The oil-rich Gulf region is experiencing a swift energy transition towards clean energy and has quickly become the new hotspot for renewable energy projects (especially solar energy). Driven by an ambitious, long-term strategy (the UAE Energy Strategy 2050) that targets 50 per cent clean power in the energy mix by 2050 and supported by a strong regulatory framework that attracts large investments, solar tariffs have been falling in the UAE. Recently, one of the world’s lowest solar tariff, $0.0135 per kWh, was contracted in Abu Dhabi for a 2 GW solar single site project, one of the largest in the world.
The same is true in other Gulf countries, notably Saudi Arabia. The region has largely become a promising market for energy storage and hydrogen power as well. In an exclusive interview with REGlobal, Yousif Al Ali, Executive Director, Masdar Clean Energy, shares his views on the emerging renewable energy trends and how the Covid-19 pandemic has impacted the sector. Ali talks about Masdar’s global expansion strategy and the emerging potential areas of growth for renewables. He also shares his perspective on energy storage and green hydrogen. Excerpts…
What is your view on the current status of the renewable energy sector?
Currently, the global economy is in a challenging situation, but with challenge comes opportunity as the resilience of the renewable energy sector has demonstrated.
The sector is currently experiencing accelerated growth, despite the difficulties the Covid-19 pandemic has posed on the economy. This continuous growth can be attributed to a simple fact, renewable energy costs are competitive and it has become obvious to economic agents, be it consumers or producers, that there is tangible and material economic benefit to reducing their carbon footprint.
In many countries, the cost of renewable energy has reached grid parity, and in many others, it is cheaper than the available grid electricity price. The incentive is clear and users are prepared to accelerate the transition to renewable energy. Over the years, the cost of renewable energy has dramatically decreased. Development of large-scale renewable energy projects (for example, the solar park capacities in the UAE have reached 1 to 2 GW) have created the necessary scale to support commercialization and “industrialization”. Likewise, the development frameworks today encourage increased competition between developers and, as an extension, competition between contractors, to set up competitive, quality projects. The technology has also advanced, increasing efficiency and reducing costs.
How has Covid-19 pandemic impacted the global solar and wind power segments?
The impact of the Covid-19 pandemic has been evident in our sector. Overall, there is no doubt there has been a marginal slowdown in the development of projects. However, the repercussions of the pandemic differ depending on the renewable energy segment and the project’s stage of development. It’s no surprise that projects under-construction have experienced logistics and transportation constraints. The cross-border movement of workers, in particular, has been challenging. Given the global impact of the pandemic, stakeholders in the supply chain have also been affected, with few exceptions. However, all these setbacks are manageable and have been properly addressed with the support our stakeholders; suppliers and clients. Ultimately, we do not expect any major delays in project commissioning.
“…all these setbacks are manageable and have been properly addressed with the support our stakeholders; suppliers and clients. Ultimately, we do not expect any major delays in project commissioning.”
Similarly, final energy consumption or market demand has been impacted to some degree. The slower economic activity that accompanied the lockdown measures taken to combat COVID-19 inevitably caused a dip in power demand and put some pressure on prices. To a large extent, however, renewable energy faced less of a challenge and has been more robust, in aggregate. Renewable energy technology today, proposes a marginal cost of electricity that is very competitive compared to fossil fuels.
How has Masdar grown over the years?
Masdar was established in 2006. It has two important business verticals. Sustainable real estate development, where we have developed the iconic sustainable city, Masdar City, is today a trailblazing development in urban living and a hub for research and development in clean energy.
The second vertical is the development and commercialization of clean energy projects. Masdar Clean Energy has been one of the first investors and developers in some of the world’s earliest renewables projects. Iconic programs that have chartered the commercialization, at scale, of clean energy technology. Notably, London Array Offshore Wind, Torresol CSP program in Spain, the Shams 1 CSP project in Abu Dhabi and the Mohammed Bin Rashid Al Maktoum Solar Park Phase III (800MW) in Dubai. Our net clean energy portfolio today is over 2.5 GW, the gross capacity of which exceeds 8 GW.
Our portfolio is technologically and geographically diverse and includes offshore and onshore wind, solar photovoltaic, concentrated solar power, waste-to-energy, carbon capture technologies as well as hybrid projects that incorporate different sets of these technologies for a 100% renewable energy solution. Again, Masdar Clean Energy is at the forefront, as evidenced in our program in Morocco with MASEN, the Noor Midelt Solar Hybrid I 800MW program, which we believe is trailblazing project for the sector that will showcase to the world solutions for dispatchable, 100% green solution offered at below grid parity.
Masdar today is present in over 30 countries and in five continents with significant capacities spread across North America, Europe, the UAE, Saudi Arabia, Egypt, Morocco and Jordan. We also recently entered the Indian and Australian renewable energy markets, both of which show promising prospects for renewables.
According to you, which renewable energy segment is the most promising, both globally and regionally?
Geographically, the US renewable energy sector is an important growth market for us. This market allows us to deploy capital at scale and develop large capacities with shorter lead times. It has proved to be a very compelling market for us.
There are new and emerging markets where we expect to grow organically. The Central Asian market is important for us. Masdar is well positioned to develop projects in this region. We are very proud of our recent proposal that has been retained as the most competitive bid in the Republic of Uzbekistan. The price is extremely competitive, at 2.7 cents per kWh, the cheapest in that market today. Masdar, with the support of our local stakeholders, will set up a 100 MW solar photovoltaic project.
In the same country, we have also won a competitive program to implement a 500 MW wind project. We are also active in the majority of Central Asian countries, an exciting and promising market for our business.
What has been Masdar’s role to initiate energy transition in UAE?
Masdar is a wholly owned subsidiary of Mubadala Investment Company of Abu Dhabi and was created to help realize the UAE’s vision for a diversified energy mix. We look at ourselves as a catalyst for clean energy initiatives in the UAE, our immediate region and the world at large. As the first 100% renewable energy company established in this part of the world, we continue to play a leading role in shaping the clean energy market. We developed the first concentrated solar power project in the Middle East (through the Shams Power Company). In 2008, we developed what was the largest solar photovoltaic plant, the Masdar City 10 MW. Following these successes, we went on to develop many solar parks in the region. We have also been a key player in the emergence of carbon capture utilization and storage (CCUS) technology. Alongside ADNOC, we delivered the Al Reyadah project, the region’s first fully commercial CCUS project, which displaces around 800,000 metric tons of carbon dioxide from a steel complex in Abu Dhabi.
We are also now constructing a waste-to-energy plant in Sharjah, in partnership with Bee’ah, also a first of its kind project in the region.
What is UAE’s plan to transition from conventional energy to clean energy?
The country has bold and ambitious renewable energy targets. In 2017, the UAE launched the ‘Energy Strategy 2050’. The strategy aims to increase the contribution of clean energy in the total energy mix from 25 per cent to 50 per cent (44 per cent renewable energy and 6 per cent nuclear energy) by 2050. With the momentum we’ve had and the huge renewable energy projects being set up in the country, I believe we will achieve our targets well before the deadline.
According to you, what is the potential of green hydrogen and energy storage projects?
Masdar is considering tapping into the potential of hydrogen for power generation. We are exploring setting up a pilot hydrogen project in Masdar City to power automobiles. We are also looking at setting up commercial hydrogen projects, and our interest and mandate is global. The hydrogen market is in its early stages but very exciting. We expect this segment to grow significantly in the coming years.
In fact, the falling cost of renewables will give a boost to the green hydrogen market which in turn will help meet a range of energy needs. Potentially, the link needed to further accelerate the clean transformation of the energy system.
When do you see the costs of hydrogen projects coming down?
The cost of hydrogen projects will depend on the geographical location, to a large degree. In Europe, the decline in costs will likely be faster due to high wind capacities and the excess generation.
What are the key challenges faced by renewable energy developers like Masdar?
Each market has its own challenges. For the Middle East, the primary challenge faced by the developers is the integration of renewable energy with the grid. Developers, like ourselves, are able to set up renewable energy projects at very competitive costs. We are able to attract financing at -these rates because of the strong regulatory framework in our region. However, there is a point when the grid cannot incorporate more intermittent renewable energy capacity and technology solutions, like storage, will continue to be key.
“For the Middle East, the primary challenge faced by the developers is the integration of renewable energy with the grid.”
To solve this issue, more baseload capacity is required. The need for efficient and cost competitive storage technologies will emerge so that solar plus storage projects will become the norm. We are already seeing a positive trend with storage costs are seeing diminishing costs. I am confident that going forward, renewable energy will be able to provide baseload, dispatchable capacity, and below grid parity as a base case; something that we are already implementing in our Midelt project in Morocco for example.
Meanwhile, the availability of grid connection is a key challenge for projects set up in Sub-Saharan countries. In these countries, and in others as well, financing costs are sometimes prohibitive and increases the cost of setting up renewable energy projects. International finance institutions have been working hard to solve this and we have seen numerous programs and projects that have been made successful thanks to their partnership. Masdar will be participating actively in these markets as well with our key local and regional partners.
What is Masdar’s growth strategy for the next five years?
In 2019, Masdar set a target to double its portfolio capacity. In 2020 we are proud to have achieved this target two years ahead of time. Currently, we are working on setting a new target of again doubling our capacity and establishing Masdar as one of the 10 renewable energy players in the world.
Going forward, we see storage combined with solar and wind as key. These hybrid combinations will become more competitive going forward and Masdar is actively focusing on implementing energy storage technologies to complement “traditional” renewable energy sources.
At the same time, we are exploring up-and-coming technologies which we feel will help us implement other innovative solutions. Notably, waste-to-energy and hydrogen energy. Many interesting opportunities are underway in the renewable energy sector, from a “rebirth” of concentrated solar power, to other energy storage solutions. As we near the end of a transformative year, we will continue evolving our strategies in line with market transformations and the energy sector needs.