The Surprising Country Investing Big In Energy Storage

In common perception, the drive towards a green energy transition is placed as a tussle between those who want green, clean energy, and those who depend on fossil fuels, and hence do everything to delay or discredit the transition. The pronouncements by President Trump, to ‘drill baby drill’ for that country’s oil and gas sector, while ‘withdrawing’ the EV mandate or refusing easy licensing for offshore wind farms further strengthens this perception. But even as we wait for President Trump to smell the coffee and realise the error of his approach, it is instructive to see what the country with the highest national stake in fossil fuels is doing- Saudi Arabia.

Cheapest and Low Carbon Extraction

Saudi Arabia does not have the world’s largest oil reserves, but it does have some of the easiest to extract oil and gas reserves globally. That means, unlike shale oil and gas or Canada’s oil sands, or even large offshore oil and gas installations, the Middle East monarchy can still churn a profit from oil at prices well below current rates, with a much lower carbon footprint in the whole process.  In fact, close to half the world’s oil extraction becomes viable at prices below $40 by some estimates, but not for Saudi Arabia, where the cost of extraction can be as low as $4-5 on some of its fields. What this has done to the kingdom’s approach to green energy is instructive.

Realising the possibility of its oil supplies outlasting almost everyone else in terms of cost of extraction, Saudi Arabia has moved to adopt green energy at a scale that has surprised onlookers. Or more simply, making its oil sector even more of an exports only sector than it is currently. In doing so, the Kingdom  achieves twin objectives. Ensuring it does not compromise on the energy needs of its own citizens and industry while moving to a more market driven cost, and two, deflecting any global criticism of its oil business by pointing to the demand for it from other countries. Keep in mind that even the relative carbon footprint of extracting oil is lower in Saudi as compared to others.

Saudi Arabia’s Green Push- Fast and Large

While the recent opening of one of the world’s largest stand alone battery projects is one indication of progress  on the round in Saudi Arabia, the Kingdom’s medium term plans look impressive as well. We say medium term because between award and commissioning, projects have started moving at a furious pace in the country, with the 2000MWh BESS project taking just 11 months, for instance.

Plans are at final stages for a further 8000MWh of projects, most of which could be in place by sometime in 2026.

Saudi Arabia tripled its renewable energy production capacity from 700 MW in 2022 to over 2.2 GW in 2023. A significant milestone was reached in June, 2023, when the Saudi Power Procurement Company signed power purchase agreements for three new solar PV projects totaling 5.5 GW to come up by 2025. With a national target to use green energy for 50% of its needs by 2030, by the end of the decade, Saudi Arabia aims to generate 58.7 gigawatts of renewable energy. This includes 40 GW from solar photovoltaics, alongside 16 GW from wind energy and 2.7 GW from concentrated solar power. Effectively, the plan is to add 20 GW of renewable energy each year to 2030, something that is looking far more feasible now.

The Low Prices Making It Happen

The surge in energy storage owes its pace to the unprecedented drop in prices seen through 2024, and the kingdom’s low barriers to business. Low solar prices  had already sparked a revival on a meandering green energy plan until 2022. That has meant Chinese global majors in the solar, wind and storage space have rushed to make their presence felt, expanding operations to cover EPC services in no time at all.  With highly integrated firms like Jinko Solar, Tongwei, LONGi and others winning almost all the large projects on offer so far.

Saudi National Champions Emerge

In fact, with Chinese firms spotting the long term opportunity and business benefits in a welcoming region, have also promised to set up manufacturing operations in the region, with solar manufacturing capacities of upto 5 GW expected to come up by 2026. Further backward integration right upto polysilicon manufacture are also in the works. The flurry of activity has meant that Saudi firms like Acwa Power or Al fanar, that had been limited to the country until a few years ago, have built enough experience to take their EPC offerings outside the country, with a special focus on opportunities in the middle east and central Asia.

It seems safe to predict that between 2025-2027, Saudi Arabia will finally emerge as a serious player on the renewable energy front as well providing a template for many other oil dependent nations to pick and learn from.