Saudi Arabia's Energy Transition

1. Introduction

Over the past four decades, Saudi Arabia has witnessed tremendous economic development coupled with high population growth and urbanization that is driven by crude oil revenues. High economic growth, as well as population and urban growth have led to huge growth in electricity demand in the country. The electricity usage in Saudi Arabia has risen by about 7-8% annually over the last decade, with summer peak demand increasing by 93% between 2004 and 2013 (from 28 to 54 GW) (ECRA, 2014). Between 2013 and 2020, the Saudi electricity demand is expected to increase by over 6% annually. This future electricity demand growth will require power generation capacity to increase to 120 GW by 2032 [1]. The current demand is usually met through conventional crude oil, heavy oil, and gas powered over country.

Saudi Arabia is the core oil country with one of the world's largest proven oil reserves and a unique role as the world's top oil producer, giving the country considerable muscle to influence oil prices. Domestic consumption feeds on oil reserves that could otherwise have been exported, thus creating a huge cost of oil export costs. The oil consumption per day in Saudi Arabia is one of the highest in the world, with 4 percent per day of the entire world [2]. Another problem caused by high energy consumption in Saudi Arabia is the huge carbon effects caused by burning fossil fuels. In 2017, CO2 emissions of Saudi Arabia had increased to 1.75 percent of global emissions [3].

The current situation of Saudi Arabia relies on oil, and oil revenues is not sustainable. If left unchecked, development will further affect the environment and climate as well as the political economy, which may lead to social unrest and political instability. Instability in Saudi Arabia can lead to far-reaching consequences, leading to economic and political challenges in energy at the regional and global levels. Far from being oblivious to the uncertain future of oil and the need to adapt to the challenges posed by climate change, Saudi Arabia has launched the Saudi Vision 2030, a major plan aimed at reducing Saudi Arabia's dependence on oil, diversifying its economy away from oil and replacing it with renewable energy [4]. Renewable energy and energy efficiency are understood to be the twin pillars of energy sustainability [5, 6]. According to Couture and Cory, renewable energy technologies are the most promising alternatives and will play a crucial role in providing the energy supply mix of the future [7].

In the context of a sound understanding of the kingdom’s consumption trends and peak loads, solar energy is the most ideal response in addressing a factor that causes an electrical load peak. For example, the daily afternoon peak coincides with the period when the sun is brightest and hottest and solar panels work best at that time. Similarly, solar panels are most productive during such periods. In this case, a core need that draws much energy from the grid system can be addressed using renewable resources. In this regard, the kingdom has exceedingly high potential to develop wind and solar power projects to meet its goals as outlined in its 2030 vision. Hepbasli and Alsuhaibani noted that governments have developed policies to accelerate renewable energy deployments such as renewable portfolio standard (RPS), tax incentives and feed-in tariffs (FITs) [5].

2. Problem Statement

In Gulf countries such as Saudi Arabia, it is possible to invest in alternative sources such as solar, wind and tidal energy and incorporate the energy into the main grid through a favorable FIT. In addition, the new rate for the residential category is 0.18 Riyal/kWh and is more than a 200% increase for the customers in the lowest user group. With the current usage tariff rates being increased, the FIT rate needs to remain a large enough cost incentive to attract potential investors and have a reasonable impact on energy use within the KSA. Given this, the problem is to examine how to invest in solar energy distributed to the main grid by feed-in tariff policy that attract the investment without increasing energy costs to the end consumer in the long term. In addition, the feed-in tariff system in Saudi Arabia does not exist.

The solution for this problem is to investigate possible application of feed in tariff for renewable energy in Saudi Arabia as part of the kingdom’s 2030 vision, and directly applying the FIT for solar cogeneration. In order to apply the FIT, it is imperative to consider the household electricity consumption, initial investment cost, taxes and the costs of operation and maintenance. Those combined costs need to be considered against the amount of energy that can be produced and the FIT rate. The FIT rate must be high enough to return the cost of the investment to the owner and continue to provide energy savings and monetary credits beyond the point of payback. It must also be low enough to allow the serving utility company to still make profit from the produced energy while maintaining the grid. Together the customers/investors, and the utility company can have an enormous impact on the environment and natural resources that exist in the KSA.

3. Feed-in Tariff

FITs are the most widely used application instrument to obtain RE production globally [8, 9]. A feed-in tariff is an incentive that pays owners of distributed energy systems (like solar) a certain amount per unit of electricity sent to the grid. They are often fixed-price incentives that are locked in over a contract period of 10 to 20 years, providing property owners with distributed generation a long-term, stable incentive [10]. According to Butler and Neuhoff, a comparison of support schemes for market-based deployment of renewable energy in the UK and Germany shows that the feed-in tariff reduces costs to consumers and results in larger deployment [11]. In the European Union, FIT strategies have led to the arrangement of an extra 15,000 MW of solar photovoltaic (PV) capacity and extra 55,000 MW of wind power among 2000 and the end of 2009. In whole, FITs are answerable to about 75% of worldwide PV and 45% of worldwide wind utilization. Nations such as Germany precisely has established that FITs can be expended as a controlling strategy tool to energy RE utilization and help meet joint energy safety and emissions reduction purposes. If the policy is designed carefully and implemented, the FIT can help policymakers meet a variety of policy objectives [6, 12].

The payment stages offered for both kilowatt-hours can be distinguished by equipment type, scheme size, source quality, and scheme position to better reproduce actual scheme costs. Application designers can also regulate the payment levels thus weakening the installations in following years, which will encourage scientific alteration. In another method, FIT payments can be obtainable as a fixed price or premium price, above the usual market price [13, 14].

4. Materials and Methods

The Method used in designing K.S.A FIT is to review other FIT model such as in Germany and United State, where they have been successfully incorporated into the national grid. To design FIT structure in K.S.A there are two important things which need to be calculated, that is the Household Electricity Energy (HEE) (hour/day) for each region (West, South, Central and East) and the power of PV.

4.1 FIT Design

4.1.1 Household Electricity energy

Household Electricity Energy is a required factor in determining FIT structure for a given system. To use HEE as the basis of calculating, it must be verified either through metering, or billing history and a study of the electrical system. So, for calculating the house hold electric power, it needs five equations as shown in equation (1), (2), (3), (4) and (5).

UD = HEE(KWh)/365 Days,

UH = UD/ 24 hrs,

Ah1 = UH X 1000/48 Vdc,

AhKSA = Ah1 x H,

Ah = AhKSA + AhID,

Where UD is the average daily usage, HEE is Household Electricity Energy National Annual Average, Ah1 is Amps per hour at 48Vdc, UH is the average hourly usage multiplied by 1,000 to convert Kwh to Wh, AhKSA is total daily Amp hours based on KSA National Annual Average, H is hours of use within a 24-hour period, Ah is total Amp hours, AhID is total daily amp hours required for inverter power used on discharge.

4.1.2 The Power of PV

PPV Is an annual energy output generated for feed in by a photovoltaic solar power plant (kWh). Total PPV(kWh) will include some system losses. The approach should be to identify the possible losses through inefficiencies, minimize, and mitigate them where possible. Furthermore, efficiencies should be applied where possible to incorporate them in to the system. DC Cable losses will not be included assuming that the cables are oversized based on capacity requirements of the system. High efficiency inverters with superior performance are currently available at companies like SolarEdge who manufacture 98% efficient inverters producing only a 2% loss. Solar panels are available with a 3% power tolerance based on the listed rating. This loss will vary within the 3% range based on heat fluctuations and will average 1.5%. There is a total of 3.5% in losses through the panels and inverter. Additionally, in determining the output required for solar panels it will also be considered that the batteries are Gel Cell type solar batteries and they are 90% efficient. Total losses are 13.5%. This will increase the output requirement for the solar panels. To increase overall system performance and reduce Project Cost (PC) the system will be considered to have an MPPT type charge controller instead of a PWM controller. This will increase efficiency of the system overall by 30%. The 30% efficiency for MPPT control in current industry standard and averages between 10% and 50% depending on many factors including the season of the year. So, for calculating the power of PV, it needs four equations as shown in equation (6), (7), (8) and (9).

Ahr = (Ah/S) x (1+ƞa) x (1+ƞb),

W = [(Ah/S) x E x (1+ƞa) x (1+ƞb)] / (1+ƞc),

PV = [P – (W / 1000)] x S,

PPV= PV x 365,

Where PPV is annual energy output generated for feed in by a photovoltaic solar power plant (kWh), PV is daily energy output generated for feed in (kWh), P is recommended system size based on instantaneous peak demand (KW), W is total required solar panel watts that is required for HEE, ƞa is losses from panels and inverter, ƞb is losses from battery efficiency, ƞc is gained efficiency from using MPPT charger, Ahr is required generated amperes per hour, S is typical hours of useful sun within a 24 hour day, E is voltage, and Ah is total amp hours used daily.

4.1.3 FIT Structure

FIT Structure calculation is based on Household Electricity Energy and Power of PV, and it is the final method to find the photovoltaics credits and savings amount through 25 years as shown in equation (10). The net savings over the 25-year period of the system is shown in equation (11).

PVCS = (PPV x CI) + (HEE x C)

Net PVCS = (PVCS x N) – PC – OM

Where PVCS is the Photovoltaics credits and savings, CI is the cost incentive (FIT rate) and C is current tariff, N is the life time of the system, PC is the project cost (installed costs of solar panels, inverter, batteries, and wiring) and OM is the operation and maintenance ( the battery is expected to be replaced once throughout the 25-year). Projected payback given in years is PC / PVCS.

5. Results

5.1 FIT in United States and Germany

5.1.1 FIT in Germany

Germany was the first European country to adopt a feed-in tariff program in 1991, with a tariff based on a percentage of the retail rate of electricity [15]. In 2000, Germany and Denmark altered their FITs to cost-based models, in which rates are set based on the cost of generation plus a reasonable rate of return. These governments mandated grid access for renewable energy, guaranteed payments for 20 years, and offered differentiated rates based on technology, project size, resource intensity, and application [16]. Table 1 shows the initial installation costs for new equipment, where PRV is the Photovoltaic Plant Price per kW (€/KW), Table 2 shows the PV plant installation and Table 3 shows the rate of return on investment due to energy generation in through 25 years, which light grey color indicates the payback period and dark grey color indicates accumulative savings.

5.1.2 FIT in United States

The first feed-in tariff (FIT) was implemented by the Carter administration in the United States in the late 1970s. The National Energy Act, as it was known was meant to promote energy conservation along with the development of new, renewable sources of energy, like solar and wind power, since this time, FITs have been widely used, most notably in Germany, Spain and other parts of Europe [17]. Table 4 shows the initial installation costs for new equipment, where PRV is the Photovoltaic Plant Price per kW ($/KW), Table 5 shows the PV plant installation and Table 6 shows the rate of return on investment due to energy generation through 25 years, which light grey color indicates the payback period and dark grey color indicates accumulative savings.

5.2 KSA FIT Structure

5.2.1 Household Electricity Energy

According to Electricity & Cogeneration Regulatory Authority (ECRA) and General Authority for Statics in KSA, the annually national average HEE per year for west is 8,598 kWh, South is 6,008 KWh, Central is 9,013 KWh and East is 14,556 KWh. Table 7 shows the electrical usage for 48V solar plant in KSA wide-regions, which is important for calculating the battery bank.

5.2.2 Power of PV

Average hours of daylight in KSA are 12 hours at all locations monitored nationally. Peak sun production hours are less than total hours of sun in a day. The total average hours are reduced by 25% for unknown factors including shade, cloudy days, geographical location, etc. There are 9 peak sun producing hours in the KSA. Table 8 shows the 10 KW PV plant calculation for four regions in KSA.

Battery bank is sized to provide power for an average load for 13 hours with a recommended discharge depth of 60% to maintain the life of the batteries. 100% discharge is not recommended for the life of Gel Cell batteries. The battery cost/Amp is 9.33 (R.S)/Amp. Table 9 shows the battery bank calculation for KSA in different regions.

5.2.3 KSA FIT Structure

Table 10 shows the investment cost for new equipment for KSA in different regions, where PRV is the Photovoltaic Plant Price per kW (Riyal/KW). Table 11 shows the PV plant installation for KSA in different region. Table 12 shows the rate of return on investment due to onsite energy generation in different regions through 25 years, where the light grey color indicates payback period and dark grey color indicates the continual accumulated savings for individual region.

West KSA net PVCS is 37,190 Riyal, South KSA net PVCS is 31,196.5 Riyal, Central KSA net PVCS is 38,604.75 Riyal and East KSA net PVCS is 51,880 Riyal. It was found that a projection cost based on higher average demand of West 8,598 KWh, South 6,008 KWh, Central 9,013 KWh and East 14,556 KWh per year that a 10 KW system can payback within 8 to 11 years based on FIT rate. If the usage is lower, then the 10 KW systems will payback slowly. However, more reasonable investors who use less energy should offer a lower capacity system 5 KW to 7 KW that can produce an effective payback within 5 to 7 years as well. This only occur if the current average FIT is increased and variable with the normal tariff rates.

6. Discussion

There are many benefits to a suitable FIT that can be realized when considering various international examples outside of the KSA. When considering California, USA. This state, like all US states benefits from a 30% tax credit on the cost of installation including parts and labor. While California does participate in a net metering program that meters of energy paid annually through a FIT, the separate localities further offer more incentives. The city of San Francisco California for example pays anywhere from $300 to $650 /kW of solar power installed. The KSA is not currently offering tax credit of any kind to offset installation costs and there are no local incentives of any kind. The sole means of cost incentive in KSA is the net metering program which means that the FIT needs to be adequate for it to be effective. The significance of the FIT in the KSA when considering the history of 28 separate nations within the European Union. The Renewable Energy Sources (RES Directive) which was mandated toregulate all 28 countries within the union set the goal to reduce greenhouse gas emissions 40 percent from 1990 levels by 2030. It further defined mandatory percentages of solar, wind and other renewable power sources in the energy profile to meet this goal. In so doing similar plans were implemented similar to those in the USA to offer construction incentives based on specific technology, and a fixed FIT set for the duration of the contract based on current tariff rates. The governments regulated the amount of RE required for purchase by the electrical distributor through Tradable Green Certificates, TGC. The plan then stipulated a quota required by the distributor for the number of TGCs acquired within a year. In the southern countries, the sunniest countries, the FIT rates were in turn increased and subsequently the normal tariff rates to the end consumers were raised due to the TGC requirements. Spain and Italy both reduced the incentives dramatically as a result in 2011. Italy then stopped offering FIT incentives all together in 2012. Bulgaria, Poland, and Romania have since lowered the TGCs. The KSA has an opportunity now that the normal tariff rates have been increased to mandate a suitable FIT that would be beneficial to consumers and distributors without causing a further increase to normal tariff rates as seen in Southern Europe. The normal usage tariff in the KSA is 0.18 Riyal /kWh and the FIT can be assumed as 0.05 Riyal/kWh meaning that if the FIT were doubled it still would be 0.08 Riyal less than the current commercial cost of electricity. This approach would allow KSA to reduce energy produced with fossil fuels similar to Germany. Last year 40 percent of Germany’s power produced was from renewable energy sources with an overall goal of 80%, the current FIT in Germany is approximately 0.13 Euro/ kWh. There are several characteristics of solar power generation that have affected the worldwide market for solar power generation within the past 10 years. Solar power generation equipment has been on the market for more than 50 years and is no longer an experience but a commercial reality. Solar PV installation costs have fallen between 58 and 69 percent since 2010, driven by lower unit costs, reflectors and higher unit efficiency. The cost is expected to drop by sixty percent from current prices over the next ten years. The global spread of solar energy has increased threefold in the past decade, and this level of investment has led to the creation of an improved value-display chain.

7. Conclusion

Saudi Arabia leads ahead of other countries in the GCC in the promotion of research and development of renewable energy technologies. Feed-in tariff is one among the most widely accepted economic policy option used for the acceleration of investment in renewable energies so that there is a guaranteed market for electricity generated from renewable energy sources. Hence, the application of the feed-in tariff policies is identified to speed up the development of renewable technologies, based on the experiences of countries all over the world. This study examines the benefits and challenges associated with the adoption of feed-in tariff policy in Saudi Arabia. The point of payback on the system investment and maintenance was 8 to 9 years for East, 9 to 10 years for West and Central and 10 to 11 years for South. The FIT rate in all the regions assumed to be 0.05 Riyal/kWh because currently, there is no FIT rate in Saudi Arabia. Due to the recent usage tariff increases to 0.18 Riyal/kWh the rate of return on investment is very slow and not lucrative enough to attract potential investors. The current cost of solar power installation is much lower now the whole world over than it was 10 years ago. It is also expected to drop more over the next 10 years due to advances in technology. However, for KSA to harness the sun as a source of renewable energy it will be necessary to increase the current rates of FIT throughout all regions If current usage rates remain 0.18 Riyal/kWh the FIT will need adjusted to 0.10 Riyal/kWh to produce a five-year payback and allow investors to continue to receive credits throughout the duration of their 20-year contract. This approach would have the same economic impact the USA has seen on the West Coast while providing the environmental impact that has been seen in Germany. If usage rates drop due to the offset of oil source energy with solar power, it would be reasonable to expect the FIT to drop. This is the reason that a Variable Premium FIT would be more suitable for the current state of the economy in KSA instead of a Fixed Price FIT. Germany and Spain are both examples of countries currently and successfully using a Variable Premium FIT. A Fixed Price FIT will not work well for KSA as it ignores other variable market values most notably fossil fuels

Acknowledgements: This research was supported by a grant (19AUDP-B099686-02) from Architecture and Urban Development Research Program funded by Ministry of Land, Infrastructure and Transport of Korean government.

Author Contributions: The paper was a collaborative effort between the authors. Because the feed-in tariff is not existing in Saudi Arabia, the authors contributed collectively to apply Feed-in tariff in Saudi Arabia for four main regions.

Conflicts of Interest: The authors declare no conflict of interest

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