Four years ago, King Abdullah City for Atomic and Renewable Energy (KACARE) was established by a royal decree. Public statements highlighted the numerous nuclear and solar power plants that would be built and entered into production during the next 15 to 20 years. Large sums of money have been paid for advisers and global consulting firms to take advantage of their expertise. Memorandums of understanding were signed with several countries, and endless numbers of visits were rolled out by officials and foreign businessmen who are seeking a role in the next big business in Saudi Arabia: solar and nuclear energy.
But four years later, little has been accomplished on the ground, and nothing will be achieved if the government support and incentives that allow the provision of electricity, water and petroleum at subsidized prices continue. The beneficiaries of all these forms of government support are not the needy, unfortunately – the rich are. Helping the needy can be done through direct government support of financial aid or other forms of support within the framework of a wide social safety net, and subsidizing gas prices for them makes sense.
Subsidizing prices for the already wealthy citizens does not help society as a whole, and the rich should not benefit from cheap electricity and gasoline. The price of gasoline in the Kingdom is considered the second-lowest in the world after Venezuela. This generates an enormous waste of the state‘s resources; hydrocarbons represent the only real source of income for Saudi Arabia, and if that is wasted because of excessive domestic consumption from rock-bottom subsidized prices, there’s likely that there will be little left of the country’s wealth for future generations.
Through all the studies conducted by the King Abdullah City for Atomic and Renewable energy, and the Saudi Center for Energy Efficiency, and the King Abdulaziz for Science and Technology, and Saudi Aramco company, and the King Abdullah University for Science and Technology, and the King Abdullah Center for Petroleum Studies and Research, and the Saudi Electricity Company; I’m sure that the Kingdom is able to find effective solutions and develop an appropriate energy road map. But Saudi Arabia has enough centers and scientific research cities, and we do not seem to achieve any significant progress on energy consumption.
While progress has been the exception, the recent steps taken by the Saudi Center for Energy Efficiency to improve the efficiency of air conditioners and home insulators and adding a building Code was a very important one. More than 70% of total household consumption of electricity resulting from the use of air conditioners. This plan aims to reduce electricity consumption by 30% to 2030, as well as to reduce the rate of growth of demand for electricity at rush hour by 50%. Korea, Japan, France and Germany – all of these fully industrialized economies are much larger than the Kingdom’s economy, and yet the rate of energy consumption per capita in these countries is less than in Saudi Arabia. The average per capita consumption of energy resources in Saudi Arabia is 3.6 times the global average.
Saudi’s growing energy demands are now supplied by unsustainable resources, and as consumption increases, the Kingdom will have to allocate ever increasing amounts of hydrocarbon production to meet this soaring domestic consumption. Of course, this continues to lead to a steady decline in the quantities of hydrocarbons that Saudi Arabia can export to fund the government.
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John Sfakianakis is Chief Investment Strategist of MASIC, a Riyadh-based investment and asset management company. This article was translated from Arabic to English, and originally appeared in Alayum.
