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

Desperation may push this Middle Eastern oil giant to the forefront of solar power.

Aug 17, 2014 at 11:45AM

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:

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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:

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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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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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