China and the United Arab Emirates (UAE) have been identified as the two key solar investment “hotspots” outperforming other global markets due to ongoing cost reductions and highly supportive regulatory policies, according to research from Fitch Solutions.
In a report on the outlook for solar Fitch predicted that China will be by far the most important market for seeing global solar growth over the coming decade. “We forecast China to add a net capacity of around 290GW, which represents nearly 40% of global solar installations between 2020 and 2029.”
Fitch pointed out that China’s solar growth has remained largely resilient across this year despite the Covid-19 pandemic, having added more than 19GW between January and September 2020. Furthermore, despite the short-term power demand reduction due to the slowdown in economic activity, solar generation continued to register positive year-on-year growth rates.
“We believe that the solar sector outperformed largely due to its grid access priority, amid the ongoing drive by the government to reduce renewable curtailment rates through a combination of transmission optimisation, regulatory and market reform.
“Our optimistic outlook for the sector is also predicated on our expectation that solar technologies will register continued cost declines in the Chinese market, reaching market parity with conventional sources of power generation.
“Amid the ongoing Covid-19 pandemic, and subsequent economic impacts, this will be particularly important given that solar generation requires near-zero marginal costs, reducing the need to import thermal fuels,” said the research.
Fitch said it believed that the environmental push brought about by China’s recent pledge to reach carbon neutrality by 2060 will continue to support growth in less carbon-intensive generation segments, such as solar.
“The government has been strongly committed to diversifying its power mix away from coal towards cleaner energy sources since its thirteenth five-year plan, and we believe this will be accelerated over the coming years.
“Most crucially, the reduction of grid bottlenecks and significantly reduced curtailment will ensure grid connection for additional capacity and support increasing shares of solar and wind generation,” said Fitch.
UAE price competitive
The UAE’s renewables sector is expected to see robust growth over the coming decade, at an annual average of 17.9%, reaching 8.9GW by 2029, driven almost exclusively by solar power. “Our positive growth outlook is underpinned by strong government support for solar as a key diversification strategy away from gas generation, advantageous climatic conditions and significant cost declines.”
Fitch said the UAE is now one of the few places where solar power is cost-competitive with thermal power generation, with prices for solar-powered electricity having declined by more than 75% over the last five years. The competition for tenders and cheaper solar equipment have brought about this downward price trend, and recent solar tenders have consistently broken world records for lowest bid prices.
Capacity growth in solar in the UAE is driven to a large part by the Mohammed bin Rashid Al Maktoum solar park in Dubai and the Sweihan solar farm in Abu Dhabi. These two projects are seen as the most cost-competitive solar projects globally.
Fitch said the UAE is now looking to revise its energy strategy with an increasing focus towards solar and green hydrogen “and we expect supportive mechanisms to drive further growth over the coming decade”.
This new strategy is expected to be released in 2021 and will support the UAE’s clean energy transition, in line with its vision for a more sustainable environment and infrastructure.
Malaysia one to watch
Fitch identified Malaysia as its solar power ‘market to watch’ following recent tenders which were significantly oversubscribed highlighting robust investor interest. The country launched a new round of solar auctions at the end of May, with a target capacity of 1GW – its largest solar auction to date.
“Despite the uncertain economic and financing environment stemming from the Covid-19 pandemic, we remain broadly optimistic on the latest tenders given Malaysia’s significant oversubscription and highly-competitive bid prices in previous solar auctions.
“We believe that Malaysia’s solar sector is particularly well poised for more growth, given the favourable conditions that the government will seek to leverage upon. Besides having relatively high irradiation levels in the country, Malaysia already has an established solar manufacturing sector, although most solar equipment is exported.”