Saudi power sector set for huge expansion

The move, which will unbundle SEC's generation and distribution business, is designed to facilitate competition and has already been approved by the kingdom's Electricity & Cogeneration Regulatory Authority (ECRA).

ECRA's governor Fareed Zedan says the intention is to introduce a competitive culture in the generation sector by establishing four or more competing clusters of SEC assets.

With the highest per capita electricity consumption rate in the Middle East, Saudi Arabia has prioritised the development of its power sector as pivotal to the kingdom's economic growth.

The government is also keen to avoid the rationing of power supplies experienced in Riyadh and in the eastern province's industrial heartland in 2006.

According to SEC's chief executive Ali Saleh al-Barrak, $51bn is to be spent on raising generating capacity by 60% over the next seven years in order to meet rapidly increasing power needs.

Private sector involvement

The company predicts it will have 8.5 million customers by 2023, up from nearly 4 million now. According to al-Barrack: 'We will need to build about 30,000 MW to meet the demand of more than 7% a year.

'Already we have no reserve and SEC will not be able to meet this target without the private sector. We need the private sector to add 7,000-8,000 MW of generating capacity in addition to the existing independent water and power project programme.'

Private sector finance, operation and management of the kingdom's utilities are considered essential if the government is to meet demand for electricity and water in the kingdom.

Investors are already involved in the building of new power stations on build-own-operate and build-operate-transfer basis.

SEC and the Saline Water Conversion Corporation are joint owners of the kingdom's Water and Electricity Company (WEC).

WEC is a special purpose company acting as contractual off-taker and fuel provider for water and electricity produced by four independent combined power generation and water desalination projects.

Viability of independent projects

The first of these, at Shuaiba, is due to begin initial operations in the first quarter of 2009 and will produce 900 MW of electricity and 880,000 cubic metres of water per day.

Some 4,400 MW is also due to be generated from the other three ventures at Shuqaiq, Raz Azzour and Jubail.

SEC also launched its first independent power project for a 1,200 MW plant at Rabigh last year, the first not combined with the production of desalinated water.

Similar independent projects to provide a further 4,000 MW in Al-Qurraya and in Riyadh are planned. Al Barrack describes the investments as 'an initial step towards entering into permanent partnerships with independent producers.'

Observers see the growing move towards independent power providers as showing the possibility of structuring bankable schemes and contracts that are acceptable both to the Saudi authorities and to international investors.

See also:
Saudi Aramco sets global strategy
Saudi banking enters era of growth