Already a world leader in supplying energy, Saudi Arabia is turning its attention towards solar power. Its location puts the country in an enviable position. Florian Neuhof reports
A Saudi Arabia has long looked below the ground to provide for its power needs through oil and natural gas, but now, as the kingdom's population continues to expand, attention is finally turning to the sky and the potential of the sun.
In terms of hydrocarbon energy supplies, however, the kingdom is the envy of the world because of its vast oil and gas deposits. What is often forgotten is the kingdom's vast potential in solar power.
Saudi Arabia is in what has been termed the Sun Belt, a broad expanse along the equator. Solar radiation is strongest in the Sun Belt, and the returns from solar plans there would be greatest, according to a study by the European Photovoltaic Industry Association and the management consultancy AT Kearney.
Adding to the appeal of solar power is the timing of peak demand for electricity. Whereas in Europe and the US consumption is highest during winter, the baking heat of the Arabian summer has the opposite effect, with air conditioning in Gulf countries accounting for half of all electricity use. This fits in perfectly with solar power's effective hours.
"The peak in Saudi Arabia is in middle of the summer, in the middle of the day," says José Alberich, a partner at AT Kearney.
So far, neither the kingdom nor any of its neighbours have capitalised on this. The majority of installed solar-power generating capacity is deployed outside the Sun Belt, where environmental concerns have prompted a move away from fossil fuels.
This neglect is costing the country dearly. Soaring demand for electricity prompted a vast power generation expansion programme, which is increasingly consuming oil, the country's main source of revenue. More than any of its neighbours, Saudi Arabia is using crude oil to fire its electricity plants. Ziyad Al Shiha, the executive director of Saudi Aramco Power Systems, told reporters last May that 800,000 barrels of oil equivalent was being burnt in turbines daily and that consumption was growing fast.
It is estimated that if the proportion of crude in the power generation mix is not reduced substantially, electricity consumption will be unaffordable by 2030. Natural gas, which is much cheaper, is in short supply in the region, and costly efforts to increase its production will still leave Saudi Arabia failing to catch up with rising demand for electricity. The government has realised the scale of the problem, and the wheels of change have been set in motion.
In Riyadh, the King Abdullah City for Atomic and Renewable Energy (Kacare), a quasi-ministry responsible for alternative-energy policy, is working on a renewables strategy, and the large-scale deployment of solar power is in the pipeline. Analysts at Bloomberg New Energy Finance believe that an initial target could be as much as 5 gigawatts, and the strategy could be formally launched this quarter.
"Saudi has recognised the value of renewables and has recognised the value of nuclear power," says Paddy Padmanathan, the chief executive of Acwa Power, the largest Saudi private power company. Mr Padmanathan expects heavy involvement by the private sector in the country's solar future and says he will be bidding for independent solar power projects as early as this year.
Used to the enabling effect of petrodollars, Saudi decision-makers are not afraid to think big. Ali Al Naimi, the oil minister, said last June that Saudi Arabia was planning to equal the energy created by its crude exports with solar energy, declaring that by 2020 the country would have the potential to satisfy the world's electricity needs four times over.
More realistically, Kacare estimates that of the 120 gigawatts of power generating capacity installed by 2030, about 35 gigawatts would be solar power.
One low-hanging fruit is the 1.1 gigawatt of electricity flowing from temporary, diesel-powered generators that the state utility, Saudi Electricity Company (SEC), is using to fill the gap between supply and demand.
Power generation in Saudi Arabia, and in the Middle East in general, relies on generous subsidies on the fossil feedstock, which helps to keep the cost of electricity production from thermal plants below that of solar-power plants. But prices of solar photovoltaic panels halved last year because of immense oversupply, and diesel generators are highly cost-ineffective.
"If you compare a medium-sized fuel oil or diesel plant, we are already practically at parity," Mr Alberich says.
Diesel generators and solar plants might even be deployed in combination, with solar arrays producing electricity during the day and the generators filling in after sunset.
Entering the solar-power age requires an immense initial outlay: replacing diesel generators alone would cost about US$2 billion (Dh7.34bn), an expense mitigated by the fact that the arrays feed off the sun and do not need other fuel to power themselves.
While high oil prices led to a healthy budget surplus last year, a situation that is likely to repeat itself this year, questions remain over whether the government will increase spending after already committing to a $385bn infrastructure programme designed to forestall social unrest in the kingdom. But there are signs that the solar programme is taking a back seat. Kacare was initially going to announce the 5 megawatt plan in the fourth quarter of last year, says one industry insider.
Another stumbling block could be the lack of an effective framework to incorporate renewables into the power mix.
"A common echo from industry and utilities is: the policy framework is still not there," says Abhay Bhargava, an energy and power systems expert at the business consultancy Frost & Sullivan.
Saudi Arabia is restructuring its electricity sector, and the SEC will be split into a generating and procurement agency in the near future, a measure that Mr Bhargava thinks will help the adoption of solar power.
Another step taken by countries where a significant part of electricity is generated by renewables is the implementation of feed-in tariffs, which compensates for the extra cost of generating alternative energy. The creation of a grid that can cope with the intermittent nature of solar power is also vital, and utilities in the region are still some way off operating so-called smart grids.
"A framework becomes important not at generation level but at grid-connection level," Mr Bhargava says. "Without a supporting framework, 5 gigawatts would be wishful thinking, but it looks like they are making the right moves to get it done."