Saudi Arabia to Pour $109 Billion into Solar

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on Jun 3, 2012
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Saudi Arabia is the largest crude oil exporter in the world today, but the country is looking for ways to pare down the consumption of oil used for domestic power plants and desalination. With that in mind Saudi Arabia is beginning to turn to renewable energy, aiming to create a solar industry that accounts for a significant part (approximately one third) of the nation’s electricity demand within two decades. The country is now seeking investors to take part in an ambitious $109 billion plan that to fulfil its solar potential. Saudi Arabia’s serious intentions of developing a sustainable solar energy sector have also been confirm by officials.

Saudi Arabia announced its intentions for a serious solar energy push that would secure an important place for renewable energy in the country’s energy mix. Maher al-Odan, a consultant at the King Abdullah City for Atomic and Renewable Energy (Ka-care), said that with the new plan Saudi Arabia aims to create a national solar energy sector with the capacity to produce 41,000 megawatts of renewable energy capacity. The vice president for the same organization Khalid al-Suliman added that nuclear, geothermal and wind would contribute 21,000 Megawatts. Saudi Arabia’s ambitions to develop a renewable energy industry are explained by the country’s desire to downsize its oil consumption for domestic purposes. According to some estimates, wider adoption of renewable energy could potentially save 523,000 barrels of oil equivalent per day over the next two decades.

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Saudi Arabia’s plans present a huge opportunity to solar panel manufacturers, which has taken a serious blow since European countries have decided to reduce subsidies for solar installations. According to an analysis by Bloomberg on March 9, solar installations may see a decline this year for the first time in the last ten years, from 27,700 megawatts installed last year. The new market could have the potential to compensate for that, although some analysts have moderate expectations. Vishal Shah, Deutsche Bank’s analyst, in a note to clients, shared his opinion that the Saudi Arabia solar market is likely to be less profitable than the already established markets, because the state may require bid winners to supply from local factories, so companies like SunPower and Solar First would have to build local facilities.!m[](/uploads/story/32/thumbs/sad_oil_inline.png)

From the projected total of 41,000 Megawatts of solar capacity, 25 000 would come from solar thermal installations with the rest 16,000 coming from photo voltaic panels. The bidding is starting in Q1 2013 with 1,100 megawatts of PV and 900 megawatts of solar thermal, according to government officials cited by Deutsche Bank. There will be a second round in 2014. The plans suggest that the projected solar capacity should be fully built by 2032.

The size of the investment (109bn dollars) shows the determination of Saudi Arabia to add diversity to its energy mix and to reduce dependence on oil. Logan Goldie-Scot, an analyst at New Energy Finance in London said that “The state could generate an internal rate of return of approximately 12 percent if it built a PV plant and sold the displaced oil on the international markets”. His estimates show that the capital costs for the solar operations will be about $2.17 per watt. If those numbers are correct, the cost of installing 41,000 Megawatts of solar power plants is somewhere around $82bn, a number which has been confirmed by Maher al-Odan. The rest of the capital will be used on the training of solar plant personnel. Mr. Odan said that once the strategy is approved, its implementation will start immediately.

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