Vision 2030 and the Birth of Saudi Solar Energy
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MEI Policy Focus 2016-15 Vision 2030 and the Birth of Saudi Solar Energy Makio Yamada Middle East Institute Policy Focus Series July 2016 A solar sector is emerging as part of Saudi Arabia’s economic diversification plans under the Vision 2030. Makio Yamada offers an analysis of policy and institutions governing the country’s expansion into “yellow oil.” Rising domestic oil consumption, young citizens’ entry into the job market, and reduced solar panel production costs have driven the launch of the solar industry in the kingdom. Growth of the industry had previously been hindered by institutional ambiguity and fragmentation, but the government restructuring in May has paved the way to its eventual rise by unifying necessary administrative functions under the newly-created super-ministry. Key Points ♦ The new Saudi leadership, led by King Salman and his son Deputy Crown Prince Mohammed, will exercise control over the country’s next giant, non-oil industry, which Saudis call “yellow oil,” or solar energy ♦ The initial driver behind the Saudi government’s interest in the use of solar power was its intention to preserve the kingdom’s capacity to export oil in light of rising domestic consumption; the Vision 2030 also underscores the industrial aspect of solar energy ♦ Following the succession in January 2015, the new leadership found the country’s institutional framework for the solar sector problematic; the government restructuring in May 2016 unified the necessary administrative functions for the sector ♦ Insufficient human capital may be an impediment to the growth of the industry; the National Transformation Program 2020 has set ambitious goals to boost the country’s technical education, but its feasibility remains to be seen Makio Yamada Makio Yamada Introduction investigates economic diversification in Saudi he announcement of Vision 2030, the Arabia and G.C.C. Saudi state’s new economic blueprint, countries and their T economic relations with in late April was followed by a major gov- Asian countries. ernment restructuring 12 days later. The He is a Teaching Fellow highlight of this restructuring was the cre- at the SOAS University ation of a powerful multitasking ministry, of London and a Visiting Fellow in G.C.C. Energy the Ministry of Energy, Industry, and Min- at the Oxford Institute eral Resources (M.O.E.I.M.R.), headed by for Energy Studies (2016). He received his DPhil in Khalid A. al-Falih, a former health minister International Relations from the University of Oxford and C.E.O. of Saudi Aramco. M.O.E.I.M.R. in 2015. replaced the Ministry of Petroleum and Mineral Resources (M.O.P.M.R.) by ab- sorbing the administrative functions for is led by King Salman and his son Deputy industrial policy from the former Ministry Crown Prince Mohammed, to exercise con- of Commerce and Industry (renamed the trol over the country’s next giant, non-oil Ministry of Commerce and Investment in industry, which Saudis call “yellow oil” (an- 3 the restructuring) and those for electricity naft al-asfar), or solar energy. policy from the former Ministry of Water and Electricity (dissolved in the restructur- Yellow Oil 1 ing). for Economic It was seen as the largest government re- structuring in the economic field since Diversification Away 1975. In that year, following the succession from Oil after the death of King Faisal (r. 1964–75), the Ministry of Industry and Electricity Renewable energy has rapidly been making (M.O.I.E.) was created by King Khalid (r. inroads into the global energy market in 1975–82). M.O.I.E. absorbed the adminis- the past few years. Last year, global invest- trative functions for industrial policy that ments in renewable energy were more than had hitherto belonged to M.O.P.M.R. and double the amount spent on new coal and those for electricity policy from the Minis- gas-fired plants.4 The sector today employs 2 try of Commerce. The latest restructuring 8.1 million workers globally, and 2.8 mil- re-inserted industrial policy into the min- lion of them are engaging in the produc- istry administering the oil industry after tion of solar modules.5 The International four decades and incorporated electricity Energy Agency predicts that solar energy policy for the first time. What this implies will account for over 5 percent of the global is the intention of the new regime, which power production capacity by 2020.6 Vision 2030 and the Birth of Saudi Solar Energy 1 Vision 2030 identifies renewable energy as 128MW at the same time.11 These numbers one of the pillars of economic diversifica- are strikingly small given the amount of tion away from oil. It sets an “initial target” sunshine the region receives. The installed of producing 9.5 gigawatts (GW) of power solar capacity of Germany, a country en- from renewable energy. The projects will be dowed with only half the sunlight hours in pursued under the “King Salman Renew- the Gulf (slightly above 1,500 hours annu- able Energy Initiative,” details of which are ally), was 40 GW – more than 300 times the expected to be announced soon.7 The Na- U.A.E.’s and 1,700 times Saudi Arabia’s.12 tional Transformation Program 2020, which was announced in early June following the Nevertheless, supported by the decline in Vision 2030, set the target of 3.45GW, or 4 the cost of solar modules, the G.C.C. coun- percent of the total power consumption, tries are currently undergoing a “quiet rev- 13 by 2020. The program also aims to employ olution” in solar energy. The largest solar 7,774 workers in the renewable and nuclear power project currently under execution in energy sectors combined by 2020.8 the region is the 800MW Phase III of the Mohammed bin Rashid Al Maktoum Solar Park in Dubai. The Dubai Electric- “[T]he G.C.C. countries are ity and Water Authority, which oversees currently undergoing a ‘quiet the development of the park, aims to in- stall 5GW capacity by 2030.14 Investors revolution’ in solar energy. ” are concurrently eyeing Saudi Arabia, which they expect to be a “crown jewel” Renewable energy consists of different of the Gulf solar market once the industry sources of energy such as solar, wind, wave, takes off.15 The Saudi government has been and geothermal. Among them, solar is con- studying the use of solar power in the king- sidered a particularly promising source of dom since the creation of the King Abdul- non-hydrocarbon energy in Saudi Ara- lah City for Atomic and Renewable Energy bia, as the Arabian Peninsula is one of the (K.A.C.A.R.E.) in 2010 by the royal decree most sunshine-rich places in the world.9 In of the previous king Abdullah (r. 2005–15). spite of its exceptionally long (over 3,000 hours annually) sunlight hours, solar, how- The initial driver behind the Saudi gov- ever, has never been harnessed as a major ernment’s interest in the use of solar pow- source of energy in Saudi Arabia or in other er was its intention to preserve its capacity G.C.C. countries.10 The country’s installed to export oil in light of the rising domestic solar power capacity was only 23 megawatts consumption of oil for power. One study (MW) at the end of 2015, while that of the estimates that Saudi Arabia will be a net U.A.E., which has the largest installed solar oil-importing country in the late 2030s if capacity among the G.C.C. countries, was domestic oil consumption continues to in- 2 Yamada crease at its current pace.16 K.A.C.A.R.E. riods of labor-scarcity, the sector is bloated previously announced its plan to produce today and has little additional capacity to 41GW, nearly a third of the country’s pro- employ.20 As a result, the number of jobless jected power need, from solar energy by young citizens has been increasing, with 2032, in addition to 17GW from nuclear the country’s youth unemployment rate energy and 9GW from wind. (However, estimated to be over 40 percent.21 Current- the target year was pushed back to 2040 in ly, nearly a third of the country’s national January 2015,17 and now the plan seems to population – around 7 million – are still have been abandoned.18 in schools or preschools, but they will en- ter the labor market over the next 15 years, In addition to such energy-mix policy, the needing jobs to support themselves and Vision 2030 also places an emphasis on the their families.22 industrial side of renewable energy. It states: This demographic time-bomb puts pres- “We will support promising sectors and foster their success so that they become sure on the government to nurture new new pillars of our economy. In the manu- industries, especially labor-intensive ones facturing sector, we will work towards lo- that can create greater numbers of job op- calizing renewable energy and industrial portunities than the machine-oriented oil equipment sectors.” and gas industry. This task is also pressing “We will also seek to localize a significant as the country’s petrochemical industry, portion of the renewable energy value a leading non-oil industrial sector in the chain in the Saudi economy, including re- search and development, and manufactur- Saudi economy in the past three decades, is ing, among other stages.” losing its advantages in the global econo- my today, which is attributable to multiple These statements reflect the government’s factors, such as the insufficiency of domes- awareness that acceleration of the process tic gas feedstock, the industry’s shrinking of economic diversification is an urgent cost-competitiveness due to the low global matter.