Even as we in MENA focus on increasing the efficiency of electricity utilization and seek to reduce energy intensity, demand will continue to grow at 7% on average across the region to support the disproportionately (as compared to many other geographic regions of the world) larger group of younger population as they become middle aged and as our economies grow to keep pace.
The good news is that given we have the renewable energy resources in abundance and the land required for deployment at affordable cost and given that renewable energy is already the most cost competitive option to deliver power to a segment of the demand (not base load power but peak power) we can and will deploy renewable energy at scale.
While we can debate about the preciseness of the numbers, lots of research validates that at least 2 million NEW jobs were created in the world between 2004 and 2010 directly related to renewable energy deployment as renewable energy started to develop at scale. Yes lots of jobs got created in the biomass sector growing sugarcane to feed ethanol plants and so on which is not so relevant in the context of MENA but it is also a fact over a million jobs got created in the Solar PV sector alone in just that early six year period as renewable energy deployment at scale started in a few countries like Germany and Spain.
In terms of job intensity; number of Job-years versus GWh Solar PV is eight times more intensive than gas fired electricity generation. Waste to heat generated electricity about seven times, wind 2 times; and so on. In terms of economic value retention even if we can get 40% local content into a gas fired power plant given that this plant only costs US$ 800 per kw means we get to keep USD 300 per kw in country. But then take CSP plant at USD 4500 per kw even if we get to only 40% local content in the early days, that means we get to keep USD 1800 per kw in country. So in the case of a CSP plant, we get to retain in country six times that amount of the amount of money we spend locally than for a gas fired power plant. So no question, renewable energy offers massive potential to spur economic value creation.
The fact of the matter is that across the region as we increase our generation capacity to keep pace with demand from the 90 odd GWs today to 200+GWs and look introduce 30 to 40% of renewable energy in this mix meaning 60 to 80GWs over the next two decades we will offer more than enough scale to spur a new renewable energy industrialisation platform. We have the people, we have the capital and we have the basic industrial infrastructure that can become the building blocks.
Let me give you a real example. We at ACWA Power are developing one Concentrated Solar Power plant, albeit a very large one at a site in Morocco, a billion dollar investment. The tender stipulated a minimum of 30% local content. During tender preparation we found that maximising local content did not need to come at a price premium and thus we submitted our offer with local content in excess of 40%.
Now we are in construction and we are truly amazed at the level of industrial infrastructure that exists in Morocco. On this first plant itself we are seeing that we will end up with more than 50% local content. Components that we did not expect to get manufactured in Morocco are now going to be manufactured in Morocco not only because we can get it done (the size of the fabrication shop exists; the size of galvanizing bath we need is already there set up for some other purpose and so on) but also because this is more cost competitive than importing.
Beyond manufacturing I believe we also have the infrastructure already well-established to handle technology origination. Renewable energy technology is in its teenage years. There is plenty of scope for innovation. Platforms like the Masdar Institute here in UAE, KACST and KAUST in Saudi Arabia, Rabat University in Morocco are all already doing application research and development in renewable energy sector.
While many challenges exists and I do not want to gloss over that, speaking for ACWA Power, a participant in the sector already investing in renewable energy and not just thinking or talking about doing it; we see lots of promise to meaningfully add significant value to socio economic development of MENA region.
Even in countries where power and water amenities are lacking, clean energy can be proposed as a viable alternative. To deliver electricity for a certain segment of the demand curve in any country in the MENA region, renewable energy is the most cost competitive solution today. In our part of the world it is very easy to illustrate this point. During the day, when the sun is shining, exactly at the time when we can generate solar power, there is a certain amount of additional electricity need to feed the additional air conditioning load and to cope with the reduction in output of the fossil fuel power plants.
Let us take just one example. So in Jordan the cost of generating that peak electricity today using fossil fuel is US 22 cents per kilowatt hour at today’s fuel price (the price at which the last IPP project IPP4 was awarded). Jordan is not an oil producer. It buys fuel on the market at today’s price. So by the way this 22 cents per kilowatt hour will go up if the fuel price goes up. At today’s price of solar energy we can deliver this same electricity US 15 cents per kilowatt hour. That means at two third the price. Also note that 15 cents cost will never go up as no one is charging for the sun. In fact as you buy more renewable energy this number can only go down in future years as technology improves and cost of renewable energy comes down.
Regardless of whether you are an oil producing country or an oil consuming country the story is the same across the MENA region. There is anything between 20% and 40% of the energy that is being consumed across the region that can be more competitively produced by renewable sources TODAY. This does not mean we now need to get tangled up in a discussion about demolishing existing fossil fuel plants (yes we need to but that is for a different reason; many of them are old and inefficient) But with demand increasing at 7%, we need to keep building new plants and so all we need to do is to start building renewable energy plants as fast as we can.
Paddy Padmanathan is President and CEO of ACWA Power. See interview with him in the January issue of Al-Bia Wal-Tanmia.