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Saudi Arabia’s 1.79¢/kWh Solar Price Draws Analyst Skepticism

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Saudi Arabia received a record-breaking bid earlier this month of 1.79¢ ($US) per kilowatt-hour for a 300-MW solar array to be supplied by Abu Dhabi-based Masdar and Electricité de France. But industry analysts greeted the mind-bendingly low price as something approximating a publicity stunt for the country’s $50-billion energy diversification program.

“You got your headline, Saudi Arabia,” Greentech Media snarked, in the subhead above its story.

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“There is great pressure in the Middle East to come up with an impressive headline number, and these are becoming increasingly divorced from the reality of payments,” agreed Jenny Chase, Zurich-based chief solar analyst at Bloomberg New Energy Finance. “I don’t think this is possible as an all-in price of electricity from a 2019 [photovoltaic] project, particularly given the rising cost of debt in Saudi Arabia.”

In a post picked up by Renewable Energy World, Bloomberg News cast the bid as the beginning of Saudi Arabia’s effort to shift its energy supplies away from fossil fuels. “Saudi Arabia and its neighbours are among Middle Eastern oil producers looking to renewables to feed growing domestic consumption that’s soaking up crude they’d rather export to generate income,” the news agency notes. “While the offers submitted are remarkably low, the actual cost of power coming from the projects may be inflated by terms within the contracts that aren’t yet published.”

But even if the end numbers change, “the announcement is a milestone in Saudi Arabia’s nascent solar program. The country that gets less than 1% of its power from renewables currently plans to develop 30 solar and wind projects over the next 10 years.”

GTM Research analyst Benjamin Attia agreed [2] the price was far removed from profitable project economics.

“It’s very unlikely in my mind that Masdar is making money on an unsubsidized 1.79-cent bid,” he said. “What most people suspect, including us, is that there is some sort of subsidy, either direct or indirect, within the [as-yet unpublished power purchase agreement] that makes this price possible. Or they’re going to lose money on it.”