Earlier this month, at an electricity conference attended by senior Saudi officials, a reporter from Al-Watan daily asked the minister of water and electricity about the quality of electricity services.

To answer his question, the minister made this challenge: Could anyone remember the last time electricity was out? Without waiting for an answer, he said that they would certainly find it difficult to remember.

Al-Watan took up the challenge and asked readers to answer the question. First, it asked some residents of the capital city, Riyadh, if they could remember the last time electricity supply to their neighborhoods was interrupted. Over 64 percent said they could. The results were not surprising, as electricity outages are quite common in the capital, especially during the summer.

The responses on the newspaper’s website were more resounding, because it was not limited to the capital. A whopping 92 percent of the respondents said they remembered blackouts. Some said outages still took place in their areas, twice a day sometimes!

The minister pointed to an important factor in assessing performance of this sector: Demand for electricity increases at an annual rate of 8 percent. The Saudi Electricity Company (SEC) chief puts future rates at 9 percent. Those growth rates mean that Saudi Arabia has to add on average an annual capacity of 3,500 Megawatts of electricity!

The high growth rates are clearly much higher than the international average, and more than the rate of economic growth in Saudi Arabia. It is over three times the rate of population growth. As such, such expansion would strain the ability of any company to cope.

But does Saudi Arabia need to add so much capacity? Are we not better off reducing demand for electricity instead of increasing it?

According to calculations made by the Saudi Center for Energy Efficiency (SCEE), growth for energy consumption has been staggering. Today, it takes Saudi Arabia nine times the amount of energy to produce one unit of GDP, compared to 1975. Similarly, per capita consumption of energy has increased six-fold, since 1975.

During 2012, Saudi Arabia consumed daily about 4.3 barrels of oil and equivalents. Energy production accounts for about half of that total. About 80 percent of energy is consumed by residential consumers, mostly for air conditioning.

The low price of electricity has something to do with the steady increase in demand. On average, a kilowatt/hour costs about five cents, on average, in Saudi Arabia. The average monthly bill for 65 percent of consumers is less than SR100 ($27). By comparison, a KWH costs over 12 cents in the US, 18 cents in Australia, 33 cents in Germany and 34 cents in Brazil. In other words, a KWH costs more than twice as much in the US, four times in Australia, and six times in Germany and Brazil, as it does in Saudi Arabia.

Low prices of electricity do not encourage energy conservation on the part of the consumers, and adversely affect the financial health of the electricity producers.

To make up for that potential loss for Saudi electricity producers, they have insisted on getting fuel at reduced prices, way below international levels. As a result, the price the Saudi energy producers pay for crude oil is only four percent of its international price! Similarly they pay for diesel and heavy fuel oil just three percent of their international prices, and for natural gas six percent of its international price.

At these prices, there is little incentive for consumers to economize and reduce waste. Similarly the cheap cost of fuel does not encourage utility producers to switch to more efficient production processes.

Economists would argue that the whole problem could be solved by changing the price charged for both fuel and electricity. By raising prices, the argument goes, consumers will be forced to conserve electricity and producers will invest in new technology and speed up the process of replacing aging plants with more energy-efficient ones.

However, raising prices suddenly may not be feasible where consumers are accustomed to low prices for so long and have perceived them as sacrosanct privileges that they could not live without.

Perhaps for this and other reasons, the Saudi Center for Energy Efficiency has advocated a different approach. Through a mix of incentives, awareness raising and changes in regulations, it seeks to change patterns of energy consumption to make them more energy-efficient.

SCEE found out that buildings consume about 80 percent of all electricity produced in the country, 50 percent of which for air-conditioning. During the summer season, according to the minister of water and electricity, air conditioning consumes over 80 percent of electricity.

SCEE also found out that about 70 percent of all buildings are not insulated. Building codes are largely not binding when it comes to insulation and there is very little capacity to enforce them anyway.

AC equipment used in Saudi Arabia are largely inefficient, which is true for most electric appliances. Dealers are not obligated to provide high-efficiency appliances, nor have consumers demanded them.

From those findings it is easy to see that you can make a big dent in utility consumption if you can improve insulation of buildings and appliance efficiency.

For such ideas to succeed, you will need a mix of carrots and sticks. First, efficiency standards for insulation and electric appliances need to be raised by law. Second, to incentivize consumers, a voucher system could be devised to reward real estate developers and homeowners who insulate their buildings according to the new standards.

Prices of insulation materials could also be supported. To encourage consumers to buy energy-efficient appliances, incentives could include redeemable coupons that vary according to the efficiency rating of an appliance.

Over time, consumers will notice the savings they make when they better insulate their houses and use efficient appliances and the financial incentives scheme may not need to continue.

In sum, we need to think in terms of reducing energy consumption, instead of complying with the ever-increasing demand for energy, which has gone out of bounds, whether in terms of per capita usage or in relation to economic growth rates. Our rate of consumption has surpassed most other countries’ and is seriously threatening the future economic health of Saudi Arabia.

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