Solar energy is becoming cheaper, at least this is what the latest reports suggest. The latest offers received by Saudi Arabia during the auction are the cheapest prices ever recorded for supplying solar energy. The oil-producing state just started a $50 billion program that aims to bring in new energy supplies without using fossil fuels. And solar power is one of the best alternative sources.
According to the Saudi Arabia energy ministry, Masdar and Electricite de France SA offered to supply electricity from solar sources at just 1.79 cents per KWh. The power will come from a 300 MW solar plant and the announcement was made during the bid-opening ceremony held in Riyadh. The previous record for a solar project was 2.42 cents per KWh in Abu Dhabi. There were also two other companies (ACWA Power and a group led by Marubeni Corp.) that came close to this bid. ACWA Power took second place with a bid of 8.7815 halalas per KWh of solar energy.
Saudi Arabia aims to get energy from renewable sources like solar to avoid using crude that they would rather export for a larger profit. The new solar projects should take care of at least some of the domestic consumption – which is growing steadily. Even though the offers received by Saudi Arabia are very low, the cost of power generated by the new solar projects may not be so cheap. Various undisclosed terms in the contracts may drive the solar energy price up, as Bloomberg New Energy Finance in Zurich explains.
According to Jenny Chase from BNEF, “There is great pressure in the Middle East to come up with an impressive headline number, and these are becoming increasingly divorced from the reality of payments.” However, the reality is not yet known. After the solar project is reviewed and the contract awarded, the final price of the energy can be calculated.
Solar Power Is Lagging In Saudi Arabia
Although the Middle East is rich in oil and gas, it lags behind most other regions when it comes to renewable energy – such as solar power. The clean energy (solar, wind, geothermal, waves, etc.) industries in countries like Saudi Arabia, the United Arab Emirates and Iran are far behind those in Japan or Germany. However, the former have been making progress over the last two years and have come up with interesting incentive programs, as well as regulatory changes, for solar power projects.
According to Chase, Saudi Arabia’s solar energy price may be just a base rate that is only paid during periods of peak demand, or a price that the project receives for a relatively small part of its life. The winning developer may be eligible for land grants, bonus payments and other bonuses as incentives. Saudi Arabia is making progress in the field of solar energy and is willing to give bonuses to projects that meet its requirements.
At the time of writing, Saudi Arabia generates less than 1 percent of its power from green energy sources such as solar power. However, the country plans to get over 30 solar projects and wind projects started over the next 10 years. All of the bids will be carefully reviewed by officials at the Renewable Energy Project Development Office. The officials will decide who builds the solar plant at Sakaka in January and who gets the power-purchase contract.
The First of Its Kind
This is the first time a power plant has been awarded under the renewables program in Saudi Arabia. The program aims at a 9,500 MW capacity from wind and solar by the year 2030. According to the offer, the new solar power plant will start producing energy before June 2019. And Saudis have an excellent track record of finishing projects on time, especially when it comes to solar energy.
There have been several records when it comes to solar project prices in the Middle East. Dubai and Abu Dhabi have seen all-time low solar power pricing offers because of various incentives such as free land, favorable financing, cheaper technology, and national power grid connectivity. And thanks to the large size of the solar projects – which means economies of scale – developers have been able to offer remarkably low prices for solar projects.
Saudi Arabia is rapidly expanding its solar and wind energy program, and has ambitious targets over the next couple of years. At present, it depends almost entirely on coal and fossil fuels for its energy generation needs. Solar and wind energy accounts for just 1% of the total. However, the country is set on slowly severing its reliance on fossil fuels and plans to use them for exports to generate revenue. The $50 billion program is just part of the country’s ambitions. In addition, the government is expanding other sectors of the economy, such as the manufacturing, petrochemicals and tourism sectors. Saudi Arabian Oil Co. (a state crude oil giant) is planning to sell a stake of around 5% at an IPO soon. According to Crown Prince Mohammed bin Salman, this action could value the company at around 2 trillion dollars. It also means that a Saudi Arabia will benefit from a huge influx of money that it can use to develop its renewable energy (solar and wind) industry.
An article published November 26, 2017 on greentechmedia.com demonstrated that the world’s cheapest solar bid is currently for wind. As more solar news becomes available, it will be interesting to see what is happening with solar power projects across the globe.