Arabian Business – 2019 Expectations

Last year ended with a deal at the UN Climate Conference in Poland, a deal which sets forth a rulebook for the implementation of the 2015 Paris Agreement, and serves a serious reminder to the international community to renew its commitment to mitigate climate change. While fossil fuels will play a crucial role in the global economy for many years to come, to meet their climate targets, countries must increase the contributions of renewables in their energy mix. 

For Masdar, Abu Dhabi’s renewable energy company, the decisions to pursue bold renewable energy initiatives, at home and abroad, reflect the UAE’s commitment to meet the UN Sustainable Development Goals. They also make sound business sense. 

Thanks to technological advancements, cost decreases due to economies of scale, and the attractive risk profile of renewable energy investments, the economic case for renewable energy is stronger than ever. 

In a growing number of regions around the world, the cost of developing new generating capacity from renewables is cheaper than that of any other source. For example, while fossil-fueled power plants range from US$0.05 to US$0.17 per kilowatt-hour (kWh), depending on the technology and location, onshore wind costs are now routinely commissioned for less than US$0.04 per kWh, with a global weighted average of US$0.06, according to the International Renewable Energy Agency. And for solar, deals are being struck for new utility-scale solar PV plants to deliver power for less than US$0.03 per kWh, including the third phase of the Mohammed bin Rashid Al Maktoum Solar Park in Dubai.

While this news is certainly encouraging, challenges lie ahead for the integration of large shares of variable renewable energy sources like solar and wind. An integral part of overcoming this challenge is the incorporation of utility-scale energy storage solutions which smooth out the unbalanced output produced by variable sources. Storage also reduces the need for fossil fuel ‘peaking’ power plants – which are turned on to meet peak energy demand – and reduce the carbon emissions that those plants produce. 

Storage has long been a part of the Masdar DNA. Ten years ago, Masdar first recognised the enormous potential of CSP to improve grid flexibility and provide solar power 24-hours a day when it developed the world’s first utility-scale tower CSP plant to provide renewable energy day and night. The 20MW Gemasolar plant’s high-temperature heat storage system using molten salt allows it to operate long after the sun sets.

Today, advancements in energy storage technologies, coupled with dramatic cost declines in lithium-ion batteries, are increasingly positioning modern renewables as a supplier of baseload electricity. This represents a significant shift in the role renewable energy can play in powering our growing economies.

Since 2010, the cost of lithium-ion batteries per megawatt-hour has dropped by 80 per cent. And with further cost declines expected, batteries are set to drive a boom in the installation of energy storage systems around the world. According to Bloomberg New Energy Finance, the global energy storage market will attract over US$600 billion in investment over the next 22 years.

Capitalising on these emerging trends, Masdar is bullish on the potential of storage to transform the renewable energy sector and as such, has embarked on a number of projects integrating energy storage. 

Batwind is one such project. Launched in 2018 with our partner Equinor, Batwind is the world’s first battery to store electricity generated by an offshore wind farm, Hywind Scotland. Batwind is a ‘smart’ battery, which, through data algorithms, stores and releases power at the optimal time, while intelligent analytics help in decision-making. This makes output from the wind farm more stable, reliable and valuable. 

We are also tendering for a project in Morocco that would see the deployment of the largest hybrid CSP-PV plant in the world. The hybrid project would feature a pioneering design that combines low-cost PV with CSP storage capability on a single site. Hybridized plants like this can increase power capacity by allowing the thermal energy generated by the CSP plant to be stored as heat and used to produce electricity at night, while the PV plant generates electricity during the day.

All these advancements in technology, however, have historically outpaced advancements in financing, as lenders still too often perceive renewable energy as a risky investment. As a result, the cost of capital has been higher for utility-scale renewable energy projects. But that tide is turning. 

This is best illustrated by the recent re-financing of the Dudgeon Offshore Wind Farm that reconfirms the strong bankability of Dudgeon and further reflects the market appetite for large-scale assets which have a robust credit profile, transparent economics and are subject to stable regulatory environments.

For Masdar, all these trends together translate into new markets and new sectors. While we will continue to invest in our priority geographies of the GCC, MENA and Europe, we are also entering new territories such as the Americas and Asia, including India and Indonesia, where demand for electricity is soaring. And while Masdar’s focus remains on large-scale solar and wind projects, we will continue to invest in new growth opportunities like our joint venture with Bee’ah to develop the Sharjah Waste-to-Energy Plant, or other innovative solutions like floating solar which can continue to bring steady financial returns for our shareholder.

Supplying the energy our global economy needs while addressing climate change remains a critical challenge. But given current trends, we are confident that a business strategy that has technological and financial innovation at its core will put renewable energy into a strong position to meet it.