Kingdom powers job creation

21 October 2012

Creating jobs and saving energy will be Saudi Arabia’s top domestic policy objectives in 2013

Last week’s Saudi Green Building Forum captured in a single moment the two top domestic challenges facing the kingdom’s policymakers.

Saudi Arabia’s deputy water and electricity minister, Saleh al-Awaji, said that the kingdom aimed to cut electricity consumption by 30 per cent below what it will be if demand trends persist. The audience included 11 attentive women architecture students.

This is a critical time for the kingdom. The Sunni populist regime in Egypt and similar movements in Libya and Syria constitute tectonic regional change. America’s slowly disentangling itself from Middle East concerns. That’s creating a vacuum being filled by Turkey, Russia, Israeli irredentists and Muslim radicals.

At home, domestic calm produced by record public spending and King Abdullah’s benign governance may prove transient. Saudi Arabians can’t get jobs. Motivated students at the forum show the new generation is serious. Disappointing their hopes will have consequences.

The response is unprecedented action to increase employment opportunities for Saudi Arabians. Labour Minister Adel Fakeih announced this month that all local firms must adhere to Saudisation rules and employ at least one national. The minimum wage was reaffirmed for Saudi workers. The government’s cracking down on foreign firms failing to employ enough nationals.

A Saudisation programme’s been in place for decades. But there’s steel in the government’s latest announcements. Young people demonstrating in Cairo, Benghazi, Damascus, Sanaa and Manama provides a justification that few contest.

Purists argue the kingdom should make employing nationals more attractive, not impose penalties. But the government can’t wait for the market to work. Something has to be done today. The voice of the common people is being heard and acted upon.

Power is potentially equally explosive. Peak electricity demand in the summer of 2012 was about 9 per cent higher than it was a year earlier. Saudi Arabia’s running out of gas and increasingly using oil to make electricity. If the rate of consumption continues, the kingdom will have no oil to export in about 20 years.

If the rate of consumption continues, the kingdom will have no oil to export in about 20 years

A steering group coordinated by the Saudi Energy Efficiency Centre (SEEC) that involves key energy industry stakeholders is working to halt the trend. There are two goals. First is cutting waste in production. Half the kingdom’s installed generation capacity of 55,000 MW will be replaced to lift output by 10 per cent. Splitting the Saudi Electricity Company’s (SEC’s) 45,000 MW capacity into four companies in 2014 will help regulators reward efficiency and penalise waste.

Consumption is a bigger challenge. About 70 per cent of peak demand is due to airconditioning. Higher efficiency standards are to be mandated for all new and existing airconditioning units. It will save up to 15 per cent of the electricity currently consumed. That’s 7,500 MW of this year’s demand.

Thermal insulation in new buildings has been compulsory for two years, but enforcement’s weak. This is going to change. At least 10 per cent more electricity could be saved.

The results could be dramatic. Trends suggest the kingdom will need about 110,000 MW of generation capacity in 2032. That would require investing as much in the next 20 years as the kingdom has done in the past 80. If the 30 per cent goal is delivered, required capacity will be trimmed to under 80,000 MW.

Renewables will play a role in realising this ambition, particularly in the area of solar technology. One of the SEC’s next independent power plants (IPPs) will be a solar/conventional hybrid. The King Abdullah Centre for Atomic & Renewable Energy (KA-Care) envisages renewables, mainly solar, delivering up to 20 per cent of the kingdom’s power. If this happens, hydrocarbons-based generation capacity will fall to about 65,000 MW. Add nuclear power (though its future in Saudi Arabia is still unclear) and it’s possible the kingdom could be using no more petroleum to produce electricity in 2032 than it does now.

The energy-saving programme doesn’t yet include early action to encourage savings through higher tariffs. At a time when the Arab world’s rarely been more restive, this is not feasible. But it could be once demand is contained through efficiency.

The kingdom since it was created in 1932, assumed existential threats came principally from neighbours and foreign meddling. It pragmatically neutralised dangerous regional forces and allied itself to the US, the dominant global power.

Micromanaging Arab states as heterodox populism is now almost impossible. America’s not going to be there to help as much as it did and there’s no suitable alternative.

Saudi Arabia can’t be complacent about the possibility of domestic discontent. Ben Ali, Mubarak, Gaddafi and Saleh all were and power went to the people. That’s why electric power and the people are where the kingdom’s energies will be directed with increasing urgency in the years to come.

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