Money Management 101 for Single Parents Going it Alone

1. Determine What You Owe

As the head of the household, it’s up to you to make sure that your entire family’s needs are being met. In order to do that, you need to be extremely diligent when it comes to money management basics. This is not something that will happen by accident. Instead, you must plan for it and work toward it.

The first step is to set up your “office.” Gather all of your bills, a calculator, a pencil, and your checkbook.

I would also recommend that you grab an old binder that you can use to keep track of your financial data and a shoebox for storing paid bills.

Now you’re ready to begin:

  • Go through all of your bills, and pay anything that is due within the next week.
  • If you have bills coming due that you cannot pay, notify the company and ask them to set up a payment plan with you.
  • Print a copy of the chart “Paying Down My Debts” or make your own.
  • On the chart, list all of your debts, including any car loans, student loans, and credit card debt.
  • In addition, list the total balance left to be paid on all of these debts, and the percentage rate you are paying.
  • For now, leave the fourth column of the chart blank, and store it in your “Financial Data” binder.

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2. Eliminate Joint Debt

Before we create a plan for paying down your debt, it’s important to consider some special circumstances that may apply to you as a single parent. I asked LaToya Irby, Credit/Debt Management Expert, to share her expertise on handling joint debt:

Wolf: Let’s say a single mom still shares a credit card with her ex. What should she do?

Irby: Ideally, she would want her ex to transfer his portion of any joint balances onto his own credit card. That way, everyone is paying for their own debt.

Wolf: What about leaving both names on the account, and agreeing to pay part of the amount due? Is that ever advisable?

Irby: No. If you’ve made an agreement with your ex to split the debt payments on accounts that include your name, and your ex-misses a payment, it’s going to hurt your credit. If the ex-fails to pay altogether, the creditors and collectors will come after you. Not even a divorce decree can change the terms of a joint credit card agreement. In the credit card issuer’s eyes, you’re just as much responsible for post-divorce accounts as before.

Wolf: What about situations when a couple’s divorce decree mandates that one individual must pay off the joint credit card debt, but that person fails to do it?

Irby: You can always file contempt of court papers against him/her, but in the meantime, your credit score suffers. So I suggest paying off the debt to save your credit. If you can’t afford to pay the debt, at least make minimum payments to keep a positive payment history on your credit report.

Wolf: What about other accounts, such as utilities and cell phones?

Irby: The safest thing to do, if you have a service in your ex’s name, is to turn off the account and reestablish service in your name.

 

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3. Find Money to Pay Down Debt

Another thing we have to do before creating a plan to pay down your existing debt is to find money in your budget each month. To assist in this step, I contacted Erin Huffstetler, Frugal Living Expert.

Wolf: How much money do you think the average person can uncover just by being more intentional about spending and budgeting?

Huffstetler: The average person could easily uncover an extra $250 a month—and probably much more.

Wolf: What are the top 5 areas that you think people should look to first when they’re trying to cut their expenses?

Huffstetler:

  • Food spending (both groceries and eating out)
  • TV-related expenses (cable/satellite services, certainly; but also movie subscriptions and rentals)
  • Phone services (particularly extras like call waiting, caller id, long distance, and cell phones)
  • Insurance premiums
  • Miscellaneous spending (all those small amounts spent on coffee, vending machine snacks, and other indulgences)

Wolf: How can single parents, specifically, stretch their child support dollars and reduce child-related expenses?

Huffstetler: For single parents looking to stretch their child support dollars, creativity is the key. Look to children’s consignment shops and thrift stores to buy your kids’ clothes instead of department stores; sign them up for Parks and Rec-run activities instead of privately-run activities (which will always cost more); and don’t feel like you have to make up for being a single parent by buying them extra things—it’s you they need, not stuff.

 

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4. Pay Off Your Debt

The next step is creating a schedule for paying down your debt:

  1. Pay off the debts that charge you the highest interest first.Bob Hammond, author of Life Without Debt, recommends that you pay off the debts that are charging you the highest interest first since borrowing from those creditors is costing you the most money. “Concentrate on paying off the high-cost debts as soon as possible,” Hammond advises. LaToya Irby, Credit/Debt Management Expert, agrees. “Highest interest rate debts cost the most money, especially when those debts have high balances. So you’ll save money on interest charges when you pay off those high-interest rate debts first.”However, there are exceptions to this general rule. Irby notes, “If you’re likely to get discouraged because it’s taking a long time to pay off that high-interest rate debt, you can start with the lowest balance debt. Getting some small debts paid off will motivate you to keep going.”
  2. Pay more than the minimum payment. Aim for paying more than the suggested minimum payment, in order to pay off your debts as quickly as possible.Miriam Caldwell, Money in Your 20’s Expert, shares this advice:
    • Choose one debt to focus on.
    • Increase your payment on that debt by as much as you can.
    • Once you have paid off that debt, move all that you are paying on it to the next debt you want to pay off.
    • You’ll be surprised at how quickly you can get out of debt with this plan!
  3. Meanwhile, continue to pay the minimum balance due on all of your other debts.Record what you intend to pay toward each debt on the debt chart you made in Step 1.

 

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5. Budget Your Monthly Expenses

Now that you know where you stand financially, and you’ve created a plan for paying down your debts, it’s time to make sure that you’re making any other necessary adjustments so that you can keep up with your plan. And this means creating a budget.

I know this can be intimidating, but I’m going to make a suggestion for you: Sign up for Mint.com. It’s a free financial software program available on the Internet, and it will basically do your budgeting for you. It will create a visual pie chart showing how much you’re spending each month on housing, gas, food, entertainment, and more. This way, if it turns out that you’re spending a lot more on food than you really should, you can begin to make the necessary adjustments to get your spending under control.

If you would prefer to create your budget the traditional way, allotting a certain amount of money to each spending category, I’ve created an online budget calculator you can use, which includes categories for child support and other details specific to your life as a single parent.

Finally, in taking a look at where your money really goes each month, it’s important to know approximately how much money you “should” be spending in each category. Generally speaking, your net spendable income (after taxes) should be allocated as follows*:

  • Housing: 30%
  • Food: 12%
  • Auto: 14%
  • Insurance: 5%
  • Debt: 5%
  • Entertainment: 7%
  • Clothing: 6%
  • Savings: 5%
  • Medical/Dental: 4%
  • Miscellaneous: 7%
  • Child Care: 5%
  • Investments: 5%

 

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6. Set Financial Goals

Now that you’ve worked out a plan to pay down your debt, and you’ve created a budget, it’s time to determine your needs moving forward.

Specifically, as a single parent, you need to ask yourself some questions, such as:

  • Do you need to file for child support?
  • Do you need to get a higher-paying job?
  • Is it time to think about going back to school?
  • Do you need to consider moving into a home/rental that would reduce your overall monthly payments?
  • Are there alternatives, such as taking on another job or splitting expenses with another single parent family, that you need to consider at this point?

One of the things that I want you to know is that the ball is in your court. You determine where this goes from here on out. But unfortunately, you can’t do that if you’re ignoring your financial health, right?

So the fact that you’ve come this far in the process of getting a handle on your finances tells me that you’re determined to make the changes you need to make in order to provide for your family’s future.

So go ahead and ask yourself these questions. So much of single parenting is learning to roll with the punches and be creative in the face of adversity. If, indeed, you need to make some pretty major changes, now is the time to do it. Don’t incur any more debt where you are. Be resourceful, follow through, and do what you need to do to turn your financial situation around.

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7. Increase Your Net Worth

The next step is to determine your net worth and begin adding to it.

Determine Your Net Worth:

Your net worth is what you own minus what you owe. Programs such as Mint.com, Quicken, and Microsoft Money will calculate your net worth for you, automatically.

You can also determine your net worth simply by adding up all that you own, including all of your investments, the equity you may have paid into your home, the value of your car, and any other assets you possess; and subtracting what you owe in remaining debts.

Set Up a Savings Account:

Once you know where you stand, you’ll be ready to set up a savings account. You can do this through your regular bank, or begin investing in a mutual fund that pays interest.

Even if you can only afford to set aside $25 or $50 per month, it will begin to add up.

Before you know it, you’ll have an emergency savings plan in place, to protect you in the event that your car breaks down, or your home needs a major repair.

In addition, this regular savings will help you increase your net worth over time.

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8. Become Even More Frugal

Unfortunately, all of the work you’ve already done in steps 1-7 will have little lasting value if you don’t change your attitude toward money. Now is the time to become even more frugal and learn to live within your means.

Practice Discipline:

Stop imagining that more money is going to pour in tomorrow—through finally collecting on unpaid child support, winning the lottery, or getting a promotion. If those things happen, great! You’ll be even better off. But living as if they’re going to happen is causing you to spend money you don’t have.

Instead, force yourself to make purchases with cash only. Do not continue to pay outrageous interest payments toward credit cards for purchases you don’t absolutely need. You can get by without that new furniture, right? What else could you skip, in the interest of spending only what you have right now in the bank?

Try These Ideas:

  • Check Freecycle before you make another major purchase. Someone else may be giving away the very thing you’d like to buy!
  • When you’re getting ready to buy something specific, look for it on eBay first. I buy a lot of my clothes, new-with-tags, through online auctions!
  • Forget trying to keep up with “The Jones’s.” You already know your value; don’t get caught up trying to “prove” your worth to others by having “just the right” house, car, or appearance.
  • Do not use shopping, ever, to appease your emotions.
  • Finally, when you do go to make a big purchase, step back and give yourself a few days–or even a week–to think about it. There’s no reason to suffer through buyer’s remorse and try to justify to yourself purchases that you really can’t afford. Think it over carefully and make those purchases, when necessary, with cash.

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9. Schedule Your Own Weekly Financial Check-In

Grab your calendar and schedule a weekly financial update meeting with yourself. This is an extremely important step in managing your personal finances, and it’s one that you need to continue each and every week. During your “meeting” time:

  • Pay any bills that are due.
  • If your bank statement has arrived, take the time to balance your checkbook.
  • Check the balances of your checking and savings accounts.
  • Update your debt list to incorporate any recent payments.
  • This is also a good time to write out your grocery shopping list and check what’s on sale at your local grocery store this week (either using the store’s Web site or the sales circular that comes in the newspaper).
  • Finally, also make note of any upcoming expenses you need to anticipate and plan for.

An attitude of gratitude and finances.

 

 

References:
Irby, LaToya. Email interview. 24 Oct. 2008, 
Huffstetler, Erin. Email interview. 24 Oct. 2008. 
Sources:
Caldwell, Miriam. Email interview. 27 Oct. 2008, Hammond, Bob. “Debt Free Key: 10 Steps for Coping With Credit Problems.” Life Without Debt. Franklin Lakes, NJ: Career Press, 1995. 31-32, Irby, LaToya. Email interview. 24 Oct. 2008. 
“Spending Plan Online Calculator.” Crown Financial Ministries. 11 Oct. 2008.

Written By: Jennifer Wolf

Source: thebalance

 

 

 

Nine Characteristics of Successful Entrepreneurs

Have you ever thought about striking out on your own? After all, being your own boss can be an exciting prospect. However, owning a business isn’t for everyone. To be a successful entrepreneur, you must have — or develop — certain personality traits. Here are nine characteristics you should ideally possess to start and run your own business:

1. Motivation

Entrepreneurs are enthusiastic, optimistic and future-oriented. They believe they’ll be successful and are willing to risk their resources in pursuit of profit. They have high energy levels and are sometimes impatient. They are always thinking about their business and how to increase their market share. Are you self-motivated enough to do this, and can you stay motivated for extended periods of time? Can you bounce back in the face of challenges?

2. Creativity and Persuasiveness

Successful entrepreneurs have the creative capacity to recognize and pursue opportunities. They possess strong selling skills and are both persuasive and persistent. Are you willing to promote your business tirelessly and look for new ways to get the word out about your product or service?

3. Versatility 

Company workers can usually rely on a staff or colleagues to provide service or support. As an entrepreneur, you’ll typically start out as a “solopreneur,” meaning you will be on your own for a while. You may not have the luxury of hiring a support staff initially. Therefore, you will end up wearing several different hats, including secretary, bookkeeper and so on. You need to be mentally prepared to take on all these tasks at the beginning. Can you do that?

4. Superb Business Skills 

Entrepreneurs are naturally capable of setting up the internal systems, procedures and processes necessary to operate a business. They are focused on cash flow, sales and revenue at all times. Successful entrepreneurs rely on their business skills, know-how and contacts. Evaluate your current talents and professional network. Will your skills, contacts and experience readily transfer to the business idea you want to pursue?

5. Risk Tolerance

Launching any entrepreneurial venture is risky. Are you willing to assume that risk? You can reduce your risk by thoroughly researching your business concept, industry and market. You can also test your concept on a small scale. Can you get a letter of intent from prospective customers to purchase? If so, do you think customers would actually go through with their transaction?

6. Drive 

As an entrepreneur, you are in the driver’s seat, so you must be proactive in your approaches to everything. Are you a doer — someone willing to take the reins — or would you rather someone else do things for you?

7. Vision

One of your responsibilities as founder and head of your company is deciding where your business should go. That requires vision. Without it, your boat will be lost at sea. Are you the type of person who looks ahead and can see the big picture?

8. Flexibility and Open-Mindedness

While entrepreneurs need a steadfast vision and direction, they will face a lot of unknowns. You will need to be ready to tweak any initial plans and strategies. New and better ways of doing things may come along as well. Can you be open-minded and flexible in the face of change?

9. Decisiveness

As an entrepreneur, you won’t have room for procrastination or indecision. Not only will these traits stall progress, but they can also cause you to miss crucial opportunities that could move you toward success. Can you make decisions quickly and seize the moment?

 

 

 

Written By: Ruchira Agrawal
Source: Monster

Raising Kids to Be Smart About Money

Young minds are programmed to absorb and copy the behaviors around them, which means the sooner you instill proper money management skills, the more prone your kids are to become mature and responsible stewards of their own cash-flow in the future.
“Becoming financially literate early in life is fundamentally important to your financial well-being as an adult,” says Micah Fraim, award-winning CPA and best-selling author.

“I was pinching pennies at five years old, calculating the cost of grocery items per ounce, refusing to buy expensive clothes unless they were on-sale and foregoing scoops of ice cream from the ice cream shop, so I could buy multiple gallons at the grocery store,” Fraim says. “Now as an adult, I still have that same mindset and live well below my means.”

The following kid-approved strategies help you teach the core tenets of being financially savvy; in terms they’ll understand and appreciate. Consider how you can use them to teach your little ones to be smart about money.

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Find Opportunities for Lessons

At some point, your child will inevitably deplete their allowance on impulse purchases, rather than holding out for the more expensive item they’ve been asking for. Instead of giving them more money, or buying it for them, use this as an opportunity to demonstrate that money is a finite resource, which must be allocated over an extended period. Once you spend, it’s gone until you can make more.

Have a conversation about what else they could have done with that money, or how much longer they would have needed to save to get the big-ticket item they wanted. Perhaps give an example of when you spent foolishly, or better yet, saved enough money to buy something important, like your house or car.

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Demonstrate that Income Is Earned

Chores are an easy way to teach children that money must be earned. This tangible incentive for contributing to your household shows them that have to work for what they want, and even do things they may not want to do—i.e. vacuuming and doing the dishes.

The concept of having to earn your money is a positive outcome of rewarding children financially for completing chores. However, some parents find that this method doesn’t necessarily teach money management, making it a bad way to teach children how to be smart about money. The key to avoiding the latter is the set-up.

Susan Borowski, mother and author for Money Crashers, shares how she set this up with her teenage son:

“As a contributing member of the family, my 13-year-old son is expected to do certain chores around the house for free. He can earn money for tackling larger tasks, many of which he can choose, some of which he cannot; the amount he earns depends on the difficulty of the task or how long it takes. This forces us to discuss money each time he takes on a larger task.”

This shows them that they have control over how much they earn, rather than it being a given.

Secondly, keep chores focused on money management with an app like Chore Monster so children can track what they’ve done and earned. This is an easy way to establish a record-keeping system, for both chores and allowance, seeing increases or decreases in money earned over time.

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Establish a Record-Keeping System

When your child is consistently earning allowance or money for chores, it’s important that they’re able to account for what happens with that money. The more emphasis you put on this piece of the earning, the more they’ll see the value of managing their funds. They’ll start to notice wasteful spending habits and identify which pitfalls to avoid during their next allowance payout.

Designate a folder where they can stockpile receipts and a notebook where they can track all purchases. This simple method of financial reporting is an ideal precursor to balancing a checkbook, analyzing bank statements, or creating a monthly budget.

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Use Visual Aids to Your Advantage

Although the “piggy bank” is a time-honored childhood favorite, this approach to money management doesn’t allow your child to see the positive outcome of their coin stashing. For a more functional alternative, use a transparent mason jar or clear plastic Tupperware container, both of which gives them an unobstructed view of the progressive financial increase that comes from diligent and habitual saving. This tool makes the abstract concept of saving easy to see and understand.

You can also open a bank account for older children. This gives them a chance to become familiar with bank statements, which act as a visual aid. Each time a new statement comes in, they can sit down and look at how much money was put into the bank account and how that’s changed month-over-month. Many banks now offer online portals, as well, where your children can see progress represented in bar and pie graphs; these may be easier to understand and digest.

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Encourage Them to Set a Savings Goal

There’s a sense of accomplishment and empowerment in reaching a goal with no shortcuts taken or assistance received. Channel this mindset when encouraging your child to practice economical behaviors. Next time they express interest in the latest gadget, suggest they purchase it themselves and develop a step-by-step plan together, so they feel equipped for the undertaking. This process of setting aside money with a specific goal in mind reinforces the gratification gained from being smart about money and purchasing the item without any help.

It’s never too early to start teaching your kids about how to be financially savvy. Too many people don’t learn about personal finance until it’s too late — like when they’re buried in student loans — so teaching these skills early on is important for setting your children up for success later in life.

 

 

 

Written By: Jessica Thiefels
Source: PBS

Easter by the Numbers: How Much We Spend on Flowers, Clothes and Chocolate Bunnies

Gold-wrapped Easter chocolate bunnies are displayed during the annual news conference of Swiss chocolatier Lindt & Spruengli in Kilchberg near Zurich March 10, 2015. Lindt & Spruengli said it was confident people would keep buying its sweet treats this year despite weak consumer sentiment in its key market, Europe.
REUTERS/Arnd Wiegmann

Americans plan to spend more than ever on Easter this year, according to one survey.

Easter spending is estimated to hit $17.3 billion this year, or $146 per person on average, according to a survey from the National Retail Federation. That’s up from $140.62 last year and marks the highest level in the survey’s 13-year history.

Collectively, Americans plan to spend the most on food at $5.5 billion, followed by $3 billion on clothes, $2.7 billion on gifts, $2.4 billion on candy and $1.2 billion on flowers.

The majority of consumers (58 percent) plan to do their Easter shopping at discount stores, while 41 percent will go to department stores. Almost a quarter will visit local small business, and just over a fifth intend to shop online, according to the NRF.

Millennials will spend more than any other generation on Easter, shelling out $176.90 on average, according to a separate survey from the International Council of Shopping Centers. Gen Xers plan to spend $127 and Baby Boomers say they will spend $113.70 on average. Overall, three in five American adults will spend money on Easter-related products this year.

More than half of Americans (55 percent) are planning to celebrate Easter by cooking a holiday meal, according to the NRF survey. For those making an Easter feast, the traditional baked ham will cost markedly less this year compared with 2015. Prices for bone-in ham are down 20 percent versus a year ago, according to the most recent figures from the federal government.

But egg-dyeing is more expensive, thanks to a bird flu that affected a significant number of egg-laying hens last year. Prices for eggs increased 8 percent compared with 2015, which will affect 31 percent Americans who plan on having an Easter egg hunt this year, according to the NRF.

Written by Janna Herron of Fiscal Times

(Source: The Fiscal Times)

Why the Saudis Are Going Solar

© Mohammed Al-Deghaishim
© Mohammed Al-Deghaishim

Prince Turki bin Saud bin Mohammad Al Saud belongs to the family that rules Saudi Arabia. He wears a white thawb and ghutra, the traditional robe and headdress of Arab men, and he has a cavernous office hung with portraits of three Saudi royals. When I visited him in Riyadh this spring, a waiter poured tea and subordinates took notes as Turki spoke. Everything about the man seemed to suggest Western notions of a complacent functionary in a complacent, oil-rich kingdom.

But Turki doesn’t fit the stereotype, and neither does his country. Quietly, the prince is helping Saudi Arabia—the quintessential petrostate—prepare to make what could be one of the world’s biggest investments in solar power.

Near Riyadh, the government is preparing to build a commercial-scale solar-panel factory. On the Persian Gulf coast, another factory is about to begin producing large quantities of polysilicon, a material used to make solar cells. And next year, the two state-owned companies that control the energy sector—Saudi Aramco, the world’s biggest oil company, and the Saudi Electricity Company, the kingdom’s main power producer—plan to jointly break ground on about 10 solar projects around the country.

Turki heads two Saudi entities that are pushing solar hard: the King Abdulaziz City for Science and Technology, a national research-and-development agency based in Riyadh, and Taqnia, a state-owned company that has made several investments in renewable energy and is looking to make more. “We have a clear interest in solar energy,” Turki told me. “And it will soon be expanding exponentially in the kingdom.”

Such talk sounds revolutionary in Saudi Arabia, for decades a poster child for fossil-fuel waste. The government sells gasoline to consumers for about 50 cents a gallon and electricity for as little as 1 cent a kilowatt-hour, a fraction of the lowest prices in the United States. As a result, the highways buzz with Cadillacs, Lincolns, and monster SUVs; few buildings have insulation; and people keep their home air conditioners running—often at temperatures that require sweaters—even when they go on vacation.

Saudi Arabia produces much of its electricity by burning oil, a practice that most countries abandoned long ago, reasoning that they could use coal and natural gas instead and save oil for transportation, an application for which there is no mainstream alternative. Most of Saudi Arabia’s power plants are colossally inefficient, as are its air conditioners, which consumed 70 percent of the kingdom’s electricity in 2013. Although the kingdom has just 30 million people, it is the world’s sixth-largest consumer of oil.

Now, Saudi rulers say, things must change. Their motivation isn’t concern about global warming; the last thing they want is an end to the fossil-fuel era. Quite the contrary: they see investing in solar energy as a way to remain a global oil power.

The Saudis burn about a quarter of the oil they produce—and their domestic consumption has been rising at an alarming 7 percent a year, nearly three times the rate of population growth. According to a widely read December 2011 report by Chatham House, a British think tank, if this trend continues, domestic consumption could eat into Saudi oil exports by 2021 and render the kingdom a net oil importer by 2038.

That outcome would be cataclysmic for Saudi Arabia. The kingdom’s political stability has long rested on the “ruling bargain,” whereby the royal family provides citizens, who pay no personal income taxes, with extensive social services funded by oil exports. Left unchecked, domestic consumption could also limit the nation’s ability to moderate global oil prices through its swing reserve—the extra petroleum it can pump to meet spikes in global demand. If Saudi rulers want to maintain control at home and preserve their power on the world stage, they must find a way to use less oil.

Solar, they have decided, is an obvious alternative. In addition to having some of the world’s richest oil fields, Saudi Arabia also has some of the world’s most intense sunlight. (On a map showing levels of solar radiation, with the sunniest areas colored deep red, the kingdom is as blood-red as a raw steak.) Saudi Arabia also has vast expanses of open desert seemingly tailor-made for solar-panel arrays.

Solar-energy prices have fallen by about 80 percent in the past few years, due to a rapid increase in the number of Chinese factories cranking out inexpensive solar panels, more-efficient solar technology, and mounting interest by large investors in bankrolling solar projects. Three years ago, Saudi Arabia announced a goal of building, by 2032, 41 gigawatts of solar capacity, slightly more than the world leader, Germany, has today. According to one estimate, that would be enough to meet about 20 percent of the kingdom’s projected electricity needs—an aggressive target, given that solar today supplies virtually none of Saudi Arabia’s energy and, as of 2012, less than 1 percent of the world’s.

Some of Saudi Arabia’s most prominent industrial firms, as well as international electricity producers and solar companies big and small, have lined up to profit from what they see as a major new market. The fact that Saudi Arabia, an ardent booster of fossil fuels, has found compelling economic reasons to bet on solar is one of the clearest signs yet that solar, at least in some cases, has become a cost-effective source of power.

But the Saudis’ grand plan has been slow to materialize. The reasons include bureaucratic infighting; technical hurdles, notably dust storms and sandstorms that can quickly slash the amount of electricity a solar panel produces; and, most important, the petroleum subsidies that shield Saudi consumers from any real pressure to use less oil. The kingdom is a fossil-fuel supertanker, and though the captain knows that dangerous seas lie ahead, changing course is proving exceedingly hard.

Nasser Qahtani is an oilman through and through. On a credenza in his Riyadh office, he has a souvenir glass block that holds a shot of crude from Saudi Arabia’s biggest oil field. He spent about 15 years working at an Aramco petroleum-processing plant. And he has a master’s degree from Texas A&M University, which is why he has two Aggies coffee mugs on his bookshelf. “That’s for my easy days,” he told me one morning, pointing to the smaller one. “That’s for my tough days,” he deadpanned, pointing to the bigger mug.

Nasser has many tough days. Any shift away from oil threatens a host of entrenched powers, and as the vice governor of regulatory affairs for Saudi Arabia’s Electricity & Cogeneration Regulatory Authority, he spends much of his time trying to corral the competing constituencies to work together to modernize the country’s energy system.

Sipping Arabic coffee while sitting beneath paintings of the same three Saudi royals who adorned Prince Turki’s office wall, Nasser underscored the extent to which his country’s energy subsidies promote waste. In October, the World Bank estimated that Saudi Arabia spends more than 10 percent of its GDP on these subsidies. That comes to about $80 billion a year—more than a third of the kingdom’s budget. “In my opinion, that’s an accurate number,” Nasser said. “This is not sustainable.”

Also unsustainable is the opportunity cost of burning so much oil at home. Aramco sells oil to the Saudi Electricity Company for about $4 a barrel, roughly the cost of production. Even with the global price of oil down to about $60 a barrel as of this writing (a drop of about 40 percent since June 2014), Saudi Arabia forgoes some $56 on every barrel it uses at home. That gap will become far greater if, as many experts expect, the global price rebounds.

Saudi leaders carefully calibrate the kingdom’s output to keep that global price where they want it: high enough to fill Saudi coffers but low enough to avoid spurring competitive threats. For years, analysts have debated how much oil Saudi Arabia has in the ground, with some alleging that the kingdom is far less flush than it lets on. Saudi officials maintain that they face no immediate crisis, but they talk about the need to keep in check competitors such as the U.S. shale-oil industry. A serious reduction in the oil they have available for export would hinder their ability to fend off such threats.

Over roughly the past year, the government has toughened energy-efficiency requirements for air conditioners, imposed the country’s first-ever fuel-economy standards for cars, and begun to require insulation in new buildings. It’s moving to require that new power plants be more efficient than the ones they replace. And in March, Saudi Arabia signed a memorandum of understanding with South Korea to build the kingdom’s first two nuclear reactors, and possibly more.

What Saudi leaders don’t appear likely to do, at least anytime soon, is cut the fossil-fuel subsidies. Many Saudis view cheap energy as a birthright, and any increase in prices would be hugely unpopular. In a speech in February, the head of the central bank called for slowly reforming the subsidies, but he gave no indication of when. In the meantime, officials are looking to what once seemed an unthinkable solution: promoting renewable energy.

“The view initially was not to support renewables,” Nasser told me, explaining that Saudi officials feared “that if renewables were successful, we would not find customers for our commodity.” That view has changed—sort of. Should solar somehow begin to threaten the primary market for Saudi oil—as a transportation fuel—the kingdom’s calculus could shift back.

Few places better illustrate Saudi Arabia’s energy challenge than the country’s Red Sea coast. Along a stretch of black highway running north from the coastal city of Jeddah lies a string of new infrastructure. All of it is big. All of it is named for King Abdullah bin Abdulaziz al Saud, who died in January after leading the country for a decade. And much of it was built by Aramco, which, beyond being an international oil giant, is the Saudi government’s go-to player for getting things done. There’s the new King Abdullah Football Stadium, the new King Abdullah University of Science and Technology, the new King Abdullah Economic City, and the new King Abdullah Port. To the north of all this development, in the village of Rabigh, sits an enabler of growth: a massive, oil-fueled power plant.

Built by a Chinese firm and completed in 2012, the plant consists of two towering furnaces that produce electricity by burning heavy fuel oil. When I visited one morning this spring, a tanker sat at the pier, disgorging its liquid into one of the plant’s six circular storage tanks. Each tank holds about 14.5 million gallons of oil, which the plant typically burns in a week. In the sweltering air, the place stank like a Jiffy Lube, the kind of smell that sinks into your pores. Luai Al-Shalabi, a worker who lives in a dormitory there, told me the oily odor is ever-present: “All the time I feel it.”

Oil isn’t the only liquid this plant requires. It also needs freshwater—more than half a million gallons a day. The plant’s furnaces burn the oil, the heat boils the water, and the steam spins the plant’s turbines. All of that freshwater isn’t readily available in this desert kingdom; the Saudis have to make much of it out of saltwater.

Next to the power plant is a desalination plant. It’s small by Saudi standards; far bigger ones produce drinking water. Yet it still seems huge: a maze of tanks, tubes, filters, and pumps covering an area twice as large as a football field. The water the plant sucks in from the Red Sea contains about 40,000 parts per million of salt. By the time it comes out the other end, having been filtered and mixed with chemicals, its salt content is 25 parts per million. The process is a triumph of man over nature. And every step consumes electricity—which comes primarily from oil.

Solar power presents an alluring alternative. The kingdom first began experimenting with energy from the sun in the 1970s. In 1979, the same year that unrest in the Middle East sparked a global oil shock and President Jimmy Carter had solar panels installed on the White House roof, the United States and Saudi Arabia jointly launched a solar-research station about 30 miles northwest of Riyadh, in a tiny village called Al-Uyaynah, which at the time lacked electricity.

Work at this site languished in the 1990s and early 2000s but has picked up in the past few years. In 2010, the King Abdulaziz City for Science and Technology, the research agency that runs the station, built a small experimental assembly line there to manufacture solar panels. A year later, it more than quadrupled the line’s capacity. It plans to expand the facility again over the next several months, this time by a factor of eight.

Prince Turki told me that Saudi officials want to add another factory elsewhere in the kingdom; it will be one of the largest outside of China. The goal, he said, is not just to install solar panels across Saudi Arabia but to export them—a way, Saudi officials hope, to create high-paying tech jobs for the kingdom’s large population of young people. (Some two-thirds of Saudis are younger than 30.) Officials also want to bankroll solar installations in other countries, to boost the market for Saudi-made panels. Among the potential locations is the United States, where Turki envisions the kingdom undercutting other solar providers in part by tapping cheap development loans from Saudi banks.

But the factory at Al-Uyaynah shows how far the country has to go. The equipment comes mostly from Europe, and the solar cells—the square slices of silicon that make up a solar panel—are made in Taiwan. Often, as on the day I visited, the assembly line doesn’t produce much, because materials are stuck in transit. Once, a shipment of the plastic sheeting used to seal the backs of solar panels sat at a Saudi port for a month, and it melted.

The disconnect between aspiration and reality is even starker at the King Abdullah University of Science and Technology, one of the big projects along the Red Sea coast. The multibillion-dollar campus has both a world-class solar-research lab and some stupendously energy-inefficient amenities—including, in the middle of the desert, a hotel where I found my room chilled to about 62 degrees Fahrenheit and a nine-hole golf course fully lit for nighttime play.

The entire campus went up in about three years. It has a town square with a Quiznos sandwich shop, a Burger King, and a grocery store with an extensive selection of dates and nonalcoholic beer, all across the street from a towering white mosque. It has steel-and-wood offices and houses with red-tile roofs, both of which evoke suburban California. And it has a faculty of experts recruited from around the world.

Among them is Marc Vermeersch, a Belgian physicist and materials scientist who arrived in January after spending several years in Paris heading up solar work at Total, the French oil giant. Vermeersch told me that although no expense was spared in setting up the university’s solar laboratory, the money wasn’t wisely spent. The lab includes half a dozen highly specialized printers—including one that cost about $1 million—that apply coatings to surfaces, a process important in researching futuristic solar-panel technologies. But because Saudi Arabia wants to ramp up solar power soon, Vermeersch and his colleagues are reconfiguring the lab to focus on nearer-term research, work he hopes will pay off in the next few years.

The university houses an incubator for technology start-ups, including a firm founded on the premise that there’s good money to be made in keeping solar panels clean in the desert. The company’s creator is Georg Eitelhuber, an Australian-born mechanical engineer who came to the university in 2009, the year it opened, to teach physics at a high school on the campus. “King Abdullah made me an offer I couldn’t refuse,” Eitelhuber told me kiddingly, in an Aussie accent.

In late 2010, Eitelhuber attended a ceremony at the university for which “a bunch of bigwig managers” gathered to christen experimental solar panels. But a dust storm had blown in, covering the panels and threatening to nix the photo op. With the temperature hovering at about 115 degrees and “everyone sweating bullets,” he said, “guys with squeegees” swept in to wash down the panels. Incredulous, Eitelhuber asked how solar panels are normally cleaned. “This is it,” he was told. “It was clear to me this was going to be the big new problem of a new industry in the Middle East.”

With seed funding from the university, he and some colleagues set about designing a waterless system. “The idea of using desalinated water that’s desalinated using oil,” he said, “is just a big green wash.” Five years later, his company has a late-stage prototype—a long metal rod with lines of brush bristles, powered by the panels—and several solar-panel manufacturers are testing the device. Eitelhuber plans to start installing it on solar farms next year.

Aramco is the most important player in the kingdom’s shift to solar power. The company’s initial forays have been tiny—a solar-panel array next to one of its office buildings, for example—but its plan to break ground on 10 or so bigger solar projects next year seems to represent the start of a more serious commitment. A high-ranking Saudi official told me he expects Saudi Arabia to develop an initial tranche of a few gigawatts of solar capacity over the next five years. The projects will be in places where the cost of conventional fuel is high, either because the sites are remote or because they use diesel. (Saudi Arabia has historically had to buy large quantities of diesel at international prices because its refineries can’t process enough to satisfy domestic demand.)

Even at these cherry-picked sites, solar power is likely to cost more than electricity from the existing conventional plants—but only because those conventional plants get oil at a subsidized price. This explains why the government, not the private sector, is making most of the investment in solar. Private companies are waiting for the government to offer up a slate of contracts that would, in effect, allow solar energy to compete with artificially cheap oil-fired electricity.

One of the biggest firms waiting in the wings is AcwaPower International, which is based in Riyadh and owns and operates power and desalination plants in the Middle East, Africa, and Southeast Asia. In the past few years, Acwa Power has signed contracts to produce solar power in several countries—places where the price of conventional electricity is higher than in Saudi Arabia.

Earlier this year, it won a bid to build a solar farm in Dubai. The price at which Acwa Power agreed to sell electricity from that solar farm—5.84 cents a kilowatt-hour—turned heads among solar watchers the world over. It was heralded as signaling a new era of cost competitiveness. Paddy Padmanathan, Acwa Power’s president and CEO, told me he’s confident the company will make a healthy profit over the 25 years of the deal. “All of a sudden, renewables are becoming a very competitive proposition,” he said.

Acwa Power hasn’t yet developed any solar projects in Saudi Arabia. But Prince Turki told me that Taqnia, the state-owned company he chairs, is finalizing a deal to provide solar energy to the Saudi Electricity Company for 5 cents a kilowatt-hour—even less than the price Acwa Power recently agreed to in Dubai. “It’s the cheapest in the world that I know of,” Turki said.

That deal may be a tantalizing sign of things to come, but the goal Saudi Arabia announced three years ago of building 41 gigawatts of solar capacity remains a distant glimmer. In January, Saudi officials announced that they were pushing back the target date from 2032 to 2040—and even with the longer time frame, skeptics have dismissed the goal as a mirage.

Proving them wrong would require reshuffling an economic deck that the kingdom’s leaders have stacked for decades to favor petroleum. In that sense, Saudi Arabia’s energy challenge is a more extreme version of the one that faces the rest of the world. But if the kingdom’s leaders can find the political courage to act decisively, Saudi Arabia, of all nations, could become a model for other countries trying to shift away from oil.

Written by Jeffrey Ball of The Atlantic

(Source: The Atlantic)