As the country with the largest proven oil reserves in the world, it is perhaps surprising that Saudi Arabia was the first Gulf country to consider the potential for alternative energy. The decision in the 1960s to explore power generation outside the traditional fossil fuel-fired technology, while tentative, marked a major change for the Middle East and established Saudi Arabia as a regional pioneer.

…The kingdom is witnessing sustained growth [in] demand for power and desalinated water

Statment from Saudi Arabia government

But in the years since then, the kingdom’s renewable energy plans have remained small-scale and fundamentally research-oriented. Similarly, despite showing keen interest in developing atomic energy, Saudi Arabia has yet to build a nuclear power plant.

But this now looks set to change. In April of this year, a royal decree was passed establishing King Abdullah City for Atomic and Renewable Energy to lead research into and the development of alternative energy in the kingdom. Work related to nuclear power previously carried out at the King Abdulaziz City for Sciences and Technology (KACST) will be transferred to the new city.

Saudi Arabia’s long-term power strategy

King Abdullah City for Atomic and Renewable Energy will be headquartered in Riyadh and will have the authority to establish subordinate branches, offices and research centres elsewhere in the country. It will focus on both renewable and nuclear energy, but will particularly concentrate on realising the development of the country’s first atomic power plant.

[Concentrated solar power] has potential because it can be done on a larger scale. Wind is definitely high potential

Abdulhadi al-Mureeh, National Solar Systems

In June, Finnish consultancy Poyry was appointed as adviser to the city. As such, it will prepare a strategy for nuclear and renewable energy projects in Saudi Arabia, including short- and long-term priorities. Poyry will also look at the decommissioning of nuclear power plants and the handling of radioactive waste.

According to a statement from the government, the city “will oversee activities related to the use of atomic energy [which will be particularly important as] the kingdom is witnessing sustained growth leading to continuous demand for power and desalinated water due to high population growth and subsidised prices of water and power.”

Saudi Arabia needs to significantly increase its power generation capacity to keep pace with long-term demand forecasts. Peak electricity usage currently stands at about 45,000MW, but within the next 10 years, the kingdom’s needs are expected to double. Nuclear power is, therefore, seen as an increasingly viable solution.

Nuclear power in Saudi Arabia

The smallest nuclear energy projects have a capacity of between 1,000MW and 1,500MW, depending on the chosen technology, and so even a single-reactor plant would help Saudi Arabia in its bid to boost capacity.

Generating power from nuclear energy would also allow Saudi Arabia to conserve even more hydrocarbon resources for export. However, the long lead time of up to 10 years associated with building a nuclear power plant means the government must move quickly.

In 2008, the US pledged its support for Riyadh’s nuclear power programme, signing a cooperation agreement. A long lapse followed before the King Abdullah City for Atomic and Renewable Energy was unveiled earlier in 2010.

The creation of the research city is expected to provide a much-needed shot in the arm for Saudi Arabia’s nuclear power plans. The same is true of the kingdom’s renewable energy ambitions. Despite being an early entrant into this field, Riyadh has since fallen behind the rest of the region.

Saudi Arabia made its first foray into the alternative energy sector in the early 1960s with a solar project at Medina airport. Several small-scale university research projects were subsequently initiated including a facility at KACST in 1977.

The kingdom also attempted to draw on the experiences of other countries pursuing renewable energy projects and signed several agreements to access information on emerging technologies in the sector. The country inked agreements with Germany and the US to promote the use of solar power. For example, Solar Energy Research American-Saudi (Soleras) was formed in 1975 and a joint project Hydrogen from Solar Energy (Hysolar) was launched in 1986 with the regional government of Baden Wurttemberg in Germany.

The Dubai-based Gulf Research Centre estimates that from the mid-1970s to the mid-1990s at least $200m was invested in joint international research and development programmes for renewable energy in Saudi Arabia.

The kingdom’s early interest in small-scale renewable energy projects was primarily driven by the technology’s suitability for remote locations with low-energy requirements. Projects in these areas are typically off-grid schemes that can meet the energy needs of the immediate area.

Solar sector in Saudi Arabia

Under the Soleras project, according to local investment bank NCB Capital, two villages located 45 kilometres north of Riyadh were supplied electricity by what at the time was one of the largest photovoltaic solar projects in the world, with a total capacity of 350kW.

Such projects are valuable for research purposes, but the kingdom has yet to attempt a solar power project on a large-scale. The regional leader in solar power is the UAE, where the Abu Dhabi Future Energy Company, also known as Masdar, last year commissioned a 10MW plant and this year awarded a contract for the construction of a 100MW facility.

Projects in the kingdom are nonetheless growing in size.

In May 2010, Saudi Arabia inaugurated its largest solar power project: Two 1MW roof-mounted photovoltaic solar facilities on the north and south laboratories of King Abdullah University of Science and Technology (Kaust). The project comprises more than 9,300 solar modules and covers 11,577 square metres of roof space. The unit, designed by Germany’s Conergy, is expected to produce 3,332 megawatt hours of energy a year.

Local renewables company National Solar Systems (NSS) installed the facility on the new university. The facility took less than six months to install, although delays in the roof construction meant the project took more than a year to complete.

“There were several objectives behind the implementation of the 2MW project at Kaust,” says Abdulhadi al-Mureeh, managing director of NSS. “Firstly, the university had an advanced Renewable Energy Research Centre, which dictates the need to have a solar energy installation. Secondly, Kaust was after the prestigious LEED [Leadership in Energy and Environmental Design] certification for their buildings, which requires a certain amount of energy to be from clean sources. Finally, it is a test case for the country being the first project of its kind.”

A feed-in tariff incentive scheme … will be effective in drawing in the solar energy companies

Source at King Abdullah Economic City for Atomic and Renewable Energy

The desire to attain LEED certification is an important factor driving the current interest in building-integrated renewable energy projects in the kingdom and it is likely to become even more influential in the future. To achieve platinum rating, a building must generate a significant proportion of its own energy needs.

Several other photovoltaic solar projects are also being developed in Saudi Arabia. In June 2009, national oil major Saudi Aramco signed a deal with Japanese refiner and solar equipment maker Showa Shell to undertake solar projects in the country.

Aramco said it would assess the feasibility of solar energy and has since unveiled plans to install a 10MW solar scheme on the roof of a car park at its company headquarters in Dhahran. Aramco is currently looking at technical specifications and has launched the prequalification process for developers to install the facility.

Another photovoltaic solar project has been proposed for the King Abdullah Petroleum Study Centre in Riyadh. A tender was launched for a 3.5MW project, but plans to build a larger project have since emerged and the project is likely to be retendered.

The $12bn Princess Noura bint Abdulrahman University for Girls, currently under construction, will also use solar technologies. In January, the UK’s Millennium Energy Industries was awarded a contract to design and build a solar district hot-water system for the university, which will have a student population of about 40,000.

The solar plant will comprise 35,000 square metres of roof-mounted solar collectors, with a 17MW hot-water capacity and is due to be commissioned at the end of this year.

Saudi Arabia’s renewable strategy

In January 2010, plans were also unveiled to build a number of desalination projects using solar nano-technology across the country. Research and development work will be carried out by Kaust and KACST, with the first plant expected to be a 7 million-gallon-a-day facility to be built at Al-Khafji.

The nano-technology announcement coincided with Riyadh’s agreeing to join the International Renewable Energy Agency (Irena), suggesting a willingness to pursue renewable energy to a greater extent than it has so far achieved.

In addition to solar and nuclear power, the King Abdullah City for Atomic and Renewable Energy is also likely to study the potential for wind farms and thermal solar power in the kingdom.

“[Concentrated solar power] has potential because it can be done on a larger scale” says Al-Mureeh. “Wind is definitely high potential, but only in certain parts of the country.”

If Saudi Arabia is going to move from being a country with a handful of small photovoltaic solar projects to a major renewables player with large projects using thermal solar and wind power, it will need to commit itself to a clean energy strategy.

Should Saudi Arabia decide to become a major renewables player, it could take one of two routes. It could tender a host of renewables projects with the intention of negotiating power purchase agreements (PPA) at a level above those for traditional power projects.

Alternatively, the government could introduce a feed-in tariff. Feed-in tariffs can be a cost-effective option provided they are flexible and transparent.

Consumer cost of renewal energy

Saudi Arabia is already considering one such flexible system in which the government invites feed-in tariff bids from developers. The lowest offer is set for three years, at the end of which the process is repeated, ensuring that tariffs are set at the right level and that they come down over the longer term. The proposal was submitted to the council of ministers earlier this year.

“King Abdullah Economic City for Atomic and Renewable Energy is now in charge and we expect an announcement on a feed-in tariff incentive scheme within the next few months” says one source. “It will be effective in drawing in the solar-energy companies. If you have an incentive scheme and it has become economical – even marginally – it could drive a huge solar-development industry in the country.”

The greatest barrier to renewable energy remains the government’s intervention in the cost of electricity to consumers. According to Al-Mureeh, renewable energy “is not driven by economics … because conventional power is so heavily subsidised in Saudi Arabia”.

Research by the Electricity and Cogeneration Regulatory Authority (Ecra) found that the average cost of a kilowatt hour (kWh) unit of electricity in the kingdom is $0.564. This covers the costs of generation, transmission and distribution. The average price to consumers is $0.462 a kWh. Therefore, the government covers a shortfall of $0.10 for every kWh in the country. This is in addition to the government’s subsidy for fuel to fire the power-generation projects.

Balancing budgets for renewal energy projects in Saudi Arabia

Committing to pay further subsidies for renewable energy projects, which will be costlier than those for traditional power projects, needs to be carefully measured by the government. It must weigh up its commitment to develop renewable energy against its obligation to balance its budgets. If power subsidies were to be phased out, the state would have greater funds available to support renewable energy projects, but this is likely to be hugely unpopular. Previous attempts in the region to remove subsidies have met with social unrest.

Ultimately, Saudi Arabia’s next moves will be watched closely. It needs to continue to push forward with its nuclear and renewable energy plans if the alternative energy sector is to make a meaningful contribution towards meeting growing demand for power. The coming months will be critical.