Energy-Policy Framework Conditions for Electricity Markets and Renewable Energies

Division Water, Energy, Transport TERNA Wind Energy Programme

Energy-policy Framework Conditions for Electricity Markets and Renewable Energies

16 Country Analyses

Eschborn, November 2009

Energy-policy Framework Papers, Section »Energy and Transport« DIVISION WATER, ENERGY, TRANSPORT TERNA WIND ENERGY PROGRAMME | 2

Energy-policy Framework Conditions for Electricity Markets and Renewable Energies

16 Country Analyses

Eschborn, November 2009

Energy-policy Framework Papers, Section »Energy and Transport«

Published by: Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH Division Environment and Infrastructure PO Box 5180 65726 Eschborn Germany Internet: http://www.gtz.de

Edited by: Rolf Posorski and Daniel Werner GTZ, TERNA Wind Energy Programme

Authors: ECOFYS Germany GmbH

Layout: Bosbach Kommunikation & Design GmbH, Internet: www.bosbach.de 3

Table of contents

4 New Edition of the TERNA Country Survey 5 Legal Information 6 The TERNA Wind Energy Programme

Latin America 7 Argentina 30 Brazil 50 Caribbean States 94 Chile 114 Mexico 136 Panama 154 Peru

Africa / Middle East 175 Egypt 196 Morocco 216 Namibia 231 Senegal 252 South Africa 283 Tunisia

Asia 303 Indonesia 328 Pakistan 345 Vietnam 4

New Edition of the During 2008 the existing wind power capacity grew by 29 TERNA Country Survey percent to reach 121 GW. The US and European market acted as the driving force for the wind energy industry Since the first edition of the TERNA country survey ap- and provide still an indispensable background of experi- peared in 1999, there has been a distinct heightening of ence. However, growth in the industry is also increasingly public and political awareness of the consequences of cli- apparent in developing and emerging countries: China mate change and of energy provision as a key factor in doubled its wind power capacity for the fifth year in a sustainable development. row, ending 2008 at 12 GW, and breaching China’s 2010 development target of 10 GW two years earlier. It is the In Germany and other industrialised countries, a political successes in countries such as China, India and Egypt tailwind, effective promotion mechanisms and rising energy which encourage commitment beyond the borders of prices have created the conditions for a dynamic market in industrialised nations. In those countries there is a grow- which renewable forms of energy are exhibiting high growth ing proportion of local content in the systems and equip- rates within the energy mix. In 2008, renewable energy re- ment they produce – and not only for supply to their own sisted the credit crunch more successfully than many other domestic markets. sectors for much of the year and new investment reached $120 billion, up 16 percent over 2007. However, by the end A number of other countries though, too, are erecting of the year, the impact of the crisis was beginning to show. their first wind farms, thereby establishing the basis for gaining experience to be utilised in future markets. To Economic development in many emerging countries has help interested players gain access to the new markets, triggered rapidly rising demand for energy and competi- this survey provides detailed descriptions of the frame- tion on the international oil market. Against the back- work conditions for electricity markets and renewable ground of the volatile cost of fossil fuels, supply risks and energy in 16 developing and emerging countries. damage to the environment, the significance of renewable energy as a means of generating electricity is growing – This latest country survey and the previous editions are also in developing and emerging countries. According available on our homepage: www.gtz.de/wind. The publi- to information released by the Renewable Energy Policy cation is also available on CD-ROM. For information on Network for the 21st Century (REN21), by early 2009, how to obtain this, again, go to the homepage. Our grate- policy targets existed in at least 73 countries and at least ful thanks go to a large number of GTZ staff members 64 countries had policies to promote renewable power and other experts in the field for their help in putting this generation. Feed-in tariffs were adopted at the national information together. level in at least five countries in 2008/early 2009, including Kenya, the Philippines and South Africa. Eschborn, November 2009

THE COUNTRIES

Latin America Africa/Middle East Asia Argentina Egypt Indonesia Brazil Morocco Pakistan Caribbean States Namibia Viet Nam Chile Senegal Mexico South Africa Panama Tunisia Peru 5

Legal Information

1. The data used in this study is based on both publicly accessible sources of information (publications, specialist articles, internet sites, conference papers etc.) and non- public papers (for example internal expert reports from promoting institutions), as well as personal interviews with experts (for example officials at energy ministries in the investigated countries and project staff at promoting institutions). Although all information has been checked as far as possible, errors cannot be ruled out. Neither the GTZ nor the authors can therefore provide any guarantee of the accuracy of the data included in this study; no liability can be accepted for any loss or damage resulting from use of the data included in the study.

2. The sole authorised user of this study for all forms of use is the GTZ. Duplication or reproduction of all or part of the study (including transfer to data storage media) and distribution for non-commercial purposes is permitted, provided the GTZ and the TERNA Wind Energy Pro- gramme are named as the source. Other uses, including duplication, reproduction or distribution of all or part of the study for commercial purposes, require the prior written consent of the GTZ. 6

The TERNA Wind Energy Programme tigating the technical design and economic feasibility. TERNA also provides advice to partners on matters of There is great potential for generating electricity from finance, thus closing the gap between potential investors renewable energy sources in many developing and emer- and funding sources from national and international do- ging countries. Obstacles to the exploitation of such nors. If required, CDM baseline studies can be prepared. sources include a lack of knowledge of framework con- In order to ensure as much transfer of know-how as possi- ditions in the energy industry and insufficient transpar- ble, efforts are made to ensure cooperation between inter- ency with regard to the prior experience and interests of national and local experts, for example when preparing national actors. the studies. In successful cases, TERNA initiates investment-ready wind farm projects by this method. TERNA The purpose of the TERNA (Technical Expertise for Re- itself is not involved in financing. newable Energy Application) wind energy programme, implemented by GTZ on behalf of the Federal German In addition to the activities that are tied to specific loca- Ministry for Economic Cooperation and Development tions, TERNA advises its partners on how to establish (BMZ), is to assist partners in developing and emer- suitable framework conditions for the promotion of re- ging countries in planning and developing wind power newable energy sources. Up until 2009, TERNA has been projects. Since 1988 the TERNA programme has pursued active in over ten countries around the world. Further in- the goals of laying the foundations for sound investment formation on GTZ‘s TERNA wind energy programme decisions while at the same time enabling partners to as- is available at www.gtz.de/wind or directly from: sess wind energy potentials, plan wind energy projects and improve energy-policy frameworks for renewable Deutsche Gesellschaft für Technische forms of energy. Zusammenarbeit (GTZ) GmbH Postfach 5180 The TERNA wind energy programme‘s partners are in- 65726 Eschborn | Germany stitutions in developing and emerging countries that are interested in commercial exploitation of wind power. Dr. Rolf Posorski These include, for example, ministries or government Tel.: +49 (0)6196 79-4205 institutions which have the mandate to develop BOT/ Fax: +49 (0)6196 7980-4205 BOO projects, state-owned or private energy supply E-Mail: [email protected] companies (utilities) and private enterprises (independent power producers). Daniel Werner Tel.: +49 (0)6196 79-6203 TERNA offers its partners expertise and experience. In Fax: +49 (0)6196 7980-6203 order to initiate wind power projects, favourable sites E-Mail: [email protected] must be identified and their wind energy potential as- certained. To do this, wind measurements are normally Hans-Gerd Huehn taken over a period of at least twelve months and wind Tel.: +49 (0)6196 79-6243 reports are drawn up. If promising wind potentials are Fax: +49 (0)6196 7980-6243 found, the next step is to conduct project studies inves- E-Mail: [email protected] ARGENTINA 7

List of Abbreviations

ADEERA Asociación de Distribuidores de Energía IADB Interamerican Development Bank Eléctrica de la República de Argentina [As- IAU International Astronomical Union sociation of electricity distributors of the Ktoe Kilotonne of oil equivalent Republic of Argentina] kV Kilovolt AGEERA Asociación de Generadores de Energía GWh Giga watt per hour Eléctrica de la República de Argentina [As- MEM Mercado Eléctrico Mayorista [Wholesale sociation of electricity generators of the Re- Electricity Market] publico f Argentina] MEMSP Mercado Eléctrico Mayorista Sistema Pat- AGUEERA Asociación de Grandes Usuarios de En- agónico [Wholesale Electricity Market ergía Eléctrica de las República de Argen- Patagonic System] tina [Association of large electricity users of MW Megawatt the Republic of Argentina] NGO Non-governmental Organisation AR $ Argentine Dollar PAEPRA Programa de Abastecimiento Eléctrico a ATEERA Asociación de Transportistas de Energía la Población Rural Dispersa de Argentina Eléctrica de la República de Argentina [As- [Program for electricity supply for rural sociation of electricity transporters of the Spreads population in Argentina] Republic of Argentina] PERMER Proyecto de Energías Renovables en el Mer- CAF Corporación Andina de Fomento [Andean cado Rural [Project for renewable energies Development Corporation] within the rural market] CAMMESA Compañía Administradora del Mercado PJ Peta Joule Eléctrico Mayorista SA [Administrating PRONURE Programa Nacional de Uso Racional y Efi- company of the wholesale electricity mar- ciente de la Energía [National Program for ket] Rational and Efficient Use of Energy] CDM Clean Development Mechanism PV Photovoltaic CFEE Federal Council of Electric Energy SA Sociedad Anónima [Anonymous Society] DNA Designated National Authority SADI Sistema Argentino de Interconexión ENARSA Energía Argentina SA [Argentinean Interconnection System] ENRE Ente Nacional Regulador de la Energía SIP Sistema Interconectado Patagónico [National Regulatory Entity of Energy] [Patagonic Interconnection System] EUR Euro TWh Terawatt per hour FAC Fondo Argentino de Carbono [Argentine- UNESCO United Nations Educational, Scientific and an Carbon Fund] Cultural Organization GDP Gross Domestic Product UNFCC United Nations Framework Convention GENREN Generación Renovable [Renewable Gen- on Climate Change eration] USD United States Dollars GHG Green House Gas WTE Waste to Energy ARGENTINA 8

1.1 Introduction The Argentine territory has a diversity of landscapes that range from arctic regions in the South to forested FIGURE 1: jungle regions in the North and the rugged mountain MAP OF ARGENTINA regions (Andes) along the 4 000 km border to Chile.

Argentina’s political system is a federal democratic republic, in which the President of the Nation (currently Cris- tina Fernandez de Kirchner, elected in December 2007) holds the position of head of state and head of government. Argentina, being one of the world’s wealthiest nations in the first half of the 20th century, went through decades of constant economic decline, cumulating in national bankruptcy in 2001. Since then, economic recovery has made good progress (annual GDP growth rates around 7 %), but the country is still facing structural economic problems such as high public debt, inflation risk, weak fiscal basis, high dependency on international prices for raw materials and lack of investment in the domestic infrastructure and several economic sectors such as the oil and gas industry.1

The industrial sector currently accounts for 31 % of the nation’s GDP. Major production comprises iron and steel, cement, diverse automobile parts and equipment for agricultural purposes. 11 % of the national GDP is generated by export of energy and fuels to Brazil and Chile. After the economic crisis, the oil and gas industry has been suffering from lack of investment, with some recovery in recent years. Biofuels are gaining importance, Data source: CGIAR 2009 but still to limited extent. The Agriculture sector (8 % of nation’s GDP) accounts for one third of the total em- Argentina is located in the South of South America ployment. Exports of agricultural products such as soya, and borders Bolivia, Brazil, Chile, Paraguay and Uru- wheat, corn, meat and others represent 54 % of total ex- guay with a coasts meeting the South Atlantic Ocean. port revenues. Main countries receiving these products

TABLE 1: STATISTIC INFORMATION OF ARGENTINA

Area Population GDP (2008)* GDP/Capita (2008) Import (2008) Export (2008) 2 780 400 km2 41 Millions 221 970 Billion R 5 585 R 39 035 Million R 47 994 Million R * Position 31 of countries listed by GDP (nominal) Sources: Instituto nacional y de estadísticas de Argentina; Fondo Monetario Internacional

1 Econométrica S.A. Economic Research and Forecast. Informe Económico Espe- cial. »La Triple Tenaza Energética«. (2007) ARGENTINA | 9

TABLE 2: HISTORICAL DEVELOPMENT OF ARGENTINE GDP FROM 2000 TO 2008 Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 GDP (U.S.$; current 284 204 268 697 97 732 127 571 151 958 181 549 212 710 260 402 326 474 prices) in billions GDP (R; current 307 713 300 019 103 354 112 775 122 163 145 928 169 409 190 005 221 970 prices) in billions Source: International Monetary Fund are Brazil, Chile, China and USA. The majority of the FIGURE 2: products imported are related to the following sectors: TOTAL PRIMARY ENERGY SUPPLY IN ARGENTINA, 2006 vehicles, electric appliances and fuels (in particular oil and natural gas). Total primary energy supply 2006: 3 151.6 PJ

Most imports come from Brazil, China, EU and USA. 136.7 0.3 Argentina is member of the Mercosur2 since 1991. Mer- 83.9 4 % 0 % 3 % cosur represents the main economic partner of the Ar- 107.0 gentinean economy. Countries involved in this organi- 3 % sation receive 23 % of exportations of the country and 8.5 provided 16 % of importations to Argentina. Presence 0 % of Argentina and Brazil within the Mercosur framework 31.1

1 % has strengthened economic relation between the two 1 4027.0 countries which have signed bilateral agreements to ease 46 % 1 357.1 economic relations and transactions. 43 %

Nuclear Coal an Peat Gas Electricity 1.2 Energy Market Gas Crude Oil Hydro Combustible renewables and waste Overview of the energy market Source: IEA 2008 Since 2001, energy supply in Argentina has faced some structural problems, however in the long term, energy Due to the economic crisis and a lack of capital investments supply has shown a constant increase (with main contri- (regulated energy prices did not reflect market prices), the gas bution of oil and natural gas). production decreased and the transmission and distribution network led to capacity constraints. In 2004 the frequent sup- Data for 2007 is available from the national regulatory body ply interruptions led to serious gas shortages and power cuts (ENRE) and uses slightly different categories than IEA from in the industrial and residential sector. The central govern- which data can be seen in figure 2. According to ENRE, ment issued several plans of actions such as the Programme Argentina’s primary energy amounted in 2007 to 1 771 PJ for Rational Use of Gas and the Programme for Rational Use natural gas, 1 264 PJ oil, 147 PJ hydro, 91 PJ nuclear, 48 PJ of Electricity to bear down the energy crisis. The final en- wood, 42 PJ bagasse, 16 PJ coal and 25 PJ other. ergy consumption in Argentina amounted to 52 966 ktoe3

2 MERCOSUR (Mercado Común del Sur): regional trade agreement among 3 Argentina, Brazil, Paraguay, Uruguay, Bolivia, Chile, Colombia, Ecuador and Peru. Equal to 2 333 PJ or 647 866 GWh ARGENTINA | 10

TABLE 3: FINAL ENERGY CONSUMPTION IN ARGENTINA 2007 (KTOE) Total Final Energy Consumption* Public/com- Sector Industry Transport Residential Agriculture non energeticy mercial PJ 772 521 501 160 131 249 %3322217611 Total 3 404 * Provisional data for 2007 Source: Secretaría de Energía

in 2007. The table above illustrates illustrates the energy FIGURE 3: consumption according to different sectors in the country. MAP OF ELECTRICITY GRID IN ARGENTINA In 2007, the central government launched a national plan to save energy as a solution to cope with the increase of demand which is still not still not completely covered by the current energy supply. However, energy demand still increased by 4.9 % in 2008. Argentina is currently facing serious energy shortages that are forcing the government to take measures4 to slow down the consumption rate. The nation has also diminished gas deliveries to Chile as well as increased oil imports from Bolivia and started importing oil from Venezuela to replace natural gas as a source for energy generation.

The Electricity Grid The power supply system comprises two interconnected grids: SADI which operates in north and central Argen- tina, used by the generation companies Mercado Eléc- trico Mayorista (MEM; Wholesale Electricity Market); and Sistema Interconectado Patagónico (SIP) in Patago- nia, which handles electricity generated by the members of the Mercado Eléctrico Mayorista Sistema Patagónico (MEMSP). Both grids are managed by by the Compañía Administradora del Mercado Mayorista Eléctrico Socie- dad Anónima (CAMMESA) a private company5 respon- Data source: CGIAR 2004 sible for the administration of the wholesale electricity market (see also chapter on liberalisation). electricity demand. In these areas generation capacity is remarkably lower compared to their consumption (en- The national demand is concentrated in three main areas: ergy generated in these areas represent 43 % of the total Areas of Gran Buenos Aires, Litoral and the province of consumption). In the rest of the country, the installed Buenos Aires.6 These areas represent 65 % of the national capacity is larger than the respective electricity demand

4 Measures such as the PRONUREE (Programa Nacional de Uso Racional y Autonomous city of Buenos Aires and the urban conurbation located in the Eficiente de la Energía) province of Buenos Aires that comprises 24 »departments« that surround the 5 80 % of shares in the company belong to the different stakeholders involved in city of Buenos Aires. The area Litoral of Argentina limits with Uruguay, Brazil the Wholesale Electricity Market while 20 % of the shares are under the control and Paraguay and comprises the cities of Corrientes and Rosario. of the national government

6 The area of Gran Buenos Aires is used to define the megacity composed by the ARGENTINA | 11

TABLE 4: INSTALLED CAPACITY BY ENERGY SOURCE ARGENTINA 2000 – 2007 MW 2000 2001 2002 2003 2004 2005 2006 2007 Thermal 11 382 13 075 13 407 13 555 13 530 13 962 13 439 13 669 Hydropower 10 834 10 834 10 931 10 931 11 003 11 164 11 164 11 216 Nuclear 1 005 1 005 1 005 1 005 1 005 1 005 1 005 1 005 Total 23 221 24 914 25 343 25 491 25 538 26 131 25 608 25 890

Source: Ente Nacional Regulador de la Electricidad. Informe Anual 2007 resulting in energy exporting areas that define electricity therefore the national government is commissioning the fluxes of principal lines to the province of Buenos Aires. construction of large energy generation projects (particu- Regarding the integration of renewable energy capacity, larly regarding hydro power). It has been estimated that grid conditions for wind power projects in the provinces about 1 000 MW of new generation capacity are needed of Buenos Aires, Comahue and Patagonia are favourable. per year to ensure energy supply. An important number Their transmission grid will be adequate to support the of projects will be financed through public funding (com- installation of various small and medium size wind parks ing from the national government or public international without any additional investments in infrastructure. entities such as multilateral banks) while private initia- In April 2008, the 500 kV line between the Patagonian tives are still limited. cities of Puerto Madryn and Pico Truncado was inaugu- The installed capacity connected to both MEM and rated. This is a 550 km connection which will facilitate MEMSP, has changed as follows in recent years: and promote the development of wind power in the re- The contribution of renewable energies other than hydro- gion of Southern Patagonia. However, the new capacity power is very small compared to the total energy produc- enabled by this connection represents only a small per- tion (less than 0.1 %). It is likely that the scenario will centage of the total wind energy potential in Patagonia. change in the coming years due to a shortage of natural The region is connected to the national grid via a 500 kV gas supply, as a consequence of bottlenecks in exploration connection line between the cities of Puerto Madryn and and exploitation as well as on gasoducts. Choele-Choel (project finalized in April 2008). New ex- Gas extraction rate diminished for the first time in 2005.7 pansion of the grid capacity is expected as a new bid process The overall supply is likely to be affected, as it has not yet has been opened in July 2009 to construct a 500 kV line been achieved to conclude gas agreements with Bolivia or to link the regions of Pico Truncado and Río Gallegos. build new regional gasoducts. In the short term (up to 2010) a range of investments will Installed Capacity be made by the national government to ensure energy sup- At the end of 2007, the power generating capacity in- ply within the whole country. These investments include stalled in Argentina was producing a total output of the erection of new hydro power plants (named La Barran- 25 890 MW (representing an increase of 1 % compared cosa, Condir Cliff, Punta Negra, Portezuelo del Viento, to the previous year). Of this, thermal power stations Los Blancos, Chihuido I and II). Projects to be developed (fuelled by natural gas, fuel oil and coal) accounted for comprises the construction of 2 020 km of new electric- 13 669 MW (52.79 %). The installed nuclear capacity ity grid lines. These capacity expansions will also include was 1 005 MW (3.89 %) while hydropower accounted the finalisation of the nuclear plant of Atucha II and for 11 216 MW (43.32 %). The electricity demand the construction of two CHP plants8 (adding 840 MW within the country is increasing (over 6 % annually) and additional power capacity). The government will increase

7 This fact explains reduction of capacity installed in 2006 and 2007 8 By a consortium of Argentine companies and the Spanish company Isolux (involving 569 million euros and total capacity of 840 MW) ARGENTINA | 12

TABLE 5: GROSS ELECTRICITY GENERATION BY ENERGY SOURCE IN GWH; ARGENTINA 2000 – 2008

2000 2001 2002 2003 2004 2005 2006 2007 2008 Thermal 43 248 36 510 32 642 39 466 49 399 51 351 53 928 61 012 66 877 Hydropower 33 760 41 507 41 090 38 717 35 133 39 213 42 987 37 290 36 882 Nuclear 6 541 5 393 7 025 7 313 6 374 7 153 6 721 6 849 6 541 Imports 1 011 1 450 2 210 1 234 1 441 1 222 559 3 459 1 774

Total 83 750 86 007 81 334 86 442 93 286 98 160 104 627 108 482 112 382

Source: CAMMESA

TABLE 6: POWER CONSUMPTION ACCORDING TO USER GROUP; 2001 – 2007 (TWH, %)

Sector 2003 2004 2005 2006 2007 Households TWh 107 115 118 124 139 % 1819202023 Commerce TWh 37 39 39 42 45 % 1819192122 Industry TWh 149 123 128 186 214 % 1915162327 Others TWh 201 245 253 259 250 % 1720212121

Total (TWh) 495 523 538 610 648

Source: Secretaria de Energía efforts on gas and oil exploration throughout the country ers. It can be stated that main energy consuming sectors via two programmes named »Petróleo Plus« and »Gas are households and industry, followed by commercial and Plus«.9 other uses.

Electricity generation Renewable energies In 2007 the total electricity produced amounted to As a result of the energy policy developed on the previ- 108 482 GWh. Electricity generation was split between ous decades by the central government and the work per- hydro power10 (34 % total generation) and thermal pow- formed by the old public companies13 (privatised in the er11 (60 % of total generation) . Nuclear power amounted 90’s), hydro energy plays an important role in the current to 6 % of the total energy generation within the country. energy generation mix in Argentina. This year showed a remarkable increase in the electricity Argentina possesses multiple resources for generating imports (208 % increase compared to the previous year)12 energy from hydro and wind power but also from solar, due to the restrictions set up by the government related to biomass and geothermal sources. As stated previously, the electricity and gas supply and a steady increase of the na- current contribution of renewable energy sources other tion’s energy consumption in previous years. Energy exports than hydro in the energy generation mix in Argentina is were reduced by 73 % (compared to the previous year). very scarce and mainly framed within government pro- Table 6 presents the distribution of energy and consum- grammes for supplying energy in remote areas to end-

9 More information can be retrieved at the website of the Secretary of Energy 13 Such as Agua y Energía Eléctria and Hidronor (www.energia3.mecon.gov.ar) 10 Electricity generation via hydro power decreased 12 % compared to the previous year due to less water resources available at the lakes that are used as reservoirs for the hydro plants. 11 Electricity generation increased 14 % this year to compensate the decrease on electricity generated via hydro. 12 Energy imported by Argentina this year sum up total amount of 3 458 GWh (equivalent to 3 % of total net generation of the country). ARGENTINA | 13

users who have no access to the electric grid. Renewable velopment and investment in the grid, operation, main- energies other than hydro still do not contribute to the tenance, commercialization of electricity and profitability interconnected electricity supply system as the current of the invested capital). The price of the electricity has main purpose is to provide electricity to rural areas, increased steadily in recent years. While the average price where 30 % of the households still remain without access in MEM was 13.2 €/MWh in 2004 it has increased to to electricity. 30.02 €/MWh in 2009. An explanation of this tendency In the solar thermal sector no major plans have been im- is the lack of availability of hydroelectric power and partial plemented to promote this technology. The use of solar substitution of natural gas with other fuels, in response to thermal applications is economically unattractive due to a situation of domestic energy demand exceeding the na- high installation costs and low prices for natural gas. In tional gas production rate. rural areas firewood and other biomass products cover the domestic hot water demand. Biomass use contributes Liberalisation to almost 5.5 % of the final energy consumption and con- Up to 1989, Argentina’s electricity sector was character- tributes mainly to the industrial, agricultural and forestry ized by state or state-owned electricity companies. The sector. Firewood and bagasse are used for the production main state-owned utilities were Ayee (created in 1957), of charcoal. Projects of biomass-fired energy generation Hidronor (created in 1957), and Segba (created in 1962). have not yet been implemented in the country despite fa- Additionally, another 19 provincial companies (mainly vourable conditions. distributors) and various electricity cooperatives were The increasing energy in the last years combined with also present on the market. But in 1992 Argentina priva- the lack of national capacity to self-generate this energy tized its electricity sector as a result of poor management represents a major barrier to the development of the re- practices and insufficient investments in the electrical sys- newable energy sector as other sources of energy (such as tem.15 The integrated state companies were unbundled hydro power) and energy importation (i.e. natural gas) and privatized with regards to generation, transmission are considered as the short-term solutions to the current and distribution by the Electricity Act of 1992. While energy crisis. generation became competitive, the transmission and dis- Nevertheless, the Secretary of Energy has estimated that tribution sector were established on basis of private mo- 2 500 MW new renewable capacity will be installed in nopolies. In June 1995 more than 25 state-owned power Argentina by 2016 to fulfil the required goals set out companies were privatized. by law 26 190/06, which aims to cover 8 % of national Nowadays, the generation sector is based on a least-cost electricity consumption through renewable energies. The bidding arrangement that resulted in price caps on the Secretary has also foreseen that an additional 1 000 MW new created wholesale market in order to stabilize the should be installed by 2025 with wind energy represent- prices. These price caps are finally set by ENRE – the in- ing half of this amount. dependent sector regulator. The electricity can be sold either by bilateral contracts, seasonal purchasing contracts Electricity prices or short-term contracts. More than half of the electricity The price of electricity is based on two components; one is traded on a short-term basis. component reflects prices at which energy and electric- Electricity transmission and distribution is regulated at ity are acquired from the wholesale electricity market national and regional level with CAMMESA as the main by companies including transmission costs.14 The other player in the regulation of the wholesale market. The main component reflects costs regarding services offered by responsibilities of this entity comprise of operation and the distribution company (which include costs for de- dispatch of generation and price calculation in the spot-

14 These prices are established by the Secretary of Energy and adjusted on a three 15 Lokey 2009 months basis.

ARGENTINA | 14

market, real-time operation of the electricity system and ply energy to these areas, in 1995 the Secretary of Energy administration of the commercial transactions in the launched the PAEPRA Programme (Programa de Abas- electricity market. Power generation companies are not tecimiento Eléctrico de la Población Rural). The pro- allowed to purchase majority shares in transmission com- gramme grants subsidies to private concessionaires who panies. In general, all electricity generators have free and guarantee via competitive tendering to provide electricity equal access to the grid. Nevertheless, transmission com- to rural areas for the lowest amount of subsidies, even if panies charge a toll/tariff for their transmission services. off-grid options have to be implemented. The first two provinces in which the rural electricity mar- Rural Electriﬁcation ket was established in accordance with the PAEPRA Pro- Some regions have considered different approaches to gramme were Juluy and Salta in the north-western part of solve the problem of energy supply in rural areas. In some the country. Most electrification is effected on the basis of provinces solutions have come through the use of power isolated networks or off-grid approaches relying on fossil units (such as the cases of Juyjuy, Río Negro and Neu- fuels and/or renewable sources of energy. quén), mini hydro (in the provinces of Misiones, Salta and Neuquén), solar PV systems (in the provinces Juyjuy, PERMER Catamarca, Santa Fe, La Rioja, Neuquén and Río Negro), In 1999, the Programme PAEPRA was expanded to in- wind turbines (in the provinces of Chubut, Neuquén and clude as a new component a programme geared specifi- San Juan) as well as extension of the provincial electricity cally towards the use of renewable sources for rural elec- grids (principally in the province of Neuquén). trification purposes (Proyecto de Energías Renovables en Mercados Rurales – PERMER). The project aims to According to the last Population and Dwellings Census broaden the private-sector market for alternative power performed by the National Institute of Census and Sta- supply systems and to make the supply of power in rural tistics16, 5 % of Argentina’s overall population is without regions sustainable. PERMER is intended to concentrate access to electricity. However, in rural areas about 30 % of on scattered settlements, houses and facilities. the population has no access to electricity. Consequent- At the beginning of the project it was planned to pro- ly, the national and provincial governments have set up vide electricity to 1.8 million people in 314 000 house- special programmes for the electrification of rural areas. holds and 6 000 institutions and facilities such as schools, Since inadequate transmission factors often preclude a medical centres and police stations. By September 2006, connection to the public power grid, there is strong in- however, only 2 235 households and 556 public institu- terest in stand alone solutions which includes renewable tions received electricity thanks either to expansion of the energies for remote areas. The two programmes that are public grid or to isolated, off grid solutions.18 At present, relevant for the promotion of rural electrification are the 3 440 photovoltaic systems have been installed on private PAEPRA and the PERMER.17 buildings and 690 on public buildings in the provinces of Catamarca, Río Negro, Jujuy, Santiago del Estero, Salta PAEPRA and Tucumán. In Argentina there are currently between two and three million inhabitants located in rural areas who have no access to electricity. Similar conditions affect approximately 6 000 buildings related to public services in these areas (schools, medical centres, police stations, etc). Aimed at providing off-grid technical solutions to sup-

16 INDEC (Instituto Nacional de Estadísticas y Censos). More information 18 Regarding the present status of the PERMER project, please refer to energia. available at: http://www.indec.gov.ar/ mecon.gov.ar/permer/Estado.html; Status: September, 2008. 17 More information on PAEPRA and PERMER is available at: http://energia.mecon.gov.ar/permer/permer.html ARGENTINA | 15

1.3 Market Actors bilateral agreements. The power producers’ association (AGEERA), the power users’ association (AGUEERA)19, Secretaría de Energía [Secretary for Energy] the power distributors’ association (ADEERA), the Created under the umbrella of the Ministry of Federal association of high-voltage transmission network opera- Planning, Public Investment and Services, the Secre- tors (ATEERA) and the Secretary of Energy each hold a tary of Energy is responsible for ensuring energy secu- 20 % interest in CAMMESA. CAMMESA’s main tasks rity and access to energy. Responsibilities of this entity are the operation and dispatch of generation and price are elaboration, formulation and execution of national calculation in the spot market, real-time operation of policies regarding energy in coordination with regional the electricity system and the administration of the com- governments. Furthermore, it is responsible for study- mercial transactions in the electricity market. ing and analyzing the behaviour of the energy markets, developing strategic planning regarding electricity and Consejo Federal de la Energía Eléctrica fuels as well as controlling and supervising rational use [Federal Council of Electric Energy CFEE] of energy in the country. The Secretary comprises the The Federal Council of Electric Energy (CFEE) is an enti- Sub-secretary of Fuels, Sub-secretary of Electricity, the ty created in 1960 which administrates funds (e. g. named General Direction of Cooperation and Finance Assist- National Fund for Electric Power20 and Fund for the In- ance, the General Direction of Energy Policy Planning vestment Needed to Increase the Supply of Electricity and Coordination. in the Wholesale Market) provided by the government These funds specifically aim at electricity operations. The Ente Nacional Regulador de la Energía CFEE is also an adviser to the national and provincial Eléctrica (ENRE) [National Electricity Regula- governments in issues related to the power industry, pub- tory Body] lic and private energy services, priorities in the execution This entity was created in 1993 in response to the liberali- of new projects and studies, concessions and authoriza- sation of the electricity market (framework of law no 24 tions, and electricity tariffs and prices. It is also an adviser 065 on 16 January 1992 – »Electricity Act«) and is an for legislative modifications in the power industry. The independent organization within the Secretary of Energy Council is composed of an Executive Committee and that holds the responsibility of applying the regulatory Regional Committee in the provinces of Córdoba, Cat- framework set up by law no 26 046 by 1991. ENRE con- amarca, Misiones, Río Negro and Buenos Aires. ciliates in cases of conflicts between utilities, ensures that federal laws and regulations are implemented and watches ENARSA (Energía Argentina SA) over the conclusion of concession contracts. ENRE also ENARSA is a public company created by government sets the standards for power distribution, the maximum in 2004 related to the areas of exploration, exploitation, electricity prices as well as the transmission and distribu- distillation and wholesale of oil and by-products. The tion charges, and supervises both the generating compa- company also sells electricity and natural gas. Its founda- nies and CAMMESA. tion was influenced by the political necessity of the government to establish a regulatory state-owned company CAMMESA (Compañía Administradora del in an almost privatised oil market (after the largest oil Mercado Mayorista Eléctrico) company in the country YPF was privatised in 1990, be- This entity was established as a private, non-commer- coming part of the group Repsol). In addition to secur- cial company responsible for the administration of the ing the government’s influence on the oligopoly of the country’s electricity whole sale market not covered by oil and gas markets, the company was geared to ensure

19 Major consumers are those who purchase at least 2 000 MWh/a. 20 This main Fund provides economic support to these other funds: Subsidiary Fund for Regional Tariff Compensation to Final Users (FCT); Fund for the Electric Development of the Interior (FEDEI); Fiduciary Fund for Federal Electricity Transmission (FFTEF) and Wind Energy Fund. ARGENTINA | 16

the availability of basic supplies. According to its stat- Centro Regional de Energía Eólica [Regional utes, the state is supposed to hold 53 % and the provinces Centre for Wind Energy] 12 %. The remaining 35 % were sold to private investors The centre was created in 1985 through a partnership via the stock market. At present, ENARSA is also ex- among the province of Chubut, the National University panding activities into the renewable energy sector and of Patagonia and the Secretary of Energy and is composed has been appointed by the Ministry of Federal Planning, of six people which are experts in the areas of wind plan- Public Investment and Services to be the auctioneer for ning, wind evaluation resource, and social impact of wind 1 000 MW generated by renewable energy sources under technology. The centre works on the following areas: wind the umbrella of the GENREN Programme. The com- project management, technical-economical-financial as- pany is also participating actively in the development pects of the wind technology, organization of authorisa- of projects regarding production of hydrogen and wind tions application, operation and maintenance, wind park projects through its subsidiary company »Vientos de la design, design and development of rural electrification Patagonia I« currently constructing a wind park in the programmes and capacity building in wind energy. province of Chubut. Cámara Argentina de Generadores Eólicos Asociación Argentina de Energías Renovables [Argentinean Chamber of Wind Power y Ambiente [Argentinean Association for Generators] Renewable Energies and Environment] Created in 1999 this entity comprises entrepreneurs and This entity was created in 1974 and arose from the professionals from wind resources prospection, applied UNESCO-IAU school and CHEGH for young astrono- research, development and implementation, administra- mers and Latin-American scientists within the area of so- tion and operation of wind energy systems. Goals of this lar physics, in the Solar Observatory of Cosmic Physics. entity are the promotion of instruments to ease and de- At present, it has approximately 300 members from pub- velop the use of wind resources within the country as well lic institutions, universities, laboratories, environmental as to gather institutions and people involved in the wind NGO’s and the private sector. The organisation is active energy sector such as project developers, wind turbine in the promotion of renewable energies within the coun- manufacturers and suppliers as well as service companies try through organisation of events21 and publications22 in the field of wind energy projects. At present this entity and also acts as advisor for state bureaus as well as national represents, with the Argentinean Wind Energy Associa- and international organisations. tion, an active association in the promotion of wind energy within the country. Asociación Argentina de Energía Eólica [Ar- gentinean Wind Energy Association] Private actors This organisation gathers different entities and compa- By the end of 2007, a total of 48 power-generation com- nies related to the promotion and development of wind panies, 14 auto-producers, 3 co-generators, 76 distribu- energy in the country. In collaboration with institutional tion companies and 2 248 major consumers were in- partners active in the wind energy promotion and the volved in the two interconnected grids. In the generating private sector this entity is an active centre of service- sector, three companies have the biggest market share: provision aiming at the promotion and development of Endesa Costanera, Central Puerto and Yacyretá. Of the the wind sector in Argentina. Activities range from con- distribution companies, the two largest, EDENOR and sultancy to evaluation of resources and development and EDESUR, delivered about 40 % of all electricity con- realization of wind projects. sumed in 2007. A concession for power transmission via

21 Last event took place on 2006 22 In addition to studies and reports, the organization publishes two journals related renewable energies and environment ARGENTINA | 17

high-voltage lines was awarded to Trasener SA in 1990 produced from new generation plants. In doing so, this for contract duration of 95 years. The low voltage grids programme guarantees a supply for end consumers and are operated by six supra-regional enterprises. In addition encourages increasing efficiency in energy generation of to the power producers integrated within the SADI and this sector (using cogeneration technology for electricity SIP grids there are also a number of local utilities linked production). On the other hand, it aims to encourage the to the interconnected network that do not participate in industrial sector to invest in energy generation projects to the coordination of the electricity distribution process. self supply electricity. The Gas Plus market was launched There are also independent power producers who either by the Government in 2008 to encourage private invest- feed in the isolated grids or produce for their own con- ments in natural gas exploration and production via the sumption. application of a special price (for the new gas commer- cialised in the domestic market). 24 Regarding transmission, the Federal Plan for Electric- 1.4 Political Framework Conditions ity Transport in 500 kV is under implementation by the for Energy Fiduciary Fund for the Federal Electricity Transport to develop main electricity connection lines among the PRONUREE and other national energy generation zones within the country. The complemen- strategies tary Federal Plan for Electricity Transport II (launched In December 2007, the Government launched the Na- in 2003 and updated in 2006) is coordinating activities tional Programme for the Rational and Efficient Use of on the grid development to address constrains faced Energy23 which is under the responsibility of the Sec- by regional transmission networks in the period up to retary for Energy. This programme aims at increasing 2010. energy efficiency within the energy consuming sectors The legal framework for electricity generation is regu- through energy improvement measures, educational lated under Law No 24 065 (»Electricity Act«) and the programmes on energy efficiency, enhanced regulations implementation regulation (Decree 1398/92 of August to expand cogeneration activities; labelling of equipment 1992). It restructured and reorganised the electricity and appliances that use energy; improvements to the en- sector, and represented the key for the privatisation of ergy efficiency regulations; and broader utilization of the virtually all commercial activities carried out formerly Clean Development Mechanism (CDM) to support the by federally owned enterprises. It set up the basis for the development of energy efficiency projects. The objective Regulatory Entity and other institutional authorities in of the programme is to reduce electricity consumption the sector, as well as the administration of the wholesale by 6 %. electricity market, pricing in the spot market, tariff- Other relevant official strategies regarding energy frame- setting in regulated areas and evaluation of assets to be work conditions are defined within the programmes privatised. Within this law there is no reference to pro- Energy Plus and Gas Plus. The first programme was motion and deployment of renewable energy within the launched in 2006 by the Secretary for Energy. It intend- country. ed to increase the nation’s generation capacity in order Electricity production using renewable energy sources to meet the increased electricity demand. Within this was incorporated within the national regulatory frame- programme, CAMMESA requires all large users (above work via law 25 019 from 1998 and the law 26 190 from 300 kV) to contract the difference between their cur- 2007 (which will be described on the following chapter). rent demand and that in the year 2005 in a deregulated market (Energy Plus Market) where the energy sold is

23 PRONUREE; Decree 140/2007. More information available at: 24 Price of the gas is not regulated via current regulation »Agreement with Natural http://www.energy-strategies.org/focusfiles/D_140-07_PNUREE_Argentina.pdf Gas Producers 2007 – 2011« but based on costs and reasonable profit.

ARGENTINA | 18

1.5 Framework Conditions for gies in the country using fiscal schemes, exemptions and Renewable Energies incentives for all investments related either to the production of energy from renewable sources or renewable Legal Conditions and Support Schemes for generation equipment. The national government has ap- Renewable Energies pointed the national energy company ENARSA as en- The most important legal instruments for the promo- tity to run a bidding process. In this regard ENARSA is tion of renewable energy within the country are law offering capacities to be contracted with private parties. no. 25 019 from 1998 and law no. 26 190 from 2007.25 This bidding process is in line with Argentina’s goal to The 1998 law, known as the »National Wind and Solar generate at least 8 percent of renewable electricity by the Energy Rules«, declared wind and solar generation of year 2016. The process should enable private investors to national interest and introduced a top up feed in tariff erect 1 000 MW of renewable energy capacity via pur- mechanism to set up additional payment per generated chase contracts for a period of 15 years. The government kWh, which in 1998 meant a 40 % premium over market foresees that the private sector will invest 1 769 million € price. It also granted certain tax exemptions for a period to implement all projects comprised within this program of 15 years from the law’s promulgation. Due to the eco- which will focus on the following areas: wind energy nomic crisis and related barriers, the 1998 law remained (500 MW), biofuels (150 MW), WTE 28(120 MW), without measurable impact. biomass (100 MW), mini hydro (60 MW), geothermal Law 26 190 declares electricity generation through re- (30 MW), solar energy (20 MW) and biogas (20 MW). newable energies of »national interest«. The law defines This scheme combined with the feed in tariff proposed by a feed in tariff scheme to pay 2.67 Euro per MWh26 pro- the law will be a milestone to accelerate the deployment duced with renewable technologies. The tariff is guaran- of the renewable energy in Argentina. teed by the »Renewable Energies Fiduciary Fund«27 that The biofuel sector, particularly related to the production will be created specifically for that purpose and managed of biodiesel and bioethanol, has shown a remarkable in- by the Federal Council of Electricity. The goal of this crease in Argentina. However, it can be stated there are in- law is to cover 8 % of national electricity consumption sufficient measures in place in order to support the devel- using renewable energy sources by the year 2016 which opment of this sector. The law no 26 093 (Biofuels Law) is equivalent to 2 500 MW of renewable energy capac- which mandates that gasoline and diesel should be mixed ity. There are other incentive mechanisms foreseen by the with 5 % biofuel as from January 2010 lacks the necessary law which are: exemption of the VAT in activities regard- support and complementary schemes to achieve the re- ing buying, manufacture, construction or importation of spective target. So far, the government has only specified capital goods and equipment for infrastructure; acceler- parameters such as price or criteria to select projects for ated amortization of revenues generated by production ethanol production, but not for biodiesel. of renewable energy. Law no. 26 123 from the National Programme for Hy- Based on the goals established in the law on 26 190 from drogen, issued on 2006 to foster and regulate develop- 2007, in May 2009 the National Government via the Min- ments and investments in hydrogen production, is still istry of Federal Planning, Public Investment and Services waiting to be implemented and thus remains ineffective launched the programme GENREN (Generación Reno- to promote this source. vable) which recovers an old »Plan de Energías Reno- vables« for Argentina. This programme (which is still The province of Santa Cruz has issued a provincial law under development) will serve as a framework to set up (Ley Provincial 2 796) which specifies tax relief and subsi- a regulation aiming at the promotion of renewable ener- dies for renewable energy plants during the first 10 opera-

25 Law 26 190 was finally implemented on 2009 through Decree 562/2009 28 Waste to Energy 26 Tariff for solar PV is 1.60 Euro per MWh 27 Fondo Ficudidario de Energías Renovables ARGENTINA | 19

tion years. Tax exemptions vary between 50 % and 100 % • Identification of potential projects and areas for GHG depending on the percentage of components locally pro- emission mitigation (via sector studies, national com- duced29. The subsidy follows the same pattern and ranges munications, mitigation strategies, etc). from 0.01 AR $ (0.0018 €) to 0.03 AR $ (0.0054 €) per • Capacity building regarding Climate Change mitiga- kWh. This subsidy works as an addition to the feed in tariff tion strategies (involving development of communi- mechanism promoted within the national law no 26 190. cation tools, campaigns and events). Successful promotion and deployment of renewable Until September 2009, twenty six projects have been ap- energy plants in the country largely depends on the ex- proved by the DNA to be registered as CDM projects istence of support mechanisms and schemes to ease in- under the UNFCCC scheme. From these, fifteen have al- tegration of this sources in the national energy genera- ready been registered as CDM projects by the UNFCCC. tion mix provide investors with mitigation tools for long From the total amount of projects presented to the term risks as well as easing access to financing schemes UNFCCC only seven were related to electricity produc- to overcome higher costs related to this type of technol- tion via renewable energy sources (presented in table 7) ogy. The regulatory support framework for renewable and only one refers to wind energy. It can be stated that energy sources in Argentina currently relies only on law the largest amount of projects registered under the CDM no 26 190 as the old Renewable Energy Plan of Argen- scheme are comprised within the waste handling and dis- tina became obsolete. The finalisation and efficient ap- posal sector (seven projects fall under this category) par- plication of the GENREN program which will ensure ticularly in the area of landfill gas recovery and abatement 1 000 MW of additional new renewable energy capacity of methane. in the country represents the first step to reactivate the renewable energy industry in the country, which stopped There is currently no major impact of the CDM scheme activities after an initial phase in 2002 due to the eco- on the development and deployment of renewable energy nomic crisis in Argentina. projects within the country as investment conditions as well as regulatory framework still need to be developed Clean Development Mechanism from the central government in order to create favour- Argentina ratified the Kyoto Protocol in 2001. The Clean able market and regulatory conditions to gear renewable Development Mechanism Office OAMDL (Oficina Ar- energy sources to play an important role within the en- gentina de Cambio Climático) reports to the Secretary ergy mix of the country.30 The application of the CDM for the Environment and Sustainable Development and scheme should work as catalysing factor to increase the serves as the country’s Designated National Authority use of renewable energy sources. However, the use of the (DNA). Decree no. 1 070 of September 2005 established CDM scheme should be developed in parallel to the re- a national fund (Fondo Argentino del Carbono – FAC) newable energy market. aiming at the development and implementation of CDM Biomass and biogas resources are currently not being ex- projects. Tasks of this organisation comprise a wide range ploited in the country; however, there is great potential of activities such as: in bio-energy resources in Argentina. Particular potential • Technical assistance to project developers interested (for GHG emissions reduction) has been identified31 for in the evaluation of the mitigation potential of their the use of biodiesel in the transport and agriculture sector projects (involving pre-feasibility and feasibility as well as the use of biomass for energy generation. If de- studies, due diligences, etc.) as well as the possibil- veloped, both types of projects are more likely to become ity of being considered as a candidate for the CDM suitable for CDM registration. In the case of solar energy, process. this solution is considered solely for isolated settlements

29 Since 1st January 2007 tax relief is 100 % of all part manufactured locally. 30 It has to be considered that an effective application of the GENREN Program within the country might change the current conditions regarding renewable energies deployment facilitating these sources to play a more important role in the energy generation mix of the country. 31 For more information see: Klimaschutz in Argentinien und Brasilien. Markt- potenziale und Ratgeber für CDM Projekte. Cámara Argentino Alemana. ARGENTINA | 20

TABLE 7: REGISTERED AND PLANNED RENEWABLE ENERGY-CDM-PROJECTS IN ARGENTINA Savings Date of Date of Project Place Type foreseen MW Status national registra- (t CO2 eq) approval tion Comodoro Antonio Moran Wind Power Rivadavia – Renewable 185.483 10.56 Registered 19-07-05 29-12-05 Plant in Patagonia Region Province of energy projects Chubut Bio-energy in Geeral Deheza – General Electricity generation based Deheza – Renewable 585.760.9 10 Registered 11-10-06 09-04-07 on peanut hull and sunﬂower Province of energy project husk Córdoba Energy industries (renew- Complejo Industrial La Plata – Ensenada – able and non Not yet Recovery and use of ﬂaring Province of renewable 1.977.056 n.a. 31-01-07 registered residue gases project Buenos Aires resources) Manufacturing industries City of Puerto Esperanza- Pindó Biomass Energy Gen- Department Renewable Not yet 491.197 4 18-03-08 eration from Forest Biomass of Iguazú – energy project registered Province of Misiones 6 MW electricity generation District of plant using biomass origi- Lobos – Renewable Not yet 1.102.793 6 24-06-09 nated from the poultry Province of energy project registered industry Buenos Aires Energy indus- Biogas recovery and thermal Cevil Pozo – tries (renew- energy production in CIT- Not yet Province of able and non 338.993 9.20 19-03-09 RUSVIL plant (plant for citric registered Tuscumán renewable products manufacture) resources) Energy industries (renew- Caracañá City able and non Anaerobic digestion and - San Lorenzo renewable Not yet energy generation at Semino Department 203.073 10.05 19-03-09 resources) registered Starch Plant Project – Province of Waste handling Santa Fe and disposal

Source: Oﬁcina Argentina del Mecanismo para un Desarrollo Limpio 2009 where connection to the grid is either difficult or too programs in developing countries. Since 2007, this entity expensive. Activities concerning larger solar PV projects is collaborating with the Secretariat of Environment and under the CDM scheme are still very limited due to the Sustainable Development of the Nation in the identifica- small potential. tion and development of CDM projects within the country, particularly in the forestry sector. They are currently International donor activities carrying out the project »Enforcement of technologies The Japan International Cooperation Agency (JICA) for the application of CDM in the forestation and refor- The JICA is an entity created by the Japanese government estation (CDM F/R) in Argentina«. and responsible of the execution of technical cooperation ARGENTINA | 21

Carbon Finance-Assist Program hydro infrastructure. In June 2007, the CAF approved The Carbon Finance-Assist Program (CF-Assist) was an a 45 million US $ loan for the Buenos Aires province to initiative created by the World Bank in 2005. The goal of partly finance expansion of electricity transport capacity this project is to assist developing countries and transi- in the northern part of the province. tion economies in the development and implementation of CDM projects. Argentina became part of this program in 2006 through the signature of an agreement between 1.6 Market Potential for Wind Energy the World Bank and the Argentinean Secretary for En- vironment and Sustainable Development. A work plan Wind energy potential is currently being executed between the two entities em- The wind energy sector represents the most promising phasizing the following work areas: alternative for renewable energy production in the coun- • Design of strategies for the Argentinean Carbon try. The central government has already initiated the first Fund steps to evaluate, analyze and use the large wind potential • Development of a project portfolio for the Argentine- in the country. According to the last report32 elaborated an Carbon Fund by the Cámara Argentina de Energías Renovables on the • Technical assistance for CDM projects status of the wind industry in Argentina, 70 % of Argen- • capacity building tina’s territory is suitable for wind energy utilization with • Participation of Argentina in the Carbon Expo an annual average wind speed of 6 m/s (measured at 50 2006 – 2007 meter height). Best sites are located in the southern part of the country, particularly in the middle and southern Inter-American Development Bank Patagonia where average wind speeds reach values of In 2006, Argentina received funding from the Inter- 9 m/s and 12 m/s respectively (http://argentinaeolica. American Development Bank valued at 580 million org.ar/portal/images/stories/Eolica%20en%20Argen- dollars loan for the realization of the »Norte Grande tina.pdf ). One of the main problems detected for the Electricity Transmission Program«. The project focuses development of wind farms is the fact that generation on the construction of an electricity extra high transmis- points are far away from densely populated areas and in- sion line (500 kV) to connect the Northeast (NOA) and dustrial centres, and thus grid problems arise (grid con- Northwest (NEA) regions of the country, and electri- nections, grid capacity, high costs for transmission lines, cal transmission of high and medium voltage networks large energy losses etc.). Wind maps are currently also (smaller than 500 kV) for the complementary regional available for two provinces in the southern part of the transmission networks of both regions. country (Chubut and La Pampa). The compilation of a comprehensive wind atlas for the entire country consti- Andean Development Corporation tutes an essential component of the national wind energy The Corporación Andina de Fomento (CAF) is a mul- plan. Aiming at improving the planning of wind power tilateral financial institution created to provide banking projects, the Regional Centre for Wind Energy (CREE) services to both public and private clients (particularly in Chubut province was called upon in 2005 to compile for the Andean Region). In 2006, this institution fi- the atlas which was finished in 2006. The atlas can be ac- nanced two projects in Argentina: the electricity inter- cessed via their homepage (eee.eeolica.com.ar). Argen- connection Comahue-Cuyo and the electricity intercon- tina’s government estimates that 300 MW of wind energy nection Rincón Santa Maria-Rodriguez. In the same year, capacity can be implemented by 2012. 210 million US $ were given to modernize the country’s

32 »Estado de la Industria Eólica en Argentina« (2009). Cámara Argentina de Energías Renovables. ARGENTINA | 22

Framework conditions for wind energy in this regulation specifies additional subsidies and tax Argentina benefits and also establishes the percentage34 of wind The precarious economic situation in 2001 – 2002 seri- turbine components that must be manufactured or as- ously compromised the development of the wind energy sembled within the province. The subsidies amount industry in the country and paralysed a lot of studies and to 0.089 €cent/kWh, on top of the national subsidy. projects. To reactivate the sector, the government has es- • Provincial Law of Buenos Aires (Ley Provincial tablished an integral plan to develop the wind industry no 12 603) specifies additional subsidies for wind en- (National Wind Energy Strategic Plan, PENEE) at na- ergy. The subsidies amount to 0.089 €cent / kWh, on tional level aiming not only at an increase of installed ca- top of national subsidy. pacity but also to reactivate the wind industry within the • Provincial Law of Santa Cruz (Ley Provincial no nation (being an economic niche almost unexplored up 2 796): as stated in the previous chapter this regula- to that moment by national investment). tion provides for tax exemptions (50 – 100 % depend- The PENEE contains the official development programme ing on local content) and small subsidies (0.18 – 0.54 of wind parks and shall lead to the construction of at least €cent, also depending on local content) for renewable 300 MW of wind energy projects. Initial actions of this energy projects. development involve the creation of the wind atlas and the project Vientos de la Patagonia 1 and 2. Both wind farms Current Use of Wind Energy are financed by the government with additional funding and Project Pipeline from the provinces where they are located. The wind farm The current installed wind energy capacity amounts to Vientos de la Patagonia 1 is 80 % property of ENARSA 30 MW with projects mainly developed within the pe- and 20 % of the Chubut province and is structured in two riod from 1994 to 200235 and set up by electric coopera- phases. Phase 1, already in construction and foreseen to tives.36 The last wind equipment installed in the country be finished by 2009, aims at the installation and certifica- has been a 2 MW turbine for the company Barrick in its tion of two prototype turbines from local manufacturers, mine located in the province of San Juan. The following one from the company IMPSA Wind and the other from table presents a short description of existing wind projects NRG Patagonia. Phase 2 considers the installation of a in the country. 60 MW wind farm in Chubut using the certified turbines in Phase 1. Wind farm Vientos de Patagonia 233 with a After a few years of inactivity due to the economic crisis, capacity of 20 MW is located in the province of Santa the wind energy development is gathering momentum Cruz. Studies regarding prospection and analysis of the which is reflected by a remarkable project pipeline. Apart wind resources are currently being carried out. from Vientos de Patagonia described above, the following projects are planned: Wind energy legislation The Arauco Wind Farm is a project located in the prov- • National Law Nº 26 190: as stated before, this law ince of La Rioja and developed by the company IMPSA. grants economical support to energy generated The project foresees the installation of 12 wind turbines through renewable sources. In the case of wind energy, (each with 2.1 MW capacity) reaching a total capacity it specifies some small subsidies (0.26 €cent/kWh for of 25.2 MW and performed in two stages, finishing by wind) and tax benefits (such as the accelerated amor- May 2010. In an extended phase, the installation of 90 tization or exemption of VAT payment) for the wind MW are being considered. The Malaspina project is de- projects. veloped by the company Central Eólica de Malaspina • Provincial Law of Chubut (Ley Provincial no 4 389): SA. This project will be based on 40 wind turbines (Ves-

33 Capacity of the wind farm is 20 MW. 34 January 1st 2007 the percentage equals to 100 %. 35 The economic crisis in the period 2001 – 2002 slowed down investments in wind energy. As the Argentinean economy is slowly recovering, market conditions start to foster again this kind of investments. 36 Electric cooperatives are defined as organisations of investors who gather in cooperatives in order to increase size and economic capability to be able to participate in large projects and to create an effective lobby group to defend their interests. ARGENTINA | 23

TABLE 8: INSTALLED WIND FARMS IN ARGENTINA Installed Site Starting date Owner Capacity (MW) Claromecó December 98 0.8 Cooperative Claromecó Darragueira September 97 0.8 Cooperative Darragueira M. Buratovich October 97 1.2 Cooperative M. Buratovich Punta Alta February 95 0.4 Cooperative Punta Alta Punta Alta December 98 1.8 Cooperative Punta Alta Tandil May 95 0.8 Cretal Cooperative Ltd. Cooperative Tandil C. Rivadavia January 94 0.5 Pecorsa C. Rivadavia September 97 6.0 Soc. Coop. Comodoro Rivadavia C. Rivadavia October 01 10.6 Soc. Coop. Comodoro Rivadavia R. Tilly March 96 0.4 Coagua Gral. Acha November 02 1.8 Cosega Cutral Có October 94 0.4 Copelco Pico Truncado March 01 2.4 Municipality Pico Truncado Veladero August 08 2.0 Barrick TOTAL 29.8

Source: Cámara Argentina de Energías Renovables 2009 tas V-80 with a rated capacity 2 MW each) located in Active local companies the Pampa Malaspina, approximately 130 km north of On the Argentinean wind market, there are currently the city of Comodoro Rivaldiva in Chubut. It is fore- three local turbine manufacturers: seen that the park will be operating by 2010/2011. The company IMPSA owns a production facility which The Vientos del Secano project is going to be developed produces wind turbines (≥ 1.5 MW). The plant is lo- by the company ABO Wind and will be located in the cated in Mendoza and allows the company to build 75 proximities of the municipality of Ing. Buratovich (terri- wind turbines including blades per year. The company has tory of Villarino). The wind park will have a total capac- developed different types of turbines (1 MW, 1.5 MW ity of 50 MW and construction will begin by the end of and 2.1 MW) for different types of wind characteristics. 2010. It is foreseen to start running by 2011. IMPSA is currently working on the development of tur- Another project planned is the construction of the wind bines with a rated power of more than 4 MW. IMPSA park Diadema in the proximities of the city of Comodoro Wind is the largest wind technology developer in Bra- Rivadavia with a total capacity of 6.3 MW (comprising 7 zil with 13 wind farms adding up to a total capacity of turbines ENERCON E-44 with 900 kW capacity each) 317 MW distributed on the north east and south of the and an average generation rate of 22 GWh per year. In ad- country. In Argentina, the company is actively participat- dition to the wind farm, the construction of a hydrogen ing in projects located in the provinces of Buenos Aires, plant is being considered. It is planned that the project Chubut, Córdoba, Neuquén, San Luís and Santa Cruz. will initiate operations by 2010 although some sources In the Patagonic region IMPSA has installed one turbine mention that the project is currently on halt. (1.5 MW) and intends to install a wind farm (90 MW) in the province of La Rioja (enough to supply 45 % of the provincial electricity demand). ARGENTINA | 24

The company NRG Patagonia commercializes the model The company INVAP develops mostly large and medium NRG 1500 with a capacity of 1.5 MW. This technology size turbines. INVAP is very advanced in the develop- has been specifically designed and classified in Germany ment of a 1.5 MW turbine (EOLIS 15) for strong class to operate in strong wind locations, such as in some ar- winds (Class 1). The developed turbine will be particu- eas of Patagonia, commonly defined as IEC Type I+ or larly useful for the centre and south regions in Patagonia Type »S«. Using a reinforced structure of the turbine and the Atlantic coast in the province of Buenos Aires. Type 1+, NRG Patagonia has developed a Type II with INVAP has also planned the development of a 2 MW a 77 m diameter rotor and a Type I with a 70 m rotor. turbine suitable for Class 2 winds (less intense than the At present NRG Patagonia is in its final stage to develop ones existing in Patagonia). the first unit that should be installed and certified for the development of project Vientos de Patagonia I. ARGENTINA | 25

1.7 Contact Addresses Argentine Association for Renewable Energies and Environment CAMMESA (Compañía Administradora del Mercado Asociación Argentina de Energías Renovables Eléctrico Mayorista SA) y Ambiente (ASADES) Avda. Madero 942- Piso 1ª President: Ing. Alfredo Esteves Buenos Aires (C1106ACW) CC 478 No. 162 Tel.: +54 (11) 4319- 3700 La Plata (1900) (Prov. Buenos Aires) www.cammesa.com.ar E-mail: www.asades.org.ar

National Electricity Regulatory Body Argentinean Chamber of Renewable Energies Ente Nacional Regulador de la Electricidad (ENRE) Cámara Argentina de Energías Renovables Avda. Madero 1020 – Piso 10º Viamonte 524, Suite 102 Buenos Aires (C1106ACX) Buenos Aires (C1053ABL) Tel.: + 54 (11) 4510-4600 Tel. +54 (11) 4515-0517 www.enre.gov.ar E-mail: [email protected] www.argentinarenovables.org Energía Argentina SA (ENARSA) Av. Libertador 1068 – Piso 2º Ministerio de Planificación Federal, Buenos Aires (C1112ABN) Inversión Pública y Servicios / Secretaría de Energía Tel. / Fax: +54 (11) 4801-9325 Ministry of Federal Planning, Public Investment www.enarsa.com.ar and Services / Secretary of Energy Ing. Daniel Cameron Association of Electric Energy Distributors Av. Paseo Colón 171 – Piso 5º of. 504 Asociación de Distribuidores de Energía Eléctrica de la Buenos Aires (C1063ACB) República Argentina (ADEERA) Tel.: +54 (11) 4349-5000 Tacuarí 163- Piso 8º E-mail: [email protected] Buenos Aires (1071AAC) www.energia.gov.ar Tel. / Fax: +54 (11) 4331-0900 E-mail: [email protected] Secretary of Environment and Sustainable Development www.adeera.org.ar Secretaría Ambiente y Desarrollo Sustentable. San Martín 451 Association of Power Producers Buenos Aires (C10004AAI) Asociación de Generadores de Energía Eléctrica de la Tel.: +54 (11) 4348-8200 República Argentina (AGEERA) Fax: +54 (11 4348-8300 Av. Callao – 1604 piso 4º www.ambiente.gov.ar Buenos Aires (C1024AAP) Tel./Fax: +54 (11) 4807-3310 www.ageera.com.ar ARGENTINA | 26

Federal Electrical Energy Council German-Argentine Chambers of Industry Consejo Federal de Energía Eléctrica (CFEE) and Commerce Av. Pte Julio A. Roca 651 – Piso 8º Sector 25 Cámara de Industria y Comercio Argentino-Alemana Buenos Aires (C1067ABB) Av. Corrientes 327- Piso 23 Tel.: +54 (11) 4349-3068/4445 Buenos Aires (C1043AAD) Fax: +54 (11) 4349-3060 Tel.: +54 (11) 5219-4000 President: Ing. Daniel Omar Cameron Fax.: +54 (11) 5219-4001 E-mail: [email protected] E-mail: [email protected] www.cfee.gov.ar www.cadicaa.com.ar

Argentine Wind Energy Association Andean Promotion Corporation (Argentine Bureau) Asociación Argentina de Energía Eólica (AAEE) Corporación Andina de Fomento (Oficina en Argen- President: Prof. Erico Spinadel tina) Jose Maria Paz 1131 Av. Eduardo Madero nº 900 RA1602 Florida Edificio Catalinas Plaxza – Piso 9 Buenos Aires Buenos Aires (C1106ACV) Tel. / Fax: +54 (11) 4362-9266 Tel.: +54 (11) 4310-1111 E-mail: [email protected] E-mail: [email protected] www.caf.com Argentine Association of Wind Power Generators Cámara Argentina de Generadores Eólicos Argentine Bureau of Clean Development Mechanism President: Alejandro Tubal García Oficina Argentina del Mecanismo de Desarrollo Esmeralda 356_P9 Of.29 Limpio Secretary for the Environment and Sustainable Buenos Aires (C1035) Development Tel.: +54 (11) 5411-1444 Secretaría de Ambiente y Desarrollo Sustentable www.cadege.org.ar San Martín 451 – Piso 1º Of. 130 Buenos Aires (C1004AAI) Japan International Cooperation Agency Coordinator: Lic. Nazareno Castillo Agencia de Cooperación Internacional de Japón Tel. : +54 (11) 4348-8665 Maipú 1300 – Piso 21 E-mail: [email protected] Buenos Aires (C1006ACT) www.2medioambiente.gov.ar Tel.: +54 (11) 4313-8901 Fax: +54 (11) 4313-5778 Ministerio de Planificación Federal, Inversión Pública E-mail: [email protected] y Servicios –Secretaría de Energía – Consejo Federal www.jica.org.ar de la Energía Eléctrica Av. Pte. Julio Roca 651, Piso 8, Sector 25 (C1067ABB) Buenos Aires Argentina Tel.: + 54 (11) 4349-3068 Fax: +54 (11) 4349-3060 ARGENTINA | 27

Centro Regional de Energía Eólica NRG Patagonia Chubut Province Central office. Central office Almirante 456 Lewis Jones nº 280 1º Piso, Of »3« (U9103CUF) Rawson CP (9000) Chubut-Argentina Argentina Tel.: + 54 2695-481572 Tel. / Fax: + 54 (0297) 446-7848 E-mail: [email protected] http://www.nrgpatagonia.com/espanol.htm www.eeolica.com.ar INVAP IMPSA Argentina Central offices Carril Rodriguez Peña F. P. Moreno 1089 – C.C. 961 2451 (M5503AHY) (R8400 AMU) Godoy Cruz San Carlos de Bariloche Tel.: +54 (261) 4131-300 Río Negro E-mail: [email protected] Argentina http://www.impsa.com.ar/ Tel.: +54 (2944) 44-5400 Fax: +54 (2944) 42-3051 E-mail: [email protected] http://www.invap.com.ar/ ARGENTINA | 28

1.8 Information Sources Encyclopedia of Earth. Energy Profile of Argentina. (2008) Asociación Argentina de Energía Eólica www.argentinaeolica.org.ar Energía Argentina SA (ENARSA) www.enarsa.com.ar Asociación Argentina de Energías Renovables y Ambiente (ASADES) www.asades.org.ar Energía Eólica. La energía eólica en Argentina e-eolica.blogstpot.com /2008/12/la-energa-elica-en-la- Cámara Argentina de Energías Renovables (CADER) argentina.html www.argentinarenovables.org Energy Information Administration. Official Energy Cámara Argentina de Energías Renovables (CADER). Statistics from the US Government. Argentina Energy Estado de la Industria Eólica en Argentina. (2009) Profile. http://tonto.eia.doe.gov/country/country_en- ergy_data.cfm?fips=AR Cámara Argentino-Alemana. Protección Ambiental en Argentina y Brasil. Potencial de mercado y guía para Ente Nacional Regulador de la Electricidad (ENRE) proyectos MDL. (2008) www.enre.gov.ar

CAMMESA (Comapañía Administradora del Mercado Ente Nacional Regulador de la Electricidad (ENRE). Eléctrico Mayorista) www.cammesa.com El mercado eléctrico mayorista. (2007)

CGIAR Consortium for Spatial Information Ente Nacional Regulador de la Electricidad (ENRE). (CGIAR-CSI), http://srtm.csi.cgiar.org, Retrieved on Experiencia Argentina con la Revisión Tarifaria Integral. 1st August 2009 (2005)

Comisión de Integración Energética Regional Ente Nacional Regulador de la Electricidad (ENRE). La [www.cier.org.uy/a03-ccnn/ar.htm] calidad del servicio público de transporte. (2007)

Coordinación de energías renovables. Potencial Fundación para el Desarrollo Eléctrico (FUNDELEC). de los aprovechamientos energéticos en la República Sustentabilidad y Seguridad del Sistema Eléctrico Argentina. (2006) Argentino. (2004)

Covarrubias, Alvaro J. & Reiche, Kilian. A case study Germany Trade & Invest. Kojunkturprogramme of exclusive concessions for rural off-grid service in weltweit-Chancen in der Krise. Argentinien. (2009) Argentina. Global Renewable Energy www.iea.org Econométrica S.A. Economic Research and Forecast. Informe Económico Especial. »La Triple Tenaza Guzowski, Carina & Recalde, Marina. El Problema del Energética«. (2007). Abastecimiento Energético en Argentina: Diagnóstico y Perspectivas. (2006) ARGENTINA | 29

INDEC. Instituto Nacional de Estadísticas y Censos RECIPES Project. Developing Renewables. Argentine- http://www.indec.gov.ar/ an Country Study: Part B- Energy and Policy. (2006)

International Monetary Fund Secretaría de Ambiente y Desarrollo Sustentable. http://www.imf.org/external/index.htm »Portfolio de Proyectos MDL en Argentina«. (2006)

La Nacion. Digital newspaper Secretaría de Energía. Balance Energético Nacional. http://buscador.lanacion.com.ar/ Serie 1960 – 2007. (2007)

Lokey, Elizabeth 2009. Renewable Energy Project Secretaría de Energía. Programa GENREN. Licitación Development Under the Clean Development Mecha- de generación eléctrica a partir de fuentes renovables nism: A Guide for Latin America, Earthscan, July 2009 (Presentation May 2009).

Ministerio Federal de Planificación Federal, Inversión World Bank. Benchmarking Data of the Electricity Pública y Servicios. Secretaría de Energía www.energia3. Distribution Sector in the Latin America and Caribbean mecon.gov.ar Region 1995 – 2005

Oficina Argentina del Mecanismo para un desarrollo World Wind Energy Association. Wind Energy Inter- limpio, Presented and registered projects to the UN- national 2009 – 2010. Country Report Latin America. FCCC. (2009) Argentina. (2009)

Página del Gobierno de Argentina www.argentina.gov.ar BRAZIL 30

List of abbreviations

Abrace Brazilian Association of Major Power CTEEP Electricity Transmission Consumers and Free Consumers Company of Sao Paulo Abradee Brazilian Association ECLAC Economic Commission for of Electricity Distributor Latin America and the Caribbean Abrage Brazilian Association EPE Energy Research Company of Electricity Producers GW Gigawatt Abrate Brazilian Association of Major GWh Gigawatt hour Electricity Transmission Companies km Kilometre Aneel Brazilian Electricity Regulatory Agency kV Kilovolt ANP National Agency of Oil, LABSOLAR Solar Energy Laboratory Natural Gas and Biofuels of the Federal University of Santa Catarina BEN National Energy Balance MME Ministry of Mines and Energy BIG Generation Information ONS National Power System Operator Data Base of Aneel Petrobrás Petróleo Brasileiro S.A. BNDES Brazilian Development Bank (Brazilian oil company) CCEE Electric Power Commercialization PJ Petajoule Chamber PNPB National Program for Production CEEE GT Generation and Transmission Company and Use of Biodiesel of Rio Grande do Sul PNE 2030 National Energy Plan for 2030 CEMIG Energy Company of Minas Gerais Procel National Program of Energy Efficiency CESP Energy Company of Sao Paulo PROINFA Programme for Promotion CHESF Hydro Electric Company of Alternative Electricity Sources of Sao Francisco River SI Isolated Systems CMSE Power Sector Monitoring Committee SIN Interconnected National System CNPE National Council of Energetic Policy UNFCCC United Nations Framework COPEL Energy Company of Paraná Convention on Climate Change CPFL Power and Light Company of Sao Paulo WTO World Trade Organization CRESESB Reference Center for Solar and Wind Energy BRAZIL 31

2.1 Introduction the World Bank4 it is the world’s eighth largest economy with large and developed agricultural, mining, manufac- FIGURE 1: MAIN CITIES AND TOPOGRAPHY turing and service sectors. The main commercial partners of Brazil are the USA, Argentina, China, Germany, Japan and the Netherlands. The development of the GDP and other key figures can be seen in table 1 on the next page.

In 2008 the unemployment rate was 7.9 %5, the lowest rate since 2002. In 2007, 30 % of the people were living in poverty and 8.5 % were living in extreme poverty.6

2.2 Energy market

Overview Energy Market The latest analysis7 published by the Brazilian Ministry of Mines and Energy (MME) shows that the primary energy supply was 10 531 PJ in 2008, which is 5.3 % higher Source: CGIAR 2004 than in 2007. This growth in energy demand was met with non-renew- Brazil is the fifth largest country in the world and is able energy sources, with a production increase of 6.4 %. lo-cated in South America. Brazil is on the equator, al- In 2008 the external energy dependence increased to though most of the country is in the Southern hemisphere. Neighbouring countries are: Argentina, Bolivia, FIGURE 2: PRIMARY ENERGY SUPPLY. Colombia, French Guiana (France), Guiana, Paraguay, Peru, Suriname, Uruguay and Venezuela. The official lan- 3 % 37 % guage of Brazil is Portuguese, as it was a colony of Por- tugal from the 16th century to 1822, when it became 17 % independent. According to the Economic Commission 1 for Latin America and the Caribbean (ECLAC ), 85 % of the population will be living in urban areas by 2010. 11 %

In the Northeast the climate is semi-arid, and equatorial in the North. The Mid-West and parts of the Southeast 14 % have tropical climate characteristics, while in the South 10 % it is subtropical. In the north-eastern region the sun and 2 % 6 % wind are prevalent annually. Oil derivatives Hydro and charcoal Mr. Luiz Inácio Lula da Silva is the country’s president un- Natural Gas Wood and charcoal Coal and derivatives Shugar-cane derivatives til 2011, holding the position since 2002. Brazil is mem- Uranium (U308) and derivatives Other renewables ber of Mercosur2, Unasur3, G-20 and WTO. It is the largest national economy in Latin America and according to Source: MME Energy Review 2008.

1 ECLAC 2008 integrating two existing customs unions: Mercosur and the Andean Community of 2 Mercosur is a Regional Trade Agreement among Argentina, Brazil, Paraguay Nations, as part of a continuing process of South American integration. and Uruguay founded in 1991. Its purpose is to promote free trade and the free 4 http: // siteresources.worldbank.org / DATASTATISTICS / Resources / GDP.pdf movement of goods, people and currency. Bolivia, Chile, Colombia, Ecuador 5 IBGE b and Peru currently have associate member status. Venezuela signed a membership 6 Poverty is defined as the percentage of population having incomes amounting agreement on 17 June 2006, but before becoming a full member its entry has to to less than twice the cost of a basic food basket; extreme poverty is defined as be ratified by the Paraguayan and the Brazilian parliaments. the percentage of population having incomes amounting to less than the cost of 3 Unasur (Union of South American Nations) is an intergovernmental union a basic food basket. Source: Eclac, 2008. 7 MME, Energy Review 2008 BRAZIL | 32

TABLE 1: GDP, POPULATION AND COUNTRY AREA. Year 2000 2002 2004 2006 2008 in Billion € GDP 438 344 451 729 1132 (at 2008 value) Population (Millions) 171 280 176 391 181 586 186 771 191 870 in € GDP per capita 2 558 1 949 2 485 3 904 5 899 (at 2008 value) Country Area: 8 514 877 km² Exchange rate used: 1€ = US$ 1.4708 (Deutsche Bundesbank, 1st Oct 2009)

Source: IMF unless otherwise speciﬁed.

10.4 % (8 % in 2007), due to imports of natural gas from FIGURE 3: Bolivia and electricity from Paraguay (coming from the ENERGY CONSUMPTION BY SECTOR IN 2008 (IN PJ) 8 Paraguayan share of the Itaipu hydro electric plant). 3 % 10 % 36 % Natural gas is the energy source that has been showing the highest growth rates in the Brazilian energy mix, par- 2 % ticularly in 2008 the use of natural gas for electricity gen- 4 % eration increased by 81 %. The growth in renewable energy from 2007 to 2008 was 7 % only 4.1 % and so its contribution in the Brazilian Energy

Matrix has decreased. Details of the contribution of the 10 % different sources can be found in figure 2. on the previous page.

The amount of electricity produced by hydro power plants 28 % has decreased and the energy produced by firewood remained stable. The contribution of sugar-cane derivatives Industry Agriculture Transport Public continued its growth trend. Energy Sector Commerce Non-energetic use Residential

Figure 3 shows the different energy consumption levels Source: MME Energy Review 2008. of each sector in 2008. More than one third of all energy is consumed by the industry and almost another third by Isolated Systems (SI) serve local demand in the Amazon the transport sector. that is not connected to the SIN due to the geographical characteristics of the region, such as rainforest and tributar- The Electricity Grid ies of the Amazon River that complicate the construction The system formed by the power plants, transmission and of transmission lines. distribution lines is called »Interconnected National Sys- The transmission system has more than 90 thousand tem (SIN)«, whose transmission component can be seen kilometres of lines and is operated by 64 companies that at figure 4 on the next page. The SIN spreads across almost have obtained permits through public auctions pro- the whole country and was created by connecting formerly moted by the Brazilian Electricity Regulatory Agency separated regional systems (South, Southeast, Mid-West, (Aneel). They are responsible for the construction and Northeast and part of the North). Apart from the SIN, operation of the grid. The permits are valid for 30 years

8 Itaipú is the largest hydro electric plant in the world. For more information visit: http: // www.itaipu.gov.br BRAZIL | 33

FIGURE 4: In 2007 a new expansion of approximately 11 500 kilo- INTERCONNECTED SYSTEM, SIMPLIFIED REPRESENTATION. metres of transmission lines was planned. (see figure 4)

The electricity distribution market consists of 63 companies, responsible for distributing energy to more than 61 million consumers. The top five companies in terms of electricity sold are9: Eletropaulo, CEMIG, CPFL, COPEL and Light. Together they are responsible for more than 40 % of the electricity sold in the country. The shareholders of these companies can be both public and private. In the first case, the major shareholders are the federal government, states and / or municipal administrations. Private companies have national as well as international investors (e. g. AES Corporation, Endesa and EDP). Aneel regulates their activities with the main issues being tariffs and the quality of the service.

Source: CGIAR 2004 Installed Capacity and can be extended for another 30 years. The main According to Aneel Generation Database10, in August companies involved are: Companhia Energética de 2009 Brazil had 2 101 power plants in operation, with an Minas Gerais (CEMIG), Company de Transmissão de installed capacity of 107 GW (excluding the Paraguayan Energia Elétrica Paulista (CTEEP), Companhia Hidro share of the Itaipu plant). In total there are 1 263 thermal Elétrica do São Francisco (CHESF), Companhia Para- plants, 90 of them are using natural gas, 334 biomass, 799 naense de Energia (COPEL), Eletronorte, Furnas Cen- diesel and fuel oil and 44 using other fossil fuels. Table 2 trais Elétricas, Companhia Estadual de Geração e Trans- shows the number of plants for each source. missão de Energia Elétrica (CEEE GT) and Eletrosul Centrais Elétricas. Table 3 on the next page shows the development of the in- The SI’s are mostly supplied by thermal plants that use stalled capacity for electricity generation since 2000 for the diesel and fuel oil. Some small hydro plants and thermal main energy sources. Between 2000 and 2008 the installed plants using biomass are also found. capacity of thermal plants has more than doubled, jumping

TABLE 2: NUMBER OF POWER PLANTS AND INSTALLED CAPACITY IN BRAZIL. STATUS AUGUST 2009. Number of Plants Authorized Power (MW) Hydro 802 38 % 77 969 73 % Wind 33 2 % 417 0.4 % Solar 1 0 % 0.02 0 % Thermal 1 263 60 % 26 826 25 % Nuclear 2 0 % 2 007 2 % Total 2 101 100 % 107 219 100 %

Source: Aneel, BIG

9 Source: list of companies that are member of the Abradee 10 Source: Aneel, BIG BRAZIL | 34

TABLE 3: INSTALLED CAPACITY OF ELECTRIC GENERATION (VALUES IN MW). 2000 2001 2002 2003 2004 2005 2006 2007 2008 (2)11 Hydro 61 063 62 523 65 311 67 793 68 999 70 858 73 434 76 871 77 694 Thermal 10 642 11 725 15 140 16 705 19 727 20 264 20 957 21 324 22 550 Wind (1) 29 237 247 322 Nuclear 2 007 2 007 2 007 2 007 2 007 2 007 2 007 2 007 2 007 Total 73 712 76 255 82 458 86 505 90 733 93 158 96 634 100 449 102 573 (1) Considers data from 2005 on. (2) Information source for 2008: MME, Energy Review 2008

Source: MME BEN 2008 from a contribution to the total capacity of 14 % to 22 %, own residues to produce electricity. Its contribution while the capacity of hydro plants increased 27 % in the to power generation has increased 2.5 times between same period, falling from a participation of 83 % to 76 %. 2000 and 2007. In the last five years the contribution 11 of wind turbines has increased six times, reaching 559 Power Generation GWh in 2007. According to the Brazilian Electricity Regulatory Agen- cy (Aneel)12 the top five companies producing electri- Table 4 shows the electricity generation from the differ- city are: Companhia Hidro Elétrica do São Francisco ent sources for the same period. (CHESF), Furnas Centrais Elétricas, Eletronorte, Cia Energética de São Paulo (CESP) and Itaipu Binacional. Electricity consumption in 2008 is dominated by the In 2007 more than 440 000 GWh of electricity were industrial sector with 46 %. Since 2000 electricity con- produced mainly from hydro power plants (84 %). The sumption increased by more than 45 % in this sector. importance of sugar cane bagasse for electricity pro- Table 5 on the next page shows the electricity consump- duction is increasing, with sugar cane mills using their tion by sectors from 2000 to 2008.

TABLE 4: ELECTRICITY PRODUCTION (VALUES IN GWH). Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 (1) Hydro 304 403 267 876 286 092 305 616 320 797 337 457 348 805 374 015 363 800 Wind 1 35 61 61 61 93 237 559 559

Biomass and waste 10 896 12 276 13 736 15 459 16 348 18 274 18 687 22 499 24 000

Ther- Coal (includes 8 250 8 218 6 020 5 900 7 034 6 802 7 188 6 771 7 200 mal coke gas) Gas, oil 45 000 19 312 25 824 25 926 23 945 31 604 30 549 30 666 28 851 and others (2) Nuclear 6 046 14 279 13 836 13 358 11 611 9 855 13 754 12 350 13 900 Total Renewable 33 608 48 321 45 782 43 203 50 249 47 207 51 608 47 972 66 100 TOTAL 348 908 328 508 345 671 364 339 387 455 403 030 419 336 444 583 454 459 (1) Preliminary data from MME, BEN 2009. (2) The electricity production from natural gas almost doubled between 2007 and 2008 (from 15 500 GWh to 29 900 GWh).

Source: MME, BEN 2008

11 data of 2008, more recent figure given in table 2 12 Source: Aneel, BIG. BRAZIL | 35

TABLE 5: ELECTRICITY CONSUMPTION BY SECTOR (GWH) 2000 2001 2002 2003 2004 2005 2006 2007 2008 (1) Energy Sector 10 479 11 154 11 635 12 009 13 199 13 534 14 572 17 269 18 561 Residential 83 613 73 770 72 752 76 143 78 577 83 193 85 810 90 881 94 680 Commercial / Pub- 76 710 71 804 73 465 78 082 80 174 86 223 88 271 92 253 96 843 lic Agriculture 12 856 12 395 12 922 14 283 14 895 15 685 16 417 17 536 18 422 Transportation 1 250 1 200 940 980 1 039 1 188 1 462 1 575 1 605 Industrial 146 730 139 406 152 651 160 716 172 061 175 370 183 418 192 616 198 675 Final Energy 331 638 309 729 324 365 342 213 359 945 375 193 389 950 412 130 428 786 Consumption (1) Preliminary data from MME, BEN 2009.

Source: MME, BEN 2008

Growth Prognosis pacity of 169 MW. The capacities of 352 hydro plants In order to make a prognosis for the electricity market in between 1 MW and 30 MW amount to 2 874 MW in Brazil, the Ministry of Mines and Energy has developed total. The remaining 74 926 MW capacity are related to several possible scenarios (National Energy Plan 2030 – 162 hydro power plants with capacities higher than 30 PNE 2030). Different development routes at the global MW.13 The Brazilian share of Itaipu (50 %) corresponds level as well as at the national level were taken into ac- to a capacity of 7 000 MW. count. A growth prognosis for the electricity market was Biomass, mainly sugar cane bagasse but also black liquor developed for each scenario; the following table shows and other biomass, has a share of 5 %. Many sugar mills the values for the intermediate scenario: (producers of sugar and / or ethanol) use bagasse to gen-

TABLE 6: ELECTRICITY GROWTH PROGNOSIS (VALUES IN GWH). Average Sector 2005 2010 2020 2030 Yearly Growth Industrial 175 400 237 000 338 500 460 300 3.9 %

Agriculture 15 700 17 900 24 600 36 600 3.5 % Residential 83 200 105 300 169 600 285 500 5.1 % Commercial / Public 86 200 107 300 158 200 262 700 4.6 % Transport 1 200 1 100 1 400 1 700 1.3 %

Source: MME, PNE 2030

Renewable Energies erate electricity and heat for their own consumption. For historical and geographical reasons, the contribution Thanks to its position close to the equator, Brazil has of hydro power plants is very large, representing 84 % good solar conditions in all parts of the country. In vari- of total produced electricity in 2008 (77 694 MW). In ous regions of the country several experimental projects September 2009 a total of 300 hydro plants smaller than are being developed including the Araras village in the 1 MW have been erected, representing an installed ca- State of Roraima that corresponds to the solar plant

13 Source: Aneel, BIG. BRAZIL | 36

mentioned in table 2. It is a 20.5 kW solar-diesel sys- Liberalisation tem that has been working since 2001. This project has Since the 1990’s the energy sector in Brazil has seen two been built in cooperation between Aneel, Labsolar14 important political reforms. The first occurred in 1996 as and Guascor. a consequence of the law 9 427. Until then the whole en- However, the government doesn´t seem to count on so- ergy sector was controlled by vertically integrated state- lar energy as a means of diversifying the energy mix. In owned companies. The focus of the power sector reform the studies carried out by the Energy Research Company was the demerger of the business segments power com- (EPE), the National Energy Plan 2030 and the Ten Year mercialization, generation, transmission and distribution. Energy Extension Plan, the use of photovoltaic or other With Law 9 427 the National Agency of Electric Energy solar energy power plants is not foreseen as a mid-term (ANEEL) was created in 1996. Under ANEEL’s control or long-term alternative for the grid connected power the Operator of the National Electricity System (ONS) supply. The use of wind to generate electricity is still at was established in 1998. As a consequence of these de- initial stages in Brazil. By the end of 2008 the installed velopments a new structure of the power sector has been capacity reached 359 MW. In November 2009 the first designed. ONS is responsible for the coordination and wind energy auction will take place with more than control of the generation and transmission installations 13 000 MW registered. However, the actual amount of in the SIN. wind power for November’s auction remains to be de- The second reform occurred in 2004, after the country termined. The regions with major wind potential are the passed through a tough energy rationing in 2001 and North-East and the South. 2002. The privatization and liberalization process was completed, leading to an energy sector with public and Electricity Prices private companies. The laws 1 0847 and 1 0848 created In the last decade electricity prices have increased for the Energy Research Company – (EPE) which is respon- every sector. Between January 2003 and June 2009, the sible for studies of the country’s energy mix and expan- average prices for the residential sector increased by 30 %, sion of the sector. prices have doubled for the industry sector and increased The power utilities were split into generation, trans- by 38 % in the service and commerce sector. The prices mission and distribution companies and two systems are shown in table 7. of selling electricity were established: electricity can be

TABLE 7: ELECTRICITY GROWTH PROGNOSIS (VALUES IN GWH). Residential Industrial Commerce and Services Price (€ / MWh) 106.09 85.57 103.77

Source: Aneel Energy Prices

The electricity prices in Brazil vary according to the re- sold in the free market with bilateral contracts between gions. The average price (for all sectors) in the North was seller and buyer or it can be sold in the regulated market 105.81 € / MWh, in the Southeast 98.69 € / MWh, in the (from a »pool«) via auctions where distribution com- Northeast 96.05 € / MWh, in the Midwest 92.20 € / MWh panies may buy and generation companies may sell elec- and in the South 86.20 € / MWh. tricity. This regulated form is the only way for distributors to purchase high volumes of electricity with long term contracts. In the auctions there are two ways that energy can be sold, either on the spot market (delivery

14 Labsolar is the solar energy laboratory of the Federal University of Santa Catarina (http: // www.lepten.ufsc.br / english / home / solar.html) BRAZIL | 37

within one year) or through forward contracts (delivery guidelines of the National Council of Energetic Policy within 3 or 5 years). The former Power Wholesale Mar- (CNPE). The MME plays a central role in the develop- ket was substituted by the Electric Power Commerciali- ment of the electricity sector, and coordinates supply and zation Chamber (CCEE). demand within the framework of the regulated electri- Aneel and the Electric Power Commercialization city market according to the model presented by EPE. Chamber (CCEE) are responsible for the auctions. This The MME is also responsible for preventive actions to new model established in 2004 restricted the free mar- guarantee energy supply when there is an imbalance be- ket with only 30 % of the electricity being negotiated in tween supply and demand. the free market in 2008. Furthermore, the Power Sector Monitoring Committee National Council of Energetic Policy (CNPE) (CMSE) was created which follows and evaluates the The CNPE (Conselho Nacional de Politica Energética) continuity and security of electricity supply in the entire is an advisory body which is responsible for supporting Brazilian territory. the President in all matters relating to energy policy. It is composed of different ministries (being the Ministry Rural Electriﬁcation of Energy it’s president), one representative of the fed- In the end of 2003 the government launched a national eral states and the federal district (a State Secretary des- program called »Luz para Todos« (Light for all15) with ignated by the Ministry of Energy), one Brazilian citizen the aim to supply electricity to 10 million people by 2008 expert in energy matters and one representative of the which is about 2 million households, mainly in the rural Brazilian universities also expert on energy matters (the regions. As the goal was not achieved, the program was last two are also designated by the Ministry of Energy). extended until 2010. The 2 million connections were The presidents of Petrobrás, Eletrobrás and of the Brazil- reached in June 200916 and the expectations are to reach ian Development Bank (BNDES) may also participate in 5 million more households by the end of 2010. meetings, but without voting rights. According to ECLAC17, in 2007 97.9 % of the Brazilian households were electrified. However, in rural regions The CNPE is responsible for providing energy policies this value is lower (89.1 %). and guidelines for a rational use of energy resources, to secure the energy supply of the remote areas of Brazil In regions where grid extension is technically difficult or and periodically monitor the energy matrix of the four impossible, Solar Home Systems are used to provide ba- regions, defining guidelines for special programs for sic electricity services. The main programmes are carried the use of natural gas, coal, nuclear energy, biofuels, out in the states of Bahia and Minas Gerais. Some pilot solar energy, wind power and other alternative energy projects for off-grid electrification have been implement- sources. ed in the Amazon region, which could lead to a broader application of these solutions in the next few years. Brazilian Electricity Regulatory Agency (ANEEL) ANEEL mediates, regulates and controls the operation 2.3 Market actors of the electrical system. ANEEL tasks are to draw up proposals for the issuing of concessions for electricity genera- Ministry of Mines and Energy (MME) tion and distribution, also to set tariffs for end customers The MME is responsible for the formulation and imple- and to issue permits for access to the grid. mentation of policies in the energy sector, as set out in the

15 For more information see: http: // luzparatodos.mme.gov.br / luzparatodos / asp / default.asp?id=1 16 See informative release: http: // luzparatodos.mme.gov.br / luzparatodos / downloads / Informativo_19_CDR.pdf 17 ECLAC, 2008. BRAZIL | 38

National Power System Operator (ONS) Power Sector Monitoring Committee (CMSE) The ONS ensures non-discriminatory access of market The CMSE was created as part of the MME in response participants to the national interconnected grid (Sistema to an earlier power crisis. Its primary purpose is to ensure Interligado Nacional – SIN) and controls the generation, that demand and supply in the power sector are ensured transmission and distribution system. The electricity gen- in the short term (up to five years) as a result of a planned erators, distributors, traders, bulk consumers and repre- and economically efficient development of the generation, sentatives of the other consumer groups hold shares in the transmission and distribution system. If supply shortages ONS, which is a private sector company. are foreseeable, the Committee can for example decide to introduce particular price incentives in order to bring ad- Energy Research Company (EPE) ditional generating units into the market. The EPE carries out studies and researches to support policy development by MME. The main focus of EPE is National Agency of Oil, strategy development for the energy sector, such as the Natural Gas and Biofuels (ANP) prognosis of the Brazilian energy mix, research to sup- ANP is linked to MME and is the regulatory body for the port the integrated design of energy resources as well as activities in the oil, natural gas and biofuels industries. It studies that support generation and transmission expan- is responsible for the implementation of the national en- sion plans for the short, medium and long term future. It ergy policy for the aforementioned fuels. ANP regulates may propose the construction of new plants to address and controls the activities of the industry. future demands. Much of the public information on the Brazilian energy market has been published by EPE. Centrais Elétricas Brasileiras S.A. – ELETROBRÁS Electric Power Eletrobrás is the holding of the state-owned electric- Commercialization Chamber (CCEE) ity companies at the national level. It is responsible for In 2004, the Law 10 848 implemented the New Model the commercialization of the electricity produced at the for the Power Sector and authorized the creation of the Itaipu plant. The commercialization of renewable energy Electric Power Commercialization Chamber – CCEE – under the renewable energy programme Proinfa is also which is regulated by Decree 5 177, dated August 12th, under responsibility of the company. The generating ca- 2004. CCEE is a non-profit, private, civil organization pacity of Eletrobrás, including the 50 % of the power of company in which agents are gathered in three Cat- Itaipu that belongs to Brazil, reaches almost 40 000 MW, egories: Generation, Distribution, and Commercializa- corresponding to 39 % of the total installed capacity nation. tionwide. The transmission lines belonging to Eletrobrás The purpose of CCEE is to carry out the wholesale trans- have approximately 59 856 km of extension. actions and commercialization of electric power within the National Interconnected System, for both regulated The following companies are part of Eletrobrás: Itaipu and free contracting environments and for the spot mar- (South; generation), Eletronorte (North; generation ket. In addition, CCEE is in charge of financial settlement and transmission), CHESF (Northeast; generation and for the spot market transactions. These activities form the transmission), Furnas (all regions except Northeast; gen- Energy Accounting and Financial Settlement Process. eration and transmission), Eletronuclear (Southeast; nu- The Commercialization Rules and Procedures that gov- clear generation), CGTEE (South; generation), Eletro- ern the activities performed by CCEE are defined and ap- sul (South and Midwest; transmission and distribution), proved by ANEEL. CERON (North; generation, transmission and distribu- BRAZIL | 39

tion), Eletroacre (North; distribution), Manaus Energia Brazilian Association of Great Industrial (North; generation), CEAL (Northeast; distribution) Energy Consumers and Free Market and Boa Vista Energia (North; distribution). Consumers (Abrace) Abrace is an association that jointly consume 45 % of the Brazilian Wind Energy Association (ABEEólica) electricity and 40 % of thermal energy in the Brazilian in- The ABEEólica is a non-profit association that brings to- dustry sector. gether companies in the wind energy sector. Its purpose is to promote the production of electricity from wind en- Brazilian Wind Energy Centre (CBEE) ergy as an additional source to the national energy matrix The Brazilian Wind Energy Centre was created in March and stand up for the consolidation and competitiveness 1996, with the support of the Ministry of Science and of the wind energy sector, mainly through a long term Technology, the Ministry of Environment, Water Re- government program. In total there are 47 companies af- sources and Legal Amazon, the Secretary of Science, filiated to ABEEólica. Technology and Environment of Pernambuco and the Bank of Northeast of Brazil. It is managed by the staff of Brazilian Association of Electricity the Wind Energy Group of the Federal University of Per- Producers (Abrage) nambuco, Brazil, a recognized reference research group Abrage is an association of large electricity generation in wind energy. companies, although mainly hydro power. The total pro- The centre possesses a test area for wind turbines at the duction of all members corresponds to 70 % of all elec- coast, close by the city of Olinda. The CBEE develops tricity produced by the SIN, including 50 % of Itaipu. projects in the following areas: determination of wind energy potential (using computerized anemographs); Brazilian Association of Large Electricity design of wind energy systems; design of hybrid systems Transmission Companies (Abrate) (wind, solar, diesel); design of wind parks; simulations of Abrate has 8 members that together own 87 024 km power generation and economical analysis. of transmission lines, corresponding to almost 50 % of the country’s total transmission grid. Abrate’s members own 80 % of the transmission lines with voltage 2.4 Political Framework Conditions in higher than 230 kV. The members are: CEMIG (6 %), the Energy Sector CTEEP (10 %), CHESF (20 %), COPEL (2 %), ELET- RONORTE (8 %), Furnas Centrais Elétricas (19 %), The Energy Research Company (EPE) has developed a CEEE GT (6 %) and ELETROSUL (19 %).18 series of studies that highlighted the need for the Min- istry of Mines and Energy to develop an energy strategy Brazilian Association of Electricity for the country. One of these documents is the Ten Year Distributors (Abradee) Energy Expansion Plan (Plano Decenal de Expansão de Abradee is an association of 48 distribution companies Energia) that is published every year; the latest version both private and state owned being responsible for 99 % covers the period from 2008 to 2017. of the national energy market. The plan takes into account socio-economic and environmental factors, and translates them into energy demands, expansion requirements for generation, transmission and distribution. In addition to a macro approach of the energy market in Brazil, the plan also goes into detail of the

18 Percentages correspond to the share of the transmission lines ≥ 230kV, compared to the country’s total BRAZIL | 40

development of each energy source. The other document the number of projects presented by the public and the relevant for the national energy development strategies private sector did not reach the expected values, the dead- is the National Energy Plan 2030 that indicates how the line was postponed until 30th of December 2010. use of different energy sources should develop until 2030. According to Law 10438 / 2002 and Law 10762 / 2003 It states that the market share of the energy sources will (which partially modified the Law 10438), the Govern- change little until 2030, including the proportion of hy- ment shall allot reference prices to renewable energy to droelectric power (change of less than 2 %).19 In conclu- be acquired by Eletrobrás under the PROINFA. These sion, the National Energy Plan 2030 (PNE, 2030) gives reference prices are set by the MME with respect to each the decision-makers little motivation for a structural particular technology and energy source. For wind en- change of Brazilian power generation. ergy the reference price is about 105 EUR / MW. The Aneel Resolution 77 of 18 of August 2004 mandates a reduction the grid tariffs of at least 50 % for renewable 2.5 Framework conditions for renew- energy plants (based on solar power, wind, biomass or co- able energies generation) up to 30 MW. It is believed to be the most important incentive for renewable energies at present. Strategy and objectives for renewable energies Luz Para Todos Currently there is no general renewable energy frame- An important national programme is »Luz para Todos«. work. The Programme for Promotion of Alternative The main goal of the project is to bring electricity to ap- Electricity Sources (Proinfa, see below) was the last pro- proximately 10 million people living in rural areas by gramme of this type; now there are only some resource 2010. Part of the project is supported by a cooperation specific rules, but no general framework. project between Eletrobrás and GTZ, promoting and fa- Proinfa will end with the installation of the subscribed cilitating the use of renewable energies, including wind projects. With regard to wind energy, the government’s energy, through rural electrification in the North and choice now is specific wind energy auctions; the first is Northeast regions. planned for November 2009. It has not been determined Especially in regions where the connection to the SIN is how many MW will be auctioned; however more than 13 problematic due to the geographical characteristics (like GW have been registered. rainforest and tributaries of the Amazon River that complicate the construction of transmission lines), »Luz para Legal Conditions and Support Todos« also incentivises the development of new power Schemes for renewable energies plants using renewable sources: water (small hydro and The goal of the Proinfa20 programme is to achieve the hydrokinetic systems), biofuels, solar and wind. Subsi- installation of 3 300 MW capacity connected to the na- dies are available to cover 85 % of the direct costs of the tional grid. One third of this capacity should come from projects. A »Manual for Special Projects« was developed wind energy, another third from small hydro plants and and sets the conditions for these types of projects.21 the last third from biomass plants. The energy generated will be bought by the Public Utility Eletrobrás, and the National Program for Production and Use contracts will have a duration of 20 years from the begin- of Biodiesel ning of operation. Since 2005, the country has started to develop its bio- In 2002, when the Proinfa was created by Law 10 438 / 02, diesel market with the National Program for Production the deadline for achieving these targets was 2006. But as and Use of Biodiesel (PNPB). Since July 2009 all diesel

19 Source: Kissel, 2009 21 The manual is available at the webpage of the MME. It is called »Manual de 20 More details: http: // www.mme.gov.br / programas / proinfa Projetos Especiais«: http: // www.mme.gov.br / mme / galerias / arquivos / legis- lacao / portaria / Portaria_n_060-2009.pdf BRAZIL | 41

sold in the country must contain at least 4 % of biodiesel. According to the UNFCCC webpage there is a port- The target is that by 2013 this share rises to 5 %. Biodiesel folio of 190 CDM projects, of which 21 were rejected, producers receive several tax incentives, different financ- 2 withdrawn, 3 are requesting registration, 4 are under ing options, especially when using the »Social Stamp«. review and 160 have successfully been registered. Bra- To obtain the stamp the producer must procure a mini- zil accounts for 44 % of all CER’s generated by CDM mum share of raw materials from family farmers, depend- projects in Latin America. ing on the region: North: 50 %, South and Southeast: The following table shows the wind energy projects that 30 %, North and Mid-west: 10 %. In Brazil, the biofu- are registered. Apart from that, 6 projects have the sta- els industry expanded significantly between 2006 and tus »At Validation« and one project has its validation 2007, the biodiesel production jumped from 69 002 m3 terminated.

TABLE 8: REGISTERED CDM WIND PROJECTS 2009 Annual Project Location Size (MW) Reg. Year Savings (tCO2) Project 0843 : Petrobrás Wind Power Macau, Brazil 1.8 1 277 2007 Project for Oil Pumping Project 0575 : Água Doce Wind Power Santa Catarina 9.0 13 704 2006 Generation Project Project 0603 : Osório Wind Power Plant R. Grde Sul 150 148 325 2006 Project Project 0486 : Horizonte Wind Power Santa Catarina 4.8 6 227 2006 Generation Project

Source: UNFCCC 2009 to 402 154 m3 and the ethanol production increased International donor activities by 27 % in the same period, with a production of 388.7 bbl / day in 2007. GTZ GTZ’s official cooperation on behalf of the German Clean Development Mechanism Government with Brazil takes largely place in two areas Brazil ratified the Framework Convention on Climate of development policy: Tropical Rain Forest Renewable Change in February 1994 and the Kyoto Protocol in Energies and Energy Efficiency The TA-program »Re- August 2002. An initial national climate change report newable Energies and Energy Efficiency« supports the was not submitted until November 2004, several years implementation of Brazilian policies. Core activities (in later than planned. Since July 1999 an inter-ministerial collaboration with Eletrobrás and EPE) are capacity de- commission coordinated by the Ministry of Science and velopment measures for governmental institutions and Technology (Comissão Interministerial de Mudança technical experts, assistance in the implementation of na- Global do Clima) has been responsible for climate tional programs and support for demonstration projects. change mitigation, and therefore for CDM projects as This programme is part of the German-Brazilian Energy well. This commission has also been given the status of Agreement, signed during Chancellor Angela Merkel´s the Designated National Authority (DNA) for Brazil. visit in May 2008. BRAZIL | 42

Kf W energy sold in the auction will have to be delivered from The German development bank Kf W is currently imple- July 2012 on, with a duration of up to 20 years. menting on behalf of the German Government a rehabili- One strong barrier for a better development of the wind tation project for small hydro plants and supports in co- energy market under the PROINFA incentives is that operation with the Brazilian development bank BNDES 60 % of the equipment used should come from national the construction of wind farms with a total installed ca- industry. It was intended to be an incentive to the indus- pacity of 80 MW and a volume of 200 Mio US$. try, but many project developers see it as an obstacle. This question is under discussion and it is expected that for the auction in November 2009 developers will be allowed to 2.6 Market potential for wind energy import wind energy converters with a rated power larger than 1 500 kW. For smaller turbines, the import limit will Wind energy potential still be in place (formerly, the limit was 2 000 kW) which Brazil’s wind potential is estimated to be 143 GW.22 means the tax for imported industrialised products (IPI) 1.4 GW have already been contracted under PROINFA. of 14 % is applied. However, by August 2009 only 414 MW had actually been installed.23 The Brazilian Wind Energy Centre pub- In this respect, also the programme »Luz para Todos« lished in 2001 a Brazilian Wind Atlas. It was used by the (see chapter 1.5 for details) needs to be mentioned, pro- PNE 2030 in its studies on wind energy (http://www. viding subsidies of up to 85 % of direct project cost. cresesb.cepel.br). The atlas provides information on the Power plants, including wind energy plants, are included wind energy conditions at 50 m height. It covers all areas in the category of enterprises that have to undergo an envi- with wind speeds above 7 m / s. These values are theoreti- ronmental licensing process. Law No. 6938 / 1981, which cal. For example, the North-eastern potential estimated provides the National Policy on Environment (AMPP), at 75 GW in the PNE 2030 could be as low as 12 GW establishes standards and sets criteria for the licensing of according to other credible studies. actual or potentially polluting activities. With regard to grid connection, the concessionaire or the Framework Conditions for Wind Energy ONS has to offer an entry point to the distribution or The PROINFA is the main programme promoting the transmission network at a convenient knot for the wind use of wind energy (together with biomass and small hy- park; the wind park owner has to pay for the cable from dro). With PROINFA ending end of 2009, government the park to the entry point (shallow connection costs). has chosen to follow a different path in the future and promote wind energy via dedicated auctions that will be Current Use of Wind held once or twice a year. Energy and Project Pipeline Starting this process, for the first time wind energy will The North-eastern and the Southern regions have the be sold under the regulated system in an auction to take highest potential in the country and most of the projects place in November 2009. According to the Brazilian that are already implemented are located in these two re- Wind Energy Association, in July 2009 a total of 441 gions. Annex I presents a list of all existing wind farms projects were registered to participate in the auction, rep- with a total installed capacity of 414 MW. Almost 250 resenting 13 341 MW. It is a huge amount if the actual in- MW are installed in the Northeast, where 25 wind parks stalled capacity of 359 MW is considered. These projects are located. 7 wind farms, totalling 167 MW, are located are located in the South, Southeast and Northeast, the rein the South and one 1 MW is installed in the Southeast. gions with the greatest wind potential in the country. The According to Aneel24, at the time of writing 13 new wind

22 Source: Brazilian Wind Energy Centre (CBEE)). 24 Source: Aneel, BIG Conditions: 50 m height, average wind speed of at least 7 m / s 23 Source: Aneel, BIG BRAZIL | 43

plants are being constructed. An overview is included in Business Climate table 11 of Annex I. Twelve of them are situated in the The Wind energy industry is already established in the North-eastern region (Eight in the State of Ceará and 4 country. The company Wobben Windpower produces, in Pernambuco) and one in the State of Rio de Janeiro. installs and maintains high quality wind turbines. Wob- Together they have a capacity of 442 MW. Another 45 ben Windpower is a subsidiary of Enercon GmbH, a plants, totalling 2 300 MW, have already been granted ap- world leader in wind energy technology. Therefore, many proval but their construction has not started yet. experts have stated that there is actually no need for importing equipment; however, importation would certain- Table 9 shows the companies who own existing wind ly increase competition. farms, indicating their share of the total installed capacity On the other hand, technical experts and skilled workers of 414 GW: are still scarce and it is foreseen that the need for maintenance experts will increase with the last execution of

TABLE 9: WIND FARM OPERATORS AND SHARE IN PROINFA installations. In this context, the GTZ En- THE TOTAL INSTALLED CAPACITY (414 GW). ergy Programme for Brazil is about to set up an operation STATUS AUGUST 2009. and maintenance education and training programme. Owner Share The Brazilian Development Bank (BNDES) has spe- Enerﬁn Enervento / Wobben Wind Power Enercon 36.2 % cific financing programmes for the development of wind Paciﬁc Hydro 13.3 % farms and has already financed some of them, like those Enerbrasil / Iberdrola 11.9 % situated in Osório-RS. Except the well-known interna- SIIF 11.7 % tional financing organizations, there is no real alternative Tractebel Energia / GDF Suez 10.5 % to BNDES. Wobben Wind Power Enercon 4.3 % Servtec 4.0 % EDP / CENAEEL 3.3 % Martifer 3.3 % COPEL 0.6 % Petrobrás 0.4 % CEMIG 0.2 % Centro Brasileiro de Energia Eólica - FADE / UFPE 0.1 % Foum El Oued 2011

Source: Aneel, BIG. BRAZIL | 44

2.7 Addresses and Contacts Brazilian Association of Major Electricity Transmission Companies (Abrate) Ministry of Mines and Energy (MME) Address: Rua Deputado Antonio Edu Vieira, 999 Address: Esplanada dos Ministérios Bloco »U« CEP: 88040-901 Florianópolis / SC – Brasil CEP 70065-900 Brasília – DF Tel.: +55 48 3231-7215 Tel.: +55 61 3319-5555 Internet: www.abrate.org.br Internet: www.mme.gov.br Brazilian Association Brazilian Electricity of Electricity Distributor (Abradee) Regulatory Agency (Aneel) Rua da Assembléia Nº 10 - Grupo 3201 - Ed. Address SGAN 603 módulo J Cândido Mendes CEP 70830-030 Brasília DF CEP: 20011-901- Rio de Janeiro – RJ Tel.: +55 61 2192 8600 Tel.: + 55 21 2531-2053 Internet: www.aneel.gov.br E-mail: [email protected] Internet: www.abradee.org.br National Power System Operator (ONS) Rua da Quitanda 196 – Centro Brazilian Association of Major Power Consumers and CEP 20091-005 – Rio de Janeiro – RJ Free Consumers (Abrace) Tel.: +55 21 2203-9400 Rua Gomes de Carvalho, 1510 – cj. 41 – 4º andar Internet: www.ons.org.br CEP 04547-005 – São Paulo – SP Internet: www.abrace.org.br Eletrobrás Tel.: +55 11 2139-7550 Address: Avenida Presidente Vargas, 409 / 13º Banco do Brasil CEP 20071-003 - Rio de Janeiro, RJ Tel.: +55 800 729 0722 Tel.: +55 21 2514-5151 Internet: www.bb.com.br Internet: www.eletrobras.com Electric Power Commercialization Chamber (CCEE) Energy Research Company (EPE) Address: Alameda Santos, 745 / 9º Av. Rio Branco, 1 – 11º andar, Centro CEP 01419-001 São Paulo – SP CEP 20.090-003 Rio de Janeiro – RJ Tel.: +55 800 10 00 08 Tel.: +55 21 3512-3100 E-mail: [email protected] www.epe.gov.br Internet: www.ccee.org.br

Brazilian Association of Electricity Producers (Abrage) National Agency of Oil, Address: Rua Alvarenga Peixoto, 1408 - Room 906 Natural Gas and Biofuels (ANP) CEP 30180 121 Belo Horizonte – MG Address: Av. Rio Branco, 65 / 12° to 22 ° Tel.: +55 31 3292-4805 CEP: 20.090-004 Rio de Janeiro / RJ Internet: www.abrage.com.br Tel.: +55 21 2112-8100 Internet: www.anp.gov.br BRAZIL | 45

Reference Center for Solar and Wind Energy 2.8 Information Sources (CRESESB) Av. Horácio Macedo, 354 – Cidade Universitária Aneel, BIG (Generation Information Data Base) CEP 21941-911 Rio de Janeiro – RJ (http://www.aneel.gov.br/aplicacoes/capacidadebrasil/ Tel.: +55 21 2598-6174 capacidadebrasil.asp) Retrieved on August 2009 E-mail: [email protected] Internet: www.cresesb.cepel.br Aneel, Energy Prices, (http://www.aneel.gov.br/area. cfm?idArea=550) Retrieved on August 2009 Brazilian Development Bank (BNDES) Tel.: +55 21 2172-8888 Bundesbank, Euro reference exchange rate E-mail: [email protected] (http://www.bundesbank.de/statistik/statistik_zeitrei- Internet: http://inter.bndes.gov.br/english/ hen.php?lang=de&open=devisen&func=row&tr=W J5636) Retrieved on August 2009 Banco do Nordeste [email protected] Central Bank of Brazil (Banco Central do Brasil), Av. Paranjana, A Economia Brasileira (The Brazilian Economy), 5700 – Passaré – Bloco E1 (Superior) 2009,(http://www.bcb.gov.br/pec/boletim/banu- CEP 60740-000 Fortaleza – Ceará al2008/rel2008cap1p.pdf ) Retrieved on August 2009 Tel.: +55 800 728 3030 Internet: www.bnb.gov.br Brazilian Wind Energy Center (CBEE) (http://www. eolica.org.br/index_ing.html) Retrieved on August 2009 Gesellschaft für Technische Zusammenarbeit (GTZ) Brasilia Office CIA World Fact Book, Brazil (https: // www.cia.gov/ Country Director : Mr Ulrich Krammenschneider library/publications/the-world-factbook/geos/br.html) Edificio Brasilia Trade Center / SCN Quadra 01 Bloco Retrieved on August 2009 C / Sala 1501 / Zona Central / Caixa Postal 01991 70259-970 Brasilia / DF, Brazil CGIAR – Consortium for Spatial Information Tel.: +55 (61) 21012170 (CGIAR-CSI) (http://srtm.csi.cgiar.org/SELEC- Fax: +55 (61) 21012166 TION/inputCoord.asp) Retrieved on October 2009 E-mail: [email protected] CRESESB, Wind Potential (www.cresesb.cepel.br) Kf W Office Brasília Retrieved on August 2009 Director: André Ahlert SCN Quadra 01-Bloco C-No. 85 ECLAC, Statistical Yearbook for Latin America and Edifício Trade Center / Sala 1706 Caribbean, (http://www.eclac.cl/cgi-bin/getProd. CEP 70711-902 Brasília DF - Brazil asp?xml=/publicaciones/xml/7/35327/P35327. Tel.: +55 (61) 33 28 00 49 xml&xsl=/deype/tpl/p9f.xsl&base=/tpl/top-bottom. Fax: +55 (61) 33 28 07 49 xsl) Retrieved on August 2009 E-Mail: [email protected] BRAZIL | 46

IBGE a, Summary of the Statistical Data Available MME, BEN 2008 (National Energy Balance 2008) (http://ibge.gov.br/brasil_em_sintese/default.htm) (http://www.mme.gov.br/mme/menu/todas_publica- Retrieved on August 2009 coes.html) Retrieved on August 2009

IBGE b, Monthly Employment Research MME, BEN 2009 (National Energy Balance 2009) – (http://www.ibge.gov.br/home/estatistica/indicadores/ PRELIMINARY (http://www.mme.gov.br/mme/menu/ trabalhoerendimento/pme_nova/defaultestudos.shtm) todas_publicacoes.html) Retrieved on August 2009 Retrieved on August 2009 MME, PNE 2030 (National Energy Plan 2030) IMF (International Monetary Fund), World Economic (http://www.mme.gov.br/mme/menu/todas_publica- Outlook Database, October 2008 (http://www.imf.org/ coes.html) Retrieved on: August 2009 external/pubs/ft/weo/2008/02/weodata/weoselgr.aspx) Retrieved on August 2009 ONS, SIN Maps (http://www.ons.org.br/conheca_sis- tema/mapas_sin.aspx#) Retrieved on: August 2009 Kissel, J.M. et al., Cornerstones of a renewable energy law for emerging markets in South America, Energy UNFCCC, CDM projects (http://cdm.unfccc.int/ Policy 37, 2009 Projects/projsearch.html) Retrieved on: August 2009

MME, Energy Review 2008 – Preliminary (Resenha Energética 2008 - Preliminar) (http://www.mme.gov. br/mme/menu/todas_publicacoes.html) Retrieved on August 2009 BRAZIL | 47

2.9 Annex I

TABLE 1: EXISTING WIND FARMS. STATUS AUGUST 2009 Operating Power % of Total Promoter Plant Name Location Region Company (kW) Installed Eólica de Centro Bra- Fernando de Fernando de 225 0.1 % Northeast Centro Brasileiro de Energia sileiro de En- Noronha - PE Eólica - FADE / UFPE Noronha ergia Eólica - Eólica Olinda FADE / UFPE 225 0.1 % Olinda - PE Northeast Eólica-Elétrica CEMIG Experimental Geração e CEMIG 1 000 0.2 % Gouveia - wMG Southeast do Morro do Transmissão Camelinho S / A Centrais Eólio - Elétrica COPEL Eólicas do 2 500 0.6 % Palmas - PR South de Palmas Paraná Ltda. Parque Eólico Central 4 800 1.2 % Água Doce - SC South do Horizonte Nacional EDP / CENAEEL Eólica Água de Energia 9 000 2.2 % Água Doce - SC South Doce Eólica Ltda Energias RN 15 - Rio do Fogo - Enerbrasil / Iberdrola Renováveis 49 300 11.9 % Northeast Rio do Fogo RN do Brasil S.A. Parque Eólico 50 000 12.1 % Osório - RS South de Osório Enerﬁn Enervento / Wobben Parque Eólico Ventos do Sul 50 000 12.1 % Osório - RS South Wind Power Enercon Sangradouro Energia S / A Parque Eólico 50 000 12.1 % Osório - RS South dos Índios SPE Millen- nium Central Millennium 10 200 2.5 % Mataraca - PB Northeast Geradora Eólica S / A Presidente 4 500 1.1 % Mataraca - PB Northeast Camurim 4 500 1.1 % Mataraca - PB Northeast Albatroz 4 500 1.1 % Mataraca - PB Northeast

Paciﬁc Hydro Coelhos I 4 500 1.1 % Mataraca - PB Northeast Vales dos Coelhos III Ventos Gera- 4 500 1.1 % Mataraca - PB Northeast Atlântica dora Eólica 4 500 1.1 % Mataraca - PB Northeast S.A Caravela 4 500 1.1 % Mataraca - PB Northeast Coelhos II 4 500 1.1 % Mataraca - PB Northeast Coelhos IV 4 500 1.1 % Mataraca - PB Northeast Mataraca 4 500 1.1 % Mataraca - PB Northeast

Source: Own elaboration with data from Aneel, BRAZIL | 48

TABLE 1 Operating Power % of Total Promoter Plant Name Location Region Company (kW) Installed Eólica de Centro Bra- Fernando de Fernando de 225 0.1 % Northeast Centro Brasileiro de Energia sileiro de En- Noronha - PE Eólica - FADE / UFPE Noronha ergia Eólica - Eólica Olinda FADE / UFPE 225 0.1 % Olinda - PE Northeast Eólica-Elétrica CEMIG Ger- Experimental CEMIG ação e Trans- 1 000 0.2 % Gouveia - wMG Southeast do Morro do missão S / A Camelinho Centrais Eóli- Eólio - Elétrica COPEL cas do Paraná 2 500 0.6 % Palmas - PR South de Palmas Ltda. Parque Eólico Central 4 800 1.2 % Água Doce - SC South do Horizonte Nacional de EDP / CENAEEL Eólica Água Energia Eólica 9 000 2.2 % Água Doce - SC South Doce Ltda Energias RN 15 - Rio do Fogo - Enerbrasil / Iberdrola Renováveis do 49 300 11.9 % Northeast Rio do Fogo RN Brasil S.A. Parque Eólico 50 000 12.1 % Osório - RS South de Osório Enerﬁn Enervento / Wobben Parque Eólico Ventos do Sul 50 000 12.1 % Osório - RS South Wind Power Enercon Sangradouro Energia S / A Parque Eólico 50 000 12.1 % Osório - RS South dos Índios SPE Millen- nium Central Millennium 10 200 2.5 % Mataraca - PB Northeast Geradora Eólica S / A Presidente 4 500 1.1 % Mataraca - PB Northeast Camurim 4 500 1.1 % Mataraca - PB Northeast Albatroz 4 500 1.1 % Mataraca - PB Northeast Petróleo Bra- Petrobrás Macau 1 800 0.4 % Macau - RN Northeast sileiro S / A Eólica Canoa Rosa dos Ven- 10 500 2.5 % Aracati - CE Northeast Quebrada tos Geração e Martifer Comercializa- Lagoa ção de Energia 3 230 0.8 % Aracati - CE Northeast do Mato S.A. Bons Ventos São Gonçalo do Servtec Taíba Albatroz Geradora de 16 500 4.0 % Northeast Amarante - CE Energia S.A. Eólica Para- curu Geração Eólica Paracuru e Comer- 23 400 5.6 % Paracuru - CE Northeast cialização de Energia S.A. SIIF SIIF Cinco Geração e Foz do Rio Comercializa- 25 200 6.1 % Beberibe - CE Northeast Choró ção de Energia S.A.

Source: Own elaboration with data from Aneel, BRAZIL | 49

TABLE 1 Operating Power % of Total Promoter Plant Name Location Region Company (kW) Installed Eólica de Centro Bra- Fernando de Fernando de 225 0.1 % Northeast Centro Brasileiro de Energia sileiro de En- Noronha - PE Eólica - FADE / UFPE Noronha ergia Eólica - Eólica Olinda FADE / UFPE 225 0.1 % Olinda - PE Northeast Eólica-Elétrica CEMIG Ger- Experimental CEMIG ação e Trans- 1 000 0.2 % Gouveia - wMG Southeast do Morro do missão S / A Camelinho Centrais Eóli- Eólio - Elétrica COPEL cas do Paraná 2 500 0.6 % Palmas - PR South de Palmas Ltda. Parque Eólico Central 4 800 1.2 % Água Doce - SC South do Horizonte Nacional de EDP / CENAEEL Eólica Água Energia Eólica 9 000 2.2 % Água Doce - SC South Doce Ltda Energias RN 15 - Rio do Fogo - Enerbrasil / Iberdrola Renováveis do 49 300 11.9 % Northeast Rio do Fogo RN Brasil S.A. Parque Eólico 50 000 12.1 % Osório - RS South de Osório Enerﬁn Enervento / Wobben Parque Eólico Ventos do Sul 50 000 12.1 % Osório - RS South Wind Power Enercon Sangradouro Energia S / A Parque Eólico 50 000 12.1 % Osório - RS South dos Índios SPE Millen- nium Central Millennium 10 200 2.5 % Mataraca - PB Northeast Geradora Eólica S / A Presidente 4 500 1.1 % Mataraca - PB Northeast Camurim 4 500 1.1 % Mataraca - PB Northeast Albatroz 4 500 1.1 % Mataraca - PB Northeast Parque Eólico Eólica Beber- 25 600 6.2 % Beberibe - CE Northeast de Beberibe ibe S.A. Tractebel Energia / GDF Suez Eólica Pedra Pedra do Sal 18 000 4.3 % Parnaíba - PI Northeast do Sal S.A. Parque Eólico Eólica de Bom Bom Jardim da de Santa Cata- 600 0.1 % South Jardim Serra - SC rina Ltda Eólica de 10 000 2.4 % Aquiraz - CE Northeast Wobben Wind Power Enercon Prainha Wobben Wind Power Indus- São Gonçalo do Eólica de Taíba tria e Comér- 5 000 1.2 % Northeast Amarante - CE cio Ltda Mucuripe 2 400 0.6 % Fortaleza - CE Northeast TOTAL 414 480 100.0 %

Source: Own elaboration with data from Aneel, CARIBBEAN 50

List of abbreviations

Not Country Speciﬁc: St. Vincent and Grenadines ACS Association of Caribbean States SVG St. Vincent and Grenadines CARICOM Caribbean Community VINLEC St. Vincent Electricity Services Limited CREDP Caribbean Renewable Energy Development Programme Dominican Republic ESA Electricity Supply Act CDE Dominican Electricity Company GDP Gross domestic product CDEE Dominican Corporation of GSEII Global Sustainable Energy State-Owned Power Companies Islands Initiative CNE Comisión Nacional de Energía GWh Gigawatthours EDEESTE Eastern Power Distribution Company MW Megawatt EDENORTE Northern Power Distribution Company OECS Organisation of EDESUR Southern Power Distribution Company Eastern Caribbean States EGEHaina Electricity Generating Company PV Photovoltaics Haina S. A. UNDP United Nations Development Programme EGEHID Empresa de Generación UNEP/GEF Global Environmental Facility, Hidro-eléctrica Dominicana administered by UNEP ETED Empresa de Transmisión USAID U.S. Agency for Eléctrica Dominicana International Development HIC Haina Investment Company Ltd. WTO World Trade Organization IIBI Instituto de Innovación en Biotecnología e Industira Barbados INDRHI Instituto Nacional de BL&P Barbados Light & Power Company Ltd. Recursos Hidráulicos DNA Designated National Authority ITBIS Taxes on transfers of industrial goods FTC Fair Trading Commission NRECA National Rural Electric L&PH Light & Power Holdings Ltd. Cooperative Association NREL U.S. National Renewable Dominica Energy Laboratory DOMLEC Dominica Electricity Services Ltd. OC Coordination group for IRC Independent Regulatory Commission the wholesale market PROFER Proyecto de Fomento de Grenada Energías Renovables GRENLEC Grenada Electricity Services Ltd. REGAE Renewable Energy Growth Assistance Entity St. Lucia REGAE Renewable Energy Growth BIT Banana Industry Trust‘s Assistance Entity LUCELEC Saint Lucia Electricity Services Limited SIE Superintendencia de Electricidad SINE Dominican electricity system TCW Trust Company of the West CARIBBEAN 51

3.1 Introduction

FIGURE 1: GENERAL OVERVIEW OF THE REGION: CARIBBEAN ISLANDS (WITHOUT CUBA).

Data Source: CGIAR 2004

The Caribbean is a region in Central America consisting of Vincent and the Grenadines, St. Lucia, and Trinidad and the Caribbean Sea, its islands and the surrounding coasts. Tobago. The selected countries for this study are: Barba- The islands comprise thirteen independent countries and dos, Dominica, Dominican Republic, Grenada, St Lucia, several dependences, possessions and colonies. The major and St. Vincent and the Grenadines (SVG). islands are Cuba, Jamaica, La Española, comprising Haiti The climate of the region is tropical but rainfall varies with and the Dominican Republic, and Puerto Rico. The other elevation, size and water currents. Warm, moist north- independent islands are Antigua and Barbuda, Bahamas, easterly trade winds blow consistently from the east and Barbados, Dominica, Grenada, St. Kitts and Nevis, St. therefore the region has good wind power potential.

TABLE 1: KEY STATISTICS; 2008 DATA IF NOT OTHERWISE INDICATED. Dominican Country Barbados Dominica Grenada St. Lucia SVG Republic Area (km²) 431 754 48 442 344 616 389

Language English, English, Spanish English, English, English, Bajan French Patois French Patois French Patois French Patois Hindi/ Bhojpuri Currency* 1€ = 2.81 1€ = 3.80 1€ = 51,29 1€ = 3.80 1€ = 3.80 1€ = 3.80 (BBD) Barba- (XCD) Eastern (DOP) (XCD) Eastern (XCD) Eastern (XCD) Eastern dian Dollar Caribbean Dominican Caribbean Caribbean Caribbean Dollar Peso Dollar Dollar Dollar * Currency source: http://ﬁnance.yahoo.com/ (September 4th 2009) Source: CARICOM, www.caricom.org CARIBBEAN | 52

Dominica, Grenada, St. Lucia and St. Vincent are mem- UNDP TRAC (approx. 68 000 €), in-kind contribution bers of the Organization of Eastern Caribbean States and comes from OAS, Regional Governments and Institu- have a common currency. All selected countries are mem- tions. CREDP provides support on development of poli- bers of the World Trade Organization (WTO) and of the cies, provision of capacity building and information, and Association of Caribbean States (ACS) and, apart from technical assistance for project preparation. Its aim is »to the Dominican Republic, they are also member of the reduce barriers to the increased use of renewable energy Caribbean Community (CARICOM). Table 2 shows thus reducing the dependence on fossil fuels while con- the GDP and population of each country. tributing to the reduction of greenhouse gas emissions».2 Source: IMF1. Values in italic are estimations.

TABLE 1: GDP AND POPULATION OF SELECTED COUNTRIES.

2000 2002 2004 2006 2008 Barbados 1.74 1.68 1.92 2.17 2.57 Dominica 0.18 0.17 0.19 0.22 0.25 Dominican Republic 16.32 15.16 14.66 23.99 31.06 GDP, current Grenada 0.29 0.30 0.32 0.38 0.45 prices (bio €) St. Lucia 0.48 0.48 0.54 0.63 0.70 St. Vincent and the Grenadines 0.23 0.25 0.28 0.34 0.41 Barbados 6 460 6 217 7 049 7 918 9 315 Dominica 2 551 2 417 2 705 3 008 3 457 GDP per- Dominican Republic 2 055 1 856 1 744 2 773 3 489 capita, Grenada 2 909 2 903 3 035 3 619 4 203 current St. Lucia 3 084 3 012 3 353 3 803 4 123 prices (€) St. Vincent and the Grenadines 2 143 2 335 2 642 3 192 3 794 Population Barbados 269 000 271 000 272 000 274 000 276 000 Dominica 72 000 72 000 72 000 72 000 72 000 Dominican Republic 7 939 000 8 170 000 8 407 000 8 651 000 8 902 000 Grenada 100 000 102 000 105 000 106 000 106 000 St. Lucia 156 000 159 000 162 000 167 000 170 000 St. Vincent and the Grenadines 106 000 106 000 107 000 107 000 107 000

Source: IMF 1. Values in italic are estimations.

As all Caribbean countries are highly dependent on im- 3.2 Country Summaries ported energy carriers, renewable energies play a considerable role in plannings for a more diversified supply struc- Barbados ture with reduced dependence. The Caribbean Renewable Barbados situated just east of the Caribbean Sea, is an in- Energy Development Programme, CREDP, assisting all dependent Continental Island-nation in the western At- CARICOM countries, has the purpose to remove barri- lantic Ocean. Its closest island neighbours are Saint Vin- ers to the use of renewable energy and thereby foster its cent & the Grenadines and Saint Lucia to the west. To development and commercialisation. The programme the south lies Trinidad and Tobago. Barbados’s total land is an initiative of the Energy Ministers of CARICOM area is about 430 square kilometres (166 square miles), region established to change the market environment for consisting mainly of lowlands with some higher regions Renewable Energy in the Region. It is funded by UNDP/ in the country’s interior. GEF (approx. 3.8 Mio €) and GTZ (approx. 1.7 Mio €), The country has potential for producing energy from wind,

1 Source: IMF (International Monetary Fund), World Economic Outlook 2 http://www.ca rg/jsp/projects/credp-bankers.pdf Database, October 2008, (http://www.imf.org/external/pubs/ft/ weo/2008/02/weodata/weoselgr.aspx) Retrieved on August 2009 CARIBBEAN | 53

solar and biomass resources. The new National Energy St. Lucia Policy expects that about 20 to 40 MW of installed capac- The volcanic island of Saint Lucia is more mountainous ity will be generated from wind energy, 5 to 10 MW from than most other Caribbean islands, with the highest point waste-to-energy (landfill gas recovery), 1 to 5 MW from being Mount Gimie, at 950 metres above sea level. Saint photovoltaic energy, 30 MW from co-generating plant. Lucia is also one of the few islands in the world that boasts Also a 30 MW gasification plant is being considered; fur- a drive-in volcano. The volcanic complex includes a geother 10 to 20 MW should come from other technologies. thermal field with sulphurous fumaroles and hot springs. The major renewable energy sources in the island are Dominica wind, solar and geothermal power. Saint Lucia Electricity The independent nation of Dominica is located between Services Ltd. has plans to start the construction of a 12 the French islands of Guadeloupe and Martinique in the MW wind farm and commenced work in 2008 on an ini- Eastern Caribbean. It is the largest and most mountain- tiative regarding grid-connected small photovoltaic sys- ous of the Windward Islands and consists of volcanic tems. The company is also negotiating with government origins with mountains, rainforests with more than 365 to carry out studies on geothermal energy sources. rivers, waterfalls, boiling lakes, and coral reefs. Dominica is home to the world’s second-largest boiling lake. Saint Vincent and the Grenadines Dominica has a great untapped potential of almost all re- Saint Vincent and the Grenadines (SVG) is located be- newable energy sources: wind, solar, hydro, geothermal tween Saint Lucia and Grenada in the Windward Islands and landfill gas. Geothermal energy is the most promis- of the Lesser Antilles. The islands of Saint Vincent and ing renewable energy in the island, especially in the re- the Grenadines include the main island of Saint Vincent gion of Wotten Waven that has a potential of 120 MW and seven smaller inhabited islands with about 30 unin- for electricity production. habited islets and cays stretching south from Saint Vin- The first wind turbine in Dominica was installed in cent to Grenada. 2008 and it is expected to generate 596 GWh of elec- SVG has potential to develop renewable energy projects tricity per year. using a variety of sources: biomass, wind, geothermal, hydro, and solar. Hydro power has had a long tradition Grenada on the island but still there is unexploited potential, esti- Grenada is located north of Trinidad and Tobago and mated at 5 to 10 MW. Venezuela, and south of Saint Vincent and the Gren- St. Vincent Electricity Services Ltd. (VINLEC) is devel- adines. It comprises the islands of Grenada, Carriacou oping a 7.2 MW wind farm in the southern part of the and Petit Martinique which are apart of the islands of the island. The geothermal potential is estimated at approxi- Grenadines. Grenada is called »The Spice Isle« because it mately 100 MW. is a leading producer of several different spices especially Solar energy is already being used in hotels and larger nutmeg, which are all important export goods. domestic buildings to heat water, but the installation of The Grenada Electricity Services Ltd (GRENLEC) is such appliances could be further extended. expanding the geothermal resource assessments and its wind prospecting activities. The company plans to com- Dominican Republic mission an 80 kW wind turbine soon. The Dominican Republic is a nation on the island of His- GrenSolar disposed of 21 installed PV systems of less paniola, part of the Greater Antilles archipelago in the than 10kW by the end of 2008. These installations are Caribbean region. The western third of the island is oc- connected to the GRENLEC’s grid. cupied by Haiti. It is the second largest Caribbean nation CARIBBEAN | 54

(after Cuba). The country’s mainland has four important In general, the wind resource is best on hilltops, ridge mountain ranges. The most northerly is the Cordillera crests, and coastal locations that have excellent exposure Septentrional (Northern Mountain Range), which ex- to the prevailing winds from the east. The extreme south- tends from the north-western coastal town of Monte western and north-western regions of the country are es- Cristi, near the Haitian border, to the Samaná Peninsula timated to have the greatest number of areas with wind in the east, running parallel to the Atlantic coast. The resources. highest range in the Dominican Republic is the Cordill- The Dominican Republic has a solar radiation of approxi- era Central (»Central Mountain Range«). It gradually mately 5 kWh/m2 per day, which is still widely unexploit- bends southwards and finishes near the town of Azua, on ed. So far, only hotels are using solar energy to heat water. the Caribbean coast. The production of electricity from solar energy is also in Biomass is already used for generating heat and electricity early development stages. Until February 2009, five pho- in sugar factories, but the country also has potential for tovoltaic projects had the concession granted with a total producing biogas from banana trees and from the husks capacity of 300 MW still to be installed. and leaves of rice. Biogas could also be obtained from cattle farming as well as from urban wastes. 1. BARBADOS / CARIBBEAN 55

3.1.1 Energy market ing 164 MW. The electricity is supplied by diesel (113.1 MW), coal steam turbine (40 MW) and gas tur- Overview Energy Market bine (86 MW) plants located at Spring Garden, Garrison Fossil fuels are the main energy source used in Barba- and Seawell. Most of the electricity is produced from oil.4 dos. Other sources which are used on a smaller scale The next table shows the power generation between 2004 are solar energy and to a limited extent bagasse. About and 2008 and shows the price impact by varying genera- 30 000 households use solar heater systems. tion from different sources (see table 3). Barbados extracts crude oil and natural gas from onshore The industry and commerce sector are responsible of wells in and around the Woodbourne oilfield in St. Philip. more than 50 % of the electricity consumption in Barba- The total production of these wells in 2007 was about dos. Both represent a total of 19 798 clients, while there 16 000 m3 of crude oil and out 8 500 m3 of natural gas. are 99 000 residential customers. Table 4 shows the evolution of the consumption of both sectors (see table 4). As energy demand is much higher than the domestic pro- Due to higher electricity prices, the increase in demand be- duction, in 2008 the energy import bill of Barbados stood tween 2007 and 2008 was only 0.34 %, much lower if com- at more than 250 million €, while in 2007 the energy im- pared to the annual growth between 2004 and 2007. Dur- port bill amounted to more than 150 million €. In 2006 ing the whole period, the consumption grew by about 14 %. it reached almost 130 million €. This created additional budgetary problems as prices for 2008 were impacted by Liberalization the oil prices of more than 100 €.3 The currently valid regulations do not provide for power generation by independent companies because the power Installed Capacity and Power Generation utility Barbados Light & Power Company Ltd. holds a The total installed electricity generating capacity in monopoly on the generation, transmission and distribu- 2008 amounted to 239.1 MW, with peak load reach- tion of electricity.

TABLE 3: ELECTRICITY GENERATION FROM 2004 TO 2008. VALUES IN GWH.

Gross Gen. 2004 2005 2006 2007 2008 Steam 256.9 239.1 210 261.9 204.7 Diesel 369.3 568.3 706.5 663.4 658.6

Gas turbine 302.6 185.4 103.9 123.9 190.4 Total 928.8 992.8 1 020.40 1 049.20 1 053.70 Net Gen. 896.4 953.4 976.4 1 002.90 1 010.50

Source: L&PH

TABLE 4: ELECTRICITY CONSUMPTION BY SECTOR. VALUES IN GWH.

Consumption 2004 2005 2006 2007 2008 Domestic 275.7 293.7 294.8 300 301 Commercial 555.6 591 608.6 640.8 643

Total 831.3 884.7 903.4 940.8 944

Source: L&PH

3 Source: http://www.barbadosadvocate.com/newsitem. 4 Source: L&PH asp?more=business&NewsID=5536 1. BARBADOS / CARIBBEAN | 56

Electricity Prices Renewable Energies The electricity supply tariffs are set according to the Solar water heating is the only application of renewable provisions of the Utilities Regulation Act. The household energy widely used in Barbados. Approximately 30 000 electricity tariff 5 comprises a monthly fixed rate of households on the island have solar water heaters. 1.07 €, and the following tariff groups (maximum monthly Barbados Light & Power Company Ltd. is preparing for consumption of 2 000 kWh): the interconnection of small, customer owned solar pho- The legally prescribed 15 % value-added tax is not includ- tovoltaic systems into the grid. These units, generally less ed. An additional fuel clause adjustment 6 of 8.33 € is also than 5 kilowatts in size, are designed to connect directly charged. to a customer’s electrical panel and the generation surplus can be sold to the grid. The company expects the ne-ces- sary technical and regulatory framework to be in place by TABLE 5: ELECTRICITY PRICES IN BARBADOS. the end of 2009. Monthly consumption rate Basic charge (euro/kWh) BL&P plans to construct a 10 MW wind farm at Lam- First 100 kWh 0.0626 berts, St. Lucy. Next 900 kWh 0.0698 Over 1000 kWh 0.0769 Currency used: 1€ = 2.81 BBD

Source: BL&P 2009

Small scale commercial users (up to a maximum of 5 kW and/or a monthly consumption of 1 000 kWh) have a similar tariff structure; they are charged a fixed tariff of 1.78 € and a consumption dependent rate of 0.0804 €/ kWh. Large consumers are exempted from a fixed fee, but are charged per power rate of 1 €/kW and a consumption dependent rate of 69.80 €/MWh.

5 Source: http://www.blpc.com.bb/cus_dtar.cfm 6 The fuel clause adjustment is monthly updated. Value used from 5th September 2009. 1. BARBADOS / CARIBBEAN | 57

3.1.2 Market Actors sector diversification, considering also the promotion of renewable energy. Ministry of Energy and Public Utilities The Ministry of Energy and Public Utilities is responsi- The energy sector is governed by the Electric Light and ble for decisions relating to energy and natural resources, Power Act (1899) and regulated by the Fair Trading public utilities, the National Petroleum Corporation and Commission Act, Cap. 2000 – 31, and the Utilities Regu- the Barbados National Oil Company. lation Act, Cap 2000 – 2030. While the law does allow auto-generation, i.e. the generation of electricity for in- Barbados Light & Power Company Ltd. house consumption, it prohibits the sale or feed-in into The Barbados Light & Power Company Ltd. (BL&P) has the grid. The law defines the principles, tariffs and service been serving electricity to customers in Barbados since standards, makes adjustments, and monitors the law’s im- 1911. The power utility has a universal licence for gen- plementation by users. erating, transmitting and distributing electricity in Bar- bados until 2028. BL&P is owned by the Light & Power Holdings. 63 % of the shares are owned by approximately 3.1.4 Political Framework Conditions 2 800 Barbadian investors and the remaining 37 % of the in the Energy Sector shares are owned by Canadian International Power Co. Ltd., whose parent company is the Leucadia National Renewable energy sources are considered within the Na- Corporation of the USA. In 2008 BL & Pgenerated tional Energy Policy. The government has set targets and 1 054 GWh of electricity, an increase of 0.4 % from the policy initiatives. The two main targets are to reach a 10 % previous year. of renewable energy consumption in primary energy consumption by 2012 and a 20 % by 2026. About 20 to 40 Fair Trading Commission (FTC) MW of generating capacity is planned to come from wind The FTC has the responsibility to regulate the various energy, 5 to 10 MW from waste-to-energy (landfill gas re- power utilities in Barbados since 2001. Its task is to ensure covery), 1 to 5 MW from photovoltaic energy, 30 MW that regulated power utilities such as BL&P comply with from co-generating plant. Also a 30 MW plant gasifica- the provisions of the Utilities Regulation Act and other tion is being considered and other 10 to 20 MW should laws concerning consumer protection and fair competi- come from other technologies. The main driver for RE tion. Recently the FTC issued a set of service standards expansion is to reduce the dependence on imported fuels. applicable to the operations of BL&P; the set includes a standard on the quality of electricity. A modification of the electric utility law to allow the sale of electricity into the grid is also being considered, although no deadline is mentioned in the plan. The Fair 3.1.3 Political framework Trading Commission (FTC) Public Utilities Board will conditions for energy set the tariff for the resale in October 2009. Customers will be able to sell excess electricity produced by renew- In December 2006 the Ministry of Energy published a able energy sources to the electricity provider (BL&P). Draft National Energy Policy (energy strategy) that was Also, the Inter-American Development Bank has ap- adopted by parliament in January 2008. The document proved 1 million US$ for the development of a Sustain- presents several action plans with policy initiatives, e.g. able Energy Framework for Barbados (SEFB) that will on reducing the dependence on imported fuels and on target the promotion of sustainable energy and the mini- 1. BARBADOS / CARIBBEAN | 58

mization of the dependency on fossil fuels. It will enable the government to test energy efficiency and renewable energy solutions, study bioenergy and solar alternatives and develop regulatory and financial incentives to promote sustainable energy.

Clean Development Mechanism (CDM) Barbados signed the Kyoto Protocol in August 2000 and has established a Designated National Authority (DNA). To date, no CDM energy projects have been registered.

3.1.5 Market potential for wind energy

BL&P has a project to introduce wind energy into the electricity mix and is still awaiting a decision7 on its application to the Town & Country Development Planning Office to construct a 10 MW wind farm at Lamberts, St. Lucy (where in the beginning of the 1980’s an experimental wind turbine was built). The project is being developed with the assistance of Caribbean Renewable Energy Development Programme (CREDP) of the Ger- man Technical Cooperation (GTZ). Indeed, the administrative processes in the Town & Country Development Planning Office (in this case, the environmental impact assessment was delivered in the beginning of 2007) may be an obstacle for investors, since projects may be delayed or halted completely.

7 BL&P will be required to hold another town hall meeting with nearby residents before a decision is made on the future of the Lamberts, St. Lucy wind farm. http://www.barbadosadvocate.com/newsitem.asp?more=local&NewsID=5547 1. BARBADOS / CARIBBEAN | 59

3.1.6 Addresses and contacts Town and Country Development Planning Office Block »C«, The Barbados Light & Power Co. Ltd (BL&P) The Garrison The Garrison/ St. Michael St. Michael Barbados, W.I. BB14038 Tel.: +1 (246) 430 43 00/436 18 00 Email: [email protected] Fax: +1 (246) 429 60 00 Tel.: (1-246)467-3000 Internet: www.blpc.com.bb Fax: (1-246)430-9392 Internet: www.townplanning.gov.bb/ Designated National Authority (DNA) Ministry of Family, Youth, Sports and Environment 1st Floor, S.P. Musson Building 3.1.7 Information sources Hincks Street Bridgetown Barbados Light and Power ( BL&P ) St. Michael ( http://www.blpc.com.bb/ ) Retrieved on September 2009 Minister of Family, Youth, Sports and Environment Dr. The Hon. Esther Byer-Suckoo Ministry of Energy and Environment, Barbados Nation- Email: [email protected]/doctor_esther@ al Energy Policy – DRAFT, 2006 hotmail.com Tel.: (1-246)467-5710 Ministry of Finance, Economic Affairs and Energy Fax: (1-246)437-8859 ( http://www.energy.gov.bb ) Retrieved on September 2009 Fair Trading Commission Good Hope, Green Hill L&PH ( Light & Power Holdings Ltd ), St. Michael 246-4240300 Annual Report 2008, available at: Barbados http://www.blpc.com.bb /photos/E0431 %2BL&P %20 Tel.: (1-246) 4240260 Annual %20Report.pdf Fax: (1- 246) 4240300 Internet: www.ftc.gov.bb/ Utilities Regulation Act , available at: http://www.ftc.gov.bb/index.php?option=com_content Ministry of Finance, Economic Affairs and Energy &task=view&id=18&Itemid=45 Energy Division 2nd Floor-N.P.C Building IMF ( International Monetary Fund ), World Economic Wildey Outlook Database, October 2008, ( http://www.imf. St. Michael org/external/pubs/ft/weo/2008/02/weodata/weoselgr. Tel.: (1-246) 429-5254 aspx ) Retrieved on August 2009 or (246) 427-9806 or (246)427-8615 Fax: (1-246)436-2004 Internet: http://www.energy.gov.bb/ 1. BARBADOS / CARIBBEAN | 60

Barbados Advocate, 2009 (http:/www.barbadosadvocate.com/newsitem. asp?more=business&NewsID=5536) Retrieved on September 2009

Fair Trading Commission Act, available at: http://www.ftc.gov.bb/index.php?option=com_content &task=view&id=18&Itemid=45

Electric Light and Power Act, available at: http://www.ftc.gov.bb/index.php?option=com_content &task=view&id=18&Itemid=45

Utilities Regulation Act, Cap 2000 – 2030, available at: http://www.ftc.gov.bb/index.php?option=com_content &task=view&id=18&Itemid=45

Barbados Draft National Energy Policy, available at: http://www.scribd.com/doc/18190048/Barbados- National-Energy-Policy-Draft-December-2006

Sustainable Energy Framework for Barbados ( SEFB ), available at: http://cipore.org/sustainable-energy-framework-coming-for-barbados/CARICOM, http://www. caricom.org 2. DOMINICA / CARIBBEAN 61

3.2.1 Energy market Installed Capacity and Power Generation Dominica’s electric power mainly derives from diesel gen- Overview Energy Market erators, fuelled by imported oil (69 % of total electri-city), Like the majority of Caribbean islands, Dominica has no and hydropower plants (31 % of total electricity). In 2008 natural oil resources and has to import all the oil products more than 3.8 million US gallons were imported. consumed into the country, although the country has hy- DOMLEC operates two diesel based power plants (Fond dropower plants and significant wind, geothermal and Cole and Portsmouth) and three hydropower facilities solar potentials. Traditional use of biomass plays a major (Laudat, Trafalgar and Padu). role for domestic heating and cooking, but no reliable Recently three medium speed generators with a maxi- quantitative information is available. mum of 4.2 MW of electricity were installed at the Fond Cole power station, replacing old, unreliable and ineffi- The Electricity Grid cient equipment (see table 6). Dominica Electricity Services Ltd. (DOMLEC) is the only licensed electricity provider. The increase in the electricity production is based on DOMLEC is owned by the US-based company WRB thermal power plants. Between 2007 and 2008 the gross Enterprises Inc. (51 %). The Dominica Social Security production grew 1.3 %. Hydro output decreased by 21 % (DSS)8 owns 20 % and local corporate and private citi- in 2007 as the Padu plant was damaged during Hurricane zens own the remaining 29 %. Dean and has not been able to generate electricity since. The electricity grid, also owned by DOMLEC, suffers The consequence has been that more reliance had to be from high line losses between 10 to 14 % that are caused placed on diesel generation, resulting in higher overall by aging and poor quality distribution lines. The construc- fuel usage (see table 6). tion of a 33 kV transmission line along the west coast is The domestic sector is the major electricity consumer in planned to be completed by 2010.9 Dominica (46 % of electricity in 2008). It is composed

TABLE 6: INSTALLED CAPACITY FROM 2000 TO 2008. VALUES IN MW.

2000 2001 2002 2003 2004 2005 2006 2007 2008 Hydro 7.60 7.60 7.60 7.60 7.60 7.60 7.60 7.60 7.60 Diesel 12.84 12.84 12.84 13.59 14.44 15.89 15.89 17.17 17.17

Total 20.44 20.44 20.44 21.19 22.04 23.49 23.49 24.77 24.77 Peak Demand 12.97 13.87 13.04 12.92 13.19 14.37 14.47 14.50 14.66

Source: DOMLEC

TABLE 7: INSTALLED CAPACITY FROM 2000 TO 2008. VALUES IN MW.

2000 2001 2002 2003 2004 2005 2006 2007 2008 Hydro 31 590 27 036 35 929 28 523 33 736 27 876 27 797 21 885 20 554 Diesel 45 925 53 929 44 203 48 404 45 493 55 779 57 619 64 497 66 944

Total 77 515 80 965 80 132 76 927 79 229 83 655 85 416 86 382 87 498

Source: DOMLEC

8 DSS is the national public social security system in Dominica. More info: http://www.dss.dm 9 Source: DOMLEC 2007 2. DOMINICA / CARIBBEAN | 62

of more than 28 000 clients. The electricity demand of €). Fuel surcharge is calculated monthly and added to the commercial sector amounted to 41 %. The sector has the total consumption. In May 2009 the surcharge was a total of approx. 4 000 clients. The street lighting sector 0.0588 €/kWh. consumed 2 % and the industry sector consumed 3 % of the electricity. There are 27 industrial customers in total. DOMLEC has been unable to achieve the legally pre- Table 8 shows the evolution of the electricity consump- scribed fuel efficiency level of 17.5 kWh/gallon11 at tion of each sector: 16.7 kWh/gallon in 2008). Slow economic growth over the last few years resulted in

TABLE 8: ELECTRICITY CONSUMPTION BY SECTOR. VALUES IN MWh.

2000 2001 2002 2003 2004 2005 2006 2007 2008 Domestic 30 872 31 772 32 856 32 942 33 062 33 492 34 176 33 732 34 051 Commercial 16 052 17 068 22 758 21 669 24 017 24 993 26 469 28 788 30 278

Hotel 3 154 4 026 2 839 2 473 2 704 2 649 2 439 2 002 6 004

Industrial 4 420 2 801 4 607 4 354 5 508 5 504 5 357 5 600 2 028

Street Lighting 1 098 1 120 1 125 1 295 1 127 1 150 1 130 1 298 1 325 Total 55 596 56 787 64 185 62 733 66 418 67 788 69 571 71 420 73 686

Source: DOMLEC a very slow growth in electricity demand and therefore Renewable Energies little or no investment has been undertaken in additional Dominica has a vast and untapped potential of generat- generation or systems upgrade. ing electricity from almost all renewable energy sources: The consumption increased 3.2 % between 2007 and wind, solar, hydro, geothermal and landfill gas. 2008, the highest growth since 2004. Between 2000 and Geothermal energy is the most promising renewable 2008 the consumption grew by 33 %. energy in the island.12 Several potential studies have already been carried out under the EU’s Interreg IIIB pro- Liberalization gramme, together with the French Environment and En- The country started the liberalization of the power sec- ergy Management Agency. According to the Ministry of tor in the beginning of 2007, when the new Electricity Public Utilities, Energy and Ports, preliminary results of Supply Act (ESA) came into effect, but no change has oc- a report on the Wotten Waven geothermal reservoir are curred in the general supply pattern in the meantime. considered to be most favourable. A potential of up to 120 MW for electricity production was determined. The Electricity Prices reservoir has the potential to accommodate up to 40 pro- Cost of electricity in Dominica has risen significantly in duction and reinjection wells, and an expected electricity recent years and is subject to oil price development due to production capacity of 120 MW. the dependence on diesel generators. Prices are among the The project intends to sell at least 80 MW of electricity to highest in Latin America and the Caribbean: Residential Guadeloupe and Martinique. Production of geothermal customers are charged approximately10 0.15 €/kWh for energy (electricity) can begin in 5 years and if effective the first 50 kWh and 0.175 €/kWh for each additional the project can reduce the cost of electricity produced kWh (but subject to a minimum monthly charge of 0.653 from 0.18 €/kWh to 0.04 €/kWh, before fuel surcharge.

10 Values of last update in April 2009. Source: Domlec: http://www.domlec.dm 11 Imperial gallon = 4.55 litres 12 Source: Fadelle, 2009 2. DOMINICA / CARIBBEAN | 63

3.2.2 Market actors Dominica Electricity Services Limited (DOMLEC) Ministry of Public Utilities, Energy and Ports At the moment, DOMLEC is the only power provider on The Ministry of Public Utilities, Energy and Ports is re- the island. Its main owner is WRB Enterprise Inc., based sponsible for monitoring and coordination of activities in Florida, USA. However, when the new Electricity Sup- in the air and sea ports, maritime, electricity, and water ply Act was enacted in November 2006, DOMLEC lost sectors, and operations of the Postal Services. The State- its monopoly, and the market was opened to independent owned Dominica Water and Sewage Company Ltd., and power producers. the Dominica Air and Sea Ports Authority report directly to the Minister for Public Utilities, Energy and Ports. The Ministry is charged with the responsibility of creat- 3.2.3 Political Framework Conditions in ing the enabling environment for private sector develop- the Energy Sector ment as well as monitoring and evaluating the impacts on its various sub-sectors. It performs project management Since January 2007 a new law, the Electricity Supply functions with regard to all government sponsored de- Act (ESA), has liberalized the energy sector in Domi- velopments in the electricity, water, ports, and disaster nica. As a consequence, DOMLEC’s monopoly, theo- preparation and mitigation initiatives. retically, ended and the market opened to any company The »Energy« Unit of the Ministry is responsible for interested in developing activities in generating, distrib- coordinating activities related to the development and uting and marketing electricity in the country. To date, expansion of electricity production and distribution, DOMLEC is still the only energy company present on including the development of renewable energy sources the island. such as geothermal energy, solar energy, wind energy and Actually this new ESA is under review by the Carib- hydro energy. The Unit also coordinates matters related bean Renewable Energy Development Programme to the supply and provision of public lighting. (GTZ/CREDP) who are also preparing draft regulations for the ESA. This review should correct the prob- Independent Regulatory Commission (IRC) lem that ESA provides no indication regarding integra- IRC was established under the new Electricity Act of 2006, tion of new RE resources. which was passed into Law in October 2006. IRC effective- Parallel to the ESA review, extreme emphasis is placed on ly started working on 1 June 2007, following the appoint- a new National Energy Policy that is being developed, as ment of its five Commissioners, and their subsequent inau- at present there is a high risk of deterioration of the elec- guration on 22 June 2007. The IRC has been set up as an tricity sector, as no long-term supply strategy exists. independent regulator whose primary responsibilities are to regulate all power-sector enterprises and licensees to protect the interests of all market participants, and to approve 3.2.4 Political Framework Conditions in electricity tariffs. Structurally, IRC has a Chairman and the Energy Sector four Commissioners appointed by the Minister of Public Utilities. The Commission will establish six divisions each Dominica has no renewable energy policies implemented, headed by a commissioner named: Legal Support and Li- but one measure already adopted is that all RE systems censing; Engineering, Safety & Standards; Market Compe- are exempt from import taxes and value-added tax. tition & Rates; Finance & Support Services; Government To cover this policy gap the Ministry of Energy has re- & Consumer Affairs; Research & Development. quested technical assistance from the World Bank, under 2. DOMINICA / CARIBBEAN | 64

the Growth and Social Protection Technical Assistance The reports stated that the northeast coasts of Dominica Project, to produce draft legislation and regulations that present the best opportunities for large scale development will provide the legal and regulatory framework for the of wind energy. The report also stated, however, that the development of alternative energy and alternative energy weakness of the electricity distribution system did not technology in Dominica. The process should be complet- currently allow for large injections of power along the east ed by mid 2010. and northeast coasts. GTZ/CERDP has also invested in Together with this development the Caribbean Commu- capacity building, by sponsoring the participation of key nity (CARICOM) Secretariat, under the CREDP, is also persons in wind energy events in Germany and assisted developing a Sustainable Energy Plan for Dominica, tak- DOMLEC in its site identification and wind measure- ing into account the Global Sustainable Energy Islands ment activities. Initiative (GSEII) already developed for a number of According to CNE, the potential for grid connected Caribbean islands. wind power is 10 000 MW, plus approx. 30 000 MW off- As a consequence of the lack of renewable energy policies, grid for self consumption. at present there is no clear procedure for grid-connection and parallel operation of renewable energy systems.

Clean Development Mechanism (CDM) CDM measures on the island of Dominica are still at a very early stage. Dominica signed the Kyoto Protocol in January 2005 but has not yet established a Designated National Authority (DNA). No CDM-based energy projects have been registered.

3.2.5 Market potential for wind energy

The first wind turbine in Dominica was installed in 2008.13 It is a class I Norwin (225 kW) and is located in the Rosalia Nature Resort with the aim to offset the high electricity costs from DOMLEC. It is expected that the installation generates 596 GWh of electricity annually. Since 2006 DOMLEC has been in the process of looking for locations and gathering anemometric data, which should enable implementation of small wind farms in the capacity range of 5 to 8 MW. Since 2003 GTZ/CREDP has been developing a series of activities on wind energy on the island. Between 2003 and 2004 a review of the existing wind site studies has been carried out. In 2004, GTZ conducted a wind energy assessment for Government. This study covered nine sites on the southeast coast and five sites in the northeast.

13 Source: Dominica Weekly - http://www.dominica-weekly.com/news/norwin- as-installs-the-first-utility-scale-wind-turbine-in-the-eastern-caribbean/. Retrie ved on September 2009 2. DOMINICA / CARIBBEAN | 65

3.2.6 Addresses and contacts Electricity Supply Act ( ESA ) Electricity Supply Act (2006), http://www.dominica.gov.dm/laws/2003/ Dominica Electricity Services Limited (DOMLEC) act20-2003.pdf P.O. Box 1593 Roseau National Energy Policy, status information avail- Commonwealth of Dominica able at. http://www.dominica.gov.dm/cms/index. Tel.: +1 (767) 255 60 00/448 26 81 php?q=node/840 Fax: +1 (767) 448 53 07 E-mail: [email protected] Sustainable Energy Plan, available at: Internet: www.domlec.dm/ http://cipore.org/dominica-sustainable-energy-plan- draft/ Ministry of Public Utilities, Energy and Ports Minister: Hon. Charles Savarin Ministry of Public Utilities, Energy and Ports 3rd Floor, Government Headquarters, Kennedy Avenue, Roseau Tel.: +1 (767) 266-3298 Fax: +1 (767) 448-0182 E-mail: [email protected] Internet: www.dominica.gov.dm/cms/index. php?q=node/197

3.2.7 Information sources

Domlec, Annual Report 2007, ( http://www.domlec.dm/pdf/domlecannualre- port2007.pdf ) Retrieved on September 2009

Fadelle M., Energy Development Programme for Dominica, June 2009.

Ministry for Public Utilities, Energy And Ports; Re- marks by the Minister at government stakeholder meeting on the national energy policy and sustainable energy plan, March 2009 (http://cipore.org/download/27) Retrieved on September 2009 3. GRENADA / CARIBBEAN 66

3.3.1 Energy market hardware to improve voltage levels. In order to supply new customers and meet increased demand from existing Overview Energy Market customers, approximately 2.8 MVA of transformer capac- Grenada is highly dependent on imported fossil fuel as an ity was added to the distribution system. energy source for the island, similar to most of the other Caribbean nations. On the other hand the island has po- Installed Capacity and Power Generation tential for the development of renewable energy, such as The present total installed capacity in Grenada stands at wind, solar and biomass (nutmeg production residues). 49 MW generating power to feed the entire island from oil fuelled power station Queen’s Park, with peak load The Electricity Grid running at 29.8 MW. GRENLEC owns a distribution network of approxi- Due to growing demand, GRENLEC generated in mately 350 km. In September 2009, the company com- 2008 almost 200 GWh, an increase of 6 % compared to missioned two sub-stations and a 33 KV transmission 2007 and a growth of almost 40 % looking at the past network to enhance capacity in the south of Grenada and 5 years. Gross fuel efficiency in 2007 at Queens Park was improve the reliability of the distribution system. This 16.27 kWh/US Gallons, marginally less than the previ- new 33 kV line overlaid existing 11 kV distribution lines ous year, primarily due to the impact of defects in the fuel allowing for the entire distribution lines along the route system of the newer engine units. of the transmission lines to be upgraded and transferred to new transmission poles. The following table 9 shows the electricity generation, In the same year GRENLEC also focused on the upgrad- both gross and net: ing of its distribution system to meet increased demand for electricity and more than 1.5 km of 50 mm2 conduc- 56 % of the electricity distributed in Grenada was con- tor was replaced, along with the replacement of pole sumed by the 5 330 clients of the commercial sector. The

TABLE 9: ELECTRICITY GENERATION. VALUES IN MWh.

2 004 2005 2006 2007 2008 Gross Generation 141 618 153 702 173 490 185 569 196 957 Auxiliaries & Own Use 5 696 6 395 6 329 6 904 7 133

Net Generation 135 922 147 307 167 162 178 665 189 825

Source: GRENLEC

TABLE 10: ELECTRICITY CONSUMPTION BY SECTOR. VALUES IN MWh.

Sector 2 004 2005 2006 2007 2008 Domestic 48 358 49 946 60 089 65 749 66 232 Commercial 70 355 73 542 81 990 89 569 96 600

Industrial 4 572 5 674 5 903 6 480 5 628 Street Lighting 2 226 2 409 3 026 3 427 4 041 Total Sales 125 511 131 571 151 008 165 225 172 500

Source: DOMLEC 3. GRENADA / CARIBBEAN | 67

residential sector is the second largest, with a demand of holds the best prospects for Grenada.The plan for 2009 38 % of the distributed electricity and 35 000 clients. The is to expand the geothermal resource assessment and to 36 industrial clients consumed 3 % while 2 % were used expand its wind prospecting. GRENLEC plans to com- for street lighting. The consumption development of all mission an 80 kW wind turbine. sectorsis shown in table 10. The intermittent generation from wind and solar installations are more challenging, according to the company.14 GRENLEC’s load forecast indicates that demand driven sales will continue to grow at the same levels as those re- corded in 2008, with an annual growth projected to be 3.3.2 Market actors 4.2 % and peak demand forecasted to increase by 4.1 %. The commercial and industrial categories are each expect- Ministry of Finance, Economic Development, ed to grow by 4.8 % annually, while the domestic category Energy and Foreign Trade is anticipated to grow at a 4.4 %. The Ministry of Finance, Economic Development, Energy and Foreign Trade has responsibility for renew- Liberalization able energy matters. Together with St. Lucia, it is the only Although the country has a liberalized energy market, ministry in any of the Organisation of Eastern Caribbean GRENLEC has the market’s monopoly in generation, States (OECS) with its own internal energy agency as a transmission and distribution. In line with the develop- government authority. ment of the country’s energy policy, GRENLEC allows and is working on the grid connection of solar panels Grenada Electricity Services Limited (from the company Grensol) and, in the near future, of (GRENLEC) wind turbines. The company was created by an Act approved in the Gre- nada Legislative Council on 7th November 1960 and Electricity Prices GRENLEC was given the exclusive license to generate, The unprecedented increase of the oil price in 2008 re- transmit, distribute and sell electricity in Grenada until sulted in the overall electricity rate for residential cus- 2073. The Government was then one of the shareholders tomers increasing to astonishing 0.30 € per kWh by Sep- but in 1982 it purchased the Commonwealth Develop- tember 2008. In August, the oil price started its decline ment Corporation’s shares and became the sole owner resulting in a reduction in the fuel rate and leading to a of the Company. In 1992 it decided to divest its shares reduction of the electricity price to 0.22 € per kWh by and sold 50 % of them to the U.S.-based company WRB the end of the year. Enterprise Inc. 40 % was purchased by employees, Grena- dian and Caribbean nationals and the Government re- Renewable Energies tained the remaining 10 %. At present, GRENLEC is the The sun irradiation and the high electricity prices make only power provider on the island. Grenada an interesting market for the development of solar energy projects. By the end of 2008, 21 photo-voltaic installations of less than 10 kW were connected to the 3.3.3 Political Framework Conditions in system by the company Grensolar. the Energy Sector

GRENLEC has carried out technology studies for the The electricity sector is regulated in accordance with the main renewable sources and concluded that geothermal 1960 Electricity Supply Ordinance and the 1974 Elec-

14 Clive Hosten, 2009 3. GRENADA / CARIBBEAN | 68

tricity Supply Act (ESA). Since 1993 GRENLEC is also plicable added value rate on renewable energy technolo- responsible for providing power to the islands of Carri- gies were introduced. acou and Petite Martinique. The diversification of the energy mix and the use of al- A regulation dating from 1961 allows auto-generation ternative energy sources are strategic objectives for (production of own electricity) by individuals, but only GRENLEC. To facilitate this, GRENLEC commenced with permission from GRENLEC and with governmen- the implementation of an Interconnection Policy that tal approval. The same applies to other electricity market provides clear guidelines for the interconnection of rene- activities (transmission, distribution and/or sale of elec- wable energy installations to the Company’s grid, and clear- tricity plus generation). ly outlines the process for application, approval, commissioning and general administration. In order to promote the use of renewable energy, this policy provides for net 3.3.4 Framework conditions metering of renewable energy sources of 10 kW or less. for renewable energies Also, GRENLEC has set renewable energy targets16: The Grenada Government considers the development • reduce diesel consumption on Carriacou and Petite and implementation of a sustainable energy policy15 as Martinique by 40 % by 2011; imperative. This policy is currently being prepared and • 10 % of capacity from renewable energy by 2013, will emphasize energy conservation and the promotion • 20 % of capacity from renewable energy by 2017 of indigenous sources of energy to reduce the dependence • (dependant on pending feasibility studies). on imported fuels. In the area of Energy Conservation, the Government in- Clean Development Mechanism (CDM) tends to undertake energy audits of all government build- CDM measures on Grenada are still at a very early stage. ings to identify areas where energy is being wasted or used Grenada signed the Kyoto Protocol in August 2002 and inefficiently and implement energy conservation oppor- recently has established the Ministry of Finance, Eco- tunities and measures. It also intends to establish Energy nomic Development, Energy and Foreign Trade as the Committees in various ministries to work along with the Designated National Authority (DNA). No CDM-based Energy and Sustainable Development Division to devise energy projects have been registered to date. implement and monitor energy conservation plans. It is expected that at least 10 % of the Government’s current energy bill could be reduced by these actions. 3.3.5 Market potential for wind energy In the agricultural sector, Government will encourage the local production or assembly of solar dryers and will also GRENLEC is currently working on land control and en- promote the use of biogas digesters for energy recovery hancing the wind resource assessment programme, which from animal and agricultural wastes. The Government includes five potential wind sites on Grenada. On Car- will provide a variety of incentives on the inputs required riacou, the company is analyzing data and approaching to build or install these technologies. the government for potential wind farm sites on Crown Government also promises to promote the use of energy Land. The goal is to install a 1 MW system. Similar work efficient lighting, equipment and appliances, by reducing is underway for Petite Martinique. the taxes on compact fluorescent lights and other energy During 2008 GRENLEC continued negotiations with efficient products. Recently, measures to remove the ap- two land owners to finalize the lease of sites which are

15 Grenada, 2009 16 GENLEC Annual Report 2007 3. GRENADA / CARIBBEAN | 69

considered suitable to install two wind farms. Negotia- In March 2007 the Paradise Bay Resort installed an tions are still in progress for the long term lease of both 80 kW wind turbine with an expected annual yield of sites. Meanwhile, the owners have given GRENLEC per- 180 000 kWh. It is the first utility-grade wind turbine in- mission to install wind loggers and commence measure- stalled in Caricom. The electrical surplus will be sold to ments. According to the company the data looks promis- GRENLEC, when connected to the grid. ing with wind speed at both sites averaging approximately 7.6 m/s. 3. GRENADA / CARIBBEAN | 70

3.3.6 Addresses and contacts 3.3.7 Information sources

Ministry of Finance, Economic Development, Grenada, Budget Speech 2009 Energy and Foreign Trade (http://www.cipore.org/) Financial Complex, The Carenage Retrieved on September 2009 St. George’s/Grenada Tel.: +1 (473) 440-2731/2732 GRENLEC, Annual Report 2007 Fax: +1 (473) 440-4115 (http://www.grenlec.com/index.php?option=com_con E-mail: [email protected] tent&view=article&id=202&Itemid=101) Retrieved on September 2009 Grenada Electricity Services Ltd. (GRENLEC) Halifax Street GRENLEC, Annual Report 2008 St. George’s/Grenada (http://www.grenlec.com/index.php?option=com_con Tel.: +1 (473) 440 20 97 tent&view=article&id=202&Itemid=101) Fax: +1 (473) 440 41 06 Retrieved on September 2009 E-mail: [email protected] Internet: www.grenlec.com Clive Hosten, GRENLEC Perspectives on Renewable Energy Opportunities in Grenada, July 2009 Grenada Solar Power Ltd. (GrenSol) (http://www.sepa-americas.net/descarga.php?l=data/ P.O. Box 3521 eventos/94.pdf&a=Clive %20Hosten %20GRENLEC. Grand Anse, St. George’s/Grenada pdf ) Retrieved on September 2009 Tel.: +1 (473) 439 67 75 Internet: www.grensol.com 1960 Electricity Supply Ordinance , available at: http://www.gov.gd/ministries/finance.html# Designated National Authority for CDM: Ministry of Finance, Planning, Economy, 1974 Electricity Supply Act (ESA), available at: Energy, Foreign Trade and Cooperatives http://www.gov.gd/ministries/finance.html# Energy Division The Carenage St. George’s Grenada, W.I. Mr. John Auguste E-mail: [email protected], [email protected]) Tel.: +1 (473) 435 8708/+1 (473) 419 2354 Fax: +1 (473) 440 4115/+1 (473) 435 9115 4. ST. LUCIA / CARIBBEAN 71

3.4.1 Energy market er plants. A total of 302 GWh was sold in 2008 compared with 299 GWh in 2007 which is an increase of 1.4 %. The Overview Energy Market system peak demand increased to 54.1 MW from 52.7 Saint Lucia is a volcanic island located in the Eastern Car- MW in the previous year and the total available capacity ibbean and almost completely reliant on fossil fuels. St. for 2008 was 76 MW. Lucia consumed almost 18 millions gallons of oil only for electricity production in 2008. In addition, traditional Table 11 shows the installed capacity development use of biomass plays a major role for domestic heating and between between 2004 and 2008: (see table 11) cooking, although no reliable quantitative information is available. The commercial sector is the largest electricity consumer in St. Lucia. It consumed 57 % of the electricity sold on The Electricity Grid the island, to 6 169 clients. The residential sector, the sec- The local utility Saint Lucia Electricity Services Limited ond largest, consumed 34 % while the industry purchased (LUCELEC) has an exclusive license to generate and 6 % of the electricity. There are more then 50 000 domes- distribute electricity and currently supplies about 98 % tic consumers and 98 industrial clients. The street light- of the population. Almost all the electricity consumed ing sector consumed 3 %. Table 12 shows the consump- in the country is produced by diesel driven generators. tion development of all sectors. LUCELEC has seven substations, located at Cul De Sac, Castries, Union, Reduit, Soufriere, Vieux Fort and LUCELEC expects for the next five years an annual aver- Praslin. It has 118 km of 66 kV transmission lines and age growth rate of 2.4 % in sales and 2.3 % in demand. 4 129 km of 11 kV distribution lines. Liberalization Installed Capacity and Electricity Generation According to the 1964 Power Supply Regulation, During 2008 LUCELEC has improved overall fuel effi- LUCELEC, a company owned by five public bodies (see ciency due to the operation of newer, more efficient pow- below) holds a universal licence for generating, transmit-

TABLE 11: INSTALLED CAPACITY. VALUES IN MW.

2 004 2005 2006 2007 2008 Available Capacity 56.8 65.8 65.8 76.0 76.0

Source: LUCELEC, 2008

TABLE 12: ELECTRICITY CONSUMPTION BY SECTOR. VALUES IN GWh.

Sector 2004 2005 2006 2007 2008 Domestic 96 062 98 914 101 635 104 784 103 214 Commercial 151 451 158 483 160 895 168 151 170 624

Industrial 12 345 12 522 12 982 15 789 18 626 Street Lighting 6 544 7 480 8 886 9 117 9 510 Total Sales 266 402 277 399 284 398 297 841 301 975

Source: DOMLEC 4. ST. LUCIA / CARIBBEAN | 72

ting, distributing and selling electricity until 2045. While growth, LUCELEC has plans to start the construction of the 1964 regulation was superseded by the 1994 Electric- a 12 MW wind farm. ity Supply Act, LUCELEC’s exclusive licence was pre- The company has commenced work in 2008 on an ini- served. The 1994 ESA does allow auto generation (pro- tiative regarding grid-connected small photovoltaic sys- duction of own electricity), but only with the approval tems18, joining forces with Solar St. Lucia Ltd. on a pilot and a sublicense from LUCELEC and only subject to project to facilitate the introduction of solar technol- certain constraints and conditions. ogy. The aim of the pilot project is to allow LUCELEC to assess various issues surrounding the operation of the Electricity Prices photovoltaic systems on the grid, including safety, power In January 2009 the LUCELEC customers paid the low- quality, protection, interconnection and metering. Ac- est unit rate for electricity since January 2005, in all sec- cording to LUCELEC the systems range in size from tors. The tariff has seen six successive decreases from Au- 1 kW to 10 kW and are targeted at the residential cus- gust 2008 on due to the reductions of fuel prices. tomer who wants to use solar energy to generate part of the electricity needs. Under the agreement, Solar St. Lu- Table 13 summarizes the tariffs for the different types of cia Limited will provide and set up the PV systems at up costumers: to ten locations around the island, while LUCELEC will facilitate the connections to the grid and monitor and TABLE: 13 record the operational data. ELECTRICITY TARIFFS IN ST. LUCIA. VALUES OF JANUARY 2009. The company is also discussing with the government and Client Tariff (€/kWh) with other stakeholders to carry out further assessments Domestic First 180kWh 0.18 that will allow a greater level of certainty about the avail- >180 kWh 0.19 ability of geothermal energy sources in the island. Commercial/ Low Tension - 0.22 A photovoltaic pilot project was formally launched in Hotel/Industrial all units August 2009. The Saint Lucia Banana Industry Trust‘s High Tension - 0.21 all units (BIT) Photovoltaic Project, supported by the European Street Lighting all units 0.22 Union Special Framework of Assistance for 2003, will be Source: Carilec Newsletter connected to the grid.19

Renewable Energies 3.4.2 Market actors Solar energy is the most abundant renewable energy source in Saint Lucia. In the sustainable energy plan, a St. Lucia Electricity Services Ltd (LUCELEC) solar heating initiative is planned to generate an increase St. Lucia Electricity Services Ltd (LUCELEC) was estab- in the use of solar water heaters. This will significantly lished on 9 November 1964 as a private limited liability reduce the high cost of water heating for both the resi- company »with the purpose of power generation, dis- dential and commercial sectors. Tax concessions have tribution and dealing in electricity (…)« On 22 August been introduced to combat the high initial costs of solar 1994 the company moved towards public ownership. By water heaters. Solar photovoltaic systems are also being December 2008, the top five shareholders were Emera promoted to provide back power during emergency situ- Inc (20 %), First Citizen Bank Limited (20 %), National ations and as demonstration units.17 Insurance Corporation (16.79 %), Castries City Council As part of the expansion plan to attend the demand (16.36 %) and the Government of Saint Lucia (12.44 %).

17 Ministry of Planning: http://www.sovereign-publications.com/stlucia.htm 18 Source: St. Lucia Government 19 Source: CIPORE 4. ST. LUCIA / CARIBBEAN | 73

Ministry of Planning, Development, and other service fees. It is planed to initially operate at Environment and Housing national level but in the future it could be integrated The Ministry of Planning, Development, Environment into a regional regulatory body overseeing other public and Housing is responsible for renewable energy matters. utilities in the Organisation of Eastern Caribbean States Together with Grenada, it is the only ministry in any of (OECS). Some of its responsibilities will be to recom- the OECS states with its own internal energy agency as a mend terms and conditions to the responsible ministry government authority. for the issuance of licenses to generate, transmit and distribute electricity for sale to final consumers. It will also approve tariff structures and rates for all costumers, and 3.4.3 Political Framework Conditions in establish and monitor tendering procedures for major in- the Energy Sector vestments in the power generation sector.

Since 1999 the Government eliminated all import duties and consumption taxes on renewable energy equipment 3.4.4 Framework conditions and materials. Furthermore in 2001, it decided to make for renewable energies the purchase of solar water heaters tax deductible. Currently, energy experts from the Climate Institute The draft of the National Energy Policy also includes re- and the Organization of American States, together with newable energy aspects and sets targets for their imple- the Ministry of Planning, Development, Environment mentation in the short and medium term. and Housing are finalizing the country’s sustainable en- As a first target, quotas will be set in such a way that 5 % ergy plan. This plan lays out a strategy for the mainte- of the electricity generated in 2010 and 10 % in 2012 nance and growth of the energy sector in Saint Lucia. will originate from renewable energy source. The quota It seeks to attain a set of energy sector targets through should reach at least 25 % by 2020. 21 the implementation of actions which will create a policy The operator of the transmission grid will be responsible and regulatory framework to encourage diversification for ensuring that this quota is achieved by purchasing such of the local energy market and the promotion of energy renewable electricity from adequate generation facilities efficiency and conservation. According to CIPORE20 , licensed by the regulatory body. LUCELEC may for such St Lucia has a target of producing 30 % of its energy purpose set up its own generation facilities, establish joint from renewable sources. ventures or sub contract any other suitable operator and investor for such plants. A draft of a National Energy Policy was finished in Au- Where the quota is not achieved for a specific year, the gust 2009, with the assistance of the GTZ/CREDP and Regulatory Commission will be mandated to prepare a is awaiting its approval by the Government of St. Lucia. public tender in order to invite Independent Power Pro- The plan also envisages the establishment of an Energy ducers for the installation and operation of renewable Policy Advisory Committee that will provide advice on electricity generation facilities. energy related issues and activities. It will also advise on, The operator of the transmission grid will be obliged to and make proposals for adequate instruments and strat- provide open access to the electricity network for power egies. supplied by such independent power producers. If trans- An independent regulatory body will also be established mission lines need to be extended to the point of connec- (Regulatory Commission), headed by a Regulator. This tion or have to be enhanced, this will be the responsibility commission will be mainly self-financed through license of the Independent Producer.

20 See information sources. 21 Source: St. Lucia National Energy Policy - Draft, 2009 4. ST. LUCIA / CARIBBEAN | 74

Clean Development Mechanism (CDM) St. Lucia signed the Kyoto Protocol in 2003. The designated national authority (DNA) is located in the Minis- try of Physical Development, Environment and Housing. However, no CDM energy projects have been registered to date.

3.4.5 Market potential for wind energy

The expansion plans of LUCELEC for 2009 included the acquisition of land in the south eastern part of the island and the compilation of wind data for the development of a 12 MW wind farm. In the beginning of 2009 LU- CELEC has obtained preliminary access to this property, after many years of negotiations. Data collection activities for this specific region were planned to start in the third quarter of 2009. 4. ST. LUCIA / CARIBBEAN | 75

3.4.6 Addresses and contacts LUCELEC St. Lucia Electricity Services Ltd Ministry of Economic Affairs, Economic Planning, P. O. Box 230, National Development and Public Service Sans Soucis, Castries, Price Waterhouse & Coopers Building St. Lucia, West Indies Point Serephine, St. Lucia Tel.: (758) 457 - 4400 Tel.: +1 (758) 451 8746 Fax: (758) 457 - 4409 Fax: +1 (758) 453 0781 E-mail: [email protected] E-mail: [email protected] Internet: www.lucelec.com/

Ministry of Planning, Development, Ministry of Physical Development and the Environment Environment and Housing Greaham Louisy Administrative Building, Waterfront Sustainable Development and Environment Section Castries, St. Lucia Greaham Louisy Administrative Building Tel.: +1 (758) (758) 468 4457/4438/4439/4461 The Waterfront Fax: +1 (758) 456 0563 P.O. Box 709 Email: [email protected] Castries Internet: www.physicalplanning.gov.lc St. Lucia, West Indies Contact Person: Mrs Alison King-Joseph Organisation of Eastern Caribbean States (OECS) Permanent Secretary Morne Fortune/P.O. Box 1383 Tel.: (758) 468-4459/451-8746 Castries/St. Lucia Fax: (758) 451-6958/452-2056 Tel.: +1 (758) 453 62 08 E-mail: [email protected] Fax: +1 (758) 452 21 94 Internet: www.oecs.org Designated National Authority for CDM Ministry of Physical Development, Caribbean Electric Utility Service Corporation Environment and Housing (CARILEC) Greaham Lousy, Adminisrative Building, Desire Avenue, Sans Souci P. O. Box 709, P.O. Box CP 5907 Waterfront, Castries Castries Saint Lucia, West Indies St. Lucia Mr. Martin Satney Tel.: +1 (758) 452 01 40/1 Permanent Secretary Fax: +1 (758) 452 01 42 Tel.: (758) 468-4419/4418 Internet: www.carilec.com Fax: (758) 452-2506/4516958 E-mail: [email protected] 4. ST. LUCIA / CARIBBEAN | 76

3.4.7 Information sources

Carilec Newsletter February 2009 (http://www.carilec.com/) Retrieved on September 2009

Caribbean Information Platform on Renewable Energy – CIPORE (http://cipore.org/participating- countries/st-lucia/) Retrieved on September 2009

LUCELEC, Annual Report 2008 (http://www.LUCELEC.com/investor_information/ index.php) Retrieved on September 2009

LUCELEC, Interim Report, June 2009 (http://www.LUCELEC.com/investor_information/ index.php) Retrieved on September 2009

St. Lucia Government (http://www.stlucia.gov.lc) Retrieved on September 2009.

Ministry of Physical Development and the Environ- ment, St. Lucia National Energy Policy – Draft, August 2009.

1994 Electricity Supply Act, available at: http://www.caricomlaw.org/doc.php?id=2474 5. ST. VINCENT AND GRENADINES / CARIBBEAN 77

3.5.1 Energy market Company operates its power plants. VINLEC supplies electricity to its customers through a network spanning Overview Energy Market over 560 km of 33 kV, 11 kV, 400 V and 230 V lines. SVG is heavily dependent on imported petroleum products for electricity generation, transportation, cooking, Installed Capacity and Power Generation and other energy requirements. SVG has an energy mix In 2007 the installed capacity of VINLEC reached more which is based on more than 96 % petroleum and 3 % than 40 MW in the following islands: St. Vincent, Be- hydro power. All islands except Saint Vincent depend quia, Union Island, Canouan, Mayreau. The firm capac- entirely on diesel generation for their electricity supply. ity in the same year was almost 32 MW and the peak de- Only on the main island Saint Vincent 80% of the elec- mand more than 23 MW. The installed capacity increased tricity is produced from diesel generation and the re- by 9 % between 2002 and 2007, whereas growth stopped maining 20 % by small hydro generation. In addition, between 2005 and 2007. Generation is dominated by oil traditional use of biomass plays a major role for domestic (97 %), only 3 % is coming from hydropower. heating and cooking, although no reliable quantitative information is available. Table 14 shows the installed capacity development between 2002 and 2007. The Electricity Grid St. Vincent Electricity Services Limited (VINLEC) deliv- In 2007 84 % of the total electricity was produced with ers electricity to almost 38 000 customers in St. Vincent, diesel generators. Hydro power contributed to the re- Bequia, Canouan, Union Island and Mayreau where the maining 16 % (see table 15).

TABLE 14: INSTALLED CAPACITY PER ISLAND. VALUES IN KW.

2002 2003 2004 2005 2006 2007 St. Vincent 31 235 30 635 33 195 33 195 33 195 33 195 Bequia 2 160 2 156 2 156 2 931 2 931 2 931

Union Island 910 1 270 1 270 1 270 1 270 1 270

Canouan 3 120 3 120 3 120 3 120 3 120 3 120 Mayreau 0 180 180 180 180 180 Total 37 425 37 361 39 921 40 696 40 696 40 696

Source: VINLEC 2007

TABLE 15: ELECTRICITY PRODUCTION BY SOURCE. VALUES IN MWh.

Gross Generation (kWh) 2002 2003 2004 2005 2006 2007 Hydro 22 027 20 712 27 147 25 540 23 193 22 714 Diesel 79 820 87 528 93 595 106 211 111 109 118 379

Total 101 846 108 240 120 742 131 751 134 302 141 093

Own Use 1 639 2 980 3 804 4 225 3 929 3 624 Net Generation 100 208 105 260 116 938 127 526 130 373 137 469

Source: VINLEC 2007. 5. ST. VINCENT AND GRENADINES / CARIBBEAN | 78

The commercial sector in SVG consumes 47 % of the energy for hot water production is a recent technique electricity while the domestic sector uses 45 %. Indus- used. trial demand represented 5 % and 2 % were used for street According to preliminary studies elaborated with assist- lighting. Table 16 shows the consumption development ance from the German Technical Cooperation (GTZ)23 of all sectors: further potential exists for additional hydro power explo-

TABLE 16: ELECTRICITY CONSUMPTION BY SECTOR. VALUES IN MWh.

Sector 2002 2003 2004 2005 2006 2007 Domestic 44 185 47 195 50 494 53 688 54 867 56 748 Commercial 36 571 39 004 47 087 53 541 54 135 58 941

Industrial 6 500 6 520 6 147 6 309 6 587 6 832

Street Lighting 2 569 2 711 2 796 2 881 2 937 2 930 Total Sales 89 825 95 431 106 524 116 419 118 525 125 452

Source: VINLEC 2007

Liberalization itation through renovation and expansion of existing VINLEC is a state-owned utility company with an exclu- plants and development of new sites.24 Conservative es- sive license to provide a public electricity supply in Saint timates of unexploited hydro power potential is in the Vincent and the Grenadines until 2033. The license was range of 5 to 10 MW, namely from the rivers of Wallila- granted by the 1973 Electricity Supply Act. Under the bou and Bucament.25 ESA, other companies are also allowed to generate, trans- VINLEC believes in the wind potential of the island and mit and distribute electricity, but only with VINLEC’s has a 7.2 MW wind farm project in the southern region permission or as VINLEC licensees, and then only with of the St. Vincent Island. the approval of the competent minister. Power generation TABLE 17: for the owner’s own use (auto-generation) also requires ELECTRICITY TARIFFS IN VINLEC approval. ST. VINCENT AND THE GRENADINES. Households Electricity Prices 50 kWh 0.11 €/kWh The table on the righthand side shows the electricity > 50 kWh 0.13 €/kWh tariffs for the different SVG clients: A fuel surcharge will Minimum Charge 1.28 € per month be added to all indicated rates. Commerce Basic Charge 0.12 €/kWh Renewable Energies Demand Charge 3.06 €/kVA SVG has substantial renewable energy sources to pro- Minimum Charge 3.83 € per month vide for heat (solar thermal, biomass), electricity (wind, Industry geothermal, hydro and solar) and possibly fuel (from Basic Charge 0.11 €/kWh biomass).22 Those resources could cover larger shares of Demand Charge 3.06 €/kVA the energy demand, but currently this is not happening. Street Lighting While the use of hydro power for electricity generation Basic Charge 0.1442 €/kWh has a long-standing tradition, the active tapping of solar Source: VINLEC

22 Source: SVG, 2009. 23 Within the Caribbean Renewable Energy Development Programme (CREDP). 24 Source: SVG, 2009. 25 Source: SVG, 2009. 5. ST. VINCENT AND GRENADINES / CARIBBEAN | 79

The Island of St. Vincent also has potential for geothermal Energy Committee, comprising of stakeholders from energy.26 The area of interest is centred in mountainous, other ministries and state-dependent institutions, was volcanic terrain at the northern coast of the island. Other setup in 2006 to advise the Government on energy mat- volcanic peaks exist in the southern part of the area, in ters throughout the State. In 2008, an Energy Unit was the Morne Garu Mountains. The potential is estimated at established in the Prime Minister’s Office with a mandate approximately 100 MW. to assist with the formulation and implementation of en- Solar Water Heaters are already being used mainly on ergy policies, particularly in the areas of renewable energy larger domestic buildings. The installation of such appli- and energy efficiency. ances could be further extended to private households which currently use other means of hot water generation, but also to all larger consumers of warm water, such as 3.5.3 Political Framework Conditions in hospitals, hotels and restaurants. the Energy Sector At present Biomass resources are mainly exploited in a non-sustainable manner through the use of charcoal, used SVG approved a National Energy Policy in March 2009. by rural communities and also commercialized in the The main goals set for the power sector are to improve wholesale-retail sector. There are no known biogas plants the efficiency of power production, transmission and or other applied technologies that make use of biomass distribution and to promote energy efficiency and con- resources in a modern way. The potential to use vegetable servation practices to all consumers. The support for the oil has so far not been examined.27 introduction of new technologies that are environmentally, economically, financially and socially viable is also envisaged. The policy also indicates that the government 3.5.2 Market actors will establish mechanisms that allow a fair access to the transmission or distribution grid. St. Vincent Electricity Services Limited The document also describes the guidelines for the de- (VINLEC) velopment of a market for heating energy (replacement St. Vincent Electricity Services Limited (VINLEC) is a of fuel wood), but does not provide specific targets or State-owned utility and is the sole provider of electricity specify the way the guidelines will be implemented or to the main island Saint Vincent, and the Grenadines is- supported. lands of Bequia, Union Island, Canouan, and Mayreau. The 1973 Electricity Supply Act states that all equipment The company operates diesel and small hydro power sta- (machines, consumables, spare parts, etc.) required for tions on mainland Saint Vincent, while the Bequia, Un- power generation, transmission and/or distribution are ion Island, Canouan and Mayreau islands are completely exempted from customs duties and all other import re- reliant on diesel powered systems. The other Grenadines strictions. islands are supplied by privately owned electricity systems on the basis of diesel plants. The exclusive statutory license of VINLEC will expire in 2033 at latest. 5.4 Framework conditions for renewable energies Government of St. Vincent and The Grenadines The Prime Minister’s Office acts currently as the Ministry The Government in collaboration with the state-owned of Energy and has overall responsibilities for the energy utility VINLEC is in the process of exploring the devel- sector in Saint Vincent and the Grenadines. A National opment of renewable energy. The Government, through

26 Source: Leonard Deane, 2009. 27 Source: SVG, 2009 5. ST. VINCENT AND GRENADINES / CARIBBEAN | 80

the Energy Unit in the Prime Minister’s Office, is also for- 3.5.5 Market potential for wind energy mulating plans to enhance energy-efficiency in all of its buildings and public institutions. In 2005 a study with support from GTZ to identify The National Energy Policy also sets specific guidelines the wind potential in St Vincent analysed several sites: for renewable energies, however no targets are set. It aims Brighton, Greggs and Ribish Point, which revealed to at the promotion of the increased use of appropriate re- be the most promising. In June 2008, the Government newable energy technologies. The government also plans agreed to build a 6 to 8 MW wind farm and by the end to analyze the potentials of renewable energy sources on of the year the decision was to install it at Ribishi Point, all islands, to make site-specific assessments and to elabo- southern St. Vincent Island. The wind park is expected to rate project proposals.28 produce 12 410 MWh per year at an average wind speed According to the policy the private sector will be encour- of 8.4 m/s, at 55m height.29 aged to participate in the development, financing and The estimated investment cost of the project is about 4.9 management of renewable energy projects. Financial and million € and the estimated specific generation cost is fiscal incentives will be provided allowing renewable en- 0.05 €/kWh. ergy technologies to be market competitive.

Mandatory installation of solar thermal collectors for all major hot water users will also be considered.

Clean Development Mechanism (CDM) In SVG, CDM measures are still at a very early stage of development. SVG signed the Kyoto Protocol in December 2002, but has not yet established a Designated National Authority (DNA). No CDM-based energy projects have been registered yet.

28 Source: SVG 2009. 29 Source: Scheutzlich 2007 5. ST. VINCENT AND GRENADINES / CARIBBEAN | 81

3.5.6 Addresses and contacts 3.5.7 Information sources

St. Vincent Electricity Services Limited (VINLEC) Caribbean Information Platform on Renewable Energy Pauls Ave., Box 856 (http://cipore.org) Retrieved on September 2009. Kingstown Tel.: +1 (784) 456 17 01 Leonard Deane (Director, Energy Unit Prime Minister’s Fax: +1 (784) 456 24 36 Office), Situation and Perspectives of Geothermal De- E-mail: [email protected] velopment in Eastern Caribbean Countries, Presentation Internet: www.vinlec.com at the 1st Eastern Caribbean Geothermal Conference, June 30th 2009. Government of St. Vincent and The Grenadines e-mail: [email protected] St. Vincent and the Grenadines (SVG), Sustainable Tel.: +1 (784) 456 1223/1111, Ext. 404/405 Energy for SVG: The Government’s N ational Energy Fax: +1 (784) 457 2880 Policy, March 2009.

Scheutzlich T. M., Experiences with Investments in Renewable Energy Projects in the Caribbean Region - Caribbean Renewable Energy Development Programme (CREDP – GTZ), November 2007

VINLEC, Financial Statements for the Year Ended, December 31, 2007 (http://www.vinlec.com) Retrieved on September 2009 6. DOMINICAN REPUBLIC / CARIBBEAN 82

3.6.1 Energy market due to several factors: losses in transmission and distribution that have always been high (currently around 35 to Overview Energy Market 40 %). These losses are due to electricity theft and inef- The main energy source in the Dominican Republic is im- ficiencies in the distribution system. Although electricity ported oil and its derivatives. They contribute 75 % of the to- supply does not increase substantially in the private sector, tal primary energy supply. Energy proceeding from national electricity demand increases annually. Much of the supply production represents only 16 % of the supply and basically that has entered the national electricity network has been comes from firewood (7 %), bagasse (4 %) and hydro (3 %). provided by the plants owned by the government. The next table summarizes the primary energy supply:

TABLE 18: PRIMARY ENERGY SUPPLY. VALUES IN TJ.

Source National Production Import Total supply % total supply Oil and Derivatives 0 229 018 227 762 75 % Natural Gas 0 15 031 12 644 4 % Coal and coke 0 14 612 14 612 5 % Hydro 8 206 0 8 206 3 % Firewood 22 232 0 22 232 7 %

Bagasse 10 969 0 10 969 4 %

Solar 209 0 209 0 % Other 8 583 0 8 583 3 % Total 50 200 258 661 305 218 100 %

Source: CNE 2005

The Electricity Grid Installed Capacity The electricity grid in the Dominican Republic is formed The Dominican electricity system (SINE) consists of by the Dominican Electricity System (SINE). The SINE several generation companies (private companies and is composed of 15 generation companies, one transmis- the state owned Hydroelectric Power Generation Com- sion company and three distribution companies. pany), the distribution companies EDENORTE (public), EDESUR (public) and EDEESTE (private) and the The Dominican Republic suffers from an energy supply Dominican Transmission Company (public). All public problem that has never been resolved. Power outages af- companies are represented by the Dominican Corpora- fecting the country have undermined the confidence of tion of State-Owned Power Companies (CDEEE). There the private sector. Particularly in 2008, power outages is also the company Falconbridge, an auto producer who have affected the country dramatically, causing social occasionally sells surplus power to the SINE. unrest and private sector claims. The energy issue was in- The installed capacity feeding the public grid in the Do- tensified by the increase in oil prices forcing the govern- minican Republic totals 3 191 MW (August 2009).31 ment to subsidize the electricity sector. During the year, The main energy sources are fossil fuels totalling 84 % an average power of 374 MW was demanded monthly (coal: 23 %, fuel oil: 27 % and natural gas: 34 %). The re- and not met.30 maining 16 % correspond to hydropower plants. The electricity shortages in the Dominican Republic are

30 SIE, 2008 31 Source: OC, 2009 6. DOMINICAN REPUBLIC / CARIBBEAN | 83

FIGURE 1: GRID OF SINE

Source: CGIAR 2004

Electricity Generation Liberalisation During 2007 more than 11 000 GWh were produced in The Dominican electricity market is partially liberalized. the Dominican electricity system (SINE), 85 % coming Residential consumers have to buy electricity from one of from non renewable sources and the rest from hydropower the power distributors according to the region, while in- plants. Figure 2 shows the distribution among each source. dustrial clients can freely negotiate their power suppliers (see also next paragraph). The residential sector is responsible for 35 % of the electricity demand and its consumption is expected to dou- Electricity Prices ble until 2025, increasing to more than 7 700 GWh. The electricity tariffs are subject to monthly adjust- The industrial sector requires 40 % of the electricity and ment by the Electricity Superintendence - Superin- its consumption is expected to increase three fold until tendencia de Electricidad (SIE), which is supposed 2025, to more than 12 300 GWh. The commercial sec- to take into account the fuel prices, the exchange rate tor is expected to requires 15 % of the electricity and the (Dominican Pesos to the US$) and the general rate of electricity consumption will double until 2025, to more inflation as well. Table 19 shows a summary of the ap- than 4 400 GWh.32 plicable tariffs.

32 Source: CNE 2008. Forecasts represent the most probable scenario 6. DOMINICAN REPUBLIC / CARIBBEAN | 84

FIGURE 2: In general, the wind resource is most effective on hilltops, PARTICIPATION OF EACH TECHNOLOGY ridge crests, and coastal locations that have excellent ex- IN THE POWER GENERATION posure to the prevailing winds from the east. The extreme

south-western and north-western regions of the country 21 % are estimated to have the greatest number of areas with good to excellent wind resources for utility-scale applica- 15 % tions, because the upper air winds and ocean winds are greatest in these regions. From the 30 000 MW potential 34 4 % of wind energy, 10 000 MW can be commercialized.

The Dominican Republic has a solar radiation of approximately 5 kWh/m2 per day.35 As such, the conditions for

35 % the harnessing of solar energy are favourable. Solar power to heat water is already a technology in use, although not 25 % wide spread in the residential sector. Essentially hotels are Disel Engines Gas turbines Hydropower Combined-cycle already using this technology. Until February 2009 five Steam turbines photovoltaic projects had the concession granted, with a total capacity of 300 MW.36 Source: OC 2007

In addition to the existing hydro capacity of more than SIE supervises prices for regulated consumers (house- 500 MW, 15 new hydro power plants will be built adding holds, trade & commerce), who have to purchase electric- an additional of 762 MW of installed capacity.37 In total ity from one of the distribution companies. By contrast, they will produce 1 870 GWh/year. large consumers are allowed to negotiate freely to procure In 2020 the CNE expects that renewable energy sources electricity from the supplier offering the most favourable will contribute more than 23 % of the national electric- conditions. A spot market for electricity was set up in ity production (4 000 GWh/year).38 The main renew- June 2000 to enable short-term power purchasing trans- able source for electricity production will be wind power. actions. Although in 2009 no wind turbines were supplying electricity to the SINE, the CNE expects that in 2010 the Renewable Energies first 300 GWh should be produced. In 2020 more than The main biomass source is bagasse, or sugar cane waste 2 700 GWh/year should be derived from wind parks.39 from sugar production, which is already in use for generating heat and electricity in sugar factories. The coun- Rural Electriﬁcation try has biomass available for the operation of a 100 MW Photovoltaic panels were installed in rural areas without power plant and can produce enough biodiesel to run an connection to the electricity grid, mostly promoted by 80 MW power plant.33 Further organic materials also in- projects funded by the non-governmental organisations clude agricultural residues, most notably for producing and with financial assistance from the U.S. Agency for biogas from banana trees and from the husks and leaves International Development (USAID), United Nations of rice. Biogas could also be obtained from cattle farming Development Programme (UNDP) and other interna- as well as from urban wastes, which contain a large per- tional donors as well as by the Ministry of Industry and centage of organic material. Commerce.

33 Source: CNE 2008 34 Source: CNE 2008 35 Source: CNE 2008 36 Source: CNE Promotion, 2009 37 Source: CNE Promotion, 2009 38 Source: CNE Promotion, 2009 39 Source: CNE Promotion, 2009 6. DOMINICAN REPUBLIC / CARIBBEAN | 85

TABLE 19: ELECTRICITY TARIFFS FOR JANUARY 2009

Type of Tariff € / kWh Type of Tariff € / kWh Fix Tariff 3.24 50 kWh 0.27 BTD Energy 0.11 14 612 Maximum power 14.94

Fix > 75 kWh 100 kWh 0.99 Tariff > 100 kWh 125 kWh 1.33 Fix Tariff 2.47 > 125 kWh 150 kWh 1.68 Energy 0.11 BTH > 150 kWh 175 kWh 2.02 Max power not peak hours 3.81 > 175 kWh 2.17 Max power peak hours 21.24 BTS 1 0-75 kWh 0.06 76-200 kWh 0.06 Fix Tariff 3.75 201-300 kWh 0.09MTD1 Energy 0.12 301-400 kWh 0.14 Maximum power 7.31 401-500 kWh 0.14 501-600 kWh 0.14 Fix Tariff 3.54 601-700 kWh 0.14MTD2 Energy 0.11 701 - 1000 kWh 0.17 Maximum power 5.12 > 1000 kWh 0.17

Fix Tariff 2.47

Fix Tariff 2.17MTH Energy 0.11 0-75 kWh 0.09 Max power not peak hours 1.46 76-200 kWh 0.09 Max power peak hours 14.81 201-300 kWh 0.10 BTS1 – households (demand 10kW) BTS 2 301-400 kWh 0.16 BTS2 – small business (demand 10kW) 401-500 kWh 0.16 BTD – households or business (demand > 10kW) 501-600 kWh 0.16 BTH – tariff with hourly discrimination (demand > 10kW) 601-700 kWh 0.16 MTD1 – household or business with medium voltage demand 701 - 1000 kWh 0.18 MTD2 – industry with medium voltage demand > 1000 kWh 0.18 MTH – medium voltage demand with hourly discrimination

Source: SIE tarifas

The UNDP has initiated a project in the country to de- and support development of local companies based on velop rural electrification using renewable energy sourc- the sustainable use of energy. It will benefit some 16 500 es.40 The project started in May 2008 and is planned to people in the short term and it is expected that within last until May 2013. It has a total budget of more than five years the project will benefit more than 150 000 4.4 million €, with more than half of it coming from the people. European Union. The programme plans to build 31 hydropower plants The Programme aims to promote nationwide access and and a wind turbine with a capacity of generating be- use of renewable energy sources in rural communities, tween 5 and 150 kW. It will also identify and promote

40 UNDP Project Number 00060210: »Programa de electrificación rural basado en fuentes de energía renovable en República Dominicana«. http://pnud.onu. org.do/proyectos/energiaymedioambiente/1201 6. DOMINICAN REPUBLIC / CARIBBEAN | 86

the development of micro-business that can benefit providers, the power producers with private participation, from the generated power. and the transmission and distribution sectors.

3.6.2 Market actors Power Generation The Electricity Generating Company Haina, S. A. (EGE National Energy Commission (CNE) Haina) is the largest power generation company of the The duties of the Comisión Nacional de Energía (CNE), SINE (17 % of the country’s installed capacity). Haina which was established in 2001, include the formulation is one of the electricity generating companies that was of laws and ordinances and the preparation of supply formed in the process of capitalization of the formerly state and demand forecasts. Acting under the auspices of the owned Dominican Electricity Company (CDE). 50 % of Ministry of Industry & Commerce and the Ministry of the share capital of Haina is owned by the company Haina Finance, CNE is subordinate to the Technical Secretariat Investment Company Ltd. (HIC), a consortium of inter- of the Office of the President, the Director of the Central national investors, and the remaining fifty percent (50 %) Bank, the Ministry of Agriculture, the Ministry of the by the CDE and individual investors. HIC has the con- Environment and the Director of the Telecommunica- tractual responsibility of the administration of EGE Hai- tions Institute. This executive body has the legal power to na. The second largest power utility is the Dominican Hy- enact regulations for the power sector. Since mid-2003, droelectric Generation Company (Empresa de Generación CNE has a new department for alternative energy sources Hidro-eléctrica Dominicana – EGEHID). EGEHID is a and rational use of energy (Gerencia Energías Alternas y 100 % state owned company, part of the holding CDEEE. Uso Racional de Energía). The third largest power producer is AES Andrés. The LNG import terminal »Andres facility« was commis- Regulatory authority SIE sioned in 2003 and is located next to AES’s 319 MW The Superintendencia de Electricidad (SIE), which was es- combined cycle power plant. It is the first and only im- tablished by decree no. 118-98 on 16 March 1998 and be- port facility for natural gas in the Dominican Republic. gan its work in July 1999, supervises market regulation. SIE’s status as a public law body was officially established by the Power Transmission General Electricity Act of 2001. Its duties include in particu- The only transmission operator in the country is the Do- lar the supervision of prices for regulated consumers. minican Transmission Company (Empresa de Transmisión Eléctrica Dominicana – ETED) which is also 100 % state- Coordination group for the wholesale market (OC) owned and part of the CDEEE. The ETED has 2 183 km Another body that was created by the 2001 General Elec- of 138 kV lines, 1 686 km of 69 kV lines and 20 substations. tricity Act is the Coordination group for the wholesale market (Organismo Coordinador – OC), a coordination Distribution companies group with the main task of harmonising the operations of The Northern Power Distribution Company (EDENORTE the various power producers and network operators with Dominicana SA) commercializes and distributes electric- each other on the wholesale market, and ensuring that the ity in the 14 provinces of the Northern Zone of the Do- necessary capacity is made available on the spot market. minican Republic. The company is owned by the state, This institution serves to promote the market’s self-regu- which acquired the shares of its previous owner, the lating capacities. It is not a state body. Its highest authority Spanish group Union Fenosa and is administered by the is a coordinating committee, the members of which in- CDEE. EDENORTE distributes a monthly average 41 clude one representative each from the independent power of 257 GWh. The Southern Power Distribution Com-

41 Source of the monthly distribution averages: OC, 2009 6. DOMINICAN REPUBLIC / CARIBBEAN | 87

pany (EDESUR) is also state owned and contributes to • Regulation of electricity tariffs for public-grid cus- the distribution of 309 GWh monthly. The Dominican tomers with maximum connected loads of 2 MW as Government has also bought 100 % of its shares from long as the customers do not enter into direct con- Union Fenosa. The Eastern Power Distribution Compa- tracts with the suppliers ny EDEESTE is owned 50 % by the Dominican Govern- • Regulation of transit tariffs for the use of transmission ment and the remaining shares belong to AES Corp and and distribution of facilities Trust Company of the West (TCW). EDEESTE distrib- • Provision of preferential treatment to companies that utes monthly 248 GWh (2009). generate electricity from renewable energy sources with regard to sales and load distribution — if prices Renewable Energy Growth Assistance Entity (REGAE) and conditions are otherwise identical The Renewable Energy Growth Assistance Entity • Exemption of companies generating electricity from (REGAE), a national NGO, works in close cooperation renewable energy sources from national and local tax- with rural regional development programs and village coop- es for five years eratives to implement renewable energy projects, programs, • Creation of a National Energy Commission (CNE) and activities. These have included policy development, ca- to develop energy policy measures and long-term pacity building, and technical assistance components. They planning of the energy sector have also involved implementation of solar home and small • Strengthening of the Superintendence of Electricity wind power systems for household and community electri- to establish itself as an independent, neutral regula- fication and micro hydropower systems for decentralized tory authority with far reaching competences village power supplies. Most of the financing for these came • Investing 10 % of fines for the theft of electricity into from the GEF small projects fund and the US Agency for an incentive fund for the development of renewable International Development (USAID). energy sources.

3.6.3 Political Framework Conditions in 3.6.4 Framework conditions for the Energy Sector renewable energies

The key legal document of the electricity sector in the The initial draft version of an incentive law for the de- Dominican Republic is the General Electricity Act (cre- velopment of renewable and »clean« energy sources was ated by the law 125-01 of 2001) and its modification with submitted to the National Congress for debate in Octo- the decree 749-02 of September 2002. The main issues ber 2001. With support from the GTZ-project »Proyec- defined by the law are the following: to de Fomento de Energías Renovables« (PROFER), the • Assurance that at least 20 % of all electricity trading is draft was modified in the period from 2003 to 2005 and done on the spot market. resubmitted to the Congress in October 2005 under the • Authorization of power generators to install connect- altered title Proyecto de Ley de Incentivo al Desarrollo de ing lines to the interconnected grid system and/or to Fuentes Renovables de Energías. It was submitted to the their own customers (self-sufficient suppliers). Senate for its second reading and approved in September • Limiting distribution company ownership of generat- 2006. The law 57-07 was finally signed and came into ing plants to not more than 15 % of peak load in the force in May 2007. interconnected system (renewable energy sources are The law promotes wind farms with a capacity of up to exempt from this rule) 50 MW, mini hydropower plants of up to 5 MW, PV in- 6. DOMINICAN REPUBLIC / CARIBBEAN | 88

stallations of all sizes, concentrating solar thermal power tocol, regulated by the Ministry of Natural Resource’s stations of up to 120 MW, biomass power stations with Mechanism of Clean Development. an organic fuel input of at least 60 % and an output of a The import of machines, equipments and components maximum 80 MW, and ocean power plants. The law also used in installations that generate and use renewable sup- promotes technologies for solar thermal heat generation plies of energy is exempt from paying taxes. For 10 years and refrigeration. the companies are also exempt from paying income taxes and taxes on transfers of industrial goods (ITBIS). The law’s incentives include the following42: a 100 % exemption over import duties for equipment, Clean Development Mechanism (CDM) machinery and accessories required for renewable en- The Dominican Republic ratified the UNFCCC in Oc- ergy production. tober 1998 and acceded to the Kyoto Protocol in Feb- b 100 % exemption over sales tax (ITBIS), for all previ- ruary 2002. In August 2004 the Oficina Nacional del ously mentioned equipments. Mecanismo de Desarrollo Limpio (ONMDL) was es- c 100 % 10-year exemption over income tax, for com- tablished by presidential decree (Designated National panies or individuals benefited by this law until year Authority, DNA). 2020. There are six CDM projects in validation phases and one d Reduction to a fixed 5 % on the tax over foreign fi- project is already registered at the UNFCCC. Three of nanced interest payments, modifying Art. 306 of the them are wind energy projects and their details are shown Dominican Tax Code for the beneficiaries of this in table 20. new law. e Up to a 75 % credit on capital cost of equipment re-quired by owners or renters of family homes and 3.6.5 Market potential for wind energy commercial or industrial establishments who shift entirelyto renewable energy systems or increase their Wind Energy Potential energy consumption share in these. This tax credit The U.S. National Renewable Energy Laboratory (NREL) will be de-ferred to the consumer’s income tax for the performed an initial assessment. The main goal of the next 3 years, discounted at a proportion of 33.33 % study was to map the wind resources in all regions of per year. the Dominican Republic and to compile the results in This new bill also calls for the creation of a CO2 emis- a wind atlas (http://www.windatlas.dk/World/Other. sion’s bond market under the platform of the Kyoto Pro- html#Dominican %20Republic).

TABLE 20: CDM WIND PROJECTS IN DOMINICAN REPUBLIC. IRR BEFORE SALE OF CER’S. Project Location Status Annual Sav- IRR Reg. Year Capacity ings (ktCO2) (MW) Cabo Engaño Wind La Validation 20 8,25 MW Project Altagracia terminated El Guanillo wind farm in Monte Cristi Registered 124 11.3 % 2006 64,6 MW Dominican republic Juancho – Los Cocos Barahona & wind farm project, At Validation 321 13 % 100 MW Pedernales 100 MW

Source: UNEP Risoe and UNFCCC

42 Dominican Legal Laws http://www.drlawyer.com/dominican-legal-news/ dominican-renewable-energy-bill.html 6. DOMINICAN REPUBLIC / CARIBBEAN | 89

The wind resource in the Dominican Republic is strongly or slightly more than 9 % of the entire Dominican Repub- dependent on elevation and proximity to the coastline. In lic. This wind corridor regions could potentially support general, the wind resource is best on hilltops, ridge crests, more than 30 000 MW of installed capacity and deliver and coastal locations that have excellent exposure to the over 60 billion kWh per year. There are 12 provinces with prevailing winds from the east. The extreme southwestern at least 1 000 MW of wind potential, and all except for and northwestern regions of the country are estimated to tree provinces have at least 100 MW of wind potential. have the greatest number of areas with good-to-excellent However, additional studies are required to more accu- wind resources43 for utility-scale applications, because the rately assess the wind power potential, considering factors upper-air winds and ocean winds are greatest in these re- such as the existing transmission grid and accessibility. gions. The wind mapping results show many areas of good- to-excellent wind resource for utility-scale applications or Existing Wind Energy excellent wind resource for village power applications. The Projects and Project Pipeline best wind resources are found in the southwestern prov- In July 2009 the CNE announced the collaboration be- inces of Pedernales and Barahona and the northwestern tween Dominican Republic and the United Arab Emir- provinces of Puerto Plata and Monte Cristi. Significant ates for the construction of 600 MW of wind power on areas of good-to-excellent wind resource can be found in the island (together in a project that includes the con- many other locations, such as well-exposed hilltops and struction of a 600 MW natural gas power plant). It is ex- ridge crests of the Samana Peninsula and other near-coast- pected that 500 million € is to be invested. Six new wind al locations throughout the Dominican Republic and the parks are planned to be installed: two in Puerto Plata, major mountain ranges including Cordillera Septentri- two in Montecristi and two in Azua. onal, Cordillera Oriental, Cordillera Central, and Sierra Neiba. The mapping results show many additional areas Wind turbines currently operating in the country are lo- of moderate wind resource for utility-scale applications cated only at auto producer plants, attending their own or good wind resource for village power applications, demands.44 Nevertheless, a total of 33 projects have their including many east-facing coastal locations along the concession granted in recent years, representing a total of eastern and northern coasts of the Dominican Republic. 1 905 MW to be installed in the country. Table 21 shows About 1 500 km2 of land has been estimated to exist with all wind projects with concessions in the country. good-to-excellent wind resource potential. These wind corridor regions represent less than 3 % of the total land area (48,442 km2) of the Dominican Republic. Using conservative assumptions of about 7 megawatts (MW) per km2, this land could potentially support more than 10 000 MW of installed capacity and deliver over 24 billion kilowatt-hours (kWh) per year. Considering only these areas of good-to-excellent wind resource, there are 20 provinces in the Dominican Republic with at least 100 MW of wind potential and 3 provinces with at least 1 000 MW of wind potential. If the additional areas with moderate wind resource potential (or good for rural power applications) are considered, the estimated area increases to more than 4 400 km2,

43 Wind Power Classification used by the NREL study: For utilities: moderate – 44 Source: CNE, Statistics, 2009 6.1 to 7.0 m/s; good – 7.0 to 7.7 m/s; excellent – 7.7 to 10.5 m/s For rural applications: moderate – 4.9 to 6.1 m/s; good – 6.1 to 7.0 m/s; excellent – 7.0 to 10.5 m/s 6. DOMINICAN REPUBLIC / CARIBBEAN | 90

TABLE 21: WIND ENERGY PROJECTS WITH CONCESSION. Company Project Power (MW) Year of concession Grupo Eólico Dominicano El Granadillo 50 2007 Compañía Generación Eólica Internac. SL NA 90 2008 Grupo Eólico Dominicano NA 50 2007 Compañía Poseidón NA 100 2007 CEPM NA 50 Provisional 2008 AIM Powergem NA 50 Provisional 2008 Jasper Caribean NA 115 Provisional 2007 Los Cuatro Vientos. NA 50 Provisional 2008 Inversiones Agian, S.A. NA 50 Provisional 2008 Inversiones Dihue S.A. NA 50 Provisional 2008 Multigestiones Oﬁr, S.A. NA 50 Provisional 2008 Inversiones Galloway, S.A. NA 50 Provisional 2008 Compañía HB-Globe, S.A. NA 50 Provisional 2008 Callot, C. por A. NA 50 Provisional 2008 Renovable Dominicana NA 50 Provisional 2009 El Morro Eólico, S.A. NA 50 Provisional 2008 Alisios de Montecristi, S.A. NA 50 Provisional 2008 Energía Alternativa, S.A. NA 50 Provisional 2008 Inveravante Dominicana, S.A. Papayo I 50 Provisional 2008 Inveravante Dominicana, S.A. Papayo II 50 Provisional 2008 Inveravante Dominicana, S.A. Cabrera 50 Provisional 2008 Inversiones Birttan, S.A. NA 50 Provisional 2008 Inversiones Tazaret, S.A. NA 50 Provisional 2008 Natural Wind Energy, S.A. NA 50 Provisional 2008 Royal London Investment, S.A. Green Power 50 Provisional 2008 Solar Monkey NA 50 Provisional 2009 TECSOL NA 50 Provisional 2008 EGE-HAINA NA 50 Provisional 2008 The Wind Farm, C. por A. NA 50 Provisional 2009 Summer Wisper Group, S.A. NA 50 Provisional 2000 RENSA NA 50 Provisional 2009 Fluitecnik Solar, S.A. NA 50 Provisional 2009 Bio Fuel World Supply NA 50 Provisional 2009

Source: CNE, Promotion, 2009 6. DOMINICAN REPUBLIC / CARIBBEAN | 91

3.6.6 Addresses and contacts Corporación Dominicana de Empresas Eléctricas Estatales (CDEEE) Secretaría de Estado de Industria y Comercio President of Board Programa de Energía No Convencional Dr. Armando Peña Castillo Director: Ing. Salvador Rivas Director of Rural Electrification Programme: E-mail: [email protected] Thelma Eusebio Head of »Transmission« division: Av. México Esq. Leopoldo Navarra Julian Santana Araujo Edificio Oficinas Gubernamentales Juan Pablo Duarte Head of Generation Division: Ensanche Gazcue, Santo Domingo Sr. Rafael Suero Tel.: +1 (809) 685 51 71 Av. Independencia Centro de los Héroes Fax: +1 (809) 548 65 10 Santo Domingo E-mail: [email protected] Tel.: +1 (809) 535 11 00 Internet: www.seic.gov.do Fax: +1 (809) 533 72 04 E-mail:[email protected] Comisión Nacional de Energía (CNE) Internet: www.cde.gov.do Executive director: Ing. Aristedes Fernández Zucco Internet Hydropower: www.hidroelectrica.gov.do E-mail: [email protected] Director of Renewable Energy Sources and Rational Instituto de Innovación en Use of Energy Department: Biotecnología e Industira – IIBI Arq. Doroteo Rodriguez Energy Department (Divisón Recursos Energéticos) E-mail: [email protected] Head: Bolivar Rodriguez Director of Planning Department: Lucas Vicens Apartado Postal 329-2 E-mail: [email protected] Calle Oloff Palme Esq. Núñez de Cáceres, Ave. Gustavo Mejía Ricart No. 73 Edificio INDOTEC Ensanche Serrallés, Santo Domingo Ensanche San Gerónimo, Santo Domingo Tel.: +1 (809) 732 20 00 Tel.: +1 (809) 566 81 21 Fax: +1 (809) 547 20 73 Fax: +1 (809) 227 88 09 Internet: www.cne.com.do E-mail: [email protected], [email protected] Internet: www.indotec.gov.do Superintendencia de Electricidad (SIE) Chairman: Ing. Francisco Méndez Renewable Energy Growth Assistance Entity (REGAE) E-mail: [email protected] Luis Guillermo Local PRONATURA Ave. Gustavo Mejía Ricart No. 73 Paseo de Los Periodistas No. 4 Ensanche Serrallés, Santo Domingo Ensanche Miraflores, Santo Domingo Tel.: +1 (809) 683 25 00/683 27 27 Tel.: +1 (809) 688 60 92 Fax: +1 (809) 732 27 75 Fax: +1 (809) 688 87 74 E-mail: [email protected] E-mail: [email protected] Internet: www.sie.gov.do 6. DOMINICAN REPUBLIC / CARIBBEAN | 92

Instituto Nacional de Recursos Hidráulicos (INDRHI) 3.6.7 Information sources Head: Sr. Ing. Frank Rodríguez Centro de los Héroes CNE - National Energy Commission, Energy Demand Edificio Nuevo del INDRHI Prospective Study ( Estudio Prospectivo de la Demanda Santo Domingo de Energía de República Dominicana ) – Final Report, Tel.: +1 (809) 532 32 71 November 2008. ( http://www.cne.gov.do ) Retrieved Internet: www.indrhi.gov.do on September 2009.

National Rural Electric CNE, Statistics - National Information System Cooperative Association (NRECA) ( latest data available: 2005 ) ( http://www.cne.gov.do/ Director: Jame Vancoevering sien2/estadisticas.aspx ) Retrieved on September 2009 Calle Rafael Augusto Sánchez No. 51A Ensanche Piantini, Santo Domingo CNE, News published at »Hoy Digital« in July 2009 Tel.: +1 (809) 541 48 25 ( http://www.hoy.com.do/el-pais/2009/7/26/286968/ Fax: +1 (809) 683 86 08 Dan-toques-finales-a-contratos-de-generacion-a-gas-y- E-mail: [email protected] eolica ) Retrieved on September 2009 Internet: www.nreca.org CNE, Renewable Energy as National Solution Deutsche Gesellschaft für ( presentation ), December 2008. ( http://www.oas.org/ Technische Zusammenarbeit (GTZ) dsd/Energy/Meeting/ElSalvador/Documentos/Mi- Head: Hans-Peter Debelius crosoft %20PowerPoint %20- %20Onil %20Abreu %20 E-mail: [email protected] CNE.pdf ) Retrieved on September 2009 Calle Angel Severo Cabral N° 5 Ensanche Julieta Morales CNE, Promotion for investments, regulatory framework Santo Domingo and incentives for renewable energy in the Dominican Tel.: +1809 541-1430 Republic ( presentation by the CNE president ), August Fax: +1809 683-2611 2009 E-mail: [email protected] ( http://www.acce.com.co/descargas/Presenta- Internet: www.gtz.de/dominican-republic ciones %20VII %20Encuentro/Panel %20de %20Min- istros/NE %20Rep %20Dominicana.pdf ) Retrieved on German-Dominican Chamber September 2009 of Industry and Commerce Director: Werner Kuhn OC - National Power System Coordinator, Monthly Centro-Dominicano-Alemán Operations Report – august 2009 ( http://www.oc.org. Calle Isabel la Católica No. 212 do/ ) Retrieved on September 2009 Zona Colonial, Santo Domingo Tel.: +1 (809) 688 67 00 OC, Memoria Annual 2007. ( http://www.oc.org.do/ ) Fax: +1 (809) 687 96 81 Retrieved on September 2009 E-mail: [email protected] Internet: http://dominikanischerepublik.ahk.de/ 6. DOMINICAN REPUBLIC / CARIBBEAN | 93

SIE – Superintendencia de Electricidad, Tarifas Dominican Legal Laws http://www.drlawyer.com/do- ( http://www.sie.gov.do/peages_tarifas.php ) minican-legal-news/dominican-renewable-energy-bill. Retrieved on September 2009 html Retrieved on October 2009 SIE – Statistics, 2008 ( http://www.sie.gov.do/estadisticas.php ) Retrieved on September 2009 Wind Atlas, available at: http://www.windatlas.dk/ World/Other.html#Dominican %20Republic General Electricity Act of 2001, available at: http:// Retrieved on October 2009 www.drlawyer.com/dominican-legal-news/ Retrieved on October 2009

General Electricity Act ( created by the law 125-01 of 2001 ) and its modification with the decree 749-02 of September 2002, available at: http://www.drlawyer. com/dominican-legal-news/ Retrieved on October 2009 CHILE 94

List of abbreviations used in this report:

APEC Asia-Pacific Economic Cooperation HDI Human Development Index BMU Bundesministerium für Umwelt, Natur- IKI Internationale Klimaschutzinitiative – schutz und Reaktorsicherheit – German German International Climate Protection Federal Ministry for the Environment Initiative BMZ Bundesministerium für Wirtschaftliche IRR Internal Rate of Return Zusammenarbeit und Entwicklung – Kf W Kreditanstalt für Wiederaufbau – Ger- German Federal Ministry for Economic man Federal Bank for Reconstruction and Cooperation and Development Development CDEC Centro de Despacho Económico de Carga NCRE non-conventional renewable energy - Economic Load Dispatch Centre sources CDM Clean Development Mechanism PER Programa de Electrificación Rural - Rural CER Renewable Energy Centre Electrification Programme CNE Comisión Nacional de Energía - National PJ Petajoule Energy Commission PPEE Programa País de Eficiencia Energética CONAMA Comisión Nacional del Medio Ambiente RE Renewable Energies - National Environment Commission SEC Superintendencia de Electricidad y Com- CORFO Corporación de Fomento de la Produc- bustible - Superintendence of Electricity ción - Development Agency of Chile and Fuels ECLAC Economic Commission for Latin America SEIA Environmental Impact Evaluation System and the Caribbean SIC Central Interconnected System EE Energy Efficiency SING Norte Grande Interconnected System EIA Environmental Impact Assessment SME Small and medium enterprises GDP Gross Domestic Product UNDP United Nations Development Programme GTZ Deutsche Gesellschaft für Technische UNDP-GEF Global Environment Facility of the Zusammenarbeit UNDP GW Gigawatt VAD Valor Agregado de Distribución – Value GWh Gigawatthours added of distribution CHILE 95

4.1 Introduction The Republic of Chile is a country in South America oc- cupying a long and narrow coastline between the Andes

FIGURE 1: Mountains and the Pacific Ocean. In addition, the Easter MAP OF CHILE AND REGIONS Island situated in Oceania and a territory in Antarctica, belong to the Chilean state. The Chilean mainland is divided into 15 regions which have formally both a name and a Roman numeral, with the numbers originally assigned in sequence from north to south (the recent inclu- sion of the two newest regions has changed this). Neighbouring countries are Peru (north), Bolivia (northeast), and Argentina (east); the official language is Spanish. Since March 2006 the State President is Michelle Bachelet. Economic policies are market oriented. Chile is associate member of the G-20 and of Mercosur (Common Mar- ket of the Southern Cone) and is full member of APEC (Asia-Pacific Economic Cooperation). Chile is one of the countries with the largest number of Free Trade Agree- ments (FTA’s) in the world. It has FTA’s with the following countries and regions: European Union, USA, Cana- da, Mexico, Central America, China, Japan, South Korea, Singapore, Brunei, Australia and New Zealand. The country has the highest Human Development Index in Latin America (0.874), which is 40th in world rank- ings, followed by Argentina, 46th. 1 In Latin America, Chile has the fifth largest economy, with a GDP in 2008 of 123 billion €. Table 1 summarizes some socio-economic information on Chile.

According to the Economic Commission for Latin Amer- ica and the Caribbean (ECLAC)2 in 2010. 87.5 % of the population will be living in urban areas. In 2006, 13.7 % of the population were living in poverty (percentage of population having incomes of less than twice the cost of a basic food basket, including those in extreme poverty) and 3.2 % were living in extreme poverty.3 Although Chile is, within Latin America, an outstanding example of economic stability, it has been affected by the global financial crisis. The unemployment rate in the country has increased by 3.2 % between December 2008 (7.5 %) and Data Source: CGIAR 2009 June 2009 (10.7 %). 4

1 UNDP 2 ECLAC, 2008 3 (percentage of population having incomes amounting to less than the cost of a basic food basket) 4 INE, 2009 CHILE | 96

TABLE 1: GDP, POPULATION AND COUNTRY AREA. Year 2000 2002 2004 2006 2008 GDP in Billion € (at 2008 value) 51 46 65 100 123 Population (Millions) 15.2 15.6 16.0 16.4 16.8 GDP per capitain € (at 2008 value) 3 361 2 933 4 067 6 066 7 352

Country Area*: 2 006 096 km² National Currency: 1€ = 780 CLP (Chilean Peso**) Original GDP values in US$. Exchange rate used: 1€ = US$ 1.4708 (Deutsche Bundesbank) * Government of Chile ** Source: http://www.reuters.com/ﬁnance/currencies, 28th August 2009. Source: IMF, unless otherwise speciﬁed

4.2. Energy market FIGURE 2: PRIMARY ENERGY PRODUCTION IN 2007 Overview Energy Market Chile has limited energy resources (fossil energy sources, Primary Energy Production 2007: 378.7 PJ large hydropower and firewood) and produces less than it consumes. According to the National Energy Com- 5,7 2 % mission5, the production from national resources corre- 81.1 21 % sponded to 379 PJ (209 PJ coming from firewood and 82 0.1 PJ from hydro power) and the total gross primary energy 0 % consumption6 in the same year was 1 085 PJ. Figure 2 shows the contribution of the different sources to the gross primary energy production in 2007. 209.7 82.1 55 % 22 % Between 1990 and 2007, primary energy consumption had an average annual growth of 4.6 %; the high depend- Natural gas Petroleum products ence on oil, coal and natural gas imports is a challenge Wood and others Coal Hydro Power for the government. There is not only the risk of security of supply, but also the fact that the country is exposed to international price volatility. In 2004 Argentina, which is Source: CNE 2009a the country’s most important natural gas supplier, started restricting gas supply in 2004; in 2007 the restriction TABLE 2: reached almost 100 % of the contracted volumes. Natural ENERGY IMPORTS IN 2007 gas is therefore largely being replaced by diesel. SECTOR Consumption Final energy consumption is divided in four main sectors: Oil 459 PJ industry and mining, transport, commercial/public/resi- Natural Gas 109 PJ dential and energy transformation centres. Between 1990 Coal 172 PJ and 2007 the consumption almost doubled; with a more Source: CNE, 2009a

5 CNE 2009a 6 The total gross primary energy consumption corresponds to the energy produced with national resources added to the imports and discounted stock changes and losses. CHILE | 97

formed by the power plants and the transmission and FIGURE 3: FINAL ENERGY CONSUMPTION BY SECTOR IN 2007 distribution network. The four separate electric systems in Chile are: Total ﬁnaly Energy Consumption 2007: 1 508 PJ • The Central Interconnected System (SIC): serves the

central part of the country. It is the main electricity 494 364 system, serving more than 90 % of the population. It 33 % 24 % extends from the northern town of Taltal (Region II) to the southern Chiloé Great Island (Region X). Maps for download under: www.cdec-sic.cl/imagenes/con- tenidos/File/documentos/mapa_sic.pdf • The Norte Grande Interconnected System (SING): 389 261 26 % serves the desert mining regions in the north, com- 17 % prising of Region XV, I and II. 90 % of the SING consumption is made up of large clients (mining and

Industrial Mining Commercial / Public / industry). Maps and statistics for download under: Transport Residential http://www.cdec-sing.cl/html_docs/anuario2007/ Transformation Centres PDF/CDEC-SING%202007%20Ing.pdf Source: CNE 2009a • The Aysén System: serves Region XI (South). 54 % of the energy derives from thermoelectric power plants, than threefold increase in the period, the transformation 42 % from hydroelectric plants and 4 % from Chile’s centres showed the highest growth. The transport sector first wind farm. The only company operating in the grew 230 %, while industry presented a consumption in- Aysén system is Edelaysen S.A, responsible for genera- crease of 212 %. The commercial, public and residential tion, transmission and distribution activities, serving sector grew 168 %. Figure 3 shows the energy consump- about 26 000 clients. tion according to end use in 2007. • The Magallanes System: It is composed of four sub- systems: Punta Arenas, Puerto Natales, Puerto Wil- The Electricity Grid liams and Puerto Porvenir, in Region XII. Edelmag The activities of generation, transmission and distribu- S.A. is the only company acting in the system for tion are performed completely by private companies about 50 000 clients. whilst the government regulates, supervises and controls the sector. Investment planning in distribution and trans- Installed Capacity mission sectors is also carried out by the government, but The installed capacity of the Chilean electricity sector only as an indicative orientation for private companies. reaches more than 13 GW with a generation of more The main state actor is the National Energy Commission than 55 000 GWh in 2008. The main technologies are (CNE), which develops and coordinates plans, policies hydroelectricity (approx. 47 %) and thermal plants us- and rules of the national energy sector, and also advises ing coal, natural gas and diesel (approx. 51 %). Due to all state bodies in energy related matters. restrictions in gas supply many combined cycle gas pow- 40 generation, 10 transmission and 31 distribution comer plants had to switch to diesel fuel. Other renewable panies participate in the national electricity industry, act- sources, like biomass and wind, are present in a small ing in four different electric systems. These systems are scale, having respresented 2.7 % of the national installed CHILE | 98

TABLE 3: INSTALLED CAPACITY BY SYSTEM AND BY ENERGY SOURCE IN DECEMBER 2008. VALUES IN MW System SING SIC AYSEN Magallanes TOTAL Renewable 12.802 5 094.22 22.677 0 5 129.70

Hydro Total 12.802 4 909.67 20.70 0 4 943.17 Hydro > 20MW 0 4781.17 0 0 4781.17 Hydro < 20MW 12.802 128.50 20.7 0 162.00 Wind 0 18.15 1.98 0 20.13 Thermo – Biomass 0 166.4 0 0 166.40 Non-Renewable 3 589.05 4 291.52 27.77 98.71 8 007.05

Thermo: Coal 1 205.64 837.7 0 0 2 043.34 Natural Gas 2 111.65 2 547.30 0 84.485 4 743.44 Oil and derivatives 271.763 906.522 27.77 14.22 1 220.27 Wind turbines [MW] 0.7 0.7 0.7 0.7 0.7 TOTAL 3 601.86 9 385.75 50.45 98.71 13 136.75

Source: CNE 2009c capacity in 2008 and will reach 600 MW by the end of almost 80 %. But due to the natural gas supply restric- 2009. 7 By law, the share of renewables will have to be 5 % tion introduced by Argentina, the electricity production from 2010 on. For current increase see above. from this source has decreased, as the next paragraph will The SIC accounts for 71.4 % of the installed capacity and demonstrate. Hydro capacity has also grown in the same the SING for 27.4 %. The Magallanes system and the period, but at a lower level (19 %). Installed coal and die- Aysén system together represent 1.2 %. sel capacity decreased by 8 % and 18 % respectively, but Table 3 shows the installed capacity of each system, ac- due to growing demand there is 4 000 MW of new coal cording to the different energy sources. capacity under planning. Biomass and wind capacity until 2008 have remained more or less constant with 0.2 GW. Between 2000 and 2008, the installed capacity has grown Four wind farms are currently under construction, which by 26 % (from 10.4 GW to 13,1 GW). Installed capac- will mean a significant increase in wind energy utilisation ity of gas-fired plants has shown the highest growth of (see also chapter on market potential for wind energy).

TABLE 4: ELECTRICITY GENERATION BY SOURCE 2000 – 2007 (VALUES IN TWh Source 1999 2000 2001 2002 2003 2004 2005 2006 2007

Hydro 13.6 19.1 21.7 23.2 22.6 21.0 25.6 28.2 22.3 Biomass and Wind 1.5 1.4 1.7 1.8 1.7 1.3 0.8 0.6 0.8 Natural Gas 6.7 9.8 12.5 12.5 16.0 17.7 15.0 12.5 6.1 Coal 13.3 9.4 6.2 6.9 6.6 8.9 8.4 12.1 14.7 Diesel / Fuel Oil 3.4 1.7 1.8 1.1 1.9 0.2 1.2 0.6 12.5 Total 38.4 41.3 43.9 45.5 48.8 49.0 50.9 53.9 56.4

Source: CNE 2009b

7 GTZ Chile CHILE | 99

TABLE 5: almost double in the period, which will make massive ca- CONSUMPTION BY EACH SECTOR 2007 pacity expansions necessary, both in the SING and the Sector GWh % SIC system. Mininig and industry 35 958 65 As Chile is highly dependent on imported fuels, and gas Commercial/public/residential 16 567 30 delivery from its currently only supplier Argentina has Energy sector 2 280 4 been not always reliable in the past, the number of plants Transport 408 1 running on imported coal is increasing. Total 55 213 Renewable Energy Electricity Generation Chile has a history of using hydropower for electricity The impact of the restriction of natural gas supply from production, corresponding to 37.6 % of the generation Argentina and the low level of precipitation in 2007 had capacity in 2008 (see table 3), or 4 942 MW installed a significant impact on electricity generation: the share capacity, of which 1 516MW are run-of-river installa- of natural gas strongly decreased after its peak in 2004 tions. 11 and the share of hydro dropped from 28.2 % in 2006 to Chile has plenty of further rivers suitable for hydro pow- 22.3 % in 2007. Both trends resulted in an increased use er generation, and a 4 000 km coastline, where wind and of diesel and fuel oil. ocean energy could be used. The country is located in a very active volcanic region, with a geothermic potential Total electricity consumption in 2007 was 55 213 GWh. of over 2 000 MW. The northern desert region of Chile The industry and mining sectors are the major consumers has some of the highest solar radiation in the world. in the country having bought 65 % of the total electricity Despite Chile’s high potential for non-conventional in 2007. Table 5 shows the consumption by each sector. renewables12, these sources are still in early stage of implementation. In recent years there has been progress Between 2000 and 2007 the total electricity consump- in the installation of biomass thermal plants and in the tion has risen by 44 %. The growth of each sector in the construction of small hydro plants that have a capacity same period was about 55 % in the commercial, public up to 20 MW. Solar energy was mostly used for rural and residential sector, 31 % in the energy sector, 40 % in electrification. Also, the framework conditions for grid- mining and industry and 86 % in the transport sector. 8 connected renewable energy have largely improved, and a significant project pipeline has developed recently, name- A study by the Universidad de Chile9 for the CNE has ly 23 00MW in the Environmental Impact Assessment developed an advanced prediction model for the energy System SEIA. demand in the country for different sectors in the two The following table shows the installed capacity of non- main systems (SIC and SING) until the year 2030. conventional renewable energies in each system. In total, According to this study, the electricity consumption in their contribution to Chile’s total capacity in 2007 was the SING will grow by 92 % between 2010 and 2030. 2.7 %. The sector with the greatest growth will be the commercial, public and residential sector (243 %), jumping from In 2007 wind turbines generated 11.2 GWh of electricity 1 368 GWh to 4 695 GWh. 10 (0.02 % of the total) and biomass produced 746 GWh The industrial sector in the SIC will consume 194 % more (1.3 % of the total). electricity in 2030 than in 2010, being the sector with the highest consumption growth. In total the demand will

8 CNE 2009b 11 CNE, 2009 b 9 Universidad de Chile, 2008 12 in the Chilean context, this term is used for all renewable energy sources exclud- 10 The complete results, for both systems SINC and SING can be found at Uni- ing hydropower above 20 MW. In the following chapters, this is referred to as versidad de Chile, 2008 renewable energies CHILE | 100

TABLE 5: INSTALLED CAPACITY OF NON-CONVENTIONAL RENEWABLE ENERGY SOURCES (NCRE) IN 2008. VALUES IN MW % of total SING SIC AYSEN Magallanes TOTAL electricity generation Hydro < 20MW 12.8 128.5 20.7 0.0 162.0 1.2% Wind 0.0 18.2 2.0 0.0 20.1 0.02% Thermo – Biomass 0.0 166.4 0.0 0.0 166.4 1.3% Wind 0 18.15 1.98 0 20.13 Total NCRE 12.8 313.1 22.7 0.0 348.5 2.7%

Source: CNE 2009c

Electricity Prices in three different markets: the free market (to large-scale The consumers in the Chilean electricity market are di- consumers), to distributors (at a tariff fixed by CNE – vided in three categories: precios de nudo13) or to the respective Economic Load − large-scale consumers, with a power requirement of Dispatch Centre (CDEC) in the interconnected grid more than 2 MW, system at marginal costs fixed every hour (spot market). − medium sized consumers, with a demand between Producers generating power from renewables in plants up 500 kW and 2 MW and to 9 MW can also sell their electricity to the distribution − small consumers that require less than 500 kW. companies at fixed tariffs. Consumers are classified according to their electricity de- The distribution companies sell their electricity to end mand into one of the following categories: consumers at a price based on the fixed tariff and an added − Regulated clients: connected capacity lower or equal value of distribution (Valor Agregado de Distribución – to 2 000 kW VAD). − Non-regulated clients: connected capacity higher Regulated prices are fixed twice a year by CNE, based on than 2 000 kW the expected marginal cost for the next 48 months. The − Clients with a capacity demand higher than 500 average »nodal price«14 (last fixation on April 2009), in kW and equal or lower than 2.000 kW can opt to the SIC is about 75 €/MWh, having increased 1.5 times be recognized as a regulated or non-regulated client between April 2006 and April 2009 whilst the SING’s av- for a period of at least four years. erage price was 90 €/MWh, having doubled in the same Regulated consumers are subject to regulated energy period. In the future, nodal price fixing will be replaced prices, while non-regulated consumers can freely agree by public tenders for electricity purchases by distribution energy prices with the energy supplier. In two other situa- companies. In the other two main systems, the nodal price tions the client may opt for a free tariff: supply services for levels are as follows: 104 €/MWh in the Aysén region less than 12 months or supply services with special qual- (increase of 10 % between April 2006 and April 2009) ity necessities. It is also applicable when connected power and 62 €/MWh in the Magallanes system (increase of multiplied by the distance between the connection point 4 % between April 2006 and April 2009). and nearest primary substation is a value higher than 20 (e.g. 11 MW x 2 km). Liberalisation In 2007, non-regulated clients represented 61 % of the Chile privatized its electricity sector in the 1980s. In a national consumption. pioneering strategy that served as an example for other Power producers have the option to sell their electricity countries, Chile has unbundled the vertical structure of

13 Precios de nudo: Prices of generation and transport, known as »nodal prices« (Precios de Nudo) that are defined for all substations. This tariff is established twice a year by the CNE and the SEC. 14 Source: CNE CHILE | 101

generation, transmission and distribution activities, mak- fication procedures; promotion of renewables; trainings; ing them independent from each other. Only private design and execution of a photovoltaic project in Region companies are now participating in these three activities, IV; diesel hybridization and assessment of wind poten- the most important being Endesa, AES Gener and Col- tials. 16 GEF contributed with more than 4 million € and bún (see chapter on market actors statt). As already men- the national government with more than 17 million €. tioned, CNE is mainly responsible for the regulation of Chile’s electricity sector. 4.3. Market actors Rural Electriﬁcation Currently 94 % of all households are electrified and National Energy Commission (CNE) the goal set by the government is 96 % to be reached in The National Energy Commission (Comisión Nacional 2010, de Energía - CNE) is an autonomous official institution The Chilean government’s recently phased out national created under Law Decree 2224 of 25 May 1978. It is the Rural Electrification Programme (PER) contributed a lot entity responsible for developing and coordinating plans, to the realization of projects through subsidies. policies and standards for the good operation and devel- In a decentralized structure, regional governments had opment of the energy sector and advises the government to identify needs, choose the solutions, and participate in all energy-related matters. in the decisions on the allocation of central funds. To CNE prepares public policies, rules and regulations, elab- involve local communities, the programme required that orates indicative plans for investment in generation and projects were requested by organizations rather than in- transmission, and carries out the calculation of regulated dividuals. The role of the central government was to pro- energy tariffs. CNE is headed by a Board of Directors, vide economic resources, technical assistance and help to which is composed of a representative of the President of coordinate the institutions involved in the programme. the Republic with the rank of a Minister President of the The financial costs were shared between the involved CNE, and the following Ministers: Mining, Economy, parties according to the following system: government Development and Reconstruction, Finance, National contributed 75 % to 85 % of the investments, companies Defence, General Secretariat of the Presidency and Plan- participating in the projects take over between 10 % and ning and Cooperation. 20 %, and the electricity users were responsible for about One of the divisions of CNE is »Environment and Re- 5 %. The users expenditures, used for covering the costs of newable Energy«. The activities of this section include the in-house wiring, the electric meter, and the coupling the assessment of environmental impact studies of major to the grid, were initially financed by the distribution projects in the energy sector, and the promotion of non- company and repaid by the users over time. Once projects conventional renewable energy sources by analyzing the are operating, users pay the regulated tariffs. potential of different technologies and renewable sourc- In line with the PER, in 2001 the use of non-conventional es, collaborating with investors, preparing laws, regula- renewable sources15 in rural regions is further encouraged tions and financial instruments. CNE has also submitted by a project financed by the UNDP-GEF (Global Envi- several bills to parliament among others a renewable en- ronment Facility of the United Nations Development ergy portfolio standard which was approved in 2008 and Programme). With the aim of promoting rural electrifi- the introduction of tax credits for solar collectors in news cation with non-conventional renewable sources the fol- buildings. CNE has also developed several financial in- lowing activities are scheduled: establishment of a project centive mechanisms for renewable energy and energy ef- pipeline; development of technical standards and certi- ficiency, which are implemented through CORFO. CNE

15 Non-conventional renewable resources: hydro with capacities lower than 16 More information: http://www.renovables-rural.cl 20MW, wind, geothermal, ocean, solar and biomass.

CHILE | 102

also coordinates technology and knowledge exchanges energy sector the Chilean Congress started procedures with other countries, like the cooperation programme to create a Ministry of Environment. between CNE and GTZ that aims to increase the participation of grid connected renewable energy in the energy Economic Load Dispatch Centre (CDEC) mix of Chile. The CDEC (Centro de Despacho Económico de Carga) In 2008 the Chilean Congress started the procedures to are private bodies responsible for coordinating the op- create the Ministry of Energy, which will be responsible eration of the electrical system. Their duties are defined for energy policies and strategies. The CNE would be in the Electricity Law and the Regulations approved by then attached to this Ministry as a regulator. Supreme Decree No. 291 dated 4 October 2008, with responsibility for maintaining the overall security of the The Superintendence of Electricity and electricity system, ensuring the most economical opera- Fuels (SEC) tion for the entire electrical system installations, guaran- The SEC Superintendencia( de Electricidad y Combustible) teeing open access to transmission systems and determin- was established in 1984. Since then its role has evolved ing the marginal costs of energy and economic transfers and according to the provisions of Law No. 18 410 of between members of the CDEC. 1985 and No. 19 613 of 1999, it has the task of supervis- Each interconnected system has its own CDEC, so there ing the proper operation of the electricity, gas and fuels are the CDEC-SIC and CDEC-SING. The CDECs of the services in terms of safety, quality and price. SEC has the smaller Magallanes and Aysén systems are part of the ver- responsibility of supervising the compliance with laws, tically integrated power utilities Edelmag and Edelaysén. regulations and rules, granting provisional concessions All companies that have facilities for generation, trans- to gas producing plants, electric power plants (includ- mission, subtransmission, additional transmission and ing non-conventional renewables), electrical substations, free clients directly connected to transmission facilities transmission lines and distribution lines. It also resolves have to join a CDEC. However, according to the regula- conflicts and imposes fines. For conflict resolution, see tions, companies complying with the following character- also below under »Panel of Experts«) istics may abstain from joining CDEC: • Companies that own power plants with a total in- The National Environment Commission stalled capacity below 9 MW. (CONAMA) • Self producers, with surplus of generating capacity be- The CONAMA Comisión( Nacional del Medio Ambi- low 9 MW. ente) is a government institution whose mission it is to • Companies that own transmission facilities, whose ensure the right of citizens to live in a pollution-free en- transmission lines do not exceed a total of 100 kilo- vironment from, preservation of nature and conservation metres. of the environmental heritage. CONAMA was created in • Companies that own subtransmission facilities, whose 1994 by Law No. 19 300 and has the responsibility of pro- subtransmission lines do not exceed a total of 100 kil- viding consulting service, analysis, communication and ometres. coordination on environmental matters. Furthermore, • Companies owning additional transmission facilities, it proposes to the President of the Republic policies for where the additional lines do not exceed a total of 100 environmental management and reporting on compli- kilometres. ance with current legislation. It is responsible for admin- • Non-regulated customers that are connected to the istrating the Environmental Impact Assessment System transmission lines through a bus bar with a capacity (SEIA), obligatory for all energy projects. Similar to the smaller than 4 MW. CHILE | 103

The Panel of Experts of the General Law on businesses as well as 74 000 projects. CORFO contributes Electrical Services an annual average of more than 30 million US$ to SME The Panel of Experts of the General Law on Electrical (small and medium enterprises) programmes and more Services is a body established by Law No. 19 940 exclu- than 38 million US$ to high technology programs. COR- sively for the power sector, made up of experts whose role FO created the InvestChile program in 2000 to encourage is to make binding decisions on disagreements and dis- foreign investment. The focus of InvestChile is mainly on putes occurred by the application of the electricity legis- technology intensive foreign investment and to assist com- lation. The institution is comprised of seven persons with panies intending to relocate to Chile. Since 2005 CORFO broad professional or academic experience. Five of them has been supporting 130 non-conventional renewable ener- have to be engineers or graduates in economics, and two gy projects through pre-investment subsidies. Out of those, must be lawyers. The members and Lawyer-Secretary are five already exist and ten are currently under construction, appointed by the Court for the Defence of Free Compe- equivalent to a capacity of 150 MW with an investment tition through a public tender for periods of six years. The of 300 million US$. When all projects in the pipeline will composition is partially renewed every three years. be completed they will sum up to 1 500 MW capacity. For non-conventional renewables projects, depending on the type of project and the respective electrical system Renewable Energy Centre (CER) (distribution, subtransmission, transmission), as well as The CER is a new actor in the sector, created in August the model of commercialization, discrepancies and dis- 2009. Its main tasks are to study the non-conventional putes on connection issues will be resolved either by the renewable energy development and remove barriers for Panel of Experts or by the Superintendence of Electric- the realization of new projects. The CER will develop a ity and Fuels (SEC). The sector regulation defines case network of centres and institutions for assisting the im- by case which institution is responsible to resolve the spe- plementation of government policies and promoting cific conflict. technology transfer. CER has a budget of more than 3,5 million € in 2009. The government, academic research- The Court for the Defence of Free Competition ers, investors and project developers can access the CER The Court for the Defence of Free Competition was es- for information and orientation. It is foreseen that one of tablished by Law No. 19 911 in November 2003. It is an CER’s tasks will be the creation of an inventory of renew- independent special court, devoted exclusively to mat- able energy resources (excluding large hydro). ters of competition. Since one of the motivations of the electric sector regulations is to promote free competition, Endesa and AES Gener the court is another important player in the sector. The Out of a multitude of private actors, the highest market court is under supervision of the Supreme Court, consist- share is held by the two big players Endesa and AES Gener. ing of three lawyers and two economists, all competition Chile’s largest power producer is Endesa (Empresa Na- experts, who hold the rank of Ministers. cional de Electricidad), which is owned by a Spanish company of the same name via the Enersis holding. Endesa op- Development Agency of Chile (CORFO) erates almost all hydropower stations in the country, with CORFO (Corporación de Fomento de la Producción), the a generating capacity of 4 893 MW, representing 48 % of Chilean Economic Development Agency, is a government the total capacity in the SIC and 5 % in the SING. The organisation founded in 1939 to foster economic growth in same holding company also owns the distribution com- Chile by encouraging investment, innovation and business pany Chilena de Electricidad (Chilectra), which operates development. To date, CORFO has supported over 57 000 the energy sector of the Santiago metropolitan area and CHILE | 104

serves about 45 % of the entire market or almost half of spot or nodal price. the population. • Non-discriminatory conditions for small energy gen- The second largest producer is AES Gener, with an in- erators (less than 9 MW capacity) allowing easier ac- stalled capacity of 2 559 MW (including subsidiaries) cess to the electricity market and a stable sales price. and 1 475 km of transmission lines. AES Gener is major- • Guaranteed access for small energy generators (less ity owned by the American company AES. than 9 MW capacity) to the distribution systems. • Total or partial exemption from wheeling charges at main transmission level for non-conventional sources 4.4. Political Framework Conditions in less than 20 MW. the Energy Sector

In recent years Chile has started refocusing its energy 4.5. Framework Conditions strategy. Leading principles are diversification, reduced for Renewable Energies dependence on external suppliers and options for sustainable energy. One of the driving forces was the natural gas Strategy and Objectives for crisis, as Argentina started to cut the fuel supply in 2004. Renewable Energies In 2005 the government launched the National Energy There are two lines of action taken by the government to Efficiency Program (Programa País de Eficiencia En- promote non-conventional renewable energy: improving ergética – PPEE17), with the aim of consolidating ef- the regulatory framework of the electricity market and ficient energy use in the country and developing energy the implementation of financial tools directly support- efficiency policies. One of the primary tasks of the PPEE ing investment in non-conventional renewable energy. during 2009 will be the development of the Energy Ef- The improvement of the regulatory framework aims at ficiency Action Plan for 2010 – 2020, which will estab- non-discrimination for renewable energies in the electric- lish goals, objectives and lines of action for each of the ity market by taking into account their specific require- relevant sectors, with their corresponding financing and ments. evaluation instruments. The regulatory framework remains a key element for The development towards a more diversified energy mix the promotion of non-conventional renewable energy. is strongly supported by the government. Significant Here, the enactment of the Renewable Energy Law (Law changes to the regulatory framework for the promotion 20 257) in April 2008 is key. The most important aspects of non-conventional renewable energy have been made. of the Renewable Energy Law18 (source: CNE, 2009 d) A very important step is the enactment of the Renew- can be summarized as follows: able Energy Law (Law 20 257) in 2008 (see the following • Energy generators (SIC and SING) have to prove chapter). that a percentage of their commercialized energy each Another important law regarding renewable energy is the year is generated from non-conventional renewable act 19 940 of 2004 (Ley Corta I) and regulation D.S. 244 energy. that establishes the right for small and renewable energy • The obligation comes into force from January 1st, producers to participate in the spot market and to con- 2010 onwards. nect to the distribution networks. The most important • The obligation lasts for 25 years (until 2035). aspects are as follows: • It applies to all supply contracts between free, i.e. non- • Guaranteed right to any renewable energy generation regulated clients and distribution companies from project to sell its energy to the electricity market at August 31st 2007 onwards.

17 For more information: http://www.ppee.cl/ 18 CNE, 2009 d CHILE | 105

• The required percentages for each year are as follows: mote projects based on non-conventional renewable − 2010-2014: 5 % energy technologies. The budget reached around 2 mil- − 2015-2024: annual increase of 0.5 % (2015: 5.5 %; lion € in 2008 and was increased to around 3.5 million € 2016: 6 % etc.) for 2009. To incorporate new project lines, a Renewable − From 2024 onwards: 10 % Energy Centre (CER) was created in August 2009 (on To meet obligations, certain shares of hydropower (up to market actors). 40 MW) are accepted: >20 MW: 100 % of energy is taken Since 2005 the Development Agency of Chile (COR- into account; >30 MW: 50 % of energy is taken into ac- FO) and CNE have been promoting the use of non-con- count. Provisions in the Renewable Energy Law apply only ventional renewable energy, especially grid-connected to projects connected to the electricity grid after January electricity generation projects through financial incen- 1st 2007. tives. This is achieved through a wider programme called Traditional generators may incorporate either own »Todo Chile« (or in English »InvestChile«), that pro- projects or contracted non-conventional renewable energy motes the development of projects in different sectors projects into their portfolio. The law actually creates a new (see CORFO, chapter in chapter on market actors). A market for electricity generated from non-conventional list of all projects can be found at CORFO´s webpage for renewable energy project developers, as energy companies renewable energy investors. 20 that commercialize energy need to fulfil the obligation. InvestChile also supports access to business networks and public services. Business partners and suppliers of goods Legal Conditions and Support Schemes for are identified, meetings with business/industry leaders or Renewable Energies representatives of relevant administrations organised, as The regulatory framework of the Chilean electricity well as and guided visits to Chile-based companies. sector originally did not make a regulatory distinction for non-conventional renewable energy. However, the The CORFO-CNE cooperation project provides the fol- amendments to the electricity law, formalized in March lowing incentives: 2004 by Law 19 940 include a number of aspects favour- • Cofinancing grants for pre-investment studies for able for the use of non-conventional renewable energy. grid-connected non-conventional renewable energy The spot market is opened and the right to grid access for projects, such as: small power plants is ensured (usually the size of plants − Environmental impact studies and CDM project using this type of resource). Additionally, it provides an proposals (see CDM subchapter in this report). exemption from payment of wheeling charges for using − Up to 50 % of the study costs (maximum of 2 % the transmission system for plants up to 9 MW. For those of the estimated investment and not exceeding units with a capacity between 9 and 20 MW, the exemp- 60 000 US$). tion from the transmission charges is determined by a − Access to the resource (e.g. rent of the land for wind proportionate adjustment, being 100 % for 9 MW and energy prospection). 0 % for 20 MW or more. For example a 15 MW power plant has to pay 55 % of the transmission charge, while • Cofinancing grants for pre-investment studies for non- one of 9 MW does not have to pay any. 19 conventional renewable energy projects in advanced stages (with technical and economical pre-feasibilities TheNon-Conventional Renewable Energy Programme realized): (CNE/CORFO) was created to remove barriers that − Up to 50 % of the study costs (maximum of 5 % limit the development of renewable energy and to proof the estimated investment and not exceeding

19 CNE/GTZ 20 CORFO, 2008 CHILE | 106

160 000 US$), including basic and detailed engi- − Long term property leasing: Up to 40 % of long neering, studies of electricity connections, environ- term property leasing costs (5 years). Maximum of mental impact assessment studies, CDM documen- 500 000 US$. tation, etc. (financed by the German Development − Specialized Training & Recruitment: Up to 50 % of Bank (Kf W21) and the Chilean Government). the specialized training or recruitment. Maximum of 100 000 US$. • Promotion of International Meetings on Non-Con- ventional Renewable Energy (annual meetings since • Upcoming financial incentives for renewable energy 2006), with the aim to facilitate international part- − A new instrument will be launched during the last ners. quarter of 2009 jointly financed by the German • Long term financing (80 % Kf W and 20 % CORFO): Development Bank (Kf W) and the Chilean gov- up to 15 million US$ in 12 years. ernment. This is to provide soft loans to finance • Transmission line projects: support for projects at- investments in renewable energy projects. tending non-conventional renewable energy plants − In August 2008, the Chilean Government an- close to each other that have grid access difficul- nounced the availability of US$ 400 million to be ties. Subsidies up to almost 300 000 US$/year for allocated in guarantees for renewable energies and a maximum of 5 years and up to 50 % of the invest- energy efficiency – which are supplementary to the ment (credit to be launched in the second semester of soft loans – and are aimed at supporting risk man- 2009). agement in energy projects during all stages: pros- • Innovative Technology investment program: pecting, development, and definitive funding of the − Pre-Investment Study: Up to 60 % of the pre-invest- activities involved. 22 ment study cost (Maximum 30 000 US$). − Project launch assistance: Up to 30 000 US$ for These new instruments are currently in a design stage and start-up activities. are expected to be operational during the first semester − On-the-job training for Human Resources: Up to of 2009. They support non-conventional renewable en- 50 % of annual salaries. Maximum of 25 000 US$ ergies (NCREs) and thus complement the new Act for per employee hired. the promotion of renewable energies issued last April; − Equipment and Infrastructure: Up to 40 % of invest- strengthen the support initiative launched in 2005 by ment on equipment and infrastructure. Maximum CNE and CORFO; and create the conditions for the ex- of 2 000 000 US$. tension of NCRE projects in order to fulfill the goal set

TABLE 6: INSTALLED CAPACITY OF NON-CONVENTIONAL RENEWABLE ENERGY SOURCES (NCRE) IN 2008. VALUES IN MW Annual Savings Project Location Status IRR* Reg. Year (ktCO2) Canela (18.15MW) Region IV Registered 27 n/a 2009 CrisToro - Lebu (9MW) Region VIII At Validation 11 n/a Not reg. Monte Redondo Region IV At Validation 68 1.63% Not reg. (38MW) Wind 0 18.15 1.98 0 Totoral (46MW) Region IV At Validation 75 4.82% Not reg.

Source: CNE 2009c

21 Kf W Development Bank: http://www.kfw-entwicklungsbank.de 22 CORFO, 2009

CHILE | 107

by the President of increasing the NCRE-based installed assistance and advisory service to the Chilean govern- capacity. ment, creating favourable conditions for electricity generation from non-conventional renewable energy sources Clean Development Mechanism (NCRE). This includes support to policies and regula- Currently there are a total of 69 CDM projects in the tion, the integration of NCRE into the electricity market, pipeline, of which 34 are registered, 33 are at validation, the assessment of NCRE potentials and the promotion of one requested review and one had a correction requested. capacity building. 54 projects deal with renewable energies. Chile is the host The Energy Efficiency project focuses on the promotion country for 8.6 % of all CDM projects in Latin America of energy efficiency in the construction sector and in in- and ranks on the third place after Brazil and Mexico. Table dustry. The project aims at the improvement of technical 6 shows details of the four wind CDM projects in Chile. and institutional competencies and capacities of public and private actors for implementing energy efficiency CNE and CONAMA, together with GTZ, have devel- measures by supporting the core activities of the PPEE. oped a CDM guide for projects in the energy sector in The project Public Properties for Renewable Energy has Chile. Essentially, it explains the characteristics of CDM the objective to identify and evaluate state-owned land projects, the processes and actors involved, and provides in Chile’s Greater North for the implementation of grid- detailed information on the Chilean CDM market.23 connected NCRE projects (specifically wind energy and Financing for CDM-studies can be obtained via the In- solar). These lands will then be commercialized to the vestChile programme of CORFO/CNE. private sector.

International Donor Activities Kf W The German Development Bank (Kreditanstalt für GTZ Wiederaufbau: Kf W) is refinancing, with a total contri- GTZ is implementing three major projects in the energy bution of 80 million €, low-interest credit lines for invest- sector in Chile: Two projects, »Renewable Energy« and ments in renewable energy and energy efficiency, which »Promotion of Energy Efficiency«, are financed by the the Chilean Economic Development Agency (CORFO) German Federal Ministry of Economic Cooperation and offers to private investors. These credits are being com- Development (BMZ), whereas the project »Public Prop- plemented by subsidies for feasibility studies primarily erties for Grid-Connected Renewable Energy Projects« for wind energy, biomass and biogas projects. Moreover, is being carried out in the framework of the Interna- Kf W is financing a project run by the National Service tional Climate Initiative of the Federal Ministry for the of Geology and Mining (SERNAGEOMIN) which aims Environment, Nature Conservation and Nuclear Safety at identifying geothermal potential and building up geo- (BMU). In all three cases the political counterpart of the thermal expertise in the country. GTZ is Chile’s National Energy Commission (Comisión Nacional de Energía); in the case of the Energy Efficiency UNDP-GEF project, the implementing agency is the National Energy The project »Removal of Barriers to Rural Electrification Efficiency Programme of CNE (Programa País de Efi- with Renewable Energy« (number CHI/00/G32) helps ciencia Energética PPEE). to remove the existing barriers in the use of Non-Con- The Renewable Energy project aims at increasing the ventional Renewable Energies within the framework of participation of grid-connected renewable energy in the the PER by developing a set of activities that will reduce interconnected systems. The project provides technical the greenhouse gas emissions produced by energy sources

23 To download this material, access http://www.cne.cl/cnewww/opencms/05_Public_Estudios/publicaciones.html (Spanish) CHILE | 108

in rural areas and improve the living conditions of rural like high resolution wind maps, wind maps for use with communities. Google Earth28 and detailed reports containing wind speeds, daily wind cycles and distributions of wind direction. This information can be retrievd at the following 1.6. Market Potential for Wind Energy website: http://condor.dgf.uchile.cl/ViewerV2/Energia- Renovable/ Wind Energy Potential Chile has favourable conditions for the development of In the scope of the rural electrification programme, wind wind energy, particularly in coastal areas and in some measurements in almost all regions in the country are valleys in the interior. In the Northern deserts, average also being carried out and on the programme’s webpage29 wind speeds of approx. 8m/s (measured at 50m height) several reports containing wind information for different are reached. In some parts of the central-southern regions regions are available. similar wind conditions can be found. Until now, most wind farms are planned there. Framework Conditions for Wind Energy Detailed exploration of renewable energy potentials in The development of wind energy projects is supported by Chile is not yet finalised. When taking into account only the policies and instruments for renewable energies (de- those regions and projects identified by CNE, the tech- tails in previous chapter). Wind energy is considered by the nically and economically feasible wind potential in the law as a non-conventional energy resource, and there are country is about 6 000 MW. 24 no specific programmes or policies for wind energy alone. In the SIC, at least three suitable zones have been identi- To support the development of wind parks connected to fied25 : the electric systems, the CNE in collaboration with GTZ − Costa Región de Coquimbo al Sur de Tongoy and CONAMA has published a guide for the environ- (2 800 MW). mental impact assessments of wind energy projects in − Costa sur de Región de Atacama (1 650 MW). Chile. According to the Law 19 300 of 1994, wind farms − Costa al Sur de Concepción (no exact values avail- with a capacity above 3 MW have to submit a declaration able yet). on environmental impact. If the wind farm has a capacity less than 3 MW but will be located in a national na- In the SING region, preliminary results show an area of ture reserve or in a protected area, it also has to enter the 42 km2 with a potential of 600 MW and further research SEIA. Apart from power plants, also high voltage trans- is being carried out during 2009. GTZ is supporting a mission lines and substations with voltages higher than wind measuring campaign on public lands in the north of 23 kV have to conduct an environmental impact assess- Chile26. An online platform has been developed for pub- ment. The guide describes procedures for obtaining an lic consultation, where information on wind speeds and environmental license and is available for download at the solar irradiation in specific regions can be obtained27 , CNE webpage. 30

TABLE 7: WIND PARKS IN OPERATION BY THE END OF 2008

Wind Park Power Location Year Owner Alto Baguales 2 MW Region XI 2001 Edelaysen Canela 18.2 MW Region IV 2007 Endesa Chile

Source: WWEA

24 CNE, 2009d 28 Google Earth: free software available at http://earth.google.com/ 25 CNE, 2009e 29 The reports that are published can be downloaded at: http://www.renovables- 26 Project for BMU: Public Properties for Grid-Connected Renewable Energy rural.cl/actividades/fr_actividades.html , accessing the link »Evaluación de Projects Recurso Eólico«. 27 CNE 2009e 30 The EIA guide for wind energy projects can be downloaded at: http://www.cne.cl/cnewww/opencms/05_Public_Estudios/publicaciones.html CHILE | 109

TABLE 8: STATUS OF ENVIRONMENTAL IMPACT ANALYSIS OF WIND PARKS IN CHILE Region Wind Park Power (MW) Owner Status Granja Eólica Calama 250 Codelco Chile, División Codelco Norte In Analysis Proyecto Parque Eólico Valle de 99 Parque Eólico Valle De Los Vientos S.A. In Analysis los Vientos II Proyecto Eólico Quillagua de 100 100 Ingeniería Seawind Sudamérica Ltda. Approved MW »PROYECTO PARQUE EÓLICO 40 Ingeniería Seawind Sudamérica Ltda. Approved MINERA GABY« Proyecto Parque Eólico Hacienda 26 Ingeniería Seawind Sudamérica Ltda. Approved Quijote Parque Eólico Punta Palmeras 103.5 ACCIONA ENERGIA CHILE S.A. In Analysis D.I.A. Parque Eólico La Gorgonia 76 Eolic Partners Chile S.A. Approved DIA PARQUE EOLICO EL PACIFICO 72 Eolic Partners Chile S.A. Approved Parque Eólico La Cachina Ener-Renova In Analysis DIA MODIFICACIONES PARQUE 46 Norvind S.A. Approved EOLICO TOTORAL Parque Eólico Talinay 500 Eólica Talinay S. A. Approved Proyecto Ampliación y Modi- IV ﬁcación Parque Eólico Punta 20 Barrick Chile Generación S.A. Approved Colorada Parque Eólico Canela II 69 Central Eólica Canela S.A. Approved Norvind S.A. Transmisión, Generación y Parque Eolico Totoral Approved Distribución de Energía Eléctrica Proyecto Parque Eólico Monte Ingeniería Seawind Sudamérica Ltda. Approved Redondo Parque eolico Punta Colorada 20 Laura Emery Emery Approved Aumento de Potencia Parque 18 Central Eólica Canela S.A. Approved Eólico Canela Parque Eólico Canela 9.9 Central Eólica Canela S.A. Approved

Parque Eólico Las Dichas Ener-Renova In Analysis

V Parque Eólico Laguna Verde 24 Inversiones EW Limitada In Analysis

Generadora Eólica Punta Curau- 9 Handels und Finanz AG Chile S.A. In Analysis milla PARQUE EÓLICO ARAUCO 100 Element Power Chile S.A. In Analysis Parque Eólico Lebu Sur 108 Inversiones BOSQUEMAR Ltda In Analysis Ampliación Parque Eólico Lebu VIII Cristalerías Toro S.A.I.C. Approved Parque Eólico Lebu Parque Eólico Chome Ingeniería Seawind Sudamérica Ltda. Approved Parque Eólicos Altos de Hualpén Approved Aumento Potencia Central Eólica XI Empresa Eléctrica de Aysén S.A. Approved Alto Baguales

Source: CONAMA, SEIA CHILE | 110

Current Use of Wind Business Climate Energy and Project Pipeline There is still no major (equipment) manufacturer in the The development of wind parks in the country is still at country, but the country’s great wind energy potential an early stage. By the end of 2008, two wind parks with is attracting major international project developers and a total installed capacity of 20 MW were operational investors. Enel Green Power, through its subsidiary Enel (owned by Endesa Chile and Edelaysen). Until end 2009, Latin America (Chile) Limited, signed an agreement further 200 MW will be added. One of the largest is a 69 with SoWiTec Energías Renovables de Chile Ltda., a sub- MW Endesa project. sidiary of the German SoWiTec-International GmbH to develop seven wind projects in the country, with a total Table 7 gives an overview of all wind projects in Chile capacity up to 850 MW. Endesa Eco has already commis- that have already applied for environmental approval, in- sioned a wind park (Canela I) in the region of Canela, cluding those having already received a permit. about 300 km north of Santiago. A second windpark, Table 8 shows the status of environmental impact analysis Canela II, is being constructed. In the same region the of wind parks in Chile. Source: CONAMA, SEIA company Norvind S.A, a joint venture of SN Power, is erecting 23 wind mills rated 2MW each for the wind park This project pipeline shows the high growth of interest in Totoral. In Monte Redondo the start of operations of a this technology and illustrates that market expansion is 38 MW wind park of the company Suez Energy Andino taking place. According to CORFO, by mid 2009 there is expected for November 2009. were 46 projects under development (1 565 MW) and a Further information on business, including an investment further 130 MW under construction, which also includes guide, can be found on InvestChile’s websites.31 the projects listed above.

31 http://condor.dgf.uchile.cl/ViewerV2/EnergiaRenovable/ CHILE | 111

1.7. Contacts and Addresses Embassy of the Republic of Chile in Germany Mohrenstr. 42 Centro de Despacho Económico de Carga del D-10117 Berlin SING – CDEC-SING Tel.: +49 (30) 726 203600 General Lagos 0377 Playa Blanca Fax: +49 (30) 726 203-603 Antofagasta E-mail: [email protected] Tel.: +56 (55) 247 474 www.embajadaconsuladoschile.de Fax: +56 (55) 246 129 www.cdec-sing.cl Empresas Eléctricas A.G. (Association of electricity distribution and transmission Centro de Despacho Económico de Carga del Sistema companies) Interconectado Central – CDEC-SIC Av. El Bosque Norte 0177, oficina 904 Teatinos 280 Las Condes – Santiago Santiago de Chile Tel.: +56 (2) 332 03 16 Tel.: +56 (2) 42 46 300 Fax: +56 (2) 231 09 13 Fax: +56 (2) 42 46 301 www.electricas.cl www.cdec-sic.cl German-Chilean Chamber of Industry and Commerce - Comisión Nacional de Energía - CNE Cámara Chileno-Alemana de Comercio e Industria 1449, Pisos 13 y 14. Edificio Santiago Downtown II Av. El Bosque Norte 0440 of. 601 Santiago - Chile Santiago de Chile 6760235 Phone: +56 (2) 365 6800 Tel.: +56 (2) 203 53 20 E-mail: [email protected] Fax: +56 (2) 203 53 25 www.cne.cl E-mail: [email protected] http://chile.ahk.de/ Comisión Nacional del Medio Ambiente – CONAMA Obispo Doloso 6 – Providencia German Embassy in Chile Santiago de Chile Las Hualtatas 5677 Tel.: +56 (2) 240 56 00 Vitacura Santiago de Chile Fax: +56 (2) 244 12 62 Tel.: +56 (2) 463 25 00 E-mail: [email protected] Fax: +56 (2) 463 25 25 www.conama.cl E-mail: [email protected] www.santiago.diplo.de Chilean Economic Development Agency - CORFO Daniel Díaz - Investment Executive Renewable Energy GTZ Office in Santiago de Chile and CDM Federico Froebel 1776 Tel.: +56 (2) 631 8730 Providencia-Santiago www.todochile.cl Chile Tel.: +56 2 7193900 E-mail: [email protected] www.gtz.de CHILE | 112

Superintendencia de Electricidad y Combustibles – SEC CNE (e), Explorador de Energia Eólica y Solar Amunátegui 58 (http://condor.dgf.uchile.cl/ViewerV2/EnergiaRenova- Santiago de Chile ble/ ) Retrieved in August 2009 Tel.: +56 (2) 54 96 000 www.sec.cl CNE(f ), Electricity Tariffs (http://www.cne.cl/cnewww/opencms/06_Estadisti- cas/energia/Electricidad.html) Retrieved in September 4.8. Information sources 2009

Bundesbank, Devisenkurse CNE(g), Política Energética: Nuevos Lineamientos (http://www.bundesbank.de/statistik/statistik_zeitrei- (Energy Policy: New Outlines), 2008, hen.php?lang=de&open=devisen&func=list&tr=ww (http://www.cne.cl/cnewww/export/sites/default/12_ w_s332_b01012_1) Retrieved in August 2009 Utiles/banners/politica_energetica.pdf ) Retrieved in August 2009 CIA, World Factbook – Chile (https://www.cia.gov/library/publications/the-world- CNE/GTZ, Energías Renovables No Convencionales factbook/geos/ci.html ) Retrieved in August 2009 en el Mercado Eléctrico Chileno, 2009, (http://www2.gtz.de/dokumente/bib/gtz2009-0276es- CONAMA, SEIA (Environmental Impact Assessment mercado-electrico-chileno.pdf ), Retrieved in October System) 2009 (https://www.e-seia.cl/ ) Retrieved in September 2009 CNE/GTZ, Guia para evaluacion de impactos ambien- CNE (a) (National Energy Commission), Anuario tales: Proyectos eolicos Estadístico de Energia 1990 – 2007 (Energy Statistics (http://www.gtz.de/en/dokumente/sp-EIA-proyectos- Yearbook) eolicos.pdf ) (http://anuario.cne.cl/anuario/electricidad/presenta- cion.html ) Retrieved in August 2009 CNE/GTZ/CONAMA, Guía del Mecanismo de Desarrollo Limpio para Proyectos del Sector Energía en CNE (b), BNE 2007 (National Energy Balance 2007) Chile. Segunda edición, Santiago de Chile, octubre de (http://www.cne.cl/cnewww/opencms/06_Estadisti- 2007 cas/Balances_Energ.html) Retrieved in August 2009 (http://www.cne.cl/cnewww/opencms/05_Public_Es- tudios/publicaciones.html) CNE (c), Estadísticas Electricidad 2008 (http://www.cne.cl/cnewww/opencms/06_Estadis- CORFO, Renewables and CDM in Chile – Project ticas/energia/Electricidad.html) Retrieved in August Directory 2008 2009 (http://www.todochile.cl/opportunities/renewable_en- ergy/renewable_energy ) Retrieved in September 2009 CNE (d), Christian Santana O., Estrategias y Perspecti- vas para el Desarrollo de las ERNC en Chile, July 2009 (http://www.gtz.de/de/dokumente/3_Christian_San- tana_CNE.pdf ) Retrieved in August 2009 CHILE | 113

CEDEC SIC (System Operator), Eduardo Ricke, UNDP, Human Development Reports Integración de Energías Renovables al SIC Visión del (http://hdr.undp.org/en/statistics/ ) Retrieved in Operador del Sistema, July 2009 August 2009 (http://www.gtz.de/de/dokumente/13_Eduardo_ Ricke_CDEC-SIC.pdf ) Retrieved in August 2009 UNEP Risoe, CDM/JI Pipeline Analysis and Database August 1st 2009 (http://cdmpipeline.org/ ) Retrieved ECLAC, Statistical Yearbook for Latin America and in August 2009 Caribbean 2008 (http://www.eclac.cl/cgi-bin/getProd.asp?xml=/publi- UNFCCC, CDM webpage of the United Nations caciones/xml/7/35327/P35327.xml&xsl=/deype/tpl/ Framework Convention on Climate Change p9f.xsl&base=/tpl/top-bottom.xsl) Retrieved in August (http://cdm.unfccc.int/index.html ) Retrieved in 2009 September 2009

Gobierno de Chile, Summary of National Geography Universidad de Chile (University of Chile), Diseño (http://www.gobiernodechile.cl/canal_regional/geo_ de un Modelo de Proyección de Demanda Energética nacional_det.asp?id_geo=1) Retrieved in August 2009 Global Nacional de Largo Plazo (Prepared for CNE), June 2008 IMF (International Monetary Fund), World Economic (http://www.cne.cl/cnewww/export/sites/default/05_ Outlook Database, October 2008, (http://www.imf. Public_Estudios/descargas/estudios/texto2.pdf ) org/external/pubs/ft/weo/2008/02/weodata/weoselgr. Retrieved in September 2009 aspx ) Retrieved in August 2009 WWEA (World Wind Energy Association), INE (National Statistics Institute), Tasa de Deso- Wind Energy International 2009/2010, Country cupación Report Latin America – Chile. (http://www.ine.cl) Retrieved in August 2009

Jadresic, A., A case study on subsidizing rural electrification in Chile, 2000. MEXICO 114

List of abbreviations

AMDEE Asociación Mexicana de Energía Eólica IRR Internal rate of return ANES Asociación Nacional de Energía Solar km2 Square kilometre APEC Asia – Pacific Economic Cooperation kV Kilovolt CDM Clean Development Mechanism kW Kilowatt CFE Comisión Federal de Electricidad LFC Luz y Fuerza del Centro CONACYT Consejo Nacional de Ciencia y Tec- m2 Square metre nología MW Megawatt CONEVAL Consejo Nacional para la evaluacion MWh Megawatt hour y el desarrollo de la politica social NAFTA North American Free Trade Agreement CONUEE Comisión Nacional para el NREL National Renewable Energy Laboratory Uso Eficiente de la Energía OECD Organization for CRE Comision Reguladora de Energia Economic cooperation and development CTF Clean Technology Fund PECC Programa Especial de cambio climatico EE Energy efficiency PERGE Programa para el desarrollo ER Renewable energy de Energia Renovable de Gran Escala FDI Foreign direct investment PDD Project Design Document GDP Gross domestic product PEMEX Petroleos Mexicanos GEF Global Environmental Facility PJ Petajoule GTZ Deutsche Gesellschaft PV Photovoltaic für Technische Zusammenarbeit SEMARNAT Secretaria del Medio Ambiente y GW Gigawatt de los Recursos Naturales GWh Gigawatt hours SENER Secretaria de Energia IADB Interamerican Development Bank SHCP Secretaria de Hacienda y Credito Publico

IIE Instituto de Investigaciones Electricas tCO2eq Tonnes of CO2 equivalents IMF International Monetary Fund WB World Bank IPP Independent power producer WTO World Trade Organization MEXICO 115

5.1 Introduction

FIGURE 1: MAP OF MEXICO

Data Source: CGIAR 2004

Mexico, officially named Estados Unidos Mexicanos, curs from June to October. There also exist extreme me- with its capital Mexico City, is located in Central Amer- teorological phenomena, such as tropical cyclones which ica. Its neighbouring countries are the United States of occur from May to November, affecting just as much the America in the north and Guatemala and Belize in the coasts of the Pacific as those of the Gulf of Mexico and south east. The country has an extensive coastline in the the Caribbean. Gulf of Mexico and the Pacific Ocean. Mexico covers an Mexico is the 13th largest economy in the world with area of 1 964 375 km2. Mexico has a wide variety of cli- a GDP of around 740 billion € in 2008.1 The Mexican mates. Due to its latitude it is within the Intertropical economy has been badly hit during the current econom- Convergence Zone. However, the altitude and marine ic crisis due to a decreases in oil prices, manufacture ex- influence generate penetrating masses of humid air deriv- ports to the US (that represent 80 % of its foreign trade), ing from the Gulf of Mexico and Pacific Ocean, factors remittances and tourism. During 2010, no positive eco- which moderate temperatures. Precipitation mainly oc- nomic growth is expected. GDP variability in the last

TABLE 1: EVOLUTION OF MEXICAN GDP

2001 2003 2005 2007 2009* Gross domestic product, current prices (Billion Euros) 751 619 682 748 657 Gross domestic product per capita, current prices (Euros) 7 585 6 123 6 617 7 109 6 120

Source: IMF (*Expected)

1 IMF MEXICO | 116

decade (as presented in table 1) can mainly be explained oil production have been the main developments in the by the economic cycle in the USA and the sensitivity to energy sector. oil production and prices. The primary energy production in Mexico reached

FIGURE 2: Mexico, the USA and Canada signed in 1994 the NAFTA MEXICO – PRIMARY ENERGY PRODUCTION 2008 (PJ) (North American Free Trade Agreement). Nevertheless, not all Mexicans have benefited from this trade agree- 386 73 345 230 4 % 1 % 3 % 2 % ment. Small farmers have been hit the hardest as they cannot compete with cheap imports and are forced to 106 migrate to urban areas or the United States.2 Poverty has 1 % been rising since 2006 after a sustained period of decline 91 6 520 since 1997. In 2008, 47.4 % of the population was living 1 % 62 % below the poverty line after 42.6 % in 2006. It is foreseen 2n745 that poverty will increase in the next years as consequence 26 % of the economic crisis that is hitting the country.3 Felipe Calderón Hinojosa was elected as Mexican president in 2006 for the period 2006 to 2012 in one of the most contested elections in Mexican history defeating Coal Nuclea energy Oil Hydro power the left wing candidate Manuel Lopez Obrador. In a re- Natural Gas Wind & Geothermal cent setback for the president agenda, the president’s Condensate Biomass Total primary energy production 10 496 PJ party PAN (National Action Party – right) suffered important losses in the parliament and regional government Source: Mexico Energy Balance Sener 2008 elections held in July 2009. The winner of these elections FIGURE 3: was the PRI (Institutional Revolutionary Party – centre MEXICO – TOTAL FINAL ENERGY CONSUMPTION 2008 (PJ) right), a party that ruled Mexico for more than 70 years with an agenda that favours public intervention in the 286 6 % economy. Mexico is a member of multilateral forums and 1 342 organizations like the OECD, the recently established 26 % 901 18 % G20, and the Organization of American States (OAS). Mexico is also member of the WTO, the Asia-Pacific Eco- nomic Cooperation (APEC), and has trade agreements 147 with the European Union, Mercosur and with most of 3 % the countries in Central American and the Caribbean.

2 428 47 % 5.2 Energy Market

Combined renew. & waste Coal Overview Energy Market Gas Hydro Over the last decade the diversification of energy sources Oil Total ﬁnal consumption 5 101 PJ (e. g. the increased use of natural gas and the construction Source: Mexico Energy Balance Sener 2008 of the first large scale wind project), and the decline in

2 Woodrow Centre 2009 3 Coneval 2009 MEXICO | 117

FIGURE 4: MEXICO’S ELECTRICIY TRANSMISSION GRID.

Data Source: CGIAR 2004 10 500 PJ in 2008. Oil is still the most significant energy 2007, the national transmission and distribution grid was source (62 % in 2008) despite the growing contribution expanded by 179 695 km. According to the state-owned of natural gas which has increased to 26 % in 2008 from Comisión Federal de Electricidad (CFE), 20 664 km of 19 % in 1998. new lines (in the range 69 kV – 400 kV) will be built in The total final energy consumption in 2008 added up the period 2009 to 2018. to 5 101 PJ. Transport is the main sector in terms of energy consumption (48 % in 2008), followed by industry In 2007, the losses in the transmission and distribution (26 %). Energy consumption has followed the trend of grid represented 17.4 % of public service generation. This economic growth. includes non-technical losses which mainly arise out of Mexico imported 1 804 PJ of energy in 2008, mainly in commercial reasons in several directions: growth of the the form of gasoline, oil refined products, liquefied gas informal commercial sector, irregular human settlements and coal. In the same year, the country exported a total as well as payment evasion. of 3 759 PJ of energy, mainly as crude oil (in comparison with 4 226 PJ in 2007). In 2008, Mexico ranked 7th in Installed Capacity terms of oil producing countries worldwide, which was In June 2009, the installed capacity increased by 132 MW one position lower than in 2007. compared to the end of 2008, to 59 604 MW. In terms of percentage share, by the end of 2007 the state-owned The Electricity Grid4 enterprise Comision Federal de Electricidad (CFE) rep- In 2007, the national transmission and distribution resented 58.8 % of the total installed capacity, including grid consisted of 96 484 km of lines between 69 kV and 2 % of the former Luz y Fuerza del Centro (LFC), which 400 kV; 376 991 km of lines between 2.4 kV – 34.5 kV is another state-owned utility that recently has been and 239 315 km of low-voltage lines. In addition there merged with CFE. Independent power producers regis- were 19 031 km of underground lines. Between 1997 and tered a share of 19.2 %. Self-supply and cogeneration in

4 This and the subsequent sections are mostly based on the Mexico Electricity Sector Outlook 2008 – 2017. Sener 2008 MEXICO | 118

the private sector contributed with 6.7 % and 4.5 % re- Electricity Generation spectively, while installed capacity for electricity export In 2007, total electricity generation was 263 386GWh, to represented 2.2 %. Out of the total installed capacity, the which the public utilities contributed 60.7 %, independ- public service5 has an installed capacity of 51 146 MW ent power producers 27.6 %, self-supply 4.6 %, cogenera- and the remaining 8 459 MW belong to private pro- tion 4.4 %, export 2.4 %, and continuous own usage 0.4 %. ducers. Out of the total electricity generation, 232 552 GWh Between 2009 and 2017, the public service expansion were generated for the public service. programme will require the addition of 14 794 MW of Regarding energy sources for public service supply, while

TABLE 2: TOTAL INSTALLED CAPACITY IN 2007-2009 (IN MW)

Category / year 2002 2003 2004 2005 2006 2007 2008 2009 (June) Subtotal CFE and former LFC 41 184 44 561 46 551 46 553 48 896 51 029 51 106 51 146 CFE 40 349 43 726 45 687 45 669 47 857 49 854 49 931 49 971 Thermoelectric 26 161 29 421 30 496 30 473 32 645 33 789 33 862 33 862 Independent producers 3 495 6 755 7265 8 251 10 387 11 457 11 457 11 457 Hydropower 9 378 9 378 10 263 10 269 10 285 11 055 11 055 11 095 Coal 2 600 2 600 2 600 2 600 2 600 2 600 2 600 2 600 Geothermal 843 960 960 960 960 960 965 965 Nuclear 1 365 1 365 1 365 1 365 1 365 1 365 1 365 1 365 Wind 22222868585 Former LFC 834 834 864 864 1 039 1 174 1 174 1 174 Thermoelectric 598 598 598 598 758 886 886 886 Hydropower 236 236 266 266 281 288 288 288 Subtotal permit holders 4 505 6 443 7 009 7 325 7 541 7 978 8 326 8 459 Self supply 2 879 3 135 3 678 3 929 4 109 3 484 3 855 3 981 Cogeneration 1 132 1 423 1 427 1 510 1 563 2 677 2 662 2 669 Other uses 559 553 573 556 537 486 478 478 Exports 15 1 330 1 330 1 330 1 330 1 330 1 330 1 330 Total 45 689 51 004 53 560 53 859 56 437 59 006 59 432 59 604

Source: SENER. Third report of activities 2009 capacity to attend the expected growth of demand. Out in 1997 generation based on natural gas was 12.5 %, 10 of this 3 520 MW have already been committed or are years later it reached 46.7 % of the total, representing under construction. An additional remote self-supply an annual average growth of 18.3 %. In contrast, fuel-oil and cogeneration capacity of 2 490 MW is estimated, based electric power generation share decreased from considering both private and public sector projects. 49.9 % to 20.1 % (annual average decrease of 5.3 %). The domestic consumption of electricity reached 203 638 GWh in 2007. The remaining 60 000 GWh are

5 According to the Mexican Constitution and the Electricity Law, the generation, transmission, distribution and retailing of electricity done by the state owned company CFE is considered public service. Generation activities carried out by private investors (or permit holders) are not considered public service. The electricity generated by private plants can be used by private users or purchased by the state owned company under special agreements as described in the section »Political Framework Conditions for Energy«. MEXICO | 119

FIGURE 5: NATIONAL POWER SYSTEM GENERATION BY ENERGY SOURCE 1997-2007 (TWh)

1997 1999 2001 2003 2005 2007 National Public Service 161 386 180 917 197 106 203 555 218 971 232 552 Thermal 119 029 132 574 154 371 167 014 173 251 187 437 Hydroelectric 26 430 32 713 28 435 19 753 27 611 27 042 Nuclear 10 456 10 002 8 726 10 502 10 805 10 421 Geothermal 5 466 5 623 5 567 6 282 7 299 7 404 Wind 46755248 Import 1,510 659 327 71 87 277 Service by private companies 303 878 1 043 6 528 9 212 10 693 Total power generation 163 198 182 454 198 476 210 154 228 270 243 522

Source: Electricity sector Outlook 2008 – 2017 distributed between losses (40 504 GWh), net exports tween 2008 and 2017 is expected to grow at an annual (1 451 GWh), self consumption and cogeneration). rate of 3.3 % reaching 281 500 GWh in 2017.6 This will Split according to economic sector, industry accounted double the consumption levels in comparison with the for more than half of the electricity consumption; fol- domestic demand of 139 000 GWh in 1997. lowed by the residential sector with a share of almost a quarter (see figure 6). Renewable Energies Domestic electric power consumption for the period be- It is estimated that Mexico has an installed solar PV capacity of 18.5 MW that produced 8 794 MWh in 2008. Almost all photovoltaic installations are located in rural FIGURE 6: ELECTRICITY DOMESTIC CONSUMPTION and isolated communities. In 2008, Mexico was one of BY SECTOR 2007 (GWh) the top 10 countries in the world regarding solar thermal 73 technology. Currently 1 million m2 of solar collectors 1 % 6,809 produce 4.5 PJ of energy per year. Small hydro power 3 % plants (< 30 MW) are owned by private developers and by state owned companies. Private developers own 22 7,804 4 % 106,633 plants (including 2 inactive) with an installed capacity 52 % of 83.5 MW. CFE has 42 power plants with 293.4 MW 13,388 of installed capacity (including 11 plants of the former 7 % LFC). According to the National Commission for the

45,835 Efficient Use of Energy, the small hydro power potential 23 % in Mexico is 3 250 MW. Besides, CFE estimates that the potential for geothermal energy in Mexico is 1 395 MW Industrial Agriculture while the current installed capacity is 964.5 MW in four Residential Services Commercial Self supply plants. The biomass energy potential in Mexico is in Total 203 638 GWh the range of 2 635 to 3 771 PJ/year. In the sugar cane sector it is estimated that generation and cogeneration Source: Sener 2007 projects could produce 3 000 000 MWh/year of elec-

6 SENER 2008 MEXICO | 120

tricity. Large hydro power plants (larger than 30 MW) the former LFC were estimated at 2 850 million €, a figure are not considered renewable energy sources according 11.5 % higher than in 2007. to the law. Due to the economic recession the Finance Secretary is

TABLE 3: CAPACITY AND ELECTRICITY GENERATION FROM GRID CONNECTED RENEWABLE ENERGY SOURCES IN 2008 Project Generation % Total Technology developer Capacity [MW] % Total [GWh / a] generation Wind power CFE 85 0.15 % 232 0.09 % Wind power Permit holders 0 0.00 % 0 0.00 % Small hydro power CFE 293 0.50 % 1 363 0.55 % Small hydro power Permit holders 83 0.14 % 228 0.09 % Geothermal CFE 965 1.66 % 7 058 2.86 % Biomass and biogas Permit holders 498 0.86 % 819 0.33 % Total 1 925 3.31 % 9 699 3.93 %

Source: Sener 2009

Electricity Prices planning to increase the electricity tariffs in order to allevi- In Mexico the tariff system is set by the Ministry of Fi- ate the government budget deficit for 2010. However, by nance and Public Credit (SHCP) in coordination with early 2009 the tariff was reduced for industrial customers. the Ministry of Energy, the Ministry of Economy, the public utilities, and the Energy Regulatory Commission. Liberalisation The tariff system is highly subsidized and none of the In contrast to most of the other countries in Latin Amer- consumer segments have a tariff that covers the cost of ica, Mexico keeps a public, centralized and integrated providing the service. Customer groups that receive the scheme for the electricity industry, despite having adopted major part of the subsidies are residential and agricultural some reforms like the establishment of regulatory bodies consumers which on average only pay 40 % of the electric- and the opening to private investment in generation. The ity cost, while industrial customers pay 80 % of the costs. attempts of previous governments to privatize and disin- The average price per client group in 2007 was: tegrate the industry faced resistance from social and po-

TABLE 4: AVERAGE ELECTRICITY PRICE IN 2007 PER CATEGORY OF CLIENTS Agricultural Medium Large Residential Commercial Services applications business industry €/kWh 0.07 0.16 0.13 0.03 0.08 0.06

Source: Mexico Electricity Sector Outlook 2008 – 2017

As a result of the tariff system, in 2008 the amount of sub- litical sectors. However, limited reforms allowed private sidies granted by the Federal Government to final CFE investment to engage in power production under the fol- consumers through electricity fees is expected to reach lowing modalities: cogeneration, self-supply, independent 5 300 million € which is 29.4 % higher in real terms than power production for plants larger than 30 MW for the in 2007. For 2008, subsidies granted to final consumers of sole purpose of selling the energy and capacity produced MEXICO | 121

to CFE, small production (below 30 MW), exports and Energy Council, other specialized subsector councils imports for self-supply. The energy sector reform of 2008 were created as political forums. Despite the growing at- keeps the constitutional responsibility of the state as the tention to clean energy sources by the Energy Secretary, only entity responsible for electricity supply. its main focus is still on competitiveness, productivity, the diminishing level of oil reserves and the production Rural Electriﬁcation of the state owned oil company PEMEX. Sener’s budget Around 5 million people, 5 % of the Mexican popula- for 2009 is 37.3 million €. tion, still lack access to electricity. This population lives in 89 000 small communities, the majority under 100 peo- Comisión Reguladora de Energía–CRE ple per community. The main ongoing initiative to sup- As part of the reforms of the Mexican power sector, the port rural electrification is the implementation of the Energy Regulatory Commission (CRE) was established Rural Electrification Project (together with WB-GEF) It in 1995. CRE’s mandate encompasses the electricity and supports the implementation of sustainable off-grid rural natural gas sector. Regarding renewable energies, CRE’s electrification models based on renewable energy that fo- main functions are to regulate the electricity generation cus on the development of productive-income generating coming from renewable sources and to establish in coor- activities and social services that are considered necessary dination with the Finance Secretary the remuneration of for the economic development of poor communities. The the services between private generators and public utili- project started activities in the Southern States: Chia- ties. Derived from the 2008 energy reform, CRE’s attri- pas, Veracruz, Oaxaca and Guerrero. The target of this butions are those of issuing recommendations to adjust programme is to reach 2 500 communities in the period dispatch and operation rules, but these rules itself are re- 2007 to 2012. sponsibility of the utilities. CRE also has the task to regulate the transport and distribution of biofuels through pipelines. A factor that diminishes CRE’s influence as 5.3 Market Actors a regulatory body in comparison with other regulatory bodies in the region is the fact that electricity end user Secretaría de Energía tariffs are established by the Finance Secretary. CRE’s SENER – Energy Secretary budget for 2009 is 7.1 million €. The Energy Secretary has the responsibility to establish and define the country’s energy policy and to supervise its Comisión Nacional para el Uso Eficiente progress. Its priority areas are energy security, energy con- de la Energía–CONUEE (former CONAE) servation and the protection of the environment. The Sec- The National Commission for Energy Efficiency retary is in charge of the medium and long term planning (CONUEE) is a body dependant on the Energy Secre- of the energy sector in the areas of fossil fuels, electricity, tary which aims to promote energy efficiency in the coun- energy efficiency and renewable energy in the context of try. It is a technical body that focuses on the sustainable ensuring energy security. As part of the 2008 reforms, the use of energy. Its budget for 2009 is 3.2 million €. Energy Secretary established a National Energy Council that aims to provide guidance in the design and planning Instituto de Investigaciones Eléctricas–IIE of the energy policy. The council is established to facilitate The Electricity Research Institute (IIE) is a state owned stakeholder participation via a Consultation Forum. The enterprise dedicated to innovation, technological devel- annual update of the National Energy Strategy should get opment and applied scientific research in order to develop input of the Energy Council. In addition to the National technologies applicable to the electrical and oil industries, MEXICO | 122

providing support to the energy sector in electricity gen- pany was mainly involved in distribution and retailing of eration, transmission and distribution and improving oil electricity and had around 1 GW of installed capacity. processes. Regarding renewable energy, IIE develops geothermal, wind, solar and biomass projects. IIE’s budget Asociación Mexicana for 2009 is 8.8 million €. Recently, IIE has established the de Energía Eólica-AMDEE Centro Regional de Tecnología Eólica (CERTE) in order The Mexican Wind Energy Association (AMDEE) is a to carry out dedicated research in wind energy technol- trade association created in 2005 by wind energy devel- ogy (see chapter on market potential for wind energy). opers, producers and suppliers of equipment and service companies in Mexico. The aim of the association is to Secretaría de Medio Ambiente y de los identify common problems and remove existing barriers Recursos Naturales–SEMARNAT to wind energy development in the country. AMDEE has The Environmental and Natural Resources Secretary is 31 members by September 2009.7 The association has in- the government body that aims to protect, preserve and fluenced the review and update of instruments like the restore ecosystems and natural resources in order to as- grid connection contract for RE sources and has medi- sure its sustainable use. The Special Programme for Cli- ated in the process of the transmission grid expansion be- mate Change 2008 to 2012 adopts targets to increase the tween different stakeholders. participation of clean sources in the energy matrix and promotes private sector participation. Asociación Nacional de Energía Solar–ANES The National Association for Solar Energy (ANES) is Comisión Federal de Electricidad–CFE a forum to discuss and promote the use of solar energy CFE is a state owned utility that is active in generation, and other renewable sources. ANES aims to influence transmission and distribution of electricity and serves through events and publications the application of solar 26.7 million customers (nearly 80 million Mexicans). energy in the future development of the power sector. CFE owns 39 GW of power capacity mainly from thermal sources. CFE is by law in charge of purchasing the electricity generated by independent power producers 5.4 Political Framework Conditions for including renewable sources. The Electric Sector Works Energy and Investments Programme (POISE) 2009 to 2018 prepared by CFE foresees the addition of at least 507 MW to As the Mexican government budget is significantly fi- CFE’s installed capacity in the period 2009 to 2011. nanced with the income generated by fossil fuel exports, Since October 2009, CFE has taken over the activities of the long term availability of this revenue stream is impor- the former state owned company Luz y Fuerza del Centro tant for the Mexican Government. Nevertheless, Mexico – LFC. LFC was closed by the Federal Government due is aiming at starting a transition towards a clean energy to its unsustainable financial situation (represented in la- future in order to reduce its dependence on fossil fuels bor and pension costs) and the large amount of energy according to the National Strategy National Strategy for losses in its system (32.5 %). The closure of LFC is in line the Energy Transition and the Sustainable Use of Energy with the Federal Government’s strategy to reduce public 2009. An ambitious strategy to strengthen the opera- spending in order to respond to the financial crisis. LFC tional capabilities of PEMEX (Petroleos Mexicanos) to was responsible for the supply of electricity to the central exploit the deep water oil reserves in the Gulf of Mexico area of the country with 6 million customers that account is also under implementation as presented in the Sectoral for 24 % of the total electricity consumption. The com- Energy Programme 2007 – 2012 and Pemex diagnostic

7 AMDEE members are: Instituto de Investigaciones Eléctricas (IIE), ENTE, ABB México, Abengoa México, Alesco Energía y Agua, ARTECHE, Cableados Industriales, Carbon Solutions De México, Garrad Hassan México, Desarrollos Eólicos Mexicanos, Elecnor, Electrica del Valle de México, Enerthi México, Eoli- latec del Istmo, Endesa Cogeneración y Renovables, Eoliatec de México, Fuerza Eólica, GAMESA Energía, GE International México, Grupo Químico Industrial de Toluca, Postensa Wind Structures, Mexión, Mitsubishi Heavy Industries de México, Owens Corning México, Preneal México, Prolec GE, Sempra Energy Mexico, Servicios Industriales Peñoles, Trinity Industries de México, Unión Fenosa Energías Renovables, Vestas, 3TIER Group. MEXICO | 123

2008. Only marginal emission reductions related to oil increase of energy security, an important issue in the activities are foreseen in the Climate Change Special Pro- context of the diminishing Mexican oil reserves. The En- gramme 2008 – 2012 through fuel switch from bunker ergy Sectoral Programme 2007 to 2012 has established oil to natural gas in electricity generation, by reducing a target of 7.6 % of the installed capacity to be based on fugitive emissions and by promoting cogeneration. How- renewable energy sources (from initially 3.3 %). Accord- ever, in these policy documents there are no references to ing to the programme, wind energy will be the biggest start a transition in Pemex core business from fossil fuels growth sector with a scheduled increase from 0.15 % towards clean sources of energy. to 4.34 % in the period 2008 to 2012. For small hydro Regarding the power sector, the National Development (below 30 MW), geothermal, biomass and biogas, lower Plan and the Sectoral Energy Programme 2007 – 2012 shares than for wind energy were allocated (target for have set three priorities: geothermal 1.65 %, small hydro 0.77 % and biogas/bio- • To increase tariff levels in oder to compensate the mass 0.85 %). Finally, it is expected that the percentage costs to supply electricity by CFE. of electricity generation coming from wind will be in the • To increase energy security by balancing the portfolio range of 1.74 % to 2.91 % due to uncertainty about the of primary sources of energy. real operational conditions of wind projects. • To reform the public utilities in order to improve the quality of service in terms of reducing energy losses and increasing the productivity and efficiency of op- 5.5 Framework Conditions for Renew- era-tional and commercial process. able Energies

The Electric Sector Law (1992 amendment) defines the Strategy and Objectives for Renewable Energies modalities for the involvement of the private sector in The National Strategy for the Energy Transition and the generation activities, which are self-supply, export power Sustainable Use of Energy8 published in 2009 aims to producer, power importer, cogeneration, independent diversify the primary energy sources, to strengthen the power producers, and small power producer. This law reg- public operator’s operational practices, to promote energy ulates that private projects cannot sell electricity directly efficiency, to use RE sources and biofuels, and to mitigate to end users except through self generation schemes. In GHG-emissions. The strategy’s main target is to promote practice self-supply schemes are not regarded as a »sale the use, development and investment in renewable energy of electricity« since the end users and generators are and energy efficiency by promoting EE and RE applications projects’ associates. Regular IPPs are obliged to sell their in domestic and productive activities, by increasing the of- electricity to public utilities. Since 1992, more than 20 % fer of renewable energy and by establishing a programme of Mexico’s power generation is supplied by IPPs using for energy efficiency standardization, promoting energy conventional thermal power generation (mainly natural efficiency, energy savings and energy efficiency labelling. gas). The National Development Plan and Sectoral Energy Pro- The Electric Sector Law mandates that the activities related gramme, which is a result of the above mentioned strategy, to transmission, distribution and power sales are the exclusive contains energy planning (delegated to SENER) and aims domain of the state owned utility CFE. The Energy Regula- to strengthen the regulatory capabilities of the Energy tory Commission (CRE) is in charge of issuing the permits Regulatory Commission and the National Commission related to the activities from the power and natural gas sec- for Energy Efficiency. The execution of the planned pro- tors that are opened to private investments since 1995. grammes and projects are included in the official budget Renewable energies play a role by contributing to the of the country.

8 SENER 2009a MEXICO | 124

In addition to the mentioned document, the Special Pro- fied existing laws in the areas of fossil fuels and renew- gramme for the Use of Renewable Energy9 has also been able energies was approved. Among them, the Law for the published in summer 2009. This strategy has the follow- Use of Renewable Energy and the Financing of Energy ing six components: Transition and the Law for Sustainable Use of Energy set • Information and communication: design and im-ple- framework conditions to reduce Mexico’s dependence mentation of information and communication pro- on fossil fuels as primary energy source. In addition, the grammes Electric Sector Law, the Contract for the Connection of • Design of mechanisms for RE: Preparation of the Na- Renewable Sources, the Taxation Law and the Environ- tional Renewable Energy Assessment; Updating regu- mental Law are in place. lations for development and remuneration schemes of RE projects Law for the Use of Renewable Energies and the Financ- • Rural electrification with renewable energy support: ing of the Energy Transition (2009): One of the targets design schemes for RE deployment with participation of the law is to regulate the conditions to use renewable en- of federal institutions, state governments and commu- ergy sources for electricity generation in different purposes nities; building capacity in the communities to adapt than those of public service. To achieve this target the law the technologies and to facilitate their sustainable use. stipulates two instruments a) A Strategy for the Use of • Development and promotion: provision of incentives Renewable Energy and the Energy Transition and b) The for the creation of companies in the areas of equip- Special Programme for the Use of Renewable Energy. ment manufacturing and promotion of energy effi- Environmental Protection Law (1988): This law man- ciency (via CONACYT funds); design of financial dates that power generation plants larger that 0.5 MW mechanisms to support RE projects according to the regardless of the technology, require Environmental Au- scale of the project; design of guarantee mechanism thorizations from the Environmental Secretary. In ad- and other mechanism to mitigate and share project dition, small hydro power projects do not require water implementation risks. concession permits from the National Water Commis- • Infrastructure and regulation: encouraging use of RE sion. Finally, at the local level, municipalities also enact in public buildings and new housing projects; build- land use permits for the construction, installation and ing the transmission capacity necessary to connect operation of infrastructure. new RE projects in cooperation between public utili- Rent Taxation law (2005 reform): According to this law, ties and private investors; simplification of the meth- the entities that invest in equipment and machines for the odolo-gies to calculate grid charges for RE; promot- generation of renewable energy can depreciate 100 % of ing effi-cient cogeneration and self supply projects. the investment in the first year (tax credit scheme). • Research and development: strengthening of inter- Law for Bioenergy Use (2008): This law regulates the de- national cooperation in research and development; velopment of bio-energy sources. The Energy Secretary is focusing the activities of existing research centres in the body in charge of issuing permits for the activities of RE technologies. production, storage, transport, distribution and retailing of biofuels carried in pipelines. Legal Conditions and Support Interconnection contracts: The use of renewable energy Schemes for Renewable Energies sources, such as wind, hydro, biomass, biogas, biofuels, is In November 2008, an energy reform consisting of a allowed and encouraged for private investors via specific package of seven laws and decrees that created or modi- grid connection contracts for the power projects from these energy sources under the following modalities: 9 SENER 2009b MEXICO | 125

• Interconnection contract for intermittent renewable • At the end of the year, the permit holder can sell the energies like wind, solar or hydropower (the latter energy surplus to CFE. This energy will be paid for refers to those cases where the water flow cannot be with an equivalent of 85 % of the avoided generation controlled) costs for CFE. Exceptions of this rule are emergency • Interconnection contract for small scale solar energy conditions (the electricity is paid at 150 %) and test- sources (net metering) ing periods (70 %). • Contract Model for the Sale and Purchase of Electri- • The transmission charges are calculated based on the city under the Modality of Small Power Producer. real transported energy and not based on the reserved transmission capacity. In addition, there is an open access to transmission and distribution grid connection contracts that are applicable IPP scheme with CFE: Under the Independent Power for both, renewable and non-renewable energy sources. Producer (IPP) scheme, private producers with plants In order to exploit hydro resources it is required to obtain over 30 MW (regardless of the technology) must sell their an exploitation permit from the Environment Secretary power to the CFE through long-term power purchase (Semarnat-CAN). agreements (PPA), which are awarded through competi- The general conditions for generation, connection and tive bidding. Usually these contracts last 20 years and the transmission of energy generated from renewable sourc- project should be included in the planning programmes es include interconnection contracts that are established of CFE (currently small power producers (<30 MW) do in three complementary regulations, a) the contract for not need to be considered in the expansion plans). Under the interconnection of renewable sources (2007), b) the the IPP scheme, CFE plans to tender 600 MW of wind methodology to determine charges for using the trans- projects during 2008 to 2014 in 100 MW increments. mission grid for renewable energy sources and c) the The PPA includes a fixed capacity charge, a fixed opera- agreement for the access to the transmission service for tion and maintenance charge and a variable energy charge renewable energy sources. The most relevant aspects of based on fuel prices. these regulations are: 10 A similar scheme for small power producers (< 30 MW) is planned to be established. • The state owned companies commit to receive the energy generated by renewable source at any time it is There are further support schemes for renewable ener- produced if this reception does not compromise the gies like the following funds: stability, security and reliability of the system. • Fondo Mexicano del Carbono – Mexican Carbon • The energy that is not used by a permit holder in a spe- Fund: This fund aims to identify potential CDM cific period can be delivered to the state owned compa- project activities by providing resources to finance the nies and they have the obligation to »return« it to the carbon component expenses of projects. The resources permit holders when requesting for it (energy bank of the fund are 200 million € and are accessible via the scheme). This exchange is an administrative procedure International Finance Division of the Foreign Trade that does not involve a physical exchange of electricity. Bank (Bancomext). • The energy exchange is carried out in the interconnec- • A number of sectoral funds of the National Council tion point of the project with the National Power Sys- for Research and Development (CONACYT): Funds tem and its price depends on the energy price on such like the institutional fund of regional promotion for an interconnection point that varies with the load of scientific development, technology and innovation, the system or the Upfront Fund (Fondo Avance) have the target

10 Based on CRE 2009. MEXICO | 126

to finance the applied research and innovation activi- of 160 million €. The National Bank for Public Serv- ties of research institutes, universities and private com- ices and Construc-tions operates the fund. A technical panies by providing grants, seed capital, guarantees, and committee has the res -ponsibility to disburse the fund tax discounts. Accesses to these funds depend on the resources. thematic call for proposals organized by CONACYT. • Sectoral Fund SENER – CONACYT Energy Sus- Clean Development Mechanism tain-ability fund: This fund is being established to Mexico is ranked fourth worldwide in terms of the finance scientific research and applied technologi- number of registered CDM projects, and fifth in volume cal develop-ment in the field of sustainable energy. of certified emissions reductions. By August 2009, there The project leader should be a Mexican university or were 117 registered CDM projects, 36 at validation and research institute. The budget of the fund is 8 mil- 3 in request for registration. Classified by project type, lion €. only 20 projects generate energy from renewable energy • Fund for the energy transition and the sustainable sources. use of energy. The fund provides loan guarantees for Mexico is not reaching its full potential with regard to energyefficiency and renewable energy technologies. CDM projects because the market for IPPs is limited and The initialresources allocated to this fund are 32 mil- the state-run power utility imposes barriers for IPPs.11 lion €, but according to the Law for Energy Transition It is still unclear if the recent changes in legislation will and Sustain-able Use of Energy it should reach a total overcome these barriers.

TABLE 5: MEXICAN WIND CDM PROJECTS BY SEPTEMBER 2009 Annual IRR with savings CDM rev- Project Location Status [tCO² eq] Registration MWel enue [ %] Bii Nee Stipa wind farm project Oaxaca Registered 310 25-dec-05 200 13.22 Bii Nee Stipa III Oaxaca Registered 291 16-feb-07 164 14.12 Eurus Wind Farm Oaxaca Registered 600 06-jan-07 249 15.10 La Venta II Oaxaca Registered 193 25-jun-07 83.3 NA La Ventosa Wind Energy Project Oaxaca Registered 224 09-dec-07 102 NA Bii Stinu Wind Energy Project Oaxaca Registered 325 15-jan-09 164 8.61 Fuerza Eólica del Istmo Wind Farm Oaxaca Registered 133 04-aug-09 50 8.62 Santo Domingo Wind Energy Project Oaxaca Registered 359 10-nov-08 160 9.93 Baja Cali- At Baja California Wind Farm fornia Norte Validation 17 10 NA Loreto Bay Baja Cali- At Wind Farm Project fornia Sur Validation 26 20 NA Santa Catarina At Wind Farm Project Nuevo León Validation 25 20 NA At Eurus II Wind Farm Oaxaca Validation 123 49.5 9.48

Source: CDM Pipeline UNEP Risoe and project activities PDDs. (NA Not applicable).

11 Lokey 2008 identified that CFE has pursued CDM revenues only in isolated cases because by law it has to pursue the least-cost generation option for its customers and natural gas projects are more likely to fulfil this law requirement. MEXICO | 127

There are eight registered CDM wind projects (adding project will be up-scaled to reach 50 000 homes. Over to 1 172 MW) and four more at validation. By Septem- 200 people have been trained in rural electrification us- ber 2009, none of the registered projects has originated ing renewable energy technologies to ensure sustainable carbon credits due to delays in construction and commis- replication of this activity. The programme also contrib- sioning of the projects. The table above gives an overview uted to the establishment of the National Solar Energy over registered and planned CDM wind projects: Standard, which makes obligatory the use of solar energy for water heating in new commercial facilities.13 International Donor Activities Interamerican Development Bank – IADB GTZ The IADB is involved in supporting the development of On behalf of the German Government, the German Tech- renewable energy in Mexico through the Sustainable En- nical Cooperation (GTZ) has been implementing the pro- ergy and Climate Change Initiative (SECCI). The goals gramme for Sustainable Energy in Mexico for the period of the SECCI are centered around the provision of com- 2005 to 2009. Since April 2009, the topics of energy ef- prehensive sustainability options in areas related to the ficiency and climate change were included in the agenda of energy, transportation, water and environmental sectors the programme. The programme provides support to the as well as that of building climate resilience in key pri- Energy Authorities in order to create enabling conditions ority areas vulnerable to the impacts of climate change. for energy efficiency and renewable energies. As an exam- The Initiative consists of four strategic pillars: Renewable ple, GTZ supported CONUEE in 2008 in capacity build- Energy and Energy Efficiency, Sustainable Biofuel Devel- ing activities for certifiers and installers of solar water heat- opment, Access to Carbon Markets and Adaptation to ers (in 2007 around 54 000 m2 of solar installations were Climate Change. added). GTZ also supports CRE to deal with grid integra- The IADB has also provided a loan of around 135 mil- tion of renewable energies and wind energy in particular. lion € to establish a programme in support of Mexico’s climate change agenda. The objective of the programme is World Bank – WB and Global Environmental to develop the instruments and means necessary to imple- Facility – GEF ment the climate change mitigation and adaptation agen- The World Bank and GEF will support Mexico in the im- da based on an operational framework and to strengthen plementation of a comprehensive strategy to cut emissions the institutional framework to support the mainstream- and reduce energy use while also potentially putting the ing of climate change considerations into public policy.12 Mexican economy on a low carbon growth path as part of the Special Climate Change Programme (Programa US AID Especial de Cambio Climático – PECC 2008 – 2012). The USAID funded Environment Programme for Mexico In January 2009, the Mexican Government was grant- focuses on the development of Clean Production and Re- ed 370 million € from a new Clean Technology Fund newable Energy (CP/RE). CP/RE worked closely with (CTF) supported by eight governments and managed by SENER, the Energy Secretariat, to design and develop a the World Bank. The money from the Clean Technology rural electrification programme using off-grid renewable Fund is dedicated to cleaner urban transportation, energy energy technologies. A key part of the programme was efficiency and renewable energy, especially wind power. the implementation of a pilot project together with the The CTF money will support large-scale wind power Global Village Energy Partnership in the state of Guer- projects with a capacity of 500 MW in Oaxaca and the rero, where 140 homes of the 900 inhabitants were con- development of small hydropower projects with an esti- nected to a series of solar photovoltaic mini grids. This mated capacity of 325 MW.14

12 IADB 2008 13 USAID 2008 14 World Bank 2009 MEXICO | 128

In 2006, the WB and the GEF provided a 20 million € gions of Mexico have been produced by IIE (with meas- grant to encourage the development of wind energy by urements at 10 m height) and by private companies like subsidizing part of the cost of La Venta III wind farm. TrueWind SL (high resolution wind resource atlas for This contribution alleviated a major bottleneck in the Jalisco State), and 3tierGroup. The latter presents on its development of wind energy projects, namely its lack of website a quick scan map of the wind potential in differ- financial competitiveness. ent regions of the world including Mexico. These maps and atlasses can be accessed via the following addresses: http://genc.iie.org.mx/genc/siger/frames.asp?mcontado 1.6 Market Potential for Wind Energy r=15632&val=3&url=mapas1.htm http://www.meteosimtruewind.com/files/ Wind Energy Potential file/20080703-ATLAS_EOLICO_JALISCO_MEXI- According to the 2009 Programme for the Use of Renew- CO_METEOSIM_TRUEWIND.pdf able Energy, the Mexican zones with potential for wind http://firstlook.3tier.com power generation are: Tehuantepec Isthmus, located in the state of Oaxaca, La Rumorosa in Baja California as Framework Conditions for Wind Energy well as certain areas in the states of Zacatecas, Hidalgo, Support for wind energy is project specific. For example Veracruz, Sinaloa and in the de Yucatán Peninsula. Based the »Project for Large Scale Development of Renew- on estimations of the Mexican Wind Energy Associa- able Energy« (PERGE) provides a specific mechanism tion there is a feasible potential to install 10 GW of wind to support wind energy in Mexico. This project receives capacity. However the US National Renewable Energy financial contribution from the GEF and the World Bank Laboratory (NREL) estimated that just in Oaxaca there of 20 million €, which allows CFE to provide an incen- is potential for 33 GW that can be installed in an area of tive for the development of the project La Venta III. The 6 637 km2. The potential can differ depending on the se- incentive consists of 0.73 € cent per kWh delivered to lection of wind locations, the accessibility to transmission the grid in a 5 year period counting from the start of the capacity and the type of wind resource considered (wind project. CFE will buy electricity for 25 years at a price of resource from good to excellent). 0.03 €/kWh. In addition, a national wind resource map The Oaxaca Wind Resource Atlas, produced in 2003 by will be developed. the NREL wind resource group, is the most extensive Under the PERGE scheme CFE awarded Iberdrola Ren- mapping study for Mexico. The detailed wind resource ovables the construction contract for La Venta III wind maps (at 30 and 50 m height) and other information con- farm in March 2009, following an international public tained in the atlas facilitate the identification of prospec- tender. Iberdrola will supply energy to the CFE for the tive areas for use of wind energy technologies, both for next 20 years. La Venta III wind farm is going to be situ- utility-scale power generation and off-grid wind energy ated in the municipality of Santo Domingo Ingenio in applications. According to NREL »The wind-mapping Oaxaca State and will have an installed capacity of 102.85 results for Oaxaca show many areas that are estimated MW. The construction will start in 2009; the project is to have good-to excellent wind resources (wind power expected to be operational in November 2010. Currently Classes 4 to 7, with 7 being the highest.«15 The atlas no other projects are expected to receive financial incen- can be accessed both in English and Spanish versions on tive under the PERGE scheme. NREL’s website on www.nrel.gov/applying_technolo- Under the IPP scheme and without extra financial incen- gies/maps_atlases_inter_res.html. tive, CFE also signed a 150 million € contract with the In addition to NREL’s atlas, available maps for other re- local consortium Energias Ambientales de Oaxaca for the

15 Wind power class 4 correspond to wind speeds between 6.7 – 7.3 m/s and wind power density between 400-500 W/m2. Wind power class 7 correspond to wind speeds bigger than 8.5 m/s and power densities bigger than 800 W/m2 MEXICO | 129

construction of the 101 MW Oaxaca I wind farm which mission infrastructure built in the state of Oaxaca (20 % is expected to be operational in 2011. CFE and 80 % private developers). The Open Season was To facilitate the connection of wind parks to the national organized in three steps according to the required specifi- grid, México started the implementation of the »Open cations of the grid to connect the wind parks. Season« project (Temporada Abierta) in 2006. The The First Season (mini season) will reinforce an existing project consists of an agreement between CFE and the 115 kV grid by adding a second circuit. Two wind parks private developers to distribute the costs between CFE that are starting operations in 2009 will be served by this and private developers that occurred due to the new trans- scheme (Parques Ecológicos de México and Eurus). The

TABLE 6: OPERATIONAL AND COMMITTED WIND ENERGY PROJECTS Project Capacity Approval Project Developer Region Modality (MW) date. La Venta CFE Oaxaca Public service 1.35 Nov. 1994 Baja California Guerrero Negro CFE Sur Public service 0.6 Mar. 1999 La Venta II CFE Oaxaca Public service 83.3 Jan. 2007 Eurus Acciona Oaxaca Self supply 250 Dec. 2009 Parques Ecologicos de Mexico Iberdrola Oaxaca Self supply 79.9 Jan. 2009 Fuerza Fuerza Eolica del Itsmo Eólica-Peñoles Oaxaca Self supply 30 2010* EdF Energies Nouvelles- Eléctrica del Valle de México Mitsui Oaxaca Self supply 67.5 2009 Bii Nee Stipa Energía Eólica CISA-Gamesa Oaxaca Self supply 26.3 2009 Eoliatec del Istmo Eoliatec Oaxaca Self supply 22 2010* La Venta III CFE Oaxaca IPP 101.4 Nov. 2010 Oaxaca I CFE Oaxaca IPP 101.4 2010* Centro Regional de Tecnología Eólica IIE Oaxaca Small producer 5 ND Desarrollos Eólicos Mexicanos Demex Oaxaca Self supply 227.5 2011* Eoliatec del Paciﬁco Eoliatec Oaxaca Self supply 160.5 2011* Eoliatec del Istmo (2nd phase) Eoliatec Oaxaca Self supply 142.2 2011* Gamesa Energia Gamesa Oaxaca Self supply 288 2011* Vientos del Istmo Preneal Oaxaca Self supply 180 2012* Energía Alterna Istmeña Preneal Oaxaca Self supply 215.9 2012* Unión Fenosa Generación México Unión Fenosa Oaxaca Self supply 227.5 2010* Fuerza Eolica del Itsmo (2nd phase) Fuerza Eólica Oaxaca Self supply 50 2011* Oaxaca II-IV CFE Oaxaca IPP 304.2 Nov.2011* Source: Source Special Programme for the Use of Renewable Energy 2009 (In Spanish Programa Especial para el Aprovechamiento de Energías Renovables) (*expected) MEXICO | 130

Second Season consists of four wind parks that will start In addition to the projects committed for construction, a operation by 2009 and 2010 and will be connected to a number of potential projects with a combined installed ca- new 115 kV transmission line. The Third Season consists pacity of 1 450 MW is presented in table 7. These projects of the construction of a new transmission line of 400 kV will be developed mainly for export to the US market. by CFE with involvement and guarantees of the project developers. It will facilitate the access of six new projects Business Climate and will increase the connection capacity for two existing Mexico is open to foreign direct investment (FDI) in projects. It is expected that the new transmission line will most economic sectors and has consistently been one of be in operation by September 2010. Besides the 590 km the largest recipients of FDI among emerging markets. circuit of new or reinforced transmission lines, the plan In addition, Mexico has signed 12 free trade agreements includes the construction of a new power substation and covering 44 countries. This is a good indicator for a fa- the upgrade of three existing ones. For new wind parks, a vourable investment climate providing legal security for »New Season« project is going to be the instrument to the investors. expand the transmission grid in the future. Intellectual property rights are guaranteed by a variety of international agreements that Mexico has signed. For ex- Current Use of Wind Energy ample, Mexico is a signatory of the Paris Convention, the and Project Pipeline Patent Cooperation Treaty and the International Union By mid 2009 projects in operation amounted to 204 for the Protection of New Varieties of Plants (UPOV). The MW. The project pipeline in Mexico is expected to reach authority in charge of enforcing the law and the treaties around 4 000 MW before 2012.16 Out of this, 2 564 MW is the Mexican Institute for Industrial Property (IMPI). correspond to already committed projects (table 6) and Mexico is strategically located next to the growing wind other potential projects are presented in table 7. Finally, market of the US. Because of the proximity to this big most of the projects will be commissioned under the self market, companies based in Mexico are starting to offer supply modality. This modality is attractive to project products and services for the wind industry. High skilled developers because of the high electricity prices for large local workforce in the electricity, automotive, aeronautic users charged by CFE. and civil engineering sectors can be easily trained in the manufacturing of wind power equipment.

TABLE 7: MEXICO WIND PROJECT PIPELINE OF POTENTIAL PROJECTS

Project Project Developer Region Modality Capacity [MW] Fuerza Eólica de Baja California Fuerza Eólica Baja California Export 300 Mexico Wind Union Fenosa/Geobat Baja California Export 500 ND Cannon Power Baja California Export 200 Baja Wind Sempra Energy Baja California Export 250 Baja California Fuerza Eólica Baja California Self supply 10 ND Gobierno del Estado Baja California Self supply 10 Los Vergeles SEER Tamaulipas Self supply 160 Eólica Santa Catarina Econergy Nuevo Leon Self supply 20

Source: Special Programme for the Use of Renewable Energy 2009

16 SENER 2009 MEXICO | 131

Regarding research and development, the IIE has es- this delay are the lack of financial incentives from the gov- tablished the Centro Regional de Tecnología Eólica – ernment and the slow process to expand the grid to areas CERTE (Regional Centre for Wind Technology). The with wind potential. It is expected that the recent reforms Centre will focus on further investigating the wind pow- of the regulatory framework (2008) encourage sustained er potential in Mexico. The Centre will also certify wind development of the wind industry. Furthermore, there is turbines. In addition, the CERTE will design and test a limited supply and availability of equipment and servic- a locally produced wind turbine that is expected to be es (both at the international and local level). Despite the produced at industrial scale in the country. Furthermore, Open Season scheme, restrictions persist due to the fact the Engineering Institute of UNAM (Mexico National that there are long distances between the potential wind University) is carrying out research on the use of wind projects sites and the connection points to the transmis- technologies for water desalination. sion grid. Communities living next to the projects have complained that the project developers are not fulfill- However, the wind power sector in Mexico faces some ing their commitments on payments and compensations challenges. It is acknowledged that despite the big poten- related to the rental of their lands, which is partially tial, wind development in Mexico has been slow. This is caused by delays in the project implementation. Finally, based on the fact that the first permit for wind projects was the global financial crisis has dried up commercial bank issued by CRE in 1998 but it was only in 2007 when the financing for private wind deals and the Mexican projects first large scale project became operational. Reasons for have had problems securing financing to be completed.17

17 According to local press the projects like Bii Ne Stipa and La Ventosa have been unable to secure funding to finish construction. La Ventosa was expected to start generation by March 2009. MEXICO | 132

1.7 Contacts and Addresses Instituto de Investigaciones Eléctricas (IIE) Gerencia de Energía No-Convencionales Asociación Nacional de Energía Solar A.C. (ANES) Av. Reforma 113 Calzada Acoxpa no. 524 Desp. 506-B Colonia Palmira Col. Prado Coapa 62490 Temixco, Morelos 14350 México, D.F. Tel.:/Fax: +52 (777) 362 38 06 Delegación Tlalpan Internet: http://genc.iie.org.mx/genc/index2.html Tel.:/Fax: +52 (55) 56 84 41 62 E-mail: [email protected] Secretaría de Energía (SENER) Internet: www.anes.org Insurgentes Sur No. 890 Col. Del Valle Asociacion Mexicana de Energia Eolica (AMDEE) 03100 México, D.F. Ave. Jaime Balmes No. 11 L – 130 F Tel.: +52 (55) 54 48 60 12 Col. Los Morales Chapultepec, México, D. F. Fax: +52 (55) 54 48 60 13 Tel.: +52 55 5395-9559 Internet: www.energia.gob.mx Internet: www.amdee.org

Comisión Nacional para el uso eficiente de la Energía – 1.8 Information sources CONUEE (former CONAE) Rio Lerma 302 Note: Information from the presented sources was Col. Cuauhtémuc retrieved during the months of August, September and 06500 México, D.F. October 2009. Delegación Cuauhtémuc Tel.: +52 (55) 30 00 10 00 Asociacion Mexicana de Energia Eolica – AMDEE Internet: www.conuee.gob.mx Panorama General de la Energía Eólica en México, 2009. www.amdee.org Comisión Reguladora de Energía (CRE) www.cre.gob.mx CGIAR Consortium for Spatial Information Av. Horacio #1750 (CGIAR-CSI), http://srtm.csi.cgiar.org, 2004 Col. Los Morales Polanco, Del. Miguel Hidalgo, México D.F., Comision Economica para America Latina – CEPAL C.P. 11510, Estudio económico de América Latina y el Caribe Tel.: +52 (55) 5283 1515 2008-2009. 2008 www.cepal.cl Comisión Federal de Electricidad (CFE) Internet: www.cfe.gob.mx Comisión Federal de Electricidad – CFE: Reforma 164 Central Eoloeléctrica La Venta II. 2008 Col. Juárez México,D.F. Cd. de México Tel.: 01800 2233071 MEXICO | 133

Comisión Federal de Electricidad – CFE: Interamerican Development Bank – IADB Presentación del Sistema Eléctrico Mexicano 2008 Programme in support http://www.worldenergy.org/ of Mexico’s climate change agenda. 2008. documents/4cfewecnov2008.ppt http://www.iadb.org/Projects/project.cfm?id=ME- L1053&lang=en Comisión Federal de Electricidad – CFE: Programa de Obras e Inversiones del Sector Eléctrico International Monetary Fund. 2009-2018 (POISE), 2009 World Economic Outlook Database http://aplicaciones.cfe.gob.mx/aplicaciones/otros/ http://www.imf.org/external/pubs/ft/weo/2009/01/ POISE20092018SHB1.zip weodata/index.aspx

Comision Reguladora de Energia – CRE Law for bioenergy use (2008) Estadisticas del sector de Energías Eléctrica. Permisos LEY DE PROMOCIÓN Y DESARROLLO de generación y de importación de energía eléctrica DE LOS BIOENERGÉTICOS http://www.cre.gob.mx/documento/1565.xls http://www.diputados.gob.mx/LeyesBiblio/doc/LPDB. doc Consejo Nacional de Evaluación de la Política de Desarrollo Social (CONEVAL) Law for the Use of Renewable Energies Estimaciones de pobreza 2008. and the Financing of the Energy Transition http://www.coneval.gob.mx/ LEY PARA EL APROVECHAMIENTO DE ENERGÍAS RENOVABLES Y EL Energia a debate FINANCIAMIENTO DE LA TRANSICIÓN Mexican Energy Sector magazine. ENERGÉTICA http://www.energiaadebate.com/ http://www.diputados.gob.mx/LeyesBiblio/pdf/ LAERFTE.pdf Environmental Protection Law (1988) Ley General del Equilibrio Ecológico y la National Renewable Energy Laboratory – NREL Protección al Ambiente Wind Energy Resource Atlas of Oaxaca. August 2003 http://www.diputados.gob.mx/LeyesBiblio/ref/lgeepa. http://www.nrel.gov/docs/fy03osti/34519.pdf htm Petroleos Mexicanos – PEMEX Electricity law (1992)Ley Electrica Diagnostico de PEMEX. 2008. http://www.diputados.gob.mx/LeyesBiblio/pdf/99.pdf http://www.pemex.com/files/content/situacionpemex. pdf Dr Elizabeth Lokey. University of Colorado Environmental Studies, Barriers to clean development mechanism renewable energy projects in Mexico 2008 http://www.sciencedirect.com/ MEXICO | 134

Rent Taxation law (005 reform) Secretaría de Energía - SENER Ley de Impuesto sobre la renta Electricity sector Outlook 2008-2017. 2008 http://www.diputados.gob.mx/LeyesBiblio/ref/lisr/ http://www.energia.gob.mx/webSener/res/PE_y_DT/ LISR_ref03_01dic04.doc pub/Electricity %20Sector %20Outlook %202008-2017.pdf Secretaría de Energía - SENER Secretaria de medio ambiente y Programa Sectorial de Energía 2007 – 2012. 2007 recursos naturales - SEMARNAT http://www.energia.gob.mx/webSener/portal/index. Programa Especial de Cambio jsp?id=57 Climático 2008-2012. March 2009 http://www.semarnat.gob.mx/queessemarnat/politica_ Secretaría de Energía - SENER ambiental/cambioclimatico/Documents/pecc/090828_ Políticas y Medidas para Fomentar la Integración Na- PECC.Capitulos_DOF.pdf cional de Equipos y Componentes para el Aprovechami- ento de las Energías Renovables y el Uso Sustentable Secretaría de Energía – SENER (SENER 2009a) de la Energía. http://www.energia.gob.mx/webSener/ Políticas y Medidas para Facilitar el Flujo de Recursos res/0/Politicas_Medidas_Integracion.pdf Derivados de los Mecanismos Internacionales de Finan- ciamiento. 2009 The contract for the interconnection http://www.energia.gob.mx/webSener/res/0/Mecanis- of renewable sources (2007) mos_financiamiento.pdf Contrato de Interconexión para fuentes de energía renovable Secretaría de Energía – SENER (SENER 2009b) http://www.cfe.gob.mx/es/NegociosConCFE/ Estrategia Nacional para la Transición Energética y el inversionistas/Disposicionesaplicablesalaintercon- Aprovechamiento Sustentable de la Energía. 2009 exi %C3 %B3n/Contdeinterconpafuentesdeenergia- http://www.energia.gob.mx/webSener/res/0/Estrategia. renov/Contrato+de+Interconexi %C3 %B3n+para+fue pdf ntes+de+energ %C3 %ADa+renovable.htm

Secretaría de Energía - SENER UNEP Risoe Programa Especial para el Aprovechamiento de Energías CDM/JI Pipeline Analysis and Database, September 1st Renovables. 2009 2009 http://www.energia.gob.mx/webSener/res/0/Progra- http://www.cdmpipeline.org ma %20Energias %20Renovables.pdf US AID Secretaría de Energía-SENER Antecedentes: Proyecto de Producción Energy balance 2008. October 2009 más Limpia y Energías Renovables. 2009 http://www.sener.gob.mx/webSener/res/PE_y_DT/ http://www.usaid.gov/our_work/environment/climate/ pub/Balance_2008.pdf country_nar/mexico.html MEXICO | 135

Woodrow Wilson International Centre for Scholars World Bank – WB The Mexican Economy in 2009 The Clean Technology Fund http://wilsoncenter.org/topics/docs/Mexican %20 and Wind Energy Financing in Mexico (2009) Economy %20in %202009.pdf http://siteresources.worldbank.org/INTCC/Resourc- es/CTF_TF_Comm_Mexico_Wind.pdf World Bank – WB Proposed grant from the Global Environment Trust Fund. For a large-scale renewable energy development project. June 8, 2006. PANAMA 136

List of Abbreviations

ANAM Autoridad Nacional Ambiental IRHE Instituto de Recursos Hidráulicos [National Environmental Authority] y Electrificación [Institute for Hydro B Balboa (national currency) Resources and Electrification] ACP Autoridad del Canal de Panamá kV kilo volt [Panama Canal Authority] kWh kilowatt hour CER Certified Emission Reduction MW Megawatt CDM Clean Development Mechanism PEA Organización de Estados Americanos CND Centro Nacional de Despacho [Organisation of American States] [National Dispatch Centre] PJ Peta Joule COPE Comisión de Política Energética SIEPAC Sistema de Interconexión Eléctrica [Commission for Energy Policy] para América Central [Central American DNA Designated National Authority Electrical Connection System] EGE Empresa de Generación Eléctrica SIN Sistema de Interconexión Nacional [Electricity Generation Company] [National Interconnection System] ERSP Entidad Reguladora de Servicios Públicos SOLEDUSA program Programa Solar, Educación [Regulatory Entity of Public Services] y Salud [Solar, Education and Health ETESA Empresa de Transmisión Eléctrica SA Programme] [Electricity Transmission Company SA] TWh Terrawatt hour GDP Gross Domestic Product UNDP Programa de las Naciones GWh Gigawatt hour Unidas para el Desarrollo [United IADB Banco Interamericano de Desarrollo Nations Development Programme] [Inter American Development Bank] USD United States Dollars PANAMA 137

6.1 Introduction

FIGURE 1: MAP OF PANAMA

Data Source: CGIAR 2004

The Republic of Panama is located in Central America, the country was listed 57th in the world according to the bordering Costa Rica and Colombia, with coasts to the Human Development Index. Life expectancy is around Caribbean Sea and the North Pacific Ocean. The coun- 75 years and the literacy rate is more than 90 %. Panama’s try is dissected by the Panama Canal. The climate in the political system is a representative democratic republic in whole country is tropical, characterized by hot tempera- which the executive power is held by the President of the tures all year round in the coastal zone; however, tempera- Republic (currently Ricardo Martinelli, elected in May tures decline inland and also at altitude. There is a high 2009) and the State Ministries. The economy of the coun- rain rate with noticeable differences between the Pacific try relies mainly on the tertiary sector which accounts for and the Caribbean coasts. Panama is located south of the 63 % of the national GDP. Manufacturing, industry and influence zone of hurricanes (10 º North Latitude). agriculture represent less than one quarter of the national Panama is a small country with a total population of 3.45 GDP. Panama depends largely on the transport and logis- million people, and a population growth rate of 1.4 %. tics hub located in the Panama Canal. According to data Around half of the population live in urban areas. In 2008, from the World Bank, Panama has the highest GDP per

TABLE 1: STATISTICAL KEY FACTS OF PANAMA Area Population GDP GDP/Capita Import Export (2009) (2008) (2008) (2008) (2008) 78 200 km² 3.45 Millions 17 063 Billion 5 014 Euro 9 534 Million 7 880 Million Euro Euro Euro

Source: International Wind Energy 2009 / 2010; Dirección de Estadísticas y Censo PANAMA | 138

capita in the Central American Region, and the country In the last decade the use of wood as energy source has constitutes the third largest economy in Central America diminished against an increase in the use of imported after Guatemala and Costa Rica. However, poverty still petroleum products and electricity generated through affected 11.7 % of the population in 2007. Main export hydro power. partners are USA, Sweden, Benelux1 and Costa Rica. Im- In 2006, the country imported approximately 11.2 mil- ports come mainly from USA, Ecuador, Venezuela and lions of oil barrels (which represents around 85 % of the Japan. Panama is member of the Organisation of Ameri- value of goods exported by the country in that year). Im- can States2 (OEA), the Inter American Development ports of oil products have increased in the lasts years espe- Bank (IADB) and the Central American Bank for Eco- cially for the transport sector mainly due to the increase nomic Integration (CABEI).3 in the vehicle fleet. With more than 300 000 new vehi-

TABLE 2: HISTORICAL DEVELOPMENT OF PANAMA GDP 2000-2008 Billions 2000 2002 2004 2006 2008 GDP (National currency; current prices) 10 733 11 604 17 637 21 513 33 958 GDP (Euro³; current prices) 7 932 8 576 13 034 15 899 25 096

Source: International Monetary Fund – Deutsche Bundesbank

6.2 Energy Market cles the number has doubled between 1996 and 2006, accounting for 51 % of the country’s oil consumption in Overview Energy Market that period. Panama is the largest energy consumer in Central Amer- ica. With no proven oil, natural gas or coal reserves, the FIGURE 2: country is required to import a majority of its hydrocar- PRIMARY ENERGY SUPPLY IN PANAMA IN 2006 bon needs. In recent years, net energy imports accounted for approximately 80 to 90 % of Panama’s total energy Primary Energy Production 2007: 378.7 PJ consumption. Natural gas and coal is barely consumed in the country 20,3 making fuel wood and cane products the primary energy 17 % sources for rural residential areas, while petroleum products represent the main energy source within the country. 12,9 11 % TABLE 3: ENERGY IMPORTS IN 2007

Sector Energy (PJ) Share ( %) 83,4 Transport 60.13 42.1 72 % Industry 28.56 20 Residential 37.28 26.1 Commercial and other uses 16 11.2 Petroleum products Hydro Agriculture, ﬁshery and mining 0.86 0.6 Combustible Renewables an Waste Total 142.83 Source: Ministerio de Economía y Finanzas – Comisión de Política Energética Source: IEA 2008

1 Belgium, Netherlands and Luxemburg 2 This organization gathers all countries of the occidental hemisphere to promote mutual collaboration in addressing democracy and common interest topics. More info at available: http://www.oeapanama.org/01sobrelaoea.html 3 Using exchange rate from 2008. 1 Euro > 1.35311 USD dollars. Source: http://www.x-rates.com/d/USD/EUR/hist2008.html PANAMA | 139

FIGURE 3: NATIONAL TRANSMISSION GRID IN PANAMA

Data Source: CIGAR 2004 In 2006, the total energy consumed in Panama amounted transported in 2008. The largest losses normally occur to approximately 142.83 PJ, with the following distribu- during the months with largest hydro production and tion across energy sources: 18.6 % wood, 1.9 % electricity, principally on the hydro plants of Fortuna, La Estrella, 5.3 % liquefied gas, 6.1 % coke and coal and 51.7 % for oil Los Valles and Estí, located on the northern part of the derived products. The following table gives an overview country far from main consumption centres located in of the energy consumption split by sector in the coun- the Panama City and surrounding areas. try in 2006. Main energy consuming sectors within the SIEPAC (Central American Interconnection System) is a country are the transport and industry sector (fuelled to- proposed project entailing the construction of transmis- tally using fossil resources) and residential sector (using sion lines connecting 37 million consumers in Panama, mainly biomass as energy source). Costa Rica, Honduras, Nicaragua, El Salvador and Gua- temala. The project was scheduled for completion in The Electricity Grid 2006 but work only started in 2008; it is expected to be One electricity grid operates throughout the whole coun- finished in 2010. The SIEPAC project is expected to cre- try (known as National Interconnection System – SIN) ate 1 803 km of 230 kV transmission lines, with a planned and is composed of three 230 kV high voltage lines with capacity of 300 MW between Guatemala and Panama as a total length of 1 847.68 km and one 115 kV medium well as upgraded links. Furthermore, a 230 kV intercon- voltage line with total length 306.1 km (2008). Within nection between Guatemala and Honduras, and Hondu- this system generation companies serving the Mercado ras and El Salvador is planned. The project was funded Mayorista de Electricidad (Electricity Wholesale Mar- by the Inter American Development Bank, the Spanish ket) are arranged. The grid is managed by the National government, the Central American Bank for Economic Dispatch Centre (CND). 4 Integration and the Central American Regions. Electrical losses in the system varied from a minimum Proponents of the SIEPAC expect that interconnecting value of 1.53 % to a maximum value of 3.19 % of energy the national electric transmission grids will alleviate pe-

4 Centro Nacional de Despacho (CND). More information available at: http://www.cnd.com.pa/index.htm PANAMA | 140

riodic power shortages in the region, reduce operation connected System«. These plans are generated and issued costs, optimize shared use of hydro power, create a com- by the Ministry of Economy and Finances via the Com- petitive energy market within the region and attract mission for Energy Policy5 on a periodic basis (usually an- foreign investment in power generation and transmis- nually). The current plan encompasses the period 2007 to sion systems. However, critics argue that the project will 2021 and comprises of a package of measures and actions not make electricity cheaper for consumers in Central to ensure energy supply in the time frame set out. America but will actually increase tariffs and also facilitate electricity export to Mexico, which is not contrib- Installed Capacity uting to the expansion of the Central American market. At the end of 2008, installed capacity amounted to Other critics state that much of the increased genera- 1 637.93 MW. Of this capacity, thermal power stations tion capacity will come from hydro power, with associ- fuelled mainly by bunker, diesel and marine diesel ac- ated social and environmental costs, and the fear that counted for 869.95 MW (53.11 %) while hydro power large foreign corporations will increase their dominance amounted to 767.98 MW (46.89 %). 88.81 % of this of the power sector in Central America. capacity are installations giving service for the public, Additionally, the company Interconexión Eléctrica Co- 10.37 % to auto-generating plants connected to the SIN lombia-Panamá (ICP) plans to build a 614 km transmis- and the remaining 0.82 % belong to isolated systems. sion line from Colombia to Panama which would allow The installed capacity connected to the grid has changed the import of 600 MW. This interconnection represents in recent years as follows: the main link element for the electricity integration be- New renewable energies (such as solar or wind) have a tween North and Latin America. The initiative aims at very small contribution in the countries energy genera- promoting social and economic development of the re- tion (less than 0.5 %). It is likely that this will change in gions comprised by the interconnection, reduction of the forthcoming years, particularly due to the promotion

TABLE 4: INSTALLED CAPACITY BY TYPE OF PLANT 2001-2008; PANAMA; MW MW 2001 2002 2003 2004 2005 2006 2007 2008 Thermal 558.8 558.5 626.64 566.64 593.14 554 629 672.5 Hydropower 540 540 660 770 770 770 782 792 Total 1 098.8 1 098.8 1 286.6 1 336.6 1 363.1 1 324.0 1 411.0 1 637.93

Source: Ministerio de Economía y Finanzas – Comisión de Política Energética final cost of electricity to end users as well as improving that is being given to wind energy in the country (with competitiveness among utilities through increasing the eight projects in the pipeline to be realised within the pe- grid capacity. The realisation of this project will reduce riod 2009 to 2012). differences in marginal costs of electricity prices within The installed capacity in Panama will increase by an esti- the different countries embedded in the project (such as mated 500 MW over the next ten years, inter alia due to Colombia, Guatemala, El Salvador and Panama). Activi- the inauguration of new hydro power plants within the ties regarding this project are in the study phase. Proposed next four years. In August 2009, the installed capacity has actions and strategies regarding expansion of the national increased to 1 663.8 MW. electricity transmission capacity are developed in the Scenarios of electricity demand in Panama in 2020 are »National Plans for the Expansion of the National Inter- comprised in the National Energy Plan developed by the

5 Comisión de Política Energética. More information available at: https://www.mef.gob.pa/cope/index.htm PANAMA | 141

Ministry of Economy and Finances. Estimations of ca- TABLE 6: ELECTRICITY CONSUMPTION PER SECTOR 2007; pacity demand in these scenarios vary between 1 784 and PANAMA; GWh 6 1 953 MW by 2020. 2007 Electricity Share (GWh) Electricity Generation Sector 1,627 31,03 In 2007, the amount of electricity generated increased by Residential 2,474 47,18 7 % compared to 2006, adding up to 6 156 GWh. Elec- Commercial 311 5,93 tricity generation through hydro (64 % of total generation) Industrial 817 15,58 slightly increased by 1.5 %, maintaining the upward trend Public Sector 15 0,29 since 2004, while thermal power generation increased by Other 5,244 100 20 % adding up 2 194 GWh. This big increase in the en- Total 142.83 172 PJ ergy generation from thermal production might have been Source: Dirección de Estadítisca y Censo caused by a reduction of water availability in the Panama- nian lakes observed in 2007. In the same year a remarkable terconnected Plan 2007—2021«, electricity demand is decrease can be observed in the amount of electricity im- going to increase to 11 718 GWh in the moderate and 12 ported by Panama (-87 % compared to the previous year) 445 GWh in the optimistic scenario by 2021.8 from 34.39 GWh in 2006 to 4.40 GWh in 2007. On the other hand electricity export registered a slight increase of Renewable Energies 7 %, reflecting the fact that Panama is mainly an electricity In Panama, renewable energy production is concentrated exporting country.7 mainly on hydro power. At present, the distribution of Regarding energy sources for electricity production, in hydro plants is as follows: 65 small hydro projects (de- 2007 the main non renewable energy sources used were fined as plants with capacity up 20 MW) and 30 large bunker (23.3 % of total electricity generation/1 417.90 hydro projects of (power capacity above 20 MW). While GWh), diesel (18.1 % of total electricity generation/ developments in the wind sector have been nonexistent 1 100.4 GWh) and gas (0.1 % of total electricity genera- up to now, the government’s current plans as well as the tion/7.20 GWh). actions taken by foreign investors have earmarked this As can be seen in table 6, the main electricity consumer sector in particular for future development. In the case sectors are the commercial, residential and public sector of solar PV, applications are mainly off-grid and mostly while industry has a relatively low share. developed in the frame of national programmes. In 2001, According to the »Expansion Plan for the National In- the total number of installed solar PV systems amount-

TABLE 5: GROSS ELECTRICITY GENERATION BY TYPE OF PLANT 2003-2007; PANAMA; GWh Source (GWh) 2003 2004 2005 2006 2007 Hydro 2 890 3 897 3 875 3 903 3 962 Thermal 2 391 1 577 1 671 1 828 2 194 Import 2.29 78.04 54.93 34.39 4.40 Export 180.18 207.14 106.33 83.40 89.15 Total 5 463.47 5 759.18 5 707.26 5 848.79 6 249.55

Source: Dirección de Estadística y Censo; Ministerio de Economía y Finanzas-Comisión de Política Energética

6 More information about capacity demand scenarios can be found in the 8 ETESA. Plan de Expansión del Sistema Interconectado National Energy Plan, available at: https://www.mef.gob.pa/cope/index.htm Nacional 2007—2021; 2007 7 Within the period 1999—2007 solely in one occasion Panama has imported more electricity than exported (in the year 2000). PANAMA | 142

ed to 300 collectors. They still do not contribute to the Liberalisation interconnected electricity supply system and their main The electricity market was restructured in the period purpose is to provide electricity to rural areas. Panama 1996/1997 by the creation of the Regulatory Entity of has no geothermal generation at present – one of the rea- Public Services (ERSP) through law no. 6 of the 3rd Feb- sons often claimed is because it is not possible to compete ruary 1997. This restructuring process comprised of set- with Costa Rica on production prices. ting up regulations regarding competition and monopoly The website »Energía Renovable Panama«9 offers infor- practices as well as limitations for companies participat- mation regarding renewable energy sources in the coun- ing in the areas of transmission and distribution. In 1998, try. However the page (launched in 2009) seems to be the central government split generation, distribution and still under construction as information in the different transmission from the Instituto de Recursos Hidrológi- sections of the website is not available and links do not cos y Electrificacion, a former state owned company of work properly. control and coordination of the electricity market in Panama. The wholesale market now consists of a regulat- Electricity Prices ed and a deregulated market. In the deregulated market, The power sector works under a wholesale market mod- generators are free to negotiate prices as well as quantities el in which distribution companies are free to purchase sold to the different buyers, which include distribution power through either the electricity spot market or en- companies, large consumers, marketers and foreign com- ergy supply contracts, which are competitively auctioned panies. Non contracted energy is sold to the spot market. to generation companies. Conditions and prices are set in In 2008, 71 % of energy sold within the electricity market agreements from the different actors participating in the in Panama was sold via bilateral contracts while the other market. In the regulated transmission and distribution 29 % was sold within the spot market. system, access and retail fees are established by the regulatory entity ERSP. Rates allow financial sustainability as Rural Electriﬁcation they permit cost recovery and compensation for capital In 1990, only 59.4 % of the population in Panama had employed, which is benchmarked against an efficient access to electricity, the number increased to 87.1 % in company in the sector with comparable risk. The rates 2006. The government, within the framework of the Na- also promote economic efficiency as they are close to the tional Energy Plan, has set up a Rural Electrification Pro- price structure of competitive markets and rate setting gramme (PLANER) aiming at increasing electricity cov- takes into account not only costs but expected increases erage up to 90 % by 2014 using off grid generation plants in productivity. powered by renewable energy sources. The goal of this programme is to provide electricity to more than 70 000 After the privatization of the electricity market, aver- households currently located far from the electricity grid. age prices per kWh offered by the diverse transmission The funding for the realization of this programme will companies decreased compared to the previous tariffs be provided by the Inter American Development Bank. established by the Institute of Hydro Resources and Elec- One of the programmes run by the government and aim- trification (IHRE). However, due to the increase in fuel ing at the promotion of renewables is the SOLEDUSA prices from 1999 to 2007, end user prices have risen again programme. This project financed by the European Com- from 35.12 €/MWh in 2004 to 87.05 €/MWh in 2009. mission (with more than 9 million €) aims at the incor- This is the price established within the spot market where poration of new technologies for education and health energy not sold by bilateral contracts is traded and fixed in marginal areas of Panama which have no access to the by the ERSP. electricity grid. The project started in 2006 and will be

9 www.energiarenovablepanama.com PANAMA | 143

finished in 2009, focusing on the provinces of Ngobe and of national energy policies, organization and manage- Veraguas and aiming at providing energy through off grid ment of the SIN, development of plans and policy issues solar PV systems to 400 schools and 70 health care cen- regarding energy use for both public and private agents. tres. By the end of 2008 the project had already supplied In particular, related to renewable energies, this entity energy to 331 schools, 91 health care centres and 30 radio publishes information in the following areas online10: re- communication centres. In 2007 the province of Calobre newable energy regulation in Panama, statistics of renew- was added to the programme and execution of the pro- able energy sources in Panama and guides regarding solar, gramme will be extended until 2013. wind, hydro and biomass. This entity is also promoter of the SOLEDUSA programme related to promotion of solar PV in the country. 6.3 Market Actors Ministerio de Comercio e Industrias – Dirección de Ministerio de Economía y Finanzas (MEF) Hidrocarburos y Energías Alternativas [Ministry of [Ministry of Economy and Finance] Trade and Industry – Direction of Hydrocarbons and The Ministry of Economy and Finance was created at the Alternative Energies] end of 1998 and resulted from the merger of the former This entity was created under the Ministry of Trade and Ministry of Planning and Economic Policy and the Min- Industry in 2006 and is the main regulatory body within istry of Treasury. It was created to improve finance and the country regarding activities related to hydrocarbons budgetary coordination of national funds. The Ministry and alternative energies. It is responsible for expedition is in charge of all topics related to economic policy ini- and revocation of contracts, permits and registries in the tiatives, programming and coordination of public invest- areas mentioned previously as well as to act as regulator ments and social strategy, design and execution of govern- for all activities in both sectors. The Ministry of Trade ment strategies regarding treasury, elaboration, execution and Industry has created the National Plan for Hydrocar- and control of the state’s general budget as well as the de- bons and Alternative Energies in Panama. velopment and execution of the finance programming of Although the Direction of Hydrocarbons and Alternative the government. Energies is the main regulatory body within the country MEF encompasses 19 different subdivisions. Among associated with the promotion and deployment of renew- these subdivisions there is the National Commission for able energies, it has to be stated that consulting the infor- Energy Policy. mation provided by the entity as well as the tasks under its responsibility, this entity is more focused on promo- Comisión de Política Energética (COPE / MEF) tion and deployment of oil exploitation and use than on [National Commission for Energy Policy] alternative energies. As a subdivision of MEF the commission is in charge of defining strategies and policies for the energy sector Autoridad Nacional de los Servicios Públicos (ASEP) with the aim to ensure security of supply. The Chairman [National Authority of Public Services] of the COPE is the Minister of Planning and Economic The National Authority of Public Services was estab- Policy, the other two members are the Minister of Indus- lished in 1996 as Public Service Regulatory Entity try and Trade and the Minister of Treasury and Finance. (ERSP) and since 2006 has its current name. Its task is COPE has an Executive Director appointed for 5 years to cover water and sanitation, telecommunications, and and has hired technical professional and support staff. electricity services. ASEP is responsible for establishing Responsibilities of this entity are: analysis and evaluation the rules, norms, and regulations for power sector ac-

10 http://www.mef.gob.pa/Cope/ PANAMA | 144

tivities. Some of the main specific duties of the ERSP as on the spot market. The National Dispatch Centre was defined in the Electricity Law include: issuing conces- set up by ETESA to be responsible for the administration sions, licenses and other authorisations for public serv- of the transactions and operations within the electricity ice providers including (new) hydro and geothermal market. It is in charge of ensuring the conditions of free plants as well as public transmission and distribution competition among the participants in the market. Fur- services; setting efficiency and performance standards thermore, it operates the spot market where electricity for the relevant public service providers; defining rights not sold via bilateral contracts is traded. and obligations of service providers and consumers; establishment of principles, methodologies and formulas Power Utilities for tariff settings purposes in the regulated market ar- By the end of 2008 there were a total of twelve power gen- eas under its jurisdiction; arbitrating conflicts between eration companies, two auto producers, three distribution public service providers under its jurisdiction and other companies and four major consumers within the SIN. In government agencies, municipalities, or customers; and the generating sector four main companies have the biggest promoting competition and efficiency in the areas un- market shares: Fortuna (18.32 %) AES Panama (29.42 %), der its jurisdiction as well as guarding against monopo- Bahía Las Minas (17.09 %) and ACP (7.31 %). On the dis- listic or discriminatory behaviour. This entity currently tribution side, three companies control electricity distribu- has an active and remarkable role in the activities of co- tion throughout the country: Elektra Noroeste-ELEKTRA ordination and organisation of the electricity market. (in charge of the provinces of Colón, Panama, Kuna Yala, and Darién – 44 % of end users in 2008), Metro-Oeste – Empresa Nacional de Transmisión Eléctrica SA EDEMET (in charge of the provinces of Veraguas, Coclé, (ETESA) [National Electricity Transmision Herrera and Los Santos – 43 % of end users in 2008) and Company] Chiriquí-EDECHI (responsible for the provinces of Bocas ETESA is a state owned company created in 1998 after del Toro and Chiriquí – 13 % of end users in 2008). The dis- restructuration of the electricity market was completed. tribution of total electricity sold in the market by these three This company runs the high voltage electricity transmis- companies in 2008 was split as follows: EDEMET 50.17 %, sion service for the whole country. It is also responsible ELEKTRA 41.71 % and EDECHI 8.12 %. When liberali- for the expansion planning of the electricity grid and for zation of the electricity market in Panama started in 1998, the operation of the National Interconnected System the Spanish company Unión Fenosa acquired shares in two (SIN) via the National Dispatch Centre. This entity is of the distribution companies: EDEMET and Edechi. U.S. entitled by the Ente Regulador de los Servicios Públicos based Constellation Energy acquired the third distribution to provide transmission services within the country un- unit, Elektra Noreste. The transmission system is in the sole der a concession contract up to 2025 (with possibility of responsibility of ETESA (see above). extension if required). Asociación de Productores Panameños de Centro Nacional de Despacho (CND) Energías Renovables [Panamanian Association of [National Dispatch Centre] Renewable Energy Producers] As mentioned previously, the electric market (Mercado Although there is reference to the existence to the Pana- Mayorista de Electricidad) in Panama works under two manian Association of Renewable Energy Producers schemes: on the one hand electricity is sold via bilateral headquartered in the city of Panama, no detailed infor- contracts among the participants of the market (genera- mation is available about nature of the areas of work, par- tors and distributors), on the other hand electricity is sold ticipants, projects, etc. PANAMA | 145

6.4 Political Framework Conditions in initial actions to diversify primary energy sources in the Energy Sector the country and reduce energy costs. The strategies presented in this document are based on the follow- The basic framework for Panama’s energy strategy is the ing topics: realisation of feasibility studies for the in- National Energy Plan (Plan Energético Nacional 2005— troduction of natural gas in the country, energy val- 2020), published by the Commission for Energy Policy. orisation of biogas generated via landfill residues and It contains the goals of the national energy policy as well energy use of biomass in cogeneration processes. as strategic plans to realise these goals. The plan is subdivided in five strategic plans: Law no. 6, Electricity Public Service Law (1997) created the Energy Policy Commission (CNPE) to define the • Strategic Plan for Electrical Coverage: analyses short new strategy and to formulate policies for the energy sec- term energy demand within the country and designs tor as well as guidelines for the activities involved. The law strategies to ensure security in the energy supply sets the basis for pricing, tariffs, subsidies, and sanctions, through several actions involving mainly an increase and establishes principles for protecting the environment in the generation of energy using hydro power (con- and promoting energy efficiency and conservation. It also struction of new plants, increase of power capacity in defines the specific duties of the Public Service Regula- existing plants). The Plan for Rural Electrification is tory Entity. also embedded in this Strategic Plan. • Strategic Plan for Rational and Efficient Use of En- No recent regulation for the energy sector has been ap- ergy: aims at promoting applications of energy sav- proved with exception of the law no. 45 related to the pro- ing and energy efficiency to foster better use of the motion of hydro systems and renewable energy sources energy resources within the country. The document that will be discussed in detail in the following chapter. foresees the creation of a regulation framework (law Aiming at setting up the strategy to comply with the for the promotion of energy saving and efficient and guidelines defined within the law no. 6 of 1997 and with rational use of energy) and sets up a package of energy the general goals regarding energy policy in the territory, efficiency measures to be implemented in the differ- the Commission for Energy Policy performed via fund- ent sectors (e.g. government, industrial, commercial, ing provided from the World Bank’s »Project for Techni- household) cal Assistance in the Restructuration of the Utilities« the • Strategic Plan for Renewable Energies: aims at the consultancy assignment »Development of an Strategy promotion of renewable energy sources within the and Reinforcement Institutional Plan for the COPE/ country. Main strategies comprised in this plan are: MEF«. The following list provides a summary of actions development of law 45 regarding the promotion of and studies carried out in course of this programme: renewable energies in Panama, Lahmeyer study to evaluate wind potential in the country and solar PV • Analysis of future electricity supply including evalua- project SOLEDUSA. tion of the diverse energy sources in the country (re- • Strategic Plan for Energy Integration: aims at the pro- newables, natural gas, coal, hydro) as well as the re- motion of energy integration of Panama with Central gional interconnection. America and Colombia. Main actions comprised in • Analysis of the characterization of energy use and en- this plan are related to the SIEPAC projects as well as ergy efficiency considering a strategy to promote ra- the Panama-Colombia Interconnection project. tional and efficient use of energy as well as the action • Strategic Plan for Hydrocarbons and Fuels: sets up plan for private and state sector PANAMA | 146

• Evaluation of the potential for wind energy in Panama – Project). Remarkable consideration is given to the appli- Lahmeyer/ETESA/PNUD (second phase comprises cation of law no. 45 of the 4th August 2004 which sets up a full size project) a regime of incentives for the promotion of hydro power • Implementation of the Plan for Institutional Rein- generation systems and other new, renewable and clean forcement of the Rural Electrification Office to in- energy sources. crease electricity coverage from 81 % to 95 % in a ten year period. The National Energy Plan also comprises the »Strategic • Study »Accelerating the Rural Energy Coverage in Plan for Hydrocarbons and Biofuels« which considers Panamá« through technical cooperation with the the promotion of energy use of biomass in the country as IADB Bank. well as the production of biofuels. To reach these goals, • Evaluation of the geothermal potential on national the plan foresees the use of municipal solid waste from level waste disposal sites to produce biogas (for electricity generation), use of biomass for cogeneration and the use of peat for electricity generation. 6.5 Framework Conditions for Renewable Energies Legal Conditions and Support Schemes for Renewable Energies Strategy and Objectives for Renewable Through law no 45 of the 4th of August 2004, the govern- Energies ment offers diverse benefits for plants producing electric- The government, through the Ministry of Commerce ity coming either from hydro plants or plants fuelled by and Industry, has issued the National Policy of Hydrocar- other renewable and clean energy resources. The type of bons and Alternative Energies. 11 The document contains benefits depends on the capacity13 of the installation and a section related to the promotion of alternative energies includes incentives such as tax exemption, transmission in the country. Renewable energy sources considered as and distribution tariff exemption, and fiscal incentives. potentially profitable are hydro, wind, solar, peat and bi- Renewable energy plants up to 500 kW, installed for self- odiesel (produced from sugar cane). Although descrip- generation and not connected to the grid, are exempted tions of the different technologies and recommendations from import tax for the equipment and spare parts re- are given for each of the renewable sources, no specific quired for construction and operation of the plant. targets, actions or strategies are outlined to foster real For renewable energy plants up to 10 MW, the following deployment and development of electricity production benefits are available: through renewable energy sources. The Strategic Plan for Renewable Energies of the National • No obligation to pay transmission or distribution Energy Plan 2005—2020 comprises short term actions to charges foster the development of renewable energies in the coun- • No obligation to pay import tax for equipment or try. The plan has identified 2 400 MW of hydro power spare parts required for construction and operation of potential and more than 160 MW12 of wind and biomass the plants potential. Actions described in the document include the • Plant operators have the right to apply for a fiscal in- installation of new hydro power capacity until 2009, the centive that allows them to benefit from a tax exemp- use of wind potential in the country (although no par- tion of up to 25 % on the income tax regarding direct ticular actions are provided to implement this) as well costs of the project during the first 10 years of com- as the development of the solar potential (SOLEDUSA mercial operation of the plant

11 Política Nacional de Hidrocarburos y Energías Alternativas 13 Categories are defined as follows: installations up to 500 kW, installations up 12 This potential would be already exceeded by the projects to be constructed on to 10 MW, installations in between 10 and 20 MW, and installations with a the short term (2008—2011) in Panama which add up to 600 MW capacity larger than 20 MW. PANAMA | 147

• Plant operators can apply for subsidies to finance up Clean Development Mechanism to 5 % of direct costs of all projects foreseen to be of Panama ratified the Kyoto Protocol in March 1999; the public use National Environmental Authority (ANAM)14 is the • Plant operators are allowed to sell up to 15 % of the entity responsible for all CDM affairs. It acts as Desig- electricity produced to any distribution company in- nated National Authority (DNA) and is in charge of the dependently from the location of the plant evaluation and approval of projects to be registered un- • Allowance to sell the electricity on the spot market der the CDM scheme. Additionally, ANAM provides technical support and advisory services to private and For renewable energy plants with capacity between 10 public entities in the implementation of CDM projects. MW and 20 MW, benefits are similar to the ones provid- Besides its role as DNA, ANAM is responsible for the ed to the 10 MW plants with the following exceptions: elaboration, control and execution of national climate policy and the National Climate Change Strategy • Exemption of transmission charges for the first 10 which aims at the promotion and deployment of clean MW in the first 10 years of the operation of the plant technologies in the country, including the use of renew- • No allowance to contract directly with the distribu- able energy sources. tion company • The fiscal incentive of up to 25 % of direct cost In 2008, the CDM pipeline consisted of 125 projects. based on the reduction of CO2 emissions is only ap- Among these, 17 projects were related to wind energy. plicable to 50 % of the tax income and not to 100 % By 2009, a total amount of seventeen projects were presented to the UNFCCC to be registered under the Renewable energy plants with a capacity larger than 20 CDM scheme, whereas 6 obtained registration and MW have the same benefits as the plants with a capacity 11 were in the validation phase. Among the registered up to 20 MW but with the obligation to pay transmission projects, there is the Santa Fe Energy wind farm with a charges. planned installed capacity of 81 MW (see table 7).

TABLE 7: REGISTERED CDM PROJECTS IN PANAMA Annual Savings Registration Project Location Size (MW) (ktCO2eq) IRR year »Los Algarrobos« Small-Scale Chiriquí 9.73 37.213 13-14 % 2005 Hydroelectric Project (<11 % without CERs) Project for refurbishment and upgrading Chiriquí 0.3 12.167 - 2005 of Dolega hydropower plant (to 3,12MW) Project for refurbishment and upgrading Chiriquí 1.7 10.963 - 2005 of Macho de Monte hydropower plant (from 0,7 MW to 2,4 MW) Concepción Hydroelectric Project Chiriquí 10 36.126 13-14 % 2006 (<11 % without CERs) Paso Ancho hydroelectric project Chiriquí 5 22.233 - 2007 Santa Fe Energy Wind Farm Veraguas 81 172.877 - 2009

Source: UNFCCC 2009

14 Auntoridad Nacional Ambiental. More information available at: www.anam.gob.pa PANAMA | 148

At present, the CDM scheme is a successful tool to pro- 6.6 Market Potential for Wind Energy mote the deployment of renewable energy projects in the country as the investment in these sources become more Wind Energy Potential feasible and attractive. This mechanism has great impact in In 2006, ETESA in collaboration with the UNDP and Panama fostering the realisation of hydroelectric projects. the company Lahmeyer International elaborated a wind energy resource map of Panama. During the study, mea- International Donor Activities surements were carried out in six locations throughout Inter American Development Bank (IADB) the country to determine the wind potential. The IADB is an international organization headquartered According to the study of Lahmeyer, wind speed through- in Washington DC (USA), established in 1959 to sup- out the country ranges between 1 and 6 m/s at the height port Latin American and Caribbean economic and social of 40m. Three sites located in the central mountain chain development and regional integration by lending mainly of Panama present the best conditions for wind park to governments and government agencies, including state installations with wind speed profiles of average speeds corporations. Panama is one of the founding members of higher than 10 m/s. These locations are Cerro Tute (prov- this institution and also one of its borrowers. The IADB ince of Veraguas), La Miel (province of Los Santos) and has participated in the deployment of renewable energies, Boquete (province of Chiriquí). energy efficiency and energy saving programmes within This map of wind speeds in Panama can be accessed at the country through several programmes such as: support COPE’s website: www.mef.gob.pa/cope/index.htm (click to the Climate Change Action Plan of Panama, support on »Energía Eólica« on the left side) to Bioenergy, Energy Efficiency and Renewable Energy Furthermore, 3tier is an open source that can be used for programmes, and support to rural energy programmes. high-level wind data. 3tier’s website is www.3tiergroup. IADB has invested approximately 97.72 million € in en- com/wind/overview ergy projects in Panama.15 Currently, the SIEPAC project (see chapter on Electricity Grid) is implemented under Framework Conditions for Wind Energy the funding umbrella of the IADB funds. There is no particular wind legislation issued in the country at the moment. Regulation of grid access and electric- Central American Bank for Economic Integration ity distribution for wind power plants is governed by the This entity is an international organization headquartered general electric law no 6 of the 3rd September 1997. in Tegucigalpa (Guatemala) and was founded in 1960 by In terms of support instruments, the provisions of law no. the republics of Guatemala, Honduras, El Salvador, Nica- 45 of 3rd September 2004 described in the previous chap- ragua and Costa Rica. The Central American Bank for ter on support schemes for renewable energies apply. Development aims at the promotion of the economic and social development of the Central American region. Current Use of Wind Energy The bank funds the project »Accelerating Investments in and Project Pipeline Renewable Energies in Central America - ARECA.«16 According to the information published in the last re- The project’s goal is to incentivize investments in renew- port »Wind Energy International 2009—2010« from able energy projects, particularly projects with a capacity the World Wind Energy International, wind capacity smaller than 10 MW, aiming at offering electricity access installed in Panama by the end of 2008 was 0 MW. How- to population groups in off grid regions as well as supply- ever, this situation is likely to change as the national gov- ing this energy with low emission technologies. ernment has already issued 24 licenses for wind projects.

15 More information available at: http://www.iadb.org/countries/home.cfm?id_ country=PN&Language=English 16 »Acelerando las Inversiones en Energía Renovable en Centroamérica«. More information available at: http://www.bcie.org/spanish/banca-inversion- desarrollo/desarrollo-competitividad/areca.php PANAMA | 149

Wind parks are currently planned by the following com- possibilities would allow installations of large wind parks panies: up to 600 MW. An upgrade of the grid is needed since in Panama, areas with a promising wind potential are • The company Aerogeneradores de Cerro Azul is plan- at great distance from demand centres and require long ning the construction of a 200 MW wind farm in the and expensive transmission lines to ensure energy sup- coastal zone of the Colón province, in alliance with ply where it is needed. Moreover, the regulatory market the German company WIND7AG which might in- needs to be adjusted to create a favourable framework for clude the use of the breakwater of the ACP (Panama the implementation of electricity production from re- Canal Authority) in the northern territory as location newable energy sources. for the wind mills. The project is currently in the En- vironmental Impact Assessment phase. The situation regarding the use of renewable energies, and • The company WIND7-Central America (subsidiary in particular wind energy, is likely to change from 2009 of WIND7AG) is planning the construction of a 120 onwards due to two particular facts. On the one hand, MW wind farm in the northern zone of Bocas del Panama has been the venue of the Wind Expo 2009 (from Toro province; in addition, they plan other initiatives 2nd to 4th September) fostered by the Latin American for the development of an 80 MW wind park with the Wind Energy Association. This event gives continuity company Santa Fe Energy in the province of Veraguas. to the first Wind Expo held in Guadalajara (Mexico) in Currently, feasibility studies are carried out. 2008 and aims at defining »successful strategies to inte- • Testing has also begun for a 180 MW wind farm in grate wind power in the Latin American Energy Matrix«. the Azuero Peninsula zone and »La Colorada« in In addition, first wind parks will start to be constructed the Coclé province by the companies Energy Envi- in Panama in 2009, such as the 200 MW wind park devel- ronmental Engineering 3E in partnership with the oped by Aerogeneradores Cerro Azul and WIND7AG. German company Plan8 GmbH. The successful completion of all planned wind projects in • Finally, the company Enrilnews currently under- the country would amount to 600 MW of installed wind takes wind measurements in Toabre for another wind power capacity for which the planned SIEPAC and inter- project in the north of the Coclé province. This park connection to Columbia is necessary. would add 225 MW to the country’s capacity and generate 540 TWh (which will represent 9 % of coun- Main investments in renewable energies in the country try’s consumption). The project will be developed in still come from foreign investors (international private two phases: the first one adding 150 MW and starting companies or multilateral banks). In particular, wind operation in 2010 while the second phase will add 75 power projects are financed and carried out by foreign MW, starting construction in 2011. companies such as WIND7AG (Germany) or Enrilnews (Spain). Incentives coming from the law no 45 comprise Business Climate exemption of import taxes for equipment, fostering the The small size of the Panamanian electricity market might use of international technology. However, currently no limit investment in renewables as the size of the market R&D programmes aiming at the development of nation- does not allow the installation of big wind parks in the al technology exist. The only academic institution which country (average capacity of current projects is around covers the topic of renewable energies is the Technologi- 100 MW). This situation could change once both the cal University of Panama which offers a master in me- SIEPAC and the interconnection Colombia-Panama are chanical engineering with majors in renewable energies finished as the expansion of the grid capacity and export and environment. PANAMA | 150

The efficient application of the incentive schemes comprised in the law 45 of 2004 and a successful realisation of the wind parks foreseen might generate proper conditions to exploit wind energy within the country. The market conditions could be improved by increasing subsidies and incentive schemes which even could trigger the establishment of a national wind energy industry. PANAMA | 151

1.7 Contacts and Addresses Centro Nacional de Despacho Apartado Postal: 0816 -01552 Ministerio de Economía y Finanzas Zona 5. Panamá R.P. Vice-Mimisterio de Economía E-mail: [email protected] Vía España, Edificio Ogawa Internet: www.cnd.com.pa Panamá República de Panamá Tel.: + 507 507-7000/+507 507-6600 Elektra Noreste Sede Corporativa. Costa del Este Vice-Ministerio de Finanzas Business Park Ave. Perú, Anitguo Edificio de Hacienda y Tesoro Torres Oeste, Piso 3 º Tel.: + 507 507-7600 Tel.: + 507 340-4600 E-mail: [email protected] Internet: www.elektra.com.pa

Comisión de Política Energética Union Fenosa Edemet-Edechi Vía España, Edificio Otawa, 3ª Piso Av. Diógenes De La Rosa Tel.: + 507 507-7042/43 Albrook Ed. 812. Panamá. República de Panamá. Panamá. Ciudad de Panamá E-mail: [email protected] Tel.: +507 315-7600/315 Internet: www.mef.gob.pa/cope/index.htm Internet: www.ufpanama.com

Ministerio de Economía y Finanzas – Dirección de Estadística y Censo Dirección de Hidrocarburos y Avenida Balboa y Avenida Federico Boyd Energías Alternas Plaza Edison Panamá, República de panamá Sector El Paical, Pisos 2 y 3 Tel.: + 507 510-4800 Apartado Postal: 0815-01119 Fax: + 507 510-4801 Panamá. República de Panamá. E-mail: [email protected] Tel.: +507 560-0700 Internet: www.contraloria.gob.pa Internet: http://www.mici.gob.pa/hidrocar.php Autoridad Reguladora de los Servicios Públicos Empresa de Transmisión Eléctrica SA Vía España. Edificio Office Park Plaza Sun Tower, Ave. Ricardo J. Alfaro, tercer piso Apartado Postal: 0816-01235 Tel.: + 507 501-3800 Zona 5. Ciudad de Panamá. Panamá. Fax: + 507 501-3506 Tel.: +507 508-4500 E-mail: [email protected] Fax: + 507 508-4600 Internet: www.etesa.com.pa E-mail: [email protected] Internet: http://www.asep.gob.pa/default.asp Autoridad Nacional del Ambiente Edificio 804 Albrook, Apartado C-0843-00793 Balboa, Ancón (Panamá) Tel.: + 507 500-0814/0815 Internet: www.anam.gob.pa PANAMA | 152

1.8 Information Sources Dirección de Estadística y Censo. Panamá en cifras 2003-2007. (2008) Asociación Empresarial Eólica (www.aeeolica.es) Empresa de Transmisión Eléctrica SA [ETESA] Asociación Nacional de Generadores (ww.anguate.org) (www.etesa.com.pa)

Autoridad Nacional de los Servicios Públicos. Cobertura ETESA. Plan de Expansión del Sistema Interconectado y demanda de energía eléctrica en la República de Pan- Nacional 2007-2011. (2007) amá. Perspectivas y mecanismos para segurar el abasto suficiente a los usuarios. (2008) Government of Panama. Legislative Assembly. Official Gazette 23 220. Law Nº 6 (of February 3, 1997). (1997) Autoridad Nacional de los Servicios Públicos. El Mer- cado Eléctrico Panameño. Descripción General. (2007) Government of Panama. Legislative Assembly. Official Gazette 25 112. Law Nº 45 (of August 4, 2004). (2004) Autoridad Nacional de Medio Ambiente (www.anam.gob.pa) Indexmundi (www.xmundi.com)

Autoridad Nacional de Medio Ambiente. Instituto de Comercio Exterior. Panamá: Estructura Compendio Estadístico Ambiental 2008/09. (2009) Económica. (2008)

Business Panama (www.businesspanama.com) Inter American Development Bank [IADB] (www.iadb.org) Centre American Bank of Economic Integration [CABEI] (www.bcie.org) International Monetary Fund (ww.imf.org)

Centro Nacional de Despacho (www.cnd.com.pa) Lahmeyer/ETESA/PNUD. Determinación del Potencial de la Energía Eólica en Panamá. (1998) CGIAR Consortium for Spatial Information (CGIAR-CSI), http://srtm.csi.cgiar.org, Ministerio de Comercio e Industria. Política Nacional Retrieved on 1st August 2009 de Hidrocarburos y Energías Alternativas. (2005)

CIA World Fact Boook. Panama country profile. (2009) Ministerio de Economía y Finanzas – Comisión de Política Energética. Plan Energético Nacional 2005- Comisión de Política Energética (www.mef.gob.pa/ 2020. (2005) cope/index.htm) Ministerio de Economía y Finanzas – Comisión de Comisión Económica para América Latina y El Caribe Política Energética (www.mef.gob.pa) (www.eclac.org) National Dispatch Centre [CND] (www.cnd.com.pa) Deutsche Bundesbank (http://www.bundesbank.de/) PANAMA | 153

Observatorio de Multinacionales en Latinoamérica (www.omal.info)

Sixth Framework Programme Priority 3. Developing Re- newables. Country Energy Information. Panama. (2006)

UNFCC (http://cdm.unfccc.int/Statistics/Registra- tion/NumOfRegisteredProjByHostPartiesPieChart. html)

World Wind Energy Association. Wind Energy Inter- national 2009-2010. Country Report Latin America. Panama. (2009)

X-rates [exchange rate website] (http://www.x-rates. com/d/USD/EUR/hist2008.html)

PERU 154

List of abbreviations

APEC Asia-Pacific Economic Cooperation kV Kilovolt CDM Clean Development Mechanism kW Kilowatt CDM-ICI Clean Development Mechanism kWh Kilowatt hours Investment Climate Index LEC Ley de Concesiones Eléctricas CGIAR Consultative Group on International LNG Liquefied Natural Gas Agricultural Research MEM Ministry of Energy and Mining of Peru COES Comité de Operación Económica del MERCOSUR Southern Common Market Sistema Interconectado Nacional MINAM Ministerio del Ambiente DGE Dirección General de Electricidad MW Megawatt Ctvo Centavo NGL Natural Gas Liquids GDP Gross Domestic Product OSINERGMIN Organismo Supervisor DGER Dirección General de Electrificación Rural de la Inversión en Energía y Minería DGIS Directorate General PEN Peruvian Nuevo Sol for International Cooperation PJ Petajoule EDELNOR Empresa De Distribucion RES Renewable Energy Sources Electrica De Lima Norte SEIN Sistema Eléctrico FONAM El Fondo Nacional del Ambiente Interconectado Nacional FONER Fondo Nacional de Electrificación Rural TPA Trade Promotion Agreement GEF Global Environment Facility TWh Terawatt hours GART Gerencia Adjunta de Regulación Tarifaria UN United Nations GTZ German Technical Cooperation UNDP United Nations GW Gigawatt Development Programme Hz Hertz WTO World Trade Organization IBRD International Bank for Reconstruction and Development PERU 155

7.1 Introduction time. Those natural preconditions are suited well for FIGURE 1: MAP OF PERU making use of Renewable Energy Sources (RES) such as wind along the coast line, hydropower in the Andes and solar where suitable. Hence Peru shows a varied potential for using RES to cover its energy needs.

Peru is a democratic republic in which the President is head of state and government. The country is divided into 25 administrative regions. The Peruvian population of about 28 million people is multi-ethnic; almost half of the people are indigenous followed by the group of the mestizos (mixed Indian and European people). The official languages are Spanish and Quechua, although a significant number of Peruvians also speak other indigenous tongues.

Table 1 shows show basic economic, geographic and de- Data Source: CGIAR 2004 mographic country data.

Peru is the third largest country in South America - locat- The main economic activities of Peru include agriculture, ed south of the equator on the Pacific coast neighboured fishing, mining, and manufacturing of textiles. In recent by Ecuador and Columbia in the north, Brazil to the east years the GDP has been rising steadily. Economic growth

TABLE 1: COUNTRY STATISTICS PERU 2008 1 Area Population GDP GDP / capita Export Import Currency 1 285 216km² 28.6 Mio. 86 754 Mio. € 3 033€ / capita 20 919 Mio. € 21 027 Mio. € 1 PEN = 0.23 €

Source: IMF 2009 and ACN 2009 converted with reference exchange rates of the European Central Bank and Bolivia and Chile in the south. It is geographically rates continued to rise each year to almost 10 % in 2008 divided into three distinctive areas which vary from the when Peru had a GDP of almost 87 billion Euros. Table arid plains on the Pacific coast in the west, the Andean 2 on the next page shows the development of the GDP Mountains towards the east and the tropical rainforests and the respective growth rates since 2000. Although of the Amazon Basin in the north east. The climate var- the economy has developed well, the poverty rate1 is still ies accordingly and is influenced by the Andes and the high. However, poverty has been declining continuously Humboldt Current which runs south to north along the over the recent years from almost 50 % in 2004 to 36 % 2 400km of coast line. Therefore the coast shows mod- in 2008. erate temperatures, low precipitation, and high humidity; towards the mountains temperature and humidity diminish with altitude. Rain is frequent during summer-

1 Rate of people living with less than 600 Euros per year PERU | 156

TABLE 2: GDP PERU 2000 - 2008 2000 2001 2002 2003 2004 2005 2006 2007 2008 Billions GDP Peruvian Soles 186.1 189.2 199.7 213.4 237.9 261.7 302.3 335.7 373.0 (current prices) (PEN) GDP Billions (current 57.7 60.2 60.1 54.2 56.0 63.8 73.5 78.4 86.8 Euro prices) GDP growth (constant 2.9 % 0.2 % 5.0 % 4.0 % 5.0 % 6.8 % 7.7 % 8.9 % 9.8 % prices)

Source: IMF 2009

Although due to the financial crisis growth is slowing 7.2 Energy Market down in 2009, it is still predicted to be about 3.4 %. Pe- ruvian financial indicators are also performing well and Overview Energy Market security of investments is guaranteed. According to the Energy resources in Peru are abundant and very diverse World Bank the country shows overall strong macro-eco- ranging from hydropower to oil and natural gas. Addi- nomic indicators and fairly sound economic and social tionally firewood and other biomass are very important policy management. Therefore it is stated that it seems ro- in rural areas for domestic heating and cooking purposes. bust enough to withstand the influence of the economic Production of primary energy was 543 Petajoule in 2007. crisis and recover fairly quickly.2 The following figure shows the distribution of primary Until 2007 Peru showed a positive trade balance, but in energy production by source. 2008 imports surpassed exports for the first time. The FIGURE 2: major trade partners of Peru are the United States of PRODUCTION OF PRIMARY ENERGY TOTAL PRIMARY ENERGY SUPPLY 2007: 542,8 PJ America and China. The new Trade Promotion Agree- ment (TPA) with the United States entered into force on 15,6 PJ 0,3 PJ 3 % 0 % February 1st 2009. Peru recently concluded a trade agree- 97,5 PJ 87,9 PJ 16 % ment with China as well. This should provide further sta- 18 % bility for trade with these countries. Additionally, negoti- 3,3 PJ ations for a trade agreement with the European Union are 1 % currently ongoing. Regionally, Peru is associated member of the MERCOSUR (Southern Common Market), the Asia-Pacific Economic Cooperation (APEC) forum, and 175,2 PJ 163,0 PJ 32 % 30 % the World Trade Organization (WTO). Furthermore, it belongs to the Andean Community of Nations, a volun- tary alliance of four countries which work for a sustainable and equitable human development in the region. Hydroenergy Firewood Dung & Yareta This shows that Peru is economically well integrated. Al- Coal Natural Gas + LNG Solar Energy Bagasse though Peru is still a developing country and fairly small Crude Oil alongside soaring Brazil, it shows a similar development with good growth rates. Source: MEM 2007 (a)

2 WB 2009 PERU | 157

As the figure 2 shows Natural Gas is the main domestic accounting each for approximately 30 % of energy con- primary energy source. However to cover the actual de- sumption. Energy consumption in the agricultural sector mand of energy imports are needed. Peru is a net import- and for non-energetic use is minor, as table 3 shows. er of energy and mainly relies on crude oil imports. Since the total final energy consumption has been rising from The Electricity Grid about 460 PJ in 2000 to 519 PJ in 2007 with oil being The electrical network of Peru has a total length of about the dominant energy source, its imports have increased 16 000 km. It is split into the Nationwide Interconnect- alongside from about 130 PJ in 2000 to 233 PJ in 2007. ed System (Sistema Eléctrico Interconectado Nacional However, due to the rising importance of natural gas the - SEIN) and four isolated networks, which account for share of oil to cover final energy demand is decreasing only 2 % of the transmission grid. continuously (43 % in 2007 down from 58 % in 2000). Consequently, imports of crude oil are also diminishing. FIGURE 3: TRANSMISSION NETWORK OF PERU Coal imports range consistently between 20 and 30 PJ (28 PJ in 2007) since it is mainly used for electricity generation of two power plants. The rise of natural gas as an energy source has resulted in a recent decrease of the importance of the use of oil. The completion of the Camisea natural gas project3 in 2004 led to an increase in the use of natural gas in the residential, industrial, and power generation sectors to about 12 % in 2007. In addition, the development of an integrated liquefied natural gas (LNG) terminal will allow Peru to become an important regional exporter of natural gas after operations beginning in 2010.

TABLE 3: FINAL CONSUMPTION OF ENERGY BY SECTOR IN 2007 Con- SECTOR Share Data Source: CGIAR 2004 sumption Residential, 169,35 PJ 32,6 % Commercial & Public Transmission and subtransmission in Peru show voltage Industry & Mining 162,97 PJ 31,4 % levels from 220 kV down to 33 kV. The transmission grid Transportation 157,62 PJ 30,4 % (220 kV and 138 kV) covers about 60 % of the electri- Farming, Cattle-Raising, Agric. city network with 5 711 km of 220 kV and 3 636 km of 18,39 PJ 3,5 % Ind. & Fishing 138 kV. 4 With the growing electricity demand the high Non Energetic 10,67 PJ 2,1 % voltage network grew by about 80 %, from 1995 to 2005 TOTAL 518,98 PJ which means a yearly average growth of 6 %. Source: MEM 2007 (a) As figure 3 shows, transmission and distribution networks are most dense along the coast and around Lima. With regard to the final energy consumption by sector, The SEIN is divided into four entities from North to there is a fairly even distribution with residential & com- South which are partly connected to each other by lines mercial, industry & mining, and transportation sector with a limited capacity. Additionally there are four major

3 The infrastructure of the project is located in the biologically sensitive and diver- 4 MEM 2009 (a) se lower Urubamba area in the Amazon jungle. Two pipelines carry the natural gas and natural gas liquids (NGL) across the Andes to an NGL processing plant and marine terminal in Paracas on the Pacific coast. PERU | 158

isolated networks (circles). The three closest to the SEIN Installed Capacity (Tarapoto – Moyabamba – Bellavista; Bagua – Jaén; At the end of 2008 the installed capacity in Peru was Puerto Maldonado) are to be connected to it by 2013. 7 158 MW of which the major part is located in the cen- There is only one international 220 kV connection in the tral zone around Lima. About 85 % (almost 6 000 MW) North to Ecuador with a capacity of 160 MW which how- of this capacity is connected to the SEIN. The maximum ever is not operated continuously because of regulatory demand from the interconnected system rises continu- differences and operating issues. At the moment there are ously reaching 4 200 MW in 2008.5 Although it seems also preliminary plans to construct interconnections to like generation capacity is abundant compared to de- Colombia, Brazil and Bolivia for potential importing and mand, due to hydropower not being available year around to Chile for potential exporting purposes. An intercon- sufficient generation capacity is scarce at times. nected system, however, is technically and operationally Hydropower plants account for a capacity of 3 242 MW difficult because in Bolivia and Chile the frequency is or 45 % and thermal power plants have a capacity of only 50 Hz compared to 60 Hz in Peru. 3 915 MW accounting for 55 % in 2008 (see table 4). Whereas in the nineties hydropower was the main source The main problems of the Peruvian electricity grid were for electricity generation, thermal plants caught up and still are outages due to a lack in network management around the year 2000. However, with the start of opera- and capacity as well as electricity losses. Since the mid- tion of the Camisea Natural Gas Project and the rising ca- nineties strong regulation and the law of electricity con- pacity for gas distribution, the electricity generation from cessions (Ley de Concesiones Eléctricas - LEC) helped gas increased significantly. Two of these new plants are Peru to significantly enhance the network conditions and Kallpa I and Chilca I, located in the Province of Cañete its operation. In recent years the transmission and distri- south of Lima.

TABLE 4: INSTALLED GENERATION CAPACITY PERU Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Hydropower Plants 2 857 2 966 2 997 3 032 3 056 3 207 3 208 3 233 3 242 [MW] Thermal Plants 3 209 2 940 2 938 2 937 2 960 2 993 3 339 3 796 3 915 [MW] Wind turbines 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 [MW] Total [MW] 6 067 5 907 5 936 5 970 6 017 6 201 6 548 7 030 7 158

Source: MEM 2008 (a) bution losses accounted for about 8 % of electricity con- There are only two coal-fired power plants (Ilo 1 and Ilo 2 sumption down from over 20 % in the mid-nineties. with 245 MW and 141.5 MW respectively), which are The current goals of the Electric Power Plan for 2006 to located in the South of Peru. The rest of the thermal ca- 2015 (Plan Referencíal de Electricídad 2006-2015) are pacity (3 425.5 MW) is composed of plants fired with amongst others to further extend the electricity grid. This diesel and fuel oil, bagasse and refinery gas. There are a means expanding the transmission and distribution net- few small wind turbines, but their capacity is nationally work capacity and connecting the isolated networks to not significant. the SEIN.

5 MEM 2008 (a) PERU | 159

TABLE 5: POWER GENERATION IN PERU 2000 - 2008 Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Electric market 18 327 19 213 20 418 21 360 22 619 23 810 25 613 28 199 30 829 [GWh] Own consumption 1 595 1 571 1 563 1 562 1 647 1 699 1 756 1 743 1 798 [GWh] Total Generation 19 922 20 785 21 981 22 922 24 266 25 509 27 369 29 942 32 627 [GWh]

Source: MEM 2008b: Estadistica generación y transmission 2007-2008

In the period between 1995 and 2007 the total installed FIGURE 4: capacity grew on average by almost 4 %. Although growth ELECTRICITY GENERATION BY SOURCE IN 20077 stagnated between 2000 and 2004, recent years showed an increase again. Table 4 on the previous page shows 2 817 GWh 1 668 GWh 5 % 3 % 1 966 GWh the development of the installed capacity per technology 4 % from 2000 to 2008. 2 296 GWh 24 424 GWh 4 % Electricity Generation 47 %

In recent years the Peruvian economy has been thriving, 0 337 GWh with an economic growth of almost 10 % in 2008. There- 1 % fore the electricity demand has been rising continuously 18 883 GWh 6 as as table 5 illustrates007 36 %

Since 2000 the average generation growth rate was about 6 % with an annually increase of around 9 % over the last Coal Reﬁnery Gas two years to almost 33 GWh in 2008. In 2007 hydropow- Bagasse Destibuted Gas Diesel Oli Hydro er was the dominant electricity source with almost 50 %, Fule Oil followed by natural gas with 36 %.

In 2007 the total electricity consumption in Peru used renewable energy source at present. Nevertheless, amounted to more than 26 TWh. Electricity consump- the electricity market still has to cope with the seasonal tion in 2007 was dominated by the industrial sector with availability which has become less of a problem with the 52 %. Since 2000 electricity consumption increased by growth of the SEIN and therefore the improved genera- more than 64 % in this sector. The electricity consumption management. tion of the individual sectors of the Peruvian economy is shown below. Regarding other renewable energy sources the utilization is negligible. Until 2008 only two wind turbines were in- Renewable Energies stalled in Peru. In 1996 a Micon turbine of 250 kW was The current status of renewable energy utilization in Peru mounted and in 1999 a Mitsubishi turbine of 450 kW is very clear: With about 45 % of the overall installed followed. For electricity generation by photovoltaic cells capacity and almost half of the generated electricity, hy- there were 3.7 MW installed in 2004 7 and by today it dropower is the main grid-connected and commercially might be about 5 MW mainly for rural electrification.

6 Due to transmission losses the total electricity generation of 52 393 GWh is 7 RECIPES 2003 reduced significantly compared to table 5 PERU | 160

TABLE 6: ELECTRICITY CONSUMPTION BY SECTOR; 2000-2007 [GWH] Sector 2000 2001 2002 2003 2004 2005 2006 2007 Industry 8 375.0 9 280.6 9 567.6 10 038.7 10 813.4 11 280.7 12 136.1 13 767.7 Commerce 2 693.3 2 762.2 3 013.1 3 341.1 3 504.8 3 767.9 4 105.7 4 356.8 Residential 3 936.2 4 044.0 4 464.9 4 425.3 4 720.0 5 020.7 5 404.4 5 840.0 Others 2 135.8 2 113.2 2 122.5 2 132.1 2 249.6 2 330.9 2 400.0 2.379.1 Total 17 140.4 18 200.0 19 168.1 19 937.2 21 287.7 22 400.2 24 046.1 26 343.6

Source: MEM 2009

Biomass is only used for cooking and heating purposes in Electricity Prices households and geothermal heat is sporadically used for The average electricity price in 2007 was 7.40 ctvo heating as well. PEN / kWh (1.7 cent € / kWh).8 However, in the regulated market the average price over all voltage levels was Except the further development of large hydro and 9.09 ctvo PEN / kWh (2.1 cent € / kWh) with a standard emerging wind power utilization (see chapter 1.6), an household having to pay 11.18 ctvo PEN / kWh in 2007 increased utilization of geothermal heat and solar energy (2.6 cent € / kWh). In the competitive market the average is also planned. Two planned geothermal electric plants electricity price was 5.42 ctvo PEN / kWh (1.2 cent € / in the south with an overall capacity of 200 MW have kWh). 9 acquired a temporary license. Funds from the Global Since the liberalization in the nineties the average price Environment Facility (GEF) supported by public fund- has decreased on average by 1 % per year (1995-2005), ing recently helped to install 4 200 domestic photovoltaic whereas increases in recent years brought the average systems. price back to 1995 levels.

FIGURE 5: ELECTRICITY GENERATION BY SOURCE IN 2007

2 19951996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*

regulates market liberalized market *estimation Source: MEM 2008

8 Exchange rate: 4.35 PEN per Euro 9 MEM 2007 (b) PERU | 161

According to the Ministry of Energy and Mining the system capacity in 2007, accounting for 64 % of the total Peruvian electricity market will need investments of at electricity production. The transmission system is fully least 2 500 million Euros until 2015 to meet the rising privately owned, whereas in distribution private com- demand. With massive investments in generation and panies supply 45 % of the consumers corresponding to transmission, electricity prices are expected to rise in the about 70 % of electricity sales. The table below gives an coming years. overview of the most important private and state owned companies. Liberalization The privatization of the electricity sector has been an As natural monopolies, distribution and transmission important component of the liberalization process that are regulated in Peru and open access to the transmission began in 1992 / 93. Today 67 % of the power utilities are system is enforced. Accordingly, the wholesale electri- privately owned with the rest still remaining in control city market in Peru is rather competitive as the genera- of the state. Some utilities are partly owned by a foreign tion companies compete to supply distribution compa- private investor in alliance with local private investors. nies and large consumers. The participation of private companies in the electri- In order to guarantee competition, there is a 15 % limit to city sector varies depending on the sector. In generation, the market share of a company in the generation, distri- private companies had concessions for 29 % of the total bution and transmission businesses. There is also a cross-

TABLE 7: MAJOR COMPANIES IN THE ELECTRIC MARKET Generation [MW] Transmission [km] Distribution Clients EDEGEL 1 574 REPSA 4 342 EDELNOR 1 027 741 ENERSUR 907 TRANSMANTARO 603 LUZ DEL SUR 804 014 DUKEEGENOR 531 REDESUR 428 ELECTROSURMEDIO 153 539 TERMOSELVA 203 ISA PERU 392 EDECAÑETE 28 093 Private KALLPA 190 ETESELVA 392 ELECTROTOCACHE 10 838 ELECTROANDES 184 ETENORTE 342 EMSEMSA 7 061 EEPSA 159 CONENHUA 371 EMSEU 6 517 CAHUA 92 SERSA 4 812 SHOUGESA 67 ELECTROPERU 1 032 HIDRANDINA 508 698 EGASA 340 ELECTROCENTRO 465 285 SAN GABÁN 129 ENOSA 299 899 State EGEMSA 106 ELECTROSURESTE 286 672 owned EGESUR 63 SEAL 278 681 ELECTRONORTE 259 729 ELECTRO ORIENTE 161 236 ELECTROPUNO 145 455 ELECTROSUR 113 961 ELECTRO UCAYALI 50 299

Source: MEM 2009 (a) PERU | 162

TABLE 8: INVESTMENT INTO RURAL ELECTRIFICATION IN MILLION US DOLLARS 2000 - 2008 Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Funding per year 53.4 45.2 17.3 43.4 39.1 45.2 34.0 89.9 97.0

Source: MEM 2008 (a) ownership restriction, which allows a company to have a The investment in rural electrification depends on the market share of more than 5 % only in one sector. available funding. However, expenditure rose consider- Overall, the electricity sales market is divided into two ably in recent years, and was almost 100 million US Dol- parts: The competitive market for customers with a ca- lars in 2008 (see table 8). pacity of more than 1 MW and the regulated market of customers below 1 MW. This means that households and The funding for rural electrification projects is cen- smaller businesses are mainly served by their distribution tralized at the National fund for Rural Electrification company and pay regulated prices whereas the larger con- (Fondo Nacional de Electrificación Rural-FONER). sumers such as industry can choose their supplier and fix Besides government support, funding is also acquired electricity prices independently. from the International Bank for Reconstruction and Due to the shortages in electricity generation and trans- Development (IBRD) and the Global Environment Fa- mission, industrial companies have often chosen to gen- cility (GEF). Between 2007 and 2009, 4 000 households erate electricity autonomously. There are 78 major gen- (20 000 people) were provided with grid access via the erators producing electricity for their own consumption Energising Development programme, financed by the such as Pluspetrol Perú (refinery) or Cemento Andino Netherlands Directorate General for International Co- (Cement Company) to name the largest ones. operation (DGIS) and implemented by the German Technical Cooperation (GTZ). Rural Electriﬁcation According to the UN Human Development Report According to the Rural Electrification by Renewable En- 2007 / 2008 by UNDP 10 the electrification rate in Peru ergy Plan the goal is to electrify about 260 000 house- is about 72 % of the population which means that still holds with PV and about 20 000 with small hydro power more than a quarter of the population has no access to by 2020. electricity. This mainly applies to the people of scarcely populated areas and shows the need for further electrification in rural areas. 7.3 Market Actors In order to promote rural electrification, the Law on Rural Electrification (Ley N° 27744 - Ley de Electrificación Ru- Ministry of Energy and Mines of Peru ral y de Localidades Aisladas y de Frontera) was enacted The most important entity in the energy sector is the in 2002. It clearly states the objective of fostering socio- Ministry of Energy and Mining of Peru (Ministerio de economic development and establishes a fund for rural Energía y Minas - MEM). MEM plans legislative initia- electrification, which is administered by the General Di- tives and plans the development of the electricity sector. rectorate of Rural Electrification (Dirección General de The main executive body within MEM is the General Electrificación Rural - DGER), a division of the MEM. Directorate of Electricity (Dirección General de Electri- After the implementation of the project, management is cidad – DGE) which is assigned to promote and evaluate transferred to a public enterprise – Electric Infrastructure the development of the electricity sector. Furthermore it Administration Enterprise (ADINELSA). is the entity to issue the necessary concessions to the mar-

10 UNDP 2007 PERU | 163

ket actors. Since Rural Electrification is still a very impor- servation and environmental protection. In 2000 it was tant issue there is a separate General Directorate of Rural also assigned with the supervision, regulation, control Electrification (Dirección General de Electrificación Ru- and punishment, as well as dispute resolution for private ral - DGER) which promotes that topic, issues the funds investment in public services. and is the partner for international donors. It is also responsible for small-scale renewable energy applications. Moreover, the OSINERGMIN Adjunct Office for Tariff So far there is also no public entity responsible for large Regulation (Gerencia Adjunta de Regulación Tarifaria scale renewable electricity generation and responsibilities - GART) is in charge of fixing generation, transmission are scattered between different directorates of the minis- and distribution tariffs and the tariff adjustment condi- tries of energy and environment. tions for end consumers. They also determine the tariffs for transport and distribution of piped gas. Energy and Mining Investment Supervisory Agency SEIN Commission The main regulatory body is the Energy and Mining In- The Comité de Operación Económica del Sistema In- vestment Supervisory Agency (Organismo Supervisor de terconectado Nacional (COES) is a private, non-profit la Inversión en Energía y Minería - OSINERGMIN), for- entity established under public law. It aims at operating merly known as OSINERG. It was established in 1997 to the SEIN at minimum cost in the medium and long term, oversee and monitor the implementation of legal as well while preserving the security of the system and the effi- as technical requirements in the electricity and hydrocar- cient use of energy resources. The COES is composed of bon market. Additionally, it supervises the compliance the leading companies in generation, transmission and with legal and technical standards related to nature con- distribution of electricity, as well as large consumers.

FIGURE 6: ACTORS IN THE ELECTRICITY MARKET IN PERU

STATE

Policy formulation MEM -DGE Implementation Price Regulation OSINERGMIN Control Promotion of PROINVERSI ÓN investments

UTILITIES COES

Network Management CUSTOMERS Market Organisation Generation Transmission liberalized (> 1 MW) and Distribution regulated (< 1 MW)

MARKET

Source: MEM 2005 PERU | 164

Private Investment Promotion Agency los Organismos Reguladores de la Inversiòn Privada en (Proinversión) los Servicios Pùblicos) came into effect and set the condi- There is a special Agency in Peru for promoting private tions for further investment mainly into electricity gen- investments which is the Agencia de Promoción de la In- eration and transmission. Accordingly the Law on Rural versión Privada (Proinversión). It is an independent state Electrification (Law N° 27744 - Ley de Electrificación agency, which promotes investment by private agents to Rural y de Localidades Aisladas y de Frontera) regulated incentivize Peru’s competitiveness and sustainable develop- the development of the electricity sector in rural and iso- ment. Proinversión supports investors by providing data, lated areas. The emphasis was placed on the generation of establishing contacts, supporting with proceedings and ob- renewable electricity. taining permits as well as establishing local partnership. In addition to the LCE in 2006 the law on the efficient development of electricity generation (Ley N° 28832 - Power Utilities Ley para Asegurar el Desarrollo Eficiente de la Gener- In 2007, there were 38 generators active in the market. ación Eléctrica - LGE) was issued to promote an efficient Five of them (Electro Perú, Edegel, Egenor, Enersur and development of electricity generation and to foster invest- Termoselva) own about 70 % of the installed capacity. In ments in it. The law made the construction of additional transmission, seven grid operators existed in 2007. Re- generation plants possible through a public tender mech- garding electricity distribution, 22 companies delivered anism, whilst adapting the efficiency criteria in terms of electricity to the customers of which about 52 % were generation and transmission. In regard to cogeneration served by the biggest three EDELNOR, LUZ del SUR and efficient use of energy, additional regulations were and ELNM. For more detailed information on the mar- adopted (D.S. N° 037-2006-EM Reglamento de Cogen- ket structure and data refer to section Liberalization. eración and D.S. Nº 053-2007-EM Reglamento de la Ley Figure 6 on the previous page shows the relations be- de Promoción del Uso Eficiente de la Energía). tween the above named market actors within the electric- The functionality of the electricity system and networks ity sector. is ensured through the national code for electricity distribution and utilization (El Código Nacional de Elect- ricidad Suministro y Utilización) together with technical 7.4 Political Framework norms for electricity services (Norma Técnica de Calidad Conditions for Energy de Servicio Eléctrico).

In 1992 the Law of Electricity Concessions (Law N° The government also issued the reference plan on elec- 25844 - Ley de Concesiones Eléctricas - LCE) became tricity from 2006 to 2015 (Plan Referencial de Electri- effective and demanded the separation of generation, cidad 2006–2015) which outlines the development of transmission and distribution activities in the electrical the electricity sector until 2015. The main objectives are sector. It had the objective of promoting competition and the promotion of private investment in the energy sector, reaching higher efficiency in the electricity sector. Under monitoring of the energy sector and providing subsidies the new law, Peru privatized the majority of its electricity to rural electrification projects. Furthermore the Plan sector. This law, its amendments and the corresponding targets an electrification rate of 93 % by 2015, a self-suf- regulations also determined a new tariff system and tight ficient, diversified, sustainable energy supply and an im- monitoring of key figures. portant contribution of renewable energies.11 Concrete In 2000 the Law on the Regulatory Framework on Invest- measures and target figures are mostly still under developments in Public Services (Law N° 27332 - Ley Marco de ment, but should be finalised in 2010.

11 MEM 2005 PERU | 165

7.5 Framework Conditions Decree N° 1058 on the promotion of electricity gen- for Renewable Energies eration from renewable energy sources (D. L. Nº 1058 - Promoción de la inversión en la actividad de generación Strategy and objectives for renewable energies eléctrica con recursos hídricos y con otros recursos reno- With a large share of hydropower electricity genera- vables) provided additional incentives, inter alia by allow- tion, Peru already makes use of renewable energy sources ing an accelerated depreciation of up to 20 % annually. (RES). Since the early 2000s it is emphasized that the use A direct promotion to raise the share of RES was intro- of RES is vital for the Peruvian energy portfolio. Besides duced in 2008 with legislative decree Nº 1002 (D.L. Nº the general support for new electricity generation plants, 1002 - Ley de Promoción de la Inversión para la Gener- it was agreed that additional incentives should be given ación de Electricidad con el uso de Energías Renovables) for the electricity generation from RES. However, apart and the corresponding regulation (D. S. Nº 050-2008- from verbal assurances little has happened so far. As com- EM). The principal incentives given for electricity gen- municated by the Ministry for Energy and Mines the generation from biomass, wind, solar, geothermal and tidal eral plan is to move towards a three fold primary energy energy sources as well as hydropower up to 20 MW are supply composed of one third liquid fossil fuels, one third the following:. natural gas and one third RES. In 2008 the first step was taken to establish measures and goals by a law to promote r (SBOUJOH QSJPSJUZ GFFEJO BOE QSFGFSFOUJBM BDDFTT UP RES electricity generation (see following section). How- transmission and distribution networks ever the government is still in the process of establishing r 1SPWJEJOHTVQQPSUUISPVHIIJHIFSFMFDUSJDJUZQSJDFTGPS solid measures and defining proceedings and rules. a fixed percentage of Peruvian electricity consumption At the moment regional RES plans are elaborated which (at least 5 % for the first period between 2008-2012). should lead to a national plan for Renewable Energies This share is to be adapted every five years. (Plan Nacional de Energías Renovables). This plan is sup- r 5IFEJGGFSFODFCFUXFFOUIFDPTUTPGSFOFXBCMFFOFSHZ posed to summarize the potential for utilizing RES and is generation and competitive energy generation will be to be updated every two years. The main renewable ener- covered by a higher price that will be set by OSINERG. gy sources are considered hydro and wind power, as they have the largest potential, which is estimated to be at 58 Law N° 1002 is complemented by a framework law for GW for hydropower and at 22 GW for wind power.12 In Private Investment Growth and Regulations of the Pri- regard of small scale applications, especially photovoltaic, vate Investment Guarantee Systems as well as a law on plans are formulated in the framework of rural electrifica- the promotion of investment into generation of hydro tion and the objective is to provide 280 000 households power and other renewables (D.L. Nº 1058 Ley que with renewable energy systems before 2020. promueve la Inversión en la Actividad de Generación Eléctrica con Recursos Hídricos y con otros Recursos Legal Conditions and Support Renovables). Schemes for renewable energies To support the utilization of renewable energies in 2006, These regulatory changes could have a significant impact a law on tax exemption for RES (Ley Nº 28876 - Ley que on electricity generation from RES, however there are amplía los alcances del régimen de recuperacíon antici- still key regulations missing (e.g. on how the tendering pada del impuesto general a las ventas a las empresas de process works). Furthermore the technical details for generación hidroeléctrica) exempted the sales from RES network connection and RES generation management generation from the value added tax. In 2008 Legislative still have to be established. An additional barrier for the

12 MEM 2009 (b) PERU | 166

expansion of grid-connected renewable energies are the Clean Development Mechanism scattered responsibilities between different directorates According to the CDM Investment Climate Index of the ministries of energy and environment. (CDM-ICI) of the DEG, the German development fi- Another objective of the Peruvian Government is the nance institution, Peru ranks in eighth place. It scores promotion of biofuels in the markets of domestic heat- 83.6 points out of a possible hundred, which means there ing, transport and exports. Therefore, a law was enacted are good framework conditions for the development of in 2008 (Ley de Promoción del Mercado de Biocombus- CDM projects. 13 tibles), providing for the establishment of mandatory The newly established Ministry of Environment (Minis- shares of ethanol and biodiesel in transport fuels. It is terio del Ambiente - MINAM) was chosen to host the accompanied by a programme to improve the frame- Designated Nation Authority (DNA) in October 2008. work conditions and promote investments in biofuels There, the Director on Climate Change and a designated production. Ad-hoc Committee (Comité Ad-hoc) with representa-

TABLE 9: LIST OF REGISTERED CDM PROJECTS Emission Date of N° Title Type MWel Reductions Registration per year 1 Santa Rosa Hydro 4,1 13 845 tCO2 Oct 05 2 Poechos I Project Hydro 15,4 31 463 tCO2 Nov 05 3 Tarucani I Hydro 49,0 153 957 tCO2 Sep 06 Huaycoloro landfill gas 4 Landfill gas 5,7 298 996 tCO2 Mar 07 capture and combustion 5 Quitaracsa I Hydro 114,4 249 463 tCO2 Apr 07 6 Peruvian Fuel-Switching Project Fossil fuel switch -- 25 577 tCO2 Jul 07 Palmas del Espino – Biogas recovery 7 Methane avoidance 17,8 26 719 tCO2 Sep 07 and heat generation from effluent 8 Ancon – EcoMethane Landfill Gas Project Landfill gas n.a. 69 012 tCO2 Nov 07 Rehabilitation of the Callahuanca 9 Hydro 7,5 18 189 tCO2 Jan 08 hydroelectric power station 10 Caña Brava Hydroelectric Power Plant Hydro 5,7 21 974 tCO2 Feb 08 11 La Virgen Hydroelectric Plant Hydro 64 220 218 tCO2 Mar 08 Carhuaquero IV 12 Hydro 9,7 23 909 tCO2 May 08 Hydroelectric Power Plant Fuel Switching and Natural 13 Fossil fuel switch -- 269 851 tCO2 Nov 08 Gas Pipeline Extension, Cementos Lima 14 La Joya Hydroelectric Plant Hydro 15,0 41 987 tCO2 Nov 08 15 Poechos II hydroelectric plant project Hydro 10,0 22 771 tCO2 Nov 08 Fuel Substitution 16 Hydro 0,8 5 326 tCO2 Nov 08 by Hydro Generation, Pasto Bueno 17 Cheves Hydro Power Project Hydro 168,0 393 831 tCO2 Feb 09 18 Bionersis Project Landfill gas -- 11 864 tCO2 May 09 Total 1 898 952 tCO2

Source: UNFCCC 2009

13 CDM-ICI 2009 PERU | 167

tives from companies, authorities and non-governmental and private sector investment in photovoltaic-based rural organizations are in charge of CDM activities. electrification. The funding is four million US Dollars by As of August 2009 there are 18 CDM projects registered GEF and an additional 5 million US Dollars by the Peru- with the UNFCCC which mostly are hydropower plants. vian government which resulted in over 4 200 installed The Peruvian Ministry of Environment states that there systems so far. are about 20 CDM projects to be implemented in 2009, The European Commission’s EuropeAid Cooperation and another 100 projects have been proposed. If all of the Office also initiated a rural PV project named EURO- projects were completed, this would trigger investment of SOLAR Programme. The main goal of the programme is up to six billion US Dollars over the coming five years.14 to foster the use of renewable energies as a driver of human development in the eighth poorest countries in Latin A major promoter of the establishment of CDM projects America. The Programme includes the installation of in Peru is the Environmental Fund (El Fondo Nacional generation kits using only renewable energy sources. The del Ambiente – FONAM). FONAM helps to prepare equipment consists of photovoltaic panels and, in some the Project Idea Note (PIN), to formulate the Project cases, a back-up wind generator as well as auxiliary equip- Design Document (PDD) and supports the project hosts ment (batteries, laptops, satellite internet connection in all stages of project execution. etc.). This is conducted by the General Directorate for Rural Electrification of the Ministry of Energy and Mines, International donor activities whereas the EU funds 5 million Euro in addition to 1.3 Due to fairly stable political conditions and the sustained million Euro from the Peruvian government. It is planned economic development many organizations and coun- that 130 communities will receive a generation kit. tries are involved in Peru as donors but also as investors. One of the larger investors is the International Bank for The German Federal Ministry for Economic Coopera- Reconstruction and Development (IBRD) (one of five in- tion and Development (BMZ) is also involved in Peru, stitutions of the World Bank Group). Peru’s 2009 IBRD and concentrates on three areas: investment portfolio consists of approx. 20 projects with a total commitment reaching more than 1.75 billion US$. r %FNPDSBDZ DJWJMTPDJFUZBOEQVCMJDBENJOJTUSBUJPO Among the supported activities are projects promoting r 1SPWJTJPOXJUIQPUBCMFXBUFSBOEXBTUFXBUFSEJTQPTBM rural electrification, improving urban transport or sup- r 4VTUBJOBCMFSVSBMEFWFMPQNFOUJODMVEJOHDPOTFSWBUJPO porting environmental programs. and sustainable cultivation Regarding environmental issues the Global Environment Facility (GEF) is one of the major donors. GEF funds As a result of inter-governmental negotiations in Septem- over 20 projects with a direct financing value of more ber 2008, BMZ promised support of 92 Million Euros than 40 million US Dollars, triggering a fivefold co-fi- for 2008 and 2009. 76.5 Million Euros are designated for nancing value. One of the most important GEF-projects financial and 15.5 Million Euros for technological coop- is »Photovoltaic-Based Rural Electrification in Peru«. eration. Additionally a further debt swap amounting to The objective of the project is to assist the Government of some 48.5 million Euros was agreed in 2008. Alongside Peru in removing barriers to sustainable rural electrifica- the USA and Japan, Germany is one of the country’s main tion using photovoltaic technology in remote rural areas. bilateral donors. The project should demonstrate the viability of establish- Peru is part of the Energising Development programme ing micro enterprises to sell, maintain and operate PV financed by the Netherlands Directorate General for In- systems, as well as create incentives for increased public ternational Cooperation (DGIS) and implemented by

14 FONAM 2009 and GCEM 2009 PERU | 168

the German Technical Cooperation (GTZ). The pro- perience on the utilization of wind power is not existent gramme aims at promoting and realising sustainable ac- yet and precise measurements at certain project sites have cess to modern energy services in developing countries. In not been conducted yet, the actual values might differ. Peru, more than 150 000 people were provided with ac- The potential for offshore wind power along the Peruvian cess to modern energy services between 2007 and 2009, coast has not been researched yet in depth. inter alia by connecting 4 000 households and 107 social Out of the 25 regions of Peru nine show a wind power institutions to the electricity grid and by disseminating potential worth mentioning. The following table shows more than 15 000 improved cooking stoves to households the regions with a wind power potential of more than and social institutions. In a second phase (2009-2011), 1 000 MW and the respective utilizable wind power. a target of 500 000 people has been set. The table clearly shows that the highest yields are achiev- Besides development projects, Peru attracts a lot of for- able at the coastal regions of Piura in the Northwest and eign investors due to the sustained economic growth and stable conditions. In 2008 almost 17 billion US Dollars TABLE 10: WIND POWER POTENTIAL PER REGION were invested in Peru mainly by companies from Spain, Potential Utilizable the UK and the USA. The energy sector ranks at fifth Region Wind Power Wind power place in foreign investments amounting to 1 675 million (MW) (MW) US Dollars. Amazonas 1 380 6 Ancash 8 526 138 Arequipa 1 992 1 158 7.6 Market potential for wind energy Cajamarca 18 360 3 450 Ica 18360 9 144 Wind energy potential La Libertad 4 596 282 Due to its geography Peru possesses abundant wind ener- Lambayeque 2 880 564 gy potential. Mainly along the coastline and the primary Lima 1 434 156 mountain range there are wind speeds of 7.5 m / s and Piura 17 628 7 554 more (at a height of 80 meters) which enable an econom- Source: MEM 2008 (c) ically viable utilization. The regions with the most abundant wind energy potential are situated in the North at Ica in the South of Lima. The third most promising re- the coast as well as in the Andes and around Ica south of gion is Cajamarca in the northern Peruvian Andes. Lima. In the west of the Andean Mountains and towards The wind regime is best during winter with wind speeds the Amazon basin there is hardly any wind potential. The dropping in summer. This seasonal variation matches well overall potential of onshore wind power is estimated at with availability of water resources for hydro power genera- 77 GW in the wind atlas published at the end of 2008 tion that is highest in summer and low in winter. Therefore, (http: // dger.minem.gob.pe / AtlasEolico / atlaseolicoli- if provisions for an intelligent dispatching system are made, bro / AtlasEolicoLibro.pdf ). RES could provide a year round supply of electricity. The technologically feasible potential for electricity generation is officially estimated at 22 GW by MEM. This is Framework Conditions for Wind Energy based on a study for the Wind Atlas for Peru (Atlas Eóli- The general instruments for the promotion of renewable co del Perú) issued in November 2008 which by means of energy sources are defined in the Law N° 1002 as de- about 30 measuring stations established an overview of scribed in chapter 1.5. The major elements of the law can the Peruvian wind power potential. Since large scale ex- be summarized as follows: PERU | 169

r 4IBSF PG SFOFXBCMF FOFSHZ TVDI BT XJOE TPMBS UJEBM TABLE 11: WIND POWER PROJECTS WITH TEMPORARY GENERATING LICENSES PER REGION geothermal, biomass and hydro of at least 5 % for the Number of Capacity Region first five years (2008-2012) projects [MW] r )JHIFSUBSJGGQSJDFTUIBUXJMMCFTFUCZ04*/&3( Ancash 7 1 060 r (VBSBOUFFEBOEQSFGFSFOUJBMGFFEJO Arequipa 7 1 010 Ica 12 1 630 In order to promote renewable energy generation, the La Libertad 9 980 Peruvian government launched a package of measures to Lambayeque 1 100 encourage investments in the area. Its main features com- Lima 4 630 prise a guaranteed internal rate of return of 12 % and ac- Moquegua 4 620 celerated depreciation up to 20 % per year. Piura 20 3 585 In order to build a wind farm a temporary license from the Tacna 3 290 Dirección General de Energía of the Ministry of Energy Tumbes 2 200 is required, which includes the permission to conduct the Total 63 10 105 Environmental Impact Assessment (EIA), prefeasibility Source: MEM 2009 b studies and wind measurements. The permanent license Note: The capacity of six projects that are situated in more than one region has been split ﬁfty-ﬁfty. will only be issued on basis of an EIA. Once the EIA is approved and a permanent concession is obtained, the wind overall capacity it is interesting to note that the govern- farm can be erected. ment plans the first tender to be held for a maximum of 500 MW (for all renewable energy sources). Furthermore, Current Use of Wind Energy the concessions are only valid for two years; this means and Project Pipeline that there will be fierce competition for the promotional Regarding small scale wind power applications several RES contracts. Additionally, the above numbers imply small wind turbines are in operation mainly in rural areas that almost half of the utilizable wind energy potential of for water pumping, irrigation and battery charging. The 22 GW has already been secured by the temporary license use of wind energy for water pumping has been taking holders. place traditionally in the North of Peru. As far as large There are eleven companies holding temporary conces- scale wind installations are concerned, two turbines were sions. The company that has obtained most of them is installed in the late 1990s, but there was no further devel- Ibero Peruana Inversiones (22 contracts). The other con- opment of wind power utilization until 2007. However, cession holders are Norwind, Huayra Kallpa, Energía since then a rush for temporary concessions has taken Eólica, Gaz & L’Energie, Generalima, Inversiones Troy, place to secure attractive potential wind farm sites add- Petrolera Monterrico, Perú Energía Renovable, Soleol ing up to a total capacity of more than 10 GW. 15 Table and Sowitec Energías Renovables de Perú. According to 11 shows the number of projects with temporary licenses the Peruvian Renewable Energy Association (Asociación per region. Peruana de Energías Renovables - Apeger) wind energy The planned capacities of the wind parks range from 40 could amount to a total investment of over one billion to 300 MW. It is important to emphasize that all the tem- US Dollars in the medium term. porary concessions obtained so far are for sites close to In order to be able to define grid connection and grid inte- the coastline because access is easier and wind turbines gration conditions for wind energy, the COES is currently can be delivered by sea vessel. conducting a study which will also define the maximum Taking into account the large number of projects and the capacity of wind power which could be connected to the

15 MEM 2009 (a) PERU | 170

SEIN without disrupting network operations. This is the Law of 1991 lays clear rules and therefore ratings of Peru prerequisite for a possible tender by the government. It for investments are good (BBB+). is obvious that in a country with a maximum demand of Although Peru is very liberal in granting market access 4 200MW the short term possibilities for the connection to foreign investors, there are still a few obstacles which of wind turbines to the network are limited. might hinder investments. The enterprise survey of 2006 After several postponements, it is now expected that to- by the World Bank shows the Top 10 constraints as per- wards the end of the year 2009 a tender for wind power ceived by companies investing in Peru (see figure 7). will be held by OSINERGMIN. In this tender only companies which hold a temporary concession and which can Regarding electricity generation generally every company guarantee a certain amount of financing are allowed to can apply for a generation concession according to the take part. However, so far it is not clear how much ca- LCE. However, since the wind energy market prices are pacity will be allocated to wind power concessions. The not sufficient to cover the costs, one would need to win prerequisites, as well as the terms and conditions of the the RES support as outlined in Law N° 1002. As stated, tender will still need to be addressed. It is expected that renewable energy generation capacity totalling up to 5 % about half of the projects with temporary concessions of the overall capacity (~500 MW), which compared to will take part in the public RES tender. the potential is only a fraction of the possible amount. Although conditions are very favourable with respect to Business Climate the wind energy potential and the objectives of the gov- Foreign companies are treated in the same way as Peruvi- ernment, many times there have been delays in promised ans and there are no restrictions on investments, except public information such as the wind atlas, the network commercial operation should not be within 50 km from capabilities and the precise proceedings of the tender. the national borders. The Foreign Investment Promotion This has created uncertainty among many companies

FIGURE 7: TOP 10 CONSTRAINTS TO FIRM INVESTMENT IN PERU (2006) % OF FIRMS IDENTIFYING PROBLEM AS THEIR GREATEST OBSTACLE

Practices Tax Political Access to Tax Rates Crime, Corruption Labor Customs & Inadequate Informal Adminitration instability Finance Theft & regulations Trade Reg ly educated Sector Disorder workforce

Source: MEM 2008 PERU | 171

as to whether they should go ahead with their projects. means there are well educated employees available. How- Since temporary concessions are only valid for two years ever, there is no special education regarding wind energy and can only be renewed once for another two years, but rather the conventional courses on engineering and companies fear that if they cannot go ahead with their science. plans soon they will lose their capital invested thus far. Since there is no large scale utilization of wind power so Overall there is no experience with large scale utilization far there also is no local wind energy industry. Due to that of wind power in Peru. However, education levels are fact there are also no manufacturers, suppliers or service higher than the average in Latin America according to providers. There are a few experts and consultants famil- the UNESCO. There are several good universities where iar with that topic and a few local and some subsidiaries of about one third of school graduates enrol each year, which international companies active in project development PERU | 172

7.7 Contacts and Addresses Empresa de Administracion de Infraestructura Electrica S.A. (ADINELSA) Agencia de Promoción de la Inversión Privada Av. Prolongación Pedro Miotta (Proinversión) Nº 421 San Juan de Miraflores (Private Investment Promotion Agency) Lima, Peru Paseo de la República 3361, Piso 9, San Isidro Tel.: (+51) 1 - 217 - 20 00 Lima, Peru Fax: (+51) 1 - 466 - 66 66 Tel.: (+51) 1 - 612 12 00 Email: [email protected] Fax: (+51) 1 - 221 29 41 Internet: www.adinelsa.com.pe / Internet: www.proinversion.gob.pe Fondo Nacional del Ambiente (FONAM) Ministerio de Energía y Minas (MEM) (National Environment Fund) Calle Hermanos Quin- (Ministry of Energy and Mining) teros 103 Urb. La Castellana, Santiago de Surco Av. Las Artes Sur 260 San Borja Lima 33, Peru Lima, Peru Fax: (+51) 1 - 449 - 62 00 Tel.: (+51) 1 - 618 87 00 Email: [email protected] Internet: www.minem.gob.pe Ministerio del Ambiente (MAM) (Ministry of Environ- Organismo Supervisor de la Inversión ment) en Energía y Minería (OSINERGMIN) Av. Guardia Civil Nº 205, San Borja, Lima, Peru (National Regulatory Body for Energy and Mining) Tel.: (+51) 1 - 225 5370 Bernardo Monteagudo 222, Magdalena del Mar Fax: (+51) 1 - 225 53 69 Lima, Peru Email: [email protected] Tel.: (+51) 219 - 34 00 Internet: www.minam.gob.pe Internet: www.osinerg.gob.pe Fondo Nacional de Electrificación Rural (FONER) Comite de Operación Económica (Fund for Rural Electrification) Sistema Interconectado Nacional (COES) Las Artes Sur - 260, San Borja (Committee of Economical Operation of the System) Lima 41, Peru C. Manuel Roaud y Paz Soldan 364. San Isidro, Tel.: (+51) 1 - 476 15 49 Lima, Peru Internet: www.foner.gob.pe Tel.: (+51) 1 - 611 - 85 85 Internet: www.coes.org.pe Latin American Wind Energy Association Juan Coronado Lara Av. Rivera Navarrete 451 OF 202 San Isidro, Peru Tel.: (+51) 1 - 422 33 11 Email: [email protected] Internet: www.lawea.org PERU | 173

7.8 Information sources (National Statistics Institute) http: // www.inei.gob.pe / , Retrieved on 1st August 2009 ACN 2009 - Andean Community of Na- tions http: // www.comunidadandina.org / in- Lokey, Elizabeth 2009: Renewable Energy Project De- gles / quienes / peru.htm, Retrieved on 1st August 2009 velopment Under the Clean Development Mechanism: A Guide for Latin America, Earthscan, July 2009 Agencia Peruana de Notícias, http: // www.andina.com. pe, Retrieved on 1st August 2009 Ministry of Energy and Mines (MEM) 2005: Plan Referencial de Electricidad 2006 – 2015, http: // www. CDM-ICI 2009 - The CDM Investment Climate Index minem.gob.pe / minem / archivos / file / Electrici- (CDM-ICI), updated July 2009 http: // www.kyoto- dad / publicaciones / plan2006 / 01-PRE_2006_PRE- coaching-cologne.net / englisch / cdm_klima.htm, SENTACION_CAPITULO_1_V5.pdf, Retrieved on Retrieved on 1st August 2009 1st August 2009

CGIAR Consortium for Spatial Information (CGIAR- Ministry of Energy and Mines (MEM) 2007 (a): Peru CSI), http: // srtm.csi.cgiar.org, Retrieved on 1st August National Energy Balance, http: // www.minem.gob. 2009 pe / minem / archivos / file / Hidrocarburos / balances / BNE2007_Ingles.pdf, Retrieved on 1st August 2009 El Peruano – Official News and Legislation, http: // www.elperuano.com.pe /, Retrieved on 1st Ministry of Energy and Mines (MEM) 2007 (b): August 2009 Anuario Estadistico de Electricidad 2007, http: // www. minem.gob.pe / publicacion.php?idSector=6&idPublica FONAM 2009 - El Fondo Nacional del Ambiente cion=228, Retrieved on 1st August 2009 http: // www.fonamperu.org / , Retrieved on 1st August 2009 Ministry of Energy and Mines (MEM) 2008 (a): Evolución de Indicadores del Mercado Eléctrico Global Carbon Emissions Monitor (GCEM) 2009: 1995-2008, http: // www.minem.gob.pe / minem / ar- Week 43 2008, Week 01 2009 chivos / file / Electricidad / promocion %20electrica / ev- olucion %20indicadores %202008.PDF, Retrieved on Germany Trade and Invest - foreign trade and inward 1st August 2009 investment agency of the Federal Republic of Ger- many (GTAI): CDM-Markt kompakt - Peru 2007 Ministry of Energy and Mines (MEM) 2008 https: // www.gtai.de / ext / anlagen / PubAnlage_5798. (b): Estadistica generación y transmission 2007- pdf, Retrieved on 1st August 2009 2008, http: // www.minem.gob.pe / minem / archivos / file / Electricidad / promocion %20 International Monetary Fund (IMF) 2009: World electrica / tripticos %20generac %20transm %20dis- Economic Outlook Database http: // www.imf.org / ex- tribuc / Estadistica %20generaci %C3 %B3n %20trans- ternal / pubs / ft / weo / 2009 / 01 / weodata / index.aspx, mic %202007-2008.pdf, Retrieved on 1st August 2009 Retrieved on 1st August 2009 Ministry of Energy and Mines (MEM) Nov. 2008 (c): Instituto Nacional de Estadística e Informática, Lima PERU | 174

Atlas Eólico del Perú, http: // dger.minem.gob.pe / http: // www.energyrecipes.org / reports / AtlasEolico / atlaseolicolibro / AtlasEolicoLibro.pdf, reports / 061127 %20Recipes %20- %20Peru %20 Retrieved on 1st August 2009 RE %20potential %20report.pdf , Retrieved on 1st August 2009 Ministry of Energy and Mines (MEM) 2009 (a): Sector Electrico 2009, http: // www.minem.gob. Solar Atlas Peru, http: // dger.minem.gob.pe / atlassolar /, pe / minem / archivos / file / Electricidad / publica- Retrieved on 1st August 2009 ciones / BROCHURE %20electricidad %202009.pdf, Retrieved on 1st August 2009 UNDP 2007: United Nations Development Pro- gramme: Human Development Report 2007 / 2008, Ministry of Energy and Mines (MEM) 2009 (b): Press New York statement - POTENCIAL ENERGÉTICO of July 2nd, 2009 WB 2006: World Bank: Enterprise Survey 2006, http: // www.enterprisesurveys.org, Retrieved on 1st OSINERGMIN 2007: Electrical Compendium – August 2009 Overview of the electrical market of Peru http: // www. osinerg.gob.pe / newweb / uploads / JARU / CD / dge3. WB 2009: The World Bank: Peru Country Brief, swf, Retrieved on 1st August 2009 http: // web.worldbank.org / WBSITE / EXTER- NAL / COUNTRIES / LACEXT / PERUEXTN / 0,,m Portal of Peru: http: // www.peru.gob.pe / , Retrieved on enuPK:343633~pagePK:141132~piPK:141107~theSi 1st August 2009 tePK:343623,00.html, Retrieved on 1st August 2009

RECIPES 2003: Recipes Project report Peru, EGYPT 175

List of abbreviations

BOOT build-own-operate basis kV kilovolt CDM Clean Development Mechanism MEE Egyptian Ministry of Electricity and DNA Designated National Authority Energy EEA Egypt Electricity Authority MoP Ministry of Petroleum and Mineral EEAA Egyptian Environmental Affairs Agency Resources EEHC Egyptian Electricity Holding Company MoU Memoradum of Understanding EETC Egyptian Electricity Transmission MSEA Ministry of State for Environmental Company Affairs EEUCPRA Egyptian Electric Utility and Consumer MVA Megavolt Ampere Protection Regulatory Agency MW Megawatt EGP Egyptian Pound NGO Non-Governmental Organisation GDP Gross Domestic Product NREA New and Renewable Energy Authority GEF Global Environmental Facility OAPEC Organization of Arab Petroleum Export- GTAI German trade and investments ing Countries GTZ Deutsche Gesellschaft für Technische OECP Organization for Energy Conservation & Zusammenarbeit (GTZ) GmbH Planning GWh Gigawatt hours PPA Power Purchase Agreement IEA International Energy Agency Pt Piaster IPP Independent Power Producer PV Photovoltaic Kf W Kreditanstalt für Wiederaufbau QIZ Qualifying Industrial Zones Ktoe Kilotonnes of oil equivalent WTO World Trade Organisation EGYPT 176

8.1 Introduction French are widely understood by educated classes and used in business, government and diplomacy. With the enactment of the constitution in 1971, Egypt became a FIGURE 1: EGYPT presidential republic. Head of state is Mohamed Hosni Mubarak (since 14 October 1981), head of government is Ahmed Nazif (since 9 July 2004). The cabinet is appointed by the president, which in turn is elected by popular vote for a six-year term. There are no term limits. The presidential election is carried out in a multicandi- date popular vote since a national referendum in May 2005. The first election under terms of this constitutional amendment was held on 7 September 2005. The next election is scheduled for 2011.

The isolation of Egypt by Arabic states, following the peace agreement with Israel in 1979, was overcome under the regime of Mubarak and Egypt was able to partly reclaim its leading position in the Arabic world. On Data source: CGIAR 2004 June 1, 2004, the association agreement between Egypt and the European Union came into force. It replaces the Egypt is located in Northern Africa bordering the Medi- earlier Co-operation Agreement of 1977 and forms the terranean Sea (see figure 1), between Lybia and the Gaza legal basis governing relations between Egypt and the Strip, and the Red Sea north of Sudan. It includes the Asian EU, within the frame of the Euro-Mediterranean Part- Sinai Peninsula. In Egypt, desert climate is prevalent, with nership network. The agreement includes free trade ar- hot, dry summers (May to October) and moderate winters rangements for industrial goods as well as concessionary (November to April). The climate in the coastal regions arrangements for trade in agricultural products. More- and the Nile River Delta is Mediterranean, with average over, it opens up the prospect for greater liberalisation of temperatures between 14°C and 30°C. The climate in the trade in services and farm goods. In March 2007, Egypt inland areas Cairo, as well as central and North-Egypt are further agreed on a common action plan, which further desert-like with high daily variations in temperature. In substantiates the cooperation between Egypt and the EU. spring, eastward moving depressions cause the dry, hot and Further more, a Memorandum of Understanding (MoU) dusty Khamsin winds. Egypt’s relief is characterised by a to enhance EU-Egypt energy cooperation was signed in vast desert plateau interrupted by the Nile valley and delta. December 2008 (see »International donor activities« in The official language in Egypt is Arabic. English and Chapter 1.5).

TABLE 1: KEY STATISTICS 2008 Area Population GDP GDP/capita Export Import Currency 1 001 450 m² 83 Mio 110.6 billion € 3 773 €/capita 20.86 billion € 39.57 billion € 1 Egypt Pound (2008) (2008) (EGP) = 0.13 €

Source: CIA World Factbook 2009 EGYPT | 177

TABLE 2: GDP OF EGYPT 2000–2008 2000 2005 2006 2007 GDP (current prices) billion € 69.77 62.67 75.11 91.18

Source: Worldbank 2009

Egypt is a member of the World Trade Organisation than 600 registered companies, is one of the most de- (WTO) and has established a common Arabic market as veloped in the region. well as a free trade zone with Tunisia and Jordan. In ad- Egypt’s economical importance is reinforced by its pivotal dition, Egypt signed free trade agreements with Turkey role In Middle East politics, its function as a key Ameri- and the European Free Trade Association (EFTA). On 14 can ally in the region, as well as its strategic importance December 2004, Egypt implemented the Qualifying In- for the transport of goods due to operation of the Suez dustrial Zones (QIZ) Protocol with the US and Israel, es- Canal. The country also has a chief role in the production tablishing designated geographic areas, within Egypt and of Arabic-language media. Israel, that enjoy a duty free status with the United States. Companies located within such zones are granted duty free access to the US markets, provided that they satisfy 8.2 Energy Market the agreed upon Israeli component, as per the pre-defined rules of origin. In addition, it is a member of the organiza- Overview Energy Market tion of Nile States, the Organization of Arab Petroleum The primary energy production in Egypt has been stea- Exporting Countries (OAPEC), and the Arabic Union. dily rising and in 2006 reached 62 501 ktoe which translates to 2 617 PJ or 726 887 GWh. The shares of different In 2008, the main export partners were Italy (10.3 %), energy sources in the total primary energy production for the US (7.7 %), Spain (6.7 %), Syria (5.1 %), Saudi Arabia 2006 are shown in figure 2. While natural gas produc- (5 %), Japan (4.9 %), Germany (4.9 %) and France (4 %). tion is rising steadily and export capacities increase, the Import partners were the US (10.6 %), China (10.2 %), production of petroleum products is declining. At the Italy (7.5 %), Germany (7 %) and Saudi Arabia (5 %). same time, demand for petroleum is further increasing, In 2008, the inflation rate was 11.7 %. For 2009, an infla- partly caused by high domestic subsidies. Recently, mation rate of 16.5 % is predicted.1 Twenty percent of the jor natural gas resources have been discovered. For the total population in Egypt lived below the poverty line, foreseeable future, natural gas is likely to be the primary while approximately 8.4 % of the total labour force was growth engine of Egypt’s energy sector. unemployed.2 The Egyptian economy is the second largest in the The primary energy production has developed fast in the Arab world after Saudi Arabia. The country is located past; starting from around 8 000 ktoe in 1971, it devel- in the heart of the Middle East and hosts one quarter oped quite linear to the current level. Main growth has of the regions overall population. Egypt has become a been seen in the oil and gas sectors, whereas coal and peat stable economy in the Middle East and North Africa show a more static development on a low level. Shares enjoying continuous growth, averaging 4 % – 5 % in of renewable energies have not increased to a significant the past 25 years. In comparison to many other states extent and continue to play a minor role in the energy in the region, Egypt’s economy is based on a diversi- supply structure. Owing to the vast resource base, the fied structure. The Egyptian equity market, with more energy sector is important for Egypt’s economy and will

1 GTAI 2009 2 CIA World Factbook 2009 EGYPT | 178

split of this consumption according to the end use sectors FIGURE 2: 3 TOTAL PRIMARY ENERGY PRODUCTION EGYPT, 2006 is shown in table 3.

Total primary erergy supply: 77 830 kto The Electricity Grid

Gas In 2007 / 2008, the state-owned carrier grid consisted of 53,45 % 39 552 km. The grid is subdivided into six geographical Hydro 1,43 % zones, namely Cairo, Canal, Delta, Alexandria and West Delta, Middle Egypt and Upper Egypt. The country’s entire territory is covered. Geothermal, Solar etc. Medium and low voltage as well as isolated grids are 0,07 % owned and operated by the respective distribution companies. In June 2008, the distribution grid consisted of Cobustible, Renewables 142 983 km of medium voltage and 230 187 km of low Crude Oil and Waste voltage lines. 4 43,13 % 1,90 %

Since 1998, efforts have been made to interconnect the Coal and Peat Egyptian electricity grid internationally. As a result, the 0,02 % Source: IEA 2008 five-country interconnection of Egypt’s system with those of Jordan, Syria, Lybia and Turkey has been com- continue to play a major role in coming years. Egypt is a pleted in 2002.5 Links to the European electricity market net exporter of crude oil and natural gas. In addition, it have been established through the sub-marine connec- has a strategic position in oil transfer because of its operation between Morocco and Spain (400 KV) and over the tion of the Suez Canal and Sumed (Suez-Mediterranean) connection Syria –Turkey. Pipeline, two major routes for the transfer of Persian Gulf oil. In terms of coal and peat, Egypt is a net importer. In April 2004, the Arab Maghreb countries agreed to re- Final energy consumption in 2006 added up to power the national grids of Egypt and Libya in order to 43 072 ktoe (equal to 500 927 GWh or 1 803 PJ). The upgrade the interconnection.

TABLE 3: FINAL ENERGY CONSUMPTION IN EGYPT, 2006, IN PJ

Total Final Energy Consumption PJ % Industry sector 603 33

Transport sector 488 27 Other sectors 531 29 of which Residential 358 20 Commercial and Public Services 42 2 Agriculture / Forestry 89 5 Non-Speciﬁed 43 2 Total 1 622 100

Source: IEA 2008

3 IEA 2008 4 Not including non-energy use 5 EIA 2008 EGYPT | 179

TABLE 4: THE EGYPTIAN TRANSMISSION GRID, KEY FIGURES 2008

500 kV 400 kV 220 kV 132 kV 66 kV 33 kV Transformer capacity (MVA) 7 765 n.s. 28 850 3 427 35 223 1 769 Total length of transmission lines 2 479 33 14 912 2 429 16 986 2 713 Source: EEHC 2008a

TABLE 5: PEAK LOADS IN THE INTERCONNECTED ELECTRICITY GRID; 2003 – 2008

03/04 04/05 05/06 06/07 07/08 Peak load (MW) 14 735 15 678 17 300 18 500 19 738 Source: EECH 2008a

FIGURE 3: In the fiscal year 2007 / 2008, the Egyptian Electricity ELECTRICITY TRANSMISSION GRID OF EGYPT Holding Company (EEHC) faced a challenge meeting the unexpectedly high peak demand, reaching 19 738 MW.

Installed Capacity Between 2003 and 2008, the total installed capacity increased about 24 %, mainly through the added combined cycle and wind power installed capacity. In June 2008, the total installed capacity reached 22 583 MW, equivalent to a 2.9 % increase compared to the previous year. Of this, conventional steam power stations accounted for 11 571 MW (51.9 %), combined cycle power plants for 6 449 MW (28.9 %), and hydropower stations for 2 842 MW (12.8 %) (see figure 4). Wind power plants provide the remaining 305 MW (1.3 %). Since 2002 / 2003, three Data Source: CGIAR 2004 private-sector electricity utilities have been contributing

TABLE 6: HISTORIC DEVELOPMENTS INSTALLED CAPACITY BY ENERGY SOURCE 2003-2008

2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 MW Wind 140 140 183 225 305 Gas 1 019 1 537 1 966 2 416 1 416 Combined Cycle 2 605 2 699 3 949 4 949 6 449 Hydro 2 749 2 783 2 783 2 783 2 842 Steam 11 610 11 616 11 571 11 571 11 571 Total 18 123 18 775 20 452 21 944 22 583 Source: EEHC 2008a EGYPT | 180

TABLE 7: FIGURE 4: GROSS ELECTRICITY PRODUCTION BY ENERGY SOURCE; TOTAL PRIMARY ENERGY PRODUCTION EGYPT, 2006 EGYPT; 2000–2008 07/08 06/07 %-change Wind 1 % GWh Gas 6 % Steam 53 076 52 082 1.9

Steam Gas 9 361 6 888 35.9 51 % Combined Cycle 33 345 29 892 11.6 Cobined Cycle 29 % Total Thermal 95 782 88 862 7.8 Hydro 15 510 12 925 20 Wind (Zafrana) 831 616 34.9 Total grid 112 123 102 403 9.5 Isolated plants 350 347 0.86 Hydro 13 % Purchased from 14 32.2 (56.5) IPPs Source: IEA 2008 Source: EEHC 2008a

2 048 MW of generating capacity (9 % of overall country- TABLE 8: wide capacity in 2008) from three gas-fired steam power ELECTRICITY CONSUMPTION BY SOURCE IN 2006 plants. According to the Ministry of Energy and Electri- Economic Sector GWh city’s five year plan from 2005, the installed capacity is to Industry 34 569 increase to a total of 32 GW by 2010. Residential 36 596 Commercial and Public Service 11 541 Egypt has 35 decentralised power plants (mostly diesel Agriculture and Forestry 3 697 units) that are not connected to the national grid. The Other 12 040 combined installed capacities of these plants added up to Total 98 443 258 84 MW in 2007/2008. Approximately, 350 GWh of Source: IEA 2009 electricity were supplied to local users including tourist resorts. Table 7 shows the gross electricity production by A future average annual growth in electricity demand of energy source and its percentage change from the fiscal 6.35 % is expected, partly due to rising living standards and year 06/07 to 07/08. very low electricity prices. In order to meet the expected growth in demand, EEHC prepared the 6th five year plan Electricity Generation (2008 – 2012). The plan entails adding electricity produc- Egypt is a net exporter of electricity, importing 208 GWh tion capacity of 7 750 MW, while at the same time maxi- of electricity in 2006, while exporting 557 GWh. mizing the use of combined cycle installations to reach a 37 % share of the total installed capacity in 2011/2012. Transmission and distribution losses account for approxi- On 31 January 2009, the government has finalized the mately 10 % (12 583 GWh) of total electricity produced. follow-up five-year plan from 2012 – 2017 which aims at In 2005, losses added up to 16 % of total electricity supply. adding further 10 450 MW generation capacity. The main consumer of electricity in Egypt is the residential sector which accounts for 37 % of the total consumption, followed close by the industrial sector (35 %). EGYPT | 181

Renewable Energies TABLE 9: In 2006, renewable energy sources reached a share of ELECTRICITY TARIFFS IN EGYPT 2008 12.5 % of total grid-connected electricity production. (€ ct/kWh) (Pt/kWh) While 12 925 GWh (12 %) were produced by hydropower High voltage (220/132 kV) 0.59 – 3.40 4.7 – 27.3 installations, wind power contributed another 616 GWh High voltage (66/33 kV) 1.41 – 1.96 11.34 – 15.7 Medium and low voltage (0.5 %). >500 KW The total installed capacity from hydropower accounted -Demand Charge for 2 842 MW in 2008. Hydropower installations include (LE/kW-month) 1.18 9.5 High Dam (2 100 MW), Aswan Dam I (322 MW), As- -Energy rate 2.67 21.4 wan Dam II (270 MW), Esna (86 MW). Current hydro Medium and low voltage 1.40 11.2 power projects include the New Hammasi plant with an <500 KW (agriculture) installed capacity of 4 x 16 MW, which started operations Residential (kWh/month) in 2008. For 2014, the commissioning of the New Assuit 0-50 0.62 5 Barrage hydro electricity plant, with an installed capacity 51-200 1.37 11 of 32 MW, is projected. Currently, a feasibility study for a 201-350 2.00 16 further 5.5 MW hydro electricity plant is carried out. 351-650 2.99 24 The current installed wind capacity accounts for 305 651-1000 4.86 39 MW. Egypt is endowed with abundant wind energy re- >1000 5.99 48 sources, especially in the Suez Gulf zone. After the im- Commercial (kWh/month) plementation of several experimental wind farm projects, 0-100 2.99 24 the Ministry of Electricity and Energy set up an ambi- 101-250 4.49 36 tious plan for wind farm development aiming at a total 251-600 5.74 46 installed capacity of 965 MW in 2011/2012.6 601-1000 7.23 58 Solar energy use is still in its infancy, however, in 2007, the >1000 7.48 60 German company Flagsol GmbH won a tender to build Public lighting 5.11 41 a hybrid solar combined cycle plant with a total gross ca- Industry pacity of 150 MW.7 The solar field is located at Kuraymat High voltage (220/132 kV) and is co-financed by the Global Environmental Facility -Energy intensive (GEF) and the Japanese Bank for International Develop- Industries 2.52 20.2 ment. Commercial operation is scheduled for mid 2010. -other 1.73 13.9 Egypt plans to extend the solar capacities with further High voltage (66/33 kV) projects of this kind.8 -Energy intensive Industries 3.06 24.5 Electricity Prices -other 2.10 16.8 The prices of electricity in Egypt range among the lowest Medium voltage in the world. The prices are fixed by the Egyptian govern- -Demand charge ment in a non-transparent manner and apply in equal man- (LE/kW-month) 1.18 – 1.30 9.5 – 10.4 ner to all regions. Electricity is highly subsidized. Since -Energy rates 2.87 – 4.17 23 – 33.4 October 2004, several electricity tariffs were raised, by an Source: Ministry of energy and electricity 2008 average of 8.6 %, for the first time since 1992 and further 5 % increases were set for all electricity customers for each

6 EECH 2008a 7 20 MW of which can be generated from solar field 8 Solar Millenium AG 2008 EGYPT 182

of the following five years. The last increase took place in approach to the privatization of its subsidiaries, but no November 2008. In 2008, the rise summed up to 7.5 %, part of any state-owned enterprise has been privatized by including an additional 2.5 %-increase caused by high oil now. Via EEHC, the Egyptian government still controls prices. While the increase in some segments exceeded 90 % of all electricity production and is maintaining its 18 %, prices of the first segment of domestic consump- monopoly on transmission and distribution. Until today tion – less than 50 kWh per month, mainly composed of three privately operated power plants with foreign invest- low income families –remained unchanged at 5 Pt (ap- ors have been built according to the build-own-operate proximately 0.62 €-ct). The highest increase was seen for (BOO) principle (Sidi Krir, Suez and Port Said), repre- the residential consumers with a demand of >1000 kWh/ senting approximately 10 % (2 049 MW) of the current month. The governmental plan was intended to gradually installed generating capacity. accommodate the electricity prices to the actual cost of Within the context of the new energy strategy and the the electricity system. However, taking into consideration ambitious renewable energy targets, recently, there has annual inflation rates exceeding 5 %, these increases may been some effort to create a more competitive electric- not suffice. The new electricity law is supposed to specify ity market in order to attract investors from the private the main principles of price regulation such as the ones sector. The draft of the new Electricity Law, which is mentioned above. currently in the process of ratification by the People’s As- sembly, is supposed to establish a liberalised electricity Liberalisation market, regulated by the Egyptian Electric Utility and Article 7 of Law No. 1009 dating from 1996 stipulates Consumer Protection Regulatory Agency EEUCPRA. that local and international investors can obtain conces- Article 20 – 22 of the draft law addresses the replacement sions for building and operating electricity plants. A new of the current Single Buyer Model and allows for third investment law enacted in 199710 includes various incen- party access to the electricity grid. The access to the elec- tive mechanisms such as state guarantees for investors. tricity grids will be based on published tariffs and long- At the time of contract negotiations concerning the sup- term electricity purchase agreements. Moreover, the gov- ply of electricity from privately built power plants in the ernment states that it plans to remove all energy subsidies late 1990s, an initial public offering of stock in all seven by 2017.11 of Egypt’s state-owned monopolistic electricity providers was in preparation for the Egyptian stock exchange. Rural Electriﬁcation However, due to lack of interest among investors, the Under the Egyptian government rural electrification pro- plan was never implemented. The last significant step of gramme, a countrywide electrification rate of 99 % was reform took place in 2000, when the Egyptian Electricity achieved through grid extension projects. As assessed in a Authority was restructured to become the Egyptian Elec- study by MEDREC12 in 2004, there have been approxi- tricity Holding Company (EEHC). That conversion is re- mately 121 remote villages and communities which still garded as a step towards a more entrepreneurial approach do not have access to electricity. The Rural Electrification because, for example, EEHC is expected to finance future Authority’s target for 2008 was to electrify 327 little set- projects from its own budget without governmental in- tlements, the strengthening of 31 village grids and the re- tervention. The conversion also included the break-up furbishment of 41 further grids.13 of formerly vertically integrated utility companies into For the few remaining remote settlements, the decentral- individual enterprises each of which is now an indepen- ised use of renewable energy resources is under consid- dent company with its own, autonomous management eration as an alternative to actual grid access. Due to the and separate accounting. EEHC was created as a new dispersed nature of both houses and rural communities,

9 Spohn et al. 2009 11 Egypt News 2009 10 Spohn et al. 2009 12 MEDREC 2004 13 MoEE 2009

EGYPT | 183

in addition to their low demand, the extension of the grid prevent the formation of commercial monopolies in the is economically unfeasible. The project MEDREP, a joint energy sector. EEUCPRA's Board of Directors is nomi- project being conducted by NREA, the governorate of nated by the Ministry of Electricity and Energy. North Sinai, the Egyptian environmental authorities, the Rural Electrification Agency (REA) and initiated by the New and Renewable Energy Authority (NREA) Italian Ministry of Environment in 2004, aims at supply- The Ministry of Electricity and Energy established the ing electricity through photovoltaic to these remote rural NREA in 1986 for the purpose of bundling activities communities as well as the utilization of solar thermal en- aiming to promote both renewable sources of energy ergy for heating and cooling purposes in tourist resorts and energy efficiency. NREA is the operator of all wind and new villages.14 Unfortunately, there is no communi- power installations in Egypt, including the demonstra- cation on project outcomes. tion projects in Matrouh administrative district (hybrid wind/diesel system) and Hurghada (5.5 MW wind farm), as well as the grid connected Zafarana wind farms on the 8.3 Market Actors Gulf of Suez (reaching 425 MW by mid 2009 and still expanding). Egyptian Ministry of Electricity and Energy With the new general orientation towards private sector The first Ministry for Electricity and Energy was estab- involvement, NREA also engages in supporting private lished in 1964. The Ministry supervises the Egyptian investment in wind energy by providing resource assess- Electricity Holding Company as well as the New and Re- ment, the necessary data for feasibility studies and tech- newable Energy Agency (NREA) and the Rural Electri- nical support for potential project developers, and by fication Authority (REA). Next to supervising all activi- being the partner in land use agreements. ties related to energy projects, it suggests electricity prices Moreover, the NREA has a central laboratory for testing and publishes data and statistics relating to electricity and certifying apparatus and equipment for utilizing reproduction. newable energy resources. Finally, the NREA offers training and upgrading courses, organises workshops and con- Regulatory authority EEUCPRA ducts studies – both on its own and in cooperation with The Egyptian Electric Utility and Consumer Protection international partner organisations. Regulatory Agency (EEUCPRA) was established by decree in 1997.15 The regulatory authority is located in Egyptian Environmental Affairs Agency (EEAA) Cairo and came into formal existence in 1998. The EEAA was initially established in 1982 and restruc- The primary task of the regulatory authority is to balance tured in 1994, according to Law 4/1994. The EEAA the interests of electricity producers, electricity providers serves as the executive arm of the Ministry of State for and end users. It is supposed to ensure a reliable long- Environmental Affairs (MSEA). Its administrative coun- term supply of electricity while promoting and super- cil is composed of the Minister of Environmental Affairs, vising environmental protection and operational reliabil- the Chief Executive Officer of the Agency and repre- ity in the energy sector. It is also responsible for licensing sentatives from relevant ministries, Non-Governmental the construction and operation of electricity generation, Organisations (NGOs), the public business sector, uni- transmission and distribution facilities as well as for elec- versities and research centres. The Agency’s activities are tricity trading. One of the authority’s declared objectives financed by the Environmental Protection Fund (EPF), is to create an enabling environment for market-based which is funded by donations and grants by national and competition within the framework of existing laws and to foreign organizations, as well as fines and compensation

14 MEDREC 2004 15 Decree no. 326 of 1997: »Establishing the electric utility and consumer protection regulatory agency« EGYPT | 184

awarded by courts of law. Principal functions of the agen- governing party. The strategy covers the diversification of cy include the formulation of environmental policies, the energy mix, higher energy efficiency, a reform of the the development and monitoring of projects and the im- electricity and the oil and natural gas markets and reduc- plementation of pilot projects. The agency is further the tion of energy subsidies. The renewable energy strategy is national authority in charge of promoting environmental a fundamental part of the national energy strategy. topics between Egypt and third parties. The diversification of the energy mix in the electricity sector is one of the main goals of the energy strategy. It aims Egyptian Electricity Holding Company (EEHC) to reduce the consumption of fossil fuels while increasing The government-owned and operated Egyptian Electri- the share of renewable energy sources and giving a new city Holding Company (EEHC) coordinates, supervises impulse to the nuclear electricity program suspended in and monitors the activities of its 16 (+1)16 affiliated com- the 1980s. In February 2008, the government set a new panies in the field of production, transmission and distri- ambitious target of 20 % renewable energy in electricity bution of electric energy. The EECH subsidiary EETC is production by 2020 excluding existing large hydro power responsible for the countrywide transmission of electri- plants.17 Although no nuclear electricity generation tar- city to regional and local distributors. Next to the EETC, gets have been set, the government launched a nuclear there are six generating and nine distribution companies. electricity plan in 2007. First steps to implement it have The EEHC is supervised by the Egyptian Ministry of already been taken.18 Electricity and Energy (MEE). Improving energy efficiency is a fundamental part of the strategy as well. It aims at tackling the fast growth Egyptian Wind Energy Association (EGWEA) of primary energy consumption, which tends to grow as The EGWEA is the umbrella organisation, representing rapidly as or even higher than real economic growth. Al- the wind energy sector in Egypt. It assists interaction and though numerous regulations exist for the main energy co-operation between all relevant players with profession- consuming sectors, implementation and enforcement is al involvement in the field of wind energy. The EGWEA is often quite low.19 organised in a global network of wind associations. It aims The policy on energy subsidies has changed due to the at promoting and supporting the development of wind reduction of oil reserves and the financial problems as- energy in Egypt by providing the means to facilitate the ex- sociated with the existing schemes. The domestic natural change of technical information, expertise and experience gas and electricity prices have been adjusted in 2008 in in the wind energy sector. It conducts studies, provides order to cover at least the cost of service. Subsidies are be- information on tenders and conferences and organises ing reduced gradually, first in energy intensive industries, workshops for interested parties. IEGWEA is particularly and second in the tourism sector, though energy subsi- interested in bringing forward wind energy interests of dies for the average consumer are not expected to change Egypt. However, the association is also engaged in the pro- significantly.20 motion of wind energy in developing countries in general. With regard to the energy market, the adopted energy strategy aims to establish a fully competitive structure, where electricity production, transmission and distribu- 8.4 Political Framework tion activities are fully unbundled. The strategy should Conditions in the Energy Sector also create favourable conditions to achieve the 20 % renewable energy in electricity production.21 Egypt has a national energy strategy, although only The most important instrument to implement the energy adopted at the level of the energy policy committee of the strategy is the New Electricity Law, which is currently in

16 Includes NREA –actually a research institute – also presents itself as the 17 JCEE 2009 operator of the Zaafarana wind farm-therefore included as a electricity 18 ESIS 2008a Egypt Year book 2008; ESIS 2008b; NPPA 2009 production company. 19 JCEE 2009 20 JCEE 2009; Marquer 2009 21 El-Salmawy 2009 EGYPT 185

the process of ratification by the People’s Assembly. The • In Phase 2, a feed-in-tariff will be implemented, in par- new law will22: ticular for medium and small size projects. This will be • Establish a liberalized electricity market with various based on the new electricity law. market participants, regulated by EEUCPRA Further support instruments are the right of access and • Improve the conditions for renewable energy, cogen- priority dispatching for electricity generation from re- eration and demand side management in the electricity newable sources, which is already implemented, when- sector ever they are available and the establishment of a Renew- • Provide some rules for electricity consumption and able Energy Fund. This fund will support the renewable includes measures to encourage renewable energy elec- energy activities of the MEE and the MoP covering the tricity production. deficit between the renewable energy costs and mar- With regard to renewable energy electricity generation, ket prices as well as providing financial support to pilot the law foresees that the private sector builds, owns and projects. It will be mainly financed through a levy on sub- operates the projects and sells the electricity to the trans- sidized fossil fuel sales for electricity generation.24 mission company (EETC) under long term Power Pur- chase Agreements (PPA). Non-renewable energy based Competitive bids Independent Power Producers (IPPs) conclude bilateral It is planned to tender a total of 2 500 MW through five purchase agreements with eligible consumers. bids, divided in blocks of 250 MW. The framework criteria for the tenders include: • Controlled increase of the renewable based electricity 8.5 Framework Conditions for capacity according to the capacity of transmission sys- Renewable Energies tem and the capacity of the market. • Attracting highly qualified international developers Strategy and objectives for renewable energies with strong financial status and high capacity for tech- Egypt’s renewable energy strategy was formulated in the nology transfer. early 1980s as an integral part of the national energy plan- • Promotion of local manufacturing. In the evaluation of ning. This strategy has been revised and adapted accord- the proposals, advantages will be given to those offers ing to the changing financial, market and technological having higher share of locally manufactured compo- framework conditions. The target of a 20 % renewable nents. electricity by 2020 (around 12 000 MW) is highly ambi- • Achieving the lowest possible prices. tious compared to the previous target set in 2000 of 14 % • Reducing the financial risk for investors guaranteeing RE-E by 2021/22.23 long term PPAs (mostly of 20 years). The first process has started with a prequalification ten- Legal conditions and support Schemes for re- der for 250 MW in Gabal el Zeyt. The last tender will be newable energies opened by 2017. To implement the strategy, a two phase policy is planned: • Phase 1 will adopt competitive bids through issuing Feed-in-tariff tenders requesting the private sector to supply electri- The system is supposed to offer incentives to install 2 500 city from renewable energy sources. A PPA agreement, MW of additional capacity. It is addressed to small and mostly for 20 years, will be guaranteed. This competi- medium size projects up to 50 MW. The tariff will be prob- tive bidding is based on existing law, which also sup- ably set for 15 years, taking into consideration wind speed ports the existing IPP. and installed capacity. The system is still under elaboration.

22 JCEE 2009; MEES 2009 24 El-Salmawy 2009; JCEE 2009 23 El-Salmawy 2009; Global arab network 2009 EGYPT | 186

Clean Development Mechanism geria, Jordan, Lebanon, Libya, Morocco, the Pales- Egypt’s Designated National Authority (DNA) was es- tinian National Authority, Syria, Tunisia and Yemen. tablished in 2005, serving as the contact point for all RCREEE formulates and disseminates policies in sup- CDM-related matters. Organizationally, it is part of port of RE and EE in the region and provides a platform the Egyptian Environmental Affairs Agency (EEAA). for the regional exchange on policy issues and techno- Egypt’s current climate change mitigation policies, plans logical questions. In addition, RCREEE encourages and measures relevant to CDM are contained in25: the participation of the private sector to promote the 1. The National Environmental Action Plan establishment of a regional RE and EE industry. The (2002 – 2017). German development cooperation provides assistance 2. Egypt’s Climate Change National Action Plan for the establishment of the Center and the formula- (ECCNAP). tion of the initial work program by GTZ.29 3. Egypt’s National Strategy Study Program on CDM. • The Egyptian-German High Level Committee on Re- 4. Egypt’s National Energy Efficiency Strategy (NEES) newable Energy, Energy Efficiency and Environmental Currently, four CDM projects are registered. Minor cor- Protection JCEE, is a bilateral Egyptian-German initi- rections have been requested for one project (see table ative. The JCEE is a platform for energy policy discus- 10 on the next page). In April 2009, 18 projects were in sion, for developing initiatives for investment as well as the DNA pipeline, of which nine were renewable energy institutional projects, awareness and capacity building projects.26 activities and establishing contacts and exchange be- The CDM potential in Egypt has been estimated at tween the two countries. The project is financed by the 69.75 Mt CO2eq, of which around 21 % is in the re- Egyptian Ministry of Electricity and Energy and the newable energy sector.27 As shown in table 10, the total German Federal Ministry of Economic Cooperation annual savings of the registered RE projects amounts to and Development (BMZ). The implementing partners 0.62 Mt CO2eq. This represents 5 % of the existing po- of the cooperation are NREA and GTZ.30 tential in the renewable energy sector and around 1 % of In addition, financial assistance is provided by the German the whole potential. Kreditanstalt für Wiederaufbau (Kf W). Kf W provided a reduced interest loan to rehabilitate the hydro electricity International donor activities plants at Aswan and additional loans for the construction Egypt is one of the priority partner countries of the Ger- of medium sized hydro electricity projects at the Nile River. man development assistance. In the last 50 years, Egypt In the wind energy sector, Kf W provided loans to finance has received approximately 5.5 billion € development aid. an important part of the wind farm in Zafarana and is sup- The current focus areas of the bilateral cooperation are porting a new wind farm in Gabal El Zeit through loans water management, renewable energies (wind, solar and jointly with the European Investment Bank.31 hydro power), energy efficiency and climate protection.28 Apart from Germany, Denmark, Japan, Spain and Italy Within the framework of the German development co- are the most important partners providing assistance for operation, two initiatives to promote renewable energies developing renewable energies. and energy efficiency were launched in 2008: At European level, a Memorandum of Understanding • The Regional Center for Renewable Energy and to enhance EU-Egypt energy cooperation was signed in Energy Efficiency (RCREEE), based in Cairo. Key de- December 2008. The priority areas covered are, among velopment partners in setting up RCREEE are Egypt, others, the development of the Egyptian energy strategy, Germany, Denmark and the EU Commission. Besides including the market reform, the convergence of Egypt’s Egypt, other Arab members of the RCREEE are Al- energy market with that of the EU, the promotion of re-

25 GTZ 2007; Medhat 2009 29 RCREEE 2009 26 Suding 2009 30 JCEE 2009 27 Usamea 2009 31 See footnote 30 JCEE 2009 28 Auswärtiges Amt; Kf W 2009 EGYPT | 187

TABLE 10: REGISTERED AND PLANNED CDM-PROJECTS IN EGYPT date of Registra- Project Location Status Type IRR % MW registration tion year Egyptian Brick Factory GHG Minor cor- Coal sub- 12 -- 455,270 rections stitution by (following Natural gas request for review) Onyx Alexandria Registered Landfill Gas 15-Dec-06----370,903 Capture and flaring Zafarana Wind Power Plant Zafarana Registered Wind 22-Jun-07 5.3 120 248,609 Waste Gas-based Cogenera- Alexandria Registered Waste gas 26-Jul-08 4.9 No data 109,514 tion Project recovery Nitric Acid Plant of Abu Qir Abu Qir Registered Catalytic 07-Oct-06 -- -- 1,065,881 Fertilizer Co. N2O de- struction Annual savings registered 1,794,907 projects Punjab At Validation Fossil fuel 22 622 2.11 % 9.46 % 2008 switch Annual savings registered 619,512 projects RE Almoiz Bagasse Cogenera- North-West At Validation Biomass 31 553 n.a. n.a. 2008 tion Project Frontier energy Province Pakarab Fertiliser Co-gen- Punjab At Validation EE own 107,746 16 % 20 % 2007 eration Power Project generation Grid connected combined Sindh At Validation Fugitive 162,943 8 % 18 % 2009 cycle power plant project in Qadirpur utilizing permeate gas, previously flared ICI Polyester Co-generation Punjab At Validation EE own 19 233n.a.n.a.2009 Project generation Biogas-based Cogeneration Punjab At Validation Methane 24 344 - 0.48 % 8.63 % 2008 Project at Shakarganj Mills avoidance Ltd., Jhang Composting of Organic Punjab At Validation Landfill gas 78 344 13.18 % 18.38 % 2008 Content of Municipal Soild Waste in Lahore Source: UNFCCC 2009 newable energy and energy efficiency, the development of within the framework of the Clean Technology Fund es- energy grids as well as technological and industrial coop- tablished by the World Bank in 2008 to finance RE and eration.32 EE projects. Egypt plans to use $300 million in conces- Financial and technical assistance is provided by inter- sional financing from the fund, blended with financing national organizations as well. These include the World from the World Bank Group, the African Development Bank, the UN organisations UNDP, UNIDO and UNEP Bank, bilateral development agencies, private sector and as well as the African Development Bank.33 For instance, other sources to spur wind power development and in- Egypt is one of the first countries to present a portfolio troduce clean transport options. The projects include a

32 Government of Egypt and of the EU 2008 33 See 30 JCEE 2009“ EGYPT 188

transmission grid extension for transporting electricity Mediterranean coast.37 Three locations – Sidi Barrani, from Gulf of Suez-based wind farms.34 Mersa Matruh and El Dabaa – were founded to also ex- hibit suitable characteristics for the installation of wind turbines. The atlas further indicates that large regions 8.6 Market potential for wind energy of the eastern and western deserts of the Nile River and parts of Sinai are much higher then hitherto assumed. Wind energy potential Egypt has outstanding wind energy conditions. Particu- Framework Conditions for Wind Energy larly in the coastal regions, high and stable wind speeds Within the scope of the Renewable Energy Strategy, 12 % are frequent (up to an average of 10.5 m/s in the Gulf of total electricity supply by 2020 are to be generated by of Suez). Furthermore, the country’s large deserts and wind power, translating into more than 7 200 MW of grid- abundant thinly populated areas are well suited for the connected wind farms. In order to reach these targets, in construction of large wind farms. February 2008 the Egyptian Supreme Council of Energy A detailed wind atlas has been compiled between 1998 approved a plan to build 600 MW installed wind capacity and 2005 in a joint effort by NREA, the Egyptian Me- per year during the next 12 years, totalling 7 200 MW in teorological Authority (EMA) and the Danish UNEP 2020. The private sector is targeted to play a key role in research centre Risø. The purpose of the project was to achieving the 2020 goal. The government anticipates that establish a solid meteorological basis for evaluating the about 400 MW/year will be developed by the private sec- country’s wind resources. In addition to data records, the tor, while the NREA will carry out about 200 MW/year. atlas also surveys the Egyptian wind conditions on the Energy intensive industries are especially encouraged to basis of wind models and offers detailed, meteorological- build and invest in wind warms in order to satisfy their ly based information on site requirements for medium- own electricity needs or to sell electricity to consumers via sized and large wind farms. The Wind Atlas covers the en- the national grid. The NREA made its first call for pro- tire country. However, particular attention was given to posals in June 2009 (prequalification round). In order to six promising areas: the Northwest Coast, the Northeast meet the target laid down in the strategy, the government Coast, the Gulf of Aqaba, the Gulf of Suez, the Red Sea called for 250 MW of wind power this year, to be build on and the Western Desert. It is considered a reliable source a build-own-operate basis (BOOT) by private actors. of information and is used as the basis for all governmental decisions related to wind energy project planning and Licensing Procedures feasibility studies. The Egyptian Electric Utility and Consumer Protection A map of average wind speeds can be found in a study Regulatory Agency has prepared rules and procedures by Mortensen et al.35 For further information a wind at- for obtaining generation, transmission and distribution las has been published by members of the Wind Energy licenses.38 Approval requires a technical and economic Division at Risø DTU in Roskilde. ( www.windatlas.dk/ feasibility study. The license is valid for a duration of five Egypt/Index.htm) years and is to be renewed after that. At the end of each A special wind atlas36 for the Gulf of Suez was completed year, the license has to be verified. In case of non-compli- in 2003. The assessment determined an overall potential ance with the terms of the license, a penalty procedure capacity of 20 000 MW for wind power projects in the was established. The licensee has the right to access the uninhabited desert regions to the west of the Gulf. A transmission or distribution grids in accordance with a further brief study evaluated the meteorological data contractual agreement between him and the transmis- gathered from ten weather stations situated along the sion or distribution company. The Agreement has to be

34 World Bank 2009; Africa News 2009 37 A.S. Ahmed Shata, R. Hanitsch 2005 35 Mortensen et al. 2006 38 EEUCPRA 2009 36 Mortensen et al. 2003 EGYPT 189

approved by the Agency. The licensee is further obliged farm with an average capacity factor of 35.5 %, saving to provide an annual report on the licensed activities. 466 000 tons of CO2. The requests for licenses with detailed information on NREA has precise plans for wind farm development at the licensing procedures as well as model framework con- the two sites Zafarana and Gulf of El-Zayt. While at tracts with distributers and transmission companies can Zafarana a capacity of 600 MW on 150 km2 is planned, be downloaded from the Agency’s homepage.39 The con- total capacity at El-Zayt will reach 720 MW on 200 km2. ditions for issuing, amending, suspending, terminating Between both areas, 1 300 km2 have been designated to and withdrawal of permits, however, are not sufficiently private investors, which are supposed to generate up to specified. The transmission and distribution codes lay further 6 000 MW. down the standard specifications for design, construction, Projections for Zafarana between 2009 and 2010 include modification, operation and maintenance for all genera- additional 75 MW in co-operation with Japan, and ad- tion and distribution assets associated with the transmis- ditional 120 MW in cooperation with Denmark. In to- sion grid. The transmission companies have to comply tal, Zafarana will host 555 MW of grid connected wind with the transmission code, as well as with performance power, rendering it the largest wind farm in Middle East standards acceptable to the agency, in order to verify the and Africa. quality of electrical supply and the degree of reliability. At the Gulf of El Zayt, various projects have been devel- 40 oped and will add up to 720 MW. Current Use of 720 MW are expected in three stages: 200 MW in co- Wind Energy and Project Pipeline operation with Germany, 220 MW in cooperation with Egypt has passed the stage of initial resource assessment Japan, and 300 MW in cooperation with Spain. and demonstration projects (Hurghada wind farm) to- In addition, a number of private companies have ex- wards the planning and implementation of large scale pressed interest in developing large-scale wind projects at grid connected projects (Zafarana and Gulf of El Zayt). the Gulf of El Zayt. Among them, the Italian company A series of large-scale wind energy projects have been Italcementi signed a MoU with the Egyptian government built in Egypt, resulting in a total installed wind capacity in 2006 to install 120 MW with the possibility for exten- of 390 MW at the end of 2008. sion to up to 400 MW. The output is supposed to partly So far, large scale wind projects were established mainly generate electricity for auto-consumption in the cement at Zafarana, with a total capacity of 360 MW by end of factories in the Suez area.41 2008. In cooperation with Germany, Denmark and Spain, On 2 August 2009, authorities have approved the desig- the farm has been constructed and operated in stages nation of 1.5 million acres of state-owned land, located since 2001. A partnership with Japan in 2008 added on the east and west of the Nile River for the implemen- 55 MW. In the fiscal year 2007/2008, approximately 840 tation of wind farms, which are supposed to contribute GWh of electricity were generated by the Zafarana wind 30 000 MW.42 One-third of this land will be developed

TABLE 11: INSTALLED WIND CAPACITY IN EGYPT: 200 – 2008 Total Installed Capacity Year 2000 2001 2002 2003 2004 2005 2006 2007 End of 2008 MW 5 5 68 98 145 145 230 310 39041 GWh 368 523 552 831 840

Source: WEI 2009 / 2010

39 EEUCPRA 2009 41 WEI 2009/2010 40 EEUCPRA 2009 42 MEE 2009 EGYPT | 190

for wind energy production by NREA and multinational NREA 284 wind turbines with a total capacity of 241 organisations, whereas two-thirds will be offered to the MW. Gamesa delivers turnkey products while the civil private sector by bid-procedure. and electrical engineering, together with tower manufacturing is contracted locally. Business Climate NREA encourages local manufacturing of turbines and In general, the present conditions for the wind energy other components based on e.g. technology transfer or sector in Egypt are favourable. Recent analysis from the joint ventures. Previous experience has been gained with World Economic Forum and the World Bank indicates small-scale manufacturing of wind turbine components. that in spite of the global economic crisis, the country As of 2005, also repairs and rewinding of generators have competitiveness is increasing and provides favourable been carried out by local companies. The global cable and conditions for private companies to set up business opera- electric products manufacturer El Sewedy Cables is sup- tions.43 Measures to remove existing barriers in the elec- posed to start producing turbine towers locally (at Ain El tricity sector are being implemented. However, a number Sokhna) this year in a 50 – 50 joint venture (called SET) of barriers associated to electricity prices and the avail- with German tower manufacturer SIAG Schaaf Industrie ability of skilled personnel still remain. AG. The facility is part of El Sewedy's broader strategy to The impact of the global economic crisis on the Egyp- set up a fully fledged wind farm supplier that assembles tian economy has been relative low and in spite of the and manufactures wind turbines in Egypt. In 2008, the low growth dynamic, there are no signs of an economic company bought a 30 % stake in M Torres Olvega, a small slump.44 Spanish company producing direct-drive wind turbines Measures to cop with the global crisis will positively infor 40 million €, including an option to buy the remain- fluence the availability of proper infrastructure for wind ing 70 % by March 2011. The company expects to roll out electricity transmission and distribution, one of the bar- 111 units in 2010 and 256 in 2012 respectively. In the riers for the expansion of the sector so far.45 The govern- first year, a production of 50 turbines (83 MW) is planed, ment plans to invest around 100 to 120 million $ in the 225 (435 MW) turbines will be produced in the follow- expansion of high voltage grid from Gulf of Suez to Cairo. ing four years. On the other hand, the impact of the global crisis may Conditions for private sector to access the wind energy also interfere with the efforts of the Egyptian government market are favourable and will probably be improved in to deal with the non competitive prices of renewable elec- the near future. As shown in Chapters 1.4 and 1.5, there tricity (see Chapter 1.5). For example, the government is a package of instruments in the new electricity law that has frozen the industry electricity prices until the end of aim to facilitate the access to the markets. This will sup- 2009 as a measure to stimulate the economy.46 port the goal of meeting 87 % and 73 % of the renewable Within the framework of the energy liberalization pro- electricity target in the years 2010 and 2010 through pri- cess (see Chapter 1.4), and in part as a response to the vate financed projects. Previous experiences, for instance global crisis47, the government strives a greater involve- in the gas sector, have been in general positive. The Egyp- ment of the private sector in public projects as well as to tian government has demonstrated to be a credible part- intensify private investment. ner. So far, one private company has expressed its interest European companies such as Gamesa, have provided so in developing wind energy projects (see Current Use of far, most of the wind turbines to the projects at Zafarana. Wind Energy and Project Pipeline). The tender process is In total, the NREA has ordered 405 MW wind turbines currently taking place.48 from the Spanish company. Recently, Gamesa won an Independently of the crisis, a remaining obstacle for the international tender, a 279 million € contract to supply development of the wind electricity sector is the avail-

43 AHK-Egypt 2009 48 Suding 2009b 44 GTAI 2009a 45 GTAI 2009a und 2009b 46 Auswärtiges Amt 2009b 47 GTAI 2009a EGYPT 191

ability of skilled workers, which is influenced by two 50 main factors: the lack of specialized study programs and Box 1. Intellectual property rights the emigration of well qualified personnel.49 In general, Egyptian universities and educational institutions do The main instruments to protect intellectual property not offer programs that suit the needs of the wind sec- are content in the Law 82/2002.51 The law consist of four tor, such as advanced studies in mechanical and electrical »books« addressing patents, integrated circuit designs, engineering. Although, there are some initiatives, sup- undisclosed information, trademarks, geographical indi- ported for instance by the GTZ and the Federal Ministry cations, trade statements, industrial designs, copyright for Economic Cooperation and Development (BMZ), to and related rights, and plant variety protection. reform curricula, the process to adapt them is rather slow Intellectual property issues are also included in border compared to the fast development in the wind sector. As measures regulations implemented jointly by the Customs for the emigration, well qualified Egyptian engineers and Authority and the Trade Agreements Sector of the Ministry technicians usually prefer to work abroad, especially in of Trade and Industry, as well as in regulations implement- the Middle East, where loans and economic benefits are ing the Consumer Protection Law. Law 82/2002 is part of substantially better than in Egypt. This may become par- the Egyptian efforts to comply with its obligations under ticularly critical for NREA, since its loans are rather low different international agreements.52 It generally reﬂects compared to the private sector. the provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). Enforcement is primarily addressed through the criminal law, with the possibility of a civil suit based on a showing of criminal infringement. Egypt promotes stronger enforcement by providing an intellectual property unit in its police force as well as teams of civil inspectors. In the practice, there have been a number of intellectual property cases in which Egyptian courts have been imposed penalties and issued damage awards. However, due to the overburdened court system, process and enforcement of judgments can be long-lasting.

49 Suding 2009b 50 U.S. Commercial service Egypt 2009; GTAI 2009c 51 Spohn et al. 2009 52 For instance the WIPO Convention, the Paris Convention and the Madrid protocol. For a comprehensive list see of treaties see http://www.wipo.int/ treaties/en/ShowResults.jsp?search_what=C&country_id=53C EGYPT 192

8.7 Contacts and Addresses German-Arab Chamber of Industry and Commerce 21, Soliman Abaza St. off Jamet El Dowal El Arabia St. New and Renewable Energy Authority (NREA) Mohandessin Ext. of Abbas El-Akkad St. Hay El-Zohour Cairo, Egypt P.O. Box: 4544 Masakin Dobbat Elsaff, Tel.: +202 (333) 68183 El-Hay El-Sades Fax: +202 (333) 68786 / 8026 Nasr City, Cairo, Egypt E-mail: [email protected] Tel.: +202 (271) 31 74/76 Internet: www.ahkmena.com Fax: +202 (271) 71 73 E-mail: [email protected] Egyptian Wind Energy Association Internet: www.nrea.gov.eg President: Professor Galal Osman Internet: http://www.ewindea.org/ Egyptian Electricity Holding Company Dr. Mohamed M. Awad (Chairman) Egyptian Environmental Affairs Agency Ramssis St., Abbassia, Cairo Climate Change Unit P.O. Box 222 National Focal Point Tel.: +202 (261) 64 87/63 06 Dr. Eng. El-Sayed Sabry Mansour Fax: +202 (261) 65 12 Coordinator of Egyptian DNA E-mail: [email protected] 30 Misr-Helwan Road, Maadi Internet: www.egelec.com Cairo, Egypt Tel.: +202 (525) 64 52 Egyptian Electric Utility and Fax: +202 (525) 64 90 Consumer Protection Regulatory Agency E-mail: [email protected] Prof. Dr. Hafez El Salmawy (Managing director) Internet: www.eeaa.gov.eg 1 Engineer Maher Abaza St. behind Elseka El-Hadid Club, Nasr City JCEE Cairo, Egypt Egyptian-German High Level Joint Committee for P.O. Box: 71 Panorama October 73 cooperation on renewable energy and energy efficiency Postal Code: 11811 and environmental protection Tel.: + 202 (234) 21475 Dr. Ibrahim Aboulnaga Street (ext of Abbas Elakad Fax: + 202 (234) 23480 Street) E-mail: [email protected] Nasr City, Cairo Egypt Internet: www.egyptera.com Tel.: +202 (227) 02 793 Fax: +202 (227) 02 699 ext:104 Egyptian Embassy in Germany E-mail: [email protected] Stauffenbergstraße 6-7 Internet: http://www.jcee-eg.net D-10785 Berlin Tel.: +49 (30) 477 54 7-0 Fax: +49 (30) 477 10 49 Internet: www.aegyptische-botschaft.de EGYPT | 193

RCREEE 8.8 Information sources Regional Center for Renewable Energy and Energy Efficiency Abd El-Kawy Saleh, Laila: Institutional Development in Acting Director - Head of Interim Secretariat: Renewable Energy –A Model for Developing Countries, Dr. Kilian Baelz Ministry of Electricity and Energy, New and Renewable Block 11, Piece 15, Melsa District - Ard El Golf. Energy Authority, Egypt 2004 Cairo - Egypt Tel.: +202 (241) 54691 Africa News 2009. Egypt: WB gives $m28 for renewable Fax: +202 (241) 54661 energy. In: Africa news. June 10, 2009. http://www.af- E-mail: [email protected] ricanews.com/site/Egypt_WB_gives_28m_for_renew- Internet: http://www.rcreee.org able_energy/list_messages/25348. Retrieved on 10th September 2009. Kf W-Aussenbüro Kairo Managers: Jan Blum, Walid Abdel Rahim Auswärtiges Amt. Ägypten: Beziehungen zu Deut- 4D El Gezira Street, Zamalek 11211 schland. http://www.auswaertiges-amt.de/diplo/de/ Cairo, Egypt Laenderinformationen/Aegypten/Bilateral.html#t3. Tel.: +202 (736) 95 25/74 96 Retrieved on 8th September 2009. Fax: +202 (736) 37 02 CIA World Factbook 2009. Egypt. www.cia.gov/li- E-mail: [email protected] brary/publications/the-world-factbook/geos/eg.html; Internet: www.kfw-entwicklungsbank.de Retrieved on 29. 08. 2009

GAMESA Corporacion Tecnologica S.A. Eberhard, Anton & Gratwick, Katharine: The Egyptian Ramón y Cajal 7-9 IPP Experience, Center for Environmental Science and 01007 Vitoria, Álava, Spain Policy, Stanford University, Stanford USA, 2005 Tel.: +34 (944) 037 352 Internet: http://www.gamesacorp.com EEHC 2008. Egyptian Electricity Holding Company (EEHC): Annual Report 2007/2008, Cairo 2008 Italcementi EIA 2008. Energy Information Administration. Coun- Via Camozzi 124 try Analysis Briefs – Egypt, available at: www.eia.doe. 24121 Bergamo, Italy gov/cabs/Egypt/Electricity.html; Retrieved on 05.09. Tel.: +39 (035) 396 111 2009 Internet: www.italcementigroup.com El-Salmawy 2004. Egyptian Power Sector Reform and El Sewedy Electric Contracting and Engineering New Electricity Law. EEUCPRA. Contact person: Eng. Sherif M. Ali 17 Cleopatra Street, El Korba, Heliopolis, Cairo EEUCPRA 2009.Egyptian Electric Utility and Con- Tel.: +202 (690) 7511 -290 9830 sumer Protection Regulatory Agency www.egyptera. Fax: +202 (690) 7512 com/en/e-licenses_general_Conditions.htm, Retrieved E-mail: [email protected] on 09.09.2009 Internet: www.elsewedycables.com EGYPT | 194

EGWEA 2009. Egyptian Wind Energy Association. GTZ 2007. Energy-policy Framework Conditions for Egypt Wind Facts 15.10 2008, available at: Electricity Markets and Renewable Energies: Chapter www.ewindea.org; Retrieved on 03.09.2009 Egypt

El-Salmawy 2009. Renewable Energy Strategy for 20/20 Hussein 2008. Renewable Energy 20-20 Strategy Plan. and Regulatory Framework. Egyptian Electric Utility Egyptian Electric Utility and Customer Protection and Customer Protection Regulatory Agency. http:// Regulatory Agency. http://www.jcee-eg.net/libdetails. www.jcee-eg.net/libdetails.asp?typeID=4 asp?typeID=4

El-Salmawy 2009a. Electricity Market Reform and Their IEA 2007. International Energy Agency: IEA Wind Relation with the Development of Renewable Energy Energy Annual Report 2007; available at: www.ieawind. Market in Egypt. March 2009. http://www.jcee-eg.net/ org/AnnualReports; Retrieved on 02.09.2009 libdetails.asp?typeID=4 IEA 2008. International Energy Agency – Energy ESIS 2008 - Egypt State Information Service. Egypt on Statistics Egypt. Available at: www.iea.org/textbase/ the Threshold of a Nuclear Age. (http://www.sis.gov.eg/ stats/countryresults.asp?COUNTRY_CODE=EG; En/Pub/magazin/winter2008/110235000000000015. Retrieved on 02.09.2009 htm) Retrieved on 10th September 2009 JCEE 2009 - Egyptian-German High Level Joint Com- Fathi 2008. Renewable energy sources (Wind): Incen- mittee for cooperation on renewable energy and energy tives and barriers in Egypt. Terna expert dialogue. Berlin, efficiency and environmental protection http://www. September, 2008 jcee-eg.net Retrieved on 8th September 2009

GENI 2007. Global Energy Network Institute. Egypt Kf W. Landesinformation Ägypten. http://www. Energy Issues –Electricity Network; available at: www. kfwentwicklungsbank.de/DE_Home/Laender_ Pro- geni.org/globalenergy/library/national_energy_grid/ gramme_und_Projekte/Nordafrika_und_naher_Osten/ egypt/egyptiannationalelectricitygrid.shtml, Retrieved Aegypten/Landesinformation.jsp. Retrieved on 8th on 12.09.2009 September 2009.

Georgy Youssef, Laila, New & Renewable Energy Au- Marquer 2009. Egypt moves towards renewable energy. thority: North African/Middle East/European Electric- In: Business monthly, April 2009. ity Cooperation & African Interconnection, Egypt 2004 Medhat 2009. Climate Change Risk Management Pro- Government of Egypt and of the EU 2008. Memoran- gram CDM Component. Inception Workshop dum of understanding on strategic partnership on energy between the European Union and the Arab MEDREC 2004. Mediterranean Renewable Energy Republic of Egypt. http://ec.europa.eu/external_rela- Center: MEDREC Report 2004, available at: http:// tions/egypt/index_en.htm Retrieved on 10th Septem- www.medrec.org/en/download/REPORT %20ME- ber 2009. DREC %202004_egypt.pdf ; Retrieved on 10.09.2009 EGYPT 195

MEES 2009. Ministry of Electricity and Energy. terranean Sea in Egypt, Faculty of Electrical Engineer- Strategic Plan in the Electricity Sector in Egypt. ing and Computer Science, Institute of Energy and Prequalification Developers’ Meeting of BOO Wind Automation Technology, Technical University Berlin, Power Project 250 MW. Cairo 2009. 2006

MoEE 2009. Ministry of Electricity and Energy. Shata, A.S. Ahmed: The potential of electricity genera- www.moee.gov.eg; Retrieved on: 02.09.2009 tion on the East coast of Red Sea in Egypt, Institute of Energy and Automation Technology, Faculty of Elec- Mortensen et al. 2003: Wind Atlas for the Gulf of Suez. trical Engineering and Computer Science, Technical Measurements and Modelling 1991-2001, New and University Berlin, 2006 Renewable Energy Authority, Cairo, and Risø National Laboratory, Roskilde 2003 Spohn, Hans-Dieter et al. 2009: Egypt – Business Guide (http://www.ghorfa.de/pdf/BusinessGuide_Aegypten. Mortensen et al. 2005: Wind Atlas for Egypt, Measure- pdf ) Retrieved on 16th October 2009 ments and Modelling 1991-2005, New and Renewable Energy Authority, Egyptian Meteorological Authority Suding 2009. CDM in Egypt: Potentials and Projects. and Risø National Laboratory, Roskilde 2005 GTZ. MENA Carbon Forum May 2009

Mortensen et al. 2006: Wind Atlas for Egypt: UNFCCC 2009. CDM Programm activities data base. Measurements , micro- and mesoscale modelling. http://cdm.unfccc.int/Projects/projsearch.html. Proceedings of the Third Middle East – North Africa Retrieved on 8th September 2009. Renewable Energy Conference (MENAREC 3), Cairo, Egypt, June 12-14. 12 pp. http://www.windatlas.dk/ Usamea 2009. CDM potential in Egypt: Egypt/About.html An updated preliminary estimate of CDM potential in Egypt and Morocco 2009. http://www.jcee-eg.net NPPA 2009 - Nuclear Power Plants Authority. Egyptian Nuclear Program. Technical meeting on World Bank 2009. Egypt: Renewable Energy and Clean invitation and evaluation of bids for nuclear power Transport Are Cornerstones of Low Carbon Growth. plants. www.iaea.org/NuclearPower/...F/.../Egypt_Ali_ In: News and broadcast. June 5, 2009. http://web.world- Abd_El_Nabi.pdf Retrieved on 8th September 2009 bank.org/WBSITE/EXTERNAL/NEWS/0,,content MDK:22203619~pagePK:64257043~piPK:437376~ RCREEE 2009. -Regional Center for Renewable Energy theSitePK:4607,00.html. Retrieved on 10th September and Energy-. http://www.rcreee.org/about.asp. Re- 2009. trieved on 8th September 2009. WEI 2009/2010. World Wind Association: Shata, A.S. Ahmed: Evaluation of wind energy Wind Energy International 2009/2010, World Wind potential and power production on the coast of Medi- Association, Bonn, 15.09.2009 MOROCCO 196

List of abbreviations

AMISOLE L’AssociationMarocaine GWh Gigawatt hours des Industries Solaires et Eoliennes IEA International Energy Agency BOT Build-Operate Transfer IMF International Monetary Fund CDER Centre de Développement IPP Independent des Energies Renouvelables Power Producers CDM Clean Development Mechanism IRR Internal rate of return CED Compagnie Eolienne du Détroit JLEC Jorf Lasfar Energy Company CIEDE Centre d’Information sur ktoe Kilotonne of oil equivalent l’Energie Durable et l’Environnement kV Kilovolt CNRST kW Kilowatt TEER Centre National pour la Recherche m2 Square metre Scientifique et Technique, Unité des MEMEE Ministry of Energy, Mining, Technologies et Economie des Water and Environment Energies Renouvelables MW Megawatt CO2 Carbon dioxide NATO North Atlantic DH Dirham Treaty Organization DLM Delattre Levivier Maroc ONE Office National de l’Electricité DNA Designated National Authority PDD Project Design Document EET Energie Electrique de Tahaddart PJ Petajoule GDP Gross domestic product SHS Solar Home Systems GTZ Deutsche Gesellschaft für tCO2eq Tonnes of CO2 equivalents Technische Zusammenarbeit GmbH WTO World Trade Organisation MOROCCO 197

9.1 Introduction The official language in Morocco is Arabic, but there are also Berber dialects spoken and French often is the lan- FIGURE 1: MAP OF MOROCCO guage of business, government and diplomacy. Morocco is a constitutional monarchy with Mohammed VI as the king who appoints the prime minister. The current prime minister is Abbas al-Fassi, voted into office at legislative elections held in October 2007 which can be considered as relatively free, but with a very low voter participation (37 % of which 19 % proved invalid). Foreign policy is oriented towards the West. Morocco aims to mediate between Arabic, African and international partners and has close connections to other developing countries with similar intentions.1 A potential for conflict is the unre- solved status of Western Sahara, which Morocco claims, but is under an UN-administered cease-fire status since 1991. As the Sahrawi Arab Democratic Republic (West- ern Sahara) has been accepted by the African Union, Mo- rocco since then left the union. Morocco is a member of Data source: CGIAR 2004 the WTO and has signed free trade agreements with the European Union, the United States and Turkey. In 2008, Morocco is located in North Africa and has borders to Morocco got the status of »statut avancé«, which gives Algeria and Western Sahara, with coasts towards the access to more European programmes. In addition, it is North Atlantic Ocean as well as the Mediterranean Sea part of a free trade zone with Egypt, Tunisia and Jordan. (see figure 1). In Morocco, a Mediterranean climate is In 2007, the main export partners were France (27.9 %), prevalent and in the north-west, it becomes more Saha- Spain (20.8 %) and UK (5.2 %), import partners were ran-continental and thus extreme to the south-west and France (15.8 %), Spain (10.4 %) and Italy (6.4 %). southern regions. The Atlas-Mountains run from the Morocco is strongly involved in co-operations of North south-west to north-east and form the climatic border: in African as well as European countries bordering the Med- the north-western part, summers are dry and warm, the iterranean Sea.2 Although the main trade partner is still winters mild and rainy. East of the Atlas Mountains, the the EU and Africa only accounted for 5.6 % of foreign climate is continental, with hot summers and cold win- trade transactions, its trade with other countries of the ters, with little rain. The wind is generally highest at the Arab Maghreb Union is steadily growing and doubled northern and south-western coast and on the eastern part from 2004 to 2008 to around 1.4 billion €. Morocco has of the Atlas-Mountains. also signed the Agadir Agreement to establish a free trade

TABLE 1: KEY STATISTICS; 2008 DATA IF NOT OTHERWISE INDICATED

Area Population GDP GDP/capita Export Import Currency 459 000 m² 32 Mio 61.5 billion € 1 868 €/capita 17.4 billion € 20.5 billion € 1 Dirham = (2007) (2007) 0.09 €

Source: IMF, CIA World Fact Book

1 Auswärtiges Amt, 2008 2 http:// www.animaweb.org/en/index.php MOROCCO | 198

TABLE 2: GDP OF MOROCCO 2000 – 2008

2000 2002 2004 2006 2008 GDP (constant prices) billion € 31 878 33 390 38 740 44 653 61 544

Source: IMF zone between the Arabic Mediterranean nations with took place in the oil sector, while coal and peat started to Tunisia, Egypt and Jordan, in effect since March 2007.3 increase its share around the mid 90s.7 Morocco is highly Experts of the World Bank, other banks and investment dependent on imports of energy sources; currently the companies see large potential for economic growth in Morocco and classify the country as a potential market 4 FIGURE 2: of the future. TOTAL PRIMARY ENERGY SUPPLY MAROCCO 2006: 585 PJ In 2008, the inflation rate was 4.6 %. In 2007, 15 % of the 5 Moroccan population lived below the poverty line. The 104 per capita income in Morocco is within the middle group 18 % of African countries. 20 3 %

162 6 9.2 Energy Market 28 % 1 % 0,1 Overview Energy Market 0 % The primary energy supply in Morocco has been rising 19 266 3 % steadily and reached 13 977 ktoe in 2006 which trans- 46 % lates to 585 PJ or 162 553 GWh. The share of the various 7 1 % sources of the total primary energy supply in 2006 can be Crude Oil Hydro seen in figure 2. Morocco is clearly dependent on fossil Coal an Peat Combustible Renewables/Waste Petroleum Products Geothermal, Solar etc fuels, as crude oil accounts for 46 % of the primary energy Gas Electricity supply, coal and peat for 28 %, petroleum products for 18 % and gas for 3 %. Source: IEA 2008

The primary energy supply has increased significantly in dependency is as high as 96 %. Final energy consumption the past. It developed quite linear from around 104 PJ in 2006 added up to 10 415 ktoe (equal to 121 126 GWh in 1971 to the current value of 585 PJ (in 2006). Newer or 436 PJ). The split of this consumption to the various data for 2008 is not available from IEA but from the sectors is shown in Tab. 3. Ministry for Energy, Mining, Water and Environment (MEMEE) and thus might slightly differ; the data for The Electricity Grid 2008 is presented in different categories: 382 PJ (61 %) In 2006, the transmission grid was owned by the state petroleum products, 159 PJ (26 %) coal, 46 PJ (7 %) power utility ONE and consisted of 18 920 km of 400 electricity, 23 PJ (4 %) natural gas, 10 PJ (2 %) hydro kV, 225 kV, 150 kV and 60 kV lines. It covers the entire and 3 PJ (<0.1 %) wind.6 country and is connected to the Algerian and Spanish According to historic data from IEA the main growth power grids via regional links. The capacity of the con-

3 AEO 2009 7 EA 2008 4 DIHK Marokko 2009 5 The definition of Morocco’s official poverty line is set at expenditure required for 2 400 calories/adult/day 6 MEMEE 2009 MOROCCO | 199

TABLE 3: FINAL ENERGY CONSUMPTION IN MOROCCO, 2006, IN PJ Total Final Energy Consumption [PJ] Industry sector 10 848 24.9 % Transport sector 4 723 10.8 % Other sectors Residential 10 777 24.7 % Commercial and Public Services 904 2.1 % of which Agriculture / Forestry 741 1.7 % Non-Speciﬁed 14 407 33.0 % Non energy use 1 210 2.8 % Total 43 606 100.0 %

Source: IEA 2008 nection between Morocco and Spain is 1 400 MW via (for most of the country), seven local municipal au- two 400 kV subsea cables, between Algeria and Morocco thorities (»Régies«) (Marrakech, Fès, Meknes Tétouan there is a 1 200 MW connection via three 400 kV lines. Safi, El Jadida-Azemmour and Larache-Ksar El Kébir) The distribution of the grid can be seen in figure 3. and four private companies (»gestion déléguée«), using ONE’s grid Casablanca, Rabat-Salé Tang er Kéni- FIGURE 3:

ELECTRICITY TRANSMISSION GRID OF MOROCCO tra) . The losses in the network accounted for 4.7 % in 2007.8 ONE aims at strengthening and extending their grid. They plan to extend the 400 kV, 225 kV and 60 kV lines and aim at constructing a third 400 kV subsea connection to Spain. Furthermore, a 400 kV connection to Algeria is currently implemented to enforce the existing 225 kV connection. According to ONE, the grid in the south is not sufficient for new (renewable) capacities, ONE aims at building 650 km of 400 kV lines between Agadir and Laâyoune; this 400 kV line to the South is supposed to be in operation by 2012.

Installed Capacity At the end of 2007, the installed power generating capacity in Morocco was a total of 5 292 MW. Of this, thermal power stations accounted for 3 469 MW (65 %). The installed capacity available from hydro- Data source: CGIAR 2004 power is 1 729 MW (33 %), of which nearly 50 % are not operational. This includes 464 MW of pumped In 2007, the distribution network, belonging to ONE, storage capacity. Wind generation plants provide the consisted of 55 103 km of medium voltage lines and remaining 114 MW (2 %). The installed capacity con- 149 795 km of low voltage lines. The retail of electricity nected to the grid has increased significantly in recent to the final consumers is in the responsibility of ONE years and is depicted in the table below:

8 ONE 2009 MOROCCO | 200

TABLE 4: INSTALLED CAPACITY BY ENERGY SOURCE, ONE AND PRIVATE PRODUCERS 2000 2001 2002 2003 2004 2005 2006 2007 Thermal 3 168 3 168 3 168 3 189 3 096 3 469 3 469 3 449 Hydropower (incl. 1 167 1 167 1 167 1 167 1 498 1 729 1 729 1 729 pumped storage) Wind 54 54 54 54 54 54 54 114 Total 4 389 4 389 4 389 4 410 4 648 5 252 5 252 5 292

Source: ONE, 2009

In addition to ONE’s plants, there are also some private the needs for huge investments both in infrastructure and producers of electricity present on the Moroccan market. capacities. ONE has initiated an investment plan with the The Jorf Lasfar Power Station, a coal-fired plant owned aim to commission 500 – 600 MW of new production by the Swiss-American consortium JLEC, is particularly facilities per year over ten years, corresponding to about significant for the country’s power supply. With a power 900 million € (10 billion DH). rating of 1 356 MW, it is the largest privately owned and operated power plant in Africa. Most of the coal used in Electricity Generation Jorf Lasfar is imported from South Africa. Morocco it- In 2008, the amount of electricity produced by the public self has hardly any coal reserves worthy of note. JLEC’s utility ONE and the three independent power produc- Jorf Lasfar power station accounts for 26 % of the total ers mentioned above (JLEC, EET and Théolia) totalled installed capacity; the Energie Electrique de Tahaddart 20 306 GWh (one third by ONE, two thirds under con- (EET) owns a gas fired capacity of 384 MW (7 % of total cession). Thermal power generation accounts for 92 % of installed capacity) and Théolia (who acquired Compag- the national electricity generation, hydropower accounted nie Eolienne du Détroit (CED) in 2007) has a 50 MW for 7 % of electricity supplies, and wind power for 1.5 %. wind park (1 %). Although the installed capacity in Morocco has grown

TABLE 5: GROSS ELECTRICITY GENERATION BY ENERGY SOURCE; MOROCCO; 2000-2008 2000 2001 2002 2003 2004 2005 2006 2007 2008 Thermal 10 771 12 091 13 068 13 657 14 584 17 539 18 009 17 994 18 648 Hydropower 705 856 842 1 441 1 600 1 412 1 585 1 318 1 360 Wind 65 207 194 187 199 206 183 278 298 Cross border exchange 2 363 1 564 1 392 1 455 1 555 814 2 027 3 507 4 261 (imports–exports) Total 11 541 13 154 14 104 15 285 16 383 19 157 21 804 23 097 24 567

Source: MEM 2009

In June 2007, in addition to the renewable energies in in the past, it could not meet the stronger growing elec- Tab. 4 (1 792 MW hydropower, 114 MW wind), a 20 kW tricity demand. This resulted in an increase of imports solar plant was commissioned in Ain Beni Mathar. from Algeria and Spain. The amount of electricity sold in In order to meet the growing demand, the Ministry of Morocco reached 21 568 GWh in 2008, compared with Energy, Mining, Water and Environment (MEMEE) sees 20 541 GWh in 2007, meaning 4.9 % growth.9

9 MEMEE 2009 MOROCCO | 201

TABLE 6: Renewable Energies ELECTRICITY CONSUMPTION IN MOROCCO 2006 In Morocco, the major form of renewable energy is bio- GWh % mass, mostly in the traditional form of fuel, wood or char- Industry 8 017 42 coal for heating and cooking purposes. The most relevant Transport 545 3 renewable energies used in the electricity sector are hydro Residential 6 130 32 energy, wind energy and solar home systems (SHS) within Commercial and Public Services 2 507 13 the scope of the rural electrification programme PERG. In Agriculture / Forestry 2 061 11 2008, 1 360 GWh were produced from hydro power, 298 Total 19 260 GWh from wind (see Tab. 5). ONE operates 26 hydro Source: IEA 2008 power stations with a total installed capacity of 1 360 MW. In addition, hydro power comes partly from a 464 MW Tab. 6 shows the electricity consumption according to pumped storage power plant near Beni Mallal/Afourer. In sectors and it can be seen that the largest consumer is Oued Oum Er Rbia, micro hydro power stations shall be the industry with 42 %. For more recent years, this in- developed in the future. For that purpose, a programme formation is not available as sale through local distribu- has been set up to identify potential sites of which 200 tors is not split up any further by MEMEE. could be identified. Furthermore, pilot projects are to be operated and evaluated now or soon; the development, For the period up to 2015, the Government of Moroc- financing and construction of more stations will be pur- co is expecting the annual growth rate to be as high as sued in the future. At the end of 2007, 44 719 households 7.5 %, mainly due to socioeconomic development and a were equipped with SHS.11 The aim of another govern- growth of population. According to estimates by ONE, mental pilot programme, the Chourouk programme, is to national demand for electricity in 2015 will be 35 000 install 1400 micro PV power stations of 0.5 – 1 kW in the - 40 000 GWh. MEMEE, however, expects an even regions of d’Errachidia, Benguerir and Ouarzazate. These higher demand, reaching 44 900 GWh (7 545 MW) in PV stations will be connected to the low voltage grid. At 2015 according to an intermediate scenario. 10 the moment, the programme is stopped, until the new renewable energy law is approved.

TABLE 7: ELECTRICITY PRICES IN MOROCCO 2009

€ / kVA*a € / kWh (Very) High Volt- depends on time of the day and general 33.5 0.05-0.12 age annual hours of consumption depends on voltage level, time of the optional 26.1-145.7 0.05-0.16 day and annual hours of consumption Medium Voltage general 34.3 0.05-0.11 depends on time of day depends on time of the day and optional 31.14-155.6 0.04-0.14 annual hours of consumption depends on annual hours of agriculture 38.1-190.5 0.04-0.16 consumption and time of the year depends on monthly Low Voltage households - 0.08-0.13 consumption depends on capacity rural households - 0.1-0.13 of connection

Source: Arrêté no. 528-09, 2009

10 Benkhadra 2008 11 MEMEE 2008 MOROCCO | 202

At the end of 2007, 200 000 m2 of solar thermal collec- ways compulsory to deal with ONE in its role as a single tors had been installed in Morocco. This amount is sup- buyer and operator of the transmission network. Anoth- posed to be doubled until the end of 2012. er goal of the further opening of the electricity market is to divide the Moroccan electricity market into two parts, Electricity Prices an open market segment and a regulated one. Custom- Electricity prices in Morocco are, by regional standards, ers will be split into eligible and non-eligible customers, relatively high. The price of electricity for final consumers depending on a threshold based on annual consumption. is fixed by decree from the Prime Minister of Morocco. This threshold has not yet been defined. Eligible clients Subsidies on electricity prices have been phased out in will be able to choose whether to purchase electricity recent years, leading to a steady but moderate price in- from the open or from the regulated market. Switching crease. (tabel 7) will be possible according to rules not yet defined.

Rural customers have the possibility to participate in a Those not belonging to the category of eligible custom- prepaid system based on pre-paid meters. For electrical ers shall continue to purchase their electricity from the supply, the customer can purchase the desired amounts regulated market at officially determined prices in order via rechargeable cards sold for 20 DH (1.8 €). to secure the supply of power to private households with a low voltage connection at prices set by the state. Liberalisation ONE is a public law company answering to the Ministry Rural Electriﬁcation of Energy, Mining, Water and Environment (MEMEE) In recent years, Morocco has made great progress in and has been responsible for the generation and trans- providing grid power to its population. In 1996, ONE mission of electricity in Morocco since 1963. It operates launched a national electrification programme named as a single buyer and owns the transmission and most Programme pour l’Electrification Rurale Global (PERG). of the distribution grid. Since 1994, power plants with The rate of rural electrification was only 18 % in 1995 be- capacities up to 10 MW can also be built and operated fore the programme started, but rose steadily to 95.4 % by private enterprises, and above 50 MW on the condi- by the end of 2008. ONE does not indicate whether tion that the project was subject to open tendering and the electrification figure is calculated with respect to all power produced is sold to ONE. This opening of the households or villages, but gives numbers of electrified electricity market is governed by law no. 2-94-503 dated households and villages: 30 766 villages, or 1 815 043 23 September 1994 and forms part of an attempt to offer households, had been provided with an electricity sup- electricity to consumers at internationally competitive ply by the end of 2008 through the scope of the PERG prices. In a policy decision in 2001, it was determined programme. This does not, however, fully meet the aim that this objective was to be achieved through the open- of the Government of Morocco which was to supply ing of the Moroccan electricity market with respect to more than 35 000 villages with electricity, 91 % through electricity generation, distribution and sale in several connection to the grid and 7 % through decentralized stages, but little effort has been made to realise this deci- electrification, by the end of 2007. Even villages situated sion. One measure in 2008 was to allow IPPs to operate long distances from the power grid now have a basic de- power plants of up to 50 MW installed capacity instead centralised electricity supply, stemming from renewable of the previous threshold of 10 MW. However, IPPs still energy sources. By the end of 2007, 44 719 households have to rely on ONE’s cooperation as there is no regulat- in 3 163 villages were equipped with PV kits. ing authority established in Morocco. Currently it is al- MOROCCO | 203

9.3 Market Actors mation on its future structure and exact functions have been decided yet but a law concerning these responsibili- Ministry of Energy, Mining, ties is to be passed in October 2009. Water and Environment The task of the Ministry of Energy, Mining, Water and The CDER is promoting the establishment of Maisons de Environment (MEMEE) is to develop conditions that en- l’Energie. These ‘maisons’ (French for ‘houses’) are small sure energy security and access to energy also for the rural rural enterprises that help local residents to organise their population. Furthermore, it is responsible for the proper own energy supplies. CDER and the United Nations functioning of the energy market and for the elaboration Development Programme (UNDP) provide technical and implementation of a strategy for the development and financial assistance in the setting up of these advisory of the energy sectors. It has, among others, a directorate centres. So far about 200 such small enterprises have been for electricity and renewable energies (DEER), with divi- established. In these small enterprises, technical equip- sions for: electrical equipment and rural electrification, ment for renewable energies and other types of fuels and distribution and electric markets, renewable energies and energy saving components can be bought, installation nuclear safety. MEM employs 447 persons of which 44 work and technical assistance can be offered, information work at DEER. In 2008, MEM had a budget of around about governmental programmes like PERG is distrib- 46 million € which was an increase of 8 % from 2007. Of uted and awareness of the local population for sustainable this, a constant amount of 2.1 million € is assigned for development is also raised. the CDER. Centre d’Information sur l’Energie Durable Centre de Développement des et l’Environnement (CIEDE) Energies Renouvelables (CDER) Since 2000, the CIEDE (Information Centre for Renew- Established in 1982, the Centre for the Development of able Energies and the Environment) has been a coopera- Renewable Energy Sources (CDER) is directly subordi- tion project of CDER, the Ministry of Energy, Mining, nated to the MEMEE but can dictate its own funds (with Water and Environment, the Ministry of the Territory a budget of 2.1 million € dispose of MEMEE) semi- Planning, the United Nations Program for Develop- autonomously. CDER has about 160 employees active in ment / Global Environment Facility (UNDP / GEF) as conducting studies, disseminating knowledge, perform- well as other Departments represented within the Na- ing quality-control checks on equipment (PV systems in tional Committee on Climate Change. Its work comple- particular), and training specialists in the renewable en- ments the activities of the administration in the fields of ergy sector. Furthermore, CDER initiates pilot projects energy and climate change. CIEDE does not have em- to spread knowledge on the implementation of renew- ployees of its own but functions through the cooperation able energy technologies. Information is only available in of the various members. Its director Dr Abdelali Dakkina, French, although the Arab and the English versions are for example, works at CDER. CIEDE’s primary tasks are under development. to acquire, collect and disseminate information about the sustainable use of energy and about the impacts of energy Saïd Mouline is managing director of CDER since March generation on the environment. CIEDE also provides in- 2009. The Centre is aiming at becoming a »National formation about developments relating to climate change Agency for the development of renewable energies and mitigation and sustainable development. It can also be energy efficiency«. At the moment it is unclear how this contacted for advice on new cooperation opportunities, reformation will affect CDER’s work, as no further infor- technology transfer and funding available to actors in the MOROCCO | 204

fields of environment, energy and development. CIEDE In respect of renewable energy sources, ONE is mainly also regularly distributes information bulletins. However, active in the areas of hydropower (it owns 26 hydro- the latest bulletin – only available in French – is from electric power plants) and wind energy. Parts of the September 2007. Generally, much of the information on planned investment of ONE into new generating ca- CIEDEs homepage is available in French only, although pacities are wind and solar projects with capacities of some information is available in English and Arabic. 60 – 472 MW and the »1000 MW wind initiative« (see chapter on market potential) as well as gas turbines L’Association Marocaine des Industries and Diesel units (4 161 MW). It was reported, how- Solaires et Eoliennes (AMISOLE) ever, that ONE seems to be hesitant to cooperate pro- The association of solar and wind power enterprises (AM- actively with potential foreign investors in wind energy ISOLE) is an umbrella organisation representing the in- projects. terests of companies and individuals with a professional involvement in the field of renewable energy. Founded Jorf Lasfar Electricity Company (JLEC) in 1987, the association now represents about 40 compa- A consortium made up of the Swiss group ABB and nies with several hundred employees. AMISOLE is open CMS Energy Corporation from the USA operates the to all interested parties whose activities are primarily fo- 1 300 MW coal-fired power station in Jorf Lasfar, an in- cused on the use of renewable energy sources in Morocco. dustrial port on Morocco’s Atlantic coast, 15 km south AMISOLE offers some basic information on renewable of Jadida. About 50 % of the electricity produced in energy technologies. Their market guide on wind energy Morocco originates from this plant. The plant was built does not have entries so far, and the information in gen- at estimated investment costs of 1.02 billion € and was eral does not seem to be updated regularly. Information is completed in 2001. Under the consortium’s agreement, available in French only. ABB was responsible for the equipment and CMS for the operation. ABB thus constructed much of the Ofﬁce National de l’Electricité (ONE) equipment (e. g. the 350 MW steam turbine generator Office National de l’Electricité (ONE) is a state-owned sets, the coal-fired boilers, the control system and the power utility and is the dominant enterprise in the Mo- balance of the plant’s equipment), whereas CMS Gen- roccan electricity sector. It operates in the fields of power eration, a CMS Energy subsidiary, operates the plant. generation, transmission and distribution and has 9 000 JLEC has negotiated a thirty year power purchase con- employees. In 2007, ONE achieved sales of 1.53 billion € tract with ONE. (DH 17 billion). The number of customers was around 3.6 million, growing at an average annual rate of 9 %. On Théolia the list of Moroccan companies with the highest turno- In 2007, Théolia, a French company dedicated at produc- ver, ONE occupied fourth place in 2006. In this ranking, ing wind energy in developed as well as developing coun- other companies from the energy sector occupy places tries acquired Compagnie Eolienne de Détroit (CED) 13 (Lydec), 30 (Redal) and 40 (Amendis). All three are with ten employees. Théolia now owns and operates local utilities, which in addition to supplying drinking the Al Koudia wind farm in Tetouan, which has a rated water also sell electricity from ONE’s grid to their end output of 50 MW and was commissioned in 2000. The customers in the cities of Casablanca, Rabat, Tangier estimated investment costs for Al Kouida wind farm are and Tétouan. According to MEM, ONE is supposed to 40.8 million €. CED had signed a contract with ONE be transformed into a stock corporation, but there is no which agreed CED will operate the wind farm for 19 timeframe given for this plan. years and ONE will purchase its electricity. MOROCCO | 205

Centre National pour la Recherche The strategy focuses on security of supply, diversification Scientiﬁque et Technique (CNRST) of national energy sources in order to reduce the depen- Unité des Technologies et Economie dence on imports, accessibility of energy for all, energy at des Energies Renouvelables (TEER) the lowest cost, energy efficiency and environment and The National Centre for scientific and technical re- safety. The share of renewable energies shall be increased search (CNRST), established in 2001, has a unit dedi- to 10 % of primary energy supply and to 18 % of power cated to technology and economics of renewable energies generation by 2012. (TEER). TEER has five research members working in the According to the strategy, natural gas could make up fields of energy, water and environment. It is planned to 30 % (being 5 % in 2009) of fuel for thermal electricity offer a platform for energy related research at the end of production in 2030. In return, the share of coal would go 2009. Here results of national research related to energy down to 19 % from the current 34 % and heavy fuel oil to shall be collected and information shall be kept up to 8 % from 24 %. date in order to supply the latest results. Until recently, only some of the research conducted by TEER is available In relation to the legal framework, the Royal Decree no. online. In addition, TEER offers some information and 1-63-226 from 1963 and its amendments set the framework instructions that can be used for energy education work for the electricity market. Here, the creation of ONE of younger students. as a state-owned utility and grid operator was established. At present, a law about the restructuring of the electricity Delattre Levivier Maroc (DLM) sector is under discussion, but there is no official deadline DLM is the leading heavy steel construction company in fixed for the presentation of the law to parliament. This Morocco and is active on the Moroccan and international restructuring law will cover the aspects mentioned under market since the 1950s. DLM has 1 100 employees and the chapter on liberalization. the annual revenue was 51 million € in 2008, an increase Renewable energies are not explicitly dealt with in the of 22.3 % from 2007. Currently, DLM has defined three general law for the electricity market, but a law on renew- focus areas for future development: export, increasing its able energies has passed the Council of Ministers in April presence in Africa and the Middle East, offshore oil and 2009. This law, which is still a draft and currently awaits wind energy. DLM has created a new production site in approval by the Parliament, is presented in the chapter on 2008. At this site in Tit Mellil, up to 300 towers for wind legal conditions for renewables. turbines with heights between 65 and 100 m can be pro- The Moroccan government has recognized the possibility duced each year. DLM has already manufactured the tow- of meeting the growing electricity demand, at least partly ers for the wind projects in Al Kouida (CED), Essaouira with renewable energies. The further exploitation of re- (ONE) and the latest project, the Tanger wind park. newable energies would also decrease the high dependency on the import of fossil fuels which at this time is as high as 96 %. It has to be mentioned though that the exploitation of gas and oil is also considered as a way to 9.4 Political Framework strengthen the national security of supply, and to meet Conditions in the Energy Sector the growing energy demand. However, with the current share of renewables in elec- Morocco has a National Energy Strategy, presented by the tricity production being less than 7 %, the government’s MEMEE in 2009, which also includes a strategy for elec- aim to reach a 20 % share in 2012 seems very ambitious. tricity in general and renewable electricity in particular. This is all the more valid, as the law for renewable energies MOROCCO | 206

has not entered into force yet and the market is still not PV and 400 MW of concentrating solar power (CSP). It liberalized. The fact that these two aspects are currently is not clearly stated how Morocco intends to reach these being considered might however be taken as a sign that targets, but a new law on the electricity market as well renewable energies are seriously considered in the future as one on renewable energies are under discussion. In ad- of Moroccan energy policy. dition, some support programmes for renewable energies This is also reflected by the fact that in July 2008, 43 exist or are in the planning stage. countries from Europe, the Middle East and Africa The Ministry of Energy, Mining, Water and the Environ- founded the new Mediterranean Union, which also ment has aggregated its efforts to promote renewable en- includes Morocco. They agreed on the important role ergies in a document named »sector of energy and min- solar energy should play in the future and will now ex- ing – essential realisations 1999 to 2008, challenges and plore the feasibility, development and realisation of a perspectives«13 including an outlook until 2015. One Solar Action Plan. aim of this plan is that by 2015 wind farms with a total In January 2009, Morocco was one of 75 founding mem- capacity of 1 440 MW are supposed to be operational. bers of IRENA, the International Renewable Energy 400 000 m2 of solar collectors are to be installed for pro- Agency. ducing hot water and 400 MW of small hydro energy are In July 2009, the DESERTEC12 initiative was officially envisaged. In total, these actions are meant to save the launched by, amongst others, the German utilities Eon and energy equivalent of about 500 000 toe (5.8 TWh). In RWE, but also Siemens, Münchener Rück and Deutsche addition, it also includes efforts to promote the use of Bank. DESERTEC’s aim is to build concentrating solar energy efficient technologies in households, public build- thermal power plants (CSP) in deserts to supply renew- ings and industry able electricity to North-African, European and Middle Eastern countries. The plants should be connected to the Legal Conditions and Support consumption sites by high voltage direct current transmis- Schemes for Renewable Energies sion (HVDC) lines. According to CDER, Morocco aims The law regarding renewable energies (Projet de loi no 13- at being one of the leading countries in this project and at 09) passed the Council of Ministers in April 2009, but is playing a key role in supplying the electricity. still a draft. It is expected to be approved by Parliament in late 2009. The draft version states that, differing from the current electricity law, there is no limitation for the 9.5 Framework Conditions installed capacity of renewable energies. Producers have for Renewable Energies the right of access to the (very) high and medium voltage grid in order to transport the electricity from the site of Strategy and Objectives production to the site of consumption. This right, how- for Renewable Energies ever, is subject to the technical capacity of the respective Within the National Energy Strategy, separate targets grid and has to be authorized by the grid operator. The for renewable energies are given. The share of renewable draft law does not introduce fixed tariffs but states that all energies shall be increased to 10 % of primary energy economic questions, as well as the technical conditions, supply and to 18 % of power generation by 2012, which have to be negotiated on a case by case basis between the is – due to the short time frame and a current share of grid operator and the power producer. In the draft law, 7 % in electricity production – a very ambitious target. By also the - until now missing - administrative procedures 2020 / 2030, the strategy considers it possible to exploit a are addressed and the competency and timeline for au- wind potential of about 7 000 MW, 1 080 MW of solar thorization procedures are fixed. The permission for elec-

12 www.desertec.org 13 MEMEE 2008 MOROCCO | 207

tricity production from renewable sources is granted for can construct wind farms up to 50 MW and connect 25 years; after this time, it can be either prolonged for an- them to the HV/VHV-ONE grid for transmission to the other 25 years, or the production site becomes property consumption site. Until 2011, the grid operator will im- of the state. A challenge for wind projects is the fact that pose a wheeling charge of 0.5 euro cents/kWh (6 cDH/ projects with a generating capacity of more than 2 MW kWh). After 2011, the charge will rise to 0.7 euro cents/ will only be allowed in zones foreseen for wind projects. kWh (8 cDH/kWh). The surplus electricity can be sold These zones, however, have not been announced yet to ONE at a price of 50 % of the medium and weighted which would mean that at the moment no bigger wind ONE tariff of the consumer. ONE will guarantee the sup- projects would be eligible for authorization. As the law is ply indepently from the momentarily production. still a draft, this problem could be solved before the law enters into force. For solar PV, ONE has another support programme, the »Chourouk« programme. Within this programme, In June 2008, ONE introduced the EnergiPro-pro- 1 215 micro PV stations will be installed by ONE on the gramme, which supports the auto-production of renew- roofs of private households in the regions of d’Errachidia, able energy. Entities with high electricity consumptions Benguerir et Ouarzazate. The households participating

TABLE 8: REGISTERED AND PLANNED CDM-PROJECTS IN MOROCCO Annual Date of Location Project Status Type Savings IRR regis- (Region) (tCO2eq) tration Essaouira wind power project Marrakech- Registered Wind 156 no data 29-Oct-05 (60MW) Tensift-El Haouz

Tétouan wind farm project for Tangier- Registered Wind 29 10 % 23-Sep-05 Lafarge cement plant (10.2 MW) Tétouan Photovoltaic kits to light up rural Many Registered Solar 39 no data 28-Apr-06 households (7,7 MW) OULJA Landfill gas Rabat-Salé- Registered Landfill gas 32 no data 6-Nov-07 recovery and flaring Zemmour- Zaer Surac Bagasse Plant Project Meknès- Registered Biomass 32 16.8 % 22-Jan-09 Tafilalet energy SBBC Fuel Switch Project Chaouia- At Validation Biomass 41 No data - Ouardigha energy Greenhouse Gas Emission in the Laâyoune At Validation Solar 5 No data - Fish Meal Industry in Morocco – Central Steam Production Plant (6 MW) Fes New Landfill Gas Recovery Re- Fès-Boule- At Validation Landfill gas 103 No data - use and Flaring Project – Fes mane RAMSA – Biogas recovery and elec- Souss-Mas- At Validation Biogas 39 No data - tricity generation from M’zar Waste- sa-Draâ water treatment plant (1.6 MW) Wind farm extension project for Tangier- At Validation Wind 58 No data - Lafarge’s cement plant in Tétouan Tétouan (22 MW) Source: UNFCCC 2009 MOROCCO | 208

will get a financial incentive with their electricity bill, but garding the use of CDM. This development is supported the exact incentive has not been published so far. In May by the aim of the government to decrease the dependency 2009, it was announced that the Spanish solar company on imported fossil fuels and thus increase the share of re- Isofoton had won the offer to install the PV stations in newables in the energy sector. The country’s institutions d’Errachidia and Benguerir. However, this programme is are experienced in handling CDM projects in the field of currently on hold until further notice. solar, wind and biomass. However, at the time of writing the DNA seems to encounter (temporary) problems with Clean Development Mechanism its electronic communication means. After Morocco ratified the Kyoto Protocol in 2002, the country quickly succeeded in creating a smoothly function- International donor activities ing administrative framework for implementing CDM Morocco is a priority partner country of German Devel- projects. A national CDM strategy was developed in the opment Cooperation. Since 1961, a total of 1.6 billion € course of an internationally promoted project that was of German promotion funds has flown to Morocco. To- completed in 2005. The Moroccan Designated National day, cooperation is also targeted to the energy sector (in Authority (DNA) was established as soon as Septem- particular wind and solar energy). ber 2002, and is accommodated within the Ministry of Since February 2008, the Deutsche Gesellschaft für Energy, Mining, Water and Environment. In June 2009 Technische Zusammenarbeit (GTZ) has been advising the Moroccan DNA had 52 projects in its portfolio. CDER and MEMEE in Morocco on developing the law By December 2008, four Moroccan CDM projects had on renewable energies. Between 1997 and 2000, GTZ’s been registered with the CDM Executive Board (EB): TERNA Wind Energy programme carried out wind two wind farms, one solar and one landfill gas project. measurements at three different sites that have lead to (See table 8) concrete investment projects. The Kreditanstalt für Wiederaufbau (Kf W) has been The projects already registered and at validation can be active in various wind farm projects. KFW’s Tanger found in table 8. The website of the Moroccan DNA14 wind farm project with a capacity of 3.5 MW, com- lists a further 16 projects which have successfully present- missioned in 2001, was the first donor-financed wind ed a Project Idea Note (PIN) and are being further expe- energy scheme in Morocco. Until now, Kf W has also dited by the investors as well as 3 projects whose project supported the wind farm Essaouira with a capacity of design document (PDD) has been approved by the DNA. 60 MW, commissioned in 2007, and is engaged in a These projects include several wind farms, but also other second wind farm in the Tangier region (140 MW, not renewable energies and energy efficiency projects. commissioned as yet). Kf W also promoted PV projects As there currently is no financial support like a fixed feed- to realise rural electrification, in which private compa- in tariff or similar for renewable energies, CDM seems to nies were involved at an early stage in order to maintain be an option that should seriously be taken into account the systems. when considering entering the Moroccan market. Rele- Other international assistance organisations are also ac- vant information on the investment climate and eligibili- tive in Morocco. The World Bank, for example, is pro- ty criteria is available on the DNA’s website, though most moting modernisation of the energy sector with a loan of the information is available in French only. The fast of 100 million US$. The World Bank together with the development of the relevant national institutions for the African Development Bank is also involved in the financ- implementation of CDM projects has enabled the coun- ing of a solar thermal combined-cycle power plant.15 try to become one of the leading African countries re-

14 http://www.cdmmorocco.ma 15 http://web.worldbank.org/external/projects/main?Projectid=P041396& theSitePK=40941&pagePK=64283627&menuPK=228424&piPK=73230 MOROCCO | 209

9.6 Market potential for wind energy city and to feed it into the grid. So far, close cooperation with ONE is crucial to be able to build and operate wind Wind energy potential farms, but during the past year, many developers have Data gathered from a wind energy evaluation programme been reported to be dissatisfied with ONE’s information of CDER, with support from GTZ, confirms that Mo- and cooperation policy. The new law on renewable ener- rocco has several areas with an excellent wind energy gies is poised to improve this situation, but no prediction potential, particularly in the greater Essaouira, Tanger can be made presently on how effective the new law will and Tétouan areas (where average annual wind speeds at be in this respect. a height of 40 m range from 9.5 m/s to 11 m/s) and in To operate a wind farm, IPPs will first have to go through the Dakhla, Tarfaya and Taza areas (with average annual an open tender and negotiate the conditions under wind speeds at a height of 40 m ranging from 7.5 m/s to which their electricity would be sold to ONE. This pro- 9.5 m/s).16 At present the third phase of this project is cess would take a longer time and would be more sub- running, in which wind measurements at the mountain- ject to ONE’s cooperation, as no regulating authority has ous Atlas and Rif regions are conducted. Wind speeds at been established so far. Autoproducers do not need to go the height of 40 m can be found in a presentation held through a tendering process; however, they also have to by CDER at workshops.17 18 The Sahara Wind Project, negotiate the exact conditions with ONE if they need to supported by the NATO Science for Peace and Security use ONE’s grid to transport the electricity from the site Programme, is looking at developing the wind potential of production to the site of consumption. in Northwest Africa in order to supply energy to Eu- The National Electricity Office ONE has launched a wind rope.19 Sahara Wind has conducted wind surveys and in- farm programme called EnergiPro »1 000 MW Initia- vestigated the possibility of building a high voltage power tive«. A database of potential wind sites in the North and transmission line between Morocco and Western Europe. South will be developed. Furthermore, the framework The InWEnt study ‘Wind Regimes of Africa’ published for grid connection shall be set and harmonized. For that in May 2004 includes an extensive chapter on the wind purpose, an EnergiePro-team is established to act as in- conditions in Morocco.20 terface between project developers and the employees responsible for grid connection within ONE to simplify Framework Conditions for Wind Energy procedures. The EnergiPro programme shall support the Until now, there is no legal procedure on how wind Moroccan aim to increase the share of renewable ener- power plants are granted permission to produce electri- gies by 2012. At present, 15 projects have applied for this

TABLE 9: INSTALLED WIND FARMS IN MOROCCO Average annual Site Capacity [MW] Commissioned Financing Operator production [GWh] Al Kouida 3.5 03/2001 12 KfW ONE European 50 08/2000 226 CED Al Kouida Investment Bank Tétouan 10.2 09/2005 38 Lafarge Ciments Lafarge Ciments Aliments et Proteins Tangier 1.6 06/2005 0.4 - du Nord SARL Essaouira 60 04/2007 200 KfW ONE

Source: Enzili 2009

16 UNESCO 2007 17 www.vdivde-it.de/msp/registration/presentations/5_Berdai.pdf 18 www.wind-energie.de/fileadmin/dokumente/Themen_A-Z/ Entwicklungsdialog/GTZ_terna-haddouch-2006.pdf 19 For further information: www.saharawind.com 20 Jagstorf 2004 MOROCCO | 210

initiative, together they account for 869 MW. This is not were supplied and installed by a Dutch company in June the 1 000 MW envisaged by the programme, but accord- 2005. Thanks to average wind speeds of 6.5 m/s at the ing to information from ONE, no more capacity can be site, the two systems are likely to provide 386 000 kWh of supported by the existing grid.21 electricity per year. Any surplus energy produced will be fed into the public grid. Current Use of Wind Energy and Project Pipeline In addition to these already existing wind farms, several At the end of 2008, the total installed capacity of wind projects are planned: farms in Morocco amounted to 124 MW. The individual wind farms are listed in the table on the previous page. TABLE 10: PLANNED WIND FARMS IN MOROCCO

Planned Planned A 3.5 MW wind farm was erected at the Al Koudia Al Site Capacity Commis- Baïda site (Tlat Taghramt in Tétouan Province, 40 km east [MW] sioning of Tangier) in late 2000 at a cost of approximately 6 mil- Tanger 140 2009 lion €. Kf W provided a low-interest loan of 4.35 million Touahar-Taza 60 2009 € for this scheme, which uses German turbine technology Sendouk 100 2009 (Enercon). The wind farm is being operated by ONE. Tarfaya 300 2010 Another wind farm at the same location, this one with a Laayoune 240 2010 rated power of 50 MW, entered service in August 2000 Foum El Oued 200 2011 with the help of a 24.4 million € loan from the Europe- Source: Benkhadra 2008 an Investment Bank. The cost of generating the electricity was calculated at 3.7 to 5.5 euro cents/kWh (0.4-0.6 To a lesser extent, wind energy is also being exploited for DH/ kWh). This wind farm is privately owned by Théolia the purposes of distributed rural electrification. For ex- based on a BOT contract with ONE (ownership of the ample, a pair of 25 kW wind generating systems and a 15 wind farm will be transferred entirely to ONE after 20 kW unit were installed in the province of Essaouira. To- years). gether, these systems supply electricity to 123 households. The wind park in Tetouan belonging to Lafarge Ciments According to CDER, in Morocco presently 300 off-grid uses the Clean Development Mechanism (CDM). The wind power plants and roughly 5,000 winddriven pumps wind farm consists of 12 turbines, each rated 850 kW. are in use. The total costs of the park amount to 9.9 million € and Industrial companies are also beginning to make use of it is expected that the annually generated electricity will wind energy on a decentralised basis. As large electri- cover about 50 % of the electricity used by Lafarge Ci- city consumers, they have the possibility to auto produce ments. In times of excess production, ONE will purchase their electricity and have it transported from production the electricity. site to consumption site via ONE’s grid. Furthermore, Essaouira wind farm consist of 71 turbines, each rated surplus electricity will be fed into the public grid and at 850 kW. Projects costs add up to around 72 million € bought from ONE at a fixed rate (see chapter on sup- and the annual electricity production is estimated to be port schemes). Lafarge Ciments, who implemented the at 210 GWh. first project on wind energy auto production, provides A shrimp-processing factory in Tangier, for example, is two reasons for their project: Through auto production using two second-hand 80 kW turbines to cover a part it is possible to cut energy costs (especially as the cement of its own electricity needs. The reconditioned turbines industry uses a great deal of electricity) and to prove en-

21 Mr. Driss Ourraoui, ONE MOROCCO | 211

vironmental commitment. Being registered as a CDM opment Corporation DEG) or Worldbank. In 2008, the project, extra revenues through the sale of emission cred- King of Morocco together with Saudi-Arabia and the its accrue. United Arab Emirates has established the »Fund for the Energy Development« which is dedicated to renewable Business Climate energies and energy efficiency. The budget of this fund is Import conditions to Morocco are good, but adminis- 1 billion US$. There is no structure for the disbursement trative processes can sometimes be lengthy. For goods of this fund in place yet, but the results of a study to set up from the EU, the import duties are reduced step by step this structure are expected in autumn 2009. and will finally reach 0 % in 2012. The industrial levels in Morocco are steadily growing. With regard to wind Some universities and other institutions are developing energy, DLM is already present in the Moroccan market courses in the field of renewable energies and energy ef- producing towers for wind turbines. In December 2008, ficiency. The course programmes are not always in ac- the German SIAG Schaaf AG, a tower manufacturing cordance with international standards yet, though the company, began to build a factory in Egypt with the aim experience of lecturers and the available training equip- to also sell their products to wind projects in Morocco. ment might still need to be improved. Very interesting Furthermore, the company is currently considering to and promising in this regard is a programme set up by establish a production facility in Morocco. For the auto- the German Chamber of Industry and Commerce in motive sector, electronic devices are produced locally and Casablanca which focuses on the re-integration of Mo- this knowledge might also be transferred to the wind sec- roccan young professionals/experts that have studied tor. A subsidiary of Airbus in Casablanca is experienced or have been trained or have worked in Germany. This in blade production. programme could provide a chance for employees in the Financing of the current wind projects in Morocco has wind sector to return to Morocco with practical and theo- mainly been achieved by ONE with support from inter- retical knowledge gathered in Germany. national donors such as Kf W (and their German Devel- MOROCCO | 212

9.7 Contacts and Addresses Centre de Développement des Energies Renouvelables (CDER) ANIMA Investment Network Rue Machaar El Haram ANIMA head office Quartier Issil, B.P. 509 Tel.: +33 (0)4 96 11 67 60 Marrakech Fax: +33 (0)4 96 11 67 61 Tel.: +212 (524) 30 98 14/22 11bis rue St-Ferréol Fax: +212 (524) 30 97 95 13001 Marseille E-mail: [email protected] France Internet: www.cder.org.ma/ Internet: www.animaweb.org/en/index.php Association Marocaine de l’Industrie Office National de l’Electricité (ONE) Solaire et Éolienne (AMISOLE) Head Office c/o Fenelec 65, rue Othman Ben Affane Résidence Mervet 20000 Casablanca Maroc 4 rue de la Bastille Tel.: +212 (522) 66 80 80 Casablanca Fax: +212 (522) 22 00 38 Morocco Internet: www.one.org.ma Tel.: +212 (522) 945129 Fax: +212 (522)949642 Ministère de l’Energie, des Mines, E-mail: [email protected] de l’eau et de l’environment (MEM) Internet: www.amisole.com Rue Abou Marouane Essaadi – Haut Agdal Rabat Deutsche Industrie- und Tel.: +212 (537) 68 88 57 Handelskammer in Marokko Fax: +212 (537) 68 88 63 Chambre Allemande de E-mail: [email protected] Commerce et d’Industrie au Maroc Internet: www.mem.gov.ma 140, Bd. Zerktouni, 6ème étage 20000 Casablanca Direction de l’Electricité et Tel.: +212 (522) 42 94 00/01 des Energies Renouvables (DEER) Fax: +212 (522) 47 53 99 Direction within MEM E-mail: [email protected] Directeur de la DEER Internet: www.dihkcasa.org Mr. Abderrahim EL HAFIDI For the programme of expert reintegration: Tel.: +21 (537) 68 87 60 E-Mail: [email protected] Fax: +21 (537) 68 87 61 E-mail: [email protected] MOROCCO | 213

La Compagnie Du Vent Embassy of the Federal Republic Residence du Palais – Imm. E, bureau 19 of Germany in Morocco Angle Bd Ghandi / Bd Yacoub El Mansour 7, Zankat Madnine 20000 Casablanca B.P. 235 Email: [email protected] 10000 Rabat Internet: www.compagnieduvent.com Tel.: +212 (537) 70 96 62 To visit wind park Lafarge Ciments: Mr. Mohsine Ettazo Kf W – DEG Tel.: +212 (522) 36 91 90 PO Box 10 09 61 50449 Köln Embassy of the Kingdom of Morocco Tel.: +49 (221) 49860 Niederwallstr. 39 E-mail: [email protected] D-10117 Berlin Internet: www.deginvest.de Tel.: +49 (30) 20 61 24 0 Fax: +49 (30) 20 61 24 20 CIEDE E-mail: [email protected] 2 Rue Oum Errabia/Avenue Okba Internet: www.maec.gov.ma/berlin/ Agdal, Rabat Tel.: (+212) 037-77-27-22 Deutsche Gesellschaft für Technische Zusammenarbeit Internet: www.ciede.org.ma/ GmbH (GTZ) Morocco Office Maison de l’Energie Country Director: Tilman Herberg Email : [email protected] 2, Avenue Tour Hassan Internet: www.maisonenergie.ma/fr/Index Rabat Hassan aspx?esp=1&mod=66 Tel.: +212 (537) 20 45 17 Fax: +212 (537) 20 45 19 CNRST TEER E-mail: [email protected] Angle avenue Allal El Fassi, Internet: www.gtz.de/marokko avenue des FAR, Quartier Hay Ryad BP. 8027 Nations Unies GTZ Environmental Programme Morocco 10102 Rabat Programme Manager: Mohamed El-Khawad Tel.: +212 (537) 77 40 99 Tel.: +212 (537) 68 07 10 Internet: www.cnr.ac.ma/teer/[email protected] Fax: +212 (537) 68 07 11 E-mail: [email protected] DLM route de Rabat (r.p. 1), Km 9 GTZ Project 20250 CASABLANCA »Promotion of renewable energies and energy efficiency« Tel.: +212 (522) 66 96 00 Project Manager: Dieter Uh Fax: 05 22 35 54 65 Tel: +212 537 77 78 84 Email: [email protected] E-mail: [email protected] Internet: http://www.dlm.ma/en/en-activites.html MOROCCO | 214

Sahara Wind Inc. Benkhadra, Amina: 32 Av. Lalla Meryem Souissi Ministry of Energy, Mining, Water and Environment; Rabat, 10170 »Morocco’s Energy Sector – Overview Outlook«, Pres- Tel.: +212 (537) 74 22 90 entation held on March 4, 2008 Fax: +212 (537) 65 08 41 Email: [email protected] Berdai, M., CDER: Internet: www.saharawind.com Energies Renouvelables au Maroc. Presentation held on the Expert Workshop »Mediterranean Solar Plan« in Permanent Secretariat of CDM - Berlin, October 2008. Designated National Authority Climate Change Service Direction of Partnership, Breuer, Siegfried: Communication and Cooperation (Bundesagentur für Außenwirtschaft-bfai): 4 Place Abou Baker Essidik, Avenue Fall Ouled Oumeir CDM-Markt kompakt – Marokko, 05/2006 Rabat Tel/Fax: +212 (537) 77 47 88 CIA World Fact Book: Email: [email protected] Internet: Internet: http://www.cdmmorocco.ma/ www.cia.gov/library/publications/the-world-factbook/

Desertec: 9.8 Information sources Internet: www.desertec.org/

African Economic Outlook (AEO): Deutsche Industrie- Internet: www.africaneconomicoutlook.org/en/ und Handelskammer in Marokko (DIHK Marokko): countries/north-africa/morocco/#/overview Internet: http://marokko.ahk.de/index.php

Afriwea: Deutsche Welle: Press Release, Two WES18 – 80 kW wind turbines Desertec bringt for a shrimp processing farm in Tangiers, Morocco, Wüstenstrom nach Europa, 07/2009 06/2005 La Compagnie Du Vent: Arabic News: The Tetuan Wind Farm, 03/2009 Morocco’s renewable energy sector boosted by three international agreements, Morocco, 12/2004 Eichhammer, Wolfgang et al.: Assessment of the Worldbank – GEF Strategy for Arrêtté no 528-09: the market development of concentrating solar Arrêté du ministre délégué auprès du Premier ministre thermal power, 05/2005 no. 528-09 in: Bulletin officiel no 5722 (02.04.2009) Enzili, M. Mustapha, CDER: Auswärtiges Amt, Länderinformationen Marokko: Country Study Morocco – Internet: www.auswaertiges-amt.de Presentation held on September 19, 2008 MOROCCO | 215

GTZ Morocco, Mr. Dieter Uh Office national de l‘electricité (ONE): International Monetary Fund: Annual Report 2004, Morocco 2006 Internet: www.imf.org Office national de l‘electricité (ONE): Jalil Bennani in Aujourd’hui – Activity report 2007, Morocco 2009 Le Maroc dated 09.09.2005: Reflexion sur une nouvelle politique, Pfeiffer, Tom: in Reuters/PlanetArc Morocco 09/2005 dated 20.7.2006: Morocco Pushes Renewable Energy as Oil Prices Jargstorf, Benjamin: Soar, 07/2006 Factor 4 Energy Projects GmbH: Wind Regimes of Africa – Comparative Evaluation Secrétariat Général du Gouvernment (SGG) 2008: of Wind Data from Selected Countries, 05/2004 Projet de loi n° 16-08 modifiant et complétant le dahir n°1-63-226 du 14 rabii I 1383 (5 août 1963) portant Koths, Dagmar: création de l’Office National de l’Electricité (Wuppertal Institut für Klima, Umwelt, Energie): Internet: CDM Länderprofil Marokko http://www.sgg.gov.ma/Projet_loi_16.08_Fr.pdf Wuppertal 2006 Secrétariat Général du Gouvernment (SGG) 2009: Marsiske, Hans-Arthur: Projet de loi n° 13-09 relative aux énergies renouvelables in Financial Times Deutschland dated 16.11.2005: Wechselstrom aus der Wüste 11/2005 Senhagi, Faouzi (GERER, Maroc): Financing the development of the renewable energy in Ministère de l‘Energie, the mediterranean region – Baseline study for Morocco; des Mines, de l’Eau et de l’Environment (MEMEE): United Nations Environment Programme (UNEP), Secteur de l’Energie et des Mines – Principales réalisa- 05/2003 tions (1999 – 2008) Défis et Perspectives, October 2008 Internet: www.mem.gov.ma SUN 2008. L’energie solaire au Maroc. Plus de 1 200 systèmes photovoltaïque seront installés au Neidlein, Hans-Christoph: Grüne Energie: Maroc par une entreprise espagnole Marokko setzt auf Zusammenarbeit mit Europa, http://sun.ma/?p=8 Europa digital, 02/2005 UNESCO 2007. neue energie, Magazin für erneuerbare Energien: Les énergies renouvelables au Maroc – Le débat est lancé 08/2008, 10/2008, 01/2009 Rabat, Morocco 2007

Office national de l‘electricité (ONE): WWEA World Wind Energy Association Annual Report 2003, Morocco 2005 Wind Energy International 2009/2010; Bonn, 2009

L’Energie éolienne au §Maroc-Ressources et Projets¦ Presentation held in Dakhla, May 2009 NAMIBIA 216

List of abbreviations

CDM Clean Development Mechanism m2 Square metre ECB Electricity Control Board MW Megawatt ESI Electricity Supply Industries MET Ministry of Environment and Tourism GDP Gross Domestic Product MME Ministry of Mines and Energy GEF Global Environment Facility MW Megawatt GRN Government of the Republic NAMREP Barrier Removal to Namibian of Namibia Renewable Energy Programme GTZ Deutsche Gesellschaft für NDA National Designated Authority Technische Zusammenarbeit PJ Petajoule GWh Gigawatt hours RED Regional Electricity Distributor IEA International Energy Agency tCO2eq Tonnes of CO2 equivalents IMF International Monetary Fund TWh Terawatt hours IRR Internal rate of return UNDP United Nations ktoe Kilotonne of oil equivalent Development Programme kV Kilovolt SAPP South African Power Pool kW Kilowatt WTO World Trade Organisation NAMIBIA 217

10.1 Introduction Namibia has a population of approx. 2.1 Million inhabitants with an average life expectancy of 51 years. The FIGURE 1: MAP OF NAMIBIA population is dominated by people from black ethnic groups (87.5 %) followed by mixed (6.5 %) and whites (6 %). The prevailing religion is Christian with a share of 80 – 90 and 10 – 20 % are of indigenous beliefs. The official language is English while the common language of the people is Afrikaans and German. Namibia’s climate is dominated by a hot and dry desert climate with sparse and erratic rainfall. Most of Na- mibia is located on a high plateau with the other significant geographic features being the Namib Desert in the west along the coast and the Kalahari in the east. Namibia’s economy is heavily depending on extraction, processing and export of minerals. It is the fourth-largest exporter of nonfuel minerals in Africa, the world’s fifth-largest producer of uranium, and the producer of large quantities of lead, zinc, tin, silver, and tungsten. Data source: CGIAR 2004 While mining accounts for 8 % of the GDP it accounts for 50 % of the foreign exchange earnings. Only 3 % The Republic of Namibia is located in southern Africa of the population are employed in the mining sector and is bordered by the Atlantic Ocean in the west. It while 50 % depend on subsistence agriculture for their shares boarders with Angola and Zambia to the north, living. The Namibian dollar is pegged to the South Botswana and Zimbabwe to the east and South Africa African Rand. The per capita GDP was 5 400 US$ in to the south. 2008. The services sector had the largest share in the Namibia has a total area of 824 292 km2 and became in- national GDP (53.4 %) followed by industry (36.2 %) dependent from a South African protectorate on 21st and agriculture (10.4 %). March 1990. Namibia is divided into 13 regions: Caprivi, Namibia’s most important trade partner is South Africa Erongo, Hardap, Karas, Khomas, Kunene, Ohangwena, representing 65 % of all imports to Namibia; Germany Okavango, Omaheke, Omusati, Oshana, Oshikoto, Ot- is responsible for 2 % and the UK and Switzerland for jozondjupa. The capital is Windhoek. 1 % each.1

TABLE 1: GDP OF NAMIBIA 2004 – 2008

Units 2000 2002 2004 2006 2008 GDP (constant Annual percent prices) change 4.1 4.8 12.3 7.2 2.9 GDP (current prices) Billions N$ 27.1 35.4 42.7 54.0 69.7 GDP (current prices) Billions Euro 4.2 3.6 5.3 6.4 5.8

Source: IMF 2009

1 Germany Trade and Invest 2009 NAMIBIA | 218

10.2 Energy Market primary energy supply more than doubled compared to 2006 values. The rise was practically only through a sharp increase in oil resources while the others remained con- FIGURE 2: SHARE OF TOTAL PRIMARY ENERGY SUPPLY stant. Namibian’s primary energy supply is dominated by IN NAMIBIA IN 2006 (TOTAL: 1 476 KTOE) oil (73.6 %), followed by combined renewable and waste (14.3 %), hydro (9.9 %) and coal/peat (2.2 %). The split 12,7 % of the various sources can be seen in Figure 2.2

8,8 % In 2007, Energy consumption is dominated by the trans-

port sector with 42 %, followed by non-energy uses 2 % 65,4 % (23 %) and the residential sector (15.6 %). The detailed split across the sectors can be seen in Table 2.

11,1 % The electricity grid NamPower operates the transmission network in Na- mibia which runs on 400-kV, 330-kV, 220-kV, 120-kV, and 66-kV as well as the sub-transmission lines. Nam- Combusted Renewable & waste Electricity Hydro Petroleum products Power Transmission is divided into two businesses, the Coal / Peat wires business and supply business. The wires business manages and operates the transmission network while Source: IEA 2008 the supply business looks after the transmission customers. These are some large mines, the Regional Electricity Overview Energy Market Distributors REDs plus some smaller supply points which The primary energy supply in Namibia has been con- are connected directly to the transmission grid largely for stantly risen and in 2006 reached 1 476 ktoe (equal to historic reasons3. The different length of the voltage levels 61.8 PJ or 17 166 GWh). With 600 ktoe in 1991, total of the transmission grid can be seen in table 3.

TABLE 2: FINAL ENERGY CONSUMPTION IN NAMIBIA, 2006, IN KTOE AND % Total Final Consumption ktoe % Industry sector 61 5,6 % Transport sector 459 42,3 % Other sectors 564 52,0 % Residential 169 15,6 % Commercial and Public Services 2 0,2 % of which Agriculture / Forestry 144 13,3 % Non-Energy Use 249 23,0 % Non energy use 1 210 2.8 % Total 1 084

Source: IEA 2008

2 IEA 2008 3 ECB 2006 NAMIBIA | 219

TABLE 3: LENGTH OF TRANSMISSION AND experienced one total system blackout on 2nd December SUB-TRANSMISSION LINES AT DIFFERENT 2007, as a result of a lightning strike into a 400-kV inter VOLTAGE LEVELS IN NAMIBIA connector to South Africa. Electricity transmission losses Transmission Lines (km) 2008 rose from 18.4 % in 2006 to 23.3 % in 2007.4 400 kV – 132 kV 5 427 66 kV – 11 kV 28 756 To strengthen the transmission system, several projects Source: NamPower 2008 are envisaged by NamPower as presented below: The layout of the electricity grid of Namibia can be seen in figure 3 below. Caprivi Link Interconnector The Caprivi Link Interconnector is a HVDC project FIGURE 3: TRANSMISSION NETWORK OF NAMIBIA intended to link the Namibian system with Zambia and Zimbabwe. The link is intended to have a capacity of up to 600 MW and will enable NamPower to trade electricity between Zambia, Zimbabwe and other Southern African countries.5 The first stage of the project consists of a 970 km ± 350 kV HVDC bipolar line, with the option of another 285km 400 kV AC transmission line that will be implemented if and when the need arises at a later stage. The completion of the work is scheduled for 20106as already 70 % of the work has been completed by October 2009.7

Zambia – Namibia Inter-connector The Zambia-Namibia 220 kV Inter-Connector line will have a capacity to carry 220 MW of power from Liv- ingstone town in Zambia to Katima Mulilo in Nambia and as such to strengthen the SAPP and grid stability in Namibia. The Environmental Impact Assessment (EIA) Source: CGIAR 2004 and NamPower 2008 has been done and was approved by the Environmental Council of Zambia. The same process has been complet- While NamPower operates the transmission network, ed on the Namibian side.8 Regional Electricity Distribution companies were set up by the government to take responsibility for the distribu- Installed Capacity tion and supply of electricity to the final customers in The three NamPower plants as of 20099 with a total ca- defined geographical areas. The five REDs for Namibia pacity of 384 MW are: are: Nored, Cenored, Central Red, Erongo Red and Southern Red. • Ruacana, a 240 MW hydropower facility on the Kunene River along its northern border with Angola; Namibia experienced frequent power outages which in- • Van Eck, a 120 MW coal plant in the capital city creased in number from 2007 to 2008. In 2008 sched- Windhoek; and uled system outages amounted to 6 hours and unsched- • Paratus, a 24 MW diesel plant in the coastal city of uled outages to 7 hours. In addition, the transmission Walvis Bay.

4 Enerdata 5 ECB 2006 6 Nampower 2008 7 Newera 2009 8 SAPP 2008 9 Nampower 2009 NAMIBIA | 220

TABLE 4: LONG TERM PLANNED CAPACITY INCREASE Estimated Project Name Fuel Capacity (MW) Expected Date costs (Million US$)

Walvis Bay coal 400 2013 700 Baynes hydro 360 2013 640 Kudu Gas 800 2015 640 Epupa Hydro 450 n.a. n.a. Okavango Hydro 15 n.a. n.a. Lüderitz Wind 10 n.a. n.a.

Source: SAPP 2008

Namibia is a part of the Southern African Power Pool The provision of power increased from 3 554 GWh in (SAPP) and as such contributes roughly 1 % to the total 2006 to 3 719 GWh in 2008. In the same time the gener- peak demand of the SAPP. Its installed capacity is higher ation by NamPower fell by 34 GWh. The difference was than its available capacity due to variability of hydro pow- compensated by a rising share of imports from the South er. Due to its low generation its importance for overall African utility Eskom. electricity production in the SAPP is low as can be seen Electricity consumption is divided into domestic users, in table 4. industrial and mining as well as commercial users. Al- To increase its share Namibia plans to expand its genera- though the 120 000 domestic users constitute 91 percent tion capacity according to the schedule shown in table 5. of all customers, domestic consumption accounts for 45 According to ESMAP the Epupa investment seems unlike- percent of total demand. There are 1 150 industrial and ly and the Kudu project faces many hurdles.10 This large mining users who account for 26 percent of demand. The capacity increase is needed to decrease imports from neigh- balance is made up by 10 000 commercial users. boring countries, it is not expected that all the planned projects will become reality within the shown date. FIGURE 4: NAMIBIAN POWER GENERATION BY SOURCE, 2006 Electricity generation

The power generation of Namibia was 1 606 GWh in 84 10 2006 mostly from Hydro and thermal sources.11 This 5 % 1 % generation is only able to meet base load demand. There- fore Namibia imports more than 60 % of its electricity requirements from South Africa, Zimbabwe and Zam- bia through the SAPP. 12 The vast majority of electricity in Namibia has always been produced by hydro power, 1512 since 2001 there is a small, stable share of coal and oil 94 % that can also be seen in Figure 4. As hydro power generation is strongly related to weather Coal Oil conditions, the national power generation was not stable Hydro (including pumped storage) in the past and had to be balanced through the import of electricity. Source: IEA 2008

10 ESMAP 2005 11 IEA 2008 12 Afrik 2008 NAMIBIA | 221

TABLE 5: SUM OF TOTAL POWER PROVISION pacity and resources to improve its service levels. Further- (LOCAL GENERATION AND IMPORTS) IN NAMIBIA more, a single-buyer system was implemented to attract Units into System GWh 2006 2007 2008 IPP investments. In 2000 a restructuring of NamPower Local production resulted in four regulated business units, namely gen- NamPower 1 606 1 576 1 572 eration, transmission, distribution and the single-buyer Imports within the NamPower Group. Zesco (Zambia) 78 24 27 Eskom (South Africa) 1 620 1 733 1 961 Rural Electriﬁcation Zesa (Zimbabwe) 162 104 85 Namibia’s 17 municipalities and 19 towns are all cur- EDM (Mozambique) 6 69 52 rently served by grid electricity, with urban access levels STEM (Botswana) 82 115 22 at 75 percent. Rural access to electricity is much lower at Total 3 554 3 621 3 719 12 percent. The national aggregate electrification level is Source: NamPower 2008 in the region of 34 percent. Targets of 25 percent (rural) and 95 percent (urban) have been set for 2010 by Gov- Electricity Prices ernment.15 The ECB approved the following time of use tariff rates As early as 1991, NamPower, in partnership with Namibia’s for 2009/2010 for all time of use customers excluding Ministry of Mines and Energy (MME), started working VAT as presented in table 6.13 on implementing the Rural Electrification Programme. The aim of the project is to make electrical power accessible Liberalisation and available to the rural population of the country and to Currently NamPower has a monopoly on the genera- provide opportunities for economic development. tion and import of electricity. The Namibia IPP Market The Rural Electricity Distribution Master Plan for Na- Framework report, prepared by CORE International and mibia completed in 2000 and updated in 2005 forms the EMCON Consulting in October 2006 for the Electric- basis for identification and prioritization of rural localities ity Control Board ECB gives recommendations for the for electrification in consultation with regional councils.16 »unbundling« of NamPower and the establishment of a At the end of 2003, about 80 more villages and settlement regulatory framework for Independent Power Producers areas had already received electrical power at the cost of (IPPs). Especially relevant to the future regulation of RE N$50 million (4.59 million €). IPPs in Namibia are the following recommendations:14 At the beginning of 2007 a publication named »Off- Unbundling of NamPower into three entities: NamPower Grid Energisation Master Plan for Namibia (OGEMP)« Generation, NamPower Trading and NamPower Trans- has been released by MME. This is one of several projects mission. The establishment of NamPower Trading would that have been initiated by the UNDP/GEF/MME represent the establishment of a »Single Buyer«, which Barrier Removal to Namibian Renewable Energy Pro- is considered as a critical element for the development of gramme (NAMREP). The objective of OGEMP is to the IPP market. provide access to appropriate energy technologies to eve- Classification of IPPs as small (5 MW <), medium ryone living or working in off-grid areas. The plan calls (5 MW < IPP < 100 MW) and large (> 100 MW) IPPS for an energy shop approach. The energy shops would sell with less complicated license application requirements suitable, approved energy products and compatible appli- small IPPs. ances that utilise renewable energy and energy efficiency. Namibia’s liberalization reforms have been primarily tar- They would also serve as payment collection centres for a geted at the distribution sector in order to build up ca- national off-grid energy financing mechanism.17

13 NamPower, 2009 15 ESMAP, 2005 14 CSA, 2007a 16 Allafrica, 2007 17 CSA, 2007 NAMIBIA | 222

TABLE 6: TARIFF USE RATES FOR 2009 / 2010 IN NAMIBIA Fixed Charges Service charge N$ / € / cus- customer / tomer / month month > 33kV 7920 726.26 < 33 kV 7920 726.26 Point of Supply Charge

Meter Size < 10 MVA N$ / POS / € / POS / month month > 33kV 2710 248.51 < 33 kV 2710 248.51 Meter Size > 10 MVA N$ / POS / € / POS / month month > 33kV 5555 509.39 < 33 kV 5555 509.39

Capacity Charges Network Access Charge N$ / kVA / € / kVA / month month > 33kV 36.84 3.38 < 33 kV 38.32 3.51 Maximum Demand Charge

> 33kV 42.25 3.87 < 33 kV 43.94 4.03

Energy Charges Peak Standard Off-Peak Low Demand Season N$c / kWh €c / kWh N$c / kWh €c / kWh N$c / kWh €c / kWh > 33kV 43.44 3.98 34.97 3.21 19.33 1.77 < 33 kV 44.09 4.04 35.49 3.25 19.62 1.80 High Demand Season

> 33kV 100.98 9.26 41.91 3.84 20.7 1.90 < 33 kV 102.5 9.40 42.54 3.90 21.01 1.93 Source: NamPower 2009

The Ministry of Mines and Energy was not able to imple- Solar Home systems have been promoted widely in Na- ment the rural electrification project during the 2007/8 mibia. On the one hand through the Home Power Pro- financial year in some regions due to a lack of qualified gram until 2003 which served around 600 to 700 homes. contractors. While contracts had been awarded, the Na- And furthermore under the solar revolving fund which so tional Tender Board had to disqualify contractors after far helped to provide more than 1 000 homes with elec- they failed to comply with tender requirements.18 tricity.

18 Allafrica, 2007 NAMIBIA | 223

10.3 Market Actors Southern African Power Pool (SAPP) The Southern African Power Pool (SAPP) was created Ministry of Mines and Energy (MME) with the primary aim to provide reliable and economi- The MME as policy maker has made clear policy state- cal electricity to supply to the consumers of each of the ments in favor of an open, competitive and transparent SAPP members within the Southern African Develop- market which promotes private sector involvement and ment Community (SADC). The SAPP has implemented investment. The MME has developed the Energy Policy a number of short-term measures to accelerate the region’s which has, since 1998, been the overall guiding document power shortage recovery. These include guidelines for ef- for the Electricity Supply Industries ESI. The Electricity fective inter-utility transmission network connectivity as Act was developed under guidance of this policy as well well as various supply side and demand side management as the restructuring actions that have taken place. initiatives.

Ministry of Regional and Local Government and Hous- Regional Electricity ing (MRLGH) Distribution Companies (REDs) Until recently, the Ministry of Regional and Local Gov- The five REDs are divided according to their location as ernment and Housing was responsible for distribution to follows: the NORED in the North, CENORED south of rural villages. With the implementation of Government’s NORED, Erongo RED in the West, Central RED in the decentralisation policy, the MRLGH’s assets and opera- centre and East and Southern RED in the south. Nored tions are being transferred to the regional councils. Electricity was incorporated on the 27th April 2001 as an asset based company of equal shareholding amongst Electricity Control Board (ECB) NamPower the Local Authority Electricity Company and The Electricity Control Board (ECB) was established in the Regional Council Electricity Company. CENORED July 2000. It has the responsibility of regulating all aspects was registered in 2003 as a Private Company, registered of electricity supply in Namibia. Although the Ministry under the Companies Act, 1973. Electricity Control of Mines and Energy retains overall policy authority, the Board issued a 10 years Distribution-and Supply licence Board has promulgated the regulatory apparatus neces- to CENORED. CENORED started trading on 1 Octo- sary for the rationalization of distribution. The ECB has ber 2005. Erongo RED has been established to undertake also been responsible for administering a new licensing the supply and distribution of electricity in the Erongo system, which requires licensees to motivate their tariff Region. structures and levels in accordance with a recently developed cost of supply methodology that prescribes trans- Oshakati Premier Electric (OPE) parency and encourages cost-reflective pricing. Oshakati Premier Electric (OPE) formed a joint venture company formed by the Oshakati Town Council and NamPower NamPower’s Premier Electric (NamPowers distribution The national public utility, NamPower, has primary respon- division) in 2000. Premier Electric has also joined forces sibility for electricity generation, import/export and trans- with the Otavi Town Council to improve electricity sup- mission, and directly supplies large customers like mines, ply in Otavi. as well as commercial farms. In the capital city and towns, the local municipality is generally responsible for distribu- Reho Electricity tion. NamPower is a member of the SAPP through which Reho Electricity formed a joint venture company between it trades electricity with its neighbouring countries. the Rehoboth Town Council and the holding company NAMIBIA | 224

of Northern Electricity, began operations in 2000 to re- renewable energy sources and imported electricity. In habilitate and manage the local electricity distribution creating this mix, the risks associated with stranded in- system in the town of Rehoboth. vestments as well as the benefits of improved security of supply will be taken into account.« Southern Electricity Company (Selco) r v(PWFSONFOUXJMMQSPNPUFBEJBMPHVFXJUIQSJWBUFJO Southern Electricity Company (Selco), a private, largely vestors and financiers with a view to facilitating eco- South African owned firm, entered into management nomically viable and competitive investments in the contracts in 2000 with the Town Councils of Keetman- electricity sector. It will also ensure the establishment shoop and Karasburg and the Karas Regional Council of the necessary legal, regulatory, fiscal and environ- to operate (and maintain/expand) their local electricity mental frameworks to create a favorable investment systems. climate.« r v(PWFSONFOUXJMMGBDJMJUBUFUIFFTUBCMJTINFOUPGOFX high-voltage interconnections to neighboring coun- 10.4 Political Framework tries to increase Namibia’s possibilities of engaging Conditions in the Energy Sector actively in regional electricity trading.«

National Energy Strategy The key objectives for Namibia are: Through the Energy White Paper, 1998, the Government r 5PTPVSDFQPXFSTVQQMJFTGPS/BNJCJBODPOTVNFSTJO of Namibia has committed itself to the use of renewable the most cost-effective manner, including the optimum energy sources. The White Paper on Energy Policy of Na- utilisation of local generating assets. mibia states – among other things - the following: r 5P FOTVSF B SFMJBCMF TVQQMZ PG QPXFS UIBU QSPNPUFT r v(PWFSONFOU XJMM QSPNPUF UIF VTF PG FDPOPNJDBMMZ Namibian growth and development. viable renewable energy technologies, as a complement r 5PJODSFBTFEJWFSTJUZPGTVQQMZBOEUPQSPNPUFUIFVTF to grid electrification, to improve energy provisions to of local energy resources. rural areas.« r v&MFDUSJDJUZ TVQQMZ JO /BNJCJB TIBMM CF CBTFE PO B Even though the key objectives and strategies of Namibia balance of economically efficient and sustainable elec- are clearly stated, little progress has been achieved as of to- tricity sources including gas, hydro-power, other day in setting and reaching quantitative targets. Consider-

TABLE 7: MAJOR LAWS GOVERNING THE ENERGY SECTOR IN NAMIBIA

Year Title Institution

1990 Foreign investment act Government of the Republic of Namibia White Government of the Republic of Namibia, 1998 Paper on Energy Policy Ministry of Mines and Energy Gas / Oil 2000 Electricity Act Electricity Control Board 2003 Competition Act Government of the Republic of Namibia 2006 State-owned Enterprises Governance Act Government of the Republic of Namibia 2007 Electricity Act 2007 Electricity Control Board

Source: http://www.lexadin.nl/wlg/legis/nofr/oeur/lxwenam.htm NAMIBIA | 225

able efforts would need to be undertaken to develop con- meet this target of about 40 MW by the year 2011.20 This crete steps as to how these broad goals could be fulfilled. seems ambitious considering the serious shortages in the Namibian electricity supply. Energy policies The energy policy clearly emphasizes the creation of a Legal Conditions and Support favourable investment climate and puts importance on Schemes for renewable energies trading of electricity with neighbouring countries. See The Ministry of Mines and Energy (MME) currently table 7. has a Solar Revolving Fund in place, which finances solar systems. This fund is administered by Konga Investment On 18th October 2007 the new Electricity Act, Act 4 of (PTY) Ltd and is a Government initiative established 2007, was passed.19 The 2007 - Electricity Act not only has with the aim of providing an affordable option to those broader regulatory provisions for the industry but has ex- who are willing to buy solar products but cannot afford to panded and strengthened the mandate of the ECB to allow pay cash. The procedure to receive the fund is as follows: for the more efficient regulation of the Electricity Supply Industry (ESI). The Act included the following highlights: r "DPNQMFUFEGPSNJTTVCNJUUFEUP,POHBBDDPNQBOJFE by a pay slip or a proof of income (a three month bank r .PSFFNQIBTJTPOUIFEFWFMPQNFOU statement) and the quotation of the supplier. and promotion of new generation, r *GUIFBQQMJDBUJPOJTTVDDFTTGVM BDMJFOUJTFYQFDUFEUPQBZ r %FWFMPQNFOUTPGUSBEJOHXJUIJOUIF 5 % of the total cost upfront and thereafter a purchase market are accommodated, order is issued to the supplier/ technician. r 1SPWJTJPOJTNBEFGPSFYFNQUJPOTGSPN r 3FQBZNFOUTUP,POHBBSFEPOFJONPOUIMZJOTUBMMNFOUT licensing requirements for five years at an annual interest rate of 5 %.21 r &OGPSDFBCMFTUBOEBSETPGTVQQMZBOETFSWJDF As of 2009 no feed-in tariffs for renewable electricity are Provisions facilitating the REDs were left out of the Elec- in place. tricity Act 2007 and therefore put the REDs in a difficult position as their legal situation was not clarified. Clean Development Mechanism In 2003 Namibia joined the Kyoto Protocol and in 2007 situated its Designated National Authority (DNA) inside 10.5 Framework Conditions the Ministry of Environment and Tourism. In July 2008 a for Renewable Energies geothermal project was the first CDM project in Namibia to receive Host Country Approval. As of today no CDM Strategy and objectives for projects have been registered in Namibia.22 At least two renewable energies more CDM projects (e.g. biomass in cement manufacture A Renewable Energy Policy Paper for NamPower was de- and transport) are currently under development. veloped and approved by the Board in May 2008. Nam- Power is according to this policy expected to engage in International donor activities the fields of wind energy, biomass energy, hybrid mini- Close development cooperation is a special priority of grid systems for off-grid areas, solar energy and skills de- bilateral relations. Germany is the principal donor coun- velopment in the fields of renewable energy. NamPower try, along with the USA. Namibia receives the highest set a target of 10 % of total installed capacity and plans to German per capita development assistance of all African

19 NamPower, 2008 20 NamPower, 2008 21 MME 2009 22 CO2Handel, 2008 NAMIBIA | 226

countries. German commitments are not confined to of- 10.6 Market potential for wind energy ficial development assistance but also typically include a variety of private initiatives and activities by non-govern- Wind energy potential mental organizations (NGOs). German state and private The evaluation of the wind potential in Namibia dates aid (i.e. overall not only energy related) since indepen- back to a programme that started in 1993 by MME for dence amounts to about half a billion Euros.23 Exemplary the »Promotion of the Use of Renewable Energy Sources activities are: in Namibia«, which is supported by the GTZ. In 1996 Between 1993 and 1999, the German Technical Coop- two measurement stations were set up in Walvis Bay and eration (GTZ) implemented on behalf of the Ministry Lüderitz. Based on these measurements and the use of of Economic Cooperation and Development (BMZ) a the wind atlas model as well as the related WAsP and programme called »Promotion of the Use of Renewable WindPro Programmes the wind potential in 50m height Energy Sources in Namibia«. In cooperation with the for the two sites was characterized as follows: Ministry of Mines and Energy, the following activities were carried out: TABLE 8: WIND POTENTIAL IN 50 M HEIGHT

Annual energy Weibull Pa- Site average wind density kWh/ r 1SPNPUJPOPGEFDFOUSBMJ[FESVSBMFMFDUSJGJDBUJPO rameters a,k speed m/s m2/a r "TTFTTNFOUPGUIFXJOEFOFSHZQPUFOUJBMBU8BMWJT#BZ Walvis Bay/ A=7.73 6.8 3 047 and Lüderitz (see below) Saltworks B=2.17 r "TTFTTNFOUPGUIFTPMBSFOFSHZQPUFOUJBMJOUIF Lüderitz A=8.4 7.5 4 936 Southern part of the country Golf Course k=1.7 r 4VQQPSUPGUIFEFTFSUSFTFBSDITUBUJPO(PCBCFC Source: CSA 2007

On the basis of the wind measurements, GTZ’s TERNA The feasibility study carried out by the TERNA Wind Wind Energy Programme conducted a feasibility study Energy Programme in 1998 found that the wind regime (see chapter 1.6). can be qualified as good/favourably regarding cost-efficiency and energy yield (specific generation costs of ap- The German development Bank Kreditanstalt für Wied- prox. 5 UScent/kWh). According to the study, wind en- eraufbau (Kf W) is also active in Namibia and supports ergy is especially suited to substitute for imported power inter alia the Caprivi Link Interconnector, connecting from South Africa, due to the very strong variability of Namibia with Zambia (see chapter 1.2) wind speeds at the two sites, contribution to firm capacity would be lower than usual.25 The largest hindering Currently only few Namibians possess knowledge about factor to project development are the low costs of im- how to turn wind into a power generator. Seeing this need ported electricity from South Africa. Data from the 3tier a Swedish organization has developed a training course on Group (http://www.3tiergroup.com/) can be used for wind power development especially for women. Besides the high-level wind data assessment. development of a wind project the course covers other aspects of establishing smart and sustainable electric systems Framework Conditions for Wind Energy as well as introducing various renewable energy sources. The Goal for the use of wind energy training includes methods of developing wind power plants, No data on a specific goal in terms of installed capacity e.g. wind measurement, localization and design.24 could be found.

23 Auswaertiges Amt, 2009 25 GTZ/DECON 1999, cited partially in Oeko 1998. 24 NewEra, 2009 NAMIBIA | 227

Market Access Business climate NamPower planned to build a 20 MW wind park in Lü- Namibia’s wind energy development was hindered by the deritz after the initial assessment by the GTZ in 1996. following factors: An intermediate size of about 10 MW and a small size of r MPXFMFDUSJDJUZUBSJGGT about 2.5 MW (size of minimum load in local network) r POFTJEFENBSLFUSVMFT were included in the analysis.26 (e. g. the single buyer arrangement), r MJNJUFEJOWFTUNFOUPQQPSUVOJUJFT Grid connection conditions r BCTFODFPGUBYBOEJOWFTUNFOUJODFOUJWFTUPJOUSPEVDF The current network configuration would allow up to 20 new technologies, MW as the largest possible wind park size. r MBDLPGOBUJPOBMSFOFXBCMFFOFSHZUBSHFUT r MBDLPGNFBTVSFTUPJODFOUJWJTFUIFJOUSPEVDUJPOPG Current Use of Wind Energy carbon-neutral generation capacity, and a, and Project Pipeline r MBDLPGJOTUJUVUJPOBMTVQQPSUNFDIBOJTNT A 220 kW wind turbine was installed at Walvis Bay in late 2005 and is to date the largest such installation in the These factors together with not always favourable re- country. There are several other stand-alone 1 kW turbines source conditions are responsible for the slow develop- located around the country used for electricity generation ment of the Namibian wind market. and water pumping for farms, totaling in about 70 kW.27 NamPower has not voted to go ahead with the Lüder- itz wind project, due to cheap imported electricity from South Africa: made from surface mined coal. The imported electricity is about 40 % less costly than the calculated generation costs of a 20 MW wind park at Lüderitz.28

26 TERNA 2007 27 Worldenergycouncil 2007 28 GTZ/DECON 1999 NAMIBIA | 228

10.7 Contacts and Addresses Erongo Regional Electricity Distribution Company (Pty) Ltd. Electricity Control Board, 91 Hage Geingob Street, 1st Floor Namibia Walvis Bay, Namibia 8 Bismark Street Windhoek, Namibia Joseph McGann: Climate Change Program Coordinator Tel.: +264 61 374 308 Directorate of Environmental Affairs Fax: +264 61 374 304 Ministry of Environment and Tourism Internet: www.ecb.org.na Private Bag 13306, Windhoek, Namibia Tel.: +264 61 249015 Ministry of Mines & Energy Fax: +264-61 240339 1 Aviation Road Email: [email protected] Private Bag 13297 Windhoek, Namibia Tel.: 09-264-61-284-8312 10.8 Information sources Fax: 09-264-61-220-386 Internet: www.mme.gov.na Afrik, 2008, Mega power plant for Namibian uranium mines in the pipeline, (http://en.afrik.com/ NamPower article13885.html) Retrieved on 15th September 2009 3 Goethe Street Windhoek Box 2864 Allafrica, 2007, Namibia: Rural Electrification Windhoek, Namibia Programme Stalls, (http://allafrica.com/ Tel.: +264-61-2052974 stories/200712110351.html) Retrieved Fax: +264-61-2052315 on 15th September 2009 Internet: www.nampower.com.na Auswaertiges Amt, 2009, Namibia, March 2009 Regional Electricity Regulators (http://www.auswaertiges-amt.de/diplo/en/ Association of Southern Africa Laenderinformationen/01-Laender/Namibia.html) 8 Bismark Street Retrieved on 15th September 2009 Windhoek, Namibia Tel.: +264-61-374-327 CIA – Central Intelligence Agency: The World Fax: +264-61-374-328 Factbook, 2009 (https://www.cia.gov/library/publica- Internet: www.rerasadc.com tions/the-world-factbook/geos/vm.html) Retrieved on 15th September 2009 NORED Electricity Main Road Core International and EMCON Consulting Group, PO Box 3544 October 2006, Namibia IPP and Investment Market Ongwediva, Namibia Framework Technical Assistance Volumes I and II, pre- Tel.: +264-65-233800 pared for the Namibian Electricity Control Board Fax: +264-65-231953 NAMIBIA | 229

Consulting Services Africa, Christoph Schumann, Enerdata, Namibia, (http://www.worldenergy.org/oth- Robert Schultz, Martin Heita May 2006, Strategic Ac- er/startdownload.asp?DocumentID=1960) Retrieved tion Plan for the Implementation of Renewable Energy on 15th October 2009 Policies in the White Paper on Energy Policy, prepared for Barrier Removal Namibian to Renewable Energy ESMAP, 2005, Power sector reform in Africa: assessing Programme (NAMREP) the impact on poor people, (http://www.gsb.uct.ac.za/ gsbwebb/mir/documents/ESMAP %20Power %20 CSA, 2007, Consulting Services Africa, 2007, Chris- Sector %20Reform %20Africa.pdf ) Retrieved on 15th toph Schumann, Robert Schultz, Solar Age and Geo- September 2009 Carta, August 2007, Off-Grid Energisation Master Plan, prepared for Barrier Removal Namibian to Renewable Germany Trade and Invest 2009 - Wirtschaftsdaten Energy Programme (NAMREP) (www.mme.gov.na/ kompakt: Namibia (http://www.gtai.de/ext/anlagen/ pdf/undp-reports/off-grid-masterplan.pdf ) Retrieved PubAnlage_5911.pdf ) Retrieved on 18th August 2009 on 15th September 2009 GTZ/DECON 1999: Project Studies on Wind Parks in CSA, 2007a, Consulting Services Africa, 2007, Devel- Walvis Bay and Lüderitz. opment of a regulatory framework for renewable energy and energy efficiency within the electricity sector, Final IMF-International Monetary Found: Report for report January 2007, (www.mme.gov.na/pdf/undp- Selected Countries and Subjects: Namibia, 2009 reports/reee-regulatory-framework.pdf ) Retrieved on (http://www.imf.org/) Retrieved on 15th September 15th September 2009 2009

CO2Handel, 2008, Namibia gives HCA to 1st geother- Inwent, 2004, Wind Regimes of Africa, Comparative mal potential CDM project Evaluation of Wind Data from Selected Countries, (http://www.co2-handel.de/article160_9233.html) (http://www.afriwea.org/download/R-WindAfri- Retrieved on 15th September 2009 ka_010404_engl.pdf ) Retrieved on 15th September 2009 ECB, 2006, IPP and Investment Frame- work, (http://www.ecb.org.na/downloads. MME 2009, (http://www.mme.gov.na/energy/solar. php?m=6&sm=0&op=show&cat_id=23) Retrieved on htm) Retrieved on 15th September 2009 15th September 2009 NamPower, 2008, Annual Report 2008, (http://www. EIA - Energy Information Administration: Country nampower.com.na/Pages/annual-report-2008.asp) Analysis Briefs 2007 (http://tonto.eia.doe.gov/country/ Retrieved on 15th September 2009 country_energy_data.cfm?fips=WA) Retrieved on 15th September 2009 NamPower, 2009, (http://www.nampower.com.na/ pages/generation.asp) Retrieved on 15th September EMCON Consulting Group, Tinda ESI Consultants, 2009 Solid Productions, VO Consulting, November 2006, Demand Side Management Study for Namibia, prepared for the Electricity Control Board NAMIBIA | 230

Newera, 2009, Women to Train in Wind Gen- SK Holdings, 2006, Report on the Development of eration, (http://www.newera.com.na/article. First Cost Reduction Strategies for Renewable Energy php?articleid=6442) Retrieved on 15th September 2009 Products and Services Newera, 2009, Caprivi power link ready in 2010, (http://www.newera.com.na/article php?articleid=7103) GTZ 2007, TERNA Wind Energy Programme, Ges- Retrieved on 15th September 2009 ellschaft für Technische Zusammenarbeit (GTZ), Wind Energy Projects in Morocco and Namibia, (http://www. Oeko, 1998, Economic and Financial Aspects of Wind gtz.de/wind) Retrieved on 15th September 2009 Power in Namibia, (www.oeko-institut.de/service/ gemis/en/em/files/data/namibia.pdf ) Retrieved on UNDP Riso: CDM pipeline overview, (http://unepri- 15th September 2009 soe.org/) Retrieved on 15th September 2009

PricewaterhouseCoopers, April 2006, Assessment of Worldenergycouncil, 2007, Survey of Energy Resources Duties and Taxes, prepared for Barrier Removal Na- 2007, (http://www.worldenergy.org/publications/ mibian to Renewable Energy Programme (NAMREP) survey_of_energy_resources_2007/wind_energy/coun- try_notes/2027.asp) Retrieved on 15th September 2009 SAPP, 2008, Annual Report 2008, (http://www.sapp. co.zw/documents/SAPP %20annual %20report.pdf ) WRI Namibia, 2006, Country Profile, Namibia, (http:// Retrieved on 15th September 2009 earthtrends.wri.org/text/energy-resources/country- profile-129.html) Retrieved on 15th September 2009 SENEGAL 231

List of Abbreviations

ADF African Development Fund IEA International Energy Agency AFD Agence Francaise de Devéloppement- IPP Independent Power Producer French bilateral cooperation agency Km Kilometer AfDB African Development Bank kV Kilo Volt AREED African Rural Energy Enterprise kWh Kilowatt-hour Development Program kWp Kilowatt-peak ASER Agency for Rural Electrification LPG Liquefied Petroleum Gas BOOT Build, Own, Operate and Transfer MV Medium Voltage BV Cert Bureau Veritas Certification Holding MW Mega Watt CEGELEC CGEE (Compagnie Générale MWh Mega Watt Hour d’Entreprises Electriques) -Alsthom N/A Not Available CER Certified Emissions Reduction OHADA Organization for the Harmonization CERER Centre d’Études et de Recherches of Business Law in Africa sur les Énergies Renouvelables OMVG Organization for the Development CDCF Community Development Carbon Fund of the Gambia River Basin CDM Clean Development Mechanism OMVS Organization for the Development CRSE Commission de régulation du secteur of the Senegal River de l’électricité PIN Project Idea Note CSS Compagnie Sucrière du Sénégal PDD Project Design Document DNA Designated National Authority PERACOD Program to Promote Rural Electrification DNV Det Norske Veritas and a Sustainable Supply of Domestic Fuel EB Executive Board PJ Petra Joule EDBI Export Development Bank of Iran PPA Power Purchase Agreements ECOWAS Economic Community PPER Rural Electrification Priority Program of West African States RE Renewable Energy EIA Energy Information Administration RES-E Electricity made from Renewable Energies ENDA Action Environnement-Développement RECIPES Renewable Energy in emerging (Environmental Development Action) and developing countries ERPA Emissions Reduction Purchase Agreement REEEP Renewable Energy & FCFA Franc de la Communauté Energy Efficiency Partnership Financière Africaine SAR Societe Africaine de Raffinage GDP Gross Domestic Product SEMIS Services de l’Energie en Milieu Sahélien GEF Global Environment Facility SENELEC Société National d’Éléctricité du Sénégal GOS Government of Senegal SGS Société Générale de Surveillance HV Hight Voltage SHS Solar Homes Systems GTZ Deutsche Gesellschaft SONACOS Société Nationale de Commercialisation für Technische Zusammenarbeit des Oléagineux du Sénégal ICS Industries Chimiques du Sénégal UK United Kingdom IDA International Development Association UNDP United Nations Development Program SENEGAL 232

UNFCCC United Nations Framework Convention on Climate Change UNIDO United Nations Industrial Development Organization US United States USD United State Dollar V Volt WAEMU West African Economic and Monetary Union WAPIC West African Power Industry Convention WAPP West African Power Pool WB World Bank WEI Wind Energy International Wp Watt-peak SENEGAL 233

11.1 Introduction a five-year term. The president can be re-elected twice. In the presidential election of 2000, after 19 years of presi- FIGURE 1: MAP OF SENEGAL dency, Abdou Diouf was defeated in a free and fair election by opposition leader Abdoulaye Wade. Mr Wade was reelected in 2007. Senegal has supported functional integration among French-speaking West African states through the West African Economic and Monetary Union (WAEMU). Senegal has a high profile in many international organizations and was a member of the UN Security Council in 1988 — 89. It was elected to the UN Commission on Human Rights in 1997.3 Senegal is also a member of the Organization for the Harmonization of Business Law in Africa (OHADA). The stated purpose of OHADA is to facilitate and encourage both domestic and foreign investment in the member states. The main industries include food processing, mining, Source: CGIAR 2004 cement, artificial fertilizer, chemicals, textiles, refining imported petroleum, and tourism. Exports include fish, Senegal is a Western African country bordered by the At- peanuts, petroleum products, phosphates, and cotton. lantic Ocean to the west and Mauritania, Mali, Guinea, The principal foreign market is Mali at 19.5 percent of Guinea-Bissau and The Gambia (see figure 1). exports (as of 2008). Other foreign markets include India Senegal is characterized by a tropical climate. Especially (5.9 %), France (5.5 %), The Gambia, (5.4 %) and Italy in Dakar the characteristic heat and humidity are moder- (4.9 %). The main import products are food and bever- ated by cool ocean wind. The rainy season, between June ages, capital goods and fuels. In 2008, Senegal mainly and November, brings heavy precipitations along with imported from the following countries: France (20 %), strong south-easterly winds. The dry season, from De- UK (15.4 %), China (7.5 %), Belgium (4.6 %), Thailand cember to May, is exacerbated by the hot, dry Harmat- (4.5 %) and the Netherlands (4.1 %).4 tan1 winds. 2 Table 2 shows that the Senegalese GDP has been grow- Senegal is a republic under multiparty democratic rule. ing constantly more than 5 % annually between 1995 and The president of Senegal is the head of state, government 2008. In 2008, the inflation rate was 6.6 %. The percent- and commander-in-chief of the armed forces, and serves age of the population living below the poverty line at na-

TABLE 1: 2008 STATISTICS Area Population GDP GDP per capita Export Import 196 722 km² 13.7 million 9.15 billion € 1 092.3 € per 1.3 billion € free 3.1 billion € free (2008) capita (2008) on board (f.o.b.) on board (f.o.b.) (2008 est.) (2008 est.)

U.S. Department of State 2009 and IMF 20092

1 The Harmattan wind is a dry and dusty West African trade wind. It blows south 3 U.S. Department of State 2009 from Sahara into the Gulf of Guinea between the end of November and the 4 CIA World Factbook, 2008 middle of March (winter). 2 Original prices are given in US Dollar, Exchange rate 2008: 1 US Dollar = 0.6827 Euro, (CIA World Factbook, 2008) SENEGAL | 234

TABLE 2: GDP OF SENEGAL 2000- 2008 Units 2000 2002 2004 2006 2008 GDP (current prices) Billions € 3.2 3.7 5.5 6.4 9.1

Source: IMF tional level fell from 57.1 % in 2001 to 54 % in 2004. the last thirty years, the share of coal and oil increased The per capita income in Senegal was 1 600 US Dollars much stronger than the other sources. The primary en- in 2008. ergy supply in Senegal reached 3 016 ktoe (equal to 126 Senegal is part of the BCEAO (Banque Centrale des États PJ or 35 076 GWh) in 2006. Senegal’s primary energy de l’Afrique de l’Ouest, »Central Bank of the West African supply is dominated by oil (55.7 %), followed by com- States«) and uses the West African CFA franc5 (French: bined renewables and waste (39.9 %) (i.e. waste materials, franc CFA or simply franc, ISO 4217 code: XOF). biomass and geothermal energy), coal with 3.4 %, hydro with 0.7 % and gas with 0.3 %. The split into the various sources can be seen in figure 2. 11.2 Energy Market Senegal relies heavily on wood fuel consumption which reached 60 % of the country’s total energy consumption Overview Energy Market and accounts for about 90 % of households’ energy needs. The development of the total primary energy supply ex- TABLE 2: perienced a steady increase during the last years. Start- FINAL ENERGY CONSUMPTION ACCORDING ing at 1 300 ktoe in 1970 of which more than 50 % TO END USE SECTORS IN 2006 Final Energy Share [ %] were provided by combined renewables and waste. Over supply [ktoe] Total ﬁnal energy supply 3 016

FIGURE 2: Industry 302 10 SHARE OF TOTAL PRIMARY ENERGY SUPPLY Transport 1 207 40 [3 016 KTOE] IN SENEGAL IN 2006 Residential 1 387 46

21; 9; Commercial and Public Services 90 3 103; 1 % 0 % Non- Energy 30 1 3 % Source: IEA 2008

Senegal has a very large Liquified Petroleum Gas (LPG) market. The LPG-Consumption of Senegal amounted to about 150 000 t in 2008 and Senegal is by far the largest

LPG-importer in West Africa. In 2006, the natural gas 1203; 1680; consumption of Senegal accounted 50 million cubic me- 40 % 56 % tres and was covered by exploiting its own reserves. The overall oil consumption of 36 200 barrels per day was covered by imports thus leading to high import dependency of fossil fuels. Up to now, there are no proven oil re- Oil hydro Comnined renew & waste Gas sources in Senegal, but own exploration efforts as well as Coal by neighbouring countries are conducted.6 Coal neither exists as proven reserves nor as primary energy source.7 Source: IEA 2006

5 The West African CFA franc is besides Senegal the national currency in the 6 Potential offshore oil resources are around 700 Mio barrels, following states: Benin, Burkina Faso, Côte d‘Ivoire, Guinea-Bissau, Mali, Niger, estimated, GTZ 2007a and Togo. The franc CFA is pegged with the Euro 7 IEA 2006 SENEGAL | 235

The Electricity Grid FIGURE 3: ELECTRICITY TRANSMISSION GRID OF SENEGAL SENELEC (Société National d’Éléctricité du Sénégal) had a monopoly for the grid-connected generation, transmission and distribution of Senegal’s electricity. Now an unbundling is planned so that generation and distribution are opened for private investors. SENELEC will continue to hold the monopoly for transmission (see Fehler! Ver- weisquelle konnte nicht gefunden werden.Fehler! Ver- weisquelle konnte nicht gefunden werden.).8 In 2005, the high voltage transmission grid of SENELEC consisted of 1 036 km power line of which 760 km are designed for a voltage of 225 KV and 276 km for 90 KV. There are four HV/MV injectors equipped with 19 transformers for an installed capacity of 757 MVA and 2 HV distribution stations. The OMVS system on the Senega- lese territory had three (03) 225 /30 KV stations (Matam, Dagana and Sakal) and one (01) 225/90 KV station (Tobène).9 In 2005, the electricity distribution system of Source: WAPP 2007 SENELEC was constituted as follows: was decided to develop energy production facilities and interconnect the respective electricity grids. According • A MV network at 6.6 KV and 30 KV with a total to the agreement, the WAPP was accomplished in two length of 6 827 km; phases but was planned to be fully implemented by 2005. • A LV network with a total length of 6 761 km; The first phase involved countries that are already inter- • 13 HV/HV substations and 3 285 MV/LV substations. connected, including Nigeria, Benin, Burkina Faso, Cote d’Ivoire, Ghana, Niger and Togo. The second phase in- The electrical system of SENELEC consists of two sub- volved countries which are yet to have interconnection systems: the interconnected system network and that of facilities, which include Guinea, Guinea-Bissau, Libe- the non-interconnected system (see figure 3). ria, Mali, Senegal, Gambia and Cape Verde. Under the agreement, WAPP is expected to harmonize the regula- SENELEC is currently planning various projects to de- tory framework that governs the electricity sector in each velop the transmission and distribution network. For member country. instance, the project »Boucle« 90 KV from Dakar with Under this project, the Organization for the Develop- 28.63 km of 90 kV underground cables, four stations ment of the Senegal River (OMVS), which consists of 90/30 kV shielded isolated in sulfur hexafluoride (SF6) Mali, Mauritania and Senegal, has constructed two dams. and 29.5 km of fiber optic cable is under construction The Diama dam, located in Senegal, was completed in and financed by the People’s Republic of China for an 1986 and its primary function is to stop the upstream amount of 23.4 billion Francs CFA (35.6 millions Euros). encroachment of seawater from the Atlantic Ocean. The It is planned to be commissioned in 2010.10 Manatali dam, built by the OMVS on the Bafing River, In 2000, as a member of the Economic Community of the main tributary of the Senegal River in Mali, was West African States (ECOWAS), Senegal had signed the completed in 1987. The Manatali project also includes a West African Power Pool (WAPP) agreement11, where it 200 MW power station and a 1 300 km grid of transmis-

8 Pers. Information Mr. Mansour Assani Dahouenon, GTZ Senegal, 20th of October 2009 9 WAPP 2007 10 SENELEC 2007 11 Archive 2003 SENEGAL | 236

sion lines to the capitals of Mali (Bamako), Mauritania supply. Existing capacities are not sufficient to cover the (Nouakchott) and Senegal (Dakar). increasing electricity demand which has been growing by Since around 2000, the two systems, Organization for the 8.4 % on average between 2005 and 2007.15 Development of the Gambia River Basin (OMVG) (re- The state-owned utility SENELEC plans to develop new

TABLE 3: POWER PLANTS AND INSTALLED CAPACITY Producer Type of power plant Installed capacity SENELEC TOTAL 395 MW Thermal power plants 138.7 MW Diesel generators 208.3 MW Gas turbine power plant 48 MW Private generation TOTAL 166 MW Diesel generators 48 MW Hydro power (Manantali) 66 MW Combined cycle power plant (GTI) 52 MW Source: GTZ 2007a gion of Gambia, Guinea, Guinea Bissau and Senegal) and thermal power plants. For instance, the Sendou (Bargny) OMVS implement projects as the construction of hydro- project consists of a coal-fired power plant of 125 MW power plants and the development of transmission lines. planned for 2011 and a 70 MW diesel power plant at To- In 2007, OMVG Energy Project consists of the develop- bène in the Tivaoune region planned for 2010.16 ment of hydropower sites at Sambangalou (128 MW) in Until 2012, additional 520 billion FCFA (793 million Senegal at an approximate cost of 292 million Euros,12 Euros) are planned to be invested including a new coal and a 1 677 km 225 kV transmission line interconnect- power plant and a hydro power project developed jointly ing the national power systems of Senegal, The Gambia, with Guinea in Souapéti. According to these plans, over- Guinea and Guinea Bissau.13 Pre-investment studies all installed capacity will reach 600 MW in 2012. had rendered the project techno-economically feasible The number of SENELEC clients has increased by 9.2 % with mitigable environmental and social impacts. Pro- from 2006 to 2007.17 However, the electricity produced jected commissioning of the project is within the period by SENELEC and private companies still does not satisfy 2011 –2012. electricity demand. Firstly, the existing capacity is insufficient to meet demand, which is continuing to grow, while The capacity of power transmission of Senegal with one hun- secondly many of the power stations are obsolescent, and dred percent increment has reached 750 MW in 2008.14 consequently have to be shut down at frequent intervals for maintenance or essential repairs. Installed Capacity In 2007, the installed electrical generation capacity in Electricity generation Senegal was estimated at 561 MW, mostly supplied by Electricity generation in Senegal amounted to 2 370 GWh thermal power plants and Diesel powered generators. in 2006 jointly produced by SENELEC and private com- However, due to modernisation deficits the usable capac- panies and was estimated at 3 110 GWh in 2008.18 The ity is reduced to about 485 MW. Renewable energies do development of electricity generation in 2006 by differ- not play a significant role for grid-connected electricity ent fuel sources can be seen in Table 4.

12 And at Kaleta (240 MW) in Guinea at an 15 GTZ 2007 a approximate cost of 178 million Euros 16 GTZ 2007 a 13 WAPIC 2007 17 SENELEC 2007 14 EDBI 2008 18 IEA 2008, World Perspective Monde 2009 SENEGAL | 237

In 2006, the thermal power generation share accounts for losses is based on system malfunctions (at a rate of 88 %), 87 % in the total national electricity generation, hydro- insufficient production capacities and cancellations from

TABLE 4: DEVELOPMENT OF THE ELECTRICITY GENERATION IN SENEGAL, 1971-2006, IN GWH Oil 1971 1976 1981 1986 1991 1996 2001 2006 Combined Renewables & waste 400 500 600 750 900 1 000 1 600 2 000 Gas 50 50 50 50 50 50 50 50 Hydro 000020100050 Geothermal/ solar/ wind 00000010250 Total electricity Generation 00000010020

Source: IEA 2008 power accounts for 9.6 %, biomass for 2.1 %, solar energy big clients (contracts between the electricity utility of for 0.1 % and other sources for 1.2 %.19 Senegal and big clients such as industrial companies have Senegal is neither importing nor exporting electricity.20 been cancelled).22 In 2006, the residential sector accounted for the largest share of electricity consumption (around 37 %). The Renewable Energies industry sector accounted for 30 %; the commercial and Currently, the use of (new) renewable energies is not public services sector for 33 %. widely spread in Senegal. Electricity produced from hy- Electricity consumption in Senegal has risen at an average dro power accounts for 234 GWh (9.6 %), electricity of 6 % per annum over the past ten years. The projected from biomass for 50 GWh (2.1 %), and solar energy for annual growth rate for the next ten years is even higher, only 4 GWh (0.1 %).23 amounting to an average of 10 %.21 Senegal has a very high yet still unexploited solar energy A part of the generated energy is not supplied to the potential. However, the Senegalese government expects transmission and distribution systems due to switch- to increase the role of renewable energies in the future.24 ing disruptions and outages. These losses amounted to In 1986, the technically feasible hydropower potential of 29.74 GWh in 2005 compared with 13.74 GWh in 2004 Senegal was estimated at 4 250 GWh /year.25 Construc- and 6.98 GWh in 2003. The sharp increase in energy tion of the 200 MW Manantali plant (800 GWh /year),26 as part of the Senegal River project was scheduled to be- TABLE 5: gin in September 1997 and was successfully completed FINAL ELECTRICITY CONSUMPTION ACCORDING TO END USE SECTORS IN 2006 in 2001. Electricity [GWh] Percentage Furthermore, Schott Solar, SMA Solar Technology and Total ﬁnal consumption 1 757 100 % Kaïto have successfully completed their pilot project in Industry 531 30.2 % Africa: the first solar emergency power system for a hos- Transport 0 0 % pital in Senegal was officially started up on October 18th Residential 646 36.8 % 2008, together with the village community in Baïla. On Commercial and Public 580 33.0 % Services the roof of the clinic, 102 Schott Solar modules produce Agriculture / forestry 0 0 % approximately 8 MWh of electrical energy a year, and any Fishing 0 0 % surplus energy is stored in batteries.27 Other Non-Speciﬁed 0 0 %

Source: IEA 2008

19 IEA 2009 22 WAPP 2007 20 IEA 2009 23 IEA 2009 21 GTZ 2007a 24 GTZ 2007a 25 Recipes 2006 26 Senegal controls 60 MW oft the total installed capacity of 200 MW. 27 Schottsolar 2008 SENEGAL | 238

Electricity Prices lationship. Though two consortia eventually bid under A 10 percent increase in electricity prices was imposed this model, and despite active negotiations with both, in 2002 to reduce the government subsidy needed. The a deal could not be struck with either and the privatisa- variable cost per kWh is 59.70 FCFA / kWh for the whole tion attempt was abandoned. SENELEC remains fully interconnected system (including procurement) while state-owned, albeit operating in a new regulatory envi- units from the SENELEC interconnected network reach ronment.28 58.14 FCFA / kWh. The cost differs from 52.49 FCFA / The situation for Independent Power Producers (IPPs) kWh for the Kounoune power station to 91.73 FCFA / is still quite difficult in Senegal. In 1998, the Senegalese kWh for the Aggreko SOGEM power plant, both ther- government began to open the power sector for private mal power plants. In contrast, the production costs for investors. Government-owned SENELEC was trans- electricity from the Manantali hydroelectric power sta- formed to a stock company and power production was tion amount to only 18.41 FCFA / kWh. opened to IPPs. However, SENELEC will keep a monop- The average electricity purchase costs for Senegalese oly on purchase and distribution of electricity until 2009. end consumers were 111 FCFA / kWh in 2007 against In practice, this complicates market access for IPPs, as 90 FCFA / kWh in 2006, which is an increase of 12.2 %. Ta- SENELEC is not paying adequate electricity rates. Also, ble 6 shows the average electricity price for end consumers. SENELEC impedes power trading with third parties as

TABLE 6: AVERAGE ELECTRICITY PRICE FOR END CONSUMERS, 2003 TO 2007, IN FCFA / KWH AND EURO / KWH 2003 2004 2005 2006 2007 Price (FCFA/kWh) 83 82 79 90 101 Price (Euro/kWh) 0.126 0.125 0.120 0.137 0.154

Source: SENELEC 2007

Liberalisation the transmission of electricity through the grid owned by In December 1996, the Government of Senegal embarked SENELEC is not possible.29 on a privatization-focused electricity sector reform with According to the German technical cooperation Deutsche the technical and financial support of the World Bank Gesellschaft für Technische Zusammenarbeit (GTZ), (WB) and other donors. The government was eager to three large industrial enterprises in Senegal (the chemical transform its electricity sector and expand coverage for company Industries Chimiques du Sénégal (ICS), sugar both its rural and urban populations. It initiated insti- producer Compagnie Sucrière du Sénégal (CSS), and the tutional, legal and regulatory reforms. In March 1999, it peanut processing company Société Nationale de Com- sold 34 % of the shares of SENELEC to a joint consor- mercialisation des Oléagineux du Sénégal, SONACOS) tium of Hydro-Quebec International and Elyo (HQI/ all have own generating facilities which mostly generate Elyo). Considerable conflicts ensued, especially over in- electricity for their own consumption. Feed-in of the vestment and pricing. electricity in the SENELEC grid has not been achieved SENELEC’s partial privatisation lasted only eighteen due to contractual difficulties with SENELEC.30 months. In September 2000, the new government an- As of today, it is not yet clear how the situation in the nounced that it would re-purchase HQI/Elyo’s shares. power market will develop after 2009. A major impedi- In 2001, it tried to re-privatise SENELEC with a new ment for further market liberalization remains the lack- model designed to address flaws that marred the first re- ing privatization of SENELEC. Currently, Power Pur-

28 Gokgur 2006 29 GTZ 2007 a 30 GTZ 2007 a SENEGAL | 239

chasing Agreements (PPA) between SENELEC and IPPs To support rural electrification, the Senegalese Govern- are mostly Build-Own-Operate (BOO) type contracts.31 ment is also developing programs of rural photovoltaic electrification.37 It has chosen this system to electrify the Rural Electriﬁcation large number of remote small villages (more than 13 000 In 2008, Senegal’s electrification rate was approximately villages) whose average population does not exceed 460 33 %, not having improved much compared to 32 % in inhabitants. The Foundigne region has been chosen as pi- 2001.32 In 2007, rural electrification amounted to 12.5 % lot concession project and in 2003, Isofoton supplied and of households compared to 8 % in 2001. Rural electrifica- installed the first 10 000 Solar Homes Systems (SHS) of tion is mostly limited to areas close to large population 50 Wp and 4 power plants of 10 to 20 kWp. centres. However, 56 % of the population (5 350 000 in- Small-scale isolated networks for the electrification of habitants) live in rural areas in 13 200 villages. villages are a specification for Senegal. These so called The Senegalese Agency for Rural Electrification (Agence ERILs (Electrification Rural par des Initiatives Locales) Sénégalaise d’Electrification Rurale, ASER), which was offer high chances for the implementation of renewable founded in 2000, developed a concession model together energies.38 with the World Bank (WB). The rural regions of Senegal which have not been electrified yet have been divided into a total of 11 geographical concession areas. The 11.3 Market Actors electrification of these areas is put out to public tender by ASER and is undertaken by private-sector enterprises. Following institutional reform in 1998, Senegal’s electric- The concession model includes the following elements: ity sector was split into three entities: the national utility grid expansion, isolated networks and single homes sup- SENELEC, the Agency for Rural Electrification (ASER) ply (mainly solar home systems).33 The financing of these and the Electricity Regulatory Board. areas is secured through the Senegalese State and international donors - World Bank (3 concessions), Kf W En- Ministére de l'Energie (Ministry of Energy) twicklungsbank (1 concession), AfDB (1 concession), The Ministry of Energy has the overall responsibility for AFD (1 concession) and 5 concessions are not financed the energy sector of Senegal and contains inter alia a divi- yet.34 Renewable energies offer economic and ecologic sion for renewable energies (Direction des Energies Re- advantages in sparsely populated rural areas and e.g. the nouvelable). For more information see webpage: http:// Kf W Entwicklungsbank settled a minimum share of www.energie.gouv.sn/index.php. 25 % for renewable energies in its concession.35 Ministère de l’Environnement, de la Protection de la In 2003, assisted by the World Bank (WB), the govern- nature, des Bassins de rétention et des Lacs artificiels ment adopted the Rural Electrification Priority Program (Ministry of Environment, nature protection, reten- (PPER).36 Senegal’s PPER aims to improve access to election basins and artificial lakes) tricity in rural areas from the 2003 level of 12.5 percent The Ministry of Environment is responsible for the whole of households to 62 percent by 2022. The bidding proc- environmental sector. It is in charge of the implementa- ess for the first concession, Dagana-Podor, was launched tion of legislation and regulations. This Ministry hosts in early June 2006 by the rural electrification agency the Designated National Authority (DNA) for Clean (ASER). IDA will provide a 5.58 million US Dollars sub- Development Mechanism (CDM) projects (see section sidy, including 350 000 US Dollars for PREMs, GEF will 1.5) For more information see webpage: provide an additional 1.1 million US Dollars subsidy. http://www.environnement.gouv.sn/

31 Jensen 2009 37 Gonzalez 2003 32 UNDP 2008 38 GTZ 2007 a 33 GTZ 2007 34 Pers. Information Mr. Mansour Assani Dahouenon, GTZ Senegal, 20th of October 2009 35 GTZ 2007 a 36 De Gouvello 2007 SENEGAL | 240

SENELEC (Société nationale European Union (4.2 billion FCFA, 6.4 million Euros) d’électricité du Sénégal) and the French Agency for Development (AFD) (5 bil- SENELEC is the national electricity company of Senegal lion FCFA, 7.6 million Euros) support the program. and was established in 1983 after the nationalization and merger of Électricité du Sénégal and Société sénégalaise Commission de régulation du secteur de distribution d’électricité. In 1998, the Agency for Ru- de l’électricité (CRSE) (Electricity ral Electrification (ASER) and the Electricity Regulatory Regulatory Board) Board were split from SENELEC and the company was Commission de régulation du secteur de l’électricité put into privatization. In 1999, the consortium of Hydro- (CRSE), created by law n° 98-29 of 14 April 1998 on the Québec and Elyo (Suez Lyonnaise des Eaux) bought 34 % electricity sector, is an independent authority to regulate of SENELEC’s shares. The deal was annulled by President the production, transport, distribution and sale of electric Abdoulaye Wade in March 2000, and Hydro-Québec energy in Senegal. It also provides consultancy services to and Elyo withdrew from Senegal in January 2001. the Ministry of Energy. The company has 2 500 employees, 298 executives, 1216 The Commission seeks the following objectives: control agents and 978 enforcement officers. In 2007, SENELEC had 711 600 customers and its turnover was 1. Promote the rational development of the supply of 180 500 million FCFA (275 million Euros). In 2006, electrical energy; SENELEC received 88 billion FCFA of subsidies and its 2. Ensure the economic and financial equilibrium of the arrears alone amount to 1.5 % of GDP. electricity sector and the preservation of conditions necessary for economic viability; ASER (Agency for Rural Electriﬁcation) 3. Ensure the conditions of financial viability of the elec- To overcome the low rural electrification, by 1998 the tricity sector, allowing the companies to reach a nor- Government of Senegal has introduced significant mal rate of return on their investment; changes in the electricity sector. These reforms, written 4. Promote competition and private participation in down by the Law 98-29 of 14 April 1998, aimed prima- generation, transmission, distribution and sale of elec- rily at ensuring the supply of electricity in the country at tric energy; lower cost and expand access to electricity, particularly in 5. Reflect social concerns ensuring safeguarding con- rural areas. The law has established an agency dedicated sumer interests and ensuring the protection of their to rural electrification, the Senegalese Agency for Rural rights with regard to price, supply and quality of elec- Electrification (ASER), which has the primary mission of tric power. promoting rural electrification and to provide the technical and financial assistance required to support initiatives Centre d’Études et de Recherches for electrification under the energy policy set by the Min- sur les Énergies Renouvelables (CERER) ister for Energy. CERER is a university institute focusing on research on In 2007, ASER had already mobilized 60 million US renewable energies. The covered topics are meteorologi- Dollars from public contributions to lead the program. cal phenomena, suitable technologies for using solar en- Together with the State of Senegal, international partners ergy, other types of renewables, radioactivity, etc. The as the World Bank (equivalent to 15 billion FCFA), the institute carries out studies as well as tests of prototypes Banque Ouest Africaine de Développement (7 billion and other types of measurements e.g. wind speeds. It FCFA), the German development financing agency Kred- covers PV, solar thermal energy, bio energy and wind itanstalt für Wiederaufbau, Kf W (4.2 billion FCFA), the energy. SENEGAL | 241

Private actors the Senegalese energy sector (i. e. above all the shortfall SENELEC holds a monopoly on transmission and disin electricity generating capacities and the lack of elec- tribution of electricity. Electricity generation, mainly on trification for the majority of the population) and lays a Build-Own-Operate (BOO) basis, is open to the pri- down the energy policy framework for the coming years. vate sector, and SENELEC, the sole buyer, signs Power In Particular, this framework includes the provision of Purchase Agreements (PPAs) with Independent Power modern forms of energy as a tool in the fight against pov- Producers (IPPs). The General Electric/GTI Dakar IPP, erty (especially within the context of rural electrification) which supplies approximately 20 % of the electricity sold and the restructuring of the energy sector (in connection by SENELEC, was commissioned in 1998. It has an in- with a greater role for the private sector). stalled capacity of 56 MW. On-line since January 2008, The Senegalese Government began reforming the elec- the second IPP Kounoune 1 – 67.5 MW - was partially tricity sector and opening it for private investors in 1998. funded by the International Finance Corporation, Mit- Two laws in that year (98–2942 and 98–06) created a subishi and Matelec S.A.L, a division of the Doumet state regulatory authority for the electricity sector (Com- group from Lebanon, serving as strategic partners. mission de Régulation du Secteur de l’Electricité, CRSE) Other important market participants39 in the field of and converted the state-owned SENELEC into a joint- renewable energy sources are the consultancy company stock company. At the same time, the electricity produc- SEMIS40, the solar enterprise Total Energie Afrique de tion sector was opened up for independent power pro- l’Ouest (TEAO), among others, along with the Sen- ducers (IPPs). In its strategy paper on the development egalese company AME Solar41, which sells, installs and of the energy sector, the Senegalese Government declared maintains solar collectors. EIC, a company from Saint- that priority should be given to new power plants being Louis, produces wind-power-operated water pumps for built by private companies. The reason for this is above all the local market. SENELEC’s chronic shortage of capital. However, until 2009, SENELEC still owns the monopoly for sale and Association distribution of electricity.43 The Société Africaine des Energies Renouvelables (SAER) The law 2002-01 weakens the goal of the law 1998-29 (Senegalese Renewable Energies Association ASERA) is that SENELEC needs to buy new production capacities active in the fields of both wind and solar energy. SAER from private suppliers in a tendering process. Legislation works mainly for the Senegalese Renewable Energies As- and the recent developments of the electricity market sociation ASERA, but in the past it has also participated regulations are provided by the regulatory body CRSE44; in various projects funded by bilateral and multilateral e.g. the last Decision No. 2009-04 on charges of retail ex- donors (World Bank, UNDP, Government of the Neth- clusive power from SENELEC of 1st August 2009. erlands). Rural electrification is one of the priority topics for the Senegalese government and bi- or multilateral donor programs. The objective is to increase electricity access in ru- 11.4 Political Framework ral areas from 16 % to 50 % by 2012.45 Conditions in the Energy Sector At present the government’s efforts are concentrated on expansion of the national power station inventory, prefer- Senegal’s National energy strategy has been published in ably with the involvement of IPPs and on rural electrifica- 2003. The strategy paper on development of the energy tion. In this context, the government is focusing on con- sector (Lettre de Politique de Développement du Secteur ventional thermal plants, although the understanding of de l’Energie) of 9 April 2003 identifies the problems of the importance of diversification and thus of renewable

39 The addresses of the companies are listed at 42 Loi d’orientation relative au secteur de l’électricité http://www.areed.org/country/senegal/contacts.pdf (skeleton law for the electricity sector). 40 Services de l’Energie en Milieu Sahélien (SEMIS), founded in 1987, compiles 43 GTZ 2007a studies and expert reports on the subjects of hydropower, electrification, traditi- 44 http://www.crse.sn/electricite.php onal forms of energy and irrigation 45 UNDP 2008 41 AME Solar is planning to set up production facilities for solar collectors in the coming years. The company is receiving financial assistance in the form of a loan from the African Rural Energy Enterprise Development Program (AREED) amounting to US$ 41,000 SENEGAL | 242

energies is growing. Renewable energy sources are given gies and the electricity sector.49 significant consideration in regard to rural electrification Senegal has defined six preferred sectors for investments and for the production of biofuels. (agro-industry, telecommunication, tourism, textile industry, and fish breeding, and mining) – renewable energies are not mentioned. However, other support schemes 11.5 Framework Conditions for investors in renewables exist, especially for solar or for Renewable Energies wind energy plants. A tax break is available on the income or corporate income tax (30 %) and on the value-added Strategy and Targets for Renewable Energies tax (7 %).50 The Senegalese Government also supports The Ministry of Energy aims at a minimum share of re- rural electrification (see above). Renewable energies play newable energies in electricity production of 15 % in a significant role in this process as part of the concession 2020.46 model commissioned by the Senegalese government. The Senegalese government is currently working on a The legal conditions for renewable energies have still to be renewable energy strategy, but results are not available clarified. As no project has been implemented yet, every yet.47 The strategy is planned to be published soon after contract needs to be negotiated individually. For exam- a study on renewable energies, financed by the French ple, standard Power Purchase Agreements (PPAs) only Development Agency (AFD), is finished. This study is in exist for fossil fuelled power plants, but not for renewable preparation amongst others examining the feasibility of a energy plants.51 In Senegal, there are already some com- feed-in tariff for renewable energies in Senegal. The study, panies and joint-ventures in the field of renewable ener- due to be published in June 2010, is expected to suggest gies, but they will only invest, after the legal framework details of the tariff levels. As a result of the study, imple- has been set.52 mentation of a feed-in law by the Senegalese parliament is hoped to be reached by the end of 2010. GTZ accom- Clean Development Mechanism panies the whole process to establish a law for renewable Revenues from the Clean Development Mechanism energies (incl. the study financed by AFD). (CDM) could be used as an important incentive to increase the attractiveness of projects using renewable Legal conditions and support sources of electricity. Senegal has been one of the politi- schemes for renewable energies cally most active countries in Sub-Saharan Africa with re- Currently, in Senegal no direct financial support scheme gards to CDM.53 Already in the late 1990s, the secretary regulating the modalities of grid access and the feed-in of of state in the Ministry of Environment organized two RE-E into neither the national grid nor the tariffs paid CDM workshops in Dakar. Senegal set up its Designed for RE-E is in place. Although president Abdoulaye Wade National Authority (DNA) in February 2005 at the Di- regularly states the importance of renewable energies and rection de l’Environnement et des Etablissements Classés. the establishment of a feed-in tariff has been discussed A Senegalese (Cheikh Sylla) was member of the CDM for a long time, the introduction of an effective support Executive Board (EB) until 2007 and Massamba Thioye, instrument has up to now been delayed48, As part of the a Senegalese consultant, is member of the Methodologies new renewable energy law which is planned to be imple- Panel and the Accreditation Panel. In January 2007, a mented by the end of 2010, a feed – in law will be intro- Memorandom of Understanding regarding CDM project duced. The Ministry of Energy has decided to establish a development was agreed with France. Despite this politi- new law which is separated from the existing 98-29 law of cal support and a large number of capacity building exer- 14 April 1998 as this is dealing with conventional ener- cises, Senegal’s CDM project pipeline has only developed

46 Louis Seck (department of renewables energies of 49 Pers. Information Mr. Mansour Assani Dahouenon, the Ministry of Energy) in Jensen 2009 GTZ Senegal, 20th of October 2009 47 Jensen 2009 and Pers. Information Mr. Mansour Assani Dahouenon, 50 Recht kompakt Senegal, bfai, Status: April 2007, in GTZ 2007 b GTZ Senegal, 20th of October 2009 51 personal information by phone, Mr. Nicolas Martin Granel 48 Jensen 2009 (CEGELEC Toulouse), 04.09.2009 52 Louis Seck (department of renewables energies of the ministry of energy and mining) in Jensen 2009 53 GTZ 2008 SENEGAL | 243

slowly. It currently contains 21 projects, but none of them izing the funded projects in Senegal are GTZ and Kf W.56 has been officially registered; only one (landfill) project has GTZ's TERNA Wind Energy Program is the main in- its validation terminated and two (biomass) projects are ternational actor in the field of wind energy. In course of under validation (see table 7). The World Bank’s Commu- an ongoing project, wind measurements were carried out nity Development Carbon Fund (CDCF) recently signed for two sites (Kayar and Potou on the coastline between an Emission Reduction Purchase Agreement (ERPA) for Dakar and St. Louis) and a feasibility study for Potou is 120°000 CERs from a program to distribute 1.5 million currently being conducted.57 compact fluorescent lamps to rural households. Furthermore, the GTZ PERACOD program supports The main barriers that prevent CDM development in ASER and the relevant directorate of the Ministry of

TABLE 7: SENEGALESE CDM PROJECTS (OCTOBER 2009) Annual Savings Project Location Status Type [ktCO2e/yr] Validator M’beubeuss Landfill Meth- Dakar Validation Landﬁll gas 131 SGS ane Recovery Project terminated Partial Substitution of Dakar At Validation Biomass energy (agri- 89 DNV Coal by Jatropha Fruits cultural residues) and Biomass Residues in the Production of Portland Cement Energy efﬁciency improve- Saint-Louis At Validation Biomass energy (Ba- 38 BV Cert ment Project of CSS sugar gasse power) mill

Source: UNDP Risø 2009

Senegal are non involvement of the local financial institu- Energy in carrying out their off-grid rural electrification tions in the CDM capacity building process, the lack of program as well as training communities and the private official data publicly available for demonstration projects, sector in implementing the measures. The program began and the eligibility assessments of CDM projects.54 in 2003 and will last until 2015. The program also makes To obtain more information about Senegalese CDM use of funding from the EU Energy Facility and the »En- projects, the website of the Direction de l’Environnement ergising Development« program of the Netherlands et des Etablissements Classés55 provides lists of projects. Directorate-General of Development Cooperation – Three projects have been formulated and submitted in DGIS.58 An improved stove roll-out project and advice 2008. on the establishment of a favourable regulatory frame- There is some local CDM capacity at the organization work for the promotion of renewable energies (together Environmental Development Action (ENDA) having with the French development cooperation) are also part acquired know-how for CDM project development and of the program. Massamba Thioye planning to set up a CDM consultancy. Renewable energy and energy efficiency will form a new focal area in the German-Senegalese development coop- International donor activities eration; a corresponding strategy is currently under elabo- The German Development Cooperation is one of the ma- ration. jor donors in Senegal, providing a sum of 36.5 million Euro International donors play a major role in financing activi- in the period 2006 /2007. The main organisations for real- ties for rural electrification. The main international donors

54 UNDP 2008 56 Auswärtiges Amt 2009 55 http://www.denv.gouv.sn/ 57 GTZ 2009 58 Baur 2009 SENEGAL | 244

are World Bank and Kf W Entwicklungsbank (see above). InWent reports average wind speeds on the coast of Other international assistance organizations are also ac- Senegal between 4.5 and 5.5 m/s in the hub height of tive in Senegal. For example the French Development our reference turbine (45 m). However, these values are Agency is funding a study on the feasibility of a feed-in comparably low due to obstacles nearby (other build- tariff for renewable energies in Senegal (see above). ings, trees etc.).65 In 2008, the Export Development Bank of Iran paid From July 2007 to July 2008, wind measurements ac- 32 million Euro to Senegal’s State Power Company companied through capacity building activities have been (SENELEC) for the construction of a power transmis- carried out by Windguard in the context of the GTZ sion line.59 TERNA Wind Energy Programme at the two coastal locations Kayar and Potou. Potou shows, with an average annual wind speed of 6.4 m/s in 70 m height, far better 11.6 Market potential for wind energy results than Kayar with 5.8 m/s. These measurements are the first ones which have delivered reliable data, as the Wind energy potential other studies did not publish the underlying framework Senegal’s wind power potential is concentrated along the conditions.66 coast, particularly at the north coast between Dakar and Based on the results, GTZ and the Senegalese Partner Saint-Louis. In a study carried out by the Senegal Meteor- plan to carry out a feasibility study for a wind farm at the ological Service, wind velocities in the 50 km-long coastal location Potou.67 Once completed, the study will be made strip between Dakar and Saint-Louis have been 3.7–6.1 available for interested project developers and investors. m/s. CERER measured an average annual speed of 5.8 High-level wind data can be found on the webpage of m/s at the north coast and 4.2 m/s at the south coast.60 »3tier« (http://firstlook.3tier.com/). They offer an ini- In inland areas average wind speeds are between 2 to 3 tial wind assessment for different hub heights (20 / 50 / m/s and are therefore only interesting for a traditional or 80 m) and locations. combined use of wind energy (wind turbines for water pumps and combined wind/hydro systems).61 Framework Conditions for Wind Energy The African Wind Energy Association (AfriWEA62) No specific target for the use of wind energy has been es- only mentions the GTZ TERNA Wind Energy Program, tablished yet.68 Wind energy is not supported financially a study by InWEnt (»Wind regimes of Africa«)63 and in Senegal yet (see above). As average wind speeds even local measurements by ALIZES (an organization for the in favourable locations such as the north coast of Senegal use of water pumps operated with renewable energies, in- are of medium speed, financial support of wind energy is cluding wind)64 as information sources on the Senegalese necessary for realisation of projects.69 wind potential. ALIZE was a large program supported The permission procedure for wind turbines is not stand- through the EU and the French Development Agency. ardised and therefore time-consuming. The necessary per- In the context of ALIZE, CERER together with consult- mits are similar to procedures in Europe so e.g. a building ants collected data from several measure points until the permit and an environmental permit are needed.70 Ad- middle of the 90ties. ditionally, it seems to be necessary to get the approval of the village council.71

59 EDBI 2008 65 InWEnt 2004 60 GTZ 2007 a 66 GTZ 2007 a 61 TERNA 2004 67 GTZ 2009 62 http://www.afriwea.org/en/senegal.htm 68 personal information by phone, Mr. Nicolas Martin Granel 63 InWEnt 2004 (CEGELEC Toulouse), 04.09.2009 64 See http://www.alizes-eole.com/senegal/vent.htm 69 Personal information by phone, Dr. Rehfeldt, Deutsche Windguardt, 04.09.09 and Mr. Nicolas Martin Granel (CEGELEC Toulouse), 04.09.2009 70 personal information by phone, Mr. Nicolas Martin Granel (CEGELEC Toulouse), 04.09.2009 71 Jensen 2009 SENEGAL | 245

The grid connection conditions for wind energy plants installed. The Senegalese-Mauritanian non-governmental are unknown, as no wind energy plants exist yet. There is organization Alizés promotes the installation of wind a need for training of governmental authorities and staff pumps, and receives assistance from the European Union from SENELEC on state-of-the-art knowledge of wind and French Development Agency for this purpose.78 energy utilisation (regulatory, technical and economic Besides that, some small scale (10 – 20 kW each), but aspects).72 The electricity market has officially been sepa- old-fashioned wind turbines have been financed through rated in the three sectors production, transmission, and Italian donors and constructed in Mboro some years ago. distribution – but until 2009 SENELEC stills holds the But due to technical problems, they only worked for a monopoly for sale and distribution of electricity, which few months.79 creates legal uncertainty and therefore an impediment for Two other concepts, in addition to the traditional use of private investors and project developers.73 wind energy, are promising for the implementation in Even large private industrial companies74 that generate Senegal: first, the use of modern commercial wind tur- electricity for their own supply (partly from agricultural bines and second, the use of small-scale wind turbines in residues) have not reached an agreement (i.e. power pur- combined systems for decentralized rural electrification.80 chase contract) with SENELEC on feeding electricity The German company INENSUS has developed a con- into the grid.75 cept for a pilot project for a combined system (solar / No information is available on specific grid expansion wind) in cooperation with the GTZ. plans for the north coast of Senegal, where commercial The following steps have already been completed81 wind energy plants could be implemented. • Wind/solar monitoring with aeolog at five sites • Socio-economic analyses Current Use of Wind Energy • Business model development and Project Pipeline • Foundation of INENSUS West Africa in Dakar, End of 2008, the total installed wind energy capacity in Sénégal Senegal was between 0 and 10 KW.76 In 2009, no commercial wind energy plant has been built in Senegal, al- The Next Steps will be: though plans for pilot projects exist. • Spring/Summer 2009: Setup of demonstration system The use of wind energy with multi-wing wind turbines in Sine Moussa Abdou and proof of concept for water pumping has a long tradition in Senegal. They • Winter 2009/2010: subscription and issuing of shares are mainly installed in a belt parallel to the north coast • Winter/Spring 2010: scale-up of village electrification where fruits and vegetables are planted in a large scale. These mainly locally produced small wind turbines are There is one major project in the planning phase, located robust and are often financed through international aid. north of Potou in the region Saint Louis on the north A supporting aspect is that energy supply and demand in coastal area of Senegal. The so called Gantour project the case of irrigation of agricultural areas fit together. The is planned in two phases, starting with a total capacity water demand in the wind intensive, but dry months is of 15 MW which shall then be expanded to 50 MW.82 high, while it is low in the less wind intensive months due The estimated cost of the first phase is about 16.5 Mio. to a higher supply of rain and surface water.77 In 2004, Euro. The project was due to start operation in 2009 around 200 serviceable wind powered water pumps were and should produce 29 000 MWh of electricity per year

72 personal information by phone, Mr. Nicolas Martin Granel 78 TERNA 2004 (CEGELEC Toulouse), 04.09.2009 79 personal information by phone, Mr. Nicolas Martin Granel (CEGELEC 73 GTZ 2007 a Toulouse), 04.09.2009 74 Chemical company Industries Chimiques du Sénégal (ICS), sugar producer 80 GTZ 2007 a Compagnie Sucrière du Sénégal (CSS) and the agricultural producer (peanuts) 81 Peterschmidt 2009 Société Nationale de Commercialisation des Oléagineux du Sénégal (SONA- 82 Ndiaye, 2007, and Jensen 2009 COS) 75 GTZ 2007 a 76 Senegal was not ranked in list of WWEA 2008, p. 20; Last position 76: Bolivia 0,01 MW; see also: total installed wind energy capacity in Senegal in 2006: 0 KW (IEA 2006) 77 GTZ 2007a SENEGAL | 246

(phase one).83 Additional financing is planned to be gen- hybrid systems including Solar /Wind erated through the sale of Certified Emission Reductions • CEGELEC, Toulouse: project developer (CERs) as part of a CDM project.84 According to the • Producers which are in discussion to deliver the wind responsible project development company CEGELEC turbines for the wind park in Saint Louis: Gamesa, Toulouse, the construction did not start yet due to sev- Vergnet und Suzlon90 eral delays.85 The project is based on wind measurements which have been carried out between May 2004 and May One of the main barriers for the implementation of wind 2005 in Gandon86 showing an annual average of 5.25 m/s energy projects is the low electricity price in combination in 40 m height.87 As part of the project activity training with medium wind speeds.91 Financing opportunities are will be provided for the operation and the maintenance limited to international donors e. g. the »Région Midi- of the wind park. Pyrenées« and AFD (French Development Agency) The project is a cooperation between:88 from France. However lack of financing is one of the rea- • Responsible authority: regional council Saint Louis sons for the delay of the wind park in Saint Louis.92 • Project developer: C3E (Dakar) and CEGELEC The availability of skilled workers and building materi- (Toulouse). als is limited. As the technical equipment (turbines etc.) • Project designated by the energy ministry is not available in Senegal the project developers for the • Financial support through: Région Midi-Pyrenées wind park in Gantour plan to import this from Europe.93 (France) and l’AFD (Agence Francaise de Devéloppe- The limited know-how about wind energy of SENELEC ment - French bilateral cooperation agency) and governmental institutions is seen as an important factor for experienced delays in project implementations. Business Climate Project investments could reasonably be complemented Around 20 companies in Senegal are dealing with renew- with capacity building in the governmental institutions able energies, some including wind.89 In addition to that, and SENELEC. several foreign companies try to enter the market. How- The legal conditions for wind energy have still to be clari- ever, as there are no existing plants the companies are just fied. Neither framework nor regulations exist for renew- starting the business and are recently only active in the able energies e. g. Power Purchase Agreements (PPAs). planning stages of projects. That may lead to project delays. The access to the grid is limited and dependant on a deci- Companies from Senegal: sion by SENELEC who holds the monopoly. SENELEC • C3E, Dakar: project developer has to identify a specific site (and demand) first and then • CERER (Centre d’Etudes et de Recerches sur les En- find a company in a competitive tender. For Independent ergies Renouvelables) Power Producers (IPPs) or project developers, it is very • Senegalese-Mauritanian non-governmental organi- difficult to persuade SENELEC to allow grid access at a zation Alizés: promotion and installation of wind not yet identified location.94 The negotiations between an pumps IPP or a project developer and SENELEC are very time- Companies from abroad: consuming, even though general support by the Ministry • INENSUS German company with a subsidiary in of Energy exists.95 West Africa, Dakar: project developer of small scale However, CRSE has been working on an improvement of

83 GTZ 2007 c, Draft (chapter Wind energy) 90 Jensen 2009 84 Jensen 2009 91 Personal information by phone, Dr. Rehfeldt, Deutsche Windguardt, 4.09.09 85 personal information by phone, Mr. Nicolas Martin Granel 92 personal information by phone, Mr. Nicolas Martin Granel (CEGELEC Toulouse), 04.09.2009 (CEGELEC Toulouse), 04.09.2009 86 And between January and May 2007 in Gantour, 93 personal information by phone, Mr. Nicolas Martin Granel Gandon and Mboye (Ndiaye 2007) (CEGELEC Toulouse), 04.09.2009 87 GTZ 2007 c, 94 Personal information by phone, Dr. Rehfeldt, Deutsche Windguard, 88 Ndiaye 2007 4.09.09 and Mr. Nicolas Martin Granel (CEGELEC Toulouse), 04.09.2009 89 Jensen 2009 95 Experience with the planned wind park in Saint Louis, personal information by phone, Mr. Nicolas Martin Granel (CEGELEC Toulouse), 04.09.2009 SENEGAL | 247

the regulations during the past three years and e.g. studies have been commissioned. As the legislative procedure in Senegal proves to be very time-consuming, results are hoped to be reached in the end of 2010.96 For an understanding of the Senegalese wind market, the wind farm project at Saint Louis will be further explained: The wind park is supported by the Saint-Louis regional authorities and the government of Senegal, through the Ministry for Energy. A contract providing a long-term concession regarding the land on which the wind park will be built has been signed. A draft contract for the sale of electricity was proposed by SENELEC.97 According to the project developer delays of the project are caused by:

• difficulties to obtain the authorisation • no final agreement with SENELEC for the sale of electricity • lack of financing, due to comparably high risks (country and medium wind speed) • in general very slow processes as no reference projects exist • lack of knowledge in the ministries and SENELEC

An evaluation by UNDP in 2008 concluded that mostly legal barriers have impeded the implementation of the project. The project consortium planned to produce electricity for own consumption and pay SENELEC a fee for the transport of the electricity through the transmission grid. But self-production is not provided for in the national energy laws and regulations.98 In the context of the new regulatory framework for renewable energy production and sale, the consortium plans to sell their entire production to the grid and purchase electricity from the grid. This approach seems to be »more appropriate for SENELEC and will remove the barrier to the implementation of this project«.99 However, the project developer stated that they could not settle a final agreement with SENELEC yet.100

96 personal information by phone, Mr. Nicolas Martin Granel (CEGELEC Toulouse), 04.09.2009 97 UNDP 2008 98 SENELEC still holds the monopoly for sale and distribution (at least until 2009). 99 UNDP 2008 100 GTZ 2007 a SENEGAL | 248

11.7 Contacts and Addresses Centre d’Etudes et de Recherches sur les Energies Renouvelables (CERER) Ministère de l’Energie (ME) Université Cheikh Anta Diop Building Administratif B.P. 476 Dakar B.P. 4029 Dakar Tel.: (00221) 338 32 10 53 Tel.: (00221) 33 849 70 00 / 33 823 87 16 Fax: (00221) 33 32 10 53 E-mail: [email protected] Société Nationale d’Electricité (SENELEC) 28 Rue Vincens Service de l’Energie en Milieu Sahélien (SEMIS) B.P. 93 Dakar B.P. 652 Dakar Tel.: (00221) 33 839 30 00 Tel.: (00221) 33 832 73 97 Fax: (00221) 33 823 12 67 Fax: (00221) 33 822 61 895 Internet: http://www.SENELEC.sn Internet: http://www.semis.sn

Commission de Régulation Environnement-Développement du Secteur de l’Electricité (CRSE) du Tiers Monde (Enda-TM) B.P. 11701 Dakar B.P. 3370 Dakar Tel.: (00221) 33 849 04 59 Tel.: (00221) 33 822 24 96 E-mail: [email protected] Fax: (00221) 33 821 75 95 Internet: http://www.crse.sn/ E-mail: [email protected] Internet: http://www.enda.sn Agence sénégalaise d’électrification rurale (ASER) B.P. 11131 Dakar Fédération des Organisations pour la Promotion Tel.: (00221) 33 849 47 11 des Energies Renouvelables (FOPEN) Fax: (00221) 33 849 47 20 Avenue Cheikh Fall BP 39 Kaolack Association Sénégalaise des Energies Renouvelables et Tel.: (00221) 33 941 44 58 Alternatives (ASERA) E-mail: jokama21 @yahoo.fr Rue D x 1 Point E Pavillon Usima B.P. 15462 Dakar Projet Alizés Tel.: (00221) 33 864 26 49 Quartier Ndioloffène Fax: (00221) 33 824 35 42 B.P. 740 Saint-Louis E-mail: [email protected] Tel.: (00221) 33 961 49 47 Fax: (00221) 33 961 49 46 Direction de l’Environment E-mail: [email protected] et des Etablissements Classés Internet: http://www.alizes-eole.com Address: 106, Rue Carnot Dakar BP 6557 Dakar Etoile Tel.: (221) 33 822 07 25 Fax: (221) 33 822 62 12 E-mail: [email protected] SENEGAL | 249

GTZ Office Bioenergy-Lamnet 2000: 109 rue Carnot Senegal, March 2000 (http://www.bioenergy-lamnet. B.P. 3869 Dakar org/database/countrystudies/sen.pdf ) Tel.: (00221) 33 8899600 Fax: (00221) 33 8229315 Baur Joerg: E-mail: [email protected] GTZ PERACOD program, 2009 (http://www.gtz.de/en/weltweit/afrika/13591.htm) Association Sénégalaise d’Energie Solaire (ASES) B.P. 2027 Dakar CIA 2009: Central Intelligence Agency: Tel.: (00221) 33 827 63 13 The World Factbook, Senegal. 2009 Fax: (00221) 33 822 97 64 / 33 822 45 63 (https://www.cia.gov/index.htmll)

Embassy of the Republic of Senegal Consortium for Spatial Information (CGIAR) 2004: Argelanderstrasse 3 Shuttle Radar Topography Mission (SRTM) 53115 Bonn Tel.: 0228 / 21 80 08 De Gouvello C. and Kumar G.: Fax: 0228 / 21 78 15 OBA in Senegal – Designing Technology-Neutral Con- cessions for Rural Electrification; March 2007 (http:// Embassy of the Federal Republic of Germany www.gpoba.org/gpoba/sites/gpoba.org/files/OBAp- 20, av. Pasteur proaches14_SenegalElectric_0.pdf ) B.P. 2100 Dakar Tel.: (00221) 33 889 48 84 DENV 2009 : Fax: (00221) 33 822 52 99 Direction de l’Environnement et des Etablissement E-mail: [email protected] classé http://www.denv.gouv.sn/ Retrieved on 11th Internet: http://www.ambassade-allemagne.sn September 2009

EDBI- Export Development Bank of Iran: 11.8 Information sources Iran to Change Power Industry of Senegal, Nov. 2008 (http://www.edbi.ir/frmArticle_en-IR. Archive: Economic Community of West Afri- aspx?ID=1920&CategoryID=127) can States (ECOWAS), 2003 (http://archive. wn.com/2009/09/28/1400/westafricaenergy_old1/) EIA 2008: Energy Information Administration: Country Analysis Briefs 2008 (http://tonto.eia.doe. Auswärtiges Amt 2009: gov/country/country_energy_data.cfm?fips=SN) http://www.auswaertiges-amt.de/diplo/de/Laenderin- formationen/Senegal/Bilateral.html, Retrieved on 14th Gökgür and Jones - Boston Institute for Developing September 2009 Economies (BIDE): PRIVATIZATION OF SEN- EGAL ELECTRICITY; 2006 AEDB 2009: Alternative Energy Development Board (http://www. aedb.org/re_sector.php) Retrieved on 18th August 2009 SENEGAL | 250

González, Aritio, Eyras and Ngom: Jensen 2009: GonFAD SENEGAL: PROGRAM OF RURAL PHO- Jensen, D. Kühlen Fisch bewahren, in Neue Energie, TOVOLTAIC ELECTRIFICATION; 2003 (http:// 07/2009, p. 105 www.oecd.org/dataoecd/35/57/34966578.pdf ) MBendi Information services: GTZ 2009: Electrical Power in Senegal- Overview, 2003 (http:// http://www.gtz.de/en/themen/umwelt-infrastruktur/ www.mbendi.com/indy/powr/af/sn/p0005.htm) energie/13951.htm , retrieved 11th September 2009 NASA 2009: GTZ 2008: NLT Landsat 7 Global Mosaic Axel Michaelowa and Anja Wucke: CDM Highlights 63; 2008 Ndiaye 2007: Ndiaye, L. (C3E) NOTE DE SYNTHESE AVANCE- GTZ 2007a: MENT PROJET 11/09/2007, http://www.sie-energie. Owsianowski et al., Projekterschließung Senegal- gouv.sn/spip.php?article39 Erneuerbare Energien und ländliche Elektrifizierung- Länderreport & Marktanalyse, BMWI and GTZ Peterschmidt 2009: (http://www.gtz.de/de/dokumente/de-projekterschlies- Peterschmidt, N., Presentation, Hannover (22.04.2009) sung-senegal-laenderreport.pdf ) http://www.gtz.de/de/dokumente/gtz2009-en-peterschmidt-inensus-rural-power-provider.pdf GTZ 2007b: Projekterschließung Senegal- Finanzierungsmögli- RECIPES – Renewable Energy in chkeiten im Überblick, 2007 (http://www.gtz.de/de/ emerging and developing countries: dokumente/de-projekterschliessung-senegal-finan- Country energy information – Senegal, Sept 2006 zierungsmoeglichkeiten.pdf ) Schottsolar 2008, Erste solare Notstromanlage für eine GTZ 2007c: Krankenstation im Senegal soll kein Leuchtturmprojekt Owsianowski et al., Projekterschließung Senegal- bleiben, http://www.schottsolar.com/de/news/aktuelle- Erneuerbare Energien und ländliche Elektrifizierung- nachrichten/single/article/erste-solare-notstromanlage- Länderreport & Marktanalyse, BMWI and GTZ , Draft fuer-eine-krankenst/, retrieved on 20th October 2009 version (chapter Wind energy including some additional information) SENELEC: Annual report 2007 IMF 2009: (http://www.SENELEC.sn/content/view/66/65/) International Monetary Found: Report for Selected Countries and Subjects: TERNA 2004: Senegal, 2009 (http://www.imf.org/) Country Survey 2004. Energy-policy Framework Conditions for Electricity Markets and Renewable InWEnt 2004: Energies – 23 Country Analyses Wind regimes of Africa SENEGAL | 251

UNDP 2009: WAPIC-West African Power Industry Convention: Human Development Report, 23 Energy sources, 2009 Overview of WAPP generation and cross border (http://hdrstats.undp.org/fr/indicators/220.html) transmission projects, 2007 (http://www.ecowapp.org/ french/wpstatus_sum.pdf ) UNDP 2008: National policies and their linkages to negotiations over WAPP 2007- West African Power Pool: a future international climate change agreement; July 2005 Performance indicators of WAPP member Utili- 2008 (http://www.undp.org/climatechange/docs/Eng- ties Power Systems, 2007 (http://www.ecowapp.org/ lish/UNDP_National_Policies_final.pdf ) WAPP %20PDFS/KPI-ENG.pdf )

UNDP Risø : World Perspective Monde: CDM pipeline overview, Last visited 16/08/2009 Senegal, 2009 (http://perspective.usherbrooke.ca/bilan/ (http://uneprisoe.org/) servlet/BMTendanceStatPays?langue=fr&codePays=SE Retrieved on 19th of October 2009 N&codeStat=EG.ELC.PROD.KH&codeStat2=x)

U.S. Department of State: WWEA 2008: Senegal, 2009 World Wind Energy Association, report 2008 (http://www.state.gov/r/pa/ei/bgn/2862.htm) 11th Donors’ Coordination Meeting Dakar, April 2007 (http://www.ecowapp.org/Reports/11th_dcm.pdf ) SOUTH AFRICA 252

List of Abbreviation

AEL African Explosives Ltd. HVDC High-voltage direct current Bbl/d Barrel per day IEA International Energy Agency BMZ German Ministry for Economic IMF International Monetary Found Co-operation and Development ISES International Solar Energy Society CaBEERE Capacity Building in Energy Efficiency INEP Integrated National and Renewable Energy Electrification Program CEF Central Energy Fund IPP Independent Power Producer CER Certified Emissions Reduction km Kilometer CDM Clean Development Mechanism kWh Kilowatt-hour CIA Central Intelligence Agency MTPPP Medium Term Power CSIR Council for Scientific and Purchase Program Industrial Research MW Mega Watt DA Democratic Alliance MWh Mega Watt Hour DANIDA Danish International MYPD Multi-Year Price Determination Development Agency NA Not Applicable Darlipp Darling Independent Power Producer N/A Not Available DBSA Development Bank of Southern Africa NEEA National Energy Efficiency Agency DEA&DP Western Cape Department NEMA National Environmental of Environmental Affairs and Management Act Development Planning NER National Electricity Regulator DEAT Department of Environmental NERSA National Energy Regulator of Affairs and Tourism South Africa DME Department of Minerals and Energy PIN Project Idea Note DPE Department of Public Enterprises PDD Project Design Document DNA Designated National Authority PJ Peta Joule DWEA Department of Water PPA Power Purchase Agreements and Environmental Affairs ProBEC Program for Basic Energy EB Executive Board Conservation in Southern Africa EDC Energy Development Corporation RE Renewable Energy EDI Electricity Distribution Industry RECIPES Renewable Energy in emerging and EEG Renewable Energy Act developing countries EIA Energy Information Administration REDS Regional Electricity Distributors EIA Environmental Impact Assessments REEEP Renewable Energy & EIR Environmental Impact Report Energy Efficiency Partnership ESI Electricity Supply Industry REFIT Renewable Energy Feed-In Tariff GDP Gross Domestic Product REFSO Renewable Energy Finance and GEF Global Environment Facility Subsidy Office GTZ Deutsche Gesellschaft für REMT Renewable Energy Market Technische Zusammenarbeit (GmbH) Transformation Programme SOUTH AFRICA 253

RIPPP Renewable IPP Program SANERI South African National Energy Research Institute SAPIA South African Petroleum Industries Association SAPP Southern African Power Pool SADC Southern African Development Community SANEDI South African National Energy Development Institute SANERI South African National Energy Research Institute SAWEP South African Wind Energy Programme SAWS South African Weather Services SEED Sustainable Energy for Environment & Development Programme SOE State-Owned Enterprises TPES Total Primary Energy Supply TREC Tradable Renewable Energy Certificate Scheme TSI Technology Services International UNDP United Nations Development Programme UNFCCC United Nations Framework Convention on Climate Change UNIDO United Nations Industrial Development Organisation USD United State Dollar V Volt WB World Bank WTO World Trade Organization WSSD World Summit on Sustainable Development WWEA World Wind Energy Association SOUTHE AFRICA 254

FIGURE 1: sula and has a Mediterranean climate with warm and dry SOUTHE AFRICA weather, but often punctuated by strong south easterly winds in summers and heavy rain, strong north-westerly winds, and low temperatures in winters.

South Africa has eleven official languages with the following mother tongue shares: IsiZulu 23.8 %, IsiXhosa 17.6 %, Afrikaans 13.3 %, Sepedi 9.4 %, English 8.2 %, Set- swana 8.2 %, Sesotho 7.9 %, Xitsonga 4.4 %, other 7.2 %.1 English is understood by the majority of people and is used as lingua franca in business and government. South Africa is a democratic republic. In May 2009, the African Nation Congress (ANC) won the general elections with 65.90 % against 16.66 % for the Democratic alliance (DA), 7.42 % for the Congress of the People

Data Source: CGIAR 2004 (COPE) and 4.55 % for the Inkhata Freedom party, elect- ing Jacob Zuma with only slightly less than a two thirds 12.1 Introduction majority to president. As Africa’s superpower, South Af- rica has the continent’s biggest economy (22 % of African The Republic of South Africa is located at the southern GDP), though it fell in recession in May 2009, following tip of the African continent. The South African coast a sharp slowdown in the mining and manufacturing sec- stretches 2 798 kilometres and borders the Atlantic and tors due to the global financial and economic crisis.2 In Indian oceans. To the north, South Africa shares borders August 2009, the GDP decreased by another 3 %, after with Namibia, Botswana and Zimbabwe, to the east are contracting 6.4 % and 1.8 % in the previous two quarters. Mozambique and Swaziland, while the Kingdom of Le- It is the first instance of three consecutive quarters of neg- sotho is an independent enclave surrounded by South Af- ative growth since Apartheid, which collapsed in 1994. rican territory (see figure 1).

TABLE 1: KEY STATISTICS; 2008 DATA Area Population GDP GDP / capita Export Import 1 219 090 km2 49 Million 277.2 bio USD 10 USD / capita 81.47 billion USD 87.3 billion USD (185.27 bio €) (6 684 € / capita) (54.45billion €) (58.3 billion €) free on board f.o.b. (2008 est.) f.o.b. (2008 est.)

Source: US Department of State 2009 and IMF 2009)

South Africa’s climate is characterized by considerable Table 2 shows the South African GDP growing gradually regional variation: the Northwest is very arid, the South until 2008. In 2008, the inflation rate reached 11.3 % and is temperate, and the Northeast has a more subtropical the per capita income in South Africa was 10 000 US$. climate. Temperature varies between 15 º C and 35 º C. The remarkable per capita income is split very unevenly For Instance, Cape Town is located on the Cape Penin- across the different social groups, making South Arica

1 SAinfo 2009 2 BBC 2009 SOUTH AFRICA 255

TABLE 2: GDP OF SOUTH AFRICA 2000 – 2008 Units 2000 2002 2004 2006 2008 GDP (Constant Prices) Annual percentage 4.2 3.7 4.9 5.3 3.1

GDP (Current Prices) Billions ZAR 922.1 1 168.7 1 395.4 1 745.2 2 283.8

GDP (Current Prices) Billions USD 133 111.1 216.3 257.9 277.2

GDP (Current Prices) Billions € 88.9 74.3 144.6 172.4 185.3

Source: IMF 2009 one of the countries with the highest GINI-index world- 12.2 Energy Market wide. That's why great parts of the population remain poor (48 % of households living below the poverty line Overview Energy Market in 2005) and unemployment is high (23.5 % in 2009) – The development of the total primary energy experienced a factor blamed for a wave of violent attacks against mi- a steady rise in the last years, starting at 80 000 ktoe in grant workers from other African countries in 2008 and 1970 of which the share of combined renewables and protests by township residents over poor living condi- waste was insignificant. Over the last thirty years the tions in July 2009. share of coal increased much more strongly than the oth- South Africa is a member of the Group of 77, the South er sources. The primary stronger in South Africa has been Atlantic Peace and Cooperation Zone, Southern African constantly rising and in 2006 reached 129 815 ktoe (equal Customs Union, World Trade Organization (WTO) since 1995, International Monetary Fund, G20 and FIGURE 2: SHARE OF TOTAL PRIMARY ENERGY SUPPLY IN SOUTH AFRICA, 2006, IN KTOE G8+5. The country belongs to the Southern African De- velopment Community (SADC) which was established 307013 318 2 % in 1980 and aims to facilitate regional co-operation. 0 % 13 700 11 % South Africa plays a leading role in diplomatic and anti- 3 816 poverty initiatives in Africa. 3 %

The most important export items of South Africa include 16 161 gold, coal and manufactured goods. Main export part- 12 % ners are the United Kingdom, the United States, Japan, Germany, China and Italy. Major import goods are food, fuel and energy, as well as capital goods.3 Main import 93 092 partners are Germany, United Kingdom, United States, 72 % Japan, Saudi Arabia and France.

Combined renew. & waste Coal Gas Hydro OIl Nuclear TPES = 130 157 ktoe Source: IEA 2008

3 »Capital goods« refers to real objects owned by individuals, organizations, or governments to be used in the production of other goods or commodities (WiseGeek 2009) SOUTH AFRICA 256

TABLE 3: FINAL ENERGY CONSUMPTION IN SOUTH AFRICA, 2006, IN KTOE AND PJ ktoe PJ %

Industry 22 233 931.6 34.7 Transport 16 267 681.6 25.4 Other sectors 22 386 938.0 34.9 of which Residental 15 548 651.5 24.3 Commercial and Politic Services 4 474 187.5 7.0 Agriculture / Forestry 1 690 70.8 2.6 Fishing 0 0.0 0.0 Other Non-Speciﬁed 674 28.2 1.1 Non-energy use 3 191 133.7 5.0 Total 64 076 2 684.8 100

Source: IEA 2008 to 5 429 PJ or 1 509 750 GWh). South Africa’s primary The Electricity Grid energy supply is dominated by coal (72 %), followed by Eskom (see chapter on market actors is the single, verti- oil with 12 %, combined renewable and waste with 11 % cally integrated and state-owned utility in South Africa. (i. e. waste materials and biomass), gas with 3 %, nuclear Eskom owns, operates and maintains the national trans- with 2 % and hydro with 0.24 %. The split to the various mission grid and is still a de facto monopolist on both the sources can be seen in figure 2. generation and the transmission level. In 2008 / 09, Es- The final energy consumption in 2006 amounted to kom’s network was made up of more than 371 000 km of 64 076 ktoe (equal to 745 204 GWh or 2 683 PJ). The power lines, 28 200 km of which constitute the national share of this consumption according to the various sec- transmission grid.6 In 2007, municipalities added an ad- tors is shown in table 3. ditional 90 600 km of distribution lines. The distribution of the transmission grid can be seen in figure 3. South Africa disposes of vast indigenous coal resources In contrast, the electricity distribution industry (EDI) is that often can be exploited cheaply in open-cast mining. highly fragmented. In 1990, about 430 separate distribu- In 2007, South Africa exported approximately 28% of 4 FIGURE 3: all coal mined. South Africa has the second largest oil ELECTRICITY TRANSMISSION GRID OF SOUTH AFRICA refinery system in Africa. About 66% of South Africa’s total liquid fuel consumption (505 000 barrels per day) is imported, thus leading to high import dependency.5 The rest is produced mainly via the countries large coal- and gas-to-liquid plants, making South Africa a leading syn- thetic fuel producer worldwide. According to the South African Petroleum Industries Association (SAPIA), the majority of crude oil imports destined for South African refineries come from the Middle East, Iran and Saudi Arabia being the country’s main suppliers. In addition, South Africa imports crude oil from Nigeria and Angola, among others. Data Source: CGIAR 2004

4 REEEP 2009 6 Eskom 2009 5 EIA 2008 SOUTH AFRICA 257

tors were responsible for the supply of electricity to cus- the country) down to Omega substation near Koeberg tomers. To date, about 187 licensed municipal distribu- nuclear power station (south-west) being approximately tors still exist, many of which have comparatively small 1 450 km of which 430 km have already been built. These numbers of customers, sales and annual revenues. There- will be completed by 2011 and strengthen supply to the fore, Eskom as the largest single distributor accounts for Western Cape Province.10 For a more detailed descrip- more than 50 % of energy sales for final consumption and tion of the grid expansion plans see chapter »Market po- 47 % of total customers.7 tential for wind energy«. The distribution and transmission energy losses for 2009 The transmission system in South Africa consists of high in South Africa were 11 706 GWh (5.5 % of the energy voltage overhead power lines. Voltages on this transmis- purchased) and 7 407 GWh (3.1 % of the energy pur- sion grid range between 132 kV and 765 kV. chased) respectively. In total the line losses decreased Eskom is suffering from capacity generation problems due from 8.0 % in 2008 to 7.9 % in 2009. Eskom aims to opti- to demand outstripping supply in 2007 and 2008.8 As a mize the transmission and distribution network through result, Eskom introduced »load shedding«, or scheduled its expansion program. black outs in order to try to preserve the grid when de- Moreover, Eskom has been the main driver behind a sub- mand is too high. Prior to the onset of the load shedding Saharan interconnected power grid linking up as far as crisis, Eskom introduced a massive expansion program up Zambia, Kenya and Zaire – the Southern African Power to 2026 including the development of several new coal- Pool (SAPP).11 fired power stations and transmission lines to meet rising electricity demand. This program will cost 385 billion Installed Capacity Rand (35.3 billion €) up to 2013 and is expected to grow In 2008 the installed electrical generation capacity to more than a trillion Rand (92 billion €) by 2026.9 amounted to 43 601 MW12, with 39 413 MW (90.4 %) Some of the major transmission projects include a new deriving from thermal power stations (gas and coal), 2 258 400 kV transmission line and three new substations to MW (5.2%) from hydropower13, 1 800 MW (4.13 %) strengthen the supply to the Platinum Basin, which will from nuclear power, 125 MW (0.3 %) from bagasse, and be completed during 2009. Another project is the new 5 MW (0.02 %) from wind power. Table 4 shows the de- 765 kV transmission power line and substations from velopment of the installed capacity in South Africa over Zeus substation in Mpumalanga Province (north-east of the past 10 years according to energy type.

TABLE 4: DEVELOPMENT OF THE INSTALLED CAPACITY IN SOUTH AFRICA, IN MW, 1998 – 2008 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Coal ﬁred and bagasse stations 32 307 38 392 41 638 34 836 34 773 NA 38 314 38 275 39 109 39 175

Gas 662 662 662 662 672 NA 660 676 676 1 712

Nuclear 1 840 1 840 1 840 1 840 1800 NA 1 800 1 800 1 800 1 800 Hydro and Pumped storge 2 245 2 248 2 248 2 248 2 248 NA 2 248 2 228 2 253 2 257

Wind - - - - - 3.2 3.2 3.2 3.2 3.2

Total 37 054 43 142 46 388 39 586 39 493 43 018 43 025 42 982.2 43 841.2 44 947.2 Source: NERSA 1998 – 2008

7 NERSA 2007 10 Eskom 2009 8 Eskom 2009 11 MBendi 2003 9 Eskom 2009 12 NESRA 2008 13 Including Pumped-storage stations SOUTH AFRICA 258

The main producer of electricity in South Africa is the national economic and financial crises, this situation has state-owned energy company Eskom which disposes of eased (temporarily) during the last year, with the reserve 94.1 % of installed capacity in South Africa and gener- margin recovering from an all time low of 5 % in January ates more than 45 % of electricity produced in the whole 2008 to 14 % in January 2009.15 of Africa. The remaining capacity of South Africa is pro- The shortage of supply has led to a massive expansion vided by South African municipalities (2.5 %) and Inde- programme which consists in planning and constructing pendent Power Producers (IPPs) (3.4 %). various additional coal, gas and nuclear power plants and South Africa has the fifth largest coal reserves in the world. transmission lines up to 2026. In order to secure electric- Thus, most of the power stations in the country rely on coal ity supply, an estimated 40 000 MW of new capacity will as a fired fuel. Given this level of resources, growth in elec- have to be added by 2026. To develop this programme, tricity demand (currently 4 % per year) will continue to be the South African government proposes that 30 % of the met predominantly by coal power for the future. new capacity will be provided by IPPs, instead of relying During the first quarter of 2008 the national electric- solely on the publicly owned electricity utility, Eskom. ity supply came close to collapse, leading to country- By 2016, Eskom plans to deliver an additional capacity wide scheduled and unscheduled blackouts (see section of more than 16 000 MW, of which 12 300 MW will be above). Since the electricity consumption and demand coal-fired, 1 000 MW gas-fired, 2 800 MW pumped- was outstripping supply in 2008, and the electricity price storage and 100 MW wind energy. The majority of this in South Africa is very low restricting cash flows to the capacity is already in the construction phase.16 electricity utility (see »Electricity Prices« section be- In order to ensure security of supply, Eskom is further- low), Eskom had serious difficulties in taking immedi- more engaging in energy efficiency and demand-side ate action to ameliorate the situation, especially during management programmes. It is aimed to reduce demand times of high levels of planned maintenance.14 The elec- by about 3 000 MW by 2012 and a further 5 000 MW by tricity shortage has led to significant economic losses as 2025 through an aggressive campaign which will include mines and other industrial consumer’s electricity usage the promotion of the use of solar water heaters as well as was limited to 90 % of normal consumption. Due to a liquid petroleum gas for cooking.17 reduction of demand in course of the effects of the inter-

TABLE 5: DEVELOPMENT OF THE POWER GENERATION IN SOUTH AFRICA, IN GWH, 1998 – 2008 GWh 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Coal ﬁred stations and bagas- secoal ﬁred stations 175 147 173 536 180 794 183 580 190 160 NA 212 011 225 826 221 195 228 616 229 706

Gas 85678NA38667790549

Nuclear 13 601 12 837 13 010 10 719 11 962 NA 13 365 11 293 10 026 10 026 12 705 Hydro and Pumped storge stations 4 329 3 765 4 395 4 045 4 393 NA 4 625 4 199 5 845 4 075 3 749

Wind 0 0 0 0 0 NA NA NA NA NA NA

Total 193 086 190 144 198 206 198 350 206 523 219 199 230 004 241 403 237 133 243 506 246 708 Source: NERSA 1998 –2008

14 REEEP 2009 15 Eskom 2009 16 Eskom 2008 17 EIA 2008 SOUTH AFRICA 259

Power generation TABLE 7: CONSERVATIVE ECONOMIC POTENTIAL OF In 2008, power generation of South Africa was 246 708 RENEWABLE ENERGY IN SOUTH AFRICA Potential GWh, jointly produced by the state-owned electric util- Percentage (%) Contribution (GWh) ity Eskom generating 95 % of the current requirements, Biomass 6 556 8 municipalities 2 % and IPPs 3 %.18 The thermal power Hydro 9 245 11 generation accounted for 230 033 GWh (93.2 %) of Solar 6 940 8 the national electricity generation (93 % from coal-fired Wind 64 102 74 power and 0.2 % from gas), 12 705 GWh (5.3 %) from Total 86 843 100 nuclear, 3 748 GWh (1.5 %) from hydropower. Source: DME 2004

Table 5 shows the development of the power generation in the contribution that each of the RE technologies makes South Africa over the past 10 years according to energy type. to a conservative economical electricity production potential of 86 843 GWh with a 64 102 GWh (74 %) of South Africa is electricity self-sufficient with electricity wind energy contribution. exports matching power imports. Exports to Botswana, Lesotho, Mozambique, Namibia, Swaziland, and Zim- The Department of Minerals and Energy has published babwe amounted to a total of 12 600 GWh in 2008/09, a White Paper for Renewable Energy20 which has set a whereas electricity imports came mainly from the Cahora target of 10 000 GWh (0.8 Mtoe) of renewable energy by Bassa hydro plant in Mozambique.19 2013, or essentially 5 % of the electricity mix (see chapter Table 6 gives the electricity consumption per activity sec- 1.5).21 Despite the ambitious government targets, South tor in 2006 where the industry sector consumed 57 % of Africa has seen little investment in RE projects with only the total electricity consumption. 3 % of the target achieved so far. South Africa has developed mainly its hydropower ener- TABLE 6: ELECTRICITY CONSUMPTION BY ECONOMIC gy potential. In 2008, the country listed 10 hydropower SECTOR IN SOUTH AFRICA, IN GWH AND %, IN 2006 plants (6 owned by Eskom, 2 by the municipalities and Electricity Percentage Consump- (%) 2 by IPPs) with a total capacity of 669 MW. Small hy- tion (GWh) dropower plants are hold by Municipalities and IPPS Industry 113 138 57 (e. g. 1 MW Piet Retief plant owned by the municipali- Transport 5 607 3 ties, 3 MW Friedenheim owned by IPPs). Medium and Residential 38 073 19 large hydropower plants are hold by Eskom (e. g. 42 MW Commercial & Public Services 27 912 14 Colleywobbles (Mbashe), 360 MW Gariep).22 In August Agriculture / Forestry 5 685 3 2009, a 7 MW independent hydro power plant owned by Fishing 00Bethlehem Hydro (Pty) Ltd became operational.23 Other Non-Speciﬁed 7 699 4 Total 198 114 100 IPPs hold the 6 bagasse -fired power stations in South Af- Source: IEA 2006 rica with an installed capacity ranging from 12 MW (e.g. Tongaat-Hulett Amatikulu) to 32 MW (e. g. Tongaat Hu- Renewable energies lett – Felixton) and adding up to a total of 125 MW.24 In general, South Africa has been very slow to develop its renewable energy (RE) potential, mainly due to its cheap One third of the green electricity (or renewable energy electricity reliance on coal-fired plants. Table 7 reflects replacing electricity, e. g. through Solar Water Heaters)

18 Eskom 2008 20 DME, 2003 19 Eskom 2009 21 Njobeni 2009 22 NERSA 2008 23 Bethlehem 2009 24 NERSA 2008 SOUTH AFRICA 260

comes from solar energy.25 With an annual production of The Darling wind farm (5.2 MW) in the Western Cape is an equivalent of 511 GWh and a capacity of 242 MW so- the country’s most significant investment in RE (R 75 mil- lar thermal use has a clear majority. This is, however, due lion, 6.9 million €) in recent years. Klipheuwel (3.2 MW) to the converted power of 484 000 m2 of solar panels that wind farm owned by Eskom is operational since 2003 but were installed privately for the purpose of heating water. not included for capacity management purposes.26 Direct electricity was produced by a SolarDish / Stirling demonstration plant with a capacity of 25 kW, which has Electricity Prices been decommissioned. Moreover, solar cells with an an- For the first time, in 2006 the annual Eskom price ad- nual production capacity of 12 MW are installed provid- justment was defined through a Multi-Year Price Deter- ing 21 GWh of electricity. Most of this comes from Solar mination (MYPD) process, which is led by NERSA. The Home Systems that were installed as part of the electri- existing MYPD 1 will conclude at the end of the 2009 fication program in rural areas (see below). Only 10 sys- financial year. The second multi-year price determination tems are connected to the grid. (MYPD 2) will apply for the three years ending in March 2010, 2011 and 2012.

TABLE 8: CURRENT ELECTRICITY TARIFFS FOR CITY POWER CUSTOMERS FROM THE 1ST OF JULY 2009

SEGMENT Energy Charge

TOU Rc / kWh

Non Seasonal Low Season High Season

Large Customer – TOU

Peak 46.50 – 51.70* 107.83 – 119.90*

Standard 34.31 – 38.16* 41.87 – 46.59*

Off – Peak 28.44 – 31.61* 30.02 – 33.38* Business

0 to 500 kWh 62.35 98.97

501 to 1 000 kWh 65.38 99.97

1 001 to 2 000 kWh 66.78 101.97

2 001 to 3 000 kWh 67.73 103.55

Above 3 000 kWh 68.20 104.24 Domestic**

0 to 500 kWh 47.38** 49.69*** 74.78****

501 to 1 000 kWh 48.18** 50.46*** 75.94****

1 001 to 2 000 kWh 48.98** 51.23*** 77.10****

2 001 to 3 000 kWh 50.17** 52.00*** 78.26****

Above 3 000 kWh 50.77** 52.77*** 79.42**** Source: CITY POWER 2009 * Lower tariff applied for MV-kVA and higher tariff for LV-kVA; ** Tariff applied for Domestic 3 Ø 60A and 80A during only Energy Charge »Non seasonal«; And Tariff applied for Domestic 1 Ø 60A and 80A during only Energy Charge »Non seasonal«; *** Tariff applied for Domestic 3 Ø Optional 60A and 80A during only Energy Charge »Low season« and »High Season«; And Tariff applied for Domestic 1 Ø Optional 60A and 80A during only Energy Charge »Low season« and »High Season«.

25 Werner 2007 26 Eskom 2009 SOUTH AFRICA 261

There are two distinct processes in Eskom dealing with more viable by requiring fewer subsidies. Furthermore, electricity tariffs.27 One is a financial function that relates the social effects of the price increase will be buffered by to factors such as inflation and the returns Eskom needs the introduction of a free basic electricity scheme in 2003, to make in order to operate as a viable business. Eskom is offering poor households a free provision of 50 kWh per granted an approved revenue requirement in terms of the month. In March 2009, South Africa became the first MYPD by NERSA and from this a price increase is cal- African country to announce a feed-in tariff (see section culated and applied to all rates. The other process refers 1.5), whereby customers generating electricity receive a to the retail tariff structural changes as guided by the En- cash payment for selling that power to the grid. ergy White Paper and Eskom’s strategic pricing direction that provides for more effective economic signals in the Liberalisation use of electricity and investments required. The structural Although Eskom does not have exclusive generation rights changes also have to be approved by NERSA and are de- in South Africa, it does have the practical monopoly on signed to be revenue neutral for Eskom. the bulk of electricity generation in the country, and it From 2006 onwards there have been significant increases maintains the national grid.30 In 2002, Eskom was con- of electricity prices to finance the massive generation and verted into a public company, although it is de facto a par- transmission expansion programme. astatal. In 2003, the Cabinet made a decision to increase In June 2008 NERSA announced an additional increase private-sector participation in the electricity industry by in the electricity tariff of 13.3 % for the year ending March dividing power generation between Eskom and IPPs, al- 2009 which resulted in a 27.5 % average increase year-on- though Eskom still holds the majority of the generation year. In addition, NERSA ruled that the price increase rights. Thus, while provisions are made for IPPs to gener- to »poor« residential customers is limited to 14.2 %. In ate up to 30 % of South Africa’s total electricity output July 2009 Eskom was granted a 31.3 % tariff increase by (later reduced to a share of 30 % in new installed capacity), NERSA,28 which is below the 34 % increase Eskom had the power generated must be sold to Eskom and not to any aimed for. The tariff increase will result in a rise in the av- other users.31 In addition, Eskom determines the price at erage standard tariff from 25.24 Rand cents (2.31 € cents) which it purchases electricity from IPPs.32 IPPs have to per kWh to 33.14 Rand cents (3 € cents). sign a long-term power purchase agreement (PPA) with Currently there are several hundred different tariffs ac- Eskom. The Department of Minerals and Energy (DME) cording to electricity distributor, and an example has been is the government department responsible for ensuring chosen and shown in Table 8 which illustrates the current IPP participation, and in order to fulfil this mandate a electricity tariffs established by IPP City Power, which power generation investment plan was drawn up. Also supplies Johannesburg. It depicts all sectors of activity during 2003, Eskom revised its business model to prepare and consumption levels applicable from July 2009.29 for the restructuring. In this regard, it is important to high- light that in terms of this restructuring, power generation Despite the significant price hikes, South Africa still remains with Eskom, as does the transmission division. has the cheapest electricity in the world, which is seen The distribution division will be severed and merged with as a major comparative advantage, having attracted sig- the electricity departments of municipalities to form six nificant investments in energy intensive industries in the Regional Electricity Distributors (REDs). This is meant to past. In light of this, it is feared that South Africa will lose streamline the fragmented distribution system consisting its advantage step by step, with the price increases impact- of 187 municipal distributers and Eskom. The first RED ing negatively on economic and social development. On was established in the Western Cape in 2005, but due to the other hand, the use of renewable energies will become complex legal and political processes, no other RED has

27 Eskom 2009 30 REEEP 2009 28 Newser 2009 31 DA 2009 29 NOTE: These tariffs might change after Mayoral 32 NERSA 2009 committee meeting late in July 2009 SOUTH AFRICA 262

been set up yet. The REDs will buy electricity from Eskom 12.3 Market Actors at a tariff set by the National Energy Regulator of South Africa (NERSA) and will offer the electricity at a competi- Governmental actors tive price and efficient service. Department of Energy (DoE) 36 Rural Electriﬁcation The Department of Minerals and Energy (DME) has been The proportion of rural households supplied with electric- split after the May 2009 elections and renamed Depart- ity increased from 21 % in 1995 to 73 % in 2008. Most ment of Energy. The Department of Energy is the ministry of the non-electrified households are in the provinces of responsible for the energy sector and therefore the most KwaZulu-Natal and Eastern Cape. important political institution in the sector. It is respon- In 2001, the Integrated National Electrification Pro- sible to develop, implement and monitor energy poli- gramme (INEP) has been established, carried out by the cies and programmes, and to regulate the South African National Electricity Regulator (NER) and Eskom, who market (whereas the last task has been delegated to the took over from the Department of Minerals and Energy National Energy Regulator of South Africa, see below). (DME) in April 2002.33 It provides a socio-economic sup- DoE's mandate also encompasses energy efficiency and port and ensures that previously unconnected households renewable energy. have access to electricity. The programme creates new infrastructure while ensuring that existing infrastructure is Department of Public Enterprises (DPE)37 upgraded and maintained. The country’s mass electrifica- The Department of Public Enterprises (DPE) has over- tion programme, started in 1991, and has provided almost all management responsibilities over nine of the govern- 3.5 million homes with electricity. The government aims ment’s state-owned enterprises (SOE) including the elec- to achieve universal access to electricity by 2012. Eskom is tricity supply company Eskom. The DPE monitors SOE the main driver behind electrification with 113 000 house- performance with regard to: holds newly connected to the grid in 2008 / 09.34 Already in 1999 an off-grid rural electrification programme was • Infrastructure investment and delivery; launched with the aim to install 300 000 Solar Home Sys- • Operational and industrial efficiency; tems across the country. Concessions were awarded to six • Financial and commercial viability; private companies; however, roll-out up to date has been • Governance and regulatory compliance. slow with only approximately 50 000 installed systems so far. The Department has, together with the SOE, developed In addition, an investigation has been implemented from shareholder compacts to maximise SOE output value, as 2004 to 2007 to develop national measures of sustain- well as to ensure that there are clear and measurable per- ability through a renewable rural electrification project.35 formance indicators. It aims to implement wind, solar and lead-acid battery energy storage technologies as a mini-hybrid off-grid electri- National Energy Regulator of fication system for Lucingweni village. South Africa (NERSA)38 Since July 2006 the former National Electricity Regula- tor (NER) as set out in the Section 3 of the National En- ergy Regulator Act, 2004 (Act No. 40 of 2004), has been responsible not only for the electricity sector but also for all piped and grid-linked energy sources, i.e. also for oil

33 IEA 2008 36 http://www.dme.gov.za/ 34 Eskom 2009 37 http://www.dpe.gov.za/home.asp 35 Brent 2009 38 http://www.nersa.org.za/ SOUTH AFRICA 263

and gas, and was renamed as the National Energy Regu- The Energy Development Corporation (EDC) was es- lator of South Africa (NERSA). The managing board is tablished in January 2004 as a division of CEF. Based in appointed by the DME but it operates independently. South Africa, the focus of this division is to invest in re- NERSA’s mandate is to regulate the electricity, piped-gas newable energy and alternate energy fields. EDC focuses and petroleum pipeline industries in terms of the Elec- on a number of areas including solar energy, wind energy, tricity Regulation Act, 2006 (Act No. 4 of 2006), Gas hydro energy, biomass, biogas and low-smoke fuels. It Act, 2001 (Act No. 48 of 2001) and Petroleum Pipelines supports energy development through commercial, de- Act, 2003 (Act No. 60 of 2003). velopmental and social projects. The core task of the NERSA is to issue licenses for electricity transmission, distribution and generation and to South African National Energy Development Institute monitor and authorise tariffs. (SANEDI) and South African National Energy Re- search Institute (SANERI);41 Department of Water and Environmental Affairs SANERI is the public entity entrusted with the coor- (DWEA)39 (formerly Department of Environmental Af- dination and undertaking of public interest energy re- fairs and Tourism, DEAT) search, development and demonstration. In particular, it DWEA leads sustainable development of the environ- strives to bridge the gap between R & D, demonstration ment, through: and implementation. SANERI is a relatively new body, established by the then Minister of Minerals and Energy • Promoting the conservation and sustainable uti- in October 2004, as a subsidiary of CEF (Pty) Ltd, the lisation of natural resources to enhance economic state energy company in South Africa. SANERI doesn't growth. undertake in-house research but promotes, co-ordinates • Protecting and improving the quality and safety of the und funds research at existing institutions. SANERI is ac- environment. tive in the following areas: • Promoting a global sustainable development agenda. • Transformation • Clean Energy Solutions (including renewable energy) • End use and Infrastructure Management Although DWEA has not got a direct mandate in the • Advanced Fossil Fuel use field of renewable energy, it is responsible for the national • Energy Data and Knowledge Management and international climate policy with effects also on the • Green Transport energy sector. Overlapping responsibilities between DoE, DPE, DWEA and NERSA complicate policy formula- Regarding renewable energies, the Centre for Renewable tion and implementation in the energy sector. and Sustainable Energy Studies (CRSES) has been set-up at Stellenbosch University to act as the national Renew- Central Energy Fund (CEF)40 able Energy Hub, which means it is meant to be the fo- CEF (Pty) Ltd. is involved in the search for appropriate cal point of post-graduate education in renewable ener- energy solutions to meet the future energy needs of South gies. Furthermore, SANERI is about to establish a more Africa, the Southern African Development Community practice-oriented Renewable Energy Centre of Research and the sub-Saharan African region, including oil, gas, and Development (RECORD) with the main tasks to electrical power, solar energy, low-smoke fuels, biomass, undertake non-academic professional training, product wind and renewable energy sources. research and development as well as consulting services.

39 http://www.dwaf.gov.za/ 41 www.saneri.org.za 40 www.cef.org.za SOUTH AFRICA 264

The South African National Energy Development Insti- Distribution actors tute was established under the National Energy Act (Act The distribution of electricity is undertaken by Eskom 52 of 2008) and is currently about to be launched. In the and 187 municipalities. The municipalities collectively future it will act as the umbrella organisation of SANERI service about 60 % of total customers by number (40 % and the National Energy Efficiency Agency (NEEA). for Eskom), and about 40 % of total customers by sales volume (60 % for Eskom). Municipal electrical depart- Public actors ments generally supply consumers in their local govern- Eskom (Eskom Holdings Limited) 42 ment areas. In an attempt to restructure the Electricity Eskom is the state-owned power utility and was estab- Distribution Industry (EDI) in six Regional Energy Dis- lished in 1923. Eskom Holdings generates, transports tributers, the first RED was launched in Cape Town in and distributes electricity. Eskom is the world’s eleventh- July 2005. The restructuring has not been completed yet largest power utility in terms of generating capacity, ranks due to complex legal and political processes. ninth in terms of sales, and owns the world’s largest dry- The Electricity Distribution Industry (EDI) is valued at cooling power station.43 50 billion Rands (4.6 billion €).46 Eskom’s main operations are located in South Africa, with its head office in Johannesburg. Eskom Enterprises Association also has operations on the African continent, with other African Wind Energy Association (AfriWEA)47 and offices in Uganda, Nigeria and Mali. South African Wind Energy Association (SAWEA) In 2008 /09, Eskom’s cash flow from operating activities AfriWEA has its headquarters in South Africa and is reached 11 764 million Rand (1 071 €) with 37 800 em- headed by DARLIPP CEO Hermann Oelsner. The Asso- ployees.44 Eskom sells power directly to some 6 000 indus- ciation promotes and supports wind energy development trial, 18 000 commercial, 70 000 agricultural and 3 million in the African continent by facilitating the exchange of residential customers. Over the year of 2009, its distribu- political and technical information, expertise and expe- tion teams connect an average of 310 new homes every day. rience in the wind energy sector. It aims to further the wind energy interests of Africa in particular and devel- Private companies oping countries in general. Currently, the South African To encourage a competitive electricity market and reduce Wind Energy Association (SAWEA) is about to be re- Eskom’s monopoly within the electricity supply industry, established. the government has seriously considered the development of independent power producers (IPPs)45 (e. g. City Power supplying the City of Johannesburg with conven- 12.4 Political Framework tional electricity, DARLIPP operating the Darling wind Conditions in the Energy Sector farm, Bethlehem Hydro) targeting a 30 % share of new generation capacity to be provided by IPPs. However, National Energy Strategy based on the fact that South Africa ranks amongst the The South African government has published is first white cheapest power producers in the world, the subsequent paper on energy policy in 1986.48 With the end of apart- cost-benefit analysis and rate of return estimates in the heid South Africa experienced fundamental shifts result- calculation of the real cost of electricity meant that IPPs ing in significant changes in the energy policy context. struggle to competitively provide power and thus, they The election of a new government necessitated a review account for only about 1 % of the total electricity genera- of existing policy. In August 1995, a team of expert »is- tion in South Africa. sue rapporteurs« was appointed to draw up the first draft

42 www.eskom.co.za 46 DME 2009 43 www.eskom.co.za 47 http://www.afriwea.org/ 44 Eskom 2009 48 DME 1998 45 DA 2008 SOUTH AFRICA 265

white paper. The Draft White Paper was revised during In 2003, the White Paper on Renewable Energy has been 1997 / 98 in the Department and Cabinet approved its published which is a supplement to the White Paper on release in July 1998. Energy Policy (1998).49 The latest White Paper sets out The White Paper on the Energy Policy (1998) of the Re- Government’s vision, policy principles, strategic goals public of South Africa describes the government’s general and objectives for promoting and implementing renew- policy for the supply and consumption of energy until, able energy in South Africa. The 2003 White Paper al- approximately, the year 2010. This policy sets out the locates a target of 10 000 GWh renewable energy contri- path for development of renewable energy and improve- bution to final energy consumption by 2013 (see chapter ment of energy efficiency with the ultimate goal to reach »Framework Conditions for Renewable Energies«), a more sustainable energy mix to facilitate the achieve- In 2004, the National Cleaner Production Strategy seeks ment of South Africa’s macroeconomic goals. »to enable South African society and industry to develop its long term full potential by adopting the principles of The White Paper on Energy Policy states the following as Cleaner Production and promoting the practices of sus- its objectives: tainable consumption.«

• Increasing access to affordable energy services: This South Africa has a National Energy Efficiency Strategy entails promotion of access to affordable energy serv- submitted in March 2005 which was reviewed in Octo- ices for disadvantaged households, small businesses, ber 2008.50 The Strategy sets out a national long term tar- small farms and community services. get for energy efficiency improvements of 12 % by 2015 • Improving energy governance: The focus will be the and provides clear and practical guidelines for the imple- clarification of roles and responsibilities of the various mentation of efficient practices within their economy, governance institutions, such as the Energy Regula- including the establishment of governance structures for tor, Government departments and other spheres of activity development, promotion and coordination. government, as well as consultation with stakeholders on the formulation and implementation of energy In 2007, the Biofuels Industrial Strategy of the Republic policies. of South Africa proposed the adoption of a 5 year pilot • Stimulating economic growth: Government will en- programme to achieve a 2 % penetration level of biofuels courage competition in the energy markets and work in the national liquid fuel supply. It further proposes the towards creating and investor friendly climate. In con- utilisation of certain crops for the production of biofuels, junction with the good governance structures a trans- and excludes others on the grounds of food security. It parent regulatory framework will be implemented. recommends the use of a fuel levy exemption for biodiesel • Managing energy-related environmental and health and bioethanol. impacts: A balance between the exploitation of fossil fuels and maintenance of acceptable environmen- Energy and power market policies; tal requirements will be ensured and negative health Legal framework for the electricity sector impact arising from the use of certain fuels by poor South Africa's legal framework for the energy sector is households will be ameliorated. controlled by the National Energy Act 34 of 2008:51 • Securing supply through diversity: Given the oppor- The Act is aimed at ensuring that diverse energy resources tunities for energy trade and developments in other are available in sustainable quantities and at affordable forms of energy, the diversity of supply and primary- prices to the South African economy in support of eco- energy carriers will be encouraged. nomic growth and poverty alleviation, taking into ac-

49 DME 2003 50 DME 2008 51 Government Gazette 2008, REEEP 2009 SOUTH AFRICA 266

count environmental management requirements and in- (a) Determine that new generation capacity is needed teractions amongst economic sectors. The National En- to ensure the continued uninterrupted supply of ergy Act 34 of 2008 contains various provisions with an electricity; effect on renewable energy deployment. For example, the (b) Determine the types of energy sources from which Minister may make regulations regarding: electricity must be generated, and the percentages of electricity that must be generated from such sources; • Minimum contributions to national energy supply (d) Determine that electricity thus produced must be from renewable energy sources; purchased by the persons set out in such notice; • The nature of the sources that may be used for renewble (e) Require that new generation capacity must – energy contributions to the national energy supply; • Be established through a tendering procedure • Measures and incentives designed to promote the which is fair, equitable, transparent, competitive production, consumption, investment, research and and cost-effective development of renewable energy. • Provide for private sector participation.

In addition to the National Energy Act, South Africa’s le- Recently, the National Treasury has introduced a carbon gal framework for the electricity sector is governed by the tax with a levy of 2 Rc / kWh imposed on electricity gen- following laws and regulations52 where energy efficiency erated from non-renewable energy sources. and renewable energies are largely considered (see also next chapter): Renewable energies and energy efficiency are largely The Constitution of the Republic of South Africa Act 108 considered in the legal framework of South Africa. The of 1996, that provides for the »environmental right« un- government sets feasible targets which it is committed der section 24. to meet. However, policy implementation has been slow, The National Environmental Management Act 107 of which inter alia is due to overlapping responsibilities be- 1998 (NEMA) is the most significant single piece of tween DoE, DPE, DWEA and NERSA and the strong de legislation dealing with environmental management in facto powers of Eskom. South Africa. It inter alia defines the requirements for Environmental Impact Assessments for most renewable energy projects (see chapters 1.5).53 The Electricity Pric- 12.5 Framework Conditions for ing Policy Regulations promulgated under the National Renewable Energies Energy Regulator Act 20 of 2004. The Electricity Regulation Act 4 of 200654, which, apart Renewable Energy Strategy from providing the relevant licensing and tariff provi- The White Paper on Renewable Energy (2003)55 sets a sions, has the objectives inter alia to promote the use of target of 10 000 GWh of energy to be produced from diverse energy sources and energy efficiency. Section 34 renewable energy sources by 2013.56 The potential con- of the Act provides for new generation capacity and stip- tribution of the various technologies was identified in a ulates that the Minister may: macroeconomic study undertaken in 2003.57 However, no clear implementation guidelines were provided, which is why progress towards reaching the target is quite slow (only 3 % of the target have been achieved so far).

52 REEEP 2009 55 DME 2003 53 D:EA&DP/GTZ 2009 56 DME 2009 54 Government Gazette 2006 57 Cooper 2006 SOUTH AFRICA 267

The White Paper’s target of 10 000 GWh renewable en- lished the Renewable Energy Finance and Subsidy Of- ergy contribution to final energy consumption by 2013 fice (REFSO), whose mandate includes:60 was confirmed to be economically viable with subsidies and carbon financing. Achieving the target will: • Manage renewable energy subsidies and • Offer advice to developers and other stakeholders on • Add about 1 667 MW new renewable energy capac- renewable energy finance and subsidies. ity, with a net impact on GDP as high as 1 071-billion Rands (98.2 billion €) a year; The key objective of the subsidy systems is to increase the • Create additional government revenue of 299 million share of renewable energy in the country’s energy supply Rands (27.4 million €); mix. The subsidy system provides incentives to develop- • Stimulate additional income that will flow to low- ers and utilities to implement RE projects by reducing income households by as much as 128 million Rands the risk and using the system as leverage to attract other (11.7 million €), creating over 20 000 new jobs; sources of finance for RE projects. REFSO offers one- • Contribute to water savings of 16.5 million kilolitres, off capital subsidies (1 000 R / kW with a maximum of equal to R 26.6 million (2.4 million €) saving. 20 % of total capital cost) to qualifying renewable energy projects and uses the following criteria: The White Paper on Renewable Energy is currently under review. Besides providing a more concrete implemen- • Projects should be located within the borders of tation plan, it is expected that a more ambitious target is South Africa, use commercially viable technologies, being set for 2020. and generate at least 1 MW of power. • Projects must have undergone pre-feasibility studies In order to promote renewable energy, DME has • The capital costs should not exceed R100 million strengthened international relationships via partner- (however, this criterion is under review) ships established during the World Summit on Sustain- • A potential purchaser of the RE must be identified able Development (WSSD) 2002 in Johannesburg. Such • Projects should have a high probability of reaching partnerships will overcome market barriers and promote financial closure within 12 months the widespread use of sustainable energy solutions. These include the Global Village Energy Partnership (GVEP)58 Projects benefiting from REFSO funding can also use and the Renewable Energy and Energy Efficiency Part- other financial instruments such as the clean development nership (REEEP).59 mechanism. The office had already subsidised two hydropower projects, as well as biogas and landfill projects. Legal Framework and Support Instruments The legal framework is set by the Energy Act 34 (2008) Tax Incentives: Section 12B of the Income Tax Act pro- and the Electricity Regulation Act 4 of 2006 which are vides some tax relief for the generation of electricity from described in Section 1.4. wind, sunlight, gravitational water forces and biomass comprising organic wastes, landfill gas or plants. This sec- The following instruments are in place to support renew- tion provides for an accelerated write-off period (50 % able energy projects: in the first year, 30% in the second year and 20 % in the third year) for the costs of such machinery used by a tax- The Government of South Africa plays a strong role in payer for the purpose of trade. financing renewable energy projects. The DME has estab-

58 www.gvepinternational.org 60 DME 2009 59 www.reeep.org SOUTH AFRICA 268

Furthermore, the Draft Taxation Laws Amendment Bill Table 9 depicts the different technologies considered in 2009 stipulates that the sale of certified emission reduc- each REFIT phase and their tariff. tions will be exempt from income tax, which increases the attractiveness of accessing carbon finance for projects. In addition to the tariffs, REFIT Phase 1 provides for the following: Finally, in terms of tax incentives for renewable energy, during his 2008 budget speech, Finance Minister Trevor 1. The term of the REFIT Power Purchase Agreement Manuel promised that further tax incentives for cleaner (PPA) will be twenty years. production technologies will be considered, however 2. The REFIT will be reviewed every year for the first these are still to be developed and implemented. five-year period of implementation and every three years thereafter; the resulting tariffs will apply only In March 2009, NERSA has approved the Renewable to new projects. Energy Feed-In Tariff (REFIT) Guidelines as a regula- 3. A reduction rate will be excluded from REFIT. tory instrument.61 The establishment of the REFIT in 4. Carbon revenue from the Clean Development South Africa will provide an excellent opportunity for Mechanism (CDM) will be excluded from the RE- South Africa to increase the deployment of renewable FIT. energy in the country and contribute towards the sus- 5. The Renewable Energy Power Purchase Agency tained growth of the sector in the country, the region and (REPA) will be housed in Eskom’s Single Buyer Of- internationally. The REFIT will facilitate an enabling envi- fice. REPA will be obliged to buy the electricity from ronment for achieving the government’s 10 000 GWh re- licensed renewable energy producers. Besides selling newable energy target by 2013. Therefore, this instrument to the REPA, renewable energy IPPs are also allowed takes into account a limited number of technologies (see to sell electricity to buyers willing to purchase renew- Table 9). Nevertheless, in July 2009, NERSA published able energy outside the REFIT mechanism. Renewable Energy Feed – In Tariff Phase 2 for public con- 6. Monitoring and verification to be the responsibility sultation purposes which includes more technologies.62 of the Single Buyer Office.

TABLE 9 REFIT TARIFFS, FROM JULY 2009 Technology Tariff (R / kWh) Tariff (€ / kWh) PHASE 1 Landﬁll gas power plant 0.90 0.080 Small Hydro power plant (less than 10 MW) 0.94 0.084 Wind power plant 1.25 0.111 Concentrated solar power (CSP) with storage 2.10 0.187 PHASE 2 (proposed for public consultation) Concentrating solar power (CSP) without storage 3.13 0.279 Biomass solid 1.18 0.105 Biogas 0.96 0.085 Photovoltaic systems (Large ground or roof mounted) 4.48 0.040 Concentrating Photovoltaic (CPV) 5.48 0.488 Concentrating Solar Power (CSP) Central Tower 2.31 0.206

Source: CAMSO 2009

61 NERSA 2009 62 NERSA 2009 SOUTH AFRICA 269

Furthermore, REFIT Phase 2 has outlined a standard measurements) require an basic assessment. The responsi- Power Purchase Agreement (PPA) on the basis of the Es- ble authority for energy-related EIAs is the national De- kom Medium Term Power Purchase Program (MTPPP). partment of Water and Environmental Affairs (DWEA). Approval of the Phase 2 guidelines is expected by end of Detailed descriptions of the EIA-process can be found October 2009. at http://www.capegateway.gov.za/eng/directories/services/11537/10199 or http://www.eiatoolkit.ewt.org.za/. Although REFIT guidelines have been published, there are still some uncertainties regarding their concrete im- Grid Connections: It has to be noted that a full formal plementation. This refers for example to the issue of who process for renewable energy grid connection has not yet has to pay for the grid-connection costs and whether a been mapped out by Eskom. This process is currently be- certain capacity limit will be introduced that would set a cap ing developed by Eskom Customer Services. on the amount of MW eligible for the proposed tariffs. Under the current circumstances, a grid connection has Permission Procedure63 to be applied for by the distribution grid operator, which The regulatory processes required for a typical renewable can be Eskom or one of the 187 municipalities, according energy project are divided into the following categories to the location of the planned project. As a general ori- that not necessarily reflect a chronological order but over- entation, the following process should be followed when lap to a certain degree: applying for a connection at Eskom Distribution:

• Land Use Planning • Project Concept: Elaboration of a project concept, • Environmental Impact Assessment identifying a potential site for the renewable energy • Grid Connection plant, suitable energy resources, types of generating • Power Purchase Agreement plant and cost estimates for the plant. • Generation License • Embedded Generation Application: The developer provides information on the size of the plant, energy Land Use Planning relates to the obvious necessity of source and physical location to the operator of the purchasing or leasing land on which the plant will be distribution network. On receipt of the application, constructed. In South Africa, permissions have to be ob- Eskom carries out a preliminary system study. Identi- tained for sub-division of land parcels and change of land fying network options for connection and estimating use. Responsible authorities for these matters are the pro- costs for each option. vincial and municipal governments of the respective areas. • Feasibility Quotation: A summary of the cost is sent to the developer in a form of a Feasibility Quotation Environmental Impact Assessments (EIAs): Any re- to be incorporated in the business planning processes newable energy generation facility between 10 MW an of the developer. Normally in Eskom, the Feasibility 20 MW will require a basic assessment and those larger Quote is only 65 % accurate as a project design has than 20 MW (or covering an area greater than 1 hectare) not yet been determined. The developer is required to will require a full scoping report through an Environ- accept this quote formally and may be required to pay mental Impact Report (EIR). Many projects less than 10 a commitment fee to proceed to the next stage. MW will also require at least a basic assessment due to • Design Phase and Business Quotation: Upon ac- other activities associated with their construction or op- cepting the Feasibility Quotation, further studies eration, e.g. the construction of masts (as needed for wind (that the project developer has to pay for) are con-

63 This section draws on the Process Map contained in the D:EA&DP/GTZ Regional Regulatory Action Plan (D:EA&DP/GTZ 2009) to be published on the TERNA website (www.gtz.de/wind) in December 2009. SOUTH AFRICA 270

ducted to determine the concrete connection design beit different departments in Eskom) and with the Regu- and a Business Quote is issued. On the acceptance of lator with regards to securing a generation license. the Quote, the processes for construction, testing and commissioning commence (providing the other au- Generation License: The requirements and processes on thorisations have been obtained. the licensing procedure are carried out by the National Energy Regulator of South Africa (NERSA) which is the Power Purchase Agreement (PPA): A PPA has to be key ‘gatekeeper’ to the market for new entrants because it concluded with the Renewable Energy Purchasing Agen- must license all new producers. NERSA also resolves dis- cy (REPA), which is currently the Single Buyer Office putes between suppliers of electricity and their custom- in Eskom. There is no formal process flow for securing ers, as well as between different suppliers (particularly the PPA itself. A draft PPA for renewable energy under with respect to boundary disputes). Licensing is critical the REFIT Phase 2 has been published by NERSA (see to early commissioning of the renewable energy projects above) and according to NERSA will be finalised during and is seen as requiring a fast-track approach. The proce- the last quarter of 2009. The main complexity related to dure for applying for a generation license from NERSA the process for securing a PPA is the relationship between is outlined in the Electricity Regulation Act. The proce- a generation license and a PPA, i.e. at the moment it is not dure starts with an application to NERSA. This applica- clear which step should be made first. Given the uncer- tion must include a set of information required for the tainty, and the relationship between the PPA, generation Regulator to make an informed decision. license and grid connection for a particular project, it is expected that in practice there will be some form of it- Following the receipt of the application NERSA has the erative process between these three steps. In other words prerogative to publish the license application for public the developer may be expected to engage simultaneously comment for a period defined by NERSA. In such a case with Eskom with regards to the PPA and grid access (al- before considering an application for a licence the Regu-

FIGURE 4: REFIT STRUCTURE AND PROCESS

Generation Licence, reporting on performance RE POWER GENERATOR NERSA

electricity Reporting on performance PPA and overall REFIT costs money

money CONSUMERS REPA electricity

Source: NERSA 2009 SOUTH AFRICA 271

lator must then furnish the applicant with all substanti- Figure 4 provides an overview of the REFIT structure ated objections to the project (if any) in order to allow and process: the applicant to respond to them. The Regulator must then make a decision on the application within 120 days Clean Development Mechanism after the expiration of the public comment period if no The South African Government ratified the UNFCCC objections have been received or within 120 days after rein August 1997 and acceded to the Kyoto Protocol in ceiving the response by the applicant to any objections. March 2002. The South African Designated National The Regulator must provide the applicant with a copy of Authority (DNA) located in the Department of Energy its decision as well as the reasons for the decision. has been operating since December 2004.

TABLE 10: REGISTERED CDM-PROJECTS IN SOUTH AFRICA FROM 2007 TO 2009 Projekt Plaec Type Size IRR (%) Annual DOE Date of savings regis-

[tCO2eq] tration

Omnia Fertilizer Free State N2O N / A N / A 473 DNV 3-mei-07 Limited Nitrous

Oxide (N2O) Reduction Project

Tugela Mill Fuel KwaZulu- Biomass 22 MWth N / A 56 DNV 12-feb-07 Switching Project Natal energy

EnviroServ Gauteng Landﬁll N / A 26.2 188 DNV 27-apr-07 Chloorkop Land- gas ﬁll Gas Recovery Project.

Sasol Nitrous Oxide Free state & N2O N / A 87.7 960 DNV 25-mei-07 Abatement Project Mpumalanga

Mondi Richards Bay KwaZulu- Biomass N / A 17 – 20 185 SGS 20-mei-07 Biomass Project Natal energy

Transalloys Gauteng EE industry N / A 12 55 DNV 19-oct-07 Manganese Alloy Smelter Energy Efﬁciency Project

Project for the cata- Gauteng N2O N / A N / A 117 TÜV-SÜD 5-nov-07 lytic reduction of

N2O emissions with a secondary catalyst

N2O abatement Gauteng N2O N / A N / A 265 TÜV-SÜD 8-feb-08 project at nitric acid plant No. 11 at AEL

Kanhym Farm Mpumalanga Methane 1 MW 20 33 DNV 18-jul-08 manure to energy avoidance project

Durban Landﬁll-Gas KwaZulu- Landﬁll 4 MW N / A 343 TÜV-SÜD 26-mrt-09 project Bisasar Road Natal gas

Source: UNDP RISØ SOUTH AFRICA 272

In July 2009, the South African DNA had 135 CDM In 2003 UNIDO has developed a CDM investor guide65 projects in its portfolio. 15 projects were registered by aiming at providing CDM project proponents in the the CDM Executive Board (EB) and 13 projects are cur- country and CDM investors with reliable, updated rently at validation stage. sources of information regarding CDM opportunities in the energy and industrial sectors of South Africa. Table 10 presents the registered CDM projects from 2007 to August 2009 in South Africa. International donor activities In the past the Danish International Development Agen- The website of the South African DNA64 provides an cy (DANIDA) has been the most active international updated list every month of its CDM project portfolio donor in the energy sector. Via the Capacity Building in including project details. 29 projects have successfully Energy Efficiency and Renewable Energy (CaBEERE) presented a Project Design Document (PDD) and 96 project (2002 – 2005)66, support was provided in policy Project Idea Note (PIN) to the DNA. The list (from 13 formulation (e. g. White Paper on Renewable Energy), July 2009) includes 6 wind power projects with their PIN economic and technical assessments as well as financing approved by the DNA (see table 11). of demonstration projects (Darling Wind Farm).

TABLE 11: LIST OF THE WIND POWER PROJECTS WITH PROJECT IDEA APPROVED BY DNA (13 JULY 2009)

Project Title Date Project Description tCO2e Annual Project Project submitted Emission Lifespan Developer / to DNA Reductions Owner Kouga Wind farm / 18-Oct-04 This project aims at generating 21 Genesis Eco Pumped Storage electricity from wind and dammed Energy Pty Ltd Hydro water and supplying it to the area. 100 MW West 28-Sep-07 The project proposes generation 21 Eskom Coast Wind Farm of Renewable Energy from wind Holdings Ltd Umoya Energy 13-Feb-09 The objective of the project is 21 Macquarie to establish a new wind energy facility on the farms Koperfontein 346 / 25, Kerschbosch dam 347 / 0 and Coeratenberg 307 / 3 near Hopeﬁeld in Western Cape. Nelson Mandela 7-Apr-09 The project will aim to produce 10 CEF Group Bay Municipal- 60 MW of electricity for the NMBM, ity Wind Power and will be sold from the project Project developer to the Municipality on a yearly basis. This will replace the conventional manner of relying on coal to produce electricity Khwe Khoa 8-Apr-09 The project objective is to erect a 56 795.38 10 CDM Africa Langfontein Wind 120 MW wind farm in the Western Energy Project Cape about ten kilometres North- east of Yzerfontein Kerrifontein Wind 17-Apr-09 The project proposes to demon- 223 000 10 WCACCESS Farm Project strate the technical viability and improve the ﬁnancial feasibility of wind energy in South Africa.

Source: DME 2009

64 DME 2009 65 UNIDO 2003 66 DME 2009 SOUTH AFRICA 273

Since April 2008, the German Development Coopera- Energy Power Generation (REPG) sub-component and tion (GTZ) is implementing three ongoing projects in the Solar Water Heating (SWH) sub-component. For the South African energy sector67: both components, the project seeks to provide policy, regulatory and institutional capacity building support at A project financed by the German Ministry for Economic the national level. The project is based at the Develop- Cooperation and Development (BMZ) and carried out ment Bank of Southern Africa (DBSA) which is the im- by GTZ's TERNA Wind Energy Programme in coop- plementation agency for the DoE. eration with the Western Cape Department of Environ- mental Affairs and Development Planning (DEA&DP) • In order to stimulate wind power development beyond and Eskom aims at promoting wind energy by advising the 5.2 MW plant at Darling (see chapter »Market DEA&DP on improving the political framework condi- potential for wind energy«), the DME is implement- tions, conducting a grid study, carrying out various capac- ing Phase one of the South African Wind Energy ity building measures and establishing a renewable energy Programme (SAWEP). This is a two year technical cluster. assistance project funded by UNDP which started in February 2008. One of its objectives is to prepare the The Basic Energy Climate Change and Adaptation Pro- development of a further 45 MW of wind energy to be gramme (BECCAP), financed by the German Ministry provided by the private sector. for the Environment (BMU) promotes access to modern • Some of the current activities undertaken through forms of household energy and supports the Central En- SAWEP: ergy Fund in setting up a carbon market (analysing inter • Support and capacity building for the South African alia the opportunities of programmatic CDM for house- Wind Energy Association, hold energy applications). The BMZ-funded Programme • Activation of the green power guarantee scheme for for Basic Energy Conservation (ProBEC) is active in the the City of Cape Town, same area at a regional level (SADC). • Support for the development of the Renewable En- ergy Sectoral Business Case, The German Development Bank (Kf W) is financing • Wind resource assessment where an updated and the installation of approximately 30 000 Solar Home more accurate national wind atlas will be produced, Systems (SHS) in remote rural areas of the Eastern Cape and with a grant of 25.4 Million Euro. Furthermore, it sup- • An investigation into the Development of a Wind In- ports together with GTZ International Services the City dustry in South Africa. of Johannesburg in the preparation and implementation of a strategic public transportation network, based on a Bus Rapid Transit (BRT) System. 12.6 Market potential for wind energy

Since November 2008, the Renewable Energy Market Wind energy potential Transformation Project (REMT) focuses on removing In the past, a few high-level wind resource studies were the barriers and reducing the implementation costs of re- carried out, e. g. a study by Roseanne Diab in 1995 and newable energy technologies, and also promoting on-grid the South African Renewable Energy Resource Data- electricity for renewable energy sources.68 REMT is a base (SARERD) compiled by DME / Eskom / CSIR in GEF / World Bank funded project through the DoE. The 2001.69 All of these studies were based on data from me- project has two main components namely the Renewable teorological stations measured at a height of 10 m and (as

67 GTZ 2009 69 See http://www.sabregen.co.za/. Data of the studies are only partially accessible. 68 DBSA 2008 SOUTH AFRICA 274

TABLE 12: WESTERN CAPE WIND RESOURCE CATEGORY AREAS Category Mean Annual Wind Provincial Provincial Land Speeds at 70 m (ms-1) Land Area (km2) Coverage (%) High Capacity Factor Sites 8 ms-1 and above 3 820 km2 4 %

Medium Capacity Factor Sites Between 6 ms-1 and 8 ms-1 19 452 km2 23 % Low Capacity Factor Sites Below 6 ms-1 62 250 km2 73 %

Source: D:ME&DP / GTZ 2009 in the case of SARERD) extrapolated with the help of a meso-scale wind atlas based on computer simulations software programmes to surrounding areas. Hence, the and calibrated by real wind measurements in strategic lo- resulting data on the South African wind regime are not cations. The project started in November 2008 and will very reliable. be completed in December 2012. Row data will be pub- Concluding from the studies, the potential for wind en- lished consecutively on a website to be specified; once fi- ergy can be defined as very good, especially in the long nalized, the wind atlas will be in public domain. coastal strip and inland escarpments. Provinces with the In 2009, GTZ's TERNA Wind Energy Programme best wind energy potential are Western Cape, Northern in cooperation with the Western Cape Department Cape, Eastern Cape and KwaZulu-Natal. The estimated of Environmental Affairs and Development Planning average annual wind speed at 10m is 6 m/s (http://www. (DEA&DP) and Eskom carried out a technical study crses.sun.ac.za/pdfs/Hagemann.pdf ). aiming inter alia at analysing the effects of integration of Evaluating and reassessing existing studies in 2003, a wind energy on the transmission grid. The preliminary South African renewable energy strategy formulation results of the study reveal that at least 2 800 MW of wind team from the Department of Minerals and Energy esti- power can be integrated in the existing transmission grid. mated the total wind generation potential to be 60 TWh With a very good wind regime and sufficient back-up ca- per annum. Adopting a conservative approach to land pacity provided by existing gas-fired power plants, this availability, of the 410 000 km2 exposed to wind speeds makes the province an excellent location for large-scale of more than 6.5 m.s-1, they assumed that only 1 174 km2 wind energy utilization.71 could be allocated to wind farms. Even in these allocated areas, the turbines themselves would only take up about 1 Framework Conditions for Wind Energy to 2 percent of the land area, equivalent to about 0.003 % of the total resource area, with normal farming continu- Goals ing under and around the turbines.70 In the White Paper on renewable energy (2003), the South For the Western Cape Province, the following wind resource African government targets 10 000 GWh renewable en- category areas where identified, showing a significant land ergy contribution to final energy consumption by 2013. area with excellent wind speeds of more than 8 m/s. The South African government has planned through the White Paper (2003) to implement 100 MW of wind Since these early weather station based studies, state-of- farms across the country by March 201072, to be later ex- the art assessments have been undertaken by private com- panded to 200 MW, but the utility Eskom has delayed panies that are not in public domain. In order to close awarding the tender. The government states it plans to this gap, the GEF-financed South African Wind Energy have independent power producers supply 400 MW of Programme with the help of the Technical University wind power in the next three years.73 However, these fig- of Denmark (RISØ) embarked on the elaboration of ures are no official, binding targets.

70 SECCP 2006 71 The study was conducted by DIgSILENT. A final report will be made available by November 2009 on the TERNA website (www.gtz.de/wind) 72 DME 2009 73 WWEA 2009 SOUTH AFRICA 275

Permission procedure kV reinforcements and possibly through the introduction As of now there is no specific permission procedure for of high-voltage direct current (HVDC) into the Cape wind energy projects, which means guidelines described network. These plans, however, need to be developed in in chapter on framework conditions for renewable ener- an integrated manner, taking into account possible new gies apply. generation options for the Cape networks. Eskom’s other transmission strengthening projects include: Grid expansion plans As part of the expansion programme up to 2026, ESKOM • Platinum Basin - Expansions include the development introduced a strengthening of the transmission system to of a new transmission line and three new substations meet rising electricity demand. The strengthening of the in Brits, Steelpoort and Rustenburg. Construction of transmission system into the Cape has been ongoing for the Apollo-Dinaledi line is underway. some time. Since 2002, work has been done on strength- • Eastern Cape (Southern grid) – Project entails the ening the North-of-Hydra part of the system which the construction of a new 407 km 400 kV line between lines are coming into the major Hydra Substation at De Beta and Delphi substations, expansion to Grassridge Aar in central South Africa. Work is currently being un- substation and installation of an additional 400 / 132 dertaken on the South of-Hydra part of the system and kV, 500 MVA transformer. the Southern Cape grid. In the main corridor between • Vaal Triangle - Project improving backup supply with the Free State and the Western Cape, installations of 400 the best technical and economical solution to prob- kV capacitor banks are currently under way. The expected lems in the Vaal Triangle area. completion date of all this work is mid-2007. Additional • KwaZulu-Natal - Expansions, expected to be approved activities aimed at reducing losses and increasing transfer in 2007, will include the construction of a 200 km 765 capacity is already under way. kV line, to be run at 400 kV, between Majuba Power The next phase will include the Cape project entailing the Station and Umfolozi substation. building of an additional 1 450 km of 765 kV power lines • Johannesburg North - Construction on the substation is to strengthen the existing system. The line runs from Zeus complete and provides 400 kV in-feed to the network, in Mpumalanga to the new Omega substation in Cape which strengthens the network supplying the area.74 Town and entails an R 6.3 billion investment. In terms of the current schedules, the proposed infrastructure is ex- Current use of Wind Energy and Project Pipeline pected to be in service by 2010. In 2009, the installed capacity of wind energy accounts Beyond the immediate transmission infrastructure plans, for 8.4 MW (end of 2008).75 South Africa is still at a various options are being considered to further strengthen pilot or demonstration stage and has implemented two the transmission grid through the implementation of 765 projects listed in table 13.

TABLE 13: LIST OF WIND POWER PROJECTS IN OPERATION IN SOUTH AFRICA Name Turbine Output Commission- Financing Operating ing date (R million) company Darling Independent 4 x 1.3 MW Fuhrländer 5.2 MW 2007 70 Darling IPP Power Producer* (DARLIPP) Klipheuwel 2 x Vestas, 1 Jeumont 3.2 MW 2002 42 Eskom demonstration wind farm Source: AFRIWEA 2009 * DME 2005

74 Eskom 2007 75 WWEA 2009 SOUTH AFRICA 276

In 2002, Eskom installed the first 3 wind turbines in the Business Climate country for demonstration purposes in Klipheuwel near Market players Cape Town. Amongst the »wind seekers« there are also few experi- In June 2000, the Minister of Minerals and Energy sup- enced local and international project developers active in ported the declaration of the Darling Wind Farm as a Na- the country, see section »Private sector development« tional Demonstration Project: Knowledge, experience and below. lessons learned through »learning by doing« implementation of the Darling Wind farm will contribute to test and / Legal conditions or inform decisions around replicable new and /or novel So far, a missing coherent framework and cheap electric- approaches to recognise energy and environmental prob- ity prices and a lack of support instruments prevented lems and acts as an example for replication to the public. project development. This is going to change however After a range of delays caused by technical and bureaucratic with the implementation of the REFIT that provides problems, the Darling wind farm became operational end higher incentives for wind energy than the German EEG of 2007 as the first wind IPP of the continent. Plans exist (Renewable Energy Act). to expand the wind farm to 13 MW and beyond. After this rather slow uptake of wind energy, interest of national and international project developers has increased Private sector development significantly in the last two years.76 After the publication Due to the high level of the mechanical engineering in- of the REFIT guidelines by NERSA, this culminated in dustry, South Africa has in principle the capability to a »wind rush« leading to grid connection applications manufacture almost all of the components of a wind with a total amount of 3 800 MW solely in the Western power plant. Therefore, South Africa hopes to make a Cape Province and with estimated 5 400 MW in the en- breakthrough in the technological development of wind tire country (July 2009 data). Areas with major project energy. development activities are shown in the figure below: The most important local manufacturers are: FIGURE 5: SOUTHE AFRICA • Kestrel (small wind turbines)77 is the only manufacturer of micro wind turbines in South Africa. It manufactures and sells Kestrel-Eveready products from their manufacturing plant in Port Elizabeth. Kestrel has distributors around South Africa and the world. Northern Cape • Palmtree Power / Adventure Power78 is a local manufacturer based in Nelspruit with production facilities near Pretoria manufacturing gearless 300 kW turbines. The company aims to increase capacity to 1.5 MW within the next two years. Their first pilot plant is running in Mozambique near Maputo. • Isivunguvungu Wind Energy Converter (I_WEC)79 Forest Areas Eastern Cape plans the establishment of a production facility for 2.5 Western Cape MW turbines near Cape Town. Data Source: ESKOM 2009

76 Eskom 2009 77 www.kestrelwind.co.za/ 78 http://www.okhela.com/serv_wind.htm 79 http://i-wec.com/ SOUTH AFRICA 277

Proof of existing component manufacturing capacity is Financing possibilities the fact that the towers for the two wind power projects Financing possibilities exist to develop wind power in Klipheuwel and Darling were manufactured locally. projects in South Africa. For instance, the Renewable Energy Finance and Subsidy Office (REFSO) manages Human resources and education renewable energy subsidies (see chapter on framework The experimental wind farm at Klipheuwel (2002) on conditions for renewable energies ).82 Moreover, there are the West Coast near Cape Town is owned by Eskom’s possibilities for foreign companies to develop joint ven- Resources and Strategy Division. Construction and ture with South African wind farm developers in order to ongoing research is managed on their behalf by Eskom build wind farm power plants such as the Irish company Enterprises TSI (Technology Services International). Mainstream Renewable Power. ESKOM’s Generation Division was operating and main- Financing possibilities also exist via the Energy Develop- taining the turbines during the three year research phase. ment Corporation (EDC) of the Central Energy Fund This demonstration project had the objective to train lo- (see chapter on market actors) and via the Development cal employees. Bank of Southern Africa (DBSA). Development grants for the initial stages of a project are • In addition to Eskom in-house experience gained available via the Renewable Energy Market Transforma- through the demonstration project, there are various tion Project (REMT) described in chapter on market research institutes at universities with a focus on re- actors and via the Industrial Development Corporation newable energies, e. g. (IDC), The IDC is a self-financing, national develop- • the Centre for Renewable and Sustainable Energy ment finance institution with the aim to promote entre- Studies (CRSES) at Stellenbosch University80 acts as preneurship through the building of competitive indus- the national Renewable Energy Hub (government in- tries and enterprises based on sound business principles. itiative to concentrate RE research in one institution Although not traditionally an area of focus, IDC is start- (hub) with various other institution (spokes) attached ing to take a much greater interest in the energy sector. to it). CRSES has a technical focus with dedicated In addition, South African private banks (e. g. Investec, wind courses. Macquarie) are seriously considering to become active in • the Energy Research Centre (ERC) at University of the wind energy market. Cape Town81 focuses on policy-oriented economic modelling of energy and climate issues. Constraints • dedicated programmes exist at various other Universi- Constraints exist because of uncertainties regarding the ties, e. g. University of Johannesburg is leading world- concrete implementation of the REFIT. This refers for wide in PV thin film technology research. example to the issue of who has to pay for the grid-connection costs and whether a certain capacity limit will be Thus, South Africa has the necessary skills base to ade- introduced that would set a cap on the amount of MW quately operate and maintain the specialized equipment in eligible for the proposed tariffs, which inter alia would the initial phases. However, with an increased utilization of also entail long and costly pre-qualification procedures. renewable energies, this base will have to be broadened. Furthermore, concrete and consistent guidelines for the whole permitting process are missing, creating again uncertainties among project developers and investors.

80 http://academic.sun.ac.za/crses/ 82 DME 2006 81 http://www.erc.uct.ac.za/ SOUTH AFRICA 278

12.7 Contacts and Addresses ESKOM Megawatt Park Department of Energy P.O. Box 1091 Private Bag X59 Johannesburg 2001 Pretoria 0001 Tel.: +27 (11) 800 81 11 Tel.: +27 (12) 317 80 00 Fax: +27 (11) 800 43 38 Fax: +27 (12) 322 34 16 E-mail: [email protected] Internet: www.dme.gov.za Internet: www.eskom.co.za

National Energy Regulator Central Energy Fund (CEF) of South Africa (NERSA) P.O. Box 786141 P.O. Box 40343 Sandton 2146 Arcadia 0007 Tel.: +27 (11) 280 03 00 Tel.: +27 (12) 401 46 00 Fax: +27 (11) 880 98 03 Fax: +27 (12) 401 47 00 E-mail: [email protected] E-mail: [email protected] Internet: www.cef.org.za Internet: www.nersa.org.za Sustainable Energy Society African Wind Energy Association (AfriWEA) of Southern Africa (SESSA) P.O. Box 313 P.O. Box 868 Darling 7345 Ferndale 2160 Tel./Fax: +27 (22) 492 30 95 Tel.: +27 (12) 789 13 84 E-mail: [email protected] Fax: +27 (12) 789 13 85 Internet: www.afriwea.org E-mail: [email protected] Internet: www.sessa.org.za South African National Energy Association (SANEA) Southern African – German Chamber P.O. Box 868 of Commerce and Industry Ferndale 2160 P.O. Box 87078 Tel.: +27 (11) 789 13 84 Houghton 2041 Fax: +27 (11) 789 13 85 Tel.: +27 (11) 486 27 75 Internet: www.sanea.org.za Fax +27 (11) 486 36 25 E-mail: [email protected] Energy Research Centre Internet: www.germanchamber.co.za University of Cape Town Private Bag Rondebusch 7701 Tel.: +27 (21) 650 32 30 Fax: +27 (21) 650 28 30 E-mail: [email protected] Internet: www.erc.uct.ac.za SOUTH AFRICA 279

Development Bank of Southern Africa 12.8 Information sources P.O. Box 1234 Halfway House BBC: Country profile: South Africa, 2009 Midrand 1685 (http://news.bbc.co.uk/2/hi/africa/country_pro- Tel.: +27 (11) 313 39 11 files/1071886.stm) Retrieved on 1/09/2009 Fax: +27 (11) 313 30 86 Internet: www.dbsa.org Bethlehem Hydro, 2009 (http://www.bethlehemhydro. co.za/) Industrial Development Corporation of South Africa Ltd. Brent and Rogers: Renewable rural electrification: Sus- P.O. Box 784055 tainability assessment of mini-hybrid off-grid techno- Sandton 2146 logical systems in the African context, 2009 (http://re- Tel.: +27 (11) 269 30 00 searchspace.csir.co.za/dspace/bitstream/10204/3404/1/ Fax: +27 (11) 269 31 16 Brent1_2009.pdf ) Retrieved on 1/09/2009 Internet: www.idc.co.za CIA – Central Intelligence Agency: The World Factbook, Embassy of the Republic South Africa. 2009 (https://www.cia.gov/index.htmll) of South Africa in Germany Retrieved on 1/09/2009 Tiergartenstr. 18 10785 Berlin City Power: Current Electricity Tariffs July 2009 Tel.: +49 (30) 220 73-0 (http://www.citypower.co.za/tariffs/Electricity%20Tar- Fax: +49 (30) 220 73-190 iff%20for%2001%20July%202009.pdf ) Retrieved on E-mail: [email protected] 1/09/2009 Internet: www.suedafrika.org Cooper Dean: Alleviation of Poverty Through the Pro- GTZ Office Pretoria vision of Local Energy Services APPLES, 2006 (http:// P.O. Box 12732 www.applesonline.info/fileadmin/applesonline/user/ Hatfield 0028 docs/Deliverable8.pdf ) Tel.: +27 (12) 342 01 81 Fax: +27 (12) 342 01 85 DA-Democratic Alliance: Electricity sector reform a DA E-mail: [email protected] discussion document April 2008; 2008 Internet: www.gtz.de (http://da.org.za/docs/625/Electricitysectorreform_ document.pdf ) Retrieved on 1/09/2009

DBSA-Development Bank of Southern Africa: Renewa- ble Energy Market Transformation Project (http://www. dbsa.org/Projects/Documents/RENEWABLE%20EN- ERGY%20MARKET%20TRANSFORMATION%20 BRIEF%2020090512.pdf ) SOUTH AFRICA 280

D:EA&DP/GTZ 2009: Regional Regulatory Action EIA – Energy Information Administration: Country Plan (RRAP) for the Western Cape, draft version Oct. Analysis Briefs 2008 (http://tonto.eia.doe.gov/coun- 2009 (to be published in December 2009 on www.gtz. try/country_energy_data.cfm?fips=SF) Retrieved on de/wind) 1/09/2009

DME (renamed Department of Energy): Eskom: • Electricity Distribution Industry, 2009 ( http://www. • Annual Report 2009, 2009 dme.gov.za/energy/elect_distrib.stm) Retrieved on • Tariffs and charges, 2009 1/09/2009 • Electricity pricing policy, 2008 • Overview: Introduction to the DNA, 2009 ( http:// • Summary of Wind Potential in the Western Cape, July www.dme.gov.za/dna/index.stm) 2009 • Renewable Energy Summit, March 2009 ( http:// (http://www.eskom.co.za/live/index.php) Retrieved on www.dme.gov.za/pdfs/energy/renewable/Sum- 1/09/2009 mit%20Presentation/Day%201/SAWEP.ppt) • National Energy Efficiency Strategy of the Republic GNESD: SAWEP - United Nations Development Pro- of South Africa, 2008 (http://us-cdn.creamerme- gramme Global Environment Facility Full-Size Project dia.co.za/assets/articles/attachments/21736_no- Brief, 2004 tice_580.pdf ) • Renewable Energy Finance and Subsidy Office, 2006 Government Gazette – Republic of South Africa: No. 34 • Darling Wind Farm, 2005 ( http://www.dme.gov. of 2008: National Energy Act, 2008. (http://www.info. za/pdfs/energy/240605_darling_wind_farm_ap- gov.za/view/DownloadFileAction?id=92826) proved_by_ho.pdf ) • White Paper on Renewable Energy Policy of the Re- GTZ – Deutsche Gesellschaft für Technische Zusamme- public of South Africa, 2003 (http://www.dme.gov. narbeit: za/pdfs/energy/planning/wp_energy_policy_1998. • German Technical Co-operation with South Africa, 2007 pdf ) (http://www.gtz.de/de/dokumente/en-gtz-south- • White Paper on the Energy Policy, 1998 ( http:// africa.pdf ) Retrieved on 1/09/2009 www.dme.gov.za/pdfs/energy/planning/wp_ener- • Newsletter, GTZ Energy News No. 11, TERNA web- gy_policy_1998.pdf ) site, September 2009 • DME, Eskom, CSIR, 2001 South African Renewable (http://www.gtz.de/en/themen/umwelt-infrastruktur/ Energy Resource Database (http://www.sabregen. energie/24751.htm ) co.za/) EIA-Energy Information Administration: Country Brief- DPE: Department Public Enterprises Republic of South South Africa, 2008 Africa: NERSA DECISION ON RENEWABLE ENERGY FEED-IN TARIFF (REFIT); March 2009 ESKOM: Eskom Build Programme, 2007 (http:// (http://www.dpe.gov.za/home.asp?id=1065) Retrieved www.dpe.gov.za/res/EskomBill26.pdf ) Retrieved on on 1/09/2009 1/09/2009

Government Gazette South Africa (SA): No. 4 of 2006: Electricity Regulation Act, 2006. SOUTH AFRICA 281

IAEA – International Atomic Energy Agency: Energy • Electricity Supply Statistics, Report from 1998 and Environment Data Reference Bank (EEDRB), 2002 to 2007(http://www.nersa.org.za/documents/Ar- (http://www.iaea.org/inisnkm/nkm/aws/eedrb/data/ chivedESSDocuments.aspx) ZA-enimco.html) Retrieved on 1/09/2009 Newser: Electricity prices up by 31.3 %; Article, June 2009 IMF – International Monetary Found: Report for Select- (http://www.inthenews.co.za/2009/06/25/electricity- ed Countries and Subjects: South Africa, 2009 (http:// prices-up-by-313/) Retrieved on 1/09/2009 www.imf.org/) Retrieved on 1/09/2009 Njobeni: Southern Africa: New Energy Projects Blow- ISES – The International Solar Energy Society – A Glo- ing in the Wind; Article, 2009 (http://allafrica.com/sto- bal Alliance: Country Case study - South Africa, 1999 ries/200908050597.html) Retrieved on 1 / 09 / 2009 (http://www.ises.org/sepconew/Pages/CountryCaseS- tudySA/2.html) Retrieved on 1/09/2009 RECIPES – Renewable Energy in emerging and developing countries: Kayema Group: Electricity prices in South Africa could • Country energy information – South Africa, 2006 increase more than threefold over the next three years; Ar- • Deploying renewables, 2008 ticle, July 2009 (http://www.kayema.com/infrastructure/ electricity-prices-in-south-africa-could-increase-more- REEEP – The Renewable Energy & Energy Efficiency than-threefold-over-the-next-three-years/)Retrieved on Partnership: Policy DB Details: South Africa Energy 1/09/2009 Policy and Regulatory Review for 2009, 2009. (http:// reeep-sa.org/regionalreviews) Retrieved on 1/09/2009 MBendi Information services: Electrical Power in South Africa- Overview, 2003 (http://www.mbendi.com/indy/ Rice: Kenya to build Africa’s biggest windfarm; Ar- powr/af/sa/p0005.htm) Retrieved on 1/09/2009 ticle, 2009 (http://www.peopleandplanet.net/pdoc. php?id=3603) Retrieved on 1/09/2009 NERSA- National Energy Regulator of South Africa: • South Africa Renewable Energy Feed-in Tariff (RE- SAinfo: The languages of South Africa; 2009 FIT) Regulatory Guidelines 26 March 2009; 2009 (http://www.southafrica.info/about/people/language. (http://www.nersa.org.za/UploadedFiles/Electrici- htm) Retrieved on 1/09/2009 tyDocuments/REFIT%20Guidelines.pdf ) • Eskom’s Multi Year Price Determination (MYPD) SOER- State of the Environment: Renewable energy, Revised Rules on the Treatment on Primary Energy 2005 (http://soer.deat.gov.za/themes.aspx?m=406 ) Re- Cost Variances, Capital Expenditure Cost Variances, trieved on 1/09/2009 Valuation of the Regulatory Asset Base and Triggers for a Re-opener, March 2009 (http://www.nersa. SECCP: The potential contribution of renewable ener- org.za/UploadedFiles/ElectricityDocuments/Es- gy in South Africa, 2006 (http://www.earthlife.org.za/ koms%20Multi%20Year%20Price%20Determina- wordpress/wp-content/uploads/2009/04/potential-of- tion%20_MYPD_%20Revised%20Rules%20_3_. re-in-sa-feb06.pdf ) Retrieved on 1/09/2009 pdf ) Retrieved on 1/09/2009 SOUTH AFRICA 282

TheBioenergySite News Desk: Joint Venture to Build WWEA - World Wind Energy Association: Wind En- Wind Farms in South Africa; Article, March 2009 ergy International - Country report 2009, South Africa. (http://www.thebioenergysite.com/news/3356/joint- (http://www.wwindea.org/home/index.php) Retrieved venture-to-build-wind-farms-in-south-africa) Retrieved on 1/09/2009 on 1/09/2009 Wind Finder: Top 25 gemiddeld windsnelheid all UNDP: Current list of projects in South Africa, 2009 time year/month statistic in South Africa, 2008 (http://www.undp.org.za/index.php/the-country-pro- (http://www.windfinder.com/wind-cgi/top_surfs- gramme/current-list-of-projects-in-south-africa) Re- pots.pl?mode=statistic&country=za) Retrieved on trieved on 1/09/2009 1/09/2009

UNDP RISØ: CDM pipeline overview, Last visited WiseGeek: What are Capital Goods? 2009 (http://www. 24/08/2009 (http://uneprisoe.org/) Retrieved on wisegeek.com/what-are-capital-goods.htm) Retrieved on 1/09/2009 1/09/2009 25 Degrees in Africa - Renewable Energy: Looking for gold UNIDO: CLEAN DEVELOPMENT MECHANISM in the sky- wind potential on SA shores; Volume 3, Journal (CDM) investor guide, 2003 (http://www.unido.org/ 4 - December 2008 (http://www.25degrees.net/index. fileadmin/media/documents/pdf/Energy_Environ- php?option=com_zine&view=article&id=41:looking- ment/CDM_guide_SouthAfrica_.pdf ) Retrieved on for-gold-in-the-sky&Itemid=81) Retrieved on 1/09/2009 1/09/2009)

Werner, Daniel: DIPLOMARBEIT - Der südafrika- nische Stromsektor unter ökologischem Problemdruck, May 2007 TUNISIA 283

List of abbreviations

AECID Agencia Española de Cooperación GTAI German Trade and Invest Internacional para el Desarrollo GTZ Deutsche Gesellschaft für AfDB African Development Bank Technische Zusammenarbeit AfriWEA African Wind Energy Association GWh Gigawatt hours ANER Agence Nationale des IEA International Energy Agency Energies Renouvelables IGCE Large Energy Consuming Industries ANME Agence Nationale pour la Maîtrise IGCElec Large Energy Consuming Industries de l’Energie IHK Industrie – und Handelskammer BMZ German Federal Ministry for Economic IMET Italian Ministry of the Cooperation and Development (Bunde- Environment and Territory sministerium für wirtschaftliche Zusam- IMF International Monetary Fund menarbeit und Entwicklung) IPP Independent Power Producer Btu British thermal unit IRENA International Renewable Energy Agency CCGT Combined Cycle Gas Turbine KCC Kyoto Coaching Cologne CDM Clean Development Mechanism kV Kilovolt CENER Centro Nacional de LPG Liquefied Petroleum Gas Energías Renovables MEDREC Mediterranean Renewable Energy CER Certified Emission Reduction Centre Mediterranean Centre of CIA Central Intelligence Agency Renewable Energies CIPIE Commission Interdépartementale de la MW Megawatt Production Indépendante d’Electricité OECD Organization for Economic CITET Centre International de Technologies Co-operation and Development de l’Environnement de Tunis OME Observatoire Méditerranéen CRTEn Research and Technology de l‘Energie Center of Energy PDD Project Design Document CSPIE Commission Supérieure de la PIN Project Idea Note Production Indépendante d’Electricité PMN Programme de Mise à Niveau DEG Deutsche Investitions- und PoA Programme of Activities Entwicklungsgesellschaft PPP Public-Private Partnership EE Energy Efficiency PV Photovoltaic EIA Energy Information Administration RE Renewable Energies EU European Union REN21 Renewable Energy Policy Network FNME National Fund for for the 21st Century Energy Conservation SME Small and middle sized company GDP Gross Domestic Product SOTACIB Tunisian cement producer GEF Global Environment Facility STEG Société Tunisienne GIS Geographic Information System d’Electricité et du Gaz GNESD Global Network on Energy TD Tunisian dinar for Sustainable Development TMIE Tunisian Ministry of Industry and Energy TUNISIA 284

TND Tunisian dinar UNDP United Nations Development Programme UNEP United Nations Environmental Programme UNEP/DTIE United Nations Environment Programme, Division of Technology, Industry and Economics AHK Auslandshandelskammer (German Chamber of Commerce) DNA Designated National Authority IGCE Independent Government Cost Estimate VAT Value-added tax TUNISIA 285

13.1 Introduction

FIGURE 1: the climate is arid throughout the year. Blowing from the TUNISIA desert towards the Mediterranean, the Scirocco wind is very common in spring and autumn and usually reaches the greatest wind speeds in March and in November with a maximum of 100 km / h.

The official language in Tunisia is Arabic with French as the second language. The form of government of Tunisia is a presidential republic. Backed up by a constantly growing economy in recent years, the Tunisian government is considered comparably stable characterized by political pluralism. Military does not interfere with politics. Tuni- sians foreign policy is oriented towards the West. In politics more than 20 % of women are present, fundamentalist Islam is being rejected.1 Tunisia is a middle-income country with about 80 % of the population benefitting form health- and social insurance. Since 1996 Tunisia runs a program of economic liberalization and structural adjustment supported by the Inter- Data Source: CGIAR (2004) national Monetary Fund (IMF), the World Bank and the European Union (EU). The EU represents the first trading Tunisia is located in Northern Africa bordering Algeria partner of Tunisia. As one of the European Union’s most and Libya. Tunisia’s coast to the Mediterranean Sea repre- established trading partners in the Mediterranean region, sents its northern and most of the eastern border (see fig- Tunisia has signed an Association Agreement and entered ure 1). Consequently, in the northern part and along the a free trade area with the EU.

TABLE 1: KEY STATISTICS; 2008 DATA Area Population GDP GDP / capita Export Import Currency 163 155 km2 10.3 Mio 26 518 5 372 € 6.27 billion € 15.8 billion € 1 Tunisian million € dinar (TND) = 0.55 €

Source: CIA Factbook eastern coast Mediterranean climate is prevalent. In the Tunisia is a member of the following organizations: interior the climate becomes more Saharan-continental as precipitation significantly declines. The Atlas Mountains • African Union are present in the northern part of the country and range • Arab League from south-west to north-east. To the south of the Atlas • Arab Maghreb Union • Mediterranean Dialogue Group

1 CIA 2009 TUNISIA | 286

• Organization of the Islamic Conference FIGURE 2: • United Nations TOTAL PRIMARY ENERGY SUPPLY TUNISIA, 2006: 365.9 PJ • World Trade Organization • World Bank 144.1 48.6 • International Monetary Fund 39 % 13 %

0.3 TABLE 2: 0 % GDP OF TUNISIA

2006 2007 2008 0.1 GDP, 49.28 52.49 54.79 0 % (in billion 2008 -€)

Source: CIA Factbook 97.1 75.6 27 % 21 % In 2008, the inflation rate was 5 %.2 In 2006, 4.2 % of the Tunisian population lived in poverty.3 Crude Oil Petroleum Products Gas Combustibles Renewables Hydro (0,1%) and waste Geothermal, 13.2 Energy Market solar etc. (0.0 %) (Source: IEA 2008) Overview Energy Market The Tunisian primary energy supply has increased rough- TABLE 3: ENERGY CONSUMPTION ACCORDING TO END USER SECTORS (GWH) ly linear in the past and was around 80 PJ in 1970. The GWh ktoe % share of coal and peat has always been minimal and by Mining 366 31.5 5.4 now reached zero, whereas the share of oil, including crude Food and Tabacco 530 45.6 7.9 oil and petroleum products, has always been the largest. Textiles & clothing 537 46.2 8.0 However, the absolute amount has not increased signifi- Manufacture of cantly in the past 15 years reaching 365.9 PJ in 2006. The paper & publishing 133 11.4 2.0 strongest growth can be observed in the gas sector which Chemical & petroleum 289 24.8 4.3 by 2006 has reached 39 % of the primary energy supply. Manufacture of building materials 1292 111.1 19.1 The amount of combustible renewables and waste has in- metal industries 219 18.8 3.2 creased slightly to the value of 48.6 PJ in 2006, represent- Other manufacturing 764 65.7 11.3 ing 13 % of the primary energy supply. The 2006 shares Agricultural pumping 452 38.9 6.7 can be seen in the following figure. Pumping (water & sanitation) 515 44.3 7.6 Demand for energy in Tunisia is rising as a result of the Transport & growing economy. Compared to its neighbouring coun- communications 268 23.1 4.0 tries, domestic fossil energy sources in Tunisia are limited. Tourism 641 55.1 9.5 Yet, increasing effort in oil and gas production resulted Services 709 61 10.5 Local STEG*, energy in 86 210 barrels per day in 2007 compared to 76 900 meters, LPG & other 33 0.1 0.5 4 barrels per day in 2005. Further, Tunisia receives natural Total 6 748 577.4 gas from a pipeline between Algeria and Italy that runs (Source: STEG 2008) across Tunisian territory. Jointly, in 2007 this led to an * Société Tunisienne d´Electricité et du Gaz (STEG)

2 CIA 2009 3 Auswärtiges Amt 2009 4 CIA 2009 TUNISIA | 287

TABLE 4: TUNISIA’S ENERGY PRODUCTION, CONSUMPTION AND EXPORT / IMPORT-BALANCE IN 2007

Petroleum (thousand Natural Gas Coal Total Primary Energy barrels per day) (billion cubic feet) (Quadrillin Btu) Total Production 86.05 90 0 0.269 Consumption 88.5 136 0 0.334 Net Exports / Imports -2.45 -46 0 - Proved reserves (billion barrels) 0.4 2.75 - - (Source: EIA 2008)

even energy balance for the first time in recent years. Thus, FIGURE 3: the effects of rising world prices for energy were largely ELECTRICITY TRANSMISSION GRID OF TUNISIA mitigated. In Tunisia the industrial sector is the largest energy consumer which is illustrated in table 3.

In 2007, Tunisia’s production of energy in relation to its import /export-balance was as shown in table 4:

The Electricity Grid The transmission grid of Tunisia, run by the Société Tu- nisienne d’Electricité et du Gaz (STEG), has been extended constantly throughout recent years. In 2008 the low voltage grid is being operated at 90 kV and sums up to a total of 1 108 km. The medium voltage transmission lines at 150 kV amount to 1 812 km length and the high voltage lines at 225 kV sum up to a total of 2 741 km. In 2005, the 90 kV lines amounted to 1 071 km, 150 kV lines to 1 728 Data Source: CGIAR (2004) km and the 225 kV grid consisted of 2 532 km. The growing economy of Tunisia and rising living stand- The transmission grid is connected to the European grid ards led to a significant increase of electricity consumption via the grids in Algeria and Morocco. To the east, the Tuni- resulting in the saturation of the grid. In addition, some sian power grid is linked with Libya. The aim is to establish power plants and facilities are no longer appropriate to the a North African interconnected grid that would extend actual load of the network. As a consequence, overload, through Egypt and Jordan as far as Syria. Further, a 400 kV high voltage sea cable to Italy is planned.5 TABLE 5: CAUSES FOR GRID LOSSES (GWH)

Grid losses are primarily due to maintenance or other in- Incidents Maintenance Total cidents. Along with the prolonging of the transmission 2006 2.159 3.345 5.504 grid, the amount of total losses has risen as displayed in 2007 2.330 3.770 6.100 table 5. 2008 2.129 4.189 6.318 Source: STEG 2008

5 STEG 2008 TUNISIA | 288

TABLE 6: INSTALLED POWER PLANT CAPACITY; TUNISIA; 2005 – 2008; MW Type of power plant 2005 2006 2007 2008 MW

Thermal (steam) power plant 1145 1090 1090 1090 Combined-cycle gas turbine 364 364 364 364 Gas turbine 1163 1163 1280 1280 Hydropower 62 62 62 62 Wind power 19 19 19 19* STEG** total 2753 2698 2815 2815 IPPs*** 498 498 498 498 Total capacity, national 3251 3196 3313 3313 (Source: STEG 2008) * According to Dodd (2008) in 2008 the third phase of Sidi Daoud wind park was commissioned, rising the installed capacity of the wind farm to 55 MW. ** Société Tunisienne d’Electricité et du Gaz (STEG) *** Independent power producers (IPPs) losses and high voltage drops occur on a frequent basis. and by imports from Algeria. 11 % of the installed capac- To address these issues, the »Electricity Distribution Net- ity comprises combined-cycle gas turbine (CCGT) power work Rehabilitation and Restructuring Project« has been plants. Independent Power Producers (IPPs) feeding elec- launched. In September 2009 the African Development tricity into the public grid account for approximately 500 Bank (AfDB) approved a loan of 87.83 million Tunisian MW (15 %) of the nationally available capacity. dinars (TND) (48.31 million €), to support financing of In 2008, the peak load in public supply was 2 467 MW the »rehabilitation and restructuring« of the national representing an increase of 51 MW compared to 2007. grid of Tunisia. The total project cost is estimated at TND By 2011, the total power generating capacity is supposed 111.66 million (61.41 million €). The project is focusing to be expanded to 4 400 MW in order to meet the grow- particularly on upgrading low voltage underground and overhead lines and medium voltage and low voltage trans- TABLE 7: ELECTRICITY CONSUMPTION OF INDIVIDUAL SECTORS IN 2006 formers. It aims at improving the reliability and safety of GWh % the electricity distribution grid.6 Industry 6 306 48

Residential 3 338 26 Installed Capacity Commercial / public services 2 578 20 The installed capacity in Tunisia totalled roughly 3 300 Agriculture / Forestry 799 6 MW. Of this, 3 232 MW (97 %) was provided by thermal Total 13 021 100 power stations, 62 MW (2 %) by hydroelectric power and Source: IEA 2008 19 MW (less than 1 %) by wind generating plants (see table 6). For electricity generation from combustible fossil fuels, 95 % is natural gas and 5 % heavy fuel. ing demand for electricity. As well as adding new thermal power plants, the government envisages renewable ener- In general, the state-owned power utility STEG has prima- gies to provide a minor share (4 %) of the added produc- rily relied on gas-fired power plants for generating electric- tion capacity. ity, fuelled by natural gas from the country’s own reserves

6 STEG 2008 TUNISIA | 289

Electricity Generation aminimum of 0.059 and a maximum of 0.113 € per kWh.10 In 2008, 14 580 GWh of electricity were produced in Tu- The Tunisian Government manages to keep electricity nisia. In 2008, a total of 13 757 GWh of electrical energy prices low by subsidising the price of natural gas to the production was fed into the power grid (STEG and IPPs). tune of twenty per cent. For a number of years now the The difference was produced and consumed by large in- cost of this state subsidy has risen sharply along with global dustrial companies without using the transmission grid market prices for crude oil, and is an increasing burden on (see also below). Compared to the 13 146 GWh of 2007, the Tunisian budget. this represents an increase of 4.6 %. In table 7 the electricity consumption in 2006 of each sector is illustrated. In Liberalization 2007 Tunisia’s the import/export-balance of electricity Until 1996 the monopoly on electricity generation and was as follows: marketing was held by the STEG. Since then, liberalization of the energy market took place TABLE 8: IMPORT / EXPORT-BALANCE OF ELECTRICITY BALANCE IN 2007 and the market was opened for Independent Power Produc- ers (IPPs). However, with a market share of 85 %, STEG Imports 145 GWh still is the biggest player in the power market. Since 1999, Exports 130 GWh it has also been permitted for gas extraction companies to Net Imports 15 GWh operate gas-fired power plants without a preceding bidding Source: IEA 2007 procedure and to sell the generated electricity to STEG. Renewable Energies Next to STEG, Large Energy Consuming Industries Currently, renewable energies play an insignificant role in (IGCElec.) were encouraged to produce power for their total energy supply. Apart from centralised electricity gen- own needs (see chapter 1.5: Legal Conditions and Sup- eration from hydropower, the use of renewable energies to port Schemes for Renewable Energies). The surplus they produce electricity is still at an early stage of development produce is fed into the national grid. Installed capacity is in Tunisia. Regarding grid-connected power plants, the contributed by the following IGCElec. companies: focus lies currently on wind energy, although utilisation • Cimenterie d’Oum Klil of solar energy for thermal purposes is also gaining im- • Cimenterie de Bizerte portance. In 2008, 62 MW of hydro power and 19 MW of • Cimenterie de Jbel Ouest wind power were installed according to the national utility • Ciments Blancs (SOTACIB) company STEG.7 Other sources speak of 55 MW installed • Cimenterie de Gabes wind energy capacity (wind park of Sidi Daoud).8 Accord- • El Fouledh ing to STEG 37.9 GWh were produced by hydro power and 39.4 GWh by wind energy each providing a market Two IPPs generate electricity for feed in as IPPs: share of about 0.4 %.9 Regarding the off-grid use of renew- • Carthage Power Company CPC (471 MW in 2008) able energies, 11 000 decentralised PV systems have been »is an independent power project formed by PSEG installed for rural electrification. Global and Marubeni Corporation. It owns and oper- An uptake of renewable energies can be expected with law ates a generation facility located in the city of Radès in 2009-7, described in more detail in chapter 1.5. northeastern Tunisia. The power plant, which meets about one-quarter of the country’s electricity needs, is Electricity Prices a combined-cycle cogeneration facility that uses natu- By regional standards, electricity prices in Tunisia are at ral gas as the primary fuel, with diesel fuel as backup. medium level. In November 2008 they ranged between Gas for the plant is sourced from Algeria and BG Tu-

7 STEG 2008 10 MED-ENEC 2008 8 Dodd 2008 9 STEG 2008 TUNISIA | 290

nisia’s Miskar concession. State-owned gas and power 13.3 Market Actors company Société Tunisienne de l’Electricité et du Gaz buys all the output under a 20-year power purchase Ministry of Industry and Energy (Ministère de agreement. PSEG sold its stake in the company in May l’Industrie, de l’Energie et des Petites et Mo- 2004 to BTU Power Company, a regional energy in- yennes Entreprises; TMIE); CSPIE and CIPIE vestment group.«11 The Directorate General for Energy of the Ministry of • Société d’Electricité d’El Bibane SEEB (27 MW in Industry and Energy is responsible for energy infrastruc- 2005, 40 expected in 2010) »is the second power plant ture planning and the implementation of national energy in Tunisia to be constructed under legislation allowing policy. Most of the state actors in the energy sector are independent power operations to utilize natural gas as accountable to the ministry. These also include two com- fuel. Electricity generated from the plant is sold to the missions: the »Commission Supérieure de la Production Tunisian national power company Société Tunisienne Indépendante d’Electricité« (Superior Commission of de l’Electricité et du Gaz under a long term power pur- Independent Electricity Production; CSPIE) and the chase contract.«12 »Commission Interdépartementale de la Production Indépendante d’Electricité« (Interdepartmental Com- Fundamental to the current development was also Law mission of Independent Electricity Production; CIPIE), No. 96-27 of 1996, which enabled private-sector involve- which were both set up in 1996. The Ministry of Agri- ment in the electricity sector. The state-owned power util- culture, Environment and Water Resources (Ministère de ity STEG was demonopolized in the field of electricity l’Agriculture et des Ressources Hydrauliques) is responsi- generation and private companies were allowed to par- ble for the exploitation of hydropower. The CSPIE decides ticipate in a bidding process to generate electricity which on the procedures and selection criteria for public tender they sell to STEG as the sole buyer. The detailed terms processes and awards contracts to IPPs. It also passes rul- and procedures for the granting of concessions to private ings on the granting of tax incentives for investors. The generating companies were laid down in ordinance no. interministerial CIPIE carries out preliminary work for 9661125 of 20 June 1996. the CSPIE by selecting projects for tendering, preparing bidding procedures, evaluating offers, flanking the con- Rural Electriﬁcation tractual negotiations between the IPPs and the Energy According to estimates by the state-owned utility com- Ministry, and securing the granting of public subsidies on pany STEG, the degree of electrification for Tunisia as a a case-by-case basis. whole was 99.5 % in 2008. In rural areas, the figure was 99 %, while 99.8 % of the urban areas had access to elec- National Agency for Energy Management (Agence tricity. Grid coverage is poorest in the southeast of the Nationale pour la Maîtrise del’Énergie - ANME) country. The high connection rate is the result of constant The former Tunisian agency for renewable energies, the efforts by the government over the past 30 years. In the Agence Nationale des Energies Renouvelables (ANER), 1970s, only 6 % of the rural population were connected to was founded in 1985. Under Law No. 2004-72 of the power grid, while around 1990 the figure was still only 2 August 2004, the national Tunisian energy agency, about 50 %. As a complementary measure along with the the Agence Nationale pour la Maîtrise de l’Energie (The expansion of the grid, the installation of more than 11 000 National Agency for Energy Management; ANME), suc- decentralised PV systems has also played a part in the high ceeded ANER and took over all its functions. ANME is electrification rates.13 accountable to the Ministry of Industry and Energy. Its tasks comprise translating Ministerial policy directives

11 2009 ABQ Zawya Ltd. 12 2009 ABQ Zawya Ltd. 13 STEG 2008 TUNISIA | 291

into practice including the safeguarding of Tunisian en- laboratories and development capacity at its disposal. A ergy supplies in the long term. The agency is meant to library and an extensive online presence serve the purpose approach this in two ways: on the one hand by working of documenting and disseminating information relating to towards a significant increase in energy efficiency, and on environmental matters. The CITET is involved in numer- the other by helping to develop new energy sources. Its ac- ous cooperation projects, including international projects. tivities range from scientific research and the preparation Together with the CITET and two other German part- of studies to training experts and raising awareness among ners, GTZ is running the IHK / GTZ Company Pool on the population, and also include engagement in interna- Environmental Technology in Tunis, which has set itself tional cooperation. Renewable energy sources are a focus the goal of supporting small and medium-sized European area of ANME´s work. The agency employs roughly 100 companies from the environmental technology sector in people, and is funded partly from the Tunisian national gaining access to the market in Tunisia and other Maghreb budget and partly from donations and external lenders. countries. The target group comprises companies with at Since 2003, the Deutsche Gesellschaft für Technische least a medium-term interest in the promotion of further Zusammenarbeit (GTZ) has worked with the ANME reaching cooperation with Tunisian partners (for example within the framework of a project on the promotion of in the form of licensing, technology cooperation or joint renewable energies and rational energy use, providing sup- ventures). port in the fields of planning, project management, quality assurance and on matters relating to innovative energy- Mediterranean Renewable Energy Centre (ME- saving technologies as well as the harnessing of renewable DREC) energy sources.14 The MEDREC has been founded in 2004 by the Italian Ministry of the Environment and Territory (IMET), the Tunisian Company of Electricity and Gas (Société TMIE and the ANME for the purpose of networking and Tunisienne d’Electricité et du Gaz – STEG) developing regional competencies through the transfer of The electricity supply business in Tunisia is dominated by technologies, training and spreading of information in the the state-owned enterprise STEG, which is accountable to field of renewable energies. The Tunis-based MEDREC the Ministry of Industry and Energy. It is still responsible is cooperating with governmental institutions of Algeria, for supplying electricity and gas to all Tunisian customers. Egypt, Libya, Morocco and Tunisia and associated with In addition to the power grids, STEG operates most of the the Global Network on Energy for Sustainable Develop- Tunisian power stations (STEG operates 85 % of Tunisia’s ment (GNESD). The steering committee is staffed by the electricity capacities, IPPs 15 %) and extracts natural gas IMET, the ANME, the Observatoire Méditerranéen de from four of the country’s five gas fields.15 l’Energie (OME) and the United Nations Environment Programme, Division of Technology, Industry and Eco- Tunis International Centre for Environmental nomics (UNEP / DTIE). Technologies (Centre International des Tech- nologies de l’Environment - CITET) 1996 saw the founding of the Centre International de 13.4 Political Framework Conditions Technologies de l’Environnement de Tunis (CITET), in the Energy Sector which has the task of disseminating and promoting environmental technologies. It is accountable to the Tunisian The documentation of energy policy is dominated by en- Ministry of the Environment. In addition to providing a ergy efficiency and renewable energies over the last dec- range of advisory and training services, it also has research ades. Efficiency and renewables are the dominant topics

14 http://www.gtz.de/de/weltweit/maghreb-naher-osten/tunesien/7705.htm 15 STEG 2008 TUNISIA | 292

in all major publications. Therefore the following chapter In February 2009, Tunisia adopted two support programs on the political framework conditions for energy focuses as a response to the world financial crisis targeted at in- on these topics. creasing the competitiveness of companies (250 mio. €) Law No. 2004-72 on the rational use of energy defines the and supporting the improvement of infrastructure (270 sensible use of energy as a national priority and as the most mio. €). To what extent the programs will influence the important element of a sustainable development policy. energy and power policies and market is unknown as of It states three principal goals: energy saving, the promo- today. tion of renewable energy and the substitution of forms of energy previously used, wherever this offers technical, economic and ecological benefits. 13.5 Framework Conditions for Rene- wable Energies Since 2005 with the adoption of above mentioned law and the creation of a national energy fund (subject of Law N° Strategies and objectives for renewable energies 2005-106) Tunisia set the political framework to increase National targets published in 2009 are to reach a 10 % energy efficiency and develop renewable energy sources. (4 % excluding biomass) renewable energy share in the Decarbonisation of the energy sector and a decoupling of primary energy consumption by 2010.21 Expert studies economic growth and GHG emissions occurred.16 Mod- state that in 2030, a 6.5 % share (excluding biomass) will erated primary energy demand growth of 2.8 % per year be achieved.22 Tunisia has signed the statute of the Inter- and the increase of the renewable share towards 4 % of the national Renewable Energy Agency (IRENA) in April consumption until 2011 are the key measures to reduce 2009. Energy policy also in regard to renewable energies GHG emissions in the energy sector. and energy efficiency is drafted mainly in the »Four Year In 2009 the ANME described the energy policy in the Programme for Energy Management 2008 – 2011«. Ex- context of the international efforts to reduce GHG emis- pected consequences of this strategy are: a reduction of sions in a detailed development guide.17 ANME aims at the subsidies granted by the State to the energy sector (in the production of energy from natural gas to reduce en- 2007, Egypt and Tunisia announced a plan to phase out ergy sector emissions. Between 2008 and 2010 contract energy subsidies), a reduction of CO2 emissions and fu- based programs in the industrial sector, roll-out of fluo- ture profits from the Clean Development Mechanisms.23 rescent energy saving lamps in the residential sector, the In 2008, Tunisia’s National Agency for Energy Conserva- certification of electric appliances, cogeneration, thermal tion released the Renewable Energy and Energy Efficiency insulation of buildings, solar water heating and wind pow- Plan. Besides contributing to the above mentioned 10 % er generation are politically set priorities for the energy target, this program is expected to result in a 20 % reduc- sector development.18 tion of energy demand by 2011. Combined information allows the conclusion that the The main renewable capacity developments are expected energy policy framework in Tunisia forms a positive en- to be 180 MW of wind energy installed by 2011.24 The vironment to increase energy efficiency and the share of government further aims to increase the installed PV en- renewable energies.19 The reduction of fossil energy con- ergy capacity to 740.000 m2 in 2008. Currently, about sumption in large energy consuming industries is an im- 300.000 m2 of PV panels have been installed.25 portant element of the national strategy, as much as the RE are given a prominent role in Tunisian energy policy. encouragement of IGCELec to install wind parks in order Large wind projects are currently developed or in the ap- to produce electricity.20 plication process. Energy efficiency is recognized as important and is being addressed in energy policies. Public

16 ANME 2009a 21 REN21 2009 17 ANME, 2009a 22 Dodd 2008 18 ANME 2009a 23 ANME 2008 19 Dodd 2008; REN21 2009 24 REN21 2009 20 ANME 2008 25 Dodd 2008 TUNISIA | 293

interventions via financial support from the state budget 362. Furthermore, investments that are realized within and the mobilization of international financial resources the framework of ANME’s responsibility, which includes have been decisive in the development of energy conserva- renewable energies, can also benefit from special, favour- tion in Tunisia.26 able conditions if they conclude a contract with ANME in which all technical, economic and financial aspects are Legal Conditions and Support Schemes for fixed. Decree 2009-362 fixes the special conditions which Renewable Energies apply to investments that are made within the field of action The legal conditions are based on Law No. 2004-72 and of ANME, thus including the use of renewable energies. its modification in 2009: Law No. 2009-7. Law No. 2004- 72 on the rational use of energy defines the sensible use of Support schemes to promote the implementation of re- energy as a national priority and as the most important newable energies and energy efficiency measures available element of a sustainable development policy. It states three in Tunisia consists of two groups of instruments: direct principal goals: energy saving, the promotion of renew- financial incentives and tax incentives.28 Capital subsidies, able energy and the substitution of forms of energy previ- grants, or rebates (once-off payments by the government ously used, wherever this offers technical, economic and or utility) are available for the energy and power market.29 ecological benefits. Article 14 lists four areas in the field of The support is available for energy audits and implemen- renewable energy which are to be treated as priority areas tation of EE measures.30 In addition, the direct financial of a national promotion program: incentives are aimed at the installation of car engine check- up stations; water heating by solar energy in the residen- 1. Expansion of wind power for electricity generation tial sector and in private enterprises; energy substitution 2. Introduction of incentives for the use of solar thermal of natural gas by renewable energies in the industrial and energy residential sector. The support for solar water heating in- 3. Use of solar energy for further electrification of rural cludes allowances amounting to 20 % of the cost of the areas, irrigation and seawater desalination solar collectors, with a maximum of one hundred (100) 4. Encouragement of the greater use of production resi- TND (=55 €) for each square metre, directly disbursed dues for energy generation and of geothermal sources to the supplier after installation of the equipments con- and small-scale hydropower plants.27 cerned.

Law No. 2009-7 modified the legal conditions designed Further financial schemes applicable to the energy and in 2004 in several aspects. Autoproducers in the indus- power market are the National Fund for EE and RE of trial or tertiary sector who install cogeneration facilities 2005 and the PROMO-ISOL program financed by the for their own use may now use STEG’s grid in order to National Fund for Energy Conservation (FNME).31 transport their electricity from the site of supply to the site However, according to sources in the country, currently of consumption. Excess electricity can be sold to STEG. PROMO-ISOL is still at the planning stage. Autoproducers in the industrial, tertiary or agricultural Finally, the »National Fund for Energy Conservation« sector, who use renewable energies, have the same rights (FNME), subject of Law N° 2005-106, dated 19 Decem- of installation, transport and excess sales. The same regula- ber 2005 offers financial resources for supporting energy tion applies to all autoproducers from renewable energy conservation and renewable energy investments in Tunisia sources who feed into the low voltage grid. The exact con- based on the granting of allowances.32 ditions for the transport, the selling of excess energy and the respective upper limits are to be fixed in decree 2009-

26 ANME 2008 28 ANME 2009 27 GTZ 2007a 29 REN21 2009 30 MED-ENEC 2008 31 GTZ 2007a 32 ANME 2009 TUNISIA | 294

Furthermore, tax incentives are in place for energy conserva- Clean Development Mechanism tion and renewable energy projects. The tax incentives are: Tunisia has ratified the Kyoto Protocol in 2003. The Tu- nisian DNA is located at the Directorate General for the • Reduction of customs duties to the minimum rate of Environment and Quality of Life of the Ministry of Envi- 10 % (from a general rate of 18 %) and exemption from ronment and Sustainable Development. But although the VAT for imported equipment used in the field of en- institutional framework for CDM projects in Tunisia is ergy conservation or of renewable energies, for which generally in place now, personnel capacity, competency and no similar equipment is manufactured locally; expertise at the involved actors still need to be improved in • Reduction of customs duties and exemption from VAT some cases.34 No specific legislation has been adopted for for imported raw materials and semi-finished products CDM projects. Another barrier for the use of CDM is that entering in the production of equipment used in the no legal and fiscal framework for the transfer of Certified field of energy conservation or of renewable energies; Emission Reductions (CERs) has been established so far. • Exemption from VAT for locally manufactured raw In addition, public institutions or state-owned enterprises materials and semi-finished products entering in the have been the main project developers so far; the private production of equipment used in the field of energy sector has hardly been engaged, mainly due to a lack of conservation or of renewable energies; information on the advantages of the CDM. In order to • Exemption from VAT for equipments manufactured overcome these problems, the Ministry for Industry, En- locally and used in the field of energy conservation or ergy and SME together with ANME published a guide on of renewable energies. CDM in the energy sector in 2009, providing background information on the Kyoto Protocol, the CDM in general Financial incentives have been significantly expanded with and on energy related CDM projects in particular.35 Rela- Décret 2009-362, mainly RE in agriculture, PV systems, tively few consultants exist in Tunisia who are able to sup- biogas plants, etc. port CDM project developers, however, training measures Policies of renewable portfolios (obligations or quota are conducted by several institutions. A list of consultants policies regarding renewable generation), public com- can be found in GTAI’s publications.36 petitive bidding for fixed renewable capacity, investment In 2006, Tunisia announced ambitious plans to host CDM tax credits, production tax credits, net metering, tradable projects; as of today, actual project development lags far renewable energy certificates are currently not applied in behind. So far, Tunisia hosts only two CDM projects with Tunisia.33 Italy as the partner country. Both projects were registered

TABLE 9: CDM-PROJECTS IN TUNISIA Annual savings IRR Registration Projekt Location Status Type (t CO2) (with CDM) year Djebel Chekir Landfill Gas Recovery and Tunis Registered Landfill gas 369 664 n.a. 2006 Flaring Project Landfill Gas Recov- ery and Flaring for 9 Many Registered Landfill gas 317 909 n.a. 2006 bundled landfills in Tunisia Solar Water Heater Programme in Tuni- Tunisia At validation Solar 9 500 n.a. - sia (CDM PoA)

(Source: UNFCCC 2009)

33 REN21 2009 34 GTAI 2009 35 see http://www.anme.nat.tn/sys_files/medias/publication/MDP/mdp_vf.pdf 36 GTAI 2009 TUNISIA | 295

in 2006 and are landfill gas recovery and flaring projects. The Global Environment Facility (GEF) a public private However, there is one CDM project activity currently un- alliance providing grant for environmental projects is ac- der validation in the field of renewable energies. In this tive in Tunisia in the field of renewable energies and espe- case, not a single project is developed but a programme cially wind energy. In 2001, the project »Promotion of of activities (PoA) that bundles the installations of solar increased use of wind energy in Tunisia« (both on- and water heaters in Tunisian households under the PROSOL off-grid wind energy) has been started with a budget of programme.37 1.1 mio €. In May 2009, another project was signed on »Private Sector Led Development of On-Grid Wind The above mentioned guide on CDM contains a list of Power in Tunisia«.38 projects with an approved Project Idea Note (PIN). Alto- gether, these 76 projects account for emission reductions Since 1975, GTZ has been active in Tunisia on behalf of of 107 600 kt CO2 of which 7 445 are attributed to wind the German Government. The two priority areas for GTZ projects and 13 714 to renewable energy projects in gen- in Tunisia are economic promotion and environmental eral. The wind projects, listed in table 9, together represent protection. The latter includes a programme on the pro- the installation of 198 MW. motion of renewable energies and energy efficiency. This programme aims at strengthening ANME´s role in the TABLE 10: energy sector, promoting private sector involvement inter WIND PROJECTS IN TUNISIA WITH APPROVED PIN alia via Public-Private Partnerships (PPP) and developing Size Project CER / Period [MW] participant year [years] instruments to promote and finance renewable energy and 35 STEG 57 700 21 energy efficiency projects. In November 2003, UNDP de- 120 STEG 200 000 21 cided to implement a project with GEF assistance under 15 SCG Gabès 21 200 21 the title »Development of On-Grid Wind Electricity in 14 CIOK 21 600 21 Tunisia for the 10th Plan«, which was designed to run 14 CJO 21 600 21 for eight years. The project began in 2004 and is being ex-

Source: ANME 2009a ecuted in cooperation with GTZ. Within the framework of this project, which targets the large-scale exploitation International Donor Activities of wind energy, it is planned that private investment of The UNDP runs several projects in the field of energy and more than US$ 100 million should be funneled into the environment. The project »Renforcement des capacités wind sector. The funds provided by GEF amount to US$ des Task Forces (IGCE et cogénération) pour la mise en 10.25 million. The share of assistance contributed by GTZ oeuvre de la stratégie de maîtrise de l’énergie en Tunisie« within the project as a whole consists of site analysis, con- with a Total budget of 786 976 US$ (2005 – 2008) in co- sultancy services to the Tunisian Government on matters operation with ANME and GTZ with significant influ- relating to grid integration, tariff structuring and prepara- ence on the energy sector development. tion of and backup support for the bidding procedure. In The African Development Bank Group realized two addition, GTZ aims at ensuring that a high quota of local mayor projects in the Tunisian Energy sector. The »Pro- value generation is achieved by providing technical assist- jet d’assainissement, de restructuration, et développement ance to domestic manufacturers. des réseaux de distribution« to support distribution and electrification plans stated in 2002. In 2003 the bank Spanish, French and Japanese development agencies show launched a second project »Assainissement des réseaux interest or have invested in the Tunisian energy sector.39 40 de distribution d’électricité« with similar goals. The French Development Agency (AFD) is contributing

37 For more information, see http://cdm.unfccc.int/ProgrammeOfActivities/ 38 GEF 2009 index.html 39 Norton Rose LLP 2009 40 GTZ expert statement 2009 TUNISIA | 296

financially to the PME program (quatrième programme 60m, 80m and 100m43 covering more than 90 % of the de mise à niveau des entreprises – PME, see section 1.5). country. The GIS further includes data on roads and en- Another example is the co-funding of the Tunisian Wind vironmentally protected areas relevant for the planning Atlas by the Spanish development agency (more details of wind farms (http://www.cener.com/es/sala_prensa/ see 1.5). nota_mapa_eolico_tunez.asp ).44 Regions with high wind energy potential can mainly be found in the northern part of Tunisia, but also in cen- 13.6 Market potential for wind energy tral and southern regions. In northern and north-eastern areas, wind measurements revealed wind speeds between Wind energy potential 7 and 10 m/s.45 For example, at the Jebel Sidi Abderrah- Various organisations (STEG, GTZ, AECID, UNDP) mane location in the region of Cap Bon (the peninsula in have conducted, financed or promoted measurements to the Northwest of Tunesia close to L’Ariana), where STEG investigate possible locations for wind farms in Tunisia. measured average wind speeds of over 10 m/s at a height of GTZ together with ANER has examined some locations 45 m. In the region of Bizerte and Nabeul (on the southern in more detail to determine their suitability for wind coast of the peninsula in the Northwest of Tunesia) as well farms. These sites include Enfida on the east coast, Zargis as in the central area and the Kaserine south (Tataouine, south of the island of Djerba, and Cap Negro on the north Medenine, Gabes) wind speeds exceed 7 m /sec at 60 m coast. With support from the United Nations Develop- height46 (e.g. at Métline (on the northern coast close to ment Programme (UNDP), locations were evaluated on Bizerte) with an average of 9 m /s at a height of 30 m). the Cap Bon peninsula, a plateau south of Thala in the centre of the country, and a site near Kebeli in southern Framework Conditions for Wind Energy Tunisia. Higher use of wind energy has been declared a primary In April 2009, a wind atlas of Tunisia has been presented goal of Tunisia’s energy development programme since within the framework of a conference that was jointly or- 2001. In the framework of the 10th development plan, ganized by the Tunisian Ministry of Industry and Energy the Tunisian government has committed itself to the con- and the Embassy of Spain. Financially supported by the struction of 120 MW until 2007. This aim has not been Spanish Agencia Española de Cooperación Internacional reached yet. para el Desarrollo (AECID) and the government of Na- Beyond that, the 11th development plan (covering the varra, it has been implemented by the Tunisian national period of 2008 – 2011) aims at an additional installation energy agency ANME in cooperation with the Spanish of 200 MW by private investors on a purely competitive Centro Nacional de Energías Renovables (CENER).41 basis. The implementation of the 11th plan is supported The atlas is based on meteorological measurements (wind, by the GEF Project »Private Sector Led Development temperature and pressure) that have been carried out on of On-Grid Wind Power in Tunisia« which is being ex- 17 masts at 60, 80 and 100 m heights over the period of ecuted by the National Agency for Energy Management one year. Based on these data a wind map with a spatial (ANME).47 The planned construction is to be supported resolution of 1km x 1km has been modelled. Utilizing by production-dependent financial assistance in the first data of another 19 meteorological stations of the Na- five years of operation. Based on avoided costs of 0.037 tional Meteorological Institute of Tunis, this map has TD / kWh and 35 % availability of the wind farm, at been validated.42 The wind atlas of Tunisia is presented present the additional costs are estimated at two to three in a Geographic Information System (GIS) - format and US cents per kWh, about a quarter of which are to be cov- is capable of showing wind data layers at heights of 10m, ered by GEF funds.

41 AECID 2009 43 AECID 2009 42 CENER 2009 44 CENER 2009 45 AfriWEA 2008 46 CENER 2009 47 GEF 2009 TUNISIA | 297

Further, GTZ is supporting ANME in promoting the ap- • Preliminary evaluation of the sites plication of renewable energies in Tunisia within a project • Installation of the measurement masts and collection running from 2003 to 2012 by means of improving the of the wind data terms for private sector involvement and developing fi- • Mobilization of experts nancing instruments.48 ANME sets the following targets • Giving technical support to implement studies for the installation of wind power: • Capacity building of IGCE in the field of wind energy and CDM (support to Project Idea Note, Project TABLE 11: WIND ENERGY TARGETS BY ANME Design Document and promotion at international (INSTALLED CAPACITY IN MW) level). Year Objectives

2011 200 MW All RE installations are eligible for accessing the grid for 2020 1 100 MW feed-in and transmission for auto-production purposes. 2030 1 800 MW Transmission fees are set by the Ministry of Energy; ex- Source: ANME cess electricity not consumed by the producer may be sold exclusively to STEG receiving the standard high voltage The threshold that limits the development goals of wind electricity tariff set by the utility. However, feed-in of ex- energy by 2011 is defined by the capability of wind power cess electricity is limited to 30 % of the annual produc- integration into the Tunisian grid, which according to tion of the wind park.53 Additionally, a programme was STEG amounts to 200 MW only.49 To address grid-re- introduced by the Ministry for Energy (no. eight of the lated issues, interconnections of the Tunisian power grid eight programmes in the field of energy) supporting the to the grids of Algeria, Libya and European countries are auto-production of electricity through renewable energies planned. aiming at households and enterprises.54 In April 2009, plans to connect the Tunisian power grid to the Italian grid have been jointly presented by the Tu- Current use of wind energy and project pipeline nisian Minister of Energy and the Italian Ministry of the Although initial experience with small turbines in Tunisia Environment. These plans will be promoted by the Medi- was gained in the early 1980s, commercial use of wind terranean Centre of Renewable Energies (MEDREC), power for electricity generation only started after the year established by the Italian ministry of the environment 2000. Before that, wind energy has mainly been used on and the Tunisian ministries of energy and environment, a decentralised basis, for example for pumping irrigation in cooperation with the United Nations Energy Program water in remote regions. Up to now only one wind farm (UNEP) in 2004. Technically, a 400 kV (1 000 MW) sea with an installed capacity of 55 MW (Sidi Daoud) is in cable should link the Tunisian and the Italian grid.50 operation. Further projects are planned (see table 11). Preparations are also being made to encourage large-scale industrial consumers (IGCElec) to use wind energy to The current Tunisian wind energy market is dominated produce their own electricity (see chapter 1.5). The cor- by STEG. The Sidi Daoud wind farm has been supplied responding legislation is being developed to grant the with turbines produced by Made which is a subsidiary of right of selling any surplus power to STEG at a fixed tariff Gamesa. Furthermore, Gamesa has won a tender issued by (TND 0.08 / kWh or € 0.044 / kWh).51 The energy sold STEG to supply 91 wind turbines for the two wind farms is limited to 30 % of the annual production of the respec- of Métline and Kchabta. According to STEG, the contract tive wind park.52 Further, ANME is running a program to of financing these projects has been signed in December support IGCElec with: 2008.55

48 GTZ 2007b 53 ANME 2008, MED-ENEC 2008 49 STEG 2008 54 ANME 2009 50 Dodd 2008 55 STEG 2008 51 Dodd 2008 52 GTZ 2007a TUNISIA | 298

TABLE 12: INSTALLED AND PLANNED WIND FARMS IN TUNISIA Site Capacity Commissioned Average annual Financing Operator production (GWh) Sidi Daoud Phase I 10.6 MW 2000 30 STEG (20 %) STEG Spanish loan (80 %) Sidi Daoud Phase II 20 MW total 2003 42.4 n. a. STEG Sidi Daoud Phase III 55 MW total 2008 n. a. n. a. STEG Métline 62 MW Planned for n. a. n. a. STEG 2010 / 2011 Kchabta 58 MW Planned for n. a. n. a. STEG 2010 / 2011 El Haouira 500 MW Planned n. a. n. a. Moncada Energy Group

(Source: DODD 2008)

The El Haouira-project of the Italian Moncada Energy To improve the investment climate in 1996, the Tuni- Group aims at exporting power from a planned gas or coal sian government has launched the »Programme de Mise fired plant to Italy via a 400 kV sea cable to Italy.56 à Niveau«(PMN). This program includes subsidies for investments and tax reductions for industry and interna- Business climate tional cooperation projects (e. g. of the European Com- Currently the state-owned STEG operates and manages mission, AFD, GTZ, KFW) to enhance their competi- the only existing wind farm in Tunisia (Sidi Daoud). tiveness. Decentralized projects are mentioned to be of For further wind power development, the government special interest, which seems to suit wind farm devel- is aiming at the private sector, particularly international opments. The access to further information on support investors. structures eligible to wind energy developments can be Foreign investments can be made without national hold- through the »Agence Promotion de l´Industrie«, under ings requirements. Private investment, however, is not the Ministry of Industry, Energy and PME. Prerequisites permitted in all areas, or may require authorization. The for an application are: presence in Tunisia for at least two banking system is described as weak, investment propen- years, potential for growth and sound pattern of finance. sity in the private sector as low. The legal system is charac- If approved by the »Bureau de Mise à Niveau« enterprises terized as being in need of reform.57 are supported by investment incentives of up to 25 % of Trading between Tunisia and the EU has been facilitated their project investments and up to 15 years of exemption by the Euro-Mediterranean customs union which came from taxation. into force in January 2008 between Tunisia and the EU. An association treaty has been signed by Tunisia and the Further, the government is implementing a banking re- EU as a first step towards a Euro-Mediterranean free trade form by establishing a new Investment Code. The main zone planned for 2010. Apart from that, Tunisia is con- focus is the promotion of direct investments from abroad. ducting negotiations with the USA concerning a bilateral Additionally, the government seeks to reduce bureaucratic free trade area.58 For the yield of Tunisia’s wind energy hurdles in this context.59 Improved investment conditions this means Europe will become energy export destination and lower bureaucratic hurdles will increase the chance of (e.g. through the planned 400 kV offshore cable linking further investments form Europe and elsewhere to harvest Tunesia with Italy). and trade the proven wind energy potentials.

56 Dodd 2008 59 AHK 2008 57 CDM brief 2006 58 AHK 2008 TUNISIA | 299

Education in the sector of renewable energy takes place in 13.7 Contacts and Addresses Tunisian institutes such as the Tunis International Centre for Environmental Technologies (CITET) and the Re- Ministere de l’Industrie et de l’Energie et search and Technology Center of energy (CRTEn). The des Petites et Moyennes Entreprises CITET was founded in 1996 to promote environmental Immeuble Beya technologies. It is answerable to the Tunisian Ministry of 40 rue 8011, Montplaisir the Environment. In addition to providing a range of ad- 1002 Tunis visory and training services it also offers laboratory and Tel.: +216 (71) 791 132/842 343/894 216 development capacity. A library and an extensive online Fax: +216 (71) 782 742 presence serve the purpose of documenting and dissemi- Email: [email protected] nating information relating to environmental matters. The CITET is involved in numerous cooperation projects, in- National Agency for Energy Conservation (ANME) cluding international projects. Together with the CITET 3 rue 8000, Montplaisir - 1002 Tunis and two other German partners, the GTZ is running the Tel.: (216) 71 906 900 IHK / GTZ Company Pool on Environmental Technol- Fax: (216) 71 904 624 ogy in Tunis, which supports small and medium-sized Vocal Line of PROSOL European companies from the environmental technology 71 901 444 sector in gaining access to the market in Tunisia and other Email: [email protected] Maghreb countries. The CRTEn was founded in 2005. It is part of the Borj- Société Tunisienne d’Electricité et du Gaz (STEG) Cédria Technopole representing its energy department. 38 rue Kamel Attaturk 1080 Tunis At the CRTEn research, innovation and training activities Postal address: B.P. 190, 1080 Tunis cedex are conducted in the field of energy technologies, includ- Tel.: +216 (71) 341 311 ing renewable energy. Fax: +216 (71) 330 174/349 981/341 401 Currently there is no wind energy industry in Tunisia. Internet: www.steg.com.tn However, the Canadian consulting company Hélimax compiled an economic study on possibilities of estab- GTZ Office in Tunis lishing such an industry in Tunisia, which also includes a Sandra Schenke training manual on wind energy and a baseline study for 12, rue du Lac Turkana a CDM project in the wind sector.60 2045 Berges du Lac de Tunis Tunisia Tel.: +216 71 860-320 Fax: +216 71 860-719 Email: [email protected] Internet: www.gtz.de/en/

60 Helimax Energy Inc. 2004 TUNISIA | 300

Deutsch-Tunesische Industrie- und Handelskammer Agence Nationale pour la Maîtrise de l’Energie (ANME) Chambre Tuniso-Allemandede l‘Industrie et du 2009a: Guide sur le Mécanisme pour un Développement Commerce Propre dans le Secteur de l’Energie. March 2009 Immeuble Le Dôme Rue du Lac Léman Auslandshandelskammer (AHK)Tunesien 2009, http:// 1053 LES BERGES DU LAC tunesien.ahk.de/fileadmin/user_upload/pdf_dateien/ Tunisia wirtschaft/WirtschaftTunesien2008.pdf, accessed on Tel.: +216 71 965 280 15.09.2009 Fax: +216 71 964 553 Email: [email protected] ANME 2009. Agence Nationale pour la Maîtrise de Internet: http://tunesien.ahk.de l’Energie, http://www.anme.nat.tn/index.asp?pId=173,

Auswärtiges Amt. Tunesien: Beziehungen zu Deutsch- 13.8 Information sources land. 2008 http://www.auswaertiges-amt.de/diplo/de/ Laenderinformationen/Tunesien/Wirtschaft.html, ac- Abu Dhabi Declaration on Environment and Energy cessed on 15.09.2009 2003, The Environment & Energy 2003 Conference http://www.ead.ae/TacSoft/FileManager/Conferenc- Bundesministerium für wirtschaftliche Zusammenarbeit es%20&%20Exhibitions/2003/44-AbuDhabiDeclara- und Entwicklung (BMZ), http://www.bmz.de/en/is- tion-Eng.pdf, last visited 21.10.2009 sues/wirtschaft/privatwirtschaft/ppp/index.html#t10, accessed on AECID. Agencia Española de Cooperación Internacional para el Desarrollo 2009, http://www.aecid.org/web/es/ CDM brief 2006. http://cdm.unfccc.int/ProgrammeO- noticias/2009/04_Abril/2009_04_22_Aecid_atlas_eoli- fActivities/index.html, accessed on 15.09.2009 co_tunez, accessed on 15.09.2009 Centro Nacional de Energías Renovables (CENER) 2009, AFRIWEA: African Wind Energy Association 2008, www. http://www.cener.com/es/sala_prensa/nota_mapa_eoli- afriwea.org/en/tunisia.htm, accessed on 15.09.2009 co_tunez.asp, accessed on 15.09.2009

AFRICAN DEVELOPMENT BANK GROUP 2009, CIA World Factbook 2009: Tunesia. https://www.cia. Tunisia - Electricity Distribution Networks Rehabilitation gov/library/publications/the-world-factbook/geos/ and Restructuring Project - Appraisal Report , 08/10/2009, ts.html, accessed on 15.09.2009 http://www.afdb.org/fileadmin/uploads/afdb/Docu- ments/Project-and-Operations/Pages%20de%20Tuni- Décret no 2009-362 du 9 février 2009, modifiant le dé- sia_-_AR_-_Electricity_Distribution_Networks_Reha- cret 2005-2234 du 22 août 2005, fixant les taux et les bilitation_and_Restructuring_Project%5B1%5D.pdf las montants des primes relatives aux actions concernées par visited 22-10.2009 le régime pour la maîtrise de l’énergie ainsi que les conditions et les modalités de leur octroi (http://www.in- Helimax Energy Inc. Strategic Study of Wind Energy De- dustrie.gov.tn/TB/03_09/tb_energie_03_09/1/images/ ployment in Africa; African Development Bank, 2004 decretn2009_362_du9fev09fr.pdf ) TUNISIA | 301

Dodd 2008b, Jan and Heather O’Brian, TUNISIA EX- GTZ 2007b. Förderung Erneuerbarer Energien und ra- PORT POTENTIAL, in: Windpower Monthly, Septem- tionelle Energieverwendung in Tunesien. http://www.gtz. ber 2008. (Dodd 2008b de/de/weltweit/maghreb-naher-osten/tunesien/7705. htm, accessed on 15.09.2009 Dodd 2008: Tunisia looks to wind in face of power deficit and rising fuel costs, in: Windpower Monthly, March GTZ 2009 expert statement, referee Ulrich Laumanns 2008. member of GTZ mission Tunesia, received 21.10.2009

EIA, International Energy Annual 2009: http://tonto.eia. World Bank 2009 Tunisia - Energy Efficiency Project, doe.gov/country/country_energy_data.cfm?fips=TS, ac- Project Appraisal Document, http://go.worldbank.org/ cessed on 15.09.2009 JL6Y5YP9Q0, last visited 21.10.2009

IEA International Energy Agency, 2006 Electricity/ Loi no 2009-7 du 9 février 2009, modifiant et complétant Heat in Tunisia in 2006, http://www.iea.org/stats/elec- la loi no 2004-72 du 2 août 2004, relative à la maîtrise de tricitydata.asp?COUNTRY_CODE=TN, last visited l’énergie (http://www.industrie.gov.tn/TB/03_09/tb_en- 26.10.2009 ergie_03_09/1/images/loi_n09_7du9fev09MEfr.pdf )

Firstlook 2008, http://firstlook.3tier.com/, accessed on MED-ENEC. Energy Efficiency in the Construction Sec- 15.09.2009 tor in the Mediterranean 2008. www.med-enec.com, accessed on 15.09.2009 Global Environment Facility (GEF) 2009, http://www. gefonline.org/projectDetails.cfm?projID=967, accessed Norton Rose LLP 2009, Spotlight on the Tunisian power on 15.09.2009 market; http://www.nortonrose.com/knowledge/publications/2009/pub23144.aspx?page=090922112754= PNM 2009, Plan de Mise a Niveau, official website http:// en-gb last visited 21.10.2009 www.pmn.nat.tn/fr/doc.asp?mcat=6&mrub=54, last visited 21.10.2009 IEA 2007. International Energy Agency, http://www. iea.org/textbase/work/2007/renewable_electricity/Re- GTAI 2009, German Trade and Invest http://www. bolini.pdf, accessed on 15.09.2009 gtai.de/DE/Content/__SharedDocs/Anlagen/PDF/ CDM/cdm-markt-tunesien-english,templateId=raw REN21 2009: Renewable Energy Policy Network for ,property=publicationFile.pdf/cdm-markt-tunesien- the 21st Century, http://www.ren21.net/, accessed on english?show=true, accessed on 15.09.2009 15.09.2009

GTZ 2007a. Gesellschaft für technische Zusammenarbe- STEG, 2008. Société Tunisienne de l’Electricité et du it, TERNA-Report; http://www.gtz.de/de/dokumente/ Gaz, Annual Report 2008 (http://www.steg.com.tn/ anme2008-en-country-case-study-tunisia.pdf, accessed fr/institutionnel/publication/rapport_act2008/Rap_ on 15.09.2009; STEG_2008.pdf ) TUNISIA | 302

STEG 2009 http://www.steg.com.tn/dwl/Eolien_Tuni- sie.pdf , accessed on 15.09.2009

SOLATERM 2007. Framework Conditions for Solar Thermal Energy Use in the Southern Mediterranean Countries, Prof. Dr. Ibrahim Abdel Gelil, Center for the Environment and Development for the Arab Region and Europe (CEDARE) Egypt http://www.solaterm.eu/publications/solaterm_framework_report_15_12_08_final. pdf, accessed on 21.10.2009

UNDP: United Nations Development Programme 2008, http://cfapp2.undp.org/gef/site/blank.cfm?module=pro jects&page=webProject&GEFProjectCode=2129

UNFCCC 2009. CDM Program activities data base. http://cdm.unfccc.int/Projects/projsearch.html. Retrieved on 8th September 2009.

2009 ABQ Zawya Ltd.; http://www.zawya.com/cm/ profile.cfm/cid1002285/ last visited 26.10.2009 INDONESIA 303

List of abbreviations

ADB Asian Development Bank IEA International Energy Agency APEC Asia-Pacific Economic Cooperation IMF International Monetary Found APETINDO Association of Renewable Energy IPP Independent Power Producers Companies of Indonesia IRES Indonesian Renewable Energy Society ASEAN Association of Southeast KV Kilovolt Asian Nations LAPAN Lembaga Penerbangan dan Antariksa ACE ASEAN Centre for Energy Nasional (National Institute of B/D Barrels Per Day Aeronautics and Space) BECIN Bilateral Energy Cooperation LNG Liquefied Natural Gas Indonesia- Netherlands MEMR Ministry of Energy and BGR Federal Institute for Geosciences Mining Resources and Natural Resources MSOE Ministry of State-Owned Enterprises BPPT Agency for the Assessment and MVA Mega Volt Ampere Application of Technology MW Mega Watt CDM Clean Development Mechanism MWh Mega Watt Hour CFSTPP Coal Fired Steam Power Plant N/A Not Applicable CO2 Carbon Dioxide PDD Project Design Document CFL Compact fluorescent lamp PEU Pengkajian Energi Universitas CIA Central Intelligence Agency PIN Project Idea Note CIM The Human Resources Provider for PJ Petra Joule German Development Cooperation PLN Perusahaan Listrik Negara DGEEU Directorate General of Electricity and PPA Power Purchase Agreements Energy Utilization (Ditjen Listrik & PPK Program Pengembangan Kecamatan Pemanfaatan Energi / LPE, ESDM) PSC Sharing Contract DJLPE Direktorat Jenderal Listrik dan PT Lt (limited) Pemanfaatan Energi PV Photovoltaic DNA Designated National Authority RE Renewable energy EB Executive Board RECIPES Renewable Energy in emerging and EE&C Energy Efficiency & Conservation developing countries EIA Energy Information Administration REEEP Renewable Energy & ESRI Environmental Systems Energy Efficiency Partnership Research Institute SKEA Sistem Konversi Energi Angin EUR Euro T&D Transmission and Distribution GDP Gross Domestic Product TC Technical Cooperation GHG Green House Gas toe tonne oil equivalent GTZ Gesellschaft für TPES Total primary energy supply Technische Zusammenarbeit UNDP United Nations GENI Global Energy Network Institute Development Programme HVDC High voltage direct current INDONESIA 304

UNEP United Nations Environment Programme USD United State Dollar V Volt WECS Wind Energy Conversion System WRI World Resources Institute WTO World Health Organization WWEA World Wind Energy Association INDONESIA 305

14.1 Introduction

FIGURE 1: INDONESIA

Data Source: CGIAR (2004)

Indonesia, an archipelago between the Indian Ocean Indonesian (Bahasa Indonesia) is the official national and the Pacific Ocean, is located in Southeast Asia. It language which is recognized as one of the two working encompasses 13 667 islands, only 6 000 of which are in- languages in Indonesia, the second being English. habited. Two of the islands are shared with other nations; Indonesia is an independent republic with a presidential Kalimantan (known as Borneo) is shared with Malaysia system. The president of Indonesia is the head of state, and Brunei, and New Guinea is shared with Papua New commander-in-chief of the Indonesian National Armed Guinea (see figure 1). Forces, and the director of domestic governance, policy- Split by the equator, the archipelago has almost an entirely making and foreign affairs. In April 2009, during the leg- tropical climate, with temperature ranging from 23 °C to islative elections the Democratic Party of President Susilo 32 °C. The humidity ranges between 70 and 90 percent. Bambang Yudhoyono won the largest share of the vote.

TABLE 1: 2008 KEY STATISTICS Area Population GDP GDP / capita Export Import 1 919 440 km2 240 Million 343.2 billion € 1 504 € / capita 91.7 billion € 86.4 billion€ free on board f. o. b. (f. o. b.) (2008 est.) (2008 est.)

Data Source: U.S. Department of State 2009 and IMF 2009

Winds are moderate with an average speed of 2 to 6 m/s Indonesian foreign relations since the Suharto »New Or- and are generally predictable, interrupted by monsoons, der« have adhered to a »free and active« foreign policy, typhoons and large scale storms. seeking to play a role in regional affairs since 1967. INDONESIA | 306

Indonesia suffers from an Al-Qaeda linked terrorist Table 2 demonstrates that the Indonesian GDP has been group, Jemaah Islamiyyah, which continues to present a growing steadily over recent years. In 2008, the inflation threat, after attacks against foreign targets in Bali in 2001 rate was 11.1 %. In 2006, 17.8 % of the Indonesian popu- and 2005 and Jakarta in 2003 and 2009.1 lation were living in poverty.3 The per capita income in Indo- nesia was 1 504 € in 2008. The Yudhoyono administration Indonesia has been a member of the United Nations aimed for an average growth of 6.6 % from 2004 to 2009 since 1950 and of the Association of Southeast Asian Na- to reduce unemployment and poverty significantly.4

TABLE 2: GDP OF INDONESIA 2000 – 2008

2000 2002 2004 2006 2008 GDP, Annual percent change 5.4 4.5 5.0 5.5 6.1 constant prices GDP, Billions (Rupiah) 1 389 769.9 1 821 833.4 2 295 826.2 3 339 216.8 4 954 028.9 current prices GDP, Billions € 111.0 131.2 172.3 244.4 343.3 current prices

Source: IMF 2009 tions (ASEAN)2 since 1967 and more particularly of the 14.2 Energy Market ASEAN Free Trade Area agreement since 1992. Moreo- ver, Indonesia became part of the Asia-Pacific Economic Overview Energy Market Cooperation (APEC) in the early 1990s, WTO in 1995 The development of the total primary energy experienced and has been historically a member of OPEC, although a strong rise in the last years. Starting at below 40 000 it withdrew in 2008 as it is no longer a net exporter of ktoe in 1970 of which more than 60 % were provided oil. Among other agreements, it also joined the European by combined renewables and waste. Over the last thirty Free Trade Association’s »joint workgroup« to improve years the share of oil and gas increased much more strong- the trade system between Indonesia and the European ly than the other sources. The primary energy supply in Union. Indonesia has been constantly rising and in 2006 reached Indonesia’s main export markets (in 2005) are Japan 179 069 ktoe (equal to 7 503 PJ or 2 085 832 GWh). In- (22.3 %), the United States (13.9 %), China (9.1 %), and donesia’s primary energy supply is dominated by oil with Singapore (8.9 %). The major suppliers of imports to 33 %, followed by combined renewable and waste (32 %) Indonesia are Japan (18.0 %), China (16.1 %), and Sin- (i. e. geothermal, solar, wind, waste materials and biomass), gapore (12.8 %). In 2005, Indonesia had a trade surplus gas with 19 %, coal with 15.5 % and hydro with 0.5 %. The with export revenues of 83.64 billion US$ and import ex- split to the various sources can be seen in figure 2.5 penditure of 62.02 billion US$. Indonesia’s major imports include machinery and equipment, chemicals, fuels, and foodstuffs. The country has extensive natural resources, including crude oil, natural gas, tin, copper and gold.

1 Jakarta has suffered from a terrorist attack linked with Afghanistan which left at 3 CIA 2009 least 9 people dead and 50 injured. 4 U.S. Department of State, 2009 2 ASEAN is a geo-political and economic organization of 10 countries located in 5 IEA 2008 Southeast Asia, which was formed on 8 August 1967. INDONESIA | 307

FIGURE 2: sector, 35 % in the residential sector and 46 % in the SHARE OF TOTAL PRIMARY ENERGY SUPPLY transportation sector.6 Indonesia is among the world’s IN INDONESIA IN 2006, IN KTOE number one coal exporters and a leader in natural gas ex- 828 ports. However, it has a net energy import dependency 1 % 27 669 on Africa, the Middle East and Australia, both for crude 15 % and refined oil. Natural gas for the petrochemical industry is imported from the Middle East (Qatar). 58 064 The country’s resource wealth, openness to trade and 32% investment, and a strategical location in East Asia have made Indonesia the world’s leading steam coal exporter (world’s largest in 2008)7, a substantial Liquefied Natural Gas exporter (world’s third largest)8, and a net oil import- 59 113 er since 2004.9 33 % 33 396 19% The Electricity Network Combined renew. & waste PT Perusahaan Listrik Negara (PLN) is the only verti- Gas Coal Oil Hydro cally integrated electricity utility in Indonesia. It is a monopoly operator of transmission and distribution (T&D) (Source: IEA 2008) networks of over 32 000 km and 580 000 km respectively.10 The major part of the transmission grid in Indonesia The final energy consumption in 2006 amounted to is located on Java and Bali islands which can be seen in 134 266 ktoe (equal to 5 626 PJ or 1 563 957 GWh). The figure 3. The power system is scattered over more than split of this consumption to the various sectors is shown 600 isolated systems and 8 interconnected power systems. in table 3. The largest system is the Jawa Bali power system which consumes more than 80 % of the total power in the coun- From 1996 to 2006, energy consumption increased by try. This fragmented country makes a comprehensive grid 117 % in the industry sector, 75 % in the commercial difficult and expensive to construct.

TABLE 3: FINAL ENERGY CONSUMPTION IN INDONESIA, 2006, IN KTOE AND PJ ktoe PJ %

Industry 34 586 1 449 25.8 Transport 25 223 1 057 18.8 Other sectors 62 383 2 614 46.5 of which Residental 56 364 2 362 42.0 Commercial and Politic Services 3 443 144 2.6 Agriculture / Forestry 3 443 144 2.6 Other Non-Speciﬁed 2 222 93 1.7 Non-energy use 12 074 506 9.0 Total 134 266 5 626 100

(Source: IEA 2006)

6 PEU 2006 7 In 2007 Indonesian producers shipped 165 million tons, or almost 30% of global seaborne thermal coal supply. 8 In 2008, Indonesia produced 317 cargoes of 125 000 cubic metres each 9 Indonesian exports of crude oil, condensate and petroleum products in 2009 are to total about 240 000 b/d, down from 700 000 b/d in the first quarter of 2001 and more than 830,000 b/d in 1994. But Indonesia is importing 480 000 b/d of crude oil and refined products this year, which means the country‘s imports in 2009 are to average about 360,000 b/d. 10 ASIANPOWER 2009 INDONESIA | 308

FIGURE 3: ELECTRICITY TRANSMISSION GRID OF INDONESIA, 500 KV

Data Source: CGIAR (2004)

The transmission system in Indonesia has 500 kV, 150 kV MW from geothermal (2 %). Biomass and wind genera- and 70 kV, while the distribution system consists of 20 tion plants provide the remaining share where wind en- kV and 220 V (low voltage) lines. The 500 kV transmis- ergy accounts for 1.2 MW (0.3 %). sion lines only exist for the Java Bali power system, as it is the largest power system experiencing a peak load of PLN is the country’s largest electricity producer with a more than 15 000 MW, while the second largest system is generation capacity of over 24 925 MW, accounting for Sumatera. There will be a new voltage level of 275 kV in 86 % of the market. The remaining capacity is provided Sumatera that will be erected as a back bone of the power by Independent Power Producers (IPPs) (4 782.5 MW system. Interconnection between Sumatera and Java Bali or 14 %). power system is expected to materialize in 2012 through Due to Indonesia’s rapidly growing electricity demand a high voltage direct current (HVDC) link. (9.7 % per year) and to secure the country from electricity shortages, the Government of Indonesia has issued In 2008, the overall system loss was about 10.56 %, the the policy of »Acceleration programme« named »crash distribution loss about 8.4 %, its lowest level since 2003.11 programme«.13 This expansion programme foresees new PLN management plans to maintain the momentum of coal based electricity generation with a total capacity of optimizing its distribution network and plans to reduce 10 000 MW. To assure that the development of renewable distribution losses to 6 % (the international norm is be- resources is accelerated, a second crash programme has tween 3 % and 5 %) by 2012 with an investment of about been announced. It shall be realized in the period from 1.2 billion US$ between 2009 and 2012. 2009 to 2014, which will consist of over 60 % new capacity from renewable resources, in particularly approxi- Installed Capacity mately 5 000 MW or 48 % from geothermal resources In 2007 the installed electrical generation capacity in and 12 % from hydro resources. Indonesia was estimated at 24 260 MW,12 with 20 450 As one of the world’s top three producers of electricity MW (84 %) coming from thermal power stations (oil, gas from geothermal sources, Indonesia recently launched a and coal), 3 400 MW from hydropower (14 %) and 500 plan to expand its operational capacity by almost 400 %

11 ADB 2009 13 ADB 2009 12 EIA 2008 INDONESIA | 309

by 2014. The bilateral energy cooperation between Indo- Power generation nesia and the Netherlands will contribute to this expan- The power generation of Indonesia was 133 108 GWh in sion in partnership with the GTZ.14 200619 jointly produced by the state-owned electric utility PLN and 27 IPPs. The development of the electricity Most of the electrical power in Indonesia still relies on generation by fuel can be seen in table 4. coal-fired power plants.15 It is expected that some projects could be commercially operational in 2009;16 e.g. Labuan In 2006, thermal power generation accounted for 88 % of Coal Fired Steam Power Plant (CFSTPP) with 1 315 MW the national electricity generation, hydropower account- in Q2 / 2009; Indramayu CFSTPP with 1 330 MW and ed for 7 %, and the remaining accounted for 5 % with 1.4 Rembang CFSTPP with 1 315 MW in Q3 2009. A Chi- % for wind power. Indonesia is autonomous on electricity nese consortium of Shanghai Electric Corp and Dalle En- supply. Indonesia has a rapid growing electricity demand ergy is set to construct a 945 MW coal-fired power plant of (9.7 % per year.) in Teluk Naga, Banten.17 A consortium of Dongfang In the past 5 years, the electricity sold by PLN grew Electric Corp and Dalle Energy plans to build a 630 MW significantly (around 8.3 % per year) from 79 TWh in coal-fired power plant in Pacitan, East Java. 2000 to 117 TWh in 2005. Meanwhile the number of To fulfil the surging power demand, PLN has prepared PLN customer increased by an average of 4.2 % per year numerous proposals for new coal-fired power plants. reaching 34.6 millions in 2005.20 The additional capac- These projects were expected to be operational in March ity needed to cope with the increasing demand is about 2009 and the whole project is due to be completed in 2 000 – 4 000 MW per year. In the period up to 2025, 2011.18 Moreover, a private geothermal power producer electricity demand is expected to reach 440.5 GWh, cor- PT Star Energy intends to extend Wayang Windo plant responding to around 70 000 MW of new power plant to 400 MW by the end of 2012. It is currently the coun- capacity to support the economic and social growth. try’s biggest geothermal power station with two turbines The majority of electricity subscribers of PLN consist of that generate 110 MW and 170 MW, respectively. In ad- 90 % of households and 10 % of industrial users.21 How- dition, Indonesia plans to build its first nuclear power ever, in terms of power consumption households and in- plant, which could be operational by 2017. dustry are on a similar level at 39 % (43 754 GWh) and 38 % (43 616 GWh), respectively. The remaining electric- TABLE 4: ELECTRICITY GENERATION DEVELOPMENT IN INDONESIA, 1996 – 2006, IN GWH. ity consumption is for the commercial and public services 1996* 2000* 2006* sector accounting for 23 % (25 250 GWh).

Coal 18 000 40 000 58 643

Oil 15 000 18 000 38 717 Renewable energies

Gas 22 000 20 000 19 467 Despite the undoubtedly high potential of clean and in- Biomass 0 0 0 digenous energy resources, Indonesia’s renewable energy Nuclear 0 0 0 sources are still largely unexploited, especially geother- Hydro 9 000 9 500 9 623 mal, small hydropower and biomass. Geothermal 1 000 5 000 6 658 Figure 4 depicts the distribution of each type of renew- Solar 0 0 0 able energy in Indonesia. Wind 0 0 0 Total 65 000 92 500 133 108 * Value estimated according to a graph Source: IEA 2006

14 LAPAN 2009 19 IEA 2006 15 EIA 2008 20 PEU 2006 16 PLN 2009 21 Osec 2006 17 McCawley 2008 18 Muklis Ali 2009 INDONESIA | 310

FIGURE 4: TABLE 5: CURRENT USE OF THE RENEWABLE DISTRIBUTION OF EACH TYPE OF RENEWABLE ENERGY AGAINST ITS POTENTIAL ENERGY IN INDONESIA Potential Current Current use of the Wind: (MW) use (MW) Potential (MW) 1.2 MW (0,02 %) Hydropower 34 000 3 400 10.00

Solar: Biomass: Micro hydro 9 600 560 5.54 6.5 MW (0,12 %) 445 MW (8%) Geothermal 19 658 903 4.01 Wind 9 286 1.2 0.01 Geothermal: Source: PEU 2006 903 MW (17 %) The Ministry of Energy and Mining Resources Republic of Indonesia (MEMR) estimates that there are in total 217 prospective geothermal sites in the country, including 71 in Sumatra, 62 in Java, 52 in Sulawesi, 15 in Nusa Hydropower: 4 125 MW Tenggara, two in Papua and 1 in Maluku.22 (75 %) Combined renew. & waste Electricity Prices Gas Solar Oil Hydro The Government of Indonesia determines the tariff for customers.23 In order to stimulate economic growth, the (Source: IEA 2006) government has chosen to subsidize the electricity tariff.24 In January 2009, the government announced to de- Table 5 shows the current installed capacity of renewable crease electricity prices to encourage production of basic energies in Indonesia compared to its potential. It can be necessities.25 Furthermore, in March 2009 the President seen that for hydropower a remarkable part of the po- urged people to increase the efficiency of energy usage, tential is already being used, whereas wind energy with because electricity demand of households, industries and the biggest potential among the listed renewable energy social institutions have reached a level that is far higher sources remains nearly unexploited. than the available production capacity.26

TABLE 6: ELECTRICITY PRICES FOR HOUSEHOLDS IN INDONESIA USD / KWH AND € / KWH)

2000 2001 2002 2003 2004 2005 2006 2007 Price (USD / kWh) 0.029 0.025 0.042 0.062 0.062 0.058 NA NA Price (€ / kWh) 0.019 0.017 0.028 0.041 0.041 0.039 NA NA (Source: EIA 2008)

Indonesia holds about 200 hydropower plants from mi- Table 6 provides electricity prices for households in Indo- cro, small to large scale. The largest hydropower plants are nesia (US$ / kWh).27 the 1 GW Cirata, 112 MW Kotapanjang, 210 MW Musi Table 7 shows the electricity tariff according to consumer (a pumped storage project), and the 184 MW Sudirman categories.28 hydro plants.

22 Napitupulu, 2009 23 ASIANPOWER 2009 24 ADB 2009 25 National Portal Republic of Indonesia 2009 26 Ant - LKBN ANTARA 2006 27 EIA 2008 28 ASIANPOWER 2009 INDONESIA | 311

sion of power generation, based mainly on opening up TABLE 7: ELECTRICITY TARIFF BY CATEGORY SECTOR IN INDONESIA Indonesia’s power market to Independent Power Produc-

Tarif Average Average ers (IPPs). Between 1990 and 1994, 27 power purchase Cathegories (USD / kWh) (€ / kWh) agreements (PPA) were signed between PLN and Inde- Social 0.066 0.044 pendent Private Producers (IPPs). The introduction of Residential 0.063 0.042 IPPs changed the situation in Java-Bali area from short- Business 0.083 0.055 age to overcapacity. However, the Asian financial crisis Industrial 0.068 0.045 led to severe economic strains on PLN, which made it Average 0.069 0.046 difficult to pay for all of the power for which it had signed Source: Asian Power 2006 contracts with IPPs. Under enormous pressure from both the public and the electricity companies, the government The Government of Indonesia introduced a Feed-in Tariff chose to renegotiate the terms in the PPAs for IPPs, but system in 2002.29 However, the approaches to stimulate renegotiating these contractual arrangements severely un- greater investments in Renewable Energy such as feed-in dermined the government’ efforts in restoring the confi- tariffs, and / or capital subsidies were so far not effective.30 dence of foreign investors. In less than a decade, the initial This is due to the fact that the cost of fuel for ordinary enthusiasm about IPP was replaced by scepticism, distress Indonesians is heavily subsidized. Indonesia faces a sub- and agony. sidy bill of as much as 138.6 trillion Rupiah (8.8 billion All of these factors lead to more than 5 billion US$ debt €) in 2008 because of high crude oil prices. This heavy of PLN, which has grown significantly in terms of local bill leads to calls for a new Energy Policy (see Section currency due to the decline in the value of the Rupiah 1.5).31 In 2009 Indonesia abandoned its Feed-in Tariff which dropped 250 % against the USD in 1998. The system.32 However, the compensation for electricity pro- Indonesian government has been unwilling to take over duced from renewable energy systems below 1 MW was the commercial debts of PLN. Indonesia experienced the regulated in Ministerial Decree No. 1122 in 2002.33 Op- slowest recovery from the Asian financial crisis among erators of RE systems connected to the low voltage grid the Asian countries because of the low government com- are eligible for 60 % of the production cost for each kWh mitment to protect investors’ interests. in the individual regions through the state-owned utility Some development agencies have provided technical as- PLN. Systems connected to the medium voltage grid are sistance through power sector restructuring loans. The in- entitled to 80 % of the production costs. The regulation itial progress led to a sense of optimism about the future was implemented with the aim of ensuring that renew- of the power reforms. In 2005, a decade after the reform able energies receive compensation only if the production was introduced in Indonesia to solve the power shortage costs in the individual regions are below the regular elec- problem, the government is still facing the same situation. tricity price at the state-owned utility. However, retail market competition was scheduled for 2008, where power producers will be able to sell directly Liberalisation to their customers rather than through PLN. Neverthe- Based on the Electricity Law No. 15 1985, and accom- less, all companies will need to use PLN’s existing trans- panied by Presidential Decree No. 37 in 1992, private mission network. participation in the power sector in Indonesia began.34 The decree encouraged private participation in electricity Rural Electriﬁcation generation, transmission and distribution to introduce In 2008, Indonesia’s village electrification rate was competition. Thus, Indonesia had plans for a rapid expan- approximately 54 %. This value is among the lowest in the

29 World Future Council 2007 30 ADB 2009 31 Leong 2005 32 World Future Council 2009 33 Hausmann 2009 34 ASIANPOWER 2009 INDONESIA | 312

region; however this is more than in 1992, when it was Its duties are: 42.6 %.35 Therefore, the Government target of electrification ratio by 2020 is 90 % (currently 57 %). • To prepare the formulation of policies in the electricity Indonesia has a Rural Electrification Program included in and energy sectors; their Renewable Energy Development Program (see Sec- • To implement the policies of electricity and energy tion 1.5).36 The government has taken measures to replace utilization sectors according to the regulations of ap- diesel based power plants with renewable power plants to plicable laws; fulfil the electricity demand in rural areas. • To formulate standards, norms, criteria guidelines and Geothermal development is the top priority of the gov- procedures in electricity and energy utilization sec- ernment and is expected to support the Rural Electrifica- tors; and tion Program.37 The Indonesian government expects to • To provide technical advice and evaluation. promote geothermal development and invites investors for capital investments to keep the momentum of growth State-owned companies (see Renewable Energies sub-chapter). Furthermore, solar State Electricity Company: PT. PLN (Persero) PV is also used to meet demand of rural electrification.38 The state-owned electricity company PT Perusahaan Lis- trik Negara (PLN) was established in 1964. PLN is the only vertically integrated electricity utility in Indonesia. 14.3 Market Actors It is a monopoly operator of transmission and distribution (T&D) networks and provides electricity to residen- Energy policy actors tial, commercial and industrial customers. In 2007, rev- Ministry of Energy and Mineral Resources (MEMR) enue was 114 trillion Rupiahs (8 billion €) with 47 532 The Ministry of Energy and Mineral Resources (Departe- employees across the country. The government – through men Energi dan Sumber Daya Mineral or ESDM) aims at the Ministry of State-Owned Enterprises (MSOE) – has supporting the President on energy and mineral resources complete ownership of PLN. The number of currently 5.2 issues. Its vision is to ensure the energy and mineral re- million domestic users grows at an annual rate of 5.4 %. sources as an added value for people’s welfare through In late 1993, the Minister of Mines and Energy is- sustainable development. This ministry has defined sus- sued a broad policy framework (»Sasaran & Kebijakan tainable development criteria and indicators for activities Pengembangan Subsektor Ketenagalistrikan« or »Goals in the energy sector, which are enforced through the issu- and Policies for the Development of the Electricity Sub- ance of a Ministerial Decree. The main MEMR’s respon- Sector«) to aid the long-term restructuring of the sector. sibilities are policy formulation and implementation. One of the first steps in 1994 was the transformation of PLN from a Government-owned utility into a public Directorate General of Electricity and Energy Utiliza- company with Persero, or limited liability company station (DGEEU) tus. One year later that move was followed by the unbun- The Directorate General of Electricity and Energy Utili- dling of PLN’s Java-Bali generation assets into two new zation (Direktorat Jenderal Listrik dan Pemanfaatan En- portfolio generation companies. One of the companies is ergi or DJLPE) is attached and has to report to MEMR. PT. PLN Pembangkit Tenaga Listrik Jawa-Bali I, known as PLN PJB I, and PT, Indonesia Power. The electricity industry has been negatively affected by the prolonged monetary crisis that became worse in late 1997. PLN purchases some of its electricity supply from Independ-

35 UNDP 2008 36 ADB 2009 37 Sjafra DWIPA 2002 38 REEEP 2009 INDONESIA | 313

ent Power Producers (IPPs), to whom it pays in US dol- prospective geothermal sites with estimated geother- lars while local customers pay for their electricity in local mal production potential of 20 000 MW. For instance currency. In 1998 PLN suffered substantial losses, mainly a 400 MW worth of geothermal-generated electricity caused by the depreciation of the Rupiah against the US project commissioned in 2000 and connected to the grid dollar. in North Sumatra replaces fossil fuel produced heat, lead- PLN is no longer the sole player in the power sector due ing to a significant GHG emission reduction. to the issuance of a liberalization policy for the electricity sector in August 1998. The competition was so tough Private actors that PLN was forced to conduct energy efficiency meas- At present, the Government of Indonesia has imple- ures and generator rehabilitation. The Electricity Law no. mented a set of important policies to respond to the in- 20 / 2002 requires an end to PLN’s monopoly on elec- creasing demand for electricity and to the economic crisis tricity distribution. Private companies (both foreign and directly. The Government is continuously enhancing and domestic) will then be permitted to sell electricity direct- facilitating private participation in the electricity indus- ly to consumers. However, all companies still need to use try in meeting the growth of demand for electricity in the PLN’s existing transmission network. The state-owned future. According to the Government, to promote the utility is vertically integrated. development of IPPs it is implementing a retail market competition. State Oil and Gas Company (PT Pertamina) Despite the IPPs’ problems mentioned in Section 1.2 PT. Pertamina (Persero), under the enactment of Law »Liberalization«, there are now approximately 26 IPP No. 22 / 2001 on Oil and Gas in November 2001 and projects, involving about 18 billion US$ (12 billion €) in Government Regulation No. 31 / 2003 has changed its investments and totalling 4 782.5 MW. A list of opera- legal status from a special state-owned enterprise into a tional IPPs in Indonesia is provided on the APEC energy Limited Liability Company. Under this new regulation, website.39 All 26 IPPs have entered into Power Purchase all state assets in Pertamina as well as all assets of Pertami- Agreements (PPAs) with PLN being the counter-part to na including its subsidiaries and joint venture will serve as all of these contracts. the capital of the new entity. As seen in the Liberalisation sub-chapter, the govern- The law also stipulates the end of Pertamina’s monopoly ment of Indonesia failed to support PLN, forcing PLN over downstream oil distribution and marketing of fuel to fail in meeting its payment obligations to some IPPs. products. Pertamina’s upstream responsibilities to man- This resulted in some IPPs resorting to arbitration in an age the Production Sharing Contracts (PSCs) were also attempt to recover payments. While the government has shifted to BPMIGAS. now ensured that payments are being made, it is gener- Pertamina significantly contributes to Indonesia’s petro- ally accepted by industry sources that a renegotiation of leum output. It ranks 9th in crude oil production and was nearly all of the PPAs will take place as this is essential for Indonesia’s fifth largest producer of natural gas in 2002. the successful restructuring of PLN. Moreover, the his- The company has planned a total investment of 2.08 bil- tory of the IPPs debacle involved a low credibility of the lion US$ (1.39 billion €) over five years. Two-thirds of government which keeps away foreign investors. the investment will be in upstream business and the remainder in downstream. Pertamina requires funds to upgrade its aging refineries, LPG and fuel depots. Besides oil and gas, Pertamina has been involved in geothermal resources as well. It has identified at least 80

39 Apecenergy 2005 INDONESIA | 314

14.4 Political Framework Conditions • Sustainable and environmentally friendly energy de- in the Energy Sector velopment: The environmental damage and the deg- radation of the eco-system that accompany energy National Energy Strategy development need to be continually reduced by de- The Government of Indonesia has a strong energy strat- creasing negative environmental impacts, either local, egy and to support energy development, there are five or global, related to the production, transportation principal priorities:40 and end use of energy.

• Energy diversification, be it renewable or non-renew- In addition, Indonesia has a renewable energy develop- able, to promote economic optimisation of energy ment plan under the Blueprint energy policy 2005 of the supply and decrease the rate of depletion of hydrocar- National Energy Management which consists of cutting bon resources. the use of costly oil to 20 % of its energy mix by 2025 • Intensification of exploration of energy sources: En- from about 50 % now as well as reaching the target of 4 % ergy exploration activities are carried out either from renewable energy of the country’s electricity demand by domestic or foreign sources, with the aim of increas- 2020.41 In a bid to resolve a power crisis, Indonesia has ing energy reserves, in particular oil and natural gas »two-crash programmes« to add 10 000 Megawatts of and coal. electricity. The first program focuses on the use of coal- • Energy Conservation: Conservation will be applied fired power stations and the second one on renewable at all stages of utilisation, from energy use at its source energy resources such as geothermal.42 The first phase is up to end use. already behind schedule due to financing problems. Indo- • Energy Price: The average energy price will be planned nesia has set itself energy targets that some experts think such that it would follow market mechanisms while are very difficult to meet, given the huge capital invest- taking into account the optimisation of energy utili- ments and specialist technologies needed.43 sation, increasing economic competitiveness, protection of consumers, and the principle of equitable distribution.

TABLE 8: ELECTRICITY POLICIES AND REGULATIONS IN INDONESIA 1. Energy Law 2. National Energy Policy – Law No. 30 / 2007 Presidential Decree No. 5 / 2006 3. Electricity Law 4. Blueprint energy policy 2005 – Law No. 20 / 2002 – Law No. 1985 5. Geothermal Law and Regulations 6. Green Energy Policy – Law No. 27 / 2003 – Ministerial Decree No. 0002 / 2004 – Goverment Regulation No. 59 / 2007 – Ministerial Regulation No. 14 / 2008 8. Renewable Energy Utilization for Electricity – Goverment Regulation No. 26 / 2006 7. Supply and Utilization of Biofuel – Ministerial Decree No. 1122 K / 30 / MEM / 2002 – Presidential Instruction No. 1 / 2006 – Ministerial Regulation No. 002 / 2006 – Ministerial Regulation No. 32 / 2008 – Ministerial Regulation No. 269- 12 / 26 /600.3 / 2008 on Electricity Production Cost

(Source: ADB 2009)

40 DGEEU, 2001 41 REEEP 2009 42 LAPAN 2009 43 Muklis Ali 2009 INDONESIA | 315

Energy policies • The central government is authorised to decide on The Government of Indonesia has developed a set of im- electricity policy, regulation and electricity tariffs; portant policies and regulations for the energy sector pre- • The provincial governments are authorised to issue sented in table 8. business permits for power in their respective regions; In 2008, the International Energy Agency (IEA) reviewed • The local districts, or regencies, also have the author- in close cooperation with the Indonesian government the ity to issue permits in their respective areas; country's energy policy. This Energy Policy Review of • Electricity generation and distribution for public Indonesia 2008 aims mainly at ensuring reliable energy consumption can be carried out by a state enterprise, supply and economic development. a state regional company, private companies, and cooperatives; Legal framework for electricity sector • State enterprises will have first right to provide elec- The legal and regulatory framework that governs the electricity for the public; tricity sector is based on one essential Energy Law and • The central government has the authority to decide two Electricity Laws that are presented hereafter. electricity tariffs for consumers, to be approved by parliament; The Energy Law (30 / 2007)44 states that the government • The provincial government has the authority to de- and local government should increase the utilization of cide on electricity tariffs, based on agreement from renewable energy and provides incentives for renewable members of the regional parliament; energy developers for a certain period of time.45 • Electricity tariff for consumers can vary between regions.

The 1985 Electricity Law was designed for a vertically integrated monopoly. Although the 2002 Electricity 14.5 Framework Conditions for Law addressed the goals of the electricity reform agenda, Renewable Energies the Constitutional Court ruled the law as being in conflict with the Constitution. The 2002 Electricity Law Renewable Energy Strategy stipulates:46 As mentioned in the previous section, the Indonesian energy strategy aims at increasing the share of renewable • The central government and regional governments energies. Table 9 presents the target from the Renewable are in charge of providing Electricity; Energy Blueprint by energy types.

TABLE 9: INSTALLED CAPACITY TARGET PER ENERGY TYPE FROM RE BLUEPRINT (MW) Energy type 2010 2015 2020 2035

Biomass waste 30 60 120 200 Geothermal 1 320 4 340 5 090 5 270

Wind Power 10 40 80 160

Solar Energy 80 100 120 580

Micro hydro 450 740 950 950 Total 570 940 1 270 1 890

Source: ADB 2009

44 ESDM 2007 45 ADB 2009 46 Reuters 2009 INDONESIA | 316

To reach these targets, the Renewable Energy Develop- • Ministerial Decree on Distributed Power Generation: ment Plan includes the following aspects: Electricity production from RE should be purchased by the state utility company; the system is limited to • Rural Electrification Programme: Government has the utilisation of RE resources with installed capacity taken measures to replace diesel generators with re- up to 1 MW. newable energy plants to fulfil the electricity demand • Purchase price 60 % of production costs, if connected in rural areas; to low-voltage grid; 80 % if connected to medium- • Renewable Energy Generation Interconnection Pro- voltage grid. gramme: Government will assist the interconnection of small and medium renewable energy plants to PLN’s National Energy Policy (Presidential Decree No.5 / 2006)47 (state-owned utility company) electricity grid. The aims at ensuring sufficiency of domestic energy supply and electricity purchasing tariff from renewable energy is supporting sustainable development, including: 80% of PLN’s local production costs, in case it is connected to medium voltage, and 60 % for low voltage; • Promotion of renewable energy utilization: geother- • Integrated Microhydro Development; mal, biofuel, small-scale hydro, solar, wind, biomass etc. • Solar PV for Urban Area Programme: The Minister • Development of alternative energy as substitutes of oil of MEMR, the Minister of Research and Technology fuel; and the Minister of Environment have launched the • Reduction of subsidy on fuel price; solar energy for urban area program in 2003. This • Reduction of energy elasticity < 1 in 2025 program is directed to promote electricity production from solar energy in urban areas; Ministerial Regulation No. 002 / 2006 on Medium Scale • Energy Self-sufficient Village. Power Generation using Renewable Energy which stipulates: Legal Conditions and Support If project developers are business entities and the capacity Schemes for renewable energies of the renewable energy project is between 1 and 10 MW, In order to support the development of renewable energy, the electricity price paid by the utility is: the government has issued several rules and regulations. • 60 % of the utility’s production cost, if connected to Based on 2007 National Energy Policy, the strategies of the low voltage grid; renewable energy development are: • 80 % of the utility’s production cost, if connected to the s medium voltage grid • To implement non-large hydro RE obligation for the utility. The purchase contract is avalid for 10 years and can be • To improve funding models, such as small-scale enter- extended. prise credit. • To improve RE equipment manufacturing through The blueprint energy policy (2005) under the National licence, joint-venture and assembling. Energy Management 2005–2025 constitutes the main • In order to ensure availability of energy sources for guidelines for managing energy in national level and set- electricity generation, the use of local energy sourc- tled the targets provided in table 10. es shall be prioritised with the obligation to use RE sources.

47 WRI 2006 INDONESIA | 317

TABLE 10: The total investment needed for the planned develop- TARGET OF NATIONAL ENERGY MIX 2025 ment of new and renewable energy sources up to the year Renewable 2004 2025 2025 is projected at 13 197 million US$. However, this Energy huge amount of capital investment is the major constraint Geothermal 807 MW 9 500 MW for the Government of Indonesia. Micro 500 MW (On Grid) 84 MW hydropower 330 MW (Off Grid) Solar Energy 8 MW 80 MW To support renewable energy development, the govern- Biomass ment of Indonesia has no feed-in tariff system but these (Electricity) 445 MW 810 MW technologies receive compensation if the production 250 MW (On Grid) Wind Energy 0.6 MW 5 MW (Off Grid) costs in the individual regions are below the regular elec-

Source: SERD 2007 tricity price at the state-owned utility (see chapter 1.2 sub-chapter electricity prices). Law No. 27 / 2003 on Geothermal,48 Government Reg- Renewable energy development is being explicitly con- ulation No. 59 / 2007 & Ministerial Regulation No. sidered in Indonesia. The target of implementing over 60 14 / 2008 which stipulates: % of new capacities from renewable resources is »ambitious« but according to the government »feasible«.50 • To regulate the management and development of geothermal energy sources for direct and indirect utilization; Regulatory approval • The price of electricity from geothermal power plants Foreign suppliers who want to supply to either PLN or to be paid by the public utility (PLN): its subsidiaries must work through a local, Indonesian- − Capacity 10 – 55 MW: 85 % of the utility’s pro- owned limited liability company. Only registered Indo- duction cost if the plant is connected to high or nesian companies can bid on most service contracts to medium voltage grid PLN. Foreign companies that want to start up a business − Capacity > 55 MW: 80 % of the utility’s produc- in Indonesia have to report the type of technology used tion cost if the plant is connected to the high volt- together with the investment application.51 age grid The procedures for implementing a renewable energy (RE) project are as follows:52

Ministerial Decree No. 1122 K / 30 / MEM / 2002 on 1. Electricity base price announced by PLN for each Small Distributed Power Generation using Renewable region is different in accordance with the size and Energy which stipulates: system applied in the region. If project developers are small enterprises and the capac- 2. Proposal submitted by investor to PLN ity of the renewable energy project is below 1 MW, the 3. Evaluation of the proposal by PLN electricity price paid by the utility is 4. Agreement letter issued by PLN to the investor • 60 % of the utility’s production cost, if connected to 5. Contract between PLN and the investor the low voltage grid; 6. Investor requests license from the Minister of En- • 80 % of the utility’s production cost, if connected to ergy and Mineral Resources the medium voltage grid. 7. Minister of Energy and Mineral Resources issues license to the investor The government aims to raise the use of new and renew- 8. Investor builds RE project able energy sources in power generation from the current 9. Commissioning by the certified and eligible insti- 0.2 % to 4 % by 2020.49 tute for certification

48 ADB 2009 50 Muklis 2009 49 REEEP 2007 51 Recipes 2006 52 EC ASEAN 2008 INDONESIA | 318

10. Operational certificate issued by the eligible insti- Clean Development Mechanism tute for certification Indonesia is a »late starter« in relation to CDM.53 The 11. Commercial operation by investor, and PLN to pur- Kyoto Protocol was ratified in 2004 and the institutional chase the electricity generated from the commis- framework for the sector only set up afterwards. The Min- sioned RE project. istry of Environment took the initiative to establish the Indonesian Designated National Authority (DNA) set up The Minister of Energy issues a certificate for approved in July 2005, which is officially called the National Com- projects. This certificate, which cannot be transferred to mission for CDM. other developers or investors, is dedicated only to a renew- A study financed by the World Bank (WB) published able energy project that generates electricity and sells elec- in 2007 found that with an annual output of over 3 bil- tricity to consumers’ for on- and off-grids. The certificate lion tons of carbon dioxide equivalent, Indonesia is the has no value and is not tradable, and the government of third-largest emitter of greenhouse gas (GHG) emissions Indonesia will not provide any financial support. With the worldwide. The problems of climate change are still new to certificate the operator is allowed to sell electricity to PLN many Indonesian enterprises. Awareness of the issue has, based on the announced base tariff. PLN will not issue however, risen with the UN Climate Change Conference the certificate, but will sign a power purchase agreement in Bali in December 2007. More than 10 000 registered (PPA) contract with the investor. participants from about 180 countries along with 130

TABLE 11: EXAMPLES OF REGISTERED RENEWABLE ENERGY CDM-PROJECTS IN INDONESIA Installed Annual savings Date of Projekt Location Type IRR (%) Capacity (MW) [ktCO2eq] registration CDM Solar Cooker Aceh Solar 0.6 N / A 3.5 6-Feb-06 Projekt Aceh 1 MSS Biomass 9.7 MWe Condens- Biomass Riau 9.7 10 56 17-Jun-06 ing Steam Turbine energy Project MNA Biomass 9.7 MWe Condens- Biomass North Sumatra 9.7 10 46 31-Aug-06 ing Steam Turbine energy Project Darajat Unit III West Java Geothermal 110 10 652 11-Dec-06 Geothermal Project Amurang Biomass Biomass Congeneration North Sulawesi 3 N / A 30 20-Feb-07 energy Project Nagamas Biomass Biomass Congeneration Riau 3 11 77 23-Nov-07 energy Project in Indonesia 4MW Biomass Power Plants Using Biomass Waste Wood Chips & Central Java 4 N / A 15 23-May-08 energy Sawdust in Central Java Province Listrindo Ken- Bangka- Biomass cana Biomass Power 12 N / A 50 8-Dec-08 Belitung energy Plant

(Source: UNDP RISØ 2009)

53 EC ASEAN 2008 INDONESIA | 319

environment ministers met in Indonesia and brought cli- In the renewable energy sector, there are some pro- mate protection onto the agenda in Indonesia. grammes targeted to specific types of renewable energy, e.g. the programme Mini-Hydropower Schemes for Sus- Up to mid-December 2007, only eleven CDM projects tainable Economic Development implemented by the were registered by the CDM Executive Board (EB).54 In German Technical Cooperation (GTZ) on behalf of the July 2009, the Indonesian DNA had 106 projects in its German Government since 1999.58 The programme aims portfolio. 24 projects were registered with the CDM EB at using mini-hydro applications for rural electrification, (mainly biomass energy projects) and 61 projects are at thereby promoting local economic development. The ac- validation.55 Table 11 shows examples of renewable energy tivities focus on the establishment of a fully fledged mar- CDM projects implemented in Indonesia. ket for rural energy services in the small-scale hydropower To obtain more information about Indonesian CDM sector. On the supply-side, technical support and know- projects, the DNA website56 provides lists of projects how is provided to enhance competencies in planning, which have successfully prepared a Project Idea Note construction, supply of equipment and operating mini- (PIN) and a Project Design Document (PDD) approved hydropower stations at local level. Furthermore, access to by the DNA. These include renewable energy and energy financing is being facilitated. On the demand side, politi- efficiency projects, but no wind project has been presented cal, private sector, administrative and civil society stake- so far. Indonesia has a large CDM potential which is in- holders are informed about the different aspects of utilis- cluded in the Renewable Energy Development Plan. ing hydropower. As a result of the project activities, more than 85 percent of the electromechanical equipment is Amongst others, Indonesia has reached cooperation already produced locally and more than 100 installations agreements on emissions trading with the Netherlands, of 7–250 kW use the standard design introduced by the Denmark, Austria and Canada. Furthermore the country project, supplying some 20 000 households, small-scale cooperates with the Japan Bank of International Cooper- entrepreneurs and public utilities with clean energy.59 ation and numerous other international institutions. The Deutsche Gesellschaft für Technische Zusammenarbeit The Dutch Government has made considerable fund- (GTZ) has been involved in supporting the Indonesian ing available for the promotion of a sustainable energy government on CDM issues. The development of Indo- programme in Indonesia called the Energy Programme nesia’s DNA is part of the capacity building project on 2007 – 2011.60 The Energy Programme 2007 – 2011 CDM that is supported by the GTZ. is developed by SenterNovem, an agency of the Dutch Ministry of Economic Affairs, which has established the International donor activities Bilateral Energy Cooperation Indonesia-Netherlands Providing a total of 3 billion € since the German-Indone- (BECIN). SenterNovem together with IWES and Dutch sian cooperation started in the 1950s, Germany is Indo- companies intends to implement successful and sustain- nesia’s fourth-largest bilateral donor after Japan, Australia able wind energy projects in Indonesia. and the USA.57 Germany also supports the development of Indonesia through contributions via multilateral institutions such as the United Nations, the World Bank, the Asian Development Bank and the development funds of the European Union. There are currently some 30 ongoing projects in Technical Cooperation (TC) employing about 60 long-term experts.

54 UN body for the international approval of CDM projects 58 Since 2006, the Netherlands Directorate General for International Cooperation 55 UNEP risoe 2009 (DGIS) has been providing co-finding in course of its Energising Developmen 56 http://dna-cdm.menlh.go.id/en/ programme. 57 Auswärtiges Amt 2009 59 GTZ 2008 60 Embassy of the Kingdom of the Netherlands 2009 INDONESIA | 320

14.6 Market potential for wind energy regarding the national energy policy63 and Blueprint energy policy 2005 (see section 1.4). Wind energy potential The Directorate-General for Electricity and Energy Uti- The average wind speeds in Indonesia range between 1.3 lisation (DGEEU) has a sub-directorate New & Renew- to 6.3 m /s.61 The main wind energy potential areas are able Energy which has set a target of 250 MW electricity located in East and West Nusa Tenggara (eastern and from wind energy on grid and 5 MW off grid in the year western portion of the Lesser Sunda islands, central south 2025.64 The wind energy roadmap, which is currently im- and eastern south of Indonesia) which have average wind plemented is shown in table 12. speeds of more than 5 m /s. The approximate wind power potential in Indonesia is Promotion programmes estimated at around 9 500 MW. However, Indonesia is The Indonesian government has a clear promotion pro- lagging behind its potential, with an installed capacity of gramme through its wind energy road map. around 1.2 MW. A database with wind energy potential of each region is available from the National Institute of Permission procedures Aeronautics and Space (LAPAN).62 To facilitate the procedure to develop renewable energy projects, the Indonesian government65 has changed a Framework Conditions for Wind Energy number of laws in the energy and mining sector, in order Goal for the use of wind energy to give Provincial Governments the right and responsibil- In Indonesia, the development of renewable energy is ity to issue concessions, and operating licenses for renew- currently regulated by Presidential Decree No. 5 / 2006 able energy and energy efficiency projects.

TABLE 12: WIND ENERGY ROADMAP BASED ON BLUEPRINT ENERGY POLICY 2005 – 2025

Year Item Activity 2005 – 2010 R & D • National wind atlas, estimation of the wind energy potential based on measurements; • Focus on low speed permanent magnet generator, advanced airfoil, light materials & control systems Technology • Development of locally produced Wind Energy Conversion System (WECS) and Product with a medium scale of 300 kW Product • Small WECS with a maximum of 300 W Market • Special applications off-grid and on grid • Electricity to be sold at 6 –12 cents USD / kWh 2010-2015 R & D • Regional wind energy potentials and regional wind mapping; • Focus on low speed permanent magnet generator, advanced airfoil, light materials & control system Technology • Development of medium/large scale WECS with 750 kW, produced in Indonesia Product • WECS with a maximum of 750 kW 2015-2025 R & D • Mapping and evaluating the countrywide wind energy potential based on measurements; • Focus on low speed permanent magnet generator, advanced airfoil, light materials & control system Technology • Large scale WECS > 1 MW (high share of local equipment) Product • WECS > 1 MW

Market • 5 MW off-grid, 250 MW on grid wind installations • < 5 cents USD/kWh

Source: WWEA 2009

61 PEU 2006 63 MEMR 2008 62 http://www.lapan.go.id/ 64 WWEA 2009 65 ADB 2009 INDONESIA | 321

The main actors which provide permits and support to for agriculture purposes and for battery charging. So far, the project developers are PLN and MEMR (DGEEU). no grid-connected medium or large-scale applications For setting up small-scale wind energy schemes, the Agen- have been realized in Indonesia. cy for the Assessment and Application of Technology (BPPT), the Ministry of Mines and Energy-Directorate- Business Climate General for Electricity and Energy Development (DG- Market players EED) as well as the National Institute of Aeronautics and Below is the list of companies involved in wind energy Space (LAPAN) could be contacted for project develop- development in Indonesia: ment issues. Contracts to local consulting, planning and engineering companies as well as contacts to wind energy • PT Indonesia Power: Responsible for wind power technology dealers can be provided by APETINDO, the generation; Indonesian Association of Renewable Energy Sources. • PT Citrakaton Dwitama: Provides advice for wind power development; Grid connection conditions • IWES (Indonesian Wind Energy Society): promotes To connect wind farms to the Indonesian electricity grid, wind energy which should be achieved in a collabo- the project developer must contact PLN. rative way among the stakeholders, i. e. between government, business, and research institutions as well as Current Use of Wind Energy and international partners; Project Pipeline • LAPAN (National Institute of Aeronautics and By end of 2008 wind energy accounted for 1.2 MW in Space): Make measurements and provide data; Indonesia.66 Small wind power projects are spread over the country with capacity ranges from 50 W – 10 kW. Legal conditions Since wind energy development in Indonesia is in its early Indonesia is lacking of a legal framework for the imple- stage, there are still numerous opportunities for project mentation of wind energy projects. In addition, there is development. Wind energy technology developed in the still a lack of participation from the key players in this area country, namely Wind Energy Conversion System67 (Sis- due to the following constraints: tem Konversi Energi Angin-SKEA), are still prototypes. Table 13 gives some examples of wind energy projects. • Financial Aspects: The high initial investment costs The current limited utilization of wind energy concen- and the perceived risks of renewable energy invest- trates on stand-alone electricity production in rural and ments have discouraged the investors and financing remote areas. Furthermore, it is used for water pumping institutions from providing the necessary funding.

TABLE 13: EXAMPLES OF PILOT WIND ENERGY PROJECTS IN INDONESIA Site Capacity (MW) Commissioned Wind Village Pilot Project at Jepara 31 units of 250 W, 1 000 W and 2 500 W 1992 – 2002 East Lombok 7 x 1 000 W 1992 – 2002 Pulau Karya in Pulau Seribu 4 x 1 000 W 2004 Egra 1 000 small water pumping turbines 2004 Nusa Penida Bali 1 x 80 kW 2007

Source: PAKPAHAN 2009

66 WWEA 2009 67 SERD 2007 INDONESIA | 322

• Pricing: The initial investment costs for renewable energy technology are higher than the conventional energy because the technology is still in its early stage. In addition, the government is still giving high subsidies for fossil fuels. • Lack of private sector involvement: Poor financing and pricing greatly contributed to a lack of private sector participation in the commercial utilization of renewable energy sources.

Structural conditions The national wind industry has capacities for small-scale utilization68: the local industry is able to build wind energy conversion system components of up to 5 kW. This capacity could be expanded to mass production in case the market would be available. Medium- and large-scale utilization is still under development. An example of the implementation of this technology is the educational and practical demonstration projects conducted by the Bo- gor Heritage Organization by building 1 000 small wind farm projects in Java Island, in 2004. These wind farms are named »Egra«=Energy Gratice=Free Energy.

Financing possibilities Since the government founding capacity is limited for wind energy projects, there are therefore other sources of finance available from multilateral / bilateral funding agencies, i. e. WB and ABD.

68 SERD 2007 INDONESIA | 323

14.7 Contacts and Addresses Indonesian Renewable Energy Society (IRES) Masyarakat Energi Terbarukan Indonesia (METI) Ministry of Energy and Mineral Resources (MEMR) Jalan Duren Tiga No. 101, Pancoran Jalan Medan Merdeka Selatan No. 18 Jakarta – 12760 Jakarta – 10110 Tel. u. Fax: +62 (21) 791 98 58 Tel.: +62 (21) 380 42 42 / 381 32 33s E-mail: [email protected] Fax: +62 (21) 351 98 81 Internet: www.meti.or.id Internet: www.esdm.go.id/ Asian Development Bank Indonesia Directorate General of Electricity and Energy Resident Mission (ADB) Utilization (DGEEU) Country Director’s Office Jl. H.R. Rasuna Said Blok X-2 Kav. 7 – 8, Kuningan Gedung BRI II, 7th Floor Jakarta – 12950 Jl. Jend. Sudirman Kav. 44 – 46 Tel.: +62 (21) 522 51 80 Jakarta – 10210 Fax: +62 (21) 525 60 44 Tel.: + 62 (21) 251 27 21 Fax: + 62 (21) 251 27 49 Directorate General for Geology and INMARSAT-A 00 872 154 5201 Mineral Resources (DGGMR) E-mail: [email protected] Jalan Prof. Dr. Soepomo, SH No. 10, Tebet Internet: www.adb.org Jakarta – 12870 Tel.: +62 (21) 828 07 73 / 829 56 08 ASEAN Centre for Energy (ACE) Fax: +62 (21) 829 76 42 ASEAN Centre for Energy Building, 6th Floor Jl. HR. Rasuna Said Blok X-2, Perusahaan Listrik Negara (PLN) Kav. 07 – 08 Kuningan, Jl. Trunojoyo Blok M I /135 Jakarta – 12950 Jakarta – 12160 Tel.: +62 (21) 527 93 32 Tel.: +62 (21) 725 12 34 ext. 4000 / 722 23 28 Fax: +62 (21) 527 93 50 Fax: +62 (21) 720 49 29 Internet: www.aseanenergy.org

PT Pertamina Geothermal Upstream Directorate National Commission for Kwarnas Pramuka Building, 6th Floor, Jalan Medeka Clean Development Mechanism Timur 6 Haneda Sri Mulyanto / Dadang Hilman Jakarta – 10110 Jl. DI Panjaitan Kav 24 Tel.: +62 (21) 352 15 76 Jakarta, DKI, 13410 Fax: +62 (21) 350 80 33 Indonesia Tel.: +62 (21) 851 71 64 Fax: +62 (21) 859 02 521 Internet: http://dna-cdm.menlh.go.id/en/ INDONESIA | 324

Bilateral Energy Cooperation (www.apecenergy.tier.org.tw/database/db/ewg20/ Indonesia-Netherlands (BECIN) gndppr/10.3-4.rtf ) Retrieved on 1st September 2009 Juliana van Stolberglaan 3 2595 CA The Hague, The Netherlands ASIANPOWER: aesieap Goldbook 2009, Indonesia p. 124, Tel.: +31 70 373 50 00 report, 2009 (http://www.aesieap.org/goldbook2009/s4/ Fax: +31 70 373 51 00 Indonesia.pdf ) Retrieved on 1st September 2009 Internet:www.senternovem.nl/becin/about_becin/ index.asp Auswartiges Amt: Indonesia, March 2009 (http://www. auswaertiges-amt.de/diplo/en/Laenderinformationen/01- Laender/Indonesien.html) Retrieved on 1st September 2009 14.8 Information sources CIA – Central Intelligence Agency: The World factbook, ADB – Asian Development Bank: 2009 (https://www.cia.gov/library/publications/the-world- • Energy and Climate Change in Indonesia, 2009 factbook/geos/id.html) Retrieved on 1st September 2009 (http://www.adb.org/documents/events/2009/ Climate-Change-Energy-Workshop/INO.pdf ) DGEEU – Directorate General of Electricity and Energy Retrieved on 1st September 2009 Utilization: Country Paper, (http://www.unescap.org/esd/ – Law No. 27 / 2003 on Geothermal energy/information/biomass_seminar/Indonesia.pdf ) – Ministerial Decree No. 1122 K /30 / MEM / 2002 – Ministerial Regulation No. 002 / 2006 o EC ASEAN: Policy Instruments to Promote RE • Java-Bali Electricity Distribution Performance Im- Projects Interconnected to National Grids: The Case provement: Indonesia, 2009 (http://pid.adb.org/pid of Indonesia, Malaysia, Philippines and Thailand 2008 /LoanView.htm?projNo=40061&seqNo=01& (http://www.ec-asean-greenippnetwork.net/dsp_page. typeCd=) Retrieved on 1st September 2009 cfm?view=page&select=156) Retrieved on 1st Septem- • Renewable Energy and Energy Efficiency in Indone- ber 2009 sia, 2009 (www.adb.org/documents/events/2009 /Climate-Change-Energy-Workshop/Renewable- EIA – Energy Information Administration: Energy-Girianna.pdf ) Retrieved on 1st September • Energy Profile of Indonesia, 2007 ( http://www. 2009 eoearth.org/article/Energy_profile_of_Indonesia) • Retrieved on 1st September 2009 Country Analysis www.asiancompetitionforum.org/download/pdf2008/ Briefs 2007, 2008 (http://tonto.eia.doe.gov/coun- D1%20S1A_Hassan.pdf try/country_energy_data.cfm?fips=ID) Retrieved Retrieved on 1st September 2009 on 1st September 2009

ANT - LKBN ANTARA (Indonesia): GOVT CANCELS IEA – International Energy Agency: Indonesia, 2006 PLANS TO RAISE ELECTRICITY TARIFF, March (http://www.iea.org/Textbase/country/n_country. 2006 (http://www.highbeam.com/doc/1G1-143499033. asp?COUNTRY_CODE=ID) Retrieved on 1st Sep- html) Retrieved on 1st September 2009 tember 2009 APEC Energy - Asia-Pacific Economic Cooperation: EWG20/10.3-Att A-Ann 3 INDONESIA | 325

Embassy of the Kingdom of the Netherlands: Promotion Leong K.Y., Mises Daily: Indonesia’s Energy Policy: A of Sustainable Energy in Indonesia, 2009 Lesson in Failure, Article, June 2005 (http://mises.org/ (http://indonesia.nlembassy.org/development/sustain- story/1906) Retrieved on 1st September 2009 able_energy) Retrieved on 1st September 2009 McCawley Tom – Asia Times: Indonesia plays power ESDM – Ministry of Energy and Mineral Resources Re- catch-up, March 2008 (http://www.atimes.com/atimes/ public of Indonesia: LAW OF THE REPUBLIC OF IN- Southeast_Asia/JC19Ae01.html) Retrieved on 1st Sep- DONESIA NUMBER 30 YEAR 2007 ON ENERGY, tember 2009 2007 (http://www.esdm.go.id/prokum/uu/2007/uu-30- 2007-en.pdf ) Merriam-Webster: Poverty definition, 2009 (http://www. merriam-webster.com/dictionary/poverty) Retrieved on ESRI – Environmental Systems Research Institute: Map 1st September 2009 of Indonesia, 2008 (http://www.esri.com/) Retrieved on 1st September 2009 Muklis Ali – Reuters: Indonesia state power firm PLN seeks USD 2.5 bln GENI – Global Energy Network Institute: Electricity loan, Jan 30, 2009 (http://www.reuters.com/article/rb- transmission grid of Indonesia, 2007 (http://www.geni. ssBanks/idUSJAK36415620090130) Retrieved on 1st org/globalenergy/library/energy-issues/indonesia/index. September 2009 shtml) Retrieved on 1st September 2009 Political Framework Conditions for Energy, July 1, 2009 (http://www.scribd.com/doc/15752766/Indonesia- GTZ – Gesellschaft für Technische Zusammenarbeit: Asean-Power-Grid) Retrieved on 1st September 2009 Mini-Hydropower Schemes for Sustainable Economic Development, 2008(http://www.gtz.de/en/weltweit/ National Commission for Clean Development Mecha- asien-pazifik/indonesien/16639.htm) nisms, Last visited 10 August 2009 (www.dna-cdm.menlh.go.id/en/) Hausmann Stefan: Country Special – Indonesia, Aug. Retrieved on 1st September 2009 2009(http://www.sunwindenergy.com/swe/pdf/reader- service/SWE_0809_036-039_CS_Indonesia.pdf ) Napitupulu T., Tanujaya O., SoejachmoenM.H.: Country Paper Indonesia for CDM-ASEAN CDM Development IEA-International Energy Agency: Beyond the OECD - in Indonesia, Report, 2009 (http://cdmasean.pelangi. Indonesia, 2006 or.id/countrypapers/CP-Indonesia.pdf ) Retrieved on (http://www.iea.org/country/n_country. 1st September 2009 asp?COUNTRY_CODE=ID) National Portal Republic of Indonesia: Govt cuts fuel IMF – International Monetary Found: Report for Select- ed Countries and Subjects: Indonesia, 2009 (http://www. imf.org/) Retrieved on 1st September 2009

LAPAN – Lembaga Penerbangan Dan Antariksa Nasion- al (National Institute of Aeronautics and Space of Indone- sia): Indonesia, 2009 (http://www.lapan.go.id/) INDONESIA | 326

price, electricity tariff, Jan 2009 (http://www.indonesia. Reuters: Indonesia set to approve new electricity law - go.id/en/index.php?option=com_content&task=view parl’t member, Sept 2009 (http://news.alibaba.com/ &id=7769&Itemid=701) Retrieved on 1st September article/detail/energy/100168015-1-indonesia-set- 2009 Osec – business network Switzerlands- Swiss Busi- approve-new-electricity.html) ness Hub ASEAN: Indonesia Electricity in Indonesia – Developments & Prospects 2006 (http://osec.ch/in- RECIPES – Renewable Energy in emerging and develop- ternet/osec/de/home/export/countries/id/export/eco- ing countries: Country energy information – Indonesia, nomic_report.-RelatedBoxSlot-78068-ItemList-89219- Sept 2006 File.File.pdf/bb_indonesien-Elektrizitaet2006_en.pdf ) Retrieved on 1st September 2009 REEEP – The Renewable Energy & Energy Efficiency Partnership: Pakpahan - LAPAN – National Institute of Aeronautics • Policy DB Details: Indonesia, 2009 ( http://www. and Space and Renewable Energy & Sustainable Develop- reeep.org/index.php?id=9353&text=policy-db& ment in Indonesia: Wind Development and Experience special=viewitem&cid=32) Retrieved on 1st Septem- in Indonesia - Past Experience and Future Challenges. ber 2009 Workshop, Jan 2009 (http://www.ceem.unsw.edu.au/ • Policy and Regulatory review, second edition, 2007 content/userDocs/P13SahatPakpahan.pdf ) Retrieved (http://www.reeep.org/file_upload/296_tmpphp- on 1st September 2009 W16ncV.pdf )

Paul Breeze: ASEAN region powers toward intercon- Rusirawan D. & Hartawan L., ITENAS: Utilization of nection, 2008 (http://pepei.pennnet.com/display_ Wind Energy in Indonesia, Indonesia Country Report, article/344418/17/ARTCL/none/none/1/ASEAN- 2006 (http://www.migas-indonesia.com/files/article/ region-powers-toward-interconnection/) Retrieved on Utilization_of_Wind_Energy_in_Indonesia.pdf ) Re- 1st September 2009 trieved on 1st September 2009

PEU – Pengkajian Energi Universitas: Indonesia: Indonesia Roberts J.: Jakarta terrorist bombings seized on to jus- Energy Outlook and Statistics, report, 2006 (http://www. tify Afghan war, July 2009 (http://www.wsws.org/ar- pln.co.id/) Retrieved on 1st September 2009 ticles/2009/jul2009/indo-j21.shtml) Retrieved on 1st September 2009 PLN - Perusahaan Listrik Negara: Perusahaan Listrik Ne- gara (P.T.), 2008 (http://www.pln.co.id/investor/filenews/ SenterNovem: Bilateral Energy Cooperation Indone- PLN%20SO%202008%2007%2031.pdf ) sia-Netherlands (BECIN), June 2009-08-20(http:// www.senternovem.nl/mmfiles/Bilateral%20energy%20 Rahayu - LAPAN – National Institute of Aeronautics cooperation%20between%20Indonesia%20and%20 and Space: Wind Energy Technology In Indonesia, the%20Netherlands_tcm24-304554.pdf ) Retrieved on Pilot Projects Wind Energy, Wind Energy Workshop, 1st September 2009 June 2009 (http://senternovem.nl/mmfiles/6.%20 Sri%20Rahayu%20-%20Pilot%20Projects%20 Wind%20Energy%20-%20Lapan%20-%20Jakarta_ tcm24-307319.pdf ) Retrieved on 1st September 2009 INDONESIA | 327

SERD – School and Environment, Resources and De- WWEA – World Wind Energy Association: Wind En- velopment AIT: Overview of Policy Instruments for ergy International - Country report 2009, Indonesia. the Promotion of Renewable Energy and Energy Effi- (http://www.wwindea.org/home/index.php) Retrieved ciency in Indonesia, 2007 (http://www.serd.ait.ac.th/ on 1st September 2009 cogen/62/reports/countries/indonesia.pdf ) Retrieved Wu and Sulistiyanto – National University of Singapore: on 1st September 2009 Independent Power Producer (IPP) Debacle in Indonesia and Philippines: Path Dependence and Spillover Effects, Sjafra DWIPA: Geothermal development for support- 2005 (www.spp.nus.edu.sg) Retrieved on 1st September ing the Rural Electrification Program in Indonesia, 2002 2009 (http://d.wanfangdata.com.cn/NSTLQK_NSTL_ QK6356702.aspx) Retrieved on 1st September 2009 World Future Council PACT: • Feed-In Tariffs – A guide to one of the world’s best UNDP: 2007/2008 Human Development Report, 23 environmental policies Boosting Energy for our Fu- Energy sources, 2008 (http://hdrstats.undp.org/fr/indi- ture, Report, 2007 (http://www.worldfuturecouncil. cators/220.html) Retrieved on 1st September 2009 org/fileadmin/user_upload/Maja/Feed-in_Tariffs_ WFC.pdf ) Retrieved on 1st September 2009 UNDP: Indonesia, Environment and Energy, 2009 • Indonesia, 2009 ( http://onlinepact.org/indonesia. (http://www.undp.or.id/programme/environment/) html) Retrieved on 1st September 2009 WIR – World Resources Institute: Presidential Regu- UNEP Riso Centre: CDM Pipeline overview, Last vis- lation No.5 / 2006 on National Energy Policy, 2006 ited 10 August 2009 (http://uneprisoe.org/) Retrieved (http://projects.wri.org/sd-pams-database/indonesia/ on 1st September 2009 presidential-regulation-no-5-2006-national-energy-policy)

U.S. Department of State, Background Note: Indonesia, 2009 (http://www.state.gov/r/pa/ei/bgn/2748.htm) Retrieved on 1st September 2009 PAKISTAN 328

List of abbreviations

ADB Asian Development Bank LPGCL Lakhra Power Generation AEDB Alternative Energy Development Board Company Limited CDM Clean Development Mechanism m2 Square metre CPGCL Century Power Generation Company Ltd MW Megawatt ECO Economic Cooperation Organization NDA National Designated Authority FESCO Faisalabad Electric Supply Company NEPRA National Electric GDP Gross Domestic Product Power Regulatory Authority GEF Global Environment Facility NTDC National Transmission Dispatch Company GoP Government of Pakistan NPGCL Northern Power GTZ Deutsche Gesellschaft Generation Company Limited für Technische Zusammenarbeit PC Privatization Commission GWh Gigawatt hours PEPCO Pakistan Electric Power Company HEC Heavy Electrical Complex PJ Petajoule HUBCO Hub Power Company PPP Power Purchase Price IEA International Energy Agency QESCO Quetta Electric Supply Company IMF International Monetary Fund ROE Return on Equity IPP Independent power producers SAARC South Asian Association IRR Internal rate of return for Regional Cooperation JPCL Jamshoro Power Generation SHS Solar Home Systems Company Limited tCO2eq Tonnes of CO2 equivalents KESC Karachi Electricity Supply Corporation TWh Terawatt hours ktoe Kilotonne of oil equivalent UNDP United Nations Development Programme kV Kilovolt WAPDA Water and Power Development Authority kW Kilowatt WTO World Trade Organization PAKISTAN 329

15.1 Introduction Pakistani population were living under the national poverty line. The per capita income in Pakistan was 870 US$ 2 FIGURE 1: in 2007. MAP OF PAKISTAN The prevailing religion in the region is Muslim with 95 % of the total population. The official language used in business and government circles is English. In Pakistan many local languages are spoken of which Punjabi with 48 % is the most popular followed by Pashtun ( 15 % ) and Sindhi ( 14 % ).3 Pakistan’s climate has four distinct seasons: a cool dry winter from December to February, a dry and hot spring from March to May, a rainy southwest monsoon season from June to September and a retreating monsoon period in October and November.4 The Indus River and its tributaries form the backbone of the freshwater supply of Pakistan. Good conditions for wind power development can be Data Source: Pakistan CGIAR ( 2004 ) found in many parts of Pakistan, especially in the south- eastern coastal regions near Hyderabad but also in the Pakistan is located in South Asia and is bordered by Af- south-western region near Iran and in the region around ghanistan and Iran in the west, India in the east, China in Islamabad.5 the far northeast and by the Arabian Sea in the south. Pakistan is a Federal Republic with Asif Ali Zardari be- Pakistan’s estimated population is slightly more than 176 ing president since his election in September 2008. With million people1, which makes it the sixth most populous a long history of military involvement in politics his elec- country in the world. Pakistan has a total area of 796 095 tion enforced Pakistan’s return to a civilian government.6 km2. The majority of the population lives along the Indus Pakistan is a permanent member of G20, South Asian River in the Punjab and Sindh provinces while Karachi Association for Regional Cooperation ( SAARC ), The at the estuary of the Indus is the largest city in Pakistan Colombo Plan, Economic Cooperation Organization with approximately 12 million inhabitants. With a per ( ECO ) and WTO. capita income of nearly 800 US$ Pakistan is regarded as Pakistan’s national economic accounting is based on 12 a country with low income level. In 2005 22.3 % of the months starting on 1st July of each year. In the timeframe

TABLE 1: GDP OF PAKISTAN 2000 -2008

2000 2002 2004 2006 2008 GDP Annual percent ( constant prices ) change 4.3 3.2 7.4 6.2 6.0 GDP Billions ( current prices ) ( Rupees ) 3 826 4 453 5 641 7 623 10 478 GDP ( constant prices ) Billions USD 74.1 72.7 98.1 127.5 167.6

Table 1 demonstrates the Pakistani GDP growing steadily over the past years. In 2008, the inﬂation rate was 11.1 %. Source: IMF

1 CIA 2009 2 ADB 2009 3 CIA 2009 4 Peter Blood 1994 5 NREL 6 CIA 2009 PAKISTAN | 330

2007/2008 over half of Pakistan’s GDP was produced by FIGURE 2: the service sector ( 53.2 % ), followed by the industrial SHARE OF TOTAL PRIMARY ENERGY SUPPLY IN PAKISTAN sector ( 25.9 % ) and agriculture ( 21.2 % ).7 Agriculture IN 2006 ( TOTAL: 79 294 KTOE ) is nevertheless one of the most important sectors for Pa- 2 755 3 % kistan as 45 % of the workforce is employed in the sector 4 282 634 and 60 % of the rural population depend on it for their 5 % 1 % livelihood either directly or indirectly.8 Nearly 70 % of all exports leaving Pakistan come from 18 9515 27 6745 the textile sector followed by foodstuff with 22 %. Pa- 24 % 35 % kistan’s export relations are not concentrated on a few countries but distributed fairly evenly. The EU ( 25.5 % ) together with the USA ( 24.6 % ) account for half of Pakistan’s exports. Other important countries are the UAE, 25 057 Afghanistan and China.9 32 %

Combined renew. & waste Coal Gas Hydro 15.2 Energy market Oil Nuclear

Overview Energy Market Source: IEA 2008 The development of the total primary energy supply experienced a strong rise in the last years. Starting at be- TABLE 2: low 20 000 ktoe in 1970 of which more than 50 % were FINAL ENERGY CONSUMPTION IN PAKISTAN, 2006 IN KTOE AND % provided by combined renewables and waste it reached Total Final Consumption 79 294 ktoe ( equal to 3 320 PJ or 922 189 GWh ) in ktoe % 2006. Over the last thirty years the share of gas and oil Industry 17 755 27 % increased much more strongly than the other sources. Pa- Transport 10 061 15 % kistan’s primary energy supply is dominated by combined Other sectors 34 361 52 % renewable and waste ( 35 % ) ( i.e. waste materials and bio- of which Residential 31 654 48 % mass ), followed by gas with 32 %, oil with 24 %, coal with Commercial and 1901 3 % 5 %, hydro with 3 % and nuclear with 1 %. The split to the Public Services 10 various sources can be seen in figure 2. Agricultural / 805 1 % Forestry Energy consumption in 2007 in Pakistan is dominated by Non-Energy Use 3 406 5 % the industrial sector with 44 %. The detailed split across Total 65 583 100 % the sectors can be seen in table 2.11 Source: PEPCO 2009 and JPCL 2008

The electricity grid the heavy power flow through the 500 kV system, a short- The distribution network in Pakistan is owned by the age of supply capacity for the 220 kV system and high Water and Power Development Authority ( WAPDA ) transmission losses. Central reasons for the lack of supply operates on 500-kV and 220-kV transmission lines. Pa- and the associated power cuts are: lack in new genera- kistan’s transmission system faces three major challenges: tion capacity, lower hydro power generation in the winter

7 Germany Trade and Invest 2009 8 Auswärtiges Amt 2009 9 Germany Trade and Invest 2009 10 IEA 2008 11 IEA 2008 PAKISTAN | 331

months, reduced generation from natural gas in the win- FIGURE 3: ter months and unfavourable generation in the summer ELECTRICITY TRANSMISSION GRID IN PAKISTAN for older generation units. As the system is not capable of meeting the load, outages and shortages are a problem.12 77 % of the 500-kV power transformers and 69 % of the 220 kV transformers were overloaded in 2006. The system is being expanded with the help of US$ 226 million funding from the Asian Development Bank ( ADB ). The current national power distribution and carrier network connects 55 % of the Pakistani population. Poor quality infrastructure and power theft leads to transmission losses of approx. 30 %. The distribution of the transmission grid can be seen in figure 3.

Installed Capacity Data Source: CGIAR ( 2004 ) In 2007 Pakistan’s electricity generation capacity was 19.5 GW, of which 64 % was provided by fossil fuelled thermal Karachi where the Karachi Electricity Supply Corpora- power plants ( i. e. fuelled by gas, oil and coal in varying tion ( KESC ) is operating. Additional generation is con- amounts due to flexible fuel plants ), 34 % by hydro power tributed from Independent ( private ) Power Producers and 2 % by nuclear.13 Hydro is the only significant source ( IPPs ). The National Electric Power Regulatory Author- of renewable electricity ( see table 5 ). Neither Wind nor ity ( NEPRA ) is responsible for regulating the power sec- Photovoltaic is relevant at the moment. In recent years tor in Pakistan including power generation, transmission electricity generation has been rising rapidly as the capac- and distribution. ity was just 17.8 GW in 2002. The historical development As per Government of Pakistan policy of 1998 all thermal of the capacity since 2002 can be seen in table 3.14 power generation has been restructured and placed into four corporatized companies: Jamshoro Power Generation The electric power sector in Pakistan was primarily op- Company Limited JPCL ( GENCO-1 ), Central Power erated by the Water and Power Development Authority Generation Company Limited CPGCL ( GENCO-2 ), ( WAPDA ) supplying to all regions of Pakistan except Northern Power Generation Company Limited NPGCL

TABLE 3: INSTALLED CAPACITY OF ELECTRICITY GENERATION IN PAKISTAN ( 2002 – 2007 )

Year 2002 2003 2004 2005 2006 2007 Hydro 5.05 5.05 6.50 6.50 6.50 6.48 Thermal WAPDA 4.74 4.74 4.74 4.84 4.90 4.90 Thermal KESC 1.76 1.76 1.76 1.76 1.76 1.76 Thermal IPPs 5.80 5.79 5.81 5.83 5.83 5.82 Nuclear 0.46 0.46 0.46 0.46 0.46 0.46 Installed capacity ( GW ) 17.80 17.80 19.26 19.38 19.45 19.42 Source: PEPCO 2009 and JPCL 2008

12 Based on information from the Pakistani grid operator 13 IEA 2008 14 EIA 2007 PAKISTAN | 332

( GENCO-3 ) and Lakhra Power Generation Company capacity of the IPPs is 6 098 MW of which 42 % are pow- Limited LPGCL ( GENCO-IV ) have been formed and ered by fuel oil, 26 % by natural gas, 5 % by nuclear power function as GENCOs. Following from this decision the and the remaining 27 % by a mixture of fuel oil and gas. focus of WAPDA shifted more to the development of According to PEPCO18 additional power of almost 3 hydro power projects and water sector projects. The fol- 500 MW shall be added in the PEPCO distribution sys- lowing table 4 presents the thermal generation units of the tem by this year. 18 IPPS shall start operation before the individual GENCOs and their output.15 16 end of the year with capacities between 51 and 300 MW.

Recent growth in thermal capacity has mostly come from Electricity Generation independent power producers with the help from inter- The power generation of Pakistan grew from below national investors. Exemplary large plants are Kot Addu 10 000 GWH in 1971 to around 60 000 GWh in 1996 ( 1 683 MW ) and Hubb River ( 1 300 MW ), both of and was 98 350 GWh in 200619 jointly produced by the which supply power to WAPDA. The two largest private 4 GENCO’s and the IPPs. Until 1980 electricity genera- power utilities in Pakistan are the Hub Power Company tion was dominated by hydro and natural gas. Oil fired ( HUBCO ) and the Kot Addu power company ( KA- generation rose after 1980 to meet growing demands PCO ). HUBCO is owned by a consortium of Interna- which were also partly met by new nuclear capacity. But tional Power ( UK ), Xenal ( Saudi Arabia ), and Mitsui as the shares of hydro power and gas have also risen, these Corporation, and has a 1 300 MW capacity. The Kot two sources still account for the major part of electri- Addu plant, with a 1 600 MW capacity, was privatized in city generation. The share of gas varies mostly according 1996 ( from WAPDA ). to the share of hydro to meet any differences between As of 2009 16 IPPs are operating in Pakistan. They range supply and demand. The share of electricity generation by in size from large producers with 1 638 MW installed fuel can be seen in table 5 on the following page. There capacity Kot Addu to small producers with 31 MW. The is no electricity generation in Pakistan from renewable first IPP started production in 1996.17 Overall installed sources other than hydro power.

TABLE 4: DISTRIBUTION OF THERMAL GENERATION UNITS AT THE 4 GENCOS

GENCO Plant Fuel Capacity ( MW )

JPCL ( GENCO-1 ) TPS Jamshoro Gas / Oil 850 GTPS Kotri Gas / Oil 174 CPGCL ( GENCO-2 ) TPS Guddu Gas / Oil 1 655 TPS Quetta Gas 35 NPGCL ( GENCO-3 ) TPS Muzaffargarh Gas / Oil 1 350 NGPS Multan Gas / Oil 260 GTPS Faisalabad Gas / Oil 244 SPS Faisalabad Gas / Oil 132 GTPS Shahdara Gas 44 CGTM W/Shop F/Abad LPGCL ( GENCO-4 ) FBC Lakhra Coal 150

Source: PEPCO 2009 and JPCL 2008

15 PEPCO 2009 18 PEPCO 2009 16 JPCL 2008 19 IEA 2008 17 PEPCO 2009 PAKISTAN | 333

TABLE 5: ELECTRICITY GENERATION BY SOURCE FOR THE YEARS 2001/02 – 2006/07 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

GWh % GWh % GWh % GWh % GWh % GWh % Hydro 18 941 26.2 % 22 351 29.5 % 26 944 33.3 % 25 671 30.0 % 30 862 33.0 % 31 953 32.5 % Coal 285 0.4 % 231 0.3 % 198 0.2 % 175 0.2 % 129 0.1 % 136 0.1 % Oil 26 034 36.0 % 24 353 32.2 % 12 711 15.7 % 13 516 15.8 % 18 868 20.2 % 28 025 28.5 % Gas 24 855 34.3 % 27 006 35.7 % 39 213 48.5 % 43 472 50.8 % 41 286 44.1 % 35 811 36.5 % Nuclear 2 291 3.2 % 1 740 2.3 % 1760 2.2 % 2 795 3.3 % 2 484 2.7 % 2 288 2.3 % Total 72 406 100.0 % 75 681 100.0 % 80 826 100.0 % 85 629 100.0 % 93 629 100.0 % 98 213 100.0 %

Source: HDIP

The electricity consumption of the individual sectors of Electricity generation from renewable sources is nearly the Pakistani economy in 2006/07 is shown below in solely from hydro power plants. The total capacity of table 6. the 13 hydro stations operated by WAPDA is roughly 6 444 MW. Therefore they represent 37.10 % of the total

TABLE 6: SHARE OF ELECTRICITY CONSUMPTION OF installed generation capacity of WAPDA. The seasonal INDIVIDUAL SECTORS IN 2006/07 variations of reservoir levels and consequent reduction Sector % in power outputs of storage type hydro projects in Paki- Domestic 45.8 stan are very pronounced. The lean flow period of Tarbela Industrial 29.0 reservoir is from November to June when the generation Agriculture 11.2 capacity is reduced to as low as about 1 350 MW against Commercial 7.4 the maximum of 3 692 MW during high head period i.e. Bulk Supplies 5.9 August to September.21 Others 0.7 The use of other renewable energy sources remains very Source: HDIP limited despite their large potential. Small scale hydro power is used in remote areas ( e. g. in the North-Western Renewable Energies provinces ) where over many plants with rated outputs The Renewable Energy Potential in Pakistan excluding ranging from 5 – 50 kW have been installed. Biomass is large hydro was assessed as follows in table 7.20 largely used for heating and cooking purposes and also in small scale biogas systems throughout the country. Solar

TABLE 7: POTENTIAL FOR RENEWABLE ENERGY energy is grossly underutilised in comparison to the large DEVELOPMENT IN PAKISTAN available potential only reaching close to 1 MW of capac- Source Potential ( MW ) ity at present. Solar energy is used for electricity genera- Wind 346 000 tion but also for desalinisation and water purification. Solar 2 900 000 Geothermal energy has been identified as a potential Bagasse Cogeneration 1 800 source but is not being used at present. Waste to Power 500 Mini & Small Hydro 2 000 Electricity Prices Total 3 249 300 The determination of tariffs for electric power services is Source: AEDB 2009 one of the primary responsibilities of the National Elec-

20 AEDB 2009 21 PEPCO 2009 PAKISTAN | 334

TABLE 8: ELECTRICITY SUPPLY TARIFFS FOR RESIDENTIAL CONSUMERS General supply FESCO €/ GEPCO €/ HESCO €/ IESCO €/ LESCO €/ MEPCO €/ PESCO €/ QESCO €/ Average € tariff for residen- kWh kWh kWh kWh kWh kWh kWh kWh /kWh tial consumers less than 50 kWhs 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 ﬁrst 100 kWhs 0.03 0.03 0.06 0.03 0.03 0.04 0.05 0.05 0.03 next 200 kWhs 0.04 0.04 0.06 0.04 0.03 0.04 0.06 0.06 0.04 next 700 kWhs 0.06 0.06 0.08 0.06 0.06 0.06 0.08 0.07 0.06 Above 1 000 kWhs 0.07 0.07 0.10 0.07 0.07 0.07 0.09 0.08 0.07 Average tariff for 0.05 0.05 0.08 0.05 0.05 0.06 0.08 0.07 0.05 average household with 1 000 kWhs consumption

Source: NEPRA 2009 tric Power Regulatory Authority ( NEPRA ). A feed in Liberalisation tariff is in place but no information is available on the Privatisation efforts began after the creation of the Pri- status of its enforcement for renewable energy sources vatisation Commission ( PC ) on January 22, 1991. Al- other than wind power due to a lack of projects. Infor- though the PC mandate was initially restricted to indus- mation on the feed in tariff procedures for wind power trial transactions, by 1993 it had expanded to also include are given in chapter 1.6.22 Power, Oil & Gas, Transport ( aviation, railways, ports and shipping ), Telecommunications and Banking and For each of the eight distribution companies the tariffs Insurance. During the timeframe from January 1991 to are set individually. There are differentiated tariffs for the December 2008 the Commission completed 167 trans- following customer groups: residential, commercial, in- actions for Rs 476 421 million ( 3 957 million € ).23 In the dustrial, agriculture, public lightning and other custom- energy sector 14 privatisations of formerly state owned ers. Besides a fixed minimum monthly rate which is irre- companies occurred netting revenues of 51 756 Rs bil- spective of consumption, the tariff system is progressive. lion ( 430 billion € ) 10.9 % of the total revenues.

In July the Ministry of Water and Power has announced TABLE 9: an increase in power tariff up to 24 percent in three ENTITIES LISTED FOR PRIVATIZATION AS OF 2009 phases. The first phase is scheduled to commence on No. Name October 1st, 2009 with a raise of 8 — 10 percent, fol- 1 Peshawar Electric Supply Company ( PESCO ) lowed by a 5 — 6 percent raise on January 1st, 2010 and 2 Quetta Electric Supply Company ( QESCO ) finally by 5 — 6 percent from April 2010. 3 Hyderabad Electric Supply Company ( HESCO ) 4 National Power Construction Company ( NPCC ) The electricity price charged to customers is based on 5 Faisalabad Electric Supply Company ( FESCO ) the Power Purchase Price ( PPP ), generation costs, 6 Jamshoro Power Company Limited ( JPCL ) transmission costs and a distribution margin. Table 9 7 Heavy Electrical Complex ( HEC ) shows the electricity supply tariff for residential con- 8 Pakistan Mineral Development Corporation ( PMDC ) sumers ( based on an Exchange rate of 100 Pakistani 9 Kot Addu Power Company ( KAPCO ) – GDR Rupee = 0.856 € ) Source: Privatisation Commission 2009

22 REN21 2009 23 Based on Exchange rate 100 Rs = 0.8305 € PAKISTAN | 335

On 28 September 2000, the Pakistani Government prom- Alternative Energy ulgated the PC Ordinance 2000, which strengthened the Development Board (AEDB) PC’s legal authority as a corporate body for implementing The Alternative Energy Development Board ( AEDB ) the government’s privatisation policy. The Government was founded in 2003 as a central agency for the develop- of Pakistan has reviewed the existing privatisation policy ment, promotion and deployment of technologies for the of strategic sale (51 % – 100 % shares) in order to model it use of renewable energy and for the establishment of a around the concept of Public Private Partnership (PPP) local production base for RES technologies. The AEDB wherein the management may be transferred to investors shall ensure that in 2030 5 % of the total electricity gener- through sale of 26 % shares. A number of entities are on ation capacity shall come from renewable energy sources. active privatization list and are likely to be taken for bid- In addition, under the remote village electrification pro- ding in the near future. Some of these entities related to gram, AEDB has been directed to electrify 7 874 remote the power sector are listed in the 8 on the previous page. villages in Sindh and Balochistan provinces through renewable energy technologies. AEDB also has to develop Rural Electriﬁcation a comprehensive plan for the development of solar prod- In 1995/1996 approximately 54 000 of the 125 000 Pakista- ucts like solar lights, solar fans, solar cookers and solar ni villages were connected to the grid. As the costs for grid geysers through the participation of the private sector. connections are increasing with each additional village with increasing distances less and less villages were connected each Pakistan Water and Power Development year. In 2004 still 47 000 villages were not connected to the Authority ( WAPDA ) Pakistan Electric Power grid. The rate of increase of grid connected villages decreased Company ( PEPCO ) to roughly 2 %. To overcome this situation more than 1.5 The Pakistan Water and Power Development Authority billion US $ ( 1 billion € ) would need to be invested until ( WAPDA ), was created in 1958 as a Semi-Autonomous 2015. A program initiated by Alternative Energy Develop- Body for the purpose of coordinating and giving a uni- ment Board ( AEDB ) in 2007/2008 sought to alleviate this fied direction to the development of schemes in Water situation by installing 3 000 Solar Home Systems ( SHS ) in and Power Sectors. Since October 2007, WAPDA has the southern province of Sindh. The program shall be ex- been bifurcated into two distinct entities i.e. WAPDA panded to 9 000 SHS in the province of Baluchistan.24 and Pakistan Electric Power Company ( PEPCO ). WAPDA is responsible for water and hydropower development whereas PEPCO is vested with the responsibility 15.3 Market Actors of thermal power generation, transmission, distribution and billing. This includes the management of the corpo- Ministry of Water and Power ( MoW&P ) ratized nine Distribution Companies ( DISCOs ), four The federal Ministry of Water and Power is the Govern- Generation Companies ( GENCOs ) and the National ment of Pakistan’s executive arm for all issues relating to Transmission Dispatch Company ( NTDC ). electricity generation, transmission and distribution, pricing, regulation, and consumption in the country, and exer- Private Power and Infrastructure Board (PPIB) cises this function through its various line agencies as well The Private Power and Infrastructure Board ( PPIB ) was as relevant autonomous bodies. It also serves to coordinate founded in 1994 to promote and facilitate private sector and plan the nation’s power sector, formulate policy and participation in the Pakistan Power Sector in an efficient, specific incentives, and liaise with provincial governments fair and transparent manner. It supports coherent efforts on all related issues. of key stakeholders, in line with the Private Power Poli-

24 AEDB 2009 PAKISTAN | 336

cies of GOP and the electricity demand/supply projec- industry, as well as the execution of development projects tions after taking into account the planned public sector involving nuclear power stations and the generation of power projects. electric power.

National Electric Power Regulatory DISCOs & GENCOs Authority (NEPRA) Electricity utilities in Pakistan comprise nine separately In 1997 the National Electric Power Regulatory Author- corporatized distribution companies ( DISCOs: Lahore, ity ( NEPRA ) was founded to introduce transparent and Gujranwala, Faisalabad, Islamabad, Multan, Peshawar, fair economic regulation based on commercial principles Hyderabad, Quetta, and Tribal Areas ) serving different in Pakistan’s electricity market. The statutes of NEPRA regions of Pakistan and a private integrated company, the represent the goal of Pakistan’s government to introduce Karachi Electric Supply Corporation ( KESC ), serving an independent regulatory body in charge of electricity- the Karachi metropolitan area. In addition, there are four generation, -transmission and distribution with the aim generation companies ( GENCOs: Southern, Central, to increase efficiency and availability of power generation Northern, and Lakhra ) through competition and deregulation. It should further protect the interest of investors, operators and consumers. Therefore NEPRA is tasked with: the granting of 15.4 Political Framework Conditions operation licenses for generation units, the assurance of in the Energy Sector quality and security standards and the setting of tariffs for the generation, transmission and distribution of electri- The Ministry of Water and Power ( MoW&P ) is respon- city. NEPRA is an important partner for the realization sible for formulating Pakistan’s energy policy. After fre- of private investments and PPP projects in the electricity quent shortages in electricity supply a strategy plan was sector. enacted in 1992 to restructure the energy sector. It started with the private sector power law in 1994 aimed at at- Pakistan Council of Renewable Energy tracting private capital to the Pakistani power sector. At Technologies (PCRET) the same time the PPIB was installed to serve as a facility The Pakistan Council of Renewable Energy Technologies to investors in Pakistan’s private power sector. ( PCRET ) was formed though a fusion of the National Institute of Silicon Technology ( NIST ) and the Paki- In 1997 NEPRA was founded with the main tasks to: stan Council for Appropriate Technologies ( PCAT ). ensure consumer protection and fair competition within PCRET has its main office in Islamabad and 4 regional the power sector, facilitate transition from a protected offices in Karachi, Lahore, Peshawar und Quetta. PCRET monopoly service structure to a competitive environ- is responsible for the development and implementation ment and to develop and pursue a Regulatory Framework of technologies for the utilization of renewable energy which ensures the provision of safe, reliable, efficient and sources. affordable electric power.

Pakistan Atomic Energy Commission ( PAEC ) In 2002 a law titled »Policy for Power Generation The Pakistan Atomic Energy Commission ( PAEC ) ope- Projects – Year 2002« was enacted which closely mimics rates the two nuclear power plants. PAEC is charged with the 1994 power law. Furthermore in July 2002 a whole- the promotion of, and research work on the peaceful uses sale market for electricity was established with NTDC as of atomic energy in the fields of agriculture, medicine and the single purchaser. PAKISTAN | 337

The following regulations and laws were put in place to country by the year 2015 and 10 % by 2025. govern the national Energy market: • Development of wind and solar energy to meet at least • Regulation of Generation, Transmission and Distribu- 5 % of total installed capacity through RE resources by tion of Electric Power Act ( XL of 1997 ) 2030. • Licensing Generation Rules, 2000; • For wind power the short term plan is to develop a cu- • Tariff Standards Procedure Rules, 1998 & Fees Per- mulated capacity from wind energy of 680 MW by the taining to Tariff Standards & Procedure Regulations, year 2010, 3 730 MW until 2020 through the Medium 2002; Term Plan ( 2011 – 2020 ) and 9 700 MW by 2030 as • National Electric Power Regulatory Authority Licens- part of the long term vision. ing ( Distribution ) Rules 1999 & Eligibility Criteria • Share of renewables in primary energy should reach for Consumers of ( Distribution ) Companies, 2003; 10 % by 201226. • Interim Power Procurement ( Procedures and Stan- dards ) Regulation, 2005; Legal Conditions and Support Schemes for • Performance Standards ( Distribution ) Rules – 2005; renewable energies Performance Standards ( Transmission ) Rules – 2005 The Policy for Development of Renewable Energy for Power Generation, December 2006, sets out policies The above described political framework serves the goal and strategies for electricity generation projects utilizing of the GOP to strengthen its indigenous power supply hydro ( up to 50 MW capacity ), wind and solar power position, to decrease import dependency and to supply ( of all capacities ). For hydroelectricity projects of capac- the rapid growing energy demand through the use of en- ity greater than 50 MW, the applicable policies are de- vironmental and sustainable growth. As such the policy scribed in the Policy for Power Generation Projects law tried to create more favorable conditions for renewable from 2002. Notable features of the policy are: The Wind power projects in general and large hydro projects in par- Risk or Hydro Risk is borne by the purchaser ( i.e. reduc- ticular. The share of generation was shifted more towards ing the vulnerability of the investor with respect to un- large hydro and away from fossil thermal plants. foreseeable seasonal variations ), a guaranteed Electric- ity purchase, the grid provision is the responsibility of the purchaser, an attractive tariff ( cost plus 15 % return on eq- 1.5 Framework Conditions uity ), the provision for net metering, the banking of electri- for Renewable Energies city and the introduction of the grid spill over concept. Furthermore regulations were promulgated to exempt Strategy and objectives for renewable energies all imported plant, machinery and equipment for renew- Following from the assessed potential of renewable enable power generation projects ( including wind energy ) ergies ( see chapter 1.2 ) the GoP developed targets for from Sales Tax ( SRO 500( I )/2004 ), Income Tax ( SRO the individual energy sources. With regard to renewable 441( I )/2004 ) and Customs Duty ( SRO 454( I )/2004 ).27 power the GoP enacted the following targets25: • Electrification of 7 874 remote, off-grid villages in In April 2009 NEPRA simplified the licensing proce- provinces of Sindh & Balochistan through renewable dures and reduced the license fees for small scale renew- energy. able energy projects. The new fees for renewable energy • Gradual introduction of bio-diesel fuel blends with projects with power generation capacity of 500 kW Rs. petroleum diesel so as to achieve a minimum share of 24 000 ( 200 € ) and with up to 2.5 MW capacity Rs. 5 % by volume of the total Diesel consumption in the 50 000 ( 415 € ) are much lower than the earlier fee of Rs.

25 AEDB 2009 26 REN21 2009 27 AEDB 2009 PAKISTAN | 338

TABLE 10: OVERVIEW OF CDM PROJECTS IN PAKISTAN Annual IRR Regis- Location ( Re- IRR ( with Project Status Type Savings ( without tration gion ) CDM ) ( tCO2 ) CDM ) year Catalytic N2O Abatement Project in Punjab Registered N2O 1 329 653 n.a. n.a. 2006 the Tail Gas of the Nitric Acid Plant of the Pakarab Fertilizer Ltd ( PVT ) in Multan The 84 MW New Bong Escape Hydro- Azad Kash- Registered Hydro 218 973 n.a. n.a. 2007 power Project mir Construction of additional cooling Punjab Registered EE supply 9 543 3.7 % 4.7 % 2008 tower cells at AES Lal Pir ( Pvt. ) Ltd. side Muzaffar Garh Cattle Waste Management, Landhi Sindh At Validation Methane 1 530 979 3.2 % 27.4 % 2007 Cattle Colony, Karachi avoidance Community-Based Renewable Energy North-West At Validation Hydro 76 713 3 % 28 % 2007 Development in the Northern Areas Frontier and Chitral ( NAC ) Province Gul Ahmed Combined Cycle Gas Sindh At Validation Fossil fuel 35 089 14 % 17.1 % 2008 Turbine Project switch Switching of fossil fuel from Heavy Punjab At Validation Fossil fuel 22 622 2.11 % 9.46 % 2008 Fuel Oil to Natural Gas by replacing switch Heavy Fuel Oil Engines ( 5.86 MW*4 ) with Gas Engine ( 16.4 MW ) at Maple Leaf Cement Factory Limited, Iskan- derabad Fuel Switch and energy efficiency Punjab At Validation Fossil fuel 16 722 n.a. n.a. 2008 project at PWML switch Almoiz Bagasse Cogeneration Project North-West At Validation Biomass 31 553n.a.n.a.2008 Frontier energy Province Pakarab Fertiliser Co-generation Punjab At Validation EE own 107,746 16 % 20 % 2007 Power Project generation Grid connected combined cycle power Sindh At Validation Fugitive 162,943 8 % 18 % 2009 plant project in Qadirpur utilizing permeate gas, previously flared ICI Polyester Co-generation Project Punjab At Validation EE own 19 233n.a.n.a.2009 generation Biogas-based Cogeneration Project Punjab At Validation Methane 24 344 - 0.48 % 8.63 % 2008 at Shakarganj Mills Ltd., Jhang avoidance Composting of Organic Content of Punjab At Validation Landfill gas 78 344 13.18 % 18.38 % 2008 Municipal Soild Waste in Lahore Source: UNEEP Riso

200 000 ( 1 660 € ) for projects larger than 1 MW. Fur- Clean Development Mechanism thermore the licensing procedures of NEPRA were sim- Pakistan joined the Kyoto Protocol in 2005 and situated plified as they do no longer require personal visits to the its Designated National Authority ( DNA ) inside the en- NEPRA office but can be performed by mail.28 vironmental ministry. In 2006 it published the National Operational Strategy for CDM. In comparison to neighbouring countries like India with hundreds of CDM projects Pakistan has very few CDM projects. There

28 The Nation 2009 PAKISTAN | 339

are currently 14 CDM projects in Pakistan in various Since the bilateral agreement was signed in 1972, GTZ stages of the CDM cycle. Of these 14 projects only few are has been engaged in Pakistan on behalf of the German based on renewable energies ( two hydro, one biomass ). Federal Ministry for Economic Cooperation and Devel- The untapped potential for CDM projects is regarded as opment ( BMZ ). The following four priority areas have very high. The low number of CDM projects is due to been agreed: Basic education; basic health, family plan- several reasons: the late ratification of the Kyoto Protocol ning and HIV/AIDS; good governance as well as renew- in 2005, a lack of clarity about the CDM process and a able energies and energy efficiency. GTZ is advising the lack of reliable CDM project development companies in AEDB on the promotion of renewable energies, particu- the local market. The textile industry is one of the sec- larly solar energy, improvement of political framework tors that has recently shown a strong interest to promote conditions and rural electrification of a total of 400 vil- CDM projects among its members.29 lages in Baluchistan and Sind provinces. Experts placed The projects already registered and the ones at validation by the Centre for International Migration and Develop- can be found in table 10 on the previous page. The web- ment ( CIM ) are supporting AEDB the Pakistan Coun- site of the Pakistani DNA lists a further 7 projects which cil for Renewable Energy Technology ( PCRET ) in de- have been approved by the DNA. veloping a solar technology certification laboratory. The Fraunhofer Institute for Solar Energy Systems of Freiburg, International donor activities Germany is providing technical advice on the installation GEF – In May 2009 United Nations Global Environ- of the plants. So far some 3 000 small solar power plants ment Facility ( GEF ) signed a project document with have been commissioned in just under 100 villages. 32 Alternative Energy Development Board ( AEDB ) and Currently, around 20 donor-financed projects are under Economic Affairs Division ( EAD ) for the implementa- implementation, with total commitments of nearly half a tion of a $19.2 million plan for setting up mini-hydro billion Euro. Of the projects 36 % are involved with the re- power plants in the Chitral district. The agreement for newable sector and 28 % with the energy efficiency sector. the project titled ‘Productive Uses of Renewable En- ergy in Chitral district ( PURE-Chitral )’ was signed by Mikiko Tanaka, Deputy Country Director UNDP, Arif 15.6 Market potential for wind energy Alauddin, CEO AEDB and Muhammad Asif, Joint Sec- retary ( UN/China ) for EAD. Under the project, 103 Wind energy potential micro/mini-hydropower plants ( MHPs ) would be in- National Renewable Energy Laboratories ( NREL ) USA stalled with a total capacity of 15 MW.30 under the USAID assistance program in 2007 has carried out a wind resource study of Pakistan and devel- ADB – Pakistan has received about US $18.59 billion in oped a map showing the wind speed potential available loans since joining the Asian Development Bank ( ADB ) at 50m altitude.33 ( http://www.nrel.gov/wind/pdfs/ in 1966, with about $12.3 billion disbursed as of the end final1-1-1pwr50pk.pdf ) The NREL wind resource map of 2007. The lending program in 2007 was a record that of Pakistan has given a great boost to the wind power de- included almost $2.0 billion in loans and $20.2 million for velopment activities in the wind corridor regions. These technical assistance grants. ADB is working with the Gov- regions are: The Karachi – Hyderabad region especially ernment and the private sector to improve the country’s on hilltops, ridges in the northern Indus valley, wind infrastructure, energy security, and basic public services.31 corridor areas in western Pakistan, high mountainous GTZ – Pakistan is one of the most important partner regions and hills and ridges in south-western Pakistan. countries in German Technical Cooperation ( GTZ ). Now this potential area has become the focal point for

29 UNEP Riso 32 GTZ 2009 30 GOP 2009 33 NREL 2007 31 ADB 2009 PAKISTAN | 340

the development of wind energy in the near future. As TABLE 11: PROJECTION FOR WIND ENERGY DEVELOP- per the collected data, the coastal belt of Pakistan has a MENT UNTIL 2030 Generation Plan Cumulative Wind wind corridor that is 60 km wide and 180 km long. This Year ( MW ) Energy capacity ( MW ) corridor has an exploitable wind power potential of up to 2010 680 680 50 000 MW of electricity generation. 2011 200 880 2012 200 1 080 With regard to production targets for renewable energy 2013 150 1 230 the short term plan aims to develop 680 MW of wind 2014 200 1 430 generation capacity by 2010, 3 730 MW by 2020 and 2015 250 1 680 34 9 700 MW by 2030. The development for the increase 2016 250 1 930 in generation can be seen in table 11. 2017 400 2 330 2018 400 2 730 Framework Conditions for Wind Energy 2019 500 3 230 The Policy for Development of Renewable Energy for 2020 500 3 730 Power Generation, December 2006, provides the follow- 2021 – 2030 5 970 9 700 ing incentives for wind energy project developers: Source: AEDB 2009 • The provision of land at an attractive cost for wind energy projects ( $ 8 per acre per year ), • Pre-feasibility studies have been done by AEDB, Ltd, Tenaga Generasi Ltd., Green Power ( Pvt ) Ltd, Win • Wind data has been measured and analyzed and the Power Ltd., Zephyr Power Ltd, Milergo Pakistan Ltd, wind data validated by Risoe National Laboratory of Beacon Energy Ltd and Zorlu Enerji Pakistan Ltd. Denmark, • The wind risk for the first few projects is taken over by Current Use of Wind Energy the Government. The term wind risk refers to the fol- and Project Pipeline lowing provision: If the wind speed at the wind farm is The Zorlu Enerji 50 MW Project is the first ever wind below the set benchmark for the site and generation is power plant of Pakistan and was inaugurated in April reduced accordingly the IPP will nevertheless be paid 2009 at Jhimpir, Sindh. This project is being developed according to the benchmark capacity.35 and, by Zorlu Enerji of Turkey and will be completed in two • A 15 % Return on Equity ( ROE ) guaranteed as per phases. In the first phase 6 MW were commissioned, NEPRA guidelines ( see 1.5 ). while the complete 50 MW shall be commissioned by December 2009.36 Zorlu Enerji Groups plans to enhance Licensing and Permitting Procedure the capacity of the wind farm to 300 MW upon successful Table 12 on the following page shows the sequence of ac- completion of the 50 MW phase. NEPRA has awarded tivities required for setting up a wind powered IPP for the project a tariff of 12.1057 US cents per kWh ( 8.3 €c ), sale of all power generated to the grid. which is less than electricity generated from conventional thermal sources. This tariff is nevertheless assumed to be AEDB has issued Letters of Interest ( LoI ) to 93 national deemed sufficient to fulfil the guaranteed ROE for the and international investors, 7 of which completed feasi- wind farm of 15 % as per NEPRA guidelines. 37 bility studies. The eight following investors have so far applied for grant Besides large scale plants the AEDB installed a 40 kW of Generation License to NEPRA: New Park Energy Micro Wind Turbine Demonstration Unit at Kallar Ka-

34 AEDB 2009 36 AEDB 2009 35 GOP 2006 37 AEDB 2009 PAKISTAN | 341

TABLE 12: As the pilot projects are located on tidal flats ( i.e. areas PROCEDURE TO SET UP A WIND POWER IPP endangered by frequent flooding ), construction costs are Responsible Step Title Authority high and land ownership is fragmented. Infrastructure 1 Letter of Interest ( LoI ) AEDB which is needed for the erection of a wind park is often 2 Land Allocation for Wind Farm AEDB insufficient and therefore existing bridges and roads have 3 Feasibility Study n.a. to be updated. Another hindrance is the lack of heavy lift 4 Generation License NEPRA cranes. 5 Tariff Determination NEPRA The regulatory process is fragmented ( see table 12 ) and Submission of Performance Guar- a bureaucratic resistance is being perceived by investors. 6 n.a. antee by the IPP The unregulated nature of wind power leads to a nega- 7 Letter of Support ( LoS ) - tive bias of the regulatory body which is more used to 8 Energy Purchase Agreement ( EPA ) NTDC deal with thermal power plants. Furthermore technical 9 Implementation Agreement ( IA ) AEDB requirements are based on thermal power plants. 10 Financial Close n.a. On the one hand the GOP is offering a wind speed risk Source: AEDB 2009 guarantee as an incentive to promote wind project development. Yet the drafting of a legal document ( plant har, district Chakwal. The project, which is the first effort power curve & bench mark energy table ) with considera- in the wind energy sector in the province of Punjab, aims tion of the technical issues, incorporating such a guaran- at the setting up of 160 turbines of 600 kW.38 tee poses a major challenge.39

Business Climate Pakistan’s emerging wind industry is facing manifold challenges. The first challenge is the lack of historical proven and bankable wind data which is available in western countries and improves lenders confidence. Furthermore fluctuations in wind turbine prices make the long-term planning of projects more complicated. International contractors have currently shown little interest in Pakistan due to a perceived high risk environment.

38 AEDB 2009 39 Mayura Botejue 2007 PAKISTAN | 342

15.7 Contacts and Addresses National Electric Power Regulatory Authority ( NEPRA ) PIA Building, 2nd Floor, Fazl-e-Haq Road, Blue Area, The Alternative Energy Islamabad Development Board ( AEDB ) Tel.: +92-51-9217673 House # 3, Street # 8, F-8/3 Islamabad Fax : +92-51-9217651 Tel.: +92 ( 51 ) 9262947-50 Email: [email protected] Email: mailto:[email protected]@aedb.org Internet: www.nepra.org.pk Internet: www.aedb.org National Transmission & Despatch Company The Pakistan Water and ( NTDC ) Power Development Authority ( WAPDA ) 221 WAPDA House, Lahore WAPDA House, Sharah-e-Quaid-e-Azam, Lahore Tel.: +92 ( 042 ) 9201020 Tel.: +92 ( 51 ) 44869 Fax: +92 ( 042 ) 9210894 Fax: +92 ( 51 9202454 Email: [email protected] Email: [email protected] Internet: www.ntdc.com.pk Internet: www.wapda.gov.pk The Pakistan Council of Renewable EnergyTechnologies National Transmission Dispatch Company ( NTDC ) ( PCRET ) 221 WAPDA House Lahore, Pakistan No. 25, H-9, Islamabad – Pakistan Tel.: +92 ( 042 ) 9201020 Tel: +92-51-9258228 Fax: +92( 042 ) 9210894 Fax: +92-51-9258229 Email: [email protected] E-mail: [email protected] Internet: www.ntdc.com.pk Internet: www.pcret.gov.pk/ Designated National Authority Pakistan Electric Power Company ( PEPCO ) 4th Floor, Local Government Building, Sector G- 5 / 2, WAPDA House, Lahore Islamabad – Pakistan Tel.: +92-42-9202140 Tel: +92-51-9205622 Fax: +92-42-9202402 Fax: +92-51-9207425 Email: [email protected] E-mail: [email protected] Internet: www.pepco.gov.pk Internet: http://www.cdmpakistan.gov.pk/cdm_sectari- Private Power and Infrastructure Board ( PPIB ) rat.html 50 Nazimuddin Road, F7/4, Islamabad Tel.: +( 92 ) 51 920 5421 Fax: +( 9251 ) 921 5723 Email: [email protected] Internet: www.ppib.gov.pk PAKISTAN | 343

15.8 Information sources GOP 2009 – Government of Pakistan Press Information Department ( http://www.pid.gov.pk/press21-05-09. ADB 2009 – Asian Development Bank: htm ) Retrieved on 18th August 2009 Energy and Climate Change in Pakistan, 2009 ( http:// www.adb.org/documents/events/2009/Climate- GTZ 2009 – GTZ in Pakistan ( http://www.gtz.de/ Change-Energy-Workshop/PAK.pdf ) Retrieved on en/weltweit/europa-kaukasus-zentralasien/1176.htm ) 18th August 2009 Retrieved on 18th August 2009

AEDB 2009 – Alternative Energy Development Board HDIP – Hydrocarbon Development Institute of ( http://www.aedb.org/re_sector.php ) Retrieved on Pakistan, Pakistan energy Yearbook 2007 18th August 2009 IMF – International Monetary Found: Report for Auswärtiges Amt 2009 – ( http://www.auswaertiges- Selected Countries and Subjects: Pakistan, 2009 amt.de/diplo/de/Laenderinformationen/Pakistan/ ( http://www.imf.org/ ) Retrieved on 18th August 2009 Wirtschaft.html ) Retrieved on 06.08.2009 JPCL 2008 – Jamshoro Power Company Limited – CIA – Central Intelligence Agency: ( http://www.jpcl.com.pk/tps-jamshoro.html ) Re- The World factbook, 2009 ( https://www.cia.gov/li- trieved on 18th August 2009 brary/publications/the-world-factbook/geos/id.html ) Retrieved on 18th August 2009 Mayura Botejue 2007 – Wind Power Sector: Issues & challenges in Pakistan ( http://www.powerasia.com.pk/ EIA – Energy Information Administration: icaep2008/presentation/SI_Mayura.pdf ) Retrieved on Energy Profile of, 2007 ( http://www.eoearth.org/ar- 14th September 2009 ticle/Energy_profile_of_Pakistan ) Retrieved on 18th August 2009 NEPRA 2009 – National Electric Power Regulatory Authority ( http://www.nepra.org.pk/tariff_dist.htm ) IEA – International Energy Agency: Retrieved on 18th August 2009 Pakistan, 2009 ( http://www.iea.org/Textbase/ country/n_country.asp?COUNTRY_CODE=PK ) NREL 2007 – National Renewable Energy Laboratory Retrieved on 18th August 2009 ( http://www.nrel.gov/wind/pdfs/final1-1-1pwr50pk. pdf ) Retrieved on 18th August 2009 Germany Trade and Invest 2009 – Wirtschaftsdaten PEPCO 2009 – Pakistan Electricity Power Company kompakt: Pakistan ( http://www.pepco.gov.pk ) Retrieved on 18th August Stand: Mai 2009 – ( http://www.gtai.de/ext/anlagen/ 2009 PubAnlage_6109.pdf ) Retrieved on 18th August 2009

GOP 2006 – Government of Pakistan, Guidelines for Determination of tariff for wind power generation ( www.actovian.com/WindpowerPakistan.pdf ) Re- trieved on 2nd October 2009 PAKISTAN | 344

Peter Blood, ed. Pakistan: A Country Study. Washing- ton: GPO for the Library of Congress, 1994. ( http:// countrystudies.us/pakistan/25.htm. ) Retrieved on 4th August 2009

Privatisation Commission 2009 – ( http://www. privatisation.gov.pk/Annual%20Report/Annual%20 Report-2008.pdf ) Retrieved on 4th August 2009

REN21 2009 – Renewables Global Status Report ( http://www.ren21.net/pdf/RE_GSR_2009_Update. pdf ) Retrieved on 14th September 2009 The Nation 2009, Nepra reduces license fee for small renewable energy projects Published: April 10, 2009 ( http://www.nation.com.pk/pakistan-news-newspaper- daily-english-online/Business/10-Apr-2009/Nepra- reduces-license-fee-for-small-renewable-energy-projects ) Retrieved on 18th August 2009

UNEP Riso Centre: CDM Pipeline overview, Retrieved on 18th August 2009 ( http://uneprisoe.org/ ) Retrieved on 18th VIETNAM 345

List of abbreviations

ADB Asian Development Bank GTZ Gesellschaft für AFTA ASEAN Free Trade Area Technische Zusammenarbeit ASEAN Association of Southeast Asian Nations GWh Gigawatt hour ASEM Asia Europe Meeting ICD International Cooperation Department APEC Asia-Pacific Economic Cooperation IE Institute of Energy ASTAE Asia Sustainable and IEA International Energy Agency Alternative Energy Programme IMF International Monetary Found BK-IDSE Bach-Khoa Investment and IOC International Oil Companies Development of Solar Energy Co Ltd IPP Independent Power Producers BOT Build-Operate-Transfer Ktoe Kilotonne of oil equivalent BMU Federal Environment Ministry kV Kilovolt CNECB CDM National Executive & toe tonne oil equivalent Consultative Board MOF Ministry of Finance CDM Clean Development Mechanism MOIT Ministry of Industry and Trade CIA Central Intelligence Agency MONRE Ministry of Natural EB Executive Board Resources and Environment EC-ASEAN European Community and the MPI Ministry of Planning and Investment Association of Southeast Asian Nations MVA Mega Volt Ampere DNA Designated National Authority MW Mega Watt EAEF EC-ASEAN energy facility MWh Mega Watt Hour EDF Electricité de France ODA Official Development Assistance EIA Energy Information Administration PCs Power companies ESRI Environmental Systems Research Institute PPCs Provincial people’s committees EVN Electricity of Vietnam PJ Petra Joule FDI Foreign Direct Investment PV Photovoltaic GDP Gross Domestic Product PPA Power Purchase Agreements GENI Global Energy Network Institute REAP Renewable Energy Action Plan VIETNAM 346

RECIPES Renewable Energy in emerging and developing countries RECTERE Research Centre for Thermal Equipment and Renewable Energy REEEP Renewable Energy & Energy Efficiency Partnership RERD Renewable Energy and Rural Development SHS Solar Home System RES Renewable Energy Standard REVN Renewable Energy of Vietnam Joint Stock Company R&D Research and Development T&D Transmission and Distribution TPES Total primary energy supply TWh Terawatt hour USD United State Dollar V Volt VND Vietnamese đồng WTO World Health Organization UNDP United Nations Development Programme UNEP United Nations Environment Programme UNFCCC United Nations Framework Convention on Climate Change UPI United Press International USAID United States Agency for International Development VIETNAM 347

16.1 Introduction a hot, rainy season (May to September) and a warm, dry season (October to March), with average humidity of

FIGURE 1: 84 % throughout the year. Due to its long coast, Viet- MAP OF VIETNAM nam is exposed to winds from the sea to the east. Vietnamese is the official national language. However, English is increasingly favoured as a second language, with French and Chinese also serving as business languages. Vietnam is a socialist republic governed by the communist party. The president of Vietnam is head of state and chair of the National Defence and Security Council. In June 2006, President Nguyễn Minh Triết was elected by the National Assembly of Vietnam with 464 votes (94.12 %). Vietnam has diplomatic relations with 164 countries. In its foreign policy, Vietnam gives priority to enhancing relations with neighbouring countries such as Laos, Cam- bodia and China. Vietnam became official member of the Association of Southeast Asian Nations (ASEAN) in July 1995. Since then, Vietnam has been acting as an active member of the ASEAN Free Trade Area (AFTA) and the Asia Europe Meeting (ASEM). At present, Vietnam is a member of the Asia-Pacific Economic Cooperation (APEC) which is a forum for 21 Pacific Rim countries and cities located around the edge of the Pacific Ocean to Data Source: CGIAR ( 2004 ) cooperate on regional trade and investment liberalisation and facilitation. Furthermore, Vietnam is seeking admit- Vietnam is located in South-eastern Asia in the east of tance into the WTO, after having entered bilateral trade the Indochina Peninsula at the Gulf of Tonkin and the agreements with nearly 60 countries and territories.1 South China Sea. Neighbouring countries are China to The major exports from Vietnam include crude oil, foot- the north; Laos and Cambodia to the west. wear, tea, coffee, electronic products and components, Vietnam’s climate varies considerably due to the differ- textiles, clothing, rubber and marine products. Major ences in latitude reaching from 9 ° to 23 ° north. It is countries that import goods from Vietnam are USA, tropical in the south and monsoonal in the north with Germany, South Korea, Japan, China, Singapore, Hong

TABLE 1: 2008 KEY STATISTICS

Area Population GDP GDP/capita Export Import 1 040.35 89 829 billion USD/capita 62.9 billion USD 80.4 billion USD 331 210 m² 86 967 Million USD (60 798 (7 042 Euro/ (42.6 billion Euro) (54.4 billion Euro) billion Euro) capita)

Source: U.S. Department of State 2009 and IMF 2009

1 AusAID 2009 VIETNAM | 348

Kong and Taiwan. The major items imported by Vietnam 10 % and hydro with 4 %. The split to the various sources include motorcycles, machinery and related products, can be seen in figure 2.3 steel goods, petroleum products, fertilizer, cement, grain and cotton. Major countries that export goods to Viet- The final energy consumption in 2006 added up to nam are France, Hong Kong, India, Taiwan, South Korea 46 108 ktoe (equal to 175 PJ). The distribution of this and Singapore. consumption to the various sectors is shown in table 3.

TABLE 2: GDP OF VIETNAM 2004 - 2008

2000 2002 2004 2006 2008 GDP Annual percent (constant prices) change 6.7 7.0 7.7 8.2 6.1 GDP (current prices) Billions VND 441 646 535 762 715 307 9 742 662 1 477 716 GDP (current prices) Billions USD 31.1 35.1 45.4 60.0 89.8 GDP (current prices) Billions Euro 21.04 23.75 30.72 40.60 60.77

Source: IMF

Table 2 shows the Vietnamese GDP which has grown con- Vietnam’s energy consumption has been increasing ra- stantly from 2000 to 2006 with a deceleration in 2008. In pidly, in parallel with industrialisation.4 Between 2000 January 2009, the inflation rate was 17.48 % year-on-year. and 2005, total primary energy consumption, besides The poverty rate has been reduced from 58 % in 1993 to

13 % in 2008. The annual per capita income in Vietnam FIGURE 2: was 1 024 US $ in 2008.2 SHARES OF TOTAL PRIMARY ENERGY SUPPLY IN VIETNAM IN 2006, IN KTOE

2 030 4 % 16.2 Energy Market 8 807 17 % 24 240 Overview Energy Market 46 % The development of the total primary energy supply experienced a strong rise in the last years. Starting at 20 000 ktoe in 1970 of which more than 50 % were provided by combined renewables and waste. Over the last 12 221 23 % thirty years the share of coal and oil increased much more strongly than the other sources. The primary energy sup- 4 992 ply in Vietnam has been constantly rising and in 2006 10 % reached 52 290 ktoe (equal to 113.4 PJ or GWh). Viet- Combined renew. & waste Coal nam’s primary energy supply is dominated by combined Gas Hydro Oil renewable and waste (46 %) (i.e. waste materials and bio- Source: IEA 2006 mass), followed by oil with 23 %, coal with 17 %, gas with

2 World Bank 2009 3 IEA 2008 4 Omoteyama, 2009 VIETNAM | 349

TABLE 3: FINAL ENERGY CONSUMPTION IN VIETNAM, 2006, IN KTOE AND PJ

Total Final Consumption

ktoe PJ % Industry 9627 403.4 20.9 Transport 6933 290.5 15 Other sectors 29324 1228.7 63.6 of which Residential 27057 1133.7 58.7 Commercial and Public 1738 72.8 3.8 Services Agriculture / Forestry 530 22.2 1.1 Fishing 0 0 0 Other Non-Speciﬁed 0 0 0 Non-Energy Use 224 9.4 0.5 Total 46108 1931.9 100

Source: IEA 2008 biomass, grew at an average annual rate of 10.6 %. The share Low voltage distribution in rural areas is primarily the re- of the industrial sector rose steadily whereas the shares of sponsibility of provincial authorities, and is undertaken transportation and other sectors have decreased. by around 8 800 rural municipalities, of which only 19 % Although it is a significant net oil exporter, Vietnam re- are supplied directly by the power companies of EVN. lies on imports of petroleum products due to a lack of re- FIGURE 3: fining capacity. Additionally Vietnam is a net exporter of ELECTRICITY TRANSMISSION GRID OF VIETNAM coal to Japan and China and may emerge as a significant natural gas exporter in the future.

The Electricity Grid Electricity of Vietnam (EVN) is a state owned enterprise with more than 50 subsidiaries under the Ministry of In- dustry and Trade (MOIT) and it holds a monopoly in electricity transmission and distribution.5 EVN owns the electricity and also telecommunication industries. Inter- nally, EVN is divided into a number of operating companies, including seven distribution entities known as the power companies (PCs), of which three are regional companies, and four supply the major urban areas of Hanoi, Haiphong, Ho Chi Minh City and Dong Nai. In 2006, EVN operated a power transmission and distribution system of about 115 659 km of 6 kV, 10 kV, 15 kV, 22 kV and 35 kV lines with a total capacity of 3 662 MVA and 109 199 km of 220 kV lines with a total capacity of 32 061 MVA. The extent of the grid can be seen in figure 3. Data Source: CGIAR (2004)

5 RECIPES 2006 VIETNAM | 350

TABLE 4: INSTALLED ELECTRICITY CAPACITY: DEVELOPMENT IN VIETNAM, IN MW, 2000-2007

Fuel Type 2000 2001 2002 2003 2004 2005 2006 2007 Hydropower 3 100 4 050 4 050 4 050 4 050 4 050 4 200 4 200 Coal thermal 750 750 1 500 500 1 500 1 500 1 700 1 850 Oil-ﬁred 200 200 200 200 200 200 200 200 Gas turbine (Oil/Gas) 1 000 1 900 2 100 2 250 3 000 3 000 3 000 3 000 Diesel 500 500 500 500 500 500 500 500 IPP/BOT 500 500 1 250 1 500 1 500 2 250 2 250 3 000 Import 0000100250300500 Total 6 050 7 900 9 600 10 000 10 850 11 750 12 150 13 250

Source: Adb 2009

For its 5th Power Development Master Plan of Vietnam Installed Capacity (2001-2010), EVN plans to construct and expand its In 2008 the installed electricity generating capacity in transmission and distribution systems. The transmission Vietnam was estimated at 15 764 MW7 of which 5 486 expansion programme is based on the regional distribution MW (35 %) was hydropower plants, 9 300 MW (59 %) of load and generation growth. Within the ten-year-peri- thermal power stations (oil, gas and coal), 332 MW (2 %) od, EVN intends to build 2 416 km (500 kV), 4 414 km renewable energy (8.3 MW from wind, 1 MW from solar (220 kV), 7 757 km (110 kV), 92 600 km of medium PV, 178 MW from biomass, 145 MW from small hydro- voltage and 19 000 km of low voltage lines. The develop- power) (see Renewable Energies sub-chapter below for ment of the T&D sector is expected to ensure safe and more details) and 646 MW (4 %) imports. reliable operations, to meet customers demand with good Table 4 shows the constant growth of the installed elec- quality, and to reduce electricity losses from 14 % in 2001 tricity capacity from 2000 to 2007. to 10 % in 2010. EVN dominates generation and sales of electricity in Vi- In Vietnam the lack of power transmission lines linked etnam. EVN’s facilities account for about 74 % of genera- to the national grid has become the biggest challenge tion capacity and the remainder is under control of local and EVN will need VND 148 trillion (5 billion €) for or foreign Independent Power Producers (IPPs). Viet- its power transmission projects by 2015. A first step was nam imports electricity from China in the north to avoid taken in July 2009 when EVN started operating 11 new shortages, whereas plans existed to import electricity electricity grids and began construction of three others.6 from Laos beginning in 2008 (IEA 2008). However, in In terms of international cooperation, EVN is encouraged July 2009 EVN is still not buying electricity from Laos. by the Vietnamese government to cooperate with China The 5th Power Development Master Plan of Vietnam in importing and exporting electricity through the existing (2001-2010) and more recently the 6th Power Develop- 110 kV and 220 kV transmission lines. It is estimated that ment Master Plan (2006-2015) urges the government transfer between Vietnam and China via 500 kV power to build new power plants to meet the high electricity lines will begin after 2013. In addition, Vietnam collabo- demand. As Vietnam has significant energy resources in- rates with Laos through a Master Plan Interconnection cluding hydropower, coal, oil and gas, EVN gives high and with the Kingdom of Cambodia where Vietnam sup- priority to the development of thermal power plants plies energy to some districts near the border. (mainly coal and gas) and hydropower plants. For in-

6 VN business news 2009 7 ADB 2009 VIETNAM | 351

stance Son La Hydropower (2 400 MW) has been com- as hydro plants run at their full capacity. In the dry sea- pleted in 2009. Further plans include Mong Duong Ther- son, there are serious supply shortages when hydro plants mal Coal Power Complex (2 000 MW), O Mon Thermal are operating intermittently. This makes the use of wind Gas Power Complex (2 800 MW), Gannon Thermal Gas energy a very interesting option: on the one hand, wind Power Plant (990 MW) and Nhon Trach Thermal Gas energy would save water thereby reducing the period of Power Complex (2 640 MW). intermittent hydro power production, whereas on the As part of this effort, EVN has outlined plans to build 74 other hand wind energy could easily be balanced by hy- new power stations to be completed by 2020. Of these, 48 dro power plants. are planned as hydroelectric facilities, which raised concerns about the country’s high reliance on hydropower. In 2007, EVN sold 58 GWh of electricity, an increase of To diversify the country’s electricity supply, Vietnam is 13.4 % compared to 2006.9 Electricity sales brought in reportedly considering adding nuclear power to its gen- total revenues of 3.5 billion US$ in 2007, up 22 % com- eration mix. pared with 2006. In 2008, EVN had approximately 11 million clients di- Power Generation rectly purchase electricity10. Table 6 provides the electricity The power generation of Vietnam was estimated at 77.2 consumption of each economy sector in 2006. The indus- MWh8 in 2008 jointly produced by the state-owned power try and residential sectors are the two largest consumers. utility ENV and IPPs. There is a heavy reliance on hydroelectric power which accounts for 25 % of the output. TABLE 6: ELECTRICITY CONSUMPTION BY Table 5 depicts the strong development of the electricity ECONOMY SECTORS IN 2006 generation by fuel types over the last 10 years. Electricity Economy sectors GWh Industry generation based on oil and hydro has risen constantly 22 975 whereas coal and gas has grown exceptionally. Transport 434 Although the generating capacity has expanded, the Residential 20 569 demand from residential and industrial customers is ex- Commerce & Public services 4 159 ceeding supply. Furthermore, since hydropower accounts Agriculture/Forestry 607 for 38 % of total capacity, an imbalance in supply and de- Fishing 0 mand occurs during wet and dry seasons. In the wet sea- Others 0 son, power supply is sufficient and sometimes redundant Total 48 744 Source: IEA 2008

TABLE 5: ELECTRICITY GENERATION IN VIETNAM, 1971-2006, IN GWh Since January until the end of July 2009 EVN has pur- Fuel type 1995 2000 2006 chased nearly 2.2 TWh of power from China, a 13.2 % 11 Coal/peat 2 000 2 100 9 691 rise compared to the same period last year. This is due to Oil 1 500 4 200 2 289 the fact that Vietnam is facing a severe shortage of about Gas 750 4 000 20 915 1 400 MW or almost 10 % of total installed capacity in Hydro 15 000 19 500 23 599 peak times resulting in many power cut-offs. Total 19 250* 29 800* 56 494 To cope with a rapidly increasing power demand of 15.8 % 12 * Value from this column has been estimated according to a graph in 2007/08 , the National Electricity Development Plan Source: IEA 2008 for 2006-2015 foresees to reach an electricity production

8 Harvard 2008 9 VNA 2008 10 EVN 2008 11 Vn business news 2009 12 Nhat Lam 2008 VIETNAM | 352

of 93 000 GWh by 2010, 201 346 GWh by 2020 and 326 sidies on electricity as it moves to deregulate the sector 640 GWh by 2030. Electricity generation will increase at which will lead to an increase of power prices. an average growth rate of 7.4 % per year.13 Both average urban and rural residential rates are cross- subsidized by higher rates for industry, commerce, and Renewable energies foreign consumers. Vietnam is rich in renewable energy sources.14 The poten- The MOIT has released a document stipulating the retail tial for small hydropower systems, for example, is 800 to 1 electricity prices to be applied in March, 2009.16 Electric- 400 MW, while biomass-fuelled systems could provide an ity prices are different depending on time of consump- additional 250 to 400 MW. A feasibility study found that tion to encourage people to save electricity and to con- small mini-grids supplying hydroelectricity could meet sume electricity in off-peak hours. From 2008 to 2009, the power needs of several hundred thousand households this reform led to an average price increase of 8.92 % with in the more mountainous north and central areas of Vi- an average retail power price of 862 dong (3.5 € cents) per etnam; improved micro-hydropower systems could have kilowatt hour. the same potential in the north. Studies have also shown In peak hours, the retail price is 1 900 VND/kWh that solar photovoltaic (PV) systems could serve about (7.5 € cents) and price for businesses is 3 100 VND/kWh 50 000 households in southern and central parts of the (12 € cents). Meanwhile, the retail price for households country, although the technology is presently too expen- will be calculated depending on the consumption vol- sive to be viable. ven though wind resources are still to be ume. Under the new electricity price arrangement, the fully investigated, they could have a role in central coastal retail price for households and the wholesale electricity areas. A breakdown of the present and potential outputs of renewable energy sources in Viet Nam is provided in price to be applied in rural areas will have seven consump- the following table 7. tion levels instead of five as previously applied, and will

TABLE 7: POTENTIAL AND CURRENT USE OF RENEWABLE ENERGY IN VIETNAM

Resource Current Potential Usage Region

Thousands house- MW MW holds served Small Hydro 110 – 155 800 – 1 400 - North and central Micro-hydro 30 – 75 90 –150 200-250 North and central Off-grid solar PV 0.6 2 50 South and central Biomass 0 250 – 400 Not available South and central Geothermal 0 50 – 200 Not available Central Wind power 8.3 To be determined To be determined Central/coastal

Source: Quyen 2003

Electricity Prices not discriminate between rural and urban areas. The The Ministry of Industry and Trade (MOIT) sets the highest retail price for households is VND 1 790/kWh electricity tariffs, except for isolated networks where they (7 € cents) (see table 8). are set by electricity retailers.15 By the end of 2009, the It is estimated that some 3 million families consume less Vietnamese government plans to gradually remove sub- than 50 kWh a month, including 2.4 million poor fami-

13 APEC 2006 16 Omoteyama 2009 14 Quyen 2003 15 Freshfields Bruckhaus Deringer 2005 VIETNAM | 353

lies. As the price level for the first 50 kWh of consump- been increasing the pressure on the power sector, result- tion will remain at a low level, poor families, which use ing in a series of peak period outages in 2004 and 2005. less than 50 kWh a month, will have to pay no more than The Electricity Law, which was passed in 2005, calls for VND 21 000 (80 € cents) a month. the unbundling of the sector and for the creation of a competitive supply market, initially with EVN as a single

TABLE 8: buyer. In late 2009, a spot market will be set up, and an CURRENT RETAIL ELECTRICITY PRICES IN electricity regulator that reviews tariffs and reports to the VIETNAM FOR HOUSEHOLDS FROM MARCH 2009 Ministry of Industry will be established. Delays in pre- Consumption per VND/kWh € cents/kWh month (kWh) paring and issuing supporting regulations have so far hin- 0-50 600 2.5 dered the implementation of this legislation. 51-100 865 3.5 To open competition, IPP projects have been developed 101-150 1 135 4.5 and account for about 22 % of Vietnam’s generating ca- 1 495 pacity. A large proportion of this capacity is derived from (up by VND20- the ADB supported Phu My gas-fired power plants, 151-200 25/kWh over the 6 currently applied which were the first projects constructed under Viet levels). Nam’s BOT Laws.17 201-300 1 620 6.5 The roadmap which has been approved by the Prime 301-400 1 740 7 Minister in 2008 specifies that the power market in Vi- 1 790 >400 (up by VND10/ 7.3 etnam will be transformed through three sequential de- kWh). velopments: competitive generation market, competitive Source: IEA 2008 wholesale market and competitive retail power market. Phase I begins in 2009, phase II in 2017 and phase III Vietnam is planning to implement a price support mech- in 2024. anism which will be published for IPPs in the near future. Moreover, it expects to apply clean energy pricing Rural Electriﬁcation regimes, including end-use green electricity tariffs and In 2008, the Vietnamese rural electrification rate was renewable power purchase agreements (PPA). 94.5 % compared to a mere 14 % in 1993.18 Mainly the mountainous areas, islands and remote areas are still lack- Liberalisation ing electrification. EVN Vietnam’s state-owned electricity utility, plays the The Ministry of Industry and Trade (MOIT) implement- central role in the Vietnamese power market. Since 1995 ed a rural electrification programme in 2000 and included EVN holds a monopoly for electricity transmission and it in its National Energy Policy (see Section 1.5). distribution. EVN’s facilities accounts for about 78 % of The major driver for rural electrification remains the Re- the total electricity generation. The remainder is under newable Energy Action Plan (REAP) promulgated by the control of other local and foreign Independent Power MOIT in 2001 with support from the World Bank and Producers (IPPs). EVN operates as a single buyer of elec- EVN. REAP is based on various government documents, tricity from power plants. including the 2001-2010 Master Plan of Power Develop- Although private participation had existed previously via ment. REAP focuses on rural electrification of remote a Build-Operate-Transfer (BOT) concept, from 2002 on areas as a near-term opportunity to scale-up renew- EVN was preparing for the post-liberalisation competi- able energy technologies, including micro-hydro, wind, tion. The rapid urbanization and industrialization had biomass, and solar PV. It establishes goals for renewable

17 Quang 2003 18 Van Tien Hung 2009 VIETNAM | 354

energy-based electrification for thousands of households 16.3 Market Actors not covered by EVN’s grid expansion planning. It is a two-phase, 10-year programme with a Phase 1 target of Ministry of Industry and Trades (MOIT) adding 25-50 MW of renewable energy capacity, provid- Ministry of Industry and Trades (MOIT) was formed ing access to electricity for more than 35 000 households after the merger between Ministry of Industry and Min- by 2010. Phase 2 targets a 3 % share for renewable ener- istry of Trade and is in charge of activities related to the gies in total installed capacity (475 MW).19 This phase energy sector and other industries in accordance with the will be completed through two World Bank projects (Re- decree on 189/2007/ND-CP issued by the prime minis- newable Energy Development Project and Rural Energy ter on 27 December 2007. Project) which have already been signed and will be im- Related to the energy sector, the MOIT is responsible plemented in 2010. for the state management of all energy industries, namely Many projects have been implemented in the wake of the electricity, new and renewable energy, coal, and the oil REAP and some examples can be found in table 9. and gas industries. The MOIT is in charge of presiding over the formulation of laws policies, development strate- In the coming years, the Rural Electrification Programme gies, master plans and annual plans with respect to these plans to implement renewable energy projects mainly sectors, and submits them to the prime minister for issu- based on Solar Home Systems (SHS)20 supported by ance or approval. The MOIT is also responsible for di- the World Bank Asia Alternative Energy Programme recting and supervising development of the energy sector (ASTAE). 21 and reporting their findings to the prime minister.

TABLE 9: EXAMPLES OF IMPLEMENTED RENEWABLE ENERGY PROJECTS UNDER THE RURAL ELECTRIFICATION PROGRAMME Date of Project Power Investors Remark Implementation Decentralized Rural 45 kWp + 40 kW Fondem - france Binh Phuuoc Electriﬁcation – 2000 – 2004 micro hydro Solarlab - Vietnam province, Can gio Vietnam NEF - Japan Solar + Wind 10 kWp + 3 kW Wind Kon Tum province EVN - Vietnam Solar project Germany - 18 kWp 2002 – 2003 Bac giang, dak alk with Germany MOST- Vietnam Solar Project KIER - Korea 3.3 kWp 2003 – 2005 Binh Phuoc province with Korea Solarlab - Vietnam Solar Project Fortum - Finland 10 kWp 2000 – 2003 Bac can province with Finland CEMMA - Vietnam Wind Energy Project 850 kW 2004 EVN - Vietnam Bach Long Vy

Source: RERD 2006

Provincial people’s committees (PPCs) prepare investment plans and manage rural electrification programmes in their territories. The Ministry of Planning and Investment (MPI) manages the overall economic planning and review of public investment in energy projects. MPI together with the Ministry of Finance (MOF) prepare annual investment

19 Vu Van Thai 2006 20 RERD 2006 21 ASTAE 2008 VIETNAM | 355

plans (state budget, concessional credits and Official De- Ministry of Natural Resources velopment Assistance (ODA) funds). The MOF oversees and Environment (MONRE) all financial matters pertaining to the sector, including In 2002, Ministry of Natural Resources and Environ- coordinating donor assistance. ment (MONRE) was assigned by the Viet Nam Govern- ment to act as a national authority for implementation Electricity of Vietnam (EVN) of the United Nations Framework Convention on Cli- Electricity of Vietnam (EVN) was founded on 17th De- mate Change (UNFCCC) and the Kyoto Protocol, and cember 2006, succeeding the former Electricity General to host the national focal agency for CDM. MONRE is Corporation of Vietnam. 22 EVN works in the areas of the Designated National Authority for CDM (DNA). production, transmission, distribution and sales of elec- The CDM National Executive & Consultative Board tricity power with a charter capital of over 48 000 billion (CNECB) was established in April 2003, chaired by Di- Vietnam dongs (approximately 2 billion €). EVN also op- rector General of ICD/MONRE. erates a telecommunications subsidiary. In 2005, EVN’s gross turnover was 40 600 billion VND (more than 1.7 billion €), with a profit of 3 200 billion 16.4 Political Framework VND (136 million €). Currently, the total value of the Conditions in the Energy Sector corporation is 115 707 billion VND (approximately over 4.8 billion €). There are about 80 000 employees work- National Energy Strategy ing in the area of electricity and telecommunications sales On 27th December 2007, the Prime Minister signed De- in all cities and provinces of Vietnam. Currently, EVN has cision No. 1855/QD-TTg approving Vietnam’s National 7 power companies and 5 consulting entities (including Energy Development Strategy until 2020 and the vision the Institute of Energy), owns 9 thermal and hydro power for 2050.23 plants, 5 transmission entities, 2 companies producing pow- The Strategy’s specific objectives include finalisation of er equipment and 3 power vocational schools. EVN Tele- the energy programme in rural and mountainous areas; com is also an independent member of the corporation. transformation of operations in the electricity sector, creation of a competitive power retail market after 2022; Institute of Energy (IE) and connecting regional electricity networks between IE is a consulting organization of the Ministry of Indus- 2010 and 2015. try and the EVN. It is responsible for high-level policy The Sixth Power Development Master Plan for the pe- and technical consultation on energy and electricity. riod 2006-2015 includes the following targets: Target for grid-connected renewable energies: 3 % of pri- Private companies: mary commercial energy in 2010, 5 % by 2020, and 11 % Independent Power Producers (IPPs) by 2050;24 IPPs play an increasingly important role in the Vietnamese Target for off-grid renewable energy appliances: connect electricity market. There are two major foreign IPPs: Phu My nearly 100 % households in rural areas by 2025; 3 (716 MW, Gas, 412 million US$) and Phu My 2.2 (715 Establishment of a framework for supporting renewable MW, Gas, 410 million US$). The most active IPP developers energies: Renewable Energy Office, Renewable Energy are EDF, Sumitomo, Sojitz, BP, Semcorp, Petrovietnam, and Fund; Vinacomin. Currently a large number of new IPP projects Establishment of measures for implementation of RES are being planned and developed. Power Purchase Agree- (management, procedures etc.). ments with EVN have been concluded for four of them.

22 EVN 2008 23 Nguyen Tan Dung 2007 24 MOIT 2008 VIETNAM | 356

Energy policies The Decision No. 1885/QD-TTg dated 27 December Key legislation of the energy sector includes the Law 2007 by Prime Minister approving Strategy on Vietnam on Environmental Protection (1993), Petroleum Law National Energy Development up to 2020, and outlook (1993) and its Implementing Decree (1996); and the to 2050. new Electricity Law (2004), followed by Decrees 105 and 106 (2005), which deal with implementation of the Elec- Main contents of the strategy on national energy devel- tricity Law. Table 10 gives an overview and shows what is opment related to promotion of renewable energy devel- regulated by the respective law. opment are:

TABLE 10: MAJOR LAWS GOVERNING THE ENERGY SECTOR

Year Title Description Sets the overall framework for exploration and develop- 1993 ment of on-shore and off-shore oil and gas resources, Petroleum Law Amended 2000 including the nature of FDI allowed and types of contracts to be entered into IOCs. Creates the statutory basis for regulating public and private 1993 Law on Environment activities to protect the environment and establishes the Amended 2005 Ministry of Natural Resources and Environment Provides roadmap and assigns responsibilities for reform 2004/2005 Electricity Law and liberalization of the power sector. Source: EVN 2006

Investment Plans r %JWFSTJGJDBUJPOPGSFOFXBCMFFOFSHZSFTPVSDFT EVN has reported that it is going to invest almost 50 r &ODPVSBHJOHTUVEZBOEVTFPGSFOFXBCMFFOFSHZTPVSDFT trillion VND (1 900 million €) in electricity generation focusing on remote mountainous island areas; sources during 2009, including nuclear power plants. The r 4USJWFUPJODSFBTFTIBSFPGSFOFXBCMFFOFSHZUPBCPVU State-run business revealed that it has raised 44.39 tril- 3 % of total commercial primary energy supply in 2010; lion VND (1 700 million €) so far and is actively seeking 5 % in 2020 and 11 % in 2050 through the national the remaining 5.6 trillion VND (214 million €). energy policy issued in December 2007; r #Z NPTU SVSBM QPQVMBUJPO TIBMM IBWF BDDFTT UP electricity (based on both grid and off-grid decentral- 16.5 Framework Conditions ized power sources). for Renewable Energies The Decision No. 177/2007/QD-TTg dated 20 Novem- Strategy and Support Schemes ber 2007, by the Prime Minister approving §Project on for Renewable Energies Biofuel Development for Period up to 2015, Outlook to As mentioned above, the promotion of renewable ener- 2025¦. gies was included to a large extent in the national energy The main objective of this project is to develop biofuels strategy. It is especially part of government decision No. as a substitute for fossil fuels in order to ensure energy 1885-2007 and 177-2007.25 security and environmental protection.

25 ADB 2009 VIETNAM | 357

The §Strategy and Master plan for Renewable Energy laws (see Section 1.4). In addition, it is necessary to request Development of Vietnam for the period up to the year an investment license from the government. 28 To o b t a i n 2015, with outlook to 2025¦ is a document which com- the grid connection approval and the permission for pro- pletes the status of renewable energies in Vietnam, the ducing energy, the developer needs to contact EVN. objectives and the roadmap. Furthermore, a Decree on encouraging and supporting Clean Development Mechanism renewable development is under development of MOIT Vietnam signed the United Nations Framework Conven- and is expected to be approved by the Prime Minister of tion on Climate Change (UNFCCC) on 16 November Vietnam by end of 2010. 1994 and ratified it on 20 August 2002. As a support instrument to achieve these targets the Viet- The Vietnamese Designated National Authority (DNA) namese government will elaborate a price support mecha- was established in 2003 and is accommodated within nism law expected in 2010.26 The Deutsche Gesellschaft the Ministry of Natural Resources and Environment für Technische Zusammenarbeit (GTZ) is involved in (MONRE). the establishment of a feed-in tariff via a project support- The national CDM market has made little progress to ed by the German Ministry of the Environment (BMU) date. By July 2009, the Vietnamese DNA had 81 projects and conducted in cooperation with the MOIT.27 in its portfolio with 7 projects registered by the CDM Executive Board (EB) including one wind farm project Licensing procedure (see table 11) and 62 projects in the process of valida- The Government of Vietnam recognized the important tion. The remaining projects are under various phases (i.e. role of renewable energies, in particular for rural off-grid §under review¦, §registration request¦, §validation ter- areas. It welcomes worldwide investors for the cooperation minated¦ or §rejected¦. and development of clean energy in Vietnam. To develop In addition, EVN has determined that the internal rate a renewable energy project in Vietnam, the project devel- of return for investment into hydropower projects should oper is required first of all to comply with the Vietnamese be over 12 %.

TABLE 11: REGISTERED AND PLANNED CDM-PROJECTS IN INDONESIA Annual Installed savings Date of Project Location Type capacity (MW) IRR ( %) [kt CO2eq] registration Rang Dong oil field associated gas recovery and utilization (NM26) Dong Nai Fugitive 8-9 677 4-Feb-06 Song Muc Hydro Power Station Regeneration Project in Vietnam Thanh Hoa Hydro 2 4.3 26-Jun-06 Dong Thanh Landfill gas CDM Project in Ho Chi Minh City Ho Chi Minh Landfill gas 4.252 148 17-Jan-09 Wind Power Plant No.1 - Binh Thuan 30MW Binh Thuan Wind 30 13.72 58 6-Apr-09 Cao Phong Reforesta- Reforestation Project Hoa Binh tion 2.7 28-Apr-09 Phu Mau hydropower project Lao Cai Hydro 5.6 11.70 14 5-Jun-09 Muong Sang hydropower project Son La Hydro 2.4 12.38 5.0 5-Jun-09 Source: UNDP Risø 2009

26 DPA 2009 28 Dang Quoc Toan 2009 27 GTZ 2009 VIETNAM | 358

Further information on the CDM sector in Vietnam is kilometres of Vietnam have average wind speeds of 7 m/s available at the DNA website. 29 Support in local capac- to 9 m/s at a height of 65 meters. For instance, the aver- ity building is provided by UNEP, the Asian Technology age speeds at 65 meters is 7.6 m/s in Bach Long Vi, 6.3 Institute and the Deutsche Gesellschaft für Technische m/s in Spratley, 6.8 m/s in Phu Quy, 4.9 m/s in Hon Dau, Zusammenarbeit (GTZ). 4.4 m/s in Co To. 3TIER34 is a global leader in weather-driven renewable International donor activities energy assessment and forecasting for wind projects of all International assistance in Vietnam is characterized by sizes. It is able to provide high- level wind data including a large number of donors (49 bilateral and multilateral a wind energy potential map in Vietnam. donors).30 Vietnam is an important German development coopera- Framework Conditions for Wind Energy tion partner. Since 1990, the German government has Goal for the use of wind energy pledged Vietnam funding of over 900 million €. The Ministry of Trade and Industry is developing a Strat- In March 2009, the German Federal Ministry for the egy and Master plan for Renewable Energy Development Environment (BMU) declared that it will provide the of Vietnam for the period up to the year 2015, with out- government of Vietnam with increased assistance for en- look to 2025. 35 Under this plan, renewable energy will vironmental and climate protection. 31 The Federal Envi- increase to 5 % of the total national energy output, with ronment Ministry is providing more than 2.8 million € for wind and solar power accounting for half of the amount. this purpose, inter alia for projects geared to promote wind There is no dedicated strategy for wind energy. energy utilization and the use of small biogas plants. Legal conditions and support instruments Vietnam is lacking a legal framework for the implementa- 16.6 Market potential for wind energy tion of wind energy projects. There is no support mechanism in place that gives investors the required security for Wind energy potential their investment.36 This explains why MOIT in coopera- Vietnam’s wind energy potential is considerably higher tion with the German Technical Cooperation (GTZ) is compared to Thailand, Laos or Cambodia32. A World carrying out a project entitled §Establishment of legal Bank survey estimated the total potential of wind power framework and technical assistance for grid-connected at 513 360 MWequivalent to 200 times the output of wind power development in Vietnam¦.37 One of the Southeast Asia’s largest power plant, the Son La Hydro- main goals of the project is to design a price-based sup- electric Plant in northern Vietnam and ten times the en- port mechanism for wind energy that should come into tire national capacity forecast for 2020. Vietnam’s wind effect by the end of 2010. The main incentive by the Vi- potential is significant in the central coastal region in- etnamese Government is a 100 % tax exemption for im- cluding Quang Binh, Quang Tri, Thua Thien-Hue and ported wind power technology and equipment. In addi- Binh Dinh and the south, including Ninh Thuan, Binh tion, investors in wind energy projects have a land rent Thuan, Lam Dong, Tra Vinh and Soc Trang.33 exemption over a certain period of time. Since the 1980s, the Institute of Energy (IE) was commissioned by the Ministry of Electricity (now Ministry of In- Permission procedures dustry and Trade) to review the erection of wind turbines The guidelines for potential foreign investors in wind on islands and in remote grid connected areas. Observa- power in Vietnam have been published by EC ASEAN tions and calculations showed that around 28 000 square Energy Facility. 38

29 www.noccop.org.vn 34 http://www.3tiergroup.com/ 30 France diplomatie 2008 35 MOIT 2008 31 BMU 2009 36 WEI 2009 32 UPI Asia 2009 37 VOVNews 2009 33 Asian Energy 2009 38 ASEAN energy 2006 VIETNAM | 359

The permitting procedures for energy projects are rela- Current Use of Wind Energy and Project Pipeline tively complex and possibly act as a disincentive for po- Up to now more than 20 wind power projects are under tential investors. Figure 4 summarizes the process devel- way in Vietnam, with a capacity ranging from 6 MW to opers of private power projects have to follow in order 150 MW. The most advanced project has been developed to get approval to invest. Prospective IPPs must carry by the Vietnamese company REVN. 39 The first five 1.5 out detailed investigations and establish a business entity MW turbines from the German manufacturer Fuhr- under which they can apply for investment approval fol- länder have been installed in Binh Thuan province. An lowed by a construction permit. extension of this project is already planned.

FIGURE 4: EXISTING APPROVAL PROCESS FOR IPPS - FOREIGN INVESTORS

MOI, MPI PM, MPI People Committee People Committee

Pre-Investment Investment Approval ABStudy (PFS) Feasibility Study

Evaluation Construction INVESTOR E Committee

D Approval to Construct C Investment License

Appropriate Ministers MPI Dept’s Peoples Committee

Sign PPA EVN

Source: ASEAN 2006

Grid connection conditions Furthermore, around ten thousand 200-W battery charg- To connect wind farms to the Vietnamese electricity grid, ing wind turbines have been installed for household use, the project developer must contact EVN and negotiate mainly in the central and southern regions. In addition a for the unit price of electricity sold to EVN. number of 150-W battery charging wind turbines have been installed at households in coastal areas of Quang Actually, a PPA with EVN is one of the biggest obstacles Ninh and Hai Phong. for grid-connected wind power development as EVN will not buy electricity above 5.3 $ cents/kWh (3.56 € cents/ Wind energy projects in operation: kWh). However, no projects are financially viable under 8.4 $ cents/kWh (5.6 € cents/kWh). The government has r 5IF#BDI-POH7ZXJOEQPXFSQMBOUXJUIDBQBDJUZPG subsidies in place for wind farm developers for example 800 kW has been in operation since the end of 2004; the project in Binh Thuan province. r 5IFGJSTUGJWFUVSCJOFTXJUIBUPUBMDBQBDJUZPG.8 wind power project in Tuy Phong district, Binh Thuan province have been installed by Fuhrlaender Vietnam

39 WWEA 2009 VIETNAM | 360

Joint Stock Company of Germany and joined the Business Climate national grid in August 200940. The project’s investor Renewable Energy of Vietnam Joint Stock Compa- Market players ny (REVN) will install seven additional turbines to Below is a list of companies involved in wind energy deve- reach a capacity of 18 MW in the first phase. The lopment in Vietnam. project to which 80 more turbines will be added to raise its total capacity to 120 MW, is expected to come Vietnam Wind Power Joint Stock Company41 offers ser- into operation in 2011. vices including: r #VJMEJOH XJOE NFBTVSFNFOU TUBUJPOT GPS DPMMFDUJOH Wind energy projects under development in Vietnam wind data at a height of 40 - 60m; include: r 1SPEVDJOH BOE USBEJOH FMFDUSJDJUZ UISPVHI JOWFTUJOH constructing and operating small and medium wind r 5IF.81IVPOH.BJXJOEQPXFSQMBOUMPDBUFE power plants; in the central province of Binh Dinh province was r 1SPEVDJOH BTTFNCMJOHBOEUSBEJOHXJOEFOFSHZFRVJQ stated to be constructed in September 2007. The in- ments; vestor of this project is Central Region Wind Power r 1SPWJEJOH BEWJDF PO UFDIOPMPHZ USBOTGFSFODF JO UIF JS Company; field of wind power; r 5IF.8$BV%BU8JOE1PXFS1MBOUMPDBUFEJO%B Lat City, the Central Highlands province of Lam Dong Asia Petroleum Energy Corporation is a producer, whole - is expected to be in operation in June 2011. The inves- sale supplier, exporter and importer of wind power equip- tor of this project is Cavico Transport Corporation; ment. Their services include construction, engineering r .8XJOEQPXFSJOTUBMMBUJPOJO-Z4PO*TMBOE5IF and project development for clean energy. feasibility study has been completed by the Institute of Energy. EVN is the main project investor; Bach-Khoa Investment and Development of Solar En- r .8XJOEGBSNJO#JOI%JOI1SPWJODF5IFUFOEFS ergy Co Ltd (BK-IDSE) is a manufacturer of small wind for equipment supply is currently open. The feasibility turbines for battery charging (from 200 W up to 3.2kW) study was prepared by Phuong Mai Company; and specialises in R&D. Moreover, BK-IDSE offers con- r .8 8JOE 1PXFS 1SPKFDU JO 1IVPOH .BJ 5IF sultancy service for wind resource assessments. main investor is Grabowski Renewable Energy Com- GE - is investing in a factory for wind turbine genera- pany no. 1 Ltd; tors. r .8XJOEQSPKFDUJO1IV2VPD*TMBOE r .8XJOEGBSNJO1IV:FO1SPWJODF5IFQSPKFDU Structural conditions is owned by VINACONEX. IE prepared the feasibil Vietnam has had experience with small scale wind tech- ity study; nology through the Research Centre for Thermal Equip- r .88JOE1SPKFDUJO$P%BP*TMBOE*&JTDVS ment and Renewable Energy (RECTERE) of Ho Chi rently undertaking the feasibility study. Minh City Technical University. For twenty years, REC- TERE has manufactured and installed household wind energy systems with a rated power of 100 W – 500 W.42 The technical and investment requirements associated with these systems are extremely different to those associated with large scale grid connected wind farms.

40 Solely wind energy project registered as a CDM project (see section 1.5): First 41 http://www.vwp-jsc.com/index.htm sales of electricity from the wind farm will be from the 7.5MW first stage in 42 Nguyen 2007 January 2009, the 22.5MW second stage will commence sale of electricity in March of 2009. VIETNAM | 361

The development of large scale grid connected wind farms Human resources conditions and education is in the experimental phase, including the Wind Power Vietnam currently does not have the necessary skilled la- Development in Vietnam Institutional, Policy and Mar- bour to adequately maintain the specialized equipment ket study and an EC-ASEAN Energy Facility (EAEF) of which each wind generating unit is comprised. In or- project. The EAEF project aims to promote wind energy der to fulfil the ongoing maintenance requirements of the development and facilitate investments in wind energy equipment it is necessary for project developers to sign a projects in Vietnam through feasibility assessments and maintenance agreement with the turbine suppliers. As a capacity building.43 result, the project developers rely on the foreign manu- There are currently no manufacturers of large scale wind facturer to provide quality maintenance services. turbines in Vietnam. However, CS Wind Vietnam Co44, a Korean manufacturer of small scale wind turbines and Financing possibilities towers, established its first wind tower factory in Vietnam All important projects are supported by the state bank of and is now recognized as one of the leading wind tower Vietnam but financial support is also possible from the manufacturers in the country. World Bank and the Asian Development Bank. Fuhrlaender is investigating the possibility to manufacture its 1.5 MW turbine in Viet Nam. Currently they are negotiating the conditions with the government. Wind developers must import technology and gain expertise from abroad due to the limited technical expertise available in Vietnam and thereby assume significant risk in the development of wind farms. Thermal power and Hydro power generators do not face these barriers as Vietnam already has an established industry in these technologies.

43 EAEF 2007 44 www.cswindcorp.com/eng VIETNAM | 362

16.7 Contacts and Addresses Electricity of Viet Nam – EVN 18 Tran Nguyen Han – Hanoi ASEAN Centre for Energy (ACE) Tel.: +84 (4) 82 49 508 ASEAN Centre for Energy Building, 6th Floor Fax: +84 (4) 82 49 461 Jl. HR. Rasuna Said Blok X-2, E-mail: [email protected] Kav. 07-08 Kuningan, Internet: www.evn.com.vn Jakarta - 12950 Tel.: +62 (21) 527 93 32 Institute of Energy – IE Fax: +62 (21) 527 93 50 6 Ton That Tung Dong Da – Hanoi Internet: www.aseanenergy.org Tel.: +84 (4) 852 37 30 Fax: +84(4) 852 93 02 "4*"1&530-&6.&/&3(:$03103"5*0/ Internet: www.evn.com.vn/ioe/english/index_eng.html Dang Quoc Toan, Managing Director 135/45 Nguyen Huu Canh, Ward 22, National Load Dispatching Center (NLDC) Binh Thanh District, Ho Chi Minh City-Vietnam 18 Tran Nguyen Han, Hoan Kiem District – Hanoi Tel.: +84-8-54046976 Tel.: +84 (4) 824 37 45 Fax: +84-8-54046975 Fax: +84 (4) 824 34 82 E-mail: [email protected] Internet: www.evn.com.vn/nldc/english/index_en.html Internet: www.asiapetro.com.vn Renewable Energy Research Center CDM-Projects Hanoi University of Technology 1 Dai Co Viet Hai Ba International Cooperation Department (ICD) Trung – Hanoi Ministry of Natural Resources and Environment Tel.: +84 (4) 869 26 56 (MONRE) Fax: +84 (4) 868 11 85 83 Nguyen Chi Thanh Road, Hanoi, Viet Nam E-mail: [email protected] Tel.: +84 (4) 773 61 03/822 89 74 Fax: +84 (4) 835 21 91/826 38 47 Research Center for Thermal Equipment and E-mail: [email protected] Renewable Energy – University of Technology Deputy Director General, ICD: Mr. Nguyen Khac Hieu 268 Ly Thuong Kiet, District 10 – Ho Chi Minh City E-mail: [email protected] Tel.: +84 (8) 865 43 55 Fax: +84 (8) 865 43 55 Ministry of Industry E-mail: [email protected] 54 Hai Ba Trung Hoan Kiem District – Hanoi Internet: www.hcmut.edu.vn Tel.: +84 (4) 826 78 70 Fax: +84 (4) 826 90 33 SELCO Viet Nam Company Limited Internet: www.industry.gov.vn 239 Tran Hung Dao Ministry of Planning and Investment Dist. 1 – Ho Chi Minh City 2 Hoang Van Thu Ba Dinh District – Hanoi Tel.: +84 (8) 836 82 62 Tel.: +84 (4) 845 30 27 Fax: +84 (8) 837 74 08 Fax: +84 (49 823 44 53 E-mail: [email protected] Internet: www.mpi.gov.vn Internet: www.selco-intl.com VIETNAM | 363

SOLARLAB – Viet Nam National Center for 16.8 Information sources Science and Technology Phan Vien Vat Ly, 1 Mac Dinh Chi, ADB- Asian Development Bank: Ho Chi Minh City Country Report Energy and Climate Change Tel.: +84 (8) 822 20 28 IN VIETNAM, Workshop, March 2009 Fax: +84 (8) 829 59 05 (http://www.adb.org/documents/events/2009/Cli- E-mail: [email protected] mate-Change-Energy-Workshop/VIE.pdf ) Retrieved Internet: www.solarlab.org/ on 1st September 2009

World Bank APEC - Energy Demand and Supply Outlook 2006: 63 Ly Thai To – Hanoi Viet Nam, 2006 Tel.: +84 (4) 934 66 00 Fax: +84 (4) 934 65 97 ASEAN centre for energy: E-mail: [email protected] Vietnam, 2003 ( http://www.aseanenergy.org/ener- Internet: www.worldbank.org.vn/ gy_sector/electricity/vietnam/current_organisational_ structure_evn.htm#Transmission%20and%20Distribu- German Embassy in Viet Nam tion%20Facilities) Retrieved on 1st September 2009 29 Tran Phu – Hanoi Tel.: +84 (4) 845 38 36/7 ASEAN energy: Fax: +84 (4) 845 38 38 Wind Power Development in Vietnam Institutional, E-mail: [email protected] Policy and Market study. Report, 2006 Internet: www.germanembhanoi.org.vn ( http://www.risoe.dk/vea-ves/ASEAN%20web%20 page/reports/Hanoi_Report%20minutes%20meeting. Gesellschaft für Technische Zusammenarbeit (GTZ) pdf ) Viet Nam Office 6th Floor, Hanoi Towers, 49 Hai Ba Trung – Hanoi Asian Energy: Tel.: +84 (4) 934 49 51/2/3 Vietnam’s high wind power potential, article, July 2009 Fax: +84 (4) 934 49 50 ( http://www.silobreaker.com/vietnams-high-wind- E-mail: [email protected] power-potential-5_2262493977309610008 ) Retrieved Internet: www.gtz.de/vietnam on 1st September 2009

Delegate of German Industry and Commerce ASTAE: 1303 Vietcombank Tower Annual status report, 2008 198 Tran Quang Khai Street ( http://siteresources.worldbank.org/EXTEAPASTAE/ Hoan Kiem District, Hanoi 3FTPVSDFT"45"&@"43@@':QEG) Retrieved E-mail: [email protected] on 1st September 2009 Internet: www.vietnam.ahk.de VIETNAM | 364

AusAID - Australian Government: EC ESEAN: Vietnam, July 2009 (http://www.ausaid.gov.au/coun- Wind Energy Development in ASEAN 2005 try/country.cfm?CountryId=33) Retrieved on 1st ( http://www.ec-asean-greenippnetwork.net/dsp_page. September 2009 cfm?view=page&select=207 ) Retrieved on 1st Septem- ber 2009 Auswaertiges Amt: Vietnam, March 2009 (http://www.auswaertiges-amt. EIA - Energy Information Administration: de/diplo/en/Laenderinformationen/01-Laender/Viet- Country Analysis Briefs 2007 ( http://tonto.eia.doe. nam.html) Retrieved on 1st September 2009 gov/country/country_energy_data.cfm?fips=VM ) Retrieved on 1st September 2009 BMU – Federal Environment Ministry: Astrid Klug: Vietnam is an important partner Embassy of Vietnam, 2009 in environmental protection, March 2009 ( www.vietnamembassy-usa.org ) Retrieved on 1st September 2009 CIA-Central Intelligence Agency: The World Factbook, 2009 (https://www.cia.gov/li- ESRI- Environmental Systems Research Institute: brary/publications/the-world-factbook/geos/vm.html) Map of Indonesia, 2008 ( http://www.esri.com/ ) Retrieved on 1st September 2009 Retrieved on 1st September 2009

Dang Quoc Toan - EVN – Electricity of Vietnam: "4*"1&530-&6.&/&3(:$03103"5*0/ Electricity & Energy Industry News, Article, Wind energy questionnaire, Aug 2009 January 2008 ( htto://www.vfabric.com/Vietnews/e.htm ) Retrieved DPA, 2009: Experts: on 1st September 2009 Vietnam must raise electricity prices to lower emissions, Sept 2009 (http://www.earthtimes.org/articles/ EVN: show/286126,experts-vietnam-must-raise-electricity- Vietnam Electricity, Sept 2008 (http://www.investinvi- prices-to-lower-emissions.html) Retrieved on 1st etnam.vn/Default.aspx?ctl=Article&tID=7&pID=323 September 2009 &aID=529) Retrieved on 1st September 2009

Dung, Nguyen Tan 2007: France diplomatie: Decision No. 1855/QD-TTg of December 27, 2007, Framework partnership document France - approving Vietnam’s National Energy Development Vietnam (2006-2010), 2008 Strategy up to 2020, with 2050 Vision ( http://www. (http://www.diplomatie.gouv.fr/en/country-files_156/ asiabiomass.jp/biofuelDB/vietnam/pdf/Decision%20 vietnam_718/france-and-vietnam_5884/cultural-scien- No.%201855.pdf ) Retrieved on 1st September 2009 tific-and-technical-cooperation_6083/framework-partnership-document-france-vietnam-2006-2010_11777. EAEF – EC-ASEAN energy facility: html) Retrieved on 1st September 2009 Summary of project implemented under EAEF co-financing, 2007 VIETNAM | 365

Freshfields Bruckhaus Deringer: Khanh Q. Nguyen: Vietnam New electricity Law, 2005 Impacts of a rise in electricity tariff on prices of other ( http://www.mekongsources.com/doc/Briefing%20 products in Vietnam 2008 ( http://www.viet-studies. on%20Vietnam%27s%20Electricity%20Law%202005. info/kinhte/Electricity_tariif_VN.pdf ) Retrieved on pdf ) Retrieved on 1st September 2009 1st September 2009

GENI - Global Energy Network Institute: Khanh, P: Electricity transmission grid of Indonesia, 2007 Power Safety in Vietnam, 2007. http://www.geni.org/globalenergy/library/energy-is- (ts.nist.gov/Standards/Global/upload/khanh.doc) sues/vietnam/index.shtml) Retrieved on 1st September Retrieved on 1st September 2009 2009 MOIT - Ministry of Industry and Gtai, Vietnam CDM market, 2009 Trade Viet Nam - Vu Van Thai: ( http://www.gtai.de/DE/Content/__Shared- Meeting rapid electricity demand growth, Docs/Anlagen/PDF/CDM/cdm-markt-vietnam- September 2008 english,property=publicationFile.pdf?show=true) ( http://www.mrcmekong.org/download/programmes/ Retrieved on 1st September 2009 hydropower/presentations/2.4%20F.VVThai%20 Presentation%20at%20Consultation%20on%20 GTZ - Gesellschaft für Technische Zusammenarbeit: MRC%27s%20Hydropower%20Programme%20 Vietnam Investment Review, July 2009 ( http://gtz- Lao%2025-26Sept.08.pdf ) Retrieved on 1st September windenergy.org.vn/index.php?mact=News,cntnt01,deta 2009 il,0&cntnt01articleid=25&cntnt01detailtemplate=win d%20energy%20in%20vietnam&cntnt01dateformat=( MOIT - Ministry of Industry and Trade Viet Nam: %25d%2F%25m)&cntnt01returnid=53 ) Retrieved on Strategy and Masterplan for Renewable Energy Devel- 1st September 2009 opment of Vietnam for the period up to the year 2015, with outlook to 2025, October 2008 Harvard Kennedy School: Case study Vietnam Electrcity, 2008 Nguyen: ( http://www.fetp.edu.vn/exed/2008/HaNoi/Docs/ Energy Policy 35, 2007, pg 1411 Readings/Day%202-1-Vietnam%20Electricity%20 Case-E.pdf ) Retrieved on 1st September 2009 Nhat Lam (Reuters): Vietnam 2008 power demand seen 16 pct – EVN, IEA – International Energy Agency: Article, Feb 2008 Beyond the OECD – Vietnam, 2006 ( http://www.iea. ( http://uk.reuters.com ) PSH5FYUCBTFDPVOUSZO@DPVOUSZBTQ $06/53:@ Retrieved on 1st September 2009 CODE=VN ) Retrieved on 1st September 2009

IMF-International Monetary Found: Report for Selected Countries and Subjects: Vietnam, 2009 ( http://www.imf.org/ ) Retrieved on 1st Septem- ber 2009 VIETNAM | 366

Omoteyama S. IEEJ: USAID: Vietnam Energy report 2009 (http://eneken.ieej.or.jp/ Vietnam country report, 2007 data/2588.pdf ) Retrieved on 1st September 2009 (http://usaid.eco-asia.org/programs/cdcp/reports/ Quang, Truong Nhat: BOT Project Financing in Ideas-to-Action/annexes/Annex%206_Vietnam.pdf ) Vietnam, Asia Law, 2003 (http://www.ykvn-law.com/ Retrieved on 1st September 2009 publications/botprojectfinancing.pdf ), Retrieved on 1st September 2009 U.S. Commercial Service: Market Brief – Vietnam, 2006 Quyen N.H.: (http://www.nema.org/gov/trade/briefs/vtnmpower- Chapter 13 - Renewable energy for rural areas: gen.pdf ) Retrieved on 1st September 2009 Viet Nam 2003 U.S. Department of State: RERD – Center for Renewable Energy and Rural Background Note - Vietnam, 2009 Development and Institute of Energy: (http://www.state.gov/r/pa/ei/bgn/4130.htm) PROJECT Delta PRO RES; WORKSHOP IN Retrieved on 1st September 2009 PHNOM PENH, October 2006 (http://ftpnrj.free.fr/ pdf_deltaprores/13_VIETNAM.pdf ) Retrieved on 1st Van Tien Hung – WB: September 2009 VIETNAM RURAL ELECTRIFICATION PRO- GRAM, workshop, June 2009 (http://www.fema-africa. RECIPES – Renewable Energy in emerging and devel- net/attachments/101_3.1%20Hung%20Van%20Tien- oping countries: Country energy information – Viet- Vietnam-Rural%20Electrification.pdf ) Retrieved on 1st nam, Sept 2006 September 2009

REEEP - The Renewable Energy & Energy VietNamNet Bridge: Efficiency Partnership: Wind power industry in Vietnam, article, July 2009 Policy DB Details: Vietnam, 2009 (http://www. (http://english.vietnamnet.vn/ reeep.org/index.php?id=9353&text=policy- reports/2009/07/860926/) Retrieved on 1st September database&special=viewitem&cid=39) Retrieved on 1st 2009 September 2009 VietNamNet/VnMedia: UNDP Risø : Highest retail electricity price raised to VND3,100/ CDM pipeline overview, Last visited 16/08/2009 kwh, March 2009 (http://www.lookatvietnam. (http://uneprisoe.org/) com/2009/02/highest-retail-electricity-price-raised-to- Retrieved on 1st September 2009 vnd3100kwh.html) Retrieved on 1st September 2009

UPI Asia - Energy Resources Vietnam’s high wind Vn business news: power potential, Article, July 2009 EVN purchases 2.2 billion kWh of power from China, ( http://www.upiasia.com/Energy_Resourc- article, August 2009 es/2009/07/30/Vietnams-high-wind-power-potential/ (http://www.vnbusinessnews.com/2009/08/evn-pur- UPI-52881248999620/) chases-22-billion-kwh-of-power.html) Retrieved on 1st Retrieved on 1st September 2009 September 2009 VIETNAM | 367

VNA: WWEA - World Wind Energy Association: EVN reports high revenues, dropping profits, 2008 Wind Energy International - Country report 2009, (http://english.vietnamnet.vn/biz/2008/01/763885/) Indonesia. (http://www.wwindea.org/home/index.php) Retrieved on 1st September 2009 Retrieved on 1st September 2009

VOVNews: World Bank: Country Brief, 2008 Vietnam’s first wind power plant to operate soon. (http://web.worldbank.org/WBSITE/EXTERNAL/ Article, 2009 COUNTRIES/EASTASIAPACIFICEXT/VIETN (http://english.vovnews.vn/Home/Vietnams-first- AMEXTN/0,,contentMDK:20212080~menuPK:3 wind-power-plant-to-operate-soon/20097/105875.vov) 87573~pagePK:1497618~piPK:217854~theSiteP Retrieved on 1st September 2009 K:387565,00.html ) Retrieved on 1st September 2009

Vu Van Thai, 2006: Xuan Thanh Nguyen, FETP, Case Study- ELECTRIC- Viet Nam Energy Policy: Energy Investment and *5:108&353"%*/($0.1"/: 4*/(-& Climate Change (http://www.unescap.org/esd/environ- #6:T&3 XPSLTIPQ ment/climatechange/documents/Session%205/Mr.%20 (http://www.fetp.edu.vn/exed/2008/HaNoi/Docs/ Thai_Viet%20Nam.pdf ) Retrieved on 1st September Readings/Day%202-2-Single%20Buyer-Case-E.pdf ) 2009 Retrieved on 1st September 2009 Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH

Dag-Hammarskjöld-Weg 1–5 65760 Eschborn / Germany T + 49 61 96 79-13 03 F + 49 61 96 79-13 03 E [email protected] I www.gtz.de