Reforming the structure of the power industry proved to be the most challenging aspect of the roadmap to reach a competitive electricity market. The industry comprises three distinct power sectors that work together to get electricity to the end-user, which are: power generation, transmission, and distribution. All of these sectors were monopolized by the Saudi Electricity Company, which was a vertically integrated company that suffered from efficiency and systematic challenges. The Saudi restructuring plan envisioned separating competitive and non-competitive activities of the company, by unbundling generation and distribution activities, while maintaining a monopoly of the transmission.
The generation sector’s reforms included energy source diversification initiatives by integrating renewables in the Saudi energy mix, allowing other privately-owned power plants to enter the market, and allowing direct electricity trading by big generators and consumers. Currently, 35% of the Saudi power generation’s capacity is owned by non-Saudi Electricity Company generators.
On the other hand, the transmission sector’s reforms are more complex in nature, as they will determine the dynamics of the future Saudi electricity market. As a part of the reforms, the Saudi Electricity Company established a separate independent company called the National Electricity Transmission Company in 2012. It is currently the system operator and the owner of the Kingdom’s transmission network, which has increased by over 50% since 2000, interconnecting more than 99% of the grid with 83,682 circuit-kilometers of transmission lines (overhead and underground lines) and with 1070 sub-stations in 2018. The National Electricity Transmission Company acts as an independent transmission operator that maintains an open and unbiased access policy to eligible participants’ transmission capacity.
However, Saudi Arabia’s roadmap to a competitive electricity market requires creating an independent system operator, which should generate its own resources and play a critical role in establishing and operating the wholesale competitive spot electricity market, by ensuring the independence of operations and investment decisions of the business, and guaranteeing non-discriminatory access to the network. Furthermore, the Saudi Electricity Company established the Saudi Power Procurement Company in 2017 to be the main and single buyer of electricity from all generators in Saudi. Its prominent role is to buy and sell electricity, fuel, and services, and develop year-ahead generation plans, with an exclusive mandate to manage the import and export of electricity across regional interconnections. This company will serve only a transitional role until the market reaches full liberalization.
The distribution sector’s reforms include allowing multiple retailers of electricity to operate in the competitive parts of the country, while maintaining a monopoly in the less attractive areas. This competition will lead to improved services to the end consumer, lower electricity prices, and more innovative business models. Moreover, the authority developed its “Smart Metering and Smart Grids Strategy,” which aims to allow for the integration of PV distributed generation by consumers into the grid, and significantly reduce the grid’s power waste. This strategy is expected to deploy 10 million smart meters over the next 15 years, with a cost reaching up to 7.5 billion Saudi Riyals. However, the direct benefits from a massive rollout of smart meters were assessed to be 9.16 billion Saudi riyals. The Smart Metering Project is one of the single most significant digital transformation projects in the Kingdom, and nearly one-third of the components used to build smart meters will be sourced locally.
It is worth mentioning that Saudi Arabia is not the first country to go through this reformation process, and it can learn from previous international experiences. Countries with different economic structures and capabilities take different steps and micro-objectives in their way of reforming the electricity sectors. However, they all agree on the overall goals of establishing financially stable industries, making conditions conducive for private sector participation, and improving the industries’ efficiency, competitiveness, and sustainability.