The official signing ceremony of the power agreements for Saudi Electricity Company’s (SEC) Rabigh 2 independent power project (IPP) on 25 December closed one of the largest power deals in the Middle East and North Africa region in 2013.

The conclusion of the final contracts for the 2,000MW IPP followed a protracted negotiation period, with the local Acwa Power having been selected as the preferred bidder in January 2013. It will bring relief to those charged with boosting the kingdom’s power generation capacity to meet rapidly growing demand.

“SEC knew it had to sign off Rabigh 2 before the end of the year,” says a source at a major power company active in the kingdom. “With demand growing, all the planned power projects must be delivered on time to avoid shortages.”

More encouragingly, SEC immediately followed the award of the Rabigh contracts with an invitation to express interest in its next private power scheme, the Duba 1 IPP.

Boosting capacity

Strong population growth and rapid industrial expansion will drive up demand for electricity in Saudi Arabia over the next 20 years.

In its 2012 annual report, SEC forecasts that peak demand will rise from 51,900MW to 85,000MW in 2020 and 120,000MW by 2030. As a result, the government is pressing ahead with an ambitious programme to build new generation capacity and replace ageing facilities.

In addition to traditional thermal power schemes, Riyadh is planning to develop alternative energy projects to boost capacity and diversify its generation sources. The programme will create opportunities for companies from across the construction and power sectors.

Saudi Arabia’s power market is already the largest in the Middle East, with a total installed capacity of just over 66,000MW in 2012. However, due to the age of some of the infrastructure, the available capacity is much lower at 53,588MW. Therefore, its power reserve margin of 3.1 per cent is much lower than the theoretical surplus of 21 per cent.

SEC is the largest power client, owning about 80 per cent of the kingdom’s generation capacity and operating 48 plants. A further 10 per cent falls under the responsibility of the Saline Water Conversion Corporation, with the remainder split between the Power & Water Utility Company for Jubail & Yanbu (Marafiq), state oil company Saudi Aramco and private developers.

To meet the forecast rise in demand, SEC is planning to oversee the construction of an additional 23,360MW of generation capacity by 2025, which will be built using the standard engineering, procurement and construction (EPC) model.

As of mid-2013, the utility provider was already overseeing the construction of more than 29,000MW of new power schemes.

The largest EPC power contract awarded in 2013 was the $3.3bn deal awarded to South Korea’s Hyundai Heavy Industries (HHI) to build the 2,640MW Shuqaiq power project. The contractor will build the steam plant on a turnkey basis, which will include EPC, testing and commissioning. The facility will be located on the Red Sea coast, about 580 kilometres south of Jeddah, and is scheduled to be commissioned in 2017.

The award of the Shuqaiq contract is the latest chapter in what has been a lucrative three years for South Korean contractors in the kingdom’s power sector. Since 2010, they have won contracts to build 18,875MW of the total 29,431MW of power capacity awarded in Saudi Arabia. This equates to 65 per cent of all EPC power deals signed in this period.

HHI, in particular, has enjoyed great success in the vast power generation expansion programme, having won 24 per cent of the total capacity awarded since the beginning of 2010.

Alternative energy

With the Rabigh 2 project now entering the construction phase, SEC has turned its attentions to the tendering process for its next IPP project, Duba 1; developers have been invited to express interest in the scheme by 12 January.

The 600MW Duba 1 IPP will be the region’s first private integrated solar, combined-cycle (ISCC) plant and will run on a mix of natural gas and solar energy. It will provide an interesting test of the appetite among international developers for building major alternative energy schemes.

“The ISCC [IPP] is an interesting one,” says a source at a major international power developer based in the region. “It is something that hasn’t been done in the region before, but I am sure all the major players will be keen to participate. We will have to wait to see if it is successful and takes off elsewhere in the region, but we will be ready for the challenge.”

In November, SEC appointed Germany’s Fichtner as technical consultant and awarded a contract to the local office of Mohanned bin Saud al-Rasheed to provide legal consultancy services for the scheme. The project will have an estimated cost of $600m and SEC is planning for private-sector investment of about 50 per cent. The planned commissioning date of the plant is 2017.

Following the first phase of the Duba IPP, SEC is planning the Duba 2 IPP, which will have a larger capacity of 1,800MW and an estimated budget of $2.7bn. The planned commissioning date for the second phase is 2018.

Although initially planned as a steam power plant to run on conventional heavy fuel oil, the project may follow the same path as the Rabigh 2 IPP, which was changed from oil to a gas configuration as a result of state oil company Saudi Aramco’s plans to limit the supply of oil to new power plants.

Combined-cycle technology

The award of the Rabigh 2 contract further cemented Acwa Power’s dominance in the Saudi power market, with the local developer having won all but one of the past eight private power and desalination projects tendered in the kingdom. Its position was also boosted in January 2013 when the government, through two investment funds, acquired an equity stake of about 20 per cent in the firm.

Despite Acwa Power’s increasingly strong position, other firms have not been put off from competing in the kingdom’s expanding power sector. “We are a little concerned [about Acwa Power’s position], particularly since the government acquired a stake. However, it is still an important market and we will want to be involved in all future tenders,” says an international developer.

An important aspect of Riyadh’s power generation investment programme is that all future projects will employ combined-cycle turbine technology to improve efficiency and reduce fuel usage. In late November, the US’ GE was awarded a $700m contract by SEC to supply combined-cycle turbines and generators for new power plants.

Michael Suess, global head of energy for Siemens, says investing in combined-cycle technology is a must if the kingdom is to reduce fuel usage for power generation.

“If I calculate right, the overall efficiency in gas burning in Saudi Arabia is somewhere around 32-34 per cent. Combined-cycle would make it 55-58 per cent, you could almost have double the output of power with the same amount of fuel. If you consider that, the investment is a no brainer,” says Suess.

“There will be paybacks in a one- or two-year base. This is something Saudi authorities understand and this counts for others as well.”

As part of efforts to diversify its power generation sources and preserve its lucrative oil resources for export, the kingdom is also planning ambitious renewable and nuclear power schemes.

In early 2013, King Abdullah Centre for Atomic and Renewable Energy (Ka-Care) set out a strategy for delivering the first phase of its renewables programme, which aims to produce 23,900MW of renewable energy by 2020 and 54,000MW by 2032.

In February, Ka-Care released a draft white paper detailing the competitive procurement process the body will use to tender and award contracts for renewables projects. Under the proposal, developers will be invited to bid on 20-year power purchase contracts, and the programme will be split into three initial tendering rounds. These will procure a total capacity of 7,000MW.

The first introductory round is planned to involve the procurement of 500-800MW of renewable schemes using various technologies at five to seven pre-packaged sites, with a minimum 5MW capacity for each contract. The selected sites will be chosen at locations easily connected to the national grid.

The technologies that will be used in the initial phases are: thermal solar; photovoltaic (PV) solar; wind; geothermal; and waste-to-energy technology. Hybrid and other renewable technologies are expected be included in future procurement rounds.

Following the launch of the white paper last February, those in the region’s renewable energy sector have been left disappointed by the pace of progress with the programme, but remain hopeful that the first projects will be tendered to the market in 2014.

KA-Care is not the only body in the kingdom pressing ahead with renewable energy schemes. In January 2013, Mecca Municipality received bids from two developers to build a 100MW solar facility. The lowest bid was submitted by Acwa Power, with the UK’s EDF Energy and the local Al-Gihaz submitting the other bid.

According to sources close to the project, the municipality may award the contract in the first quarter of 2014.

Nuclear plans

KA-Care is also leading Saudi Arabia’s efforts to develop nuclear power to meet increasing electricity demand. In September 2012, the body appointed a group of advisers to work on plans to develop a 17,000MW nuclear programme by 2032. The group includes US management consultancy Oliver Wyman, France’s BNP Paribas and the local Riyad Bank. The group is advising KA-Care on how to proceed with its nuclear plans, which may involve constructing up to 16 reactors across the kingdom.

With up to 120,000MW of new power capacity planned to be built over the next 17 years, Saudi Arabia will remain one of the region’s key power markets in the short to medium term. The year ahead is expected to see important progress made on renewable and nuclear plans to supplement the 25,000MW of traditional power generation plants planned over the next decade.