BMI says remains cautious on Saudi record solar bid

BMI Research, a unit of Fitch Group, said on Wednesday it will remain cautious on Saudi Arabia's solar capacity expansion plans until there is more clarity on the terms of the record low bid received by the Kingdom recently.

The Kingdom recently received bids for its 300 megawatt solar photovoltaic (PV) project in Sakaka. Abu Dhabi’s Masdar and France’s EDG Energies Nouvelles jointly submitted the lowest bid at 6.69736 halalas (1.79 cents) per kilowatt hour, 26 percent lower than a previous record low bid for a solar project in Abu Dhabi.

Saudi Arabia could, in theory, be paying the lowest power purchase agreement (PPA) price for a solar plant ever recorded, if the PPA is awarded at this price by the government.

The auction price is a positive development, but only if projects actually prove to be economically feasible at a price of less than 2 cents per kilowatt hour, BMI Research said.

“There is lingering uncertainty over whether the lowest bid for the PPA adequately reflects the economic reality on the ground,” the firm added.

As the full details of the agreement are currently withheld, there are industry speculations that the Saudi government is offering some sort of incentive, either direct or indirect, to achieve the headline bidding price.

“While such incentives are not a major problem in themselves, full disclosure of the project details will ultimately be needed or Saudi Arabia could run the risk that the headline PPA price actually undermines private sector and international interest in the broader expansion of the Saudi solar industry,” the report added.

This situation would risk undermining Saudi's long-term plans to stimulate investment of between $30-50 billion in the renewables sector, as the Kingdom may struggle to hit its target to develop 3.4 5 gigawatts (GW) of renewables capacity by 2020 and 9.5GW by 20 23.