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Saudi Arabia Weighs Annual Budget to Boost Clean Energy

Saudi Arabia is weighing whether the state should allocate an annual budget for clean energy instead of setting above-market rates for developments, the nation’s only environmental research group said.

Faisal Bin Turki AlFaisal, president of the Global Strategic Studies Institute, said a feed-in tariff guaranteeing a premium for solar and wind power probably wouldn’t work in Saudi Arabia’s closed economy, where energy costs paid by consumers are subsidized.

“You should take the price of oil, calculate how much is being lost in domestic use and add it to the budget and then allocate an annual budget for renewables,” said AlFaisal, 37, who is the son of Saudi Arabia’s former U.S. and U.K. ambassador. “It’s something we’ve been pushing for very strongly, and which people I talk to say is being discussed. I hope decisions will start being made soon.”

Saudi Arabia in May said it’s looking for $109 billion in investment to create a solar power industry that generates a third of the nation’s electricity by 2032, helping reduce domestic consumption of oil that it would prefer to export.

Oil sold for domestic power generation and transportation needs currently fetches about $5 a barrel, below the almost $100 a barrel it can be sold for on international markets, AlFaisal said in an interview in London. He estimated domestic oil consumption will rise to 8 million barrels a day by 2045 from 2 million to 2.5 million barrels currently without change.

Solar Speculation

AlFaisal’s comments are among the first from within the kingdom to sketch out how ministers may manage its shift toward using more renewable energy. The King Abdullah City for Atomic and Renewable Energy, a government-backed agency established to oversee the country’s renewable energy strategy, said on May 11 it plans to start a tender targeting mainly solar and wind power projects early in 2013.

Currently, Saudi Arabia has only a few small-scale solar projects. It gets all of its energy from oil and natural gas produced by its own fields and none from renewables, coal, nuclear or hydropower, according to BP Plc (BP/) statistics. Energy demand in the country is growing at about 6 percent a year, according to Bloomberg New Energy Finance.

“There is a lot of buzz around solar,” AlFaisal said. “I’ve been contacted by so many solar companies looking at coming to Saudi, so there is a lot of speculation that something is going to happen soon -- I’d say within this year.”

Renewables Budget

An annual budget for renewables would differ from the feed- in tariffs that Germany, Spain, Italy, France and Britain offered to spur solar and wind power in their nations.

Germany was first to introduce the feed-in tariff in 2004 and became the world’s biggest market for solar because of the subsidy, which is paid for by consumers through their power bills. In recent years it’s been ratcheting back the level of support after a boom in installations. A budget would mean the state would pay directly for solar projects, requesting bids from companies to build projects.

Initially projects will likely be “big, massive” utility scale solar projects rather than the smaller rooftop units, AlFaisal said. The country is aiming to install about 25 gigawatts of solar thermal generation by 2032 and 16 gigawatts of solar photovoltaic facilities. It’s planning 9 gigawatts of wind, 3 gigawatts of biomass and 1 gigawatt of geothermal power.

Companies including Canadian Solar Inc. (CSIQ), Centrotherm Photovoltaics AG (CTN) and Showa Shell Sekiyu K.K., a Japanese refiner, have expressed an interest in or are planning to work in the region.

Deals Planned

HSBC Holdings Plc (HSBA), Europe’s largest bank, expects to see opportunities in Saudi Arabia start to come through within the coming months, Jaume Pujol, managing director and head of European renewables for HSBC, said by phone in London.

“We would expect that in the next 12 to 18 months our activity in the country will increase,” Pujol said. “It’s quite a promising market. All the regulators have to do now is set out the frame so that investors can be attracted to the market and start investing in the region.”

The country will likely follow a South African model for implementing renewable energy generation, Pujol said, running competitive bids for the authorization of new megawatts based on lowest tariff and the local level of involvement.

Water desalination, the process of turning seawater into fresh water, is a “big, big issue” for Saudi Arabia and an area where solar can thrive, said AlFaisal. The nation’s Saline Water Conversion Company plans to convert all desalination plants to solar by 2050, representing an investment of about $26.7 billion, according to ERAS Consulting Ltd. in London.

To contact the reporter on this story: Louise Downing in London at ldowning4@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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