Saudi Arabian solar: how the state has invested in overseas solar projects

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n paper, Saudi Arabia has some of the greatest potential for solar power facilities, with a favourable climate and sweeping areas of flat land that could maximise the production of solar panels. However, solar power accounted for just 0.5% of the country’s total electricity production in 2020, with oil and gas dominating the country’s domestic energy mix.

Yet this is not to say that Saudi Arabia’s solar industry is non-existent, merely that it has invested more readily in foreign projects than ones on its own doorstep. ACWA Power, which is part-owned by the Saudi Arabian Government, has backed the largest private solar power projects in both Egypt and South Africa.

The state has plans for further investments in countries across the Middle East and North Africa, which could make Saudi Arabia a key supporter, if not producer, of solar power in the region. With Saudi money and local support for solar power, these investments could establish a new sense of collaboration and renewable investment in the region.

In recent years, there has been growing optimism about the future of solar power in Saudi Arabia. A 2014 paper published by researchers at the King Saud University pointed out that much of the country is located in the sun belt, and concluded that within a few years, solar power could become a key contributor to the country’s energy mix.

“The cost of solar energy is less than that of conventional generation if the indirect costs of fossil fuels are included, such as environmental costs and health costs,” wrote AH Almasoud and Hatim M Gandayh in their paper.

“By 2020, Saudi Arabia is expected to be fully ready to establish [photovoltaic grid-connected] power plants in partnership with conventional power plants to support its national grid and meet the expected required loads.

Yet this solar power revolution has not taken place, with figures from the BP Statistical Review of World Energy highlighting that, in 2014, solar power contributed just 4TWh to the country’s energy mix, compared to the 1,136TWh contribution of gas and a vast contribution of 1,923TWh by oil.

While the trend in Saudi Arabia is positive, with the country producing less than 1TWh of electricity from solar power as recently as 2008, solar has not yet lived up to its considerable potential.

This potential remains, however. GlobalData analyst Ankit Mathur points out that “[the] cumulative installed capacity for solar photovoltaic (PV) in Saudi Arabia increased from 2.35MW in 2010 to 455.8MW in 2020, at a combined annual growth rate of 69.3%. Installed capacity for solar PV increased by over 405MW in 2020 with the commissioning of the Sakaka PV project”.

“The country does possess a great growth potential for solar PV expansion in the future,” continues Mathur. “GlobalData analysis as per the business-as-usual scenario estimates that the country is on track to reach close to 29GW by the end of 2030.”

The lack of domestic investment stands as a stark contrast to the significant backing provided to solar power projects overseas. In 2020, ACWA Power announced plans to invest $10bn into new power projects across 10 countries, with a number of significant solar power projects in its new portfolio.

These include the Redstone solar thermal project in South Africa, a 480,000MW project that received close to $800m in investment, and the Kom Ombo solar plant in Egypt, a 200MW project with $114m in backing from ACWA.

“ACWA Power, a government-backed entity with 50% stake, supports the renewable energy sector in Saudi Arabia and international markets with the aim to provide sustainable energy at low cost and garnering a name as a climate leader,” explains Mathur.

“The company aims to lead the energy transition in countries that are committed to ambitious renewable energy targets to support economic growth and social development.”

“Redstone facility, a [concentrated solar power (CSP)] project, is a special project to ACWA Power’s experience bucket,” Mathur continues.

“The company already had the experience of many greenfield CSP projects, which made them the ideal bankable partner in this venture, thereby adding another feather in the list of international ventures. Similarly, the Kom Ombo project in Egypt depicts the story of the company’s bankability and a preferred collaborator for upcoming power ventures.”

ACWA’s investments, therefore, have two primary aims alongside simply generating more clean power. The company aims to establish Saudi Arabia as a leader in the global renewables market by investing in the largest private solar projects in Egypt and South Africa, and demonstrate the financial viability of many of these projects.

This dual approach could lead to even more investments in renewable power around the world, with many of the countries targeted by ACWA’s $10bn programme aligning with countries highlighted by Mathur as states where Saudi Arabia wants to extend its influence, including Morocco and Jordan.

This may not be the end of Saudi Arabian investment in overseas solar power. As Mathur points out, ACWA has already completed rounds of fundraising ahead of redoubling its efforts to back solar projects around the country.

“ACWA Power has recently raised $746m through Sukuk (Islamic Finance) to support its growth,” says Mathur. “The company [was] awarded two 125MW solar PV projects in Ethiopia in December 2019. ACWA Power won the tender under the new PPP law in Ethiopia, at $25.3/MWh for 20 years. It also plans to bid in South Africa’s upcoming green electricity auction this year.

“As per company sources, by the end of September 2020, the power projects bid pipeline for 2020-22 stood at 39.3GW, of which 14.1GW is in Saudi Arabia, 8.4GW in Gulf Cooperation Council countries, 7.0GW in Africa, 4.6GW in Asia, and 5.2GW in Commonwealth of Independent States countries. This clearly defines ACWA Power’s plan and intent for expansion in the international markets.”

Yet it remains an unusual state of affairs for less than half of a country’s investments in a power source to be based on its own soil, especially considering the climate of Saudi Arabia.

There are concerns that the growing phenomenon of resource nationalism may extend to the renewables sector, where countries are eager to gain control over resources whose importance is set to increase in the future, to wield influence over their neighbours and rivals.

However, Mathur suggests that the ACWA investments are not part of a malicious plan to dominate solar power in the Middle East, but the natural consequences of long-established cooperation between the countries involved.

“Political relations between countries do act as a backbone for economic and business collaborations and it is the same in case of the partnership between ACWA Power and Silk Route Fund,” Mathur explains. “This partnership opens up market access in high growth Asian markets, mainly in East, South East, and Central Asia.”

If this is the case, ACWA’s investments could help establish a tradition of collaboration in the region, where Saudi money can help projects in other countries get off the ground. Certainly a mutually beneficial relationship, and one that could help overcome many of the obstacles to large-scale solar projects.

Muthar summarises the relationships as ones that are “not new and [build on] a previous testimony of a successful partnership in two UAE projects”.