In 2010, Saudi Arabia was the world’s largest producer and exporter of petroleum liquids and the world’s second largest crude oil exporter, behind Russia. Oil export revenues account for 80 to 90 per cent of total Saudi revenues and over 40 per cent of the country’s gross domestic product (GDP). Saudi Arabia is also home to around one-fifth of proven, conventional world oil reserves, including the 1,260-square mile Ghawar field (the world’s largest oil field, with estimated remaining reserves of 70 billion barrels), which alone has more proven oil reserves than all but six other countries.
Saudi Arabia has proven natural gas reserves estimated at 275 trillion cubic feet, the fourth largest in the world behind Russia, Iran, and Qatar.
Saudi Arabia’s hydrocarbon sector operations are dominated by the state owned oil company, Saudi Aramco. Saudi Aramco is the world’s largest oil company in terms of proven reserves and the production of hydrocarbons.
Saudi Arabia is the largest consumer of petroleum in the Middle East, and in 2008 it was the 15th largest consumer of primary energy of which 60 per cent was petroleum-based and the rest from natural gas. In 2009, Saudi Arabia consumed 2.4 million barrels per day (bbl/d) of oil, up 50 per cent since 2000. This was due to strong economic and industrial growth and subsidised prices. Contributing to this growth was the rising direct burn of crude oil for power generation and the use of natural gas liquids for petrochemical production. Khalid Al-Faleh, head of Saudi Aramco, warned at the time that domestic liquids demand was on course to exceed 8 million bbl/d (oil equivalent) by 2030 if there were no improvements in energy efficiency and current trends continued.
In 2011, His Excellency Dr Abdullah Al Shehri, Governor of the Electricity and Co-Generation Regulatory Authority (ECRA), stated that peak-time electricity demand will almost triple within twenty years to 120,000 megawatts (MW) by 2032 from around 46,000 MW in 2010. Around half the Kingdom's current power capacity uses liquid fuel including distillates, crude oil and heavy fuel oil.
In March of 2011, Deputy Minister of Water and Electricity His Excellency Dr. Saleh Al Awaji said that Saudi Arabia will have to step up crude consumption for power generation in 2011.
Power generation capacity in the Kingdom was estimated to grow by about six to ten percent in 2011, while installed power generation capacity, which now stood at 50 GW in that year, would grow to 77 GW by 2020. Peak power demand for the summer in 2010 was 45,000 MW, Dr Al Awaji said, as against 41,000 MW a year earlier.
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In light of Saudi Arabia’s large reserves of hydrocarbons and its heavily subsidised energy sector, there is a question as to whether a sustainable market for energy from renewable sources can be developed.
In 2010, Saudi Arabia announced plans to spend US$170bn over the following five years on energy and oil refining projects, of which US$90bn is to come directly from Saudi Aramco, with current and future capital investment adding the remaining US$80bn of joint refining and marketing projects to the total. These investments are in line with the Kingdom's plans to increase production capacity as well as refining and marketing, in addition to directing an increased proportion of these investments to gas projects. Mr Khalid Al-Faleh also stated that the company plans to spend approximately $90bn over the next five years on increasing production capacity.
Such investments reflect the belief that oil will remain a key player on the global energy stage for the foreseeable future. Saudi Arabia is committed to maintaining a large spare production capacity, based on its vision of the importance of the supply of affordable energy, and the need to stabilise the market. The country has research and development programmes that range from advanced formulas for fuel to the desulphurisation of crude oil, carbon capture and separation, reflecting its commitment towards improving the environmental performance of oil.
Mr Khalid Al-Faleh warned that the unrealistic drift towards an immediate transition to alternative energy sources is of concern, as it may lead to less adequate investment in energy sources that are tried and tested, saying that fossil fuels will meet about 80 per cent of the total world energy consumption for the next twenty years. He also renewed his call for oil companies around the world to share the burden of promoting the investment required to keep pace with expected demand for oil, which will reach about 105 million bbl/d by 2030. This expenditure by Saudi Arabia aims to maximise the benefit of its hydrocarbon wealth and to enhance infrastructure development projects that will be undertaken in the kingdom over the next few years in different areas.
The demand for oil is increasingly being driven by Asian countries (China and India in particular), while other countries are experiencing a strong decline in consumption levels that have led to a rise in petroleum inventories in major industrial countries and the fluctuation of oil prices. This makes it difficult to determine a fair price while conducting feasibility studies for projects, and oil projects are characterised by their high costs and the difficulty of securing funding from international banks which continue to suffer from the consequences of the financial crisis.
Most studies indicate that performance rates of the implementation of oil projects previously planned are progressing quite slowly, with most of these projects delayed or cancelled due to lack of funding or the feasibility of the project. OPEC member states had planned to undertake around 120 projects until 2013 in the upstream "exploration and production" area at costs exceeding US$120bn, but it is estimated that 70 per cent of these projects are not proceeding as planned.1
Saudi’s energy strategy does allow for spending on capital projects in electricity, as well as solar and other renewable energy research and environmental programs and using oil revenues to promote sustainable development and the provision of suitable investment for industrial projects, especially in the economic cities that will contribute to establishing major developments for the country.
According to ERCA an initial investment of more than US$100 billion will be needed to expand electricity power generating capacity and transmission grid, build renewable energy plants, and set up nuclear power installations. About a third of this is expected to fund the building of solar power plants and other renewable energy resources. This amount is dwarfed by anticipated spending on projects in the hydrocarbon sector. Nevertheless, as will be shown later in this article, Saudi Arabia is making inroads, particularly in the research and development sector as well as in the solar sector and, more controversially, with plans to develop nuclear plants on a large-scale basis.
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With its vast landscape, featuring “empty stretches of desert that can host solar arrays and vast deposits of clear sand that can be used in the manufacture of silicon photovoltaic cells”2 and benefiting from approximately 3,000 hours of sunshine per year, Saudi Arabia is highly suited to the development of solar energy. Saudi Aramco forecasts that the cost of solar production will halve to $0.10 per kWh in the period 2010-20 in the GCC, making it cheaper than diesel-fired generation and placing it on a par with gas.
Saudi Arabia aims to achieve a sustainable energy mix, with a combination of solar and nuclear power potentially accounting for more than half of its power supply by 2030. A key goal of Saudi’s energy policy is to encourage the participation of private sector investment.
Speaking at a conference earlier last year, Saudi’s Oil Minister His Excellency Ali Al-Naimi said that Saudi Arabia plans to generate solar electricity equalling the amount of its energy from crude exports, and has the potential by 2020 to produce enough solar power to meet more than four times global demand for electricity.
King Abdullah University of Science and Technology (KAUST)
KAUST was established by Saudi Aramco with the remit to drive innovation in science and technology and to support world-class research in areas such as energy and the environment.
The KAUST campus roof has been designed to incorporate massive solar thermal arrays to provide domestic hot water to all campus buildings, and solar photovoltaic (PV) arrays to generate and distribute power to campus buildings based upon demand. Future arrays can be incorporated to supplement increased energy demands in the future.
The rooftop houses a 2 MW solar plant, the first solar installation in Saudi Arabia, consisting of installations with a capacity of 1 MW each installed on the north and south laboratories of the university.
Conergy designed the plant and was responsible for the engineering, supervision and commissioning, while installation works and operational management were implemented by NSS. The power system features premium components, combining over 9,300 high-efficiency solar modules with Conergy Suntop III mounting systems and Conergy 280K central inverters. The photovoltaic plant occupies 11, 577 square metres of roof space and produces 3332 MW/h of clean energy annually, while also saving up to 33,320 tons of carbon emissions.
The solar plant forms part of KAUST’s wider green technology programme, as the flagship university wants to advance solar energy research through its Solar and Alternative Energy Science and Engineering Centre, and deploy clean energy solutions on its campus.
KAUST has also been awarded the prestigious LEED (Leadership in Energy and Environmental Design) Platinum certification from the US Green Building Council (USGBC). The LEED Platinum certification is the highest of five possible environmental certification awards given out by the USGBC. This is the first LEED certified project in Saudi history and is the largest LEED Platinum project in the world. It is able to feed power back into the grid under a special arrangement with the Saudi Electricity Company.
Saudi Aramco / Showa Shell
Japan-based Showa Shell KK (which is fifteen per cent owned by Saudi Aramco) has formed a subsidiary, Solar Frontier, to manage its solar activities. As part of its efforts to expand its international presence, Solar Frontier has opened two international offices, one in Germany and one in California. In 2010, the company completed all structural work for the 900 MW per year manufacturing plant in Miyazaki prefecture, Japan, and started product testing at the facility.
When fully operational, the plant will be one of the world’s largest single thin-film solar technology manufacturing plants.
In November 2011 Saudi Aramco announced that as part of a joint venture with Showa Shell, production of solar cells will begin in Saudi Arabia in two to three years. If Aramco can introduce Showa Shell’s technology into Saudi Arabia, this would be a significant contribution to the nation’s main goal of industrial diversification. Showa Shell specialises in solar cells made using copper, indium and selenium. The materials are not as efficient at converting light into electricity as mainstream solar cells made from polysilicon but are cheaper, a point that may well be key in the future.3
The company has also established projects with solar manufacturers, training centres and universities to support key activities in the solar development sector. Saudi Aramco is also investing in building the world’s largest solar-PV car park, with solar shades to supply 10 megawatts of electrical power to an adjacent office complex in Dhahran, located in the Kingdom’s Eastern Province.
Farasan Island 500 kilowatts (kW) solar plant
Saudi Electricity Company (SEC) established this 500 kW solar plant in collaboration with Showa Shell. Under the arrangements Showa Shell will own the project for up to fifteen years, after which the assets will be transferred to SEC.
It is estimated that the plant will save the transfer of an equivalent of 28,000 barrels of diesel to Farasan Island.
King Abdulaziz City of Science and Technology
King Abdulaziz City for Science and Technology (KACST) is an independent scientific organisation and is both the Saudi Arabian national science agency and its national laboratories. The science agency function involves science and technology policy making, data collection, funding of external research, and services such as the patent office. KACST’s responsibilities include: proposing a national policy for the development of science and technology and developing strategies and plans necessary to implement them; coordinating with government agencies; scientific institutions and research centres in the Kingdom to enhance research and exchange information and expertise; conducting research and providing advice to the government on science and technology matters; supporting scientific research and technology development; encouraging national innovation and technology transfer between research institutes and the industry and encouraging international cooperation in science and technology.
In January of last year KACST announced plans to develop solar powered desalination plants using advanced nanotechnology. One of the main objectives of the programme is to produce low-cost water treatment and electricity production. Desalinated seawater is to be produced at a cost of less than 1.5 Saudi Riyals per cubic meter compared to the current cost of desalination of seawater by thermal technology which is in the range 2.5 to 5.5 Saudi Riyals per cubic meter (around US$1.50), and desalination by reverse osmosis which is in the range 2.5 to 5.5 Saudi Riyals per cubic meter for a desalination plant producing 30,000 cubic meters per day. The cost of generated electricity by the new technology of solar photovoltaic will be less than 30 Halalah per kW/h.
The Ministry of Finance, the Ministry of Water & Electricity, Ministry of Commerce and Industry and Saline Water Conversion Corporation are participating in this initiative with KACST. The implementation of this initiative will be in three stages:
- The first phase: Building a desalination plant with a capacity of 30,000 cubic meters per day by the construction of a solar energy facility with a capacity of 10 MW and a reverse osmosis plant, utilising the developed technologies. This phase has started with the New Year.
- The second phase: Building a desalination plant with a production capacity of 300,000 cubic meters per day at a site that will be chosen later. The implementation period for this is three years, and will start after the completion of the first phase.
- The third phase: The implementation of several water desalination plants using solar energy in various locations of the Kingdom. This phase will start after the completion of the second phase.
First Energy Bank
Bahrain-based First Energy Bank plans to build a $1 billion polysilicon plant in Saudi Arabia with a local partner to cater for rising regional investments in solar power. The Saudi plant will cover a total area of 375,000 square meters in Al Jubail Industrial City 2. The project is expected to begin production in 2013 and will have a total production capacity of 7,500 tons per annum of high quality polysilicon product capable of catering for users in the solar photo voltaic power as well as electronics industry markets. The future expansion of the project facility (second phase) will include investments in downstream sectors such as the manufacturing of ingots, wafers, cell and modules.
The project is being sponsored and developed by Cosmos Industrial Investment Corporation, a subsidiary of First Energy Bank.
The King Abdullah City for Atomic and Renewable Energy (KA-CARE) was established in 2010 with the remit of setting and implementing national atomic and renewable energy policy.
In June of this year, KA-CARE announced plans to build 16 nuclear reactors by 2030, and aims to have the first two reactors in ten years, and then to establish two nuclear reactors in each following year. The estimated cost of each reactor would be US$7 billion and Saudi Arabia plans to cover 20 per cent of its electricity needs using nuclear energy.
During that same month Saudi Arabia signed a nuclear energy agreement with Argentina. Desalination and electricity generation projects have been introduced by Argentina’s Atomic Energy Commission and technology firm INVAP. INVAP have previously built research reactors in Algeria and Egypt. Saudi Arabia has signed similar agreements with other countries including France.
GE Electric Co has also announced that it will look to secure nuclear power contracts with Saudi Arabia. Saudi Arabia is GE Energy’s largest equipment customer.
In November 2011, Saudi Arabia and Korea signed a nuclear agreement which provides a framework for scientific, technological and economic cooperation between the two nations.
A 2005 study of five cities in Saudi Arabia based on data collected between 1995 and 2002 concluded the viability of using wind energy to power off and on-grid locations.4 The five sites represented different geographic and climatological conditions.
The assessment showed that the cities of Dhulum and Arar were potential sites for off-grid, remote wind turbines. The same study also concluded the viability of using grid-connected wind turbines to partially power the two coastal cities of Yanbo and Dhahran. The last site, located at Gassim, had the lowest wind energy potential compared to the other sites, and was assessed as having barely adequate potential for the use of wind with low rated wind speed.
Research into the potential for wind energy undertaken at the King Fahd University of Petroleum and Minerals concludes that the best sites are on the Arabian Gulf near Dharan. The research also concluded that hybrid based power generation would be a more viable and cost-effective approach for remotely located communities (that need an independent source of electrical energy) where it is uneconomical to extend the grid.5
An important element of Saudi’s energy policy is the elimination of waste and the promotion of energy efficiency measures. In 2008 the UN’s National Energy Efficiency Programme defined eight objectives for Saudi Arabia, including: energy audit services and industry support, efficient use of oil and gas, energy efficiency labels and standards for appliances, construction codes and technical management and training.
The plan aims to:
- reduce the electricity intensity by 30 per cent between 2005 and 2030; and
- halve the peak demand growth rate by 2015 compared with the period 2000 -2005.
Saudi Arabia’s primary energy consumption per capita is four times higher than the world average; at 6.8 total energy consumption per capita in 2009 compared with the world average of 1.8 total energy consumption per capita and is growing faster than GDP.
In the power sector, although the emission factor for power generation (CO2 emission per kWh produced) has been falling it is still high. In 2009 it reached 750 gCO2 per kWh, which is 1.5 times higher than the world average.
King Abdullah Financial District
The King Abdullah Financial District is a project that involves building 34 towers in a site with a total area of 1.6 million square metres, and aims to be the largest financial centre in the Middle East.
Several of the buildings within the project have been pre-certified for LEED, and at the end of October it was announced that the entire masterplan has also been nominated for LEED accreditation. If granted the certification, King Abdullah Financial District will become the world’s largest green development project and first LEED-certified district worldwide.
The project incorporates a number of sustainability initiatives including construction waste management programmes and alternative transport systems. LEED requirements prescribe a 10 per cent reduction in energy use, and measures to achieve this include low ultra-violet materials, shading device systems, heat recovery systems and efficient light fixtures.
Energy management systems have been supplied to a number of projects across the Kingdom, as well as having been successfully deployed in the Princess Noura bint Abdulrahman University for Women.
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As a signatory to the United Nation Framework Convention on Climate Change, Saudi Arabia clearly recognises the need for an increasing commitment to environmental responsibility. However, there are other reasons why developing a viable renewable energy market is important, even for a nation that is home to abundant hydrocarbon reserves.
Diversifying Saudi Arabia’s energy mix will assist in achieving energy security as well as freeing up hydrocarbon resources for export rather than satisfying domestic demand at heavily subsidised prices.
Oil is allocated to feedstock for the petrochemical industry, with Saudi petrochemical producers benefiting from heavily subsidised and/or fixed price feedstocks, rather than providing fuel for electricity generation (although Saudi Arabia has set a target of meeting ten per cent of global petrochemical demand by 2015, with natural gas as primary feedstock). According to the Kingdom’s Department of Statistics and Information in May 2011, petrochemical exports from the Kingdom of Saudi Arabia are reported to account for 34 per cent of the Kingdom’s non-oil exports, valued at 13.9 billion Saudi Riyals in May 2011. Growth in the petrochemicals market is increasingly being driven by demand from Asia.
Saudi Arabia, along with other countries across the GCC has embarked on an ambitious programme of social infrastructure development, with reports that spending will exceed US$155 billion over the next ten years.
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Policy and Regulatory Framework
Currently, Saudi Arabia does not have a formal policy framework for the development and regulation of a renewable energy market. The Electricity Law does not cover renewable energy sources.6
However, as part of its overall energy strategy the Kingdom has announced several objectives to establish a legal framework that will promote the development of and govern a renewable energy market.
National Renewable Energy Policy and Law
ERCA (the body responsible for the regulation of the electricity and water desalination industry in Saudi Arabia) is currently working on developing a National Renewable Energy Policy. Other issues which ERCA is currently considering include:
- preparation of a restructuring plan for the electricity industry, to end vertical integration and create non-discriminatory independent market operators;
- continuing to promote private-sector participation in the generation sector through IPPs;
- to promote and effect the "Parallel Market", that permits large consumers to obtain their electricity services directly from the suppliers of their choice on the basis of mutually agreed prices and other commercial terms;
- to set and adjust as necessary tariffs for electricity; and
- to prepare a system of key performance indicators for the electricity industry.
The final draft of the National Renewable Energy Policy has not been published. However, published reports of the draft proposal suggest that the following features are being considered:
- a centralised competitive procurement process;
- a separate procurement process for renewable energy serving off-grid locations in order to promote the use of renewables in remote areas;
- regulations, rules and procedures that do not act as barriers to the development of renewables;
- a feed-in tariff7- the electricity tariff would be set at a rate equivalent to conventional generation with the shortfall charged to the government as part of a Balancing Fund;
- power purchase agreements for terms of at least twenty years;
- power purchase agreements to be output based and not include capacity payments;
- green certificates and a voluntary mechanism for trading such certificates;
- priority grid despatch rules for renewables; and
- renewable energy providers will still be required to comply with existing ERCA license requirements.
The National Renewable Energy Law was expected in 2011, however there have not been any further announcements in this regard.
National Industrial Clusters development programme
Solar Energy cluster is one of five industrial clusters targeted for development in Saudi Arabia’s Industrial Clusters program (IC). There are plans to develop:
- solar power generation, both roof-top and in solar farms;
- solar products manufacturing in the crystalline silicon (C-Si) value chain (polycrystalline, monocrystalline and concentrated photovoltaics (CPV)); and
- applied research (testing, performance and manufacturing methods).
The programme encourages investment in all stages of the solar energy supply chain, including the:
- production of technical gases, ingots, wafers, solar cells, modules (panels), trackers and tracking software;
- establishment of applied research centres for the prototyping, testing and certification of solar products;
- generation, integration and distribution of solar energy;
- development of applied research in improving performance, dust-repellent surfaces and waterless cleaning; and
- longer term export of solar products, energy and expertise.
As well as providing financial support for training and employment and joint industrial and academic research, the programme also provides advice to investors on accessing financing, i.e. funds from the Public Investment Fund (PIF), the Saudi Industrial Development Fund (SIDF) and private venture capital.
Last month, Azzam Y. Shalabi, President of the National Industrial Clusters Development Program announced that the Program (industrial clusters) is currently developing three projects in the silicon route. The polysilicon projects will integrate further downstream projects, such as the production of ingot, wafer and cells, ensuring the production of modules upon the development of the local market. A number of local firms are now conducting feasibility studies on the production of solar photovoltaic thin films for local and export markets. The solar energy project encourages also the conversion of the Kingdom’s high quality silica sand for the production of solar grade glass for export.
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Recently the Deputy Minister for Electricity, His Excellency Saleh Al Awaji, stated that the Saudi Government believes in green building initiatives as a factor that can contribute to energy saving and that energy saving is one the Government’s major mandates. His Excellency also stated that with about 70 per cent of energy consumption in the Saudi construction sector due to air-conditioning, the Government is focussing on air-conditioning use and that investment in air-conditioning will contribute significantly to energy saving.
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To date, aside from some small-scale solar power projects, projects promoting the development of renewable energy sources are limited in Saudi Arabia. Saudi Arabia benefits from substantial hydrocarbons reserves, allowing it to provide heavily subsidised fuel and power to industry and retail consumers.
However, faced with the need for economic diversification and increasing domestic energy demand, and committed to large-scale domestic infrastructure spending plans, Saudi Arabia is taking steps towards building a renewable energy sector.
The Kingdom is at the forefront of a number of research initiatives into exploring the potential and deployment of renewable energy technologies, in particular showing itself to be a leader in solar technology research. However, barriers to the deployment of renewable energy on a wide scale still remain.
As can be seen in other jurisdictions where renewables have been deployed on a wide scale, the development of a sustainable renewable energy sector goes hand in hand with:
- a specific clear and transparent legislative framework;
- a framework for encouraging private sector investment in renewables, including financial support incentives to potential developers;
- a feed-in tariff (as noted above, it is understood that ERCA is currently considering such a mechanism; however according to the draft proposal, the costs associated with a feed-in tariff would (unlike European jurisdictions) not be passed on to the Saudi consumer but borne by the Government).
The critical issue for Saudi Arabia will be the introduction of the National Renewable Energy Policy, and its eventual passage into law. On the face of it, the draft proposal appears to be a step in the right direction, with the proposed feed-in tariff. Conversely, the suggestion that renewables developers be paid on output rather than capacity does give cause for concern.
Consideration should also be given (as adopted in some European jurisdictions) to the payment of a capacity based tariff to renewable energy producers (rather than an output based payment, as recommended in the draft proposal of the National Renewable Energy and Policy Law) that is based on the type of renewable energy source. As the market and technologies develop, the costs associated with the development of renewable energy should reduce, and accordingly tariffs payable to developers should be structured so as to reduce over the life of their projects.
Another important factor in the successful development of a renewable energy sector in Saudi Arabia is government commitment to the significant investment that is required - not only into renewable technologies but also into the underlying infrastructure and policy frameworks that will be needed in order to encourage international and regional private sector participation. In terms of the budget for renewable energy projects in the Kingdom, to date this is significantly less than the funds committed to conventional energy projects.
Recently, Saudi Arabia (along with other oil producing countries in the Middle East) repeated its call for compensation for predicted loss of income from oil sales as consumers switch to energy produced from cleaner fuels such as natural gas or renewable energy. Speaking in Riyadh on 23 November 2011, the Saudi Arabia climate envoy said that OPEC members were asked to bear too much of the burden on cutting greenhouse gas emissions. OPEC members are opposed to emissions reduction targets imposed by industrialised nations in the Kyoto Protocol.
In the short to medium term, it is unlikely that we will see renewable energy used on a wide scale in Saudi Arabia. Whilst the Kingdom is at the forefront of research into renewable technologies, in the absence of a clear institutional and legal framework for the promotion of investment (particularly from the private sector) and regulation of the renewable energy sector, wide-scale development remains a long way off.
1. Source: Saudi Gazette
2. Saudi Aramco 2009 Review
3. Source: Reuters
4. N.M. Al-Abbadi, Wind energy resource assessment for five locations in Saudi Arabia, Renewable Energy, 30 (2005), pp. 1489–1499
5. Wind resource assessment of eastern coastal region of Saudi Arabia M.A. Elhadidy*, S.M. Shaahid Centre for Engineering Research, Research Institute, King Fahd University of Petroleum and Minerals
6. Electricity Law promulgated by Royal Decree no. (M/56) on 22 November 2005
7. A feed-in tariff (FIT) is mechanism by which producers of renewable energy enter into long-term purchase contracts with the procurer and are paid a price, which is typically the cost of generation for the particular renewable technology. The rationale behind FIT is that renewable energy producers are compensated for the higher costs associated with producing energy from renewable sources, thereby encouraging the development of renewables
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