How would real-time electricity pricing affect the Saudi power sector in the long-run?

Abstract

This paper shows the effects of real-time electricity pricing (RTP) on the long-run marginal costs of power generation in Saudi Arabia. To do this, it links a multi-sector energy system model with a residential electricity use model. The energy system model contains an economic power dispatch optimization component. The residential framework embeds households, whose decisions are governed by microeconomic principles, in a physical building energy model. The analysis entails liberalizing fuel prices for the power utilities and setting the dynamic prices of electricity equal to the long-run marginal electricity supply costs. The electricity prices are solely offered to households. The key takeaways from this analysis are:•RTP, a form of dynamic electricity pricing, reduces the variability of the marginal costs for Saudi power utilities throughout the day.•Lowered capital spending by the Saudi power sector results from RTP and consequently lower power loads. Moreover, the curtailed investment in power plants would more than cover the costs of residential smart meter replacements.