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Saudi Arabia To Spend $50 Billion On Massive Solar Push

Solar

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.

By Nick Cunningham of Oilprice.com

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  • Don Clifford on January 16 2017 said:
    The clear hot desert sky over Saudi Arabia would seem ideally suited to solar electrical power. What's more, peak electrical demand is very coextensive with it's peak production, in the hot daylight hours of AC use. The use of natural gas for the remaining 70% makes sense too, as using this oil field biproduct at or near it's source is a less costly use than transporting it for export.
  • David Kung on January 17 2017 said:
    It's about time. They are right in the desert, probably close to year round peak sun mention above. Now if they build reservoirs and coastal dams, use water pumps to fill it up during the day, and run hydro at night, they be completely off of fossil. But what are you going to do with all the natural gas. You have to burn them anyways as natural gas is toxic if you just release in air.
  • Tantrums on January 18 2017 said:
    Solar power in Saudi Arabia has become more important recently (and by recently I mean in the past few years) as oil prices have been on the rise. Back in 2011 over 50% of electricity was produced by burning oil- But now things are about to change for the future Saudis.
    This isn't completely new news since the Saudi agency in charge of developing the nations renewable energy sector, Ka-care, announced in May 2012 that the nation would install 41 gigawatts (GW) of solar capacity by 2032. But it surely resurfaces with all the new plans and vision of 2030 being on its way to becoming a reality
    It is projected to be composed of 25 GW of solar thermal, and 16 GW of photovoltaics- So all that sun in this desert country will be put to great use. The beginning will be bumpy and pricy- but would have a large load of benefits for them all!
    Saudi Arabia's first solar power plant was commissioned on October 2, 2011, on Farasan Island. It is a 500 kW fixed tilt photovoltaic plant- so again the concept isn't something completely new, but installing it on such a large scale later will surely be on of the many big projects the country is working on. A 200 kW rooftop installation is planned for Riyadh, and is expected to generate 330 MWh/year---That is A LOT of energy.
  • GregSS on January 18 2017 said:
    @ David: Why would they need to just release it? You either use it for power generation, sell it, or shut the well in.
  • Manoj on January 23 2017 said:
    The greatest tragedy of the modern world is that it is not able to distinguish between progress and spending. Progress can only be achieved when spending is consistent and judicious with preservation of wealth and economic growth while simultaneously offering a degree of comfort and security to the common man. Modern progress is essentially a display of the sheer incongruence between economic growth and spending. Its a glittering example of wasteful spending of mammoth proportions. The GCC is the best example of this grosteque show of pompous opulence. It desires everything that one can possibly buy, and displays the abject futility in putting those projects to any practical use. This small geographic niche is strewn with a fulminant exhibition of anything that money can buy, and looks up to the West to partake and support this sickening lavishness of conceit. The bitter truth is that the common man in this part of the world is finding life more and more difficult to live by while its rulers continue to live in unimaginable luxury. Palaces, skyscrapers, resorts, enclaves, retinue of out-of-proportions of airliners and automobiles without any thought given to their sustenance and with a total dependence upon Western support that insidiously draws the blood out of the flowing oil wealth and leaves the countries faster than can be generated. A total and sheer waste. And now, when the bells toll, these countries are introducing taxes, imposing restrictions on incomes, cutting jobs and limiting growth in the public sector. There is no greater example of stupidity than what is being displayed here........and another 50 billion in spending!!! Its pure idiocy personified.

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