Meeting demand: Opportunities are available for investors during the expansion of the electricity sector

With anticipated economic growth of 4.4% in 2014, annual population growth of 2.3%, new and expanding residential and industrial cities, and an improving standard of living, Saudi Arabia faces rising demand for power and there is constant pressure on generation, transmission and distribution systems to keep pace. This is creating attractive opportunities for both domestic and international companies.

2020 VISION: With a target of reaching generation capacity of 120 GW by 2020 from a total of 55 GW in 2013, Saudi Arabia will need to build enough plants and plant extensions to add up to 10 GW to the supply every year until the end of the decade. Beyond 2020, the country sees itself adding to that total.

The contracts being signed between the Saudi Electricity Company (SEC) and national as well as international companies in 2013 and 2014 point to a new, more diversified approach to electricity generation. There is a greater emphasis on gas, both in terms of converting some existing crude oil plants and commissioning new builds. Later in 2014 the Saudi Arabian Oil Company (Saudi Aramco) is due to complete construction of the Wasit gas plant, which will process 2.5bn standard cu feet per day of non-associated gas from the Hasbah and Arabiyah offshore fields and will use some of this to supply power plants. In February 2014 the 80,000-tonne Pacific Sky docked in Europe, bringing the first batch of diesel from the Satorp refinery built by Saudi Aramco and Total at Jubail.

The Yanbu Aramco Sinopec Refinery Company ( Yasref) is due to come on-line in September 2014 and another refinery will be completed at Jizan in 2014. All three refineries will be able to provide Saudi Arabia with another alternative to crude, namely fuel oil, which can be used as feedstock for power generation, freeing up crude oil for export. In addition to being the country’s second port, Yanbu is a rapidly growing centre for petrochemicals, plastics and refining.

NEW CITIES: Jizan is one of the four economic cities being built across Saudi Arabia and when it is finished in 2020, it will be home to 200,000 residents. Although the city is being built around energy supply, like other new developments in Saudi Arabia, its new residents and workers will also add to the demand for electricity and water. In August 2013 Siemens won a contract worth just under $1bn to supply most of the components for a new 4000-MW combined-cycle power station at Jizan. The new plant is due to come on-stream in stages, with final completion due in 2017.

Rabigh is the site of another of the economic cities, namely King Abdullah Economic City, which by 2020 should be home to 2m people and create 1m new jobs for the Kingdom. It will also house two separate power station complexes. Rabigh I is a partially completed independent power producer (IPP), but phases five, six and seven of its development will add an additional 960 MW, 2.8 GW and 720 MW, respectively, by the fourth quarter of 2014 at a combined cost of $5.8bn. In December 2013 a consortium led by Saudi firm ACWA power announced plans to build Rabigh II, a 2060-MW station that will cost $1.6bn to build, with an anticipated completion date of 2017. The IPP plant is being built on a build-own-operate basis, and the project will supply electricity to SEC under a power purchase agreement for a term of 20 years.

“The business in Saudi Arabia is governed by the needs identified by the government to meet the demand and respond to fuel policy,” said Yasir Mahmoud, senior business development manager at ACWA Power. “They decided to convert a 2000-MW heavy fuel oil (HFO) plant to combined-cycle gas turbine (CCGT) one day before financial close of the project. We offered a low tariff in order to support their decision, achieve quick financial close and meet the summer demand of 2016 as scheduled based on the lowest tariff contracted in any previous CCGT project.”

A project company, with ACWA and the Saudi Electricity Company (SEC) as equal partners, has been formed and the power plant will utilise natural gas as its main fuel with Arabian Super Light as back-up in a combined-cycle configuration of three identical power blocks. Partners in the consortium include Siemens, which is building the gas turbine generator unit and Samsung C&T, which received the engineering, procurement and construction project.

BEMCO PROJECTS: Samsung employees from South Korea are also hard at work on the other side of the country with Saudi Arabian IPP Bemco on a $3bn contract to boost output at the Qurayyah plant to 4600 MW by 2015. Bemco is also working to complete two separate plants that will boost the supply of electricity to the capital, Riyadh’s 2175-MW and 4600-MW plants 12 and 14, both of which are due for completion in 2015. Hyundai Heavy Industries is building the $3.3bn Shuqaiq steam power plant, which is due to come on-stream in 2017 with a capacity of 2650 MW. Engineering firm Alstom has won the contract to provide €170m worth of steam turbine generation sets for the plant. The SR200m ($53.3m) facility will be located in King Abdullah Economic City and called the Alstom Arabia Power Factory.

Another firm establishing a factory to feed the demand for power components is Siemens. Its gas turbine factory based in Dammam will bring new skilled jobs to the area, as well as build on its well-established links with SEC. “For our turbine manufacturing plant we sponsored 40 young Saudis to attend the Saudi Petroleum and Services Polytechnic for two years and afterwards they will be employed,” said Ghassan Khalil, head of communications at Siemens Saudi Arabia. “We are also involved with an expert exchange programme with SEC. We took engineers from SEC and sent them abroad to our turbine manufacturing plants in Charlotte in the US and Berlin for between six months and a year to gain global experience.”

In November 2013 General Electric (GE) signed a $700m contract with SEC to provide Power Plant 13, south of Riyadhm with 7F-5 gas turbines, which will be manufactured in South Carolina and delivered in 2015. GE will also maintain the units for eight years.

NUCLEAR PLANS: According to the World Nuclear Organisation, potential sites for nuclear power stations have been identified in Jubail, Tabuk and Jizan after surveys and feasibility studies were carried out by WorleyParsons. The Nuclear Holding Company was established in 2013 and in December of the same year during a visit to Saudi Arabia by French President François Hollande two sets of agreements were signed by Areva and EDF with businesses and universities in the Kingdom: memoranda of understanding with Descon Olayan, Riyadh Cables, Zamil Steel, Saudi Pumps and Bahra Cables were designed to develop a domestic supply chain and build up technical knowledge and skill. At the same time, the two French firms also agreed to help develop nuclear engineering expertise with Effat University and Dar Al Hekma College in Jeddah, Prince Mohammed bin Fahd University in Al Khobar and King Saud University in Riyadh. These agreements followed three months after deals were signed by Hitachi Nuclear Energy and Toshiba/Westinghouse with Exelon Nuclear Partners, a division of Exelon Generation, to pursue construction contracts with KACARE. The Saudi Arabian Atomic Regulatory Authority is due to start operating in 2014.

TRANSMISSION: In addition to improving the country’s generation capacity, the Kingdom is investing in improving the efficiency of transmission and distribution. Indeed, by 2032 it hopes to eliminate the need for an additional 37 GW of capacity due to efficiency savings, according to the International Energy Agency. In the fourth quarter of 2013 King Abdullah Economic City signed a $60m deal with energy firm ABB to provide substations and improve electricity supply and transmission capacity. ABB will supply 380-KV switchgear technology and a remote control centre to ensure reliability of supply to the new city, which could have as many as 2m residents by 2020.

INVESTMENT OPPORTUNITIES: In September 2013 Fouad Al Sherebi, executive vice-president of power generation for SEC, told the Saudi-US Business Opportunities Forum in Los Angeles that the next five years would present investors with unprecedented opportunities to work with IPPs in the Kingdom. Al Sherebi explained that between 2000 and 2012 installed capacity in Saudi Arabia increased by 95.3%, and the total length of transmission lines across the Kingdom almost doubled in the same period. Looking ahead, he said he expected capacity to double again in the next 12 years and that this would provide attractive opportunities for investors prepared to enter long-term power purchase agreements with SEC, which could also invest up to 50% in project capital and take responsibility for fuel supply and negotiate land-lease agreements. “The capacity that will double in the next 12 years, 30% of that will be provided by IPPs, by developers,” Al Sherebi told attendees.

With SR100bn ($26.7bn) to spend on contracts across the electricity sector in 2014 alone, the Saudi Arabian government’s expansion plans are likely to provide numerous opportunities for international businesses for the rest of the decade and beyond.