Highly dependent on hydrocarbon exports, but with a vast renewable energy potential, the Sultanate of Oman is slowly taking steps toward sustainability and diversification of its economy and energy sources. This March, Oman Power and Water Procurement Company (OPWP), the country’s main supplier of electricity and water, announced the kingdom’s aggressive plan to cover 30 percent of its electricity needs with renewable energy sources by 2030. The sources it aims to develop are waste energy and solar and wind power. Up to 21 percent of the targeted 30 percent is anticipated to come from solar. OPWP plans to reach 16 percent of its total power generation from renewables by 2025.
Oman is actively trying to train its domestic work force for the renewable energy sector and increase technology transfers from experienced foreign companies.
As solar power in the sultanate is expected to get cheaper, it aims to develop its nascent solar sector and cover a major portion of domestic electricity demand with energy from sun, while creating thousands of jobs by building local production of solar panels and aluminum frames. It is actively trying to train its domestic work force for the renewable energy sector and increase technology transfers from experienced foreign companies. In 2018, OPWP began requesting bids from foreign investors to develop several major solar power and solar-diesel electricity storage projects in the country. It plans to add 4 gigawatts of renewable energy capacity by 2030.
In hopes of building its renewable energy capacity not only from top down, but also from bottom up, the electricity sector regulator of this small Arabian Gulf nation of 5 million, the Authority for Electricity Regulation Oman (AER), is encouraging the growth of rooftop solar panels for homeowners and allowing them to sell excess electricity back to the central grid. Although renewables still constitute a tiny portion of Oman’s overall energy mix (0.5 percent), the percentage is slowly growing.
Installed renewable energy capacity has surged from 1 megawatt (MW) in 2014 to 8 MW in 2018. In the era of declining costs of renewable energy technologies, namely, solar photovoltaic panels and wind turbines, Oman’s embrace of solar and wind energy is as auspicious and timely as it is necessary.
Oman’s demand for energy is expected to rise in coming decades. Strong domestic demand is already forcing this nation, along with other oil-rich countries in the Gulf, to import natural gas. Without tapping its renewable energy potential, it is bound to import more of its energy from abroad as well as fail to reduce its emissions. Oman signed the landmark Paris Climate Agreement in April, 2019.
A 2008 study by Oman’s AER found that 50 percent of homes with 215 square feet of roof space would be able to power themselves with solar energy. The study also showed that 0.1 percent of the country’s desert area could be used for production of 2,800 MW of solar power. Wind is another promising resource for Oman. According to the same study, 375 wind turbines could generate at least 750 MW of power. But realizing the renewable potential has been slow, and the progress is likely to be stalled without bold reforms in the energy sector.
More than other oil-rich countries in the region, Oman has faced economic pressure to reduce its fuel subsidies and spending since 2016 in order to ameliorate rising debt and interest rates.
The collapse of oil prices and prolonged low-price environment since 2014 have forced the Omani authorities to rethink their economic model that has been heavily dependent on oil. Similar to other Gulf nations, Oman has traditionally provided lavish fuel subsidies to its population, which has faced mounting pressures under the low oil price environment and increasing budget deficit over the past five years. More than other oil-rich countries in the region, Oman has faced economic pressure to reduce its fuel subsidies and spending since 2016 in order to ameliorate rising debt and interest rates.
The biggest Middle Eastern oil producer outside the Organization of the Petroleum Exporting Countries, Oman made economic and energy diversification a central part of its five-year plan in 2016. The diversification plan has largely focused on developing fertilizer and petrochemical industries, water desalination plants, and electricity generation. But because oil and gas exports remain major sources of Oman’s national income, it still plans to increase their production levels in the next five years. Such fragmented and contradictory energy policy makes it harder to reform the energy sector and develop renewables in Oman.
Right now, renewable energy sources step into the foot of the country’s well-established oil and gas industry, which continues to dominate the economy. Oil and gas are still key to electricity generation, water desalination, and enhanced oil recovery—an expensive and difficult method of maximizing the production of oil in old reservoirs. Natural gas still covers about 97 percent of the kingdom’s power generation. And of course, there is a built-in self-interest for the hydrocarbon sector to maintain its share of the market.
Oman needs to implement strong economic policies and incentives to support renewables and create favorable conditions for foreign investment into this sector.
Since the government increasingly regards renewables as an important part of the non-oil economic engine of the country, it has to make bold changes for it to grow. Oman needs to implement strong economic policies and incentives to support renewables and create favorable conditions for foreign investment into this sector. Such incentives include, but are not limited to, low taxes or tax credits, feed-in tariffs (i.e., long-term contracts and prices connected to the cost of producing renewable energy), and investment subsidies (i.e., where the government refunds a portion of the cost of installing a renewable energy technology). With more aggressive electricity subsidy cuts aimed at aligning power prices with the cost of production, the government could significantly improve the market competitiveness of renewable energy resources and provide incentives for more efficient use of electricity.
The Arab Spring in 2011 generated protests in Oman that focused on economic issues, such as unemployment, high living costs, and corruption. While the government’s response to protesters was mostly peaceful, and King Sultan Qaboos bin Said al Said pledged more jobs and better economic conditions, Oman’s declining crude oil production and revenues will eventually force the authorities to reckon with the fledgling petroleum-based economy.
They now have a chance to implement genuine reforms to reduce the country’s dependence on hydrocarbons and meet its sustainability goals by liberalizing the energy sector and adopting a comprehensive energy plan that creates favorable economic conditions for the development of renewable energy.