How Maintaining Saudi Arabia’s Oil Dominance May Depend on Going Solar

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weingartner_katherine By Katherine Weingartner, Fall 2016 Fellow

“We have nothing to complain about,” assured Abdullah al-Sahli, head of the local government office in Saudi Arabia. With billions of dollars flooding the pockets of Saudis following the 2015 rise of the new monarch, King Salman, it might be hard to disagree. The country has acquired massive wealth as the largest petroleum exporter in the world, and holds 18 percent of global proven petroleum reserves.3 However, the oil-rich, export-ruling Saudi Arabia that al-Sahli sees is a false one. Out-of-control domestic oil consumption is threatening Saudi dominance as an oil exporter and its future as a country. In order to continue to lead in oil abroad, Saudi Arabia should lead in solar at home.

Out of Control Domestic Consumption

At the current rate of domestic oil consumption, some predict that Saudi Arabia could become a net oil importer by 2030. High government oil subsidies put gasoline at $0.50/gallon and electricity as low as $0.01/kWh, astonishingly low compared to the U.S. averages of $2.2/gallon and $0.11/kWh. These rates offer little incentive for Saudis to curb their consumption. In fact, though Saudi Arabia has produced more oil than ever before in recent years, the amount of crude oil being domestically consumed is almost twice what it was ten years ago. The problem of increased usage is compounded by a highly inefficient energy production infrastructure, an outdated energy generation strategy that involves burning oil directly, and a rapidly growing population that will put further strain on domestic oil consumption as demand at home rises. Every barrel of oil consumed at home is a barrel that cannot be exported, and the stability of the country depends on those exports.  

The Social, Political, and Economic Importance of Oil

The government introduced economic reforms this year to reduce oil, electricity, and water subsidies which have changed its long-held social contract with Saudi citizens. Doing so threatens to fuel unrest at a time when Islamist extremism is a growing issue. Additionally, revenue from oil exports is important for providing social services as Saudi citizens do not pay personal income taxes.

The Saudi petroleum sector is responsible for 45 percent of GDP, 80 percent of budget revenue, and a staggering 90 percent of export earnings. This makes the state extremely susceptible to oil price fluctuations. According to the International Monetary Fund, Saudi Arabia’s money could run out within five years if nothing is done to curb its spending. The government projects a $87 billion deficit this year.

Politically, Saudi Arabia relies on its large spare oil capacity as a tool to influence the global oil market and extend its power not only globally, but regionally. The political rivalry between Saudi Arabia and Iran has intensified with the drop in global oil prices as both oil export-dependent countries struggle to compete for market share. If Saudi Arabia’s revenue from oil exports slips, so does its ability to fund its run for regional hegemony.

Fear of Losing Dominance Drives Support for Domestic Solar

Fears of losing political and economic dominance have driven Saudi Arabia to seek an alternative to oil. Situated in the world’s sun belt, Saudi Arabia enjoys some of the most intense sunlight in the world, making solar an ideal choice. Indeed, Saudi Arabia’s average solar irradiation levels are twice as high as in Germany, and the Saudi desert boasts ample space for installations. The falling cost of solar makes its deployment even more feasible.

Some in Saudi leadership support greater solar investment. Prince Mohammed bin Salman bin Abdulaziz Al-Saud, chairman of the council responsible for the country’s economic policy drafted a Vision 2030 reform plan that makes building up the renewable energy sector, specifically solar, a top priority. The country is planning to install two 50 MW PV projects. Even Aramco Energy Ventures, a subsidiary of Saudi Aramco, the country’s $600 billion national petroleum and natural gas company, has committed to investing in renewable energy and energy efficiency. Looking towards the future, Saudi Arabia hopes a competitive export market for Saudi solar panels can create more high-paying tech jobs for a growing youth population.

Challenges to Creating Domestic Solar Industry

Although the need to curb domestic oil consumption is high and the potential for solar is great, becoming a solar leader is not without its hurdles. Technical obstacles, constant dust and sandstorms that reduce panel efficiency, the still generous oil subsidies that disincentivize consumers to curb their consumption are a few obstacles that must be overcome.  Furthermore, the industry must be more effectively managed.

For example, a multi-billion-dollar solar research station in Al-Uyaynah with the amenities of a small city and significant financial resources has been ineffective due to inefficient station spending and production. Part of addressing these challenges will take government-created economic incentives that signal to Saudi companies to invest in solar in order to accelerate the growth of the country’s solar industry.

Failing to do so puts the country’s social, economic, and political stability at risk. Saudi Arabia must find innovative solutions to push the development of its domestic solar industry. There is too much at stake not to.

Katherine Weingartner is a Fellow with the Clean Energy Leadership Institute and Program/Research Assistant, National Climate Assessment, United States Global Change Research Program. 

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