The Middle East benefits from some of the best solar irradiation levels in the world. While there are issues relating to interference from sand and haze, most experts believe these can be mitigated through the development of technology and operation practices specific to the region. Photovoltaic solar in particular is an increasingly attractive option as equipment prices are declining rapidly.
As a result, international developers, particularly those based in Spain, Germany and the US, are keen to enter the market. However, developers claim that the current government-driven regime of negotiating power purchase agreements (PPA) on a project-by-project basis is a deterrent.
The situation is different elsewhere in the world. Much of Europe incentivises renewable power through the provision of feed-in tariffs, universal long-term PPAs whereby power is bought at an above-market rate. The UK, Japan and California use an alternative system of renewable certificates that acts as a ‘top-up’ payment to allow renewable power to compete with traditional sources of power. In the US, a combination of tax incentives and grants operate at a federal and state level.
These frameworks effectively offer inroads to foreign developers. This is because the potential revenue streams from a project are more transparent with a structured regime than they would otherwise be. Developers will still need to contend with other risks common to projects at any location. Risks associated with technology and its application, financing and construction must all be managed. But with a transparent source of revenue available, those developers that have previously shied away from approaching the Middle East may be lured.
However, governments may be able to convince international developers that the region is open for business in other ways. This could include grants and individually negotiated lucrative PPAs. The handful of solar projects that have been tendered thus far have attracted a significant level of interest from international players. France’s Total and Spain’s Abengoa were selected in June to build Abu Dhabi’s Shams 1 concentrating solar power project. The tender also drew bids from companies based in Germany and Saudi Arabia as well as a host of Spanish firms. This project, together with similar landmark schemes in Oman, Dubai and Kuwait, should draw a similarly high level of interest.