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Riyadh rides power projects surge

7 September 2023

This package on Saudi Arabia's power sector also includes: 

> Israeli talks decisive for Saudi nuclear programme
> Jinko outprices other bidders for Tubarjal solar contract
> Synergy wins 7.2GW Saudi advisory role
> Team submits lowest Hinakiyah solar bid
> Saudi offtaker holds Taiba and Qassim bidder meetings
> Saudi Arabia confirms Shuaibah financial close

 

Recent months have been busier than usual for the Saudi power generation sector. Riyadh’s plan to build its first large-scale nuclear power plant has gathered momentum, with the tendering process under way for the project’s main contract.

In May, the Public Investment Fund (PIF) awarded three solar photovoltaic (PV) power plant contracts with a total combined capacity of 4,550MW.

In August, utility developer Acwa Power reached financial close for the Shuaibah 1 and Shuaibah 2 solar PV independent power producer (IPP) projects, which have a total combined capacity of over 2,600MW.

French energy heavyweight TotalEnergies has also reached financial close for the 120MW Wadi al-Dawasir solar scheme, tendered under round three of the kingdom’s National Renewable Energy Programme (NREP).

During the past few months, the state-backed power offtaker, Saudi Power Procurement Company (SPPC), has received proposals and shortlisted two bidders each for the two solar PV contracts under NREP’s round four.

Riyadh has also accelerated the procurement of gas-fired capacity over the past year.

SPPC is simultaneously evaluating bids for four combined-cycle gas turbine (CCGT) plants, the Taiba 1 and 2 and Al-Qassim 1 and 2 IPPs, which have a total combined capacity of 7,200MW.

In addition to the potential award of these four contracts over the next few months, the state offtaker is expected to tender two more gas-fired projects – the PP15 IPP in Riyadh and another power generation plant in Al-Khafji – next year. Each will have a design capacity of 3,600MW.

Overall, close to $30bn-worth of power generation projects are in execution or about to start construction in Saudi Arabia, according to the latest data from MEED Projects. 

At least $44bn are in the pre-execution phase, excluding the kingdom’s $35bn nuclear power plant programme.

Liquid fuel displacement

Given the kingdom’s ambitious plan to boost its renewable energy installed capacity to 58,700MW by 2030, up from about 1,100MW today, the pace of renewable energy contract awards is no surprise.

CCGT projects support the kingdom’s plan to cut down on burning liquid fuels. The Energy Ministry’s liquid fuel displacement programme, launched as part of Saudi Vision 2030, aims to displace 1 million barrels a day of liquid fuels across the utilities, industry and agriculture sectors by 2030.

The latest data from the King Abdullah Petroleum Studies & Research Centre (Kapsarc) shows that liquid fuels, comprising crude oil, heavy fuel oil and diesel, accounted for up to 43 per cent of Saudi Arabia’s fuel mix for power generation and water desalination processes as of 2018.

This translates to about 1,670 trillion BTUs, roughly equivalent to 760,000 barrels a day, of liquid fuels.

Meanwhile, natural gas consumption across the kingdom’s power generation and water desalination sectors is estimated at 2,226 trillion BTUs, or 6 billion cubic feet a day.

Kapsarc research fellow Rami Shabaneh noted in a 2020 report: “Overall fuel consumption saw a significant decline of almost 8 per cent year-on-year in 2018. This was due to increased energy-efficiency regulations and energy price reforms.”

This trend – along with other energy-efficiency measures in the power generation, water desalination, and transmission and distribution network – suggests there has been a decrease in fuel consumption in the intervening years too.

However, much still needs to be done to reach the kingdom’s 2030 liquid fuel displacement target, as well as its energy diversification objectives.

While the massive expansion of gas-fired capacity seems inconsistent with cutting emissions, the significant number of fleets that still burn liquid fuel appears to justify the dual approach to expanding both renewable and gas-fired capacity to meet rising demand and security of supply.

“Plants running on highly efficient CCTG technologies is the way to go,” says an expert who works for an international utility developer.

This approach also dovetails with the kingdom’s goal for 50 per cent natural gas and 50 per cent clean or renewable energy in its energy mix by 2030.

Saudi’s ambition to achieve carbon neutrality by 2060 – 10 years later than typical targets – could also be advantageous in terms of procuring more efficient CCGT plants in the interim.

With the kingdom’s power-purchase agreements (PPAs) generally lasting 25 years, gas-fired IPPs procured this year and next will reach commercial operations by 2027 or 2028. This takes the validity of upcoming PPAs into the early 2050s, still well within the country’s energy transition period.

Different tunes

As things stand, not everyone is convinced of the need for the scale of the new natural gas fleet planned in the kingdom.

“I think they should focus more on renewables,” says a Dubai-based industry expert, who notes the large gap between Saudi Arabia’s current renewable energy installed capacity and 2030 target.

Given that renewable energy accounts for, roughly, just 1 per cent of known power generation installed capacity, 70-fold growth is needed to hit the end-of-the-decade target.

Some international utility developers, with internal carbon-neutrality deadlines of 2050 or before, may not be able to participate in the ongoing CCGT tenders, unless they integrate decarbonisation measures. This could affect the competitiveness of bid prices.

However, Paddy Padmanathan, former CEO of Saudi utility Acwa Power, says the kingdom has room for both technologies.

“I see no reason why a fast or even faster pace of renewable energy procurement cannot run in parallel with CCGT procurement,” he tells MEED.

“[The] Saudi procurement process, PPA risk allocation and certainty of projects moving forward to the timetable set out in the requests for proposals are well recognised and appreciated,” the executive, who is a member of Acwa Power’s board following his retirement as CEO earlier this year, explains.

Padmanathan says there is no shortage of equity and debt funding for these projects. He also cites the kingdom’s “very high” credit rating.

These factors, along with abating supply chain challenges for solar PV modules and the keenness of CCGT original equipment manufacturers for new contracts, mean the kingdom will continue to be an exciting market for power projects well into the next decade, Padmanathan asserts.

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Jennifer Aguinaldo

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