Despite its reputation for oil production, the Middle East is actually putting billions of dollars into solar energy production, arguably its most abundant resource. The latest company to throw its hat in the ring is Egypt, which is planning to auction 2 GW of solar and 2 GW or wind projects in an effort to build 30 GW of new energy capacity.
Why Egypt wants to go renewable
Egypt has been dealing with a dynamic that's not uncommon in the Middle East. Its growing middle class is demanding more energy for cars as well as electricity, dramatically reducing oil and natural gas exports. In fact, Egypt has flipped from an oil exporter to an importer in recent years.
But in Egypt's vast deserts, it holds a massive energy resource that could provide the country with electricity and potentially even electric vehicles benefiting from the new energy source. In total, Egypt hopes to generate 20% of its energy from renewable sources by 2020.
Egypt's renewable system
The system Egypt has set up will pay renewable energy project owners a feed-in tariff rate of $0.119 per kW-hr to $0.143 per kW-hr depending on the system's size. Smaller systems would be able to access low-cost financing through the government.
Solar projects are expected to be commissioned by June 2015, with wind projects by late next year. That's a quick turnaround for any company, especially with the second half of the year usually seeing a spike in demand before government incentives run out.
A big win for renewables
For companies who may take part in the bidding the opportunity is tremendous. Solar systems, in particular, are generating retained value of around $2 per watt, so there's a multibillion-dollar opportunity for project developers.
First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR) are logical choices to build solar projects there but they haven't given a lot of indication as to their interest in the market. Vestas, Siemens, and GE will also likely be interested in Egypt's wind auctions, where a majority of the focus is right now.
Whoever wins the individual bids, it's a win for the renewable energy industry, which is seeing demand return from countries around the world. Egypt is just the latest example, but it's part of a new interest in renewable energy in the Middle East, something that seemed unfathomable when the area was swimming in oil. But today's economic reality is that it's cheaper to build renewable energy plants for electricity and increase oil or natural gas exports because they're so profitable.
If Egypt is taking such an interest in renewable energy, maybe it's worth you paying attention, too. It's certainly not a subsidy-driven market in a place like the Middle East, so the economics are driving this decision, which means huge growth in demand in the future.