Picture: ISTOCK
Picture: ISTOCK

Dubai — Saudi Arabia received offers to supply solar electricity for the cheapest prices ever recorded, marking the start of a $50bn programme to diversify the oil producer’s domestic energy supplies away from fossil fuels.

The energy ministry said Abu Dhabi’s Masdar and Électricité de France bid to supply power from a 300MW photo-voltaic (PV) plant for as little as 6.69736 halalas per kilowatt-hour, or 1.79c, according to a webcast of the bid-opening ceremony on Tuesday in Riyadh. If awarded, it would beat the previous record for a solar project in Abu Dhabi for 2.42c per kilowatt-hour.

Saudi Arabia and its neighbours are among Middle Eastern oil producers looking to renewables to feed growing domestic consumption that’s soaking up crude they’d rather export to generate income. While the offers submitted are remarkably low, the actual cost of power coming from the projects may be inflated by terms within the contracts that aren’t yet published, according to Bloomberg New Energy Finance in Zurich.

"There is great pressure in the Middle East to come up with an impressive headline number, and these are becoming increasingly divorced from the reality of payments," said Jenny Chase, chief solar analyst for BNEF in Zurich.

Solar laggards

The Middle East, rich in oil and natural gas, is trailing most other regions in developing renewables such as solar and wind. Governments from the United Arab Emirates to Iran and Saudi Arabia have spent the past two years sketching out incentive programmes and regulatory changes needed to jump-start their clean energy industries, which remain a fraction of the scale built up in places such as Japan and Germany, where energy is scarce.

Saudi Arabia’s price may reflect a "base rate" paid at periods of peak demand or a price that applies only for part of the project’s life, Chase said. It could also include a payment to the winning developer, land grants or other incentives to get the solar industry started in Saudi Arabia, she said.

"I don’t think this is possible as an all-in price of electricity from a 2019 PV project, particularly given the rising cost of debt in Saudi Arabia," Chase said.

Even so, the announcement is a milestone in Saudi Arabia’s nascent solar programme. The country that gets less than 1% of its power from renewables currently plans to develop 30 solar and wind projects over the next 10 years.

Officials at the ministry’s Renewable Energy Project Development Office will review all the bids presented before awarding a power-purchase contract, according to the webcast. It plans to make a final decision on who will build the solar plant at Sakakah in the country’s north in January, according to an e-mailed statement from the office.

The plant will be the first awarded under the renewables programme, which targets 9,500MW of electricity generation capacity using solar and wind by 2030. The project is set to start producing power by June 2019, according to the bid.

Saudi power-plant developer ACWA Power made the second-lowest bid at 8.7815 halalas/kWh, and a group led by Marubeni Corporation made the third-lowest bid. Masdar, officially named Abu Dhabi Future Energy, and EDF are already partners in an 800MW project in Dubai.

Prices for solar projects in the Middle East have set successive records with first Dubai then Abu Dhabi coming in with all-time low power-pricing. A combination of improving and less costly technology, free land earmarked for the plants, connections to the national power grid and favourable financing have helped cut the costs.

The large size of the projects being offered has also played a key role, as developers have been able to bid lower prices for electricity because of anticipated economies of scale.

Saudi Arabia’s renewable energy programme is part of a broader project to wean the economy from its reliance on oil exports. The government is looking to build new industries, such as petrochemicals, manufacturing and tourism. State crude giant Saudi Arabian Oil, known as Saudi Aramco, is preparing to sell a stake of about 5% in an initial public offering that Crown Prince Mohammed bin Salman has said could value the company at about $2-trillion and provide cash to help diversify the economy.


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