Adipec 2016: Low cost of solar may be a loss for gas

The UAE Minister of Energy said competition between hydrocarbons and renewables is increasing in the power-generation sector, particularly as solar prices continue to reach unprecedented lows.

Suhail Al Mazrouei said that falling prices of clean energy such as solar would incentivise countries to switch to them – and this is something gas needs to compete with. Mona Al Marzooqi / The NationShow more

As the oil and gas market looks to find its balance, the falling cost of renewables, particu­larly solar, is a potential threat to the competitive advantages of natural gas as a power source.

The Minister of Energy, Suhail Al Mazrouei, said at Adipec that competition between hydrocarbons and renewables is increasing in the power-generation sector, particularly as solar prices continue to reach unprecedented lows.

The minister pointed to shattered records, with solar in the UAE becoming cheaper than natural gas.

Dubai will have an 800 megawatt (MW) solar photovoltaic (PV) power plant built with the electricity-generation bid price of 2.99 US cents per kilowatt hour (kWh), while Abu Dhabi had bids submitted in September for its 350MW solar PV plant to produce electricity for 2.42 cents per kWh. These rates are on par with, or in some cases even cheaper than, the cost to generate electricity from natural gas. In the UAE that runs at about 7 cents per kWh.

But these are prices for the type of solar technology that does not include a cost-effective energy storage solution for electricity to be fed into the grid around the clock. This is one advantage of natural gas.

Mr Al Mazrouei said a commercial-scale energy storage solution could be around the corner, which could drive the price of solar, plus storage, down to 5 cents per kWh. “Then gas needs to compete with that because countries will be incentivised to go after cleaner forms of energy,” he said.

He referred to governments that are working to meet climate change targets, such as the Paris Agreement struck in December, which seeks to prevent global temperatures from rising by more than 2°C by reducing carbon emissions.

Global power markets are changing. According to projections from the Energy Information Administration, coal will lose its dominance, from 40 per cent to 29 per cent between 2012 and 2040, and natural gas will increase its foothold by more than 2 per cent each year, powering 28 per cent of the world by 2040. Renewable energy will make up 29 per cent of the en­ergy mix during this period.

While growth in renewables will put pressure on the industry, Mr Al Mazrouei said it meant that “we need to work harder and sharpen our pencils so we can compete and survive together”.

Sultan Al Jaber, the chief executive of Abu Dhabi National Oil Company (Adnoc), said hydrocarbons and renewables were not adversaries but allies creating a diversified mix. “These factors are shaping a new en­ergy era where the rules are being redefined,” he said.

The oil market is shaky, but Mr Al Jaber said that one factor remained within every producer’s control: the cost of every barrel produced. “We must define our own destiny instead of having it dictated,” he said. “We need to break from old conventions and welcome new paradigms. By embracing the new energy era, we’ll thrive and set our own course and we will, without a doubt, define our own future.”

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ABU DHABI OIL, Adipec 2016: The National's full coverage

■ Opec's Barkindo says Russia is "on board" for a deal to curb output

■ Dearth of energy investment could trigger soaring oil prices, says UAE Energy Minister

■ Central bank policies may be a roadblock to oil investment, says Yergin

■ Saudi market grows in importance for ABB

■ Abu Dhabi to step up petchems output

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