UAE-Saudi: Financing the Renewables Pivot

     In recent history, Saudi Arabia has been a global poster child for oil production and consumption. Rapid urbanization in Saudi Arabia has seen their population in the capital Riyadh climb from about 155,000 residents in 1960 to over 5 million residents today, with all these citizens paying incredibly low prices for gas and electricity (1). This low price and high demand has caused Saudi Arabia to consume close to one quarter of the oil they produce. As their domestic energy consumption continues to grow, the Saudi government is worried about consuming too much of the oil they produce.  
 
     This concern is not unwarranted. A barrel from Aramco sells for $4 to the Saudi Electric Company, an incredible discount from the current market price (About $50) (2). Because attempting to remove subsidies and increase the price of energy and oil domestically would greatly upset the population, steering citizens towards renewable energy appears to be the best route towards decreasing domestic consumption. However, as citizens are still able to buy dirt-cheap oil thanks to subsidies, private companies are hesitant to invest in Saudi renewable energy until they believe their prices can compete with domestic oil. One company looking to invest is Acwa Power International, who recently won building rights to a solar field in Dubai and agreed to sell the electricity at 5.84 cents per kWh, a record low for the industry (3).
 
     In December 2006, the Gulf Cooperation Council - Kuwait, Saudi Arabia, Bahrain, the UAE, Qatar, and Oman - announced a study on peaceful nuclear energy projects; the countries cumulatively produces 520 billion kWh per year, solely from oil and gas, with electricity demand increasing 10% a year, and desalination demand (fueled by oil and gas) increasing 8% a year (4). The total energy capacity was over 90 GWe, these projections into 2015 required another 60 GWe (5).    
 
     With the Vision 2030 program, Saudi Arabia has dedicated itself to renewable energy, and specifically towards developing infrastructure for the production and function of solar panels. Vision 2030 is meant to expand the economy; while the country has amassed massive amounts of wealth with a growing economy and young population, much of this has been done via government-fueled projects. A lack of foreign investment across sectors has slowed the Saudi government’s quest for respect on the global stage (6). However, selling 5% of their largest oil company, Aramaco, will advance their economy, while local policy changes will attempt to make running business easier (7). 
 
     Accompanying Vision 2030 is the anticipated IPO of Aramco, which is expected to place a $2 trillion price tag on the value of the company, making it the largest IPO in the world, and assigning the company value equal to that of Apple, Alphabet, Berkshire-Hathaway, and Microsoft combined (8). This upcoming IPO will help legitimize the Saudi stock market and become a huge milestone in the kingdom’s push to list private companies and state-owned entities in order to facilitate investment. Furthermore, the government has decided to make special arrangements for their King Abdullah Financial District, imposing competitive regulations and visa exemptions in this area to boost investment opportunities and the flow of business through their country.
    
     Saudi Arabia’s renewable energy progress has made it the largest electricity producer and consumer in the Gulf Cooperation Council (GCC), “with 272 billion kWh gross production in 2012 - 150 TWh from oil and 121 TWh from gas. Energy use for electricity and heat production including desalination in 2011 was 28,783 PJ, 57% of it from oil (9).” “Generating capacity is over 30 GWe. Demand is growing 8% per year and peak demand is expected to be 70 GWe by 2020 and 120 GWe by 2032 (10).” “Saudi Arabia plans to construct 16 nuclear power reactors over the next 20 years at a cost of more than $80 billion, with the first reactor online in 2022 (11).”
 
     “Saudi Arabia is unique in the region in having 60 Hz grid frequency, which severely limits the potential for grid interconnections [with the GCC] - it has no electricity import or export (12).” “It has plans to install 24 GWe of renewable electricity capacity by 2020 and 50 GWe by 2032, and is looking at the prospects of exporting up to 10 GWe of this to Italy or Spain during winter when much generating capacity is under-utilised (13).”
 
     “The Saline Water Conversion Corporation (SWCC) increased its desalinated water output in 2014 by 10%, to more than 1.1 billion cubic meters (14).” “The world’s largest thermal desalination plant is Saudi Arabia’s 1,025,000 m3/d Ras Al Khair (Ras Azzour) MSF project northwest of Jubail, costing SAR 27 billion ($7.2 billion) and built by Doosan (15).” “Veolia has a $402 million contract to build a 178,600 m3/d ultrafiltration and RO plant for Marafiq at the $19.3 billion Sadara petrochemical complex (16).”
 
     In 2015, Saudi Arabia signed agreements with the Korea Atomic Energy Research Institute (KAERI) “for building at least two South Korean SMART reactors in the country (17).” “SMART is designed for electricity generation (up to 100 MWe) as well as thermal applications, such as seawater desalination, with a 60-year design life and three-year refueling cycle. The cost of building the first SMART unit in Saudi Arabia is estimated at $1 billion (18).” “Also in March 2015, the state-owned INVAP (Investigacion Aplicada) from Argentina and state owned Saudi technology innovation company Taqnia set up a joint venture company, Invania (19).” Invania will concentrate on developing nuclear power, specifically in smaller reactors for the purpose of desalination (20).
 
     Similarly to Saudi Arabia, the UAE also has a long-term plan, known as the National Agenda of UAE 2021, which attempts to improve the country’s economy and decrease their reliance on nonrenewable energy. The UAE Minister of Economy, Sultan bin Saeed Al Mansouri, has stated his plans to increase the contribution of FDI to GDP by 5% in the coming years (21). With the UAE government continuing to construct massive renewable energy projects in the near future, the minister believes this sector will be instrumental in attracting foreign investment, and the country’s boost in manufacturing, tourism, and aviation has allowed the UAE to become the first ranked, regionally, in the World Investment Report 2015 (22). 
 
     Thus far, Mansouri’s predictions regarding FDI have proven to be accurate, so there is little reason to doubt the emphasis he is placing on new and renewable energy sources will result in continued investment. Lastly, Mansouri points out how the recent decline in oil prices has caused investors to look for alternative investments, which could benefit the renewable energy sector, as construction and production of plants and equipment are less expensive, given the downturn in oil prices (23).
 
     The UAE is also in the process of implementing a huge nuclear power program, with oversight by the IAEA; a South Korean consortium is being paid $20 billion to build four nuclear power reactors by 2020, totalling 5.6 GWe, with the first nearly done and online by 2017 (24). The UAE already possesses a 3000 MWe connection from Iran to the UAE (25).
    
     “In 2013, the UAE produced 106 TWh gross,” 99% from gas, with a 19 GWe capacity; electricity demand is strong, as this is what fuels all desalination operations, and provides its potable water (26). “The UAE established a Nuclear Energy Program Implementation Organization,” which created the Emirates Nuclear Energy Corporation (ENEC), which was initially funded $100 million to implement nuclear power (27). The UAE then announced “joint-venture arrangements to foreign investors for….future nuclear power plants” similar to the Independent Water and Power Producers model, with 60% government ownership and 40% investor; this model is how the project with the South Korean consortium mentioned above was developed (28). Each of the four projects within the overall plan are projected to produce 1400 MWe (29).
    
     In 2012, “the UAE passed legislation… so that civil liability lies solely and exclusively with the plant operator… The state accepts responsibility as insurer of last resort [of the plant] (30).” “The USA signed a bilateral nuclear energy cooperation agreement with the UAE in January 2009 and South Korea signed one in June 2009 (31).” “A total of 82% of UAE residents were in favor of nuclear power [in 2012], compared with 66% in 2011… The high support was attributed to public engagement as plans developed (32).”
(1) Ball, Jeffrey. "Why the Saudis Are Going Solar." The Atlantic. Atlantic Media Company, July-Aug. 2015. Web. 30 May 2016.
 
(2) Ibid.
 
(3) Ibid.
 
(4) "Nuclear Power in the United Arab Emirates." World-Nuclear.org. World Nuclear Association, Apr. 2016. Web. 04 June 2016.
 
(5) Ibid.
 
(6) Fattah, Zainab, Vivian Nereim, Deema Almashabi, and Dana Khraiche. "What's In Saudi Arabia's Blueprint for Life After Oil?" Bloomberg.com. Bloomberg, 25 Apr. 2016. Web. 30 May 2016.
 
(7) Ibid.
 
(8) Ibid.
 
(9) "Nuclear Power in Saudi Arabia." World-Nuclear.org. World Nuclear Association, Jan. 2016. Web. 04 June 2016.
 
(10) Ibid.
 
(11) Ibid.
 
(12) Ibid.
 
(13) Ibid.
 
(14) Ibid.
 
(15) Ibid.
 
(16) Ibid.
 
(17) Ibid.
 
(18) Ibid.
 
(19) Ibid.
 
(20) Ibid.
 
(21) Emirates News Agency. "New and Renewable Energy Initiatives Are Essential for Attracting Foreign Capital to UAE: Al Mansouri." WAM. N.p., 6 Mar. 2016. Web.
 
(22) Ibid.
 
(23) Ibid.
 
(24) "Nuclear Power in the United Arab Emirates." World-Nuclear.org. World Nuclear Association, Apr. 2016. Web. 04 June 2016.
 
(25) Ibid.
 
(26) Ibid.
 
(27) Ibid.
 
(28) Ibid.
 
(29) Ibid.
 
(30) Ibid.
 
(32) Ibid.

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