Renewable Energy Projects in Saudi Arabia: 43 Gigawatts by 2030

Interview with Emad Al-Shamma, CEO of Al Khafrah Group Holding

 Can you tell us a bit about the company, its mission, philosophy and strategy?

Al-Khafrah Holding Group is a privately owned company, established by Sheikh Mubarak Al-Khafrah, who foresaw the need for a one-stop place for all of his private investments in the Kingdom of Saudi Arabia and abroad. Al-Khafrah Holding Group was established about seven years ago. We have multi-departments and sections responsible for renewable energy, industrial investments, real estate development and property development. Al-Khafrah Holding Group is also responsible for many industrial projects.

We are investors and developers. The concepts that we operate in are very simple; we would like to see the proper industrialisation of Saudi Arabia by bringing new technology into the country. We are not using a copy and paste concept; instead, we are being very innovative. We are trying to bring in new things that will serve the local industry and build on certain foundations. We believe that the raw materials should be local. We also believe that if a project is energy-hungry, then it is a good candidate for the local market. We are also interested in projects where we can improve and develop the local employment factor. Seventy percent of the population of Saudi Arabia is under 30 years of age; therefore, this population can be employed as operators, workers, engineers, managers, and so on, in industrial developments and projects. It is our firm belief that what we bring in is for the Saudi Arabian people to develop the Saudi Arabian economy and industry—and not for anybody else. Hence, we would like to see lots of training and development for young managers and engineers to take on these projects and improve the industrial projects that we are investing in. It is our philosophy.

Al Khafrah Group Holding is very selective regarding which industries we invest in, we do not go into just any project. We have a screening process where we take a step-by-step approach to look at the parameters of each project. The most important aspect to all of our projects are the people behind them. We invest in people. We do not just invest in ideas; we like to know who our partners are, what their background is and what kind of experience they have. Once this first threshold of screening has been done, we start looking at the financial aspects of the project, and we study its feasibility from all angles. Once we see that a project has merits to be able to stand on its own two feet for the long term objectives, the next phase is finding investors. Either we use our own investment or we bring in some of our relations, connections, or friends to invest with us. Usually we are over-subscribed for any project that we apply for, thanks to the name and reputation of our chairman Sheikh Mubarak Al-Khafrah, someone who people trust as a respectable businessperson. We also have very selective criteria before we enter any project.

Saudi Arabia is a very big country; it is a continent in itself. It is the biggest industrial zone in the region and it is the biggest economy in the region. We believe that no matter what sector you work in, there is always demand in Saudi Arabia. However, we do like to be selective in what we invest in, where we invest, and with whom we invest.

Recently we went into the renewable energy sector. We feel that Saudi Arabia is the prime contender for renewable energy and renewable energy projects, whether in terms of manufacturing components or in the generation of renewable energy with solar voltaic panels, for example. In Saudi Arabia, we use 45% of our fossils fuels for generating electricity. It costs a huge amount to extract this energy to use for power generation and water desalination. Saudi Arabia, with its abundance of DNIs, which is the measure of the sun´s intensity, is a prime location to apply renewable energy, be it solar, wind, or other forms to generate electricity. The country will benefit a lot from exporting its oil instead of burning it to generate electricity for air conditioning and powering the desalination plants.

Our new focus, for which we have successfully started phase one, is the first privately owned power generation plant in the Nofa farms. This is a 1-megawatt plant, owned by Nofa farms, 80km west of Riyadh. The farm has 28 dishes, which are solar concentrated power cells that allow us to save a lot of time, energy, and fossil fuels. The farm makes all the power it needs during the day, and during the night, it can use the generators. Thus, we have not only saved on logistics in terms of transporting diesel and the maintenance of the diesel power generators, but we now have a fresh, clean energy source. Al-Khafrah Holding Group has the first and only current self-generating renewable energy, 1-megawatt project. This shows the conviction that we have in renewable energy; we believe in renewable energy and we convinced our client, Nofa farms to try it out. Now with its success, the plan is to expand from one megawatt to 5 megawatts. In the future, we hope to have the first privately owned, 200-megawatt renewable energy plant. That would be the next phase of our plan. This is a brief outline of what Al-Khafrah Holding Group is doing at the moment.

There is a lot of talk about renewable projects. Many billion-dollar projects have been announced, yet to this day, the construction has been largely restrained. This is mostly the domain of the public sector but how do you see the role of the private sector?

If we think of utilities i.e. power generation, water, etc. I believe it is time for the private sector to step in and start privatising utilities. Nobody owns the sun, but the government owns the fossil fuels. Why shouldn’t the private sector start their own power generation plants, where they can have their own utility generation units making 200 to 500 megawatts, which they sell to the government or to the electricity authority? As you know, KA CARE is the establishment by royal decree that governs and is in control of the integration of renewable energy into Saudi Arabia´s energy sources. If the private sector starts developing their own energy generation plants, then an individual could invest in that project and generate enough revenue for his children and his children´s children. Everybody would like to leave a legacy for their children, and this is a way to do that. This investment will bring in revenue for the next 10-20 years at least. I firmly believe that it is like having a nest egg for the future.

Do you see the Saudi Arabian renewable strategy as a success or as a failed policy?

I have certain reservations about KA CARE. KA CARE as an entity has good objectives, but they are taking their time. Time is passing and many conferences are being held worldwide regarding how to cater for the Saudi market.

So many people are coming to Saudi Arabia because they know that there is going to be demand for 43 gigawatts of renewable energy in Saudi Arabia by the year 2030.

KA CARE is slow to establish the regulations for these projects. Everyone is sitting and waiting for this. They have published their paper, but they have not implemented anything regarding the offtake agreements. Now, I think the initiative is for the private sector to go forward and start their investment in renewable energy because in two or three years´ time when their plant will be ready, KA CARE should be ready with their agreements. Sooner or later, they will buy the electricity. The issue now is about the pricing per kilowatt-hour. Nobody yet knows what the right price should be.

From our experience, the price per kilowatt is going down. It was at 25 cents but now it is at 20 cents and it is going down to 18 cents. I believe that in less than 2 years it will be at 12 cents per kilowatt-hour. Overall, it is a winner and there is no point in waiting for KA CARE to produce its regulations, you might as well go ahead and start the investment because you know it will be purchased from you at a price that is profitable for you. There is a good future for renewable energy and the private sector should not sit on the fence waiting for KA CARE. They should take on the risk of investing in such projects.

Land is another issue because you cannot go and build a power plant without having a large piece of land. The government has given permission for people to develop large pieces of land, so long as they do not cross any oil paths or reserves, etc. Thus, they can allocate pieces of land to develop solar plants. The amount of land you need also depends on the method you use. If you use photovoltaic panels, you need a large plot of land, but if you use concentrated power, you need less land. There are many technologies out there and everyone is trying to offer theirs as the best. There will come a time when you can have a mix of photovoltaic panels, concentrated cells, towers, troughs, etc. All types will be in abundance.

Therefore, you are one of those companies that is taking that risk.

Yes. We are one of the companies that is promoting the idea that you have to take that risk. We are now starting to take action to develop our own units. We are seeking investors to join us. We are going to create a fund, and we will set up a process where people will come in and pitch their ideas and their investment into the fund for the long term. The deliverables will be in ten to fifteen years.

Investors obviously calculate risk and returns on investment…

All of these investments are going to be in the Kingdom of Saudi Arabia, they are going to be local. It is not a case of investing in a faraway project in Timbuktu, New York or Zimbabwe. It is an investment in your country. The risk here is minimum because it is under your own scrutiny. In the last decade, we have seen how investors have run from one destination to another after states have collapsed and wars have started. Now people are again seeking areas where they can invest their money. Many individuals and entities have funds that they want to invest in innovative projects. Renewable energy is a project that will generate employment for a minimum of 300,000 people for the next fifteen years.

If we can link renewable energy to desalination, that will be an extra benefit. The highest concentration of desalination plants is in Saudi Arabia; in fact, 20% of worldwide desalination occurs in Saudi Arabia. Private individuals are not so much looking for risk/profit as they are looking for long-term investments for their future and their children´s future. It is not always about returns on investment, you have to look at the objectives in a broader scope.

What makes you one of the leading industrial project developers in Saudi Arabia?

Our leadership is not judged by us, but by others. First of all, a lot of credit goes to our chair, Sheikh Mubarak Al Khafrah, because his vision of how and where to invest is the direction that we follow. Thus, we are leaders because of his vision.

We do not invest in just any type of industry. We like to invest in industries that are new to the area, and which have added value. We are not converters per-se, but we like our products to have that added value concept. We take locally available raw materials, and we engineer them and add value to them in such a way that the end product has so much local content that it is worthwhile to export internationally and to be sold locally, replacing any of the imports that we bring in from outside.

We are also major investors in industrial gases, but we do not merely sell industrial gases. We sell solutions to the end user. We give them engineering, programs, and follow up, etc. We give our customers services and reliability, whereby the product becomes a side activity. We create a relationship with our end customers. Our products and customers are all integrated into one service. We seek to find the way to give our customers the best service, quality, products etc., to make sure they are a continually satisfied customer. This is what makes us the leader in the market.

People are saying this is the golden decade for Saudi Arabia as we are seeing elevated prices for oil and a lot of liquidity on the ground. Many international companies are looking towards developing projects here in Saudi Arabia. What are some of the challenges and opportunities regarding projects here in Saudi Arabia?

The challenge is the bureaucracy and legislation for establishing ventures in Saudi Arabia. Registering a foreign company or a joint venture with an international company in Saudi Arabia is quite difficult. The process takes a very long time, it should take weeks, but instead it takes months. There is a big demand for industrial zones. MODON is working very hard to supply these areas, but still, the demand exceeds the supply. There are a number of factors that hinder the establishment of new industries. With experience, you begin to know how to handle the applications, paperwork, etc. and you become more professional when it comes to presenting your documents. The environment of industrial investments in Saudi Arabia is fantastic. There is the SIDF, SAGIA and MODON; so all the components are there, we just the coherent integration of these departments to allow for a continuous flow from A to Z in less than one to two months, which will be similar to Dubai and other places. Saudi Arabia needs to overcome these little issues to be able to have smoother operations.

What about the opportunities?

The opportunities are abundant. There are so many industrial products worldwide that you cannot count them all. However, if you are seeking new products, then Saudi Arabia is the place where you can implement the industrialisation of new products. You do not want to make tables, chairs, doors or windows; you need to make something that is exportable, because in ten to twenty years´ time, as dependency on oil become less and less, you need to have a commodity that is exportable at international prices, and which is not dependant on the low cost of oil.

You need a professional, reliable, cost effective product that can be delivered on time to the end customer worldwide. Saudi Arabia has the platform for success in this area, so long as you work with the right local partners. Not every local partner is the right one with the right attitude towards industrialisation. If you want to go into industrialisation, you have to be patient. It takes a long time to get a factory up and running.

It is not at the press of a button, like trading. You first need infrastructure, a team, the product, and then comes production. If you have a long-term vision, then you will succeed in industrialisation. However, if you have short-term targets, then industrialisation will not be very easy for you because in Saudi Arabia things take time and you have to respect that.

Do you feel that doing business in Saudi Arabia is becoming easier?

No, it is still difficult. The bureaucracy here is a great hindrance, perhaps because we are in a transition period. Things take time, however we do have to respect that things here are much better than they used to be. We hope that it will continue to improve in the future. This is a continual process of adjustment. The regulations, laws, and by-laws all have to be meshed together, fine-tuned, and improved, and that doesn’t happen overnight. We hope that entities like SAGIA, SIDF, MODON, are slowly shifting from their previous stand to better stands.

Last month, the public entities were in London promoting industrial projects in Saudi Arabia and stating in the papers that you will be able to establish a company in less than 48 hours. We know that this is still a dream for us and we hope that it will happen. We are very pleased that they have set the objective, and hope that they will make it happen.

Is there anything that you would like to add?

Saudi Arabia is a country that has a lot going for it. We have a good economy and good infrastructure. There is good potential for growth and it is still young in terms of industrialisation. All investors should look at Saudi Arabia under a new light. I can give you examples of some companies that we are currently dealing with, who five years ago, never would have thought of investing in Saudi Arabia.
However, when they approached us and we showed them the parameters and the figures, they immediately said they wanted to begin joint ventures with us. Saudi Arabia needs people to promote it and its abilities. We need to promote the potential of our local market. We need to show investors it is not just about starting a joint venture, but to show them that this is a growth market for the next twenty years. Saudi Arabia needs everything. Therefore for any international investors who are thinking in investing in Saudi Arabia, I think it should be a number one choice for them.

What are the indicators that you mention?

These companies used to think that Saudi Arabia was a bad place, but we showed them the number of cars, buildings, constructions, the growth in the market, the employment figures, etc. and all of a sudden, they wanted to collaborate with us at 75%, and they put money on the table. Five years ago, those same people had said no to investing in Saudi Arabia.

I believe that many companies have the wrong impression about Saudi Arabia, and the media does not give it justice in most cases. The people here are fantastic the culture is good. We have our own private ways that we have to respect. Everyone is entitled to their traditions; every society in the world has their own culture, which has to be respected.

The economy here is so big; it is beyond your dreams. Because the media does not portray the right image, people are not seeing what is really here. We need good captains for our industry. I hope that the initiative by his Majesty the King of sending students to study abroad will help us in this respect, so that we can have a new generation of technocrats that can come back and take over from the expats that are running the show—in perhaps 10 years time.