Saudi Arabia’s energy minister, Khalid Al-Falih, said that his country will begin soliciting bids for a “massive” renewable energy push, with spending to be ramped up to as high as $50 billion. The move is intended to source at least 10 GW of electricity from solar and wind by 2023, a rapid escalation of renewable energy installations in order to conserve oil for exports.
On top of that, the Saudis want to build nuclear reactors, a less ambitious program that would see 2.8 GW of new electric capacity.
The end goal is to generate 30 percent of the Kingdom’s electricity from renewable sources by 2030, with the remainder to come from natural gas.
There are two key objectives that a massive build out of renewable energy would achieve: leave more oil for export, thus generating more government revenue, while at the same time diversifying the economy away from crude oil more generally. The powerful Deputy Crown Prince Mohammed bin Salman is aggressively pushing the government to undertake a monumental transformation of the Saudi economy, a move that is turning heads in Riyadh both because of its ambition and scope and because it is ruffling the status quo.
His plan, called “Vision 2030,” is a long-term effort that can be summed up as an attempt to move beyond oil as the country’s sole source of revenue. As part of the Vision 2030 plan, the government plans on spinning off a small slice of Saudi Aramco – an IPO of 5 percent of the company could generate more than $100 billion in revenue, which the prince plans on putting to good use developing other sectors of the economy.
However, the Saudi government has been talking a big game on renewable energy for several years now. To date, the country only has a measly 10 megawatts of capacity, a single project located at the headquarters of Saudi Aramco, Bloomberg reports. In fact, the government has gone back and forth on its solar ambitions in recent years. Back in 2012, the government laid out a proposal to install 41 GW of solar by 2032, using a mix of photovoltaics and concentrated solar power (CSP). The ramp up was to begin immediately.
But then, nothing happened for a while. Deadlines were delayed. The government thought the solar target would perhaps be attainable in 2040 instead of 2032. But still, there was little news regarding the solar push even as the country continued to burn valuable barrels of oil for electricity – at a time when crude often traded above $100 per barrel. The collapse of oil prices in 2014 dashed all urgency for a clean energy transition. The Saudi government was more concerned with husbanding resources as the market meltdown led to widening fiscal deficits. Also, the monarchical succession in early 2015 scrambled priorities for a time.
Last year, the Saudi government sought to revive its solar program, although with much more modest goals. The 2030 goal was vastly scaled back, with a target of only 9.5 GW of renewable energy instead of the original 41 GW.Related: What Is Holding Renewable Energy Back?
Here we are again, with a revision to the solar targets. The latest from Riyadh is 10 GW of renewable energy, but on a much faster timeline – 2023 instead of 2030. “I’m fully expecting within the first quarter 500 megawatts to come out in tenders and then it’ll ramp up,” Paddy Padmanathan, CEO of the Riyadh-based Acwa Power International, told Bloomberg back in December. “That will be a game changer for the region.”
Acwa is set to be a key player in the Saudi solar push. In fact, the company announced an unrelated deal just this week to build a 61-megawatt solar project in Jordan, set to be the country’s cheapest solar power plant at just 5.88 cents per kilowatt-hour. As surprising as it might seem, the Middle East has been breaking records with the cheapest solar power purchase agreements lately. In September, Abu Dhabi broke a new record when it received a 2.42-cent-per-kilowatt-hour bid for a solar project, a sign that solar is quickly becoming the cheapest source of power in some parts of the world.
Even as oil prices are lower, there is still an urgency to scale up solar energy. Saudi Arabia burns through around 900,000 thousand barrels of oil per day just to run air conditioning and keep the lights on during peak demand in summer months, according to the IEA.
Meanwhile, Saudi Arabia is taking on the greatest burden in production cuts as part of the OPEC deal. Riyadh agreed back in November to cut its output by almost 500,000 bpd in order to help balance the market. In recent days Saudi officials said that have already met that target, taking output down to 10 million barrels per day. They also suggested that they would be willing to go much further than they promised, cutting deeper in order to accelerate a rebound in oil prices.
That is welcome news for much of the oil-producing world, but it comes at a cost. The IMF just cut its growth outlook for Saudi Arabia because of the lower output levels. The Fund said that the country’s GDP will expand by just 0.4 percent, sharply down from its October estimate of 2 percent growth in 2017.Related: Leaner And Meaner: Oil Majors Capitalize On Higher Crude Prices
A push towards clean energy may seem like a luxury, or maybe even just a longer-term priority, but the budget implications of wasting crude oil for electricity is immediate. That suggests that even though the government has dithered on its solar program for several years, they may finally be serious about scaling up solar in the sunny deserts of the Arabian Peninsula.
The timing is perfect from the clean energy sector’s point of view. Solar power has never been cheaper. Also, clean energy investment took a breather in 2016 after years of blistering growth. Total global clean energy investment declined by 18 percent to $287.5 billion last year as China’s solar and wind demand cooled.
An aggressive push for solar power would improve Saudi government finances, and it would also present a new source of growth for clean energy markets.