Few places in the world have all the critical elements needed to create a profitable solar power market, but Saudi Arabia stands out as one of them. From vast deserts that can accommodate large installations and high solar resources that guarantee maximum energy yields, to adequate financial resources and a well-established construction industry — the Kingdom has it all.
“Saudi Arabia could easily be one of the largest solar markets in the world. The economics are clear, a pilot program has been completed, and deep policy research has been done,” says Jigar Shah, founder of SunEdison and chief executive of the Carbon War Room.
Dr. Raed Bkayrat, vice president for Saudi Arabia at First Solar, confirms this viewpoint: “Saudi Arabia has all the factors needed to achieve a low levelized cost of electricity compared to other mature solar markets — factors such as access to low-cost finance, land availability, solar irradiance resource, well-developed construction companies, EPCs and O&M providers”.
Proximity to resources
What Saudi Arabia may fall short of, mainly technology and expertise, can easily be imported from markets as close as India, which has come a long way in solar power deployment during the last five years.
“Saudi Arabia will track very closely what’s happening in India, because the latter has been able to generate low-cost solar energy and has always had a competitive advantage on labour costs,” says Browning Rockwell, founder of the Saudi Arabia Solar Industry Association (SASIA) and the Solar GCC Alliance.
India is a huge solar market and its industry has been able to get numerous projects off the ground in a very short period of time — so much so that the country is now being benchmarked as a destination for low-priced solutions.
At US$0.65/W, India’s balance-of-system cost for ground-mounted solar PV is less than half of today’s global average of US$1.60/W, and even lower than China’s US$0.94/W. Moreover, the cost of a solar PV system in India is currently the world’s lowest at US$1.33/W, nearly 46% below the global average.
Meanwhile, in Saudi Arabia, it is possible to reach a solar levelized cost of energy (LCOE) of between US$70/MWh in the higher irradiation/elevation areas in the western part of the kingdom, and around US$90/MWh in the Gulf area, according to Thierry Lepercq, founder and president of France-based Solairedirect, a world leader in the development of large PV power plants with low LCOE.
“As all cost factors continue to experience improvements, further cost reductions can be expected, down to US$50–US$70/MWh by 2020,” Lepercq adds. By then, solar PV power would be by far the cheapest energy in the world.
The remarkable developments and cost reductions taking place in India can only benefit Saudi Arabia, given that India has built up the experience in solar projects, and taking into consideration the competitive LCOE that can be achieved in the Kingdom.
Most importantly, Indians are already familiar with the unique needs of Saudi Arabia after working in the Kingdom for decades.
“Indian companies have been involved in the GCC market for a long time and have always had a competitive advantage on labour; therefore, they are poised to bring in some of their expertise,” notes Rockwell.
“They’re also further ahead of Saudi Arabia in the solar industry in terms of experience and projects on the way. The combination of Indian expertise, lower-cost solutions, and international technical expertise offers strong potential to the region.”
Members of the Solar GCC Alliance and SASIA recently met with the National Solar Energy Federation of India (NSEFI) to discuss a mutually-beneficial collaboration between GCC companies and Indian manufacturers in the form of joint ventures involving technology, finance and entrepreneurship.
NSEFI is a newly-formed umbrella organisation consisting of solar PV and thermal manufacturers, developers and EPC contractors, as well as other instrument providers and stakeholders. Its ultimate objective is to make solar energy affordable for all and ensure its widespread use and speedy growth.
Like India, Jordan’s ambitious renewable energy target of 7% by 2015 and its goal to develop 600 MW of solar energy by 2020 has galvanized the regional industry, including Saudi Arabia, which borders it from the east.
As a result, many Jordanian companies now operate in the solar industry and an ecosystem is quickly taking shape. “The projects in Jordan may be small, but they’ve quickly captured everyone’s attention because they are real. The market is moving forward,” Rockwell says.
Perhaps what’s most inspiring about Jordan is its implementation of a renewable-energy policy framework that includes financial incentives as well as the solar-business-conducive environment in place.
How ripe is the market?
Sooner or later, the rapid developments in neighbouring markets like India, Jordan, and even Morocco will have positive repercussions on Saudi Arabia, as observed from ACWA Power’s involvement in the Moroccan market and Taqnia’s 50% acquisition of Sun & Life.
“There is no better time than now to move into the market; the prices have already dropped and there is enough activity going on in the region,” Rockwell says, adding that the Saudi Arabian solar market is currently focused on creating partnerships and transferring technology and experience.
“It’s not going to be about global brands coming in and dominating the market. There’s plenty of industrial and other expertise in Saudi Arabia. Therefore, international partners should be prepared to be in the secondary seat as manufacturing or development partners rather than prime contractors”.
Although the announced government programme has yet to be rolled out, the Saudi Arabian market is already witnessing activity. Last April, the 1 MW CPV plant at the Nofa Equestrian Resort was commissioned, and other projects are approaching completion, including Saudi Aramco’s KAPSARC II PV project that will extend the existing 3.5 MW plant to 5.3 MW.
The Mecca Municipality alone is planning for at least three large-scale solar projects — a 100 MW solar PV plant, a 100 MW solar-powered lighting project, and a solar-geothermal hybrid project that is currently under study.
In addition, Integrated Solar Combined Cycle plants (ISCC) are being examined from all angles by the Saudi Electricity Company, which has taken a first step by announcing the Duba 1 ISCC project.
Clearly the Saudi Arabian solar market is far from being at a standstill. Considering that solar energy is a new territory for the kingdom, and given the large-scale renewable energy aspirations that it has for its future energy mix, it is most likely that the current phase is a reflective, preparatory one.
Nevertheless, this is a progressive period and does not rule out private-sector driven activities and partnerships. First movers, after all, will always have the added advantage of longer local experience and on-the-ground presence.
As Rockwell concludes: “The next year will be a critical period in terms of the plans of companies and what they’re going to do in Saudi Arabia.”