2. Requirement to Evaluate Projects Using ‘Economic’ Fuel Cost Assumptions
The cost of electricity supplied to RAEC customers, and RAEC subsidy, will for each Article (87) funding request be evaluated using estimates of the economic cost of diesel fuel rather than the subsidised price and an assumed profile of fuel cost escalation, in accordance with guidance provided by the Authority.
The Authority believes fossil fuel subsidies are distorting comparisons of renewable and fossil fuel electricity production costs to the disadvantage of renewable technologies. Requiring RAEC to apply economic estimates of diesel fuel costs, just as PWP is required to apply economic estimates of natural gas costs when evaluating proposals for new IPPs, will support the selection and deployment of renewable energy technologies where it is economic to do so.
3. Procurement & Project Structures
Renewable energy technologies included in requests for Article (87) funding may be procured either:
(a) on an EPC basis by RAEC in accordance with its general tendering process. RAEC would subsequently own and operate the renewable technology; or
(b) pursuant to a PPA with an approved project company. In this case, RAEC would not make any capital investment or own or operate the renewable technology element of a project, but would be the sole off-taker of electricity from a renewable energy project established on the basis of a BOO structure.
In both cases, projects would be procured in accordance with the Tenders Law and regulations. The Authority will provide detailed guidance to RAEC on technical and economic evaluation criteria for the renewable energy component of a project. RAEC is prohibited from entering into an agreement or PPA for the purchase of renewable energy with a Person who does not satisfy the Authority’s Appropriate Person criteria.
RAEC Compliance with Appropriate Person Criteria
It will be important to ensure RAEC has access to and develops the skills and expert capabilities required to procure, install, commission and operate renewable energy technologies. The Authority has asked RAEC to submit plans for a specialised unit staffed by persons with the experience, qualifications and expertise needed to (i) ensure the technical integrity of tender documents issued to procure renewable energy technologies; (ii) ensure proposals for renewable energy technologies can be properly evaluated and assessed including with regard to the integration of renewable technologies with diesel systems; (iii) ensure the responsibilities assigned to RAEC through a PPA with a renewable energy project company can be properly administered; and (iv) ensure that appropriate consideration of the performance characteristics and cost of renewable energy technologies are afforded due and proper consideration in the planning of RAEC rural systems (both with regard to the expansion of existing systems and new systems).
Announcing the new policy requirements, John Cunneen the Authority’s Executive Director stated:
“These new requirements reaffirm the Authority’s strong commitment to the utilisation of renewable energy in Oman. We believe the Sultanate will derive significant benefit from renewable energy technologies provided these are implemented efficiently, economically and in accordance with prevailing laws and regulations. These new requirements for electrification funding will accelerate the deployment of renewable energy technologies in rural areas and ensure projects are subject to competitive tendering.
“The Authority is grateful to RAEC for accepting the new requirements and understands RAEC is preparing documentation to ensure all future electrification funding requests will comply with the new requirements.
“In terms of process, RAEC will first evaluate the need for new generating capacity in rural areas and complete an electrification pro forma request to submit to the Authority. RAEC will determine how much of the new capacity can be sourced from renewable technology after considering solar and wind resources in the area, the implications for security of supply arising from intermittency, and project economics. RAEC will confirm whether the renewable component will be procured on a PPA or EPC basis and forward its submission to the Authority for approval. The Authority will subject the submission to rigorous technical and economic evaluation and review the tender documentation prepared by RAEC through wich the project would be procured. If the Authority approves the project RAEC would proceed to tender.
“The Authority is pleased economic analysis will be applied to evaluations of renewable energy projects as this removes a significant barrier to renewable energy deployment in Oman: namely fossil fuel subsidies.
“With the new arrangements now in place, the Authority has invited RAEC to submit electrification applications in accordance with the new requirements and we expect to receive the first applications shortly.
“The Authority will not be inviting further proposals for pilot projects as all future renewable energy projects in rural areas will be subject to competitive tendering in accordance with the Tenders law and regulations.
“Allowing RAEC flexibility in the means of procurement will have several advantages: projects procured on a PPA basis will facilitate knowledge transfer from technology providers to RAEC. RAEC can then apply its experience of renewable energy technologies directly through EPC projects that will in turn allow the company to consider the wider application of renewable technologies in very remote locations of the Sultanate, including places where no diesel generation is presently located. The Authority believes that providing some services to citizens is better than providing no services.
“The new approach to electrification funding will allow for the sustained implementation of renewable energy technologies year on year in response to growing demands for electricity in rural areas. This in turn will allow markets to develop in the provision of support services and operation and maintenance activities and provide local employment opportunities for suitably trained Omanis.”
The Authority for Electricity Regulation, Oman ("the Authority") is the Authority responsible for regulation of the electricity and related water sector. The Authority was established pursuant to Article (19) of the Law for the Regulation and Privatisation of the Electricity and Related Water Sector promulgated by Royal Decree 78/2004 in August 2004 (”the Sector Law").
The Authority is competent to regulate the electricity and related water sector pursuant to Article (2) of the Sector Law.
The Authority has a statutory duty to secure the provision of electricity and related water services in all parts of Oman, including rural customers and a duty to protect the interests of Customers.
Rural Areas Electricity Company SAOC is a company authorized by licence granted by the Authority to undertake the regulated activities of electricity generation, desalination, electricity transmission, distribution and supply in various Governorates of the Sultanate, including Mussandam, Al Wusta, Dhofar, Al Daihra and Al Sharqiya. RAEC provides electricity to customers in very remote areas of the Sultanate, all of which is sourced from diesel fired generation.
Article (87) of the law promulgated by Royal Decree 78/2004 as amended provides the Authority with a means of approving funding for RAEC called electrification funding. The purpose of electrification funding is to provide electricity in remote areas where no electricity is provided, and to facilitate significant expansion of existing rural systems.