Restructuring Saudi power sector could generate SAR 15 bln: study

The restructuring of Saudi Arabia’s power generation sector, along with fuel price reforms, could contribute SAR 15 billion ($4 billion) to the Kingdom's economy, King Abdullah Petroleum Studies and Research Center (KAPSARC) said in a recent report.

The results of the report are based on a model developed to simulate the introduction of private generation companies in the power sector and a revision of fuel price to $3 per one million British thermal unit (MMBtu).  

“In all the scenarios that we study, market restructuring associated with fuel price reform delivers an aggregate economic surplus of more than $4 billion,” KAPSARC said, noting that this is mostly because consumers are paying more for their electricity.

“However, if all firms in the power market behave competitively, the government’s saving in fuel subsidies exceeds the loss in consumers’ surplus. This means there is room to implement a compensation scheme that mitigates the increase in costs to the consumer,” the report added.

Meanwhile, the institute noted that in theory, there is “potentially significant” room for price manipulation by large power-generating companies.

“As such, elimination of market power through competition or regulation is particularly relevant at peak demand times,” KAPSARC said.

Saudi Arabia plans to reform and privatize the power generation sector, under the Vision 2030 economic diversification plan revealed in 2016.

The Kingdom can benefit from restructuring its power sector in the long term by learning from the experience of other countries and with a careful market design, the report said.