Cost Reflective Tariffs ease power demand growth

Ramifications of CRT on demand growth and subsidy reduction to be fully assessed by year-end

Cost Reflective Tariffs (CRT), a new scheme introduced at the start of this year effectively scrapping all subsidy on electricity supplied to large consumers, is beginning to deliver positive results, according to a top official of Nama Group (formerly The Electricity Holding Company).

Omar al Wahaibi, CEO, however noted that the full impact of the revised tariff system on power demand-supply dynamics and subsidy savings will be known only by the end of the year.

“Following the implementation of Cost Reflective Tariffs earlier this year, large consumers no longer enjoy subsidy on their power consumption,” the official said. “As this tariff scheme is essentially novel in nature, we are still in the process of evaluating the depth and magnitude of the impact on power demand growth, as well as subsidy reduction — details that will become clearer by the end of this year,” he added in comments made at Nama Group’s annual media briefing last week.

An estimated 10,000 government, commercial and industrial customers across the Sultanate, identified by electricity authorities as “large” power consumers, are currently subject to Cost Reflective Tariffs (CRT) that came into force on January 1, 2017. It follows a decision by the Council of Ministers to lift longstanding subsidy on power supplied to major customers consuming more than 150 megawatt-hours (MWh) per annum.

While the CRT scheme does away with government subsidy for the large consumers in question, it does not automatically translate into higher electricity costs for these customers. Rather, it incentivises a shift in consumption from periods of overall peak system demand to non-peak demand — a move that also has the potential to significantly reduce the need for substantial investments in new generation capacity.

The new tariff will be different for every hour of the day, thereby providing the targeted government, commercial and industrial customers with strong incentives to reduce overall consumption.

Importantly, the new tariff scheme has already begun to pay dividends. Development of a major Independent Power Project (IPP) planned at Misfah in Muscat Governorate has been deferred due to an easing of electricity demand growth — a trend partly attributed to the introduction of Cost Reflective Tariffs (CRT).

Around 11 international firms were in the fray for the contract award to build the estimated 750-850 MW capacity plant, dubbed ‘Power 2021’ by Oman Power and Water Procurement Company (OPWP), which is the sole procurer of all new power generation and related water desalination capacity.

In announcing the deferral of the project for at least one year, the state-owned procurer stated: “This deferral of expenditure will greatly assist in containing the level of subsidy provided by government to the electricity sector and also to any increases that may be required in future to Cost Reflective Tariffs.”