There are rows of solar panels stretching out to the horizon in an area just two hours away from Riyadh. Even though the Kingdom has virtually endless oil supplies, it is embracing solar and wind power, in part to maintain its leadership in the rapidly evolving energy sector, which is crucial to the nation.
According to Faisal Al Omari, the CEO of the recently finished solar project named Sudair, he will tell his children and grandkids about his involvement in Saudi Arabia’s energy transformation, as he looks out over 3.3 million panels that span 14 square miles of desert.
He remarked, “I’m incredibly proud to be a part of it.”
Even though Saudi Arabia’s economy still heavily depends on petroleum production, the monarchy is betting on alternative energy sources. With the capacity to power 185,000 homes, Sudair is the first of potentially many massive projects aimed at increasing the output of renewable energy sources, such as solar and wind, to around 50% of total energy output by 2030. Presently, Saudi Arabia generates very little electricity from renewable sources.
It is unlikely, according to analysts, to accomplish that extremely ambitious target. “I would be thrilled if they got 30% because it would be a good signal,” stated Karim Elgendy, a climate analyst at the Middle East Institute, a Washington-based research organisation.
Nevertheless, the Kingdom intends to develop solar farms quickly.
Marco Arcelli, CEO of Acwa Power, the Saudi developer of Sudair and a rising power in the global water and electricity industries, remarked, “The volumes you see here, you don’t see anywhere else, only in China.”
Not only are the Saudis wealthy enough to grow quickly, but they are also exempt from the drawn-out permission procedures that impede similar initiatives in the West.
“They can move fast and pull the trigger on project development because they have a lot of investment resources,” Ben Cahill, a senior scholar at the Centre for Strategic and International Studies, a Washington-based research organisation, said.
Even Saudi Aramco, the backbone of the Saudi economy and the source of almost all of the country’s oil, acknowledges the changing nature of the energy landscape.
To establish a presence in the solar industry, Aramco has invested USD 920 million for a 30% share in Sudair. This is the first phase of a 40-gigawatt solar portfolio that will exceed the average electricity demand of Britain and cover the majority of the government’s renewable energy goals.
The corporation intends to establish a sizable underground greenhouse gas storage facility. The Spanish energy corporation Repsol owns a refinery in Bilbao, Spain, where it is making so-called e-fuels for cars using hydrogen and carbon dioxide.
Utilising data from nearly 90 years of oil field operations, Aramco’s computer experts are also training artificial intelligence models to improve drilling and extraction efficiency and lower carbon dioxide emissions.
Executive Vice-President for Strategy and corporate development of Aramco, Ashraf Al Ghazzawi stated, “Environmental sustainability has always been part of our modus operandi.”
Nevertheless, Saudi Arabia and other countries in the Middle East and North Africa (MENA), which have youthful, ecologically conscious populations and may be particularly sensitive to climate change, may see an increase in demand to hasten the energy transition.
Greenpeace Middle East and North Africa’s chief campaigner, Shady Khalil, stated that “countries from the MENA area, including Saudi Arabia, will experience the repercussions of climate change and high heat, as well as water scarcity.”
The market will eventually appreciate low-carbon products, and prices will get even more profitable, according to Ahmed Al-Khowaiter, executive vice-president for technology and innovation at Aramco.
It makes sense that Aramco and the Saudi authorities would be reluctant to jeopardise a company founded in 1938. One of the wealthiest corporations in the world, Aramco reported earnings of USD 27.3 billion for the first quarter of this year and said that it would distribute USD 31.1 billion in dividends, primarily to its principal shareholder, the Saudi government.
However, if Aramco reduces its oil investment, it would be able to pay the government even more dividends, which might be put toward a variety of initiatives aimed at diversifying the economy.
Although Aramco claims to be allocating approximately 10% of its capital to lower-carbon projects, the company’s financial performance has not significantly benefited from these efforts. According to Neil Beveridge, an analyst with the research firm Bernstein, “I just don’t think it shifts the needle. The great majority of earnings truly come from the production of oil.”
Saudi Arabia offers abundant sunshine and large areas of land suitable for the installation of solar panels.
In addition, “They are building at a very low price,” according to Nishant Kumar, a renewable and power analyst at Rystad Energy, a research organisation.
China supplies a large portion of the renewable equipment, including the panels at Sudair.
For example, Sudair has agreed to sell its power at an almost record-low price of 1.2 cents per kilowatt-hour.
“They understand fully that the economy can only function efficiently if they can keep benefiting from the continuously declining cost of solar energy,” stated Paddy Padmanathan, a renewable energy entrepreneur and the former CEO of Acwa Power.
The Kingdom is speculating that cheap, plentiful electricity would draw energy-hungry businesses like steel. With an eye on exporting to Europe and other regions with greater costs, Acwa is assisting with the construction of what is probably the largest green hydrogen production facility in the world.
Analysts claim that the only issue is that Saudi Arabia is not progressing as quickly as it could. According to Mr. Kumar’s calculations, it might only accomplish roughly half of the lofty 2030 target for solar installations. The wind is now significantly behind. One explanation, according to economists, is that the government hasn’t established the framework necessary to attract rival businesses that may increase output.
For example, Acwa will play a major role in achieving the high-profile renewable targets. Analysts at Citigroup previously stated, “We think it is difficult to overlook the operational — and financial risks.”
Although Crown Prince Mohammed bin Salman’s primary funding source, the Public Investment Fund (PIF), owns 44% of the company despite it being listed on the stock exchange.
The renewable energy sector has also been a job generator. For example, Acwa employs 3,840 people, of whom 1,900 work in Saudi Arabia. For younger
Saudis working in cleaner energy companies is an appealing prospect. These renewable energy and employment generation projects are in line with the Kingdom’s ambitious “Vision 2030” goals.
At a factory it had just constructed on the Persian Gulf to turn saltwater into drinking water, Acwa set an example by erecting massive arrays of solar panels.
Solar energy lowers the need to use the power grid, which lowers emissions because desalination requires a huge amount of electricity.
Two nearby plant developers are doing the same. The chief technical officer of the Jazlah plant, Nawaf Al-Osimy, stated, “Using this technology is very vital. It’s more sustainable the more you use it.”