Saudi Arabia is looking to install 41,ooo MegaWatts (MW) of solar capacity over the next 20 years in a bid to reduce dependence on hydrocarbons to produce electricity. The oil rich country is seeking about $109 billion in investments to finance solar projects so that it can reduce oil consumption to boost exports. Contracting for the proposed solar push could begin in the first quarter of 2013, opening new opportunities for panel manufacturers like First Solar (NASDAQ:FSLR) and Yingli Green Energy (NYSE:YGE). However, it is expected that the Saudi government may force installers to use locally manufactured panels, forcing these companies to open local plants. Despite these issues, solar companies should be boosted by the growing interest in solar among countries in Asia and the Middle East.
We have a $23 price estimate for First Solar, which is at a 40% premium to its current stock price.
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The Saudi government is looking to reduce the role of oil in local energy production to free up production for exports. With oil hovering above $100 /barrel, the government has a huge incentive to take steps to reduce local consumption as local prices are heavily subsidized. According to the latest plan, the country will install about 41 GW of solar installations and look to produce another 21 GW from wind and renewables. About 25 GW of the solar capacity will come from solar thermal plants, which use mirrors to concentrate sun rays on a heating tower. Solar PV plants could grow to 16 GW over the next 20 years. The country is expected to auction around 1.1 GW of capacity to build solar PV plants in 2013 and hold another auction in 2014.
Demand for PV panels from Saudi Arabia could provide the industry with a much needed impetus as it combats falling support from European governments. Companies are already targeting emerging markets like China, where demand is expected to grow over the next few years.
However, despite the size of the Saudi opportunity, companies may be forced to set up local manufacturing to tap into the market. The possibility of the government restricting imported equipment could be a major issue, reducing the profitability of sales in the country. Overall, the development is a positive signal for the industry as the Saudi’s moves could be replicated by other countries in the regions, looking to boost oil and gas exports. Capturing demand from such emerging markets is a key factor to revive the panel manufacturing business of First Solar.