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Market structure in Saudi ArabiaERRA Tariff / Pricing Committee meeting 19 October 2016, Bratislava, Slovakia

Engr. Zaid Rajeh Al-Zaid

Economic & Tariff Affairs, ECRA

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Outline

Introduction

2015 Facts

Current Market Structure

Main Players

Challenges

Overview: Proposed development path

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Outline

Introduction

2015 Facts

Current Market Structure

Main Players

Challenges

Overview: Proposed development path

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Introduction

Starts as 100% private ownership and operation as Small commercial companies

Started as department of Electricity Services. Then, Electricity Corporation

Late 70`S consolidated into four major power co (SCECO), the government involved as

major shareholder .

Mid 2000 All operating entities merged in one company, Saudi Electricity Company (SEC).

2002, ECRA assigned to be the Regulator

1930to

1972

Private

1972to

2000

Government Agencies

2000to

Present

Sector Restructuring

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Introduction

+ 286 GwhEnergy Sales

2015 Facts

+ 8 MNumber of Customers

+ 80 MWInstalled Capacity

+ 68 Transmission Networks (km Circular)

62 MWPeak Load

+ 535Distribution Networks (km Circular)

Oil57%

Gas43%

Fuel used

2015 Facts

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Outline

Introduction

2015 Facts

Current Market Structure

Main Players

Challenges

Overview: Proposed development path

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Current Market Structure

Saudi Electricity Company (SEC) owns:

About 70% of generation,

Transmission

Distribution

SEC is the Largest electric entity in the region in terms of capacity and

market capital (Total assets over 95 billion US$), 74% directly owned by

the Government.

Private sector participation under long-term (20 year) PPAs, procured

through competitive tender.

Saudi Aramco is the only fuel provider in the market.

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Current Market Structure

SEC

Dis

trib

uti

on

TO

Large

Consumers

ConsumersOthers

PB SO

Ge

ne

rati

on

IPPs/IWPPS

Regulator

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Main

Players

Current Market Structure Main Players

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Current Market Structure

The Impact of Subsidies Today

The very low fuel price distorts the incentive for generators to

produce efficiently.

The very low consumer prices result in high levels of consumption.

The Impact of High Growth rate

The high capital outlay.

Reduce the project period affecting choice of technology.

Need to operate in commercial basis

Cost-based Tariff and Tariff structures

Challenges

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Outline

Introduction

2015 Facts

Current Market Structure

Main Players

Challenges

Overview: Proposed development path

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Desired Final Market Structure

Bilateral contracting

Transmission

Large

Consumers

Consumers

Retail

Retail

Retail

Retail

Regulator

Gen

Gen

Gen

Gen

Gen

Market

Operator

System

Operator

CEM

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Overview: Proposed development path

Multiple retailers, large customers in wholesale market

Gradual removal of transition features SO operates capacity

market No new PB PPAs PB reduced with

generation and retail separated

Default retailer supplies non-contestable customers

Initial “shadow” spot market

Then full spot market for energy and ancillary services

Bilateral contracting between generators and large customers

Fuel price reforms Generators procure

own fuel Tariff reforms for

large customers SEC restructuring; PB

and TSO Government financing

mechanism Competitive

generation investment

1 Unbundling

2 New fuel arrangements

3 Wholesale energy market

4 Capacity market

5 Ongoing CEM

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Stage 1:Unbundling

SEC’s restructuring plans progressing

Establish business unit for PB

Establish subsidiary companies for 4 SEC Gencos, Distribution and

TSO

Ring-fencing regulation for the PB inside SEC

Government explicit financing mechanism for the PB

Competitive tenders for new generation investment

Components

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Stage 1:Unbundling

Establish the structural foundations for subsequent steps, addressing

conflicts of interest

More transparency of costs within the sector

Establish Government financing mechanism

Introduce competitive pressures to generation investment

Purpose

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Thank you