Saudi Electricity Company (SEC) is talking to local developer Acwa Power about awarding it the contract to develop the second Qurayyah independent power project (IPP) without going through a tender process.

The talks show how competitive Acwa’s price to develop Qurayyah 1 IPP is. Its price, which was significantly lower than the second cheapest bid, may have paid off as the construction of a 4,000MW project will offer significant economies of scale.

The negotiations also indicate the speed with which SEC realises it must develop new power generating capacity. SEC is looking at this option as it would allow the second project to be commissioned one year earlier.

Electricity demand in Saudi Arabia is increasing rapidly. Between 2000 and 2010, power demand in the kingdom more than doubled to 42,590MW. By 2020, this figure is forecasted to stand at 77,430MW.

As a result, SEC must build up its power generation capacity almost twice as quickly as it has done over the past 10 years. This will be challenging as the 2000-10 period saw significant and sustained power generation capacity construction.

The new facilities will need to be financed. The second Qurayyah IPP could be owned, operated and financed by the private sector at what SEC considers a competitive price for the power. This is highly attractive for SEC.

Ultimately, the decision will make very little impact. SEC has enough IPPs planned to ensure that potential bidders are not deterred. Also, many bidders in the first Qurayyah tender said that they would not be able to offer a more competitive price. If Acwa is paid the same or less for the power produced by the second IPP, very little is to be gained all-round from a repeated tender process.