Inexpensive renewable electricity enables Saudi Arabia's fuel price reforms

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 be 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 cease due to price reforms, renewable technologies mitigate the scarcity of natural gas. For instance, lower natural gas use by the electricity sector would result in a market-clearing (meaning, demand equals supply) natural gas price of 3–4 $/mmBtu in 2040 with the deployment of renewable technologies. The projected rise in Saudi natural gas supply and these prices are sufficient to accommodate nearly 50 GW of renewable electricity capacity. 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. While renewable electricity reduces energy system costs, the magnitude of these benefits is highly dependent on the exogenously-defined domestic gas availability and the global LNG price. These findings suggest aligning fuel price regulations with renewable electricity deployment to minimize cost shocks and reduce oil use in industrial and utility sectors.