Oman Energy and Water Conference 2016

May 2016

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Oman Power & Water Procurement Company SAOC

Muscat Electricity Distribution Company SAOC

Majan Electricity Company SAOC

Mazoon Electricity Company SAOC

PWP pays Production Facilities for •Capacity and Output in accordance with terms of PPA/PWPA •Ancillary Services

United Power Company SAOG

Al Rusail Power Company SAOC

Wadi Jizzi Power Company SAOC

Al Kamil Power Company SAOG

ACWA Barka SAOG

Al Ghubrah Power & Desalination Company

SAOC

Future Projects

Direction of payments

Discos pay PWP for •bulk purchases of electricity charged at a cost reflective Bulk Supply Tariff (BST); •Electricity BST includes PWP’s costs of electricity procurement activities

Oman Electricity Transmission Company SAOC

Production Facilities & Others pay OETC for

•Connection to Transmission System

Discos pay OETC for •Connection to OETC’s Transmission System (Distribution business) •Use of OETC’s Transmission System (Supply business)

Water Departments

Water Departments pay PWP •for bulk purchases of desalinated water charged at a cost reflective Bulk Supply Tariff (BST); •Water BST includes the PWP’s costs of water procurement activities

Sohar Power Company SAOC

All intra sector transactions: (i) regulated & (ii) cost reflective (no direct subsidy)

Subsidy

Customers

Market Structure and Regulatory Framework

SMN Barka Power Company SAOG

Al Suwaidi Power Company SAOC

Al Batinah Power Company SAOC

Dhofar Generation Co

SEMBCORP SAOC

Dhofar Power Company SAOC

Muscat Desal. SAOC

Phoenix SAOC

Sharqiyah Desalination

Ownership Structure in the Electricity Sector

Growth Trend in the Electricity Market

Growth Trend in the Desalinated Water Market

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Key Challenges for the Sector

• Provide adequate capacity to meet rapid growth trends • Manage increasing gas needs, considering the best

economic use of domestic resources • Align needs for new plants with national policy for land

use and environmental protection • Improve coordination among counterparts, to assure

efficiency in infrastructure development • Take advantage of technological developments while

minimizing risks to capacity adequacy and cost control

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Managing Gas Consumption for Electricity

Efficiency improvements have reduced the per-unit consumption of gas by 31% since 2005 New high-efficiency turbines Increasing share of combined cycle plants Displacement of older plants Improvements in economic dispatch

22-25% additional efficiency improvement in gas utilisation from 2015 to 2021, due to Additional combined cycle plants Displacement of MSF water desalination

While economic development has driven a high 10% annual growth rate in electricity generation, efficiency improvements have held the annual growth rate in gas consumption by the power sector to 6%

Coordinate with Counterparts and Neighboring Systems for Best Economic Advantage

Strategic Project 1: 20-Year Plan/Land Bank 20-year capacity requirements Coordination with MOH for land use planning Coordination with OETC, OGC for infrastructure

planning, for optimum investment plans Streamlined planning process to improve project time

Strategic Project 2: Trade via GCCIA Interconnector Improved grid stability via access to emergency reserves Economic trades for lower cost resources Firm capacity trade as contingency resource

Strategic Project 3: MIS-PDO-Duqm-Dhofar Interconnector Reduced gas use for spinning reserves Coordinated dispatch among systems for fuel savings Improved grid stability for Duqm and Dhofar Optimization of capacity planning Grid access to renewable energy potential in Al Wustah

Improve Procurement Competitiveness and Economic Efficiency in Supply

Strategic Project: Develop an Electricity Spot Market Improve incentives for efficient generation and dispatch Gain access to new supply sources, in addition to P(W)PAs, via an

efficient, market-driven process Reduce prices and improve risk allocation

Timeline for Spot Market Development 2013-14: High level design developed with AER support 2015-16: Detailed market rules being developed, for AER approval 2017-18: Development of IT systems and Market Operations

organization 2019-20: Market Trial followed by Market Operational Launch

Electricity Market Evolution

Pre-2005 2005-Present 2020: Proposed

Spot Market

Renewable Energy Development while Managing Cost Exposure

Preparation for Renewable Energy (RE) Development Resource Options Studies: OPWP conducts studies of RE costs and cost

projections to assess RE vs. conventional resource competition Solar Data Collection: OPWP operates solar instrumentation sites to

collect and publish information for assessing solar power output Dhofar Wind Project: OPWP is finalising a Power Purchase Agreement

with RAECO for a 50 MW project in Dhofar

RE Policy Development RE projects are currently competitive with diesel-fired generators, such

as in RAECO supply areas. Projects are under development. In areas with access to gas for generation, RE projects must be

competitive on the basis of the economic price of gas. AER and OPWP are coordinating to develop an appropriate evaluation methodology.

Provide Adequate Capacity for Varying Demand

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OPWP must procure sufficient generation capacity to meet peak demand: the highest demand in the year

Much of installed capacity is underutilized:

Average summer load is more than double the average winter load

On any given day, peak demand is much higher than minimum demand

Generally the higher cost generation operates only during peak periods in summer

Demand Management

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International Trends: Many countries provide incentives for consumers to alter

the demand profile, to reduce the need for new generation capacity or to reduce electricity consumption

Often less costly than generation supply

Energy Efficiency (EE) Improvement:

Reduces overall energy consumption, though not necessarily evenly over the demand profile

Approaches include tariff reform, EE labels for consumer appliances, EE building codes, etc.

Impacts often take years to achieve AER is leading program planning for the sector

Demand Response (DR): Targets load reduction for a specific time period Typically shifts consumption to another time period, with

no net effect on total consumption OPWP is developing DR with large industries

OPWP’s Demand Response Target

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Observations: The load duration curve indicates a target

for load reduction Similar to most power systems, peak

demand conditions on Oman’s Main Interconnected System last a short time 500 MW was needed only 100 hours in

2014 300 MW was needed only 10 hours

The equivalent of an entire power plant, a large investment, is needed to meet extreme peak conditions which occur on only a few days each year

OPWP’s Demand Response Opportunity

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Opportunity: If customers can reliably

reduce their load for only a few hours on peak days, OPWP could avoid contracting for additional generation capacity

Only around 10 “instances” of demand reduction may be needed to achieve at least 300 MW of demand response

Key elements of successful DR programs: 24-hour advance notice of demand

reduction instruction to customer Commitment to limited number of DR

“events” in a year (e.g., less than 20) Limited duration of reductions, to

minimize disruption to customer Transparent remuneration

OPWP’s DR Initiative

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2015: Initial evaluation

2016: Program development

Design elements for pilot program

“Proof of Concept” trials

Assessment, refinement of program design

Regulatory approval

2017: Program implementation

Recruitment of participants

Evaluation of results

2018: Program expansion

Thank you.