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Energy Efficiency Initiatives for Saudi Arabia on Supply and Demand Sides

Y. Alyousef1* and M. Abu-ebid2

1Energy Research Institute, King Abdulaziz City for Science and Technology, Riyadh,

2AEA Technology plc, Didcot, 1Saudi Arabia

2United Kingdom

1. Introduction

The Kingdom of Saudi Arabia (KSA) is blessed with an abundance of energy resources. It has the world’s largest proven oil reserves, the world’s fourth largest proven gas reserves, has abundant wind and solar renewable energy resources, and is the world’s 20th largest producer and consumer of electricity. Saudi Arabia makes negligible use of its renewable energy resources and almost all its electricity is produced from the combustion of fossil fuels. Despite attempts to diversify the economy, the oil and gas industry still accounts for approximately 75% of budget revenues, 45% of GDP, and 90% of export earnings. Exploitation of the natural resources has allowed the Saudi government to keep energy prices low through a system of direct and indirect subsidies. The nation has benefited greatly from these policies, but together with increased prosperity and sophistication, a culture of wasteful energy usage has become established.

KSA is experienced rapid economic growth over recent years. Since 2000, the energy consumption per capita has increased by more than 30%. This increase in primary energy consumption has occurred during a period of declining oil exports. In 2008, the total primary energy consumption has approximately reached 800 million barrels of oil equivalent (BOE), of which more than 60% was oil. The consumption of primary energy within the Kingdom is expected to double in 2030 leading to diminishing oil exports based on current trends (Ministry of Water and Electricity, 2009).

There is widespread recognition within KSA that with growing internal demand for primary energy there will be a declining proportion of oil for export. Consequently, the national government has identified energy efficiency as a key national priority, reflecting the rapid increase in domestic consumption of petroleum products, related GHG emissions and the associated opportunity cost of lost export revenues. There is also a strategic national push to develop an energy efficiency and renewable technology R&D and manufacturing base in an attempt to diversify the economy away from fossil fuels.

*Corresponding Author

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2. Fossil fuel production and consumption

2.1 Oil production and consumption

Saudi Arabia is the largest producer and net exporter of oil in the world with more than 10 million barrels/day produced in 2007. The state-owned oil company, Saudi Aramco, is the world’s largest oil company. The country has around 100 major oil and gas fields and more than 1500 wells. Recently, the Saudi Arabia’s Ministry of Petroleum and Mineral Resources (MPMR) announced their plan to increase the production capacity to 12.5 million barrels/day by 2009 but these plans have been delayed due to the collapse of oil price at the end of 2008 (Alowaidh, et.al, 2010). In 2008, KSA exported an estimated 8.4 million barrels/day of petroleum liquids, the majority of which was crude oil. Increasing oil exports is a national priority which can positively influence economic development and prosperity in the country. However, while Saudi Arabia has the necessary infrastructure to double its export capacity, oil exported over the past few years has been gradually decreasing due to increasing internal consumption. Figure 1 shows that consumption of oil within the country has been gradually increasing due to population growth, strong economic, industrial growth and subsidised prices for electricity and transport fuel.

Fig. 1. Oil production, export and consumption in Saudi Arabia.

Approximately 3200 million barrels of oil were produced in 2008, of which 560 million barrels (952 TWh) was consumed in the country. About 9.6% of oil consumed within KSA was used as feedstock and the rest as primary energy. As primary energy, oil was mainly used for transport (43%), power generation (39%), in co-generation desalination plants (8%), and for other uses (10%) such as for example the oil and petrochemical industry(Alowaidh, et.al, 2010).

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2.2 Natural gas production and consumption

In 2008, Saudi Arabia produced 86 billion m3 (550 million barrels of oil equivalent or about 900 TWh) of natural gas of which 13% was lost in flaring. All natural gas produced was consumed within KSA as feedstock (38%), in power generation (34%), in desalination plants (11%) and in industry (17%). The production of natural gas has been increasing to fuel the growth in the petrochemical, power generation, and water desalination sectors(Alowaidh, et.al, 2010). While the majority of oil produced is exported, all natural gas produced in Saudi Arabia is used within the country. According to Saudi Aramco, the production of natural gas is expected to double to 150 billion m3in 2030.

2.3 Potential for oil savings

According to independent analysis quoted in industry reports, demand for oil is expected to rise by 8 to 10% in 2010 mostly in the area of power generation. A plan which allows KSA to cut down on its oil consumption in the power generation sector and to re-direct that additional oil for export can bring about many economic and environmental benefits.

Based on current growth rates, oil consumption is expected to reach 800 million barrels/year by 2030. A 10% annual reduction in oil consumption within KSA in 2030 will result in the release of 80 million barrels of oil/year for export. At today’s price of oil, this corresponds to additional revenue from oil export of $6 billion/year. This 10% reduction in oil consumption is a realistic target for Saudi Arabia and can be achieved through

i. Energy efficiency improvement on the supply side (i.e. in power stations and industry) as well as on the demand side (i.e. reducing electricity consumption),

ii. Energy and resource conservation (e.g. reducing water demand reduces energy demand in desalination plants), and

iii. The utilisation of renewable energy sources such as solar and wind energy.

In general, increased oil savings can be achieved by gradual fuel switching (combined with energy efficiency improvement) in the power generation and co-generation desalination sectors. The share of natural gas in these two sectors is currently 47%. If the share of natural gas in these two sectors alone increases to 60% in 2030, the potential annual oil savings can amount to 120 million barrels/year leading to additional revenue of $9 Billion/year at current oil prices. This switch from oil to gas is also associated with environmental benefits since natural gas has lower CO2 emissions than oil.

3.Overview of primary energy flow

Saudi Arabia’s annual primary energy consumption increased from about 10 MWh/capita in 1971 to 47 MWh/capita in 2008(Electricity and Cogeneration Regulatory Authority,2008). Currently KSA is one of the top 15 countries in the world in terms of primary energy use on a per-capita basis. This significant increase in energy demand is due to rapid economic and industrial growth in Saudi Arabia over the past few decades. In 2008, the total oil and gas consumption exceeded 1 billion barrels of oil equivalent (BOE), of which approximately 23% was used as feedstock and the rest as an energy source in power generation plants, co- generation desalination plants, transport and industry. This consumption of primary energy (oil and natural gas) is expected to double over the next two decades as shown in Figure 2.

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In 2030, oil and natural gas demand is expected to increase to more than 1500 million barrels of oil equivalent/year.

As evident from Figure 2, the current share of both oil and natural gas is 63% and 37% respectively. The future share of oil and natural gas in the fuel mix in KSA will depend on policies regarding additional gas production and usage. The projection in Figure 2 assumes the same current primary energy mix in 2030. It is expected, however, that natural gas demand in KSA will double by 2030 thus displacing some oil usage and adding to oil exports. The total fossil fuel consumption in KSA in 2008 was approximately 1,766 TWh, 23% of which was used as feedstock in industry, and in other sectors (e.g. LPG in homes). The fuel used as feedstock is not part of the primary energy use and so it is beyond the scope of this paper. The remaining fossil fuel (77%) is used as primary energy in the power generation, water desalination, industrial and transport sectors. This paper does not include energy conservation and oil saving in the transport sector where 28% of the primary energy in KSA is consumed (mainly as oil). About 55% of the primary energy in KSA is used in power stations and desalination plants for generating electricity and desalinated water. Of this, 44% is used in power stations owned by the Saudi Electricity Company (SEC) and the remaining 11% is used in co-generation desalination plants. The remaining primary energy is consumed in the industrial sector (11%) and other sectors (6%) such as agriculture and construction(Saudi Electricity Company,2009).

0

500

1000

1500

2000

2500

3000

2004 2006 2008 2020 2030

P ri m

a ry

e n e rg

y ,

T W

h /y

Gas

Oil

1366 TWh

2035 TWh

2593 TWh

Fig. 2. Growth of primary energy demand in KSA (without feedstock).

3.1 Primary energy consumption in the power generation sector

The Saudi Electricity Company (SEC) controls the electricity sector and owns a total of 70 power generation stations. The current power generation capacity is around 39 GW of which 89% is owned by SEC, 6% from desalination co-generation plants and 5% from on-site

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generation (mainly at ARAMCO’s sites). The breakdown of power stations under the control of SEC in terms of capacities is shown in Figure 3(Saudi Electricity Company, 2010).

0

5

10

15

20

25

30

35

40

2005 2006 2007 2008

Generation

capacity, GWe

Gas turbines Steam turbines CCGT Diesel engines

Fig. 3. Breakdown of actual generation capacity (GW) in SEC power stations (2004–2008).

In 2008, the more-efficient combined cycle gas turbines (CCGT) accounted for only 7% of the total capacity with steam and gas turbines making up the majority of the generating capacity. The electricity generated from the different types of power generating stations is shown in Figure 4.

0

50

100

150

200

250

2005 2006 2007 2008

Electricity

produced,

TWhe/y

SEC – Gas turbines SEC – Steam turbines SEC – CCGT

SEC – Diesel engines Desalination plants Large consumers

Fig. 4. Breakdown of electricity produced from different generation technologies (2004- 2008).

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The fuel consumed in power stations amounted to 604 TWh (355 million barrels of oil equivalent) with 55% being from oil and 45% from natural gas. Based on 2008 fuel consumption and electricity production figures, a nominal power generation efficiency of 29.5% is obtained for all power generation in Saudi Arabia. This efficiency is low in comparison to world averages. For example, the average power generation efficiency for UK power generation is 38.6%(Electricity and Cogeneration Regulatory Authority,2009). If retiring power stations in KSA are replaced by CCGT, higher efficiencies from the power sector can be expected, as modern CCGT power stations are capable of delivering seasonal efficiencies in the order of 45%-50%, based on KSA climate conditions.

While fuel consumption in SEC power stations has been gradually increasing, the share of natural gas has decreased from over 50% in 2004 to 45% in 2008. Thus, there could be a great potential in the power sector for gas to replace oil which will then lead to additional oil exports and so contributing to economic and environmental benefits. The switch from oil dominated electricity generation sector to more natural gas, will lead to more oil becoming available for export, improved generation efficiency and reduction in CO2 emissions.

In order to satisfy future growth, it is predicted that an additional 35 GWe of electricity generation capacity, with an additional capital investment of $120 billion, is required in Saudi Arabia by 2030(Elhadj,E.,2004). If the current power generation mix is maintained, fuel consumption in the power generation sector will be 48% of the total primary energy consumption (2,593 TWh in 2030). If a scenario, where all newly-built power stations are CCGT, is considered, the nominal power generation efficiency could increase to 37% leading to about 20% reduction in predicted fuel consumption and also reducing the need for investment in new generation capacity. This shows the importance of increasing the share of CCGT in the power generation mix.

3.2 Primary energy consumption in the desalination sector

In Saudi Arabia there exists a strong link between water and energy consumption because a large portion of water consumed is desalinated water which is transported for long distances. A summary of water production and demand in Saudi Arabia is given in Figure 5(Abdel-Jawad, M., 2001).

Desalination is an energy intensive process. In Saudi Arabia, in 2008, a total of 153 TWh (57% gas and 43% oil) were used to produce 1135.6 m3 of water and 19 TWhe of electricity. The two main desalination methods used in KSA (and in the Middle East in general) are multi-stage flash (MSF) distillation and reverse osmosis(World Bank,2007).

Power generation produces significant amounts of heat which, if not utilised, will be dumped to the atmosphere. Heat from power generation can be utilised in desalination. Combining power generation with desalination has higher energy efficiency than generating electricity or desalinating water separately, with energy efficiency improvement reaching 10-20% better. So an effective policy is one which promotes the construction of co-generation desalination plants where heat can be recovered and used while at the same time generating electricity.

In order to satisfy future growth in water demand, an additional 20-30 desalination plants with total capital investment of $50 billion will be needed by 2030. If the volume of

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desalinated water doubles in 2030 as expected, and if desalination plants maintain their current efficiencies, fuel consumption by these plants will also double to more than 300 TWh.An effective policy for reducing primary energy consumption in the co-generation desalination sector is to introduce standards for minimum co-generation efficiencies from such plants.

Desalinated water

6% (1135 Mm3)

Non-renewable

underground water

81% (14580 Mm3)

Surface water and

renewable shallow

aquifers

12% (2160 Mm3)

Treated sewage

water

1% (180 Mm3)

Total water

consumption

18,000 Mm3

Industry

11% (2,000 Mm3)

Domestic

9% (1,600 Mm3)

Irrigation

80% (14,400 Mm3)

Fig. 5. Water production and demand in Saudi Arabia.

3.3 Primary energy consumption in the industrial sector

The industrial sector in KSA consists of oil refining, petrochemicals, iron and steel, cement

in addition to other sectors. The average growth rate in the industrial sector is 4.3% with a

total GDP of more than $240 Billion. The petrochemical sub-sector is one of the fastest

growing sectors and has a 1.2% share in GDP. In 2008, primary energy consumption in the

industrial sector reached 150 TWh representing 11% of total primary energy use in KSA.

Assuming a growth rate of 4.3%, this is expected to increase to 379 TWh in 2030.

4. Electricity demand in Saudi Arabia

In 2008, electricity produced in Saudi Arabia was 204 TWh, 11% of which was lost in

transmission and distribution. The total electricity consumption in 2008 was about 181 TWh

mainly in the residential sector (53%) with a consumption of 97 TWh at the user end which

corresponds to approximately 285 TWh (168 million barrels of oil equivalent) at the power

station inlet. Between 2004 and 2008, electricity consumption in the Kingdom has grown at

an annual average of 5.1%. As a result of population and economic growth in Saudi Arabia,

electricity consumption is expected to double to about 360 TWh in 2030.The breakdown of

electricity delivered is shown in Figure 6(Saudi Electricity Company,2010).

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18%

53%

12%

11%

6%

Industrial

Residential

Government

Commercial

Other

23 TWhT&D

Losses

181 TWh of electricity

delivered

204 TWh of electricity

Generated

Fig. 6. Electricity flow in the Kingdom of Saudi Arabia in 2008.

5. Growth of primary energy and electricity demand

Figure 2 above shows the expected primary energy consumption in 2020 and 2030. Based on the discussion in Sections 2, 3 and 4 above, future primary energy demand in different sectors is estimated as shown in Table 1. Table 1 gives a summary of the assumptions undertaken in obtaining the future primary energy demand in KSA in 2030 for the power generation, desalination and industry sectors following a business-as-usual (BAU) scenario. As stated above, primary energy consumption in the transport and the “other” (including agriculture, construction industry, etc.) sectors are excluded from this study.

According to the BAU scenario, the share of the total primary energy demand for these three sectors increases from the current 66% to 74% in 2030. Based on the BAU scenario, the annual growth rate for primary energy demand in Saudi Arabia as a whole is 3% and in comparison with 1.6%/annum worldwide growth demand projected by the IEA(International Energy Agency,2009). For the three sectors in Table 1, a growth in demand of 3.4%/annum is estimated indicating the importance of implementing primary energy saving measures in these sectors in particular.

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Sector Projection Current, TWh/y

CO2 emissions, T

CO2/y(1)

2030, TWh/y

CO2 emissions, T CO2/y(3)

Power generation

Fuel consumption in the power generation sector is approximately 600 TWh.

The power generation capacity and power output

are expected to double. Assuming the same

generation mix (i.e. CCGT, steam turbines, gas

turbines) is maintained, fuel consumption will also

double.

604 328 1208 655

Desalination

Municipal water demand will increase from the

current 1.6 billion m3/year to 3.4 billion m3/year in

2030. Assuming the same share of desalinated water in the municipal sector is maintained (i.e. 70%), an

additional 1.3 billion m3 of water from desalination

processes will be required. The trend in KSA is to

build cogeneration desalination plants, so a

doubling of primary energy consumption is almost

required. Using the ratio of desalination capacity in 2030 and currently, the

energy use in 2030 is 325 TWh.

153 77 325 179

Industry

Using a growth rate similar to the current rate (i.e. 4.3%), the demand by

industry in 2030 is 379 TWh

150 54(2) 379 135(2)

(1) Based on emission factors of 350 g/kWh for gas and 700 g/kWh for oil. (2)The smaller emissions from industry are due to the much higher natural gas consumption in comparison to oil. (3) Assuming same energy mix and same emissions factors

Table 1. Summary of current and future (business-as-usual) primary energy demand by sector.

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6. Energy efficiency challenges and barriers

The challenge electricity-generating utilities face is the provision of secure and stable supplies of electricity to their customers. A major tool in meeting this challenge is energy efficiency; however, both challenges and barriers face multi-faceted cultural, economic, technical, and institutional problems, which may require mandatory and educational initiatives to overcome them, as well as institutional reorganisation

6.1 Cultural barriers

The historical low fuel and electricity prices, along with decades of increasing prosperity, have led to an endemic culture of profligate energy usage. The high standards of living taken for granted by new generations of Saudi youths entering the workforce depend on secure and stable energy, yet these figures strongly indicate that unless energy-efficiency measures are swiftly incorporated at all levels of the supply-demand equation, economic development may not be able to meet expectations. The problem is compounded by the twin growth profiles of population and per-capita energy consumption. From 2002 to 2006, the population has grown by an average of 2.6% p.a. and per-capita energy consumption by an average of 6.1% p.a. Over the same period as shown in Figure 7, SEC’s generating capacity has grown by an annual average of 5.4% yet total peak loads have grown by an annual average of 7.6%. Total consumption increased from 128,629 GWh in 2002 to 163,147 GWh in 2006, an average increase of 6.7% p.a. Although in absolute terms the increase in residential consumption during the period was greater than the combined total consumption of the agricultural and commercial sectors, expressed as percentages, the greatest average annual increase was in the commercial sector at 13.4%, followed by the residential sector at 7.9%. The smallest increase in consumption was in the industrial sector, which only increased by industrial consumption by 2.8% p.a. (Ministry of Water and Electricity, 2006).

Fig. 7. Growth of Saudi electricity utility generating capacity and total peak loads in Saudi Arabia. Solid lines (1976-2007) are MOWE statistics; dashed lines (2008-2023) are projections.

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Despite the large annual increases in electricity consumption there is currently limited interest in the subject of energy efficiency among consumers from any sector, and little awareness of the opportunities available to them or of the benefits of specific energy efficiency technologies and practices. The recent government decision to abolish electricity price subsidies may provide an impetus to change this into a culture of energy efficiency; however, for this to happen, consumers need to be energy aware and tariffs need to actually reflect the true costs of generation, transmission, and distribution.

6.2 Economic barriers

The Saudi Electric Company needs to raise at least SR 380 billion in investments for the period 2009-2017 (Saudi Electricity Company,2009) if it is to ensure security of supply and meet its capacity increase targets. Although there are proposals to open the electricity generating industry to private sector involvement, the high capital costs and low tariffs mean that it would not be an economically viable investment. This is especially the case in sparsely-populated rural areas where the low customer density profile means that the cost of generation and distribution to utility companies may be significantly higher than in urban areas where customer densities are much higher.

Saudi financial institutions have yet to make major investments in energy efficiency projects. Despite many projects offering 2-3 year payback periods, committing capital to investments in new energy technologies is still considered an adverse risk. A similar attitude is found in all electricity consumer sectors. Not only are they also reluctant to make investments in energy efficient technologies, but the direct and indirect medium- and long-term economic gains of energy efficiency are often overlooked in favour of the short-term capital-cost savings available with cheaper equipment and work practices.

Although the Government recently decided to abolish electricity price subsidies, costs to consumers have risen, and environmental costs are still not internalised in energy tariffs. To make sustainable reductions in energy use, consumers must see clear financial benefits: Subsidized energy prices mean consumers have little incentive to save energy. Even assuming that consumers had accurate information about the benefits of energy efficiency measures, had a range of energy-efficient appliances from which to choose, and had the financial means to purchase them, there would still be little economic reason for them to do so because electricity tariffs are lower than the expected avoided costs of electricity. In addition, despite import duties on electrical goods, the market is flooded with cheap imported products.

6.3 Technical barriers

Perhaps the biggest problem facing the energy supply sector is the large seasonal variation in electricity consumption. In the hot summer season, there is increasing energy demand for air conditioning, especially by the residential and commercial sectors. Figure 8 shows a chart of the daily variation in peak load and the daily temperature profile measured in Riyadh on 09 September 2006. Peak load follows temperature throughout the day, with minimum demand and minimum temperatures in the early morning and maximum demand and maximum temperatures in the early afternoon. Peak load power is provided by gas turbines; they have the advantages of fast start-up times and can quickly respond to changes

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in demand, but have the disadvantage of being relatively inefficient. An additional disadvantage is that during peak hours, when demand is at a maximum, ambient temperatures are also at a maximum, which can degrade turbine efficiencies by up to 20%.

Another problem is the low reserve available generation margin. In Figure 7, the generating capacity of the electric utilities from 1976 to 2007 is shown along with the total peak load. Each increase in generation capacity is met by an increase in consumption. In 2002, generating capacity increased by 9.6%, but the following year, 2003, saw consumption increase by 9.8%. In 1996, 2001, and every

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