“The Gulf region is becoming a global hotspot for renewable energy,” said Teng Da, the Middle East and North Africa director of Chinese solar equipment maker Longi Green Energy Technology. However, analysts said Chinese manufacturers looking to escape global trade barriers and overcapacity issues through Middle East expansion may find any respite to be short-lived.
GCL said in June that it will launch its first overseas granular silicon project in the UAE. Trina Solar last year announced it would build a photovoltaic manufacturing base in the UAE with an annual capacity of about 50,000 tons of high-purity silicon, 30 gigawatts (GW) of silicon wafers, and 5GW of battery modules.
Longi said in a report last month that it is also considering Middle East expansion.
“Considering the clean energy demands and commitments from the Middle East, and the products and technologies from China, this is a win-win for both regions,” Teng said.
The energy transition towards renewables is well under way in the Middle East, which is the world’s leading oil and gas producer and relies on fossil fuels for more than 90 per cent of its power. Countries including the UAE, Oman, Saudi Arabia, Bahrain, and Kuwait have all announced net-zero emissions targets, with solar energy expected to emerge as the predominant source.
Solar power will account for more than half of the Middle East’s power supply by the middle of the century, up from 2 per cent in 2023, according to energy research firm and consultancy Rystad Energy.
Manufacturers in China’s solar sector, which controls more than 80 per cent of the global supply chain, have been struggling to survive amid increased US tariffs on Chinese solar exports and the EU’s investigation of alleged “distortive” state subsidies. Meanwhile, the overcapacity and competition at home have forced companies to launch price wars at the expense of low profit margins in order to stay in the game.
“The Middle East offers an alternative market where trade barriers and tariffs imposed by the US and EU are not as prevalent,” said Nishant Kumar, analyst at Rystad Energy.
The Middle East’s location as a central hub between Europe, Asia and Africa, positions it as a potential energy export centre, and with its growing demand and less crowded market, the region allows Chinese firms to secure more opportunities and diversify their market risks, he said.
A variety of other factors, such as the reliability of electricity and lower operation costs, also make the region more attractive than other markets such as South America and Southeast Asia, Charles Yeung, GCL’s chief financial officer, told the Post in Hong Kong last month.
“Overall, the Middle East offers ample growth opportunities that allow Chinese firms to maintain their global competitiveness amid rising challenges in other regions,” said Kumar.
According to Swiss bank UBS, by 2030, trade in the energy sector between China and the Middle East will have risen by US$423 billion annually, with renewables accounting for US$77 billion, driven by closer ties between the two regions.
However, Chinese solar manufacturers might face challenges such as a lack of skilled labour and geopolitical instability, according to Wang Cheng, equity analyst at Morningstar.
Additionally, turning to the Middle East to avoid trade barriers implemented by other countries might be a temporary solution, according to Wang.
“I think the move will work in the short term, but not in the long term,” he said. “I think the Middle East may also be targeted if the Chinese manufacturers’ capacity in the region becomes too big, like what happened in Southeast Asia.”
The US and EU might implement stricter regulations on labour practices, environmental standards and supply chain transparency, creating hurdles for Chinese firms exporting from the Middle East, or use diplomatic efforts to encourage Middle Eastern countries to limit Chinese dominance in their solar markets, according to Kumar from Rystad Energy.
There is also a strong possibility that Chinese solar photovoltaic firms might replicate the competition and price wars seen in their domestic market.
“I think adding capacity in the Middle East only makes the current overcapacity situation worse,” Morningstar’s Wang said.
Chinese companies are known for their ability to scale production rapidly and compete aggressively on price, which has led to intense competition in the Chinese market, Kumar said.
“If these firms bring the same strategies to the Middle East, we could see similar dynamics, with multiple players vying for market share, potentially leading to a price war,” he said.