Suntech Power (NYSE:STP), one of China’s largest solar panel manufacturers, recently installed 3.5 MW of solar panels at Saudi Arabia’s largest solar power plant. The project is seen as a milestone in the development of photovoltaics in the country and gives Suntech a head-start among Chinese Solar firms in the Saudi Arabian solar market. However, it remains to be seen whether Suntech can capitalize on this momentum and make deeper inroads into the market.
Here’s our quick take on the opportunities and risks for Suntech in the Saudi Arabian Market.
Why The Saudi Arabian Market Is Attractive
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Solar Can Help Reduce Domestic Oil and Gas Consumption: Saudi Arabia consumes around 850 million barrels of oil each year domestically, which amounts to around 30% of its total production, and most of this oil is heavily subsidized. For example, the country provides electricity producers with oil at about $5 a barrel (compared to prices of over $95 in the export market).  This gives the country a strong incentive to invest in exploiting its solar resources so that oil can be diverted to more profitable exports.
Abundant Solar Resources Make Solar Power Sustainable: Insolation levels (a measure of incoming solar radiation) in Saudi Arabia are similar to those in the Sahara Desert and the southwestern United States which are some of the most solar-intensive regions in the world.  This could make solar power a compelling source of electricity without the need for government support and subsidies.
Ambitious Plans By The Government: The country plans to boost solar capacity to around 41 GW by 2032 (Of which 16 GW will be PV based and the remaining will be based on solar thermal technology). The country has plans to invest around $109 billion to develop its domestic solar industry. Solar installations in the country are presently trivial, with installations in the country in mid-2012 coming in at around 3 MW ( In comparison, Germany, a country which receives far less solar insolation, has more over 30,000 MW of installed solar capacity).
Risks In The Saudi Arabian Market For Suntech
Domestically Manufactured Panels Could Be Given Preference: Given the large scale of Saudi Arabia’s plans, there is a strong incentive to develop the domestic solar manufacturing sector. The government has roped in investors to build plants to make components for solar panels and there are plans to begin producing polysilicion domestically as well. There is a possibility that solar projects may require contractors to only use panels manufactured within the country. If this were to occur, Suntech would have to invest in building manufacturing capacity in the country, which is highly unlikely at this point given its tight finances and high debt load.
Harsh Climatic Conditions And Technology Drawbacks: The climatic conditions in the Middle East are a boon as well as a bane for solar power. While the high solar insolation helps to improve the output of solar systems, the extreme heat and dust storms in the deserts could hinder performance. Suntech has been proactive on this front, getting its panel certified for blowing sand tests, which test the endurance and reliability of solar panels under sand storm conditions.Notes: