Economic perspective of PV electricity in Oman

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Energy 36 (2011) 226e232

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Energy

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Economic perspective of PV electricity in Oman

A.H. Al-Badi, M.H. Albadi*, A.M. Al-Lawati, A.S. MalikDepartment of Electrical and Computer Engineering, College of Engineering, Sultan Qaboos University, P.O. 33, Al-Khoudh, Muscat 123, Oman

a r t i c l e i n f o

Article history:Received 21 July 2010Received in revised form16 October 2010Accepted 25 October 2010Available online 3 December 2010

Keywords:Renewable energySolar radiationPVCost of energyCapacity factorRenewable energy support policies

* Corresponding author. Tel.: þ968 24142664; fax:E-mail address: [email protected] (M.H. Albadi).

0360-5442/$ e see front matter � 2010 Elsevier Ltd.doi:10.1016/j.energy.2010.10.047

a b s t r a c t

Solar and wind energies are likely to play an important role in the future energy generation in Oman. Thispaper utilizes average daily global solar radiation and sunshine duration data of 25 locations in Oman tostudy the economic prospects of solar energy. The study considers a solar PV power plant of 5-MW ateach of the 25 locations. The global solar radiation varies between slightly greater than 4 kWh/m2/day atSur to about 6 kWh/m2/day at Marmul while the average value in the 25 locations is more than 5 kWh/m2/day. The results show that the renewable energy produced each year from the PV power plant variesbetween 9000 MWh at Marmul and 6200 MWh at Sur while the mean value is 7700 MWh of all the 25locations. The capacity factor of PV plant varies between 20% and 14% and the cost of electricity variesbetween 210 US$/MWh and 304 US$/MWh for the best location to the least attractive location,respectively. The study has also found that the PV energy at the best location is competitive with dieselgeneration without including the externality costs of diesel. Renewable energy support policies that canbe implemented in Oman are also discussed.

� 2010 Elsevier Ltd. All rights reserved.

1. Introduction

The Sultanate of Oman is located in southwest Asia on theextreme southeastern corner of the Arabian Peninsula. It is posi-tioned between Latitudes 16�400 and 26�200 North and Longitudes51�500 and 59�400 East. It shares borders with the United ArabEmirates to the northwest, the Kingdom of Saudi Arabia to thenorth and west, and the Republic of Yemen to the southwest. TheSultanate’s coastline extends 3165 km from the Strait of Hormuz inthe north, to Ras Darbat Ali at the borders of the Republic of Yemenin the south [1]. As seen from Oman map shown in Fig. 1 [2], theSultanate shares its coast with three seas: the Persian Gulf, the Gulfof Oman and the Arabian Sea.

The Sultanate’s economy is heavily dependent on the oil and gassectors. In2008, revenues fromthese two sectors accounted for 78.6%of total government revenue, 86.5% of total exports, and 54.1% of thegross domestic product (GDP). The annual crude oil production wasnearly 276 million barrel in 2008, whereas the annual natural gasproductionwas 1,069,630million cubic feet during the sameyear [3].Expanding natural gas production has become the main focus ofOman’s strategy to diversify its economyaway from theoil sector. Theelectrical power production is primarily based on natural gas.

The total land area of Oman is 309,500 square km with totalpopulation of 2.867 million people in 2008, thus the population

þ968 24413454.

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density of around 9.3 inhabitants per square km. The annual pop-ulation growth rate is about 4.4% [3]. Although most of the pop-ulation has access to electricity, there are still rural and remoteareas that are not electrified. As the population of Oman is thinlypopulated and geographically spread, the power systems in Omanare also not interconnected. Moreover, the load in the south isconcentrated to small cities and therefore locally supplied by thediesel generators ranging from 1 to 2 MW capacity [4].

Although Oman’s solar potential is excellent, solar energy appli-cations have been limited to street lighting, traffic lights, telephone inremote area and cathodicprotectionof pipelines. In thepast there hasbeen little funding provided for research and development for thegrowth of the Omani renewable sector. However, the previous ‘fearand distrust’ of renewable energies on the part of Oman as an oil andgas producers country had changed into a realization that renewableresources are essential components of their national energy supplies,aswell as a global strategic option for bothextending the life of oil andgas reserves and reducing carbon dioxide emissions and thuscombating climate change. The Government has recently taken someinitiatives in this direction. The Authority for Electricity Regulation inOmanhas confirmed a shortlist of six renewable energy pilot projectsfour of them are solar projects as follows [5].

(i) A 100 kW PV solar project in Hij; (ii) a 292 kW solar project inAl Mazyonah; (iii) a 1500 kW project at location to be confirmed;(iv) a 28 kW solar project in AlMathfa incorporating battery storagecapability; (v) a 500 kW wind project in Masirah Island; and (vi)a 4200 kW wind project in Saih Al Khairat, Wilyiat of Thumrait.

Fig. 1. Map of Oman.

A.H. Al-Badi et al. / Energy 36 (2011) 226e232 227

The six shortlisted projects offer 6.6 MW of renewable capacityat an investment cost of some 8.1 million Rial Omani (1 RO¼US$2.58 approx.) [5]. The six shortlisted projects, if implemented,would allow Rural Areas Electricity Company (RAECO) to replace11 GWh of annual diesel generation with renewable sourcedelectricity, this would reduce diesel fuel consumption by 3.1

million liters per year and avoid 8298 metric tons of CO2 per year[5]. The shortlisted projects offer economic benefits in the form ofavoided costs of diesel generation and other potential benefitssuch as the transfer of knowledge and experience to Oman, as wellas capacity building within RAECO and other Oman entities andcompanies.

Table 1Photovoltaic module specifications.

Item Specifications

Maximum power 150 WModule efficiency 11.7%Open circuit voltage 41.8 VShort circuit current 5.05 AWidth 1250 mmLength 1250 mmThickness 35 mmWeight 15.5 kg

A.H. Al-Badi et al. / Energy 36 (2011) 226e232228

Articles [6,7] are among the most recent studies reported, onsolar energy in Oman. In [6], a review of the assessed potential ofrenewable resources and practical limitations to their considerableuse in the perspective of present scenarios and future projections ofthe national energy for Oman are discussed. The authors concludethat solar and wind energies are likely to play an important role inthe future energy in Oman provided that clear policies are estab-lished by the higher authority for using renewable energyresources. In [7], the study presents solar electricity prospects inOman using GIS-based solar radiation maps. The results obtainedshowed very high potential of solar energy on most of the land ofOman during the whole year. The high ratio of sky clearness (about342 days/year) and the geographical location of Oman areresponsible for high solar energy potential. With the help of slopeanalysis it is concluded that if only 10% of the land of Oman witha slope less than 1% is considered for exploiting the parabolictrough concentrated solar thermal power technology, then the totalannual electricity generation would be about 7.6 million GWh. Thisenergy is about 680 times of the 11,189 GWh, the current powergeneration supply in Oman in 2007.

This paper utilizes average daily global solar radiation andsunshine duration data of 25 locations in Oman to study theeconomic prospects of PV energy. The study assumes a solar PVpower plant of 5-MW at each of the 25 locations to calculate thecapacity factor (CF), the levelized cost of energy (COE) per kWh ofelectricity produced, and potential emission reduction due to thePV system. The COE of the PV system is compared to that of theexisting generation facilities in Oman. As the COE of the PV systemis higher than that of the existing system in most cases, renewableenergy support policies are reviewed.

Fig. 2. Global sunshine duration and sol

2. System description

The solar module is composed of several PV cells connected inparallel or series. The cells can be arranged in a module to producea specific current and voltage to meet a certain electrical require-ments. Similarly, the PV modules can be arranged to form a solararray to provide the particular power at a specified voltage andcurrent. In this study, a 150 W peak PV Module, which comprisesmono-Si solar cells from Apin Solar [8], is considered. The specifi-cations of this module are presented in Table 1.

The study assumes a power plant of 5 MW installed capacitycomprised of 33,334 modules. The total solar collector arearequired for the 5 MW is 42,736 m2. It is expected that the PV willnot produce 5 MW due to the effect of temperature and dirt; asa result, 4.75 MW inverter size is chosen to convert the DC into AC.No tracking system is considered and the PV modules are assumedto be inclined at an angle equal to the site latitude and southfacing.

3. Resources assessment

Renewable energies are very much site-specific; thus data arepreferable in localized and high-resolution formats. Unfortunately,this is not available in most developing countries, as most of themeteorological stations are located at major cities, which might notbe necessarily the best locations for potential renewable energyutilization. Moreover, these stations might not be distributedevenly throughout the region of interest which makes renewableenergy recourse assessment even more challenging. In order toovercome this shortcoming, required data for renewable energyapplications can be obtained using alternative methods utilizingavailable resources, e.g. satellite acquired data or artificial neuralnetwork (ANN) tools to extrapolate available data to other locationsof interest.

Meteorological stations in Oman are scattered throughout thecountry but cannot cover the vast area of 309,500 square km ina high resolution. In the present work, the data used was obtainedfrom references [9, 10]. The former utilizes both data obtained frommeteorological stations in the country e for a span of 12 years e

and data obtained by ANN tools which were demonstrated to bevery reliable. The latter utilizes data collected by satellites e for

ar radiation values for 25 locations.

Fig. 3. Annual energy production and CF for 25 locations in Oman.

Table 2Cost and economic assumption of the PV power plant.

Item description Cost (US$) % of total cost

Feasibility study $80,000 0.5Development $70,000 0.5Engineering $60,000 0.4Photovoltaic $10,020,000 65.6Inverter $3,567,250 23.4Balance of system & miscellaneous $1,478,780 9.6Total initial cost of PV plant $15,256,230 100.0Inverter replacement cost $2,000,000 Every 10 yearsAnnual O&M $300,000Discount rate 7.55%Project life 25 years

A.H. Al-Badi et al. / Energy 36 (2011) 226e232 229

a span of 25 years e and subsequently corrected and enhanced bydata from ground stations.

The global solar radiation values for 25 locations in Oman areshown in Fig. 2. Marmul is considered to have the highest solarradiation in Oman followed by Fahud, Sohar and Qairoon Hairiti.The remaining cities in Oman have almost the same solar radiationvalues except Masirah Island, Salalah and Sur where these valuesare the lowest compared with other sites in Oman.

Fig. 4. The COE for 25 l

4. Results and discussion

4.1. Energy and capacity factor calculation

Given the global solar irradiation at a certain site, the RETScreenmodel computes the radiation on a tilted PV array based on thealgorithm described in [11]. Since the module efficiency is given ata certain reference temperature, the RETScreen PV energy modelcorrects the delivered energy for the site ambient temperature [12].In addition, miscellaneous losses can be assigned by the user. In thisanalysis, a value of 5% is considered to account for losses due to thepresence of dirt on the PV modules [12]. Moreover, part of thecaptured solar energy is lost in the inverter. In this study, 90%inverter efficiency is presumed [12]. Having the net energy outputof the PV system, CF value can be calculated. CF represents the ratioof the average power produced by the power station over a year toits rated power. Therefore, CF can be used to rank candidate projectsites. The annual energy production and the CF of the PV plant forthe 25 locations are presented in Fig. 3.

From captured energy perspective, the results show that thebest site is Marmul with a CF of about 0.205. The project wouldproduce about 9 GWh of electricity per year. This amount is

ocations in Oman.

Table 3Assumed properties for CO2 calculation.

Fuel Type tCO2/MWh [16] Efficiency [15] tCO2/MWhElectricity

Diesel 0.26676 0.38 0.78Natural gas 0.20196 0.34 0.66

A.H. Al-Badi et al. / Energy 36 (2011) 226e232230

equivalent to about 1800 h of PV full load operation. Sohar, Fahud,Diba and Khasab are the 2nd to the 5th best sites, respectively. Thelowest CFs are obtained in the sites of Sur, Salalah and Masirah.

4.2. Cost of PV energy

The costs of the main components of the PV power plant,obtained from literature [12e14], are presented in Table 2. Around66% of the total cost accounts for purchasing, transportation andinstallation of PV panels. In this analysis, the project life isconsidered 25 years as in [13]. To obtain the present value of futurecash flows, a discount rate of 7.55% is used as in [15]. This raterepresents the base-case weighted average cost of capital for powerdistribution utilities in Oman and is recommended by the Authorityfor Electricity Regulation to be used for evaluating renewableenergy-based investments [15].

As depicted in Fig. 4, the results show that Marmul has thelowest production cost of about 210 US$/MWh. Most of the loca-tions has a COE around 240 US$/MWh. A PV project located in Surhas the highest COE of 304 US$/MWh.

4.3. Green house gases reduction

As the PV project does not use fossil fuel to generate electricity,it has zero green house gas (GHG) emissions. Energy from the PVsystemwould replace a part of fossil fuels that is combusted in thegeneration plants; therefore, the captured solar energy will resultin a reduction of the emissions of CO2.

There are three separate and distinct electricity markets inOman: the Main Interconnected System (MIS), the Rural AreasElectricity Company (RAECO) Systems and the Salalah PowerSystem. Natural gas is used as the primary fuel in the MIS andSalalah systems. The RAECO system is using diesel to provideelectricity to Oman’s rural areas which are not connected to theMISor the Salalah electricity system. Therefore, in the Oman context,

Fig. 5. Green house gases reduction owing to P

the energy supplied by the PV systemwould replace mainly naturalgas and to a smaller extent diesel fuel.

Table 3 presents the potential reduction in GHG emissions perMWh of electricity for diesel and natural gas generation facilities inOman. These values are calculated based on the default emissionfactors, provided by UN’s Intergovernmental Panel on ClimateChange (IPCC) [16], and considering a 10% transmission anddistribution (T&D) losses and the efficiencies indicated [15].

The amount of green house gases reduction due to usage of5 MW PV system for the 25 locations is presented in Fig. 5. ForMarmul site, a total of 7025 and 5944 tons of GHG could be avoidedeach year if the 5 MW PV plant is replacing diesel and natural gas-based generation, respectively.

To quantify the benefits of GHG emission reduction, an averagedamage cost 20US$/tCO2 is considered [15]. Based on this value, theannual avoided costs of environmental damage owing to GHGemissions reduction for the 25 locations are calculated as presentedin Fig. 6 The environmental benefits of the PV energy are 15.6 US$and 13.2 US$/MWh when displacing diesel fuel and natural gas-based electricity, respectively. For example, the annual avoidedcosts can reach 140,000 US$ in Marmul if the replaced energywould have been produced using diesel generators.

4.4. Average generation cost in Oman

Natural gas-based generation facilities are highly subsidizedthrough long-term contracts with the government to supplythem with required amount of fuel. Based on the contract price(financial cost) of 1.5 US$/MMBtu, the average COE from theexisting natural gas-based system is 24 US$/MWh [17]. This valueis much lower than that of the PV-based generation. Fig. 7 showsthe COE of the MIS natural gas-based generation facilities asa function of gas prices [17]. Even when an economic cost of 5 US$/MMBtu is considered, as approved by the Authority for Elec-tricity Regulation in 2009 for calculating the bulk supply tariff[18], the COE (60 US$/MWh) is lower than that of the PV-basedsystem in all locations.

Unlike natural gas-based generation facilities, diesel-basedgeneration ones do not have long-term subsidized fuel supplycontracts. Based on the current local market price of 0.378 US$/l,the average COE produced using the existing diesel fuel-basedfacilities is 210 US$/MWh [15]. It is worth mentioning that forMarmul site, the COE of the PV project becomes economically

V system usage for 25 locations in Oman.

Fig. 7. COE of the MIS natural gas-based generation.

Fig. 6. Environmental avoided costs owing to GHG reduction for 25 locations in Oman.

A.H. Al-Badi et al. / Energy 36 (2011) 226e232 231

competitive with that of the existing diesel generators, evenwithout considering the environmental benefits.

In general, the COE of the PV system under study is higher thanthat of fossil fuel-based generators. Therefore, Long-term policiesare required to help new renewable-based technologies, such as PVsystems, to gradually replace some of the conventional fossil fuelsones, such as gas turbines [19].

Fig. 8. Classification of renewable

4.5. Renewable energy support policies

In general, to stimulate investment in renewable energy, thereexist two types of policy measures: direct and indirect [20]. Aclassification of these policies is given in Fig. 8 [21]. The formerinstruments are used for the immediate stimulation of renewableenergy technologies, while the latter are used to improve long-termframework conditions. Support policy instruments can be furtherclassified into two categories: investment-focused and generation-based. In the former scheme, renewable energy projects aresubsidized based on installed capacity. In the latter option, thesupport is given based on energy produced and sold.

Direct regulatory measures include price-driven and quantity-driven strategies. The price-driven mechanisms can be eithergeneration-based or investment-focused systems. Feed-in-Tariff(FIT) and premium systems are examples of price-driven genera-tion-based policy instruments. These two examples are long-termagreements, according to which eligible renewable powerproducers are paid a regulated FIT, or a premium in addition to theelectricity market price, for a guaranteed period of time [20].Additionally, production incentives are used to support renewablegeneration. Price-driven investment-focused support mechanismsinclude tax credits, investment subsidies, and low interest loans.

energy support policies [21].

A.H. Al-Badi et al. / Energy 36 (2011) 226e232232

In quantity-driven strategies, governments define a quota ora Renewable Portfolio Standard (RPS) by which a minimumpercentage of the electricity is from renewable energy sources [20].In direct quantity-driven generation-based strategies, RPS goals canbe achieved using two systems: Tradable Green Certificate (TGC)and tendering systems. In a TGC system, utilities are obliged topurchase a certain percentage of electricity from renewable energysources. To demonstrate compliance, they have to submit therequired number of certificates, which can be obtained froma renewable power generator or a broker. In tendering or RequestFor Proposal (RFP) systems, calls for tender are launched fora certain renewable capacity. The winners will make contracts thatoffer an upfront investment grant per installed capacity. In gener-ation-based tendering systems, winners will have contracts thatoffer a specific tariff for a guaranteed period of time.

There are other policy instruments that can indirectly supportdeployment of renewable energy resources in the long term. Theseindirect strategies can be in the form of environmental taxes, or ofemission permits for electricity produced by non-renewable sour-ces, as well as the removal of subsidies given to fossil fuel andnuclear generation [20]. Additionally, they could be in the form ofsimplification and standardization of renewable-based generationconnection procedures, or avoiding unnecessary costs caused byinconsistency of interconnection requirements. Finally, the estab-lishment of regulations that govern intermittency-relatedbalancing costs can indirectly support deployment of renewablesources [20].

The authors in [20] concluded that FIT mechanisms are themostsuitable policies for introducing renewable energy technologies tothe market, and an investment grants tendering system is suitablefor supporting immature technologies. Finally, a premium ora quota obligation, based on TGC, is best when technologies aresufficiently mature, the market is large and mature, and competi-tion on the electricity market is guaranteed. The FIT has proved tobe themost effective policy in promoting investments in renewableenergy, because it reduces regulatory and market risk [22]. Inaddition, the authors in [23] concluded that the FIT policy gener-ated sufficient competition amongmanufacturers and constructors.In [24], the authors presented an economically efficient FIT struc-ture for renewable energy development.

5. Conclusions

Oman is a solar rich country. The global solar radiation in Omanvaries between 4 kWh/m2/day at Sur to around 6 kWh/m2/day atMarmul whereas the average value in the 25 locations is more than5 kWh/m2/day. The duration of sunshine varies between 10 h atBuraimi city to 8 h at Salalah site with an average value of 9.1 h inthe 25 locations. This paper has investigated the economic pros-pects of using solar PV electricity in Oman. Using average dailyglobal solar radiation and sunshine duration data the studyassumed a solar PV power plant of 5-MWat each of the 25 locationsto calculate the capacity factor, the levelized COE per kWh ofelectricity produced, and potential emission reduction due to thePV system. The study has found the following.

� The renewable energy produced each year from 5 MW PVpower plant vary between 9000 MWh at Marmul to6200 MWh at Sur while the mean value is 7700 MWh of all the25 locations.

� The capacity factor of PV plant varies between 20% and 14% andthe cost of electricity varies between 210 and 304 US$/MWh forthe best location to the least attractive location. The study hasalso found that the PV energy at the best location is competitive

with diesel generation without including the externality costsof diesel.

� An average of about 6000 tons and 5000 tons of GHG emissionscan be avoided for each implementation of PV station that iscurrently using diesel and natural gas, respectively.

Although the PV systems’ investment cost (US$/kW) droppedsignificantly during the past 10 years, PV cannot compete withelectricity from the grid (conventional generation), if such gridexists at the PV site. Therefore, to reach some predetermined PVpenetration level (PV capacity/total capacity) countries worldwidehave adopted some support mechanisms. It is reported in theliterature that one of the most effective mechanism is the FIT. Thisvalue is determined by policy makers (usually based on localmarket conditions). Proposing a specific FIT rate for Oman isbeyond the scope of the paper. In many places, FIT is also combinedwith rebates and tax incentives.

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