Saudi Arabia’s continuing strong economic growth and rapidly growing population only means one thing; a steeply rising electricity demand. This will also mean that the private sector will play an ever larger role in its power infrastructure development.

Heather Johnstone, Senior Editor

Saudi Arabia’s hot and arid climate makes air conditioning a necessity rather than a luxury. The summer peak loads present a challenge to the power generation industry, as do the high temperatures and humidity and frequent sand storms.

In 2007, peak demand reached 32 240 MW, with consumption exceeding 180 TWh, with the demand for electricity growing at a healthy seven per cent a year. The current installed capacity in the Kingdom is 36 GW.


Shoaiba, which enters commercial operation this year, is the largest conventional oil fired plant in the Middle East
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Capacity predictions vary, but capacity could reach 50 GW by 2015 under some scenarios and over 100 GW by 2025. Others suggest a more modest increase to around 70 GW by 2025.

Electricity is one of the main supporting pillars of economic development in Saudi Arabia. The Kingdom has put much effort into developing the sector.

Electricity sector

In 1998, the Council of Ministers promulgated a Royal Decree under which the electricity sector was to be reorganized to pave the way for privatization. This included the merger of the Consolidated Electrical Companies and the projects of the Electricity Corporation under one incorporated company, named Saudi Electricity Company (SEC). SEC is owned 74 per cent by the government, 7 per cent by Saudi Aramco and 19 per cent by others.

Interim results for 2003 showed operating revenue of SR17.5 billion and net income of SR1.4 billion. SEC is traded on the Saudi Arabian Stock Exchange and its market capitalization as of mid-April 2004 was $23 billion. SEC is now producing around 84 per cent of the country’s electricity needs.

An independent Saudi Electricity Regulatory Authority (SERA) was established in 2001. SERA was mandated to ensure that government policy objectives were met. It is responsible for recommending tariffs for the sector and monitoring industry standards. SERA and the MEW jointly work on the sector restructuring. In addition, the government introduced new tariff structures (for the industrial sector in particular) thereby removing the majority of the subsidies and allowing the companies involved to recover their costs of production and become commercially viable.

Saudi Arabia has 18 gas power generation plants, each connected to a 380 kV power transmission grid and 19 diesel/gas power generation plants connected to a 110 kV power transmission grid. Being the world’s largest producer of desalinated water has added to the country’s overall power generation. About one third of the country’s 29 desalination plants are dual system plants, generating nearly one-fifth of the country’s total capacity. Significant excess production of the power generated by the desalination plants is transmitted to SEC – in 2001 this amounted to 3096 MW.

Significant infrastructure investment

The SEC has already budgeted to spend $7.4 billion in 2008 on electricity sector projects. This will fund 331 generation, transmission and distribution projects and involve an additional generating capacity of around 2670 MW. The company will invest over $20 billion between 2006 and 2015 on both generation and transmission projects.

In 2004, the government announced plans for ten IWPP projects to be built by 2016.

Four were initially approved, but one has since been postponed, leaving Shoaiba (950 MW, to be built by a consortium involving the Arabian Company for Water and Power (ACWA) and Malaysian companies TNB and Khanazah), Shuqaiq (850 MW, to be built under a BOT (buy-own-transfer) contract by ACWA, Mitsubishi Corp and Kuwait’s Gulf Investment Corp) and Ras Al-Zour (3000 MW, bids due this year). The capital cost of the three is $7.5 billion, with 60 per cent private equity involvement.

The SEC is also commissioning non-desalination IPP projects. In 2006, it tendered for projects with an aggregate capacity of 2500 MW. Meanwhile, state-owned oil company Saudi Aramco has begun building cogeneration plants at its facilities. Four such facilities, commissioned on a BOOT (buy-own-operate-transfer) basis from Saudi Oger, International Power Generation and the Saudi-based Tihama Power Generation Group, were completed recently.

Growing IPP capacity

SEC is currently evaluating qualification documents for its first IPP project at Rabigh. Bids for the project will be due in August with financial close expected in March 2009. The 1200 MW plant, which will run on heavy fuel oil, is due to begin operation in 2012/13.

A second IPP will be built in Riyadh. Using gas feedstock, the plant will have a capacity of 2000MW and is due to be completed by 2014. This will be followed by a 2000 MW plant at Qurayah, which will use Heavy Arabian crude oil as feedstock. It is due to be completed in 2015.

SEC is also proceeding with a general capacity enhancement programme. In 2003 it signed a $239 million contract with the National Contracting Company (NCC) to expand the Jeddah PP3 power plant by 480 MW, bringing the total site capacity to 1700 MW.

Under the expansion plan NCC will install eight GE Frame 7, 80 MW gas turbines at an auxiliary plant. In May 2003 Arabian Bemco Contracting won a bid to carry out the 120 MW expansion of the Tabuk power plant.

Another large extension project is SEC’s Shoaiba phase two, which includes the construction of three new 350 MW turbines. An Alstom-led consortium has been selected as EPC contractor for the expansion.

The project carries a price tag of $1 billion and financing has been raised through one of the Kingdom’s biggest-ever corporate borrowings. The first unit is due to come on stream in mid-2006.

If an option is exercised to build a further three units the power plant would be the largest in the Middle East at over 4000 MW. The expansion at Shoaiba was originally planned as part of Saudi Arabia’s now abandoned gas initiative.

IWPPs gather momentum

The government is taking steps to unbundled power generation, transmission and distribution. In 2002 a framework was established for private sector involvement in developing independent power and water projects (IWPPs). Saudi Arabia is hoping to attract private sector investment for up to 60 per cent in IWPPs, and is considering a guarantee that local Saudi Arabian companies would purchase electricity and water produced.


Saudi Arabia’s installed electricity generating capacity
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IWPPs identified for development would serve the capital of Riyadh; plus the cities of Jedda, Mecca, Medina, and Shoaiba on the west coast; and Jubail on the east coast. Private investment in the power sector is also a key component of the development plan of the two major industrial cities of Jubail and Yanbu.

The Saudi government approved the creation of the joint-stock Utility Company (UCO) – known as Marafiq. This company has reportedly commenced construction of several water and electricity projects in the industrial cities, at a cost of around $2 billion.

In July 2003, a landmark agreement was reached to establish the Kingdom’s first independent power plant (IPP) at Jubail for Saudi Petrochemical Company (Sadaf). The $170-$200 million project is a 75:25 joint venture between the local National Power Company and US developer CMS Energy.

Siemens, the EPC contractor, will build a 250 MW cogeneration plant, which will also produce 510 t of steam for Sadaf’s petrochemical facilities in Jubail. Other IPPs are planned by Saudi Aramco which, last December, signed Build Own Operate Transfer (BOOT) agreements with UK power developer International Power and local construction firm Saudi Oger, to build four cogeneration facilities, designed to produce 1000 MW of electricity and 1814 t of steam.

In March 2004, as part of its privatization drive, MEW announced plans to build ten new IWPPs by 2016 at an estimated cost of SR60 billion, providing investment opportunities for international investors.

Of these, four greenfield IWPPs will be built by 2009. The first IWPP, the Shoaiba project, is due to come on stream in the third quarter of 2006, at a cost of SR5 billion. The project will have an installed capacity of 750-950 MW and a water desalination capacity of 882 million l/day. Eleven companies have been pre-qualified to bid for the project.

The other three projects are the SR1.5 billion Shuqaiy IWPP which will have a capacity of 700 MW and 109 million l/day, the SR9 billion Raz Azzour IWPP which will generate 2500 MW and 800 million l/day of water, while the SR4 billion Jubail project will have a capacity of 1100 MW and 341 million l/day of water.

Outlook

The high demand growth in Saudi Arabia is creating tension in the national electricity system. Margins are already extremely tight, and there have been shortages of power. New capacity must be added rapidly if more serious problems are to be avoided.

Over the medium term, the government is planning to switch new electricity production from gas to oil to reduce the pressure on domestic gas supplies. The GCC grid, due to begin operating this year, will also change the pattern of consumption in the region.

While the government has indicated it would like to introduce a limited market-oriented system and encourage private sector investment, the underlying problem in Saudi Arabia remains the subsidy of both electricity and gas.

Until this has been addressed, demand will continue to rise at a possibly unsustainable rate, and it will be impossible for any sort of market-based electricity system to be established.

For the moment, however, the high price of oil and the consequent high government revenue is enabling the county to put off any serious effort to tackle the problem.