By Fitch Solutions

  • Saudi Arabia’s solar and wind power capacity will expand exponentially from a low base over the next decade, driven by private investment through contracts awarded at auction-style tenders under REDPO’s National Renewable Energy Program.
  • Despite this growth, the country’s overcapacity will slow renewables deployment and prevent it from meeting its 27.3GW renewables target by 2024 and 57.8GW target by 2030.
  • Opportunities for private sector renewables investment will be limited outside of the NREP auctions because of limited electricity consumption growth and stringent local content requirements.

We forecast rapid growth in the Saudi renewables sector over our forecast period to 2029, albeit from a low base of less than 400 MW at the end of 2019. Our relatively upbeat outlook on the market is informed mainly by the progress registered on reverse-auction style tenders under the government’s National Renewable Energy Programme (NREP), and executed by the Renewable Energy Project Development Office (REPDO). Over the first two rounds of tenders, held in 2017 and 2019 respectively, REPDO awarded contracts for the development of a combined 2.4GW of solar and wind power capacity over eight projects. The 300MW Sakaka Solar Plant was the first project that reached completion, coming online in 2019.

Of the seven remaining projects tendered in these auctions, only one has reached the construction phase of development, while the remainder are due for completion by end-2022. REPDO closed requests for qualifications for its third round of tenders in March 2020, which will award contracts for the construction of four solar PV plants with a cumulative capacity of 1.2GW. The 3.4GW already allocated under the first three rounds of REPDO tenders bodes well for the country’s renewables growth prospects, and contributes towards our forecasts for a net growth of over 4.7GW in overall renewables capacity between 2020 and 2029.

Project NameSize (MW)CompaniesStatusREPDO Round
Dumat Al Jandal Wind Farm, Al-Jouf415.8EDF Energies Nouvelles[Sponsor](51){France}, Masdar[Sponsor](49){United Arab Emirates}, Vestas Wind Systems[Construction]{Denmark}, Vestas Wind Systems[Equipment]{Denmark}, Esteyco SAP[Consultant/Project Management]{Spain}Under constructionNREP Round 1
Sakaka Solar Plant, Al Jowf300ACWA Power[Operator]{Saudi Arabia}CompletedNREP Round 1
Jeddah solar PV IPP, Mecca Province300Not yet awardedBidders shortlistedNREP Round 2
Rabigh solar PV IPP, Mecca Province300Not yet awardedBidders shortlistedNREP Round 2
Al-Faisaliah solar PV IPP – Phase 1, Makkah Solar Complex, Mecca Province600Not yet awardedBidders shortlistedNREP Round 2
Qurayyat solar PV IPP, Qurayyat, Al-Jawf Province200Not yet awardedBidders shortlistedNREP Round 2
Rafha solar PV IPP, Rafha, Northern Borders province45Not yet awardedBidders shortlistedNREP Round 2
Medina solar PV IPP, Medina50Not yet awardedBidders shortlistedNREP Round 2
Layla Solar PV Independent Power Project, Layla80Not yet awardedFRQ closedNREP Round 3
Wadi Al Dawaser Solar PV Independent Power Project, Wadi Al Dawaser120Not yet awardedFRQ closedNREP Round 3
Ar Rass (Al-Rass) Solar PV Independent Power Project, Rar Rass700Not yet awardedFRQ closedNREP Round 3
Saad Solar PV Independent Power Project, Riyadh300Not yet awardedFRQ closedNREP Round 3
Active REDPO NREP Auctions To Date
Source: REDPO, Fitch Solutions Key Projects Database

Despite this growth and the Saudi government’s ambitious targets to capitalise on the country’s vast solar and wind power capacity over the coming decade, we expect the kingdom’s overcapacity for power generation will constrain the rate of growth in the renewables sector over the coming years. Saudi Arabia’s robust power sector ranks among the largest in the world, with over 95.7GW of operational power capacity in 2019. This overcapacity, combined with the country’s lack of interconnectivity with other markets means there is no option to export excess generation and forces state-owned utilities to increase or decrease output in direct conjunction with fluctuations in domestic electricity demand. We highlight this as one of the key factors detracting from renewables growth in the kingdom, as any increase in power generation above overall demand growth would need to displace thermal generation and further erode efficiency in the sector. This will be particularly pertinent over the near-medium term, as the government seeks to reduce energy subsidies, pushing up electricity tariffs and constraining growth in electricity consumption. As a result, we expect renewables to make up a relatively insignificant proportion of the country’s overall power sector, missing both its 2024 and 2030 renewables capacity targets of 27.3GW and 57.8GW respectively.

Overcapacity To Subdue Generating Efficiency And Weigh On Renewables Growth
Saudi Arabia – Overall Power Capacity Factor & Capacity By Type
e/f = Fitch Solutions estimate/forecast. Source: EIA, IRENA, Fitch Solutions

With these limitations in mind, we do not foresee any significant scope for private sector renewables investment outside of the REPDO tenders. Weak electricity demand growth and the Saudi government’s stringent local content requirements for infrastructure investment will both present considerable risks for private investors in the market. Furthermore, without the prospect for rapid electricity demand growth, we believe that private renewables investors will find difficulty in attaining grid-connection permits and power purchase agreements with the state-owned transmission utility, the Saudi Electricity Company. For these reasons, we remain relatively conservative in our renewables projections for the market.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. The original article can be accessed by clicking here