Saudi Arabia's renewable energy market is set for growth, supported by an abundant solar resource, land availability, an A-rated sovereign credit, and strong economic and strategic logic, Moody's Investors Service (Moody's) said in a report.
The report is titled "Project Finance -- EMEA: Saudi Arabia's Renewable Energy Plans: Strong Rationale, Untested Framework".
"The government of Saudi Arabia's plans are motivated by a desire to diversify the energy mix and take advantage of the compelling economics of renewables, especially solar, in the country," said Christopher Bredholt, a Moody's Vice President -- Senior Analyst and the report's author.
Electricity demand is increasing due to economic and demographic growth, and highly energy-intensive industrialisation programmes. As government finances come under pressure in the low oil price environment, the kingdom is seeking to reduce the subsidies for oil consumption and encourage clean generation technologies, the report said.
Saudi renewable plans will help reduce the share of the public sector in the economy and leverage project finance opportunities for lenders -- both sukuk and non-sukuk. However, credit challenges include a relatively untested regulatory framework for renewables; the lack of total cost recovery for the state utility Saudi Electricity Company; operating in the desert environment, which can impair plant efficiency; and a relatively undeveloped local supply chain given the lack of installed renewables capacity, it said.
In February 2017, the government opened an auction for 700 megawatts (MW) of renewable energy capacity, a first step towards meeting its strategic targets of generating 9.5 gigawatts (GW) by 2030.
Renewable energy activity in Saudi Arabia to date has been fairly minimal and the market is likely to develop only gradually as market participants get acquainted with new procurement procedures, and the supply chain adjusts its expectations, the report added.
The report is now available on www.moodys.com.