A two-hour drive from Saudi Arabia's capital, Riyadh, rows of solar panels stretch to the horizon like ocean waves. Despite nearly limitless oil reserves, the kingdom is embracing solar and wind power to maintain its leading position in the country's vital yet rapidly changing energy industry.
Looking out over the 3.3 million solar panels covering 14 square miles of desert, Faisal Al Omari, CEO of the recently completed Sudair solar project, said he plans to tell his children and grandchildren about his contribution to Saudi Arabia's energy transition. “I'm really proud to have been involved in this project,” he said.
While oil production still plays a key role in the Saudi economy, the country is also embracing other energy sources. Sudair, which can power 185,000 homes, is the first of many megaprojects aimed at increasing electricity generation from renewable sources such as solar and wind to about 50 percent by 2030. Currently, renewables account for only a small portion of the kingdom's electricity generation.
Analysts say the highly ambitious goal is unlikely to be met. “If we get to 30 percent, I'll be happy because that's a good sign,” said Karim El-Gendy, a climate analyst at the Middle East Institute, a Washington research group.
Still, the Kingdom plans to build solar power plants at a rapid pace.
“The volumes you see here can only be seen in China, you can't see anywhere else,” said Marco Arceri, CEO of Akwa Power, Saudail's Saudi Arabian developer and a growing force in the international power and water industry.
Not only do the Saudis have the capital to expand rapidly, they also don't have to go through the lengthy permitting processes that have stymied such projects in the West. “The Saudis have a lot of investment capital and can move quickly to pull the trigger on project development,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies, a Washington research institute.
Even Saudi Aramco, the crown jewel of the Saudi Arabian economy and producer of nearly all of the country's oil, is feeling the shift in the energy landscape.
Aramco has acquired a 30% stake in Sudair for $920 million to gain a foothold in solar power, the first step in a planned 40-gigawatt solar portfolio that would exceed Britain's average electricity demand and meet much of the government's renewable energy ambitions.
The company plans to set up a large-scale operation to store greenhouse gases underground, and is also funding an effort to make so-called e-fuels for cars from carbon dioxide and hydrogen, centered around a refinery in Bilbao, Spain, owned by Spanish energy company Repsol.
Aramco's computer scientists are using about 90 years of oilfield data to train artificial intelligence models to improve drilling and extraction efficiency and reduce carbon emissions.
“Environmental stewardship has always been part of what we do,” said Ashraf Al-Ghazawi, Aramco’s executive vice president for strategy and corporate development.
Still, pressure to accelerate the energy transition is likely to grow in Saudi Arabia and other parts of the Middle East and North Africa, which have young, environmentally conscious populations that may be particularly vulnerable to the effects of climate change.
“Countries in the MENA region, including Saudi Arabia, will face the impacts of climate change, extreme temperatures and water scarcity,” said Shady Khalil, lead campaigner for environmental group Greenpeace Middle East and North Africa.
Saudi Aramco, the world's largest oil company, insists that oil has a long future, but it also appears to be trying to signal that it is more like a Silicon Valley company, focused on innovation rather than being stuck in a polluting past.
Recently, the company hosted a group of journalists for a presentation in which young Saudis described environmentally friendly initiatives such as using drones rather than armadas of heavy trucks to drill for oil and restoring mangrove swamps along tropical coasts to absorb carbon dioxide.
Over the past two years, Saudi Arabia has told Aramco to sharply cut its crude production to 9 million barrels per day, in line with agreements from the group known as OPEC+. In January, Aramco said the Saudi government had told the company to halt efforts to increase crude output.
In Aramco's view, these decisions do not bode well for a decline in fossil fuel consumption: Executives maintain the company will continue to invest in oil while also significantly increasing natural gas production.
Al-Ghazawi said these fuels will have a “very important role” beyond 2050, arguing that both renewables and oil and gas will be needed to meet growing demand. “We have always felt that there needs to be parallel and simultaneous investments in new and traditional energy sources,” he said.
Executives said Aramco is well positioned for the coming decades. Some of the world's largest oil fields, combined with careful management, allow it to produce crude at a very low cost, averaging $3.19 a barrel, executives said. The company is also betting that slowly reducing emissions from production can make crude more attractive, something the market isn't valuing right now but that could eventually command a premium.
“Ultimately, we think the market will begin to value lower-carbon products and pricing will become more profitable,” said Ahmed Al-Khowaiter, Aramco’s executive vice president for technology and innovation.
Aramco and the Saudi government are understandably wary of damaging a business that was founded in 1938. Aramco remains one of the world's most profitable companies, making $27.3 billion in profits in the first quarter of this year and announcing a $31.1 billion dividend payment, mostly to its largest shareholder, the Saudi government.
But if Aramco cut its oil investments, it could pay higher dividends to the government, which could then use them for broader efforts to diversify the economy.
Aramco has said it will put about 10% of its investments into low-carbon plans, but those moves are not showing up much in its financial performance. “I don't think it's going to change anything materially,” said Neil Beveridge, an analyst at research firm Bernstein. “Oil production is the vast majority of its revenue.”
While some of Aramco's efforts may take years to bear fruit, the conditions already seem ripe for solar energy: Saudi Arabia has a scorching sun and vast amounts of land to install solar panels. What's more, China supplies much of the renewable-energy equipment, including Sudairu's panels, and close ties with China mean “it's being built at very low prices,” says Nishant Kumar, a renewable-energy and power analyst at research firm Rystad Energy.
For example, Sudail plans to sell electricity for about 1.2 cents per kilowatt-hour, near its lowest level ever at the time of the agreement.
“They are well aware that their economics will only be efficient if they continue to take advantage of the ever-falling costs of solar energy,” said Paddy Padmanathan, a former chief executive of Akwa Power who is now a renewable energy entrepreneur.
The kingdom hopes abundant, low-cost electricity will attract energy-intensive industries such as steel, and ACWA is backing the construction of what may be the world's largest green hydrogen production plant, with a view to exporting it to higher-cost regions such as Europe.
The only problem, analysts say, is that Saudi Arabia isn't moving as quickly as it could. Kumar estimates the country will meet only about half of its ambitious goals for installing solar power by 2030. Wind power is lagging even further. One reason, analysts say, is that the government hasn't created conditions to attract competitors that could ramp up production.
Acwa, for example, will be heavily relied upon to meet its ambitious renewable energy targets. “We find the operational and financial risks hard to ignore,” Citigroup analysts wrote recently. The company is listed on the stock market but is 44% owned by the Public Investment Fund, the main financing vehicle for Crown Prince Mohammed bin Salman’s initiatives.
Still, renewable energy is already creating jobs: Akwa, for example, employs 3,840 people, about 1,900 of them in Saudi Arabia, and the opportunity to work in cleaner energy businesses is attractive to Saudi Arabia’s young people.
Akwa is leading by example, installing large-scale solar panels at a plant it recently built in the Persian Gulf to turn seawater into drinking water: Desalination requires huge amounts of electricity, but solar energy reduces the need for grid connection, thereby reducing emissions.
Developers of two nearby plants are following suit. “It's really important to use this technology,” says Nawaf Al Osimi, chief technical officer for the plant, called Jazra. “The more we use it, the more sustainable it becomes.”