Renewable energy in Saudi Arabia

For many, the energy industry of the Kingdom of Saudi Arabia (“KSA”) is synonymous with large-scale production of oil and gas. The OPEC member was the world’s second largest producer of petroleum liquids in 2022 and holds 17% of global proven oil reserves. The oil and gas sector remains approximately 50% of its GDP and it is the largest oil exporter in the world.  

Despite these challenges, KSA has demonstrated an increasingly strong commitment to developing the renewable energy industry. This commitment is evident through the implementation of ambitious national policies and initiatives, as well as a strong emphasis on large-scale renewable projects. Like other Gulf Cooperation Council (“GCC”) nations and the broader Middle East region, KSA recognizes the importance of diversifying away from traditional fossil fuel energy production. In line with this commitment, the Kingdom's 2023 budget allocates resources for the development of ten renewable energy projects, with a combined capacity of 7 GW.  

There has been scepticism over claims that KSA will fulfil its pledge of net-zero greenhouse gas emissions by 2060, in addition to claims of greenwashing in relation to carbon-free mega-projects such as The Line, and also climate concerns over the viability of its Carbon Circular Economy approach which relies on Carbon Capture Utilisation and Storage technology (commonly referred to as “CCUS”). The growth of the KSA economy, however, in combination with the centralization of major industry, puts the nation in a position to be able to invest heavily in the renewables industry. 

In 2016, KSA launched Vision 2030, a comprehensive initiative aimed at bringing unprecedented reforms to various sectors, including the public sector, the economy, and society. Sustainability is said to have been at the core of Vision 2030 since its inception, described as “a catalyst for reform”. Saudi Arabia's ambitious goals include reaching 40 GW of solar PV generation by 2030, complemented by 2.7 GW of Concentrated Solar Power (“CSP”) capacity. Notably, the Public Investment Fund (“PIF”), the Kingdom's sovereign wealth fund, is tasked with financing 70% of this target capacity. 

As part of this visionary initiative, the National Renewable Energy Program (“NREP”) was introduced to boost KSA's renewable energy production share, achieve a balanced energy source mix, and meet carbon dioxide emission reduction commitments. The NREP's goal is to increase the contribution of natural gas and renewable energy sources to approximately 50% of the energy mix by 2030 while reducing reliance on liquid fuels, thus diversifying the national energy production mix.  

Vision 2030 has also highlighted the economic opportunities that accompany the expanded use of renewable energy in KSA. It has been recognized as a chance to develop a new industry supported by private sector investments and public-private partnerships. The Ministry of Energy (“MoE”) actively encourages private sector involvement in the renewable energy sector. 

Demonstrating the importance of economic strength as a driving force to develop further renewable energy, Crown Prince Mohammed bin Salman has commented in relation to Vision 2030 that “climate action will enhance competitiveness, spark innovation, and create millions of high-quality jobs. Young people, both in the Kingdom and the world, are demanding a cleaner, greener and more inclusive future, and we owe it to them to deliver on this.” 

As part of Vision 2030, the Saudi Green Initiative oversees KSA’s efforts to combat climate change, looking to facilitate public and private sector collaboration to scale-up climate action. There are a number of objectives within this, such as reducing carbon emissions by over 278 million tonnes of CO2 abatement per year by 2030. 

Renewable energy in KSA is generally regulated by the same regulatory framework as broader electricity. Consequently, the Water and Electricity Regulatory Authority (“WERA”) is the regulator for renewable energy in addition to other types of electricity, including being responsible for licensing electrical generation activities. 

As seen across the GCC, KSA must ensure that it sufficiently develops its energy regulation in respect of renewable energy to enable the Kingdom to keep up with the rapidly expanding projects and investment. Without a legal regulatory framework that is deemed as adequate by private investment, there is a risk that legal regulation falls behind commercial developments and that there is insufficient foreign investment in KSA renewable energy projects.  

Within recent years, more specific renewable energy regulation has emerged. In 2020, the Regulatory Framework for Small-Scale Solar PV Systems (the “2020 Solar Small-Scale Regulatory Framework”) established a framework to regulate solar distribution systems connected to the utility grid for photovoltaic (“PV”) systems with an installed capacity of between 1kW and 2MW. This also introduced a net-billing scheme whereby the exported electricity is credited to the monthly electricity bill of the offtaker. Each offtaker is permitted an aggregate capacity limit of 5MW. This was introduced to tackle the deemed lack of solar panels in the Kingdom compared to the significant amount of sunlight it receives. Consequently, the 2020 Solar Small-Scale Regulatory Framework facilitated offtakers to install PV systems for both homeowners and businesses. 

In 2022, WERA issued the Regulatory Framework for Renewable Energy Generation for Self-Consumption (the “2022 Self-Consumption Regulatory Framework”) which built upon the 2020 Solar Small-Scale Regulatory Framework. This 2022 Self-Consumption Regulatory Framework also aims to facilitate consumers in being able to install renewable energy systems for self-consumption, but expands its focus to other renewable technologies, such as wind. In addition to this, whilst the 2020 Solar Small-Scale Regulatory Framework regulates solar PV connections to the grid with a cap of 2MW, the 2022 Self-Consumption Regulatory Framework regulates grid-connected and off-grid systems, and does not indicate a capacity limit. 

Both the 2020 Solar Small-Scale Regulatory Framework and the more expansive 2022 Self-Consumption Regulatory Framework demonstrate progression and steps towards assisting the Kingdom in achieving its goals and initiatives. It must also be noted, however, that these regulations are new and remain largely untested; there are points of uncertainty within the regulatory framework which restrict the quick uptake of a renewable energy distributed network.  

KSA is renowned for its ambitious mega-scale projects, which are increasingly being built with climate issues in mind. Recent years have seen the investment of significant sums of capital into these projects; in KSA there are currently renewable energy projects in advanced stages that would generate more than 4.5GW.   

One of the Kingdom’s signature projects is NEOM, which forms part of Vision 2030. PIF is said to be contributing $500 billion to NEOM. NEOM consists of 10 projects, with four having been announced: The Line, Oxagon, Trojena, and Sindalah. The Line is perhaps the most famous; it intends to accommodate 9 million people, be built along a footprint of only 34 square kilometres, and overcome liveability and environmental crises currently present in urban settings. Most relevant is that there are to be no roads, no cars and no emissions, and that it will run on 100% renewable energy. This demonstrates the incorporation of renewable energy into the dramatic future plans of the Kingdom. However, there has been significant criticism for the expected carbon that will be emitted whilst developing The Line, and NEOM projects more generally, in addition to concerns regarding viability. 

Solar will remain an important source of renewable energy in the Kingdom moving forwards, taking advantage of its natural climate. Sakaka was the first renewable solar PV plant in KSA, commissioned in 2020, and generates 405MW of electricity. It is said to offset greenhouse gas emissions equivalent to removing 120,000 cars from the road each year.  

In November 2022, ACWA Power (a KSA utilities company in which the PIF holds a 50% stake) and Water and Electricity Holding Company (Badeel) (owned 100% by the PIF) signed an agreement to build the largest single-site solar-power plant in the Middle East, situated in Al Shuaibah, Mecca province. The anticipated operational start date is by Q4 2025, with a generation capacity of 2,060MW, and project investment value of approximately USD$1.75 billion. Both of these companies are also part of the process of developing the Sudair 1.5GW solar PV facility, which is under construction in the Riyadh province. The SPV developing the project has an estimated investment of USD$906 million. This again evidences that the PIF is, and will be, central to the renewable energy projects both at present and in the future. Saudi Power Procurement Company (“SPPC”) is also procuring a large number of renewable energy projects under the NREP, and in 2023 four solar projects with a total capacity of 1.3GW closed, and in 2024, two further solar projects with a total capacity of 1.1GW are slated to close in early 2024.   

Beyond Solar PV and CSP, KSA is particularly looking at (among others) developing projects in relation to wind power and green hydrogen.  

Part of Vision 2030 is the generation of 16GW of wind power by 2030. Wind farms are slightly less developed than solar farms in KSA, but are being looked at more frequently. The Dumat Al-Jandal wind farm was connected to the grid in August 2021 as the first utility-scale wind power project in the Kingdom, and one of the biggest in the Middle East, totalling 99 wind farms and 400MW with a capacity of generating electricity for up to 70,000 homes. SPPC is also in the process of procuring three new wind projects under the NREP with a total capacity of 2.2MW. These are slated to achieve contractual and financial close in the first half of 2024. 

Another developing area in KSA is green hydrogen. The National Hydrogen Strategy is looking to achieve USD$ 36 billion of investment by 2030 in a bid to become the largest hydrogen producer and supplier in the world. The use of solar and developing wind projects could position KSA as a major supplier of green hydrogen. NEOM provides an example of this, where there is to be the construction of a USD$5 billion green hydrogen plant by 2026, powered by approximately 4GW of solar and wind power.