For the longest time, Saudi Arabia has been associated with oil. For more than three decades, it has managed to maintain its leadership position as an oil powerhouse. So much so that it has managed to run its entire economy just by exporting oil.

Cut to 2014, oil prices declined steeply worldwide thanks to lower demand from the US. Add to this the fossil fuel divestment movement — many countries are pledging to go green and reduce their fossil fuel consumption.

Not surprisingly, the Saudi petroleum minister recently admitted that ‘in the long run, it is more economical to go solar’. Experts say the country is left with no choice.

One could argue that investing in solar during high oil prices is the most opportune time. Since the price of oil has declined, the question is whether it makes economic sense for Saudi Arabia to make the shift to solar now.

fire-gasBrowning Rockwell, Executive Director, Saudi Arabia Solar Industry Association (SASIA), says,“Saudi’s shift to solar is not solely dependent on the price of crude. Shifting to solar during low oil prices may be more costly in the short term but the oil that is being consumed domestically has a significant fixed cost in the annual budget.” Essentially, the old oil guard may see the extraction cost of oil as near zero, but the nation has to eventually go solar to hedge against future energy cost increases.

The move to solar might seem odd to many. But the Saudis will face a problem if they do not make the shift soon. The country burns a quarter of its oil output for domestic consumption. It also burns one million barrels (15% of exports) of oil per day to generate electricity, and demand is growing. With electricity subsidised and on offer for as less as $0.01 per kilowatt-hour, the government is concerned that increase in consumption will eat into its oil production. Electricity consumption, which is growing at 11% annually, is one of the highest in the world despite the population standing at only 30 million.

The fears were backed by a report from Citigroup, which states that if domestic demand for oil continues at current pace, Saudi Arabia could be a net importer by 2030. It is tough to maintain leadership position when domestic demand is so high.

Jeremy Leggett, Founding Director of Solarcentury and Chairman of Carbon Tracker Initiative, says, “The Saudis are burning too much oil in electric power plants, threatening future oil export revenues. They need to replace that with solar as soon as possible. The Saudi government has said as much themselves, but need to act quickly. They have hardly any solar installed as things stand. They announced a massive solar programme some time ago, but are yet to implement it.”

King Abdullah City for Atomic and Renewable Energy (KACARE) was launched several years ago and has failed to develop any substantial solar project other than a few pilots.

Jeremy Leggett, Founding Director, Solarcentury and Chairman of Carbon Tracker Initiative

Jeremy Leggett,
Founding Director, Solarcentury and Chairman of Carbon Tracker Initiative

There are some challenges. “While Direct Normal Irradiance (DNI) is significant in KSA, the desert sand, and the hazy and windy conditions present unique problems. For instance, solar panels get dusty easily because of which owners of solar farms lose 0.8% efficiency per day and upto 60% after dust storms,” explained Rockwell.

“But things can be worked out. It is not rocket science,” says Leggett adding that the country has enough talent needed to venture into solar. Additionally, the population under 30 years of age is pro-solar. “They are looking for jobs outside the oil sector. Most of them have studied abroad and know the potential of the solar sector,” says Rockwell.

To take advantage of this new opportunity, MENA governments and private sector organisations will have to work together to rationalise energy pricing, introduce appropriate regulations to accommodate solar power in the generation mix, develop large-scale projects, and, ideally, help develop local companies of the solar value chain.

Abdulmohsin Al Shoaibi, managing partner, DarSolar LLC, says that the transition will take time. “Anything new takes time to be accepted by everybody. At present, positive measures have been advanced to layout the proper legislation, policies and regulatory framework to make this plan a reality in the very near future,” he says.

According to Rockwell, the government needs to announce a realistic short term programme. “Government organisations need to give authority and made accountable to implement the solar programme. For instance, KACARE was never given any real authority and accountability. The private sector also needs leadership from a prominent Saudi national committed to solar energy development.”

With the rest of the world pushing for green energy, oil is looking like a depreciating asset. The late Sheikh Rashid Bin Saed Al Maktoum, longtime emir of Dubai and prime minister of the United Arab Emirates, once remarked: “My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel.”