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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Kuwait has been looking to increase efficiency and restructure its state-owed oil and gas companies for several years.
In 2020, a contract for a study to look into the restructuring was won by UK-based Strategy&, a subsidiary of the financial services company PwC.
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Commentary
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Hospital boost for Jordan construction
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This package on Jordan's construction sector also includes:
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Disappointing decade
Major projects are needed after a disappointing decade for Jordan’s construction sector.
Data from MEED Projects shows a fluctuating trend in the value of construction and transport contracts awarded in Jordan over the past 10 years.
In 2013, the total value stood at $1.429bn. A sharp rise in 2014 to $2.475bn marked the peak of contract awards during the period.
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Political deadlock in Lebanon blocks reforms
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Lebanon’s political deadlock is likely to continue to weigh on the country’s economy and undermine security over the medium term, according to experts.
The country currently has an interim government and has been without a president since former President Michel Aoun’s term ended at the end of October last year.
Progress towards forming a new government is likely to be slow, with the legislature divided over who should replace Aoun as president.
In March, the Iran-backed Hezbollah group and House Speaker Nabih Berri’s Amal Movement party – which together constitute Lebanon’s Shia base – announced their support for the Christian politician Sleiman Frangieh.
Hezbollah and its allies have since tried to gather support for Frangieh as president, but strong opposition from the majority of the country’s Christian, Sunni and Druze political blocs has left him short of the 65 votes required to be elected in the 128-member legislature.
Over recent weeks, members of Lebanon’s parliament that oppose Frangieh have started to rally around the former finance minister Jihad Azour.
Azour currently serves as the director of the Middle East and Central Asia Department at the International Monetary Fund (IMF).
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Nicholas Blanford, a non-resident senior fellow with the Atlantic Council’s Middle East programmes, says it will likely be some time before a government is formed.
“Getting a president elected is only the first step,” he said. “Once the new president is in place, there is the tricky task of forming a new government.
“As we’ve seen over the past 20 years, forming a new government can take months as people bicker and jostle for various lucrative and influential portfolios.”
Barbara Leaf, the US assistant secretary for Near Eastern affairs, said on 31 May, during a Senate committee hearing, that the Biden administration was considering sanctions if a new president is not elected soon
Outside pressure
Only when a government has been formed will Lebanon be able to start initiating the series of reforms that the international community has demanded to unlock aid, grants and loans to try to put the country on the path to economic recovery.
As Lebanon’s economic crisis has worsened and the security situation has declined, increasing pressure has been applied from other countries that want to try to restore stability in the region.
Barbara Leaf, the US assistant secretary for Near Eastern affairs, said on 31 May, during a Senate committee hearing, that the Biden administration was considering sanctions if a new president is not elected soon.
Separately, two members of the US House Foreign Affairs Committee called on the administration to impose sanctions on individuals involved in corruption to “make clear to Lebanon’s political class that the status quo is not acceptable”.
In a letter to Secretary of State Antony Blinken on 30 May, they said: “We also call on the administration to continue pressing for full accountability for the August 2020 Beirut port blast and support independent, international investigatory efforts into egregious fraud and malfeasance by the governor of Lebanon’s central bank.
They added: “We must not allow Lebanon to be held hostage by those looking to advance their own selfish interests.”
French crackdown
French officials have also taken action to try to crack down on perceived corruption by members of Lebanon’s political elite.
In May, French prosecutors issued an arrest warrant for Lebanon’s central bank governor, Riad Salameh.
The warrant followed Salameh’s failure to appear before French prosecutors to be questioned on corruption charges.
In response, Salameh issued a statement saying that the arrest warrant violated the law.
Salameh has been the target of a series of judicial investigations at home and abroad on allegations that include fraud, money laundering and illicit enrichment.
European investigators looking into the fortune he has amassed during three decades in the job had scheduled a hearing in Paris for 16 May.
A key problem is you still have the same cabal of oligarchs in power and it is likely they will still be represented in the next government
Nicholas Blanford, Atlantic Council’s Middle East programmesBreaking the deadlock
Analysts believe cracking down on corruption among Lebanon’s political elite is key to breaking the country’s political deadlock.
“A key problem is that you still have the same cabal of oligarchs in power and it is likely that they will still be represented in the next government,” said Blanford. “These oligarchs do not want reform because if they implement a meaningful reform process, they run the risk of losing their positions of power.”
While the country’s opposing political blocs continue to vie for power and the formation of a new government seemingly remains only possible after at least several months of negotiations, the outlook for Lebanon in the short term looks bleak.
Meaningful government assistance for Lebanese citizens struggling with declining security and heightened economic pressures remains a distant prospect. High levels of emigration are also likely to continue as the country’s population seeks relief from the hardships at home.
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