In a new report prepared for the Saudi Electricity and Cogeneration Regulatory Authority (ECRA), Brattle Group economists Ahmad Faruqui and Ryan Hledik demonstrate that the systematic application of demand-side management (DSM) can help address the significant challenges currently facing the electric industry in the Kingdom of Saudi Arabia (KSA).

The KSA faces a number of obstacles in meeting its future electricity needs, including rapid peak demand growth (6% per year), capital-intensive grid expansion (SR 20 to 40 billion per year), low resource utilization, and lost revenue when oil is sold to electric utilities at a substantial loss. The authors contend that DSM can provide a number of benefits, including:

• Free up capital investment that would otherwise be tied up in peaking generation plants for other productive uses in the Kingdom
• Free-up oil that is currently sold to the electric utilities at a significant discount to be exported, yielding higher revenues that can be used to promote economic development in the Kingdom
• Reduce greenhouse gas emissions and improve the health of Saudi citizens, today and in the future
• Allow for complementary development of renewable energy sources and integration of customer-side activities with the anticipated roll-out of the smart grid

The authors recommend that the KSA launch five DSM programs starting in 2012 that will be designed to reduce energy use, peak demand, and improve system load factor. The roll-out of the DSM programs should be followed by pilot programs in the years to come that will test the impact of new pricing mechanisms, innovative technologies, and information delivery mechanisms.

The report concludes that DSM can help to reshape the KSA’s electricity future by reducing growth in peak demand and energy usage. In addition, it can yield significant net benefits to the Saudi society over the next decade.