Saudi Arabia has an unlikely solar star


SAT THE TOP accounting for a fifth of the world's oil reserves, Saudi Arabia doesn't come to mind when we think of renewable energy. Muhammad bin Salman, its crown prince and de facto ruler, would like to see that change. He wants half of Saudi electricity to come from wind and solar farms by 2030. Two-thirds of this capacity, or around 40 gigawatts (G.W.) will be, if Prince Mohammed gets his wish (as he tends to do), thanks to an enterprise: ACWA Power.

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For most of its 19-year history, the utility was a relatively anonymous family affair. Not anymore. Since its IPO in Riyadh in 2021, its market value has almost quadrupled. He is now worth $50 billion. The Public Investment Fund (FRP), the manager of Saudi sovereign wealth, holds a 44% stake. ACWA at 24G.W. of green projects in Switzerland and abroad, already underway or at an advanced stage, compared to 0.3G.W. in 2014. Add its other capacities under construction and the total is 54G.W.. Its initial water desalination activity increased from 1 million cubic meters per day in 2006 to 7.6 million cubic meters in December. Its new boss, Marco Arcelli, a veteran Italian energy executive, expects the assets in which it holds stakes to triple by 2030, to $250 billion. His plans will, he hopes, help create a broader national green energy supply chain. “We are an important enabler,” he says.

ACWA has thrived while many other renewable energy operators around the world have struggled. As these competitors see project costs soar due to rising interest rates, ACWA received interest-free loans from the FRP, in addition to debt guaranteed by individual projects and bank loans to tackle the problem while mobilizing more equity and calling on partners. Access to easy money made it possible ACWA to increase capacity, while reducing costs for customers. This has helped make the levelized cost of Saudi solar power, which takes into account both the construction and operation of a power plant, one of the lowest in the world.

Nevertheless, ACWAReturns on national projects are low by global standards. Mr. Arcelli therefore wants to take advantage of the juicier products offered abroad. It invests nearby (in Bahrain, Egypt, Jordan, Oman, Turkey and the United Arab Emirates) and beyond (Azerbaijan, Morocco, South Africa and Uzbekistan). Two-fifths of ACWAThe company's overall capacity is outside of Saudi Arabia. It is also eyeing China, a very competitive market but where ACWA According to Arcelli, there could be partners both in terms of scale and technology, in the form of Chinese wind turbine and solar panel manufacturers.

ACWA has his work cut out for him. To achieve Prince Muhammad's national goals, the company must add 6-7G.W. of capacity – the equivalent of three or four major projects – each year for the rest of the decade. There are currently only 14G.W. at different stages of development. Managing rapid expansion will require a focus on costs (those of its nascent hydrogen project have already increased by 70% compared to initial estimates, to reach $8 billion). It will also require more debt. In September ACWA already had $7 billion in it, the equivalent of seven times its earnings before interest, taxes, depreciation and amortization. Such a ratio would be considered a red flag for most businesses.

ACWA can still meet the challenge. He can count on FRPDeep pockets. And he learns quickly; it's domestic 1.5G.W. The Sudair solar project could be fully operational in just over two years, estimates Oliver Connor of Citigroup, a dynamic bank by industry standards. Mr. Arcelli wants things to go even faster. Given that the prince is watching, this is no surprise.

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