Comprehensive plan: Slump in electricity demand growth prompts major review of power sector policies
Saddled for the first time with excess electricity generation capacity in the face of a decline in demand growth, attributable to the protracted economic crunch as well as the pandemic, the Sultanate is moving to overhaul longstanding capacity planning and procurement policies to support the growth of a more stable sector.
The proposed review is in response to impacts from the downturn that have disrupted, among other things, the planned delivery of a number of market liberalisation initiatives, including the launch of a much-anticipated Spot Market.
The latter initiative — a first of its kind platform planned in the Middle East — will allow generators to compete for the opportunity to offer their surplus capacity to the grid.
Summing up the dilemma currently confronting the sector, the Authority for Public Services Regulation (APSR) stated: “After decades of double-digit growth, Oman is currently experiencing a modest growth in the demand for electricity. This has created a situation of excess capacity and resulted in a conflict between capacity procurement and the intended development of the Spot Market.”
Furthermore, as a result of dampening power demand growth, peak power demand as set out in contracting arrangements between the generator and Oman Power and Water Procurement Company (OPWP), which is the single buyer of output, occurs only a “few hours annually”, it said.
“The duration of the Power Purchase Agreements (PPAs) has been significantly lower than the useful lives of the underlying assets, resulting in incurring high depreciation cost during the lifetime of the Independent Power Projects (IPPs). While the investors recovered their investments faster, the economic cost of electricity remained high,” the Authority explained.
Citing these developments, the Authority has underlined the need for a “fundamental review of the existing system”, including the single-buyer model.
It also noted the need for complementary measures aimed towards “achieving a further electricity market maturity in Oman and embracing new technologies such as distributed generation (DG), solar, renewables, smart meters, and so on”.
To this end, the Authority is preparing to appoint a consultant by competitive tender to provide advisory services in enhancing the planning and procurement efficiency of the Electricity Sector in Oman. A request for proposals (RfP) in this regard was issued by the Authority late last week.
The key objective, according to the regulator, is to help chalk out “a comprehensive blueprint for a holistic development of long-term solutions for the Oman power sector, aiming at an effective capacity utilisation and optimal capacity planning”, along with a roadmap for implementation.
The selected Adviser, the Authority noted, is encouraged to have a fundamental review of the overall electricity market in light of the expected developments in the future and the evolving portfolio of available generation technologies.
“It is important to have a holistic overview of the existing system, and recommend the best possible structure for Oman, in line with international precedence and global best practices.
This includes an assessment of the opportunities advancing the “trade” of electricity with the neighbouring countries in all stages from the short term to the long term; and an assessment of the viability of other non-national electricity parties’ engagement with the current Oman electricity market,” it further stated.
Interested bidders have until February 22, 2021 to submit their proposals, thereby confirming their interest to participate in the competitive tender.
CONRAD PRABHU
@conradprabhu
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