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Study on Renewable Energy Resources, Oman - authority for ...

Study on Renewable Energy Resources, Oman - authority for ...

Renewable Energy Resources in Oman Adding the levy will improve the competitive position of the renewable energy sources in the market place. Environmental Tax makes the 'shadow price' of competing energy sources visible for the users and thereby provides incentives to optimise the energy consumption fuel mix. Environmental taxes are currently in use in many European countries, including Denmark, Netherlands, Germany, Sweden and Norway. Environmental taxes are a meaningful way to level the playing field in the electricity markets, but they are (politically) difficult to agree on the level (abatement costs are difficult to estimate) and often they, over time, provide a fiscal revenue for the Government and can be difficult to change, as the abatement cost changes due to technological changes. 7.2.3 Application in Oman Oman could apply an environmental tax related to abatement cost on electricity production based on the emissions of CO 2 , SO 2 , NO x , and particulates, either at the production level (Generating facilities) or at the purchase level (OPWP). In both cases it would - ceteris paribus - increase the producer's and/or the purchaser's incentive to produce more renewable energy or purchase more renewable energy, due the reduced cost difference between natural gas based production and renewable energy production. Auto-generators would also get incentives to include renewable energy in their production, like other end-users would get an incentive to apply small solar application and purchase less electricity from the Distribution Companies. However, it would require that cost of the environmental tax could be passed on to the end-users. In the present set-up, the Permitted Tariff is determined without taking the cost basis into consideration, this will not happen. As long as the Permitted Tariff is applied without consideration of the actual cost of electricity production, it will not be possible to apply an environmental tax efficiently. Page 108 of 134 .

Renewable Energy Resources in Oman 7.3 Tax Credits Tax credits are preferential taxations schemes for investments in renewable energy or renewable energy production facilities. They are aimed at providing incentives for investments, normally by lowering taxation in the first years after the investment either in the form of deductions in taxable income and/or accelerated depreciation schemes. In many countries the VAT is also lower than the general level. The mechanism is basically the same as a direct subsidy to the renewable energy producers. Whether an incentive is a credit or a cash payment makes no difference from the investor perspective. However, politically it can be important whether an incentive is paid by the consumer as a levy or by the taxpayer within the general taxation. The schemes are parallel to the tax credits provided in a number of countries to foreign investors in order to attract foreign investments. Tax credits are very common world wide. Examples of countries using credits are: Netherlands, Portugal, US, Greece, Spain, Ireland and Germany. Examples of tax credit schemes in the EU are presented in Appendix 11. The schemes typically comprise a maximum reduction in the taxable income, either of the income earned from investments or fractions of the investment made in renewable energy production. The schemes are typically effective during the first years after investment. The United States also have a very comprehensive tax credit system, the socalled federal Production Tax Credit (PTC), which currently have a value of approximately 2 USc per kWh produced. Tax credits provides incentives for investment, but also have the general disadvantages that they distort competition and pricing and they can end being provided to investments that would has taken place anyway. 7.3.1 Application in Oman Oman does not have tax credit schemes in the energy sector today. It is a measure that Oman could pursue in order to attract investments in renewable energy facilities. Tax incentives for wind energy producers could close the current gap between wind energy production cost and gas turbines that will be the choices in the future expansion of electricity production in Oman and if applied also for production of renewable energy equipment, it would also support development of a local industry. The exact design must be adapted to the current company and tax regulations. Financing of the credits is provided by the Government. Page 109 of 134 .

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