May 17, 2018
Unprecedented global attention is being paid to the memorandum of understanding to build the world’s largest solar power project in Saudi Arabia at a cost of $200 billion. An agreement to build the giant 200-gigawatt project was signed by Crown Prince Muhammad Bin Salman and SoftBank Group Corporation in New York in March.
According to Quartz, an American economic website, the project is the biggest sign of Saudi Arabia’s practical moves to wean its economy off oil. It is certainly an important event and a historic point in the history of the Kingdom of Saudi Arabia. Many observers believe that the project is no less significant than the discovery of oil in Saudi Arabia.
I believe that the multifaceted impacts of the “new Saudi oil” will be reflected in two key economic aspects: reduced domestic consumption of crude and the development of a source of energy parallel to the existing one.
The 66th annual report of British Petroleum (BP) shows Saudi Arabia ranked fifth in the world in oil consumption in 2016, with an average consumption of 3.91 million barrels per day. “Wasteful energy consumption is estimated at $80 billion, a figure sufficient to build 5,000 schools,” said Khalid Al-Falih, Minister of Energy, Industry and Mineral Resources. “The per capita consumption of gasoline in Saudi Arabia is five times higher than the global average. It should be noted that one of the objectives of the financial balance program is to gradually reduce energy subsidies and to link energy prices to the reference price during the period from 2017 to 2020,” he added.
Hence, the government has established the Saudi Energy Efficiency Center in order to rationalize the domestic consumption of energy. The solar project will undoubtedly contribute to the reduction of the domestic consumption of energy and increase oil export capacity. Consequently, the government is expected to save $40 billion of burned petroleum liquids annually and use it instead in electricity production and export. In addition, the project will relieve the huge financial burden imposed on the government due to the use of conventionally produced electricity.
Moreover, the giant project capable of generating 200 gigawatts of energy, i.e. half of the world’s 400 gigawatts of combined solar energy, will go beyond meeting domestic demands to possibly allow the export of the surplus solar energy. Hence, Saudi Arabia will have another source of energy that is equal to oil in significance. Saudi Arabia locally owns all supplies for the project including high quality copper, silica and metal wires, which will be provided free of charge for the project. The abundance of solar energy in the Kingdom also adds value to the project. Therefore, Saudi Arabia may not only become a solar energy exporting country, it could actually seize control of the field itself.
A simple calculation as per the published research in the field shows that the net profit of exporting one gigawatt, i.e. one million kilowatts, is $149,328,000. Assumptions of this calculation are as follows:
– export rate is one gigawatt of energy per hour or 8,640 gigawatts per year,
– only 85 percent of the total annual production capacity of the project has been calculated in order to leave some margin for maintenance periods and expected adverse weather conditions,
– only $0.02 per kilowatt is the calculated profitability after taking into consideration the costs of production and delivery of energy to clients.
Finally, I believe that this giant project will definitely change the global renewable energy industry. It will contribute to laying the foundations for the post-oil chapter in Saudi Arabia. The balance of power will undoubtedly change, as will Saudi Arabia’s position on the global economic map.