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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 7.4 Green Marketing Green Marketing is based on the assumption that consumers Willingness to Pay (WTP) is higher for environmentally friendly produced electricity than traditionally produced. Therefore green energy can obtain a premium price at the market, even if the product is identical to the consumer in all other respects. In combination with other measures - green electricity - has proved to be a success especially in the Netherlands, where the first and most comprehensive schemes have been implemented. Ireland is another example of a successful Green Marketing scheme. Currently Green electricity is also marketed in Denmark and Germany at a surcharge. Green marketing requires a concerted marketing effort to promote the products, either from power companies or from specialised authorities. Surveys in Europe confirm that there is a market for green electricity, i.e. some consumers are willing to pay the surcharge, in Europe, it is - however- limited in size. Surveys in Denmark show that nearly 60% of the population is willing to pay 5-10% more for documented green electricity. Surveys and experience in the US show similar results. However, actually only 0.5% of the customers having access actually purchased this product in Denmark. There seems to be a large discrepancy between attitude and actual demand of these products. The 'sustainability' of the production method is documented through certificates of origin. The disadvantage with Green Marketing is seen from a resource allocation point of view, suggesting that green energy that would have been produced anyway can obtain the premium price. One example of this is hydropower produced in Norway and Sweden at very low cost, way below thermal and nuclear production, has been put on the market as green electricity and sold at a surcharge. This production would have taken place anyway and the surcharge does not reflect increased production cost. Similar experiences have been obtained in the Netherlands with wind energy production replacing traditional electricity production on cost terms in some instances. The consumer WTP is also uncertain and unstable over time. Whether green marketing has proven to be a successful concept in US and Europe is very difficult to say, because they are often backed by a politically determined framework for investment in renewable energy. 7.4.1 Application in Oman Green marketing of electricity probably requires a mature market for sustainable products and standard of living in order to generate any impact of magnitude and can probably not stand alone. Therefore green marketing is not recommended as the first measure that should be taken to increase use of renewable energy resources in Oman. Page 110 of 134 .

Renewable Energy Resources in Oman 7.5 Investment Subsidies Investment subsidies are very often used as an incentive to investors in renewable energy production. We will here use wind energy as an example, but investment subsidies can be applied to all types of renewable energy production. Investment subsidies directly to producers are normally based on the rated power production capacity (in kW) of the wind farm. The subsidy decreases cost and makes the investment more feasible. An investor in a wind farm will automatically receive a subsidy corresponding to capacity established. The power produced is sold directly to suppliers or directly to the customer at the commercial rate. They have been widely used in India and Great Britain, but have been abandoned as the only means in an incentive system. In Great Britain it is still in use in combination with other incentives. The reason for abandoning the investment subsidies is because it encourages the establishment of less efficient wind turbines. The experience with investment subsidies in Great Britain and India was that they resulted in: • poor siting, less efficient sites were used; • disproportionately large generators. These large generators improved project viability but produced less kWh than could have been obtained from an optimal generator size; • they attracted manufactures with dubious products; These experiences have lead to the general understanding that efficient production depends on a number of factors and that efficient provision of subsidies should be related to the production (kWh) rather than rated capacity. At least for wind energy the trend is to reject investment subsidies as the only incentive, because it is considered economically inefficient. In combination with feed-in-tariffs it is still in used in Great Britain, but now only for off-shore wind mills. The British government offers investment subsidies to off-shore wind farm only as a (small) supplement to the renewable energy quota system that is in place. 7.5.1 Application in Oman Investment subsidies could be applied in Oman, the source of the subsidy could be the Government already providing subsidies to the power sector through the DC's in MIS and to RAECO. Taking the current set-up at least in the MIS into consideration, investment subsidies would open a new subsidy stream to the sector at least in MIS. This subsidy flow should either be directed to the investors in generation capacity, the IPP's, or through OPWP. Page 111 of 134 .

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