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Thu 23 Dec 2010 12:00 AM

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Saudi Arabia’s power surge

Saudi Arabia likes to spend big. The power and water sector makes no exception.

Saudi Arabia’s power surge
Saudi Arabia is the geographical lynchpin of the GCC Interconnection Grid, a project that stabilises power supply in the region, and could soon be complemented by interconnection with Egypt.

Saudi
Arabia is experiencing a heavy and sustained
increase in demand for electricity and water, prompting the government to
embark on a massive spending programme: deputy minister for electricity Saleh
H. Al-Awaji has pledged to increase the country’s power generation capacity by
20,000 MW over the next decade.

To achieve this target, the Saudi government has announced
plans to spend US$80 billion on increasing generation capacity and transmission
& distribution network over the 10 year period to 2018.

The funding will be a mix of private and public investment
with state-owned utility Saudi Electricity Company (SEC), providing nearly 66
percent of the funds. The SEC has already been awarding contracts at a rapid
pace, with almost $4 billion worth of contracts awarded in August 2010 alone.

In July 2009, SEC announced plans to invest $28 billion to
add approximately 13,000MW of power over the next three years alone, said Ali
Al Barrak, the CEO of the Riyadh-based state-controlled power producer. Apart from adding new capacity, another challenge the SEC is
facing is to improve the performance of its existing, and ageing plants.

“We have ageing assets, and we need to look at ways and
means to draw more power from the assets already we have,” Al Barrak told
delegates at the Smart Electricity World conference in Dubai in November.

Al Barrak is not alone in realising the inefficiencies of
old power plants. Paddy Padmanathan, CEO of private power provider ACWA Power
International is keen to grow his company by taking over and improving existing
assets.

“Don’t forget that of the existing 42,000MW, about 20,000
need replacement. They’re all very old assets, they’re very inefficient, and
today people are much more concerned about efficient utilisation of fuel. We’ve got plants here in Saudi Arabia
that are running at 28 percent thermal efficiency, when we can get up to 50
percent,” he says.

ACWA is a growing player in the country and the region,
which is seeking to profit to the government’s commitment to increasing the
private sector’s stake in power generation.

Public private partnerships: A helping hand

In recent years, the private sector has been roped into the
race to keep up with demand, and independent water and power projects (IWPPs)
are starting contribute to the power supply in the Kingdom. There are currently
three IWPPs in Saudi Arabia,
with several more in the pipeline. In all, it is planned that independent power
plants are to add 15,000MW to the country’s generating capacity at an
investment cost of $15 billion.

One of the completed IWPPs is the Shuaibah III IWPP, a 900MW
light crude fired plant near Jeddah on the coast of the Red
Sea. Built by Siemens and Doosan Heavy Industries, the plant is
equipped with Siemens’s SST6 – 6000 steam turbines, and features advanced
desulphurisation technology. In addition to power generation, the plant
produces 883,000 cubic meters of potable water per day. ACWA is the biggest
stakeholder of the built own operate project.

Another project designated as a public private partnership
is the Ras al Zour plant, but a tendering process came to nothing in 2009,
resulting in the government retendering it as an EPC contract, a hitch in the
country’s move to greater private sector participation.

Smarter grid, smarter consumption

Growing energy demand necessitates not only increasing
generation capacity but also an expanding and improving the grid. The SEC is undertaking measures to make the grid more
intelligent, and is opening up the possibility of introducing variable tariffs
for households through smart metering. Smart meter pilots are already in
operation and will be rolled out across the country, according to Al Barrak.
This is the first of three stages to make the grid more intelligent, an
important prerequisite for the introduction of renewables into the energy mix.

Over the coming years, $24 billion will be invested in the
grid, said the SEC head, with some of those funds going into making the grid
more intelligent. Making the grid more intelligent on the consumer side is a
key issue for Al Barrak, who emphasises the need to curb consumption in order
to get a grip on increasing demand and the subsequent increase in the use of
raw materials.

“The most worrying issue is the consumption of natural
resources, every year we are increasing the consumption of natural gas and
oil,” he says. “Unless we make a strong effort on the demand side, demand will
continue to grow in line with population growth. This will be a big burden on
consumers and the government.”

Once the smart meters have been installed across the county,
the SEC will be able to monitor consumption almost in real time. This allows
the electricity provider to charge variable tariffs throughout the day, and
consumers to change their consumption pattern to minimise their electricity
bills. The SEC will thus be able to incentivise
customers to use less electricity during peak consumption hours. As power generation
has to match peak consumption, a reduction of this peak load will decrease
absolute power needs.

In July, the SEC increased electricity costs for commercial
and industrial users, which essentially means reducing the subsidies that power
(and water) prices are subject to in the Kingdom, and introduced variable
tariffs to encourage off peak use. Al Barrak revealed that the SEC is hoping to
be increase tariffs for households as well.

“We are requesting for higher tariffs in general to meet
increase cost of production,” he says.

So far, the government has not budged. But in anticipation
of change, the smart metering programme is there to give customers the ability
to keep their costs down in spite of higher tariffs.

“Low tariffs are a barrier for more efficiency and lower
consumption. But we have to create the tools for the consumer to prepare them
for the day when the tariff is cost efficient. And this day is coming
definitely,” says Al Barrak. “But we don’t want to face the consumer with a
cost effective tariffs without giving the consumer the tools to manage his
consumption.”

The CEO refuses disclose when the rollout will be completed.
Instead, he underlines the need for urgency. Demand in the Kingdom is soaring,
with over half of the electricity consumed in households: “There is high
residential consumption, 55 percent of our energy consumed by domestic use, and
consumption per capita has been doubled over the last 15 years,”
he says.

Increasing connectivity

The SEC is undertaking the mammoth task of connection the
country’s various regions into a single grid, while simultaneously connecting Saudi Arabia
with its neighbours. Better interconnection means a more reliable supply, and
while the Kingdom is pulling its sinews of power together, the GCC Interconnection
Grid is nearing completion. Already Saudi Arabia
is connected to Bahrain, Kuwait and Qatar,
and will be connected to the UAE and Oman by 2012.

There are also negotiations underway with Egypt to link
up the national grid, with insiders predicting that these will conclude in
early 2011. In the long term, a connection to Europe via Turkey is a
possibility. This connection would allow Saudi Arabia to sell power not
needed in off peak periods, thus making use of idle capacity during winter.
imultaneously, it would enable the country to buy electricity when consumption
in summer, and so alleviate the need to match generation capacity with peak
demand.

The feedstock story

To feed growing demand, the Kingdom has undergone extensive
efforts to increase its gas supply. The fast-tracked development of the Hasbah
and Arabiyah gas fields has given the country some breathing space, and both
the SEC and the SWCC have reacted by launching gas-fired power plant projects.

An expanding gas production alone will not be sufficient to
meet increasing demand, however. In April Salah Al Awaji, the kingdom’s deputy
electricity minister, revealed that he estimated the Kingdom’s total use of
crude oil as a feedstock for power generation will rise from 1.5 million barrels
per day (boe/d) in 2009 to 2.5 million boe/d in 2010. Crude is a less efficient feedstock and its use for power
generation reduces the amount available to be sold on the world market.

“The redirection of less efficient and more polluting crude
to its power plants might work as an interim solution but will eat into its
spare production capacity cushion when global demand starts rebounding
seriously,” commented Sam Ciszuk, analyst at IHS Global Insight, at the time.

Alternatives?

With oil and gas struggling to make up the energy base for
the country, and domestic use standing in the way of profitable international
sales, it is not surprising that the regional trends towards alternative
energies has not passed by the Kingdom unnoticed. Saudi
Arabia does not draw on nuclear power at
present, but steps are being taken that could see
a nuclear sector develop in the l
ong term.

To this end, the Kingdom is undertaking a feasibility study
on the development of nuclear power, which the six other Gulf states agreed to through the
International Atomic Energy Agency (IAEA) in February 2007.

Little progress has been made, but in July 2010 Saudi Arabia’s cabinet approved plans to sign a
nuclear cooperation agreement with France. The Franco-Saudi nuclear
accord had been in the making for more than three years, following initial
talks in summer 2007. Also in 2010, an atomic research centre, the King
Abdullah Atomic City (KAAC), was established and has been tasked with helping
the
government review its nuclear policy.

In May, the King Abdullah University of Science and
Technology (KAUST) inaugurated what is to date the largest solar plant in the
Kingdom, a 2MW solar array on the rooftops of the university. Founded in 2009,
KAUST has been tasked with the research and development of renewables.

The SEC is encouraging this by pledging to by buy power
generated from renewables at above market prices, says Al Barrak: “The SEC is
encouraging them and giving them a very incentivising price the energy from
renewables.”

So far, renewables are not
a big feature of Saudi
Arabia’s power plans. But with the
technology developing, and the economic case for renewables becoming stronger,
this might only be a matter of time.

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