Oil Giant Saudi Arabia Is Emerging as a Solar Power

Saudi Arabia is building some of the world’s biggest solar farms, along with giant arrays of batteries to store their electricity till after dark. The rapid rollout is making the country into one of the fastest-growing markets for solar power from a near-standing start.

The kingdom is betting that sunshine can transform its economy and bolster its coffers. It needs electricity for new tourism resorts, factories and AI data centers. Green energy could also squeeze more value from the fossil fuels that made the kingdom rich. Saudi Arabia burns oil to generate electricity; embracing alternatives frees up barrels for export.

The spread of glass across the desert is one of the starkest illustrations yet of how the plummeting cost of Chinese-made solar panels and batteries is changing how the world generates power, even as the U.S. takes aim at renewables.

“Today, solar is the cheapest, the fastest, the simplest and the most secure source of energy that you can install,” said Marco Arcelli, chief executive of ACWA Power, the company driving the Saudi grid overhaul.

Saudi Arabia aims to get half its electricity from clean sources by 2030. ACWA, whose largest shareholder is Saudi Arabia’s sovereign-wealth fund, is charged with delivering most of the new power needed to hit the target—roughly 100 gigawatts of capacity. That’s a lot for a country that last year had roughly 4 gigawatts of installed solar, about as much as South Dakota.

Ramping up clean energy was part of Crown Prince Mohammed bin Salman’s grand plan to diversify the kingdom’s economy, announced in 2016. For years, progress was scant, even as the country began megaprojects including Neom, the futuristic city in the desert. A $200 billion solar project unveiled by Japan’s SoftBank in 2018 was shelved within months.

That’s now changing. A trio of Saudi companies, including ACWA, said in July they would invest $8.3 billion in 15 gigawatts of renewable-energy projects, mostly solar along with some wind. That’s on top of a slightly larger amount already under construction, according to research firm Rystad Energy. Natural-gas power plants are going up, too.

SoftBank’s Masayoshi Son with Saudi Crown Prince Mohammed bin Salman. Photo: Jeenah Moon/Bloomberg News

Until recently, Nishant Kumar, an analyst at Rystad, didn’t think the kingdom could get close to the 50% target. But new projects keep popping up. He now thinks low-carbon energy could represent a third or more of Saudi Arabia’s power mix by 2030, up from 2% last year. That would put the kingdom in the world’s top five markets for new solar capacity over that period, Rystad forecasts.

Finding enough electrical engineers, project managers and other workers has become a headache, said Luc Koechlin, head of French energy company EDF’s Middle East power-solutions business.

“The growth is so fast, so massive, that staffing our teams and following this pace is not easy,” Koechlin said. EDF has stakes in several Saudi power projects, mostly solar.

Saudi Arabia’s clean-energy ambitions reach beyond the Gulf. ACWA has a growing portfolio of power projects across Africa and Asia. The company is working on the world’s biggest facility to use renewables to make and export hydrogen. In July, it said it was exploring the idea of sending electricity to Europe in a consortium with providers of transmission technology and European energy companies.

That plan, Arcelli said, is “for the next decade.”

The kingdom’s strategy faces challenges. Middle Eastern deserts aren’t quite perfect for solar panels—heat can sap their output, as can dust. (Automatic sweeping devices help keep equipment dust-free.) But dependable sunshine outweighs those drawbacks.

A solar panel being swept clean of dust. Photo: EDF Power Solutions

Managing a power grid is also more complicated, with a greater share of renewables that can’t be switched on and off to match demand—a problem the giant battery farms are designed to address. And the world doesn’t yet make enough cable to build the power line to Europe, Arcelli said.

The power-grid overhaul is about squeezing value from fossil fuels, not shunning them.

Saudi Arabia burns oil to generate roughly a third of its electricity. That means it foregoes roughly $20 billion worth of oil exports a year at current prices, according to Oliver Connor, an analyst at Citi.

“It’s hideously inefficient,” Connor said.

Solar power is a low-cost alternative. ACWA and others recently sold it for below 1.3 cents a kilowatt-hour (enough to run a microwave for an hour), about a third of prices in Spain, the lowest in Europe.

Aside from blazing sunshine, the low prices reflect government-backed capital and low-cost labor, Connor said.

Lower oil prices are strengthening the case to end so-called crude burn.

Saudi Arabia is struggling to fund megaprojects that could cost trillions of dollars. The International Monetary Fund estimates that Riyadh needs oil prices above $90 a barrel to balance the books; today’s prices are well below $70.

The appeal of renewable energy has also increased thanks to the relentless decline in the cost of solar panels and batteries that mostly come from China.

Marco Arcelli, chief executive of ACWA Power, the company driving the Saudi grid overhaul. Photo: Aaron M. Sprecher/Bloomberg News

That’s a bright spot for costly developments such as a plan to build 50 luxury hotels across more than 10,000 square miles of Red Sea islands and coast. The five hotels open so far are powered by a solar-and-battery system installed by ACWA, a spokesman for the tourism project said.

The U.S. has been trying to shut out Chinese solar panels and batteries. For countries willing to buy, these low-cost exports can cut the price of low-carbon power.

“If a country like Saudi Arabia is finally starting to take its renewable-energy strategy seriously, it shows that solar panels and all that are so cheap it’s starting to make a difference,” said Ana Missirliu of Climate Action Tracker. The group, which assesses countries’ emissions policies, is critical of the kingdom’s commitment to fossil fuels.

China has long needed Saudi crude; now the energy trade goes two ways. Saudi Arabia has, though, started requiring the use of some domestically produced kit, part of a push to attract investment and create jobs.

Among the companies betting that Saudi Arabia now means business in green energy is GameChange Solar, a U.S. manufacturer of devices that ensure solar panels point toward the sun.

Chief Executive Andrew Worden said the kingdom’s renewables plans sounded like a stretch when he heard about them nearly a decade ago. But lately, it has become a crucial market. Last April, GameChange started work on a factory in Dammam with a Chinese partner. Now it’s doubling its size to meet demand.

“All of a sudden it became this huge thing,” Worden said.

A solar panel in Uyayna, north of Riyadh. Photo: fayez nureldine/Agence France-Presse/Getty Images

Write to Ed Ballard at ed.ballard@wsj.com