Saudi Arabia is going big again!
The oil-rich nation has signed a Memorandum of Understanding (MoU) with Japanese conglomerate SoftBank Group Corp. to build the world’s biggest solar power-generation plant in the desert kingdom.
The project will develop in phases, culminating in 2030, by which time the power generation capacity of the plant is expected to reach the target optimum of 200 GW at a total estimated cost of $200 billion.
Well, the two main ingredients needed to see this ambitious plan to its successful conclusion are plenty of money and a whole lot of sunshine, both of which are aplenty in this oil-rich desert kingdom.
His Royal Highness Mohammed bin Salman bin Abdulaziz Al Saud – the crown prince and deputy prime minister of Saudi Arabia and chairman of the Public Investment Fund (PIF) – and SoftBank founder Masayoshi Son jointly announced the massive undertaking in a Tuesday ceremony in New York.
“The kingdom has great sunshine, great size of available land and great engineers, great labor, but most importantly, the best and greatest vision,” Son told reporters at a press briefing.
Just last year, SoftBank had announced the Vision Fund, a tech-focused joint fund of $93 billion between the Tokyo-based company and the Kingdom of Saudi Arabia.
While $93 billion is not even half the projected cost of the mammoth project, it is definitely expected to take care of a good chunk of the costs.
“It’s a huge step in human history,” said the Saudi crown prince.”It’s bold, risky and we hope we succeed doing that”
If all goes according to plan, the project – which will include panel and equipment manufacturing, power generation and every other thing solar in between- is expected to triple Saudi Arabia’s power generation output, which was at 77 GW in 2016, going by the Bloomberg New Energy Finance (BNEF) estimates.
It is also expected to create no less than 100,000 jobs and ensure savings worth $40 billion in energy costs.
Som said that the project has the potential to increase the country’s gross domestic product by $12 billion, without giving any timelines.
“SoftBank seeks investment and Saudi needs energy, so it may make sense to sort the financing out in a large block and then separately hammer out the phases and the technical details,” said Jenny Chase, head of solar analysis at BNEF. “It is worth noting that many of these memorandums of understanding do not result in anything happening.”
According to Son, the first phase of the project will be launched this year itself at an estimated cost of $5 billion, which should see a 7.2-gigawatt output as early as 2019.
In spite of all the oil wealth at Saudi Arabia’s disposal and the long hours of uninterrupted sunshine the desert country is blessed with, its plans of launching a solar project on a scale as massive as this had never come to fruition; mainly because of the price tag and logistical challenges associated with building a solar farm of this magnitude, not to mention the inhospitable terrain.
However, the Tuesday MoU between the kingdom and the Japanese behemoth comes at the most opportune time when costs are down; thanks to China’s large-scale production of cost-effective solar panels, which has seen solar power become the fastest growing energy source, according to International Energy Agency (IEA).
The IEA, which tracks global energy trends on behalf of corporations, and even governments, says that solar projects are at par with – and in some cases even cheaper than – coal plants and new natural gas.
According to Son, the plan is to build battery systems on a massive scale to store the power generated from the panels, which should ultimately cover large areas across the length and breadth of the country. Although the storage plan is no novel idea, it has never before happened on such a gargantuan scale.
The panels will be imported from lowest bidding producers during the initial stages of the project, or at least until Saudi Arabia is able to set up its own production units to supply the panels at acceptable costs, which could take between two and three years.
Neither Son nor the Saudi prince was very forthcoming on how they planned to fund the latter stages of the project, especially when the joint Vision Fund of $93 billion ran out. All Som volunteered was that the revenue earned from the completed phases would fund the continuity of the project.
“The project will fund its own expansion,” said the SoftBank founder. “New investment comes from the profit of the earlier project we don’t need to secure total $200 billion in one day. It will be step by step.”
Without a doubt, the purpose of the huge diversification drive being experienced in Saudi Arabia, in recent times, is to reduce the kingdom’s dependence on oil revenue – the pace has picked up after Prince Mohammed was declared heir to the throne in a major reshuffle in June last year.
“Saudi Arabia is clearly preparing for a post-fossil fuel dependent economy in terms of domestic energy consumption, and this huge bet on renewables would free up a lot of domestic output of oil for exports, while probably saving domestic gas resources as well,” said Peter Kiernan the lead energy analyst at Singapore’s Economist Intelligence Unit.
“Up until now, progress in building solar capacity in the kingdom has been very slow, but this deal might give it the kick start it needs. But 200 GW by 2030 though, that’s another question,” Kiernan doubted.
Not only is Saudi Arabia investing heavily in energy and technological endeavors, it is exploring other diversification avenues as well, including tourism.
As recently as August last year, the crown prince announced an ambitious coastal project to develop a world-class resort between the cities of Amlaj and al-Jawh, covering an area of some 30,000 square km across a lagoon of 50 virgin islands in the Red Sea.
“The new project aims to promote international tourism by opening the Red Sea gate to the world in order to identify its treasures and embark on new adventures that will attract tourists locally, regionally and internationally. The project will be a center for everything related to recreation, health and relaxation and an integrated model for a healthy and vital society,” said the statement,” the Crown Prince had said in his statement, at the time.
Here again, Prince Mohamed had predicted the creation of 35,000 jobs and a boost to the kingdom’s GDP by $4 billion.
Saudi Arabia is also looking to invest $80 billion in at least 16 nuclear reactor projects over a period of 25 years.
BNEF records say that the demand for power in this crude-oil-powerhouse of a nation has been increasing at a rate of 9 percent a year since the turn of the century.