The long read: The untapped potential of the MENA region

From pv magazine, January edition.

Distributed generation (DG) is gaining momentum in the Middle East and North Africa. Regional governments formerly focused on utility-scale solar have begun to welcome small and medium PV systems. Jordan, the United Arab Emirates, Egypt, Tunisia and solar newcomer Saudi Arabia have all introduced legal frameworks to encourage DG adoption.

Traditionally, markets with low access to electricity such as Sudan and Yemen were where DG was needed most. Waleed AlHallaj is a cleantech entrepreneur based in Jordan who believes for DG to flourish in the region, financial innovation will play an important role.

DG project finance “is relatively easy to access, with limited capital and references needed,” said AlHallaj, adding: “Close competition is always expected. The differentiator would be the ability to offer flexible payment terms to customers. Also, already established local mechanical and electrical EPC companies have an advantageous position with their market depth, available resources and manpower.” However, for DG to flourish, enabling regulatory frameworks and government leadership will be required.

Preponderance of utility-scale

Until now, competitive bidding rounds for utility-scale centralized projects have been the preferred renewables option for MENA regional governments. Auctions have succeeded in delivering below grid parity prices, making PV the cheapest source of electricity in the region, with prices as low as $0.0178/kWh, as seen in a record low bid in a Saudi tender of 2017.

It is the economies of scale offered by mega-projects and ideal solar conditions that made such prices possible. Yet the centralized approach requires upgrades to the transmission grid to absorb so much single-point energy. Moreover, skeptics argue such projects fail to bring employment and supply chain capacity.

DG projects in either the residential or commercial and industrial segments are considered more grid-friendly, as the electricity generated is often consumed on-site. Indeed, DG capacity can bring more resilience and flexibility to the electrical system with minimal integration costs. Off-grid applications such as water pumping, with PV integrated with batteries or diesel generators, can be considered DG and used to supply remote and isolated loads.

As small consumers take the initiative to install DG arrays, supportive laws and regulations are essential. Such consumers need to be empowered by regulation to grant them grid access as prosumers – producers and consumers. Cost now appears less of an impediment – recent PV technology cost reductions and technical advancements such as the extended lifetime of modules and continuous improvement of string inverters, have made solar more appealing to potential prosumers.

Besides the advantages for grid operators and electricity networks in MENA states, the bottom-up approach offered by DG has the advantage of employing local contractors and vendors, maximizing solar’s economic and social impact by creating sustainable jobs through project phases from design to decommissioning. And, as AlHallaj noted, they have an existing advantage in the market.

Challenges and success stories

The road to mainstream DG in MENA is still full of obstacles. A chief setback is the lack of legal and regulatory frameworks. Subsidized electricity prices are also limiting the financial feasibility of DG. Countries including Iraq, Kuwait and Bahrain apply huge subsidies to electricity tariffs for household and commercial applications.

A skilled, trained workforce is also lacking in some countries – especially those new to PV. As experience has shown in Jordan, technical standards are needed to ensure the safe design, construction and operation of DG systems.

Net metering is proving the favored mechanism to enable DG and seven countries in the region – Egypt, Jordan, Lebanon, Tunisia, the UAE, Morocco and more recently, Saudi Arabia – have adopted net metering policies, with Jordan and the UAE showing particular progress.

Since 2012, the DG sector has boomed in Jordan, with a total generation capacity of 203 MW made up of small projects – less than 5 MW capacity – and another 244 MW planned. High electricity prices and favorable solar conditions make net metering schemes very successful in the kingdom. In addition, a wheeling scheme was introduced to permit electricity to be generated off-site – very handy for large consumers such as hotels and hospitals in crowded cities where there is limited land on which to install ground-mounted PV arrays.

In Dubai, the Shams initiative was introduced to facilitate net metered rooftop systems. Household and building owners were encouraged to apply through a simple, well structured process including pre-approved contractors and equipment manufacturers. With the help of an online calculator, end consumers can estimative the required system size and energy savings they need.

Saudi focus: winds of change

Saudi Arabia, always viewed as a conventional energy fortress, is dramatically shifting towards renewables. Beside the huge tendering rounds for wind and PV that prompted world record low tariffs, DG is evolving and is about to kick off a new round of electricity reforms in the country. After years of reluctance and lack of a clear strategy, the country has finally taken steps to diversify its energy mix and started to look to solar as a strategic option.

On July 1, the Saudi Electricity & Cogeneration Regulatory Authority put in place the first framework to enable net metering in the country. Projects of up to 2 MW in capacity can be connected on low and medium voltage grids. Only certified PV contractors and consultants can carry out design and installation of small-scale systems. A 20-year connection agreement covers the relationship between distribution company and end consumer.

However, the fees and charges system owners will be required to pay have not yet been specified. To date, contractors are waiting to be officially accredited after providing trained workforce within the requirements. Project requests are already in the hands of Saudi electric companies and are expected to start in this quarter.

Expert opinion

Ali Hamam, MENA head of sales for Chinese module maker JinkoSolar, praised the DG market for its sustainable demand, by contrast with the stop-start nature of the utility-scale segment. As for Saudi, Hamam spoke of huge potential given the market’s vast size, with more than 280,000 GWh of annual electricity consumption by eight million customers. However, he also emphasized the importance of module quality, given the kingdom’s harsh climate. “There are three points to consider closely when it comes to module selection for the MENA region conditions: the quality of the bill of materials, with special attention to the backsheet, which is most prone to high temperature effects; testing procedures, which are advised to be beyond normal IEC standards; and the track record of the module supplier in similar harsh conditions,” he said.

Jordan’s AlHallaj is already engaged in the Saudi market. He said EPCs and contractors have been anticipating growth in the DG segment in the kingdom for some time and stand poised to jump in directly when projects start, which he expects to happen in the first half of this year.

“Even with an expected payback period of seven to eight years, end consumers have shown a huge appetite to build their own DG systems,” said AlHallaj. “Any new increase in electricity tariffs will give extra momentum to the sector, pushing it to boom in a way never seen before in any other country in the region. Even more, other gulf countries like Bahrain and Kuwait may likely follow the Saudi experience.”

By Amjad Khashman.

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