Saudi Arabia’s chickens could gain most as nation moves from oil dependency
As Saudi Arabia looks to diversify its oil-based economy, tapping other energy sources such as solar and wind, the country’s chickens are the ones that could stand to gain the most.
It is no secret that oil dependent Arabian Gulf countries are moving at a quicker pace to decrease dependence on oil revenues as the 18-month plunge in oil prices have strained national budgets. Saudi Arabia is looking to reduce its reliance on oil revenues from 72 per cent of its total exports to 37 per cent by 2025, which would double its domestic income, according to the Abu Dhabi-based International Renewable Energy Agency’s (Irena) GCC market analysis.
One economic drag stems from energy and fuel subsidies where Saudi Arabia saw subsidies take up almost 8 per cent of GDP. Irena estimates that for both Saudi Arabia and Kuwait, about US$51 billion went to subsidising gasoline and diesel in 2014 with nearly two-thirds of that used in the transport sector and the remainder used by diesel for electricity.
“A key figure of the region’s discourse on energy pricing has been the need to price domestically supplied fuels at updated marginal cost of production and to consider the opportunity cost of consuming energy that can otherwise be sold on the international market,” Irena says.
The kingdom domestically consumed nearly a third of its oil production in 2014. Coupled with that is a burgeoning diesel market for off-grid applications.
Many Saudi industries are located in remote areas, or areas that do not have access to the national grid, because of the large amount of land needed.
While the kingdom announced at the end of last year that it would hike domestic power, water and fuel prices, there are still subsidies in place.
As a result, these industries use low-priced, subsidised diesel for power generation, which is an extra financial burden for the government.
Browning Rockwell, the executive director of Saudi Arabia Solar Industry Association (Sasia), says that about 60 per cent of the industrial power is not gleaned from the national grid. And one of those prime industries that is rapidly expanding is the poultry sector.
In a report released in August from the US embassy in Riyadh, poultry meat was one of the highest consumed proteins in the kingdom with total consumption estimated to hit about 1.54 million tonnes last year. Last year, broiler meat imports increased 13 per cent from the previous year to about 900,000 tonnes – mostly from the world’s top exporter, Brazil.
However, domestic broiler meat production is expanding by 20 per cent this year, which will help to slash import costs. And poultry analysts expect Saudi Arabia will be able to meet about 70 per cent of local demand.
A poultry farm needs a significant amount of power for water irrigation, cooling and lighting. Mr Rockwell points to a previous presentation he and colleagues gave on the use solar-diesel hybrid solutions for the poultry industry a year ago, but the interest was not there.
“Many of these farming operations were funded by the Saudi development fund or agricultural banks,” he says, adding that money is even tighter in today’s low oil price environment. “So now, who is going to pay for this?
“If poultry farms run out of power – the chickens die,” he says. And that cuts into profits.
But solar-diesel hybrid solutions could be an option with a three-year payback, according to Mr Rockwell.
Last month, the US company and regional player First Solar and one of Saudi Arabia’s largest poultry producers, Al Watania Agriculture, completed a pilot project to assess the ability of solar electricity to sustainably power irrigation at a large farm.
The farm spans nearly 320 square kilometres and currently uses conventional fuel to pump water from 150 bore wells. Solar power replaces the diesel generate which would normally consume just under 630,000 litres of diesel annually, if it ran continuously.
Taking the Al Watania specs and factoring the future price of diesel in Saudi Arabia, the solar hybrid market looks bright.
Daniel Zywietz, the chief executive of Dubai’s Enerwhere, a company that specialises in solar-diesel hybrid solutions, says that while the cost of diesel in Saudi is still substantially lower than in this country, the Saudi government announced it would raise this to world market levels over the next four to five years.
“While the current cost of power generation from diesel is still lower in Saudi Arabia compared to the UAE, this cost difference should soon disappear and is going to be pretty insignificant of the 25 to 30-year lifespan of a solar system,” he says.
Based on UAE data of current diesel prices at Dh1.37 per litre, the fuel savings at Saudi’s Al Watania pilot would be 100 per cent since the pumps are only run on solar and there is no need to pump at night.
“On that basis, the cost savings of solar compared to diesel generators would be at least 20 to 30 per cent and potentially higher – depending on the exact cost of capital - even at the current low fuel prices,” Mr Zywietz says.
The fuel savings could translate into nearly Dh1 million annually. “That works out to a payback in the order of three to five years – not too shabby,” he says.
There is still an argument to be held for implementing solar into other farming activities at night, such as air conditioning and lighting.
Mr Zywietz says the savings would be slightly smaller, about 15 to 20 per cent, as the solar would only replace around half of the diesel required.
And batteries that could store the solar energy still are not cost competitive, although he says that is likely to change in the next three to five years.
Mr Rockwell says that while the market has nowhere to go but up, the challenge to get applications such as these off the ground is more fundamental.
“It’s really a case of the government and commercial sector figuring out how they’re going to make money in this. The vision is more clear now because they don’t have the cycle running like traditionally,” he says.
He adds that the country needs to start with short-term and realistic targets spanning three to five years.
“This idea talking about 10 to 20 years, in this day and age – that’s a century. And these targets they talk about do not resonate,” Mr Rockwell says. “The world is kind of fatigued with Saudi Arabia now.”
Many industry experts believe Saudi Arabia will be a game-changer for the solar sector, but it has been slow to take off. Mr Rockwell says that while large-scale projects are fine, there is a great amount of potential that is yet to be explored.
“So doing large-scale solar is nothing, but they have to do other things to enhance smaller scale,” he says.
“It doesn’t do any good to just allow the big guys to take all the opportunities.”
Published: March 6, 2016 04:00 AM