Spanish companies assess Gulf solar potential

Spain’s largest renewable energy developers are looking to emerging markets to export their expertise. However, there are many hurdles to entry in the Middle East renewable energy market.

Spain is a world leader in solar power. With a highly attractive tariff for solar power projects, Spain has seen its installed renewable energy capacity increase at an unprecedented rate over the past five years.

The tariff has recently been reduced. The Spanish government in 2010 agreed to cut existing wind feed-in tariffs by 35 per cent and to withhold first year payments to solar thermal schemes.

This leaves Spanish solar power developers at a crossroads. They need to find new markets. The US, Australia and other European countries are attractive prospects. With enviable solar irradiation levels, Gulf countries are also highly attractive.

But there are some hurdles in their path. According to one Madrid-based banker, local currency risk and internal bank policies are all working against entry. Further, the lack of feed-in tariff for renewable energy projects is a further disincentive. Political turmoil as a result of the recent uprisings has further affected the attractiveness of some countries in the region.

Nevertheless, now that the local market is deflated and the global economic crisis - which caused banks to focus on core markets and clients - has passed, Spanish companies will need to look to emerging markets.

While Spanish banks are keen to support local companies with which they have strong relationships in foreign markets, each bank has self-imposed exposure commitments. According to the Spanish banker, “Lots of banks are close to the ceiling with each of these clients and so we must be selective. These clients want to do projects in the US and Australia and we are happier with these markets.”

Spain has a lot of expertise to offer in the renewable energy sector. In the absence of a strong local market, the Gulf could benefit but it will have to compete with opportunities elsewhere. Currently, the region looks insufficiently competitive.