Emerging Markets

CSP Today speaks to Reda El Chaar, business development manager at ACWA Power International, about renewable energy policy incentives in the MENA region and why Saudi Arabia's CSP sector is about to explode.

Interview by Rikki Stancich

With a cumulative asset value in excess of US$11.8 billion, ACWA Power International knows a thing or two about developing, owning, and operating privately financed independent water and power projects structured on concession and utility outsourcing contract models.

The Saudi Arabia-based powerhouse is emerging as an indomitable force in both conventional and renewable energy markets. Within ACWA’s ambitious growth plan to increase its current portfolio of contracted assets to 30,000MW by 2014 from 6,485MW today, the company says it aims to generate roughly 1,500MW from renewable energy by 2014, according to a recent report by Utilities Middle East.

To date, ACWA has tendered for several projects, including the Moroccan Agency for Solar Energy’s 500MW Ouarzazate project in Morocco, the 100MW Shams1 project in Abu Dhabi, 2 unsolicited tenders in Saudi Arabia, and a 70MW project in South Africa.

CSP Today speaks to Reda El Chaar, CAIA, business development manager at ACWA Power International & member of the Chartered Alternative Investment Analyst Association, about which renewable policy frameworks will foster the most robust CSP markets in the region; whether Saudi Arabia will road test a dynamic feed-in tariff; and how political unrest is triggering renewed interest in renewable in the MENA region.

CSP Today: ACWA Power International has tendered for several projects in Morocco, Abu Dhabi, Saudi Arabia, and South Africa. From a CSP developers’ perspective, how do these markets differ from one another in terms of the physical and policy environments?

Reda El Chaar: While these markets are quite different from one another they also share an important similarity in that these countries’ policymakers have clearly realized the importance of including solar energy within their energy mix.

For example in Morocco, where the vast majority of fossil fuel energy is imported, policy makers have realized the importance of renewables for energy independence and security.

In Saudi Arabia, where most of the revenues are derived from fossil fuel exports, policy makers are seeing the importance of renewables especially solar power to create a new industry and further diversify the industrial base for their economy and preserve their oil for generations to come. 

However the main difference is that each country is at a different level of progress with regards to adopting renewable energy. Morocco and the United Arab Emirates are currently leading, with several operating renewable assets and a pipeline of major projects.

As for South Africa, it already has a feed-in tariff and a national renewable energy policy in place but has yet to define a robust and bankable power purchase agreement.

Saudi Arabia has the political will, but as yet lacks a renewable energy policy. However, it is due to announce its national renewable energy policy by April and thus clearly set a renewable energy target for the country.

With regards to the different policies that each market has adopted, Morocco has opted for a competitive bidding process. South Africa is using the more tried-and-tested system of a feed-in tariff. Saudi’s policy has not yet been announced, but [industry] expects it to be a blend of competitive bidding and a feed-in tariff.

The markets are also different with regards to their independent power project (IPP) frameworks. Saudi has the most robust IPP framework, whereas South Africa on the other hand is struggling to put forward a bankable IPP structure. 

Saudi Arabia also has a robust and liquid financing industry that over recent years has demonstrated its capability to locally finance major infrastructure projects.

CSP Today: How do these markets' renewable energy policy frameworks compare?

Reda El Chaar: Each policy framework has its pros and cons - even the rest of the world has not yet decided which framework works best.

Morocco’s approach has been to opt for a competitive procurement process. By doing this, they get a competitive tariff rate, however, because they are issuing a competitive tender developers are unable to lock-in long-term project pipelines. This in turn means that manufacturers cannot lock-in long-term contracts. As such, it is not the best policy to support the growth of a local manufacturing industry in Morocco.

In South Africa on the other hand, the feed-in tariff allows developers to lock in a long-term project pipeline, which is good for developing a robust local industry. Countries that have successfully implemented the feed-in tariff, such as Germany and Spain, provide evidence of the effect of feed in tariffs promoting a local manufacturing base.

However with a feed-in tariff, there is always a risk of the price being set too high. In this case, the developers and EPCs make way too much money, too many megawatts get built and the economy cannot sustain such a gap. If it is set too low, the country risks falling short of its renewable energy target.

In Saudi Arabia, the government is being advised to opt for a mix of the feed-in tariff and the competitive tender process. At the first stage it would use a competitive tender, which would provide the price-setting signal for the feed-in tariff price. The competitive bid process would be used in conjunction with a feed-in tariff as the price-setting mechanism for future revised feed-in tariff prices.

This approach would instill greater investor confidence – it would attract long-term commitment from developers and enable a robust local industry to develop, while side stepping the risks related to setting the feed-in tariff too high or low. 

CSP Today: Where would you say is currently the most attractive place to build a CSP plant in the MENA region, in terms of policy incentives?

Reda El Chaar: The majority of the MENA region lies in the sun-belt region. CSP will be carried out in areas with high solar resource, high DNI, a low wind state, and low humidity to ensure that the yield is highest. In MENA there are a lot of sites that fit these conditions.

Saudi Arabia will be one of these places. Saudi Arabia has a well-proven IPP system. The Saudi [CSP] market will be huge due to the sheer size of its electricity market. Today it is at 40GW and will continue to increase reaching 70 GW in 2020 and 120 GW by 2030 as both the population and demand from local industry increases. So we believe that Saudi Arabia will be a major market for CSP in coming years.

CSP Today: What key issues face CSP developers in Saudi Arabia?

Reda El Chaar: As you know, Saudi Arabia still lacks a policy framework, however this should be resolved by April this year. Other issues are more technical in nature. For example, it has a high dust environment due to the fact that quite a large portion of the country is subjected to frequent sand storms. There is also the issue of water scarcity.

However, we strongly believe that these issues can be resolved via design optimisation. When it comes to water, dry cooling is an available option. Dry cooling has been implemented very successfully in several plants.

When it comes to dust, intelligent design, operation, and maintenance can address this issue.

High temperatures can have an adverse affect on equipment, but again, this can be resolved at the design stage.

CSP Today: Are any local organisations or companies in Saudi Arabia exploring ways to address these issues that are currently hampering CSP development?

Reda El Chaar: Saudi Arabia has been looking at this for some time. King Abdullah City for Science and Technology (KACST) has a huge R&D facility and for the last two decades has been researching issues relating to the solar resource, including dust and other technical issues.

More recently, the King Abdullah University of Science and Technology (KAUST) has been working with manufacturers to optimise and adapt technology for Saudi Arabia’s operating environment.

King Abdullah City for Atomic and Renewable Energy (KACARE) is also expected to start building a huge research facility in Riyadh that will continue to proactively optimise solar technologies for the Saudi ambient environment.

CSP Today: How is political turmoil in the region effecting renewable energy projects in the pipeline? Are those projects likely to get built, or are projects being delayed indefinitely?

Reda El Chaar: I haven’t heard of any projects getting delayed due to the political turmoil. Political unrest is almost cyclical, and like a business cycle, we need to work with it as part of the operating environment.

CSP Today: Conversely, does the current turmoil provide a compelling case for renewable energy in light of continuing oil price volatility?

Reda El Chaar: I do subscribe to that point of view. I think that a lot of businesses and governments will see that this political turmoil has revealed the fragility of the fossil fuel system.

The current level of dependency on fossil fuels creates a lot of risk, instability, and uncertainty for businesses. As oil prices continue to be extremely volatile, businesses and governments will start trying to de-risk via investing in a sustainable forms of energy.

To respond to this article, please write to the editor:

Rikki Stancich: rstancich@csptoday.com

Reda El Chaar will be presenting at the forthcoming CSP Today MENA solar conference, MENASOL 2011, taking place May 3-5, 2011 - El Jadida, Morocco. For more information, visit: www.csptoday.com/solar-conference