Saudi Power Sector
The Saudi power sector is on a growth trajectory and racing to keep up with growing electricity demand. Domestic consumption rose at an unprecedented yearly rate of 7-9 percent until 2015. Due to heavily subsidized domestic oil prices, Saudi Arabia currently relies on liquid petroleum for approximately 60 percent of its electricity generation. As a result, yearly increases in electricity demand are cutting directly into the country’s oil export volume and export earnings. To reduce consumption of oil in the generation of power, Saudi Arabia is eager to upgrade its entire power sector. Apart from increasing its non-oil generation capacity, it is looking to replace its outdated distribution infrastructure, implement smart grid technology, and promote international grid connectivity.
Saudi Arabia faces a huge task in expanding its power generation. It is estimated that the Kingdom needs to increase power generation capacity from 77GW in 2014 to 156GW in 2040 – more than doubling its supply. This translates into installing 5GW capacity and distribution infrastructure each year through 2020. To achieve this, the government is looking to make a yearly investment of approximately $5 billion in generation and $4 billion in distribution. Moreover, Saudi Arabia intends to privatize all electricity generation by 2020. The newly privatized power generation companies are expected to need substantial investment to increase efficiency, meet environmental standards, and replace aging power plants.
The major power sector players in Saudi Arabia are:
- Ministry of Energy, Industry, and Mineral Resources (MOEIMR) is the government agency that handles policy and planning in the power sector.
- Saudi Electricity Company (SEC) is a government-owned entity (over 80 percent of shares) that currently provides most of Saudi Arabia’s electricity, with a generation capacity of 69GW in 2015. It also carries out all transmission and distribution.
- Saudi Aramco is the government-owned company that manages Saudi Arabia’s oil and gas production. It is involved in power generation alongside SEC.
- Electricity and Co-Generation Regulatory Authority (ECRA) is the Kingdom’s independent regulatory body for Saudi Arabia’s energy sector.
- King Abdullah Center for Atomic and Renewable Energy (KACARE) was established by royal decree in 2010. It focuses mainly on nuclear energy and technology localization in the burgeoning renewable energy sector.
- Power and Water Utility Company (MARAFIQ) is a government-owned entity that currently provides most of the power to the two industrial cities of Jubail and Yanbu, found in the Eastern province and the Al-Madinah Province, respectively.
Power Distribution and Grid
Some segments of Saudi Arabia’s current grid are outdated and inefficient. There is a plan to replace old substations, transformers, and other infrastructure to reduce energy wastage. MOEIMR expects most of this improvement to take place between 2016 and 2020, with operations continuing to 2023. What’s more, there is a plan to link the Central and Western regions, with $4 billion to be invested in distribution projects annually.
The Kingdom of Saudi Arabia maintains 16 percent is the 12th largest consumer of generated electricity. The main feed stocks are crude and gas. The country is predicted to work towards greater efficiency and diversification of electricity generation, including alternative and renewable energy. At the same time, grid modernization and better connectivity should ensure that the Kingdom is able to meet peak demand at all times. Given the growth and diversification of the Saudi’s economy and the country’s desire to diversify the power mix, the Kingdom of Saudi Arabia continues to be the most important market for electricity generation technology and equipment in the Middle East. “Made in the USA” technologies are highly respected and sought after, offering promising opportunities for U.S. companies.
Sub-Sector Best Prospects
The following technologies offer continuing opportunities for US exporters: smart meter, smart grid, alternative energy sources following grid upgrades, energy efficiency systems, and geospatial information technology and big data management.
The National Transformation Program (Saudi’s reform agenda) highlights the following initiatives it intends to carry out in this sector over the next five years:
- Expand fuel efficiency in power generation; and
- Increase percentage of power plant electricity generation through strategic partners from 27 percent to 100 percent by 2020;
- Increase power generation capacity of 3.45 GW from a baseline of zero; and
- Eliminate subsidies on electricity and water.
In its 2015 strategic plan, MOEIMR announced its plan to move away from oil and instead add more natural gas and renewable sources to its energy mix. In 2017, the MOEIMR formed the Renewable Energy Development Office with the responsibility for tendering out 9.5 GW of mainly PV solar and wind by 2023, with the intermediate goal of 3.45 GW by 2020. As renewable energy comes online, there will be increased demand for integration technology into the national grid.
Smart Grid/Distribution & Transmission
To better equip its grid system for peak power demand, the Kingdom of Saudi Arabia recently led a Gulf Cooperation Council project to link grids of the member states. This has introduced the region to international power trading. Moreover, the Kingdom is looking to build a 3GW link with Egypt, estimated at USD 1.6 billion. Links with Turkey, Yemen, and the entire Arab region have also been discussed. Due to dissimilar peak load times, these links would be well-suited to trading electricity, improving the efficiency of each country’s grid.
In further pursuit of efficiency, the Kingdom is investing billions to install smart meter technology. SEC has been funding various projects to install 12 million smart meters by 2025 -replacing all old meters in the country. By communicating energy consumption instantly via the internet, smart meters will allow the Kingdom to better manage its usage. Installing such technology will facilitate the future integration of variable power sources like solar and wind, whose output is more erratic than that of traditional hydrocarbon plants.
Energy subsidies cost the Saudi Arabian government over $70 billion in 2015. The government aims to eliminate energy subsidies by 2020, entailing higher electricity costs for consumers. These higher costs are expected to result in a fast-growing demand for technologies, services, and products related to energy efficiency. The government is forming an energy service company (a “Super ESCO”) to implement projects in public facilities and support capacity building and project development activities of new private-sector ESCOs.