Note: this article, originally published on April 25, 2016, was updated and substantially extended on May 9, 2016, to reflect the new clarity on the timeline for the 9.5 GW target (2023) and the Saudi government reshuffle.
As part of a wide-ranging economic and social policy vision for the Kingdom of Saudi Arabia, deputy crown prince Mohammed bin Salman, son of King Salman bin Abdulaziz al Saud, announced the first cornerstones on April 25, 2016 for the deployment of renewable energy in the country.
The presentation of the “Saudi Arabia Vision 2030” policy paper was followed by the most comprehensive reshuffle of Saudi ministries and senior government positions in years, if not decades, on May 7.
The policy paper states an “initial” target of 9.5 gigawatts (GW) of renewable energy. No specific quotas for solar and wind are mentioned. Because no explicit timeline was originally announced, most industry observers assumed that the target applied to the year 2030, which would have represented a fairly conservative scenario given the size and energy consumption of the country.
However, on May 5, the Saudi government further detailed these plans, stating that the 9.5 GW target should already be reached by 2023 as the “first stage” of the program.
This much more aggressive target would represent a 180 degree shift from the “wait and see” approach to renewables taken by Saudi Arabia so far. It would make Saudi Arabia a sizable market for the global renewable-energy industry, likely the largest in the MENA region by annual new installations. If the country deploys new power plants at a constant rate until 2023, an average of about 1,600 MW of new renewable energy capacity per year would need to be built.
A feasible target
The target appears ambitious at first sight for a country that has a meager 25 MW of renewable-energy generation capacity (mostly solar photovoltaic) installed as per the end of 2015. Nevertheless, with the rapid growth in Saudi electricity consumption, the target would only translate to a renewable-energy share of roughly 5% of the country's total electricity consumption. In contrast, Germany, a country with less than half the solar irradiation of Saudi Arabia, reached a 32.6% renewable-energy share of electricity at the end of 2015, with 6.4% generated by solar photovoltaics (PV) alone. Saudi Arabia's neighbor Dubai just increased its renewable-energy targets to 7% by 2020 and 25% by 2030. Consequently, with its abundant solar resource and regions with high wind speeds, Saudi Arabia should in principle have no difficulty reaching and exceeding its target, if the political will exists and a renewable-energy program is rigorously executed.
The Vision 2030 policy paper also speaks of localizing manufacturing and R&D in renewable energy. Apricum expects renewed interest in the manufacturing of components for renewable energy in Saudi Arabia, if and when sustained local demand becomes visible.
The program will be implemented under the umbrella of the new “King Salman Renewable Energy Initiative” with legal and regulatory frameworks for the deployment of renewable energy and the involvement of the private sector to be established.
The policy paper also hints at encouraging distributed renewable energy deployment through “the gradual liberalization of the fuels market”. If fuel and electricity subsidies continue to be reduced, there will be a strong case for distributed solar energy in Saudi Arabia. The first step in this direction has already been taken with the steep increase in electricity tariffs at the beginning of 2016.
It is noteworthy that the Vision 2030 paper does not talk about nuclear energy for the Kingdom at all, contrary to earlier plans to build 17 GW of nuclear reactors.
The fading away of K.A.CARE
This announcement marks the first official statement from the Saudi government on renewable energy after the King Abdullah City for Atomic and Renewable Energy (K.A.CARE), founded by the late King Abdullah in 2010, famously announced ambitious renewable-energy plans in 2012. By 2032, the Kingdom was set to install 41 GW of solar capacity (with the mix heavily skewed toward CSP as opposed to PV), 9 GW of wind and 4 GW of other renewable sources. K.A.CARE's activities culminated in a detailed 2013 whitepaper for the tendering of renewable-energy plants, which was never followed up with an actual program. The death of King Abdullah in January 2015 cast further shadows on the organization bearing his name.
The Saudi renewables program had long been marred by deep-running dissonances and contradictory claims to power over the program among numerous government entities, with the eventual result that nothing was done at all. The nail in the coffin of the renewables program was that it involved so many departments, including but not limited to the ministries of oil, finance, water and electricity, as well as entities such as Saudi Aramco, Saudi Electricity Company (SEC) and the Electricity & Cogeneration Regulatory Authority (ECRA). Economic activities related to manufacturing were partly driven by the Saudi Industrial Development Fund (SIDF) and the National Cluster Development Program (NICDP). Relevant R&D activities were conducted at the King Abdullah University of Science and Technology (KAUST) and King Abdulaziz City for Science and Technology (KACST). The newly founded entity K.A.CARE, while nominally empowered by the King, never developed the authority to unite all actors in realizing a renewables program under its umbrella.
Cutting through the convoluted layers of competing Saudi government entities: An epic reorganization
On May 7, 2016, King Salman announced a remarkably far-reaching government reorganization that clearly marks the first step toward the implementation of Vision 2030. The change that raised most eyebrows internationally was the brisk removal of venerable oil minister Ali Al-Naimi, who had held the post for 20 years. Al-Naimi was the de facto leader of OPEC and mastermind behind the organization’s push for oil market share, which had led to the recent precipitous drop in oil prices. He was replaced by Khalid Al-Falih, the former CEO and now chairman of Saudi Aramco, who had been temporarily “parked” as health minister for an interim period of a year.
The reshuffle signals a potential game changer for the prospects of renewable energy in Saudi Arabia: Al-Falih was made the powerful head of a new “ministry of energy, industry and mineral resources”, the new manifestation of the oil ministry. The ministry of water and electricity was “canceled” without further ado; the responsibility for electricity (and thus control of SEC) now residing with the new energy ministry. Continuing his role as chairman of Aramco, Al-Falih holds one of the key positions in the implementation of Vision 2030. Furthermore, his ministry is expected to control KACST, KAUST, SIDF, NICDP and, very importantly, K.A.CARE.
The intent behind this reshuffle is clear – the paralysis brought about by a multitude of competing entities is to be replaced by a central, top-down governance structure, so that Vision 2030 can become a reality. It is certainly no coincidence that the new minister in charge of the energy portfolio is the country's highest-profile corporate executive. This comprehensive shakeup has indeed the potential to finally mark the beginning of the implementation of Saudi Arabia's renewable-energy plans.
It can be expected that further reorganization will take place among the various entities now under the energy ministry. In particular, it would not be surprising if K.A.CARE would cease to exist as a standalone organization. Instead, its renewable-energy activities could be absorbed into the new King Salman Renewable Energy Initiative, as the new initiative does not appear dissimilar in spirit and size to the earlier one. It is also expected that Saudi Aramco, which is to be transformed into an “energy holding company” under the new plans, will take an active role in the deployment of renewable energy, likely together with Saudi Electricity Company (SEC).
Saudi renewables: still, seeing is believing
Further details about the renewable-energy program are scant at this time, and it remains to be seen what specific policy details will be announced and how they will be implemented. Given the broad scope of Vision 2030, the implementation of a renewable energy program will be a formidable challenge as the overall Vision 2030 strategy will certainly preoccupy all levels of Saudi Arabia's administration for years to come. Given that Saudi Arabia has already previously announced ambitious targets for the deployment of renewable energy but has never actually followed through with the execution, a healthy amount of skepticism is certainly in order.
Saudi Arabia will need to follow up with concrete steps toward implementation to restore its credibility in the renewable-energy space. However, we are now seeing the first positive signs in this direction, with the pressure to act very clearly felt by the top echelons of government, a feasible target in place and, most importantly, the obstacles within the Saudi government structures being removed.
However, there is still a certain risk that the lofty renewable energy targets of the new Saudi Vision 2030 program does not see the light of day due to delays or disruptions, for example because of down-prioritization, through political dissent among Saudi government stakeholders, the eruption of fights about the unclear succession rules in the royal family or a worsening of the regional security situation.
Excluding such obstructions and in light of the recent all-time low bids for solar energy received by neighboring Dubai just a week after the Saudi Vision 2030 announcement, there should now be little reason to further delay a Saudi renewable-energy program.
Download the full text of the vision document at http://vision2030.gov.sa/en/media-center.