Keen to Green
The potential for solar power was flagged in June 2008 with the release of the country’s first extensive study on the feasibility of renewable resources, undertaken by the Authority for Electricity Regulation, Oman (AERO). It concluded that even despite the higher cost of capital, solar power should be utilised for electricity and water production

Cutting the fat’ – that is losing extraneous expenses – is a term being echoed around the globe as consumers, companies and governments alike adjust to a serious depletion of liquidity and demand across all sectors. Many national budgets in 2009 are operating bare-bones style, where basics like public utilities, infrastructure gain increased prominence over more complicated and costly goods and services such as top-end real estate. In the Middle East, the money will naturally flow where it is most needed. One such area is power generation capacity – recent estimates hold that the region needs $500bn worth of electricity infrastructure meet demand for power over the coming years.

While the global economy remains sluggish, Oman and other states across the Gulf region can capitalise on the lull by building up public works infrastructure so that when business inevitably picks up, power supply concerns will be a thing of the past. In Oman, the real interest of this progression lies in the extent to which the Sultanate will reinvent its power infrastructure away from natural gas and toward renewable resources.

Work in progress
With an arid climate and rapidly growing industrial sector, Oman is well-acquainted with power and water supply concerns. The Sultanate has been designing capacity-building solutions long before the 2008 credit crisis began. The state-owned Oman Power and Water Procurement Company (OPWP) is currently overseeing five privately financed independent water and power projects (IWPPs) in various stages of development. Scheduled to come online over the next four or five years, these will collectively contribute about 3,900 additional MW to the nation’s current power generation capacity of about 3,031 MW, as well as approximately 78mn imperial gallons per day (MIGD) of water supply.

The new capacity will help to quench Oman’s growing appetite for electricity, which, in its annual seven-year statement released last March, the OWPP estimated to be increasing by about 10 per cent each year. But, as all are powered by either natural gas or coal, they will not aid Oman’s quest toward a greener economy, a main tenet of its Vision 2020 development plan.

Currently, all electricity in Oman is generated by liquefied natural gas (LNG), but the government has made clear its intention to diversify away from LNG due to its price volatility, low domestic supply and environmental damage. The ‘all-gas’ strategy is problematic in the medium-to-long term for obvious reasons. Even with new LNG supplies being pumped in from Qatar via the Dolphin Gas Project, demand stands to outpace supply. Moreover, natural gas is a distinctly finite resource – sooner or later systemic changes must be undertaken.

In the short term, Oman is not likely to experience a significant decrease in energy demand despite the tempered economy. The RO800mn that is earmarked for project spending in 2009 should ensure that development continues apace. The government is working against the tide of the global economic downturn, providing energy-intensive industrial and development projects with the fiscal sustenance needed to sustain what looks to be a prolonged and severe recession. But while diversification of feedstock for electricity and desalinated water (which is often produced in tandem with electricity) is certainly on the government’s agenda, it is not yet clear exactly what kind of resource scheme it will choose.

Alternative sources of energy
With an eco-friendly mentality that is fast becoming one of its landmarks, the Sultanate has been seriously investigating the merits of solar and wind power. Perhaps in a sign of things to come, the Public Authority for Electricity and Water (PAEW) is expected to release a tender for consultancy for the country’s first solar energy power plant in March.

The potential for solar power was flagged in June 2008 with the release of the country’s first extensive study on the feasibility of renewable resources, undertaken by the Authority for Electricity Regulation, Oman (AERO). It concluded that even despite the higher cost of capital, solar power should be utilised for electricity and water production. Wind power is also considered to have potential, though its implementation is generally limited by technical reasons. By AERO’s estimations, solar power could theoretically provide for the country’s current electricity consumption of 13900GW and also produce some electricity for export by installing solar collectors on 280km2 of desert area, or 0.1 per cent of the Sultanate’s land area. As an added bonus, solar potential is highest during the summer, when energy demand is at its peak, said the study.

Oman has one of the highest levels of solar energy density in the world – given the right technology, this plentiful (and free) resource could hypothetically power the nation. Serious impediments to large-scale solar power adoption remain though. Perhaps the most daunting are the high initial capital costs. At the moment, long run capital costs also remain higher than traditional fossil fuel systems.

The price difference between the solar and gas-powered electricity is indeed jarring. According to the 2008 study on renewable energy by AERO, newly constructed natural gas fired production costs average $18/MWh for combined cycle gas turbines and $24/MWh for open cycle gas turbines (based on a gas price of $1.5/MMBtu). A solar thermal plant, on the other hand, currently averages $207/MWh. Photovoltaic systems produce energy at a cost of $250-425, depending on the type of system used.

Dropping oil and gas prices have caused the financial incentive to go green to evaporate somewhat. But as we learned in 2008, commodity prices are hard to predict – gas is already showing signs of resurgence and could very well experience another steep climb, putting a strain on utility production in the future. Meanwhile, as with all nascent technology, green energy systems will inevitably increase in efficiency and decrease in cost over the medium-to-long term. The solar power of course dovetails nicely with the commitment to environmental health that features prominently in Vision 2020. Clean energy infrastructure also earns Certified Emissions Reductions (CERs) – carbon credits awarded by the UN that can be traded in a global cap and trade carbon system – that essentially act as financing for green projects. If the United States joins the global carbon market under President Obama, a likely move, the market for and value of such credits will increase dramatically.

Green initiatives
Solar power programmes also provide significant opportunities for job creation and Omanisation, a persistent and significant issue in the future sustainability of the economy. The environmental market in the Middle East, of which energy takes a large share, is worth an estimated $12bn. Once the government gets the ball rolling, green energy initiatives would most likely attract much attention from the private sector, even in a difficult economic environment, bringing jobs and technical training to the Sultanate.

Some worry that green initiatives will suffer under the tight liquidity markets of 2009. But if the global recession has dampened enthusiasm for the greening of economies in the region, it doesn’t show. The UAE and Abu Dhabi in particular remain committed to eco-friendly projects both large and small, solar panel shades on parking lots to the Masdar project, an emissions-free city within a city. The emirates’ commitment to green technology is a hopeful sign of the region’s political commitment to a clean energy overhaul.

There is no question that Oman will need to continually expand its power infrastructure in order to keep up with future demand. As the Sultanate will surely continue to invest in large-scale investments, utility sector players of all types – from gas to solar companies – will be keeping a close eye on government plans. The dim world economy of this year, and possibly next, might be an ideal time for Oman to make systemic changes to its energy sector and step out of the shade and into the sun.

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