While Saudi Arabian company ACWA Power has been making headlines recently for its record-breaking solar bids in Dubai, there are still many Saudi companies considering how best to enter the renewable energy market. In this interview, we ask Dr. Amer Alswaha, Apricum senior advisor based in Saudi Arabia and the former head of Saudi Electricity Company's IPP program, about the opportunities for Saudi companies in the renewable energy sector. Dr. Alswaha also shares his view on the key learnings for Saudi authorities to consider in building a renewable energy program.
DR. ALSWAHA, OTHER COUNTRIES IN THE MENA REGION, SUCH AS THE UAE, JORDAN, MOROCCO AND EGYPT, HAVE BUILT SIGNIFICANT MOMENTUM IN RENEWABLE ENERGY, WHAT CAN SAUDI AUTHORITIES LEARN FROM THEIR EXAMPLES?
The pace of introducing renewable energy projects has accelerated recently in the MENA region with a general trend of competitive IPP tenders, excluding Egypt. So far, the UAE has been the most active in the GCC, largely driven by initiatives in Dubai with the 1 GW Mohammed bin Rashid Al Maktoum Solar Park. Morocco is implementing a similar program; however, in place of PV it is running competitive tenders for large-scale CSP projects. So far, the 160 MW Noor I project is being constructed and the Noor II and III projects, which account for a combined capacity of 350 MW, have been awarded. Jordan has also adopted the competitive model and, likely a result of smaller projects and a fixed price in the initial rounds, featured more local companies participating than in the UAE's program. In Egypt, rather than massive mega-projects, we see a move towards numerous smaller projects using a feed-in-tariff program to build 4.3 GW of solar and wind projects in the next three years. Moving in a similar direction to encourage smaller projects, Dubai has announced plans for a net-metering program to allow small- and medium- scale rooftop installations.
Though the focus is often mainly on solar, wind energy has been gaining in prominence in recent years, particularly in Morocco and Jordan. The former received bids for 850 MW of wind power in 2014 and a 117 MW wind project in Jordan is under construction. With that, Morocco has become the MENA region's leader in wind power and CSP. Egypt's feed-in-tariff program will benefit from its early record of accomplishment with wind projects over the past 10 years.
If the goal of the Saudi Arabian authorities is local development, then they should closely consider the trends in these markets and design their program accordingly in order to attract Saudi and international renewable energy companies. To achieve that important local development goal, it is key that the eventual program has sufficient size of at least several hundred MW per year with a reliable timeline.
WHAT PROGRESS CAN BE OBSERVED IN SAUDI ARABIA'S RENEWABLE ENERGY EFFORTS?
Since Saudi Arabia announced its renewables program about two years ago with ambitious renewable energy targets to meet by 2032, several steps have already been taken in creating a foundation for development. For example, measurement stations to build a national renewable energy resource atlas have been installed, and studies have been conducted to address grid connection and control requirements to deal with the intermittent nature of solar and wind power depending on the penetration level.
The program's targets and its implementation steps, however, required a long-term commitment that necessitated a review process, particularly, with so many variables that have affected the local economy. For example, the government has made serious efforts to reduce energy consumption and improve energy efficiency via a range of projects addressing building insulation, air-conditioning, automobiles and public transportation. Furthermore, the government's intention to use the unconventional gas resources in the western and northern parts of the country, as well as other factors, such as the recent volatility with oil prices, needed to be considered. The program's extension from 2032 to 2040 was formally announced by H.E. Dr. Yamani, the president of K.A.CARE, at the recent World Future Energy Summit.
Saudi Arabia actually started more than thirty years ago to utilize the abundant solar irradiation with a solar PV system to provide electricity to a small town north of Riyadh. Later, SEC, Saudi Aramco, KAUST and some other universities started testing and building pilot systems using solar energy. In particular, SEC started to cooperate with Saudi Aramco to commission in 2011 the first solar IPP PV on-grid power plant with a capacity of 500 kW, to help the remote Farasan Island to become a "green" island, reducing fuel and transportation costs. In addition, tendering is in progress with the Green Duba and the Waed Ashimal projects, which will add 100 MW of solar power to the Saudi grid. As an extension of this cooperation, 300 MW of solar and wind projects are expected to be announced shortly. It is anticipated that these projects will be tendered using EPC contracts initially but could evolve to an IPP model, and will attract a lot of competition from all major developers and contractors. On the water desalination front, the commissioning of a new 15 MW solar PV facility to produce 60,000 cubic meters per day for the northeastern city of Al Khafji is expected in 2017.
WHERE DO YOU SEE RENEWABLE ENERGY OPPORTUNITIES FOR SAUDI COMPANIES?
There are many good opportunities for Saudi companies to develop projects in the Kingdom and in regional markets; a good starting point is, of course, where the company already has a footprint or interest. Take the construction segment for example. This is a sector where Saudi companies have a long and successful history, and represents a good opportunity for Saudi companies to build solar power plants. Saudi companies can also potentially establish themselves in the manufacturing sector, offering locally produced polysilicon, wafers and modules as well as balance-of-system components including mounting structures and inverters.
As many areas in the Kingdom offer top-notch wind resources, wind energy projects will play a role in the Saudi renewables market. Given that this market will require significant local work, Saudi companies with compatible expertise, such as in large civil works, tower and pipe manufacturing and more, should investigate opportunities in the wind sector. Another considerable opportunity originates from the high cost of off-grid rural area power generation, where hybrid-RE solutions can be competitive.
There will be opportunities available for consulting services, EPC and O oil's share has dropped from 25% in 1973 to a mere 5% in 2012, according to the International Energy Agency.
In the Kingdom, where oil still constitutes a much higher share of electricity production, we see that the drop in oil prices has two offsetting effects on the national budget: it leads to both lower domestic oil subsidies (the difference between market price and the one charged to the utilities) and of course to a drop in oil revenue from exports.
I am optimistic about the Saudi renewable energy program; it may be starting slowly but it will grow very quickly and soon you will see the Kingdom as one of the leading nations in this industry. Renewable energy is the world's future energy source, and for the Kingdom, it will help save fossil fuel resources, maximize oil revenue, boost the economy by creating jobs and help the environment by reducing harmful emissions. Much less than one percent of the Kingdom's total land area is needed to produce all of the electricity needs for one year using solar power. Especially due to the significant decrease in the prices of PV modules, which dropped from USD 77/W in 1977 to around USD 0.67/W in 2014, solar was the fastest growing global power generation source in the last five years, and it can become the largest source of electricity generation by 2050.
For questions or comments, please contact Nikolai Dobrott, Apricum managing partner.
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