By Brendan Cronin, Head of Management Consulting – Middle East at Poyry
The Middle East electricity sector is about to go through a period of significant change. 2016 saw world record bids for PV in Dubai and then Abu Dhabi. 2017 surpassed this with some truly incredible tender results for solar PV and CSP.
Headline numbers and ‘world records’ are great. However, the sector should not lose sight of how to harness this technological progress to improve security of supply and reduce cost to consumers. The sector has been digesting the tender results in recent weeks and there are a number of questions which are being repeatedly asked: What generation mix will meet demand at the least production cost? How should different technologies be compared and evaluated? And what is the role for energy storage in enabling the roll out of solar?
Drawing on Poyry’s international experience in market analysis and design over the last 25 years, we offer our insight on the best way to approach these questions.
LCOE will become less interesting
Levelised Cost of electricity (LCOE) is a useful starting point for a comparison of technologies. Figure 1 shows our estimate of the LCOE of various technologies. Solar PV is the clear winner of the LCOE competition. The bid for Saudi Arabia’s Sakaka project has demonstrated that its LCOE is less than $25/MWh and perhaps less than $20/MWh.
LCOE is incomplete, however. The value of electricity produced depends on when it is generated and how much is delivered. For example, at 17:00, PV will typically be generating at less than 20% of its maximum at a time when demand is increasing due to lighting needs.
Comparing CSP and battery storage is difficult
Following the Dubai Concentred Solar Power (CSP) tender result, the debate has intensified on the merits of CSP with thermal storage compared to battery storage (or PV in combination with battery storage). It is tempting to try and boil this comparison down to a simple LCOE-style metric. However, the reality is that these technologies are inherently different and difficult to compare and the favoured option depends on the current generation mix and what the intended use is. CSP would be favoured if near baseload power is needed whereas batteries are favoured if spinning reserve is needed.
Planning needs to have a least-cost dispatch model
The role of the capacity planner in the Middle East was in the past a relatively easy task. Gas fired generation was the default option for most of the region. Even if overestimated, surplus capacity would be eliminated quickly by fast demand growth. The task is becoming much more complicated because generation options are more diverse and demand growth is more uncertain.
The best framework is to analyse the future dispatch of the system on an hourly basis with different alternatives for the future generation mix. The alternative that meets demand at the lowest cost should then be favoured. This alternative then needs to be tested for considerations about potential uncertainty in costs, lead times and the benefits of diversity.
Tools to simulate the lowest cost dispatch have been at the core of the decisions making framework in Europe and America for the last twenty years. Increasing complexity means that planners in the Middle East region are now turning to such tools. These tools can and will deliver billions of dollars worth of benefits if properly deployed.
Exciting times are ahead
There are exciting times ahead for the Middle East electricity sector. Technological developments give rise to the possibility to improve the way that electricity is generated, reduce the cost to consumers and conserve fossil fuels for export and future consumption. The new world will be less straightforward to navigate through compared to before, but the potential rewards for policy makers and planners are huge.