Saudi Arabia is determined to leverage its oil wealth to finance its transition to sustainable energy with its Public Investment Fund backing investment in solar energy.
Sustainability is a dominant theme of PIF’s mega projects which underpin Saudi Arabia’s Vision 2030 program that seeks to diversify the economy away from hydrocarbons. Earlier this year, Crown Prince Mohammed bin Salman announced that Saudi Arabia will generate 50% of its energy from renewables by 2030, up from the current level of under 1%. Solar power will be a central part of the journey.
Portfolio company Acwa Power is leading the charge into solar generation. PIF increased its stake in Acwa from 33.6% to 50% in November 2020 to support renewables in the Kingdom. The company led a joint venture that established Saudi Arabia’s first utility-scale solar farm, the 300 MW Sakaka PV project, in November 2019.
This week, it announced it is building two plants, each with 600MW of capacity and located in the Third Industrial City in Jeddah and the Industrial City in Rabigh. It is also leading a consortium planning the 1.5GW Sudair solar plant, which achieved financial closure this week and is touted as the world’s largest single PV power generator. The US$900 million project won the backing of Sapco, a subsidiary of national oil company Saudi Aramco. The plant will represent 70% of national renewable energy under the National Renewable Energy Program (NREP).
The NREP’s initial target aimed to add 9.5GW of renewable energy capacity by 2023, of which 5.9GW would be solar and the rest from wind and concentrated solar power. The target was revised up in 2019 to 27.3GW, including 20GW of solar, and the 2030 target was set at 58.7GW with 40GW solar. The targets will require many more plants like Sudair, with investment likely to top US$60 billion. In April, the Kingdom revealed deals for the construction of seven solar power plants with a combined capacity of almost 3.7 GW - all dominated by Acwa Power - with power purchase agreements with prices as low as US$10.4 per MWh.
PIF’s role will be to cover financial risks that will encourage private sector participation, but the scale of the ambition is immense. If achieved with support from the SWF, Saudi Arabia could become the most cost competitive solar power producer in the world due to scale, the level of year-round sunlight and low land values – although energy storage and adapting the transmission sector will be major challenges.
Acwa Power is looking to an IPO of an 11.1% stake, a listing that has been anticipated for several years. The floatation would help generate more capital for the renewable energy sector, although it is unclear whether PIF’s stake will be diluted.
PIF is also seeking to support carbon reduction efforts through its subsidiary National Energy Services Company (Tarshid), which plans to reduce energy consumption by SAR25 billion ($6.6 billion) by 2030. Tarshid is retrofitting buildings and streetlighting and promoting rooftop solar PV.