OBG talks to John Cunneen, Executive Director, Authority for Electricity Regulation (AER)

Interview: John Cunneen

As sector regulator, how does AER view the performance of the electricity sector since the market restructuring that took place in 2005?

JOHN CUNNEEN: The electricity sector has expanded rapidly since 2005 to keep pace with the sultanate’s growing demand for electricity. The 18.5 TWh supplied to customers in 2011 was 95% higher than in 2005, an increase driven by 37% more customers and a 33% rise in average MWh consumption per account. This growth supports the introduction of cost-reflective tariffs for large consumers of electricity and highlights the need to further improve energy efficiency.

In 2011 production facilities in the north of Oman required 18% less natural gas to produce 1 MWh compared to 2005. Efficiency gains were also seen among diesel generators in rural areas, which produced 13% more electricity per litre of diesel than in 2005. We are particularly pleased that total technical and non-technical losses fell from about 25% in 2004 to 13.6% in 2011. One major area needing improvement is customer service; electricity companies need to focus more on ensuring customers receive timely and accurate bills.

In addition to improving efficiency, there has been significant progress in new capacity procurement. A new 445 MW independent water and power project was recently commissioned in Salalah and three new independent power projects are being commissioned in the north of Oman. The combined output of these four projects will add a total of nearly 4000 MW of contracted capacity to safeguard Oman’s electricity supply.

In what ways is the government supporting and incentivising renewable energy projects?

CUNNEEN: It is frustrating and disappointing to see the limited progress made to deploy renewable energy given the sultanate’s abundant solar and wind resources. No renewable pilot projects shortlisted by the authority in 2010 have yet been implemented. We now believe that new policies and regulations are needed to support and drive renewable energy deployment in Oman.

The AER recently approved new policy guidelines for rural electrification funding that require all applications to include a renewable energy component (solar or wind) or supporting analysis to confirm that this is not technically or economically feasible.

The electricity sector benefitted from OR177m ($461m) of subsidies in 2011, although if fuel costs are adjusted to reflect their economic (opportunity) cost, then the total subsidy would likely be approximately three or four times higher.

Under the new requirements for rural electrification, the cost of diesel generation will be evaluated using estimates of the economic (opportunity) cost of fuel to ensure fuel subsidies do not result in the selection of sub-optimal and inefficient technologies.

The authority believes subsidies have hindered the deployment of renewable energy in Oman. The new requirements were approved by the authority in September 2012 and will form the basis of rural electrification funding approvals in 2013 and thereafter.

What more can be done to ensure that Oman’s power requirements will be met as the country moves forward with expansion?

CUNNEEN: The government has announced that Oman will not pursue nuclear power for electricity generation. With increasing claims on Oman’s finite gas resources, a key challenge going forward will be to find alternatives to natural gas for electricity generation.

The government has initiated a fundamental review of energy policy that will consider how to allocate the sultanate’s energy resources to sustain economic development, what new sources of energy will be needed to sustain growth, and what policies will be required to support increased fuel diversity.

The AER welcomes the review and hopes it will also consider the institutional and governance arrangements needed to support a broader and more coherent policy framework, and to which entities responsible for the security of energy supply can contribute.