What is going on with Middle Eastern solar prices, and what does it mean for the rest of us?

For the third time in a decade, solar energy pricing records are tumbling in the Persian Gulf. As each previous wave of new records was met with incredulity, only for these prices to become the new normal around the world within a few years, it would be unwise to once again dismiss low prices as unrepresentative outliers. In this study, we show how local conditions and global macroeconomic factors have conspired to bring solar energy into a new regime of extreme affordability in the region and argue that the Gulf market, especially the United Arab Emirates and Saudi Arabia, represents the leading edge of the global learning curve and therefore offers a window into the likely near future of large‐scale photovoltaics around the world. As this future increasingly appears to be one of previously unimaginably cheap energy, we conclude with a discussion of the ways in which the region and the world can seek to meet the opportunities and challenges of the coming renewable revolution.


| INTRODUCTION
Over the last several years, the oil-rich Persian Gulf region has emerged as a global leader in photovoltaic deployment and pricing.
Large utility-scale projects totaling over 7 GW of capacity have been ordered since 2015 in Saudi Arabia, 1 Qatar, 2 Oman, 3

and the United
Arab Emirates, 4,5 mostly under long-term power purchase agreements (PPAs) that have consistently broken global pricing records. 6 The region has proven to be a bellwether for global solar trends, with pricing records set in the Gulf being replicated around the world in subsequent years. 7 Hence, it is of global interest to understand the factors leading to solar pricing records in the region, as guidance in developing pro-solar policies elsewhere or simply as a window into possible future trajectories of the global market.
In a previous work, 8 we investigated the factors that allowed record-low prices under 3 ¢/kWh-widely seen as the "tipping point" for solar to be economically favored over coal or gas plants for new generating capacity 9 -to be realized for two GW-scale photovoltaic projects in the UAE, announced in 2016-2017. 4,10 That work was undertaken in response to widespread skepticism regarding the viability of the announced prices and a common suspicion that they were achieved only with large hidden subsidies that could not be replicated globally. Our analysis contradicted that belief, demonstrating that rapidly declining hardware prices, local standard business conditions, and access to generous financing packages on favorable but realistic terms were the major factors contributing to the observed low prices. In the intervening years, the market has validated our assessment as global average prices for utility-scale solar capital expenditures (CapEx) and generation costs in comparable climates have declined to the levels observed in the Gulf at the time of our initial study. 11 It is therefore of some interest to see the Gulf region (henceforth denoted by the local moniker "GCC," referring to the Gulf Cooperation Council of Kuwait, Bahrain, Qatar, Oman, the Kingdom of Saudi Arabia, and the United Arab Emirates) entering a new pricing regime once again with a new round of mega-projects in several countries.
PPAs are now routinely awarded for prices well below 2 ¢/kWh, 12 including most recently the 2-GW Al Dhafra solar project in Abu Dhabi with an awarded PPA price of 1.35 ¢/kWh. 13,14 This pricing represents the crossing of a second and perhaps more consequential tipping point, where solar energy becomes economically favored relative to existing fossil fuel capacity. 15,16 That this second barrier is crossed at a time when renewables have only recently been shown to be economically superior to maintaining fossil-fuel capacity with carbon capture 17   also holds a 51% ownership stake in the plant, with the remaining ownership shares held by the project developers, Saudi Arabia's ACWA Power, and Spanish contractor TSK Solar, a common feature of the regional solar industry where ownership is often shared between the developer as an independent power producer (IPP) and the utility. The pricing record that inspired the previous analysis was set almost simultaneously by the PPAs signed for the 800-MW phase 3 of the MBR solar park (MBR3) and the 1.17-GW Noor Abu Dhabi project near Sweihan in the Emirate of Abu Dhabi, with PPA prices of 2.99 and 2.94 ¢/kWh, respectively. 20 The Dubai project was developed by a consortium of two state-owned project developers, Abu Dhabi's Masdar and France's EDF, 21 whereas the Abu Dhabi project went to an Asian consortium led by Japanese conglomerate Marubeni and Chinese PV manufacturer JinkoSolar. 22 Both projects received generous financing packages from consortia of local and international banks. A fourth project, Saudi Arabia's inaugural solar plant in Sakaka (300 MW), had received a bid from Masdar for 1.79 ¢/kWh, 23 assumed to be based on bifacial module technology and some extremely aggressive assumptions, 24 but was eventually awarded to ACWA at 2.34 ¢/kWh. 25 We found that the majority of the price reduction relative to the UAE projects could be attributed to the superior solar resource in Sakaka compared with the UAE sites.  30 We note that capacities in the region are typically reported in MWac, although in the case of Qatar's 800-MW Al-Kharsaah project this is not stated explicitly.
Some reports from suppliers 31 indicate that the reported capacity may in fact be DC; however, our cost modeling indicates that the reported PPA price is more plausible if the reported capacity is AC, in keeping with the regional standard. Therefore, all capacities given in this study are assumed to be in AC unless stated otherwise. Although less active than their GCC neighbors, Bahrain has ordered a 125-MW PV project on the Al Askar landfill site, 32 and Kuwait has received bids for a 1.5-GW plant. 33 Bids in both countries remain above 3 ¢/kWh, perhaps owing to a comparative lack of investment in solar relative to their neighbors. After some initial difficulties, Kuwait, at least, seems to be aiming for a reset, withdrawing its original tender for the Dibdabah plant, 34 which was reported to be an engineering, procurement, and construction (EPC) contract for a utility-owned plant, and now stating its intention to reissue the tender under the IPP model that has proven successful for its neighbors. 35 Financing has been a crucial component of realizing large projects at low PPA prices, with financing packages characterized by high debt loads and low interest rates typically being provided by consortia dominated by local banks and institutions from the developers' home countries, although other regional and global players have increasingly entered the regional market. Chinese banks in particular have become a major source of financing in recent years, 36,37 with GCC solar projects being hailed as success stories is the country's ambitious "Belt and Road" global investment initiative. 38 Japanese banks have played a prominent role in financing Qatar's solar development. 39 Table 1, along with additional information on the projects' technical specifications, financing information, and the various stakeholders. Analysis of the factors contributing to generation costs can be done by evaluating the levelized cost of electricity (LCOE) as where C is CapEx, O i is operating expenses (OpEx) in year i, E i is energy generation in year i, L is the plant lifetime in years (or the PPA duration if no residual value is assumed), and r is the discount rate.
This r can be taken as the internal rate of return (IRR) of the project at a given price point or as the weighted average cost of capital (WACC) if the financing terms are known and the LCOE represents the minimum sustainable price of electricity.
To understand what has changed over the last few years, we compare the calculated LCOE for MBR3 and MBR5 using cost figures publicized for the two projects and assuming the same plant configuration, but with bifacial modules used in MBR5 as has been reported. 12 Overall CapEx has been announced for both projects in press releases dealing with the financing of the project, totaling   This mindset has proven valuable in explaining the evolution of global PV manufacturing, 64 and can likewise offer insights into the changing economics of PV project development.
We first consider a number of factors that were first identified in our 2018 study. The first is that auction bids have been characterized by forward-looking cost projections-developers will tend to bid not based on the market price of hardware at the time of bidding, but on the prices, they expect to pay a year or more in the future when hardware is actually being ordered. As strong downward pricing trends continue, this pattern of aggressive forward-bidding can be expected to hold.
A second factor, somewhat controversial, relates to economies of scale. Past studies of U.S. and global utility-scale solar economics have delivered an uncertain verdict on whether large projects achieve lower per-watt costs than mid-sized projects, leading to a widespread impression that economies of scale are a less significant factor than might be expected in utility-scale solar projects. 11 This, however, does not fully align with the experience of the Gulf region. In multiple cases, tenders have been issued for projects of a given size, only to be scaled up in agreement with the developer upon signing the PPA, suggesting that developers may see a benefit to increased capacity that leads them to accept a lower-priced PPA. 48,65-67 Whether this indicates a substantial cost saving for the developer is uncertain. It is also possible that developers accept lower margins in exchange for a benefit that larger projects provide for their overall business model.
These benefits can include reputational factors-"bragging rights" associated with developing larger projects and gaining market shareor potentially the benefit of experience-that the developer has its own learning curve, and building larger projects allows it to move faster down this learning curve and reduce its costs for future projects. 6 The recent tender in Saudi Arabia 30 provides a natural experiment, as bids have been received for six projects ranging in size from 20 MW to 600 MW. As of this writing, the two lowest bids have been publicized for each project except the 600-MW Al-Faisaliah project.
In Figure 3,

| LEARNING CURVES FOR UTILITY-SCALE PV
The consider the next steps that should be taken prepare to fully take advantage of the coming energy transformation.

| ENERGY, ECONOMY, ENVIRONMENT: PREPARING FOR THE RENEWABLE REVOLUTION
The coming shift to extremely low-cost renewable energy, suggested by recent developments in the Gulf and other low-priced solar markets, will be a generation-defining transformation. There will be opportunities as well as challenges that must be met, not only from a technical perspective but also from that of society more broadly. 71 By way of conclusion, we discuss briefly some of these challenges and how the region's solar energy pioneers are attempting to meet them. become an area of some concern for the global industry. A significant amount of research has been put into life-cycle analysis of photovoltaic modules, 57,81 with some studies suggesting that depending on the environmental and energy efficiency standards applied to their production, the overall impact of photovoltaic manufacturing can vary by a significant factor. 82 Environmental impacts include both carbon and energy intensity and a range of issues related to resource extraction, manufacturing, and end-of-life. 83 The establishment of a circular economy for photovoltaic modules will be key to mitigating these and creating a maximally sustainable solar energy industry. 84 Deployment of photovoltaics has some associated environmental impact as well- Dhabi project was reported to have taken precautions to avoid disturbing the habitats of endangered desert lizards. 49 Taking the mindset of minimizing interference with the natural world-a key component of any holistic approach to sustainability-next-generation technologies will likely have a substantial role to play in enabling dual land use (urban, building integrated, and agricultural photovoltaics), and maximizing solar resource utilization through hybridized or "multifunctional" solar collectors. 85

| CONCLUSIONS
In this work, we have surveyed the expansion of photovoltaics in the GCC region and investigated cost trends, in particular focusing on the dramatic reduction in PPA prices from 3 ¢/kWh at the time of our last study, to 1.5 ¢/kWh or less in several countries. Noting that the region has seemed to be a bellwether for global pricing trends, we investigate the factors leading to this latest round of cost reductions from a holistic perspective, considering component pricing trends, the interests and business models of the various stakeholders, and the industrial learning rates for photovoltaic system costs in the region compared to global trends. This analysis indicates that the Gulf, rather than being qualitatively different from the global market, rather benefits from a confluence of factors including favorable financing conditions, low costs of doing business, a strong presence of highly experienced project developers, both domestic and foreign, and of course a strong solar resource, that consistently yield prices that are low by global standards, but whose evolution over time is similar to global trends. Hence, the Gulf market can be seen as "advanced" relative to the global market-further down the learning curve but not qualitatively unique-and therefore can offer into a window into the likely future trajectory of photovoltaics globally. In this case, the "crystal ball" of the Gulf market predicts that global solar electricity prices will soon enter a regime that will favor the decommissioning of large numbers of fossil fuel plants and the rapid transition to a renewable-dominated energy system. We have summarized in a cursory way what we believe to be the biggest challenges and opportunities implied by this transition. Further understanding and responding to these opportunities and challenges will be a critical goal of future work in both the technical and policy arenas.