The Impact of the COVID-19 Pandemic on the Energy Sector in the Kingdom of Saudi Arabia: the Future of Renewable Energy After the Crisis
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The Impact of the COVID-19 Pandemic on the Energy Sector in the Kingdom of Saudi Arabia: The Future of Renewable Energy after the Crisis Sarah Alotaibi Special Report February, 2021 / Jumada I 1442 H. 1 The Impact of the COVID-19 Pandemic on the Energy Sector in the Kingdom of Saudi Arabia: The Future of Renewable Energy after the Crisis Special Report Table of Contents Abstract 6 Introduction 7 Section 1: Implications of the COVID-19 pandemic and change in domestic energy demand 9 Oil 9 Energy diversification strategy 10 Gas 10 Renewable energy sources 11 Growth of renewable energy projects investments 12 Section 2: The impact of COVID-19 on electricity consumption 16 Enhance energy efficiency policies 19 Electricity sector reforms 19 Section 3: Transition towards a sustainable energy system 22 Conclusion 23 5 Abstract This report focuses on the impact of the COVID-19 lockdown on domestic electricity consumption in the Kingdom of Saudi Arabia. It includes a breakdown by percentage of how different energy sources, including gas and renewable energy (RE), are contributing to the total energy mix during the crisis. Finally, it highlights the importance of renewable energy sources for the sector after the pandemic. 6 Introduction The number of infections from the coronavirus has exceeded 56 million, resulting in more than 1 million deaths. Governments across the globe are continuing to take measures to combat the spread of the epidemic and reduce its economic and social repercussions.(1) In many countries, this one crisis has led to a series of consecutive crises that revealed profound weaknesses in their economies, necessitating a review of sustainability policies according to these new perspectives to overcome it. In Saudi Arabia, the government has adopted decisive measures to combat the pandemic in order to preserve the health of the population and bolster its health infrastructure. This has resulted in a relatively low infection and mortality rate from COVID-19. On the other hand— as in other countries—these measures have affected the demand for energy in general and the volume of domestic consumption of electricity in particular.(2) With regards to the energy system, diversification of energy sources and reorientation according to the concepts of sustainability have become an essential part of achieving economic growth and mitigating the associated damages in the future. This is clearly related to countries that depend on oil revenues due to the concerns of fluctuations in energy markets and changes in supply and demand. This is evident in the impact of the crisis on the fiscal situation in Saudi Arabia, as the decline in oil demand has had a direct reflection on government revenues during the second quarter of 2020. According to a report issued by the Ministry of Finance, oil revenues decreased by 49% compared to the of 2019.(3) In addition, the growth rate of the gross domestic product (GDP) recorded a decrease of roughly 1.6% compared to 3.8% growth in the last quarter of the last year.(4) It is worth mentioning that (1) For more details see: https://www.worldometers.info/coronavirus/?utm_campaign=homeAdUOA?Si. (2) Roberto Bocca, “As Coronavirus Shocks the Energy Sector and Economy, Is Now the Time for a New Energy Order?,” World Economic Forum, April 26, 2020, https://www.weforum.org/agenda/2020/04/energy-oil-gas-electricity-sustainability-economy- covid19-coronavirus-pandemic-market-stability/. (3) Jadwa Investment, “Q2 2020 Budget Statement: Debt Rises Significantly,” 2020, http://www.jadwa.com/en/search/index/ page/5?q=saudi+budget&__buffer=true. (4) Jadwa Investment, 1–3. 7 the contribution of non-oil activities reached 59% of the gross domestic product after the Vision 2030 reforms were announced to promote economic performance. Non-oil sector activities include wholesale, retail, and hospitality; mining (excluding hydrocarbons); and transport and communications activities. In terms of contribution to GDP, the crude petroleum and natural gas sectors make up 37.3%.(5)(See Figure 1) Figure 1: Contribution to GDP by Economic Activity in Q1 2020 (constant price), General Authority for Statistics, 2020, https://investsaudi.sa/en/news/saudi-arabia-announces-foreign-investor-license-results-for-q1-2020/ (5) Invest Saudi, “Investment Highlights: A Special Report by Invest Saudi,” 2020, https://investsaudi.sa/en/news/investment- highlight-summer-2020/. 8 Section 1: Implications of the COVID-19 pandemic and change in domestic energy demand The crisis has directly affected the volume of global energy demand. According to a recent report from the International Energy Agency, the first quarter of this year saw a decrease of 3.8%. This was evident across different energy sources: The report also indicated a decline in coal by 8% from last year, while oil recorded the largest drop of nearly 5%, a decrease of 27 million barrels per day compared to last year. On the other hand, the demand for gas recorded a limited decrease of 2%, while renewable energy sources witnessed a growth compared to the rest of the sources.(6) This also applies to the growth of renewable energy projects in Saudi Arabia, which continues in Requested for Proposals (RFP) for Round Three ‘Category B’ Solar PV independent power producer (IPP) of the Kingdom’s National Renewable Energy Program (NREP). It will also be referred to in detail in the report. Oil The impacts of the pandemic differed for the local energy sector, the electricity and water desalination sectors, during the crisis. In general, the energy generation sector is still heavily dependent on oil and gas, as oil accounts for more than a third of the total energy consumed daily.(7) According to the CMarkits company estimates, domestic consumption of oil decreased to approximately 3.17 million barrels in the first quarter of 2020 due to the crisis, compared to 3.96 million barrels for the first quarter of last year, i.e., a drop of 910,000 barrels per day.(8) According to these estimates, the electricity sector demand is expected to decrease by nearly half a million barrels, and a million barrels for the industrial sector, while the transportation sector demand will decrease by approximately 910,000 barrels of gasoline and diesel. (6) International Energy Agency (IEA), “Global Energy Review 2020: The Impacts of the Covid-19 Crisis on Global Energy Demand and CO2 Emissions,” April 2020, https://www.iea.org/reports/global-energy-review-2020. (7) 55th Annual Report of Saudi Arabia Monetary Authority, (2019) https://www.sama.gov.sa/en-US/EconomicReports/ AnnualReport/Annual_Report_55th-EN.pdf (8) Interview with the CEO of CMarkit Dr.Yousef Al-Shammari., April 2020. 9 Energy diversification strategy In recent years, specifically after the launch of its Vision 2030, the Kingdom has started to reform the energy sector. This vision considers achieving a balance in the total energy mix as one of its most important goals. This was in response to the need to meet citizens’ demand for electricity and desalinated water, which is growing at a rate of approximately 5.48% annually. In addition, the government has put in place a strategy for the diversification of energy sources, with the aim of reducing crude oil consumption in electricity generation. It does so through strengthening energy efficiency policies, as well as by increasing dependence on natural gas. This raises the proportion of energy generation from renewable energy sources and accelerates the policies of introducing nuclear energy into the overall energy mix. Gas This strategy has clearly contributed to raising the proportion of natural gas contribution in the production of power plants to approximately 57%, according to the latest reports published in 2019, with a growth rate of 4.8%. The contribution of crude oil reached 20%, fuel oils 20%, and diesel 3%(9) (see Figure 2). Figure 2: Fuel Consumption - by Fuel Type, ECRA - Annual Statistical Booklet for Electricity and Seawater Desalination Industries, 2019, https://www.ecra.gov.sa/ar-sa/MediaCenter/doclib2/Pages/SubCategoryList.aspx?categoryID=4 (9) Yagyavalk Bhatt, Anushree Majumdar, and Nora Nezamuddin, “The Impact of the Coronavirus Lockdown on the Electricity Sectors in Saudi Arabia and Indi,” KAPSARC, July 5, 2020. https://www.kapsarc.org/research/publications/the-impact-of-the- coronavirus-lockdown-on-the-electricity-sectors-in-saudi-arabia-and-india/. 10 In this context, the government’s strategy aims to expand its investments in natural gas to meet increasing domestic demand, which is growing at an annual rate of 3.6%.(10) In 2018, Saudi Arabia was ranked seventh among the countries with the highest demand for gas. According to Saudi Aramco, the kingdom has proven gas reserves of 237.4 trillion standard cubic feet and its daily output is approximately 13 billion cubic feet. In the next decade, the volume of investments in the gas development program is expected to reach $150 billion. The recent discovery of natural gas fields such as the Jafurah and Zeba and Midian fields in the north of Saudi Arabia is contributing to expand this strategy and achieving its objective to export gas in the future. In this regard, some specialists have indicated that in the coming years more investments are needed to take advantage of the large gas reserves.(11) Renewable Energy Sources Interestingly, in this respect the coronavirus crisis has had limited impact on the contribution of other energy sources in Saudi Arabia, specifically renewable energy, in the total energy mix, compared to oil. The total installed solar PV capacity in the Kingdom is about 390 MW.(12) The total installed capacity of solar energy in the world by the end of 2019 reached 627 GW, enough to meet 26% of global energy demand. The Ministry of Energy’s policy toward the renewable energy sector during the previous years was characterized by a careful and gradual introduction of renewable energy into the total energy mix.