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Solar prices plunge to new lows as Dubai auction nets under 3c/kWh

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Dubai skyline. Shuttershock

Dubai skyline. Shuttershock

The price of large scale solar PV power plants has plunged to another record low as the latest auction for 800MW of solar capacity in the Gulf oil emirate of Dubai attracted the first ever bids below 3c/kWh ($US30/MWh).

The record was set in a bid from a consortium comprising Abu Dhabi renewable energy developer Masdar and Spanish developer FRV, which was acquired by Saudi Arabia’s Abdul Latif Jameel (ALJ) group in 2015, and which has built two large scale solar farms in Australia – the 20MW Royalla facility in the ACT and the 56MW Moree solar farm in NSW.

The bid of 2.99c/kWh (unsubsidised) beats all available fossil fuel options in Dubai, and astonishingly, is one half of the cost of a similar auction a year ago, when a winning bid of 5.84c/kWh by Saudi Arabia’s ACWA Power stunned the industry.

Since that time, however, the cost of solar has continued to plunge, with records being set in Chile, Peru and most recently Mexico, where Italian power giant Enel recently bid a price of 3.6c/kWh. In the US, solar tenders now regularly dip below 3c/kWh, although these include a 30% tax incentive and other subsidies.

The bid has huge implications for the power industry in the Middle East, North America, and around the world, with wind energy also breaking below 3c/kWh in an auction of wind energy capacity in Morocco earlier this year.

Saudi Arabia has recently announced it will build more than 9.5GW of renewable energy capacity as it prepares its economy for life beyond oil. Dubai is also investment heavily in solar as it seeks to diversify its energy sources away from oil and gas.

The later bid came in an auction for 800MW of capacity for the 800MW Sheikh Maktoum Solar Park, which could become the largest solar plant in the world, as well as the cheapest.

The pricing in Dubai is aided by low labour costs and cheap finance, but the fact that solar has halved in just 12 months points to a wider trend. Masdar is backed and owned by the Abu Dhabi sovereign wealth fund, which can access finance at rates no commercial bank can match.

The second lowest bid came from Chinese module maker and developer JinkoSolar at 3.69c/kWh, while ACWA Power and First Solar came in at 3.96c/kWh.

Two French-led consortia followed. Engie, which owns the ageing Hazelwood brown coal power station in Australia, which which predicts that half of all generation will come from distributed energy (local solar and battery storage) by 2040, bid 4.4c/kWh, while nuclear giant EdF bid 4.48c/kWh – less than half the cost of its controversial Hinkley C nuclear power station.

The bid comes amid a widespread re-appraisal of solar power, and the acceptance that it will form the basis of the world’s energy systems, possibly within a decade or two, because of its plunging costs.

Last week, Harvard researcher David Keith, a long-time critic of renewable energy and an avowed sceptic of solar who disbelieved the solar cost-curves, wrote a mea-culpa titled “I was wrong about the economic limitations of solar power”.

“I was wrong,” Keith said. “Facts have changed …. solar energy is very cheap and it can change the future of the global energy supply within a decade.”

German cleantech advisory group Apricum said the results of the bid “unequivocally demonstrate” that large-scale solar power can now regularly beat fossil-fuel power plants on cost.

It noted that as recently as October 2015, Dubai Electricity and Water Authority (DEWA) awarded the new Hassyan coal power station at a much higher tariff of 5.177c/kWh. Gas-fired generation in Dubai is even more expensive. As we noted last year, even at $US10/barrel, oil can’t match the price of solar. Make that $US5/barrel.


  

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  • Craig Allen

    Given this, why is it only approaching 8c/kWh in Australia – http://reneweconomy.com.au/2016/simon-currie-86837

    • Higher cost of finance, higher cost of labour, less developed supply chain – uninspiring policy support. But it will come down quickly once it gets going.

      • A1

        I’m cynical this value is sustainable today.

        I don’t know the region but I would put forward 3 cents without something like cross-subsidised/unusual investment incentives , tax avoidance or ridiculous tax benefits, poor labour practices, or loss leading strategy etc would drive a price like that.

        Would love to believe it but nobody can do anything like this anywhere else in the world without some economic distortion.

        Future is bright for PV but it hasn’t arrived for everyone today like this.

        Notwithstanding it’s still an interesting news piece!

        • Jonathan Prendergast

          I can’t help but agree. Would love to believe it though!

        • Alastair Leith

          Loss leading is a reality in many kinds of mass volume markets though. PV modules are tracking at ~20-25% cost decline each two years, as deployed capacity doubles over that period. This is 75% decline over the same two year interval. Unsustainable as a rate but definitely moving in the logical direction 🙂

        • neroden

          Well, labor practices are absolutely terrible in Dubai. Land costs nothing. They have probably the best insolation in the world. Cost of capital is apparently basically 0%. So everything is going exactly right.

          But it’s still a sign that the prices are too high in Australia and the US.

      • Paul

        Also $US is implicit.

    • Frank

      Lack of slave labor, democratic rights or safety regulations?

    • Brunel

      Is that A$80/MWh? A$8 = U$6.

      Not too bad considering how sunny Dubai is. Land is probably cheaper.

  • john

    These prices are extremely low and as pointed out the finance, labour costs are all in line to give such an outcome.
    Ongoing R & M are also a factor on solar’s side.
    Time to get cracking in the sunshine country one feels.
    Together with abundant space, wind resources as well as wave there is no excuse except complacency not to go ahead.

  • Alastair Leith

    David Keith may have never seen this:

  • Tim Buckley

    As Giles notes, the amazing thing about this record low auction result is that it is a 50% reduction in the cost of solar in less than one year. Dubai set a then record low unsubsidised cost of solar at US$58/MWh. This tariff at half the price of a year ago has some unique circumstances like record low, long term interest rates, collapsing installation costs, low labour costs and brilliant solar radiation. But most of that was evident a year ago. What has changed is the learning by doing and economies of scale. Same lesson India and China have found.
    So amazing, maybe even someone from the Australian Liberal Party might even have a rethink of their avowed commitment to export ever more thermal coal, which by definition is in structural decline now that solar is well below imported coal fired power generation in an increasing number of markets globally.

  • Andrew Want

    Cost of capital is a major factor. UAE and Saudi costs of capital can be as low as 2% (where funding involves access to sovereign funds). Costs of capital have reduced significantly, as a generalisation, in most economies over the past 2-3 years with quantitative easing. The impact has been more muted in Australia given our Reserve Bank is not buying into the race to devalue currency. Even so, costs of capital in Australia have reduced due to economic slowdown, and will continue to reduce for solar and wind projects as the market becomes more familiar with them and transaction volumes increase (assuming policy stability allows the market to grow … perhaps an optimistic assumption still at this stage).
    Australia is, as Giles noted, going to experience continued reductions in costs of solar and wind power. Our relatively small domestic power market however remains a constraint; creating an export market for solar and wind generation, to link our massive renewable resources to Asian energy market demand, is what will deliver Australian major economies of scale and cost efficiencies.