MENA countries have made significant strides in recent years in the fostering of both large-scale and distributed solar market segments. However, some investors and developers may turn elsewhere for opportunities if there remains a predominance of large utility-scale projects dominated by a small number of players, writes Iwan Walters, a partner in the corporate practice of Eversheds Sutherland.
The challenge for the MENA region is to create a buoyant solar market with a number of strong and competitive independent developers generating electricity and jobs in the region.
Different MENA countries have achieved their current status in a number of different ways including government-led procurement programs for utility-scale solar projects, creating a regulatory framework enabling either: (i) the electricity consumer to offset their consumption requirements against what they have generated on their rooftops through solar projects; or (ii) high-end users of electricity, procuring electricity from private sources typically ground-based or rooftop solar projects on adjacent sites or through a wheeling program.
Different jurisdictions in MENA are in a different stage of development of this current status. Some have successfully implemented utility-scale government procured solar projects, others also have an active C&I rooftop program, and others also have a private PPA market.
The region has made significant strides towards meeting the challenge of fostering a vibrant solar developer network in recent history. What has been achieved in MENA in the clean energy space in such a short period of time is remarkable. Despite this recent success, there are areas where the market can look to change for the better.
If governments continue to promote utility-scale solar projects, it is likely that such projects will continue to be developed by a handful of utility-scale players. If this continues, independent smaller-scale developers based in MENA will deploy their capital in other ways, including in other regions (such as Asia and/or Africa in markets where smaller-scale projects are encouraged).
This current status means that the MENA region is losing out on the investment of a number of independent small-scale developers. A diversified developer base has worked successfully in other global markets (like Europe and the United States) and has a number of advantages including: a lower risk of one large developer going out of business as we have seen for example with SunEdison; use of different skills and technology for the work; a larger number of developers competing for projects which typically drives efficiencies; and diversified funding models which share the risk.
We are seeing more projects in the rooftop C&I area in some jurisdictions (e.g. the UAE) and we are seeing smaller-scale ground-based solar projects starting development in other MENA jurisdictions like Lebanon and Tunisia. Both of these sorts of projects are enabling independent smaller-scale developers to operate successfully and competitively.
The difficulty is that each jurisdiction in MENA is pursuing its own agenda in isolation from other jurisdictions, so that there is no single overarching collective goal to develop clean energy projects in a diversified manner throughout the whole region. If there was one central policy to develop clean energy in MENA then there could be a structure put in place to foster both utility-scale projects together with other projects that would enable independent smaller-scale developers to deliver projects.
The current situation in MENA means that many such developers based in MENA are looking outside of the UAE, Saudi Arabia, and Oman for potential new solar projects to develop primarily in Eastern Europe, Asia, South America, and Africa. They are doing this for a number of reasons, one of which is the fact that some of those countries enable smaller-scale projects to be developed, which is of no interest to the utility-scale developer and the fact that there are deemed risks with some of these markets e.g. currency, export, offtake bankability, grid distribution, and transmission issues leading to funding issues.
I do not foresee any significant change in MENA to the current status of the solar projects in the short term, however in the long term I think governments may look to diversify their clean energy mix by encouraging more independent solar developers in addition to utility-scale solar projects.
There are many advantages to utility-scale solar projects including reduced transaction costs and costs of funding on a per megawatt basis against other types of solar projects as economies of scale can be used to reduce costs. However, independent developers can also add significant value to the MENA region that is striving to develop more clean energy projects. The key is to get the right balance in the clean energy mix between both types of developers.
The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
Source: pv magazine