Saudi Arabia poised to become solar powerhouse

Oil-rich Saudi Arabia is expected to begin a major push into solar power in an effort to conserve its most important export. The technology could include solar plants like this one in the California desert, which uses mirrors to concentrate the sun's rays.

NEW YORK (CNNMoney) -- The United States may be known as the Saudi Arabia of coal thanks to its large deposits. But under an expected investment push, Saudi Arabia could soon become the Saudi Arabia of solar power.

Early next year the oil rich kingdom is expected to announce a plan to get up to 10% of its electricity from the sun by 2020 -- a more aggressive national policy than what's in place in the United States.

The reason is mostly economic. The Saudis currently generate over 50% of their electricity by burning oil, which can consume up to an eighth of the country's total oil output.

That made sense when oil was $10 a barrel. But at $100 a barrel it makes more sense for the Saudis to install solar panels and sell their oil on world markets.

Moreover, their electricity consumption is set to double by 2020.

U.S. to investigate Chinese solar 'dumping' claims

"This is eating into the Saudis' ability to export oil," said Logan Goldie-Scot, lead analyst for the Middle East and North Africa at the research firm Bloomberg New Energy Finance.

New Energy Finance estimates that given the projected price for both oil and solar panels, the Saudis stand to make 11% return on their money if they make big investments in solar power.

"Saudi Arabia has come around to the idea that this makes economic sense," said Goldie-Scot.

That's attracted the attention of developers worldwide who are grappling with solar subsidies drying up in nations burdened by mounting debt like Italy, Spain and Germany -- traditional solar powerhouses.

So Saudi Arabia represents a rare opportunity.

"Everyone is flying to Riyadh to make sure they are in on the bids," said Goldie-Scot.

Still, any Saudi solar commitment would likely translate into just a few gigawatts of solar power by 2020, said Goldie-Scot. That compares to world-leader Italy's eight gigawatts of solar installed in the last year alone. A gigawatt can power roughly 700,000 U.S. homes.

Kevin Smith, chief executive of U.S. solar developer SolarReserve wants to put one of his company's solar thermal power plants in the Saudi desert.

He said it's not just short-term profits motivating the Saudis.

"The Saudis, one of the largest oil producing nation's, realize that there's limitations as to how long that's going to last," said Smith. "They are looking at their long-term energy plans."

Smith contrasted that with renewable energy policy in the United States.

About half the U.S. states have a renewable energy mandate similar to Saudi Arabia's. But at the national level this area is pretty much left to tax credits. Companies can't count on tax credits as they make long term investment plans because there's no guarantee the credits will be extended when they come up for renewal every few years.

"We have a tendency as a government to look at short term issues -- what's the price of oil today, what will it be tomorrow, what should we do," he said. "That's why we've moved from 20% or 30% imported oil 30 years ago to 50% or 60% today, and there's no end in sight unless we put in some type of long term program."

Challenges in the desert: While the Saudis may shoot for an aggressive solar plan, there's no guarantee they'll hit it.

While it may seem counterintuitive, the Arabian desert isn't actually the most ideal spot for solar.

While the near constant sunshine is good, solar panels become less efficient if they get too hot.

Dust is also a problem.

"They actually have guys with brushes continuously cleaning these panels," said Brett Prior, a senior analyst at GTM Research, speaking of a solar power project in neighboring Abu Dhabi.

Another challenge is natural gas, said Prior, which can also be used to generate electricity. As is the case in the United States, cheap natural gas is making it hard for renewables to compete.

Saudi Arabia currently uses all the natural gas it produces and hasn't had much luck finding new reserves. But the country sits right next to Qatar, which is currently developing the world's largest natural gas deposit.