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Record low prices for renewable energy technologies such as solar and wind energy, and the need to mitigate the impacts of energy use on the climate change have accelerated the transformation of our global energy system moving away from fossil fuel based energy system towards zero-carbon energy system.
You can say that the time to take renewable energy seriously finally has come when even oil-exporting heavyweight like Saudi Arabia, home to an estimated 17% of the world’s proven oil reserves [1], starts seeing the value of developing renewable energy system projects. Yes, that’s correct! Saudi Arabia government has decided to substantially increase the share of renewable energy in the total energy mix in line with Saudi Vision 2030 [4].
The good news is that some of initial utility-scale renewable energy projects implemented in Saudi Arabia have already gathered eyeballs and media landscape seems to be awash with stories about their record low prices for generating unit of electricity (such as 2.34 Cents / kWh for solar PV project named as Sakaka300 MW and 1.99 Cents / kWh for wind power project named as DumatAl Jandal400 MW which has broken a new world record achieving the lowest Levelized cost of electricity (LCOE) for onshore wind power) [5].
But why exactly Saudi Arabia ditching fossil fuels? The simple answer you would get everywhere is that by shifting toward renewables, Saudi Arabia is trying to diversify its economy, exports and sources of income, whilst working towards carbon reduction commitments. But there is more to the story, Saudi Arabia is actually adopting long term strategy because Saudi Arabia understands that world is inevitably going to be run by renewable energy and these technologies have potential to become huge clean tech industries in the future. Therefore, Saudi Arabia Is flexing Its money muscles in an attempt to localize significant portion of the renewable energy value chain in the Saudi economy, including major R&D, manufacturing in the field of solar and wind energy guaranteeing the long-term domestic energy security, and international non fossil-energy exports.
Furthermore, Saudi Arabia’s landscape enjoys great potential of wind and solar energy because of favourable wind patterns in the Red Sea area and high solar irradiation across all provinces (Source: Renewable Resource Atlas). Therefore, both solar and wind energy are clearly going to play promising role in the energy future of Saudi Arabia.
In order to capitalize kingdom’s wind and solar energy potentials, there are many renewable energy projects, including solar and wind, planned across more than 35 parks in Saudi Arabia by 2030. Saudi Arabia government aims to have 58.7 GW of renewable energy capacity by 2030, 40 GW of which will be in solar PV, and 16 GW of which will be in wind energy (Source: REPDO) [5]. According to Fitch Solutions, a research and analytics company, Saudi Arabia's non-hydropower renewables generation (such as solar and wind) is heading towards a strong growth of an annual average of just under 55% from 2019 to 2028 [3].
Saudi Arabia Government has undertaken and implemented integrated programs to develop renewable energy projects in the country. Positive steps taken by the Saudi Arabia government towards creating investor-centric ecosystem for the development of renewable energy have been well received and acknowledged by key players in the renewable energy business. For instance, projects particularly related to independent power production and renewable component manufacturing can get USD320mn loan per project from the USD28bn Saudi Industrial Development Fund [2]. This and many other such steps have even motivated some research and analytics firms to increase their forecasts to renewables making 3% of the country's total output by 2028 where earlier they expected renewables to make up less than 1% of the country's total electricity output by 2028 [3].
Another encouraging and positive step for the development of renewables in the country is that all the renewable energy projects pre-developed and tendered by The Ministry of Energy are 100% IPP are supported and backed by 25-year Power Purchase Agreements (PPA) with the Saudi Power Procurement Company (SPPC) as offtaker. Till date, The Ministry of Energy, through the NREP, has been able to pre-develop and tender 2,170 MW of renewable energy capacity in the Kingdom, of which 700 MW was awarded in 2019 and a further 1,470 MW will be awarded in 2020 [5].
Also, meeting such huge public policy objectives of increasing the share of renewable energy and preventing dangerous anthropogenic climate change requires substantial private investment as well as public investment. Therefore, a lucrative investor-centric ecosystem is a must, to attract private sector investors, and to some extent government has successfully established such an ecosystem by encouraging Public-Private partnerships and giving freedom to the private sector to buy & invest in renewable energy (RE). The DumatAl Jandal400 MW wind farm project is a great example of successful Public-Private partnership demonstrating commercial viability of wind energy [5].
Despite the government is committed to diversifying the power sector away from oil and substantially increase the share of renewable energy in the total energy mix. There could be some challenges along the way. Firstly, renewables development is heavily dependent on government investment, which is vulnerable to shifts in global oil prices. Another key issue which could be faced by international renewable energy investors in the Saudi Arabia is that the framework responsible for renewables development in the Saudi Arabia focuses a lot on Localizing significant portion of the renewable energy value chain in the Saudi economy, including R&D, manufacturing, among other stages amid limited domestic capacity.
References:
[3] Fitch Solutions, Saudi Arabia Renewables Report Q1 2020
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