Saudi Arabia looks beyond oil to exploit its sunshine
Sep 08, 2015
A robust patent portfolio attracted Riyadh Valley Company, the investment arm of Saudi Arabia’s King Saud University, to the solar start-up Solexel, which makes wafer-thin silicon photovoltaic (PV) panels that convert solar energy into electrical power.
Compared with conventional modules, those of Solexel are cheaper and lighter, can better withstand heat and operate well in dusty conditions, says Abdelhakim Hammach, managing director at Riyadh Valley. In theory, this is the very technology Saudi Arabia has been waiting for to jump-start its solar sector.
“We need to enable as much technology transfer and know-how into the kingdom as possible,” says Mr Hammach, whose company was created to deploy funds into alternative energy investments.
The move is a small step in the right direction, but there is a long road ahead for a global oil powerhouse which is so heavily dependent on its most precious resource for its domestic energy needs.
In 2012, the late King Abdullah set out grand plans for diversifying Saudi Arabia’s energy mix, a year after the Chatham House think-tank published a paper suggesting the country could become a net oil importer within 30 years if its domestic consumption remained at current levels.
Since then, there has been painfully slow progress in stimulating any significant renewable energy deployment. Plans have been tangled in government bureaucracy and have suffered from technical setbacks. The country needs panels that function well in extreme heat and dust storms. Petroleum subsidies have also weakened the economic incentive to invest in renewables.
The King Abdullah City for Atomic and Renewable Energy announced in January that the completion of its $109bn solar project, which would create 41GW of energy capacity by 2032, will be delayed by another eight years. Prospective investors and developers are losing patience, consultants say.
The need to diversify could not be more urgent. Saudi Arabia consumes more than a quarter of its oil production, which stood at 10.6m barrels a day in June. A growing economy means this will only increase.
The population has trebled to about 30m since 1980, but energy usage has outpaced that of the UK, which has more than double the number of people, according to BP’s annual Statistical Review of World Energy.
“They are burning the oil because they have it,” says Holger Rubel, who leads Boston Consulting Group’s green energy and sustainability practices. “They have to find a business case for turning to solar.”
The oil price crash has created an imperative to concentrate on maximising export revenues rather than flushing much of output away in domestic use. Longer term, Saudi Arabia needs to maintain oil sales to retain its global political and economic influence.
Paddy Padmanathan, chief executive of ACWA Power International, a Riyadh-based power plant developer, hopes to replicate his solar projects elsewhere in the Gulf. “I’m impatient,” he says. “The intention is there, but it has been a huge challenge to align the different arms of the government.”
State-owned enterprises such as Saudi Electric Company and Saudi Aramco, which had plans to break ground on 10 or so big solar projects next year, still have to agree, as do ministries that manage renewables and water, and industrial regulators.
Observers say the new King Salman and his inner circle are making a bigger push, particularly ahead of this December’s Paris climate talks.
A major reason for the dawdling has been the kingdom’s wish to create its own renewable manufacturing business to compete with market-leading companies in Europe, the US and China.
Energy industry watchers, such as David Hobbs at the King Abdullah Petroleum Studies and Research Center, say the country could take advantage of big changes within the solar industry.
Solar power has become very cheap to produce. Chinese factories cranking out low-cost solar panels, more efficient technologies and a larger pool of investors to finance the sector have driven a 80 per cent drop in prices.
For Saudi Arabia, where it costs less than $10 a barrel to produce oil, estimating the cost of replacing oil-based with renewable power is a trickier calculation. Even so, there is still a compelling case to bet on solar, says Mr Hobbs.
“The pace of innovation and the improvement in efficiency has been so fast that it would be unwise for the kingdom not to play,” he adds, given its solar potential and the political will to exploit it.
Taqnia, another state-backed firm, has joined Riyadh Valley Company in making investments in solar arrays both at home and abroad. Pilot projects to harvest electricity from the sun are taking place in Riyadh and elsewhere within Saudi Arabia.
“Costs have come down and Saudi Arabia has a better understanding of how to capture value,” Mr Hobbs explains.
Source: Financial Times