A growing uptake of solar power in Saudi Arabia thanks to cheap imports from China could lead to downward pressure on oil prices.
That is an estimate from commodities economists at Capital Economics, based on the fact that Saudi Arabia is one of a few countries that directly burns crude oil for electricity.
China export data shows Saudi Arabia imported 16 gigawatts of solar panels last year, the economists noted, which they said is equivalent to over five times the kingdom's total solar installed capacity.
Levels of sunshine in Saudi mean it is "no surprise" that such a large volume of solar panels has been imported, with the International Renewable Energy Agency (IRENA) calculating that the capacity utilisation factor of solar PV is double the global average of 16%.
Greater use of solar power in Saudi Arabia "could move the needle for the global oil market", said Hamad Hussain, a climate & commodities economist at Capital Economics, as the kingdom generates more than three times as much electricity from oil than anywhere else.
Saudi directly uses more than 450,000 barrels per day of crude oil – equivalent to over 40% of yearly global oil demand growth – for power annually, he said, with oil accounting for about 40% of total generation.
"But the renewable rollout is set to pick up markedly," he said, with nearly 20GW of announced utility-scale solar projects scheduled to come online by the end of 2027, implying a replacement for about 10% of total power demand in Saudi Arabia, as part of plans to generate 50% from renewables by 2030.
Solar power is also set to be the main energy source for off-grid gigaprojects such as NEOM and the Red Sea project.
"If solar power replaces oil in Saudi Arabia’s electricity generation mix, as seems likely, this would be a headwind to domestic oil demand and allow Saudi Arabia to export more crude," said Hussain.
"Given that Saudi’s crude oil burn makes up just under 0.5% of global oil demand, this could add to other downward pressures weighing on benchmark oil prices in the medium term."
But while these imports come from China, underlining the growing relationship between the two countries in recent years, Hussain said the close ties between Crown Prince Mohammed bin Salman Al Saud and US President Donald Trump means "Saudi’s shift towards the China-led bloc could go into reverse."
He said this was "unlikely" to stop the flow of solar panels from China, but Saudi Arabia’s openness to Chinese investment in green tech sectors "could come under greater scrutiny from the US".