Chinese competition is slashing the cost of solar-power panels. This is bad for some manufacturers but offers intriguing possibilities for UAE firms.
A shake-up in solar sector has bright spots for the UAE
This has not been a good month for the solar power industry. In recent weeks four international solar power companies have gone bust.
Among them is Solyndra, which collapsed amidst great fanfare. The California-based company had been a sweetheart of the US clean energy movement, and had received US$1 billion (Dh3.67 billion) in venture funding and over $500 million in US government-backed loans.
Yet, despite all this cash, it was not able to stay afloat. As it sank 1,100 jobs went down with it.
This flurry of bankruptcies has led some observers to suggest that dark clouds are hovering over the solar industry. But is it all doom and gloom for solar power?
Not quite. While some companies, particularly high-cost manufacturers such as Solyndra, have collapsed, other companies have jumped forward to fill the void. As Jeremy Leggett of Solar Century, a UK solar equipment maker says: "It is the inevitable shake-out of an industry that is coming of age."
This shake-out boils down to one thing: price. American and European manufacturers of photovoltaic solar panels have historically been market leaders. But recently they have failed to keep up with their cheaper Chinese competitors. Backed by strong government support and lean production costs, Chinese manufacturers have marched into the solar arena and taken over the show. In the process, the market has gotten bloated with low-cost solar panels.
The result has been an unprecedented drop in prices. In the past 18 months alone, prices have shrunk by a whopping 42 per cent. No other energy sector has experienced such dramatic volatility. Solar panels that were being sold for projects in the Gulf at $1.85 per watt last year are now available at around $1.10 per watt, as suppliers search for a home for their titanic inventory.
And the downward price pressure shows no sign of relenting. A recent report by Ernst & Young suggests that prices are likely to sink by 50 per cent from now to 2013 as global manufacturing capacity continues to ramp up.
This is bad news for manufacturers. But it's good news for consumers. Every time prices fall to a new low it opens up a new layer of demand. Companies that couldn't afford solar systems last year might now find that their solar dreams are within reach.
Even utilities such as Dubai Electricity and Water Authority are now finding themselves able to start pushing forward with large-scale projects, emboldened by the improved economics of solar projects.
The shake-out is also good news for small businesses. As more and more consumers turn to solar there will be increased demand for local companies that have the necessary expertise to install and maintain such systems.
Enviromena is a good example. This entrepreneurial company started up in Abu Dhabi in 2007 and today, thanks to a team of 30 skilled local employees, has successfully installed several solar systems in the country, including a 10 megawatt grid-connected system at Masdar City, the largest of its kind in the Middle East and North Africa. Their success is based on the ability to marry foreign technology with local expertise to help make the UAE more energy sustainable. And we find similar examples across the Gulf, from Sun + Life in Saudi Arabia to GreenGulf in Qatar.
But despite the perfect storm of cheap solar panels and readily available local expertise, the UAE solar industry remains in its infancy. Why? The answer is simple: there is no framework.
For the industry to take off there need to be clear rules and regulations governing solar projects. Without this framework, building a viable solar industry would be like trying to dance without music.
Abu Dhabi has taken the first step by setting a target - 7 per cent of renewable energy by 2020, equivalent to roughly 1,500 megawatts.
The next step is implementation. Once the regulatory framework is unveiled the music will finally start to flow through the corridors of our solar community. And that's when we will see the true brilliance of what solar power can achieve for the UAE, in terms of job creation, energy efficiency, and environmental sustainability. Let the sun shine in.
Vahid Fotuhi is the chairman of the Emirates Solar Industry Association