Saudi Arabia's commitment to industrial-scale solar power represents a windfall to an industry that is in need of cash.
Welcome windfall for an industry in need
Saudi commitment to industrial-scale solar power represents a windfall to an industry that is in need of cash.
A scaling back of subsidies in pioneering Germany and vast oversupply of electricity-producing panels in the new solar superpower China has led to a spate of bankruptcies by panel makers in Germany and losses among Chinese companies.
China's formidable manufacturing base has halved the price of photovoltaic (PV) panels over the past year, and most experts believe Chinese PV panels will feature heavily in a solar boom in Saudi Arabia and the wider region.
But not all are convinced. Chinese companies are carrying large debts and suffering poor earnings, which makes them unappealing for funding, says an investor based in the US. As solar arrays have a lifespan of about 25 years, power providers will be hesitant to buy from companies that might not be able to deliver down the line. The precarious state of the balance sheets might also translate into higher borrowing costs for projects using Chinese equipment, the investor says.
Companies that can install and maintain their equipment will end up with the competitive advantage, he believes, which opens the door to players such as the US company First Solar.
Because of falling panel prices, the real money is to be made through installation and service work.
"Installation is more expensive than panel production now," the investor says.
Abhay Bhargava from the consultancy Frost & Sullivan agrees. "The biggest gainers will be in the service sector, the system integrators, EPC contractors," he says. Those services could well be delivered by a local industry, giving the solar programme the added value of job creation, which is a goal of governments across the region.
"There is a good fit between cheap foreign technology and local expertise," says Vahid Fotuhi, the chairman of the Emirates Solar Industry Association.
Two polysilicon plants are under construction in Saudi Arabia and one in Qatar. Polysilicon is the material used in PV panels, and the projects will lay the basis for regional PV manufacturing. Apart from panels, solar arrays also need other equipment, such as inverters to convert direct current produced by solar panels to alternating current.
"There is a potential industry that stands to gain from that," Mr Bhargava says.
Concentrated solar power, in which mirrors collect and focus the sun's rays to provide the heat used to drive turbines, is better suited for large-scale solar-power production, Mr Bhargava says.