A two-hour drive from Riyadh, the capital of Saudi Arabia, rows of solar panels stretch to the horizon like waves in an ocean. Despite having almost unlimited oil reserves, the kingdom is embracing solar and wind energy, partly in an effort to maintain a leading position in the country's vitally important but rapidly changing energy industry.
Looking at more than 3.3 million panels, covering 14 square miles of desert, Faisal Al Omari, chief executive of a recently completed solar project called Sudair, said he would tell his children and grandchildren how to contribute to Saudi's energy transition. Saudi. “I'm very proud to be a part of this,” he said.
Although oil production continues to play a crucial role in the Saudi economy, the kingdom is betting on other forms of energy. Sudair, which can light up 185,000 homes, is the first of what could be many giant projects aimed at increasing the production of renewable energy sources such as solar and wind to around 50 percent by 2030. Currently, renewable energy represents a negligible amount of Saudi electricity. generation.
Analysts say that ambitious goal is unlikely to be achieved. “If they get 30 percent, I would be happy because that would be a good sign,” said Karim Elgendy, a climate analyst at the Middle East Institute, a research organization in Washington.
Still, the kingdom plans to build solar parks at a rapid pace.
“The volumes you see here are not seen anywhere else, only in China,” said Marco Arcelli, chief executive of Acwa Power, the Saudi developer of Sudair and a growing force in the international electricity and water industries.
Not only do the Saudis have the money to expand quickly, they are also free of the lengthy permitting processes that inhibit such projects in the West. “They have a lot of investment capital and can move quickly and pull the trigger on project development,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies, a research institution in Washington.
Even Saudi Aramco, the crown jewel of the Saudi economy and producer of almost all of its oil, sees a changing energy landscape.
To gain a foothold in the solar sector, Aramco has acquired a 30 percent stake in Sudair, which cost $920 million, the first step in a planned solar portfolio of 40 gigawatts (more than Britain's average power demand) intended to satisfy most of the government's ambitions. for renewable energies.
The company plans to create a large underground greenhouse gas storage business. It is also funding efforts to make so-called e-fuels for cars from carbon dioxide and hydrogen, notably at a refinery in Bilbao, Spain, owned by Repsol, the Spanish energy company.
Aramco computer scientists are also training artificial intelligence models, using nearly 90 years of oil field data, to increase the efficiency of drilling and extraction, thereby reducing carbon dioxide emissions.
“Environmental management has always been part of our modus operandi,” said Ashraf Al Ghazzawi, executive vice president of strategy and corporate development at Aramco.
Still, pressure to accelerate the energy transition may increase in Saudi Arabia and elsewhere in the Middle East and North Africa, a region that has young, environmentally conscious populations and that could be especially vulnerable to climate change.
“Countries in the MENA region, including Saudi Arabia, will face the impacts of climate change, extreme temperatures and water scarcity,” said Shady Khalil, senior campaigner at Greenpeace Middle East and North Africa, an environmental group.
While insisting that oil has a long future, Saudi Aramco, the world's largest oil company, also appears to be trying to signal that it is not stuck in a past of pollution but is more like a Silicon Valley company focused on the innovation.
The company recently invited a group of journalists to a presentation during which young Saudis described green practices such as using drones instead of heavy fleets of trucks when searching for oil or restoring mangroves along tropical coasts to absorb carbon dioxide. carbon.
Over the past two years, Saudi Arabia has ordered Aramco to sharply reduce oil production to nine million barrels per day, in line with agreements by the group known as OPEC Plus. In January, Aramco announced that the Saudi government had ordered it to stop an effort to increase the amount of oil it could produce.
In Aramco's view, these decisions do not herald a decline in fossil fuel consumption. Executives insist the company will continue to invest in oil while significantly increasing natural gas production.
These fuels will continue to “play a very important role” until 2050 and beyond, Al Ghazzawi said, arguing that both renewables and oil and gas would be needed to meet growing demand. “We have always felt that there has to be a parallel and simultaneous investment in new and conventional energy sources,” he said.
Executives said Aramco was well positioned for decades to come. The combination of some of the world's largest fields and careful management, they said, means it can produce oil at a very low cost: $3.19 a barrel on average. The company is also betting that it can make its oil more attractive by reducing the emissions caused by its production, an attribute that is not rewarded by markets now but could eventually command a premium.
“I think ultimately the market will value low-carbon products and prices will become even more cost-effective,” said Ahmed Al-Khowaiter, executive vice president of technology and innovation at Aramco.
It's easy to see why Aramco and the Saudi government would be afraid of damaging a business that dates back to 1938. Aramco remains one of the most profitable companies in the world: During the first quarter of this year, it earned $27.3 billion and said it would pay $31.1 billion. million dollars in dividends, mainly to its main owner, the Saudi government.
However, it follows that if Aramco reduces its investment in oil, it will be able to pay even larger dividends to the government that could be used in a wide range of efforts to diversify the economy.
Aramco says it will allocate about 10 percent of its investments to low-carbon initiatives, but these measures have not been reflected much in financial results. “I just don't think that moves the needle,” said Neil Beveridge, an analyst at research firm Bernstein. “Oil production actually accounts for most of the profits.”
Some of Aramco's initiatives will likely take years to come to fruition, but conditions already appear ripe for solar energy. Saudi Arabia has a scorching sun and vast expanses of land that can be populated with solar panels. Add to that a close relationship with China, which supplies much of the renewable equipment, including Sudair's panels, “and they're building at a very low price,” said Nishant Kumar, power and renewables analyst at Rystad Energy. a research firm. .
Sudair, for example, will sell its power at around 1.2 cents per kilowatt-hour, a near-record low at the time it was agreed.
“They know very well that the economy can only be efficient if they can continue to take advantage of the decreasing cost of solar energy,” said Paddy Padmanathan, former CEO of Acwa Power and now a renewable energy entrepreneur.
The kingdom is betting that abundant, low-cost electricity could attract energy-intensive industries such as steel. Acwa is helping to build what will likely be the world's largest plant to produce green hydrogen, with a view to exporting to Europe and other higher-cost locations.
The only problem, analysts say, is that Saudi Arabia is not moving as fast as it could. Kumar estimates he can achieve only about half of the ambitious 2030 target for solar installations. The wind is lagging even further. One reason: The government has not created the conditions that could attract competing companies that could boost production, analysts say.
Acwa, for example, will be heavily relied upon to meet ambitious renewable energy targets. “We believe it is difficult to ignore operational and financial risks,” Citigroup analysts wrote recently. The company is publicly traded, but 44 percent belongs to the Public Investment Fund, the key financing vehicle for Crown Prince Mohammed bin Salman's initiatives.
Still, renewable energy is already creating jobs. Acwa, for example, has 3,840 employees, of which about 1,900 are in Saudi Arabia. The opportunity to work in cleaner energy companies attracts younger Saudis.
Acwa set an example by installing large arrays of solar panels at a plant it recently built in the Persian Gulf to convert seawater into drinking water. Desalination requires enormous amounts of electricity; Solar energy reduces the need to access the electrical grid and consequently reduces emissions.
The developers of two adjacent plants do the same. “The use of this technology is very important,” said Nawaf Al-Osimy, technical director of the plant known as Jazlah. “The more it is used, the more sustainable it is.”
