OVERVIEW - Saudi Arabia powers ahead with green energy push

Saudi Arabia, the world's leading oil exporter, has made progress in recent months on expanding its share of renewable power to 50% by 2030 and on boosting local manufacturing.

By the end of 2023, Saudi Arabia's renewable energy capacity reached 2,689 MW, a significant increase from 843 MW in 2022, according to data from the International Renewable Energy Agency (IRENA). This growth was largely driven by solar energy, which surged to 2,285 MW from just 440 MW the previous year. Wind energy also contributed to this expansion, reaching 403 MW by the end of 2023. Despite these advances, renewable energy still accounted for only 2.9% of the Kingdom's total electricity capacity which is heavily dependent on natural gas and oil, with the share of oil gradually falling.

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The Kingdom has ambitious goals that, if achieved, will represent a major transformation in its power generation. Under the Saudi Vision 2030, the electricity mix at the end of this decade should consist of 50% renewables and 50% natural gas. At the end of 2023, energy minister Abdulaziz bin Salman said that Saudi Arabia aims to deploy 20 GW of renewable energy annually and reach 130 GW of renewables by 2030 which represents a significant increase in the targets. The minister announced that the country is prepared to export up to 150 GW of green electricity or hydrogen.

Speaking at a conference in Riyadh, Abdulaziz bin Salman highlighted that the Kingdom is undertaking over 80 public and private sector initiatives, with investments exceeding SAR 705 billion (USD 188bn/EUR 169bn), aimed at creating a more sustainable future.

Driven by ambitious goals, capital expenditure on clean energy is also set to grow. According to a recent study by Goldman Sachs Research, funding for clean energy is to rise to USD 235 billion by 2030, a significant increase from the earlier estimate of USD 148 billion. Renewable energy capex is projected at USD 190 billion while investments in clean hydrogen are seen at USD 36 billion.

To support its targets, the energy ministry launched in June a geographical survey aimed at identifying the best sites for developing renewable energy projects. The survey will cover more than 850,000 square kilometres (328,187 sq miles) across all regions of Saudi Arabia, excluding populated zones, sand dunes, and restricted airspace.

The following graphic by Goldman Sachs gives details about Saudi Arabia's renewable energy targets.

SOLAR POWER AND ENERGY STORAGE

Solar power is currently the leading renewable energy source in Saudi Arabia and is expected to further expand its dominance in the electricity mix under the Net Zero 2060 plan. As of June 2024, around 11 GW of solar photovoltaic capacity was under construction across Saudi Arabia, according to Goldman Sachs.

This year saw significant advancements in the deployment of solar energy. In February, the Saudi Power Procurement Company (SPPC) issued the list of qualified bidders for the fifth round of the National Renewable Energy Programme (NREP) which is seeking developers for four solar projects with a combined capacity of 3.7 GW.

Significant progress has been achieved by Riyadh-based developer ACWA Power which is a key player in the solar market in the country. In February, the electricity producer and water desalination company secured USD 2.3 billion of debt financing for the construction of the Ar Raas 2, Saad 2 and Al Kahfah solar photovoltaic projects with a combined capacity of 4.55 GW.

A few months later, ACWA Power signed a deal to develop, construct, and operate three additional large-scale solar plants, totalling 5.5 GW of capacity, and supply the generated power to the Saudi national grid. The levelised cost of energy (LCOE) for the 2-GW Haden plant is USD 0.0158 per kWh, while for 2-GW Muwayh and 1.5-GW Al Khushaybi, it stands at USD 0.0160 per kWh and USD 0.0167 per kWh, respectively.

In August, ACWA Power commissioned the 700-MW Ar Rass solar park in Qassim province, north of the capital Riyadh and is set to bring live three additional solar photovoltaic projects totalling around 1.9 GW by the end of 2024.

In addition, the Kingdom is building the world's largest solar-storage microgrid, featuring 400 MW of solar and 1.3 GWh of storage capacity. The microgrid is planned to supply all power needs of the Red Sea City on the west coast which is set "to be the world’s first fully clean energy-powered destination".

Alongside the growth in solar energy, energy storage has also seen a significant boost. In July, China's Sungrow Power Supply Co agreed with Saudi Arabia's Algihaz Holding to supply up to 7.8 GWh of battery energy storage (BESS) systems which will be deployed at sites in Najran, Madaya, and Khamis Mushait. The batteries are slated to begin operation in 2025 and enhance the stability and reliability of the national power grid.

In addition, Rondo Energy, a US maker of electric thermal energy storage systems, is partnering with Saudi Arabian Oil Company, better known as Aramco, for the potential installation of up to 1 GWh of its heat battery technology in the country.

WIND ENERGY

Although the deployment of wind energy is lagging behind solar power significantly, the SPPC in May signed two power purchase agreements (PPAs) with a consortium led by Japan's Marubeni Corp for 1,100 MW of wind energy capacity, claiming that it has achieved a world "record low" price for wind energy at USD 15.65 per MWh. The two PPA's cover the 600-MW AlGhat and 500-MW Wa'ad Alshamal wind projects.

GREEN HYDROGEN

In northwestern Saudi Arabia, in the Tabuk province, a consortium led by ACWA Power is building the 2.2-GW Neom green hydrogen plant which is set to produce some 600 metric tonnes of renewable hydrogen daily. Air Products has secured the exclusive rights as the sole purchaser of the ammonia generated at the facility through a 30-year supply contract. Construction works at the site are underway and the plant is set to be commissioned in the third quarter of 2026, ACWA Power said in its second-quarter report for 2024.

The large-scale project, the first gigawatt-scale green hydrogen project to pass the FID stage, is part of Saudi Arabia's ambition to become a leading country globally in hydrogen production and export, targeting the production of 4 million tonnes of clean hydrogen annually by 2030.

MANUFACTURING LOCALISATION

The localisation of manufacturing technology for green energy expansion is also part of Saudi Vision 2030. In July, the Public Investment Fund (PIF), the Kingdom's sovereign wealth fund, signed deals with a trio of Chinese companies aimed at localising the manufacturing of solar and wind power equipment in Saudi Arabia. A collaboration with wind turbine manufacturer Envision Energy will focus on producing and assembling wind turbine components, aiming for an annual capacity of 4 GW while a partnership with JinkoSolar Holding is set to establish a 10-GW annual production capacity for solar cells and modules. Additionally, an agreement with TCL Zhonghuan Renewable Energy Technology Co Ltd is geared towards the annual production of 20 GW of solar ingots and wafers.

Other recent initiatives for building local manufacturing include a plan for a 3-GW tracker factory by US manufacturer GameChange Solar and China’s Jiangsu Zhenjiang New Energy Equipment Co as well as a joint venture by China-based PV mounting system solutions maker Antaisolar and Saudi Arabia's Bahra Electric which will produce solar trackers and mounting solutions.

OIL

Despite significant progress in green energy, the Kingdom remains committed to oil. Although capital expenditure is projected to decrease by USD 40 billion between 2024 and 2028, and oil consumption is expected to decline, liquid fuels will continue to play a major role in both final energy consumption and exports under the Net Zero 2060 plan.