Saudi Arabia officials announced earlier this week that the country had received four bids for the proposed 400 megawatt (MW) Dumat al-Jandal onshore wind farm at prices that rival the lowest bids received anywhere in the world.
While predominantly known for its oil reserves, Saudi Arabia has nevertheless witnessed the world’s ongoing transition to low-carbon energy generation and the potential new markets it has opened up. The country has thus dug into its deep pockets to begin developing large-scale solar projects across the country, such as the 300 MW Skaka IPP PV solar project that is set to be developed by Saudi-based developer and operator ACWA Power, which won the contract in February of this year at a record-breaking tariff of 2.34¢ (USD) per kilowatt-hour.
It was also announced in March that Japanese multinational SoftBank would work with Saudi Arabia to build a seemingly improbable 200 gigawatt (GW) solar project — exceeding the total amount of solar currently installed in the entire world in 2017 by 30%! Whether or not the project comes to fruition or not, it’s hard to blame the country for not having enough renewable energy ambition — ambition driven by the country’s National Renewable Energy Program (NREP) which, according to Sohaib Malik, Market Analyst with Wood Mackenzie, “targets 9.5GW of renewable energy capacity by 2023.” Specifically, “In Phase 1, the county will award 3.5GW and 1.2GW of capacity for solar PV and wind, respectively.”
Solar won’t be Saudi Arabia’s only renewable energy play, however, as this week the country’s Renewable Energy Project Development Office (REPDO) and the Ministry of Energy, Industry and Mineral Resources (MEIM) announced that they had received four bids of between $21.30/MWh and $33.86/MWh for the 400MW Dumat al-Jandal project.
What is most striking about these bids, however, is just how low two of them are. France’s EDF Energies Nouvelles placed the lowest bid at only $21.30 per megawatt-hour (MWh), and French electric utility Engie placed a bid of only $23.62/MWh.
For a country on its first onshore wind project, these bid prices are exceedingly low — comparable to some of the lowest prices we have seen anywhere in the world. For example, Mexico’s third long-term auction for renewables held in November of 2017 recorded a global record-low bid price for wind of $17.7/MWh and an average price of $20.57. That companies are bidding in the same ballpark in a new market like Saudi Arabia speaks volumes.
“Developers are bidding low price levels due to consistently reducing costs of both wind and PV technologies,” explained Sohaib Malik. “Further, Saudi Arabia offers a stable and mature financial market which helps developers mobilise low-cost capital. Likewise, these are projects for 300 to 400MW of capacity that offer significant cost benefit in the form of economies of scale.”
It’s worth noting, however, that EDF and Engie aren’t guaranteed preference just because they bid lowest. “REPDO said the bid opening results announced do not represent a ranking of bidders or a bidder’s compliance with RFP requirements of the project, nor do they constitute a determination by REPDO of the outcome of the bidding process,” Saudi Arabia’s MEIM said in a statement.
Regardless of who wins the right to build the Dumat al-Jandal project, this marks new ground for renewable energy in the Middle East region.
“The Kingdom’s first utility-scale wind project opens a new chapter in our journey towards a diversified energy mix,” said Khalid Al Falih, minister of energy, industry and mineral resources. “The $500 million Dumat Al Jandal wind farm in the northern Al Jouf region will generate enough power to supply up to 70,000 Saudi households as it connects to the northern electricity grid.”