Power policy

Saudi Arabia raised its renewables targets in early 2019 – the kingdom is now targeting 58.7 gigawatts of renewables capacity by 2030. The target is broken down by technology, the largest of which is 40 gigawatts of solar photovoltaic capacity. The government is unlikely to meet an interim target of 27.3 gigawatts of renewables by 2023 – the objective no longer features in official announcements.

The country’s renewables sector has had a few false starts, but recent activity signals progress. As of September 2022, some 3.4 gigawatts of solar and wind capacity had been auctioned through the country’s main auction program overseen by the Renewable Energy Project Development Office (REPDO). The national sovereign wealth fund, the Public Investment Fund, also plays a central role in procuring clean capacity, albeit through a framework that is far more opaque than REPDO.

For its part, small-scale solar could be buoyed by the publication of a net-metering framework in July 2020, and additional measures to train installers and facilitate installations were announced in February 2021. But there is little evidence that these policies have spurred widespread residential uptake.

Power prices and costs

As with other countries in the region, Saudi Arabia has seen record low bids for renewables over recent years. These include a $21.30 per megawatt-hour levelized bid in January 2019 for Dumat al-Jandal, the country’s first auctioned wind farm. Meanwhile, falling equipment costs, free land, zero connection costs and cheap labor have made PV the most competitive source of new bulk generation.

Saudi Arabia is moreover committing to an ambitious subsidy-removal program, stripping away measures keeping down the price of natural gas and oil. Although it looks like subsidies for generation fuel will remain in place until at least 2025, retail power prices are being increased for all customer types. Such efforts are aligned with Saudi Vision 2030, which aims to diversify the economy away from oil while increasing the role of the private sector.

Power market

Gas generation plays an important role in the country’s east, while western regions rely on burning oil for power. Plans exist to convert western oil plants to gas, although progress in this area is lagging. Renewables additions have increased substantially in recent years from a low base – capacity put up for tender through rounds two and three of the REPDO auction program over 2020-21 suggested that this would continue.

However, investors may be deterred by a lack of visibility on future procurement schemes, and a general freeze on renewables build since the pandemic. The awarding of capacity for the auction scheme’s third round appears to be frozen, even after bidders were shortlisted. The country’s partially unbundled power sector remains dominated by the state utility, and private-to-private power purchase agreements are not yet explicitly allowed. Contracts signed with renewables developers are take-or-pay, guaranteeing that power be purchased regardless of demand.

Doing business and barriers

Peak electricity demand has grown steadily, rising from 46 gigawatts to 64 gigawatts from 2010 to 2020. Growth is likely to resume despite the economic impact of the pandemic. Besides the conversion of western oil plants to gas, policymakers are mulling the relative benefits of using domestic gas resources versus liquefied natural gas, terminals for which have yet to be built. In the long run, world-beating renewables resources are likely to undercut such investments. Moreover, the amount of power used by desalination processes is likely to reduce as the country switches from existing thermal plants to installations employing reverse osmosis.

EV market

The government has yet to implement any substantive policy support in this sector and the electric vehicle market remains at an early stage. The government had in fact banned EVs from being imported into Saudi Arabia for commercial use (personal use was allowed) in 2017; this was only lifted in August 2021. However, the government is one of the only oil producers in the region to implement corporate average fuel economy standards, although these are not ambitious enough to stimulate EV uptake. Low fuel prices have hurt the competitiveness of EVs against fossil fuel cars. Despite the rise in fossil fuel prices, the government – flush with cash from exports sold at higher-than-typical rates – introduced upper limit on the domestic cost of gasoline to counter inflation in 2021.

EV policy

The government has yet to implement any substantive policy support in this sector.

Buildings market

A Saudi Energy Efficiency Program kicked off in 2012, which oversees the implementation of standards and other measures. Saudi Arabia had already introduced stronger efficiency requirements for new builds in 2010. Initiatives to decarbonize the building sector include the High Efficiency Air Conditioning initiative, which provides a 900-riyal ($240) rebate for up to six high-efficiency unit purchases per household.

Buildings policy

The government has yet to implement any substantive policy support in this sector.