How the Saudi Arabian Dream Could Lift Solar Stocks

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

When Saudi Arabia runs out of oil, what will sustain the nation of 28 million?

That is the question that the nation's leaders have thought long and hard about. One solution is putting surplus petrodollars into a sovereign wealth fund, which would invest that surplus in good times and provide steady interest income when the oil runs out. 

Saudi Arabia has done just that, and now has the second largest sovereign wealth fund in the world with assets of $675.9 billion.

At its present size, however, assuming an 8% annual return, which would yield interest income of $54 billion, the sovereign wealth fund would not be able to compensate for Saudi Arabia's current oil income of around $300 billion a year. 

Saudi Arabia has the right resources to export solar energy through the grid
Another solution is for Saudi Arabia to export electricity to Europe by developing solar projects.

Saudi Arabia has the land, labor, and capital to make that solution a reality. Because of the Arabian Desert, Saudi Arabia clearly has a lot of unused land that gets plenty of sunlight. In terms of labor, Saudi Arabia has an unemployment rate of around 11%. 

Building solar utility plants would lower the unemployment rate without triggering inflation. With its $300 billion a year petrodollar income and large sovereign wealth fund, Saudi Arabia also has the capital to invest.

Because it is currently exporting the most valuable commodity in the world, Saudi Arabia has the political leverage to get Europe to accept its solar energy exports. 

Tentative steps 
In its present state, the European electric grid covers most European nations but is not connected to Saudi Arabia. The country plans to connect the grids together at some point. When they connect, Saudi Arabia can export electricity to Europe. 

Khalid Al Sulaiman, vice president for renewable energy at the King Abdullah City for Atomic and Renewable Energy, has said that it is feasible for the nation to export up to 10 gigawatts of electricity through North Africa and Spain or Italy. 

Assuming realized revenue of 10 cents per kilowatt hour and 16 hours of sunlight in a day, 1 GW of production would mean $584 million a year in revenues.10 GW of production would mean $5.8 billion a year in export revenues, or approximately 10% of what the sovereign wealth fund would yield in interest payments per year.

Ambitious goals
Building solar utility-scale plants would not only help Saudi Arabia's exports, but it would also help the nation conserve expensive crude oil that the nation currently uses for half of its electricity needs. 

Because using solar energy makes so much sense, Saudi Arabia has ambitious solar goals. The kingdom has plans to install more than 41 GW of solar capacity in 20 years. That number could get bigger as time goes forward.

The bottom line
Like many middle income, resource-rich nations, the Saudi dream is to build a sustainable modern economy that is not dependent on natural resources. Its leaders are aggressively adopting solar energy to realize that dream.

All of this means that solar companies will greatly benefit There have already been some tentative wins.  

According to multiple sources, SunEdison  (NYSE: SUNE  )  is likely to win a $6.4 billion contract to build a solar panel factory that is projected to make 3 GW of solar capacity annually. While the project has not been officially approved, it is well on track. Government utilities have already agreed to provide the plant with natural gas and electricity.  If all goes to plan, the factory should open in 2017. 

If SunEdison does win the contract, it would be a game-changer. Besides the gigantic increase in production, if the company won the corresponding downstream projects, SunEdison would likely see large increases in its solar project pipeline. As of the most recent quarter, the company's solar project pipeline was only 3.4 GW.  

While missing out on the large contract would be a loss for First Solar  (NASDAQ: FSLR  )  and SunPower  (NASDAQ: SPWR  ) , there is still opportunity. As both solar production costs and installation costs come down, Saudi Arabia's solar targets are likely to get bigger, not smaller over time. 

If all goes to plan, Saudi Arabia could be the solar capital of the world and realize its dream.

Get in on the ground floor
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980's, before the consumer computing boom. Or purchasing stock in e-commerce pioneer in late 1990's, when they were nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play", and then watch as it grows in EXPLOSIVE lock-step with it's industry. Our expert team of equity analysts has identified 1 stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2845060, ~/Articles/ArticleHandler.aspx, 9/5/2015 3:54:16 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Jay Yao

Jay is an energy and materials writer. He reports on oil and gas fundamentals and macro trends in the industry.

Today's Market

updated 6 hours ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 3:59 PM
FSLR $46.94 Down -1.35 -2.80%
First Solar CAPS Rating: ***
SPWR $22.88 Down -0.78 -3.30%
SunPower Corporati… CAPS Rating: ****
SUNE $11.99 Up +0.05 +0.42%
SunEdison CAPS Rating: ***