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16 July 2020

Kuwait cancels 1.5 GW solar plant, but wants to bring it back at 2 GW

Kuwait has cancelled its 1.5 GW Al-Dabdaba solar plant, which would have been 7% of the country’s generation capacity.

However, the project may see second life, being transferred from the financially challenged state-owned oil company Kuwait National Petroleum Company (KNPC), to the Ministry of Electricity and Water.

The Ministry has the technical ability to foster such a project, but cannot fit its cost into its annual budget. Instead it will seek to implement it through the Partnership Projects Authority, for which it needs approval from the Council of Ministers. The relaunch of the already much-delayed project may require at least a year.

On the plus side, the several years of delays have seen technological improvements to photovoltaic panels, which will allow the project to have more capacity installed in the allotted space at a lower cost. The originally 1.5 GW project may rise again at a 2 GW scale.

The immediate reason given for the cancellation, recommended to the cabinet by economic advisors, was the Coronavirus’ impact on global oil and finance. But this was only the proximate cause, as the project has seen a series of delays stretching back years.

The project was announced by the Minister of Oil in 2017, and KNPC tendered the project in September 2018: a series of delays ensued. Bids were received in April 2019, followed by another stall from the state authorities.

There appears to have been a divide in attitudes between KNPC and Kuwait’s Audit Bureau. In May 2019, the KNPC warned against cancellation, citing the reputational damage that would be inflicted to Kuwait’s credibility regarding large-scale developments. KNPC also mentioned that the Audit Bureau’s opposition to Al-Dabdaba would impact the country’s target of 15% renewables by 2030.

It was to have been built in five 300 MW phases, the last of them coming online in 2021, sited in the Al-Shagaya Renewable Energy Park. Bidders were required to source 30% of services, material and equipment from Kuwaiti firms, and to sign a 25-year O&M contract.

The lowest bid received was $1.43 billion – quite typical for a project of its size. KNPC was to borrow $1.1 billion and contribute the rest from its own coffers. Earlier this month when KNPC was still waiting for a response from the government on the issue, the three possibilities were to accept the existing lowest offer, to re-tender and seek a lower cost off the back of technological advancements, or to cancel the project.

In the event, the government’s economic advisers decided KNPC’s financial position had been weakened too much by the oil demand collapse, and the company was ordered to focus on its central mission of maintaining its market share in the global oil market. Up to this point, $4.2 million had been spent preparing for the project.

Like so many other oil companies in the past few months, KNPC has been forced to slash spending, cutting a number of nonessential expenditures in March.

Even before the Coronavirus oil glut fell on these countries’ finances in 2020, they have been realizing the need to diversify their economies and their power use away from oil. Gas and oil will still dominate their energy mix, but some huge solar projects are being seen too. At the start of this year the other Gulf states had 2.4 GW solar installed and 7.27 GW of solar tendered between them including several gigawatt-scale projects, so Kuwait’s Al-Dabdaba proposal was part of a consistent regional pattern, which Kuwait can be expected to catch up to eventually.

The region naturally has plenty of sunshine, although this is partly offset by the high temperature of the region; a 40-degree temperature rise for the panels, which become that much hotter than their surroundings under strong sunlight, reduces output by 20%. Dust had been another concern, but results from Kuwait’s 2016 pilot solar plant, Sidrah 500, showed that dust buildup was minimal, reducing output by only 1 to 3%.

Kuwait’s energy situation has further commonalities with its neighbors – 70% of residential power demand is air conditioning, water desalination is another big source of power consumption. Kuwait’s power mix is 50:50 oil and gas, and domestic consumption of oil and power is profligate, spurred by high subsidies. Energy subsidies were estimated at 8% of national GDP in 2016. The country has suffered brownouts in recent years, with a declining reserve margin which was expected to fall to only 8% in 2020.

Ironically, these massive oil exporters are net importers of natural gas. Development of their gas reserves is an expensive prospect, leaving renewables as the main option to limit the growth of natural gas imports.

Last year, the country’s capacity mix was expected to be 16% renewables, 25% oil, and 59% gas in 2035, when baseload capacity will be at least 50% higher than it is now, reaching 32 GW. That means around 5 GW of renewable capacity – with a capacity factor of around 25%, that is still only a small fraction of total generation.

Moreover, these predictions were made before Coronavirus, the oil glut, and the Al-Dabdaba cancellation. Kuwait has become a laggard compared to the other Gulf states, even before the cancellation. Meeting the long-standing government target of 15% renewable generation in 2030 will need several more gigawatt-scale projects.