Powering up - Saudi renewable energy

Riyadh is keen to develop renewable energy at home but still wants to sell fossil fuels to the world - a contradiction it will find hard to resolve. Published in The Gulf, June 2013

At first glance it is a curious thing that Saudi Arabia feels the need to develop a renewable energy industry. After all, the country has the second largest reserves of oil in the world after Venezuela. Yet Riyadh has set a target of producing half of its domestic energy requirements from renewable or nuclear power plants within 20 years. While this may appear contradictory, there is a logic to the idea.

Domestic demand for fuel and electricity has been climbing steadily in recent years, not least because of the popularity of power-hungry air conditioning units, which are thought to consume about 70 per cent of all the electricity generated. The country currently has a generating capacity of around 60 gigawatts (GW) but, according to official government projections, demand for electricity is expected to double to more than 120GW by 2032. As a result of that, the demand for the oil and gas needed for the country’s electricity generating plants as well as for industrial uses, transportation and desalination plants will also rise strongly, from the 3.4 million barrels a day it was in 2010 to an estimated 8.3 million barrels by 2028, and higher still in the years that follow.

Using all that oil and gas within Saudi Arabia obviously means there will be less to export and, given the subsidised rate at which fuel is sold inside the country, that exacts a high opportunity cost. In other words, Saudi Arabia could earn far more by selling that oil to overseas customers who are willing to pay the full market price.

Even so, the scale of the country’s ambitions are startling. The King Abdullah City for Atomic and Renewable Energy (KACARE) was set up in April 2010 to lead the way in developing the country’s alternative energy capacity. In part it is a real estate project, with homes, offices and research centres in a ‘sustainable city’ located some 25 kilometres to the southwest of the capital. However, the organisation’s more important function has been to draw up a masterplan for renewable energy. It is KACARE that has set the target for at least half of all electricity generated to come from non-fossil fuels by 2032, with solar and nuclear power earmarked as being the principal alternatives.

At a solar energy forum in Riyadh last year, Dr Waleed Hussein Abu al Faraj, deputy president of KACARE, gave an indication of the sort of impact his organisation’s plans would have when he told the delegates that “Saudi Arabia will save 360,000-520,000 barrels per day through the implementation of its solar energy plan by 2032.”

The total saving will be even greater once other renewable sources and nuclear power are factored in.

Within the broad 50 per cent target for 2032 is a mass of detail and consequences. Of the 60GW that will come from non-fossil fuels by that date, some 17.6GW is due to come from nuclear power. Solar power, however, will provide the largest single share, through two different technologies - 16GW from photovoltaic cells and 25GW from concentrated solar power. Other renewable sources will also be used, including 9GW from wind power, 3GW from waste-to-energy plants and 1GW from geothermal sources.

Relying on a variety of different sources should avoid any disruptions to power supply, something that is a frequent criticism by those sceptical of the benefits of renewable energy. While photovoltaic power plants will only be able to operate when the sun is shining during the day, the nuclear, waste-to-energy and geothermal plants can operate around the clock. In addition, concentrated solar power plants will have a storage capacity, which will mean they can also be used to make up for any shortfall from other sources. Of course hydrocarbons are not going away, and they will still provide half of the country’s total power needs.

KACARE is currently drawing up a procurement programme for the development of the new plants, which is expected to be launched before the end of the year.

All of this provides great opportunities for companies involved in the renewable energy space. Local companies are usually associated with conventional power and water desalination but they have been expanding into new areas in recent years. Riyadh-headquartered Acwa Power, for example, has a portfolio of plants with a combined output of 15,731 megawatts (MW) of power and 2.4 million cubic metres a day of desalinated water, the vast majority of which rely on fossil fuels. But the company has been dipping its toes in the renewable energy waters too.

Within the Middle East, it is involved in two wind power projects in Jordan. The Ibrahimiya plant in the north of the country has four wind turbines with a total capacity of 0.32MW, while the nearby Hofa plant consists of five turbines with a total capacity of 1.125MW. In Europe, it is developing the 60MW Karadzhalovo photovoltaic plant in Bulgaria. In Africa it has the 160MW Ouarzazate concentrated solar power plant in Morocco and a similar 50MW plant at Bokpoort in South Africa.

Such international developments offer the chance for Saudi companies to gain valuable experience in this sector but, according to those in the industry, the opportunities in the domestic market should soon eclipse what is on offer in places such as Morocco.

“Morocco has a stated objective of generating 42 per cent of total electricity from renewable resources and it is seen as a success, but we need to realise that the size of Morocco in terms of electricity is only going to be a tenth of what it is for Saudi Arabia in the next 10 to 15 years,” says one senior industry executive in Riyadh.

It is certainly true that few other countries in the region have set out plans as ambitious as Saudi Arabia’s when it comes to renewable energy and it is the clear leader among the Gulf states in terms of its targets. According to statistics from the International Renewable Energy Agency, which is based in Abu Dhabi, Qatar is planning to have 100MW of solar photovoltaic capacity by 2014 and Kuwait is hoping to have 70MW from a combination of solar and wind power. Oman is also planning up to 200MW of solar power, while Bahrain has announced plans for a 24MW waste-to-energy plant. Some parts of the United Arab Emirates have announced longer-term plans, with Dubai targeting five per cent of its energy consumption to be provided by renewable sources by 2030 and Abu Dhabi aiming for seven per cent of capacity from renewables by 2020.

Given all that, it is understandable when the industry executive says, “I do not believe there will be any other country in the world that will offer the sheer size of renewables that Saudi Arabia shall offer. Saudi Arabia is preparing to embrace renewable energy, so that it is one of the mainstays of future power generation.”

What Saudi Arabia’s renewable energy plans do not address, however, is the need for the country to make more productive use of the energy its consumes, and not be too wasteful. The current system of heavy subsidises for electricity and fuel has created an economy that is essentially addicted to cheap energy and would not be able to function without it. Yet there is little indication that the authorities are willing to do much about this, probably because of the uncertain political consequences of introducing market-based pricing.

And for all its impressive and ambitious targets for its own market, Saudi Arabia is still keen to ensure that demand remains buoyant for its oil in the rest of the world. That helps to explain its approach to international climate change talks, the most recent round of which were held in the old German capital of Bonn in late April.

The talks were held under the UN Framework Convention on Climate Change and were part of efforts leading up to a planned global climate agreement in 2015. According to some media reports, Saudi Arabia found itself isolated at the event after objecting to the idea of tough ‘mitigation targets’, a reference to the idea of cutting greenhouse gasses by such methods as using renewable energy, making existing technologies more efficient or changing consumer behaviour. Such efforts were both highly political and sensitive, according to the reported remarks of the Saudi delegation.

Saudi oil minister Ali al Naimi reiterated the point a few days later in Berlin at the Petersburg Dialogue on Climate, an initiative of the German government to develop international climate policy.

“In order to build confidence among the parties concerned and to optimise the use of our time and our limited resources we have to avoid spending time and effort on issues that are predominantly political which may lead to a sharp disagreement among the parties,” he said in a statement on 7 May, according to the Saudi Press Agency.

In the years ahead it is likely to be ever harder for Riyadh to square the circle of pushing for renewable energy and reducing carbon emissions at home while simultaneously selling its hydrocarbons to the world.