Super Cheap Solar Power for Dubai

DEWAplotThe Dubai Electricity and & Water Authority (DEWA) just completed a tender for 100 MW of solar PV, and the delivered power system price is an amazingly low $0.059 / kWh.

Typically, the leveled cost of energy for solar PV is between $0.085 – $0.11 / kWh for GCC countries given solar irradiance, use of high efficiency panels, and cost competitive engineering. The low end of this range is best suited for vertically integrated OEMs with EPC services, or IPPs with scale in equipment purchasing who buy modules close to the cost of goods sold.  But IPPs with low construction costs are making their mark.

ACWA Power of Saudi Arabia had the price that won the tender:

  • The ACWA offer is below what most GCC utilities pay wholesale for thermal power, which lies between $0.06 – $0.08 /kWh, depending the value of oil and natural gas delivered under “strategic” contracts.
  • ACWA – an owner, investor and operator of 16,000 MW of generation – underbid even the vertically integrated module suppliers and EPC companies First Solar and SunEdison.
  • Ironically, ACWA is sourcing First Solar panels, which confirms that the cost advantage has to be a combination of scale in EPC contracting, financial engineering and low profit margins.
  • As the chart reveals, ACWA is an outlier from the typical offer.  Financial engineering that relies on debt financing will be common to all firms.  Hence, the contract and cash flow innovations that would justify this low bid have to be something else.  One plausible answer is that ACWA has somehow structured other energy profits into the price, like displaced fuel savings (for more info see this article).  This would assume ACWA has better market access and opportunities to monetize the displaced fuel.
  • It is interesting to note that the two foreign utilities that made it into the final round, EDF and NRG, were not competitive.  Low cost of capital, typical of regulated utilities, is not enough to win tenders.
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