Saudi Arabia 2.0 – why the road to 2030 is green

Electric, renewable, solar-powered, hybrid – sustainable energy can feel like an alien world, but it’s now very real.

We’re staring at a future built on greener energy, a symptom of a global shift away from fossil fuels.  With the impact of global warming becoming more apparent, the continued depletion of resources and high volatility in crude oil prices, it is prudent to be planning for a new day.

On the face of it, you might think oil’s potential retreat threatens the very lifeblood of the major oil-producing nations whose economies have traditionally been built on this resource – including, of course, Saudi Arabia.

Yet against this background Saudi Arabia has decisively seized the initiative, realigning itself to reap rewards in a fast-changing renewable world; and setting out a vision for 2030 which looks increasingly green.

So what does this mean in practical terms, and what exactly is Saudi Arabia doing in its quest to become a regional leader in sustainability?

Sustainable rebuilding

The European Union (EU) and the United Nations (UN) initially led the way in sustainable rebuilding initiatives.  The EU Europe 2020 strategy[1] was adopted by the European Council on June 17, 2010, and has subsequently represented a common EU agenda for the current decade, challenging EU member states to lay the foundations for a more sustainable future – built on smart, sustainable and inclusive growth – and to rethink their economic frameworks by aiming to phase out emission-heavy industries, infrastructures and practices.

Then in 2015 the UN issued its own blueprint, Transforming Our World: the 2030 Agenda for Sustainable Development[2] which included a number of vital strategic sustainability goals.  These included Goal 7: Ensure access to affordable, reliable, sustainable and modern energy for all; and Goal 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.

Finally of course, at national level, many countries are pursuing active sustainability agendas of their own, within and outside these wider initiatives.  These include the UK[3], Germany[4], several Scandinavian nations (for example Sweden[5]), China[6] and India[7], which was heavily involved in shaping the UN Sustainable Development Goals in the first place.

Saudi Arabia’s vision

In early 2016, Saudi Arabia followed suit.  The country’s Vision 2030 and National Transformation Plan 2020 laid out an ambitious reform program and a long-term road map to bolster the country’s financial position by diversifying its economy.

However, it is much more than that.  The vision is to reposition Saudi Arabia as ‘the heart of the Arab and Islamic worlds, the investment powerhouse, and the hub connecting three continents.’[8]  There have already been tangible steps on the path to change, including the recent royal proclamation to enable women to drive, and an announcement by His Highness the Crown Prince Mohammed bin Salman, at a Future Investment Initiative[9] in Riyadh, that the kingdom would return to a more open and  ‘moderate Islam’.  At the same time he announced plans for NEOM, a new economic zone that will stretch across Saudi Arabia’s borders into neighboring Egypt and Jordan.

Vision 2030 is also set on providing international firms with solid investment options in non-oil sectors including tourism and other services.  As well as opening up the country’s equity market, the government will create several new industry clusters to stimulate the influx of foreign capital.  As part of the gradual opening-up process, in June 2017 the Saudi Stock Exchange (Tadawul) announced[10] that it had been selected on the watch list for the influential MSCI Emerging Market Index, an important milestone in signaling to international investors that the country’s capital market is now attaining maturity in terms of efficiency, governance and regulatory framework.  Foreign capital currently makes up 4% of the Tadawul market, according to Mohammed Elkuwaiz, vice-chairman of the Saudi Capital Markets Authority, but that figure is expected to grow as the regulator looks to diversify the exchange’s product range and attract a broader array of companies to list on it.

Investment opportunities

Aside from the NEOM project, which is expected to attract private and government investment of more than US$ 500 billion in the coming years, other major investment opportunities abound.

Further projects include a major revamp of transport infrastructure between cities – such as the Haramain high-speed rail line between Makkah and Medina, and within the key hubs including a 10-year plan to boost metro lines and bus routes in Makkah, Jeddah, Dammam and Medina.

Also firmly on the agenda is the planned sale of part of the state-owned oil company Saudi Aramco, targeted for a potential international IPO in 2018, which could raise up to US$ 100 billion, based on government valuation estimates.  The proceeds from this planned sale have always been earmarked to support the investment programs associated with Vision 2030, so it is an important part of the funding plan for Saudi Arabia’s sustainable development goals.

The message is clear.  With a strategic partner on the ground, and the right stewardship, companies, entrepreneurs and investors can tap into the country’s huge potential – and at the same time make a real difference in the new Saudi Arabia.

A change in philosophy

So, Saudi Arabia is forging towards a future no longer dependent on oil; but is this overhaul being done through gritted teeth, or is there also a genuine desire to contribute to a greener world?

The evidence speaks for itself – and the commitment is clear.  As far back as 2010, when the EU was issuing its Europe 2020 strategy, Saudi Arabia was establishing the Saudi Energy Efficiency Center (SEEC) to raise awareness of, and enhance, energy efficiency in the country.  Then, in Vision 2030, the government backed up the SEEC by committing to a US$ 1.33 billion atomic and renewable energy center for King Abdullah Economic City (KAEC), north of Jeddah.

Since then, progress has been rapid and consistent.  The Energy, Industry and Mineral Resources Minister, Khalid Al-Falih, announced at the World Future Energy Summit in Abu Dhabi in January 2017, that Saudi Arabia would be launching a National Renewable Energy Program (NREP), which was expected to invest US$ 30-50 billion in renewable energy programs by 2023.  He also announced that the country was in the early stages of studying its first two commercial nuclear reactors, part of a planned significant investment in nuclear energy.  The minister added that Saudi Arabia was working on ways to connect its renewable energy projects with Yemen, Jordan and Egypt.  Subsequently the energy ministry has announced tenders for 400 MW of wind power generating capacity in the Al Jouf region – the first utility-scale wind project within the NREP – and a 300-MW solar project in the same region. Minister Al-Falih added that round two of the NREP would be launched before the end of 2017, “keeping us firmly on track to deliver 9.5GW of renewable energy by 2023.”

Meanwhile, the promise to upgrade bus, train and metro links will no doubt persuade some motorists to leave the car at home – and reduce pollution in the process – although this may be offset by an expected boost in car sales to new women drivers.

Although there is no wider policy-driven shift to alternative energy vehicles just yet, the prospect could be lucrative.  Which leads us to the question: where is Saudi Arabia when it comes to electric vehicles (EV)?

Turning the roads green

As things stand today, changes in consumer behavior and perceptions are being spearheaded mainly through hybrid technology, including the advanced hybrid vehicles available from Toyota and Lexus through Abdul Latif Jameel Motors’ comprehensive network – bringing world-leading innovation to the Saudi Arabian motorist.

At present, the country has little-to-no infrastructure for full EV, but that could actually work to its advantage.  If Saudi Arabia decides to promote greener vehicle use as a matter of policy, the benefits could be considerable – with many profitable opportunities.

While the challenges are not unique to the Gulf region, Saudi Arabia is in a strong position to look at how the rest of the world is implementing EV infrastructure and, frankly, do it better.

In the early adopter EV nations there are three main reasons why EV adoption has been sluggish: range, cost versus benefit, and infrastructure. Saudi Arabia’s relatively late transition to EV could actually work to its advantage in mitigating all three.

Range              The term ‘range anxiety’ stems from EV drivers’ fear of running out of power too quickly and too far away from assistance.  To address this, EV manufacturers have had to step up.  Data published in Motoring Research earlier this year included range estimates from New European Driving Cycle (NEDC) testing of a number of battery-only EV; revealing that numerous marques are now boasting battery ranges of over 160 km (100 miles) per charge.[11]  The Nissan Leaf (the world’s best-selling EV, with 280,000 vehicles sold worldwide up to July 2017 according to a recent Bloomberg article) includes several models with ranges of over 100 km, including the 24kWh and the 30kWh; while at the higher end of the battery and price range, the top-performing Tesla models can exceed 480 km (300 miles) per charge.  These include the Tesla Model 3 Long Range, which can go nearly 500 km (310 miles) on a single charge, according to a recent BBC Top Gear consumer review.

The legacy of range anxiety is still a problem in Europe.  However in new and developing markets, intensive consumer education programs are helping to fill in knowledge gaps. China, for example, is a relative latecomer to the EV market, yet range anxiety hasn’t impacted sales there, and it continues to be a significant market for manufacturers of New Energy Vehicles (NEV, as they are known in China) despite reductions in local and central subsidies which have kicked in this year.  The total NEV share of passenger car sales in China reached a new high in June, at 2.5%, in an otherwise sluggish overall car market, and overall sales in 2017 are expected to reach 530,000.  What’s more NEV passenger car sales in China are growing 20 times faster than the car market as a whole.[12]

These figures suggest China is a model that Saudi Arabia can look to when planning its EV program – starting with clear, comprehensive information.

Cost/benefit     Until recently, the argument went along the lines that although drivers might save on fuel with an EV, the cars themselves were still significantly more expensive (and troublesome) than their internal combustion engine (ICE) equivalents.  Today manufacturers are working hard to carve out a solid EV business model, and UBS research published in May 2017[13] found that, by 2018, EV and ICE cars will finally see price parity.  By the time Saudi Arabia is fully in this race, EV will be ever more competitive in terms of price.

Infrastructure   Notwithstanding these concerns, probably the biggest issue hampering EV breakthrough in Europe has been infrastructure.  Take Germany as an example.  In mid-2015, the country had just 2,500 scattered publicly accessible charging stations available for around 38,000 German EV.  Keep in mind that the average charge time for an EV is, depending on the connector, anything between 30 minutes (the BMW i3) and 30 hours (the Ford Focus Electric).  Most EVs are responsive to fast-charging, so there has been a race to install speedy chargers, but – again using Germany as the example – just 100 publicly accessible fast-charging stations were available as of 2015[14]. Building infrastructure first seems the way to go, and Saudi Arabia has a clean slate available on which to do just that.

Still, there will be practical challenges implementing EV architecture in such a huge and sparsely-populated land mass.  The sheer distances involved as a result of the country’s geography raise range considerations right to the top of the list.  Against this, research is starting to emerge which investigates the possibility of charging EV batteries using solar energy.  A paper[15] published in April 2016 in Science Direct assessed data from the Dutch Meteorological Institute against EV charging profiles, with a view to considering the feasibility of solar EV charging based on two scenarios: weekday-only and daily charging.  It certainly appears that this is a live area for research and potentially feasible.

A blank canvas

The standard industry view is that it is challenging to retrofit infrastructure to cope with active demand for EV, and that this has had a limiting effect on growth in most of Europe, with one or two notable exceptions such as Norway.

Today, Toyota Motor Corporation sells 37 models of electrified cars in 90 countries at a rate of over 1.5 million a year.[16]  This approximates to 43% of the entire global electrified vehicle market according to IHS-Global Insight data.

This seems to have been less of an issue in other early EV adopter nations such as Japan, Korea and the USA.  Still, the blank canvas works best.  Creating clean vehicle initiatives – including education and training programs – before laying down a charging infrastructure should help usher in a more seamless EV switchover.  What’s more, where you have EV you also get dealerships/stores, service centers, battery manufacturers and charger-makers: all growth industries in themselves.  Not to mention software experts, already prominent in car manufacture with the rise of the ‘connected car’ irrespective of whether the car is an ICE, hybrid or EV.  Even if they’re not on the ground, these ancillary and supply-chain players will at least push up import and tax revenues.

Also, a green transport ecosystem in Saudi Arabia is more likely to appeal to companies where a social enterprise philosophy drives their commercial approach. That can only serve to further diversify social and economic life in a country previously most well known for its oil and gas businesses.

Progress to date in GCC

Amongst Gulf Cooperation Council (GCC) countries, only the UAE has so far invested in a full EV charging infrastructure (as part of the ‘Smart Dubai’ initiative), using public and private money and expertise.  Tesla has now launched a bricks-and-mortar store in UAE, and is reported to be looking at expanding into Bahrain, Oman and Saudi Arabia.  Still, it remains to be seen whether Saudi Arabia has the appetite for EV supercars, like the BMW i8 and the Porsche EV under development, and it is more likely that hybrid vehicles and more affordable EV models will prove more popular in the emergent stages of the country’s move towards personal transport electrification.  It’s certainly a nice thought, for a country that made its name in oil, that one day its vehicles could be largely or entirely green.

To this end, in February 2016, Abdul Latif Jameel Motors launched the new Toyota Prius in Saudi Arabia, the first time the world’s most successful and popular hybrid vehicle – with worldwide sales of 3.5 million up to 2016 – had been launched in a GCC country.  Abdul Latif Jameel Motors provides support for Toyota users across Saudi Arabia through a network of nearly 300 strategically placed sales and service centers, providing happy motoring and peace of mind to drivers wherever they might be.

Looking further ahead, Reuters reported in July 2017, that Toyota Motor Corporation is working on an electric car powered by a new all-solid-state battery that significantly increases driving range and recharges in just a few minutes.  Toyota is reported to be looking to sell the new model in Japan as soon as 2022, a date which happens to align neatly with Saudi Arabia’s strategy, falling between the 2020 National Transformation Plan and the ultimate Vision 2030.

The producer side of the equation

EV are powered by chargeable batteries.  Chargeable batteries need electricity.  That electricity needs to be derived from sustainable sources or the whole EV configuration is not viable.  As described earlier, in recent years there have been significant moves in Saudi Arabia on the producer side of the EV equation.

The scale of investment required for these initiatives – and the clear commitment to solar and wind power development that they represent – demonstrate the government’s ongoing determination to make progress on the producer side of the EV/sustainable transport revolution.  Inevitably, too, incoming investors will soon start to clock on to the emerging opportunities.

Towards 2030

With Saudi Arabia’s new vision for diversifying its economy and expanding its cultural horizons we could be looking at a very different country by 2030.

So as we work towards a land of sustainable social enterprise, efficient industry hubs, green travel and renewable power, it’s worth remembering that companies that invest in this infrastructure will be the ones benefiting both themselves and the country as a whole.

Saudi Arabia is making big changes, and they are the kind of sweeping changes that will drive improvements in the quality of life both for the kingdom’s citizens and the broader population.  Sustainable transport is part of it; sustainable development more broadly is the real underlying aim; ultimate survival might be the achievement.