By Ahmed S. Nada
The plan will set new benchmarks in competitiveness, commercial attractiveness and execution.
When the Kingdom of Saudi Arabia’s Renewable Energy Project Development Office (REPDO) released its request for qualification (RFQ) for 700 megawatts (MW) of solar and wind energy generation assets last week, there was a collective scramble by the renewable energy industry to examine its contents.
This was, after all, the much-anticipated launch of the kingdom’s planned 9.5-gigawatt (GW) renewable energy program, one of the largest opportunities available to the industry today.
On the day that the RFQ was released, His Excellency Khalid A. Al Falih, Saudi Arabia’s Minister of Energy, Industry and Mineral Resources, reiterated his goal to make the program “the most attractive, competitive, and well-executed” of its kind in the world.
What’s more, is that his comments were backed by an RFQ that is clearly designed to ensure that only the industry’s most financially and technologically credible players make it to the next stage in the procurement process.
For those of us in the renewable energy business who have consistently engaged with numerous stakeholders in the kingdom over the past few years, this was a welcome assurance from the highest levels of government.
It was also apparent that Saudi Arabia, with the support of its advisors, is making a concerted effort to avoid the pitfalls that other fast-emerging markets have had to endure when rapidly ramping up their renewable energy portfolios.
For instance, by putting in place stringent pre-qualification criteria, the kingdom is, in effect, avoiding the risk associated with inadvertently including inexperienced, unqualified bidders in the procurement process.
Critically, there are indications that the later stages of the process will mandate that bidders source their technology from bankable, top-tier suppliers that have the financial strength to stand behind their performance guarantees and product warranties.
At a time when the stability of a number of photovoltaic (PV) module manufacturers is being called into question, this will, once again, lower risks while boosting the financial credibility of the assets being added to the programme.
There is other evidence that the kingdom is effectively managing risk, the size of the tender being the most apparent one. While REPDO could just as easily have tendered larger projects, it has prudently chosen project sizes that allow for important learnings to be carried forward through the remaining phases of the programme, while also sufficiently benefiting from the economies of scale.
It has also underpinned the programme’s success by funneling it through a single department — REPDO is an office of the Saudi Ministry of Energy, Industry and Mineral Resources — rather than the previous approach of giving numerous stakeholders the task of executing.
It is clear that the tender for 300MW–700MW of solar PV and 400MW of wind is just the beginning, with immediate plans to rapidly scale the kingdom’s renewable energy portfolio to just over one-third of the 9.5GW target.
Our hope is that, in order to supplement the focus on utility-scale power generation, Saudi Arabia will also take a closer look at tapping into the potential for large commercial and industrial (C&I) solar applications. An evolutionary step towards Saudi Arabia’s renewable energy goals would be the implementation of ‘wheeling’ policies that will allow independent power producers that own renewable energy assets to supply clean electricity to their customers using the state-owned grid.
Hypothetically speaking, in such a scenario a privately-owned solar power plant could sign a commercial Power Purchase Agreement (PPA) with a petrochemical processing facility or a large dairy farm located 100 kilometres away. The solar power plant will supply electricity to the national grid, offsetting the conventionally generated energy consumed by the petrochemical facility or farm, while the grid operator benefits financially from a wheeling fee.
If structured well, such a program could provide the incentive needed to remove energy subsidies for certain industries, while allowing them to benefit from the new economic realities of solar electricity.
Mature renewable markets that have successfully initiated their own energy transitions will testify to the fact that a multi-pronged approach is needed to deliver on targets and to do so cost-effectively; in a majority of instances, a multi-pronged strategy includes utility-scale, small-scale residential, and C&I-focused programs.
It is now evident that Saudi Arabia has a credible renewable energy program that is designed to ensure that the country builds up a reliable, cost-competitive portfolio of world-class power generation assets. It has achieved this at its own pace, undeterred by the naysayers and speculators, and there is no doubt in my mind that its success will be underpinned by a determination to achieve its well-defined goals, but also to set new benchmarks in terms of competitiveness, commercial attractiveness and execution.
Ahmed S. Nada,Vice President and Region Executive for First Solar in the Middle East
I would like to commend your suggestion of renewable wheeling in Saudi Power System, which is a challenging idea. Do you consider sharing spinning reserve of Saudi Electricity Company? If yes, what is the price you will pay? what are other operation conditions and constrains? Do you have main outlines of sound business model. I think this is a new concept needs deep study. Thanks