The world’s largest oil producer courts a new kind of energy partner.
Saudi Arabia is courting China for help with the next stage of its energy policy, amid predictions that renewable energy generation will change modern geopolitics.
Two Chinese solar giants unveiled Saudi manufacturing plans last month. The world’s fourth-largest PV maker, Longi, is planning a $2 billion Saudi Arabia-based solar panel backsheet production plant in association with the South Korean firm OCI.
A feasibility study for the project will be completed by mid-2019, Tariq Baksh, vice president of the chemicals and renewables program at Saudi Arabia’s National Industrial Clusters Program, told Reuters.
Meanwhile, the world’s largest thin-film PV manufacturer, Hong Kong-listed Hanergy, announced it would be investing more than $1 billion in a fabrication center to meet Saudi solar demand.
The investment, which includes an unlikely partnership with local menswear manufacturer Ajlan & Bros, would see Saudi Arabia hosting the only large-scale thin-film manufacturing base in the Middle East.
The announcements mean Chinese interests are well positioned to benefit from renewables growth in Saudi Arabia, which is forecast to develop 41 gigawatts of solar by 2032, according to Hanergy.
Saudi Arabia last month announced a 1.5-gigawatt solar procurement round that is expected to be dominated by Chinese companies alongside Middle Eastern renewable heavyweights, such as Acwa Power and Masdar.
Beyond the current tender, with capacity split across seven projects, the kingdom is aiming to install more than 27 gigawatts of renewables by 2024. Most of this capacity will be solar PV, a power source where China reigns supreme.
Seven of the top 10 PV module makers worldwide in 2018 were Chinese companies, including four of the top five and all of the top three.
China also has a stranglehold on the lithium-ion batteries increasingly paired with PV plants to make solar output more consistent and dispatchable.
Seven of the top 10 lithium-ion battery makers in 2017 were Chinese, according to Gaogong Industry Research Institute figures cited in the Nikkei Asian Review. And Bloomberg New Energy Finance estimates China will be making 70 percent of lithium-ion batteries by 2021.
A wider shift in renewables geopolitics
Admittedly, it will be some time before the value of Chinese renewable energy equipment sales in Saudi Arabia comes even close to the price the Asian giant pays for oil from Riyadh.
This year, Saudi Aramco is expected to ship 1.67 million barrels of crude a day to China after boosting exports through five supply agreements signed last November. Saudi Arabia lists China as its biggest customer for crude.
Nevertheless, Saudi Arabia’s growing reliance on Chinese-built renewable generation points to a wider shift in energy geopolitics, according to a report by the International Renewable Energy Agency’s Global Commission on the Geopolitics of Energy Transformation last month.
The report, titled A New World, says the influence of states such as China will grow because they have invested heavily in renewable technologies.
“By contrast, states that rely heavily on fossil fuel exports and do not adapt to the energy transition will face risks and lose influence,” says the report.
Dr. Fereidoon Sioshansi, president of Menlo Energy Economics, a San Francisco consulting firm, said the shift predicted by the report should not be underestimated.
“The fact that renewables are relatively cheap, plentiful and growing faster than fossil fuels is old news,” he said. “What is new about this is it says, if this goes on, as everybody now more or less agrees, it will upend all the conventional wisdom about energy.”
For decades, he noted, countries such as the U.S. have not only paid vast sums to import oil, but have also spent heavily to protect supply routes. These cash flows will be altered as oil diminishes in importance.
A key differentiator Ben Backwell, CEO of the Global Wind Energy Council, a trade body, said willingness to embrace renewable energy technology will increasingly be a key differentiator for successful economies and governments.
“The energy transition requires governments to move quickly and show leadership,” he said. “Those that do can prosper economically, benefit from technology innovation and enhance their soft power credentials and moral authority. Those that don’t can end up being locked into last-century technologies that are expensive [and] damaging to the climate and to human health, thus missing investment opportunities and losing credibility both internationally and domestically.”