Saudi Arabia Power Report Q2 2012

Saudi Arabias power sector is among the most dynamic in the GCC, with contract awards piling up as the government executes its huge investment plan. Saudi Arabia has a very strong trackrecord in the development of power projects, and we have revised our forecasts substantially to reflect stronger growth in generating capacity. Yet, we notice that the existing regulatory environment creates downside risks for new projects, as it remains highly inadequate, with SEC facing a rising financial burden owing to the under-pricing of electricity and rising financial requirements. Similarly, mixed results in efforts to boost gas exploration could limit the Kingdoms aspirations to free-up part of its oil consumption for exports.

The Saudi government has long displayed a substantial commitment to social and economic infrastructure in general, and to the power sector in particular, and the increased volatility introduced by the Arab Spring is likely to strengthen these commitments. Saudi Arabia is executing an extremely ambitious US$80bn expansion plan for power projects, with the Kingdoms Ninth Development Plan (2010-2014) aiming to raise generating capacity by 20.4 gigawatts (GW) by 2014. BMI estimates that almost 40GW of electricity projects are under construction or in the pipeline, with another 10GW-worth at the planning phase.

Even if BMI adopts a conservative stance and only 70% of the planned capacity comes online – also accounting for the fact that about 5,000MW of ageing capacity will be taken off-line by 2015 – our forecasts show that the country will be able to meet its commitments and total installed capacity will reach about 72GW by 2014.

In light of the elements highlighted above, key trends and recent developments in the Saudi electricity market include:

- Germany-based Siemens unit Siemens Energy secured a US$1bn contract to deliver equipment for the construction of a 4,000MW combined-cycle power plant in Saudi Arabia in January 2012. The company is to supply six steam turbines, 18 generators and 12 natural gas turbines, with the power plant in Qurayyah likely to enter commercial operation in 2014.

- In March 2012, SEC was reported to be looking for companies to build and operate a 1,700MW independent power plant (IPPs) that would run on fuel oil, with expressions of interest (EoI) in running the plant at Rabigh on the west coast of the country to be submitted by March 21 2012.

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