76 Living Energy · No. 7 | November 2012

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 avail-ability of service at the required level of efficien-cy and reliability.Measures to control peak load growth and to rationalize consumption have not yet been able to achieve the desired goals. Hence, implemen-tation 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 justifi-able growth emerging from the evolving society in Saudi Arabia and from the rapid economic development that has to be acknowledged and

accounted for. With a birth rate of about 20 per 1,000, around 500,000 newcomers are expected annually, implying the need to prepare infra-structures for health, education, accommoda-tions 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 Hous-ing to provide accommodations for families with limited incomes. Saudi Arabia has about 27 million inhabitants, with a median age of 26 years, and the govern-ment is focusing on creating new jobs for this largely young population by diversifying the economy, involving the private sector and en-couraging the industry. Industrial products exports of oil-based petrochemicals and non-oil-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 consump-tion 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

Saudi Arabia: a Proactive Approach to EnergyThis 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 Chair-man 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

u

Essay

Living Energy · No. 7 | November 2012 7978 Living Energy · No. 7 | November 2012

Significant progress was also noted in the elec-tricity sector, where the private sector and the foreign investors were participating in owner-ship and management of the following Saudi water and/or electricity plants: • TheShuaibahWaterandElectricityCompany

(8 percent of which is owned by the Saudi Electricity Company, 32 percent by the Public Investment Fund, and the remaining 60 per-cent 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.

• TheRabighprojectforindependentpowergeneration. A BOT contract signed in July, 2009 for generation of 1,200 megawatts.

• TheRiyadhCombinedCycleprojectNo.11,with a capacity of 1,800 megawatts. It will be completed in 2013.

• TheAl-Qariahprojectforindependentpowergeneration, with a capacity of about 4,000 megawatts.

Actually, encouragement of domestic and for-eign capital investment was not the only driving force for the privatization strategy, but rather, privatization was adopted to raise economic ef-ficiency and to increase competitiveness among the targeted sectors by the introduction of mar-ket 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 distribu-tion. SEC is the largest utility company in Saudi Arabia. Its installed power generation capacity is 45,000 gigawatts (summer 2012), and it is re-sponsible for the generation, transmission and distribution of electricity throughout the King-dom. In 2011, SEC created the National Grid Company SA, a wholly owned power transmis-sion subsidiary, as the first step in the restruc-turing of the company. As per the restructuring program, SEC will also create four generation companies and will eventually introduce compe-tition in distribution by creating multidistribu-tion companies. The restructuring plan will ultimately lead to the creation of a competitive market in electricity services, where prices are

Chief RegulatorAlawaji 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 na-tional plan for the rationalization of energy con-sumption, including the mandatory use of thermal insulation in all residential and commercial build-ings, and a member of the team behind the privatization of the electricity sector and the GCC electricity linkage project.

BackgroundIn 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.

Saleh Hussein Alawaji

“ The [Saudi] government has succeeded in bringing about tangible changes in the structure of the economy through the diversification of economic activities, increas-ing the contribution of non-oil sectors in the GDP, as well as increasing the role of the private sector in production, investment and employment.”

Saudi Arabia Electricity Statistics

Electricity total final

consumption (2009)

7,842

kWh per capita

Population (2009)

25.4 million

97.7 TWh

119.4 TWh

Source: IEA Statistics (2011) / Gross electricity generation (2009)

217.1 TWhTotal:

Oil

Gas

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 govern-ments 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 pri-vate 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 coun-try will need a major portion of its oil and gas production for electricity generation, so leading decision makers need to investigate diversifica-

Gross electricity generation

tion of the fuel mix by introducing renewable or nuclear energy alternatives. The government has established a new organization for this mis-sion, 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.

Privatization and Restructuring of the Electricity SectorFor a long time, the Saudi economy was depen-dent 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 econo-my 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 develop-ment plans were specifically focusing on power generation and on other sectors such as tele-communications. 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 administra-tion to expand private (domestic and foreign investments), for the ownership and the man-agement of public enterprises. Consequently, the necessary laws and legislation have been prepared and enacted. The new foreign invest-ment 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 Econom-ic 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.

Essay Essay

Gra

ph

ic: i

nd

epen

den

t

Living Energy · No. 7 | November 2012 8180 Living Energy · No. 7 | November 2012

Interconnection could also promote joint imple-mentation projects, whether conventional or renewable, such as the solar energy initiative project, south of the Mediterranean.

Challenges and Opportunities 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 con-sumption, high peak load growth and huge in-vestments needed to cope with this growth.However, the sector has a great opportunity to overcome many of these challenges by achiev-ing the following objectives:• Promotingenergyconservationandrational-

ization of electricity consumption of all catego-ries of subscribers and raising public aware-ness about rational utilization of electricity

• Completingregionalandinternationalnetworkinterconnections to promote the exchange and export of electric power

• Implementingenergyefficiencyprograms,DSM programs and other sustainable develop-ment solutions

• Developingtheuseofrenewableenergy– solar, wind and nuclear – for electricity pro-duction

• Specifyingtheelectricitytariffstructuretoensure returns that are competitive with alter-native investments

• Completingrestructuringoftheelectricitysector and privatization of its activities to achieve competition and to encourage private-sector investment

Pursuing these opportunities with determina-tion, effective communication and an innovative spirit that takes full advantage of new technolo-gies will ensure that Saudi Arabia can meet its cur-rent and future energy challenges head-on. p

*Oman will be joining the GCC grid soon.

determined through the free-market forces of supply and demand. It is envisaged that by 2020, the sector will proceed from the unbun-dling stage to competition for services to large customers – and finally, to the wholesale com-petition.

Development of the Regional and the International Power MarketThere 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 enhance-ment of system stability, especially in unfore-seen circumstances; increasing system reliability and availability; optimizing the operation cost due to less spinning reserve; and – very impor-tant – 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 subre-gional, 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 coun-tries, which has proven the feasibility for invest-ing 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 net-works 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 – target-ing, 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 win-ter, there are plenty of excess capacities avail-able in Saudi Arabia and the region, since peak consumption takes place in summer.

DataNo. of customers

(million)

Peak load (MW)

Available generation

(MW)

Transmission (km circular)

Energy (GWh)

2000 3.6 21,700 25,790 29,631 126,191

2011 6.3 47,613 51,185 49,675 250,077

Increase 2.7 25,913 25,395 20,044 123,886

Growth (%) 75% 119% 98% 68% 98%

Development of the Saudi Electricity System’s Capabilities over the Last Decade:

Source: Saleh Hussein Alawaji

0

10

2000 01 02 03 042005 06 07 08 09

2010 11 12 13 142015 16 17 18 19

2020

20

30

40

50

60

70

80

GW

Growth Trend and Forecast Peak Loads up to 2020:

Source: Saleh Hussein Alawaji

6.7%per annum

8.2%per annum

7.6%per annum

4.7%per annum

Essay Essay

Gra

ph

ic: i

nd

epen

den

t