Saudi Arabia will turn to solar for electricity, which could allow it to export a lot more oil.
The connection between solar and oil is not an obvious one since they typically do not compete against each other – oil is used to refine fuels for transportation while solar is used to generate electricity. Solar traditionally competes with natural gas, coal and nuclear power. However, that is not the case in Saudi Arabia, where oil is still burned for electricity, an increasingly uncommon practice throughout the world. In fact, Saudi Arabia is the largest consumer of oil for electricity, a weakness that Saudi officials believe they can no longer afford.
Saudi Arabia burns through roughly 900,000 barrels per day during the summer months, according to the IEA, when Saudi citizens crank up the AC to provide some relief during the sweltering heat. That consumption is equivalent to roughly $16 billion.
Those are barrels that Saudi Arabia cannot export, and barrels that do not bring in dollars, a sorely needed resource in Riyadh.
But there is one thing that is not in short supply in Saudi Arabia: sunshine. Installing solar power will reduce domestic oil consumption, freeing up oil for export. Saudi Arabia has vowed to step up the installation of renewable energy in recent years, but has failed to follow through on those promises. But the oil kingdom could finally get serious about clean energy as soon as next quarter, Bloomberg reports. “I’m fully expecting within the first quarter 500 megawatts to come out in tenders and then it’ll ramp up,” Paddy Padmanathan, the CEO of Acwa Power International in Riyadh, told Bloomberg. “That will be a game changer for the region.” Related: 10 Energy Surprises In 2017
Saudi Arabia is set to add 700 megawatts of wind and solar in 2018. But the rate of installations escalates after that – another 8.8 gigawatts are estimated to come online by 2023.
“You take a look at the opportunity cost of using crude oil for electricity production and you have a very high operating expense, and the power demand growth in Saudi Arabia is one of the largest in the region,” Sami Khoreibi, the CEO of Enviromena Power Systems, an Abu Dhabi solar developer, said in a Bloomberg interview.
Low oil prices have wreaked havoc on the Saudi budget, forcing austerity in a country that is unfamiliar with belt-tightening. The kingdom rolled up a $100 billion deficit in 2015, or 15 percent of GDP. That shrank slightly to $79 billion this year, still a massive problem. Saudi Arabia was so desperate for an oil price rally that it made concession to seal a deal with OPEC, but more work is needed to fix the economy. Saudi officials believe solar will help free up more oil for export.
By Charles Kennedy of Oilprice.com
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