Oman regulator looks to cut consumption with new electricity tariff plan

Muscat: A new electricity tariff strategy will enable consumers to manage their power costs by notifying them about when it’s cheaper to use power, senior officials of the Authority for Electricity Regulation (AER) say.
The strategy seeks to encourage consumers to use electricity at non-peak times, when the cost of producing it is lower. Peak time power would be charged at higher rates, under the scheme.
The “restructuring strategy” seeks to offer incentives to customers to use less energy and will help them to minimise costs, use energy when it is less expensive and help government reduce subsidies, officials said.
That means it would be cheaper to operate a washing machine, say, at 11pm than it would be to turn it on at 3pm, when demand for power is at its peak.
“By restructuring the tariffs we will ensure that price signals are given to consumers to aid in a more efficient use of energy. At this point of time, when we give a flat tariff one can use it at 3pm or 12 at night and it doesn’t matter. But in actuality it does matter, because producing electricity at 3pm is more expensive than producing electricity at 10 or 12 in the night,” Qais Saud Al Zakwani, Executive Director of AER, told Times of Oman.
He noted that by giving a person a flat tariff, the government is not providing incentives for the public to manage energy or use it efficiently.
The total electricity subsidy for 2016 is approximately OMR500 million, with over 70 per cent directed to the residential sector.
“If we’re giving them the right price signals by notifying them that at 3pm it’s more costly, at 5pm it gets less and at 7pm it goes even lower, a customer at least has those signals to manage the way they use electricity. Right now, they don’t have those signals,” he said.
Al Zakwani said the restructuring attempt is “reallocating a subsidy” to the people who need it the most.
“That’s the objective of this exercise,” Al Zakwani said, adding “It’s restructuring from an energy-efficiency perspective. That’s how we are approaching it. Our aim is to send price signals that would, hopefully, drive more efficient uses of electricity”.
The AER official said that tariffs in Oman have not changed since 1987 and, in fact,have gone down.
“It’s a fact. They have not even been inflation-indexed. So, in real terms, the tariff has gone down,” he said. He added that from an economic perspective, price signals play a key role in people’s consumption of any goods.
“If prices are going to remain where they are right now, they are not going to reflect the actual economic costs of providing that service. So there is a big gap between what the cost is and what the revenue coming in is. Differences in costs are paid as subsidies by the government,” Al Zakwani said.
The new tariff, which is cost-reflective, will be implemented first for the large government, commercial and industrial users of electricity. A change to residential tariffs is not being considered at this point, Al Zakwani said.
He added that the introduction of cost-reflective tariffs will remove subsidies for large government, commercial and industrial customers “which will save money on the overall subsidy bill for the sector.”
“In accordance with the law, any changes to electricity tariffs must be made by the Council of Ministers and the Authority is required to provide its opinion on any changes,” Al Zakwani explained.
He said the authority is of the view that subsidies should be allocated to the people who need them the most.
“How this is done is something we are currently working on,” he said. Asked if there is a deadline the regulator is following, he said, “There is no specific time frame yet. But the sooner we adopt a more efficient and targeted allocation of subsidies, the better.”