A number of gas-based power plants coming to the end of their contracts are now banking on two key initiatives to continue to eke out a return on their investments.
The Spot Market, which came into operation in the Sultanate of Oman earlier this year, together with the Direct Sales Framework – a scheme that will allow eligible generators to sell their output directly to large customers – promise to offer a lifeline to power plants falling out of contract.
According to Oman Power and Water Procurement Company (OPWP), the sole buyer of output from the nation’s power and water desalinated plants, Power Purchase Agreements (PPAs) covering a total of around 2,000 megawatts (MW) of generation capacity are due to expire over the 2021 – 2022 timeframe.
Contract extensions for these older gas-based power plants, which came into operation nearly 20 years ago, have been few and far between primarily because they are seen as less efficient compared with their more modern versions. Besides, investments in solar and wind-based renewables capacity are helping conserve and divert valuable natural gas for more value-generating activities.
“Some of the expiring capacities have already been displaced with newer, more efficient, generation plants that utilise less gas per MWh (megawatt-hour) of electricity produced,” said OPWP in its latest Annual Report.
“The expected cumulative annual savings from these non-renewals is approximately RO 50 million. Furthermore, the new mechanisms (spot market and the Direct Sales Framework) provide the sector with options to meet the system generation capacity requirement in a more flexible way, that ensures overall generation cost be minimized,” it further stated.
The Spot Market, also known as the Oman Electricity Market, was brought online in January this year with the goal to provide a mechanism for engaging in wholesale electricity in a manner that takes into account the variation in electricity generation and consumption.
Through the Spot Market, OPWO is able to purchase electricity on a short-term basis based on three key factors: prices that vary every hour during the trading period; electricity demand at the time; and offers from generators.
A separate entity within OPWP currently operates the Spot Market, which is currently implemented within the Main Interconnected System serving the northern half of the country. The scope of the Spot Market could be expanded to include the Dhofar Power System as well in the future.
Another initiative that could help power plants with expiring/expired contracts is the Direct Sales Framework. When implemented before the end of this year, it will enable eligible generators with expired PPAs to agree supply commitments directly with industrial and other large consumers – a mechanism that allows the bypassing of OPWP as the sole offtaker of electricity output.
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