Saudis warm to solar, wind for power at home

Move part of steps to help broaden nation’s economy

The nation most identified with its massive oil reserves is turning to wind and solar to generate power at home and help extend the life of its crucial crude franchise.

Starting this year, Saudi Arabia plans to develop almost 10 gigawatts of renewable energy by 2023, starting with wind and solar plants in its vast northwestern desert. The effort could replace the equivalent of 80,000 barrels of oil a day now burned for power. Add in natural gas projects set to start later this decade, and the Saudis could quadruple that number, according to Wood MacKenzie Ltd. That could supplant all the crude burned in the kingdom during its winter months.

The effort goes hand-in-hand with a drive by the royal family to broaden the economy following two years of budget deficits tied to low oil prices. More industry, though, means more energy, with the amount of power used at peak times growing by 10 per cent in the last year alone.

“Renewable energy is not a luxury anymore,” said Mario Maratheftis, chief economist at Standard Chartered Plc., in an interview. “If domestic use continues like this, eventually the Saudis won’t have spare oil to export.’’

In all, Saudi Arabia is seeking US$30 billion to US$50 billion worth of investment in renewables, Energy Minister Khalid AlFalih said this month. The ministry will set up a division to handle the tenders until the country establishes a new independent buyer for all power supplies.

“The terms on renewable contracts will be motivating so that the cost of generating power from these renewable sources will be the lowest in the world,” Al-Falih said at a news conference in Riyadh. The kingdom will award its first tenders to build 700 megawatts of solar and wind energy in September, Al-Falih said.

The government has already raised domestic energy prices to slow demand growth and called for greater efficiency, according to the Riyadh-based King Abdullah Petroleum Studies and Research Center. Failing to tap more sources, including renewable energy, natural gas or even nuclear reactors could erode the oil exports still vital to the economy, the centre wrote in an October report.

Improving the country’s energy efficiency by just four per cent a year could save the equivalent of one million barrels a day of crude by 2030, according to the report.

The cornerstone of an economic transformation plan championed by Deputy Crown Prince Mohammed bin Salman, a son of the king, is the sale of as much as five per cent of Saudi Arabian Oil Co. With the company worth about US$2 trillion, according to estimates from the prince, the share sale would be the worlds’ largest initial public offering.

Saudi Aramco, as the state energy producer is known, already earns most of the Persian Gulf kingdom’s income by pumping one in every 10 barrels sold every day. It’s also driving the country’s first steps toward a renewable energy industry.

At its sprawling campus of office buildings, control rooms and residential compounds in Dhahran in the country’s east, Saudi Aramco runs the country’s biggest solar plant, a 10 megawatt facility mounted on a parking lot roof. In January, it started the kingdom’s first commercial wind turbine to power a facility in the northwest. The solar panels atop the parking facility cut the need for the equivalent of about 30,000 barrels of oil and the wind turbines will eliminate demand for about 19,000 barrels, according to Aramco.