Saudi Electricity Co: A Contrarian Play in a Shifting Energy Landscape

The energy sector in Saudi Arabia is diverging sharply in 2025. While the petrochemical industry grapples with margin compression, overcapacity, and regulatory headwinds, the Saudi Electricity Company (SEC) is defying the trend. With a 23% year-on-year revenue surge in the first half of 2025 and a 40% jump in gross profit, SEC is emerging as a rare growth story in a softening energy market. For investors seeking a contrarian position, the case for energy utilities—led by SEC—is compelling.

The Petrochemical Sector's Perfect Storm

The petrochemical industry, once a cornerstone of Saudi Arabia's economic diversification strategy, is now a cautionary tale. Saudi Basic Industries Corporation (SABIC), the sector's flagship, reported a staggering SAR 4.07 billion net loss in Q2 2025, with EBITDA margins collapsing to 13.6%—a 30% drop from historical averages. Analysts project further declines as global demand stagnates and U.S. tariffs disrupt export flows.

The sector's challenges are structural. Overcapacity in polymers like polypropylene has driven margins down by over 95% in key markets such as China. Meanwhile, Saudi Arabia's $38 billion in annual plastic production subsidies—a figure representing 80% of global subsidies—has masked the industry's true economic fragility. Environmental pressures add to the burden: the Global Plastics Treaty, expected to cap production, threatens to render many petrochemical projects unviable.

SEC's Regulated Growth Model

In contrast, SEC's business model is a masterclass in resilience. As a regulated utility, it benefits from predictable demand and asset-based growth. The company's regulated asset base has expanded significantly, driven by rising electricity consumption (up 10% in H1 2025) and infrastructure investments. With 9.2 gigawatts of renewable energy capacity now grid-connected and 8.0 gigawatt-hours of battery storage deployed, SEC is not just meeting demand—it's future-proofing its operations.

The company's ESG credentials further differentiate it. S&P Global's 2025 ESG rating of 65 out of 100—a 30% year-on-year jump—positions SEC as a regional leader. This score exceeds the global utilities average by 66%, reflecting its commitment to renewable integration, digital transformation, and stakeholder transparency. For investors, this isn't just about sustainability; it's about risk mitigation in a world where ESG compliance is increasingly non-negotiable.

Strategic Allocation: Why Energy Utilities Matter Now

The contrast between SEC and the petrochemical sector underscores a broader trend: energy utilities are becoming a critical hedge against sector-specific volatility. While petrochemicals face existential questions about their long-term viability, utilities like SEC are insulated by inelastic demand and policy tailwinds. Saudi Arabia's goal of generating 50% of its electricity from renewables by 2030 ensures SEC's relevance in the energy transition.

Moreover, SEC's operational metrics tell a story of disciplined growth. Its 19% net profit increase in H1 2025, coupled with a 6% expansion in transmission and distribution networks, highlights its ability to scale efficiently. The company's automation of 38.4% of distribution substations and a 9% fiber optic network expansion further underscore its technological edge.

The Investment Case

For investors, the calculus is clear. The petrochemical sector's struggles—exacerbated by global overcapacity and regulatory uncertainty—make it a high-risk, low-reward proposition. Meanwhile, SEC's regulated growth, ESG leadership, and alignment with Vision 2030 create a durable competitive advantage.

A strategic allocation to energy utilities, particularly SEC, offers dual benefits: capital preservation and growth potential. The company's dividend resilience (SABIC's SAR 4.5 billion interim payout in H1 2025 is a rare bright spot in the sector) and low leverage position it to weather macroeconomic shocks. Additionally, its renewable energy projects—such as the 14 GWh of storage capacity under development—position it to capture value from Saudi Arabia's $8.5 billion NEOM Green Hydrogen Project and other Vision 2030 initiatives.

Conclusion

The energy transition is no longer a distant horizon—it's a present-day reality. As the petrochemical sector falters under the weight of its own contradictions, SEC is rising as a beacon of sustainable growth. For investors with a contrarian mindset, the time to act is now. Energy utilities, anchored by SEC's strategic positioning, offer a rare combination of stability, scalability, and alignment with global sustainability trends. In a world where the old energy paradigms are crumbling, the new ones are being built by companies like SEC.