The Surprising $100 Billion Solar Investment


If you thought Germany and California were aggressively trying to add solar power to the grid, the oil state of Saudi Arabia is giving both of them a run for their money with recent plans to enter the solar market. The country is looking for investors in a $109 billion plan to build 41 GW of solar and a sustainable solar industry.

Why Saudi Arabia?
You may think that a state with an abundance of oil is the least likely candidate to be a big solar investor but that assumption would be wrong. There are two factors driving Saudi Arabia's entry into solar, and they're both very wise on the country's part.

First, Saudi Arabia has some of the best solar insolation in the world, meaning it gets lots of sunlight. GTM Research estimates that the country would have to cover about 0.1% of its landmass to match its power needs, so as solar costs fall the energy source becomes very attractive.

Second, the country generates most of its power from oil, which is costly. According to the Solar Energy Industries Alliance, the Saudis sell oil to power plants for $4 per barrel, versus the $100 it can get on the open market.

If the country can displace some of the electricity produced from oil with electricity produced from solar power, it would be a great move economically. According to reports, government officials will roll out a competitive bidding process for 1.1 GW of PV and 900 MW of concentrating solar power in early 2013, so the expansion is coming quickly.

Will investors show up?
I don't doubt that investors would be willing to invest in power plants in Saudi Arabia, but the country has set its sights on the entire supply chain. If it requires local manufacturing, there could be a tepid response from the industry. India has attempted to require local manufacturing, and so far suppliers haven't flocked to the market.

First Solar (NAS: FSLR) and SunPower (NAS: SPWR) seem like natural fits in an emerging market like this, but local manufacturing requirements make the proposition tougher.

Chinese manufacturers will run into the same problems, especially considering their government backing. Yingli Green Energy (NYS: YGE) , Suntech Power (NYS: STP) , and JA Solar (NAS: JASO) get funding from the Chinese government, and I doubt they would support the companies setting up major manufacturing in Saudi Arabia.

Don't count CPV out
Most of the industry has been focused on solar panels, but Saudi Arabia appears to be honing in on the use of concentrated solar power as well. Right now, concentrated solar is expected to be 25 GW of the total 41 GW, easily the biggest plans we've seen for concentrated solar.

Companies involved in concentrated solar power include BrightSource Energy and eSolar, both backed by Google. These companies bounce the sun's rays off thousands of mirrors into a power tower that heats a liquid and eventually spins a turbine to generate electricity. In the U.S., concentrated solar projects have been converted to PV as PV modules have fallen in cost and made the concentrated project's cost prohibitive. Saudi Arabia has its sights set on providing up to a third of its power from solar, so the base load that concentrated solar provides may be necessary.

Markets emerging everywhere
As the cost of solar comes down, more and more countries are looking to the energy source as a viable option. Countries that rely on oil like the Middle East and island nations are starting to realize that it's an economical way to reduce costs. As these solar markets emerge, it will help create sustainable demand for the industry, which will help survivors in the long run.

These may not seem like places where solar would be booming, but when you really thing about it they actually make a lot more sense than a place like Germany. I expect more countries to start thinking big like this in the next couple of years.

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At the time thisarticle was published Fool contributor Travis Hoium owns shares of SunPower in both managed and personal accounts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google and First Solar. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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