March 6, 2023
On November 30th ACWA Power, a local utilities company, signed an agreement with Water and Electricity Holding Company (Badeel) to build the world’s largest single-site solar-power plant in Al Shuaibah, Mecca province. The solar-power facility is expected to start operations by end‑2025, with a generation capacity of 2,060 MW. We expect investment in clean energy projects to rise, assisted by high oil prices in 2023‑24, as Saudi Arabia seeks to add 15 GW of renewable energy capacity in 2022‑23, supporting the government’s climate objectives and economic diversification strategy.
The project will be developed and operated by a 50:50 joint venture established by ACWA and Badeel. The two companies are also developing the Sudair 1.5‑GW solar facility, and both companies are backed by the Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), which holds a 50% and 100% stake in ACWA and Badeel respectively. The government has directed the PIF to provide financial support for initiatives related to the state’s Vision 2030 strategy, which entails developing and deploying clean-energy technologies. The PIF also has a target to develop 70% of the kingdom’s renewable energy capacity by 2030, which, coupled with the fund’s mandate to invest at least US$40bn annually in the domestic economy, are key factors behind PIF’s new solar project. Moreover, the clean-energy project feeds into the PIF’s commitment to achieve carbon-neutrality by 2050.
Rather than solely an environmental solution, renewable energy is viewed by the Saudi government foremost as a prestigious business opportunity as the country seeks to becoming the world’s lowest‑cost producer of renewable energy—Saudi Arabia already boasts among the world’s lowest solar-power tariffs. Moreover, Saudi Arabia is looking to free up oil and gas for export while international energy prices remain high. Although the financial imperative is the main driving force behind the rapid renewables development, reputational ends are also a factor in the government’s increasing attention to clean energy, particularly as the government has adopted a net‑zero carbon emissions target for 2060.
This solar-power project forms part of a broader government renewable energy programme in which solar power plays a leading role, generating 40 GW by 2030 (about two‑thirds of renewable capacity). We expect that Saudi Arabia will exploit current oil windfalls to accelerate its clean energy transition in 2023‑27 as the government aims to invest a total of SR380bn (US$101bn) in a bid to raise renewable energy to 50% of power‑generating capacity (about 58.7 GW) by 2030. However, despite some progress, the government is unlikely to meet the overoptimistic goals for 2030.
Source: Economist Intelligence Unit (EIU)
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