Arab News
written by K.S. Ramkumar
June 7, 2010
Saudi Electricity Co. (SEC), which is majority state-owned, says its power generation capacity rose to almost 45,400 megawatts (MW) in the first quarter of 2010, up 76 percent from 25,800 MW in April 2000.
The size of the utility’s electricity transmission networks increased 45 percent to nearly 42,800 km from 29,600 km in 2000, while the distribution grid grew 63 percent to nearly 368,400 km from almost 226,700 km over the period. The number of subscribers increased over the same period to 5.77 million from 3.5 million.
However, according to analysts, fuel shortages and other hurdles will put new electricity generation targets in Saudi Arabia out of reach, as the Kingdom prepares to use more of its oil to keep domestic lights on and air conditioners running. SEC’s annual report says it wanted to add 12,043 MW power capacity by 2015, equivalent to between four and eight power plants of the size commonly built in the Gulf. The company plans to add 2,478 MW this year alone, according to the report. The country’s current capacity is just under 40,000 MW.
The plan faces a number of constraints, including shortages of fuel and manpower, and a lengthy contracting process, says Douglas Caskie, an expert in Gulf power at the international consultancy IPA Energy and Water Economics. “That sounds very ambitious given the capacity developments so far. If you imagine 2,000 MW as a really significant sized power plant, to replicate that, to run the procurement process for that in five years, four times over, is significant.”
Saudi Arabia is in dire need of more electricity capacity. Power cuts are an annual occurrence at periods of peak demand in summer, and consumption is increasing at one of the fastest rates in the world. There has been double-digit, compound growth in demand. And that is a combination of a number of factors including low tariffs plus the ongoing planned development of projects, the industrial cities, and the new economic cities.
A shortage of natural gas remains a significant constraint, with Saudi Aramco, the state oil company, being pulled in different directions to supply gas to industrial plants and its own operations, JP Morgan Chase, the investment bank, said in a recent report.
“With gas growth uncertain over the next few years and a stated policy that petrochemicals get first priority for gas supplies, it appears that the Kingdom’s power generation will require an increasing amount of oil,” says Lawrence Eagles, the author of the report. The burning of oil to generate electricity emits more pollution, requires additional capital investment in power plant technology and reduces the country’s exports.
By 2012, Saudi Arabia could be burning 900,000 to 1.2 million barrels per day (bpd) of oil to generate electricity in summer months, JP Morgan says. The country used as much as 470,000 bpd of crude oil last summer, according to a global energy consultancy.
Saudi Arabia has few alternatives. Solar energy is considered an unrealistic option in certain quarters because of its high cost. Nuclear energy is not being pursued as much as the UAE is doing. Natural gas, the default option that fuels slightly less than half of Saudi power capacity, remains in short supply. Despite its vast oil reserves, the country has few reservoirs of natural gas found separately from oil deposits, so gas supplies decrease with OPEC quotas and other limits to oil production, according to analysts.
Saudi Aramco hopes to find significant new reserves in the Empty Quarter in the south, but its efforts after almost six years of drilling with foreign partners have not borne desired fruit. “They would need a significant find. I think they would need a game-changing find in the Empty Quarter if these things are going to be gas-fired,” Caskie said of the planned new power plants. “They’ll burn fuel or oil.
Meanwhile, Saudi Arabia’s effort to unbundle, deregulate and privatize its electricity generation, transmission and distribution industry is taking a leap forward, with new thinking formulated after a lengthy break. A plan has been aired by Saudi Arabia’s Electricity and Cogeneration Authority to split the state-controlled SEC’s power generation assets into four competing companies and divide the remaining distribution and transmission assets into another two outfits.
The Kingdom has been considering possible reforms for a long time, but has had to overcome opposition to privatization, as well as finding a working blueprint for the reforms. A shortage of gas feedstock might, however, continue to constrain swift generation growth even after the reform, says an analyst.
The plan is hoped to finally bring more private investment into the Kingdom’s power sector, which keeps growing at a pace with which the state is finding it hard to keep up, although for the full benefits of privatization and competition to filter through, a scrapping of the generous subsidies would be necessary.
According to analysts, Saudi Arabia has been mulling the idea of radically reforming the electricity generation, transmission, and distribution sector for many years, ever since the potential of allowing private power-generation investments through independent power projects (IPPs). Indeed, a more or less detailed plan to break up the SEC into at least four competing power-generation companies was originally floated a year ago. The plan is now set to move forward with implementation now scheduled for mid-2010.
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