Offtakers urged to stick with renewables plan

29 June 2022
IFC official says higher levelised electricity cost is still a good deal compared to non-renewable alternative

Governments must support private renewable developers and investors in order for solar and wind power projects to reach financial close and start construction in the wake of the ongoing commodities price spike and global inflation.

Christopher Cantelmi, principal, infrastructure investment for Europe, Middle East and North Africa at the Washington-based International Finance Corporation, noted that the ending of the Covid-19 pandemic has been met with high spikes in the cost of supplies and global inflation, impacting commodities prices. This is further exacerbated by the Russia-Ukraine war.

“I don’t see an end in sight … governments across the world will have to give some relief on tendered projects to allow them to get over the line,” Cantelmi told the ongoing Middle East & Africa Energy Week being organised by Germany's Siemens Energy.

“These projects can’t get anywhere near where they were before the pandemic,” Cantelmi said.

The executive hopes to see greater realism on the part of government offtakers, which tend to assess new prices against those set or submitted before the Covid-19 pandemic and global inflation set in.

“They might be thinking something is wrong with the higher prices when in fact the whole market has turned,” he explains.

The executive says it is important to set realistic expectations, including a willingness to see that a price offered for a solar or wind project, even if higher than expected, is still a good deal and is cheaper than the non-renewable option. “They must go for it,” the executive said.

Some $50bn-worth of solar power projects and a further $15bn of wind power farms are being planned in the Middle East and North Africa region, according to MEED Projects data.

Of these, some $4.4bn are under bid evaluation, while a further $4.5bn are awaiting bid submissions.

Several projects awarded during the past few years have not yet reached financial close, which has delayed the start of construction, or have extended the construction timeline given the price increases.

MEED understands offtakers in the region are unable to consider the option of renegotiating levelised electricity costs, especially for projects that reached financial close prior to or during the pandemic.

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