Renewable energy: Changing perception

If the worlds largest oil producing country seeks to invest $50 billion in the renewable energy sector, it is definitely time to start paying heed to the changing energy dynamics across the globe. Saudi Arabia aims to generate roughly 10,000 MW from wind and solar energy by 2023.

Even more ambitious is the kingdoms plan to generate 70 percent of its energy mix through gas and 30 percent from renewables and other sources. One reason is the diversification benefits the Saudi Arabia desperately needs given the persistent slump in oil prices and the inability of OPEC to take corrective action in the face of increased supply of American shale production.

Another reason is the ever decreasing trend of renewable energy costs, which have been in some cases cheaper than fossil fuel energy. Combine that with the extremely cheap cost of capital that Middle Eastern firms can muster and a debt to equity ratio that ranges along 85:15, renewable energy holds immense promise for that part of the world.

For example, ACWA Power that recently gave the lowest tariff ever for solar in a UAE project, is owned by eight Saudi conglomerates, Sanabil Direct Investment Company (owned by the Public Investment Fund of Saudi Arabia) along with the Saudi Public Pensions Agency and the IFC. So you can well imagine the financial and resource muscle they can muster up.

It warrants attention that the leading oil producer is indicating a shift in its long term energy policy, which is reflective of the growing space renewables will possess in the global energy landscape in the coming decade.

Pakistan is blessed with an enormous amount of renewable energy resources that include exceptional solar insolation, extremely good wind energy potential; 1054 KM long coastal line with a resource of tidal energy and a large livestock population and agricultural waste to generate bioenergy.

However, the impression is that renewables, which the Ministry of Water and Power (MoWP) argues cannot become base-load should be given lower priority at the moment. A visible example is the treatment of wind power IPPs, which have faced considerable constraints in getting grid connections from the National Transmission and Despatch Company (NTDC).

On the other hand, it is encouraging to see the regulator shifting its regime toward competitive bidding from the former upfront method. It gives a signal that the market is ready to be opened up for competition amongst considerable interest from both local and international investors. As the country is undergoing a major transformation in its energy sector, it is a good time to ponder upon the long-term energy mix and the role of renewables in it.