Even at $10/barrel, oil can’t match solar on cost

Print Friendly

One of the biggest banks in the Middle East and the oil-rich Gulf countries says that fossil fuels can no longer compete with solar technologies on price, and says the vast bulk of the $US48 trillion needed to meet global power demand over the next two decades will come from renewables.

The report from the National Bank of Abu Dhabi says that while oil and gas has underpinned almost all energy investments until now, future investment will be almost entirely in renewable energy sources.

The report is important because the Gulf region, the Middle East and north Africa will need to add another 170GW of electricity in the next decade, and the major financiers recognise that the cheapest and most effective way to go is through solar and wind. It also highlights how even the biggest financial institutions in the Gulf are thinking about how to deploy their capital in the future.

“Cost is no longer a reason not to proceed with renewables,” the 80-page NBAD report says. It says the most recent solar tender showed that even at $10/barrel for oil, and $5/mmbtu for gas, solar is still a cheaper option.

oil comp

The bank says intermittency of wind and solar is not an issue, notes that fossil fuels resources are finite and becoming increasing hard to reach, notes that governments want local supplies and want to disconnect from the volatility of the oil price, and says policy frameworks are seeking to decarbonise economies in response to climate and pollution concerns.

Remember, this is coming from a leading bank in the oil-rich Gulf, the most emissions-intensive countries in the world, and where energy demand is rising so quickly it risks overwhelming domestic production, turning states such as Kuwait and UAE into importers of energy rather than exporters. Hence the local push into solar, so that the Gulf states can keep more gas or oil for export.

The thinking is consistent with broader trends within the Gulf. Last month, Saudi Arabia said that the end of the oil era was already on the horizon.

The NBAD report, prepared in conjunction with Masdar, the Abu Dhabi government’s renewable energy arm, The University of Cambridge and PwC, says the Gulf has a real opportunity to lead the world in renewables, deploying its considering financial weight, and by exporting its technology know-how.

It notes that solar PV and onshore wind power have achieved grid parity in many areas, particularly those in need of energy additions, and will be at parity in 80 per cent of world markets within two years.

In some instances, the price of renewables are remarkably low. “The latest solar PV project tendered in Dubai returned a low bid that set a new global benchmark and is competitive with oil at US$10/barrel and gas at US$5/MMBtu.”

This refers to the 200MW solar tender won by Saudi firm ACWA Power, a $23 billion energy major, which bid $US0.0584/kWh (5.84c/kwh), without subsidies, which is the lowest in the world to date.

This is already one third below the cost of gas-fired generation and ACWA believes costs will continue to fall. Much of Saudi Arabia and other Gulf states rely exclusively on oil (34 per cent) or gas generation for their electricity.

Given that the Gulf countries are expected to increase their energy demand three-fold over the next 15 years, or 170GW, the NBAD report notes:

“As Government and utilities are driven to bring new generation capacity on stream, this new reality presents a significant opportunity to make savings, reduce fuel cost risks, achieve climate ambitions and, at the same time, keep more oil and gas available for export.

“This could herald an era of increased focus on solar PV as the future generation technology of choice to tackle the challenge of how best to meet current daytime peaks in demand. Once this has been done, there is the potential for exporting this expertise to neighbouring countries and along the West-East Corridor more broadly.”

The report highlights many longer term investment opportunities, particularly storage technologies and concentrated solar power. It says these technologies are currently running behind solar PV and on-shore wind in the maturity curve but are rapidly catching up. “They can already be seen to be following a similar path towards proven deployment and operation, reliability and falling costs,” it notes.

(Indeed, ACWA Power said much the same thing in January, highlighting the fact that solar tower with storage technology was falling in price, and combined with solar PV would soon be challenging “baseload” fossil fuels on costs.

As for intermittency, the age-old argument against renewables, the report says intermittency and variability are not an issue. “There has been an historic concern that renewables are an unreliable option, because the wind blows only intermittently and the sun does not shine all the time, but that is proving to be less of an issue,” it says.

In the Gulf region, it says, demand peaks tend to occur in the middle of the day, and grids “can now easily cope” with at least 40 per cent of renewable input before requiring modifications. And gas is an ideal complement to deal with the intermittency where it occurs.

“Furthermore, developments in storage technologies are progressing rapidly, and in the next few years utility-scale solutions will be deployed that further minimise concern around what was until recently seen as a major inhibitor to the uptake of renewable generation.

Even without the remarkable price achieved at the Dubai auction by ACWA Power, the report notes that wind and solar are cheaper options in the Middle East at any oil price above $US-20 to $US30 a barrel.

Even against existing oil-fired generation that have been more than half depreciated, new solar is a cheaper option at any price above $US45/barrel. Fully depreciated oil generators can no longer compete against new solar at prices above $US60/barrel.

The report also notes that energy efficiency is becoming an increasingly obvious investment, with five-year returns in many investments.


“We should not underestimate the scale of the task that is facing us all,” said Alex Thursby, the CEO of NBAD. “To meet the significant demand for energy globally – in particular across the West-East Corridor, the rapidly growing super-region that stretches from Africa through the Middle East to Asia – we need to develop innovative approaches to financing energy projects.

“The future gap in energy demand and supply presents a real opportunity for the banking sector and the Financing the Future of Energy Report marks the start of a strategy to learn, collaborate more and to make a real contribution to helping this region meet its own energy challenges.”  

RenewEconomy Free Daily Newsletter

Share this:

  • George Takacs

    Thanks Giles. I have downloaded the report and read the executive summary. Someone should send a copy to Ministers Hunt and MacFarlane.

  • john

    George you of course do realise that the report would be biased!!
    That seems to be the attitude of our esteemed ministers.
    Not withstanding that it is very interesting that the cheapest FF suppliers in the world have seen the big picture.

  • DoRightThing

    This is massive news.

  • Biologyteacher100

    Great! Some hope for the world based largely on economic data, not even including much about the damage of green house gases.

  • Helpusall

    Great headline, but oil really doesn’t compete with solar in the energy space.

    • sailingshoes

      but solar will compete in transportation. Natural Gas is at a disadvantage too

      • philofthefuture

        Solar can’t compete in transportation, EV’s can. You will never see a solar car, but solar can ‘fuel’ an EV. 😀

    • Warwick Frame

      It does in communities that run on diesel generators. There are lots of towns in the middle of Australia and pacific islands that could run on renewables instead and save hundreds of thousands of dollars eah year on fuel costs alone.

      • philofthefuture

        True but their world CO2 contribution is miniscule. Still, every little bit helps I guess.

    • EEStorFanFibb

      Not yet… but the electrification of ground transportation is going to pick up steam and begin to dominate in less than a decade. Mark my words.

      • philofthefuture

        Consider them marked! :<) I think a decade is about right. I do think if they can continue to improve fuel cells that will be the future. The first publicly available FCV is about half what Tesla charges with twice the range and 5 minute fill up time.

        • neroden

          They can’t. The technical problems have been dealt with in gory detail elsewhere; fuel cell cars are a dead end.

          • philofthefuture

            Fuel cells are used all over the world, they have invaded the fork lift market for years, large high tech firms use them to generate reliable power, the EU is betting heavily on them by investing massive amounts on hydrogen infrastructure, they already have fuel cell busses.
            The only reason we are behind is because Obama killed the research that Bush funded since if they both came out at once EV’s wouldn’t stand a chance.
            The Toyota Mirai is now in production, the company that owns’s the hybrid market is now going hydrogen. Nissan recently stated they are going hydrogen fuel cells, the entire EU is going hydrogen fuel cells. That does not sound like a dead end.

          • EEStorFanFibb

            Nope fuel cells (in vehicles) are a total dead end. You can point to all the stupid business decisions big companies make that you want. It just doesn’t matter as none of these commercial efforts are going to succeed.

            Meanwhile, there is no clean source of hydrogen that can compete with batteries. Hydrogen is just the big oil and gas’ desperate attempt to sell a product by the Litre after the ICE has gone the way of the steam engine. But it won’t work.

            Check this out.

            Toyota To Select Dealers: Stop Delivering The Mirai, There Is Nowhere To Refuel


            Tesla Trumps Toyota: The Seven Reasons Hydrogen Fuel Cell Cars Are Stalled


            Why a hydrogen economy doesn’t make sense


  • Chatteris

    How ironical would that be if the Gulf states, having dominated the oil market, now use the vast proceeds of that advantage to lead the world in renewables? When will other sunny countries going to wake up I wonder?

    • nakedChimp

      just wondering what kind of expertise they want to export and/or how their religious system over there will cope with a lot of engineers and scientists which are needed to build up a mountain of knowledge – who also should adhere to measurable facts and not just believe stuff that has been written down..

      • Terance Schmidt

        As far as how their religious types would deal with a sudden influx of scientists who only “believe” based on evidence, my guess is they’d deal with it in much the same way that our religious types deal with co-existing with our scientists – smile, nod, enjoy the fruits of their labor while denigrating their non-belief in Iron-age mythology from the pulpit.

      • Andy

        seen a documentary about 15 years ago showing that the gulf states could do a massive export of hydrogen, produced by solar, instead of oil. It can be transported similar to gas and used for heating, cooling, cooking, fuel and much more… even like gas. They had already the plans developed and were just waiting for the oil pumps to stop once there is no oil any more. They would still export energy…

        • philofthefuture

          They can certainly do that but unlike oil, hydrogen can be produced anywhere so anyone could become self sufficient if needed. OPEC is basically over.

          • Kevin Schmidt

            Let us know what decade hydrogen will become a viable alternative the way wind and solar are today.

          • philofthefuture

            I’ll do that! In the mean time the EU is going hydrogen. They have hydrogen cars, fork lifts, busses, light rail demo projects and are expanding their filling station infrastructure.

            Here’s a link to just the CA effort,
            The Toyota FCV will be here soon and the Honda will be available for lease this fall. Remember Toyota owns the hybrid market and they are going FCV, that should not be discounted.
            FCV’s did a big PR push a decade ago and got egg on their faces. This time they wised up and are flying under the radar. There are a number of companies here that use FCV forklifts.
            The problem is Bush funded research on both EV’s and FCV’s, when Obama came in he decimated FCV research funds to favor EV’s. Since the EU/Japan are going FCV that may have been a mistake.

      • Chatteris

        They seem to have been able to make all sorts of compromises with their
        religious beliefs, not the least of which has been their strategic
        alliance with the United States.

        Nor should one underestimate
        the Arabs’ distinguished scientific tradition. It may be due for a
        revival. All that money can buy a lot of universities! See

      • philofthefuture

        You seem to not understand that they already employ foreign engineering firms for most things, including roads, dams, bridges, power plants, etc. Typically the have enclaves where the foreigners live that are basically like home, segregating the population so both societies can be happy. This has gone on for decades, no reason to believe it needs to change to accommodate renewables.

        • neroden

          Saudi Arabia is in an unstable situation and will probably have trouble adjusting to the modern world.

          The little Emirates — UAE (including Dubai and Abu Dhabi), Oman, Bahrain, Qatar, etc. — are all merchant-prince states: before oil, they dealt in the slave trade, and before that, they were in the spice trade. Business is their real religion and always has been. They’ll adjust fast.

      • Kevin Schmidt

        The US is the only country with the problem of anti-intellectuals religiously believing the fossil fuel propaganda that falsely claims AGW is a scam and that alternatives will never replace fossil fuels.

    • Miles Harding

      Of course, there is a problem with the gulf states going renewable in that it only solves (part of) one of their dire problems. The leadership of those countries will still all die when they are unable to feed their exploding (exponentially increasing) populations because their oil revenue and capacity to import food declines at the same time as they deplete their fossil aquifers and are unable to grow anything at home.

      Egypt and Tunisia were dry runs for the real middle-east catastrophe that is yet to occur.

      • Raahul Kumar

        The United Arab Emirates and Saudi Arabia have sovereign wealth funds almost worth a trillion dollars each. They have more than enough money to buy food.

        And no country has exponential population growth. Population growth has steadily declined for decades, and is low worldwide.

        • neroden

          Saudi still has exponential population growth. Because they oppress women and force them to have lots of babies, they haven’t undergone the “demographic transition”.

          • No, nothing human has exponential growth, not even bacteria in a test tube can keep it up. Shortage of resources always stops growth in the real world.

    • Dr. Benway

      No more “ironical” than Norway leading the charge on renewables.

      • Chatteris

        On second thoughts, one could argue that all of us who invest in renewables are in effect doing what the Saudis and the Norwegians are doing – taking the proceeds built up from burning coal and oil and ‘greening’ them. Which of course is better than ploughing them into more extraction of oil and coal.

        • Raahul Kumar

          That’s not likely, the countries with the biggest investments in solar power, Bharat and Zhonghua, are going to be dominant in the field of solar.

          The biggest solar panel producers are already in Asia, and in order to build a facility capable of producing polysilicon is very expensive.

          But the Gulf Countries might wind up with a piece of the pie, no country had the monopoly on coal, and it’s quite reasonable to think that no country will own a monopoly on solar either.

        • philofthefuture

          The best thing China has done is turn panels into a commodity market, the worst thing Obama has done is slapped a tariff on their panels. They were willing to subsidize our solar conversion with their money and we said no thanks! All for naught anyway since China is STILL undercutting us on pricing.

          Lift the tariff and see solar really take off!

    • philofthefuture

      The US government can do absolutely nothing about curbing climate change, they will never give solar panels or EV’s away. We as individuals account for about 80% of CO2 so it is we as individuals that have to do the heavy lifting.

      The most they will do is mandate WE buy solar and EV’s, so if anyone is just sitting around waiting for government to save them they are in for a rude awakening. If everybody whining about GW actually put their money where their mouths are we wouldn’t have a problem.

      The good news is if people DO want to make a difference EV’s and solar power are readily available and at reasonable pricing. The bad news is we are becoming increasingly irrelevant in world climate forcing, (14% of world CO2 and falling), unless the developing world makes DRASTIC changes, we will be in the noise in a couple of decades just doing what we are doing now.

      • neroden

        China is making drastic changes. And they’re the 800-pound gorilla. We’ll see what India does now that China’s changed course.

  • Paul David Houston

    How far deep will this report be buried in the United States? How far down can those oil rigs dig? Yeah, that far…

    • philofthefuture

      Not to deep since we are currently commenting on it! DUH!

      • Paul David Houston

        This is an Australia newsite, I’ve yet to see a report about this in a mainstream American news source. Have you?
        The closest I can find is roundabout topics like…

  • barrie harrop

    Sad news for Aust PM,his hopes are so high on a coal led recovery.

    • philofthefuture

      Currently renewables are increasing rapidly but in developing nations they are supplementing coal, not replacing it. China and India are still building about one coal plant a week and those plants will need coal for over half a century.

      • barrie harrop

        Building one coal fired plant per week, is an urban myth,where is your proof.

        • philofthefuture

          IEA. Why do you think China has only agreed to level off by 2030.

  • Clint Carlson

    Is it bad that my only question about the future of renewable energies at this point is wondering which stocks to buy? What a no-brainer.

    • philofthefuture

      Not necessarily, a fellow investor friend still holds tobacco stocks and they keep cranking out the big dividends. It will be the same with oil. Don’t forget that 39% of oil is used in manufacturing, not transportation, oil will still be needed for the indefinite future.

      • neroden

        I looked up the percentages of oil used for purposes other than fuel and it’s minimal. Oil as a business is going to shrink to a tiny fraction of what it was.

        Most of that “manufacturing” oil can be replaced with electricity (and will be) and most of there rest can be replaced with natural gas (and is being replaced). The oil used as a chemical feedstock is a miniscule fraction of world oil use.

        Tobacco is an addictive drug, which is always a good business. That said, tobacco stocks were a really terrible thing to own during the year when they finally got regulated — they lost 75% of their value — and the dividends took over a decade to recover that loss.They’re not safe stocks.

        Buying oil stocks *after* the big crash in oil stocks comes might be a good idea, I don’t know. Right now, however, I think oil stock prices are grossly inflated. While it would be very profitable to pump the old wells and sell the oil — that’s definitely a good business — oil company managements are still burning all the profits on “exploration” which is completely worthless. So any profits made are being wasted by the management.

        • philofthefuture

          I got out of oil stock some months ago but will likely get back in when the dust settles. The Saudi’s are trying to flush the field as it were and once that is done the ones still standing will be much stronger.

          There are over a billion fossil fueled vehicles in the world, we added another 77 million last year, likely 85 million this year. Well over 99% of cars sold are still fossil fueled and that isn’t likely to change any time soon. As a consequence oil will have a very long tail, two decades at least, more likely twice that.

          Plastics usage is not going down, it’s going way up, oil is needed for that, I think you need to do further research.

          The two best selling ‘cars’ in the US are the Ford F series truck and the Chevy Silverado in that order. SUV’s are flying out the door as well. That isn’t likely to change as long as everyone is pumping like mad and that may be years.

          Don’t get me wrong, I have 30KW of solar and my next car will be an EV. But there is that nasty thing called reality and the reality is EV’s are only second cars, if that, until you can buy a Tesla for $20K that gets 300 miles on a charge and recharges in five minutes.

  • Ken

    Oil is renewable. Anyone can grow Oil on their own land. Oil can be made from algae in a matter of hours, while Diesel Engines are designed to run on plant oils grown on a farm. The burning of oil even feeds plants and makes them grow big and healthy.

    The world is full of very stupid and brainwashed people.

  • southtpa

    solar doesn’t work in the dark so it’s only a part time solution. to price renewables fairly you have to work on 24 hr. days. hydro and geothermal are good options but probably fully exploited. to truly price compare wind and solar against fossil fuel you have to include the storage that it takes to make it reliable. if solar and wind with the storage ever get even with fossil electricity I’ll put it in. just enough storage to take care of hot water and central air would cut my bill to $30 a month. the idea of selling excess back to the grid is just bad economics

    • Kevin Schmidt

      Gee, how could you forget to include the cost of ecocidal fossil fuel pollution and multi-trillion dollar fossil fuel wars, which far exceed the cost of alternative energy storage, which is dropping rapidly every year.