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4. Increasing the reserve to peak demand to 12% from 10% now: This reserve margin was just at 2.3% back in 2012 and SEC was assigned a target of 10% which management expects to fulfil. In light of the recent improvements and SEC’s ambitious capacity expansion plan (SAR240bn / (US$64bn in capex over the 2016- 21), the target looks realistic to us. 5. Reducing the outages of more than 5min to 3.0 per year from 6.4 per year now and the average outage time to 120 minutes from 262 minutes now. This goal will likely be achieved through the ongoing investments in expanding and improving SEC’s transmission and distribution network (half of the overall capex incurred in 2015 went to these two segments). 6. Increasing the access to electricity to 99.5% of the population from 99% now: It is hard to quantify the cost of this objective, but we believe that it entails increasing the reach to the remote Eastern and Southern regions of the country where the economics of expanding the transmission network are not relevant. 7. Reach 86 GW of installed capacity vs. 69 GW at the end of 2015 (incl. 50 GW at SEC alone): The target is in line with SEC own current ambitious expansion plan (22.8GW to be added over five years to reach 68.3 GW by the end of 2018) and factors in additional capacity from SWCC and IPPs as well. 8. Generate 4% of the electricity from renewables (equiv. to 3.45 GW): we would expect the projects to be primarily based on onshore wind and solar. It is likely that these projects will be fully developed by IPPs under long term power purchase agreements where SEC would be the offtaker and assume the higher cost of the electricity from these RelPP. While SEC has currently no renewable generation capacity at all, it has recently invited expressions of interest for potential lead developers for two 50MW solar photovoltaic projects, which we see as a (modest) step towards the NTP target. Based on the KACARE study on grid impact, Saudi Arabia’s electricity network should be able to integrate up to 14GW of renewables capacity by 2020. Finally, we note that ACWA Power, the largest privately-owned utility company in Saudi Arabia and one of the main IPP players in the country (along with Engie), has developed a proven expertise in wind and solar projects internationally. ACWA is likely to be one of the main players in the upcoming liberalisation plans. Chart 63: SEC’s debt and payables to the gov. Chart 64: Saudi Arabia power generation Chart 65: Saudi Electricity Company (SEC) fuel & GREs grew at 17.4% CAGR since 2009 installed capacity split in 2015 (total: 69 GW) mix for electricity generation (USSbn) 50 40 30 20 10 0 S2SS8SESSSERLIS RNRRRRKRKRARRKRARA m Municipality fee payables m Saudi Electricity Company (SEC) = SWCC purchased power payables m Heavy & light fuel = = Natural Gas - OCGT = Saudi Aramco net payables for fuel cost = Saline Water Conversion Corp. (SWCC) = Government soft loans m@ Natural Gas - CCGT m™ Other Long-term government payables m IPPs and others Source: SEC, BofA Merrill Lynch Global Research Source: SEC, BofA Merrill Lynch Global Research Source: SEC 74 GEMs Paper #26 | 30 June 2016 OS merrill Lynch HOUSE_OVERSIGHT_016184