Saudi Arabia's has shortlisted bids by Acwa Power and a consortium led by Marubeni to develop the kingdom's first ever solar power project as it looks to develop alternative sources of energy and free up oil for export.
The Renewable Energy Project Development Office (Repdo), established last year to oversee the country's renewables programme, chose the bids submitted by the local developer and Japanese engineering firm over the world's cheapest bids for a solar project submitted by a consortium led by Abu Dhabi clean energy firm Masdar and its French partner EDF.
The Masdar-led consortium's bid to for the 300MW Sakaka photovoltaic (PV) project in the northern Al Jouf region came at 1.79 US cents per kilowatt hour (kWh) and was 24 per cent cheaper than that of Riyadh-based Acwa Power, which submitted the second-lowest bid in October.
" All companies that have submitted bids for R1 [round one] Sakaka PV RFP are invited to participate in future projects of the NREP [National Renewable Energy Programme]," Repdo said in a statement.
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Saudi Arabia, the world's largest oil exporter, has looked to diversify away from the resource and has targeted developing 3.45 gigawatts of renewable energy by 2020 under its National Transformation Programme as well as developing 9.5GW of renewable energy capacity by 2023.
The PV project at Sakaka is set to be awarded to the selected bidder this month and will be backed by a 25-year power purchase agreement with the Saudi Power Procurement Company, Repdo added in its statement. Financial closure for the project is expected in February.
Masdar's bid submitted in October last year was set to break the 2 cent threshold for a PV project as tariffs for such schemes continue to fall.
Masdar and EDF said in a joint statement that they “respected the outcome of the tender process” and “remained committed to supporting the realisation of Saudi Arabia’s renewable energy programme.
"Masdar and EDF-EN are proud of the high-quality work accomplished by their respective teams which, through innovation, led to the world’s lowest cost of energy for a PV plant,” they added.
Saudi Arabia's choice not to go with the lowest bidder shows that the country may be "looking to do things differently" and prioritising quality over price, says Gus Schellekens, partner at Ernst & Young.
"The race to the bottom is a dangerous one as the prices get cheaper and cheaper," he said.
"The projects that are being tendered are massive, around one gigawatt and with the sort of scale, the risks also increase. Saudi Arabia’s move reassured the market (about the pricing) and shows they want to do it differently, that they’re prioritising quality."
The risks to the regional renewables industry, which has yet to develop economies of scale is that at very low tariffs "corners could be cut", said Mr Schellekens.
"For projects of this scale, when things don't work out, it could be dangerous," he added.
The kingdom is also set to develop its first wind scheme - a 400MW project al Dumat Al Jandal for which it pre-qualified companies last year.