Solar to March On
Faltering oil prices will not stall progress, says Browning Rockwell
By Browning Rockwell, executive director of the Saudi Arabia Solar Industry Association (SASIA)
As the new year begins, the burning question in the minds of many solar industry watchers continues to be the impact the rapid decline in oil prices, which have dropped by more than half since June, will have on the solar industry in general and more specifically on the GCC region.
On the surface, cheap oil seems to be counter-productive to the growth of alternative energy, but that’s not holding the industry back. Many stakeholders believe oil’s weakness will accelerate economic trends that strengthen the case for solar and other renewables — both in the MENA region and worldwide.
In countries where cheaper oil spurs economic growth, the time is ripe for expansion of renewable energy, especially as the cost of solar panels also continues to fall. Current economic conditions have prompted the IMF to state that oil’s decline highlights the need for oil-rich Gulf States to diversify their economies.
At the same time, long-overdue moves that were unthinkable just six months ago - such as raising gasoline taxes and phasing out oil subsidies - are suddenly possible for the first time in decades.
While these historic lows have spooked some investors unfamiliar with the solar market, creating temporary slumps in the stock value of some renewable companies, there is very little correlation between oil prices, which are driven largely by transportation, and the global solar market, which primarily competes with the costs of coal and natural gas.
A key sign of oil’s minimal impact is worldwide solar demand, which shows no signs of slowing. Marketing research firm IHS is predicting global increases of 25% for solar PV and 37% for concentrated photovoltaic (CPV).
More vital in the GCC region itself is the reaction of major economies like Saudi Arabia and the UAE, both of which have made it clear that no major budget cuts are forthcoming in 2015, thanks to plentiful reserves of foreign assets.
These announcements have come at the same time as major breakthroughs in financing. Historically one of the biggest obstacles for solar project developers worldwide, finance has been an even greater hurdle in the Middle East and North Africa (MENA), where the lack of a track record of renewable projects has posed a persistent challenge.
Thankfully, that picture is finally changing, and an industry-led revolution in solar financing is imminent in the region. Internal discussions on creating a green fund are now ongoing amongst the Dubai Supreme Energy Council (DSCE), which signed an advisory service agreement with the World Bank last April.
The tie-up will see the two entities collaborate on the design of a funding strategy for Dubai’s green investment program, which may include both green bonds and sukuk products. Such financing methods, as seen with yield companies (yieldcos) in North America and Europe, could further drive down the cost of financing, and thus the tariffs.
Malaysia is probably the first to step into this promising sector, having introduced guidelines for “green and socially responsible” sukuk last August. Now, the country’s state-owned sovereign wealth fund, Khazanah Nasional Berhad, plans to issue the nation’s first such sukuk in the second half of 2015, helping finance the domestic renewable energy and education sectors.
Conventional green bonds, meanwhile, are far ahead of the race, reaching an estimated value of $40 bn in 2014, according to the Climate Bonds Initiative (CBI), an independent body promoting green finance.
Browning Rockwell is executive director of the Saudi Arabia Solar Industry Association (SASIA)