Subsidies for fossil fuels are preventing Gulf nations from taking advantage of the falling price of solar technology.
The cost of panels that convert the sun's power into electricity has fallen by half in three years, but subsidies for power produced from oil and gas make carbon intensive energy much cheaper.
Frank Wouters, the director of Masdar Power, a renewable energy developer owned by the Abu Dhabi Government through Mubadala Development, its strategic investment company, said solar technology prices had fallen so much it could compete with power generated by diesel generators, if the price of diesel was liberalised.
"You could possibly replace a lot of the diesel-generated power in Saudi Arabia and Kuwait with [photovoltaic solar panels], even at last year's prices," he said. "But for that to happen people need to realise the true value of the diesel." Diesel generators are also commonplace across the Northern Emirates, which have suffered blackouts for the past few years.
Regional oil producers, which rely on burning oil and gas for power, regard renewable energy as a way to reduce their large per-capita environmental footprint as well as freeing up more fossil fuels for export.
Abu Dhabi, Dubai and Saudi Arabia have all said they could establish policies to promote renewable energy in the near future.
Karel De Winter, the division manager for Alsa Solar Systems, a solar operator based in Abu Dhabi, said solar power could not compete with subsidised fossil fuels.
"Solar is still not competitive … We're waiting for a feed-in tariff."
Dubai has set a target of 1 per cent solar energy by 2020 and 5 per cent by 2030. It could unroll a subsidy for solar power as soon as two years from now, said Nejib Zaafrani, the chief executive of the emirate's Supreme Council of Energy, its policymaking body.
Abu Dhabi aims to source 7 per cent of its power from renewable energy in the next decade, which would require adding about 100 megawatts (MW) of renewable energy to the grid every year.
Masdar Power is building the emirate's first large-scale solar plant, a 100MW array in the Western Region called Shams 1 that uses mirrors rather than panels to concentrate the sun's energy.
This project got the go ahead only after the Abu Dhabi Government committed to a green subsidy.
The company has invited bidders for its next project, Nour 1, which will deploy 100MW of solar panels. Executives had hinted this year that plans for the plant could be expanded to more than twice that size, but yesterday Mr Wouters said it would stay at 100MW.
Nour 1 would use photovoltaic panels, which are often made with silicon. In June, the price of a commonly used type of silicon wafer had dropped 23 per cent from a year earlier, according to Bloomberg New Energy Finance.
The price of the finished modules has fallen at a slower rate, averaging a 58 per cent drop from 2008. While the price declines could be good for Nour 1's budget, they put another Masdar Power project farther out of reach - a factory to make solar panels in the UAE.
In January, the company said it had shelved those plans because of a lack of regional demand.
"Things are never permanently off the plan, but you definitely need scale," Mr Wouters said yesterday.