Solar energy and wind power in Saudi Arabia

While the move to renewables is significant in itself, it raises an even bigger question. Do the Saudis see the handwriting on the wall of the Kingdom’s fossil fuel endowment? Are they, for the first time, acknowledging limits?

Every kilowatt-hour generated with renewables is a kilowatt-hour that doesn’t have to be generated with natural gas or oil, leaving more to sell on the international market. This would only be important to the Saudis if they realized–at some level–that there were finite limits to oil and gas in the kingdom.

The Saudis have been among the staunchest defenders of the "no need to worry, move along" school of oil-resource cornucopians. "We have oil aplenty and can always be counted on whenever there’s a crisis in world oil production," has been their mantra–at least in public.

Could the announcement of the Saudi program mark a turning point in the Kingdom’s attitude toward natural resources, or is it just hard-headed economics finally winning out?

With oil trading at over $100 per barrel, the avoided cost of offsetting the use of fossil fuels–the "opportunity cost," as the Kingdom’s consultants call it–is already much higher than the cost of solar power today, justifying the huge undertaking.

Still, there’s no escaping the fact that whatever the reason, the move is momentous.

Proposal Not Final

The proposal for the King Abdullah City for Atomic and Renewable Energy (KA-CARE) procurement program was announced at a conference in Saudi Arabia earlier this month. KA-CARE’s board has yet to approve the proposal but is expected to do so shortly.

The objective is to generate one-quarter of the Kingdom’s electricity from solar energy alone, while developing a domestic renewable energy industry. The latter is a key part of the program.

While much of the renewable energy trade press has focused on the amount of solar photovoltaic (solar PV) capacity proposed, an even larger amount of Concentrating Solar Power (CSP) is anticipated.

The program’s initial targets are

Concentrated Solar Power : 25,000 MW,

Solar photovoltaic: 16,000 MW, and

Wind energy: 9,000 MW.

Interestingly, the amount of electricity generated by 9,000 MW of wind energy at moderately windy sites is of the same order of magnitude as the 16,000 MW of solar PV–even in sunny Saudi Arabia.

Feed-in Tariffs to Build Out Program

The Kindgom’s conservative world view is revealed in the hybrid nature of their proposal. The KA-CARE program will begin with two rounds of bidding for solar PV, Concentrating Solar Thermal Power, wind energy, geothermal energy and waste-to-energy capacity.

The first round of bidding will take place in 2013.

Solar PV: 1,100 MW

Concentrating Solar Power : 900 MW

Wind energy: 650 MW

Geothermal Energy & Waste-to-Energy: 200 MW

The second round of bidding will take place in 2014.

Solar PV: 1,300 MW

Concentrated Solar Power : 1,200 MW

Wind Farm: 1,050 MW

Geothermal Energy & Waste-to-Energy: 250 MW

But unlike other jurisdictions that have recently opted for renewable auctions, Saudi Arabia plans to move quickly to feed-in tariffs to build out the program, because of their simpler administration. This may occur as early as 2015.

Of the 54,000 MW in the proposed program, nearly 90% of the capacity will be assigned through the application of technology-differentiated feed-in tariffs.

Here are some of the program’s key elements.

Maximum project size: No limit

Minimum project size: 5 MW

Technology specific targets: Flexible

Term: 20 years

Evaluation: Price and non-price factors

Feed-in tariff launch: After second auction

Review: Every three years

Localization: Domestic content requirements

The Saudi proposal makes it clear that this program is as much about industrial policy as it is energy policy. The Saudis want to be as influential internationally in renewable energy as they are now in oil exports. Toward that end, the Saudis emphasize that price is a factor, but only one factor, determining how much of which technology is developed and–equally as important–who gets to participate in the program.

The Saudi announcement could well send such powerful shock waves through the world’s oil industry that they reach the highest levels of policy makers in Canada and the USA, leading them to reconsider their recalcitrance toward the renewable revolution sweeping the globe