Saudi Arabia is hoping its solar-power program will generate 7,000 jobs and build a local manufacturing industry that can export products to the world, reducing domestic demand for its crude oil in the process.
The Ministry of Energy and Natural Resources requires bidders seeking to build about 3.45 gigawatts of solar and wind plants by 2020 to spend 30 percent of the capital they invest through home-grown workers and companies, said Turki al-Shehri, head of the renewable project development office for the kingdom.
“We want to create value,” Al-Shehri said in an interview at the Bloomberg New Energy Finance conference in New York on Tuesday. “We don’t just want to bring in companies that open up manufacturing facilities at a very high premium, which the consumer will end up paying. We want to ensure that whatever they are opening is competitive, that it can compete globally for exports.”
The remarks indicate the importance of the renewable energy program to a kingdom that’s among the world’s biggest exporters of crude oil. With a growing population and surging demand for electricity, Saudi Arabia is seeking new energy supplies to ensure that more of its oil reaches export markets instead of being consumed at home.
Ministers are working on a second auction of power-purchase deals for renewable energy developers that would grant government-guaranteed contracts for up to 25 years. Results from the current 1.02-gigawatt program are due by the end of the year, following a 700-megawatt program already tendered. Another 1.73 gigawatts of contracts will be awarded in a third round in time to reach the 2020 target, the official said. The contracts are for both solar and wind farms.
The ministry offers land and grid connection for the projects, requiring developers only to build the power plants. It’s focusing on sites where it can displace the most expensive fuels — diesel, heavy fuel oil and forms of crude oil that Saudi Arabia now consumes to generate electricity.
But the ambition for renewables goes beyond energy needs. It’s also about spurring local industry to build products that the nation can export, helping the government reach its target to diversify the economy away from fossil fuels by 2030. The program also includes building banks, a tourist industry and manufacturing from the proceeds of energy, some of which will come from selling a stake to investors in state oil company Saudi Arabian Oil Co., or Aramco.
“We see it as complementing oil because renewables bring more than just a low-value fuel,” Al-Shehri said. “It fits perfectly into our demand profile, which is high demand, almost 50 percent higher than you see in the evening from air conditioning.”
Local content rules embedded in the auction currently underway will be increased in the coming years as Saudi companies develop their capabilities.
After delaying the program earlier this year, Al-Shehri said the solar program is back on track under the direct management of the energy ministry. His renewable energy office reports to the ministry. It has absorbed authority over renewables from the King Abdullah City for Atomic and Renewable Energy, or KaCare, an organization chartered by the government working outside the energy ministry.
The renewables office is managed by a board led by the energy minister and including officials from Aramco, KaCare and the state electricity company, Saudi Electric Co.
“What’s different now is the fact that they have established this office,” he said. “It’s testimony to the fact that we’re serious. These tenders have years of pre-development work. Putting out a tender is easy. Putting out a good tender requires work.”