Electricity use, driven by a growing population and a diversifying economy, is expected to grow by almost 10% annually for the rest of the decade. Peak demand in summer is around twice that of winter, meaning that quite a lot of capacity idles for part of the year while surges in usage cause shortages at other times. The outlook suggests continued growth of consumption and possible shifts to a heavier industrial demand profile.
Numbers Up
Rising demand can be gauged from the increase in registered electricity customers countrywide – up 8.6% in 2012, as numbers grew to 790,277 from 727,483 in 2011. The total electricity supplied to these customers rose by 2.5 TWh (13.2%) to 21 TWh from 18.5 TWh in 2011, following 14.8% growth in 2011. Most of the 2012 addition, 87%, came from Main Interconnected System (MIS), which added 2.1 TWh, an 18.6% increase from the previous year. Majan’s supply rose by 18.6%, while the Rural Areas Electricity Company ( RAECO) was up 19.3% (after rising 11.6% in 2011). This was due in both cases to increasing industrial consumption, according to the Authority for Electricity Regulation (AER). The Dhofar Power Company (DPC) experienced supply growth of 13.6%, up on 4.9% the year before.
Sector Consumption Breakdown
Of the 18.5m MWh delivered on the MIS in 2012, 49% went to residential users, 20% to commercial, 16% to industrial, 13% to government entities, 1% to Ministry of Defence (MoD) properties, 1% to agriculture and fisheries, with a negligible amount going to hotels and tourism. Growth from the industrial sector was strongest, at 36%, followed by hotels and tourism (17%), agriculture and fisheries (15%), the MoD (12%) and residential (10%), with government and commercial both up 8%.
On RAECO’s network, roughly 48% of supply went to the residential sector, 22% to government, 16% to commercial properties, 6% to industry, 4% to the MoD, 2.5% to hotels and tourism, and 2% to agriculture and fisheries. Industrial demand soared 233%, from 9653 MWh to 32,173 MWh, while the MoD’s consumption rose 70%. Usage from the agriculture and fisheries sector rose 20%, residential 18%, hotels and tourism 12%, government 11% and commercial properties 2%.
On the Salalah Power System, supply to residential properties accounted for 38% of the total, commercial 21%, industrial 20%, government 15%, MoD 5%, agriculture and fisheries 1%, and hotels and tourism 0.1%. Commercial demand grew by 23%, residential by some 17%, hotel and tourism 8%, industrial and government by 7% and MoD 4%, while that of agriculture and fisheries shrank by 1% – the only decline in usage in any sector in any of Oman’s three networks.
Electricity Intensity
Electricity intensity, calculated by MWh per account rose 4.3% in 2012, from 25.4 MWh in 2011 to 26.5 MWh. For MIS there was a 4.2% increase, for RAECO 6.5%, and DPC a 4.1% rise. Majan’s electricity intensity increase of 9.9% indicates strong demand growth from industrial and commercial clients. The AER notes that “electricity intensity is an increasingly important driver of electricity demand”. From 2005 to 2012 the average electricity intensity for all power customers in Oman rose 39%.
There is a great deal of variation of usage rates between different sectors. The AER reports that the 148% growth in intensity from industry since 2005 “reflects increased supply to a relatively small number of new industrial customers who are large consumers of electricity”. By comparison, residential and commercial intensity grew 31% and 63%, respectively.
Seasonal Variation
As in other countries in the region, the swing factor between winter and summer demand is very large. Average peak demand on the MIS varies from 2116 MW in January to 4448 MW in July, according to the AER, as usage of air conditioning soars for domestic, commercial and industrial use (air conditioning is still the major driver of residential consumption). July’s peak demand rose 17% from 3840 MW in 2011, while January demand was up 15%. In 2012 temperatures averaged some 40°C during the July peak, while top use in January hit when temperatures reached 25°C (February saw higher peak demand, which took place with the mercury at 23°C, indicating that temperature and use do not always move exactly in tandem). Demand on the Salalah system topped out at 389 MW in June 2012 (up 12% on 2011), while January had the lowest peak at 232 MW (up 6%).
Managing Swings
The change in demand is an important factor for generation companies and the grid to take into account. It naturally means that there is considerable overcapacity in winter, which is thus when most plants undertake maintenance if at all possible. In recent years – including the summers of 2009, 2010 and 2011 – Oman has occasionally experienced power shortages at peak times. The government has responded by establishing temporary “rental” power plants from contractors and has imported heavy fuel oil to power additional capacity.
In the case of localised and short-term shortages, smaller-scale diesel generation is also used – this means of generation is dirty and not particularly efficient in small-scale generators, but cheaper to run than in Oman than elsewhere due to abundant subsidised supply. The summer shortages have intensified calls for diversification of supply, including use of renewables (solar power is naturally more effective in the summer) and imports from the UAE and further afield, which research suggests could be cost-effective. Improvements to demand management, including automatic metering and encouraging more responsible use of power, are being pushed by the authorities. Increasing prices for heavy users (who already pay more than light users in some cases) could also be an effective way of constraining demand, although this may also have an impact on industrial growth.
Demand Forecasts
The demand outlook is for continued strong growth – good news for investors looking for opportunities in independent power plants and related infrastructure. By law, the Oman Power and Water Procurement Company (OPWP) publishes an annual statement that presents a seven-year forecast for power and water consumption for the MIS and Salalah Power Systems, and thus what production capacity will be needed to meet it. On balance, OPWP forecasts growth of 9.5% per year to 2019 for the MIS grid peak demand, to 8106 MW. Its “low case” scenario still sees power demand growing by 8% annually, with peak usage reaching 7190 MW, while its “high case” projection is for 11% annual growth in demand, leading to peak demand of 9133 MW. As the AER itself acknowledges, this is more than 1000 MW above the core scenario – the size of a substantial power plant. These forecasts suggest median energy demand of 41 TWh, a low case of 34.7 TWh and a high of 49 TWh.
The AER expects peak demand in the Salalah system to grow by 12% per year to 848 MW in 2019, with a low-case projection of 7% annually to 625 MW and, if Oman’s industrial development is more rapid than forecast, a high case of 13% growth to 936 MW. This implies expected, low- and high-case energy usage of 5.3 TWh, 3.9 TWh and 5.78 TWh, respectively.
Demand Drivers
Population growth – averaging over 2% per year over the past decade – is the main driver of demand, according to the Electricity Holding Company (EHC). The country’s youth bulge both means that the growth rate is likely to be sustained, and that the number of households will increase at a steady pace as young people set up their own homes – creating further demand. Expatriates also drive demand and new investments in infrastructure are thought likely to attract more foreigners to the sultanate, albeit on shorter-term contracts than previously.
Infrastructure developments are also likely to stimulate demand for power; some of the finished projects, such as airports and railway infrastructure, may boost usage long-term. More significant, however, may be their effect on industrial growth. The development of the Sohar Industrial Zone, in particular, has led to a noticeable rise in industrial power demand. Sohar-based industries including steel, aluminium, ceramics and petrochemicals manufacturing are all energy intensive.
In The Zone
The development of Duqm will further boost power consumption. Special Economic Zone Authority Duqm (SEZAD) covers an area of 1777 sq km and is a key part of Oman’s efforts to diversify the economy. It is expected to attract $20bn in investment in the long term. SEZAD includes a seaport, industrial area, new town, tourism zone, logistics hub, education and training zone, and fishing harbour, connected and supported by a multi-modal transport system that includes Oman’s nascent national railway. According to SEZAD, Duqm’s population is expected to reach 70,000 in the coming years, and 110,000 in the longer term.
Power demand in Oman is, and will remain, driven by factors including economic performance (and thus the oil price), the pace of industrialisation, and population growth. After nearly two years of post-slowdown recovery, indications are that all three point to strong consumption growth in the coming years. While this is good news for investors, it may lead policymakers to consider a greater use of renewables to cover peaks, measures to manage consumption and reforms to subsidies that would make electricity more expensive.
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