Muscat gears up to meet demand

21 October 2014

Faced with rapid population and industrial growth, the sultanate is pushing ahead with independent power and water projects in an effort to avoid shortages

While not the region’s largest utility market in terms of capacity or projects, Oman has played a key role in the establishment of the Gulf’s private developer market. The sultanate was the first GCC member to procure an independent power project (IPP) in 1994, when the power purchase agreement was signed for the Manah IPP.

Since then, Oman’s private developer market has flourished, with 13 of its major power and water installations developed – and now operated – by the private sector under public-private partnership (PPP) contracts.

However, while the procurement of its private utility schemes has generally been successful, a rapid rise in demand for power in recent years resulted in the sultanate suffering from a supply shortfall in 2011. Muscat has a stiff task ahead of it to ensure the sultanate does not face shortages of power or water again.

Unprecedented demand

Oman currently has one of the fastest-growing populations in the world, expanding more than 8 per cent a year from 2012. Combined with Muscat’s push to develop its industrial base as part of a drive to diversify its economy, the sultanate is facing an unprecedented increase in demand for power and water.

Oman’s power and water sector is split into two main parts: the Main Interconnected System (MIS), which covers the capital Muscat and the governorates of Buraimi, Batinah North and South, Dakhliyah, Sharqiyah North and South, and Dhahirah; and the Salalah system, which covers the southern Dhofar governorate.

[Oman] is planning to install an additional 2,600MW of capacity for the Main Interconnected System by 2018

The rate of electricity demand growth in the MIS dropped sharply in 2013 to 3.8 per cent, as a result of low temperatures and a slowdown in economic growth, but this represents an anomaly in the region’s recent history, with peak demand growth having averaged 11.6 per cent a year in 2008-12. In 2011, Oman faced the tightest power market in the Gulf, and blackouts were only averted due to the procurement of temporary capacity to meet the peak summer demand.

Demand is expected to remain robust in the next decade, with Oman Power & Water Procurement Company (OPWP) forecasting in its 2014-20 seven-year outlook that the MIS will record growth of 11 per cent a year, with peak consumption rising from 4,455MW in 2013 to reach 9,133MW in 2020. With current installed capacity of 5,193MW, Muscat is aware of the need to push ahead with new generation projects.

Oman power and water projects
 CapacityStatusCompletion
Power(MW)  
Sur IPP2,000Under construction2014
MIS IPP2,600PQ2017/18
Salalah 2 IPP300-400Bid submission2018
Musandam IPP100Under construction2016
Water(CM/D)  
Qurayyat IWP200,000Bid evaluation2017
Shuwaikh IWP225,000Design2018
Khasab IWP13,000Designna
Duqm IWP30,000Design2017
IPP=Independent power project; MIS=Main Interconnected System; PQ=Prequalification; cm/d=Cubic metres a day; IWP=Independent water project; na=Not available. Source: MEED

Unlike the main network, peak electricity demand growth in the southern Salalah system remained strong in 2013, at about 8 per cent for the year. This follows robust growth over the past 7 years, which has fluctuated between 9 and 10 per cent. OPWP expects this to continue in the period up to 2020, forecasting average annual increases of 10 per cent, due to the area’s expanding population and tourism sector.

New capacity

To prepare for this sharp increase in demand, OPWP is working on a large programme to boost generation capacity. In addition to the 2,000MW Sur IPP, which is currently under construction and due for commissioning by the end of 2014, OPWP is planning to install an additional 2,600MW of capacity for the MIS by 2018. The utility aims to do this by procuring the sultanate’s largest ever IPP.

In August, OPWP received prequalification entries from 11 consortiums to develop 2,600MW over two sites in the Muscat area. The plan is for at least 740MW to be commissioned by the summer of 2017, and for the remaining capacity to be operational in 2018.

In the southern area, the utility is pushing ahead with the 300-400MW Salalah 2 IPP to supplement the existing 445MW Salalah independent water and power project (IWPP), which began commercial operation in May 2012. Three international consortiums are working on bid submissions, which were due on 24 October.

OPWP is also facing strong consumption growth in the coastal town of Duqm, located about halfway between the MIS and Salalah systems, and not currently connected to the grid. With a small population of less than 10,000 people, the town’s current demand for electricity is limited and is provided solely by a 67MW power plant operated by the local Rural Areas Electricity Company (Raeco).

However, the development of Duqm port and the nearby industrial economic zone will generate a significant increase in electricity and water demand. OPWP estimates that demand for power could grow by up to 39 per cent a year until 2020 if the port and industrial zone project is fully realised. The utility is currently undertaking a study to look at the option of developing a natural gas-fired IPP or IWPP to serve Duqm. Muscat is also considering building a natural gas pipeline to supply feedstock for the facility.

Meanwhile, OPWP is assisting Raeco in developing a 100MW IPP in the sparsely-populated Musandam area, Oman’s northernmost region. The plant is scheduled to be commissioned in 2016.

Renewables push

When it comes to developing a renewable energy programme, the sultanate has lagged behind some of its GCC neighbours, but Muscat is now beginning to look at integrating alternative energy into its power sector.

In early October, Raeco announced it is moving ahead with a 50MW wind farm project in Dhofar, partly funded by the UAE, to help boost capacity. OPWP also revealed in its 2014-20 forecast that it is planning to develop one or more solar plants as IPPs with a capacity of 200MW (subject to government approval), which could become operational in 2018.

Rapid population and industrial growth is also resulting in a steady rise in demand for desalinated water in Oman. OPWP forecasts that water consumption in the northern region, MIS and Sur zones will increase by an average of 6 per cent a year, with peak demand growing from 782,000 cubic metres a day (cm/d) to nearly 1.2 million cm/d in 2020.

OPWP is planning two major desalination plants at Qurayyat and Shuwaikh to meet the increase in demand over the next five years. In early September, six groups submitted bids for the contract to develop the Qurayyat independent water project (IWP), located just south of Muscat, which is proposed to have a capacity of 200,000 cm/d. OPWP is aiming to have selected a developer and signed all project agreements by the end of 2014, and has set a date of March 2017 for the start of commercial operation.

OPWP is also working on designs for a 225,000-cm/d IWP at Shuwaikh, which is planned to be commissioned in 2018. Both of the proposed plants will utilise reverse osmosis technology, which is beneficial for standalone desalination plants as it is less energy-intensive.

There are also plans to expand the desalination capacity of the existing Barka IWPP. OPWP is expecting to finalise an agreement with Acwa Power Barka, the project company for the facility, to expand its capacity by 57,000 cm/d by 2016.

The Salalah IWPP, which has a capacity of 68,190 cm/d, is the only desalination facility in the southern region of Oman. The plant has been operating at full capacity since it first began supplying water in early 2013, and due to increasing demand, there is already insufficient supply.

Demand for water in the Salalah area is expected to grow at an average rate of 8 per cent a year up to 2020. As a result, OPWP forecasts that capacity will need to rise to 83,000 cm/d to maintain the reserve margin target.

The southern region has access to groundwater resources, which can be used to meet the shortfall up to 2018, but any further increase in demand could result in a supply gap. OPWP is currently considering options for boosting capacity in Salalah, but a decision on a new facility has yet to be made.

Dam project

In addition to building new desalination capacity, the government is looking at other ways to boost its water supplies. In early September, Saudi Arabia’s Islamic Development Bank agreed to provide $176m of financing for a project to distribute water from the Wadi Dayqah dam, which was built in 2012.

The dam has a maximum storage of about 100 million cubic metres, with the expected yield planned to be in the region of 35 million cubic metres. About 15 million cubic metres will be used for domestic and irrigation water supply, and the remaining 20 million cubic metres will be used to meet potable water demand in the area.

The Public Authority for Electricity & Water is currently evaluating bids for the contract to build the main 125,000-cm/d water treatment plant at the dam. Nine companies submitted bids for the deal in mid-2013.

While Oman’s power and water sector has traditionally not offered projects of the scale of its neighbours, this is beginning to change as a result of rapid population and industrial expansion. The next few years promise to offer some of the largest schemes in the GCC, particularly in the power sector. With Muscat aware that it cannot afford to delay, the sultanate will be a key projects market for both the power and water sectors for the foreseeable future.

Key fact

Oman currently has one of the fastest-growing populations in the world

Source: MEED

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