Last week was a big one for Saudi energy, and it had nothing to do with fossil fuels. State owned energy company ACWA Power launched its first utility-scale renewable energy project, the 300 Megawatts (MW) Sakaka solar initiative. Following the launch, the government announced the signing of seven power purchase agreements (PPAs) for solar projects spread across the Kingdom.
The proposed initiatives, combined with the Sakaka and Dumat al-Jandal wind projects, will one-day produce 3.6 Gigawatts (GW) of electricity. One of these, the 600 MW Al Shuaiba project, will sell power at a world record low price of $0.0104/kWh.
The Kingdom is also expanding into hydrogen, a once dirty chemical feedstock which many believe could be a zero-emission fuel for future trucking, aviation, and shipping. Hydrogen is energy-dense and shippable world-wide, and existing oil and natural gas pipelines can theoretically be retrofitted to accommodate its transport.
Saudi Arabia’s infrastructure build-out includes the construction of hydrogen electrolyzes – devices used to split water (H2O) into hydrogen (H2) and oxygen (O2). If this water electrolysis process is powered by renewable energy sources, the resulting hydrogen is virtually emission-less and therefor ‘green’. However, most hydrogen today is produced from fossil fuels (‘gray hydrogen’) – the most common technique being steam methane reforming (SMR) – which is carbon and methane intensive. So-called ‘blue hydrogen’ is produced solely from natural gas and with associated carbon capture, making it a cleaner alternative to conventional methods.
The PPAs follow the state-owned Aramco’s announcement that it plans to use a recently acquired shale investment, the Jafurah gas field, to produce blue hydrogen instead of exporting liquified natural gas (LNG). Aramco’s CEO stated the company’s immediate plan is to produce enough natural gas for domestic use, and convert the remainder into hydrogen for export. The news comes after the Saudi government signed a $5 billion investment in July of 2020 to produce green hydrogen in the futuristic city of Neom.
Saudi Arabia is not alone in planning for a post-petroleum reality. The United Arab Emirates’ state-owned Taqa utility company recently outlined a sustainability strategy, with the goal for renewables to make up 30% of its energy mix, compared to 5% currently, and plans to boost domestic power capacity from 18 GW to 30 GW by 2030. Taqa plans to set a carbon emissions target later this year.
These additions would come on top of the UAE’s current 2.3 GW of clean energy production capacity. The Emirati government has set its own goal for clean energy to form half of its energy mix by 2050 with 44% from wind and solar and 6% from nuclear power.
While the Gulf states have long been synonymous with spectacular fossil fuel reserves and low break-even thresholds, their potential for renewable energy production is also world-class. The region’s sun-drenched landscape and wealth of coastline provide a large capacity for both solar and wind energy capture.
By pairing these natural resources with cutting edge technology, Saudi renewable energy projects have the potential to generate massive surpluses of electricity. This excess electricity can be used to generate green hydrogen for export, allowing Arab energy producers to tap into the global hydrogen economy. Coincidentally, the global hydrogen economy will only reach maturity once hydrogen fuel costs come down.
Currently, hydrogen fuel production remains expensive: hydrogen produced by steam reformation costs approximately three times the amount of natural gas per unit of energy produced. Those figures are even higher for water electrolysis. The sector will need scientific advances and technological innovation to become truly economical and competitive. It is unclear if the Gulf states will be able to deliver these cost reductions themselves considering the relatively small population, limited STEM research capacity, and constraints on local human capital.
The hydrogen economy is growing rapidly and could provide big returns in the coming decades. Hydrogen fuel is at the center of the EU’s Green Economic Recovery. Korea and Japan have both rolled out hydrogen roadmaps to guide investment and policy, including encouraging hydrogen fuel cell vehicle (HFVC) production. The Green Hydrogen Catapult, a global coalition of seven major energy companies, will look to increase their combined green hydrogen capacity by 50-fold in the next 6 years to 25 GW. The coalition also has stated its goal to achieve sub-$2/kg green hydrogen within the same period. At $2/kg, hydrogen fuel would become price competitive with fossil and renewable sources. Saudi Arabia’s ACWA is one of the companies behind the Green Hydrogen Catapult.
Hydrocarbon-dependent countries such as Saudi Arabia, the UAE, Qatar and Iran are looking toward a future without fossil fuels, or at least a lot less of them. This is the greatest stress test for their economic well-being. If these countries can successfully leverage their massive potential for solar and wind energy capture paired with technology to produce hydrogen fuel, they will find themselves well positioned to take advantage of surging global demand for clean energy.
If the Gulf states play their cards right, they could transition into another golden age of energy export.