Building the Solar Energy Value Chain in Saudi Arabia

Building the Solar Energy
Value Chain in Saudi Arabia
Ibrahim Babelli
Chief Strategist
King Abdullah City
for Atomic and Renewable Energy
(K.A.CARE)

Royal Vision
1

K.A.CARE Mandate
The City shall aim at contributing
to the sustainable development in
the Kingdom through utilization of
science, research, and industries
related to atomic and renewable
energy for peaceful purposes in a
way that leads to raising the
standards of living and quality of
life in the Kingdom
2

Towards Energy Sustainability
The Kingdom of Energy
The Kingdom of
Sustainable Energy
Towards
greater
sustainability
A new energy mix to meet local needs as well as maintain
leadership role in the global energy landscape
3

Energy Mix

Gradual Introduction of Renewable and Atomic energy
Nuclear
Renewables
Fossil
TWh
Alternative energy will gradually replace fossil based generation
5

Sustainable Energy Outlook for Saudi Arabia
Wind/Other Ren
Solar PV
Needed Capacity (MW)
Solar CST
Nuclear
New Required Fossil
New Committed
Existing Diesel
Existing HFO
Existing Crude
Existing Gas
2010 2020 2030 2050
6

National HR
Pillars of Sustainable Development
Sustainable Energy Mix
7
R & D & T
National legal
Framework
Value Chain
National Economic
Framework
Target Installed Capacity

Enabling the
Value Chain

Local Value Chain Creation Levers
TYPES OF LEVERS
EXAMPLES
1
1 "Communicative" levers
Clear Communication of national strategy, incl.
> Clear commitment to program size
> Stable/sustainable policy framework
> Cluster development/Industrial zones
"Communicative"
levers
2 Indirect (mostly regulatory) levers
> Local content targets
> Favorable custom duties
> Simplified procedures (e.g. visa regulations)
3
Direct
(financial)
levers
LEVERS FOR
THE LOCAL
VALUE
CHAIN
2
Indirect
(regulatory)
levers
3 Direct (mostly financial) levers
Investment incentives as well as operational incentives
> Soft loans
> Loan guarantees
> Equity participation
> Support/grants
– Investment grants
– R&D grants
– Energy support
> Tax breaks/reductions
> Export credit assistance
– Wage support
– "Cheap land" and
infrastructure
9

Enabling Structural Framework for Solar Energy Value Chain
Development
Components of
solar value
chain, in scope
Levers
Key questions to
consider
Emerging hypothesis for KSA
Rationale
Generation
1
Ownership
Who will own the
assets?
Private or State Private
partnership
• Spur rapid growth in the renewable energy capacity
while leveraging global expertise
• Government could consider some equity (in line with
current IPP model) in a largely private model
2
Remuneration/
Incentives
Tariff
related
Invest
ment
related
What incentives are
required to support
ongoing operations?
What is required to
support investments?
Regulated (Feed in) tariff • Ideal for less sophisticated markets; global best practice
• Creates price transparency; easy to implement
• Can influence the technology that is developed
• Can be tiered (off grid/on grid)
Investment incentives • Reduces investment risk for investors
3
Capacity
allocation
Does KSA want to limit
the amount of capacity
build up?
Capacity allocation via tenders • Allocate such that each technology gets developed
• Control addition to the grid capacity
• Control money spent on incentivizing capacity build up
• Support KSA’s development objectives by specifying
relevant criteria in the tender
R&D and skill
development
4
Incentives for
local
development
M&A support
What incentives are
required for R&D and
skill development in
KSA?
What incentives are
required for M&A for
technology acquisition?
• State financing for specific
technologies i.e., Solar
CSP, PV and geothermal
• Funding for universities/
institutes and setting up
training academies
Financing support i.e low cost
loans/equity financing for
acquiring technologies
• Support research in areas where KSA has the
opportunity to dominate regionally or globally
• Leverage local talent for emerging research
opportunities
• Enable local companies to acquire global
technology/companies where ground up capability
building will be time consuming/expensive
Supply Chain /
cluster
development
5
Procurement
policy
Incentives
Does KSA want to
regulate the level of local
sourcing?
What incentives are required
for Supply chain?
Specify % of localization in
component sourcing e.g. 20%
in the first few years increasing
to 70% in 5-7 years time
Specify development
objectives via tenders
• Promote investment and jobs in domestic industry
• Promote supply chain development by specifying criteria
in the tender e.g. jobs created, total investment etc
10

Enabling Value Chain Development via Infrastructure Support
▪ Transport: Easy access to
international flow by air/sea
▪ Utilities: Adequate utilities for
both industries and living areas
▪ Telecom: Uninterrupted, high
quality telecom access at
affordable prices
Physical
Infrastructure
Industry
development
Ease of doing
business
▪ Simple access to permits
(land, manufacturing,
imports etc.)
▪ 'Single window' clearance for
investors
▪ Attractive living standards for
employees and families (e.g.,
international schools, medical
center, English widely used etc)
Livable
community
IP management
and incubation
support
▪ IP management: Evaluation
of ideas and filing and
monetization of IP’s
▪ Incubation support: Providing
infrastructure support for
creation of new companies
IP management
Incubation support
Research Evaluation IP filing
Monetize
▪ Sell
▪ License
Create
company
Create independently
functioning
companies
External
investors
11

Value Chain
Breakdown

CSP Localization Example
CSP core localization in Spain, 2010
% investment localized vs. imported
- R E A L
E X A M P L E -
14%
30%
• As of today, Spain is the largest
CSP market in the world:
– 1 GW operating
– 1.2 GW under construction
86%
56%
44%
54%
46%
100%
70%
• Main activities localized are:
– Solar Field (Mirrors, Receivers,
Collectors and other minor
elements)
– Services (EPC / O&M)
• Storage localization is based on
the industrial infrastructure that
already existed in the country:
storage tank, heat exchangers and
pumps
Solar Field Storage Power Block Services (EPC &
O&M)
Mirrors
Receivers
Collectors
Other minor
Localized
Imported
Total
• The same applies to power blocks.
Where the steam turbine is
imported but they localize:
– Insulating system
– Cooling tower
– Piping
– Others
13

Value Chain Breakdown– Renewable Energy
Total investment breakdown: Manufacturing, EPC and O&M per sub-technology
% total capex and opex throughout the plant lifetime
Other
Molten salt
HTF
Steam generator
Turbine
Structures
Absorber
Mirrors
Other
Molten salt
Steam turbine
Receptor
Mirrors
Structures
Other
Module
Cell
Polysilicon
Integrated
module
manufacturing
Integrated
module
manufacturing
Other
Nacelle housing
Generator
Gearbox
Rotor
blades
Tower
Other
Condenser
Pre-heater
Cooling tower
Turbine
EPC
Other
Fuel & ash handling
Turbine & generator
Air pollution control
Boiler
Rest of
manufacturing
EPC
EPC
EPC
EPC
EPC
EPC
O&M
O&M
EPC
O&M
O&M
O&M
O&M O&M O&M
CSP Trough CSP Tower Silicon PV Thin Film PV HCPV Wind Geothermal Waste-toenergy
14

Recommended Key Activities for Core Localization
Total investment breakdown: Manufacturing, EPC and O&M per sub-technology
% total capex and opex throughout the plant lifetime
Other
Molten
HTF salt
Steam generator
Turbine
Structures
Absorber
Mirrors
Other
Molten
salt
Steam turbine
Receptor
Mirrors
Structures
Other
Module
Cell
Polysilicon
Integrated
module
manufacturing
Integrated
module
manufacturing
Other
Nacelle housing
Generator
Gearbox
Rotor
blades
Tower
Condense Other
r
Pre-heater
Cooling tower
Turbine
EPC
Other
Turbine & generator
Fuel & ash handling
Air pollution
control
Boiler
Rest of
manufacturing
EPC
EPC
EPC
EPC
EPC
EPC
O&M
O&M
O&M
EPC
O&M
O&M
O&M O&M O&M
CSP Trough CSP Tower Silicon PV Thin Film PV HCPV Wind Geothermal Waste-toenergy
Core Localization
Localization not considered for industrial impact
15

Value Chain Development – Scoping of Major Solar
Investment Categories
CSP Technology Elements
CSP Technology Elements
PV Technology
1 Trough • Collector
2 Tower • Heliostat
3 Thin Film
• Mirror
• Mirror
• Absorber
• EPC & O&M
• EPC & O&M
• Receiver
• Molten Salts
• Molten Salts
• HTF
• Steam turbine and
• Steam turbine and
generator
4 HCPV
generator
• Storage tank
• Storage Tank
• Other power block
• Other power block
elements
elements
• Minor elements
• Minor elements
Elements
• Integrated Module Factory
• EPC & O&M
• Inverter
• Rest of balance of system
• Integrated Module Factory
• Tracking System
• EPC & O&M
• Inverter
• Rest of balance of system
Attractiveness
▪ Economic: Opportunity size, margin, growth
▪ Strategic: Job creation potential, availability of raw
material, importance to KSA
Feasibility
▪ Industry dynamics: Structure, maturity, barriers to entry
▪ Key success factors: Technology and R&D capability,
talent availability, manufacturing capability
Attractiveness
High
Low
Low
5 Silicon
High
Feasibility
• EPC & O&M
• Poly Silicon manufacturing
• Inverter
• Wafer
• Cell
• Module
• Rest of balance of system
16

Assessment Criteria of Solar Value Chain Components
Criteria
Dimensions
Description
Economic
▪ Size
▪ Margin
▪ Annual revenue potential
▪ Expected profit margins in %
▪ Growth
▪ Annual growth potential in %
Attractiveness
Strategic
▪ Job creation potential
▪ Availability of raw material
▪ Strategic importance
▪ # of domestic jobs that the opportunity can create
▪ Ease of procuring raw material e.g. locally available or
global availability with no supply chain bottlenecks
▪ Alignment with KSA’s strategic objectives e.g. regional
economic leadership
Industry
dynamics
▪ Maturity level
▪ Level of consolidation
▪ # of years of existence of the industry
▪ # of players contributing to majority of market share.
Fragmented if many players (>6); consolidated if few (

Value Chain Development – Localization Potential Across
the Solar Value Chain
Based on the outputs of quantitative and qualitative assessment the
activities were segmented into three categories
A
B
C
Category
Activities at the
Core of Solar
Industry
Development
Activities with
localization
potential but
facing important
challenges that
may hinder their
localization
success
Non strategic,
non value added
activities for the
country but with
macro impact
Classification criteria
• Potential for worldwide KSA leadership (non mature
industrial activities)
• Critical components for technology evolution (cost
reduction)
• Relevant economic size
• Leverage on legacy local industry
• Logistics constraints to import (mainly in wind)
• Intellectual Capital or other assets not available in the
country
• Decoupling with capacity program (time required to
develop the industry)
• Relevant economic size
• Worldwide supply/demand trends
• Global supply networks of industry leaders
• Non structural industries for KSA, highly dependent on
internal demand (industries to close when internal
demand is covered, unless there is a clear export
orientation)
• No potential for KSA leadership in the medium/long term
• No leading edge differential elements vs. other countries
Components
• Curved mirrors
• Absorber tube
• Collector
• Flat mirrors
• Heliostat
• Thin Film modules
• HCPV modules
• Receiver
• Inverter
• Tracking system
• Wafer
• Molten salts
• HTF
• Steam turbine and
generator
• Storage tank
• Other power block
elements
• Minor elements
• Rest of balance of
system
• Polysilicon
• Cells
• Modules
• EPC activities
• O&M activities
• Generator
• Power converter
• Steam turbine
• Boiler
• Heat exchanger
• Condenser
• Grate
18

Classification Matrixes to Identify CSP Tower Components for
Localization
Rationale
Activities at the Core of Renewable Industry
Development
Potential for
Worldwide
KSA
leadership
Critical
Component for
Technology
Evolution
Relevant
Economic
Size
Leverage
on Local
Industry
Logistics
Constraints
to Export
Aspirational activities to develop
locally but with important challenges
ahead
IC or Other
Assets not
Available in
the Country
Decoupli
ng with
Capacity
Program
Worldwide
Supply vs.
Demand
trends
Global Supply
Network of
Industry Leaders
Non strategic value added
activities for the country but
with macro impact
Non-Core
RES
Industry
for KSA
Limited
Potential for
Leadership
Limited
KSA
Competitive
Advantage
Heliostat X X X X X
Mirror X X X X X
EPC &
O&M
X X X X
Receiver X X X X
Molten Salts X X X X
Steam
turbine &
Generator
Storage
Tank
Other
Power
Block
Minor
Elements
X X X X X X
X X X
X X
X X
Selected Activities
19

Classification Matrixes to Identify PV Silicon Components for
Localization
Activities at the Core of Renewable Industry
Development
Aspirational activities to develop
locally but with important challenges
ahead
Non strategic value added
activities for the country but
with macro impact
Rationale
Potential for
Worldwide
KSA
leadership
Critical
Component for
Technology
Evolution
Relevant
Economic
Size
Leverage
on Local
Industry
Logistics
Constraints
to Export
IC or Other
Assets not
Available in
the Country
Decoupli
ng with
Capacity
Program
Worldwide
Supply vs.
Demand
trends
Global Supply
Network of
Industry Leaders
Non-Core
RES
Industry
for KSA
Limited
Potential for
Leadership
Limited
KSA
Competitive
Advantage
EPC &
O&M
Poly Silicon
Manufacturing
X X X
X X X X X X X
Inverter X X X X X
Storage X X X X
Wafer X X X X X X
Cell X X X X X X X
Module X X X X X X
Rest of
Balance of
system
X X X
Selected Activities
20

Value Chain Development – Localization Potential Across
the Renewable Value Chain
Activities selected for core localization account for 78% of total renewable spending
program until 2030: 56% from services and 22% from manufacturing
Others
22%
Activities selected for core localization
Services
O&M
19%
EPC
37%
Manufacturing
22%
21

Potential New Applications to Expand Solar Value Chain
Description
Technology
Desalination
▪ Using electricity and excess heat
from CSP plant for desalination
▪ PV, CVP, UHCPV, CSP
Industrial
steam
▪ Using solar heating to replace
steam boilers for industrial uses
▪ CSP
Cogeneration
▪ Hybridization of existing plants,
using CSP heat to replace fossil
fuel
▪ CSP
Steam
enhanced
oil recovery
▪ Using CSP to generate steam for
EOR
▪ CSP
District
cooling
▪ Using solar energy to provide
cooling capacity for districts and
complexes
▪ PV, CSP
Solar cooling
▪ Using solar energy in
absorption/adsorption cooling
▪ PV, CSP
22

Implementation

Industrial Readiness Assessment
Local players scan
Industrial readiness
evaluation criteria
Description
Skills/Knowledge
Industrial assets
Value chain readiness
• Availability of skills and knowledge to
supply nuclear or RES grade
components/activities
– Ownership of patents and/or certifications in
the industry
– Length of experience in the industry
– Exposure to global players
– Partnerships or JVs with global players to
allow technology transfer
• Availability of industrial assets (e.g. plants,
equipments) to supply the
components/activities
– Scale/output of existing plants in KSA
– Scope of products covered by the local
players
– Equipment sophistication compared to the
industry state of art
• Maturity of the industrial value chain
– Coverage of the industry value chain
– Availability of raw materials
– Existence of training centers
– After sale support
– Supply chain development
24

Assessment of the Opportunity Ownership
Opportunity
Evaluation criteria
Classification
Financial attractiveness
Strategic
relevance
Financial
attractiveness
+
Private sector led
Financially attractive
and not strategic
• Profit margin
• Internal return rate
• Capital intensity
• Payback period
Strategic relevance
• Value chain interdependency
• Role of the opportunity in achieving
self-reliance
• Public safety concerns
+
Government led
Highly strategic
25

Segmentation of Opportunities
Greenfield
Immature KSA industrial base
Brownfield
Developed KSA industrial base
1 2
Private sector led
Financially attractive
and not strategic
• Absorbers
• EPC
•O&M
• Steel structures
• Curved Mirrors
• Flat mirrors
• HCPV
• Thin Film
• Wind
Towers
• Polysilicon
• Cells
• Modules
3
4
•R&D
• Pilot testing
Government led
Highly strategic
26

Potential Business Models for Entry to the Industrial Sector
LICENSING
ACQUISITION
JOINT VENTURE / (STAKE
IN LOCAL) SUBSIDIARY
Payment for the rights to locally
manufacture/assemble an existing design
for a specified number of units and period of
time
Immediate market entry
Mature industrial infrastructure needs
to be in place
Licensee does not benefit from any
transfer of know-how in design and
engineering competencies
International companies reluctant to
license their latest technologies
Level of attractiveness
Acquisition of a international company to
have access to its latest technologies and
ultimately setup own production facility in
KSA
Immediate market entry with existing
products and sales channels of
acquisition target
Market potential remains with KSA
(depending on equity stake)
High risk of failure (post-merger
integration issues)
Limited knowledge transfer
Partnership with a foreign established
company to manufacture/assemble the
latest existing technologies according to
local and regional needs
Access to wide range of key competencies
of partner
Modification of proven and high-end designs
to local/ regional needs
Gradual transfer of knowledge in
design and engineering
Partnership adds credibility in market
Share market potential with partners
27

Value Chain Activation Plan
Value chain
activation
Value chain enablers
1 Value chain 2 Independent 3 Industrial 4 SME 5 FDI
6 Stakeholder 7
organization quality
readiness
development attractiveness engagement and
capacity
building
assurance
authority
program (cost,
quality, delivery)
program and promotion communication
Global 8
vendor
engagement
&
qualification
Alignment
with current
and planned
national
initiatives
Step 1 Step 2 Step 3 Step 4 Step 5
Capability
gap
assessment
Identification &
prioritization
of preferred
local suppliers
9
Readiness
action plan
Value Chain Opportunities
Action plan
evaluation and
validation
Assist in JV/ partner
selection
Step 6 Step 7
Monitor implementation
Certification
process
assistance
10 Regulatory 11 12 13 Leveraged 14 Feed-in tariff / 15
environment
procurement PPA
Development
of R&D
centers and
programs
Value chain interfaces
Development
of local
human
capabilities
Bid
preparation
16 Program
and project
structure
28

Value Chain Detailed Implementation Plan
Regulatory and mix-related
aspects closed + non-binding
communication of targets and conditions
Value Chain
enablers
Value
Chain
opportunities
Value chain
interfaces
1
2
3
4
5
6
7
9
10
11
12
13
14
15
16
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Define the team
mandate and objectives
Setup the nuclear and Define nuclear
RES certification body and RES standards
Develop supplier awareness
Screen local supplier base
Develop an SME program
Define and setup an FDI program
Setup of sourcing
and procurement policies
Definition of local
content requirement
Define the team
organizational structure
Bid
preparation
Define the
certification process
Supplier 101
Identify key stakeholders
Define adequate engagement framework
Demystify the KSA
nuclear and RES programs
Follow-up on previously
Achieve a prequalification
made commitments
and early assessment of
Facilitate the scan of the
potential vendors
local supplier
Implementa
tion
framework
for VC
dev.
Capability gap
assessment
Identification and
prioritization
of local suppliers
Regulatory and legal setup
Local screening
Detailed BP
Phase 1
tender
process opened
Quality standards
and references definition
Human capacity development strategy
Feed-in tariff for phase I
Potential partners
screening
Readiness
action plan
Qualification
& short
listing
Contracts
awarded
Preparati
on &
issuance
Bid
evaluation
Manage the certification process
Perform on-going audits
Facilitate match making between local and global suppliers
Identify the hidden players in the nuclear and RES value chains
Encourage the involvement of SMEs in the nuclear and RES value chains
Execute stakeholder engagement program and ensure on-going alignment to avoid conflict of interest
Align procurement with the value chain development
Bid
clarification
negotiation
& selection
Value chain development support
Facilitate entry of foreign investors
Promote local nuclear and RES value chains investments to foreign investors
Action plan
evaluation and
validation
Achieve general public/supplier acceptance
Effective communication of program objectives
8 On-going alignment with national initiatives
Capital structure
and financing
Regulatory RES Contract award RES Site
Pilots
commercial licensing
live
Plants live
Ensure and facilitate vendor’s involvement in the value chain development
Assist in JV/ partner selection
Licensing and regulatory control
Implementation monitoring
Vendor certification assistance
On-going audits of components and services
Transfer of know-how
Public and private
Development of R&D initiatives
investors Skills enhancement
License to operate
Setup university programs
Develop local skills
Setup vocational training centers
Feed-in tariff for Phases II (plus evaluation of the correct timing to
switch into bidding process)
Setup of program and project ownership structure
Construction start
Feed-in tariff in place for first phase(s) in place – new capacity
will be installed by bidding process
High priority
RES milestones
Nuclear milestones
29

Thank you