How Saudi Arabia is transitioning from fossil fuel hub to solar power
Saudi Arabia has needed a change of approach towards energy consumption and production for many years.
Despite having a population of just over 30 million people, the Kingdom is the largest oil consumer for electricity generation on the planet, where the fuel makes up roughly 42 percent of the Kingdom’s electricity mix. With its heavy dependence on oil, it’s no secret that significant modernization is needed to move away from this dependence.
Exploring alternative methods of generating electricity has become a top priority, as demonstrated by the ambitious Vision 2030, which amongst other reforms set the goal of producing 60GW of renewable energy by 2030. Alongside this program, there have been important announcements in terms of the regulatory framework, and the implementation of government-funded projects, which are hugely beneficial for the fruition of the solar energy market.
These developments, along with rapidly growing local industrial clusters across the country, have laid the foundations for solar energy to flourish to a potentially globally-leading level.
The Cost Curve
Saudi Arabia’s oil revenue in the first half of this year was 35 percent lower than last year, and the economy contracted 7 percent year-on-year in the second quarter. The government heavily subsidizes the electricity tariff, with a total fossil fuel incentives as high as $9.8bn causing lower electricity generation costs. A continued strain on the government budget in a low-price oil environment puts such subsidies under pressure.
On the other hand, the cost of solar energy has become remarkably low, providing an opportunity for more affordable rates in comparison to those of the Saudi Electricity Company (SEC). Given that there is a wealth of solar contracting companies and a growing suite of local manufacturing and assembly facilities, the Kingdom has the potential to become a prosperous hub for solar power development.
Vision 2030 and Government-Funded Projects
In 2016, Crown Prince Mohammad bin Salman announced the initial details of Vision 2030, a plan to reduce the Kingdom’s dependence on oil through economic and social reform centered around the idea of a burgeoning private sector. Its announcement was a critical cornerstone for the development of solar energy, and even though the targets have shifted somewhat, the current goal is to deploy 9.5GW of wind and solar energy capacity by 2023.
To achieve this, Saudi Arabia’s Renewable Energy Project Development Office (REPDO) announced in 2019 that it would be issuing tenders for 11 projects across the country, including a solar park in Makkah with a capacity of 600MW. This announcement followed the installation of the 300MW Sakaka power station, which was the first utility-scale renewable energy project to be created in the country, and was successfully connected with the national grid in November last year.
Local Content Requirement and a New Regulatory Framework
Those projects pave the way for a solar energy value chain to grow in local clusters and industrial bases across the country, with a local content requirement serving as a catalyst. Under this regulation, 30 percent of the resources required to complete the project must be sourced locally, creating demand for employees, finance, and components locally.
In addition, a new regulatory framework announced by the Electricity & Cogeneration Regulatory Authority (ECRA) could have a positive impact on the Kingdom’s solar commercial and industrial (C&I) sector. One of the key elements of the framework is that exported electricity is planned to be credited to the monthly electricity bill of the solar powered facility owner.
A Burgeoning Market Size
The market size of solar energy in Saudi Arabia is expected to increase significantly over the next decade. This can be demonstrated with data that Sirius Energy has collected, estimating the potential market size to be 10GW of rooftop solar across the Kingdom, of which 3GW are expected to convert over the next 8 to 10 years – this would translate roughly into 3bn dollars’ worth of assets. As more industrial clusters are developed and established, the power demand for these regions will also increase.
The combination of ambitious commitment to renewable energy as set out by Vision 2030, the advances in regulatory policies and the large forecasted demand of both utility-scale and rooftop solar projects have laid the foundation for the Kingdom to take advantage of the huge expanses of open desert and utilize solar energy to a potentially unforeseen level. Saudi Arabia is transitioning from drilling the depths of the earth to looking up to the sun in a new search for power.
Source : greentechlead
