Saudi Arabia’s slow pace on renewables a risk to oil exports

Saudi Arabia's rapidly growing oil consumption will be a risk to its vital oil exports if the country does not get going on its wish list to build renewable energy capacity, according to a senior Saudi Electricity Company (SEC) executive.

Saudi Arabia has big ambitions to build solar and wind electricity capacity but has made little progress in setting up some of the basic infrastructure needed to make a start on such plans.

Last year, it hugely scaled back its target for renewable energy, seeking to hit an initial goal of 3 gigawatts of capacity by 2020.

“Peak load demand is growing very rapidly, 7 to 9 per cent a year, and last year reached about 10.2 per cent to 62.5GW,” said Hamed Al Saggaf, the executive director in charge of independent power projects and renewable energy at SEC.

“In the last 15 years we have trebled our demand and in the next 15 it could double again, to 122GW.

"If we continue to use fossil fuels to reach this demand, our export of oil will be at risk since the rate of consumption of oil in Saudi Arabia is 4 per cent greater than our rate of [oil] production increase," he said on Tuesday on the sidelines of this week's World Future Energy Summit in Abu Dhabi.

On Monday, Saudi Arabia’s energy minister, Khalid Al Falih, reiterated the country’s goal to reach 9.5GW of electricity from renewables by 2023, requiring investment of some US$50 billion.

But so far there is negligible renewables capacity in the kingdom and some basic first steps are yet to be taken, including fuel subsidy reform for household customers, which was expected last month.

“The most important step is the removal of subsidies from residential, which makes up 50 per cent [of total subsidy cost],” said Mr Al Saggaf.

In last month’s budget, the Saudi government announced a “citizen’s account” which will shift residential subsidies from electricity and fuel prices to a direct payment to help ease the transition to more market-based energy prices.

The government is also setting up a “balancing fund” to help close the gap between the price of fossil fuels for generating electricity and market-based renewables prices, which would not be competitive at market rates.

These steps are expected to be in tow by March to start ramping up the tender process for solar projects, which the government targets imply would have to be at an enormous rate over the next three years.

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