This article is part of our Global Emerging PV Markets Research Service, which includes coverage of emerging solar PV markets around the world.
By Michael Deaves, Analyst
Saudi Arabia has enormous plans for solar energy. The King Abdullah City for Atomic and Renewable Energy (KACARE) has slated plans for the development/installation of 41 GW of solar energy by 2032. The scale of this undertaking, like most things initiated by the world’s largest oil producer, is gargantuan. If this target is met, it would likely place Saudi Arabia within the top 5 solar energy producers in the world.
How realistic are these plans? Like so many other government and industry announcements, it is always prudent to separate the “brag-a-watts” from those that can be reasonably expected. After all, plans could change between now and 2032, particularly if those plans are not supported by fundamental economic and political drivers. While nobody has a crystal ball, examining the underlying reasons behind these types of announcements provides important insights on whether these ambitious targets will be met.
In Saudi Arabia these reasons revolve almost entirely around oil. Electricity production in Saudi Arabia has increased 124% in the past 11 years, forcing the Kingdom to increase its use of domestically produced oil in electricity generation. Currently, half of the electricity produced in Saudi Arabia comes from oil, consuming approximately 2.5 million barrels of oil a day or about 26% of domestic production. Since the oil used in electricity production is purchased at a subsidized rate, the excessive use of this global commodity is costing the Kingdom tens of billions of dollars in lost export revenue each year. Unfortunately, the situation is only worsening. Conservative growth forecasts predict that Saudi Arabian electricity production will continue to increase at a minimum of 5% per year, as a rising GDP per capita and a steadily increasing population demand more and more energy. If these trends continue, Saudi Arabia faces the prospect of becoming an oil importer as soon as 2030.
With over 80% of current GDP coming from oil exports, the Saudi government is eager to find a solution to growing domestic energy demand. This was the primary reason for the establishment of KACARE in 2010. KACARE’s mandate is to develop the Kingdom’s alternative electricity production methods, primarily nuclear and solar energy.
Since Saudi Arabia relies so heavily on oil for electricity production, measuring solar grid parity in Saudi Arabia is best done by comparing the cost of solar electricity generation with the opportunity cost of burning oil for electricity rather than export. According to ClearSky Advisors’ analysis, solar energy in Saudi Arabia is currently cost competitive with oil fired power plants. The analysis states that with currently available technologies and cost structures, large-scale solar PV costs less than $0.15/kWh, while the opportunity cost of burning oil for electricity costs the Kingdom between $0.127-$0.174/kWh.
Following a trend seen in other key emerging markets, most notably Chile, solar power in Saudi Arabia has achieved grid parity. In addition, the costs of solar PV are expected to decrease further as the industry within Saudi Arabia develops, making solar power even more attractive within the region; of course the same cannot be said for the global price of crude oil.
ClearSky Advisors’ global emerging markets research has very clearly demonstrated that achieving grid parity is not enough on its own to stimulate solar development. However, the prospect of grid parity does provide an incentive to governments, industry, and other key electricity sector stakeholders to address problems related to grid access, financing, off-take agreements, and local value chain development. Moreover, Saudi Arabia has other factors and needs that will affect demand for solar energy such as driving local employment, and water desalination.
So what can we make of the massive plans slated for solar energy in Saudi Arabia? Given the current cost structures of solar energy, the Kingdom’s growing need for new electricity production, and the threat of losing their dominance within the global oil industry, it would seem that these targets are indeed achievable and based in sound economic and political logic. Earlier this month, the Kingdom confirmed this assessment when they released a white paper laying out their roadmap for the competitive procurement process set to begin later this year. Saudi Arabia has become one of the most promising emerging solar markets in the world, and industry participants would be wise to pay attention to it.
Through extensive research with industry players and leaders, ClearSky Advisors provides continuous coverage of existing and future market opportunities in emerging solar PV markets around the world. If you are interested in more information about our Emerging PV Markets Service or a free research sample, please contact us at firstname.lastname@example.org or call +1-877-333-5821.