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200 gigawatts of solar…

Wow …

Saudi Arabia and Softbank have signed a memorandum of agreement to pursue 200 gigawatts of new solar projects in Saudi Arabia over the next 10 years in what could amount to a $200 billion deal.

For a little perspective, that 200 gigawatts is

• more solar than existed worldwide in 2014;
• as faceplate generating capacity, roughly 20% of the total US faceplate capacity;
  • note: faceplate capacity can be deceiving as this does not make clear how much a plant can/will produce in a given year. Solar, in the Kingdom, might be in the low 20 percent in terms of electricity generation capacity (thus, for ever 10 units of ‘faceplate’, there is an average of 2-2.5 units of production averaged 24/7) while US nuclear power plants can top 95 percent. E.g., one would need roughly four units of solar faceplate to match one unit of nuclear power plant faceplate in terms of produced electricity provided to the grid.
• 100 times larger than the second largest announced solar project;
• a sign of the massive market advantage of solar over other electricity options.

Desert Solar Power: SoftBank to Build World’s Largest Solar Park In Saudi Arabia

– 200GW by 2030
– Will cost $200bn
– Creates 100,000 jobs
– 100 times larger than the next biggest project
– Saves $40bn in power costshttps://t.co/L7w1aBYyQp #climate pic.twitter.com/2UTcrr3zax

— Assaad Razzouk (@AssaadRazzouk) March 28, 2018

Saudi Arabia is, of course, one of the perfect places for a major solar project as it has:

• among the world’s best solar resources
  • Along with places like the Chilean desert, the Mexican desert, the Southwest U.S. desert, and Australian desert areas, Saudi Arabia is the Saudi Arabia of solar resources.
• rapidly growing electricity demand
  • along with national industrial policy that roadmaps for continued (essentially indefinite) growth in electricity usage
• heavy dependence on fossil fuel electricity
  • including burning oil, which has much higher value for other uses.
• significant financial reserves
  • enabling a bank to commit to a major project with reasonable confidence that project financing will be repaid.

Okay, so, again, WOW! A huge project that is a serious bump to the projected solar deployment in the coming decade (although we are likely to see ever more of these ‘bump ups’).

Such a large project is a good moment to reflect on

What does it really mean?

First, this project (alone) could impact on the world‘s oil markets. By displacing oil currently burned for electricity, this project might (by initial back-of-the-envelope estimates) add about one million barrels a day to oil available on the market by the mid-2020s or roughly one percent of total world use. (Along with proposed nuclear power plants, burning of crude and diesel seems likely to nearly disappear from the Kingdom’s electricity grid by the 2030 period.) One percent might seem like a small amount, but this provides a significant amount in terms of potential margin to help reduce price and supply shocks due to demand exceeding supply.  With other ‘efficiency’ paths also driving down oil demand, such as introduction of electric transportation into the Kingdom to take advantage of cheap electricity, the share of Saudi oil available for export might grow even more.  Globally, such displacement of oil demand could moderate oil prices and, even with those moderate prices, lead to a peaking of oil demand far earlier than current forecasting from EIA, IEA, IEEJ, BP, Exxon Mobil, and others (and in line with others forecasting much earlier peaks).

Second, in addition to impact on oil markets, this 200GW project could have significant global manufacturing and industrial impacts. This project is estimated at $200B for 200GW or $1 per watt. Considering recent bid prices for solar electricity below two cents per kilowatt hour (under $20 per mWh) (in Mexico, Colorado, and the Arabian Peninsula) along with the continuing plunging of solar costs and that this huge project will enable economies of scale never seen before, it seems likely that the LCOE (levelized cost of electricity) from this project will be below $15 per megawatt once deployed (and could even approach $10).

With electricity prices in that range (perhaps delivered to industrial users at $20 per megawatt hour), there are panoply of new industrial options open. As the U.S. “Shale Revolution” created disruption due to plunging natural gas prices, so too will such low solar electricity prices. And, unlike the shale, there is essentially zero risk profile looking into the future as to the cost and reliability of the solar electrons (as opposed to the potential for natural gas reserves to be less than anticipated, cold weather driving price spikes, etc …). Someone connecting their solar system today essentially knows exactly what their electrons from that system will cost 15, 20, 25 years from now.

And, those electrons are getting cheaper and cheaper … ballpark $50 per mWh a few years ago, $20 today, and perhaps $15 mWh before 2020.  As it plunges below  $20 per mWh, that electricity is quite interesting for a range of high-energy demand industrial processes (such as aluminum smelting or making fertilizer (and displacing natural gas and coal-based fertilizer production)). Essentially unlimited amounts of reliable (and reliably) cheap electricity could be a critical tool to enable the Kingdom’s industrialization drive, the Vision 2020 strategic concept, to become reality.

Throughout the industrial age, industry has chased cheap, reliable energy.Absent significant investment for low-cost long-range movement and storage of electrons (a la the DeserTec concept), the solar [r]evolution will likely see market disruption as firms move their industrial processes to where energy costs are cheapest and most predictable.  The plunging clean energy prices could combine with explosive growth additive manufacturing to dramatically shift the global footprint of high-energy intensive industries.

Thus, while the 200 gigawatt announcement is WOW in size and scale, the true ‘wow’ comes from contemplating what this signals about potential (likely?) disruption of the global economy due to ever cheaper solar power resources.