Saudi Plans on Taking Renewable to 50% of the Energy Mix, Market Doubts: Impact on the Oil Space?

Summary

• Saudi Arabia’s energy minister Abdulaziz bin Salman plans to take renewable energy to 50 per cent of the total power generation capacity by 2030.
• However, the market pounders on how true Saudi’s interest in the renewable project is, as the state giant Aramco has already identified the penetration of renewable as one of the biggest business risks.
• Despite all kind of talks in the market, Saudi seems to be progressing well on the commitment with the energy ministry recently completing the round three of the National Renewable Energy Program.
• The energy program is a long-term, multifaceted program, designed by the kingdom to balance the domestic power energy mix and avoid carbon and other greenhouse gas emissions.
• Saudi plans to take renewable energy to 58.7 gigawatts by 2030 with solar energy estimated to play a vital role.

Saudi Arabia’s energy minister Abdulaziz bin Salman plans to take the renewable energy to 50 per cent of the total power generation capacity by 2030; however, the market pounders on how true Saudi’s interest in the renewable project is, as the state giant Aramco has already identified the penetration of renewable as one of the biggest business risks.

Saudi’s energy minister suggested that the oil kingpin is trying to lead by example by decarbonizing its power sector. However, the nation has a very long way to go.

Until 2016, liquids accounted for over 50 per cent in the total power generation, but thanks to the increased gas processing capability, natural gas now accounts for over 50 per cent of power generation.

The market and some industry experts doubt the intension of Saudi to take its renewable energy to promised targets, but as indicated by the Energy Minister, gas and renewable power mix is the most suitable mix for the kingdom, and the natural gas processing has already experienced a boom.

Saudi National Renewable Energy Program

The National Renewable Energy Program (or NREP) is a strategic initiative to maximize the potential of renewable energy in Saudi Arabia under the King Salman Renewable Energy Initiative.

• At present, Saudi plans to take renewable energy to 58.7 gigawatts by 2030 with solar energy estimated to play a vital role. In the total renewable target of 58.7 gigawatts, solar energy is planned to represent 42.7 gigawatts through solar PVs and solar CSP.

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The energy program is a long-term, multifaceted program, designed by the kingdom to balance the domestic power energy mix and avoid carbon and other greenhouse gas emissions.

The Renewable Energy Project Development Office (or REPDO) under Saudi energy ministry is responsible for the delivery of the program, which would be phased and rolled out in a systematic and transparent way.

Moreover, the program would ensure that the kingdom benefits from the cost-competitive nature of renewable energy while substantially increasing the share of renewable energy in the power energy mix.

Recent Development in NREP

For moving in line with its target, the kingdom recently initiated the round three of the National Renewable Energy Program.

The round three includes four projects with a combined capacity of 1,200 megawatts of solar PV, and as per the latest notification from the concerned department, 49 companies have been pre-qualified to bid out of which 28 companies are domestic.

• In the recent past, Saudi Ministry of Energy issued the Request for Proposals (or RFP) for Round Three ‘Category B’ Solar PV independent power producer, comprising four solar PV projects with a combined generation capacity of 12,000 MW, located in the central region of the kingdom.
• The kingdom would allow local developers to participate in “Category A” projects or smaller projects such as Wadi Ad Dawasir 120 MW Solar PV IPP and the Layla 80 MW Solar PV IPP while opening “Category B” or larger projects such as Ar Rass 700 MW Solar PV IPP and the Saad 300 MW Solar PV IPP for international developers.

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Post opening the Request for Qualifications for Round Three in January 2020, the Ministry of Energy has received a total of 83 applications in February 2020, leading to a total of 49 pre-qualified companies for lead roles.

Pre-qualified companies would now proceed to RFP as either a Managing Member and/or Technical Member and/or Local Managing Member.

In the wake of travel restrictions across the globe, Saudi energy ministry extended the RFP timeframe from four to six months, and proposals from prospective bidders would be submitted online through the Ministry’s NREP procurement portal.

As per the Saudi energy ministry guidelines, round three projects would represent 18 per cent local participation, increasing the value-added contribution of products and services in the national economy.

• Furthermore, all projects tendered by Saudi are 100 per cent IPPs backed by a 25-year power purchase agreement with the Saudi Power Procurement Company as an offtaker. Since the inception, of the NREP program, Saudi has pre-developed and tendered 2,170 megawatts of renewable energy, 700 megawatts of which was awarded in 2019 while the rest would be awarded in 2020.

To summarise, while many industry experts doubt the intention of Saudi for ever developing the renewable energy project as it is one of the imminent threat to the state-owned Aramco, Saudi project seems to be moving forward as planned, and soon a further announcement for “Category A” projects is expected.

In the wake of such paradigm shift, not just on the domestic front, Aramco is now considering increasing its oil production, and the impact of such a move should be further tracked as it could bring some spark in the snail-paced oil market on the global front.

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