Saudi Arabia could introduce competition in the power sector, report says

The kingdom has proposed splitting the state utility company into four entities

FILE PHOTO: A view shows buildings and houses in Riyadh, Saudi Arabia, March 1, 2017. REUTERS/Faisal Al Nasser/File Photo
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Saudi Arabia could adopt a “multiple-buyer approach” to reforming its power sector as it considers breaking up its state-owned utilities firm and mulls privatisation, according to a report by the Arab Petroleum Investment Corporation.

Saudi Arabia, the biggest regional consumer of electricity, has recently pivoted towards more gas-fired plants over burning oil and has also announced plans to invite foreign investment into its utilities sector. As part of larger, macro-reforms, the kingdom had proposed splitting the Saudi Electricity Company into four entities that could be listed on the Tadawul stock exchange or sold to partners. The government’s involvement in the plan remains unclear, with no clarity on the timeline either.

“[However], reform could also come in the form of a multiple buyer approach – where wholesale buyers compete amongst themselves to purchase power from generators," said the report.

Saudi Arabia, the world’s biggest oil exporter, has seen electricity demand rise by 6.6 per cent annually since 2006, with its installed capacity for power rising in tandem from 60 Gigawatts in 2010 to 82GW currently. The government has also unveiled plans to deploy up to 9.5GW of renewables capacities to the grid by 2023, which would necessitate $30 to $50 billion in investments.


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“The government will try to tackle rising demand by liberalising electricity prices and introducing efficiency measures,” said Apicorp senior economist Mustafa Ansari.

"While these reforms are long overdue, they are certainly a step in the right direction. But the lack of clarity on how consumers will respond to price hikes, as well as the unclear future structure of the power sector and uncertainty surrounding the renewable-energy integration form the key challenges."

In line with efforts to reform the power sector, Saudi Arabia has also taken slow steps towards price reforms in the electricity sector to regulate demand.

Electricity prices were first raised at the end of 2015 up to 100 per cent for certain consumption brackets. A second round of price reform was phased in late last year, which had an immediate impact in slowing energy demand. (didn't they raise price this year as well from january?)

The kingdom has also made efforts to lift subsidies on fuel such as gasoline and diesel, though the phase-in has been slow. Natural gas prices wre increased by 67 per cent and diesel for the utilities sector was raised by 55 per cent in 2015 as part of the first wave of reforms, with a further 15 per cent increase introduced at the start of this year.