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Eye of Riyadh
Eye of Riyadh
Business & Money | Wednesday 26 August, 2020 2:44 pm |

Saudi Renewable Sector to Generate 750,000 Jobs over the Next 10 Years

A recent report by the U.S.-Saudi Business Council (USSBC) has revealed that the level of ongoing investments in Saudi Arabia’s renewable sector is expected to create up to 750,000 jobs over the next 10 years, and will become a prominent sector in the development of Saudi talent. The report cited the Kingdom’s efforts in localizing its manufacturing base as the primary generator of employment opportunities as the Kingdom aims to localize the sector to 40-45 percent by 2028 and beyond.


The Saudi power sector is in the midst of significant developments aimed at generating and growing its capacity to supply electricity to residential consumers and commercial customers. Facing strong demand for electricity, a desire to diversify its domestic energy mix, the need to improve energy efficiencies, the decline in the cost of alternative energy sources, and the abundance of solar radiation across the country are measures that will allow the Kingdom to become a global leader in renewable energy. 


While the current contribution of renewable energy to the Kingdom’s total capacity is in a nascent stage, the scale of growth is expected to significantly ramp up as the Kingdom aims to reach its ambitious goal of generating 50 percent of its energy through alternative resources by 2030. In order to reach this goal, the Kingdom will prioritize the growth of the sector through private sector participation, attracting foreign direct investments, job creation, and localizing domestic production and content. 


A growing population coupled with a surge of mega projects over the past two decades has necessitated significant strides by the government to meet the Kingdom’s demand for power. According to the General Authority for Statistics (GAStat), Saudi Arabia’s population grew by a compounded annual growth rate (CAGR) of 2.8 percent between 2000-2019, reaching approximately 34.2 million people. Meanwhile, the Kingdom’s peak load grew from 21.7 MW in 2000 to 68.1 MW in 2019 according to the Electricity & Cogeneration Regulatory Authority (ECRA), marking a CAGR of 5.7 percent. This points to the growth in demand for electricity per user that outpaces population growth and has placed growing pressure on the government to provide for the needs of consumers. Further illustrating the growth in demand is the per capita usage over the last two decades. The KWh/capita grew from 5,575 in 2000 to 8,434 in 2019, representing a CAGR of 2.2 percent. The KWh/capita has steadily decreased since 2015, which reached KWh/capita of 9,484. The decrease is mainly attributed to the government’s partial removal of energy subsidies in 2015 and again in 2018 for both the residential and commercial sectors. 


The rise in construction projects, particularly mega-projects over the last 10 years has further intensified the demand for electricity across every phase of development. According to the USSBC Contract Awards Index, the cumulative value of contract awards between 2010-2019 reached SAR2 trillion ($533 billion). 


According to USSBC estimates, Saudi Arabia’s total renewable energy capacity will grow to 5.3 GW by 2030, accounting for 7 percent of the Kingdom’s total electricity output of 102 GW. Solar power is forecasted to account for 77 percent of all renewables by 2030. 


“The renewable energy sector is expected to provide numerous employment opportunities as part of the Kingdom’s broader Vision 2030 goals. The level of growing investments into the sector as evidenced in REPDO’s round one and upcoming round two and three will be largely reliant on experienced Saudi nationals to help implement these developments. The expected value of REPDO’s projects will create between 300-750 thousand jobs over the next decade", noted Albara’a Alwazir, Economist at the U.S.-Saudi Business Council:  


“The abundance of solar and wind exposure places the Kingdom in position to become the regional leader in renewable energy. It is ranked as the 6th country globally with the highest potential for solar energy and 13th in wind energy. While the Kingdom’s current renewable energy environment is in its beginning stages of development, the upcoming plans to develop its capabilities will boost the government’s diversification plans by reducing domestic consumption of crude oil and gas and provide growing employment opportunities for its citizens”.


Paramount to the successful future of the renewable energy sector is the availability of financing and concessions from the government and private banks. Given the priority to develop the renewable energy sector, the government has introduced favorable financing mechanisms to support local and international organizations such as the SAR105 billion ($28 billion) Saudi Industrial Development Fund. Meanwhile, commercial banks are increasing their lending appetites for well-designed renewable energy projects by offering long loan tenors and low interest rates. Renewable energy projects in the region attract loan tenors over 20 years, high debt-to-equity ratios of 70-80 percent, and low interest rates that are 120-200 basis points above the London Interbank Offered Rate (LIBOR). The average debt-to-equity range for international solar PV projects are usually between 60-70 percent.


The Kingdom’s ambitious plan to generate 50 percent of its energy through alternative resources by 2030 amplifies the degree of investments needed to achieve its goals. With support from the government, the private sector will play a pivotal role in the future development of this sector. International developers will be counted on to play significant roles as partners in building the technological know-how and to grow manufacturing localization.

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