Renewable Energy

Saudi Arabia urging businesses to make solar shift

November 1, 2023

Solar power installation is expected to sharply rise in the coming decade — Manah-1 Solar IPP will provide clean energy to power an estimated 50,000 homes, while offsetting over 780,000 tonnes of CO2 per year

Regulatory change to help
Solar power expected to rise rapidly
Concerns about opening sector too quickly

Saudi Arabia is doing more to encourage commercial and industrial enterprises to shift to solar energy as part of its green transition but the regulatory environment is still lagging due to a conservative gradualist approach, industry players say.

The kingdom is trying to put itself at the forefront of green energy technology and consumption through investing in areas such as lithium batteries, hydrogen fuel and carbon capture as part of its diversification away from oil.

But it is also aiming for 50 percent renewable energy usage by 2030 and a net zero target of 2060.

“This is a very nascent market for commercial scale solar but there is regulatory change and a building momentum that we hope will create a great market here in the years to come,” said Jeremy Crane, CEO of Yellow Door Energy, a Dubai company that sells solar energy systems to businesses.

The gradual removal of subsidies and the high costs of fuel amid Opec+ output cuts are encouraging more businesses to install their own solar systems in order to save money, especially in countries like Saudi Arabia where solar usage is still low.

Solar power accounted for only 0.5 percent of installed capacity in 2022 but is expected to shoot up to 26 percent by 2035, according to GlobalData.

But it was only last year that regulatory authorities raised the limit on how much solar capacity businesses can install from 2 to 5 megawatts, reflecting concerns about opening the sector up too quickly. State-owned Saudi Electricity is the main supplier.

“One of the dynamics here is that demand is growing rapidly,” Crane said on the sidelines of an investment forum in Riyadh.

“And because demand is growing rapidly it’s easier to create a new supply of clean energy and incentivise businesses.

“The motivation to change is very well articulated in Vision 2030 and the regulations and changing tariffs are aligning with that, so businesses are more and more motivated to make a change.”

State-run utilities tend to be cautious about independent power generation from solar panels because of sudden demands on the national grid when the sun is not shining, as well as the revenue loss. But this is less of a concern in the Gulf with year-round sunshine.

Lucy Heintz of clean energy investor Actis, which acquired a controlling stake in Yellow Door in 2022, said regional economies including Saudi Arabia through its Neom city had the potential to become major operators in the other green industries.

She cited low emissions hydrogen, an area where Oman has made strides, low cost ammonia for its transportation, and carbon capture, which the United States is encouraging.

“The regulatory environment globally is changing plus you have subsidies in the US market as well through the Inflation Reduction Act,” Heintz said.