Grid Parity in the Arab World: Still Far Away

Petrol and electricity are considered birth-rights, even God-sent in the Arab world. How can this reality compete with the use of renewables?

Grid parity, the point when the cost of power generated from renewable energy resources become equal or cheaper than conventional power costs, is around the corner for many countries. In the Arab world however, the gap between fossil-based and renewable generated power is wider than anywhere. Parity is therefore likely to be several decades away.

In 2006, Abu Dhabi initiated a commitment to sustainability and embraced renewable and sustainable energy solutions. As part of its bold vision, Abu Dhabi announced a target to generate seven percent of its electricity from renewable energy sources by 2020. Since then, it made some steps to build towards its 1,500 MW target capacity by inviting bidders for developing and co-owning solar power plants like Shams 1 (100 MW) and more recently its twin project Shams 2. However, in spite of much hyped mega projects like Desertec and Masdar, the region is not getting any closer to reaching grid parity any time soon.

Asked for a general timeline for reaching grid parity in the Arab world, Ziad Tassabehji, co-founder of Grenea and ex-Director of Innovation and Investments at Masdar replied:

“Probably not in my lifetime. As long as Arab governments subsidize the power sector, renewables cannot compete. Today consumers in GCC pay around 3 to 5 cents per kWh for electricity versus wind generated power which at best costs 7 cents or solar power at whopping 30 cents per kWh. Wind power cost will still come down but will likely level off at 5 cents with current technology. Solar is getting much cheaper but will probably take another decade to get to 10 cents per kWh, and which is the number widely believed to be the grid-parity point.”

Cheap electricity is a big challenge for governments. As Arab economies develop, the need for electricity and therefore subsidy requirements have also multiplied. Average world electricity consumption is growing at a rate of 2 percent to 2.6% annually. In the Arab world, consumption is three times as much at 6% – 8% annually. (Khatib, Arab Energy Forum, 2010).

Subsidies range between providing free electricity to local citizens (like in Qatar, UAE and Saudi), or at tariffs below or near actual cost (Jordan, Morocco, Tunisia). In addition, in some countries, they may take the form of electricity theft or leniency in collecting electricity bills from certain sectors of consumers (Lebanon).

Largely as a result of this indirect government support, consumers overuse and often abuse this cheap resource with a complete disregard to the environment and financial impact on government budgets.

Any meaningful change will require a change in public awareness and in the mindset of Arab consumers. In some counties there is a general perception that petrol and electricity are birth-rights, even God-sent, with street riots in places like Yemen, Egypt, Iraq and Lebanon erupting when governments tried to remove subsidies in the past.

Another part of the solution, according to Tassabehji, involves putting a price on carbon emissions: “Based on global experience and what we now know about emissions and climate change, there is a global consensus that carbon has to be fully priced into electricity costs. Governments in the West have adopted different legislation strategies to support renewables like Feed-in-Tariffs, Green Certificates or a straight forward carbon tax but more needs to be done to reflect the true price of carbon in the price of electricity that consumers pay. Unfortunately, none of these strategies have yet reached the Arab world and in fact by subsidizing the sector governments are indirectly encouraging high consumption.”

With electricity growth rates three times higher than the world average, Arab governments need to urgently address subsidy cuts and eventually start adding carbon costs onto power costs. Given the sensitivity of such a move and especially in light of lately developments in North Africa and Bahrain, governments will have to move with caution, gradually removing subsidies while educating consumers to avoid a violent knee-jerk reaction.

Until solar energy reaches the technical maturity and scale required to match conventional power in the Arab world, grid parity will remain a distant goal. Meanwhile, it would be interesting to watch if Arabs will embrace and be part of the evolution of solar or simply wait on the sidelines for parity to happen and then import the technology from abroad.

Image via Dan Hankin