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Little hope for quick cure to Saudi’s solar malaise

28 Sept. 2015 by Jason Deign, Solarplaza

Low oil prices and a cabinet reshuffle may have changed things in Saudi Arabia, but that won’t re-ignite the nation’s solar hopes.

Saudi Arabia’s solar market outlook remains poor even if low oil prices and a new Council of Ministers forces an energy policy review, insiders say.

“With the dramatic change in the oil market, I think there will be a review,” said Saleh Azzam AlSalem, renewable energy director at AlGihaz Holding in Riyadh. “However, this will likely be towards nuclear. Solar will be at a slow pace.”

I don't think we'll see a big programme kicked off,there is a direction for nuclear.

Dr Raed Bkayrat, vice president of business development for First Solar in Saudi Arabia and the Middle East, was also downbeat about solar prospects. “I don’t think we’ll see a big programme kicked off,” he said. “There is a direction for nuclear.”

Saudi Arabia is planning to build 16 nuclear power reactors, costing more than USD$80 billion, over the next two decades, according to the World Nuclear Association.

The first power plant is scheduled to enter operation in 2022 and by 2040 up to 17 GW of nuclear capacity should be installed, serving 15% of the country’s electricity needs.

In 2012, the King Abdullah City for Atomic and Renewable Energy (KA CARE), the body tasked with weaning Saudi Arabia off oil for domestic power consumption, launched a similarly ambitious plan for solar. No action has followed, though.

KA CARE proposed investing $109 billion in 41 GW of solar power to supply a third of the Kingdom’s electricity by 2032.

An initial procurement round of 600 MW, split evenly between PV and concentrated solar power, was due to kick off in January 2013. Instead, the renewable energy target was eventually put back until 2040.

The exact reason for the retreat on solar is not known.

Since then, no further tender details have emerged. The exact reason for the retreat on solar is not known.

However, sources suggest a lack of alignment between KA CARE and other potential stakeholders, such as the Saudi Aramco, King Abdullah University of Science & Technology or the Saudi Electric Company (SEC), may have been partly to blame.

In particular, there is a view that KA CARE’s desire to open up Saudi Arabia’s solar market to all comers was opposed by other players that wanted to corner the sector for themselves.

“There was an idea to have a single company owning the whole value chain,” said Bkayrat. “That might have been part of the conflict.”

As a result, said the US consultancy group Arthur D Little in a June paper called GCC Solar Energy: Turning plans into reality: “Since its announcement of its ambitions in 2012, no major projects have been approved or started construction.”

However, industry observers hoped for a change this year as the price of oil dropped and Saudi Arabia went through a change of administration.

It had been hoped that fuel subsidy cuts that could signal a switch away from oil and towards other energy sources, such as solar.

Recent reports said the Kingdom could be looking to axe gasoline subsidies following similar measures in another Gulf Cooperation Council state, the United Arab Emirates, last month.  

“Saudi domestic gasoline prices are some of the lowest in the world,” said Reuters. “Allowing them to rise would be one of the biggest economic reforms in the country for years and a highly politically sensitive one as many Saudis rely on cheap fuel.”

Putting an end to fuel subsidies could save the Kingdom up to around USD$8 billion a year, according to Al-Watan, a Saudi newspaper.

Although no firm moves regarding oil subsidies have yet been announced, the Saudi administration announced cuts to state spending at the beginning of September as oil prices languished at around $50 a barrel, less than half the value of a year ago.

In any case, there are differing opinions as to whether lower oil revenues would prompt a move to solar.

Browning Rockwell, executive director of the Saudi Arabia Solar Industry Association, said: “Hopefully Saudi will change due to low oil prices and budget pressures on current fuel subsidies. [The] market is small at the moment.”

And Mark Barineau, solar business intelligence analyst at Lux Research, said that although massive export incomes had meant the Kingdom has been in no hurry to pursue alternative energy sources, “lower-cost oil changes the discussion.”

If anything, the low price of oil is likely to deter solar investment rather than spur it because there is less money to go round.

Bkayrat remains sceptical, however. If anything, the low price of oil is likely to deter solar investment rather than spur it because there is less money to go round, he said. “I don’t think it will sway the government to turn on solar projects now.”

Another factor potentially affecting the Saudi Arabian energy market is a cabinet reshuffle undertaken by King Salman in April. Here again, though, the impact on solar policy is uncertain.

On one hand, the change in government may help to bring solar stakeholders into line. On the other, the administration will have its hands full dealing with the halving of the country’s export income.

“It’s difficult to bet on the government but what I believe now is the new council will look for the interests of the country,” AlSalem said. “They will look for new alternatives and one of the alternatives is renewable.”

Even if solar turns out to be part of the solution chosen by policymakers, though, it still needs to financially viable for developers.

Even if solar turns out to be part of the solution chosen by policymakers, though, it still needs to financially viable for developers.

The only significant solar project in the country so far, a 50 MW plant commissioned by the King Abdulaziz City for Science and Technology, is supposed to sell energy to SEC at a levelised cost of energy (LCOE) equal to $0.05 per kWh.

That is the cheapest solar energy in the world. “You know the numbers don’t make sense,” said Bkayrat. “We still think Saudi is a huge market, you can’t do it at five cents a kilowatt-hour.”

Solarplaza will likely return to Saudi Arabia with a new event in 2016. If you wish to receive the latest updates from the Saudi solar market and future event development, sign-up for updates here.