The kingdom begins work on $5b plant powered entirely by sun and wind

Sun-scorched expanses and steady Red Sea breezes make the northwest tip of Saudi Arabia prime real estate for what the kingdom hopes will become a global hub for green hydrogen. 

As governments and industries seek less-polluting alternatives to hydrocarbons, the world’s biggest crude exporter doesn’t want to cede the burgeoning hydrogen business to China, Europe or Australia and lose a potentially massive source of income. So it’s building a $5 billion plant powered entirely by sun and wind that will be among the world’s biggest green hydrogen makers when it opens in the planned megacity of Neom in 2025.

The task of turning a patch of desert the size of Belgium into a metropolis powered by renewable energy  falls to Peter Terium, the former chief executive officer of RWE AG, Germany’s biggest utility, and clean-energy spinoff Innogy SE. His performance will help determine whether a country dependent on petrodollars can transition into a supplier of non-polluting fuels.

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“There’s nothing I’ve ever seen or heard of this dimension or challenge,” Terium said. “I’ve been spending the last two years wrapping my mind around ‘from scratch,’ and now we’re very much in execution mode.”

Hydrogen is morphing from a niche power source – used in zeppelins, rockets and nuclear weapons – into big business, with the European Union alone committing $500 billion to scale up its infrastructure. Huge obstacles remain to the gas becoming a major part of the energy transition, and skeptics point to Saudi Arabia’s weak track record so far capitalizing on what should be a competitive edge in the renewables business, especially solar, where there are many plans but few operational projects.

But countries are jostling for position in a future global market, and hydrogen experts list the kingdom as one to watch.

The U.K. is hosting 10 projects to heat buildings with the gas, China is deploying fuel-cell buses and commercial vehicles, and Japan is planning to use the gas in steelmaking. U.S. presidential climate envoy John Kerry urged the domestic oil and gas industry to embrace hydrogen’s “huge opportunities.”

That should mean plenty of potential customers for the plant called Helios Green Fuels. Saudi Arabia is setting its sights on becoming the world’s largest supplier of hydrogen – a market that BloombergNEF estimates could be worth as much as $700 billion by 2050.

“You’re seeing a more diversified portfolio of energy exports that is more resilient,” said Shihab Elborai, a Dubai-based partner at consultant Strategy&. “It’s diversified against any uncertainties in the rate and timing of the energy transition.”

Blueprints are being drawn and strategies are being announced, but it’s still early days for the industry. Hydrogen is expensive to make without expelling greenhouse gases, difficult to store and highly combustible.

Green hydrogen is produced by using renewable energy rather than fossil fuels. The current cost of producing a kilogram is a little under $5, according to the International Renewable Energy Agency.

Saudi Arabia possesses a competitive advantage in its perpetual sunshine and wind, and vast tracts of unused land. Helios’s costs likely will be among the lowest globally and could reach $1.50 per kilogram by 2030, according to BNEF. That’s cheaper than some hydrogen made from non-renewable sources today.