Two hours’ drive from Riyadh, Saudi Arabia, rows of solar panels stretch to the horizon like ocean waves. Despite its nearly inexhaustible oil reserves, Saudi Arabia is aggressively pursuing solar and wind power, in part to stay ahead of the energy industry, which is vital to the kingdom but is changing fast.
Faisal Al Omari, CEO of the recently completed solar project Sudair, looked out at the more than 3.3 million solar panels that cover 14 square miles of desert and said he would tell his children and grandchildren how to contribute to Saudi Arabia’s energy transition. “I’m really proud to be a part of this,” he said.
While oil production remains important in the Saudi economy, the kingdom is focusing on other forms of energy. Sudair, which will light up 185,000 homes, is the first of many large-scale projects to increase output from renewable energy sources such as solar and wind to around 50% by 2030. Currently, renewable energy accounts for a negligible share of Saudi electricity generation.
Analysts say achieving that ambitious goal is unlikely. “If they can achieve the 30 percent reduction, I’ll be happy because it’s a good sign,” said Karim Elgendy, a climate analyst at the Middle East Institute, a Washington research group.
Despite this, Saudi Arabia still plans to quickly build solar power plants.
“The production you see here is something you only see in China,” said Marco Arcelli, chief executive of Acwa Power, Sudair’s Saudi developer and a growing force in the international power and water industry.
Not only does Saudi Arabia have the money to expand quickly, it also doesn’t have to go through the lengthy approval process that hampers such projects in Western countries. “They have a lot of investment capital and can move quickly to get projects started,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies, a Washington-based research institute.
even Saudi AramcoSaudi Arabia is the crown jewel of the Saudi economy and the source of nearly all of the kingdom’s oil, but now its energy landscape is changing.
In an effort to gain a foothold in the solar sector, Saudi Aramco spent $920 million to acquire a 30% stake in Sudair, the first step in the Saudi government’s planned 40-gigawatt solar power project portfolio, which would generate more electricity than the UK’s average electricity demand and is designed to meet most of the government’s renewable energy requirements.
The company plans to build a large underground greenhouse gas storage business. It is also funding plans to use carbon dioxide and hydrogen to produce fuels for vehicles, specifically at a refinery in Bilbao, Spain, owned by Spanish energy company Repsol.
Saudi Aramco’s computer scientists are also using nearly 90 years of oil field data to train artificial intelligence models to improve the efficiency of drilling and production, thereby reducing carbon dioxide emissions.
“Environmental management has always been part of the way we operate,” said Ashraf Al Ghazzawi, Saudi Aramco’s executive vice president for strategy and corporate development.
Still, pressure may grow on Saudi Arabia and other parts of the Middle East and North Africa to accelerate energy transitions, as those regions have young, environmentally conscious populations and may be particularly vulnerable to the impacts of climate change.
“Countries in the Middle East and North Africa region, including Saudi Arabia, will face the impacts of climate change, extreme temperatures and water shortages,” said Shadi Khalil, chief campaigner for the Middle East and North Africa at environmental group Greenpeace.
Even as it insists that oil has a long future, Aramco, the world’s largest oil company, appears to be trying to show that it is not stuck in its polluting past but is more like a Silicon Valley company focused on innovation.
Recently, the company invited a group of journalists to a presentation where young Saudis described green practices such as using drones instead of convoys of clunky trucks when prospecting for oil, or restoring mangroves along tropical coastlines to absorb carbon dioxide.
Over the past two years, Saudi Arabia has directed Aramco to drastically cut oil production to 9 million barrels per day to comply with the OPEC+ agreement. Saudi Aramco announced The Saudi government has asked it to halt efforts to increase oil production.
From Aramco’s perspective, the decisions do not portend a decline in fossil fuel consumption, with executives insisting the company will continue to invest in oil while significantly increasing gas production.
Mr Al Ghazzawi said these fuels will continue to “play a very important role” until 2050 and beyond, arguing that both renewable energy and oil and gas will be necessary to meet growing demand. “We have always believed that parallel and simultaneous investments must be made in both new and traditional energy sources,” he said.
Executives say Aramco is well-positioned for decades to come. They say its ownership of some of the world’s largest oil fields, combined with careful management, means the company can produce oil at very low cost — $3.19 a barrel on average. Aramco is also betting that its oil will be more attractive by reducing the emissions from producing it — a feature that has not been favored by the market so far but could eventually command a premium.
“I think the market will eventually value low-carbon products and pricing will become more profitable,” said Ahmed Al-Khowaiter, executive vice president of technology and innovation at Saudi Aramco.
It’s easy to understand why Saudi Aramco and the Saudi government are worried about the damage Established in 1938Saudi Aramco continues to be one of the world’s most profitable companies: In the first quarter of this year, it earned $27.3 billion and said it would pay out $31.1 billion in dividends, most of which would go to its main owner, the Saudi government.
So if Saudi Aramco cuts its investment in oil, it will be able to pay higher dividends to the government, which can be used to finance efforts to diversify the economy.
Saudi Aramco has said it will put about 10% of its investments into low-carbon projects, but the moves haven’t shown up much in its financial results. “I don’t think it’s going to make a difference,” said Neil Beveridge, an analyst at research firm Bernstein. “Oil production is where the majority of the company’s profits come from.”
Some of Aramco’s moves may take years to bear fruit, but conditions appear ripe for solar. Saudi Arabia has plenty of sunshine and land to install solar panels. Saudi Arabia has close ties with China, which supplies a lot of renewable energy equipment, including Sudair solar panels, “and they build it very cheaply,” said Nishant Kumar, a renewable energy and power analyst at research firm Rystad Energy.
For example, Sudair will sell electricity for about 1.2 cents per kilowatt-hour, which was near a record low when the deal was reached.
“They know very well that the economics can only be efficient if they continue to take advantage of the falling cost of solar energy,” said Paddy Padmanathan, former CEO of Acwa Power and current renewable energy entrepreneur.
Saudi Arabia believes abundant, low-cost electricity can attract energy-intensive industries such as steel. Acwa is helping build what could be the world’s largest green hydrogen production plant, with an eye on exporting to Europe and other higher-cost locations.
The only problem, analysts say, is that Saudi Arabia isn’t moving fast enough. Kumar estimates the kingdom may only reach about half of its ambitious solar installation target for 2030. Wind power is lagging even further behind. One reason, analysts say, is that the government hasn’t created the conditions to attract competing companies to boost production.
Acwa, for example, will be a key player in meeting ambitious renewable energy targets. “We think it’s hard to ignore the operational and financial risks,” Citigroup analysts wrote recently. The company is listed on the stock exchange, but 44% is owned by the Public Investment Fund, the main financing vehicle for Crown Prince Mohammed bin Salman’s plans.
Still, renewable energy has created jobs. Acwa, for example, has 3,840 employees, about 1,900 of whom are in Saudi Arabia. The opportunity to work in the clean energy industry is attractive to young Saudis.
Acwa is setting an example by installing a large number of solar panels on a plant it recently built in the Persian Gulf to convert seawater into drinking water. Desalination requires a lot of electricity; solar energy reduces the need to connect to the grid, thereby reducing emissions.
Developers of two neighboring plants are following suit. “It’s very important to use this technology,” said Nawaf Al-Osimy, chief technology officer at the Jazlah plant. “The more you use it, the more sustainable it is.”
