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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 7.7 Renewable Quotas - Portfolio Standards In fixed quantity systems or 'Obligated Renewable Quota' system - in US Renewable Portfolio Standards', the government sets a quota for the amount of renewable energy that should be produced or traded. It is then up to the market to determine the price. Where the Government under FIT determines the price and the markets subsequently determine the produced quantities, it is the opposite under the Quota system: quantities are fixed and the market determines the price. Two types of mechanisms have been used to control the uptake of capacity to meet the aims of the renewable quota systems: Tendering and Green Certificates 7.7.1 Tendering Tendering or competitive bidding is used to promote renewable energy in Ireland, France and was previously used in Great Britain. Authorities tender renewable energy capacity according to the quota it has been politically decided to pursue. Developers submit their project proposals with a wholesale price for electricity for a given period. The companies that bid to supply electricity at the lowest price win contracts to do so and can start construction and production. Usually 15-20 years power purchase agreements are entered into. The difference between the contracted price and the wholesale price of conventional power is paid to the developers/owners from a levy, which represents the additional cost of producing green electricity. In Great Britain, the system was abandoned because of some drawbacks: Contract winner in some cases delayed their projects considerably in order to apply new and cheaper technology or the winning projects did not materialise at all. In other cases the system resulted in very bad siting in terms of environment, especially of wind farms. The targets for renewable energy production were therefore no met. 7.7.2 Tradable Green Certificates (TGC) TGC is a mechanism that in some ways resembles the tendering system. As in the tendering system a target for the share of renewable energy to be produced is politically formulated and the corresponding amount of TGC's is issued by the authorities. The main difference compared to the tendering system is that the price of power and TGC's are settled on a daily basis on the electricity market and on a separate market for tradable certificates, while tendering is based on long-term PPA's. With daily setting of the prices it is more risky for the investor than tendering, as the selling price will be volatile. A tradable green certificate market working effectively will reflect the difference between market cost of electricity and the generating cost of new renewable production facilities. The value of the certificate represents the additional costs of producing renewable electricity compared to conventional sources. Page 114 of 134 .

Renewable Energy Resources in Oman The TGC market works as follows: 1 The Government sets a specific gradually increasing quantity for the amount of renewable energy in the supply portfolio. 2 An obligation to hold certificates is placed on either the electricity suppliers or the end-users of electricity. 3 The generators, wholesalers, retailers or consumers are obliged to consume a certain percentage of electricity from renewable energy sources. 4 At the settlement date, the operators have to submit the required number of certificates to demonstrate compliance. Certificates can be obtained the following ways: • from production of renewable energy at his own plants; • purchasing certificates from other renewable energy producers; • purchasing from other actors in the market with an obligation to hold certificates. The gradually increasing obligation creates a demand for TGCs. It is left to the market to deliver the supply of certificates. TGC's are issued to producers of renewable electricity in proportion to the volume of green electricity they generate. A TGC serves as evidence that a specific amount of green power has been produced and fed into the grid. The equilibrium price of the TGC corresponds to the level that satisfies investors return requirements and new capacity will be installed to meet the quota. There are a number of different certificate models. The complexity of the TGC models gives it some problems for renewable generation owners and the fact that the market is not perfect also provides some challenges for the operators. The main deficiency being that it is only the most efficient technologies that are promoted, i.e. there is a barrier for emerging technologies with higher cost to enter the market. 7.7.3 Application A renewable energy quota model could be applied in Oman, based on the tendering system. The political system defines the renewable energy targets and in the MIS the OPWP has an obligation to ensure that the quota is purchased for renewable energy purchased is fulfilled either by the existing generator supplementing their existing facilities with renewable energy or establishment of IPP's using renewable energy. The additional cost OPWP pays for the renewable energy will be passed on the DC's and through the existing subsidy mechanism based on the Permitted Tariff be refunded by the Government. This would be a very simple mechanism that could fit into the existing system. Page 115 of 134 .

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