Solar Power Cost to Equal Fossil Fuel Expense Within Decade, BP Forecasts

The cost of generating power by capturing the sun’s energy will fall about 10 percent a year in the next decade until it equals the expense of producing electricity by burning fossil fuels, a BP Plc official said.

As conventional fuel prices rise and solar power falls, generation costs may reach parity in as little as five years for some fossil energy sources, Vahid Fotuhi, Middle East director of BP Solar, said at a conference in Abu Dhabi yesterday. Solar power costs about 20 cents a kilowatt-hour now, he said.

BP installed about 200 megawatts of solar capacity last year and aims to add 300 megawatts of that generation source this year, Fotuhi said. The company aims to pursue large-scale solar projects in the Middle East, he said.

Persian Gulf states are boosting power supply to meet rising demand from growing populations as they aim to spur economic growth through investment. Saudi Arabia and the United Arab Emirates are studying nuclear energy and setting targets for generation from renewable resources to diversify supply.

Saudi Arabia, the world’s largest crude oil exporter, may start projects to build 200 to 300 megawatts of solar generation capacity within the next few years, Fotuhi said.

Photographer: Ken James/Bloomberg

As conventional fuel prices rise and solar power falls, generation costs may reach parity in as little as five years for some fossil energy sources. Close

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Photographer: Ken James/Bloomberg

As conventional fuel prices rise and solar power falls, generation costs may reach parity in as little as five years for some fossil energy sources.

The kingdom is one of the main Middle East markets where renewable projects may take off, said Steve Mercieca, associate director for Renewable Energy and Environmental Finance at Standard Chartered Plc in Dubai. Egypt is also set to grow because of its “insatiable appetite for power,” he said.

Improving Technology

Solar power expenses are declining as technology improves, the speakers said. Fossil fuel costs may climb with oil prices that are expected to rise to an average of $94.50 a barrel in 2012 and to $102.13 a barrel in 2013, according to the weighted average of estimates from 35 analysts compiled by Bloomberg.

Several tenders to build plants with capacities of about 10 megawatts each will be announced in the Middle East and North Africa in the next year, said Sami Khoreibi, chief executive officer of Abu Dhabi-based Enviromena Power Systems. Enviromena built a 10 megawatt plant at Masdar, the renewable energy and low-carbon city project being built in Abu Dhabi.

Abu Dhabi, the largest emirate in the U.A.E. and holder of most of its oil, is also building a 100-megawatt solar plant in the desert. The emirate has set a target of generating 7 percent of its power from renewable resources by 2020.

Energy subsidies in the Middle East help to increase usage, Khoreibi said. Consumers in the Persian Gulf region pay only about a third of the real cost for power, Fotuhi said.

Abu Dhabi residents are set to see the real price of electricity on their January bills, though they will still only be required to pay the subsidized price, The National reported today. The government, which pays 86 percent of the bill for U.A.E. nationals in Abu Dhabi and 50 percent for foreigners, aims to entice residents to cut usage by showing the real cost of energy, the newspaper reported.

To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net.

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net.

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