Masdar's solar panel plant seeks policy jolt

The Abu Dhabi national clean energy company, has delayed building its first factory in the emirate because the Government has not yet created adequate financial incentives, says firm's chief executive.

The solar panel manufacturing arm of Masdar, the Abu Dhabi national clean energy company, has delayed building its first factory in the emirate because the Government has not yet created adequate financial incentives, the firm's chief executive said yesterday, Rainer Gegenwart, the chief executive of Masdar PV, also said he expected the group to return a profit to government shareholders by next year after weathering a 30 per cent drop in the price of its panels last year.

The company, which opened its first plant last year in Germany, had hoped to break ground last month on a major new factory in Taweelah to cater to the emirate's target of generating 7 per cent of electricity from renewable sources by 2020. But a delay in promised legislation to give financial support to the target had also prevented the creation of a viable market for solar panels, Dr Gegenwart said.

"We are absolutely certain that the MENA region, or the UAE, which has a large demand for renewable energy, will develop into a significant market," he added. "But we also need some policies which give security to the investor." It is more costly to generate electricity from solar panels than from fossil fuels across the world, but in Abu Dhabi, where prices for natural gas are subsidised, the cost gap is exaggerated and offers no financial rationale for private companies to instal solar panels.

In Europe, the world's largest solar market, governments have mandated that utilities buy a set proportion of energy from solar producers at an inflated cost, a mechanism called a "feed-in tariff". Dr Gegenwart said he expected governments in the region to soon follow suit. A panel of renewable energy financiers and bankers was unanimous yesterday in its opinion that feed-in tariffs were the best mechanism to encourage investment and the growth of solar markets worldwide.

"Policy uncertainty really damages the industry," said Stephen Mullenix, the managing director of US Renewables Group, a private equity firm. "The worst is when a government comes out and says 'we're going to do something', then the entire private equity industry sits on the sidelines and waits." In the meantime, Masdar PV will sell mainly to the German market, Dr Gegenwart said. The firm expects to produce enough panels to produce 30 megawatts this year, and will increase that to 85mw on its existing production line by 2012 at its US$160 million (Dh587m) plant in Ichtershausen, Germany.

The firm was considering a $30m to $40m investment to boost the efficiency of its panels by next year, he said. The firm was also eyeing markets in France, Italy, Bulgaria and the Czech Republic, he added, and was weighing up whether to enter the US market by opening up a plant there. "We can be cost-effective in this market only if we are producing locally, because of the currency risk and because of the transportation costs," he said of the US.

The firm's technology choice, amorphous thin-film silicon, endured a tough time last year because panel prices fell sharply but production costs did not fall by nearly as much. "If you look at the long-term trends, we had price reductions of about 60 per cent over 20 years and 30 per cent over the last year," he said. "Of course we can cover 30 per cent if you give us three years, but to do that in one year, it's very difficult."

Glass, the key element in the company's panels, saw little reduction in price, he said. By contrast, the majority of manufacturers who build panels from silicon crystal fared much better, as silicon prices fell by nearly half. Thin-film panels remain less costly but also less efficient than crystalline silicon technology, but Dr Gegenwart indicated that the gap was closing. Masdar PV holds one advantage: in warmer markets such as the UAE and parts of the US, thin-film is less susceptible to the degrading effects of heat. The performance of a thin-film panel heated to 80°C by sunlight, for example, would suffer by 11 per cent, he said, compared with 22 per cent for a crystalline panel.

"I am certain that we will have a significant market share in the UAE," he said. "Develop the market and we are here."