will be an oil importer by 2035.”

“Every dollar spent on renewable generation here, means more oil is kept available for export, and we also plan to deliver this renewable technology to the wider developing world. Renewable energy has been ignored in Asia and Africa, now it is moving centre stage here, too. I expect the global share of renewables to rise more quickly in coming years.”

Enertech is the branch of Kuwait’s National Technology Enterprises Company, (NTEC, a wholly owned subsidiary of Kuwait’s sovereign wealth fund), responsible for strategic investment in renewables and clean technology. Its mandate is to pick and introduce suitable renewable technologies to Kuwait, the Gulf Cooperation Council (GCC) region and wider developing world. Unsurprisingly, given the region’s intense year-round sunshine, the company is especially active in solar energy.

Khan said Saudi Arabia had a three-pronged approach to introducing renewables, with 60 to 65 percent solar photovoltaics, 30 percent concentrated solar and a further 5-10 percent wind turbines on its east coast — to meet a renewables target of 41 GW by 2030. Most of the capacity is expected to be built on a Built-Operate-Transfer (BOT) basis, as a commercial model for IPPS is not in place. He said Kuwait would have 2 GW of solar power online within 12-15 months, with an improved commercial framework for power producers in place in 1-2 years’ time.

Many oil rick countries in the Middle East still foot the bill for low energy prices through generous subsidies. But Khan said consumer price rises are inevitable across the region, as governments attempt to bring end-user prices more into line with 16-17 cent/KWh feed-in-tariffs (FITs). He said Jordan was the country leading the way on regulatory incentives, enabling IPPs to develop solar on a commercial basis. Early policy framework in 2006 to 2007 had attracted 200 MW of European financed PV at initial tariffs of 36 cents/KWh, with another 300 MW in the second phase. The tariff is now at 16 cents/KWh — attracting a further 400-500 MW this year — and is likely to drop further to 14 and then 10 cents, which would still be enough to attract solar developers to Jordan, he said.

Any development in Kuwait has an effective default sovereign debt guarantee, enabling cheap debt financing for the 2 GW of pending projects. He said the internal rate of return on such projects was much greater than could be expected in Europe or the U.S. Easy credit and a focus on innovative products means there is little involvement from Chinese manufacturers — who are able to provide financing if it helps shift their stock, as has happened in the U.K. recently. As a result much of the solar equipment is state-of-the-art and sourced in Europe or the US, and often backed by money from the Gulf region. Kuwaiti finance has also tried local developers, he added.

Khan said: “The extensive experience of renewables in The West means there is good liquidity in know-how, and we are keen to invest in and adapt that technology and transfer it to this region and the wider developing world. We are technology led — efficiency can be improved further and storage remains a key issue.”

“One company we recently invested in was Morgan Solar, based in Canada. It specialises in concentrated solar and tracking, which we expect to be particularly applicable to conditions in the GCC and south Asia…I think there is a huge potential for this technology and product especially in the Middle East region”. The company is currently producing just 30 MW per year, but this is expected to rise rapidly, he said.

“Their technology has meant efficiency rates up to 30 to 32 percent — compared to 15 to 16 percent typically — and our strategy is to invest in and transfer such promising technologies to Kuwait, the GCC and wider developing world,” he said. Morgan Solar states that its’ aim is provide clean energy solutions to South Asia and Africa, and also to “extend the company’s manufacturing footprint in the region.”

India is a focus market for Morgan Solar given the country’s high demand for efficient and low cost renewable energy solutions,” said Morgan Solar’s vice president of business development, Nicolas Morgan. A Morgan Solar spokesperson said his company had recently received a major delegation of senior Indian government and company representatives.

Mr Khan said Enertech had also recently looked at several western companies involved in energy storage, but that “none quite makes the grade yet.” However, he expected a major storage break-through in the next two-to-three years. “It will be a game changer because it changes the economics of renewables, and whoever gets the technology right will become a $50-$60 billion company.” 

Lead image: Middle east map via Shutterstock

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