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Economic agenda stirs GCC energy transition

14 November 2024

Commentary
Jennifer Aguinaldo
Energy & technology editor

The 2021 headline-grabbing 600MW Shuaibah solar photovoltaic (PV) project in Saudi Arabia is about to start operations, according to the majority owner, Saudi-listed Acwa Power.

In 2020, a team led by Acwa Power offered a levelised cost of electricity (LCOE) of $cents1.04 a kilowatt-hour ($c/kWh) for the project, which broke the world record in terms of unsubsidised solar PV production cost. 

It bested a record previously held by the 1,500MW Al-Dhafra solar PV independent power project in Abu Dhabi, which is being developed at an LCOE of $c1.32/kWh.

Four years later, Saudi Arabia and the UAE have renewable energy installed capacities of about 4.1GW and 5.5GW, respectively.

The pipeline of under-construction and planned solar and wind projects in both countries has a total combined capacity exceeding 100GW, in line with their energy diversification targets. Saudi Arabia plans to tentatively procure up to 20GW annually until 2030 while the UAE intends to procure 1.5GW a year until at least the middle of the next decade.

Riyadh and Abu Dhabi's renewable energy capacity procurement strategies complement - though some analysts prefer to say are at odds with -  clear plans to build additional nuclear energy capacity in the UAE and massive gas-fired capacity in Saudi Arabia.

The total planned generation capacity appears out of proportion even when considering the population growth projected for the two countries; their industrial expansion programmes; and their determination to become top global artificial intelligence (AI) players, which will require a significant increase in their data centre capacity.

The electricity generation capacity buildout by Riyadh and Abu Dhabi can be better understood within the context of their overall energy transition strategies, however.

Blessed with cheap fossil fuels underground and plenty of sunshine – and to some extent wind – above ground, the two Gulf states want to play both sides during the energy transition to ensure their economies continue to prosper post-peak oil.

By overbuilding clean energy capacity, they can decarbonise their domestic economies, including the energy-intensive oil exploration and production and downstream industries, allowing them to be the 'last barrel standing'. This will also enable them to attract green downstream investments catering to export markets, and to export surplus green energy in the form of electrons, molecules like hydrogen and liquids such as ammonia.

Furthermore, AI applications are envisaged to help orchestrate energy efficiency and value creation from small businesses to large, state-backed enterprises.

To execute these plans, sovereign funds and entities in both states have started to invest billions of dollars in renewable energy and other energy transition programmes and are encouraging foreign partners to do the same.

For exports, they are capitalising mainly on existing relationships with their oil, gas and utilities clients in Asia and Europe, which have ambitious net-zero targets.

The main potential stumbling block would be a snag in the supply of key raw materials that are required for renewable energy projects, such as nickel, copper and lithium, vital components in solar and wind turbines and batteries, and which neither country produces nor mines in a commercial quantity. 

However, government-level talks with the largest suppliers of these materials are understood to be under way in the hope of easing any potential supply chain bottlenecks.

 

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Jennifer Aguinaldo

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