He's Baaaaccck! Paddy Padmanathan Is In The News Again -- I Thought We Had Heard The Last Of Him Three Years Ago -- February 6, 2018

Updates

September 30, 2018: Saudi calls the deal off. 

March 28, 2018: ready to roll. Will start with $5 billion this year; initial $1 bill from Saudi/SoftBank Vision Fund.

February 19, 2018: solar will not be enough. The $7-billion solar project will be eclipsed by an $80-billion nuclear energy project. 

30-second elevator speech: instead of $109 billion, Saudi Arabia will now build a solar energy project costing upwards of $7 billion; paid for by the developer.

Renewable implications for the rest of the world? None. Saudi and solar energy is a one-off; possibly the only country where solar energy might make sense. But if truth be told nuclear energy would be a better bet.

Original Post

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It's A Long Story, But Very Straightforward

See also this Bloomberg article on the same issue. 

Back on June 14, 2015, I posted one of my better posts on Saudi Arabia, oil, and solar energy. I've re-posted it in its entirety down below, below the double row of asterisks.

Here are the critical points:

• for Saudi, oil is an existential issue
• oil is a finite resource
• Saudi Arabia uses upwards of 10% of its oil production during the summer months to run domestic air conditioning
• a solar energy science project will employ a lot of folks (link here)
• Saudi Arabia has a huge and growing population and little natural potable water; it depends on desalination for its water, a process that is an energy hog; huge amounts of electricity required, and, again, produced by oil in Saudi Arabia (the country also has little natural gas)
• by 2040, "everyone" agrees that, as things stand now, Saudi Arabia will be a net oil importer
• back in 2015, Saudi Arabia announced plans for a $109 billion solar energy project -- for the problems noted above
• the crude oil price collapse put the $109 billion solar project on hold
• the mover and shaker in Saudi, promoting the $109 billion solar energy project? Paddy Padmanathan
• that $109 billion plan was scrapped for eight (8) years while Saudi explored options

Now, today, it is being reported that Saudi Arabia will invest $7 billion in a solar energy program; the story is over at the NY Times:

• by the end of the year, Saudi Arabia aims to invest up to $7 billion to develop seven new solar plants and a big wind farm. The country hopes that renewables, which now represent a negligible amount of the energy it uses, will be able to provide as much as 10 percent of its power generation by the end of 2023
• the renewables strategy finally started to take real shape when Khaled al-Falih took over as energy minister in 2016. Mr. Falih made solar and wind a priority for the kingdom, and set up a new unit last year to expedite the work. Much of the staff was drawn from Aramco
• for the project announced on Monday, Riyadh received bids for the solar farm, which will be built in Sakaka, in northern Saudi Arabia, that rivaled the lowest ever submitted at auctions anywhere. At 2 to 3 cents per kilowatt-hour, a wholesale measure of electricity, solar power here would be below the cost of fossil fuel-generated electricity
• Saudis rely on air-conditioners for much of the year, and the scorching Arabian summer sends demand for power soaring. Much of that electricity today is generated at power plants fueled by oil. Last June, the facilities burned an average of 680,000 barrels of oil a day
• that figure — comparable to the output of a modest-size oil-producing country like Egypt — was down from nearly 900,000 barrels a day in 2015, but it still essentially represents wasted cash. Had it been sold overseas, that crude could have added $47 million a day to government revenue, at current prices

How are the Saudis going to pay for this project? It looks like they took a page out of Elon Musk's playbook:

Selling oil internationally is central to funding the Saudi budget. The terms of the Sakaka project’s auction required that developers pay the upfront cost of the solar farm, in return for payments for the power they supply to the grid. That would allow Saudi Arabia to continue focusing on producing and exporting oil while it makes the shift to cleaner power. [What a sweet deal for Prince Salman.]

And Paddy? He was mentioned once, at the very end of the article, second to last paragraph (the last paragraph was a quote from Paddy:

The Saudi market’s sheer size, however, means it merits the attention of the world’s renewable energy companies. Paddy Padmanathan, the chief executive of ACWA Power, which also has other energy projects in the region, predicted in an interview last month that once the country’s energy authorities became comfortable with renewables, they would ramp up their goals for wind and solar power production.

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Updates

June 22, 2015: long article in Atlantic Monthly. A lot of data. Bottom line, Saudi Arabia is likely to be a net oil importer by 2040. The linked article did not mention that Saudi Arabia has announced that the $109 billion solar program has been delayed for eight years. Saudi Arabia has a severe cash flow problem. They are betting they can cripple the US oil and gas industry. By the end of calendar year of 2016 we will know if Saudi Arabia was successful.

Original

 

It would be interesting to see Bloomberg, or better yet, the Guardian or The (London) Telegraph pick up on this story.

These are the facts:

• water is becoming a bigger and bigger challenge for Saudi Arabia
• they have 30+ desalination plants scattered around the kingdom each of which is very, very energy-intensive
• Saudi uses 1.5 million bopd to run those desalination plans (this number will increase over time)
• Saudi's oil production had fluctuated around 9.75 million bopd until recently when it hit a record 10.33 million bopd
• Saudi Arabia knows that it cannot go on forever using a non-renewable resource (oil) to run their desalination plants
• Saudi Arabia probably has the world's most potential for solar energy
• Saudi Arabia has a very close relationship with China and can get solar panels cheaper than anyone else
• Saudi Arabia has tons of cash; more than enough money to build solar farms
• Saudi Arabia is not encumbered by / with Greenpeace, the Sierra Club, Tom Steyer, or George Soros
• Saudi Arabia does not have a history of being environmentally-sensitive about the desert

Saudi Arabia recently announced a $109 billion solar energy program to run their desalination plants.
But then, out of the blue, on May 22, 2015, the Guardian reports in passing that Saudi has decided to delay that program for eight years. (If that link is broken, see this post.)

With all the data points noted above, one has to ask the question -- why would Saudi Arabia delay their solar energy program?

Whenever my granddaughters ask me a question I cannot answer, I tell them to a) follow the money; or, b) google it.

Google provides 368,000 hits to this query: why did Saudi Arabia delay its solar energy program? The first is a Bloomberg article dated January 19, 2015.

Saudi Arabia is delaying by eight years its target to complete clean-energy program including $109 billion in solar power, saying it needs more time to assess what technologies it will use. 

The project was originally intended to produce a third of the nation’s electricity from solar panels by 2032 and more from wind, geothermal and nuclear reactors. The ambition was to save more crude oil for export.

“We have revised the outlook to focus on 2040 as the major milestone for long-term energy planning in Saudi Arabia,” said Hashim Yamani, president of the King Abdullah City for Atomic and Renewable Energy, the royal agency established to oversee renewable energy policy.

The comments at a conference in Abu Dhabi yesterday are a blow to the kingdom’s effort to feed its rapidly growing population’s demand for more electricity. The world’s largest oil exporter is having to divert crude supplies for domestic power generation during the hottest summer months, reducing its main source of income.

King Abdullah’s government set out its ambitions for diversifying its energy supplies in May 2012, the year after an influential Chatham House paper suggested business-as-usual policies would leave the kingdom a net oil importer by 2038. 

So, that's the google answer -- " ... it needs more time to assess what technologies it will use."

That sounds overly suspicious, but we will come back to this later.

The second way to find the answer: follow the money, and in that linked Bloomberg article, the very next paragraph provides that answer:

A plunge in oil prices is only concentrating officials on how to get value out of the program, said Paddy Padmanathan, chief executive officer of ACWA Power International, a Riyadh-based power plant developer likely to build some the plants.  

From there, the comments by the Saudis become awkward, bizarre, complex, and disingenuous (a, b, c, and d).

This country admits that it may become a net oil importer by 2038 and with a goal to increase production now, that day of reckoning may come sooner than later. Saudi needs oil to a) fuel their desalination plants; b) to feed their new refinery programs; and, c) to provide electricity (air conditioning) for their own population which continues to grow. That's why Saudi could be a net importer of oil in the not-too-distant future.

So, the first "why"? Why would Saudi scrap a solar energy program to save their one natural resource?

Answer: cash flow.

Second "why"? Why is Saudi having a cash flow problem? The simple answer is the slump in oil prices. But I think that's too simplistic. First, of all, I think I recall that Saudi has about $750 billion in cash reserves. A $109 billion project spread out over many years would hardly cause a dent. Also recall, that Saudi Arabia recently went on the open market to borrow money to finance "its soaring deficit." (By the way, that link takes you to an incredible AFP article dated April 8, 2015).

So, yes, there is a slump in oil prices, but Saudi a) saw that coming; and, b) orchestrated it. (Maybe more than they expected.)

So the third "why"? Or better, "what"? If not just the slump in oil prices, what else is causing a cash flow problem for Saudi Arabia. What is new between October, 2014, and April, 2015. Several things: a) ISIS attacks within the kingdom; b) an expensive shooting war in Yemen; and, c) tough love from the US -- President Obama says the US is no longer responsible for Saudi Arabia's security.

But is there more? Yup. There always is. Look at that Bloomberg story again. Deep in the story, this paragraph:

“Does the reduction in oil price mean everything is going to go backward? I don’t think so,” said Padmanathan. “It focuses everybody’s mind on efficiency and on thinking long term.” 

What could possibly be meant by that? An expensive solar energy program gets you one thing -- expensive energy. Nothing else.

What else has happened between October, 2014, and April, 2015 in the Mideast? You guessed it. A growing Iranian threat. It is clear that the US, through Valerie Jarrett's behind-the-scenes maneuvering, is out to re-establish the Persian Empire. Saudi Arabia is not blind to this.

The dirty little secret that Saudi Arabia and Israel have a very close relationship is now out. It was leaked by the Obama administration and the mainstream media carried that water for the administration. It was also leaked that the Israelis have also had a nuclear program for a long, long time. Everyone knew that but it was not being publicly acknowledged in ways it had not been acknowledged before (wow, that's a lousy sentence).

Bottom line: the Mideast is "going nuclear" and there is an internal struggle among the Saudi princes: will they get a better bang for their buck going nuclear or going solar?

Well duh.

With expensive solar energy, one gets expensive electricity and no fireworks. With expensive nuclear power, one a) joins the world's elite nuclear club; b) gets cheap electricity; and, c) gets the fireworks if necessary.

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Speaking Of Solar Technology

By the way, speaking of solar technology, there is a most interesting story coming out of Calfiornia. The Wall Street Journal is reporting the dirty little secret that solar energy developers always knew but tried to keep quiet: 

Some costly high-tech solar power projects aren’t living up to promises their backers made about how much electricity they could generate.

Solar-thermal technology, which uses mirrors to capture the sun’s rays, was once heralded as the advance that would overtake old fashioned solar panel farms. But a series of missteps and technical difficulties threatens to make newfangled solar-thermal technology obsolete.

The $2.2 billion Ivanpah solar power project in California’s Mojave Desert is supposed to be generating more than a million megawatt-hours of electricity each year. But 15 months after starting up, the plant is producing just 40% of that, according to data from the U.S. Energy Department.

Power tower technology:

The sprawling facility uses “power towers”—huge pillars surrounded by more than 170,000 mirrors, each bigger than a king-size bed—to capture the sun’s rays and create steam. That steam is used to generate electricity. Built by BrightSource Energy Inc. and operated by NRG Energy Inc., Ivanpah has been advertised as more reliable than a traditional solar panel farm, in part, because it more closely resembles conventional power plants that burn coal or natural gas. NRG co-owns the plant with Google Inc. and other investors. 

Challenges:

Turns out, there is a lot more to go wrong with the new technology. Replacing broken equipment and learning better ways to operate the complex assortment of machinery has stalled Ivanpah’s ability to reach full potential, said Randy Hickok, a senior vice president at NRG. New solar-thermal technology isn’t as simple as traditional solar panel installations. Since older solar photovoltaic panels have been around for decades, they improve in efficiency and price every year, he said.

Before I go on: this is poppycock -- "new solar-thermal technology isn't as simple as traditional solar panel installations." Sounds like whining. The nuclear energy industry has much more challenging problems. The oil industry has many more challenges due to an anti-oil atmosphere in Washington -- just ask BP. Ask the Bakken operators who can be charged with a felony for one dead migratory duck. It sounds like Hickok is not up to the challenges involved in procuring and replacing solar panels.

In a free market system, there's a reason folks opt for fossil fuel over solar energy or wind energy.

It turns out NRG's Ivanpah is not the only solar farm that over-promised, and under-delivered:

Ivanpah isn’t the only new solar-thermal project struggling to energize the grid. A large mirror-powered plant built in Arizona almost two years ago by Abengoa SA of Spain has also had its share of hiccups. Designed to deliver a million megawatt hours of power annually, the plant is putting out roughly half that.

Back to Ivanpah. Why is Ivanpah underpeforming. Get ready for obfuscation. First:

One big miscalculation was that the power plant requires far more steam to run smoothly and efficiently than originally thought, according to a document filed with the California Energy Commission. Instead of ramping up the plant each day before sunrise by burning one hour’s worth of natural gas to generate steam, Ivanpah needs more than four times that much help from fossil fuels to get the plant humming every morning.  

You, you read that correctly. This solar farm relies on natural gas to get it up and running each day; and it takes much longer than expected.

How was this missed? Either the engineers mis-calculated this (hard to believe; engineers are pretty smart folks) or the top floor brass refused to believe them. Or the top floor brass knew that including that fact in the original plans would have made it more difficult to sell the program, but I don't for a minute think the engineers missed this by this wide a margin. If so, some engineer needs to be held accountable. Don't hold your breath.

Second:

Another unexpected problem: not enough sun. Weather predictions for the area underestimated the amount of cloud cover that has blanketed Ivanpah since it went into service in 2013.

Oh, give me a break. The company had 100 years of sunshine / cloud cover data available and lo and behold, these past 18 months were an anomaly. If you believe that, I'm sure we can find you a bridge in the desert to buy.

It turns out, that, in general, solar farms are under-performing nameplate capacity. One of the reasons always stated: there is less sunshine than expected. But if there's not enough sunshine in southern California / Nevada, how in the world do solar enthusiasts think there's even a remote chance of enough solar energy to power the world ... ever.

By the way, does that sound familiar: ".... there is less sunshine than expected"? It turns out that's the same excuse wind farm advocates use when wind farms under-perform: "there is not as much wind as expected." (And, some days, it's too windy to let the blades spin.)

But again, for those who missed it the first time around:

• solar farms don't generate electricity during the night (they need fossil fuel plants to back them up)
• some solar farms require hours of natural gas to power them up in the morning
• solar farms aren't particularly efficient during periods of cloud cover

Likewise:

• wind farms don't generate electricity when the wind does not blow (they need fossil fuel plants to back them up)
• wind farms aren't particularly efficient during low wind or high wind conditions
• the torque on the towers suggest the half-life of a typical wind tower is about seven years

But I digress.
I don't think any of this relates to why Saudi Arabia delayed their own solar energy program. As noted earlier, I think it's an internal princely debate whether to go nuclear or to be environmentally friendly to gain brownie points with the Sierra Club and go solar, but these dismal reports about efficiency of solar energy sure don't help the Saudi environmentalists.

By the way, did anyone else have a vague recollection regarding BrightSource? You are not imagining things. From a October 10, 2014, post:

A solar-energy company has dropped a proposal to build a 75-story solar tower near California’s Joshua Tree National Park employing a kind of solar technology that can cause birds to ignite in midair.

The California Energy Commission was slated to vote on BrightSource Energy’s project this month, before the company withdrew its application.

The plant would have used “power tower” technology that trains concentrated solar power on steam boiler towers. State and federal officials and conservation groups say a similar BrightSource tower near the Nevada border proved unexpectedly deadly to birds that flew through the concentrated rays.

That BrightSource tower near the Nevada border is obviously the Ivanpah site. I didn't catch whether Hickok mentioned anything about KFC bird kills caused by his company.