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Saudi Arabia reinvigorates power sector

7 March 2023

 

Recent developments indicate that Saudi Arabia is more determined than ever to continue pursuing a multi-pronged energy diversification approach.

Between December 2022 and early March, the kingdom received bids for the contract to build its first nuclear power plant project; issued the tender for the development of 7,200MW of combined-cycle gas turbine (CCGT) independent power producer (IPP) schemes; and appointed a consultant to assess three solar parks with a potential capacity of 30GW.

The rush of new projects contrasts with the sector’s lacklustre performance in 2016-21, when the cumulative value of contracts awarded totalled a mere $5.5bn, reaching a record low of $55m in 2017.

The new-found momentum began last year, with $8.1bn-worth of contracts awarded, the highest over the 10-year period starting in 2013.

Last year’s contract awards include the estimated $4bn contract for the renewable energy and battery storage facility catering to the Neom green hydrogen project. Contracts for the 1.2GW third round of the kingdom’s National Renewable Energy Programme (NREP) and the Public Investment Fund's (PIF) 2.06GW Shuaibah 2 solar photovoltaic (PV) project were also awarded.

This has taken the overall capacity of solar projects under construction in Saudi Arabia to roughly 6,230MW, excluding the captive facility catering to the Neom green hydrogen project – a remarkable feat given that the kingdom has significantly lagged behind its renewable energy targets.  

As of last year, the kingdom only has an estimated 842MW of renewable energy installed capacity, mainly from the 300MW Sakaka solar PV facility and 400MW Dumat al-Jandal wind farm.

This equates to just 3 per cent of its initial national goal to install 27.3GW of renewable energy capacity by 2024 and 1.4 per cent of its 2030 goal of 58.7GW.

The impact of the Covid-19 pandemic and war in Ukraine has affected the delivery of most of the projects, according to a Saudi-based expert, due to disrupted supply chains and global inflation.

“The Covid-19 pandemic affected projects not just in Saudi Arabia, but everywhere in the world,” he says.

Other experts insist that the kingdom needs to make an unprecedented adjustment to meet its ambitious 2030 target.

In response, state offtaker Saudi Power Procurement Company (SPPC) launched the procurement process last year for NREP’s fourth round. 

Phase four comprises two solar PV IPP schemes with a total combined capacity of 1.5GW and three wind IPPs with a total combined capacity of 1.8GW. Bids for these contracts are due by April and May this year, respectively.

In early March, Germany-based ILF Consulting Engineers (ICE) also announced that it had been selected to undertake the pre-development studies for three solar PV parks in Saudi Arabia with a potential combined capacity of 30GW, the largest of its kind ever planned in the region, if not globally.

The locations and procurement timeline for the projects have not yet been announced, but the tendering process will most likely commence once the initial studies are complete, according to a source familiar with the projects.

Going nuclear

Saudi Arabia’s Finance Ministry’s disclosure that it received bids in late December last year for the contract to build the kingdom’s first nuclear power plant has also significantly raised the power generation sector’s momentum.

The entire project’s budget of roughly $33.5bn, as estimated by MEED Projects, accounts for over a third of the total value of planned and unawarded power generation projects across the kingdom.

The potential award of the nuclear power project – the initial phase of which is understood to be 2.8GW – is not expected to slow down the pace of contract awards for other power generation assets.

As previously stated, the kingdom’s energy diversification programme expects clean and renewable energy to account for half – up from roughly 1 per cent today – of its electricity production mix by 2030.

The long lead time to construct and develop a nuclear power plant could also mean the first reactor is not likely to be ready by the end of the decade.

While the kingdom has not disclosed the list of companies bidding for the project, there is mounting speculation that at least three companies, including Russia’s Rosatom, China National Nuclear Corporation and South Korea’s Kepco, may have submitted a proposal to develop the facility.

RELATED READ: Saudi nuclear move has geopolitical significance

Unlike the solar and wind energy projects, the results of the nuclear energy bids are expected to be announced only by the highest level of leadership within the kingdom due to the strategic and geopolitical importance of nuclear power.

Ramping up gas

In January, SPPC retendered contracts to develop its next gas-fired IPP projects. Initially comprising two projects, each with a capacity of 3.6GW, the Taiba and Al-Qassim IPPs were each split into two 1.8GW schemes, with bids for the four contracts due by mid-2023.

These are the first gas-fired power generation plants to be procured since 2016, when Saudi Arabia awarded the 1,500MW Fadhili IPP to a consortium led by France’s Engie.

Before the retender, SPPC received only a single bid for the 3.6GW Taiba IPP. Wary of net-zero carbon emission targets, many international utility developers declined to bid for the package citing insufficient decarbonisation provisions.

Despite this setback, SPPC sought consultants last year for the transaction advisory contract for its next round of CCGT projects, which will be developed using a build-own-operate model.

The two projects, to be located in Riyadh and Al-Khafji, will each have a design capacity of 3,600MW.

“It is a moving target,” a senior official with a utility developer said about the kingdom’s energy diversification goal.

Various official sources suggest that the country’s current installed power generation capacity stands at 80-90GW, with little to no publicly available figures in terms of the capacity forecast by 2030.

The original target to install 57.8GW of renewable energy capacity by the end of the decade vis-à-vis a goal for renewable energy to account for 50 per cent of the total implies that the 2030 figure could be around 110-120GW.

Keeping this in mind, and the need to retire ageing fossil fuel-fired fleets during the intervening period, appears to justify the need for the kingdom to build more gas-fired power plants while pursuing significant renewable and nuclear capacity.

In terms of attracting more bidders for its current and future CCGT schemes, much will depend on how SPPC and the Energy Ministry address developers’ concerns regarding measures to minimise carbon footprint at the same time as ensuring the assets’ long-term economic feasibility.

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Jennifer Aguinaldo

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    Large-scale storage is also expected to continue expanding. The latest SPPC projects build on five bess facilities awarded by Saudi Energy through National Grid Saudi Arabia to Alfanar in 2025. The facilities have a combined capacity of up to 2,500MW, equivalent to about 10,000MWh.

    SPPC has also issued the request for proposals for the second phase of its independent bess programme in Saudi Arabia. The Group 2 programme comprises six independent storage provider projects with a total capacity of 3GW, equivalent to 12,000MWh based on a four-hour storage duration. Developers are due to submit bids in October. 

    The timing means the Group 2 projects could contribute to contracting activity in 2027, alongside this next batch of renewable projects under NREP Round 7.

    Nuclear power could provide another potential source of activity over the next 12 months. The US and Saudi Arabia signed a civil nuclear cooperation agreement in July, providing the legal foundation for a long-term, multibillion-dollar nuclear partnership.

    While the agreement is unlikely to translate immediately into major contract values, further progress on Saudi Arabia’s nuclear programme could add another area of activity in the sector as the kingdom moves into 2027.

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    Mark Dowdall