In late February, the Saudi government released its highly anticipated white paper outlining near-term solar plans in greater detail.
The organization that produced the document, K.A. CARE, is the Saudi Arabian government entity responsible for developing the kingdom’s renewable and nuclear energy resources. Until now, details about K.A. CARE’s plans have been few and far between and have historically lacked specifics. To help address this gap, GTM Research released a report titled Middle East and North Africa Solar Market Outlook, 2013-2017 in January 2013 at the World Future Energy Summit. In this report, we detailed what we expected K.A. CARE’s program to look like and how we expected the program to effect the market.
The good news: we nailed the details.
In our report, we showed that Saudi Arabia planned to hold an Introductory Procurement Round of roughly 600 MW of solar power (PV and CSP) from five or six sites in 2013. The introductory round will feature a request for proposal in the second or third quarter of 2013. While K.A. CARE’s white paper is certainly an exciting milestone in what looks to be a very promising solar market, the analysts at GTM Research have had a solid understanding of the basic workings of the plan for quite some time. However, some of the most interesting new points to emerge from the white paper are:
- Any CSP plant proposed in the Introductory Procurement Round is to have at least four hours of storage capacity.
- Project revenues will be taxed by 1 percent for the Solar Energy Training Fund to train local employees on solar PV and CSP technologies and 1 percent for the Solar Energy Research Fund to fund local research and development projects related to renewable energy in Saudi Arabia.
- Contract holders in the top 5 percent in terms of job localization in Saudi Arabia will be paid for every employee above the average.
In addition to the above points, more details emerged surrounding the kingdom’s planned scoring scheme. Each bid will be analyzed based on the price, as well as what are deemed as “rated criteria.” The rated criteria are the developer’s financial capability, plan, experience, development status, and the project’s local content. While GTM Research had previously identified these themes, a new detail did emerge in the white paper: the scoring will be 70% weighted toward price and 30% weighted toward the rated criteria.
Local content and economic development have long been known to be key components of Saudi Arabia’s solar ambitions. Interestingly, PV cells and modules are valued 50 percent less than racking, wafers, and inverters in local content ratings. In fact, PV cells and modules are valued equally to labor, services and polysilicon manufacturing.
No details were given as to how the rated criteria will be weighed against one another; however, the individual rated criteria will be evaluated as follows:
- Financial Ability and Plan: Evaluated based on credit rating, company revenues and net worth, and debt to equity ratios of financiers.
- Experience: Evaluated based on prior projects completed, with preference given to Saudi Arabian project experience.
- Development Status: Evaluated based on amount of site-specific solar resource measurement.
- Local Content: Evaluated based on dollars spent locally compared to total project cost; maximum points given for systems with 60% or more local content.
The details surrounding local content and bid requirements highlight some interesting points. For one, Saudi Arabia’s plan requires its developers to invest back into the local economy by providing training, advisory to research, funds for research, and by encouraging procurement from local manufacturers. Unlike other programs in the region, such as those in the UAE or Morocco, the program explicitly states how the dollars invested will be used and how it wants its local procurement program to unfold.
The program also provides explicit incentives for sourcing local labor. The 60-percent-local content goals are in line with Ontario’s requirements embedded in its feed-in tariff program. Ontario’s program has only had limited success in stimulating domestic manufacturing. However, Saudi Arabia hopes that with a large enough domestic market and a well-designed program, the nation can become a regional or global hub for solar energy technologies.
While we are still waiting for real dollars to be invested in the Saudi Arabian solar market, this white paper indicates a clear step forward. Prior to this document, information was only tentatively laid out in conference presentations or grand announcements designed to wow crowds.
GTM Research’s view remains the same: the opportunities in Saudi Arabia are real and are driven primarily by the opportunity cost of domestically burning natural resources rather than exporting them, as well as by a desire to diversify its heavily hydrocarbon-dependent economy. The real key for success in a complicated and relationship-driven market will be the right partners and the right strategy. In our Middle East and North Africa Solar Market Outlook, 2013-2017 report, we discuss the best strategies for partnership and the companies that are best positioned to capitalize on the massive potential market.