Is Saudi Arabia serious about making the change from the world’s biggest oil exporter to a significant producer – and exporter – of renewable energy? Time will tell, but the country is certainly taking serious first steps, writes Nehad Ismail.
The famous former Saudi oil minister Ali al-Naimi, who led the country’s oil sector for 21 years, has suddenly emerged as an advocate of renewable energy. “As far as oil prices, and oil, I have left that behind”, he said, speaking at an event in Singapore on 24 February to launch his autobiography Out of the Desert: My Journey from Nomadic Bedouin to the Heart of Global Oil. “Now, I’m much more interested in solar energy, making solar panels”, he added.
Al-Naimi is a former minister of course, but his views are certainly echoed by the current Saudi policymakers. The Saudi Vision 2030 unveiled in April last year, focused on the importance of renewable energy as an essential future source of clean energy and a vital part of the diversification programme that aims to reduce Saudi Arabia’s dependence on crude oil as the only source of energy.
“Solar that is produced in Saudi Arabia can be exported all the way to Europe through a network”
The 5-year National Transformation Programme (NTP) also announced in 2016 by Prince Mohamad bin Salman established a target of 3.45 gigawatts (GW) — 4% of total power consumption — from renewable energy by 2023. Saudi Aramco recently stated that the goal of 3.45GW would be brought forward to 2020. At present Saudi Arabia generates less than 1% of its total energy from renewable energy.
King Salman bin Abdul Aziz, who is touring Asia to promote the Saudi 2030 Vision for renewable energy and less dependence on oil, is telling his hosts that Saudi solar and wind power can extend beyond the kingdom’s borders and benefit not only the government’s coffers but meet the electricity needs of other regions as well.
Speaking on January 20th at the World Economic Forum in Davos, Switzerland, Saudi Energy Minister Khaled al Falih suggested that Saudi Arabia could become a “major exporter” of renewable energy, saying, “solar that is produced in Saudi Arabia can be exported all the way to Europe through a network”.
Speaking at the World Future Energy Summit in Abu Dhabi in January, Falih pointed to Africa as a potential recipient of Saudi renewable energy, saying that the kingdom was developing ways to connect its renewable energy projects with Yemen, Egypt and Jordan. The Saudi government hopes not only to export power from its renewable energy sources but also supply other regions with solar panels and wind turbines.
In addition to renewable energy, Saudi Arabia has long had plans to diversify into nuclear power, but these have not materialised yet. In August 2009 the Saudi government announced that it was considering a nuclear power program on its own, and in April 2010 a royal decree said that “The development of atomic energy is essential to meet the Kingdom’s growing requirements for energy to generate electricity, produce desalinated water and reduce reliance on depleting hydrocarbon resources.” The King Abdullah City for Atomic and Renewable Energy (KA-CARE) was set up in Riyadh to advance this agenda and in 2011 it was announced that Saudi Arabia would build 16 nuclear power plants over the next 20 years at a cost of $80 billion. In October last year, Bloomberg reported that Saudi Arabia will soon choose a site for its first nuclear power plant. “We will be selecting sites very soon that we will reserve for our first nuclear energy power plant,” Khalid Al-Falih had said at a conference in London. “We hope within the next 12 months that we will be announcing concrete plans.”
In early February Saudi Arabia announced plans to launch in coming weeks a renewable energy programme that is expected to involve investment of between $30 billion and $50 billion by 2023. A deadline of 20 March has been set for prospective bidders to submit applications to qualify to build wind and solar power plants aimed at creating 700 megawatts of power.
Saudi Arabia’s renewable energy push is set to see solar power infrastructures housing 300MW established in Sakaka, in addition to a 400 MW wind project in Midyan, both located in the north west of the country once successful bids have been processed. Near Riyadh, the government is preparing to build a commercial-scale solar-panel factory. On the Arabian Gulf coast, another factory is about to begin producing large quantities of polysilicon, a material used to make solar cells.
The renewable energy push is part of a broader economic reform programme launched last year, in which Saudi Arabia is seeking to use non-oil means to generate much of its additional future energy needs, to avoid running down oil resources which are required to generate foreign exchange through exports.
Saudi Arabia produces much of its electricity by burning oil, a practice that most countries abandoned long ago, reasoning that they could use coal and natural gas instead and save oil for transportation, an application for which there is no mainstream alternative. Most of Saudi Arabia’s power plants are inefficient, as are its air conditioners, which consumed 70 percent of the kingdom’s electricity in 2013. Although the kingdom has just 30 million people, it is the world’s sixth-largest consumer of oil. The Saudis burn about a quarter of the oil they produce and their domestic consumption of oil is rising at the rate of 7% a year according to some studies. Chatham House, the London based think tank, said in a report that if this trend continues, Saudi domestic consumption could eat into its oil exports by 2021, and render the kingdom a net oil importer by 2038.
By investing in renewables, Saudi Aramco “open themselves up to a larger pool of investors. If a company is looking at raising capital, they typically must have a strategy around sustainability”
Now, the Saudis realize that things must change. They see investing in solar energy as a way to remain a global oil power. Speaking at the recent Atlantic Council Global Energy Conference in Abu Dhabi in January, the Saudi Minister of Energy Khalid al-Falih reiterated Saudi Arabia’s commitment to renewable clean energy.
Solar, they have decided, is an obvious alternative to oil. In addition to having some of the world’s richest oil fields, the country enjoys almost 364 days of hot sunshine a year. Solar-energy prices have fallen by about 80 percent in the past few years, due to a rapid increase in the number of Chinese factories cranking out inexpensive solar panels, more-efficient solar technology, and mounting interest by large investors in bankrolling solar projects. Solar and renewable energy projects are high on the agenda of King Salman who is visiting Japan and China during his one month long trip to Asia during March.
Interestingly, the planned IPO of Saudi Aramco next year – the government have said they want to privatize the largest oil producer in the world that they say is worth $2 trillion – would also be boosted by Aramco investments into solar power. Saudi Aramco are planning to invest $% billion in renewable energy, the first diversification the company has ever attempted. According to a report by Bloomberg, by investing in renewables the company “open themselves up to a larger pool of investors,” as Scott Gehsmann, partner at the deal advisory service of PwC put it. “If a company is looking at raising capital, they typically must have a strategy around sustainability. If they don’t have one, it can be perceived as a negative.”
“This marks the starting point of a long and sustained program of renewable energy deployment in Saudi Arabia that will not only diversify our power mix but also catalyse economic development.”