Oman seeks electricity spot market advice

26 April 2015

Consultants invited to bid to draft rules

  • Oman Power & Water Procurement Company has tendered a contract to prepare detailed draft rules for an electricity spot market
  • It currently plans to introduce the spot market alongside the current power-purchase agreement system
  • The introduction of a spot market system is likely to be met with significant resistance from consumers and the power industry

Oman Power & Water Procurement Company (OPWP) has invited consultants to bid by 8 June for a contract to draft detailed market rules for a spot market pricing system for the sultanate’s electricity sector.

OPWP intends to introduce a spot market, whereby electricity is sold at variable prices according to demand, in 2018, according to its 2015-2021 plan. Under existing plans, the spot market will operate alongside the current system of power-purchase agreements (PPAs). It will increase competition and allow producers to sell excess, older or uncontracted capacity to OPWP. It is unclear how much extra capacity the new market mechanisms will provide.

The rules will be consistent with international best practice, but adapted to the specifics of the local market.

OPWP appointed an expert in March to introduce the new system.

However, the introduction is likely to meet strong opposition. Local domestic consumers are heavily subsidised, while industrial consumers purchase bulk electricity at fixed rates that reflect costs.

Developers are concerned that a spot market alongside PPAs would allow OPWP to manipulate the market by contracting new capacity to drive prices down. The existing PPA system guarantees a high level of certainty and gives confidence to investors.

Transmission and distribution companies received an RO310m ($806m) subsidy in 2013, to compensate for low consumer prices. They received A3 issuer ratings from US ratings agency Moody’s earlier in the month, allowing them to raise debt on financial markets.

Oman’s electricity privatisation law of 2004 sets the framework of privatisation for the sector. While generation is now largely privatised, Oman still has a single offtaker, the OPWP, and publically owned transmission and distribution companies. Canada’s CPCS Transcom International is carrying out astrategic study for the privatisation of Muscat Electricity Distribution Company.

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