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From black gold to light

Published online 15 October 2018

How did Middle Eastern solar power become so cheap, and what can we learn from it?

Kristopher James Kent

Understanding the factors driving record breaking solar energy prices in the Middle East could provide transferrable insights that benefit the whole industry.
Understanding the factors driving record breaking solar energy prices in the Middle East could provide transferrable insights that benefit the whole industry.
Nature Energy / Maritsa Kissamitaki Enlarge image
When record-breaking bids to provide low cost solar energy to the Middle East began appearing from 2016 onwards, some commentators suspected that hidden government subsidies or loss-leader tactics were at play in order to secure a position in a burgeoning industry. In a region so synonymous with oil production, the surprisingly low solar prices from relative newcomers to the renewable energy game raised eyebrows. Now, an analysis published in Nature Energy aims to explain the factors that enable such low-cost renewable energy in the region and evaluate whether the prices offered are replicable in open market conditions. 

The study, published by researchers from Khalifa University of Science and Technology, Abu Dhabi, and the Dubai Electricity and Water Authority (DEWA), highlighted three projects in the Middle East promising cheap solar power provision. 

In June 2016, DEWA announced their decision to award the development of the 800-megawatt third stage of the city’s Mohammed Bin Rashid Al Maktoum (MBR) Solar City to the renewable energy consortium Masdar, who bid to sell the power at a price of 2.99 cents (USD) per kilowatt-hour (¢/kWh) — the first in the world to break the 3¢ barrier. 

Following this, the UAE’s largest solar power project, the 1170MW Sweihan solar park in Abu Dhabi, was awarded in May 2017 to Japanese and Chinese developers who bid to provide at 2.94¢/kWh. Saudi Arabia further added to the Middle East’s solar portfolio in February 2018 when the kingdom’s Sakaka solar park contract went to ACWA Power for a power purchasing agreement price of just 2.34¢/kWh.

Political advantages

To reveal the factors behind these low prices, the researchers gathered the global average cost-factors of developing a solar farm early in 2016, when the MBR third phase bid was being constructed. They then factored in the local conditions of the UAE to see if they could rationalise the rapidly declining prices seen in recent developments as profitable. The analysis yielded a number of cost-minimizing conditions that, taken together, put all of the above solar panels within the realm of feasibility. 

Long-term political systems in the Middle East favour stability, which gives banks the confidence to offer credit for such long-term projects at reduced interest rates. 

Long-term political systems in the Middle East favour stability, which gives banks the confidence to offer credit for such long-term projects at reduced interest rates. The 30% tariff recently imposed by the Trump administration on solar module imports to the United States illustrates how such predictions more difficult to make under different conditions, says Matteo Chiesa, professor of material science and engineering at Khalifa University, and the leader of the research group.

“Different parties come in with different visions and priorities, and may cause uncertainties that will end up costing more in terms of financing, which ultimately results in a higher cost of the electricity,” Chiesa explains, adding that uncertainty makes it harder to predict the declining cost of hardware over a period of time; a key component of a low, long term pricing strategy.

“Additionally, the strong influence of regional governments over private businesses helps to align financiers, developers, and suppliers towards large scale projects. The government here [in the UAE] is very keen to get these projects established. You can see this in the fact that the government is pushing private banks to participate in financing,” he adds.

A template for global solar?

The Nature Energy analysis highlights that in the right environment, cheap solar power outside of the Middle East is not only possible, but already a reality. Recent solar developments in the United States, Mexico and Chile have all seen bids below the 3¢/kWh line. But achieving this in any location requires a high degree of local knowledge and a balancing of the many factors that determine the eventual energy price.

The Middle East benefits from a cheap workforce from nearby India, the report reveals, predicting that the labour cost in the US is as much as 50 per cent higher. “If you were constructing a plant in Chile, and let’s say the developer comes from Europe, it’s very likely they’ll need to bring workers from Europe to supervise the development, which makes it pretty expensive,” says Olaf Goebel, chair of energy technology at Hamm-Lippstadt University of Applied Sciences, Germany.

On the flip side, Chile’s Atacama Desert benefits from the greatest solar radiation exposure on the planet and these outsourcing costs, says Goebel, who wasn’t involved in the study, can be reduced over time with continued investment and the development of local skills and service providers. 

Chiesa says that despite having higher labour overheads, developments in the US and Chile may benefit from reduced operational costs, as solar panels in the Middle East may need more intensive cleaning to rid them of sand.

A critical determinant of a solar farm’s price point is its geographical location. Even with ideal financial and political support, a solar farm in a cloudy location will yield less electricity, which will subsequently need to be sold at a higher price in order to cover costs. “If you took a plant from Germany, where a cost of below 6¢/kWh has been achieved on the open market, and put it in the UAE, you’d achieve less than 3¢/kWh,” explains Goebel.

Chiesa says he’s buoyant about recent solar developments in the UAE. “Twelve years ago, when I began living in the UAE, there was not one single solar project here. Now the UAE provides some of the cheapest solar power in the world.” 

“I think that the solar industry is pretty confident in what they can deliver and has a pretty good idea of where they’re going,” Chiesa adds. “And by the way, they are profitable — even with the price reductions. What I’d like is more confidence from the financial sector. It’s a long term thing and it’s here to stay.”

Goebel believes that solar prices will stabilize around the 3¢/kWh mark for the foreseeable future. “My guess is that in the next five or ten years, the cheapest project will be in that range, but it will take some years to make this a sustainable figure.” Considering ever-decreasing solar power purchase agreement prices, however, such as 2.49¢/kWh for the Solar1 project in Arizona, it remains to be seen when the downward trend will stop.


Apostoleris, H. et al. Evaluating the factors that led to low-priced solar electricity projects in the Middle East. Nature Energy https://doi.org/10.1038/s41560-018-0256-3 (2018).