As the region scales back its reliance on fossil fuels, we examine the new era for the GCC’s energy industry
The renewable energy sector no longer remains at the periphery as an industry for social good alone; but has emerged as a profitable alternative to conventional sources of power generation.
The case is even stronger for the GCC, which is now at crossroads as the oil slump extends into its third year. A shift to renewable energy will not only reduce the cost of power production and carbon emissions but also free up more oil for exports. We envisage renewable power to be a significant contributor to the economic progress of the region and strongly believe that it is time to sit up and take notice of this sector. But where the GCC stands in comparison with the rest of the world in this segment?
Globally, renewable power generating capacity saw an increase of 9 per cent in 2016 compared to the previous year. Investment flow towards renewables has been steady with the spending exceeding $200bn every year for the past seven years. New investment of $264.8bn was seen in 2016 with the main focus on solar power closely followed by wind power. In the same year, renewables accounted for an estimated 62 per cent of net additions to global power generating capacity.
The total power generated through renewables in the GCC has risen from 20 GWh in 2010 to 620 GWh in 2015. But it constitutes to less than 1 per cent of the total power generated in the region while the global figure is at 23.3 per cent. Europe and North America stand at 34.2 per cent and 22 per cent respectively in 2016 with Norway on top at 97.87 per cent.
This puts into perspective the current state of renewables in the GCC. While there is a huge scope for improvement, we need to take into consideration the fact that historically, power generation through fossil fuel has been cost-effective for GCC countries that have an abundance of these resources. With advancements of renewable energy technology and declining costs in the recent years, renewable energy now looks more economically viable.
Globally, there has been a reduction in Levelised Cost of Energy (LCOE) ranges of renewable energy sources between 2010 and 2016 with solar photovoltaic's weighted average LCOE coming down by more than 50 per cent from $350/MWh to $140/MWh. This brings the cost of power production by solar energy within the range of fossil fuels.
Solar to replace oil?
Renewable energy potential is high in the GCC, particularly for solar projects with nearly 90 per cent of the investments in GCC flowing towards them. Solar insolation levels in the region are among the highest in the world (as high as 6.5 kWh/m² per day, according to the IRENA Yearbook 2016) making it a favourable region for solar power generation.
Cost of production of renewable energy is competitive in the GCC despite the recent fall in the prices of fossil fuels. The LCOEs of the solar PV projects at utility scale in the GCC region are comparable to the LCOE of electricity generation from oil when oil