Saudi Arabia has recently embarked on an ambitious plan to diversify its energy mix and increase the share of renewables in its total energy production. This presents attractive investment prospects for domestic and international investors in the renewable energy sector.
Overview of Renewable Energy Goals in Saudi Arabia
Saudi Arabia aims to achieve the following renewable energy targets:
- Generate 50% of its electricity from renewable sources by 2030. This includes 40 GW from solar, 16 GW from wind, 3 GW from waste-to-energy, and 1 GW from geothermal energy.
- Increase the share of renewables in its total energy production from less than 1% currently to 30% by 2030.
- Develop a new renewable energy industry that will contribute USD 50 billion to its GDP and create over 200,000 jobs by 2030.
To achieve these goals, Saudi Arabia is privatizing its energy sector and establishing competitive tenders to attract private investment in renewable energy projects. This presents significant opportunities across technologies like solar PV, concentrated solar power (CSP), onshore wind, waste-to-energy, and geothermal energy.
Key Drivers for Renewable Energy Growth in Saudi Arabia
Several factors are catalyzing the growth of renewables in Saudi Arabia:
- Abundant renewable energy resources: Saudi Arabia has among the highest solar irradiation levels in the world, with average solar radiation between 5-7 kWh/m2/day. It also has steady wind speeds of over 10 mph in its northern and central regions. These factors make solar and wind energy attractive prospects.
- Growing energy demand: Saudi Arabia’s energy demand is expected to rise by 6% per year driven by population and economic growth. Developing renewables can help meet this demand in a sustainable manner.
- Diversification from oil dependence: The Saudi government wants to reduce the contribution of oil to government revenue from 87% to 42% by 2030. Boosting renewables will enable this shift.
- Environmental sustainability: Expanding renewables will help Saudi Arabia reduce its carbon emissions and drive wider environmental benefits.
- Job creation: The growth of renewables is expected to create over 200,000 jobs by 2030, supporting the government’s employment generation goals.
Key Renewable Energy Projects in Saudi Arabia
Saudi Arabia has launched several flagship renewable energy projects across technologies:
Solar PV and CSP Projects
- Sakaka 300 MW Solar PV Plant – Saudi Arabia’s first utility-scale solar project awarded through competitive auction.
- Dumat Al Jandal 400 MW Wind Farm – Will be one of the largest wind farms in the Middle East when commissioned in 2022.
- Red Sea Project 400 MW Hybrid Solar/Storage Plant – Would provide 100% renewable energy to this new luxury tourism development.
Waste-to-Energy Plants
- Sudair Waste-to-Energy Plant – Convert up to 1 million tons of municipal solid waste per year into electricity.
- Shaqaiq Waste-to-Energy Plant – Burn 700 tons of waste per day to generate up to 30 MW of electricity.
Geothermal and Hydropower Projects
- Al Khouba Geothermal Project – Set to generate up to 50 MW of geothermal energy in the Hijaz volcanic province.
- Duba Hydropower Project – 300 MW pumped storage hydropower project currently under development.
These projects highlight the opportunities emerging across different renewable energy technologies in Saudi Arabia.
Comparison of Investment Opportunities in Key Renewable Energy Technologies
| Renewable Energy Technology | Investment Opportunities | Key Advantages | Challenges |
| Solar PV | – Utility-scale solar power plants- Distributed solar for commercial & residential premises- Solar PV component manufacturing | – Abundant solar resources- Quick installation and low maintenance of PV systems- Falling cost of PV modules | – Need for storage due to intermittency – Availability of advanced technical skills – High upfront capital costs |
| Concentrated Solar Power (CSP) | – CSP plants with thermal storage- CSP component manufacturing | – Built-in thermal storage improves dispatchability- Higher capacity factors than PV- Can supply peak power demand | – More complex technology than PV- Higher capital costs than PV – Water requirements for cooling |
| Onshore Wind | – Large onshore wind farms- Distributed wind energy- Wind turbine parts manufacturing | – Excellent wind resource in northern regions – Low operating costs once commissioned- Quick installation and low maintenance | – Intermittency requires storage- Grid integration challenges- High upfront capital costs- Limited local manufacturing currently |
| Waste-to-Energy | – Municipal solid waste-to-energy plants- Hazardous waste treatment facilities | – Tackles waste management challenges – Provides low-cost base load renewable energy – Revenue from gate fees for waste disposal | – High capital costs- Concerns over emissions – Availability of feedstock |
| Geothermal | – Geothermal power plants- Direct use applications | – Provides consistent base load power- tapping resources that unique to Saudi Arabia | – High risk in exploration phase- Lack of geothermal-specific regulation currently – Limited local capabilities |
This table summarizes the key opportunities, strengths, and challenges across major renewable energy technologies in Saudi Arabia. Solar PV and onshore wind have seen the most market activity recently, but technologies like concentrated solar power and geothermal also have advantageous applications in Saudi Arabia.
Let’s look at the investment outlook for each in more detail:
Solar PV – Attractive Opportunities Amid Falling Prices
Saudi Arabia aims to install 40 GW of solar PV capacity by 2030. It offers a strong solar resource and vast swathes of empty land ideal for large-scale PV projects. As PV module prices have fallen 80% over the last decade, solar electricity prices in Saudi have come down to 1.04 USD cents/kWh – among the lowest in the world. This makes investment in utility-scale PV facilities highly competitive with conventional power.
With the market shifting from government-funded to private-led projects, there are opportunities to develop solar IPP projects and participate in tenders likely to be issued as part of the National Renewable Energy Program. There is also potential for distributed rooftop solar installations, enabled by net metering regulations introduced in Saudi Arabia in 2017. Overall, solar PV offers some of the most commercially viable renewable energy investment prospects currently.
Concentrated Solar Power – Leveraging Storage Capabilities
Saudi’s solar resource also lends itself to concentrated solar power. CSP provides valuable thermal storage capabilities to address solar intermittency issues and supply peak evening power demand – a major advantage over solar PV. However, CSP costs remain higher than PV currently. The first major CSP project planned is the 300 MW Waad Al Shamal ISCC project, which combines CSP with traditional generation. To be competitive, investment is needed to bring down CSP costs through technological improvements and localized manufacturing. There are also opportunities in thermal storage innovations to make CSP dispatchable. Overall, CSP offers long-term potential, contingent on higher investments to drive down costs.
Onshore Wind – Immense Potential in North & Central Regions
Saudi aims to install 16 GW of onshore wind capacity by 2030, leveraging its strong wind resource – ranked 13th globally for onshore wind potential. The vast desert spans in the country’s northern and central regions provide ideal locations for large-scale wind farms. Wind power could grow even further if grid expansion connects these regions with load centers. The 400 MW Dumat Al Jandal wind farm tendered in 2017 was 30% lower than the previous record-low tariff, demonstrating wind’s increasing cost-competitiveness. Key challenges include integrating intermittent wind power through storage, evacuating power from remote windy areas, and developing local manufacturing capabilities. But with low auction prices, wind is emerging as a promising avenue.
Waste-to-Energy – Tackling Waste While Producing Energy
With vast volumes of municipal solid waste generation, waste-to-energy plants provide a twofold opportunity for Saudi Arabia – sustainable waste disposal and low-cost renewable energy generation. While incineration costs are high, revenues from tipping fees for accepting waste provide an additional income stream. Waste also provides a consistent fuel source, enabling baseload renewable energy production unlike intermittent solar and wind. This improves grid stability and planning. While requiring rigorous emissions control, waste-to-energy is a key pillar of Saudi’s renewables plan. Current projects like Sudair provide a blueprint for upcoming opportunities.
Geothermal – An Unconventional Opportunity
Saudi Arabia has promising geothermal potential in the Western Hijaz volcanic areas that remain largely untapped currently. Estimates indicate 300-500MW of geothermal potential there. Development is still nascent – while the Al Khouba geothermal plant will pioneer geothermal power in Saudi Arabia, no major commercial facilities are under construction yet. Key challenges are the high risks in exploratory drilling and developing regulations attuned to geothermal. But geothermal could provide consistent, low-carbon baseload power while leveraging Saudi Arabia’s unique geology – providing a differentiated opportunity for investors willing to take on developmental challenges.
Other Emerging Opportunities
While solar, wind, waste-to-energy and geothermal make up the bulk of renewables investment currently, other unconventional opportunities are emerging in Saudi Arabia:
- Green hydrogen – With abundant low-cost solar and wind resources, Saudi Arabia could produce low-cost green hydrogen for domestic uses and potential exports to Europe. Saudi Arabia is already working on major green hydrogen projects such as Helios and Neom Helios.
- Sustainable desalination – With desalination accounting for a major chunk of Saudi water supply, using renewable energy to run desalination plants can make them more sustainable. desalination projects operational.
- Energy storage – Battery storage offers opportunities to address intermittency of renewables and supply peak power demand. Given high cooling needs, thermal storage for CSP also has advantages.
- Green buildings/LEED certification – Green building practices like rooftop solar, optimal insulation, LED lighting etc. are gaining traction in Saudi’s construction industry.
- Electric vehicles – Saudi has set a target for 30% of vehicles to be electric by 2030. This will drive demand for solar/wind powered EV charging stations.
While smaller in scale currently, these emerging opportunities could become sizeable markets in the longer term and provide additional investment avenues.
Challenges and Risks for Renewable Investments in Saudi Arabia
While the opportunities are immense, investors should also consider the key challenges and risks involved:
- Policy and regulatory uncertainty – As the market is still developing, frequent policy changes around tariffs, auctions, grids etc. can create uncertainty.
- Financing challenges – Many Saudi banks are still conservative on renewable financing. Local debt financing options are limited.
- Localization requirements – Tenders often have requirements for locally manufactured components which can pose sourcing challenges initially. But it creates incentives to invest in local manufacturing.
- Grid integration – Intermittent renewables at higher penetrations pose grid management challenges which need to be addressed.
- Technical skill limitations – The nascent sector lacks a robust local talent pool. Finding technical personnel for construction and O&M can be challenging.
- High upfront capex – Renewables require major upfront capital expenditure which can deter investors focused on short-term returns.
While these issues need navigating, they are common to other emerging renewable markets globally. The ambitious policy thrust and rapidly declining technology costs strengthen the investment case for renewable energy in Saudi Arabia.
FAQs
What are the most attractive renewable energy investment opportunities in Saudi Arabia currently?
Solar PV and onshore wind likely provide the largest and most commercially viable opportunities currently. Saudi Arabia’s excellent solar and wind resources, coupled with tumbling PV and wind turbine prices globally, make these technologies highly cost-competitive already. Investment interest is also driven by Saudi Arabia’s strong project pipelines in solar and wind.
Which regions of Saudi Arabia are most suitable for renewable energy projects?
The northern and central regions of Saudi Arabia, like Al-Jouf, Rafha, Hail and Neom, offer the best solar and wind resources. Western volcanic areas also show promise for geothermal energy. Load centers like Riyadh, Makkah, and the Eastern Province regions will drive distributed renewable installations.
What policy incentives exist for renewable energy investment in Saudi Arabia?
Saudi Arabia provides several policy incentives:
- 20-year PPA contracts guaranteed by SEC for projects above 5 MW
- Competitive bidding through RfPs and auctions to allocate projects
- Tax holidays, import duty exemptions, free land leasing for RE projects
- Access to concessional financing through the Renewable Energy Project Development Office (REPDO)
- Net metering scheme to incentivize distributed generation
How can foreign investors participate in Saudi Arabia’s renewable energy market?
Foreign investors have several options:
- Participate in project tenders/auctions by forming consortiums with local players
- Partner with local companies as technical advisors/consultants
- Provide technology solutions to renewable energy projects
- Invest in emerging opportunities like solar component manufacturing, green hydrogen etc.
- Acquire stakes in renewable energy projects/companies
What financing options are available for renewable energy projects in Saudi Arabia?
Current financing avenues include:
- Debt financing from local banks like SABB, Alinma Bank, SAMBA etc.
- International debt through Export Credit Agencies and Development Finance Institutions
- Equity investment from Saudi investment groups like ACWA Power, Jadwa Investments etc.
- Green bonds issued by government entities like ACWA Power and SDFA
- Concessional financing from Saudi funds like REPDO, RFC
- Separate financing for components like PV modules, wind turbines etc.
Conclusion
Saudi Arabia offers compelling investment prospects across renewable energy technologies to achieve its ambitious 2030 goals. Solar PV, onshore wind, waste-to-energy, and geothermal provide sizeable opportunities where Saudi Arabia has distinctive resource advantages. While challenges exist, the policy momentum, energy demand drivers, and technology cost trends point to a massive expansion of renewables in coming years. For both local and international investors, renewable energy in Saudi Arabia offers a chance to participate in the transition of one of the largest energy markets globally. Careful navigation of risks can provide access to a new high-growth sector in the Kingdom.
