According to International Energy Agency (IEA) website publication on Renewables 2022 Analysis and forecast to 2027 report:
Solar PV dominates expansion because it offers prospects for low-cost power and hydrogen production
Renewable electricity capacity expansion in the MENA is expected to triple in 2022-2027 compared with the previous five-year period, reaching 45 GW. Solar PV makes up three-quarters of capacity growth in the MENA region because of its expansion due to attractive economics for utility-scale projects. Significant solar resource potential and favourable financing conditions in some MENA countries have led to some of the world’s lowest awarded bid prices (i.e. USD 10.4/MWh in 2021 in Saudi Arabia) contracted in competitive IPP auctions.
Onshore wind development, mostly in Morocco and Egypt, accounts for 15% of the region’s growth, while hydropower expansion is concentrated in Iran. The main catalysts for renewable capacity expansion are fast-growing power demand, longterm climate targets, and diversification away from fossil fuels for net-importing countries. Hydrogen and ammonia production are also beginning to drive interest in new renewable power projects.
Six markets account for 85% of MENA’s renewable capacity growth between 2022 and 2027: Saudi Arabia, the United Arab Emirates, Israel, Oman, Morocco and Egypt. Competitive IPP auctions are the key policy mechanism propelling renewable capacity growth in most markets. While this year’s forecast has been revised upwards (+16%) because new solar PV auctions have been opened in both the United Arab Emirates and Saudi Arabia, long lead times and uncertainty over the tendering process for onshore wind and CSP are emerging as key challenges to faster growth in the region.
For onshore wind, no new tenders have been announced in Egypt, capacity was cancelled in Round 3 in Saudi Arabia, the announcing of shortlisted bidders in Jordan’s Round-3 auction has been delayed and some awarded projects in Morocco have not started construction. For CSP, Egypt cancelled a 100-MW tender, while in Morocco the winning projects for a tender opened in 2019 have yet to be announced, and the commissioning of projects in the United Arab Emirates is taking longer than expected.
In the absence of auctions for onshore wind, developers have been turning to other procurement mechanisms such as selling directly to large consumers when regulations allow (through corporate PPAs) or directly approaching the state utility (unsolicited bilateral contracts).
Saudi Arabia is expected to add 10 GW of renewable capacity during 2022-2027, led by solar PV and driven by four procurement mechanisms: competitive auctions, unsolicited bilateral utility contracts, corporate PPAs and state-owned projects. The forecast has been revised upwards from last year to reflect progress made under all four business models.
For competitive auctions, PPAs were signed for one-half of Round 3 projects, and Round 4 opened in September 2022 with higher-than-expected volumes on offer. The country’s first corporate PPA project was commissioned in 2021 after the new Private Sector Participation Law came into effect allowing developers to sell directly to consumers for the first time. In our main case, this regulatory change facilitates the growth of future corporate PPA projects.
Furthermore, in the past year the government has announced plans to develop another 2.3 GW through bilateral contracts under the Public Investment Fund and build state-owned projects in industrial cities. Nonetheless, the pace of auctions for onshore wind remains a forecast uncertainty. Round-1 projects took four years to commission and the capacity earmarked for wind in Round 3 was never awarded.
The United Arab Emirates is expected to add 9.5 GW of renewable capacity between 2022 and 2027 – quadrupling its current installations. Solar PV leads growth, as competitive auctions for large volumes of utility-scale projects are making it increasingly economically attractive. Bid prices fell from USD 56/MWh for 260 MW in the first tender (held in 2015 in Dubai) to USD 13.5/MWh for 2 GW in 2020 in Abu Dhabi because solar resources are abundant, economies of scale have been achieved, and financing and land-leasing rates are favourable.
The distributed PV forecast has been revised upwards owing to two consecutive years of over-100-MW growth from Dubai’s net-metering programme and an expanding pipeline of large industrial and commercial projects. However, long lead times challenge the forecast for CSP. Projects awarded in the first CSP auction in 2016 were only commissioned in 2022.
Oman’s renewable electricity capacity is expected to increase 4.8 GW in 2022- 2027, with solar PV installations making up most of the expansion. Over half (2.8 GW) of total renewable capacity additions will be dedicated to renewable hydrogen production. Oman’s excellent solar and wind resources, its established hydrogen industry and its strategic location along shipping routes encourage renewable hydrogen production and ammonia exports. As result, a pipeline of planned projects situated at ports has emerged, although many are in the early stages of development.
Nonetheless, the main case expects renewable capacity of some of these projects to be at least partially commissioned by 2027 owing to policy support unveiled in the government’s new National Hydrogen Strategy. Long-term renewable hydrogen production targets, a dedicated institution to manage state involvement in hydrogen projects, and competitive auctions for leasing earmarked land are expected to facilitate development. The government estimates 16-20 GW of additional renewable capacity is needed by 2030 to achieve the new renewable hydrogen production target of 1-1.25 Mt/year. However, securing financing and off-takers are key forecast uncertainties.
Outside of capacity dedicated especially for renewable hydrogen production, the majority of growth is expected to come from competitive IPP auctions. The state utility plans to auction and commission 1.9 GW of renewable capacity by 2026, but the forecast carries uncertainty because it is not known how quickly the tendering rounds will be conducted. The first 1 GW has been on tender since 2019 but winners have yet to be awarded, and wind auctions depend on the outcome of feasibility studies.
Nonetheless, growth is now also possible outside of auctions. In January 2022, the state utility launched the region’s first wholesale electricity spot market, wherein generators can offer power for sale one day ahead to the sole purchaser, Oman Power and Water Procurement Company SAOC (OPWP). Two main challenges to faster renewable capacity expansion in Oman are the high cost of capital and insufficient electricity storage in times of high supply and low demand.
Israel’s (10) renewable capacity is anticipated to expand by 6 GW, with distributed solar PV growth driven by the country’s considerable solar resources, high retail electricity prices and a supportive policy environment. Israel leads the MENA region in installed distributed PV capacity thanks to favourable net-metering and FITs for residential and commercial systems. Competitive auctions are the main driver for utility-scale solar PV growth, but land constraints remain a challenge.
For Morocco, 4.4 GW of renewable capacity growth is forecast for 2022-2027, led by solar PV, wind and hydropower. The main impetus for new capacity additions is the government’s established competitive IPP auction programme. Corporate PPAs also boost onshore wind development, and solar PV expansion comes from state-owned projects and installations to produce renewable hydrogen.
This year’s onshore wind forecast is more optimistic than last year’s because Morocco intends to expand existing projects and has announced new corporate PPA projects. However, we are revising the CSP forecast downwards to reflect increasing uncertainty over the government’s plans for solar thermal. The last tender was opened in in 2019 but the project has still not been awarded.
Meanwhile, the slow pace of regulatory reform remains an obstacle to distributed PV development. While the new draft law released last year (No. 82-21) makes progress in defining self-producers and introducing procedures for connecting to distribution grids, it may also make the business case for self-consumption less attractive because it proposes to cap excess generation fed into the grid at 10% and introduce a self-consumption surcharge.
Egypt’s renewable capacity is expected to grow by 4.1 GW between 2022 and 2027, led by onshore wind and followed by solar PV. For utility-scale projects, most of the expansion will be settled through unsolicited bilateral IPP contracts negotiated with the state utility, as deployment under other schemes has slowed or even stalled completely.
Uncertainty over the government’s plans for state-owned utility projects and delays in the competitive auction scheme have caused this year’s forecast to be revised downwards. Only 26 MW out of 1 GW of planned state-owned projects have been commissioned since they were announced in 2017. Despite plans to organise more competitive IPP auctions, the government has not held competitive tendering since 2013 for solar PV and 2015 for wind.
Overcapacity and financing challenges hamper renewable energy development overall. For the 2020-2021 financial year, peak load reached 32 GW compared with 59 GW installed, and most projects rely on concessional financing. Nonetheless, the net-metering scheme should continue to encourage distributed PV growth, especially large utility-scale projects for onsite self-consumption in agriculture and the cement industry, and for commercial centres.
In the main case, we expect 14% (6 GW) of MENA’s renewable capacity growth to come from plants dedicated to hydrogen production. Almost 80% of this growth is in Oman and Saudi Arabia, as both countries aspire to become exporters of renewables-based ammonia. Other uses of additional renewable electricity capacity include producing ammonia for shipping fuel and renewable hydrogen for local industries such as petrochemical production and steelmaking.
Almost 75% of dedicated capacity is expected to be solar PV because of its economic attractiveness, which is one of the main motivations for hydrogen development in the region. Since 2015, solar PV-awarded bid prices have fallen from USD 56/MWh in Dubai to USD 10.4/MWh in 2021 in Saudi Arabia owing to the abundance of solar resources, investment cost reductions and beneficial financing conditions.
The forecast is conservative compared with the current pipeline of electrolyser projects announced to be built by 2027. Owing to the region’s large amount of available space, its ideal location along international shipping routes and its existing hydrogen use and infrastructure, MENA has announced 4.5 GW of electrolyser projects powered by dedicated renewable electricity. However, only half of electrolyser capacity has reached final investment decision or started construction.
While our main case does assume some projects in the feasibility stage will be financed thanks to state-backed support, securing financing and off-takers are the main challenges to bringing projects to fruition. In the accelerated case, renewable capacity for hydrogen production could be twice as high (16% of total renewable capacity) if financial close were reached for some of the planned projects.
Furthermore, the accelerated case demonstrates that MENA’s total renewable capacity growth could be almost twice as high (77 GW) if auctions proceeded more quickly, PPAs were signed in a timelier manner, and construction was begun on awarded projects. Clarity over regulatory reforms allowing distributed solar PV production and consumption, cost-reflective end-user electricity prices and remuneration of excess generation would also accelerate commercial and residential PV deployment.
(10)Statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
