The structure of the remainder of the paper is as follows: Section 2 offers a comprehensive literature review. We contribute to the research in the field of fuel-price liberalization by using actual costs for renewable and conventional generation technologies to show which price levels will trigger an energy exporting country's utility sector to diversify its portfolio and reduce the role of fossil fuels. This research examines the Kingdom's commitment to addressing climate challenges and develops a fuel-price ratio based on international fuel-price expectations. However, growing concerns about climate change have become an important factor influencing energy policies in the Middle East and North Africa (MENA) (Griffiths, 2017) and were elevated by the COP21 Paris Agreement, which was ratified by the KSA (UNFCCC, 2016). At present, low prices for gas, diesel, gasoline, and power turned the world's 20th biggest economy into its 6th biggest consumer of oil (Reuters, 2013). This hinders the society's awareness of energy efficiency (Gately et al., 2012), makes investment into renewables financially unattractive, and contributes to a growing cumulative carbon dioxide emissions level (Mansouri et al., 2013). The major reason for the sole utilization of fossil fuel resources lies in the domestic fuel pricing policies that keep prices well below international levels (Alyousef and Stevens, 2011, OIES, 2015). Until now, almost 100% of power generation is based on the domestic fossil fuel sources of oil and gas (Farnoosh et al., 2014), apart from decentralized photovoltaic applications in Dhahran (10.5 MW and 0.035 MW), Tabuk (1 MW), Riyadh (5.3 MW and 0.2 MW), Jiddah (5.4 MW), on Farasan Island (0.5 MW) and at the King Abdullah University of Science and Technology (2 MW).
To meet this increased demand, a substantial amount of power generation infrastructure has been added over the last years. Peak demand reached 56.5 GW in 2014 and annual electricity demand amounted to 274.5 TWh in the same year.
Peak electricity demand has grown by 6.1% per year since 2003. The KSA has experienced remarkable growth in demand for power in the last decade (SEC, 2014) driven by multiple factors, including population growth, robust economic development, improvement in standards of living, harsh weather conditions, industrial development, economic policies geared toward diversification into energy-intensive industries, and low energy pricing regimes that encourage lavish consumption (Fattouh, 2013, Woertz, 2013). It follows examples such as Jordan, Morocco, and Egypt that already implemented energy price adjustments in previous years. This is one of several measures taken by these countries to cope with the loss of revenues from oil and gas sales. As a result of low oil and gas prices over the last two years, several countries in the Middle East (including the United Arab Emirates, Oman, Bahrain, and the KSA) have increased their domestic energy prices since the beginning of 2016 (Mills, 2016). The country also holds the world's sixth largest proven gas reserves (BP, 2014), has abundant solar (Farnoosh et al., 2014) and wind (Alyousef and Stevens, 2011) energy resource potential, and is the world's 13th largest producer and consumer of electricity (The World Factbook, 2017). With about one-fifth of the world's proven oil reserves, the Kingdom of Saudi Arabia (KSA) is endowed with energy resources and is the largest oil exporter in the Organization of Petroleum Exporting Countries (OPEC) (OPEC, 2016).