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Oman’s Power Sector: Focus on meeting growing demand [free access]

April 11, 2018

Oman’s growing economy, resulting from rapid urban and industrial expansion, fast-growing population and change in lifestyle, has significantly boosted the demand for power in recent years. Thus, developing a sustainable electricity supply is critical to the country’s immediate and long-term future and is high on the Government of Oman’s agenda.

 

The power sector in Oman has witnessed steady growth and development since the start of the independent power project (IPP) programme in 1998. Oman was the first to develop an IPP project under the public-private partnership (PPP) model in the Gulf Cooperation Council (GCC) region. Electricity consumption increased at a CAGR of 10.4 per cent during 2011-16 and stood at 30,358 GWh at the end of 2016.

 

As per the Arab Union of Electricity, Oman’s electricity demand is expected to increase at a CAGR of 8.39 per cent over the next 10 years and reach 228,238 GWh in 2027 primarily due to growing infrastructure, the government’s focus on expanding non-oil sectors and the rising population.  To meet the rising demand, Oman has plans to add over 4 GW of capacity by 2021, including renewable energy-based projects. These plans necessitate transmission development to handle the increased load on the existing transmission system and also provide new evacuation facilities. In line with this, the country plans to add around 685 km of new transmission lines by 2021.

 

Figure 1: Expected growth in peak electricity demand in Oman (GWh)

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Source: Arab Union of Electricity

 

Overview

Oman does not have a single, interconnected power grid network. It has three major supply segments—the Main Interconnected System (MIS), which meets the demands of northern Oman; the Salalah power system in the Dhofar region; and the rural systems, which are operated by the Rural Area Electricity Company (RAECO).

 

As part of the restructuring programme, the government of Oman set up a holding company called Electricity Holding Company (EHC) through which it owns two generation companies in MIS while the majority of the generation segment in MIS is dominated by IPPs. In addition, EHC holds a majority stake in several utilities operating in Oman’s power sector, including three distribution companies in MIS; the power transmission monopoly Oman Electricity Transmission Company (OETC); the power procurement monopoly Oman Power and Water Procurement Company (OPWP); the Salalah power system operator (Dhofar Power Company); and the rural power system owner and operator RAECO. 

 

As of 2016, Oman had an installed generation capacity of 7,842 MW, of which almost 90.8 per cent was in MIS and the remaining was based in the Dhofar region.

 

By the end 2016, Oman’s transmission network comprised about 6,639 circuit km of line length and about 40,471 MVA of transformer capacity at the 132 kV to 400 kV voltage levels. During 2006–16, line length and transformer capacity grew at a CAGR of 7.5 per cent and 14.3 per cent, respectively.

 

In addition to the domestic transmission network, Oman’s grid is interconnected with the transmission system of the United Arab Emirates (UAE) via a 220 kV line from the Mahadah (Al Wasit) grid station to Al Foah. Through this interconnection, Oman is also connected to its neighbouring countries through the GCC Interconnecting Authority’s (GCCIA) grid interconnection system, which facilitates the transmission of power among the six connected countries, namely, Kuwait, Saudi Arabia, Qatar, Bahrain, the UAE and Oman. The connection between Oman and the UAE was established in 2011.

 

Energy sector reforms

Oman is pressing on with reforms for its electricity sector, which involves changing its present tender model and launching a spot market to allow the expiring power purchase agreements (PPAs) of the existing power generation facilities that were established many years ago to compete for contracts alongside new facilities.

 

Under the current system, OPWP purchases electricity from generators through long-term PPAs (15 years) that have just started to expire.

 

The spot market initiative will help improve the efficiency and transparency of the operation of the electricity sector, provide opportunities for diverse generation sources that do not compete in OPWP’s normal PPA tender process, and provide an option for the continued participation of existing generation plants whose PPAs have expired. The market rules governing the spot market are being developed by OPWP under the supervision of the Authority for Electricity Regulation (AER) and in consultation with OETC and other stakeholders.

 

The market is expected to start operational trials in early 2020 and go live by the end of 2020. The geographical scope of the spot market will be the MIS while the Dhofar power grid, the Petroleum Development Oman (PDO) power grid, Musandam, and regional generation under RAECO will not be included at the time being.

 

Power sector expansion plans

Going forward, Oman has ambitious plans to expand the country’s generation capacity by building additional gas-based, solar and wind power plants.

 

There are plans to increase the installed capacity by 3,920 MW during 2018-21. Along with the additions to the generation capacity, 731 MW of retirements from the MIS system are also planned for 2018-19. Key upcoming projects include the 940 MW Ibri IPP power plant expected to be commissioned in the MIS region, and the 438 MW Salalah-2 IPP expected to be operational in the Dhofar region. A combined cycle plant, Misfah IPP, with 1 GW of installed capacity is also planned for 2021 in the MIS region. 

 

The new generation segment developments auger well for the country’s National Energy Strategy till 2040 under which around 10 per cent of Oman’s generation mix is expected to be produced from renewable energy sources, primarily onshore wind and solar by 2025. Therefore, the country plans to invest heavily in the development of its renewable energy capacity over the coming years.

 

To this end, Oman is developing a 50 MW wind farm plant in the Thumrait area, which is expected to be operational by 2019. The wind farm will be connected to the transmission system of Dhofar.

 

In addition, in 2017 OPWP appointed a consortium of international consultants Fichtner (for technical advisory services), Synergy Consulting (for financial advisory services) and DLA Piper (for legal advisory services) for preparing the groundwork as well as the tendering documents for the implementation of a utility-scale solar power project of up to 500 MW. The project will be located in Wilayat of Ibri in Al Dhahirah Governorate and is estimated to cost USD500 million. It is expected to meet the power requirements of some 33,000 homes and electricity will be evacuated through a link to the MIS. Presently, the project is in the tendering stage and bidders are expected to be qualified by the first quarter of 2018 with the commercial operation date (COD) slated for early 2021.

 

To accommodate new generation capacity, incorporate the changes in power flow resulting from the retirement of existing plants and meet future power demand, the grid operator OETC has announced plans to develop around 685 km of new transmission lines, 15,251 MVA of transformer capacity and 18 new substations up until 2021.

 

Nearly 58 per cent of the transmission line addition is expected to be at the 400 kV voltage level, and will be developed mainly to evacuate power from power plants such as Ibri and Sohar. Under the grid expansion plan, some of the major 400 kV projects include the 41-km-long Sohar IPP-3–Sohar Free Zone line; the 250-km-long connection line to the Ibri IPP power plant; the 106-km-long Sohar Free Zone–Mahadha line; and the Sohar Free Zone–Sohar Interconnector Station (SIS) connection lines. All these projects are expected to be commissioned by the end of 2018.

 

In addition, OPWP, PDO and OETC are evaluating the costs and benefits of developing the USD120 million North-South interconnector project, which aims to link Oman’s power networks (MIS in the north, Dhofar System in the south, the Duqm System in the east, and PDOs in Central Oman) through a 400 kV transmission system. Presently, the feasibility study is underway. The financial decisions will be taken between the fourth quarter of 2018 and the first quarter of 2019. The interconnection is expected to come online by 2021.

 

In order to accommodate the expected increase in generation capacity and power demand the OETC is also focusing on developing new substations along with the expansion of the existing grid stations. Some of the major grid stations works to be undertaken by 2021 include construction of the 400 kV Sohar Free Zone grid station (3,000 MVA), the 400/132 kV Qabel grid station (1,000 MVA), the Khaborah interconnection station (KIS) of 1,000 MVA and the 132/33kV Uwaynat grid station (500 MVA); and the upgrade of the Rusail Industrial grid station to 400 kV (1,500 MVA).

 

The OETC has planned significant capital expenditures over the next few years in order to keep up with the strong growth in the power demand. It is expected to invest over OMR458 million on expanding its transmission network during 2018–21.

 

Table 2: List of key transmission projects in Oman

Project

Voltage (kV)

Length (km)

Scheduled commissioning

Upgrade of Rusail Industrial grid station to 400 kV

400

Not applicable

2021

Construction of Qabel grid station

400

1

2019

Sohar IPP 3–Sohar Free Zone line

400

27 km undeground and 14 km overhead

2018

Transmission line to Ibri IPP

400

250

2018

Sohar Free Zone–SIS line

400

42

2018

Sohar Free Zone–Mahadha line

400

63

2018

Construction of Sohar Free Zone grid station

400

Not applicable

2018

Construction of Khaborah interconnection station (KIS)

220

Not applicable

2019

Misfah IPP connection

220

Not applicable

2021

Sumail Industrial 132/33kV grid station

132

45 km overhead, 6 km underground

2019

Rustaq-Wadi bani Auwf–Nakhal line

132

85

2018

Samad 132/33kV grid station

132

38.5

2019

Notes: NA: not available

Source: Oman Electricity Transmission Company

 

Summing up

Oman is set to witness significant growth in power demand in the coming years propelled by the country’s growth.

 

To meet the growing demand, Oman is planning to add around 4 GW of net generation capacity by 2021. In line, OETC plans to undertake a major programme of capital investment that will be spread across the whole network to improve transmission system performance in northern and southern Oman. Therefore, it will be crucial for the country to successfully execute the planned projects that are aimed at building the required capacity for the overall development of the power sector.