Inexpensive Renewable Electricity Enables Saudi Arabia's Fuel Price Reforms

Abstract

Saudi Arabia is currently implementing fuel price reforms. The reforms are being executed in phases, where the ultimate goal is to have fuel prices approach their market equivalent values. Using the KAPSARC Energy Model, this analysis shows that such reforms would have been more costly for Saudi Arabia without the availability and cost reductions of renewable electricity technologies. Solar photovoltaic technologies, in particular, have made enacting fuel price reforms more tenable. As the use of oil products for power generation and industrial processes would cease, renewable technologies reduce the expected future need for natural gas. For instance, lower natural gas use by the electricity sector would result in an equilibrium (meaning, demand equals supply) natural gas price of 3 to 4 $/mmBtu in 2040 with the deployment of renewable technologies. Comparatively, this natural gas price would be above 7 $/mmBtu without renewable electricity. The advent of inexpensive renewable electricity lowers fuel costs for all natural gas users in industry and utilities. Moreover, the marginal electricity generation cost with renewable electricity drops by 30%, on average.

Keywords: Renewable electricity, oil, natural gas, fuel price reform, Saudi Arabia