Oil producing Gulf to gain from US-China solar row

Supply diverted from America might signal cheaper solar panel prices for Middle East power projects. Stephen Lock / The National

The revival of a trade feud between the United States and China could lead to cheaper prices for solar panels as Asian suppliers shift exports to the Arabian Gulf.

Five years after the initial trade spat between the pair, the US renewed its campaign against imported solar cells – the most common material used in a solar photovoltaic (PV) panel – as a result of a petition from Suniva.

The American company filed for bankruptcy in April, claiming serious injury from imports taking market share from domestic producers.

This led to the US notifying the World Trade Organisation last month that it had initiated a “safeguard” investigation that could result in emergency taxes being placed on imported materials.

Paddy Padmanathan, the chief executive of Saudi Arabian developer Acwa Power, said the spat could divert more panels away from the US market and towards the Middle East. “There will be a bigger scramble to penetrate the Mena market, which means increased competition, which will help to reduce costs,” he said.

He added that with some Mena governments setting ambitious localisation targets, this will help Chinese companies to faster establish manufacturing bases in the region.

This shift can also help shield solar prices if the Federal Reserve hikes interest rates this month as panels make up anywhere between 25 per cent and 40 per cent of the capital expenditure of a solar power plant. “More Chinese supply coming to the Middle East, fighting for market share, will help combat the potential rise in prices as a result of higher interest rates,” Mr Padmanathan said, adding that the expected 25 basis point rise will likely not move the needle much on overall project costs. “We should, however, be concerned if over time the base rate keeps moving up and starts adding 100 to 150 basis points,” he said.

The region stands to gain from the potential new supply of panels with so many solar projects getting underway.

The Middle East Industry Solar Association said in its outlook for this year that 5,000MW of solar projects are either under construction or in the pipeline in the Mena region. Construction has started for 1,000MW of solar PV in the UAE, while Saudi Arabia will award 300MW of solar projects in September. And most recently, Oman and Kuwait announced that they would ready tenders this year.

Gus Schellekens, a partner at Ernst & Young, said: “There is a risk of oversupply in some markets if the US remains difficult for overseas producers.”

According to Chinese customs data, Chinese companies exported US$1.42 billion of solar products to the US last year.

Jenny Chase, a solar analyst from Bloomberg New Energy Finance, said this didn’t count Chinese exports from their factories in Malaysia, Thailand and Vietnam, which is at least equal to this figure.

“Mexico and South Korea are also major suppliers to the US market, more significant than domestic production,” she said.

If the US implements higher tariffs on imported solar cells, supplies will be diverted to other areas with lower import fees such as the GCC, as seen with other commodities like aluminium and steel.

Meanwhile, GCC governments have been looking at increasing import duties on certain products by threefold to protect local industries that are being squeezed amid a flood of lower priced products from China.

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