In recent years, the new energy market in the Middle East has become increasingly hot. According to a report by PV InfoLink, the Middle East is likely to become the world's major solar energy market, with a potential market size of trillions of dollars. In the next five years, the MENA region will see USD 5 billion in photovoltaic projects come online and another USD 15 billion worth of projects begin construction. With such a huge market potential, will the Middle East solar
In recent years, the new energy market in the Middle East has become increasingly hot. According to a report by PV InfoLink, the Middle East is likely to become the world's major solar energy market, with a potential market size of trillions of dollars. According to the Middle East Solar Industry Association (MESIA), the value of the photovoltaic market in the Middle East and North Africa (hereinafter referred to as MENA) region is currently around USD 20 billion. In the next five years, the MENA region will see USD 5 billion in photovoltaic projects come online and another USD 15 billion worth of projects begin construction. With such a huge market potential, will the Middle East solar market be a blue ocean market for Chinese companies?
The potential of the Middle East photovoltaic market is mainly due to two factors:
The long hours of sunlight in the subtropical deserts and wastelands around the 30th parallel north make the MENA region an ideal place for solar power generation.
With the decreasing importance of fossil fuels in the world energy system, many Middle Eastern countries have accelerated their energy transformation steps in order to reduce their reliance on traditional oil and gas resources and promote economic diversification. According to the International Energy Agency (IEA) report, based on the renewable energy transition plans announced by Middle Eastern countries, the total renewable energy generating capacity in the region will exceed 192 GW, and solar power generation will account for more than 42%.
In this context, many Chinese companies have entered this market. As early as 2009, Trina Solar (CHINESE: 天合光能) had already entered the Middle East market and officially settled and registered as Trina Solar Middle East Co., Ltd. in 2011. In January of this year, GUOFUHEE（CHINESE: 国富氢能）was invited by Saudi partner TIJAN Petroleum Co., Ltd. to conduct a business visit in Saudi Arabia and sign a strategic cooperation agreement to jointly develop the Saudi hydrogen energy market. One month before the World Cup, the first photovoltaic power station contracted by POWERCHINA INTL (CHINESE: 中国电建) under EPC mode in Qatar - the Alkasa 800 MW photovoltaic power plant - was officially put into operation, which is also the world's third-largest single photovoltaic power station. Other Chinese companies that have also entered the Middle East solar market include JinkoSolar (CHINESE: 晶科能源) , Shanghai Electric(CHINESE: 上海电气), JA Solar(CHINESE: 晶澳太阳能), and Solargiga Energy(CHINESE: 阳光能源).
However, most Chinese companies that participate in Middle Eastern photovoltaic projects through the EPC model do not always reap benefits. While opening up the market, these enterprises also face price pressure and have to bear the risks brought by low prices. In the entire Middle East solar market, there are few projects contracted by Chinese companies as developers. Most Middle Eastern photovoltaic projects are large in scale, with short bidding periods and high requirements for contractor qualifications. Especially in the GCC countries such as Saudi Arabia, the United Arab Emirates, and Qatar, which have a higher level of trust in Western partner countries in large-scale photovoltaic power projects. These barriers are difficult for many Chinese contractors to overcome, and they can only first open up the market through the EPC model. However, it is still a long way off to transform themselves into investors in the future.
In addition, in the fierce competition among developers, the winning bid price is constantly hitting new lows, constantly refreshing the industry's understanding of the price boundaries of photovoltaic projects in the Middle East and even globally. Since the Saudi International Power and Water Company (ACWA Power) set a record-low bid price for the Dubai’s Mohammed Bin Rashid Al Maktoum Solar Park photovoltaic project in 2017 and 2018, the record for the 900MW fifth-phase project in 2019 is still held by ACWA Power, with a winning bid price of 1.69 US cents/kWh, once again breaking the record for the price of solar electricity in the Middle East. In April 2020, French renewable energy developer EDF Renewables and JinkoSolar defeated many companies such as Engie+International Power, SoftBank+ENI, ACWA Power, Total+Marubeni, and won the Abu Dhabi 2GW photovoltaic project with a super-low bid price of 1.3533 US cents/kWh.
Al Dhafra 2GW Solar Project (Source: pv-tech.cn)
The winning bid price for photovoltaic projects in the Middle East is constantly dropping, approaching the bottom line. The repeatedly record breaking low prices help ensure the smooth implementation and cost control of local projects, and also enable winning investors to achieve market expansion layout. However, at the same time, under the pressure of cost transfer, the risk of low-cost projects is likely to fall on the EPC contractors who are responsible for controlling all aspects of the project. Moreover, in the practice of contract terms, EPC contracts usually stipulate that the contract price will not be adjusted due to price increases of equipment and raw materials. In this case, the general contractor will undertake a significant risk of price increases. In 2021, Shanghai Electric announced that it had suffered losses of more than CNY 1 billion as an EPC contractor due to the global pandemic's impact on the supply chain for the Dubai Solar Thermal Power Station project. This also became another example of a failed international project cooperation for Chinese companies in the Middle East.
For Chinese companies, expanding into the global new energy market is not only a good direction for EPC contractors to transform into integrated service providers, but also a development demand for suppliers to transform into integrated service providers and deeply participate in the competition in the photovoltaic industry. Based on the successful and unsuccessful cases of Chinese companies in the Middle East photovoltaic market, it can be seen that most Middle Eastern new energy projects tend to be capital-guided alliances. Single pure supplier models and single EPC general contracting models are no longer suitable for the current environment. How to achieve success in expanding markets and business and building their own brand influence while achieving transformation will be a problem that Chinese companies must consider on their path to developing new energy markets globally.