Saudi Arabia Plans $109 Billion Boost for Solar Power

Bloomberg, by Wael Mahdi and Marc Roca - May 11, 2012

Saudi Arabia is seeking investors for a $109 billion plan to create a solar industry that generates a third of the nation’s electricity by 2032, according to officials at the agency developing the plan.

The world’s largest crude oil exporter aims to have 41,000 megawatts of solar capacity within two decades, said Maher al- Odan, a consultant at the King Abdullah City for Atomic and Renewable Energy. Khalid al-Suliman, vice president for the organization known as Ka-care, said on May 8 in Riyadh that nuclear, wind and geothermal would contribute 21,000 megawatts.

“We are not only looking for building solar plants,” al- Odan said in an interview in Riyadh yesterday. “We want to run a sustainable solar energy sector that will become a driver for the domestic energy for years to come.”

The comments highlight the scale of Saudi Arabia’s ambitions to boost renewable energy use as a way to pare back on oil consumption used for domestic desalinization and power plants, potentially saving 523,000 barrels of oil equivalent a day over the next 20 years.

For the solar panel manufacturers such as First Solar Inc. (FSLR) and SunPower Corp.(SPWR), the Saudi Arabian market would open a huge new market as European countries reduce subsidies to keep a lid on installations. Panel sales may dip this year for the first time in more than a decade from 27,700 megawatts installed last year, according to a survey of analysts by Bloomberg on March 9.

‘Less Profitable’

“These markets are likely to be a lot less profitable than existing markets,” Vishal Shah, an analyst at Deutsche Bank AG in New York, wrote in a note to clients yesterday, noting the Saudis may require bid winners to supply from factories built in the nation. “It looks like both First Solar and SunPower would need to set up local manufacturing.”

First Solar dropped 4.9 percent yesterday, taking its slide this year to 55 percent. SunPower slid 0.7 percent, for a 16 percent decline this year.

Ka-care is the government agency set up in April 2010 to oversee the nation’s renewable energy strategy. Its plans are likely to be approved later this year, al-Suliman said, according to a copy of the presentation he gave on May 8.

The government is targeting 25,000 megawatts from solar thermal plants, which use mirrors to focus the sun’s rays on heating fluids that turns a power turbine. Another 16,000 megawatts would come from photovoltaic panels, according to the Deutsche Bank note.

Bidding Round

Citing government officials, Deutsche Bank said the capacity would be added in competitive bidding starting with 1,100 megawatts of PV and 900 megawatts of solar thermal in the first quarter of 2013. A second round of bidding is due in the second half of 2014.

That tendering process would differ from the European system, where developers are granted above market rates for solar power they produce. Germany, Spain, Italy and the U.K. have slashed rates under those feed-in tariffs to control a surge in installations.

Saudi Arabia currently has about 3 megawatts of solar installations, trailing Egypt, Morocco, Tunisia, Algeria and the United Arab Emirates, according to Bloomberg New Energy Finance.

“The Saudi Arabian government has a powerful incentive to diversify its energy mix to reduce dependence on oil,” said Logan Goldie-Scot, an analyst at New Energy Finance in London. “The state could generate an internal rate of return of approximately 12 percent if it built a PV plant and sold the displaced oil on the international markets.”

The analyst is assuming initial capital costs for the solar projects of about $2.17 per watt of capacity installed.

Wind and Nuclear

Persian Gulf oil producers are seeking to reduce their reliance on fossil fuels for power generation to maximize exports of valuable crude and allocate natural gas to petrochemicals production. Ka-care estimates Saudi Arabia’s peak electricity demand will reach 121,000 megawatts in the next 20 years, with half of that power generated using hydrocarbon fuel.

Other forms of renewable energy such as nuclear, wind, geothermal, will only generate 21,000 megawatts of the peak-load required by 2032, al-Suliman said in his presentation.

Saudi Arabia is considering different options to generate electricity from nuclear energy, according to al-Suliman. Under the so-called “Balanced Scenarios”, Saudi Arabia would build 16 nuclear reactors by 2030 with a capacity of 14,000 megawatts of electricity.

Nuclear Cooperation

The country signed a nuclear cooperation agreement with China in January, following three accords signed last year with France, South Korea, and Argentina. The cost of developing the reactors may reach $100 billion, according to officials from Ka- Care.

Saudi Arabian Oil Co. sees “technical” potential to produce 25,000 megawatts of electricity from wind in Saudi Arabia, Faisal Habiballah, head of solar at the company known as Saudi Aramco, said Feb 20. There is also geothermal energy in the western parts of the Kingdom, he said.

The capital cost of installing the 41,000 megawatts should be around $82 billion, al-Odan said. The rest of the $109- billion investment will go to train the Saudis to run the solar plants as well as for maintenance and operation, he said.

Once the strategy, which includes new regulations and financial incentives for private investors, is approved “we will start implementation directly,” al-Odan said.

Saudi Arabia may burn 850 million barrels of oil a year, or 30 percent of its crude output, to generate electricity by 2030 if doesn’t become efficient in energy consumption, Electricity & Co-Generation Regulatory Authority Governor Abdullah Al-Shehri said in a presentation in Riyadh May 8.

To contact the reporters on this story: Wael Mahdi in Cairo at wmahdi@bloomberg.net; Marc Roca in London at mroca6@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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