The Saudi Arabian government has shown growing support for solar power in its future energy plans, recognising the technology as a crucial component of its efforts to meet rising electricity demand and decrease dependence on oil and gas-based electricity production. At present, Saudi Arabia’s electricity mix is almost entirely made up of gas and oil. Diversification of the electricity mix would enable Saudi Arabia to conserve its hydrocarbon resources for export and take advantage of the favourable oil price environment.
NREP: the flagship policy for renewable energy
Saudi Arabia’s National Renewable Energy Programme (NREP) is the flagship initiative that aims to increase the share of renewable energy in the country’s power mix and entice investment into the sector. Overall, Saudi Arabia aims to increase domestic generation capacity from renewable energy to 50% by 2030.
The NREP was launched in 2017 as part of Saudi Arabia’s Vision 2030 strategy and sets a target to achieve 27.3GW of renewable energy capacity by 2024, and 58.7 GW by 2030, consisting of 40GW solar PV, 2.7 solar CSP and 16GW wind. The programme has identified a mix of renewable energy technologies to achieve these targets, including solar, wind, geothermal, and waste-to-energy. That said, the solar sector exhibits the greatest potential in Saudi Arabia, in line with high solar radiation levels and vast unoccupied swathes of land well-suited to utility-scale PV and CSP projects.
The first round of the programme (also launched in 2017) saw the award of contracts for the construction of 700MW of solar and wind projects. The second round, launched in 2018, was for an additional 1.4GW of renewable energy projects, and the third round, launched in 2020, included an additional 1.2GW of solar projects.
Solar is the emerging investment hotspot
The tenders held by Saudi Arabia’s Renewable Energy Project Development Office (REPDO), as part of the NREP, will drive growth in solar power in Saudi Arabia, creating significant opportunities for international power sector investors to participate in the market. This is already playing out, and the project pipeline for solar facilities has strengthened significantly in recent years and major renewable energy companies have flooded to the market, including Masdar, Jinko Power Technology and EDF Renewables.
A flagship project in the Saudi solar sector was announced in November 2022, which saw ACWA Power, a Saudi utility company, sign an agreement with Water and Electricity Holding Company (Badeel) to build the world’s largest single-site solar-power plant in Al Shuaibah, Mecca province. With a capacity to generate 2,060MW, the solar-power facility is anticipated to commence operations by end-2025. Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), holds a 50% and 100% stake in ACWA and Badeel, respectively.
Going forward, the PIF is likely to play a significant supporting role in the expansion of the Saudi renewable energy sector, in line with the fund’s environmental sustainability agenda and commitment to achieve carbon-neutrality by 2050. In line with the state’s Vision 2030 strategy to foster the growth and deployment of clean-energy technologies, the government has instructed the PIF to extend financial support for such initiatives. Furthermore, the PIF has set a target to establish 70% of the kingdom’s renewable energy capacity by 2030. These objectives, together with the fund’s mandate to invest a minimum of US$40bn each year in the domestic economy, are pivotal in driving the PIF’s growing involvement in the domestic solar industry.
Green hydrogen ambitions present further upside to the solar sector
Saudi Arabia has identified hydrogen as a critical component of its future energy sector plans, with a goal to generate 2.9 million tonnes of hydrogen annually by 2030. While this objective does not specify targets for green hydrogen production, the existence of extensive green hydrogen initiatives in progress implies that sustainable hydrogen will constitute a significant portion of this output.
Consequently, there is an expanding opportunity for the advancement of solar power in the green hydrogen sector, which will increase demand for renewable electricity and stimulate additional investment in solar energy in the years ahead, providing upside to industry growth.
Despite the significant growth potential of the market and rising investor sentiment, there are still some challenges facing the solar sector’s expansion.
For example, as part of its Vision 2030 goals, Saudi Arabia aims to establish a sustainable and export-oriented solar manufacturing sector, with local content targets ranging from 17% to 19% per project cost for initiatives developed under the NREP, factor that may hinder the progress of solar projects since the country’s solar manufacturing industry is still nascent.