Saudi Arabia’s power sector has made major strides in recent years. An aggressive capacity building programme, executed with the assistance of the private sector, has enabled the kingdom to meet demand growth of 7-8 per cent a year and helped it restore its wafer thin reserve margin. And while power outages still occur in the peak summer months, their number has declined in recent years and are now almost exclusively the result of problems associated with the distribution network.
High peak demand growth is likely to remain a feature of the kingdom’s power sector. The need to replace capacity built in the 1970s will also become a major issue. According to the kingdom’s power regulator, 5,000MW of existing capacity will have to be retired by 2015 as a result of units being over the age of 35 years, adding to the urgency of building new supply.
SEC is undertaking a programme to replace the older networks and increase their capacity to handle higher loads
Saudi Arabia is facing by far the largest capacity building programme in the region. Up to 4,000MW a year of new capacity over the next 10 years will have to be installed over the coming decade, in a programme that is expected to cost almost $50bn.The kingdom has already made inroads. As of March 2010, some 8,500MW of capacity was under construction. Since then, contracts for a further 7,300MW have been placed with the awards of the PP11 independent power project (IPP), Rabigh phase 6 and Ras al-Zour projects.
As highlighted by recent awards, Riyadh’s procurement strategy is based on a combination of government-financed and developer-backed projects. Going forward, dominant generator Saudi Electricity Company (SEC) estimates that about 70 per cent of its projects will be structured as engineering, procurement and construction (EPC) contracts with the remainder falling under its IPP scheme. So far, SEC has successfully closed two IPPs, with a third, at Al-Qurrayah, due to be awarded in the first half of 2011.
|Saudi Arabia power factfile, 2009|
|Installed generating capacity (MW)||44,500|
|Peak power demand (MW)||41,200|
|Growth in peak power demand (%)||8|
|Reserve power margin (%)||8|
|Number of power customers||5.7 million|
|Number of IPPs/IWPPs concluded*||8|
|Additional capacity requirement by 2019 (MW)||40,370|
|Estimated cost of required capacity ($bn)||48|
|*=Does not include captive plants for industrial users; IPP=Independent power project; IWPP=Independent water and power project. Source: MEED Insight|
Saudi Arabia was a relative latecomer to the private power market, only awarding its first non-captive power plant at Shuaibah in 2005 through the Water & Electricity Company, a state-owned firm set up to oversee the first private projects in the kingdom.
Since then, almost 10,000MW of capacity has been contracted from the private sector for both the utility market and the industrial sector. The figure would have been considerably higher had it not been for the global financial crisis in 2009. It derailed the planned Ras al-Zour and Yanbu IWPPs, both of which were subsequently restructured as EPC contracts by the Saline Water Conversion Corporation (SWCC) and the Power & Water Utility Company for Jubail & Yanbu (Marafiq).
The two generators opted for the EPC route, citing the pressing need for power and water in the Ras al-Zour and Yanbu areas. However, both say that the private model will be reconsidered for future projects, once the financial markets have improved.
IPPs and independent water and power projects (IWPPs) are only the first step in the government’s plan to grant the private sector a greater role in utility provision. Along with SWCC, SEC is in the process of an internal restructuring. Under the plan, it will be unbundled into four generation firms, which will take over its legacy plants. These will be divided equally according to capacity, cost of production and type of technology. At a later date, the government intends to privatise the companies.
The US’ Booz & Company completed a study for the restructuring of SEC’s generation business. In August 2009, it won a second contract to set out a framework for the unbundling of SEC’s transmission and distribution assets.
In recent years, boosting generating capacity has not been the only priority for SEC. One of the biggest obstacles facing the utility in the drive to secure supplies has been the lack of a national grid. This has prevented electricity being dispatched say from the Eastern Province and the central region into the western region, where the biggest power issues have been. Some progress is finally been made. In August 2010, the southern and western grids were interconnected, in a move that the Water & Electricity Ministry said completed 95 per cent of the kingdom-wide grid. It is expected full interconnection will be implement over the coming few years.
The one area which still needs considerable attention is distribution. In older districts of the major cities and more remote towns and governorates, the distribution networks are frequently to blame for power outages, which can last up to 10 hours as residents in the Al-Rabwa and Al-Rabae districts of Jeddah discovered in late August.
SEC is undertaking a programme to replace the older networks and increase their capacity so that they can handle higher loads. However, it acknowledges that there is not a quick-fix solution to the issue. Like the other larger countries in the region, Riyadh is hampered by the sheer distances and remote locations of some towns and cities, which makes extending the network a major challenge.