The head of $25 billion Saudi power firm ACWA Power says that the cost of solar technologies are falling so quickly that within a few years the combination of solar PV and solar towers with storage will be able to compete directly with base load fossil fuels.

Paddy Padmanathan, whose company has 15GW of mostly fossil fueled generation in its portfolio, but is rapidly expanding into solar, says the plunging cost of solar PV, and the dispatchable nature of solar towers with molten storage, make them a compelling option.

“We are looking to integrate solar PV and CSP (concentrated solar power), and then fossil fuel base load head on,” he said in an interview with RenewEconomy this week in Abu Dhabi.

Last week, ACWA stunned the solar industry by winning an expanded tender for a 200MW solar farm in Dubai with a bid of 5.84c/kWh over 25 years. In the first year, the plant will get a tariff of just 5.1c/kWh.

A week earlier, ACWA was also involved in a record low bid for solar towers plus storage, and will build a 100MW plant in Redstone, South Africa, using technology (pictured below) from the US-based Solar Reserve, which is about to complete its first plant in Nevada. The first year tariff for the first year of the South African project is 12.4c/kWh, and it will average out around 15c/kWh over 25 years.

The bidding has stunned rival developers, and one, losing PV tenderer SkyPower, this week publicly questioned – at the World Future Energy Summit in Abu Dhabi – whether ACWA would actually get a return from the Dubai investment, and whether such prices could be sustained.

Padmanathan insists they can. He predicts the levelled price of solar PV plants will fall to around 4c/kWh within a few years. And he says the pricing of solar towers with storage will fall to around 9c/kWh.

When that happens the combination of ultra cheap solar PV and dispatchable solar thermal will mean solar can compete with base load fossil fuels. They will not just be cheaper than coal and gas, but just as reliable, cleaner, and will lock in a price for 25 years without fuel price volatility.

Padmanathan predicts that solar – a combination of PV and solar thermal and storage – could make up more than half of the 140,000MW that he expects to be built in the Middle East and north Africa region (MENA) over the coming two decades.

“This a big deal. It is not a one off thing,” Padmanathan told RenewEconomy in an interview. “This is completely unsubsidised. It is 20% lower than what has been achieved so far, and 30 per cent below gas fired generation.

“In this part of the world, where there is plenty of land, and a good solar resource, we can compete head on, and like-for-like with fossil fuels.”

Indeed, the numbers being talked about in Abu Dhabi seem so far removed from what is happening in the rest of the world that it appears difficult from those of the large developed economies to comprehend, be they incumbent utilities, renewable energy developers, or policy makers and analysts.

This was a point underlined by Adnan Amin, the director general of the International Renewable Energy Agency, who said the price bid by ACWA was a stunning result. “The market is shaken. It was a seismic event,” he told RenewEconomy at a luncheon briefing on Wednesday.

“What it actually shows that if you get the business model right, you can lower your transaction costs, you can source the right kind of technology, and the excellent solar resource in Abu Dhabi means you can lower your costs substantially.”

Amin said European companies could manage the same cost reductions, but needed to change their mindset. They were working in over-supplied markets, but needed to structure themselves to address the challenges of emerging markets, where demand was growing strongly.

He said it underlined the fundamental transformation that was taking place in the energy markets, and with the growing discussion in leading financing circles of stranded assets and divestment were heralding more seismic events.

This was being accentuated by the plunge in oil price, which was making many reserves and production uneconomic. “We are just waiting to see which is the first oil major to get out of hydro-carbons”.

As for those who question the idea of cost parity between renewables and fossil fuels, Amin said: “If they think that, then they need to wake up and smell the coffee.”

Amin pointed to wind in Brazil, offshore wind in Denmark, South Africa, wind and solar in Mexico, wind and solar in Chile,. “The biggest fastest growing energy consumers are delivering very low prices. I wouldn’t underestimate the incumbent industry. They have some very smart people. It’s just a question of what they re going to do about it.”

Padmanathan explains that ACWA was able to reach 5.84c/kWh in the Dubai tender because the cost of financing was below 4 per cent. And while most projects get 80 per cent debt, and 20 per cent equity, this project got finance for 86 per cent of the project, while more expensive equity took just 14 per cent.

The significant of this is that it is 2/3 the price of gas fired generation that dominates in this part of the world. “It completely changes the mindset, and it completely changes the economics,’ he said.

And Padmanathan thinks it can go lower – to 4c/kWh within “four to five years”, as the cost of finance continues to fall, and gains are made on solar cell and module efficiency, and operating costs.

While most of the focus was on the solar PV tender, Padmanathan is equally excited about the solar tower tender result. “To me equally exciting, or an even more exciting opportunity. It will deliver fully dispatchable power, day and night. We can follow the load curve.”

He noted that the 12.4c/kWh tariff for the first year is less than half the tariff for CSP (concentrated solar power) demanded just three years ago. Over the 25-year period, the average price is 15c/kWh, but this is half the cost of CSP just three years ago. He says it can go down to 9c/kWh as more solar towers with storage are rolled out.

The combination of PV and CSP, he says, will be irresistible. “That is fixed price for 20 years, or so — 9c/kWh, fully dispatch able, following the load curve during the day, and producing at night. That is the same cost as fossil fuels, and you don’t have to suffer chronic fuel price volatility.”

ACWA is investing in a series of other solar thermal projects. It owns the Bokpoort project in South Africa, which will be 50MW of parabolic trough with 9 hours of thermal storage, and it is building three plants at the Ouarzazate project in Morocco, also known as Noor.

Noor is a 160MW parabolic trough installation with 3 hours storage, generation capacity of 160 MW with 3 hours of thermal energy storage.

“We are taking advantage of the lessons learned in German and Spain, who led this,” Padmanathan says. “They have contributed significantly, they brought down the price of PV, and helping to bring down the price of CSP.

“All we are doing is benefit from that. We are able to give it scale, and give it a vision. I think 2014 and 2015 – in a decade’s time, we willl see these years as a tipping point.”

(Note, all $A and $US)