As Saudi Arabia fights to control surging electricity demand, the government is increasingly turning to the private sector. With an 80-year history in the kingdom, General Electric’s recent $1bn of investment is starting to pay off
“This country can’t rely on the energy sector only - industrialisation is an important aspect in the march towards diversification.”
The words of Khalid Al Falih, Saudi Arabia’s energy minister, at an event in the kingdom, speak volumes about the challenges the Arab world’s largest economy faces as it seeks to adjust to a new age of low oil prices.
As the government struggles to shore up a deficit that hit an estimated $100bn last year, there is an ever greater realisation that the public sector cannot continue to prop up the economy indefinitely, and that the private sector has a far bigger role to play if Saudi Arabia is to attain its 2030 National Vision.
And when it comes to private sector players in the kingdom, there are few bigger than Boston-headquartered General Electric (GE). Speaking at the launch of the second phase of GE’s Manufacturing & Technology Center (GEMTEC) in Dammam, Al Falih was effusive in his praise of the American industrial giant’s 80-year history in the kingdom. GE is the biggest importer of medicinal supplies and machinery into Saudi Arabia and has invested $1bn over the last three years in various key industries.
In many respects, the GEMTEC plant sits at the nexus of Saudi Arabia’s plans to diversify its economy. Its brief – to build and repair heavy-duty gas turbines for power plants both in the kingdom and overseas – not only provides a local manufacturing facility in Saudi Arabia, it also employs local nationals and trains them in highly specialised jobs. The plant’s customers aren’t just based in the Middle East; turbines are shipped to the site from 30 countries around the world.
In addition, the turbines that it produces are among the most efficient anywhere on the planet, therefore allowing the kingdom to burn off less oil at its power plants for local consumption, and to export more overseas in a boost for strained Saudi finances.
Electricity demand in Saudi Arabia is growing at a rate of around 7 percent a year, pushed by a rapidly rising population. While capacity stands at 66 gigawatts, this is expected to roughly double by 2030. As well as building new plants to meet demand, huge focus is going on plant efficiency, which is expected to rise from 34 percent to 42 percent by 2030.
Earlier last month, a Saudi cabinet statement said that the kingdom would establish a national programme to optimise water and energy consumption, amid a reform drive that will seek to reduce water and electricity subsidies by $53bn by 2020.
Small wonder, then, that the turnout at the Dammam event was suitably high profile. As well as Al Falih and GE chairman and CEO Jeff Immelt, no fewer than three other ministers, not to mention the governor of the Eastern Province, Prince Saud bin Nayef, were all in attendance.
“The efficiency of the grid is a big portion of the infrastructure – nothing can go without power,” Ziad bin Mohammed Al Shiha, the chief executive of state-owned Saudi Electricity Company (SEC), the country’s largest power-generating firm, tells Arabian Business. “With that in mind, we’re trying not only to provide power, we’re trying to provide efficient and reliable power.”
Al Shiha cites the example of the Qurrayah combined cycle power plant, where GE won a $300m contract to supply five steam turbines for the facility.
“We worked with GE very collaboratively to make it the largest upgrade in the world – the largest combined cycle power plant, and also the most efficient of its kind,” he adds.
As well as conventional oil and gas fired power plants, Saudi Arabia is also eyeing other forms of electricity generation. It would be fair to say that the kingdom has been a little slow off the mark in this regard. While the UAE has made great strides with regards to renewable energy (the Mohammed Bin Rashid Solar Park in Dubai has seen world records for the cost to generate power shattered) and nuclear (the four-reactor Barakah plant is on schedule to be completed by 2020), ambitious Saudi plans have yet to come to fruition.
However, all that is changing. As part of the kingdom’s National Vision 2030, announced earlier this year, the government has earmarked a target of 9.5 gigawatts of renewable energy capacity by 2023.
“We’re talking about wind, we’re talking about photovoltaic, we’re talking about concentrated solar power,” SEC’s Al Shiha says. “The Ministry [of Energy, Industry and Mineral Resources] has asked us to develop the solar power plan for the grid interconnectivity for certain dates – we’re talking about 2018, 2019. We’re talking about specific milestones that we are developing.
“We, as SEC, are doing all the infrastructure work to be able to absorb [renewable energy capacity] and be able to connect it to the power grid.”
When it comes to nuclear, the targets are less clear, although reports suggest the kingdom is presently scoping out potential sites for its first plant. Previously announced plans to build up to 16 plants at a cost of up to $100bn are on the table, with firms such as Russia’s state-owned Rosatom keen to throw its hat into the ring for the contract.
However, this is another area where GE believes it can support the kingdom, through its nuclear partnership with Japan’s Hitachi.
“There is a potential,” Steve Bolze, president and CEO of GE Power, tells Arabian Business, when asked whether the firm is interested in bidding for the nuclear contracts in the future. “We’ve had discussions with ministries about that in the kingdom, and there’s still steps that have to be gone through to allow those projects to go forward.
“It usually takes a while for the projects to get all the lined up support, including the government, the contractors and the various regulations that have to be put into place for it, so it’s never a short-term thing. But everything that happens in the power industry is long-term cycles.”
But GE’s aspirations in the kingdom are by no means limited to the GEMTEC plant, and to Saudi Arabia’s demand for power. As well as the original $1bn announced three years ago, the firm is investing “at least another $1bn” in Saudi Arabia over the coming years.
“We’re going to double our workforce [in Saudi Arabia] to 4,000 by 2020,” Bolze says. “These next phases are part of additional investments that are being done in the kingdom … over the next five years, but right now we’re right on the path, just like we did when we announced the first billion.”
Much of that spending will be focused on one of GE’s favourite catchphrases – ‘the industrial internet’. In essence, that term refers to the terabytes of data that are created in the world’s industries every day, and how that data can be used more effectively to drive energy efficiency, reliability and so on.
At the GEMTEC event, GE also announced that it had signed ‘digital industrial partnership’ deals with the likes of the Ministry of Health, Saudi Aramco, SEC, Saudi Telecoms Company (STC) and Taqnia, a technology development and investment company owned by the Public Investment Fund. In addition, a GE Saudi Technology & Innovation Center, which will be focused on digital tech, is being set up in Dhahran’s Techno Valley.
But there is still a long distance to travel. When questioned as to how Saudi Arabia can drive change in its industrial diversification, Immelt was direct.
“I think experiment and take action,” he told the GEMTEC audience. “In many ways, change is hard, even digital change, because it’s new and different.
“I think what’s important is to get your hands dirty, to start with small projects that can lead to big projects, and to go fast. And the most important thing is to start now.”