Rising population, investments to keep power demand high

Demand for power services in Saudi Arabia will continue to climb over the next five years on the back of a rapidly rising population rate, fiscal expansionary policies and resulting high investments in social and physical infrastructure. Subsidized fuel and resulting cheap utility rates have witnessed power consumption and peak load demand grow by a CAGR of 6.4 percent, and 7.7 percent respectively, over the past decade, according to a report by the National Commercial Bank.
At the end of 2012, the size of the power market stood at SR30.57 billion, with Saudi Electricity Co. (SEC) total actual generation capacity reaching 44,371 MW. In early 2010, the government approved a new tariff structure-up to a ceiling of 26 halalas per kW/h-for only the industrial, commercial and governmental sectors. The residential sector continues to command the largest share at 50 percent of electricity consumption. In addition to SEC's internal IPP initiative, other contributors to the power sector include the SWCC (Saline Water Conversion Corporation), and large players constituting independent water, steam and power producers.
The sources of funding for SEC are bank and government loans, and sukuk, the NCB report said.
Valued at SR19 billion in 2010, proceeds of the sukuk are to be used to meet working capital requirements, refinance existing financial obligations, for capital expenditure, and other investments.
In Q2, 2012, SEC closed a $1.75 billion dual-tranche Sukuk issue; the first of its kind by SEC and the largest international debt capital markets issuance from the Kingdom.
As for private investors, a noticeable trend for local firms has been to partner up with foreign firms in order to gain a competitive edge in their bidding process. Long-term loans backed by either the government or large financial institutions are facilitating the process for investors. Investments on a BOO/BOOT basis allow for greater flexibility, making it more appealing for investors to be part of such projects. The internal rate of return for IW/S/PPs tends to fall between 11 percent-13 percent.
The Kingdom's Ninth Development Plan aims to raise the generation capacity by 20,400 MW. “To ensure a feasible reserve generation capacity of approximately 15 percent by 2015, we tracked the power projects in the pipeline with a completion date up to 2015. Accordingly, it is forecast that total actual generation capacity will reach 76,487 MW by 2015, with an estimated peak load of 66,276 MW,” the NCB report said.