The solar PV value chain includes all activities conducted by a venture or group of ventures to move a product from the initial phase of ideation to various steps of production supply to beneficiaries and end disposal after utilization (Zhang and Gallagher, 2016). The solar photovoltaic energy value chain can be subdivided into a group of upstream and downstream activities.
4.1 Solar PV industry upstream activities
The stages of the upstream solar PV value chain include all industrial steps starting from the production of polysilicon, crystalline silicon, ingot, wafer, PV cells, modules, inverters, and other BOS components (EPIA, 2011).
4.1.1 Polysilicon production
Polysilicon is the feedstock that solar wafer manufacturers start with, and manufacturers melt it into solar grade crystalline silicon (Xakalashel and Tangstad, 2011). Silicon is available across the world in the form of quartz or sand. Crystalline silicon (Si) is the most efficient and mature technology commonly used in solar PV production and accounts for more than 90% of the world PV market share (Pandey et al., 2018). Polysilicon production requires high capital investments of approximately 500–1000 million USD to build a plant and requires a long time to reach its full capacity. Silicon purification is an energy-intensive process that requires a large amount of energy. The processing of polysilicon consumes almost 85% of the total input energy needed to manufacture an entire PV module (Green Rhino Energy, 2016). According to (IEA, 2016), the energy consumption was 80 kWh/kg in 2010. Then, by using more cost-efficient production equipment, the energy consumed decreased to 55 kWh/kg in 2015, but this was still considered high. This industry requires a joint venture with one of the leading silicon manufacturing firms in the world. The silicon industry is dominated by 7 firms, namely, Hemlock, Wacker Chemie, MEMC, OCI, REC, LDK Solar, and Tokuyama, that produce approximately 90% of the total polysilicon in the world (Green Rhino Energy, 2016). Saudi Arabia is a good candidate to be a leader in this industry because the country owns the three main pillars of this industry: sand, energy, and capital. The quality of polysilicon is critical in maintaining the efficiency of the system. There is fierce competition between the electronics industry on one side and the solar industry on another side in demanding polysilicon (Michaele and Plarzer, 2015). Hence, the increased demand stimulated the investment in and expansion of the polysilicon processing capacities. During this decade, the global overproduction of polysilicon resulted in a significant price reduction (WWF, 2013).
4.1.2 Ingot/wafer production
Depending on the technology used, polysilicon is formed into ingots, and then the ingots are sliced into thin wafers. Monocrystalline wafers are made from silicon with a single crystal structure grown from a small seed crystal while polycrystalline wafers consist of small grains of monocrystalline silicon (Green Rhino Energy, 2016). Wafer production is a significant capital expenditure. It requires high-performance manufacturing equipment, and significant manufacturing experience is also needed to achieve optimal efficiency.
4.1.3 Cell manufacturing
The solar cell manufacturing process starts with wafer texturing to enhance the absorption of sunlight, and then wafers are doped by diffusion to produce p-type and n-type materials. The PV cells are fabricated in such a way to form a sandwich structure to create the p-n junction, fixed with appropriate and substantial electrical contacts and then finally coated with suitable anti-reflective material (FEMIP, 2015). Additionally, cell manufacturing requires high-performance manufacturing equipment, and significant manufacturing experience is needed; therefore, solar cell manufacturing plants are capital intensive.
4.1.4 Module manufacturing
Module manufacturing is conducted by soldering solar cells together in a string and then laminating the toughened glass placed on the front side of the soldered cells and a sheet of polymeric material at the other back side. Supporting frames are used to form a rigid structure and further facilitate mounting in the field. The capital costs for the manufacturing process are generally less than those of cell manufacturing (FEMIP, 2015). Crystalline silicon modules are the most common and widespread PV technologies with greater than 90% of the global market share (Xakalashel and Tangstad, 2011). Figures (2) illustrates the whole value chain of PV module manufacturing. Establishing a PV module production line that consists of an assembly line process will not need high capital investment costs, and it is the simplest method to start PV localization in Saudi Arabia. In the later stages, the know-how of solar cell manufacturing could be transferred and acquired, and then the industry can engage further in cell, ingot, and wafer manufacturing.
Figure (2): PV module value chain
4.1.5 Inverters
Inverters are devices used to convert the direct current (DC) generated by a solar PV module to AC power. Such devices will allow the solar system to be more compatible with most AC appliances. A variety of wide-ranging inverters, ranging from a few hundred watts to several kW, are available in today`s market; and they are considered to be the most essential component for PV grid connections. Inverter technology has already been localized in Saudi Arabia since 2015 by the Advanced Electronics Company (AEC). The production line was constructed through a partnership with Germany’s KACO new energy and has an annual production capacity of approximately 1 GW, roughly equivalent to 2000 units. AEC inverters (Shams series) cover the power range from 20 kW to 1 MW and are considered to be the first inverter to achieve the Saudi standard specifications for local content (PV Tech, 2019).
4.1.6 BOS Components
In Saudi Arabia, there is a strong base of industry infrastructure that is expected to contribute to increasing the local content of the solar industry. There are already several industries that have a commonality with the solar industry that could be primarily linked to BOS manufacturing, e.g., support structures, wiring, circuit breakers, protection relays, power transformers, batteries, glass, aluminum frames, junction boxes, etc. The manufacturing of these components for other industrial purposes is already localized in the country. Local industries might need to make special modifications to meet the requirements of the solar industry, e.g., the local manufacturer of normal glass will need to produce glass with a low iron content and a high transmission rate of solar irradiance. By the time the local companies gain increasingly more experience with improved track records, then all of the BOS components could be locally manufactured.
4.2 Localization potential of upstream activities of the solar PV value chain
The localization potential of the upstream activities of the solar PV value chain in Saudi Arabia is quite high since the 2030 vision offers significant market demand. The production of polysilicon at a competitive price has been quite hard in the last few years due to the increase in global production, which brought down the price from $470/kg in 2008 to $25/kg in 2015 (IEA, 2016). Many plants, particularly in China, exited the polysilicon market due to the price decreases (Chase, 2013). Despite the continued decrease in price, new polysilicon production plants were established in the USA (e.g., Wacker Chemie) and South Korea (OCI), and these new polysilicon plants were characterized by installing more cost-efficient production equipment (IEA, 2016). However, in Saudi Arabia, the price of energy is low, which will make polysilicon production more competitive. In addition, profits are not a major concern in Saudi Arabia, and the major driver for localizing the polysilicon industry is know-how transfer. During the starting phase of the solar value chain, including the production of polysilicon and ingots/wafers, solar cell manufacturing requires a considerably high investment in equipment and a very technically skilled labor force, and a joint venture is necessary. Therefore, localization is more likely to begin with constructing module manufacturing facilities. Table (1) shows the analysis of the localization potential of the solar PV upstream industry in Saudi Arabia.
4.3 Solar PV industry downstream activities
Downstream activities include services related to the PV industry other than manufacturing processes such as planning and design, construction, O&M, R&D, etc. Most of the downstream activities have already partially or totally existed in Saudi Arabia for decades as several entities have led and developed various projects that can easily switch to solar energy projects based on their previous experience in development, construction, and logistics operations. The major players of the downstream segment of the value chain include the following: wholesalers who work as intermediaries between PV manufacturing companies and engineering installation contractors; system developers who provide installation, monitoring, repair, and maintenance services; owners of PV facilities who sell their power production to the utility grid; and policy, consulting and financial services (EPIA, 2011). Figures (3) shows typical segments of the solar energy value chain (FEMIP, 2015).
Table (1): Localization potential of the solar PV upstream industry in Saudi Arabia
Component
|
Localization Potential
|
Enablers
|
Barriers
|
Polysilicon production
|
Medium
(future production)
|
• Raw material is available across the country
• Energy required is available and cheap
• High financial support required exists
|
• Joint venture is necessary
• Needs high technical experience
• The quality is critical in ensuring efficiency.
|
Ingot/wafer
manufacturing
|
Medium
(future production)
|
• High financial support required exists
|
• Needs high technical experience
• Joint venture is necessary
|
Cell manufacturing
|
Medium
(future production)
|
• High financial support required exists
|
• Needs high technical experience
• Joint venture is necessary
|
PV module
|
Medium
(future production)
|
• Simplicity of establishing manufacturing facilities.
• Needs financial support
• Can be supported by local content
|
• Joint venture is necessary
|
Inverter
|
High
|
• Currently manufactured locally by EAC
• Needs expansion
|
|
Aluminum frame
|
High
|
• Can be produced locally by local aluminum industries.
|
|
Supersubstrate glass
|
High
|
• Local capacity exists to supply low-iron glass.
• Energy required is available and cheap
|
|
Wiring/cabling manufacturing
|
High
|
• Have significant potential in the existing local industry.
|
|
Junction boxes
|
High
|
• Small scale manufacturing is undertaken in the country.
|
|
Mounting structures
|
High
|
• Have significant potential in the existing local steel and aluminum industry.
|
|
Figure (3): Typical segments of the solar energy value chain
4.3.1 Wholesale distribution
Wholesale distribution entities function as intermediaries between manufacturers and installers or end customers by supplying the required equipment and materials from local or international manufacturers.
4.3.2 Project developers
Project developers are usually experts in the financing matters and legal issues related to projects. Therefore, project developers play an essential role in identifying projects. They are responsible for all activities concerning project development including site identification, project performance, environmental assessment, and electrical network connection studies; negotiating with local society leaders; and engagement of EPC and O&M contractors (WWF, 2013).
Policies such as tax exemptions, incentives, and stimulus funding represent key elements in creating a favorable investment climate for project developers. The 2030 vision paves the way towards the implementation of these policies. During the implementation of the Saudi 2030 vision, the government is planning to review the renewable energy legal and regulatory framework in order to create a glamorous investing environment to allow both local companies and international developers to invest in this sector. This will ultimately lead to creating a favorable investment climate in the country. There are several international developers around the globe that can participate in solar PV energy value chain projects in the country.
4.3.3 EPC contractors
Generally, Engineering, Procurement, and Construction (EPC) firms have combined strong technical know-how and experience in large-scale PV projects. EPC companies are usually leased by project developers to design, construct, and monitor projects. Most of the activities during the various phases of a project starting with construction, installation, and system integration could be completed by the local task force; however, EPC firms can supervise these activities. This will allow local companies to obtain more experience in terms of construction and other activities.
4.3.4 Operation and maintenance (O&M)
During the starting years of a PV facility, the operation and maintenance activities are usually the responsibility of the EPC contractor. It is also during this period of training that technical capacity building and know-how will be transferred from the EPC contractor to the PV project owner`s technical team to ensure an adequate and smooth transfer of skills by the end of the O&M agreement period. Thereafter, the project owner will take over all O&M activities.
4.3.5 Project owner
In the large-scale utility sector, the project owner is usually a consortium or specific entity involving various partners, including project developers and potentially local utilities.
4.3.6 Users/utility
The 2030 vision`s strategic objective is to further advance the quality of power sector services by increasing electricity coverage all over the country to 99.5 % by 2020, where the total average time of electricity outages is 120 min. In this regard, the country has a well-established infrastructure of electrical networks that link all regions together. In this case, the construction of the PV industry and the deployment of PV technology necessitate fewer transmission lines to be connected, hence resulting in lower investment costs.
4.3.7 Supporting processes
i. Education and R&D
In Saudi Arabia, there are more than thirty universities and fifty technical colleges that annually graduate many qualified engineers and technicians. As proposed earlier, starting the solar module manufacturing facility with an assembly line does not need extensive training and extremely highly trained manpower. Therefore, the workers can have short training to support the assembly production line. Then, later, their labor skills can be developed to support value chain production (polysilicon, cells, module manufacturing, inverters and the remainder of the BOS). R&D is critical throughout all phases of the value chain industry. The major portion of research funding support is committed to solar cells and modules (Chinagoabroad, 2011). R&D is assumed to be crucial in solar development; and various sectors play remarkable efforts in R&D activities, including pilot and demonstration projects. Partnerships may be formed with several universities, laboratories, and private firms worldwide, which will constitute advanced and well-established R&D units emphasizing a wide range of research activities ranging from commercial to the new emerging picking up technologies. Examples of such R&D departments are the following: NREL, Sharp, and Siemens.
ii.Financial services
Funding for PV value chain activities is expected to be offered through the government and commercial banks. The 2030 vision has allocated considerable funds during the 2020 interim plan to implement renewable energy activities. Furthermore, there are several local investors and a set of local banks that are willing to support investment in the solar industry in the country. According to the provision of financing from these sectors, there will be no need to seek project financing from international institutions. However, in order to simplify the development of local capabilities, performing the following is highly important:
(1) Reduce the administration process for both local and international firms willing to establish their production units.
(2) Some of the technology risks should be taken by the government.
(3) Provide support in scaling up the already existing manufacturing facilities to shift towards some of the value chain production. Scaling up existing facilities is expected to be cheaper than building new facilities.
iii. Consulting
Consultation and collaboration with international solar value chain manufacturing companies will provide newly developed local companies in the country with good experience through the transfer of know-how in the various components of the solar PV value chain. There is an increasing awareness of the importance of solar energy use in Saudi society. This is reflected by the establishment of a number of nongovernmental solar organizations, e.g., the Saudi Arabia Solar Industry Association (SASIA), which is devoted to helping the country achieve its vast solar potential by encouraging mutually beneficial partnerships between Saudis and global solar companies.
iv. Government supporting policy options
The PV value chain industry is facing a variety of barriers affecting investments. These include policy legislation, market technology, and upfront costs, all of which are considered institutional barriers. Therefore, it is believed that supporting schemes need to be in place to promote the value chain industry in the country. In fact, there is no particular consensus on the best policy options to adopt and implement, but there are several options with merits over each other. Feed-in Tariffs (FITs) are one of the policy options based on regulating incentives aimed at increasing renewable energy adoption. This type of policy was applied by Germany during the implementation of its electricity feed-in policy by offering an attractive electricity price to the providers. The second type of policy option is Renewable Portfolio Standards (RPSs), which is a market-based mechanism aiming to achieve cost-effective renewable energy generation. The idea of this policy is that the government grants a proportionate share of renewable energy electricity to the cumulative energy supply. The RPS policy has different names in various countries for the same set of incentives, e.g., the Renewable Obligation (RO) in the UK, the Mandatory Market Share (MMS) in China, the RPSs in the USA, and quotas, which are currently used in many countries around the globe. The third type of policy option is a tendering or Centralized Bidding Mechanism (CBM), which is generally used in the power sector to promote renewable energy applications. In this policy, renewable energy investors usually call for project bids. A CBM is indeed a market-based policy that aims to achieve the minimal costs doe projects. The fourth type of policy option is Tax Credits (TC), which is a method to reduce renewable energy costs through market compensation.
Government policies are considered a key driver of the development of the PV value chain industry. Regulatory frameworks for supporting the local PV value chain industry in Saudi Arabia are still in the development process. However, in 2018, the government approved the “Small-Scale Solar PV Systems Regulations”, which would apply to PV systems ranging in size from 1 kW to 2 MW for residential PV. This regulation system adopted a new energy exchange scheme called the net metering scheme, which is similar to a FIT scheme, but the energy balance is executed by the end of each month at different tariffs for exported (generated) and imported (consumed) energy. The adopted tariff for imported energy is 0.048 $/kWh and that for energy exported to the grid is 0.01867 $/kWh. We think the price of exported energy is not encouraging for the deployment of PV energy systems in the residential sector. In addition to the regulation system of small PV, the government has used the Centralized Bidding Mechanism (CBM), which is generally dedicated to large PV projects. The CBM has been used in PV project tenders since 2017. Additional renewable energy policies and regulatory frameworks will be issued gradually during the implementation of the 2030 vision to allow private companies to invest in different activities of the solar PV value chain.