Creating a solar industry in Saudi Arabia

10 October 2011

Investors are pursuing polysilicon projects in the kingdom to capitalise on Riyadh’s ambitious 2020 renewable energy targets

Key fact

Riyadh expects employment in the renewables sector to rise to 3,000 by 2013 and 50,000 by 2020

Source: MEED

With Saudi Arabia using an ever increasing amount of crude for domestic power generation, policymakers are having to think hard about tapping alternative sources of electricity. Power demand in the kingdom is increasing by about 9 per cent a year.

Polysilicon and wafer production is highly energy-intensive, and in Saudi Arabia, energy is very cheap

Nikolai Dobrott, Apricum

Fortunately for Saudi strategists, the kingdom’s energy abundance is not limited to hydrocarbons resources in the ground. With twice the average solar irradiation experienced in Europe, via thermal energy of up to 2,550 kWh a square metre a year, solar power is an obvious target with which to augment conventional energy supplies.

The kingdom is aiming to meet 10 per cent of its electricity needs from renewable sources by 2020, with almost all of this solar. Installed solar capacity is expected to grow to 8-10 GW over this period, according to government forecasts. Employment in the sector is also expected to rise to 3,000 by 2013 and 50,000 by 2020.

Solar power in Saudi Arabia

For the world’s largest oil exporter, solar energy represents an opportunity to free up oil and gas for higher value-added uses and to avoid diverting crude for domestic use.

“The key motivation is the opportunity cost of oil,” says Nikolai Dobrott, managing partner at Apricum, a clean technology advisory firm working in Saudi Arabia.

“Saudi Arabia is using an increasing amount of oil and gas for domestic power production. In 2000, the figure was 24 per cent and, by 2010, this had gone up to 37 per cent. If they don’t change anything, it will exceed more than 50 per cent in 2020 and that will have a huge impact on the economy.”

Over the next few months, the first tenders are expected to be issued for Saudi Arabia’s first solar power projects, with the authorities following the tried and tested independent power project model.

With Saudi industrial planners under strict orders to think strategically about all future projects, the aim is to ensure that it is not a case of buying in a solar power resource wholesale from external suppliers, but to develop local capabilities. The kingdom is therefore seeking to create manufacturing opportunities all along the solar power value chain, which will target both domestic and international markets.

The new entrants face an uphill battle as the plant costs are much higher with smaller plants

Brett Prior, GTM Research

The focus of activity so far is on developing a capability to produce polysilicon – the raw material used in solar cells. Polysilicon, short for polycrystalline silicon, is used to manufacture crystalline wafers for solar modules and thin-film cells in photovoltaic (PV) solar panels. Polysilicon represents more than half the cost of PV panel production.

Two privately backed polysilicon projects are already under way in the kingdom. In November 2009, Bahrain-based First Energy Bank (FEB) announced plans to establish a world-class polysilicon production facility in Jubail Industrial City, in partnership with the local Project Management and Development Company (PMD).

Covering a total area of 375,000 square metres, the project is expected to start production in 2013.  It will be managed by FEB subsidiary Cosmos Industrial Investment Corporation in partnership with PMD. The plant will have a total capacity of 7,500 tonnes a year (t/y) of high-quality polysilicon.

The new plant will face competition from a rival Saudi polysilicon project, sponsored by the local Chemical Development Corporation (CDC). CDC affiliate Mutajadedah Energy Company is the Saudi half of a 50:50 joint venture with South Korea’s KCC Corporation, a global producer of polysilicon.

Known as Polysilicon Technology Company (PTC), the joint venture has a mandate to invest across the solar energy value chain in Saudi Arabia. It will build, operate and run a 3,350-t/y high-purity solar grade polysilicon plant also in Jubail. Construction and detailed engineering work have already started. The engineering, procurement and construction contract was awarded in February to South Korean contractors, Hyundai Engineering Company and KCC Engineering & Construction. The first phase is expected to start commercial production at the end of 2013.

Expansion plans

The investors already have major expansion ambitions. PTC intends to extend its Jubail plant to an annual capacity of 12,000 t/y by 2017, as well as expanding further downstream into ingot and wafer manufacturing.

The Cosmos scheme will also seek out downstream opportunities in the solar energy chain, including the manufacturing of ingots, wafers, cell and modules.

The business case supporting Saudi polysilicon manufacturing is not all about the demand outlook, robust as that is given growing energy consumption. The case also rests on some attractive economics, say analysts.

“The Saudi polysilicon projects are economically feasible because polysilicon and wafer production is highly energy-intensive and in Saudi Arabia, energy is very cheap,” says Dobrott. “That’s why they can be competitive against Chinese projects, for example. While the Chinese have cheaper labour costs, the Saudis are cheaper on the energy side.”

While figures for China are volatile and so difficult to provide, in Saudi Arabia producers pay on average $0.039 a kWh of electricity.

Global competition for polysilicon producers

The new Saudi entrants to the market need to be competitive as they are joining a field dominated by globally established polysilicon producers such as the US’ Hemlock and Germany’s Wacker, as well as other majors like Norway’s REC, the US’ MEMC, Japan’s Tokuyama and China’s LDK Solar. These are large companies with strong balance sheets and a wealth of experience in the technology.

Qatar is also building a polysilicon plant at Ras Laffan. The plant will produce 8,000 t/y of high-purity solar grade polysilicon when completed in the second half of 2013.

Market share of polysilicon producers
GCL Solar21,00012
REC Silicon17,0009
LDK Solar15,0008
M Setek8,0004
Mitsubishi Materials3,7002
*=2010. Source: Green Rhino Energy

The Saudi schemes will also need more than cheap feedstock to succeed. “The smallest of the big polysilicon players has 11,000 t/y of capacity, but there are a slew of new entrants around the 3,000-t/y size,” says Brett Prior, senior solar analyst at GTM Research of the US. “The large players such as Hemlock and Wacker can produce polysilicon in the range of $22-26 a kilo as they enjoy scale and because their yield is high. But the new entrants face an uphill battle as the plant costs are much higher with smaller plants.” 

Another key challenge is ensuring quality. “The wafer manufacturers are looking for high-quality polysilicon that is dependable,” says Prior. “They are placing orders far in advance and want to make sure it’s going to be there. If you’re one of the new entrants it’s going to be hard to get the wafer manufacturers too excited. If the quality is not there, the end-product – the wafer – is not going to be as high efficiency as it needs to be, so they might have to sell at a discount.” 

A further obstacle Saudi polysilicon producers face is that the kingdom is not really part of the solar energy ecosystem.

“A lot of wafer manufacturing is happening in China and while the Saudi producers may eventually get in there, players such as Hemlock and Wacker already have established relationships and know all the players,” says Prior. “If you set up shop in Saudi Arabia, you may be a little isolated as there’s no large-scale wafer manufacturing nearby. That’s a disadvantage.”  

Abu Dhabi’s attempt through the Masdar project to create the foundation stone of a Gulf solar industry has not yet shown much fruit, with plans for solar panel manufacturing to serve the regional market currently on hold. Abu Dhabi is finding it challenging to compete on a cost basis with the Chinese in manufacturing the panels.

If the first Saudi polysilicon projects struggle to secure clients, the authorities may decide to intervene. The government could either buy polysilicon from domestic makers directly or establish strict domestic content requirements or incentives to encourage firms to buy locally-made products. While these are possible solutions, there needs to be an end-market in the first place. 

End market

Apricum’s Dobrott says photovoltaic module suppliers are interested in setting up assembly units in the kingdom. Some Saudi companies are also interested in establishing thin-film module plants, where the semiconductor layer is about 50 times thinner than in crystalline cells, made from silicon wafers. “You will see some projects being realised,” says Dobrott.

The challenge now is for Saudi polysilicon makers to get their product out to meet their first phase deadlines and to test the global market’s capacity to absorb the new supply.

There is no doubt about Riyadh’s commitment to making the most of its untapped solar resource. If local manufacturers can feed into this, the kingdom may stand a better chance of preserving more of its crude for export, while ensuring electricity remains in plentiful supply.

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