The unpredictability of fossil fuel prices is a boon for solar power, even when the direction of those changes is downward, according to the head of a Middle East-based EPC firm.
A new report by consulting firm Frost & Sullivan concurs, adding that despite the recent drop in oil prices from US$100 a barrel in August 2014 to US$58 in February 2015, renewable energy is still a competitive investment.
Despite the drop, the fact that electricity prices have numerous other drivers coupled with the perceived price volatility means solar remains competitive.
“It’s very hard to predict what direction oil prices or gas prices are going to go,” Sami Khoreibi, CEO of Abu Dhabi-based EPC firm Enviromena said in the latest edition of PV Tech Power magazine.
“Solar power systems have a 25-year life and you are capturing that price of electricity for 25 years all at once. So if we're looking at the case for solar I think it is strengthened when we see massive swings in [traditional] energy cost. We're still more competitive than oil-fired power plants but to a lesser extent. I think the predictability of our feedstock – the sun comes up and the sun goes down – is something that should supply a degree of comfort not just to regional governments but to all power producers globally.”
The Middle East is a varied market with high electricity prices in some countries and artificially low, subsidised prices in others. For governments, a low-cost generation option with greater predictability is an economically sound decision.
“We're starting to see that in places like Egypt and Jordan and even parts of the UAE where you have the high delivered costs of electricity,” said Khoreibi. “Solar projects are being driven and led by private sector players outside of the framework of government programmes. We're simply displacing higher cost energy. The underlying economics of any source of any energy are what is going to drive growth in an industry and, for solar, they are quite compelling.”
Frost & Sullivan warns that renewables are not the only generation technology that could benefit with falling natural gas prices also impacting the market.
“The lower oil price could provide a boost for natural gas usage in power generation as declining spot prices make it more affordable,” said Jonathan Robinson, senior consultant, Frost & Sullivan. “Close to 30GW of gas-fired plant capacity has closed in Europe since 2012, but lower gas prices and some government support programmes should prevent more large-scale closures.”
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