Saudi Arabia has received offers to supply solar electricity for the cheapest prices ever recorded, marking the start of a $50 billion program to diversify the oil producer’s domestic energy supplies away from fossil fuels.
The energy ministry said Abu Dhabi’s Masdar and Electricite de France bid to supply power from a 300-megawatt photovoltaic plant for as little as 6.69736 halalas a kilowatt hour, or 1.79 cents, according to a webcast of the bid-opening ceremony on Tuesday in Riyadh.
If awarded, that would beat the previous record for a solar project in Abu Dhabi for 2.42 cents a kilowatt-hour.
Saudi Arabia and its neighbours are among Middle Eastern oil producers looking to renewables to feed growing domestic consumption that’s soaking up crude they’d rather export to generate income.
While the offers submitted are remarkably low, the actual cost of power coming from the projects may be inflated by terms within the contracts that aren’t yet published, according to Bloomberg New Energy Finance in Zurich.
“There is great pressure in the Middle East to come up with an impressive headline number, and these are becoming increasingly divorced from the reality of payments,” said Jenny Chase, chief solar analyst for BNEF in Zurich.
The Middle East, rich in oil and natural gas, is trailing most other regions in developing renewables such as solar and wind. Governments from the United Arab Emirates to Iran and Saudi Arabia have spent the past two years sketching out incentive programs and regulatory changes needed to jump-start their clean-energy industries, which remain a fraction of the scale built up in places like Japan and Germany where energy is scarce.
Saudi Arabia’s price may reflect a “base rate” paid at periods of peak demand or a price that applies only for part of the project’s life, Chase said. It also could include a payment to the winning developer, land grants or other incentives to get the solar industry started in Saudi Arabia, she said.
“I don’t think this is possible as an all-in price of electricity from a 2019 PV project, particularly given the rising cost of debt in Saudi Arabia,” Chase said.
Even so, the announcement is a milestone in Saudi Arabia’s nascent solar program. The country that gets less than 1 percent of its power from renewables currently plans to develop 30 solar and wind projects over the next 10 years.
Officials at the ministry’s Renewable Energy Project Development Office will review all the bids presented before awarding a power-purchase contract, according to the webcast. It plans to make a final decision on who will build the solar plant at Sakaka in the country’s north in January, according to an emailed statement from the office.
The plant will be the first awarded under the renewables program, which targets 9,500 megawatts of electricity generation capacity using solar and wind by 2030. The project is set to start producing power by June 2019, according to the bid.
Saudi power-plant developer ACWA Power made the second-lowest bid at 8.7815 halalas per kilowatt-hour, and a group led by Marubeni Corp. made the third-lowest bid. Masdar, officially named Abu Dhabi Future Energy Co, and EDF are already partners in an 800-megawatt project in Dubai.
Prices for solar projects in the Middle East have set successive records with first Dubai and then Abu Dhabi coming in with all-time low power pricing. A combination of improving and less costly technology, free land earmarked for the plants, connections to the national power grid and favourable financing have helped cut the costs.
The large size of the projects being offered has also played a key role, as developers have been able to bid lower prices for electricity because of anticipated economies of scale.
Saudi Arabia’s renewable energy program is part of a broader project to wean the economy from its reliance on oil exports. The government is seeking to build new industries such as petrochemicals, manufacturing and tourism. State crude giant Saudi Arabian Oil Co, known as Saudi Aramco, is preparing to sell a stake of about 5 percent in an initial public offering that Crown Prince Mohammed bin Salman has said could value the company at about $2 trillion and provide cash to help diversify the economy.
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