How the Kingdom of Saudi Arabia Could Rule Energy for the Next 100 Years

Last month, Saudi Arabia announced that it planned to open its stock market to direct foreign investment for the first time, beginning in January 2015. The move is part of a concentrated effort to diversify the Kingdom's economy away from oil, and the government is counting on foreign investment to foster economic growth and speed up the transition. The Saudi government is planning to do its part as well, by issuing the most ambitious target for solar power generation in the world. If the country succeeds, energy innovation may gush from the Middle East similar to the way oil does today.

The oil problem
In 2013, Saudi Arabia's oil production reaped $274 billion for the country's coffers. The oil sold makes up 90% of the country's exports and accounts for 80% of its budget revenue. It is a textbook petrostate, and that is becoming a massive problem.

If Saudi Arabia continued to consume petroleum at the rate it did in the 1980s, we wouldn't be having this conversation, but its economy is burgeoning -- now one of the best performing G20 economies -- and oil consumption is climbing steadily while production is more or less holding flat:

Source: EIA.gov

The increase in oil consumption is driven by electricity consumption, which is also skyrocketing as the population and economy continue to grow. Saudi Arabia's population climbed from 20 million in 2000 to an estimated 29.7 million today. You can see the results of that growth reflected quite clearly here:

Source: EIA.gov

Unlike the United States, Saudi Arabia is extremely dependent on petroleum to generate electricity. Approximately 50% of the nation's power is fueled by oil, compared to 1% in the U.S.

So while Americans look to solar to displace coal, and potentially power electric vehicles, Saudi Arabia desperately needs it to replace oil-derived electricity consumption with solar power in order to protect its export revenue, and in turn its ability to fund the government. 

Solar to the rescue
In 2012, officials at the King Abdullah City for Atomic and Renewable Energy announced the ambitious goal of constructing a $109 billion solar industry and generating 41 gigawatts of solar power by 2032. That would account for a third of the country's electricity generation.

After very little action toward that ambitious goal, Saudi Aramco, the nation's oil company, announced in May that it would begin developing solar projects. The company has already signed agreements to develop 300 megawatt plants in remote areas of the country to reduce the need for fuel-oil powered plants in those areas. Whether or not the $109 billion goal is attainable remains to be seen, but if any country has a shot at reaching it, Saudi Arabia is it.

The Saudi advantage
Thierry Lepercq, the founder and president of France's Solairedirect said that Saudi Arabia could offer one of the lowest levelized costs of energy, or LCOE, in the world, given that the price of solar for large-scale projects is four times lower than it was in 2009. (LCOE allows for comparisons across energy sources by factoring in the cost of initial capital, fuel, operations, maintenance, etc.) 

Beyond the low cost, Saudi Arabia has a few other key ingredients working in favor of its nascent solar industry. Dr. Raed Bkayrat, First Solar's vice president for Saudi Arabia explains:

With access to all the critical elements-low-cost finance, land availability, high solar irradiance and locally based, skilled resources-there is no reason why Saudi Arabia cannot achieve some of the lowest PV levelized costs of electricity in the region.

It's a perfect storm: the need for solar to replace domestic consumption of oil is lining up squarely with the lowest cost for production ever, geography, and the availability of cash. 

But if Saudi Arabia is going to dominate solar power the way it dominates oil production, it will have to do more than build solar plants at home. It could export energy to its neighbors -- something it is planning to do -- but it will also need to innovate, and export those innovations as well.

That solar innovation is already happening. Scientists at the King Abdullah University for Science and Technology have developed the "NOMADD," a robot that cleans dust from solar panels without using water. Given that dust can reduce the energy yield of panels by 60% and water is scarce in desert climates, this is an important development for domestic use. In theory, once the system is fine-tuned it could also be commercialized and exported to other nearby desert countries pursuing solar installations.

Bottom line
The stars have aligned for Saudi Arabia, what's needed now is action. Next month, international solar executives and investors will convene at the Desert Solar Conference where they will meet with Saudi stakeholders and continue to map out the plan for growth in the region. Investors should watch closely to gain insight on what the immediate future holds for Saudi Arabian solar power.

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  • Report this Comment On August 17, 2014, at 11:49 PM, 2549 wrote:

    Would that the Western oil companies, particularly the American ones, were approaching the future like the Saudis. The corporations see themselves as oil companies, and depend on science denial propaganda to try to keep the future from coming, an increasingly untenable position that is making them more and more irrelevant with each passing day.

    The Saudis are apparently Energy people, accepting the mantle of leadership conferred on them by the "Invisible Hand of the Marketplace" theory which the corporations seem intent on belying.

    Better to look 100 years ahead than 100 years behind.

  • Report this Comment On August 18, 2014, at 12:00 AM, Lexloeb wrote:

    Terrible place for investment of any kind. After Seeing how Syria civil war into Iraq there is little doubt that there is high probability of a coup or worse in Saudi Arabia. Saudi Arabia exported terrorism for years and years and soon it could be importing it not just from Iraq but from Iran. I would love to have invested in the USA over a hundred years ago but not in below the Mason-Dixon Line before the civil war in retrospect. With the proxy wars mounting between the Sunni and Shea subsets of Islam it may only be a matter of time that arab spring and total chaos makes its way directly in to Saudi Arabia. What we need is to dump Obama and his pseudo science greenie friends and the USA with coal, Oil , natural gas and hydro, geo thermal and nuclear even fusion which we can get now just but dropping neutron bombs in a huge underground cavity one by one. The US is going to dominate. Saudi oil fields have been closed to new us technology but that may find its way into Iraq sooner. There will soon be a glut of gas and oil on the market with a few states in the us now producing 1000-3000 percent more each coming year for a few years coming. That will bring oil prices down to around $35 a barrel . It will cut the value of gold and the dollar will soar. Gold production gets cheaper with cheaper diesel on the margin so does steel production and even more so with the price of coal depressed and the potential supplies infinite. The US is entering a new economic revolution in energy , food production and just about everything else because we will be number one in free markets once we cut corporate taxes, cap gains taxes and income taxes so we out compete the world...wait till after Obama and as our country warms towards libertarians like Ron Paul, who has no clue about gold, we have more rich Saudis living here after their arab spring than will be living under ISIS or the Iranian black guard.

  • Report this Comment On August 18, 2014, at 10:45 AM, luckyagain wrote:

    In one way it is really funny. The Republicans fume about the cost of solar energy while the Saudis are making it a priority. It seems that the Saudis look years into the future while the Republicans focus on what something will cost next week instead of the next 10 or 20 years.

    The US has areas of the Southwest which is ideal for solar energy production. Generating electricity using coal requires huge amounts of water which is in becoming harder to find in the Southwest. Fracking for oil requires a lot of water which is also hard to get in the Southwest.

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