200-Gigawatt Saudi Solar Deal Prompts Wait and See Attitude from Analysts
Observers and analysts are taking a wait and see attitude to last week’s announcement of a US$200-billion deal between Saudi Arabia and Japanese financial powerhouse SoftBank, aimed at increasing the desert kingdom’s installed solar capacity from 50 megawatts today to 200 gigawatts by 2030.
We have just signed an MOU [memorandum of understanding] to create the world’s biggest solar power generation project,” SoftBank CEO Masayoshi Son said in New York. “The Kingdom has great sunshine, great size of available land and great engineers, great neighbours, but most importantly, the best and greatest vision.”
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“Importantly, these projects will help create up to 100,000 direct and indirect jobs in the Kingdom,” the Saudi embassy in Washington added in a statement. “It will increase the GDP by $12 billion and save up to $40 billion annually.”
But “several analysts cautioned the agreement between the massive Japanese firm and the desert nation might not be fully realized, both because of its ambitious scale and because it is at present a non-binding memorandum of understanding,” the Washington Post reports. Greentech Media adds that the published agreement “contains few concrete details on how the partners will secure the massive amount of debt required. It also didn’t mention the challenges involved in scaling up logistics and manufacturing capacity” in a country that currently has less installed solar than Kyrgyzstan or the U.S. state of Louisiana.
“It’s an unprecedented construction effort; it’s an unprecedented financing effort,” said GTM Research global solar analyst Benjamin Attia. “But there are so many questions, so few details, and a lot of headwinds, like grid instability, the availability of commercial debt, construction and logistics challenges.”
“Saudi Arabia generally releases big numbers on long time frames, which are then subject to revision, and Softbank likes to announce big numbers, too,” agreed Bloomberg New Energy Finance solar analyst Jenny Chase, in an email to the Post. “Seriously, I’ve probably made more binding agreements to grab a coffee than that Saudi/Softbank MoU for 200GW of solar by 2030,” she tweeted.
On the other hand, “there seems no obvious reason why 200 GW by 2030 is impossible if Saudi Arabia needs the daytime electricity; the solar industry can deliver it, Softbank has an appetite for making investments,” Chase added.
For now, Attia and Chase are both watching for the results on two solar farms, one rated at 3.2 and the other at 4.0 GW, that have been fast-tracked to connect to the Saudi grid in mid-2019. “We’re not willing to buy into the hype until we see something happen on that initial 7.2 gigawatts,” Attia said.
But “if even part of that were to be built, it would drastically shift the trajectory of the solar market in Saudi Arabia,” he told the Post.
The two projects are expected to cost $5 billion, and will be backed by a $1-billion equity investment from SoftBank’s Vision Fund, 45% of which comes from Saudi Arabia’s Public Investment Fund. Attia said that intended price tag “seems a little low for total cost.”
This isn’t the first time Greentech has second-guessed (not to say mocked) a seemingly impossibly low cost estimate from a country that has pledged to build the world’s cheapest wind and solar installations. “You got your headline, Saudi Arabia,” the industry news outlet snarked, after the country received a bid of 1.79¢ per kilowatt-hour for a 300-MW solar array to be supplied by Abu Dhabi-based Masdar and Electricité de France.
Now, the $1-billion commitment for the first phase of the project suggests SoftBank “is planning to take up to a 20% stake in future projects, leaving 80% of project costs to be covered by debt financing,” Greentech notes. “Meeting the stated 10 to 20% equity threshold, especially with reinvested returns from earlier stages of the project, is probably feasible, but the availability of such a massive volume of commercial debt remains in question,” Attia wrote in a GTM Research note.
The Post notes that Saudi Arabia’s electricity consumption doubled between 2005 and 2015, and the country needs more electricity for desalination plants to serve a growing population. Those realities combine with the country’s interest in reducing domestic oil consumption, now at nearly three million barrels per day, to free up more of the resource for export.
“I think it’s a waste of a resource to burn oil in a stationary application,” University of Texas mechanical engineer Dale Klein told the Post. “Oil is better for airplanes, automobiles, trucks in mobile utilities.”