Laurent Longuet, CEO of SirajPower talks about UAE’s net zero target, financing, hurdles and prospects of renewable energy, and more in an exclusive interview with EQ International Magazine.
During an interview with EQ International Magazine, Laurent Longuet, CEO, SirajPower said, “If you are a bank and you want to develop some energy project abroad, you cannot do it anymore for coal, oil and gas because you won’t get the expert credit from the government…
Your alternative is to finance renewable energy… They will have to become more aggressive because they will love to develop their business in their region, they have no option. If they don’t, they die. So they will do it, and it will benefit our industry.”
Regulations and Energy Storage
The recently implemented net metering cap by DEWA was for technical reasons like grid protection. The regulation applied increases the ease of application and installation of a solar system. With these relatively straightforward regulations, it gets difficult to integrate very large solar plants of 10 MW, 20 MW or more. This could create a significant impact on the grid that the utility cannot control with such simple regulations. In the UAE, the government has set very aggressive ambitions to become carbon neutral for renewable energies and to achieve that, some new regulation will be in place.
Further explaining, Longuet said, “It will come with different caps, and it will come… with some incentive as well on installing some storage capacity because we know (from experience from countries with high solar penetration)… that it is needed to give some stability to the grid by adding some storage.”
“We have been working for the past two years on developing new business about storage and hybrid plants. Providing not only solar (energy) but providing solar (energy) with a battery system… In some circumstances where it is a remote site with a limited share of diesel generators, we strongly believe that with the electric vehicle… it is going to be massive very quickly in this region. Storage will become a key part of the pictures,” he added while talking about the future of developing solar.
Investor’s Opinion
Expectations in terms of the market: As a company from Dubai, SirajPower focuses on developing the domestic market. A strong local base is essential for equity investors while refinancing a portfolio, which has been SirajPower’s focus during the first three to four years of the company. Beyond Dubai, the rest of the (Middle East) region and especially the kingdom of Saudi Arabia is coming up with the necessary regulatory framework.
The potential is massive. When you extend to the rest of the UAE you can easily develop a good number. The population of Saudi Arabia is at least three times that of the UAE. This makes it more than 10 GW of potential with these two countries. He said, “This is the market we target. Taking the leadership, this will be our approach to grow our market with multi-GW targets in the region.”
Expectations in terms of finance: This capital intensive business requires significant CapEx investment. In terms of operations, it is relatively limited, and the fuel (solar elevation) is for free. It is essential for developers to work with banks. Laurent explained, “We have the past year to make sure that we are putting ourselves in a situation where we could refinance our portfolio beyond the equity funding that was initially made by our shareholders to be able to get access to some significant debt facilities.”
He added, “SirajPower, 15 months ago achieved with the first agreement with APICO (Arabian Plastic Industrial Company Limited), a bank from Saudi and Bahrain – the first time in the region, able to put in place a long-term not recurse debt facility, and this is how we are now developing the portfolio. We definitely have a plan beyond this first facility to expand with a pickup and obviously to get some more cash sources with portfolio going.”
Feather in the cap
In the C&I sector, rooftop projects were encouraged initially, more than ground-mount, he said while adding that the last project SirajPower did was with Emerson, an international group with headquarters in the USA.
Talking about the Middle East, Laurent mentioned facilities in Dubai with a 3MW-project, adding, “(This) is a typical project that we continue developing. We have (also) started… (to) put a lot of emphasis on the carport, covering car parking with solar canopy,” which has massive potential in the middle east summers.
“We are in (the) process of building two of such projects, one is for Lulu Hyper Market (hypermarkets in Dubai)… (And) recently commissioned with the Emirates group (is) two-megawatt solar projects. It is a Rugby stadium… When you have such facilities (like) large parking , these are good targets for carport.”
Discussing the last type of solution, Longuet said that his company is providing canopy styled projects in the C&I sector. He shared that the company planned a project with one of the PVC pipes manufacturing companies. He mentioned, “They have some home materials and solutions which are sensitive to sun irradiation and so they have storage areas which were causing them some trouble due to the impact of the radiation on their material. We have covered this storage area with quite a large and high (6-7 meters high) canopy. Now they are getting energy from this canopy, and the materials they store are protected from some radiation.”
Where the future of ME lies
“Eventually solar makes so much sense that all countries in the region will put the necessary regulation to get solar developed. In terms of, after UAE, Saudi and Oman… (are) the countries where this development will be massive (and) are countries with very high demand for electricity. So, the next two on the list are Egypt, given the growth of the population… GDP, (and) energy needs… And Iraq has a huge potential as well for development. They currently have a very limited production of solar energy, and the potential is massive.”
He explained, “When you try to figure out what will succeed or not, it is a lot about economics. And today, in all the countries that we have mentioned there is no cheaper way to produce electricity than solar. Solar is the cheapest source of electricity.”
Energy Market
Where there is some confidential and vivid public information about solar, there is less public information on large utility solar plants. The cost of electricity, irrespective of the technology, was consistent in this region last year. Solar is the cheapest way to produce electricity in the Middle East.
There are some plants that are producing electricity for less than two cents per kilowatt-hour, which is way less than other sources of electricity like coal, gas, fuel, PV plants, or diesel.
However, it is different for the C&I market because the solar plants developed by SirajPower are much smaller. The scale is a little different, but the company is capable of producing. As the owner of the facility, one can get energy from their own roof at a cost much cheaper than countries with unsubsidised tariffs.
Laurent quoted the example of Dubai’s unsubsidised green tariff and said, “Today you can easily get electricity from your roof at the cost which can be from 30, 40 (or) up to 50 per cent less than the retail. So, it is a very significant saving. When you can get electricity for so cheap then there is no option… people will go solar for sure.” He mentioned that it is going to take time because of regulations, proper solutions, available financing, but eventually, the change towards solar will occur.
Moolah Matters
The CEO compared the present situation to the condition of ground-mount utility-scale solar plants seven or eight years back. He mentioned that utility-scale solar plants were new to lenders, and getting some long-term debt was challenging back then. In 2012-13, when the first very large projects came, there were banks ready to engage in this direction.
He claimed that looking at the last large utility-scale solar plant, currently, those banks gained access to over 80-90 per cent (profit) and, in some circumstances, the tenure of 25-30 years and a very attractive interest rate. This was achievable because solar is very reliable and predictable. Now the banks are keen on financing solar.
Longuet mentioned, “For the C&I market, we are in a similar situation that probably we were for utility-scale six or seven years ago.” He added, “When you first go for C&I, you cannot finance projects by projects, you need to finance a portfolio of projects due to the size, and the risks are a bit different because you don’t rely on the single client; you have multiple clients. You don’t rely on utility to affect the power but on multiple industries or customers. So, the risks are different, but eventually, the approach is similar and… in the region in (the month of) July 2020, we have been able… to put in place a long-term recourse debt facility.”
Citing discussions at COP26, he highlighted that other countries have decided to stop supporting or financing the development of coal, oil and gas projects. Stating France’s example, he said, “If you are a French bank, and you want to develop some energy project abroad, you cannot do it anymore for coal, oil and gas because you won’t get the expert credit from the French government… Your alternative is to finance renewable energy… They will have to become more aggressive because they will love to develop their business in their region; they have no option. If they don’t, they die. So they will do it, and it will benefit our industry.”
In-Debt Financing
“We have seen that one of our competitors recently made a significant announcement with the same bank for their portfolio in Dubai. Although they are our competitors, we take it very positively because it shows that it is becoming mainstream and if two of us have been capable (of) doing it, it means that we will be capable (of) repeating the same. It means that we will be capable of expanding to some other countries and eventually, it will become mainstream to access such kinds of debt financing. So, we are in this transition period where… We have demonstrated it is possible. The conditions are not yet as good as for utility-scale solar plants, but it is going in the right direction, and I believe it is going to be very fast before becoming mainstream.”
Scope & Roadblock
There is a high level of solar irrigation in the UAE where major consumption of electricity (70 per cent) is utilised through air conditioners. In this region, one can produce more during the day than during the night, implying that one can provide a lot of electricity when needed. This is not the same in other parts of the world. In the ME, we need electricity during the day when we could use it, and that is why the potential for the region is massive unlike countries in Europe with high demand in winter and at night.
In terms of challenges, we are in a part of the world where production and distribution of electricity is very regulated, he said while adding, “We need these companies and this country to adopt some new regulations to a law for solar to be developed and to allow for companies like us to be put in a position to invest into solar… I think the main challenge is regulation and the positive thing is that it is being addressed, and it is… moving in the right direction in many countries in the region.”
Concerns with respect to:
1. Land: Given the regulation in the region, SirajPower produces electricity from the roof with the backing of their clients. In terms of land, the challenge is to find people with large roofs and large parking lots, who are interested in going solar.
2. Grid Connection: When the regulation was applied in January, it included the provisions on how to connect to the grid. He quoted, “If I take the example of Dubai, regulation is in place for solar, and it is very specific and detailed about how to connect to the grid. As a matter of fact, it is very effective because whenever we have companies interested in going solar, we find solutions to connect to the grid, and we are lucky in UAE, Saudi as well. The grid is available, it is strong, it is reliable, so we can find solutions.”
3. PPA: For the C&I, each client and system is different; therefore, the PPA and the contract signed with the clients are catered to their requirements. This is a challenge because it takes effort to adapt to the needs of the clients. However, SirajPower gets brownie points for its local approach as being a local company itself. It understands the client’s requirements and adapts.
Aggressive Bidding:
On being asked his views on aggressive bidding, Longuet replied, “It is definitely a challenge, but it is a good challenge to have because competition has helped in getting the price of electricity down over those past years, not only on the developer side but on the technology-supplier side. When you think about it, ten years ago, there were very few companies producing PV modules. The modules were extremely expensive… to the point that solar electricity was too expensive, and so the market was not there. Thanks to the competition, new players and training in this forte on the manufacturing of PV modules… The price has dramatically dropped… As a result, the market that was 10 years ago was a niche market. Today is the biggest market in terms of energy.”
He explained a similar phenomenon on the developer side, claiming that the competition has pushed everyone to be more competitive by bringing new technologies (and) cheaper sources of financing. Eventually, all the efforts going in the same direction is to continue lowering the cost of electricity to make it more competitive. He concluded, “Aggressive bidding is there, but I take it very positively, and I am sure we will continue being more and more aggressive in the future.”
UAE Net Zero by 2050
Speaking on the attainability of UAE’s net zero by 2050 target, he nodded with an affirmative yes, saying, “I think, not only is it achievable but it will happen way before 2050… If you go 10 years back, nobody would have bet any dollar on the UAE having multi-gigawatts solar plants on the ground. Nobody would have bet a single dollar on the fact that renewable energy today has driven more investment in 2020 than any other commercials. So, the same will happen for years to come.”
He added, “I don’t think we are figuring out what will come in terms of innovation. If you think, for instance, about electric vehicles, I have recently done the calculation… on the full life-cycle of a vehicle. Electric vehicles are now cheaper because they cost more to buy, but the fuel is very cheap. So, if you do the calculation of the other life of a car, it is cheaper. This means that (in) another two years you won’t find any good reasons to go for a non-electric vehicle, which means that massively people will shift to EV and when they do, they will need more electricity. That is what we provide.”
He believes that this will not be a linear change and won’t occur over the period of the next 20 or 30 years, but it will be fast and massive. This change will be driven by technology to develop, get electric vehicles, renewable energy even cheaper than today. However, this change would involve efforts from solar developers, banks, and regulators “to adapt the way to finance these developments.” He is optimistic given the momentum.
Increasing Affordability
The value of this equipment has fluctuated a lot in the last 18 months. During the COVID crisis, the projects continued to build because the crisis was very well-managed in the region. The cost of material and equipment was dropping because the demand was reduced.
Longuet explained, “We have been able to benefit from relatively lower prices in the post-COVID situation, (which) has led to unique situations where the cost of material, equipment and shipping have increased to the point where we have been in a situation where we are to redesign some projects… because the Capex increase was too high.”
He added, “In terms of trends, it is difficult to predict… We strongly believe that in the mid-term sometime next year, we should be back in a more steady situation. We should continue to see in the long-term when this is back to normal.” There are a lot of new innovations coming that tend to improve the efficiency of the equipment and reduce their unique cost.
Personal Journey:
About 20 years ago, Longuet attended conferences and meetings with some scientists talking about climate change and its impact. He was working in the energy sector when he realised that it was time to start taking action and tackle this issue.
So, he made a shift to clean energy to face this challenge, and that’s how in 2010, he started effectively working in solar. He pursued this journey through his expertise in building and project management.
He is driven by the desire to continue developing solar energy because a big part of our future and climate change issues will be about solar.
Company & its strengths:
Set in 2015, SirajPower is a local business located in Dubai.
What makes SirajPower unique is the sense that it is the only C&I developer in the region as a local company.
The CEO quoted, “We understand our clients. Most of them are like us, they are the local group. We are a long-term player, in a good position to serve them long-term “because when you go solar it is not for a year or two. It is for the long-term. It requires a significant investment, i.e. you save a lot of money, but you save a lot of money as long as you are ready to commit to the long-term. So, that is one element which makes us unique.”
It has established industrial capabilities on the ground in the UAE. Making it not only a developer and an investor but also a contractor and service provider. The company has integrated the scope that goes from development path to construction, financing, operation, and finally to asset management. It is the only company in the region that has a full capacity under the same umbrella.
Largest portfolio in the region with almost 200 solar systems and operations. He said, “We have experience, expertise and capabilities. It is essential for a lot of clients to make sure that they go solar with a company having the necessary skill and expertise to deal with projects in the long term.”
