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Saudi Arabia’s solar ambition

March 28, 2018 | Expert Insights

The world’s biggest solar power firm is reportedly going to be built in Saudi Arabia. The Middle Eastern nation has signed a Memorandum of Understanding (MoU) with SoftBank Group Corp. The agreement is to build a solar power development that is worth $200 billion.

When it is completed, it will be far larger than any other project of its kind.

Background

The National Geographic has defined solar energy as “the technology used to harness the sun's energy and make it useable. As of 2011, the technology produced less than one tenth of one percent of global energy demand.”

As the cost of solar electricity has fallen, the number of grid-connected solar PV systems has grown into the millions and utility-scale solar power stations with hundreds of megawatts are being built. Solar PV is rapidly becoming an inexpensive, low-carbon technology to harness renewable energy from the Sun. The current largest photovoltaic power station in the world is the 850 MW Longyangxia Dam Solar Park, in Qinghai, China.

Currently, the world’s largest solar plant is in India in a region called Kamuthi in Tamil Nadu. It has the capacity of 646 megawatts. The plant will have 2.5 million solar panels covering an area of 10.36 square kilometers. It cost $679 million to build and is capable of powering an equivalent of 150,000 homes.

The Kingdom of Saudi Arabia is one of the most powerful players of the Arab world. It is an oil dependent nation with the second-largest proven petroleum reserves and the largest exporter of petroleum. It is the largest economy in the Arab world. The Al Saud dynasty holds a monopoly of political power. Saudi Arabia was established in 1932 by King Abd-al-Aziz and he has been succeeded by various sons. Its nominal GDP for 2017 was $646 billion.

 

Analysis

Saudi Arabia and SoftBank Corp has signed an MoU to build the world’s biggest solar power firm. The MoU is worth $200 billion and when completed will be significantly larger than any other solar power development project across the world.

Saudi Arabia’s Crown Prince Mohammed bin Salman said, “It’s a huge step in human history. It’s bold, risky and we hope we succeed doing that.” The step towards solar power will also diversify Saudi Arabia’s current dependence on crude. It is part of the Crown Prince’s larger agenda for the nation moving forward. In 2016, he detailed Saudi Vision 2030 that introduced his agenda of modernizing the nation. It was also a plan to reduce Saudi Arabia's dependence on oil, diversify its economy, and develop public service sectors such as health, education, infrastructure, recreation, and tourism.

SoftBank Chief Executive Masayoshi Son spoke about the project and revealed that by 2030 this firm will have the capacity to produce up to 200 gigawatts (GW). “These two visions have come together to create clean, sustainable, low-cost and productive renewable energy. The kingdom has great sunshine, great size of available land and great engineers, great labor, but most importantly, the best and greatest vision,” Son told reporters at a briefing.

“SoftBank seeks investment and Saudi needs energy, so it may make sense to sort the financing out in a large block and then separately hammer out the phases and the technical details,” said Jenny Chase, head of solar analysis at BNEF. “It is worth noting that many of these memorandums of understanding do not result in anything happening. ”

“Saudi Arabia is clearly preparing for a post-fossil fuel dependent economy in terms of domestic energy consumption, and this huge bet on renewables would free up a lot of domestic output of oil for exports, while probably saving domestic gas resources as well,” said Peter Kiernan, lead energy analyst at the Economist Intelligence Unit in Singapore. He added, “Up until now, progress in building solar capacity in the kingdom has been very slow, but this deal might give it the kick start it needs. But 200 GW by 2030 though, that’s another question.”

Saudi Arabia generates most of its electricity from oil-fired power plants.

Assessment

Our assessment is that the Crown Prince of Saudi Arabia is aware of the highly volatile oil market and is preparing the nation to be weened away from its complete dependence in crude oil. We believe that Saudi Arabia is trying to diversify its economy and this project is part of the nation’s larger goals for its own economic future.