By Fitch Solutions
- Tenders held by REPDO will drive growth in solar and wind power in Saudi Arabia, creating a route for foreign renewables investment in the market.
- Solar power projects will spearhead growth in the market’s non-hydropower renewables sector between 2021 and 2030, driven in large part by targets set out in the kingdom’s Saudi Vision 2030 plan and Renewable Energy Program 2030.
- However, the Ministry of Energy’s expectation for excessively low tariffs will pose a threat to the kingdom’s solar power growth prospects over the coming years.
Saudi Arabia’s Third REPDO Auction To Drive Medium-Term Solar Capacity Growth
We expect tenders held by Saudi Arabia’s Renewable Energy Project Development Office (REPDO) will drive growth in the country’s renewables sector over the next decade, creating significant opportunities for power sector investors to participate in the market. In late 2020, REPDO extended its bid submission deadline for the third round of solar PV capacity auctions amounting to 1.2 gigawatts (GW). The deadline for submissions on the 200MW of category A projects – which will consist of the 120 megawatts (MW) Wadi Al Dawaser Solar PV project and the 80MW Layla Solar PV project – was extended from 16 December 2020 to 9 March 2021. Meanwhile, the deadline for 1GW of category B projects – consisting of the 700MW Ar Rass Solar PV project and 300MW Saad Solar PV project – was extended from 9 December 2020 to 2 March 2021.
In the first two rounds of tenders – which were held in 2017 and 2019 respectively – REPDO awarded contracts for the development of a combined 2.4GW of solar and wind power capacity over eight projects. Despite slow progress on these projects, the success in conducting these rounds of tenders informs our relatively bullish outlook on the upcoming third round.
|Project Name||Size (MW)||Category||NREP Round||Bidding Deadline||Completion|
|Layla Solar PV Independent Power Project, Layla||80||A||3||09 March 2021||na|
|Wadi Al Dawaser Solar PV Independent Power Project, Wadi Al Dawaser||120||A||3||09 March 2021||na|
|Ar Rass (Al-Rass) Solar PV Independent Power Project, Rar Rass||700||B||3||02 March 2021||na|
|Saad Solar PV Independent Power Project, Riyadh||300||B||3||02 March 2021||na|
|Rabigh solar PV IPP, Mecca Province||300||B||2||18 November 2019||31 December 2022|
|Al-Faisaliah solar PV IPP – Phase 1, Makkah Solar Complex, Mecca Province||600||B||2||18 November 2019||31 December 2022|
|Qurayyat solar PV IPP, Qurayyat, Al-Jawf Province||200||B||2||18 November 2019||31 December 2022|
|Rafha solar PV IPP, Rafha, Northern Borders province||45||A||2||03 December 2019||31 December 2022|
|Medina solar PV IPP, Medina||50||A||2||03 December 2019||31 December 2022|
|Jeddah solar PV IPP, Mecca Province||300||B||2||18 November 2019||31 December 2022|
|Dumat Al Jandal Wind Farm, Al-Jouf||415.8||na||1||17 April 2018||31 March 2022|
|Sakaka Solar Plant, Al Jowf||300||na||1||01 October 2017||30 November 2019|
Source: REDPO, Fitch Solutions Key Projects Database
Latest Forecasts Remain Conservatively Bullish On Saudi Solar
We forecast solar power projects will spearhead growth in Saudi Arabia’s non-hydropower renewables sector between 2021 and 2030, driven in large part by the kingdom’s Saudi Vision 2030 and Renewable Energy Program 2030 – which aims to reach 41GW of solar capacity by 2032. While we view this target as far too ambitious given the country’s high local content requirements, limited industry expertise, large electricity subsidies, and frequency of delays on utility-scale renewables projects; a number of factors inform our view that the kingdom holds some of the highest potential for solar power growth in the region. Most notably, we highlight Saudi Arabia’s robust solar irradiation levels and vast unoccupied swathes of land fit for utility-scale PV and CSP projects. A growing domestic solar component manufacturing capability, rising government support and falling solar equipment costs also inform our view. We forecast the country will grow its solar capacity from a low base estimates at less than 400MW in 2020 to more than 4GW by 2030, as highlighted in the chart below.
However, Low Tariffs On Offer Pose A Downside Risk
Despite its ambitious solar capacity targets, the Ministry of Energy’s expectation for excessively low tariffs will pose a serious threat to the country’s solar power growth prospects over the coming years. Highlighting this risk, in October 2020 Indian EPC contractor Sterling & Wilson dropped out of a 1.1GW project after the firm was not able to come to an agreement and sign a PPA with the saudi government utility, National Grid SA (a subsidiary of the Saudi Electricity Company). With record-low tariffs set in other markets across the region – such as the UAE’s USD0.0135/kWh record set in early 2021 by the 2GW Al Dhafra Solar PV project – the Saudi government has voiced intentions to achieve comparable tariffs on its solar projects. However, despite the country’s vast potential, we note that a number of factors may deter investors from engaging in such low tariff PPAs, and pose a risk to the kingdom’s solar capacity growth over the coming years.
In addition to the risks presented to investors by Saudi Arabia’s weak energy policy framework, high local content requirements and the dominance of large incumbent state-owned enterprises (SOEs), the kingdom also has relatively limited experience in the utility-scale solar sector. These factors – coupled with its relatively weak track record of timely completion on large-scale solar projects – may deter investors from participating in the market, especially with the government’s demand for low tariffs eroding potential profits. With more than 90% of capacity in its project pipeline in pre-construction phases (as highlighted in the chart below), we note that these factors present a downside risk to our solar capacity growth forecast for the country over the coming decade.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.
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