Saudi Arabia, the world’s largest oil producer, is relaunching its renewable energy program. Recent government communications suggest a determination to press ahead rapidly.
The first phase of procurements was due to kick off with issuance of a request for qualifications on Feb. 20. A request for proposals is expected to follow to qualified bidders on April 17. The plan is to award projects in September 2017.
Phase one will consist of 400 MW of wind capacity at Midyan, in the Tabuk province, and 300 MW of solar PV at Sakaka, in the Al Jouf province. It is not yet clear whether the capacity will be split into smaller projects. All projects will be procured on an independent power producer basis.
The procurements will be led by a new unit in the energy ministry called the renewable energy development office that has been tasked to drive the deployment of renewable energy across the Kingdom. The new office will report to an oversight committee, chaired by Saudi Energy Minister and chairman of state oil company Saudi Aramco, Khalid Al-Falih. The committee will bring together heads of key stakeholders in the Saudi energy sector, including King Abdullah City for Atomic and Renewable Energy (K.A.Care), the Electricity and Cogeneration Regulatory Authority, the regulator of the electricity sector, Saudi Aramco and the Saudi Electricity Company, the national utility.
Saudi Arabia also has its eyes set on nuclear, which it classifies as renewable energy. Al-Falih said at a conference in Abu Dhabi in January that plans are being drawn up for the country’s first nuclear power stations. Two reactors with a combined capacity of 2,800 MW are currently in the front-end engineering and design stage.
These procurements are driven by the Kingdom’s new target to procure 9,500 MW of renewable energy capacity by 2023 (which includes an interim target of 3,450 MW by 2020). Al-Falih said that development of this much capacity will cost between US$30 and US$50 billion.
The ambitious plans are part of the Kingdom’s renewed effort to diversify its oil-dependent economy.
Unsustainable Oil Consumption
Saudi Arabia’s domestic consumption of oil and gas, and its rising energy demand, are not sustainable. Approximately 90 percent of Saudi Arabia’s revenue comes from oil, but the country currently burns a quarter of its total oil production. The Kingdom is among crude exporters struggling with budget deficits after oil prices languished for two years at less than US$50 a barrel.
More recently, the country has been hit with oil production cuts, a concession that it was forced to make as part of a deal with its fellow OPEC oil cartel members. In January, the International Monetary Fund cut its growth estimate for Saudi Arabia because of reduced output levels. The IMF said that the country’s GDP will expand by just 0.4 percent in 2017, down sharply from its October 2016 estimate of 2 percent. Saudi Arabia can no longer afford to allow domestic consumption to eat into its export revenues.
Meanwhile, Saudi domestic energy demand has increased at an estimated 8 percent per year for the last three years, and is set to rise further. Saudi Arabia now consumes more oil than Germany, a country with a population three times the size of Saudi Arabia and an economy nearly five times bigger. A few years ago, Al-Falih observed that, if left unchecked, domestic oil consumption would reach 8.2 million barrels of oil a day by 2030. Until fairly recently Saudi Arabia oil production averaged around 9.22 million barrels a day. A widely circulated Citigroup report in September 2012 concluded that Saudi Arabia could cease to be an oil exporter by 2030.
Subsidized Electricity
Of the three million barrels of oil burned in Saudi Arabia each day, some 700,000 barrels are used to generate electricity. This makes the Kingdom the world’s largest consumer of oil for electricity.
Like many countries in the Arabian Gulf, consumers in Saudi Arabia benefit from some of the world’s lowest electricity prices due to government subsidization. State-owned oil and gas companies supply conventional power producers with cheap oil and gas at a fraction of the market price. Further subsidies are applied to the price at which electricity is sold by state-owned utilities to consumers. The average price of electricity sold in Saudi Arabia ranges from US1.3 cents to 6.9 cents per kilowatt hour. The International Monetary Fund estimates that energy subsidies cost Saudi Arabia US$107 billion in 2015, or 13.2 percent of its gross domestic product.
Reform is clearly needed. Reducing subsidies and raising the price of energy might be the simplest way to restrain domestic consumption. However, this is a very sensitive area for any Middle Eastern government, particularly in the aftermath of the Arab Spring. Implementation of any energy price reform in Saudi Arabia is therefore likely to be very gradual.
A more viable solution to the Saudi energy crisis is diversification. The Kingdom currently produces very little renewable energy — renewable energy now represents less than 1 percent of total energy production — and there is no nuclear. Cheap conventional power has, until recently, proven to be a barrier to entry for renewable energy developers, but the cost of renewable energy has fallen dramatically in recent years.
On the solar side, Dubai’s state utility grabbed headlines in 2016 when it secured a world record-breaking tariff of US2.99 cents per kilowatt hour from a consortium of UAE-based Masdar and Saudi-based Abdul Lateef Jameel for an 800-MW solar PV project. Soon after, Abu Dhabi’s state utility secured an even lower, albeit off-peak, tariff of US2.42 cents from a consortium of Japan’s Marubeni and China’s Jinko for a slightly larger project. Solar thermal has yet to take off in the Middle East. However, Dubai issued a tender for a 200-MW tower project in January, and low pricing on this project could spur growth of the solar thermal segment.
While solar PV has dominated the headlines in recent years, dramatic price reductions have also been witnessed in the wind sector. Most notably, in 2016, Egypt’s Ministry of Electricity secured a tariff of US4.7 cents per kilowatt hour from a consortium of France’s Engie, Japan’s Toyota and Egypt’s Orascom for a 250-MW wind project. Renewable energy has, therefore, become an attractive option for Middle Eastern governments.
Relaunch
Plans to launch a renewable energy program in Saudi Arabia have been long in the making. K.A.Care was established in 2010 to oversee realization of the country’s renewable and nuclear energy ambitions. In 2012, it launched an ambitious renewable energy program. However, since the issuance of a white paper on the program’s tendering procedures in March 2013, K.A.Care’s program has remained stalled.
It has been widely reported that the K.A.Care program was stifled by bureaucratic disagreements over the scale and ownership of the program and how it should be implemented. A number of Saudi government entities have a significant say in energy policy. These include the Saudi Electricity Company and Saudi Aramco. A regime change in 2015 further complicated matters. For the last four years, the renewable energy industry has been waiting for renewed direction from the Saudi government.
This renewed direction now appears to have come. In April 2016, the influential Saudi crown prince unveiled plans, as part of a “Vision 2030” policy paper, to develop 9,500 MW of renewable energy capacity by 2023. This announcement, made against the backdrop of a major shakeup within the Saudi government, was significant. The development of 9,500 MW of capacity in six years is an ambitious target, but perhaps more realistic than the headline-grabbing targets set by K.A.Care a few years ago. The K.A.Care program contemplated the development of 41,000 MW of solar capacity by 2032. This would have required the development of more than 2,000 MW of solar power annually over a 20-year period. The new, more modest target is altogether more achievable.
Recent announcements by the Saudi government will reassure industry players that the government is serious about its renewable energy program. The entire scheme is projected to cost between US$30 and US$50 billion, with industry players estimating that the first round of 400 MW of wind and 300 MW of solar photovoltaic capacity could cost around US$700 million. Major developers, such as Abdul Latif Jameel Energy, ACWA Power and Enel SpA, have already expressed an interest in the plans, which seem to have been received with genuine optimism by industry players.
Nuclear Power
The January announcement may also have come as a surprise to those who have been skeptical about the potential for nuclear power in the Kingdom.
Ever since 2011, when K.A.Care announced its intention to develop 16 reactors by 2030, at an estimated cost of US$7 billion per plant, the development of Saudi’s nuclear energy program has been sluggish. Last year, the country’s deputy economic minister (and former K.A.Care representative), Ibrahim Babelli, cast doubt on whether Saudi Arabia would proceed with its nuclear plans. Babelli’s view was that nuclear power plants were not needed in Saudi Arabia and that solar power would be preferred.
The January announcement is more encouraging. Al-Falih indicated that there would be “significant investment” in the nuclear sector, and revealed that Riyadh is in the early stages of feasibility and design studies for its first two commercial nuclear reactors, which will total 2,800 MW.
The Saudi government has signed cooperation agreements with countries able to build nuclear reactors, such as France, Russia and South Korea, and discussions with China are ongoing. However, Al-Fahli did not provide cost predictions or a timeline for the planned investments. It remains to be seen whether nuclear power will be a viable option for the Kingdom’s energy mix.
Financing Options
New sources of liquidity will need to be tapped to finance the ambitious build out of new renewable energy projects. Developers of conventional IPP facilities have relied on conventional banks and Shari’ah-compliant financial institutions for financing as well as on direct loans and guarantees from export credit agencies. With the funding constraints imposed by Basel III and other international banking regulations, the pool of liquidity from traditional sources is not as deep as it was a few years ago.
These liquidity constraints have forced developers in the Middle East to turn to other markets, such as China. The most recent power project financing to close in Dubai, for the Hassyan conventional IPP, included significant contributions from Chinese banks. Marubeni and its Chinese partner, Jinko Solar, may seek to finance the Sweihan solar IPP at least, in part, with debt sourced from Chinese financial institutions. Recent moves by China to restrict outbound foreign investment in an effort to shore up the renminbi and maintain foreign exchange reserves raise questions about whether Chinese banks will be able to continue to support IPP developers in the region. Many Middle Eastern countries are now running large budget deficits at the same time that the planned infrastructure spend of these governments is increasing.
This begs the question of where the funding will come from to pay for the new infrastructure. Last year, Saudi Arabia raised US$10 billion from a consortium of global banks. This was the first debt issuance by the Saudi government in 25 years. A few months later, the Saudi government raised a further US$17.5 billion through a sovereign bond offering, the largest-ever bond sale by an emerging-market nation. Further debt issuances and bond offerings by Saudi Arabia and other Arab Gulf countries are expected in 2017.
Most international banks and financial institutions have limits on their exposure to Gulf Cooperation Council member states (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman). These limits are usually reviewed each year, but are not made public. Over the last few years, a number of international banks are rumored to have neared or reached their limits for certain countries in the GCC and elsewhere in the Middle East. Falling credit ratings of some of these countries and the fact that the governments themselves are now competing for the same potential credit pool are not helping.
The hope is the debt capital markets will develop enough to replace the dwindling available bank debt. A project bond market has been slow to develop in the Middle East, in part because cheap long-term debt was available from banks. Bond investors are increasingly looking at emerging markets for yield. Recent sovereign and corporate bond issuances in Saudi Arabia, the UAE, Oman, Kuwait and Egypt demonstrate significant appetite for debt capital markets in the region.
Since refinancing of Abu Dhabi’s Shuweihat 2 independent water and power project with a project bond in 2012, a number of project financings in the Middle East have been structured to allow for refinancing using project bonds. Apart from a few notable exceptions in the oil and gas sector, project bonds have not been used so far to fund greenfield projects in the Middle East.
The recent and rapid growth of the “green bond” market could prove to be a game changer. Green bonds are bonds issued at the level of the parent corporation whose proceeds are invested in projects that contribute to an environmentally friendly energy transition, including renewable energy. Green bond issuances worldwide are expected to exceed US$100 billion in 2017, up from US$11 billion in 2013. Green bonds offer the same returns for investors as conventional bonds or Islamic bonds known as sukuks. They have been used to finance greenfield renewable energy projects in Europe and Asia. Projects in the Middle East are often financed on the back of strong sovereign balance sheets, and risk allocation embodied in Middle Eastern projects, particularly in the power and water sector, compares favorably to other regions. Green bonds may provide some of the additional liquidity needed for the Saudi renewable energy sector.
One of the features of the Saudi conventional IPP program has been the significant equity stake that the Saudi government-owned entity takes in each project company. However, if the recent procurement by the Saudi Electricity Company for the 20-MW Al-Jouf and 80-MW Rafha solar PV IPPs are anything to go by, the Saudi government is not planning on making equity contributions to renewable energy projects. There are successful regional IPP models that do not include government equity stakes.
However, this means that a deeper pool of equity investors will need to be tapped into. Any equity investors new to the region or the Saudi market will focus on the level of potential equity returns and their ability to exit projects. Both have to be in keeping with international norms.
Developers may try to fund their equity requirements by raising capital from mezzanine finance providers and the equity capital markets.
Although Saudi Arabia seems determined to press forward quickly on its renewable energy program, past experience leaves room for skepticism. More details about the program will be needed before developers can bid. For example, details are still needed on any local content and local employment requirements. Such requirements were a cornerstone of the K.A.Care program, which placed great emphasis on in-country manufacturing and industrialization. They were also a feature of the Al-Jouf and Rafha solar PV IPPs. At a press conference in early February, Al-Falih said that “The terms of renewable contracts will be motivating so that the cost of generating power from these renewable sources will be the lowest in the world.”
Saudi’s renewable energy market is still in its early stages. Any imposition of local content and local employment requirements could significantly weigh on project costs and inflate electricity tariffs. Procuring authorities in Dubai and Abu Dhabi did not impose such requirements.
By Marc Norman, Richard Keenan and Helen Qian
The first phase of procurements was due to kick off with issuance of a request for qualifications on Feb. 20. A request for proposals is expected to follow to qualified bidders on April 17. The plan is to award projects in September 2017.
Phase one will consist of 400 MW of wind capacity at Midyan, in the Tabuk province, and 300 MW of solar PV at Sakaka, in the Al Jouf province. It is not yet clear whether the capacity will be split into smaller projects. All projects will be procured on an independent power producer basis.
The procurements will be led by a new unit in the energy ministry called the renewable energy development office that has been tasked to drive the deployment of renewable energy across the Kingdom. The new office will report to an oversight committee, chaired by Saudi Energy Minister and chairman of state oil company Saudi Aramco, Khalid Al-Falih. The committee will bring together heads of key stakeholders in the Saudi energy sector, including King Abdullah City for Atomic and Renewable Energy (K.A.Care), the Electricity and Cogeneration Regulatory Authority, the regulator of the electricity sector, Saudi Aramco and the Saudi Electricity Company, the national utility.
Saudi Arabia also has its eyes set on nuclear, which it classifies as renewable energy. Al-Falih said at a conference in Abu Dhabi in January that plans are being drawn up for the country’s first nuclear power stations. Two reactors with a combined capacity of 2,800 MW are currently in the front-end engineering and design stage.
These procurements are driven by the Kingdom’s new target to procure 9,500 MW of renewable energy capacity by 2023 (which includes an interim target of 3,450 MW by 2020). Al-Falih said that development of this much capacity will cost between US$30 and US$50 billion.
The ambitious plans are part of the Kingdom’s renewed effort to diversify its oil-dependent economy.
Unsustainable Oil Consumption
Saudi Arabia’s domestic consumption of oil and gas, and its rising energy demand, are not sustainable. Approximately 90 percent of Saudi Arabia’s revenue comes from oil, but the country currently burns a quarter of its total oil production. The Kingdom is among crude exporters struggling with budget deficits after oil prices languished for two years at less than US$50 a barrel.
More recently, the country has been hit with oil production cuts, a concession that it was forced to make as part of a deal with its fellow OPEC oil cartel members. In January, the International Monetary Fund cut its growth estimate for Saudi Arabia because of reduced output levels. The IMF said that the country’s GDP will expand by just 0.4 percent in 2017, down sharply from its October 2016 estimate of 2 percent. Saudi Arabia can no longer afford to allow domestic consumption to eat into its export revenues.
Meanwhile, Saudi domestic energy demand has increased at an estimated 8 percent per year for the last three years, and is set to rise further. Saudi Arabia now consumes more oil than Germany, a country with a population three times the size of Saudi Arabia and an economy nearly five times bigger. A few years ago, Al-Falih observed that, if left unchecked, domestic oil consumption would reach 8.2 million barrels of oil a day by 2030. Until fairly recently Saudi Arabia oil production averaged around 9.22 million barrels a day. A widely circulated Citigroup report in September 2012 concluded that Saudi Arabia could cease to be an oil exporter by 2030.
Subsidized Electricity
Of the three million barrels of oil burned in Saudi Arabia each day, some 700,000 barrels are used to generate electricity. This makes the Kingdom the world’s largest consumer of oil for electricity.
Like many countries in the Arabian Gulf, consumers in Saudi Arabia benefit from some of the world’s lowest electricity prices due to government subsidization. State-owned oil and gas companies supply conventional power producers with cheap oil and gas at a fraction of the market price. Further subsidies are applied to the price at which electricity is sold by state-owned utilities to consumers. The average price of electricity sold in Saudi Arabia ranges from US1.3 cents to 6.9 cents per kilowatt hour. The International Monetary Fund estimates that energy subsidies cost Saudi Arabia US$107 billion in 2015, or 13.2 percent of its gross domestic product.
Reform is clearly needed. Reducing subsidies and raising the price of energy might be the simplest way to restrain domestic consumption. However, this is a very sensitive area for any Middle Eastern government, particularly in the aftermath of the Arab Spring. Implementation of any energy price reform in Saudi Arabia is therefore likely to be very gradual.
A more viable solution to the Saudi energy crisis is diversification. The Kingdom currently produces very little renewable energy — renewable energy now represents less than 1 percent of total energy production — and there is no nuclear. Cheap conventional power has, until recently, proven to be a barrier to entry for renewable energy developers, but the cost of renewable energy has fallen dramatically in recent years.
On the solar side, Dubai’s state utility grabbed headlines in 2016 when it secured a world record-breaking tariff of US2.99 cents per kilowatt hour from a consortium of UAE-based Masdar and Saudi-based Abdul Lateef Jameel for an 800-MW solar PV project. Soon after, Abu Dhabi’s state utility secured an even lower, albeit off-peak, tariff of US2.42 cents from a consortium of Japan’s Marubeni and China’s Jinko for a slightly larger project. Solar thermal has yet to take off in the Middle East. However, Dubai issued a tender for a 200-MW tower project in January, and low pricing on this project could spur growth of the solar thermal segment.
While solar PV has dominated the headlines in recent years, dramatic price reductions have also been witnessed in the wind sector. Most notably, in 2016, Egypt’s Ministry of Electricity secured a tariff of US4.7 cents per kilowatt hour from a consortium of France’s Engie, Japan’s Toyota and Egypt’s Orascom for a 250-MW wind project. Renewable energy has, therefore, become an attractive option for Middle Eastern governments.
Relaunch
Plans to launch a renewable energy program in Saudi Arabia have been long in the making. K.A.Care was established in 2010 to oversee realization of the country’s renewable and nuclear energy ambitions. In 2012, it launched an ambitious renewable energy program. However, since the issuance of a white paper on the program’s tendering procedures in March 2013, K.A.Care’s program has remained stalled.
It has been widely reported that the K.A.Care program was stifled by bureaucratic disagreements over the scale and ownership of the program and how it should be implemented. A number of Saudi government entities have a significant say in energy policy. These include the Saudi Electricity Company and Saudi Aramco. A regime change in 2015 further complicated matters. For the last four years, the renewable energy industry has been waiting for renewed direction from the Saudi government.
This renewed direction now appears to have come. In April 2016, the influential Saudi crown prince unveiled plans, as part of a “Vision 2030” policy paper, to develop 9,500 MW of renewable energy capacity by 2023. This announcement, made against the backdrop of a major shakeup within the Saudi government, was significant. The development of 9,500 MW of capacity in six years is an ambitious target, but perhaps more realistic than the headline-grabbing targets set by K.A.Care a few years ago. The K.A.Care program contemplated the development of 41,000 MW of solar capacity by 2032. This would have required the development of more than 2,000 MW of solar power annually over a 20-year period. The new, more modest target is altogether more achievable.
Recent announcements by the Saudi government will reassure industry players that the government is serious about its renewable energy program. The entire scheme is projected to cost between US$30 and US$50 billion, with industry players estimating that the first round of 400 MW of wind and 300 MW of solar photovoltaic capacity could cost around US$700 million. Major developers, such as Abdul Latif Jameel Energy, ACWA Power and Enel SpA, have already expressed an interest in the plans, which seem to have been received with genuine optimism by industry players.
Nuclear Power
The January announcement may also have come as a surprise to those who have been skeptical about the potential for nuclear power in the Kingdom.
Ever since 2011, when K.A.Care announced its intention to develop 16 reactors by 2030, at an estimated cost of US$7 billion per plant, the development of Saudi’s nuclear energy program has been sluggish. Last year, the country’s deputy economic minister (and former K.A.Care representative), Ibrahim Babelli, cast doubt on whether Saudi Arabia would proceed with its nuclear plans. Babelli’s view was that nuclear power plants were not needed in Saudi Arabia and that solar power would be preferred.
The January announcement is more encouraging. Al-Falih indicated that there would be “significant investment” in the nuclear sector, and revealed that Riyadh is in the early stages of feasibility and design studies for its first two commercial nuclear reactors, which will total 2,800 MW.
The Saudi government has signed cooperation agreements with countries able to build nuclear reactors, such as France, Russia and South Korea, and discussions with China are ongoing. However, Al-Fahli did not provide cost predictions or a timeline for the planned investments. It remains to be seen whether nuclear power will be a viable option for the Kingdom’s energy mix.
Financing Options
New sources of liquidity will need to be tapped to finance the ambitious build out of new renewable energy projects. Developers of conventional IPP facilities have relied on conventional banks and Shari’ah-compliant financial institutions for financing as well as on direct loans and guarantees from export credit agencies. With the funding constraints imposed by Basel III and other international banking regulations, the pool of liquidity from traditional sources is not as deep as it was a few years ago.
These liquidity constraints have forced developers in the Middle East to turn to other markets, such as China. The most recent power project financing to close in Dubai, for the Hassyan conventional IPP, included significant contributions from Chinese banks. Marubeni and its Chinese partner, Jinko Solar, may seek to finance the Sweihan solar IPP at least, in part, with debt sourced from Chinese financial institutions. Recent moves by China to restrict outbound foreign investment in an effort to shore up the renminbi and maintain foreign exchange reserves raise questions about whether Chinese banks will be able to continue to support IPP developers in the region. Many Middle Eastern countries are now running large budget deficits at the same time that the planned infrastructure spend of these governments is increasing.
This begs the question of where the funding will come from to pay for the new infrastructure. Last year, Saudi Arabia raised US$10 billion from a consortium of global banks. This was the first debt issuance by the Saudi government in 25 years. A few months later, the Saudi government raised a further US$17.5 billion through a sovereign bond offering, the largest-ever bond sale by an emerging-market nation. Further debt issuances and bond offerings by Saudi Arabia and other Arab Gulf countries are expected in 2017.
Most international banks and financial institutions have limits on their exposure to Gulf Cooperation Council member states (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman). These limits are usually reviewed each year, but are not made public. Over the last few years, a number of international banks are rumored to have neared or reached their limits for certain countries in the GCC and elsewhere in the Middle East. Falling credit ratings of some of these countries and the fact that the governments themselves are now competing for the same potential credit pool are not helping.
The hope is the debt capital markets will develop enough to replace the dwindling available bank debt. A project bond market has been slow to develop in the Middle East, in part because cheap long-term debt was available from banks. Bond investors are increasingly looking at emerging markets for yield. Recent sovereign and corporate bond issuances in Saudi Arabia, the UAE, Oman, Kuwait and Egypt demonstrate significant appetite for debt capital markets in the region.
Since refinancing of Abu Dhabi’s Shuweihat 2 independent water and power project with a project bond in 2012, a number of project financings in the Middle East have been structured to allow for refinancing using project bonds. Apart from a few notable exceptions in the oil and gas sector, project bonds have not been used so far to fund greenfield projects in the Middle East.
The recent and rapid growth of the “green bond” market could prove to be a game changer. Green bonds are bonds issued at the level of the parent corporation whose proceeds are invested in projects that contribute to an environmentally friendly energy transition, including renewable energy. Green bond issuances worldwide are expected to exceed US$100 billion in 2017, up from US$11 billion in 2013. Green bonds offer the same returns for investors as conventional bonds or Islamic bonds known as sukuks. They have been used to finance greenfield renewable energy projects in Europe and Asia. Projects in the Middle East are often financed on the back of strong sovereign balance sheets, and risk allocation embodied in Middle Eastern projects, particularly in the power and water sector, compares favorably to other regions. Green bonds may provide some of the additional liquidity needed for the Saudi renewable energy sector.
One of the features of the Saudi conventional IPP program has been the significant equity stake that the Saudi government-owned entity takes in each project company. However, if the recent procurement by the Saudi Electricity Company for the 20-MW Al-Jouf and 80-MW Rafha solar PV IPPs are anything to go by, the Saudi government is not planning on making equity contributions to renewable energy projects. There are successful regional IPP models that do not include government equity stakes.
However, this means that a deeper pool of equity investors will need to be tapped into. Any equity investors new to the region or the Saudi market will focus on the level of potential equity returns and their ability to exit projects. Both have to be in keeping with international norms.
Developers may try to fund their equity requirements by raising capital from mezzanine finance providers and the equity capital markets.
Although Saudi Arabia seems determined to press forward quickly on its renewable energy program, past experience leaves room for skepticism. More details about the program will be needed before developers can bid. For example, details are still needed on any local content and local employment requirements. Such requirements were a cornerstone of the K.A.Care program, which placed great emphasis on in-country manufacturing and industrialization. They were also a feature of the Al-Jouf and Rafha solar PV IPPs. At a press conference in early February, Al-Falih said that “The terms of renewable contracts will be motivating so that the cost of generating power from these renewable sources will be the lowest in the world.”
Saudi’s renewable energy market is still in its early stages. Any imposition of local content and local employment requirements could significantly weigh on project costs and inflate electricity tariffs. Procuring authorities in Dubai and Abu Dhabi did not impose such requirements.
By Marc Norman, Richard Keenan and Helen Qian