Oman Power & Water Procurement Company (OPWP) announced in April that it had revised its energy demand growth forecasts upwards. Despite the economic downturn of 2009 and Cyclone Phet of 2010, which led to a much smaller increase in peak power than expected, rising energy consumption over the past five years has put pressure on generating resources.

Looking ahead to 2019, OPWP, which is the single buyer for all of Oman’s private power generation, forecasts growth in peak electricity demand of 9.5 per cent a year in its Main Interconnected System (MIS). This compares with its 2012 forecast of 8 per cent growth a year. 

Building capacity

The MIS covers 600,000 customers in the more densely populated north. A second smaller system covers 70,000 customers in Dhofar and Salalah. Forecasts for the Salalah system have also been upgraded, with demand expected to grow by 12 per cent a year rather than the earlier prediction of 10 per cent.

The new figures were revealed after actual peak demand in 2012 exceeded expectations. In the MIS system, demand hit 4,293MW compared with the projected 4,216MW.

OPWP was able to ride out that summer peak, having contracted 300MW of temporary power capacity and by the time the next summer arrived in 2013 new plants, Sohar 2 and Barka 3, were operational and delivering an additional 1,490MW of capacity.

Current contracted capacity for the MIS system is 5,589MW – this assumes that 433MW from the 2,000MW Sur independent power project (IPP) came online this year as planned, ahead of the full commissioning in April 2014.

The developer is Phoenix Power Company, a joint venture of Japan’s Marubeni Corporation and Chubu Electric Power, along with Qatar Electricity & Water Company and the local Multitech. All parties have declined to comment on local news reports claiming that this first phase had been delayed. Once the plant is fully operational in 2014, contracted capacity in the MIS system will reach 6,910MW. The forecast for peak demand in 2014 is 5,239MW.

Oman is experiencing the kind of underlying growth that means it cannot afford to delay future projects

Although the current situation shows a comfortable reserve margin, Oman is experiencing the kind of underlying growth that means it cannot afford to delay future projects. This is being driven by rising electricity consumption from small to medium-sized consumers such as houses, commercial centres and government buildings. In the short term, there is plenty of generating capacity to meet this demand, but medium-term forecasts show the need for more capacity to be built.

Crunch point

The crunch point comes in 2017 when peak power demand is forecast to hit 6,783MW, but contracted capacity is set to fall to 6,516MW. The decline is due to the 285MW Al-Kamil power plant reaching the end of its power purchase agreement (PPA). There is also the potential for consumption to once again exceed forecasts as it did in 2012. Under a high demand scenario of 11 per cent growth a year, a new plant or plants could be needed in 2016.

Oman does have contingency reserves, however, with power available from Sohar Aluminium Company (300MW) and the Abu Dhabi interconnector (200MW), for example. However, under its licence arrangements OPWP must ensure it has enough contracted capacity to make sure demand does not exceed it for more than 24 hours in any year.

Aware of the need to move ahead with new projects, OPWP has invited expressions of interest in building a new IPP or independent water and power project (IWPP) near Muscat to be partially available in 2017 and fully operational in 2018. Tendering is expected to start in 2014 and OPWP estimates 2,500MW-3,000MW will be procured. At the same time, studies are under way to determine further projects:

  • a coastal site study is being carried out to determine locations for future IPPs and IWPPs;
  • a resources options study is currently being tendered to determine the strategy for future private power schemes including fuel and technology options;
  • data is being collected to inform plans for a 200MW solar power station;
  • and US consultant NERA has been carrying out a strategic review related to the expiry of existing PPAs.

Al-Kamil is just the first of many agreements set to reach the end of their life over the coming years: the 435MW Barka 1 follows in 2018. OPWP is planning to create a policy framework for dealing with the process. There is the potential these agreements could be renewed, but even if all the existing PPAs were renewed, new generation capacity would still be required.

Duqm development

A new power plant is also expected to be built in the Duqm area in Al-Wusta governorate, which is not connected to the MIS. A decision on this has been the subject of some controversy in the past, with plans for a coal-fired power plant axed in March 2010 after years of planning.

The original plan was to connect this 1,000MW facility into the MIS, but environmental lobbying against coal led to a gas-fired plant being considered instead. The Duqm area is currently the responsibility of the Rural Areas Electricity Company (RAEC) and to date it has been powered by a 67MW diesel-fuelled power plant.

The scale of development in the area, with projects such as Duqm Frontier Town under way, means peak power demand could increase to as much as 150MW by 2019. OPWP is still studying how to proceed and is considering whether the plant will be part of the MIS or just a local generation facility. If this is the case, it would be much smaller than the earlier planned facility.

More progress has been made in the industrial sector at Duqm, with the government introducing a new centralised utility model to provide power, steam, water and wastewater treatment to industrial customers in the Duqm Special Economic Zone. Centralised Utility Company (CUC) is a joint venture of Malaysia’s Sembcorp Industries through Sembcorp Utilities (Oman) and the local Takamul Investment Company.

The model is new for Oman and will see CUC act as a centralised utility provider to industrial customers including Oman Oil Company (OOC), Takamul’s owner, which is building a new 230,000 barrel-a-day refinery at Duqm that will start up 2018. Separate supply companies will be set up by CUC to generate the energy, water and onsite logistics, with operation and maintenance being undertaken by CUC.

The scheme is Sembcorp’s second major project in Oman; its 445MW Salalah IWPP began operations in May 2012, joining the 273MW Raysut facility in providing electricity to the Salalah system. A joint venture of Sembcorp and Oman Investment Corporation, the Sembcorp Salalah Power & Water Company, followed the successful commissioning with a flotation on the Muscat Securities Market, offering 35 per cent of company shares and raising $173m.

The new Salalah plant also produces 68,000 cubic metres a day (cm/d) of desalinated water – a welcome addition to the south, which previously relied on groundwater supplies. The Directorate General of Water (DGW) wants to reduce this abstraction and reserve these resources for contingency supplies.

Based on current forecasts of 6 per cent annual growth in peak demand, a further 18,184 cm/d will be required by 2019. However, DGW says it plans to wait for confirmation of demand from consumption figures over the next few years before it makes any decisions on new desalination projects.

Oman has committed to building another IPP in the area, though. Eight companies have submitted bids for the 230MW-400MW Salalah 2 IPP, where the UK’s PwC is financial adviser, DLA Piper, also of the UK, is legal adviser and Germany’s Fichtner is technical adviser. The project is set for commissioning in 2016.

Upgraded projections

Procurement is also under way for a new independent water project (IWP) at Qurayyat, south of Muscat. The plant will produce 180,000 cm/d and make a valuable contribution to the country’s growing desalination requirements.

Forecasts here too have been upgraded, with projections of 6 per cent annual growth in peak demand to 2018. In real terms, this means a maximum of 769,000 cm/d will be required in 2013, rising to 1,056,000 cm/d in 2019. Contracted availability currently falls some way beneath peak demand with groundwater supplementing supplies. In 2013, for example, contracted supply was 551,000 cm/d compared with a peak of 688,000 cm/d.

The new plant at Qurayyat, set to start up in 2016, will bring some relief to the authorities. Two years later, another major IWP, Al-Suwayq will add another 225,000 cm/d. Before this, a new IWP at Ghubrah will go live in 2014, but this replaces the original IWPP at Ghubrah, which reaches the end of its PPA in 2017.

Oman has one of the most mature power sectors in the region and has carefully monitored demand to ensure future capacity can keep up. Under the most likely scenario, the new plant will begin phase one commissioning in time to meet the 2017 peak and existing PPAs could be extended to further strengthen supply. But, given that growth recently outperformed forecasts and an approach for existing PPAs has yet to be decided, there remains a danger that demand will exceed contracted capacity in 2016.

Key fact

Oman’s peak power demand in 2017 is forecast to hit 6,783MW, but contracted capacity is set to fall to 6,516MW

Source: MEED