In Depth: China and Saudi Arabia’s Growing Energy Symbiosis

The 2.6-gigawatt Al Shuaibah solar power station in Saudi Arabia, constructed by China Energy Engineering Group Co. Ltd., is the Middle East's largest photovoltaic project. It covers 52.5 square kilometers in the desert, approximately 80 kilometers south of Jeddah, and started commercial operations in February. Notably, it produces electricity at the world's lowest price for solar power, costing 1.04 US cents per kilowatt-hour. [para. 2][para. 3]

This project highlights the increasing collaboration between Saudi Arabia and China in the energy sector. As Chinese solar manufacturers encounter fierce competition domestically and growing trade protectionism in the West, Saudi Arabia presents a conducive market. Concurrently, the kingdom seeks to diminish its reliance on oil via these Chinese partnerships. In 2024, it was the fourth-largest importer of Chinese photovoltaic modules, with shipments rising by 115% to 16.55 GW. Additionally, Chinese wind turbine exports to Saudi Arabia increased by 185% to 780 megawatts. [para. 4][para. 5]

Saudi Arabia aims to diversify its economy, pressured by low oil prices, which are currently under the $96.20 per barrel needed to balance its budget, as per the International Monetary Fund. The nation aspires to source half of its electricity from renewable energy by 2030, although renewable energy accounted for less than 1% of total generation as of the writing. Significant expansions are necessary to meet the target of 130 GW by 2030. [para. 7][para. 8][para. 9]

The transition to renewable energy presents vast opportunities for Chinese firms. Saudi Arabia's investment of $266.8 billion in renewables in 2023 attracted interest from Chinese companies due to potential large-scale orders. The kingdom's comprehensive energy strategy includes solar, wind, energy storage, hydrogen, and carbon capture. Chinese companies find Saudi Arabia appealing due to policy incentives, low land costs, strategic location, and diplomatic flexibility. [para. 11][para. 12]

Chinese firms such as Jinko Solar and Arctech, along with others, have become key players in Saudi Arabia's renewable energy landscape. The country is evolving into a crucial hub for China's renewable expansion, exemplified by projects like the Al Shuaibah solar station and the Red Sea Project. Partnerships, like the joint venture between Envision Group and Saudi Arabia's Public Investment Fund (PIF) in the wind power sector, are expanding. [para. 14][para. 15][para. 19]

Saudi Arabia's ambitions extend beyond renewable energy, as it invests in hydrogen power infrastructure, targeting exports to regions like Europe and Japan. The kingdom is increasingly regarded as a pivotal clean energy hub, capable of granting access to European and American markets. Strategic investments by Chinese companies in local manufacturing and clean energy projects aim to capitalize on this potential. [para. 25][para. 27][para. 28]

Despite the growth opportunities, Chinese companies face challenges, such as intensified competition and the need to meet localization requirements known as "Saudization." These require local joint ventures and the hiring of Saudi employees, with non-compliance resulting in fines. Understanding the Saudi legal system, which follows Sharia law, is crucial for these companies. The entry of small and midsize private Chinese firms, lacking in-depth market knowledge, exacerbates these challenges. [para. 30][para. 31][para. 32][para. 34]

Overall, the Saudi market represents both opportunities and complexities for Chinese renewable energy firms. It serves as a strategic entry point into wider global markets, although successfully navigating local regulations and competitive dynamics remains critical for long-term success. [para. 36]