Assessing electricity tariffs’ costs allocation in Saudi Arabia: upcoming challenges for a needed redesign

Abstract

Redesigning electricity tariffs is a key need to enable an efficient integration of end users. The process requires moving from the plain volumetric prices still currently in force in most jurisdictions, to a more sophisticated format governed, among others, by the cost causality principle. The first step to allow for a proper estimation of the changes needed and their potential impact on end users is to assess the current criteria followed to allocate the different sources of costs among them.In this paper, we review the tariff design currently in force in Saudi Arabia. We explore how the costs of the electricity activities have evolved to date and estimate how they are being distributed among the different consumers’ classes. The analysis allows us to highlight the main challenges and potential impacts that will have to be faced to design a novel, economically efficient and socially acceptable tariff methodology in the Kingdom.Redesigning electricity tariffs is a key need to enable an efficient integration of end users. The process requires moving from the plain volumetric prices still currently in force in most jurisdictions, to a more sophisticated format governed, among others, by the cost causality principle. The first step to allow for a proper estimation of the changes needed and their potential impact on end users is to assess the current criteria followed to allocate the different sources of costs among them.In this paper, we review the tariff design currently in force in Saudi Arabia. We explore how the costs of the electricity activities have evolved to date and estimate how they are being distributed among the different consumers’ classes. The analysis allows us to highlight the main challenges and potential impacts that will have to be faced to design a novel, economically efficient and socially acceptable tariff methodology in the Kingdom.