Saudi’s Water and Electricity Regulatory Authority (WERA) has issued a new Regulatory Framework for Renewable Energy Generation for Self-Consumption (official in Arabic, and its English version). The new regulation, which is an improvement on the previous Regulation for Small-Scale Solar PV, enables now renewable energy systems with capacities greater than 2 MW and expands the framework to off-grid systems. The new regulation also allows other renewable energy technologies to participate in the Kingdom’s distributed energy sector.
Yet it is the introduction of an innovative concept called “virtual net billing” (another words for power wheeling) that has distributed energy developers smiling. The regulation allows excess energy generated in one location to offset consumption in another location owned by the same customer under a net billing arrangement.
While this new framework has been met with great enthusiasm, industry players remain cautious. The slow implementation of the small-scale solar policy has revealed some structural challenges that Saudi officials must address.
A bumpy start 3 years ago
Saudi Arabia issued a long-awaited regulatory framework for small-scale solar systems in early 2020. Unfortunately, this happened just two weeks before the Covid 19 global pandemic-related lockdown restrictions and suspension of all international travel.
On top of that, local authorities have encountered some challenges in understanding and implementing the proposed framework. Establishing approval processes and procedures has proven to be a challenge, and a regulatory interpretation has limited the opportunity for larger projects.
As a result, the number of reported projects approved under this regulation is still quite low, with many completed thus far choosing to remain off the grid and, therefore, not benefiting from the net billing policy.
A wider scope
If the previous small-scale regulation laid the groundwork for the deployment of distributed solar systems in the Kingdom, this new regulation expands the scope to other renewable technologies: concentrated solar power, wind, waste-to-energy, and biomass. Grid-connected and off-grid systems are both encompassed by the new regulation, which also establishes the foundation for the deployment of energy storage technology (further developed below).
In terms of systems’ capacity, the regulation does not indicate an upper limit, but instead mentions that it applies to “capacities greater than 1kW“. This means that a large consumer can install a large-scale renewable energy plant in a single site to offset its entire consumption across multiple facilities in the Kingdom.
Finally, this new regulation does not intend to repeal the existing small-scale solar regulation. It “does not apply to solar PV systems up to 2MW capacity to which the Small Scale Solar PV regulatory framework [still] applies“.
Clarity on the maximum system capacity
The regulation mentions that the “Maximum Connected Capacity of a [renewable energy] system at a single Premises of the Consumer shall not exceed the maximum load connection”. In addition, it states that the “Maximum Connected Capacity to be installed at all Premises of the Eligible Consumer shall not exceed the Contracted Load of that Premises or the aggregated Contracted Load of the Eligible Consumer when connected to the transmission grid”.
With the above, policy makers could not be clearer about the maximum capacity of the systems, which has been a major point of contention between developers and local authorities on the small-scale solar regulation. The new framework drops the limitation of “15% of the distribution substation’s transformer nameplate capacity“, as well as the “maximum aggregated capacity of 5 MW per consumer in each distribution region“.
Energy storage is now possible
The installation of energy storage technology is now regulated in Saudi Arabia. It cannot, however, be used as a standalone system, as it must be integrated with the renewable energy system. It should be considered only in order to meet self-consumption demand and to reduce any load-generation imbalances caused by the consumer.
Virtual Net Billing aka Power Wheeling
The introduction of “virtual net billing” is the most innovative section of this policy, as it allows a consumer to benefit from a net billing arrangement aggregated across several premises. That way, a large consumer can take advantage of the economies of scale of a large power plant, offsetting its own electricity bill in other fully-owned premises. However, consumers should expect transmission grid charges to apply (which fees are not yet defined by WERA).
On the financial side, WERA is setting the mechanism for the reimbursement of any surplus electricity exported to the grid by the consumer, with the tariff yet to be determined. Nevertheless, we should expect something on par with the small-scale solar regulation, where residential consumers get paid 0.07 SAR/kWh (0.019 USD/kWh) and commercial/industrial 0.05 SAR/kWh (0.013 USD/kWh).
It is yet unclear, however, how the metering/billing will be addressed. According to the regulation, “energy can be considered self-consumed only if produced and consumed within the same metering interval” with surplus electricity exported to the grid considered in a financial balance. It is not clear whether this will apply across multiple facilities, effectively net-metering electricity during the “same metering interval“. WERA should further clarify to avoid any disagreement between developers and local authorities.
Opportunity for Corporate PPAs
With this new regulation, WERA allows the ownership of the renewable energy systems by third parties. As a result, distributed energy developers and IPP investors have the opportunity to participate in the market through Corporate PPAs or Solar Leasing opportunities. They must, however, get the necessary commercial licenses for the activity of electricity generation.
Grid Connection Agreement
The local utility and the customer must sign a Connection Agreement, which is valid for 20 years and may be extended by additional 5 years. Although a long-term contract would provide predictability and longevity for such an upfront investment in renewable energy, WERA is stating that “the calculation method and the approved fees may be amended according to [its] instructions and in accordance with the approved policies and the public interest“, which introduces an unnecessarily level of uncertainty.
Approvals Responsibility
According to this regulation, there are two parties responsible for accepting applications and approving the new renewable power plants: the local utility in the case of grid-connection (typically SEC), and WERA in the case of off-grid systems.
Self-Consumption Program Cap
The country-wide limit for the total allowed connected system capacity under this program remains at 3% of the previous year peak load in each distribution region, as in the 2020’s regulation. The latest available data is 63.7 GW of peak load in 2021, which currently translates to a total cap of 1.91 GW of aggregate renewable energy system capacity that is possible to build under this program. This figure is expected to rise as the Kingdom pursues various aggressive growth strategies in the coming decade.
Saudi Arabia’s recent unveiling of its regulation on renewable energy for self-consumption has captured the attention of industry players across the region. Although there is still uncertainty regarding some of the framework’s specific details and its reception by the local utility, this move signals a significant push towards a distributed and decentralized model of energy by policy makers.
This forward-thinking approach not only creates new opportunities for businesses but also promotes a cleaner and more sustainable energy future for the region. In the end, this new regulation is a clear step forward towards unlocking the most promising distributed energy market in the Middle East and sets the stage for a more diverse and innovative energy landscape in the Kingdom.