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energy

energy

Saudis electricity market:

a brighter future?
Saudi Arabia has enough sunlight to meet the worlds electricity needs four times over. The kingdom should not only expand its solar energy sector but help initiate a regionwide energy grid to help its neighbours meet their growing energy demands.
By Ben Ainsley & Lewis Mackinnon

he name saudi arabia is synonymous

with oil. With 267 billion barrels of reserves and a production level of over 11.6 million barrels per day, Saudi Arabia dominates OPEC and plays a central role in setting global oil supply and price. Nonetheless, Saudi Arabia also has the potential to be a key player in another energy market: solar power. According to NASA data, Saudi Arabia is the second sunniest place on earth behind Chiles Atacama Desert with solar irradiation levels along The Red Sea coastline north of Jeddah as high as 8.60kWh per square metre per day. Theoretically, Saudi Arabia has enough sunlight to meet the worlds electricity needs four times over. In February 2013 a White Paper was realised by the Saudi government laying out plans for the solar power industry. For numerous political, economic and demographic reasons, Saudi Arabia should not only expand its solar energy sector but go further than the White Paper proposes and help initiate a region-wide energy grid to help its neighbours meet their growing energy needs. Saudi Arabias desire to move into solar power is an idea still in its infant stages. In 2011 the country did not have a single renewable energy target and at present solar energy accounts for just ten megawatts (MW ) of a total state capacity of 41,924MW. Most recently the kingdom completed a 3.5MW plant that will be used to power desalinisation plants. In February 2013 the King Abdullah City for Atomic and Renewable Energy released a much anticipated White Paper outlining a tender process for solar energy projects and the goals it wishes to achieve. The document outlines a $109bn investment plan in solar power infrastructure that would total 41,000MW of solar power (by 2030). The 41,000MW would be split between two different varieties of solar power: photovoltaic (16,000MW) and solar thermal (25,000MW ). This shift to solar would save the country the equivalent of 523,000 barrels of oil a day. This investment is huge; in 2011 total global solar investment was just $136bn. Nonetheless, given the changing global market and Saudi Arabias insatiable energy demand the country should go further and begin plans to build more plants. Saudi Arabia currently has a huge demand for electricity; from clean water
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energy

energy

The King Abdullah City for Atomic and Renewable Energy has outlined a $109bn investment plan in solar power infrastructure that would total 41,000MW of solar power by 2030.

Saudi Arabias desire to move into solar power is an idea still in its infant stages.

Theoretically, Saudi Arabia has enough sunlight to meet the worlds electricity needs four times over.

to air conditioning to fridges and other luxury goods. Per capita electricity use is 7,427kWh compared to a regional average of 3,376kWh and a global average of 2,728kWh. Currently 10.6 percent of Saudi Arabias electricity is used in desalination plants in order to try and meet the countrys need for water both for its populace and for use in the oil and gas sector. 50 percent of electricity is for residential use, of which two thirds is used in air conditioning. This has all come on the back of a huge increase in the use of its own domestic oil. Between 2000 and 2010 Saudi Arabia was only behind China in the increased levels of domestic oil consumption; using an extra 1.2 million barrels per day. The Saudi oil minister Ali Al Naimi went as far as calling for a rationalisation of Saudis domestic energy use in November 2012.
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Ruth Lux, managing director of Strategic Analysis, a political risk consultancy, says: Large fuel subsidies and traditionally high oil prices have enhanced domestic consumption growth and Saudi Arabia must now identify how it will meet domestic power requirements. Saudi Arabias energy needs are set to continue to grow at a staggering rate. The kingdoms population is projected to rise from its current level of 28 million to 36.5 million by 2032 (30 percent), tripling peak time electricity demand over the next 20 years. Saudi Arabia needs to find a way to meet this growing energy demand. Its goal to use renewable fuels to produce approximately half of its power by 2020 seems ambitious but if successful will result in the freeing up of Saudis natural gas and oil for export. If the country were to continue to focus

on oil the EIA predicts that at current growth rates Saudi Arabia will consume 8 million barrels per day by 2030, up from its current rate of 2.8 million barrels per day. There are even some that are predicting Saudi Arabia could become a net oil importer by 2020. With most gas production already earmarked for domestic use Saudi Arabia should refrain from exploration of unconventional petroleum products and commission the building of yet more solar plants. Solar plants have been shown to be commercially viable. An analysis by Canada-based Clear Sky Advisors found

$136bn

Total global solar investment in 2011.


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that large-scale photovoltaic costs less than $0.15 per kWh, while the cost of burning oil for electricity costs Saud Arabia between $0.127-$0.174/kWh. With panel prices projected to fall 40 percent in the next few years the economic argument becomes yet stronger. If Saudi Arabia multiplies its electricity generated from solar then it will be able to increasingly export its oil to world markets. Oil is supplied to power plants at $2.70-$4.30 per barrel and natural gas at $0.75 per million British Thermal Units, creating an opportunity cost of $50bn, or ten percent of gross domestic product. Although Saudi Arabia has access to a huge amount of cheap oil to produce the electricity it could be increasingly exporting the oil. With current oil prices over $110 a barrel this would result in a significant windfall for the state that could help
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energy energy

A regional electricity grid would extend Saudi Arabias influence in the region.

Desertec was established in 2009 to create a North Africa/Europe energy grid.

to fund solar projects. If Saudi Arabia was able to export even half of its projected 2030 oil consumption (4 million barrels) this would have a huge positive impact on both Saudi Arabia, the world energy market and the world economy. The concept of Saudi Arabia turning to solar should not just be an idea that is being championed by the kingdom but the entire global community. Saudi Arabia has set ambitious targets for its solar output but it should go further and set out plans that attempt to build infrastructure allowing for the export of electricity. The finite energy supplies of Saudi Arabias neighbours are well documented; however, a new regional power network could help achieve this. The idea already exists in some European circles; in 2009 Desertec, a German initiative, was established with a 400bn ($514.2bn) budget in order to try and create a North Africa/Europe energy grid. The project has run into financing issues since the 2008-2009 financial crisis and many key companies have pulled out. Nonetheless, the idea is still alive and parts of the project are already in place. Saudi Arabia has signed a $1bn deal to supply Morocco with electricity from a 160MW solar thermal plant at Ouarzaz44

The technical barriers to international trade of electricity in the Middle East and North Africa are not insurmountable. The economic and political obstacles are perceived to be far greater and far more uncertain
ate (Morocco). Qatar recently upgraded its power grid to allow for regional integration and has shown interest in the project. Egypt and Saudi Arabia currently load share at peak times implying that some infrastructure already exists. Technological improvements in the form of high voltage direct current lines have also allowed for the transmission of power over longer distances. Saudi Arabia with its vast financial reserves could become a key player and advocate of the concept in the Middle East. A regional grid would extend Saudi Arabias regional influence, help to

Saudi Arabias population is projected to rise from its current level of 28 million to 36.5 million by 2032.

ensure that the monarchy can continue to operate as a rentier state, encourage the diversification of the economy and increase the participation of the local Saudi Arabian populace in the workforce. The recent White Paper stipulated that all project revenue will face a one percent tax in order to fund local research and is a local content requirement for the projects. The monarchy should open the sector to foreign ownership and investment to ensure that skills, investment and technology flow into the country while at the same time ensuring that it balances the need to educate and use
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its own people. There are no doubts that the project would face immense challenges. It is ambitious and hugely expensive. There are issues with solar panel maintenance, degradation and adverse weather conditions affecting output. The region would

$1bn

Value of the deal Saudi Arabia signed to supply Morocco with electricity from a 160MW solar thermal plant in Ouarzazate.

also need to upgrade and integrate networks and move away from the current thermal energy storage model. Above all it would require regional co-operation and political agreement at a much greater level. When asked on the feasibility of a region-wide energy grid, Patrick Cottam, a renewable energy research engineer at University College London, comments: The technical barriers to international trade of electricity in the Middle East and North Africa are not insurmountable. The economic and political obstacles are perceived to be far greater and far more uncertain.

This is why Saudi Arabia should take the lead both politically and economically to ensure that a region-wide grid begins to take shape. With populations and demand booming throughout the region and oil reserves one day destined to run out, the government of Saudi Arabia should go further than current plans, open the sector to foreign investment and become an advocate for a region wide grid. Acting quickly today will be for the better for Saudi Arabia and the entire energy market. *Ben Ainsley and Lewis Mackinnon are researchers at Strategic Analysis.
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