An inflection point for solar in the Middle East?

While the Middle East would seem a logical place for solar deployment due to its great solar radiation, its abundance of fossil fuels has made the inclusion of renewable energy in the region’s energy mix hard to come by.

Take Saudia Arabia, for example. Currently Saudi Arabia gets most of its power from crude oil or fuel oil, an amazing fact when viewed through the global price of these fuels.

Yet the country is planning a massive expansion in generating capacity from 55 gigawatts to 120 gigawatts by 2032—a more than doubling of capacity in a relatively short amount of time. It’s hoping to hit 80 gigawatts by 2020. The country is emblematic of many other developing countries in that its facing population growth combined with a growing middle class that is demanding luxuries like air conditioning.

So will the Saudis continue to rely on cheap (and subsidized) fossil fuels to power the nation’s development? That’s been true historically but the future may tell a different story.

Even fossil fuel rich nations like Saudi Arabia are starting to question the economic sense of using high value fossil fuels to generate power, particularly if power demand is expected to put increasing strains on that valuable supply. The bottom line is that the country can make a lot more money exporting those fossil fuels than consuming them domestically.

In that vein, Saudi Arabia has laid out the most ambitious renewables road map in the Middle East. The nation’s plan includes 55 gigawatts of renewable energy, of which 41 gigawatts will be solar.

Groups like the Middle East Solar Industry Association are optimistic about the entire region and kicked off the year with a forecast that estimated the region will spend $50 billion deploying solar over the next 7 years.  Analysts estimates indicate that generating capacity in the region must double during that time. The Middle East has a paltry 271 megawatts of installed solar today.

The region may also prove to be more open to diverse solar technologies. Concentrated solar, which has been beat up as a prospective technology in North America, is viewed favorably in places like Saudi Arabia and Kuwait. For companies that have invested in these technologies and are struggling to compete against against solar PV, the Middle East could prove to be a good place to prove to the rest of the world that their technology works.

It’s not just Saudi Arabia that is looking at solar. Others in the region have plans. Abu Dhabi wants to generate 7% of its electricity from renewable sources by 2020 while Dubai has a 5% solar renewables target by 2030. Dubai also has plans for a solar rooftop program that would target 500 megawatts of rooftop installations.

Kuwait, the third biggest producer of oil in OPEC, has a combined solar/wind target of 15 percent by 2030 . Kuwait gets about two thirds of its energy from oil today. And with the 2022 World Cup set for Qatar, the main stadium will run carbon neutral with an attached solar farm comprised of 512 solar PV panels.

Many of these targets and gestures may still appear small when compared to the efforts in Western Europe to move away from fossil fuels and nuclear power. But we should remember that Middle Eastern nations are still developing and so will gravitate to the easiest, cheapest and most local form of power generation.

The question for companies that want access to the market is when to move. SunEdison signed an agreement with the government of Saudia Arabia this month to explore building a $6.4 billion solar panel factory there. Companies like GE are gunning for places of high energy consumption growth like Saudi Arabia, hoping to be able to sell a diversity of technologies ranging from combined cycle gas turbine to solar.

The challenge with emerging markets is always timing the transition right so that operations aren’t deployed far before demand materializes. But with gas prices high, even Middle Eastern government are starting to rethink whether it makes sense to use their precious resources for domestic consumption. And if solar gets even cheaper, the economics of switching to renewables will look more and more attractive.

Relevant Analyst
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Adam Lesser

Analyst Gigaom Research

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