Saudi Arabia - Plans To Switch To Solar And Nuclear, But Thermal Reigns In The Kingdom

26 Apr 2011 • by Natalie Aster

A combination of factors have recently put significant pressure on Saudi Arabia's existing power generating capacity, causing shortages, blackouts and power rationing and spurring a strong demand for investments in the energy sector. The world's biggest oil producer has seen its population grow to 26mn in 2010 and BMI's forecasts predict that it will reach 28.6mn by 2015.

Its strong demographics are coupled with an expanding economy and industrial base as well as with inefficient use of electricity. BMI now forecasts that Saudi Arabia's real GDP growth will average 3.5% a year between 2011 and 2015, reaching US$414.2bn in 2011. Over the same period, we expect GDP per capita and electricity consumption per capita to increase by 21.4% and 13.81% respectively; a significant increase considering that Saudi Arabia already has one of the highest per capita electricity consumption rates in the Middle East.

In Need Of Additional Generation
Saudi Arabia Total Net Generation And Consumption (TWh)

e/f = BMI estimate/forecast. Sources: EIA/World Bank/BMI Calculation.

Taking all these elements into account, BMI's new extended power forecasts anticipate that the kingdom's power generation and consumption will rise remarkably in the coming years. It is estimated that demand for electricity is growing at 8% on average per year and we forecast that electricity consumption will increase from an estimated 188.8TWh in 2010 to 244.1TWh in 2015. To meet this growing demand the kingdom will therefore need to step up its generation capacity, ideally focusing on developing a more sustainable mixture of power sources.

So far, the Saudi government has displayed a substantial commitment to social and economic infrastructure in general and to the power sector in particular, with a pledge to increase the country's power generation capacity by 20GW over the next decade. According to Bloomberg, in March 2011 the electricity authority also announced plans to invest more than US$100bn over the next ten years expand the country's transmission grid and building new generation capacity, including power plants using sources of renewable energy. We note that the importance of the power plants and transmission grids sector is fully reflected in BMI's Key Projects Database, where it is currently the most dynamic within Saudi Arabia's infrastructure sector.

Saudi Electric Company (SEC) has announced various ambitious projects and related investment plans, also launching its Independent Power Plants project programme (IPP). Yet, it should be noted that several key projects are behind schedule or have been postponed. This considered, BMI is forecasting average annual growth in generation between 2010 and 2015 of 35.4%, with expansion likely to accelerate beyond the end of the period. Saudi power generation, estimated at 206.89TWh in 2010, should increase to 267.21TWh by 2015.

Totally Relient On Thermal Sources
Saudi Arabia Total Net Generation, By Type (TWh)

e/f = BMI estimate/forecast. Sources: EIA/World Bank/BMI Calculation.

Reliance on Thermal

Conventional thermal sources are expected to remain the dominant fuel for electricity generation in the coming years, with many power projects under construction -- or planned -- that will use oil or gas. Unlike most regional and global players, Saudi Arabia is expected to favour oil-fired generation rather than boosting gas demand above uncertain domestic supply capability. According to our forecasts, oil will fire almost 58% of the kingdom power generation by 2015, producing 154.28TWh of electricity.

Thermal Generation: Reducing Export, Increasing Emissions
CO2 Emissions (Metric Tons Per Capita)

Sun to Shine on Increasing Exports?

Hydro and non-hydro renewables make no appreciable contribution to Saudi electricity generation, and we anticipate this to persist at least over the short-to-medium term. Yet, Saudi Arabia, like other Persian Gulf oil producers, has recently started to seek new ways to generate power with a view to conserve oil and gas supplies for more lucrative export deals and maximize income. Renewables, and especially solar power, are therefore gaining momentum in the kingdom.

Saudi Arabia's insolation levels are similar to those in the Sahara Desert, central Australia and the southwestern United States, some of the most solar-intensive regions in the world. Although significant solar projects are still to come on-line, Saudi Arabia is already planning to create a strong solar power manufacturing industry, and in March 2011 Saudi-based Polysilicon Technology Co. (a joint venture between Saudi Mutajadedah Energy Co. and South Korea's KCC Corp. signed a US$380mn deal with two Korean engineering firms to build the polysilicon plant along the Gulf Coast.

Interested in Nuclear

Similarly to other countries in the Arabian Peninsula, Saudi Arabia has embraced the idea of nuclear power over recent years. After years of speculation, Saudi Arabia finally signed an agreement with France for cooperation on the development of peaceful nuclear energy programme in February 2011.

Contrary to nuclear ambitions in other countries, the kingdom's plan appears so far unshaken by the Fukushima accident. In April 2011, the government has announced its plan to sign a nuclear cooperation agreement with China (according to Arab News). This notwithstanding, we stress that the kingdom's nuclear programme is still in its infancy, and even without highly probable delays it will require years to develop.

BMI’s infrastructure reports feature a market assessment and independent 5-year forecasts covering public procurement and spending on all major infrastructure and construction projects, including transportation and logistics by land, sea and air; power plants and utilities, and commercial construction and property development. The impact of regulatory changes, GDP growth and the background macroeconomic outlook are examined, and competitive intelligence is provided comparing multinational and national contractors and suppliers by products, sales, market share, investments, projects, partners and expansion strategies.

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