Solar power reignited by Saudi ambitions

What's Up: Saudi Arabia's plans to produce a third of the country's electricity from solar power have the potential to revitalise an industry in the doldrums.

Saudi Arabia plans to produce a third of its electricity from solar power may revitalise the industry. Above, a worker installs photovoltaic solar panels at the Gujarat solar park in India. Amit Dave / ReutersShow less

Saudi Arabia's plans to produce a third of the country's electricity from solar power have the potential to revitalise an industry in the doldrums.

Recent years have been tough on solar-panel makers. After the United States and Europe created a burgeoning manufacturing base with the help of subsidised electricity rates, China entered the market, creating an immense surplus of photovoltaic panels.

As a result, earnings for established western players slumped, and some of the pioneering companies went out of business. A reduction of subsidies in Germany - the trailblazer in solar adoption - has not helped.

Deteriorating economics for producers translate to good news for consumers, who have benefited from falling panel prices. Cheaper solar arrays improve the competitive standing of the green power source compared with power generation based on fossil fuels. After panel prices dropped by half last year, solar power became cheaper than electricity from small-scale diesel generators common in remote areas of the Gulf. If subsidies were removed from fossil fuels, solar would be cost-competitive in large parts of the Middle East.

Old habits die hard, and the Arab affection for hydrocarbons has long prevented GCC countries from exploiting the undisputed potential that year-long sunshine holds.

This is now changing. The UAE and Oman already have modest renewable-energy plans, but the real bombshell came this month as Saudi Arabia's King Abdullah City for Atomic and Renewable Energy (Kacare), the government body responsible for devising the kingdom's policy on alternative energies, recommended the installation of 41,000 megawatts of solar power by 2032.

Investment for the scheme will reach US$109 billion, according to Kacare, and the first tenders could be launched in the first quarter of next year.

This would be none too soon, as panel sales will dip for the first time this year, a Bloomberg poll of analysts predicts.

Solar projects in Saudi Arabia would be less profitable for manufacturers than in other countries, according to a report by Deutsche Bank, as companies may be forced to set up factories in the kingdom to win business. Nevertheless, Saudi Arabia's solar ambitions represent a significant shot in the arm for the industry.

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