The world’s largest oil producing nation is embarking on a major renewables development project that should ultimately see close to 10GW of capacity created over the next 8 years.
The Saudi Ministry of Energy has launched round of tender requests covering two new projects – a 400MW wind farm and a 300MW solar PV plant, with companies being given until 20th March to submit proposals.
Energy Minister Khalid al-Falih said: “This marks the starting point of a long and sustained program of renewable energy deployment in Saudi Arabia that will not only diversify our power mix but also catalyse economic development and support long-term prosperity.”
Al-Falih first announced the renewables program in January, when he explained that the aim was to have 9.5GW worth of new capacity up and running by 2023, all from renewable sources (primarily wind and solar). He said: “We are committed to expanding renewables, we are committed to turning Saudi Arabia into a solar powerhouse.”
He expects the total cost for this push to be between $30 billion and $50 billion and firms all over the world are preparing to compete for a slice of this particular pie.
Move Away from Oil
The move towards renewables marks a important turn for the gulf nation, and is part of a broader push away from reliance and oil, both in terms of energy supply and in terms of the country’s economy.
Currently, the Saudi economy is incredibly tied up in oil revenues associated with state-owned oil giant Saudi Aramco. Aramco is, by most accounts, the largest oil company in the world, and a major part of the push to divest away from oil and diversify the country’s economy is a planned IPO of the company.
The idea is to sell off shares in Aramco and to use the money made to create a sovereign wealth fund, reducing the nation’s economic reliance on the health of the oil market.
Explaining the motivation behind the IPO to Bloomberg in April last year, Deputy Crown Prince Mohammad Bin Salman said: “IPOing Aramco and transferring its shares to PIF [public investment fund] will technically make investments the source of Saudi government revenue, not oil. What is left now is to diversify investments. So within 20 years, we will be an economy or state that doesn’t depend mainly on oil.”
Questions have been raised over the actual value of the company though, with the Saudi’s officially given figure of $2 trillion seen as a fairly optimistic overestimate. Depending on who you ask, and what the calculations are based on (e.g. asset value, potential to generate cash, etc), the actual value of the company is more likely to be anywhere between $400 billion and $1 trillion.
Nonetheless, the sale is important and will be pivotal in terms of what it represents as a move away from reliance on oil.
Vision 2030
All of the above forms part of Saudi Arabia’s grander modernising project – Vision 2030 – first described in detail by Bin Salman last year.
A large part of Vision 2030 is focused on the economic emancipation from oil, which includes the IPO and further development of renewables as well as nuclear capacity.
It also includes several desired structural and social changes, including working to reduce unemployment, increase the number of women in work, and rework the country’s education system.
