Saudis Get The Power Of Solar At Below 2 cents

The Middle East Continues to make new records

Saudi Arabia recently held its first large solar energy reverse auction and discovered another abysmally low price of below 2 cents/kWh. Even though some analysts have said that the real price may be higher as the contract terms and conditions may provide additional allowances to the project bidder in terms of easier payment terms or free land, the fact remains that prices of solar energy continue to touch a new low every year. Better project execution and system design along with continued low equipment prices are the key cost drivers which have led to even lower prices for solar energy.

The usual suspect such as EDF/Masdar was the lowest bidder for the project of 300 MW that will be set up in the north of Saudi Arabia with ACWA and Marubeni following closely behind. These bidders have been bidding very low prices across the MENA region in the last 2-3 years.

Read our earlier story: Why Saudi Arabia will be the hottest emerging solar market in the near future

Solar energy in the Middle East benefits due to a number of factors:

1)      Easy access to capital with large sovereign funds and a well-functioning banking system

2)      Low interest rates across the region

3)      High insolation rates with the region receiving a high number of sunny days throughout the year

4)      Abundant availability of land

Dubai and Abu Dhabi were the trendsetters in the region managing to bid out large chunks of solar energy capacity at very low prices. Jordan and other countries have also managed to receive attractive prices in auctions for solar PV as well as some solar thermal projects. Saudi Arabia has been slow off the blocks despite making announcements of ambitious renewable energy capacity creation to preserve their fossil fuel reserves.

These are only bids with the winner to be decided and the contract to be signed after another 3-4 months at the start of 2018. While people may question the sustainability of the project as the 1.79 cents/kWh may look aggressive, the fact remains that prices of solar energy are touching ever new lows. Analysts have always expressed surprise at very low solar prices before being surprised again with even lower solar prices.

Greentechmedia and Bloomberg are questioning the low prices of solar energy. Solar energy will keep on seeing lower and lower prices in my view as the technology keeps on improving. Though the absolute number can’t go much lower, given that it is already very low, the percentage declines will keep on happening. The point is coming where the generation costs of solar energy will become negligible in reference to the cost of transmitting and distributing the power. Other elements such as integration of solar energy, storage will start to gain more importance as solar energy has already started to look like a mature mainstream technology.