Saudi Arabia: the next solar power hub

“We will be another Germany when it comes to renewables,” announced the energy minister of Saudi Arabia at a conference in Riyadh this year, highlighting the goal of sourcing 50% of the country’s electricity from renewable energy by 2030.

The Kingdom had required a new approach towards energy production for many years. With a population of just over 30 million people, Saudi Arabia is the largest oil consumer for electricity generation on the planet, with oil making up roughly 40% of the Kingdom’s electricity mix.

That clean energy ambition is well supported by Vision 2030 which outlines Saudi Arabia’s plan to develop a renewable energy installed capacity of almost 60 GW by 2030, setting clean energy solutions as a top priority. This has been sustained by important announcements on new regulatory framework and implementation of government-funded projects – all hugely beneficial for the flourishing of a regional solar energy market.

These developments, along with rapidly growing local industrial clusters across the country, have laid the foundations for solar energy to grow to a potentially globally-leading level.

Government Backing Through Vision 2030

Announced in 2016 by Crown Prince Mohammad bin Salman, Vision 2030 lays down a plan to reduce the Kingdom’s dependence on oil through economic and social reform. Its announcement signalled a sea of change towards renewable energy, and set the tone for an ambitious renewable energy programme that targets 58.7GW installed capacity by 2030. The programme mandates are implemented by two entities: the Public Investment Fund (PIF – 70%) and the Renewable Energy Project Development Office (REPDO – 30%) set up by the Ministry of Energy.

Projects to realise these goals are well underway, with the 300 MW Sakaka solar plant already connected in November 2019, and REPDO finalizing the second round of its National Renewable Energy Program (NREP) tender, which includes 1.47 GW of new solar power plants. PIF is additionally procuring 2GW in the Sudair solar project.

Local Content as a catalyst for economic development

As in other emerging renewable energy markets, Saudi Arabia’s economy is placed at the center of the new energy goals, with the intention to increase Saudization across multiple sectors. Consequently, such energy projects are designed to enable a solar energy value chain to grow in local clusters and industrial bases across the country.

Under this mandate, REPDO defined requirements on local content throughout its procuring rounds, adjusting it to the ongoing country’s capabilities and goals. While in the first round it was mandated a 30% share, the second and third rounds define a more realistic and competitive minimum local content score of 17% and 18% in the construction phase, respectively. As example of such, the 200 MW Sakaka project has established a 100% local employment rate within the first year of operation, with 90% of the workforce comprised by the youth of Al Jouf region.

The Cost Curve

The Saudi Government has been subsidizing the electricity tariff for many years, offering fossil fuel incentives as high as $9.8bn per year for electricity production. Considering last year’s drop on oil revenues in Saudi Arabia, it is clear that a low-price oil environment puts a strain on government’s budget and piles immense pressure onto electricity subsidies.

The situation is the opposite for solar energy, which costs have dropped dramatically during the last 10 years. With excellent solar irradiation, harnessing the power of the sun provides a unique opportunity for the Kingdom to tap into low-cost, long-term electricity prices.

Opportunities for Commercial and Industrial Companies

In February 2020, the Kingdom announced the introduction of a net-billing mechanism, unlocking solar energy to private consumers. This long-awaited regulatory framework was followed by an announcement from the Ministry of Municipal and Rural Affairs and Housing that it was implementing the necessary safety requirements to install solar panels in buildings across the country.

The new regulations pave the way to a complete new market in Saudi Arabia, where Commercial and Industrial (C&I) consumers can really benefit from the solar energy low prices. Sirius Energy has collected data that estimates a potential market size of 10 GW solar rooftop opportunities spread across fast-growing industrial clusters in the Kingdom, the vast majority of which are managed by Modon. The burgeoning industrial and commercial sector is spurred by these clusters, like the King Abdullah Economic City (KAEC), underpinning the requirement for long-term and sustainable  energy solutions for the demanding growth in power requirements.

Conclusion

The government’s commitment to renewable energy, together with the forecasted demand for solar projects of various scales, demonstrates that solar power has enormous potential in the Kingdom. If up and coming renewable energy players take advantage of favorable regulatory policies and the country’s vast desert regions, then solar energy could grow to an unforeseen level. This transition from fossil fuels to renewable energy is still in its infancy, but all the signs point to Saudi Arabia harnessing the power of its sun-bathed land to create a true solar power hub.


By Daniel Domingues and Tariq Said, Co-Founders of Sirius Energy