Saudi Arabia diversifies its energy mix through solar and wind projects

Saudi Arabia has significant potential in renewable energy, and has worked in recent years to harness the power of the sun and wind to generate electricity. These efforts are not only environmentally friendly, but they also preserve valuable supplies of oil and gas that can instead be converted into value-added products or exported abroad. Broadening the electricity mix is also important, given that energy consumption rose 60% in the decade leading to 2019. Demand is expected to increase further, from 62.7 GW in 2019 to 120 GW in 2030.

As of 2020 there were signs that the implementation of renewable energy plans were picking up pace. The 300-MW Sakaka solar photovoltaic (PV) plant was connected to the national electricity grid in November 2019, and projects with a combined capacity of over 3 GW were in various stages of the tendering process. Indeed, the Kingdom is looking to invest some $50bn in renewable energy between 2018 and 2023, by which time the target will be 27.3 GW of installed capacity, later rising to 58.7 GW by 2030, including 40 GW of PV and 2.7 GW of concentrated solar power.

Renewables Agency

The government office leading green energy implementation is the Renewable Energy Project Development Office (REPDO). Established in 2017, REPDO’s role is to deliver the National Renewable Energy Programme (NREP) in line with Vision 2030’s energy-related objectives. REPDO is guided by representatives of key stakeholders including from the King Abdullah City for Atomic and Renewable Energy, Electricity and Cogeneration Regulatory Authority, and Saudi Electricity Company. In September 2019 Faisal Al Yemni was appointed as the new head of REPDO.

First Round

The first bidding round announced by REPDO was in 2017 and included two projects: the Sakaka 300-MW solar IPP and the 400-MW Dumat Al Jandal wind farm. ACWA Power’s consortium was selected for Sakaka, with financial close on the deal achieved in February 2018. By the time the $300m plant connected to the national grid, Sakaka had achieved a 100% Saudiisation rate, with 90% of staff at the plant drawn from the surrounding Al Jouf region. The facility was also built with 30% contractual local content in the construction and development phases. At a record low tariff of $0.236 per KWh, electricity will be supplied via the national grid to 45,000 households in Al Jouf, helping to offset approximately 500 tonnes of CO per year.

There was another record low tariff – this time for onshore wind – when financial close was achieved in August 2019 on the Dumat Al Jandal wind project, with a levelised cost of energy of $0.0199 per KWh. The utility-scale wind project was secured by a consortium of the French energy giant EDF and Abu Dhabi’s renewables investment group Masdar. The $500m wind station is expected to be completed by 2022 and will generate 1.4 TWh a year, enough to supply approximately 70,000 homes.

Six Solar Projects

The same month that financial closure was announced on Dumat Al Jandal, REPDO invited bids for the second round of the NREP. At that stage, 60 companies were pre-qualified to bid, including 28 Saudi firms. Round two was comprised of six solar PV projects valued at SR5.3bn ($1.4bn) with a combined generation capacity of 1.5 GW. In the second round, bids the projects were divided into two categories: A for smaller projects and B for larger schemes. The two category-A projects were Rafha (20 MW), and Madinah (50 MW). The four category-B projects were Qurrayat (200 MW), Rabigh (300 MW), South Jeddah (300 MW) and Al Faisaliyah (600 MW). The deadlines for proposals were November 2019 for category B and December 2019 for the two category-A schemes.

PV Pipeline

In January 2020 the third round of the NREP was announced, with requests for qualification submitted by February 2020 and requests for proposals by March 2020. There were four PV projects with a combined capacity of 1.2 GW in the round. The 80-MW Layla and 120-MW Wadi Al Dawaser projects were category-A schemes, while the 300-MW Saad and 700-MW Ar Rass were category B.

Local Content

Renewables were identified as a targeted sector in the National Industrial Development and Logistics Programme (NIDLP). According to the NIDLP’s January 2019 delivery plan, components manufactured at home could be up to 8% cheaper than imports from China, with the lower costs passed on to local manufacturers of items including glass, aluminium and plastics. The delivery plan recommends developing local talent while forming manufacturing and research clusters.

Starting in the second round of the NREP, REPDO introduced rules for bidders to ensure the new wave of renewable projects was having the maximum impact on the wider economy. Bidders for category-A projects were required to partner with at least one Saudi firm and companies were classified as managing member, technical member or local managing member of each consortium. The second round also sought to increase the extent of local content in production with a minimum of 17% required as calculated by the Local Content and Government Procurement Authority.

To facilitate the shift towards local content, in November 2019 ACWA Power announced it created a new business unit, ACWA Industrial Investment Company (AIICO), dedicated to enabling local content development and industrialisation in the Kingdom. AIICO will focus on compliance with mandatory local content regulations, while enhancing the company’s capacity to export Saudi-made products for its projects overseas. The new division will also support the government’s overall goal to diversify the economy, localise knowledge and innovation, and create jobs.

The business unit will build on the company’s previous efforts to increase the contribution of local content. “Through our Sakaka PV project, we are already seeing the benefits of supporting local content for the wider industry,” Paddy Padmanathan, president and CEO of ACWA Power, said in a statement announcing the establishment of the business unit in December 2019.

The next month, ACWA Power announced it signed a memorandum of understanding with SABIC to explore ways to increase the contribution of the local supply chain in the renewable energy industry. SABIC will conduct research on the local supply chain, and the firm will also facilitate ties between ACWA Power and local companies.

Local manufacturers have seized opportunities in renewable energy. Jeddah-based Desert Technologies (DT) established an automated solar-PV assembly plant with the capacity to supply panels capable of generating 110 MW a year. The factory opened in January 2018, and by early 2020 there were plans to introduce a third shift to keep up with demand. DT developed portable shipping-container solar-generation units with a capacity of 30 KW or 55 KW for rural African communities, and also installs smaller-scale rooftop solar systems on schools, mosques and commercial premises in the Kingdom.

There has yet to be a marked shift to solar, however, with the “Bulletin of Household Energy Survey 2019” from the General Authority for Statistics finding that only 1.6% of respondents use solar energy at home. Even so, 52.3% of respondents were interested in using solar-PV panels in their homes.

Loans to Industry

In September 2019 the SR105bn ($28bn) Saudi Industrial Development Fund (SIDF) launched the Mutjadeda programme designed to support local companies interested in investing in and manufacturing for the renewable energy sector. It collaborates with a range of partners to maximise local content. As part of the programme, SIDF will offer loans of up to SR1.2bn ($319.9m) to support component manufacturers or participation in independent power producer (IPPs) schemes. Mutjadeda will offer companies planning to manufacture renewable energy components financing for up to 75% of project cost with loan repayment periods of up to 20 years, providing the scheme meets REPDO requirements.

Under the plan, loan repayment periods for IPPs feeding the grid will be for 20 years, while those serving specific industrial, commercial or other sectors would have 12 years to repay, with all loans granted a 36-month grace period. “Whether you are manufacturing, agriculture or retail, if you want to deploy renewable energy, we will finance it,” Ibrahim Almojel, CEO of the fund, told international media in September 2019. “For renewables to be adopted in the Kingdom, we need to support it.” The authorities hope these efforts will enable local renewable energy component manufacturers to expand in order to meet domestic and regional demand.