The facility, which is expected to begin commercial operations in the fourth quarter of 2025, will be the "largest of its kind in the Middle East", the companies said in a statement on Wednesday.
The project will be jointly owned by Water and Electricity Holding Company (Badeel) and Acwa Power, with each holding a 50 per cent stake through a joint venture.
The newly-established venture — Shuaibah Two Electrical Energy Company — has signed a power purchase agreement with Saudi Power Procurement Company (SPPC) valued at $1.75 billion, Acwa Power said in a statement to the Saudi stock exchange Tadawul, where its shares are traded.
”This marks a key achievement toward PIF’s commitment to develop 70 per cent of Saudi Arabia’s renewable energy by 2030," Yazeed Al Humied, deputy governor and head of Mena investments at PIF, said.
"Utilities and Renewables is one of PIF’s priority sectors as part of its domestic strategy, which focuses on unlocking the capabilities of promising sectors to enhance Saudi Arabia’s efforts in diversifying revenue sources."
State-owned oil exporter Saudi Aramco has established a $1.5 billion sustainability fund to invest in “breakthrough” technology and start-ups to help fight climate change.
The fund, managed by Aramco’s venture capital arm, will invest in technology that supports the energy company’s 2050 net-zero goals while helping to develop new lower-carbon fuels.
“Solar power is a key component in unlocking positive economic, environmental and social outcomes for the betterment of communities across our great nation," Mohammad Abunayyan, chairman of Acwa Power, said.
"We remain committed to developing local capabilities in technology, supply chain, and talent and ensure they are realised to their fullest potential."
Acwa Power operates in 13 countries across the Middle East, Africa, Central and South-East Asia. It has a portfolio of 67 assets with a total investment of $66.5 billion, producing about 43 gigawatts of power, with 37 per cent of the total capacity being renewables.
The signing of the new project comes as Acwa Power continues to boost its renewables portfolio globally.
Earlier this month, the Riyad-based utility developer revealed plans to build a 10-gigawatt wind farm in Egypt, in partnership with the North African country's New and Renewable Energy Authority and the Egyptian Electricity Transmission Company.
The company also signed $12 billion worth of agreements to develop new energy projects in Uzbekistan, including the world’s largest single onshore wind project, with a total capacity of 1.5 gigawatts, in the Karakalpakstan region of the country.
It was also selected as the preferred bidder to develop two solar plants in Indonesia, South-East Asia's largest economy, as it continues to develop projects in different countries.
Acwa Power is targeting about 120 gigawatts of power-generating capacity in the next 10 years with a presence in 20 countries, its chief financial officer Abdulhameed Al Muhaidib recently told The National.
It plans to raise more money through the issuance of a bond at the end of this year or early next year to fund its growth plans.