Saudi renewables development belatedly picks up speed

The Public Investment Fund (PIF, a sovereign wealth vehicle) has finalised contracts with two local affiliates to install 4.55 GW of solar photovoltaic (PV) capacity—the largest single addition to Saudi Arabia’s renewables pipeline—and developers are preparing to pitch to develop another 3.37 GW of carbon-free power. The kingdom’s initially slow-moving renewable energy programme is accelerating rapidly, promising to free up oil and gas and creating huge commercial opportunities. We expect the emerging dominance of developers wholly or partially owned by the state to increase the risk of a sharp slowdown in progress when oil prices decline and to potentially deter genuine private-sector investment.

Under an enormously ambitious renewables development programme adopted in early 2019, the PIF is responsible for procuring 70% of total capacity (targeted a now-unrealisable 27.3 GW by end-2023 and 58.7 GW by 2030) through negotiated contracts, with the Saudi Power Procurement Company (SPPC, a government agency) tasked with contracting the remainder through competitive tenders. During the first three years the PIF awarded only a single, 1.5‑GW project, signing the 25‑year power purchase agreement with a consortium of ACWA Power (of which it owns 44%) and Badeel (a wholly owned subsidiary) in April 2021 for the Sudair PV plant near Riyadh, the capital, due for delayed start-up this year. However, since November the fund has contracted a combined 6.6 GW (over six times current national capacity) across four projects (the latest 4.55 GW to be derived from three PV plants requiring total investment of US$3.25bn). All have gone to the same consortium, under a system in which ACWA is invited to match the lowest price in the most recent public auction, failing which other developers would notionally be invited to bid—a scenario yet to occur.

The SPPC procurement programme is likewise gathering pace, with the capacity out to tender under its fourth auction (of 1.5 GW of solar and 1.8 GW of wind) almost as large as its predecessors combined. Developer bids are due in late May/early June. Although international firms have had some success in the competitive tendering, ACWA has again dominated with ultra-low prices—a situation that risks deterring prospective bidders sensing the lack of a level playing field, and is antithetical to the core Vision 2030 goal of putting the private sector in the economic driving seat and boosting foreign investment.

What next?

Renewables development will be fiscally positive, freeing up for export the liquid fuel currently burnt in power plants while also conserving gas for alternative, more lucrative uses. It will generate major commercial opportunities and fuel expansion in the nascent domestic component-manufacturing sector, supporting wider non-oil GDP growth.

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