Essay
Saudi Arabia:
a Proactive Approach to Energy
This issue’s contribution to Living Energy’s ongoing essay series focuses
on the energy sector of Saudi Arabia. Saleh Hussein Alawaji, Deputy
­Minister for Electricity at the Ministry of Water and Electricity and Chairman of the Saudi Electric Company, offers an inside look at his country’s
­dynamic plans for meeting the increased energy demands that are linked
to rapid economic development and population growth.
Text: Saleh Hussein Alawaji Illustration: Burkhard Neie
F
or the Saudi electricity sector, 2012 was
again another demanding year, like other
years over the last decade. Peak load keeps
growing at high rates and its increase approached
the 10 percent threshold. In 2012, peak load
reached a record of 50,500 gigawatts. Should the
growth continue at such rates, it would result
in doubling the peak load in about 15 years,
which would require a proportional increase in
generation and grid capacities to ensure availability of service at the required level of efficiency and r­ eliability.
Measures to control peak load growth and to
­rationalize consumption have not yet been able
to achieve the desired goals. Hence, implementation of energy conservation policies, energy
efficiency programs, DSM programs and other
sustainable development solutions remains an
urgent need – most notably, reform of electricity
tariffs; application of energy-saving standards
covering all electric devices, machinery and
equipment; and use of thermal insulation in all
buildings and facilities.
On the other hand, there is quite a bit of justifiable growth emerging from the evolving society
in Saudi Arabia and from the rapid economic
development that has to be acknowledged and
76 Living Energy · No. 7 | November 2012
accounted for. With a birth rate of about 20 per
1,000, around 500,000 newcomers are expected
annually, implying the need to prepare infrastructures for health, education, accommodations and jobs. Construction work on facilities
and housing is booming in both the private and
public sectors. Over 500,000 apartments are
now under construction by the Ministry of Housing to provide accommodations for families
with limited incomes.
Saudi Arabia has about 27 million inhabitants,
with a median age of 26 years, and the government is focusing on creating new jobs for this
largely young population by diversifying the
economy, involving the private sector and encouraging the industry. Industrial products
­e xports of oil-based petrochemicals and nonoil-based products are gradually making up an
increased share of the GDP and the country’s
­export revenues.
More or less all domains of the public and private
sectors are growing fast, driving the consumption of electricity to unprecedented levels, and
at such consumption level, Saudi Arabia has to
add 3–4 gigawatts of new electric power capacities
every year. This will require significant investment
for the next decade, estimated at 500 billion u
Essay
Essay
Saudi Arabia Electricity Statistics
Gross electricity generation
Total:
217.1 TWh
Gas
Privatization and Restructuring
of the Electricity Sector
119.4 TWh
97.7 TWh
Electricity total final
consumption (2009)
Population (2009)
7,842 25.4
million
kWh per capita
Source: IEA Statistics (2011) / Gross electricity generation (2009)
Saudi riyals (€100 billion) in power plants as
well as transmission and distribution networks.
The burden of such investments is very heavy
for any budget, and like many other governments around the world, the Saudi government
has encouraged the contribution of the private
sector (domestic and foreign investors). In the
electricity sector, the targeted share of the private sector will be equal to one-third of the total
investments.
The challenges associated with the increased
electricity consumption are not just limited to
the tremendous investment cost, but will have
an even greater impact on fuel consumption.
At the current electricity growth rate, the country will need a major portion of its oil and gas
production for electricity generation, so leading
decision makers need to investigate diversifica-
78 Living Energy · No. 7 | November 2012
For a long time, the Saudi economy was dependent mainly on oil production and export, but
through various economy development plans,
the government has succeeded in bringing about
tangible changes in the structure of the economy through the diversification of economic
­activities, increasing the contribution of non-oil
sectors in the GDP, as well as increasing the role
of the private sector in production, investment
and employment.
The diversification efforts of the recent development plans were specifically focusing on power
generation and on other sectors such as telecommunications. To facilitate the contribution
of the private sector in public utilities, the road
was paved by creating an adequate environment,
such as completing the physical infrastructure
and revising the structure of public administration to expand private (domestic and foreign
­investments), for the ownership and the management of public enterprises. Consequently,
the necessary laws and legislation have been
prepared and enacted. The new foreign investment law includes provisions for incentives,
benefits and exemptions. The law enables foreign
investors to fully own enterprises and to enjoy
all of the benefits, incentives and guarantees
­offered to local investors.
Upon enactment the foreign investment law and
the regulations issued by the Supreme Economic Council and the General Investment Authority,
investors were attracted, the involvement of
the private sector progressed remarkably, and in
2011, the Ministry of Planning announced that
the share of the non-oil private sector in the GDP
had reached 55 percent.
Graphic: independent
Oil
tion of the fuel mix by introducing renewable
or nuclear energy alternatives. The government
has established a new organization for this mission, namely, King Abdullah City for Atomic and
Renewable Energy (K.A.CARE). The K.A.CARE
­renewable procurement program provides for
25 percent of the installed generation capacity
by the year 2030.
Significant progress was also noted in the electricity sector, where the private sector and the
foreign investors were participating in ownership and management of the following Saudi
water and/or electricity plants:
• The Shuaibah Water and Electricity Company
(8 percent of which is owned by the Saudi
Electricity Company, 32 percent by the Public
Investment Fund, and the remaining 60 percent by the developers). This project is one
of three coproduction water and electricity
projects, specified by the Supreme Economic
Council to the developers; for example, the
second phase of the Shaqiq project and the
Ras al-Khair project.
• The Rabigh project for independent power
generation. A BOT contract signed in July,
2009 for generation of 1,200 megawatts.
• The Riyadh Combined Cycle project No. 11,
with a capacity of 1,800 megawatts. It will be
completed in 2013.
• The Al-Qariah project for independent power
generation, with a capacity of about 4,000
megawatts.
Actually, encouragement of domestic and foreign capital investment was not the only driving
force for the privatization strategy, but rather,
privatization was adopted to raise economic efficiency and to increase competitiveness among
the targeted sectors by the introduction of market reforms.
For the liberalization of the Saudi electricity
market, the Electricity Industry Restructuring
Plan has been initiated – at this stage with the
guidelines to move towards a more competitive
wholesale electricity market. The plan provides
for unbundling the Saudi Electricity Company
(SEC) to the three main fields of activities:
namely generation, transmission and distribution. SEC is the largest utility company in Saudi
Arabia. Its installed power generation capacity
is 45,000 gigawatts (summer 2012), and it is responsible for the generation, transmission and
distribution of electricity throughout the Kingdom. In 2011, SEC created the National Grid
Company SA, a wholly owned power transmission subsidiary, as the first step in the restructuring of the company. As per the restructuring
program, SEC will also create four generation
companies and will eventually ­introduce competition in distribution by creating multidistribution companies. The restructuring plan will
­ultimately lead to the creation of a competitive
market in electricity services, where prices are
Saleh Hussein Alawaji
Background
In 1990, Saleh Hussein Alawaji earned a PhD
in Electrical Engineering (Power Systems) from
Strathclyde University in Glasgow, Scotland, UK.
Among other posts, he has worked in energy R&D
as a research professor at King Abdulaziz City for
Science and Technology and has been a Member
of the Board at the Saudi Electricity Company
since 2003. He became the Chairman of the Board
in 2010.
Chief Regulator
Alawaji initiated the establishment of the Saudi
Center for Energy Efficiency, which was approved
by the Council of Ministers in 2010. He has also
been the force behind the development of a national plan for the rationalization of energy consumption, including the mandatory use of thermal
insulation in all residential and commercial buildings, and a member of the team behind the
privatization of the electricity sector and the
GCC electricity linkage project.
“The [Saudi] government
has succeeded in bringing
about tangible changes in
the structure of the economy
through the diversification of
economic activities, increasing the contribution of non-oil
sectors in the GDP, as well
as increasing the role of the
private sector in production,
investment and employment.”
Living Energy · No. 7 | November 2012 79
Essay
Essay
Interconnection could also promote joint implementation projects, whether conventional or
­renewable, such as the solar energy initiative
project, south of the Mediterranean.
Development of the Saudi E
­ lectricity System’s Capabilities over the Last Decade:
No. of customers
Peak load
(million)
(MW)
2000
3.6
21,700
2011
6.3
Increase
Growth (%)
Data
Available
generation
Transmission
Energy
(km circular)
(GWh)
25,790
29,631
126,191
47,613
51,185
49,675
250,077
2.7
25,913
25,395
20,044
123,886
75%
119%
98%
68%
98%
(MW)
Challenges and Opportunities
determined through the free-market forces of
supply and demand. It is envisaged that by
2020, the sector will proceed from the unbundling stage to competition for services to large
customers – and finally, to the wholesale competition.
Development of the Regional
and the International P
­ ower Market
Source: Saleh Hussein Alawaji
Growth Trend and Forecast Peak Loads up to 2020:
4.7%
GW
per annum
80
7.6%
70
per annum
60
8.2%
per annum
50
6.7%
40
per annum
30
20
20
20
19
18
17
16
15
20
14
13
12
11
10
20
09
08
07
06
05
20
04
03
02
01
20
00
0
Graphic: independent
10
There are many principal benefits that can be
achieved through the interconnection between
electric power systems: the system requirement
for a lower installed capacity (due to reserve
sharing) with less investment cost; the enhancement of system stability, especially in unforeseen circumstances; increasing system reliability
and availability; optimizing the operation cost
due to less spinning reserve; and – very important – the interconnected grid is a fundamental
step leading to the liberalization of the power
markets and promoting regional development.
Saudi Arabia is very keen on developing subregional, regional and international power markets.
At the subregional level, Saudi Arabia is the
­major investor in a GCC grid of more than 800
kilometers, which has already been in operation
since 2009, linking the power systems of Saudi
Arabia, Bahrain, Qatar, the United Arab Emirates,
and Oman*. At the regional level, Saudi Arabia
and Egypt have jointly completed an assessment
for connecting the power systems of both countries, which has proven the feasibility for investing in a grid of 1,300 kilometers (DC) with a
maximum capacity of 3 gigawatts. When this link
is finally in place, it will connect the GCC networks with the networks of other Arab countries,
formalizing a significant power market.
In the meantime, the World Bank is carrying
out a feasibility study to connect the network of
Saudi Arabia to the European network – targeting, in the long run, trading electricity with the
European market. And electricity exchange with
the European network would have great benefits
to both sides, as the peak loads in Europe and
in the Gulf region occur at different times. In winter, there are plenty of excess capacities available in Saudi Arabia and the region, since peak
consumption takes place in summer.
Saudi Arabia’s power sector provides a highly
reliable electricity supply that has met, for
many decades, the demand for electricity by all
sectors and facilities. At the same time, this
­sector is facing a number of real challenges –
as summarized in the beginning of this article –
which are in conjunction with the high consumption, high peak load growth and huge investments needed to cope with this growth.
However, the sector has a great opportunity to
overcome many of these challenges by achieving the following objectives:
• Promoting energy conservation and rationalization of electricity consumption of all categories of subscribers and raising public awareness about rational utilization of electricity
• Completing regional and international network
interconnections to promote the exchange
and export of electric power
• Implementing energy efficiency programs,
DSM programs and other sustainable development solutions
• Developing the use of renewable energy –
­solar, wind and nuclear – for electricity production
• Specifying the electricity tariff structure to
ensure returns that are competitive with alternative investments
• Completing restructuring of the electricity
sector and privatization of its activities to
achieve competition and to encourage privatesector investment
Pursuing these opportunities with determination, effective communication and an innovative
spirit that takes full advantage of new technologies will ensure that Saudi Arabia can meet its current and future energy challenges head-on. p
*Oman will be joining the GCC grid soon.
Source: Saleh Hussein Alawaji
80 Living Energy · No. 7 | November 2012
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