Provision of Technical Support/Services for an Economical

A project financed by the Ministry of Foreign Affairs of Denmark

Provision of Technical Support/Services for an Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

Country Report Libya

December 2009, revised April 2010

Norsk-Data-Str. 1 Döppersberg 19 61352 Bad Homburg, Germany 42103 Wuppertal, Germany Tel: +49-6172-9460-103, Fax. +49-6172-9460-20 Tel: +49-202-2492-0, Fax: +49-202-2492-108 eMail: [email protected] eMail: [email protected] http://www.mvv-decon.com http://www.wupperinst.org

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Table of Contents Page

1. Project Synopsis - 6 -

2. Summary of Energy Situation in Libya - 7 -

3. Comparison of Libyan Practice with International Practice in Energy Efficiency - 8 - 3.1 Strategy - 8 - 3.2 Legal Reform - 10 - 3.3 Price Reform - 10 - 3.4 An Agency - 13 - 3.5 Standards and /or Labels - 14 - 3.6 Financial Incentives - 15 - 3.7 Obligations - 16 - 3.8 Audits and the Promotion of ESCOs - 17 - 3.9 Transport and Spatial Planning - 17 - 3.10 Dissemination of Information - 18 - 4. Comparison of Libyan Practice with International Practice in Renewable Energy - 19 - 4.1 Targets and Strategy - 19 - 4.2 Legal Reform - 21 - 4.3 An Agency - 22 - 4.4 Standards and /or Labels - 23 - 4.5 Financial Incentives (Capital Support) - 23 - 4.6 Feed-in Tariffs and Obligations - 24 - 4.7 CDM Finance - 24 - 4.8 Information - 25 - 4.9 Industrial Policy - 25 - 5. Case Studies - 26 - 5.1 Case Study 1: Policies for the Promotion of Wind Energy in Libya - 26 - 5.1.1 Background and Context - 26 - 5.1.1.1 Promotion of Private Investment in Wind Energy in Libya - 26 - 5.1.1.2 Scope of the Case Study - 26 - 5.1.2 Comparison of Policy Instruments for the Promotion of Wind Power - 27 - 5.1.2.1 Specification of the Alternative Policy Instruments - 27 - 5.1.2.2 Competitive Bidding - 27 - 5.1.2.3 Feed-in Tariff - 28 - 5.1.2.4 Evidence Basis Policy Preparation - 28 - 5.1.2.5 Result of the Comparison - 38 - 5.1.3 Economic Cost-benefit Assessment - 42 - 5.1.3.1 Methodology Applied - 42 - 5.1.3.2 Wind Energy - 42 - 5.1.3.3 Opportunity Costs for Electricity Generation using Natural Gas - 43 - 5.1.3.4 Result of the Assessment (without Netback Costs) - 47 - 5.1.3.5 Return on Investment - 48 - 5.1.3.6 Variation Gas Prices and Return on Investment - 49 - 5.1.3.7 Carbon Credits - 50 - 5.1.3.8 Impact of Netbacks - 51 -

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Table of Contents Page

5.1.4 Conclusion - 51 - 5.1.4.1 Methodology - 51 - 5.1.4.2 Policy Instruments for Wind - 51 - 5.2 Case Study 2 - Concentrated Solar Power - 53 - 5.2.1 Background and Context - 53 - 5.2.1.1 Concentrated Solar Power (CSP) - 53 - 5.2.1.2 Scope of the Case Study - 54 - 5.2.2 Evidence-based Policy Making - 54 - 5.2.2.1 Alternative Forms of Intervention - 55 - 5.2.2.2 Base Case - 55 - 5.2.2.3 Impacts - 56 - 5.2.2.4 Consultation - 56 - 5.2.2.5 Compliance - 56 - 5.2.3 Theory-based Evaluation - 56 - 5.2.3.1 Methodology - 56 - 5.2.3.2 Indicators - 57 - 5.2.3.3 Behavioural Matrix - 57 - 5.2.4 Economic Cost-benefit Assessment - 60 - 5.2.4.1 Methodology Applied - 60 - 5.2.4.2 CSP - Assumptions and Data Base - 61 - 5.2.4.3 Opportunity Costs for Electricity - 64 - 5.2.4.4 Comparison of costs of electricity supply - 70 - 5.2.4.5 Impact of Carbon Credits upon "Renewable Values" - 71 - 5.2.4.6 Sensitivity Test - 74 - 5.2.5 Conclusion - 75 - 5.2.5.1 Methodology - 75 - 5.2.5.2 Substance - 75 - 5.2.5.3 European purchase of renewable values as a policy instrument - 76 - 6. Institutional Reform - Strategic Options - 77 - 6.1 Vision Statement by the Libyan Government and Energy Council - 77 - 6.2 Transparency of Decision Making Processes - 78 - 6.3 Define National Efficiency Strategies and Targets - 79 - 6.3.1 Implementation: Introduce Standards, Labels etc. - 80 - 6.3.2 Creation of an Energy Efficiency Authority EEA - 80 - 6.3.3 Establishment of an Energy Efficiency Fund EEF - 80 - 6.4 Foster Renewable Energies - 81 -

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List of Annexes

Annex 1: Mission Report Annex 2: List of Stakeholders Annex 3: Seminar Programme Annex 4: Presentation on Methodology Annex 5: Preview on Training Annex 6: Energy Situation in Libya

List of Tables

Table 1: Prices of Petroleum Products to Consumers Table 2: Historic fuel prices to the electricity sector 2001-2009 (Dinar / m3) Table 3: Domestic tariff for electricity 2009 Table 4: History of electricity prices to non-residential sectors (Dirhams / kWh) Table 5: Behavioural model of Competitive Bidding for Wind IPP and Associated Indicators, Risks and Assumptions Table 6: Behavioural Model of Feed-in Tariff for Wind IPP Table 7: Criteria for Choice among Options Table 8: Data for Wind Energy Table 9: Data for Combined Cycle Gas Turbine (CCGT) Table 10: Wind Energy - Economic Assessment Criteria Table 11: Wind Energy - NPV - Impact of Gas Prices and IPP Wind Return Requirements Table 12: Wind Energy - Economic Assessment Criteria with Carbon Credits (Base case) Table 13: Wind Energy - Economic Assessment Criteria with Carbon Credits Table 14: Impact of Netback Costs Table 15: Behavioural matrix for CSP and a European Purchase Scheme for Renewable Values Table 16: General parameters for the assessment Table 17: Key-data for Concentrated Solar Power (CSP) Plant Table 18: CSP - Financing conditions Table 19: CSP - Assumed financing conditions Table 20: Gas based electricity generation (CCGT) - Fixed unit costs Table 21: Gas based electricity generation (CCGT) - Determination of levelised costs Table 22: Impact of carbon credits upon "renewable values" Table 23: "Renewable values" - Comparison of cases Table 24: General Information about Libya in 2008 Table 25: New Power Plants in Libya, status 2008 Table 26: Technical and economic renewable electricity supply side potentials in TWh/a

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List of Figures

Figure 1: US LNG Prices Figure 2: Forecasts of crude prices to 2030 (DOE/IEA) Figure 3: Derived forecast of international LNG prices Figure 4: Forecast of Unit Costs for Wind Energy and CCGT-Natural Gas Figure 5: IPP Wind - Expected Return on Investment Figure 6: US LNG Prices Figure 7: Forecasts of crude prices to 2030 (DOE/IEA) Figure 8: Derived forecast of international LNG prices Figure 9: Marginal cost of electricity from gas Figure 10: CCGT and CSP - Comparison levelised costs Figure 11: CCGT and CSP - Comparison of electricity supply costs Figure 12: Impact of Carbon Credits - Reduction "renewable values" Figure 13: Development of additional costs Figure 14: Comparison of scenarios Figure 15: Illustration of the Policy Process Figure 16 Libyan Total Primary Energy Demand, 2006 Figure 17: Reference Scenario of Libya’s Primary Energy Mix until 2030 Figure 18: Libyan Crude Oil Production, 1981-2008 Figure 19: Geographic Dispersion of Libyan Oil and Gas Fields and Energy Infrastructure Figure 20 Development of Produced Power and Peak Load in Libya Figure 21: Annual Energy Supply by Using Vistas V-52 Wind Turbines at Selected Locations in Libya Figure 22: Libya’s Projected Installed Power Capacity. Source: DLR 2005 Figure 23: REAOL roadmap for renewable energy expansion in Libya Figure 24: Libya’s Energy Intensity in 2005 Compared to Other MENA Countries

List of Acronyms

AFD Agence Francaise de Development BRT Bus Rapid Transit CBL Central Bank of Lebanon CCGT Combined Cycle Gas Turbine CDM Clean Development Mechanism CER Certified Emission Reduction CFL Compact Fluorescent Lamp CNG Compressed Natural Gas CSP Concentrated Solar Power CTF Clean Technology Fund DANIDA Danish International Development Agency DSM Demand Side Management DNA Designated National Authority EBPM Evidence Based Policy Making EC Energy Council EE Energy Efficiency

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EGA Environment General Authority EHV Extra high voltage EIA Energy Information Agency EPC Energy Performance Contract ESCO Energy Service Company EU European Union g gram GECOL General Electrical Company of Libya GEF Global Environment Fund GHG Green House Gas GJ Giga Joule GWh Giga Watt hours HV High Voltage IBRD International Bank for Reconstruction and Development (Worldbank) IDA International Development Agency IEA International Energy Agency IISD International Institute for Sustainable Development IPP Independent Power Producer IRI Industrial Research Institute JICA Japanese International Cooperation Agency kWh kilo Watt hours LEED Leadership in Environmental and Energy Design LNG Liquefied Natural Gas LPG Liquefied Petroleum Gas LRT Light Rail Transit LV Low Voltage MED-EMIP Euro-Mediterranean Energy Market Integration Project MED-ENEC Euro-Med Project on Energy Efficiency in the Construction Sector MEW Ministry of Energy and Water MENA Middle East and North Africa MMBTU Million British Thermal Units MV Medium Voltage MW Megawatt NET PV Net Present Value NGO Non-Governmental Organisation OECD Organisation for Economic Cooperation and Development PIN Project Idea Note PPA Power Purchase Agreement PSA Production Sharing Agreement RCREEE Regional Centre for Renewable Energy and Energy Efficiency RE Renewable Energy REAOL Renewable Energy Authority of Libya SWH Solar Water Heater TBE Theory Based Evaluation toe tons of oil equivalent UNDP United Nation Development Program USAID United States Agency for International Development

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1. Project Synopsis

The "Regional Centre for Renewable Energies and Energy Efficiency (RCREEE)" was formally established June 25, 2008 through the signing of the "Cairo Declaration of Intentions on Establishment of a Regional Centre for Renewable Energies and Energy Efficiency (RCREEE)" by representatives of its member states: Algeria, Egypt, Jordan, Lebanon, Libya, Morocco, Palestine, Syria, Tunisia and Yemen. The overall objective of RCREEE is, through its interventions, to achieve: a) rapid implementation of cost-effective policies and instruments for the increased penetration of renewable energy (RE) and energy efficiency (EE) technologies and practices in member countries; and b) increased market shares of companies and plants located in MENA-countries on the markets for technologies and services related to RE and EE in the MENA and EU regions.

For the first five years of operation, RCREEE receives financial support from the Governments of Egypt, Germany and Denmark. The European Commission (EC) supports RCREEE through two regional programs: "MED-EMIP" and Phase II of "MED-ENEC". Member countries will contribute financially by increasingly co-financing the costs of the participation of national officials in RCREEE semi- nars and workshops.

The present project is the first project support to RCREEE from the Danish Government. It is part of RCREEE's overall effort of providing member state administrations with better information and new planning tools and processes. It supports RECREEE in the development of a website which offers access to a complete subject-ordered list of member state RE&EE laws and regulations, reviewed policy documents, selected background and evaluation reports deemed to represent state-of-the art high quality analytical work as well as discussion blogs on topics deemed to be of general interest for RCREEE governments.

In parallel and supporting the above activities, the project has gathered the pertinent information on EE and RE in each member country and made them available through the RCREEE website in an or- ganised manner. Likewise the methodology on evidence based policy development and theory based policy evaluation was discussed and extended in each country and their relevance and applicability illustrated through case studies. On the basis of the country reports, a regional report was prepared to allow policy makers and decision makers in all RCREEE member countries to see the status of their EE and RE policies in a comprehensive regional context.

The activities were carried out by the project core team of four international experts assisted in each country by a national specialist. Workshops were held by the national specialists at the end of the project using the material and the methodological case studies developed throughout the project. The national and regional reports were revised to take into account the comments received.

Libya was visited by the project team during 29 September to 3 October 2009.

The following sections in this report reflect the impressions gained by the project team through the discussions held during the course of the mission and all the information that has been available to the team. The main purpose of this country paper is to stimulate new thought on EE and RE policy development in Libya..

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2. Summary of Energy Situation in Libya

Libya is a member of OPEC and one of the larges crude oil exporters of the world. It is also endowed with large natural gas reserves that allow the country to supply Europe through a pipeline to Italy. It will remain a major international player on fossil fuel markets in the near future, because domestic consumption is low compared to total crude oil production. Primary energy supply in Libya consists of oil products (90%) and natural gas (10%).

GECOL is Libya’s state owned company responsible for electricity production, transmission and distribution. Total electricity production stood at 25.5 TWh in 2007 with overal generation capacity of 5.5 GW. There are plans to have a total installed capacity of 10 GW by 2015. Like many other oil exporting countries, Libya is substituting natural gas for oil in power generation so as to increase oil exports.

Energy prices are subsidised heavily in all economic sectors. In such an economic environment it is difficult to foster renewable energies and energy efficiency on a cost-effective basis. Renewable energies are not utilised in significant amounts. However, there are some wind turbines in different parts of the country. Solar potential is vast but untapped yet.

The institutional setting is not favourable for sustainable long-term policies and strategies. In 2008 the Ministry of Electricity and Energy was disbanded, its responsibilities shifted to the Energy Council. The Energy Council is an institutional body comprising members of different ministries and authorities. It has the task to organise the broad range of all energy matters within Libya. In general the policy- making process lacks transparency and inter-institutional communication structures.

The Renewable Energy Authority of Libya REAOL framed a renewable energy roadmap up to 2030 that has been approved by the former Ministry of Electricity and Energy. Long-term plans are to cover 25% of Libya’s energy supply by renewable energies by the year 2025 (2030: 30% renewables).

Libya’s economy is very energy-inefficient. Curently there are no integrated efficiency strategies or other far-reaching approaches in the policy-making process. Energy efficiency as a policy field is not yet covered by any institutional body. However, there are some first steps towards decreasing energy intensity, e.g. long-term measures like codes or standards and their communication to consumers are discussed.

As a consequence, it is – among other measures and strategies – recommended to define clear responsibilities of institutions, to create an authority for energy efficiency and to make institutional structures and processes more transparent.

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3. Comparison of Libyan Practice with International Practice in Energy Effi- ciency

This section attempts to compare the present status of energy efficiency in Libya with international practice. Public policy intervenes to correct market failures, in the case of energy efficiency the most common failures are: distorted energy prices, external costs, poor access to technical information, agent-principal problems, budgetary constraints and excessive risk aversion, poor skills of investment appraisal. Policy instruments are intended to correct or compensate for these distortions. The most common among these instruments can be categorised as:

Corrective Measures Price Reform Institutional and legal reform Labelling Dissemination of information Research, development and demonstration Financial incentives Support for energy service companies (ESCOs)

Compensating Measures Standards Mandatory measures (e.g. compulsory audits and management obligations) Corporate agreements Efficiency obligations Transport and spatial planning

Normally these instruments should be combined within an overall strategy that sets out objectives and targets and defines the combinations of instruments that are expected to achieve the targets.

The following discussion reflects this taxonomy.

3.1 Strategy

Strategy sets out objectives and targets and defines the combinations of policy instruments that are expected to achieve the targets.

There is little evidence of any strategy or targets for energy efficiency in Libya and not much analytical work on the possible potential. An old study indicated that the potential could amount to 20% over the period 1998 to 2020, equivalent to about 50 million barrels of oil at the time. Improvements in electricity use could reduce the need for electricity generation by 2160 MW in the year 2020 1.

The oil sector provides about 70% of GDP, having risen from 50% in 2002 in line with rising oil prices. Energy efficiency and GHG suppression in the oil sector is therefore of great importance.

The energy sector in Libya is controlled, like the rest of the economy, by a five year National Plan. The Planning Ministry estimated the gross amount of investments for the developmental programme in the

1 Ballut, A., Ekhlat, M "The Potential Impact Of Improved Energy Utilization Efficiency On The Future Energy De- mand In Libya Up To The Year 2020", 17th World Energy Congress, USA ,1998. Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

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coming five years at 318 billion Dinars (260 billion Dollars); 77% of this amount will be from the state budget and the remainder will be secured from non-state budget sources, such as foreign investments, loans from commercial banks, and funding from the private sector. The majority of funding (58%) will be allocated to the infrastructure sector. Much of this is for buildings and the extension of urban settlements. There seems however to be no consideration of the implications for energy demand. The productive sectors of oil, agriculture, industry, and the “Great River” will receive 16% of the funding. The human resources sectors including higher education, labour, health, environment, social affairs, youth, sports, culture, and media will receive 15%, whereas the services sector will receive 11%.

Despite the theoretical coordinating role of the Plan, it appears in practice to be an assembly of claims by different Ministries and there is not necessarily consistency between the claims of different parts of the energy sector. Libya lacks effective coordination and communication among entities in the energy sector; each entity has its own policy and moves in different direction. It is obviously important to coordinate activity according to a common and agreed strategy.

Recently an Energy Council has been established by the Prime Ministerial Decision of September 8 th 2009; it is chaired by the Prime Minister and is comprised of the Ministers of Industry and Economic Development, Planning and Finance, and Municipalities together with the Chairmen of the Environ- mental General Authority, REAOL, GECOL, the National Oil Company, the Atomic Authority, the Solar Energy Research Centre, the Libyan Bank and the National Security Council. The Ministry of Trans- port is a notable omission. The Council will meet every 3 months.

The Council will be attributed a Secretariat headed by a General Manager to follow up its decisions. Consultative committees of experts will be established in various areas. The tasks of the Council include the duties to:

• Prepare and suggest policies and strategies for the energy sector and to coordinate among stakeholders • Develop the energy sector structure • Establish policy to manage demand • Establish a strategy for pricing • Collect available information • Evaluate sources of energy, especially solar • Energy forecasting • Establishing procedures for investment on the energy sector • Approving contracts with foreign companies

The Council is also charged with many other detailed interventions in the operation and management of line entities, including such things as the approval of travel by staff.

The Council seems to serve several functions. It serves as a mechanism of decision making in areas where inter-Ministerial cooperation is vital, e.g. strategy and pricing. It also performs tasks that would normally be done by a Ministry of Energy, which has been suppressed in Libya, e.g. structure, investment, information. Lastly it micro-manages the operating entities creating conflicts of function, risks of confusion and delays.

The Energy Council is clearly a powerful mechanism for inter-Ministerial cooperation, strategy development and conflict resolution, but its duties may extend too far for it to be effective. Its functions might be reconsidered to include only those that are not adequately performed within the existing structure.

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Detailed analytical work across the entire energy sector conducted within the National Nuclear De- partment, with technical support from the International Institute of Atomic Energy (IAEA) in Vienna. This work will be an important input into the next 5 year Plan and will contribute in particular to the chapters on energy efficiency and renewable energy.

The elements of a rational structure exist. The analytical work performed by the Atomic Authority provides a good basis for the development of strategy and policy. The Energy Council is well placed to resolve any conflicts that arise and to broker a programme of price reform. The Planning Ministry should then transform the strategy into an operational plan and provide clear guidelines for the operational entities and adequate budgets. A medium-term financial statement would assist the operation entities in coherent planning and implementation.

3.2 Legal Reform

The proper implementation of energy efficiency requires an energy efficiency law that justifies the purpose of the activity, establishes a clear focus in government, assigns the responsibilities of actors, and makes provision for an agency and specific instruments.

The following list contains the most frequently occurring provisions in such laws:

• Recognising energy efficiency as an appropriate subject of legislation and regulation • Identifying and communicating in a policy document or national plan the principles of energy efficiency policy • Identifying through technical analysis the potential for saving and prioritizing the sectors with highest potential • Defining policy interventions to promote energy efficiency e.g. fiscal and financial incentives, tradable certificates, and regulations • Drafting of legislation to implement policy interventions • Setting penalties for default • Creating institutional structures to promote energy efficiency • Assigning staff in proper numbers and with proper qualifications to the institutions and ensuring adequate finance for the institutions • Drafting national programmes for short and long-term management of energy efficiency • Assigning responsibility to promote energy efficiency at national, regional and municipal levels • Monitoring and evaluating progress

There is no energy efficiency law in Libya. Some considerations regarding energy efficiency were included in a previous draft electricity law, but this law never reached the statute book and was with- drawn when the Ministry of Energy was disbanded. We understand that a new law on energy efficiency is in preparation, but its contents are as yet uncertain.

3.3 Price Reform

It is well established that energy demand is price sensitive, especially demand for electricity. The most reliable results come from industrialised countries. Price reform will save large quantities of energy, especially in the long-run and can make a substantial reduction in GHG emissions from countries with distorted prices. Subsidies put a large strain on public accounts and weaken foreign trade balances. They also tend to devastate the state-owned enterprises that are normally a victim of the practice.

Subsidies are widespread throughout the Libyan economy. Agriculture receives extensive state sup-

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port through price and input subsidies. Water is heavily subsidised and so is energy. Petroleum product prices are subsidised by implicit consumer subsidies. The price of petroleum products to consumers in Libya is well below the international price for similar products. This is a distortion of the market and represents an implicit subsidy to petroleum products because the true value of the commodity to the country is measured by the value which it would achieve in its most valuable application. The World Bank estimated that in 2003 the prices for various products as a fraction of international fob prices were as shown in the Table.

Table 1: Prices of Petroleum Products to Consumers Fuel Percentage of international fob price Diesel 20% Gasoline 44% Fuel Oil 24% Kerosene 7% LPG 23%

The extent of the subsidy in this year was estimated at 18.5% of government expenditure or about 7% of GDP 2. The cost of the consequent inefficiency in the use of resources was estimated in the same report at around 3.7% of GDP per year.

Some attempt to reduce the level of subsidies has since been made, but they still are at a high level. Gasoline is sold at 20 Dirhams / litre and diesel at 15 Dirhams / litre. (100 Dirham = 1 Dinar; 1 euro = 1.8 Dinar at present exchange rates). The Table 1 shows the evolution of fuel prices to the electricity sector over the past ten years. The efforts to bring prices closer to international prices are clearly visi- ble. Inflation has been subdued in Libya and there have been long periods of deflation so the prices rises are largely real.

Table 2: Historic fuel prices to the electricity sector 2001-2009 (Dinar / m3) 2001 2002-2005 2006 2007 2008 2009 Heavy Fuel Oil 18.4 36 Light Fuel Oil 26 36 56 66 86 150 Natural Gas 0.008405 0.02

Electricity prices are subsidized in two ways; GECOL receives fuel inputs at prices well below international prices, as noted above. This is an implicit subsidy that does not appear in the state accounts. In the past it also received capital from the state for free and this is an explicit subsidy that does appear in the state budget. The company appears now to incorporate depreciation in its cost base, but it is not entirely clear how the figures are calculated and whether the figures are realistic. The revenues from sales of electricity are insufficient to cover the costs of production and the deficit is also compensated by a direct financial transfer from the state. Costs are inflated by the high staffing of GECOL because the company has been encouraged to employ engineers who cannot find employment elsewhere.

There is a special Committee for Pricing of Electricity and Water; the cost of water is much influenced by the price of energy through pumping costs and desalination. GECOL has submitted to this commit-

2 Socialist People’s Libyan Arab Jamahiriya, Country Economic Report. World Bank, Social and Economic Devel- opment Group, Middle East and North Africa Region. July 2006

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tee detailed estimates of its costs based on various assumptions. The most accurate of these calculations comprises an assessment of the Average Incremental Costs (AICs) based on opportunity costs of fuel (international prices), operating costs and future investment needs. These assumptions show that the true costs of electricity are an order of magnitude above existing price levels.

GECOL has also calculated cots by a second set of assumptions that is based on the subsidised costs of fuel and making some allowance for depreciation; with these assumptions, the GECOL estimates its average cost per unit of electricity sold at around 64 Dirham/kWh. This takes into account the large commercial losses (around 25%) and the technical losses (13-14%), for which no revenue is received.

The tariff in 2008 for domestic consumers is shown in Table 2. The average revenue from a domestic consumer was 23.6 Dirhams/kWh; this value is close to the minimum tariff because the majority of consumers falls into the lowest band. Another consequence of the high threshold for the definition of the lowest tariff category is that the majority of customers receive the subsidy; it is by no means confined to the poor.

Table 3: Domestic tariff for electricity 2009 Monthly consumption Unit price (kWh / month) (Dirhams/kWh) 0 to 1000 20 1001 to 1400 30 Above 1400 50

The tariffs for other major consuming groups are also well below the unit generating cost, including light industry (average revenue 42 Dirhams / kWh) and heavy industry (31 Dirhams / kWh). Only in the case of sales to commercial enterprises, government and street lighting does the selling price exceed the average cost of generation.

Although tariffs are very heavily subsidised at present, they were even further from cost in the past. The Table 3 shows the development of costs over the past 30 years for consumers other than those in the residential sector. In many cases prices have tripled and in a few cases they have risen further. This is not true of the domestic sector where average revenues have remained around 20 Dirhams / kWh over the entire period. Domestic consumers have therefore been sheltered from this partial reform.

Table 4: History of electricity prices to non-residential sectors (Dirhams / kWh) 2006- 2004- 1998- 1997 1996 1981- Before 2008 2005 2003 1995 1981 Small Agriculture 30 30 30 25 20 15 5 Large Agriculture 32 32 32 27 21 15 5 Light Industrial 42 42 42 33 24 15 15 Heavy Industrial 31 31 31 24 17 10 7 Commercial 68 68 48 42 36 30 20 Government 68 68 47 42 36 30 20 Street Lighting 68 68 45 40 35 30 15

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3.4 An Agency

Many countries have found it useful to establish a specialised institution to prepare initiatives, draft regulations, monitor progress, ensure compliance, administer funds and perform other administrative activities. It will not necessarily be the only institution with powers in the area. If fiscal incentives are adopted then these will be managed through the office responsible for taxation, but there will still be a need to confirm the technical acceptability of the investment. Compliance with standards for equipment and boilers will normally be performed by special corps of inspectors already engaged in standards work. The regulator would normally enforce any specific obligation on electricity networks.

Despite the need to involve existing institutions, it is often considered useful to create a specialised agency. This agency would typically have the following responsibilities.

• Developing and disseminating targeted information to specific categories of users • Organising training; liaison with universities and professional bodies • Developing energy efficiency standards • Conduct of surveys; analysis of data and maintenance of database • Conducting or managing programmes of certification and labelling • Liaising with other state institutions (e.g. Taxation offices and inspectorates) • Administering energy efficiency funds • Specifying mandatory audits; certifying and/or licensing energy auditors • Designing short-term and long-term energy efficiency programmes • Monitoring, evaluating and reporting on the implementation state activities and private initiatives • Designing and proposing new interventions as opportunities are identified

Legislation would probably be needed to establish such an agency and to specify its duties.

There is no agency for energy efficiency in Libya and no clear assignment of responsibility for this topic.

The General Electricity Company of Libya or GECOL has some internal programs. GECOL is an agency under the General Peoples Committee for Electricity, Water and Gas. It is a state owned verti- cally structured power utility with a monopoly over generation, transmission and distribution. Installed generating capacity in 2008 was 6196 MW. The growth rate in peak demand over the past 10 years has been between 8 and 10% per year. This growth is expected to continue as a consequence of the many new infrastructure projects which are planned. The company has difficulties in meeting this demand with a commensurate expansion of capacity and power shortages are beginning to require load shedding. About 32% of the electricity generated is from light fuel oil burnt in combined cycle plant. Al- though GECOL receives its fuels at very highly subsidized prices it still makes an operating loss. The problems of managing the high growth rate in demand and financing the necessary heavy investments give GECOL a strong incentive to manage demand. The company has commissioned DSM studies that are described below.

The absence of a clear responsibility to promote energy efficiency is a serious weakness in the institutional structure of the energy sector in Libya. It needs to be addressed urgently. One possibility would be to attribute the responsibility to REAOL. This is an established institution in a closely related area and there are many international precedents for combining the two responsibilities.

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3.5 Standards and /or Labels

The obligation on manufacturers and importers of equipment to label goods or to meet specified standards is a policy measure introduced to overcome the market failure caused by asymmetric information. Potential users of equipment, faced with a choice of designs, may not have the skills and information to understand the consequences of their choice. They may be tempted to choose low-cost equipment with high energy consumption in preference to higher price options that perform better. Manufac- turers may not have an incentive to provide this information if they think that their comparative market advantages do not include greater efficiency than competitors. Labelling and standards are not exclusive; goods can be obliged to meet a certain minimum standards and then labelled according to their performance when it exceeds the standard. Labelling and standards both require testing facilities and protocols; both require rigorous and competent enforcement.

The Libyan National Centre for Standardization and Metrology (LNCSM) is the National Standards Body responsible for all Standardization activities in Libya.

The main activities of LNCSM are: • Preparation, issuing, accrediting, reviewing, of national standards in all fields of products and services, and disseminating and selling these standards. • Harmonization of Libyan standards with Arab, regional and international specifications, and accreditation of standards issued by Arab, regional or international organizations. • Proposing accreditation of testing facilities and laboratories for testing, inspection, analysis and calibration, inspection offices, and qualifying conformity certificates grantors and following up their performance. • Setting and implementing the national metrology system, keeping the national references of the national standards, and developing and accrediting measurements and calibration methods. • Coordinating standards among Arab, regional and international bodies in order to promote the exportation of national goods and products. • Preparing a national quality assurance programme aiming at improving the performance efficiency of the public and private production and service institutions, and supervising its implementation. • Issuing a Libyan quality mark system specifying the relations and organizing the conditions for the permission of its use. • Expanding the cooperation between the Arab, Regional and International bodies, in the fields of common interest. • Cooperation, coordination and participation in Arab, regional and international organizations active in the Centre’s fields of activity.

The Centre has prepared to date 2,500 standards across the Libyan economy and is expecting to develop 15,000 standards within the next 5 years. The process normally passes through expert committees established in appropriate fields. There exists already a committee for electrical appliances and this committee is conducting preliminary work on minimum performance standards for appliances. We understand that the Centre could develop and implement such standards without new primary legislation. Such standards should be developed taking into account the work that has been done in many other countries of the region. There seems to be no immediate intention to develop labels.

Libya has local manufacture of water heaters, refrigerators, freezers, washing machines and it assem- bles air-conditioners. At present there are no checks even on the safety of these appliances. There are also no checks on the import of appliances and no legal basis for such checks; this is a serious deficiency as it means low-cost producers can (and apparently do) discharge the poorest of goods into the Libyan market. A legal basis should be created to verify compliance at the point of entry and before goods reach the market where compliance is more difficult to assure.

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To implement appliance standards would require testing laboratories and therefore a significant budget. The Centre is in discussions with the Industrial Research Centre of Libya about the creation of such laboratories and has requested assistance from UNIDO for the development of two laboratories to test the safety and performance of appliances.

In summary, there there are no extant standards, but the LNCSM is competent and dynamic and working in the correct direction. This effort needs to be sustained. Testing laboratories and compliance regime will need to be developed in parallel.

Standards for buildings are an important special case because:

• The rate of new building in developing countries is far higher than anywhere else in the world • Buildings are large consumers of energy • Buildings last for decades and will determine energy use for a very long time • Large improvements in the energy efficiency of buildings can be achieved at low cost • Developers will not normally make those improvements because of various chronic market failures • The principal-agent dilemma is especially acute

Buildings are a very important influence on energy demand in Libya; the country is engaged in a strong programme of construction. During the Five Year Plan from 2008-2012, the country will spend some $60 billion on the housing and services sectors, representing half of the budget intended for that period. Several new satellite cities are intended at various sites around the main population centres. These developments will make a substantial contribution to energy demand and will endure for many decades. It is desirable that they should be built to perform efficiently.

There appears to be no building code in Libya at present and until recently no competent body had been assigned responsibility. The Libyan National Centre for Standardization and Metrology (LNCSM) has proposed that it take on the responsibility to develop a Libyan National Building and Construction Code and this proposal has been approved unofficially. The Centre has begun the task of creating the necessary committees. It intends to include requirements for energy efficiency within this code.

This is a very important task and should be pursued with vigour. Much work has been done in the region on the development of energy efficiency codes for building and this work should be thoroughly examined as a preliminary to a Libyan initiative.

3.6 Financial Incentives

Financial incentives can be separated into economic and fiscal incentives. Economic incentives are aimed at encouraging investment in energy efficient equipment and processes by reducing the investment cost directly and fiscal incentives are those actions that reduce the cost indirectly through the taxation system. Economic incentives can be further divided into investment subsidies and concessional finance. Investment subsidies change the perceived cost of an investment and concessional finance changes the financing conditions. Fiscal incentives differ from other financial incentives in several ways. They do not need to be funded directly; they are funded indirectly in that they represent a loss of revenue to the state budget. Generally they are available to all who qualify according to the terms of the exemption; there is no application and award process. For this reason they are sometimes preferred as being less susceptible to corruption and to political manipulation. They can be managed through the normal tax compliance regime. In middle income countries this approach is

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generally only practical with companies.

A last instrument that might be included under this heading is feed-in tariffs for cogeneration. If the feed-in tariff is above the opportunity cost of electricity then the instrument does really constitute an incentive. The incentive is funded by other consumers of electricity unless a special compensation is paid from the state budget to the network. If the feed-in tariff is above the marginal cost of electricity at subsidised fuel prices, but below the opportunity cost then it is simply a regulation to correct the monopoly purchasing power of the network and the distorted fuel prices.

Industry in Libya tends to divide into large state-owned companies and much smaller private companies. There appears to be no external financial incentives for either of these groups to stimulate audit- ing of their use of energy within their processes or to promote investment by the companies in energy efficiency. Such efforts as are made are funded directly from company resources.

An energy efficiency fund might be considered in the proposed law on energy efficiency. IT could be managed and administered by the energy efficiency agency that we propose.

3.7 Obligations

Another approach, which may be combined with incentives, is to oblige companies to undertake energy efficiency by mandatory measures. These can be multiple and include obligations to:

• To carry out audits at regular intervals • To report to central government database and possibly to communicate audit results to the public • To report energy consumption, saving measures and implemented measures • To propose action plans to implement the energy savings measures identified in audits • To carry out certain specified measures • To appoint an energy manager • Mandatory certification of auditors • Mandatory comparison of operation and investment to reference values (norms, benchmarking)

Some, or all, of these requirements may be confined to large users and made conditional on crossing a defined threshold of energy use.

Obligations can be mandatory or voluntary. Two main sets of voluntary agreements have been introduced. The first set comprises agreements between government and representative bodies of appliance manufacturers to reach specified improvements in the performance of appliances; the approach has also been extended to vehicles. The second set comprises agreements with individual industries to improve their own on-site energy performance. Industry can have various motivations to participate in these agreements. Appliance manufacturers may expect to persuade government to supplement their efforts with instruments aimed at stimulating purchases by consumers. It may in some instances be a mechanism to forestall regulation. This latter reason may also encourage participation in agreements to reduce energy use in industrial processes. Such agreements, although voluntary, may also be a condition for financial incentives.

No such initiative exists in Libya. There are strong internal incentives for the utility to develop demand side measures because the available generating capacity is too low to match demand and consequently there is chronic load shedding; the shortfall in capacity is around 1,000MW. The increasing use of air conditioning has contributed to the problem and has caused peak demand to shift from the

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winter to the summer. The GECOL has contracted from its own resources the US company NEXANT to make a feasibility study of DSM potential in the country and to propose mechanisms to implement appropriate DSM programmes. To support this work GECOL has acquired load analysis measuring equipment and will make detailed measurements on selected sub-stations.

As noted earlier, industry in Libya falls mainly into two groups; one comprises large state owned companies that are often energy intensive, such as oil production and refining, chemicals, cement, iron and steel. The other is composed of smaller private enterprises using less energy, but also with scope for efficiency. Energy efficiency agreements with the large state-owned energy intensive state owned industries should be relatively easy to negotiate although the incentive to comply may be weak. This is a route that might be pursued, but in the absence of any agency with a responsibility for energy efficiency and with the appropriate technical skills it cannot be implemented. It is something that should be implemented by the energy efficiency agency that we propose.

In liberalised markets an alternative to promoting energy efficiency through state financial incentives and funds is to place an obligations placed on suppliers. In this scheme a supplier or distribution network manager scheme is placed under an obligation to demonstrate programs that save specified amounts of energy related to their total supply volume. The supplier or network operator then builds the costs into his cost-base; he then has the usual interest of a commercial company in keeping his cost-base as small as possible. The requirement is enforced by the regulator; failure to comply may be penalized in proportion to the deficit between the target savings for the supplier and the amount achieved. Savings do not have to be made within the supplier’s own area; they can be in fuel oil, coal or transport fuels. Such schemes can be complemented by “white certificates”. In this arrangement, suppliers are obliged to demonstrate they either accomplished energy savings directly or have bought certificates from others who can show they have made savings.

There is no initiative of this nature in Libya. Indeed it would be difficult to implement in the absence of any scheme of labels and/or standards.

3.8 Audits and the Promotion of ESCOs

The original of an Energy Service Companies or ESCO is that an entity other than the energy supplier should identify, design, finance, supervise and commission projects for a client, to be compensated by a share of the energy savings achieved over a defined period. The partition of savings is determined by a special contract known as an energy performance contract (EPC). Actual practice varies widely; some ESCOs will finance the project, others will organise finance. Implementation is not easy and there are relatively few successful examples. The name ESCO is sometimes also given to companies that just provide consulting services, but do not enter into an EPC. It is important to be clear what is meant, as the latter is a much easier exercise than the former.

No work of this nature has been undertaken in Libya. Audits are important and are an essential pre- cursor to investment. The promotion of such activities should be implemented by the energy agency that we propose.

3.9 Transport and Spatial Planning

More than half of the global population now live in cities and according to UN Habitat, by 2030, it will be 60 percent. Cities consume enormous amounts of energy and they have great inertia; road systems and land-use decided now will influence energy use for a hundred years. In urban metropolitan

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areas, transport creates a third at least of total greenhouse gas emissions. Promotion of public transport options and careful design of cities is critical for reducing emissions in cities.

The share of Final Energy Use that goes to transport in Libya is 48%. There is no public transport in the country. There is some consideration of a railway from Tripoli to Benghazi, but there is no solid commitment.

There is no formal government procedure for ensuring that physical development of infrastructure and buildings follows an energy efficient and sustainable path. The Libyan “Five Points Company for Con- struction and Touristic Investment” has announced that it will sign a contract with the Gulf Finance House to build an “Intelligent Energy City” in Libya that will cost $5 billion. Libyan institutions will bear 40% of the cost and the Gulf Finance House 60%. The project will contain centres for data bases, environmental assessment, renewable energy, in addition to special compounds for oil and natural gas producing companies, energy sector services and manufacturing industries. Whether this will actually materialise in the present financial climate is problematic.

The lack of concern for energy efficiency in transport and spatial planning is worrying. It is a topic that should be examined by an energy efficiency agency in cooperation with the concerned Ministries.

3.10 Dissemination of Information

Access to knowledge is costly and may impede an individual or company from undertaking activities in energy efficiency. It is a legitimate role of government to generate and disseminate knowledge as a public good. We interpret the term knowledge in this context very widely to include data, technical guidance, research and demonstration .

No information is disseminated on a regular basis to targeted audiences. This is largely because no entity in government is responsible for energy efficiency. There is a wealth of material available from many sources about techniques for saving energy in industry, commerce, houses and in transport. A mechanism to assembly, scrutinise, chose, revise and eventually distribute such materials should be developed as soon as possible. The appropriate agency would be REAOL after its remit has been extended to cover energy efficiency.

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4. Comparison of Libyan Practice with International Practice in Renewable Energy

This section attempts to compare the present status of renewable energy policy in Libya with international practice.

Public policy intervenes to correct market failures. In the case of renewable energy, the most common failures are somewhat similar to those identified previously for energy efficiency, but with a different emphasis. Distorted energy prices, unrecognised external costs, poor access to technical information all play a part. There is however a significant difference. Many measures of energy efficiency are cost effective, but prevented by distortions of the conventional market. This is also true of some renewable options, such as solar water heating. Many renewable energy technologies are not cost-effective even if the distortions of the conventional market are removed. They are justified by the external costs that they avoid, especially the external costs of GHG emissions. This means that they must be financially subsidised to financial incentives of one sort or another are critical to renewable policy.

In addition to these general market failures there can be specific market failures for electricity generated from renewable energy that is fed into a national grid as electricity. Excessive and unjustified costs of connection to the grid, inability to connect, disputes over responsibility for payment – these can impede renewable deployment.

Policy instruments are intended to correct or compensate for these various distortions.

4.1 Targets and Strategy

Strategy sets out objectives and targets and defines the combinations of policy instruments that are expected to achieve the targets.

The solar regime in Libya is excellent; the daily solar radiation on the horizontal plane goes up to 7.5 kWh/m2 with 3000-3500 hours of sunshine a year. There are few conflicts of land use; 88% of its area considered is desert and much of this is relatively flat. There is some trade off between access to water, which is available at the coast where the solar regime is less favourable against inland sites with excellent solar characteristics, but far from water.

The wind regime is also good. The average wind speed at a 40 meter height is between 6-7.5 m/s. There are several attractive prospects along the Libyan coast; one such site is at Dernah where the average wind speed is around 7.5 metres per second. A German-Danish consortium was contracted in 2000 by GECOL to design and construct of a 25 MW pilot wind farm. Several appropriate sites were identified and masts were installed at several to monitor wind conditions over 12 months. Technical specifications for all the components of the pilot wind farm and tender documents for a turn-key installation of the 25 MW wind farm were prepared. Bids were submitted, but the project then seems to have been abandoned.

The Renewable Energy Authority of Libya or REAOL (see below) has established a target of 25% renewables by 2025 and this has been approved by Cabinet. Intermediate targets are 6% by 2015 and 10% by 2020.

REAOL has prepared a mid-term plan (2008-2012) to promote RE application in Libya and to meet these targets. The Plan addresses projects in solar and wind and the possibilities of stimulating local

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manufacture of equipment for renewable energy.

This plan comprises several wind farms with total capacity of a little less than 1000 MW, including:

• Dernah wind farm (120 MW in two stages); the load factor of this plant is estimated at 40% • Al Maqrun wind farm (240 MW in two stages) • Western region farms at Meslata, Tarhunah and Asabap (250 MW). • South Eastern region wind farms at Gallo, Almasarra, Alkofra, Tazrbo (120 MW) • South Western region wind farms at Aliofra, Sabha, Gatt, Ashwairef (120 MW)

The solar component includes PV and solar thermal technology:

• Three large-scale PV plants connected to the grid at Aljofra, Green Mountain, Sabha, (5-10 MW each) • Extending the use of PV technologies in remote areas (2 MW) • 1000 PV roof top systems for residential areas (3 MW) • Feasibility study for CSP plant in unspecified location (100 MW). • Local manufacture is proposed for solar thermal water heating and for PV modules. i.e: • To develop a joint venture with local and foreign investors for the manufacture of solar water heaters for the local and export markets (40,000 units / year) • To develop a joint venture with local and foreign investors for the assembly of PV systems (50 MW)

Unfortunately, these targets and strategy for renewable energy in Libya do not seem to be fully shared among all participants, despite the approval of the target by the Cabinet. One reason seems to be that the targets and strategy have not been developed from any comprehensive analytical work. This lack of consensus means that the programmes and targets of REAOL may not in fact be realised on the time-scale envisaged.

In particular, there appears to be some unresolved issues within the Ministry of Planning and Finance. This Ministry is conscious of the large part of the state budget that goes to funding the deficit of GE- COL and is concerned that the high cost of the kWh from wind will only further exacerbate this problem. The Ministry has provided a budget for REAOL within the present plan for feasibility studies for renewable energy and has authorised the plant at Dernah, but is cautious about proceeding to large scale developments and considers that pilot projects may constitute a better approach. It is unlikely that large investments in other projects will materialise before the next National Plan covering the period 2013 to 2017.

The present National Plan covers the period from 2008-2012; it contains a Chapter on renewable energy and as noted this provides for operating funds for REAOL, but no investments are foreseen for generating plant using renewable energy other than the wind plant at Dernah. Preparations for the next Plan have not yet begun, so there is scope for strengthening the renewable energy component in the next period.

The plan is essentially indicative. Budgets for entities funded through the Plan are only allocated an- nually. This makes long-term planning by operating entities very difficult and in particular discriminates against capital-intensive low operating-cost technologies such as wind.

In the absence of a clear, agreed strategy for renewable energy, developed at inter-ministerial level and shared between Ministries, these difficulties of communication between planning and operating institutions are likely to persist. The analytical basis for such a Plan has been developed within the Na- tional Nuclear Department. This work benefits from software and technical advice provided by the In-

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ternational Institute of Atomic Energy (IAEA) in Vienna. This analytical work will feed in to the preparation of the next 5 year Plan and will contribute in particular to the chapters on energy efficiency and renewable energy.

The work of the National Nuclear Department is guided by a Steering Committee drawn from the concerned Ministries and it is intended that based on the results of the work, the Ministries will submit proposals for legislation on matters that lie within their competence to the Cabinet. If accepted by the Cabinet, these proposals will then be sent to the Justice Ministry for scrutiny and revision and then to the Prime Minister and to Parliament.

It is desirable that the next planning period should include and be based upon a clear, agreed strategy for energy and in particular renewable energy and that this should cover physical investment, institutional reform and new legislation.

The process appears to be weakened by the absence of any participant with a clear responsibility for energy efficiency. The rather secretive approach to future oil and gas production levels also hinders sound planning. In particular the future availability of natural gas for power generation is a critical pa- rameter that seems highly uncertain. Better communication and data sharing between the National Oil Company and other entities is needed. The assembly of high-quality data on hydrocarbon potential should be a priority of the new Energy Council.

4.2 Legal Reform

The main legal elements in a policy to promote renewable technologies are a clear targeted strategy or road map, a specialised agency to implement public activities and a support system specifically aimed at allocating the extra costs of the technology.

The Renewable Energy Authority of Libya (REAOL) was established by Law 426 in 2007.

There is no legislation covering financial support for renewable energy and addressing the issue of how additional costs of renewable energy compared to the least cost alternative should be financed. Furthermore, there is no clear legislative basis for the participation of private capital in the power sector.

There was earlier some attempt to liberalise the sector and a draft law was prepared that provided for the legal unbundling of GECOL into companies for generation, transmission along with several distribution companies. This law was never submitted to the legislature. The law also would have created a regulatory agency and allowed for the participation of private power producers in generation; it would also have allowed operation and maintenance contracts with private contractors. There was some general discussion of renewable energy.

The policy of unbundling, liberalisation and private participation apparently originated at the highest political level, in the General People’s Congress, but for some reason was abandoned when the Minis- try of Electricity was terminated. Such industrial reform would have been helpful for renewable energy as it would create a clear legal framework for IPPs for renewable energy and would establish the basic framework under which a power purchase agreement might be signed with the transmission company.

Some initiatives of this general character have continued without the passage of the law. There is some ongoing discussion of O&M contracts for managing the distribution systems in Benghazi and Tripoli. A joint venture company has been created between the Libyan Investment Corporation and Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

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OASIS (a JV in turn between UK and UAE interests) to build a 1400 MW steam turbine plant. The PPA for the sale of the electricity is now under negotiation between the JV company and GECOL. Joint ventures are likely to be the preferred vehicle for future investments as local companies enjoy tax advantages and easier access to development sites.

A revised electricity Law is still desirable to foster further coherent progress; the existing law is old and obsolete. A new draft electricity law has now been prepared, which we understand is similar to the Egyptian law. It contains explicit provisions for renewable energy and energy efficiency. But it appears that these two topics may be removed from the draft and treated later in special purpose laws. We understand that the medium strategy will restructure REAOL to take care of energy efficiency as well as renewable energy and will spin-off any physical assets that REAOL may have acquired, into a separate company to avoid conflicts of interest between the regulatory and commercial functions. This is a sensible initiative.

4.3 An Agency

A specialised institution to make research, prepare initiatives, draft regulations, monitor progress, ensure compliance, administer funds and perform other administrative activities can be useful in promoting renewable technologies.

The Renewable Energy Authority of Libya (REAOL) was originally a solar research centre within GE- COL. GECOL was asked by government to develop proposals for concrete projects concerning renewable energy and so the research centre was upgraded to a Department within GECOL. Subse- quently the Department was separated from GECOL and became a separate agency depending from the Ministry of Electricity. Soon afterwards the Ministry of Electricity was suppressed and REAOL (along with other agencies such as GECOL) was transferred to the direct supervision of the General Peoples’ Committee for Electricity, Water and Gas. It has a staff of about 50, mainly engineers.

The objectives of REAOL are to:

• Implement projects based on the use of renewable energy in various forms • Raise the contribution of renewable energy sources in the national energy supply system to 10% by 2020 • Encourage and support the industries related to renewable energies • Propose the legislation and the regulations necessary to support and facilitate the use of renewable energy • Evaluate renewable energy sources in Libya

These objectives are well chosen and imply a sensible transition from the activity of a developer through the implementation of specific projects to an enabling agency through the development of regulations and legislation to stimulate development by others.

There is also a Centre for Solar Research of long standing. It was founded 30 years ago along with similar research centres in nuclear and desalination; these were merged and then recently have been separated once more. The Centre is responsible for research studies on solar energy and wind. It has no direct policy role.

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4.4 Standards and /or Labels

Standards would be inappropriate for large developments in renewable energy. Commercial developers are well equipped to decide for themselves on efficient and effective specifications. There is a good case for standards for small appliances such as solar heaters.

No such standards exist at present.

4.5 Financial Incentives (Capital Support)

Many financial incentives have been used in different countries to promote renewable energy. Support can either be offered to investment or to operation. Investment support for renewables is general de- livered through the same type of instruments that are used to support investment in energy efficiency, e.g. capital grants, tax exemptions, soft loans and loan guarantees. In the case of grid connected renewables it is possible also to offer support to operation either by allowing the electricity to be sold at inflated tariffs or by obliging certain parties to purchase specified volumes. These instruments are to some extent exclusive and are discussed together in the next section.

There appear to be no financial incentives to private operators or consumers to use renewable energy. Renewable energy installations in Libya to date have been financed directly from public funds. The first wind plants will be no exception and the price levels in the PPA will be decided by administrative convenience unrelated to economic analysis.

The engineering studies for the development at Dernah have been completed and from a technical perspective, the project is ready to begin. The network is prepared and a substation is ready for connection. The project has been approved by the Ministry of Planning, but still awaits the authorisation of the Ministry of Control. This appears to be linked to a non-observance of procedural matters, possibly connected with the absence of a competitive tender for the plant. It is not unreasonable that ownership of a first plant should be awarded without tender to a state entity, NREA in Egypt is a successful precedent, but the procurement of the plant should proceed through a competitive tender among qualified suppliers.

A PPA will be signed between the plant and GECOL. It is not clear at present what entity will sign on behalf of the plant owner, but as GECOL and REAOL both depend directly from the Cabinet, it is a question of no real significance. Equally the level of the PPA has no significance, because it simply moves money from one budget line of government to another.

The funding of the CSP feasibility study is assured by a direct grant authorised in the present 5 year plan, but there is no provision for the finance of the plant itself. REAOL is seeking finance from Libyan financial institutions to support its participation in a joint venture.

The first PV systems were commissioned in 1976, and several applications have been demonstrated, including: a PV system to supply power for cathodic protection on an oil pipe line; a PV system for a microwave repeater station and a PV pumping system for irrigation at El-Agailat. The use of PV systems for rural electrification began in 2003.

The biggest volume of PV use is in communications; more than 100 stations with a total installed peak power installed of 690 kWp are operating. The installations have operated well with no failures. The next biggest application is for cathodic protection where 320 systems were installed by the end of 2006, with a peak output of 650 kWp. Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

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300 PV systems have been installed to supply remote areas with low loads that are not connected to the grid.

Solar water heating has not penetrated well in Libya, probably because of the high initial cost and the very low electricity tariff. The cost of a solar water heater sufficient for an average dwelling would be around $1000 compared to $80 for an electric water heater. The maintenance of the SWH would also be more demanding than for the electric system. The savings from the substitution of solar energy for electricity would simply not pay back the investment. There are no financial incentives offered for this technology. Because the price of electricity is well below the opportunity cost there is a strong case for government support to reduce the financial obstacle to SWH. It is an important area because some 10% of electricity used in Libya is for domestic hot water, i.e. 40% of electricity consumption in the residential sector.

4.6 Feed-in Tariffs and Obligations

Grid connected renewable energy is rarely cost-effective in its own right. It must be subsidised if it is to be developed by private industry. There are two main ways of delivering the subsidy. One is by offering higher prices than those available commercially; the other is by creating a second valuable good that represents the value of the fact that the energy is generated from renewables. The second scheme is operated by issuing certificates that certify the renewable origin and then obliging an identified group (normally suppliers) to buy them. This creates a market and therefore a price.

The offer of higher tariffs may be created by tendering a concession, it being understood that the concession will be granted however the price achieved compares to market prices for electricity. This stands in continuity with traditional processes of tendering large plants to IPPs; it allows secondary criteria, such as percentage domestic content, to be added to the evaluation criteria. It has recently been adopted by Denmark for large developments. Higher tariffs made also be operated by a feed-in tariff that is made available to any generator. Certificate based schemes define a quantity of renewable electricity to be produced and market forces identify a price that is unknown at the outset; feed-in tariffs fix a price to be paid for renewable electricity, but it is unknown what volume will be offered. No such systems are in place in Libya. There appears to be no law governing private investment in the power sector in general and no specific law that defines the terms and conditions of a feed-in tariff for renewable energy in particular.

4.7 CDM Finance

The Clean Development Mechanism offers operating support to projects through the provision of a market for the certificates of Carbon Emission Reduction. This is a complex project cycle, but can be useful for large projects.

Libya’s per capita CO2 emissions are higher than most countries in the EU and are by far the highest of the developing countries in the Mediterranean region.

Libya is a Non-Annex I country under the United Nations Framework Convention on Climate Change (ratified June 14th, 1999) and it is a signatory to the Kyoto Protocol. It is therefore eligible for CDM finance. The Environmental General Authority (EGA) has been assigned the responsibility of DNA and

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the Chairman of EGA is represented on the Energy Council.

The technical capacity to fulfil this role of DNA is not yet fully developed within the EGA and Libya would benefit from Technical Assistance to begin this work.

GECOL is in discussion with international agencies and investors to incorporate CDM into renewable energy development and the National Oil Company has plans to seek CDM finance for opportunities arising from the present flaring of gas.

4.8 Information

It is a legitimate role of government to generate and disseminate knowledge as a public good. The main need in this respect is for data on the renewable resource. It makes no sense for every developer to make their own measurements of solar and wind data. The need is especially acute for wind as the extent of the resource varies locally.

Ten meteorological stations have been installed in Libya for wind speed and based on these measurements a draft wind atlas has been compiled. This work was performed by REAOL in association with the German consulting company CUBE.

There is no solar atlas.

4.9 Industrial Policy

It is important that countries develop their own capacity to manufacture and / or assemble renewable technologies in parallel with the investment process. This can be done by targeted research, by grants to appropriate industries and by local manufacturing obligations in tendering.

The energy sector has a very large share of output and value added in Libya. Consequently, expansion of output in this sector may cause other sectors to contract as resources are diverted to energy. The main economic and social challenge for Libya is to stimulate the non-oil manufacturing sector and to promote diversification of its economy including a much stronger private sector. Careful promotion of energy efficiency and especially of renewable energy could be a part of a diversification strategy. These concepts are widely canvassed in Libya, but have not yet been clearly addressed in a comprehensive and coherent strategy.

Trade liberalisation might also exacerbate this imbalance between the production of hydrocarbons and the development of local manufacture. Some shift towards renewable energy production with support for the associated manufacturing activities would have a benefit in this respect. In principle there is a strong common interest between the EU and Libya to cooperate on the development of a Libyan solar energy industry with Europe as a major export market.

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5. Case Studies

The purpose of the case studies is to demonstrate the processes of evidence-based policy making (EBPM) and theory-based evaluation (TBE). These techniques are well-known in the literature and have been widely applied, but not generally to technical areas of policy such as energy efficiency and renewable energy. There is potential for application in these areas because the methodologies provide a systematic basis for analysis and debate among stakeholders around a common and clear statement of the policy intervention that can be maintained and improved throughout the project cycle from formulation, through implementation, monitoring and evaluation.

The basic expression of this methodology is the behavioural model that underlies our understanding of the reaction of stakeholders to the policy instrument.

5.1 Case Study 1: Policies for the Promotion of Wind Energy in Libya

5.1.1 Background and Context

The example that we choose in this case for illustration is the analysis of competing instruments for the promotion of wind energy in Libya.

5.1.1.1 Promotion of Private Investment in Wind Energy in Libya

The wind regime in Libya is generally good. There are several attractive prospects along the Libyan coast; one such site is at Dernah where the average wind speed is around 7.5 metres per second. The Renewable Energy Authority of Libya or REAOL (see below) has established a target of 25% renewables by 2025, but this has note been approved by Cabinet. Intermediate targets are 6% by 2015 and 10% by 2020.

REAOL has prepared a mid-term plan (2008-2012) to promote RE application in Libya and to meet these targets. This plan comprises several wind farms with a total capacity of nearly 1,000 MW.

Two policy instruments for developing private investments in wind energy are considered in our analysis:

• Competitive Bidding for concessions based on power-purchase agreements negotiated through tender, • Standard power-purchase agreements based on a feed-in tariff.

5.1.1.2 Scope of the Case Study

This Case Study considers two policy instruments to promote wind power. One is a system of competitive bidding of specific favourable sites. The other is the adoption of a feed-in tariff at a predetermined rate.

The case study applies the concepts of evidence based policy formulation and theory based evaluation with the intention to demonstrate how these techniques can clarify analysis. The study covers the following three aspects:

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• Evidence based policy preparation: For both policy instruments behavioural models are developed and the respective expected impacts are analysed. • Economic assessment of the wind energy option: An economic assessment of wind energy for Libya is presented indicating the main factors determining the economic viability of this option. • Conclusions regarding the utility and application of the methodology and to some extent the substance of the policy instruments analysed.

5.1.2 Comparison of Policy Instruments for the Promotion of Wind Power

5.1.2.1 Specification of the Alternative Policy Instruments

The two options are:

• Competitive bidding large areas of government owned land. The Libyan Government would select the most attractive bid with the lowest tariff requirement. • Identification of areas sufficiently close to possible grid connections to be practical and then acceptance of all technically acceptable bids at a predetermined feed-in tariff

For these two policy option the policy instrument and the concession awarding procedure are elaborated below.

We assume in both cases that the certificates of emission reductions issues under any CDM certification process are assigned to the developer. It does not affect the analysis if they are assigned to other parties, because there will have to be compensating financial flows. We make this assumption because we consider it to be the most appropriate choice.

5.1.2.2 Competitive Bidding

Specification of the Option

For the forthcoming discussion of the two options, it is necessary to specify the competitive bidding option (even to simplify the option certain extent for the transparency of the discussion):

• Libya will make available government owned land as the basis for a concession for wind energy supply, • The concession will be auctioned in a two-stage procedure (pre-qualification and competitive bidding), - Pre-qualification: The admission criteria will be proven experience and financial capacity, - Competitive bidding: Selection of the most attractive bid. • For the bid-evaluation there will be: - Bid acceptance criteria: The qualification of the bidder is acceptable - Ranking criteria: A set of ranking criteria based on the electricity sector policy options will be applied. • Concession negotiation with the first ranked bidders: With the winner the conditions of the concession contract, the tariff and other technical conditions will be negotiated (concession contract and long-term PPA). • Project implementation and monitoring: The Libyan Government will carefully monitor the project implementation. • In parallel the next competitive bidding round can be launched. Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

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Advantages

This option has the following advantages:

• Low bid preparation effort: The basis for the tender is are the delimitations of the concession area and the available data regarding the wind potential • Site development: The burden and responsibility of the site development remains with the investor. • Market response: The Government receives and immediate response from potential investors. • Integration into the national electricity system: The feed-in point is defined.

5.1.2.3 Feed-in Tariff

Specification of the Option

• The Government determines the feed-in tariff, which offer attractive development potentials and should provide incentives for the development of pilot projects. • The Government develops a comprehensive legal and contractual framework of feed-in tariffs and the technical and contractual conditions to be applied. • The feed-in tariff will be guaranteed in form of long-term power purchase agreements (PPA). • Investors will evaluate the available information and will develop their sites. • The investment proposals will be evaluated according to well specified criteria, which are known to all interested parties. • Preparation of the following generation of wind projects: Based on the gained experience the Gov- ernment will revise the feed-in tariff and conditions for the next-generation wind projects.

Advantages of this Option

The advantages of this option are:

• Programme administration: Once the general conditions and the feed-in tariff are defined the programme management and transaction costs are low. • Entrepreneurial freedom: The investors know the conditions and have the maximum freedom to invite partners and to develop projects. • Market response: The attractive feed-in tariff and the legal and contractual framework facilitate the development of the project. • Participation of national investors: The feed-in tariff offers also for national investors good business opportunities because all sizes of wind parks can be developed.

5.1.2.4 Evidence Basis Policy Preparation

Objectives of the policy

We postulate that the objectives of policy would be:

• Optimal development of the resource, Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

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• Lowest cost and most manageable grid extension, • Minimal administrative costs, • Surprise-free procedures, • Strong competitive pressures for cost reduction on manufacturers, • Maximisation of local content and development of local manufacturing capability, • Lowest project price, • Predictability of generation.

Structure of the Analysis

To structure the discussion and comparison of these two policy options it is necessary to specify the steps and issues, which have to be solved to implement a wind energy promotion programme:

• Preparatory measures: - Available wind data has to be made available to interested parties. - Elaboration of the legal and regulatory framework. - Specification of the different lots available for IPP developers. • Prequalification - Prepare and publish request for proposals including requirements for domestic content. - Foreign and domestic investors and manufacturers perceive profitable opportunities. - Bidders arrange consortium with local partners. - Prepare and submit prequalification - Select pre-qualified bidders • Selection of concessionaire - Qualified bidders appoint agent for measurement - Bids prepared submitted and evaluated. Competitive bidding promotes low cost. - Winner deposits commitment fee / performance bond. - Conclude a concession contract and long-term PPA • Construction of the wind power sites - Selected bid is constructed and commissioned. Construction schedule is observed because of contract penalties. • Operation of the wind parks - Plant operates with high availability because of contract penalties. • Impacts of the wind parks - CO2 emissions are reduced from baseline; gas burn is reduced from baseline; domestic manufacture is strengthened; net cost to country is acceptable.

Methodological Approach

We specify the behavioural model as a form of logical framework in which the successive steps of policy implementation are shown in the first column and then in subsequent columns are listed various indicators, risks and assumptions. The successive steps of the policy may or may not specify recognisable behavioural assumptions; it depends very much on the type of policy investigated.

The indicators that we adopt are measures of input, output, outcome and impact. By these terms we mean the following:

• Inputs are the financial, human, technical or organizational resources used in the endeavour, • outputs are objectively verifiable indicators that demonstrate the progress made in implementing Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

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the measures, • outcomes are the immediate effects on the regulated subject, • impacts are direct measurements of the improvements that the programme is designed to bring about.

The behavioural model is a formal description of the process of implementation, the concerns to be raised at each stage and the measures that are to be adopted to make everything is working as expected. It provides a structure for the analytical steps and indicates the evidence that should be sought at each stage to support assertions or on which to found analysis. It allows the issues that might affect implementation to be identified and it allows different stakeholders to debate around a clear and concrete representation of the policy. In later stages it serves as the basis for monitoring and evaluation.

Behavioural models for the two policy instruments considered here are shown in Tables 5 and 6.

The following symbols are used in these tables:

• $ indicates indicator is measured in financial terms • # indicates indicator is measured in numbers • Y/N indicates indicators is a yes or no observation • ? indicates indicator that cannot be quantified, but can be assesses qualitatively

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Table 5: Behavioural model of Competitive Bidding for Wind IPP and Associated Indicators, Risks and Assumptions

Indicators Behavioural model Input Output Outcome Impact Risks Assumptions • Transmission • Time of officials • Transmission company pre- and transmis- expansion plan pares network sion company and agreed re- expansion plan; staff ($) quirements and agrees priorities restraints in de- with regulator velopment of wind site • Prepare and • Time of officials • Documents publish request to prepare RFP prepared (Y/N). for proposals ($) including re- • Consulting con- quirements for tract to assist domestic con- ($). tent. • Foreign and • Number of pro- • Sufficient local domestic inves- spective inves- capacity to al- tors and manu- tors that request low multiple facturers per- bid documents competitive ceive profitable and seek to bids. opportunities. prequalify (#) • Bidders arrange • Consortia consortium with formed (#) local partners.

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Indicators Behavioural model Input Output Outcome Impact Risks Assumptions • Prepare and • Time of officials • Number of bids • Some exposure submit prequali- to assess sub- submitted: value of a range of fication missions ($). of domestic domestic inves- • Possibly con- content ($). tors (?). sulting advice • Sensitisation of ($). some foreign investors to prospects (?). • Qualified bid- • Agent ap- • Bidders will co- ders appoint pointed. Meas- operate on agent for measurements com- measurement urement pleted on schedule (Y/N). • Bids prepared • Time of officials • Winning bid se- • Number of bids • Some exposure • Bids are higher submitted and to assess sub- lected (Y/N). submitted. of a range of than expected. evaluated. missions and • Terms of pro- domestic inves- • Bidders dis- • Competitive prepare con- posed PPA (#). tors (?) count value of bidding pro- tract ($). • Value of domes- • Sensitisation of CERs. motes low cost. • Possibly con- tic content ($). some foreign in- • Risk assessed sulting advice vestors to pros- as moderate. ($). pects ($). • Winner deposits • Winner with- commitment fee draws. Risk as- / performance sessed as low. bond.

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Indicators Behavioural model Input Output Outcome Impact Risks Assumptions • Selected bid is • Power plant • Winner with- constructed and commissioned draws. Risk as- commissioned. (Y/N). sessed as low. • Construction schedule is ob- • Time overruns. served because Risk assessed of contract pen- as moderate. alties. • Plant operates • Nominal cost of • Volume of elec- • Financial cost of with high avail- balancing tricity generated power acquired ability because power ($) (GWh). by transmission of contract pen- • Time to monitor • Volume of fuel company under alties. and evaluate purchased for PPA ($). plant perform- power plant • Value of gas ance ($). (GJ). saved at opportunity cost ($). • CO2 emissions • Time to monitor • Value of domes- are reduced and evaluate tic content ($). from baseline; plant perform- • Volume of CO2 gas burn is; ance ($). emission reduc- domestic manu- tion (mt). facture is • Value of carbon strengthened; emission reduc- net cost to tions ($). country is ac- • Net cost of pro- ceptable. ject ($).

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Table 6: Behavioural Model of Feed-in Tariff for Wind IPP

Indicators Behavioural model Input Output Outcome Impact Risks Assumptions • Prepare legisla- • Time of officials • Published law • Possible delays tion and regula- and legislature and regulations in finding legis- tions necessary ($) (Y/N) lative time to implement FIT • Transmission • Time of officials • Conditions de- • Supplementary • Control of de- company and and transmis- fined (Y/N) conditions velopment will Regulator col- sion company added to appli- be difficult laborate to de- staff ($) cations for FIT fine terms and conditions to ensure optimal development of sites • Regulator and • Time of officials • Requirements • Supplementary • Status of local • Insufficient local Ministry col- in Ministry and defined (Y/N) conditions manufacturers capacity; may laborate to Regulator ($) added to appli- in negotiations be a restraint specify re- cations for FIT enhanced on competition quirements for • Monitoring local local content content may be problematic

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Indicators Behavioural model Input Output Outcome Impact Risks Assumptions • Explain and • Time of officials • Promotional ma- • Sensitised promote con- in Ministry and terials, meetings stakeholders; cept; foster Regulator ($) (#) awareness of stakeholder opportunities (?) groupings - ex- • Stakeholder perts, landown- bodies (#) ers, municipalities, etc • Local and for- • Time to prepare • Feasibility stud- • Tariff set at lev- • Local investors eign investors feasibility studies (#) els that pro- feel comfortable develop pro- ies ($) • Consortia mote too much with technical jects and made • Consulting formed (#) or too little in- commercial and preliminary ap- support ($) terest financial issues proach to regu- and with operat- lator ing on the carbon market • Detailed meas- • Time of special- • Wind regime de- • Costs of acquir- urements of ised consult- fined (Y/N) ing data seen wind resource ants ($) as prohibitive performed • Final project • Time of consor- • Final project • Projects author- form defined; fi- tia and consult- specification ised (#) nance ar- ants ($) and implemen- ranged; land tation arrange- rights acquired. ments (#) Submitted to regulator

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Indicators Behavioural model Input Output Outcome Impact Risks Assumptions • Auction of con- • Time of officials • Winning bid se- • Projects author- cession where in Ministry and lected (Y/N) ised (#) there are com- Regulator ($) petitive bids • Transmission • Time of officials • Expansion plan company in Ministry and revised (Y/N) adapts network Regulator ($) expansion plan to cope with timing and nature of developments • Authorised pro- • Equipment, • Completed plant • Power plant • Developers jects con- construction (Y/N) commissioned may delay or structed and costs, supervi- (Y/N). withdraw for fi- commissioned sory costs ($) nancial or tech- • Construction nical reasons – schedule ob- little means of served because control of commercial interest of owner

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Indicators Behavioural model Input Output Outcome Impact Risks Assumptions • Plant operates • Nominal cost of • Electricity gen- • Volume of elec- • Financial cost with high avail- balancing eration (GWh) tricity generated of power ac- ability because power ($) • Fuel displaced (GWh). quired by of commercial (GJ) • Volume of fuel Transmission interest of purchased for company on owner power plant terms of FIT($). (GJ). • Value of gas saved at opportunity cost ($). • CO2 emissions • Time to monitor • Value of do- • CO2 emissions are reduced and evaluate mestic content are reduced from baseline; plant perform- ($). from baseline; gas burn is re- ance ($). • Volume of CO2 gas burn is reduced from emission reduc- duced from baseline; do- tion (mt). baseline; domestic manu- • Value of carbon mestic manufacture is emission reduc- facture is strengthened; tions ($). strengthened; net cost to • Net cost of pro- net cost to country is ac- ject ($). country is acceptable. ceptable.

Note on symbols: • $ indicates indicator is measured in financial terms • # indicates indicator is measured in numbers • Y/N indicates indicators is a yes or no observation

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5.1.2.5 Result of the Comparison

Through consideration of this deconstructed specification of the policy instrument we can begin to assess the merits of each instrument according to the objectives of the policy. The results of this comparison are shown in Table 7.

This case study is intended purely as an indication of the policy process and its relationship to evidence and analysis. It is not intended to provide a definitive answer to the question of what policy instrument is desirable.

It does show that either instrument can be elaborated to provide a convincing option for implementation; it identifies some of the issues that need further exploration and some of the risks that need to be managed before implementation is initiated.

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Table 7: Criteria for Choice among Options

Criterion Competitive Bidding Feed-in Tariff

Key objectives

Uncoordinated development of sites could limit production from Optimal development of the re- Letting a large concession as a whole should reduce the dan- the combined area. Might be avoided by detailed monitoring by source gers of interference from sub-optimal location of turbines. regulator, but at considerable effort. Feed-in tariffs create a high degree of unpredictability in de- Lowest cost and most manage- mand for network reinforcement. Where projects are small, as A large concession in common ownership should ease the able grid extension is the case with most existing feed-in systems, this may not be problems over locating, sizing and timing grid interconnections. a problem, but in the development of a large resource in piecemeal fashion it might be difficult to manage. There is a substantial effort required to provide the legislation Minimal administrative costs These are significant in terms of preparing tender documents and regulation required to implement the policy. Subsequently and evaluating bids. Small in comparison to the project size. costs are low as tariff is for a standardised product. There is the danger of withdrawal of the preferred bidder at a late stage. The likelihood can be reduced by clear specification Surprise-free procedures of objectives and conditions and by consistency in negotiation. Surprises can originate from unexpected responses to tariff In the event of such a withdrawal the bidder should forfeit levels especially at early stages (see above). commitment fees and negotiations begun with the bidder next in line. A concession implies a quota of output fixed within a narrow A feed-in tariff is alleged to encourage price cutting to encour- Strong competitive pressures range. There is some evidence that in quota systems because age higher volumes of sales at lower costs in turn leading to for cost reduction on manufac- the volume of turbine sales is fixed manufacturers are not moti- lower costs through higher volumes. There is some evidence turers vated to cut prices to extend sales. The value of this argument that this has happened on European markets, but the rele- in Libya is debatable, because manufacturing technology is de- vance of this to the Libyan case is low. termined by international costs and markets.

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Criterion Competitive Bidding Feed-in Tariff

This is easily incorporated into the concession bidding. A lower Maximisation of local content A lower limit of local content can be set as part of the regula- limit can be set and a clear weighting applied to content above and development of local manu- tion. It would be more difficult to provide incentives to exceed that limit. Monitoring of compliance is relatively straightforward facturing capability the limit. Compliance would be more cumbersome because of because there is just the single project to monitor. Penalties for the larger number of projects, but not impossible. non-compliance can be exacted. There is a significant problem in determining the level of feed-in Tender of a concession should ensure that the lowest cost and tariffs. Feed-in tariffs if set too low will mean that no projects Lowest project price most efficient operator wins the project and offers the lowest are offered and if set too high will mean that many are offered

price electricity. and the output is costly. Over time, by trial and error this can be corrected. Saving major failings of the bidding system the predictability of the timing of generation additions should be good. The worst scenario is that no bids are received, which is unlikely. If the The development is less predictable; it depends upon how at- Predictability of generation preferred bidder withdraws, there will be the next best candi- tractive the feed-in tariff is. date. Large commitment fees should be paid on contract set- tlement and penalties for delays.

Subsidiary Objectives

It is not obvious how to offer sites under a feed-in tariff. First- come first served would be very hard to administer objectively and transparently in conjunction with necessary technical qualifications. Offering a site to the best technical proposal would Transparent and non- This is not an issue for the competitive tender, because the site equally be difficult; it would require penalties linked to deficient discriminatory allocation of sites is allocated to the preferred bidder. performance to avoid spurious technical claims. Auctioning the

sites would seem to be the best option. That would entrain considerable administrative costs, but would bring with it some of the advantages of the competitive bidding process.

Competitive tender allows bidders to appoint a joint agent for Under FIT a joint agent is less feasible. Data costs may be Minimise data acquisition costs measurement. higher.

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Criterion Competitive Bidding Feed-in Tariff

It may be difficult to choose among competing offers unless the technical criteria and weighting of criteria are carefully considered and designed. This can be done. One option would be a There is no problem of this kind. Proposals need to be Criteria for choice base requirement in terms of peak capacity, load factor, do- screened for environmental, planning and technical acceptabil- mestic content with the decision based on the PPA (evaluated ity, but nothing else. according to a specified formula) adjusted by marginal improvements in terms of the base criteria. The developer faces no market risk for electricity; in the tender Risk for developer in electricity There is no electricity market risk for a developer in a feed-in he proposes a PPA and that will be in force throughout the du- market tariff. Income is assured over the lifetime of the project. ration of the project. The project will only be financially viable with large financial Unless the Government of Libya proposes to take on the mar- subsidies from the carbon emission reductions. The future ket risk of the CERs by offering a high feed-in tariff and keeping value of these is unknown and is a significant risk to the devel- the CERs, the developer under the feed-in tariff is exposed to Risk for developer in certificate oper. A large developer with a large portfolio of plant and ex- the same risks as for the concession. The smaller projects un- market perience in the carbon market and strategies for that market der the feed-in tariff may imply smaller companies to develop may perceive this risk less highly than a smaller developer un- them and consequently less experience of the carbon market der the feed-in tariff scheme. and less willingness to be exposed to that uncertainty.

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5.1.3 Economic Cost-benefit Assessment

5.1.3.1 Methodology Applied

To illustrate the importance of a reliable and transparent regulatory framework upon the decision of private wind developers and upon the Libya economy, an economic assessment of the wind energy option will be presented. The point of view of an economic analysis is that of the whole Libyan economy, costs and benefits are valued in economic terms, i.e. benefit or cost in resources for the country.

The analysis assumes that the wind energy investment will be done by independent power producers (IPP) which require a certain return on investment The economic analysis considers the required return as a cost for the Libyan economy.

The economic assessment of the wind energy option compares two alternatives to produce electricity in Libya:

• Combined Cycle Gas Turbines (CCGT) using natural gas, • Wind energy.

The key parameters for the assessment are:

• Wind energy investment costs and potential wind energy production • Investment costs for CCGT and performance data, • Cost for natural gas - considering the case of a gas exporting country the opportunity costs are considered, i.e. the international market price with consideration of the netback cost, • Return on equity requirements of independent power producers (IPP) for wind energy and CCGT developers: - IPP Wind energy developers: Considering the uncertainties related to wind energy in Libya the developers will require a return on investment of 20%, - IPP CCGT developers: The investment in new CCGT units in Libya is considered as a reliable business, therefore a return on investment of 10% is considered as satisfactory. • Opportunity costs for capital in Libya (economic discount rate) 10%.

In the following sections the data base and the results of this comparison are presented. The general parameters are

It has to be taken into consideration that the assessment is done in constant prices; this implies that the stated interest rates are real values. Only for natural gas a price increase is considered over the planning period.

5.1.3.2 Wind Energy

The data used for the assessment of the wind energy option are shown in Table 8. In this table a dif-

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ference is made between the cost of the wind energy supply to be under the responsibility of the wind energy IPP and the cost for stand-by capacity to be covered by the Libyan electricity sector (or CCGT IPPs).

Table 8: Data for Wind Energy

5.1.3.3 Opportunity Costs for Electricity Generation using Natural Gas

Recent Price Development for Natural Gas

In the context of an economic analysis the opportunity costs of gas is considered. The opportunity cost of natural gas is the net value of export as liquefied natural gas (LNG). In the recent past, the prices of LNG have been volatile as can be seen in the following figure; this means that the base price for 2010 to be used in the analysis is uncertain. To handle this uncertainty a sensitivity test will be performed.

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Figure 1: US LNG Prices

Source WTRG Economics

Price Forecast Based on Crude Oil Prices

The US Department of Energy/Energy Information Agency has produced long-term forecasts of crude and petroleum product prices to 2030 (EIA, 2009). This is an authoritative source; it may not be right, but a great deal of effort and analysis has gone into its creation and it is a reasonable source to adopt.

Figure 2 shows the forecasts of crude prices in real and nominal terms to 2030.

It is statistically clear that fuel prices are strongly correlated over the medium term. We use a formula to describe a plausible relationship between LNG prices and crude oil prices. This formula is derived from regression studies of the price of LNG in the Mediterranean basin. We recognise its limitations and we accept that the nature of the long-term correlation between gas and crude is not clear, but it offers a starting point to forecast LNG prices.

The formula we use is: y = 0.0805 x + 2.852

Where, y = LNG price in $/MMBTU and x = price of crude in $/tonne

This procedure gives a central case for LNG as shown in the following figure (Note: 1 MMBTU = 1.05 GJ).

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Figure 2: Forecasts of crude prices to 2030 (DOE/IEA)

200 180 160 140 120 Crude Oil (weighted 100 average) 2007 US$/bbl $/bbl 80 " nominal prices 60 40 20 0 2010 2015 2020 2025 2030

We propose to use real 2007 prices for the cost benefit analysis to avoid having to link the power purchase agreement to inflation.

For the economic assessment the following prices are used (The price development 2010 to 2030 used for the calculations presented below was determined by linear interpolation):

2010: 8.5 USD/MMBTU 2020: 18.0 USD/MMBTU

Figure 3: Derived forecast of international LNG prices

20 18 16 14 12 LNG 2007 US$ / 10 MMBTU

$/MMBTU 8 " nominal $/MMBTU 6 4 2 0 2010 2015 2020 2025 2030

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Netbacks

The financing of LNG trains is complex. We make a very simple calculation here as a basis for further reflection. According to the IEA in 2003, a single LNG chain involves investment of around $5 billion for a typical 6.6 million tonne two-train project, (IEA, 2003). Assuming price escalation to 2009, this indicates a value of about $6.5 billion, or roughly $1000 per 1 t/yr. Discounting at 15% over 20 years gives an annual payment of $160 / t / yr, or a contribution of $200 / tonne to the price of LNG.

The calorific value of natural gas is about 44 MMBTU / tonne, so the contribution of capital to the long run marginal cost of LNG is around $3.6 / MMBTU.

Losses of gas in processing (as fuel) are about 8%, say $0.3/MMBTU (this is based on the opportunity cost of gas so implies iteration). The cost of transport to a European market and the cost of transport of natural gas to the burner tip in the power station we have not estimated and we consider that the net sum of these will be small compared to the uncertainties elsewhere in the calculation.

On this basis, if Libya were faced with the choice of building a new LNG export train or burning the gas in a power station, the opportunity cost of gas would be the international market price less about $4 / MMBTU, ~= $3.6 + $0.3. We note that this calculation is in close agreement with similar calculations made for the California Energy Commission in 2007 3.

The economic analysis will be done first without taking into consideration the netback value, in a second step impacts of the these netbacks will be analysed.

Combined Cycle Gas Turbine (CCGT)

The key-data for the CCGT alternative are given in the following table. It gives the opportunity costs for the alternative electricity generation (without and with netback costs). As this electricity generation will be replaced by wind generation, the opportunity costs are then used to determine the economic benefits of the wind energy project.

3 The Outlook for Global Trade In Liquefied Natural Gas: Projections To The Year 2020, for the California Energy Commission, by Jensen Associates, August 2007

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Table 9: Data for Combined Cycle Gas Turbine (CCGT)

Without taking into account the netback cost:

5.1.3.4 Result of the Assessment (without Netback Costs)

The first part of the analysis does not take into account the netback costs of 4.0 US$/MMBTU. Figure 4 shows the projection of units cost for the two energy supply alternative. The increase in CCGT unit costs is due to the assumed price increase (in real terms) for natural gas.

In addition to the base case, two price variations are considered:

• 30% higher gas prices, • 30% lower gas prices,

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With these projections of the unit costs it is possible to determine economic assessment criteria (the cost of the CCGT-Natural gas alternative is the benefit of the wind power alternative). The results are given in Table 10. In the base case the wind power alternative is not economically viable. Under the assumptions of 30% higher natural gas prices, the wind option is not yet economic feasible (considering an economic discount rate of 10%).

Table 10: Wind Energy - Economic Assessment Criteria

Figure 4: Forecast of Unit Costs for Wind Energy and CCGT-Natural Gas

18 16 14

12 CCGT-Gas 10 CCGT-Gas - High 8 CCGT-Gas - Low 6 Wind

Costs(US-cent/kWh) 4 2 0

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Years

5.1.3.5 Return on Investment

The importance of the wind IPP investors' requested return on investment upon the unit costs (US- cent / kWh) for wind generation is shown in Figure 5. It can be seen that the requested return on investment and the country & contract risk increase with the perception of the country and contract risk.

In the present case study it was assumed that the wind energy IPP will request a return on investment of 20% considering the pilot character of an IPP wind energy investment and various unresolved issues of land use, concession contract and power purchase agreements. A reliable legal and contractual environment could significantly reduce the perceived country and contract risk.

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Figure 5: IPP Wind - Expected Return on Investment

14.00

12.00

10.00

Country&contract risk 8.00 Technology risk (2%) Return on equity (RoE 6%) 6.00 Capex&Opex (RoE 0%)

4.00 Unit costs (US-cent / kWh) costs (US-cent/ Unit 2.00

0.00 10% 12% 14% 16% 18% 20% Return on Investment (RoE)

5.1.3.6 Variation Gas Prices and Return on Investment

There are quite a number of uncertainties facing an IPP wind energy project in Libya, the following sensitivity analysis concentrates on the issues of short-term gas prices and requested return on investment by wind energy developers. To illustrate the impacts of the stated assumptions a sensitivity test was prepared, with the results shown in the following table, the expected net present value (NPV) for an investment in one kW wind generation capacity is given:

Wind energy - Required rate of return between 10% and 20%, Price for natural gas in 2010: The price was varied between 4.0 and 12.0 USD/MMBTU

If the NPV would be negative, the investment in wind energy cannot be justified, with positive NPVs the wind energy investment would be of economic interest for Libya.

Table 11: Wind Energy - NPV - Impact of Gas Prices and IPP Wind Return Requirements

The conclusion of this assessment is:

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• Under the assumed long-term projection of the Natural Gas of 18.0 USD/MMBTU the wind energy option is very attractive for Libya. The open issues are the level of gas prices in 2010 and the return requirements of IPP wind developers.

• The key-issue is the return on investment expectation for wind energy. By developing an appropriate and reliable legal and institutional framework for Wind Energy (reducing the return requirements from 20% down to 14% or 12% the economic viability of the wind energy option is secured over a wide range of possible 2010 gas prices.

5.1.3.7 Carbon Credits

One policy option could be to offer the carbon credits generated by wind energy projects to the wind IPPs. This would give them additional revenue. Table 12 shows the situation for two price levels for the carbon credits (20 and 50 USD/t CO 2).

Table 12: Wind Energy - Economic Assessment Criteria with Carbon Credits (Base case)

These prices for carbon credits would not be sufficient to achieve an economic feasibility of the wind energy option for Libya.

Table 11 states the NPV for a range of 2010 gas prices and IPP wind return requirements. It is of interest to illustrate the importance of carbon credits for one of these different cases. This is done in Ta- ble 13 for the case of an IPP Wind Return Requirement - 14 % / gas price 2010 - 8.5 USD/MMBTU. In this case even with a carbon credit of only 20 USD / t CO2 the wind energy option would be highly attractive for Libya and would offer a sufficiently high return for the IPP developer.

Table 13: Wind Energy - Economic Assessment Criteria with Carbon Credits (Return on Investment IPP Wind Energy 14%)

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With a significant improvement of the legal and contractual environment the requested return on investment could be reduced down to 14% and considering a carbon credit value of 20 USD / t CO 2 the wind energy option with private IPPs would be of economic interest for Libya.

5.1.3.8 Impact of Netbacks

In chapter 5.1.3.3 the opportunity costs (i.e. the economic benefits of the wind generation project) were determined. The economic evaluation presented so far did not take into account the netback costs for natural gas of 4 USD / MMBTU. These costs represent the cost to the economy of Libya in exporting the natural gas that must be deducted from the international value to arrive at the opportunity cost for Libya. We analyse the impact of these netback costs through a sensitivity analysis.

Table 14 presents the results of analysis and it can be seen that reducing the value of gas in this way dramatically impairs the benefits of the wind energy production. The Table shows that the viability of the wind energy option depends critically on whether Libya is a marginal exporter of gas.

Table 14: Impact of Netback Costs

5.1.4 Conclusion

5.1.4.1 Methodology

The case study demonstrates the advantages of developing deconstructed versions of policy prescrip- tions as an aid to analysis and to stimulate focused debate among stakeholders. It demonstrates the approach for the case of two policy options for wind and shows how the options can then be analysed in the light of the policy objectives to form the basis for decision. The study then demonstrates the linkage between this deconstructed specification and detailed economic analysis.

5.1.4.2 Policy Instruments for Wind

It is beyond the purpose of this illustrative case study to draw definitive conclusions regarding the wind energy option for Libya and the involvement of private wind IPPs.

Some interesting aspects of the study are:

• Competitive bidding: The start of the tendering and bidding process might not require an elaborate legal and contractual framework and business negotiations might be initiated very fast. This policy option is appropriate for big wind parks on land that can be legally tendered as a single con-

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cession.

Without a reliable sector strategy (development of the transmission network and required back-up capacities) and stated sector policy objectives and legal / contractual framework, the negotiations can be at risk.

• Feed-in tariff: The up-front efforts of this policy option are high because the appropriate feed-in tariff has to be determined and the legal and contractual framework has to be developed.

There is some risk in the early stages that tariffs may be set too high or too low as there is little basis on which to proceed.

The standardised nature of the transaction makes it appropriate for small sites spontaneously offered by developers.

• Economic and commercial viability: - The wind energy option can be economically justified, but the assessment shows that the main issues are the opportunity cost of natural gas and the return on equity requirements of the wind IPPs. - The option is only commercial viable under quite restrictive conditions, namely: - A power purchase agreement that is based on the opportunity costs of alternative supplies of electricity - Sufficiently low perception of risk by the developer to bring discount rates down to say 15% - Quite large credits for the carbon emissions that are avoided ($20 / tonne or more) - That Libya does not export gas at the margin

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5.2 Case Study 2 - Concentrated Solar Power

5.2.1 Background and Context

The example that we choose in this case for illustration is the analysis of a 100 MW concentrated solar power plant (CSP) in Libya.

5.2.1.1 Concentrated Solar Power (CSP)

The technical potential of concentrated solar power in Libya is huge; it has been estimated at 140,000 TWh/year, equivalent to 27,000 GW of capacity at 60% load factor. There are of course many practical factors that limit the exploitation and the economic performance has yet to be demonstrated. It is attractive to imagine that solar energy in large volumes could be transmitted to Europe, providing at the same time a source of revenue to North African countries and a clean supply of electricity to Europe.

The construction of high voltage, high capacity transmission lines to Europe will only be considered once the technical viability and economic parameters of the technology have been demonstrated. The initial plants will be built to supply a local market. But the local market in Libya can be supplied with electricity from gas at much lower cost than the cost of concentrated solar power. There is therefore no real case for Libya to build such a plant on its own account.

The value of subsidies in Europe for solar power is very high; in many countries it is well above $50/MWh. This greatly exceeds the value of the carbon saved as measured by trade on the ETS. A CCGT might generate about 500 kg of CO2 per MWh. A premium of say $50 / MWh therefore implies a value of carbon of about $100 / tonne, which is far above what is observed on the ETS. Clearly the implicit value of carbon in European renewable policy is very high.

These subsidies are based not only on the value of the benefits in mitigating climate change, but they are also intended to promote the development of national industries. But both aims could also be achieved if the subsidies were also attributed to developments outside Europe in environments that were much more conducive to solar energy. In this arrangement one or more European partners would accept to give the same benefits to a development in Libya as they give to domestic investments.

The climate benefits from subsidising CSP would accrue to the global environment regardless of any administrative arrangements, but the European partners would only see a concrete benefit to them if they were permitted to set the certified renewable production against their obligations under the renewable targets to which they are committed. This could presumably be arranged by the appropriate modifications to European Law.

The same industrial benefits would also be created. The certificates of renewable production could be bought by the European partners at a negotiated price. Their willingness to do this as a function of the involvement of their national companies in the project would provide interesting empirical evidence as to how the motives for supporting solar energy at home divide between environmental and industrial policy. Some delicate legal arrangements would be needed to create this possibility, but there are no obvious unmanageable obstacles.

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5.2.1.2 Scope of the Case Study

The overall objective of this case study is to examine the consequences for the investment process of an agreement within Europe to attribute subsidies to CSP developments outside Europe and to use some or all of the certified renewable production to meet internal targets. Specifically we propose that EU Member States can purchase certificates of renewable origin at a negotiated price from the project. In reality these contracts would need to be in place before financial closure could be achieved. The EU Member States can then set these against their renewable obligations within the EU.

Specific objectives are:

• to examine what level of support would be needed to make CSP in Libya cost-effective, • to compare the necessary subsidy to existing subsidies operating in Europe, • to draw some conclusions as to the nature and viability of the European instrument proposed.

5.2.2 Evidence-based Policy Making

The procedure that we have proposed to implement evidence-based policy making comprises the following steps.

• Alternative forms of intervention need to be reviewed and short-listed. Evidence of the success or failure of similar instruments in developed and developing countries needs to be studied with special emphasis on the conditions that created success and failure • There must always be a base-case against which alternatives are screened. Alternatives should include all available instruments. • All the relevant potential impacts need to be identified and where possible, quantified • Impacts should be assessed in consultation with the subjects of policy • The cost of compliance needs to be assessed. Consideration should be given to how these costs can be minimized. It is necessary to consider who pays the compliance costs ; there are generally alternatives with different implications for equity. The procedures for compliance need to be worked out as does the procedure for monitoring impacts. • Indicators need to be established of what is expected from the policy measures. These indicators should cover outputs, outcomes and impacts. Intermediate indicators are important in helping understand how policies work, how measures interact and how they can be improved • Quantitative analysis of impacts is essential. The analytical method most commonly used is economic cost-benefit analysis . • Cost-benefit analysis should take into account opportunity costs of energy and external environmental costs. • Multi-criteria analysis maybe a useful support to decision making; sensitivity analysis is one expression of this idea

The first five steps are discussed in this section; the formulation of indicators is discussed in the section on theory-based evaluation and the last three steps are demonstrated in the section on economic cost-benefit assessment.

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5.2.2.1 Alternative Forms of Intervention

There are other ways in which pilot plants could be financed to prove the technical and economic feasibility:

1. Finance of the plant by multi-lateral financial institutions; 2. Finance by a direct transfer from the budget of the European Union; 3. An agreement by the European Union to pay a premium from the European budget for every kWh generated from the plant, the immediate finance coming presumably from European and Libyan equity partners plus loans from commercial banks secured on the promise of the EU performance payment.

None of these are attractive options, for the following reasons:

Finance of the plant by multi-lateral financial institutions would require a grant of $500 million, assuming a capital cost of $5000 / kW. This would simply be too much too contemplate. Soft loans might be an adequate incentive, but it is uncertain and anyway they would be difficult to mobilise in such a volume. It is not obvious that development banks would see such a project as making a contribution to development commensurate with the cost. Moreover, there is little performance-based incentive in this option. The only incentive to generate is the opportunity cost of the electricity displaced by the CSP plant.

Similar arguments apply to the second option. The amount involved is very large for a single project that gives no tangible return to the donor. Again, there is little performance-based incentive in this option. The only incentive to generate is the opportunity cost of the electricity displaced.

The third option has the advantage that it gives stronger performance-based incentives. The subsidy from external sources is only paid if the project works. This option therefore transfers some risk to the developers, but it is a risk that they might well be prepared to take. The main obstacle is that it is still difficult to see sufficient benefit to the European Union to justify the very large commitment. The climate change benefits would materialise and arguably, at a European level, the benefits of industrial policy would also be achieved. But there is no direct gain to the European economy or to specific Member States.

The proposal which we make here has several attractions. It is performance-based because the subsidies are only paid for power generated; it will generate the industrial benefits by providing skills and experience to European contractors; it will benefit the global environment and it will benefit the particular EU Member States by alleviating the difficulties of meeting their renewable targets. It also demonstrates a sustainable policy instrument that in the long-term can serve as the basis for plants that provide also a physical supply of energy to Europe. It does require however some modification to Euro- pean law.

In any event the plant would also be eligible for finance through the CDM; the extra payments for “renewable values” would be additional. This "renewable value" is the cost difference between solar electricity generation and the conventional electricity generation. The costs-benefit analysis presented later present an numerical example of how these "renewable values" could be determined.

5.2.2.2 Base Case

The intention of the case study is to demonstrate the technical and economic performance of the Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

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plant, but also the viability of the policy instrument. The question to answer is whether the plant will pay its way as a stand-alone plant on Libyan soil, taking into account the supplementary payments received from the CDM and the postulated “renewable values”.

The base case therefore is a comparison with the marginal plant that would otherwise be built in Libya, which we take to be a gas fired combined cycle plant.

5.2.2.3 Impacts

The impacts of the policy are the savings of fossil fuel and consequently the reduction in GHG emissions.

In order to claim for CERs, the energy savings have to be calculated. The key parameters include: the running hours of the new plant and the electricity generated. The energy savings are multiplied by the emissions from the alternative investment to calculate the emission reductions by the programme.

5.2.2.4 Consultation

Considerable consultation would be required to implement this scheme. It will require considerable effort within the European Commission services to develop and promote the concept, to draft the legislation and to persuade Member States. It will also require considerable diplomatic effort to create agreement with the host countries and to define the geographical area in which the policy would operate. The climate change benefits and industrial benefits would occur in varying degrees wherever the plant was located, but the third motivation to provide a clean source of physical power to Europe can only be satisfied, if plants are located in countries with existing transmission links or a reasonable chance of creating them.

There will also need to be a long negotiating period between the parties making the development and those buying the CERs, the electricity and the “renewable values”. There may be difficulties in per- suading the host country (in this case Libya) to value the electricity, that can at present only be sold to the local grid, at the opportunity cost and not at the cost of the subsidised fuels.

5.2.2.5 Compliance

It will be necessary to monitor the plant to verify the electricity generated, but this is not demanding.

5.2.3 Theory-based Evaluation

5.2.3.1 Methodology

Evaluation of a project depends upon an underlying belief in how actors will be affected by the policy and how they will respond. We call this belief a “behavioural model”. We specify the behavioural model as a causal sequence in which the successive steps of policy implementation are shown in the first column and then in subsequent columns are listed various indicators, risks and assumptions. The successive steps of the policy may or may not specify recognisable behavioural assumptions; it depends very much on the type of policy investigated.

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5.2.3.2 Indicators

Indicators need to be established of what is expected from the policy measures. These indicators should cover outputs, outcomes and impacts. Intermediate indicators are important in helping understand how policies work, how measures interact and how they can be improved

• Inputs are the financial, human, technical or organizational resources used in the endeavour, • Outputs are objectively verifiable indicators that demonstrate the progress made in implementing the measures, • Outcomes are the immediate effects on the regulated subject, • Impacts are direct measurements of the improvements that the programme is designed to bring about.

5.2.3.3 Behavioural Matrix

This matrix provides a structure for the analytical steps and indicates the evidence that should be sought at each stage to support assertions or on which to found analysis. It allows the issues that might affect implementation to be identified and it allows different stakeholders to debate around a clear and concrete representation of the policy. In later stages it serves as the basis for monitoring and evaluation.

The behavioural model in this case is shown in Table 15.

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Table 15: Behavioural matrix for CSP and a European Purchase Scheme for Renewable Values

Indicators Behavioural model Input Output Outcome Impact Risks Assumptions • European and • Time and of of- • Ratified policy • Developers • No political • Political will to neighbouring ficials, consul- (Y/N) form consortia agreement is overcome ob- governments tancy ($) and register in- reached stacles terest (#) agree policy instrument • Banks and eq- • Staff time, con- • MoU among part- • No viable pro- • Preliminary uity investors sultancy ($) ners (#) ject concepts; technical and agree project risk perception economic prospects are concept too great good • PPA agreed • Staff time, con- • Agreed PPA (Y/N) • GoL will under- • Libya needs with Libya sultancy ($) value power additional power plant • Purchase of re- • Staff time, con- • Agreed contracts • Financial clo- • European pur- newable certifi- sultancy ($) (Y/N) sure (Y/N) chasers need cates agreed certificates – other sources with European inadequate utilities • Registration • Staff time, con- • Registration (Y/N) • Registration • Developers will under CDM sultancy ($) not achieved accept risk of non-registration • Plant built and • Construction • Operating plant • Electricity and • Volume of CO2 • Wide array of commissioned costs, consul- (Y/N) certificates de- emission reduc- technical risks tancy ($) livered in tion (#). amounts fore- • Consumption of seen (#) natural gas avoided (#) • Revenues re- • Revenue stream • Credit risk of

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Indicators Behavioural model Input Output Outcome Impact Risks Assumptions ceived for elec- ($) counterparty tricity • Revenues from • Revenue stream • Purchasers re- sale of renew- ($) duce cost of able certificates compliance with renewable targets ($) • CERs issued • Revenue stream • Market risk – and sold ($) price volatility

Note on symbols: • $ indicates indicator is measured in financial terms • # indicates indicator is measured in numbers • Y/N indicates indicators is a yes or no observation • ? indicates indicator that cannot be quantified, but can be assesses qualitatively

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5.2.4 Economic Cost-benefit Assessment

5.2.4.1 Methodology Applied

Quantitative analysis of impacts is essential. The analytical method most commonly used is the cost- benefit analysis for specific investment proposals, strategies of policies. Cost-benefits analyses have often to be completed by analytical studies analysing the development of entire sectors, such as electricity master plans with least-cost power expansion plans.

Cost-benefit analysis should take into account opportunity costs of energy and external environmental costs, particularly of the avoided emissions of carbon. But it is not always possible to identify and to quantify these external effects. Therefore, m ulti-criteria analysis is a useful support to decision making

In this section of the CSP case study a simplified cost-benefit analysis of CSP technology option for Libya is present. The electricity that is saved by building a CSP plant would otherwise be generated from natural gas. The analysis concentrates on the comparison of the cost of supply of once additional kWh, either using natural gas or solar energy. This comparison is cone for Libya in form of an economic analysis; the electricity supply would be entrusted to independent power producers (IPP). This cost difference as defined earlier as "renewable value".

The economic assessment of CSP therefore obliges us to consider what value to give to the opportunity cost to Libya of electricity generated from natural gas. It appears that the marginal technology for gas will be combined cycle gas turbines (CCGTs).

The key parameters for the assessment are:

• Costs and performance of a CCGT, • Opportunity cost for natural gas to be used in Libya, • Return on investment requirements IPPs, either for CCGT development or for CSP (this return on investment will be used for bank financing and the required return on equity capital.

It assumed that the gas based electricity generation is a conventional business in Libya and the rules for IPPs are clearly defined, in this case a Return on Investment of 10% is considered as being sufficiently attractive. The investment in CSP by IPPs is a totally new business in Libya, it is assumed that the perceived risk related to such an investment is considered to be significantly higher, leading to a higher required return on investment of the CSP investor.

The following table summaries the key-parameters for the analysis. The analysis assumes a time hori- zon of 40 years.

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Table 16: General parameters for the assessment

5.2.4.2 CSP - Assumptions and Data Base

The costs and performance of CSP are yet to be well established and in the context of this Case Study no detailed analysis could be performed. The figures adopted below are primarily for illustration. The principal technical assumptions of the analysis in the reference case are:

Table 17: Key-data for Concentrated Solar Power (CSP) Plant

Investment cost of CSP unit 4000 $/kW Disbursements Year 1 1000 $/kW Year 2 1000 $/kW Year 3 1000 $/kW Year 4 1000 $/kW Generation Year 2 12.5% Year 3 37.5% Year 4 62.5% Lifetime 40 years Re-investment after 20 years (% of total investment) 50% % Load factor 25% Value of CERs 20 & 50 $/tonne Emission factor from CCGT 500 g/kWh

The price paid for the electricity generated we assume to be based on the opportunity cost of electricity generation from the alternative marginal source. This depends strongly on the assessment of the opportunity cost of electricity from gas, which is a complex matter and is discussed in the next section.

It is assumed that the return on investment for the IPP-investor is 20%, while the loan financing will be possible with 8% interest and a loan repayment period of 20 years.

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Table 18: CSP - Financing conditions

The simplified cash-flow model is given in the following table. With these stated technical and financial conditions the levelised cost (over a period of 40 years) result in 28.89 US-cent / kWh.

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Table 19: CSP - Assumed financing conditions

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5.2.4.3 Opportunity Costs for Electricity

Recent Price Development for Natural Gas

Libya has the opportunity to export gas. The opportunity costs is thus the net value of export, more specifically it is the net value of export as liquefied natural gas (LNG). Prices are volatile as can be seen from Figure 6 that shows the spot prices at Henry Hub in the US. Contract prices are less volatile, but are not transparent.

The cost for liquefaction has to be taken into account to determine the opportunity cost of Libya’s natural gas.

Figure 6: US LNG Prices

Source WTRG Economics

Price Forecast Based on Crude Oil Prices

The following shows the forecasts of crude prices in real and nominal terms to 2030.

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Figure 7: Forecasts of crude prices to 2030 (DOE/IEA)

200 180 160 140 120 Crude Oil (weighted 100 average) 2007 US$/bbl $/bbl 80 " nominal prices 60 40 20 0 2010 2015 2020 2025 2030

Figure 8: Derived forecast of international LNG prices

20 18 16 14 12 LNG 2007 US$ / 10 MMBTU

$/MMBTU 8 " nominal $/MMBTU 6 4 2 0 2010 2015 2020 2025 2030

The formula we use is: y = 0.0805 x + 2.852

Where, y = LNG price in $/MMBTU and x = price of crude in $/tonne

This procedure gives a central case for LNG as shown in Figure 3. (Note: 1 MMBTU = 1.05 GJ).

For the base case we propose to use real 2007 prices for the cost benefit analysis to avoid having to

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link the power purchase agreement to inflation. A scenario with higher gas prices is based on the nominal gas price scenario to simulate the impact of high gas prices upon the cost relations of CCGT and CSP electricity generation.

Netbacks

The financing of LNG trains is complex. We make a very simple calculation here as a basis for further reflection.

Prices for LNG trains vary considerably according to the state of the market. According to the IEA in 2003, a single LNG chain involves investment of around $5 billion for a typical 6.6 million tonne two- train project, (IEA, 2003). Assuming price escalation to 2009, this indicates a value of about $6.5 billion, or roughly $1000 per 1 t/yr. Discounting at 15% over 20 years gives an annual payment of $160 / t / yr, or a contribution of $200 / tonne to the price of LNG.

The calorific value of natural gas is about 44 MMBTU / tonne, so the contribution of capital to the long run marginal cost of LNG is around $3.6 / MMBTU.

4 The Outlook for Global Trade In Liquefied Natural Gas: Projections To The Year 2020, for the California Energy Commission, by Jensen Associates, August 2007

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Figure 9: Marginal cost of electricity from gas 14

10 OC of gas 8 OC of elec (fuel only)

c / kWh / c 6

4 OC of elec (fuel + capital) 2

0 2010 2015 2020 2025 2030

Opportunity cost of electricity from natural gas

We assume the alternative to the CSP plant is a combined cycle gas turbine operating 7000 hours per year. Discounting the cost of the turbine ($1200 / kW) at 20% over 25 years gives an annual payment of $120/kW. With 7000 hours of operation this yields a contribution of capital to the unit cost of 3c/kWh.

The previous figure shows how the opportunity cost of electricity can be constructed from the opportunity cost of gas. The opportunity cost of gas is indicated in c / kWh in the bottom line. The next line up shows the opportunity cost of the fuel burnt to make one unit of electricity. The last line adds in the capital contribution as calculated above.

Cost of alternative electricity generation

The cost estimation for the alternative electricity supply is based on a combined cycle gas turbine. The key-data for the assumed plant and technology are given in Table 20.

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Table 20: Gas based electricity generation (CCGT) - Fixed unit costs

The following table shows a simplified cash-flow statement for the CCGT IPP investment, considering a marginal investment of 1 kW.

Based on the stated assumptions, the levelised costs for gas based electricity generation would be 7.12 US-cent / kWh.

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Table 21: Gas based electricity generation (CCGT) - Determination of levelised costs

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5.2.4.4 Comparison of costs of electricity supply

In the previous sections the levelised costs for gas based CCGT (7.12 US-cent / kWh) generation and solar based CSP generation were determined (28.89 US-cent / kWh). The resulting values are illustrated in figure below. These levelised costs would offer the respective IPP investors the required return on investment.

Figure 10: CCGT and CSP - Comparison levelised costs

35 28.89 30 21.77 25 20 15 7.12 10 US-centkWh / 5 0 CCGT CSP Gap Cost of electricity supply

The difference of 21.88 US-cent / kWh would be the "renewable value", the higher cost due to renewable electricity generation in Libya.

The following figure illustrates the development of the annual generation costs. The high annual costs for the CSP plant during the first 20 years is due to the high debt service. The annual cost for gas based generation is increasing during the planning period due to the increase in the gas prices.

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Figure 11: CCGT and CSP - Comparison of electricity supply costs

35 30 25 20

US-cent / kWh US-cent/ 10 5 0 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2050 2053 Year

Gas based CSP based

5.2.4.5 Impact of Carbon Credits upon "Renewable Values"

An electricity generation using solar energy would benefit from the flexible mechanisms introduced by the Kyoto Protocol. To illustrate the impacts of the carbon credits upon the "renewable values" the carbon credits were considered in the cash flow analysis - see Table 22). The analysis considers the following levels for the carbon credits:

• 0 USD / t CO 2 • 20 USD / t CO 2 or 0.730 US-cent / kWh • 50 USD / t CO 2 or 0.730 US-cent / kWh

The result is illustrated in Figure 12, in the case of 50 USD / the "renewable value" would be reduced from 21.77 US-cent / kWh down to 20.28 US-cent / kWh.

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Figure 12: Impact of Carbon Credits - Reduction "renewable values"

25 21.77 21.26 20.28 20

10 US-centkWh /

0 0 USD 20 USD 50 USD Value of CERs / Carbon credits (USD / t CO2)

Figure 13: Development of additional costs

20 Additional costs 15 20 USD / t CO2 50 USD / t CO2 10 US-cent / kWh

0 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2050 2053 Year

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Table 22: Impact of carbon credits upon "renewable values"

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5.2.4.6 Sensitivity Test

The base case the "renewable value" (the difference in levelised costs for CSP and CCGT electricity generation) was determined to be 21.77 US-cent / kWh - not taking into account possible carbon credits. In this section four different sets-of assumptions are defined to illustrate the impacts the stated assumptions have upon the value of the "renewable value". The considered cases are (for the assumptions see Table 23):

Case 1: Assumptions as stated in Table Case 2: Favourable financing conditions (longer loan repayment period, lower interest rate and lower equity requirements Case 3: Assumptions of case 2 plus a higher CSP load factor of 35% (instead 25%) without considering higher investment costs - technical progress would lead to better performance at the same costs Case 4: Assumptions of case 3 & 3 plus assumed higher natural gas prices - i.e. the nominal gas price forecast is considered (see Figure 8).

The resulting reductions "renewable values" - the differences in levelised costs for CSP and CCGT are given in Table 23.

Table 23: "Renewable values" - Comparison of cases

The levelised cost difference between CSP and CCGT electricity generation (defined as "renewable value") would be reduced, down from 21.77 US-cent / kWh to 4.17 US-cent / kWh as it is shown in Table 23.

More favourable financing conditions would lead to a reduction of the "renewable value" from 21.77 US-cent / kWh down to 11.59 US-cent / kWh. The improved conditions are longer repayment periods, lower return on equity requirements and lower share of IPP's equity capital.

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Figure 14: Comparison of scenarios

25 21.77

15 11.59

US-cent kWh / 6.24 4.17 5

0 Base case & Favourable &Technology & Gas prices financing improvement Scenarios

5.2.5 Conclusion

5.2.5.1 Methodology

The case study demonstrates the advantages of developing deconstructed versions of policy prescrip- tions as an aid to analysis and to stimulate focused debate among stakeholders. In the case of CSP the deconstruction helps to reveal the nature and extent of the financial assistance that must be made to make the first projects commercial and the need to intervene with performance-based subsidies. This coherent perception helps to frame the definition of the policy instrument and the cost-benefit analysis.

5.2.5.2 Substance

The cost-benefit analysis compares two possibilities of electricity supply in Libya, gas-based generation with combined cycle gas turbines (CCGT) or concentrated solar power (CSP) plants. The economic cost benefit analysis compares these two options for Libya assuming that the respective power plants would be built by independent power producers (IPP) with their respective remuneration requirements for the invested capital. The analysis results in a difference in supply costs of 21.77 US- cent / kWh, this is the '"renewable value" the higher cost of solar electricity generation, which would be too high be covered by Libya alone.

In form of a sensitivity analysis the impacts of future developments was simulated:

• Improvement of the financing conditions: A reliable regulatory framework together with trusted contractual arrangements in Libya and between other countries and Libya would significantly reduce the perceived risk and financing at concessional terms would be made available for CSP investments. Better financing conditions could reduce the "renewable value" by 40%.

• Technical developments: Higher load factors - using thermal storages in the CSP plants while maintaining the capital costs per kW installed - would also lead to more favourable conditions for CSP generation and would reduce the "renewable value again by 40%.

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• Future gas price development: Higher gas prices in the future would make the CCGT thermal generation more expensive and would lead to a reduction of the "renewable value".

• A combination of more favourable finance, better performing technology, higher gas prices and carbon emission reduction credits at $50 / tonne would bring the difference with conventional generation down to a little less than 3 US-cent / kWh.

5.2.5.3 European purchase of renewable values as a policy instrument

The above analysis suggests that CSP will not be built as a commercial venture in the short term without considerable support from industrialised countries of several sorts. An important part of that support should comprise a performance related payment based on a subsidy per kWh produced. The value of that subsidy would depend inter alia on what other support was available.

In practice it would be easier to adjust concessional financial conditions to a value of the kWh fixed for some time to provide stability and confidence. The concessional element of finance could be reduced as the technology matures to account for improving technology and lower risk perceptions, whilst keeping the performance related subsidy fixed.

A simple way of creating this arrangement would be to certify the renewable character of the electricity produced and then to allow European countries to purchase these certificates and to off-set them against the 20% European renewable target. A given project could have several contracts for these renewable values with different countries. There is no reason why a secondary market should not also be allowed among member states of the EU.

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6. Institutional Reform - Strategic Options

The policy cycle is shown in Figure 15. There are institutional needs at all stages of this cycle. Deci- sion making proceeds through the general processes available in the executive and legislative branches of government. Normally policy briefs will originate from the executive and be elaborated by Ministerial departments often with analytical support from agencies of government and paid consultants and in consultation with other stakeholders. Primary legislation is debated and finally sanctioned by the legislature. In many countries Ministerial Decrees are used to elaborate on primary legislation.

Figure 15: Illustration of the Policy Process

Foresight formulate Evidence

reformulate Theory Implement

Model

Indicators

evaluate monitor

This structure needs to be properly serviced with evidence and analysis if it is to work well. There is a need for an institution, or perhaps several, to gather and maintain evidence and to carry out analytical work that feeds into the formulation of policy and later guides the monitoring and evaluation and re- formulation of policy. Foresight studies are a part of the evidence that should be considered in policy formulation and these should take into account the evolution of global trends and policies in energy and the environment, but also of trends beyond these disciplinary frontiers.

Implementation of policy may be conducted by Ministerial departments or nominated agencies. In developed countries, implementation is often assigned to specialist agencies. In developing countries it is more common that policy is implemented by the Ministry. Implementation will often be demanding of resources, this may be the case for some market based instruments as well as the majority of regulations.

6.1 Vision Statement by the Libyan Government and Energy Council

Libya is a resource rich country, and currently there are no general shortages from the side of primary energy supply. However, power shortages are widespread due to lacking generation capacity. The country exports the largest share of its crude oil and natural gas production. Historically energy supply

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has been a public good and guaranteed by the government. Therefore, there is a long tradition of energy subsidisation. For further details on pricing structures see the section on Libyan and international practice. In such a setting of resource wealth and low energy prices two general questions arise in terms of sustainable energy supply in future decades:

1) Why should Libya's population save energy at all? 2) Why should Libya introduce renewable energies in its domestic supply regime to large extent?

These questions are in macroeconomic and environmental terms easy to answer (selection): - each unit of energy saved domestically could generate additional revenues on international markets at high sale prices - costs for consumers could be reduced even when a reform of the pricing structure was conducted that leads to higher unit prices - in the climate regime Libya could become an active player which would increase its international reputation - efficient appliances and renewable energy technologies could contribute to the creation of domestic industries to create jobs and income.

However, in a country with a historically grown system of inefficient energy use, the wider public might not be open to such lines of argument. Therefore comprehensible reasons for change have to be con- veyed to the whole population, in a first approach as an overarching vision of the national government for future energy supply. Without such a vision, efficiency measures and renewable energies lack the broad basis in which they normally have to be embedded to gain acceptance in the public.

This is especially relevant in case of major changes in the current energy regime, e.g. via price re- forms (customers have to pay more for energy) or building codes that require a general change in consumer behaviour.

Currently there is no energy vision by the government: there are no overarching plans or strategies on the question, where Libya sees itself in the coming decades, especially in the context of global energy supply challenges and climate change. As a first step towards a sustainable energy system in Libya, a vision statement would fulfill the essential task of communicating to the population that changes are means to generally improve the situation in the mid- to long-term.

6.2 Transparency of Decision Making Processes

Transparency is an essential element in the process of policy formulation, especially on two levels: a) pre-policy making procedures: consulting and knowledge-generation phase b) policy making

In general, institutional bodies on both levels exist in Libya, and as an example the involvement of REAOL in the formulation of the renewable energy roadmap has been discussed already. However, communication paths are opaque.

Level of pre-policy-making. Authorities should have the expertise and competence to assess the possible effects of energy supply options. If such expertise is lacking, they can gain knowledge from external sources, e.g. think tanks or specialised agencies. Such internal and external expertise is the base for the formulation of policies or at least for counseling governmental bodies that formulate policies themselves.

At this level of policy creation, intense discussion processes are usually conducted among different

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authorities and stakeholders – including hearings etc. to find the “best fitting” solution. In Libya such discussion processes are not common practice and their establishment requires high motivation of participating stakeholders. It is recommended to create schemes that foster such communication processes. One such scheme could be an expert commission that delivers in-depth knowledge for the policy-formulation process. Expert commissions have a long tradition e.g. in Germany.

Level of policy-making. Due to the disbandment of the Ministry of Energy and Electricity responsibilities shifted towards the Energy Council (EC). Directly after the disbandment responsibilities for energy matters were not clearly allocated, creating “white spots” where no stakeholder felt responsible. The EC that now is responsible for energy consists of representatives of very different branches and sectors. This could lead to overlapping responsibilites which would – comparably to white spots of ab- sent responsibility – hinder the formulation of policies, because competing interests of stakeholders within EC lead to a slowdown of procedures. After discussion within EC, laws are passed on to parliament for approval.

In the case of Libya the creation of a system of institutional bodies with clearly definded responsibilities that allows efficient policy consultation and formulation should be prioritised. Such a system not only requires the decision making bodies themselves – being the nodes of the net – but also the establishment of communication structures – the threads that link the nodes. Many of these bodies are already there; their focus just needs to be sharpened. One example is the Energy Council whose comptencies overlap with the responsibilities of other operating authorities and therefore hinder effective policy-making.

It is recommended to determine clearly defined responsibilities for all involved policy making bodies which should lead to a division into three general fields: 1) Authorities with analytical skills and responsibilities should accompany 2) decision making bodies that themselves hand over implementation to 3) specialised implementing agencies. Such a system has proved effectiveness and efficiency in numerous countries.

6.3 Define National Efficiency Strategies and Targets

A broad vision of the future Libyan energy system requires a set of strategies and concise targets. REAOL already proposed targets for renewable energies that have been officially approved and are based on sound analysis. Energy efficiency targets however have not been set yet.

As the Libyan energy system is (compared to other countries) very inefficient, gains in efficiency could be reached with little effort at very low costs. This is of great advantage in terms of dissemination to the broad public. Financial resources from the export of fossil fuels could be used to realise more costly energy efficiency measures. In this case the Libyan government is recommended to start with efficiency measures with short payback periods. Energy efficiency improvements would imply high benefits for the Libyan economy, as every energy unit not consumed domestically could be exported to generate high revenues at international energy prices.

Efficiency targets should be phrased as an overall strategy covering all economic sectors and branches. Efficiency measures in the transport and residential sectors are likely to have a particularly high impact. In the transport sector, targets could be phrased via emission standards for vehicles or maximum consumption per kilometer in different vehicle categories.

The residential sector, in terms of efficiency policies and targets, can be divided into two categories: a) buildings and b) eletric appliances. In Libya, no building codes are implemented yet. However, such codes would allow very effective regulation of energy demand (mainly heat demand) of buildings. This

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is of special importance as buildings have long life-times and investment cycles. Built today, they will dominate consumption structures for at least 50 years. In the field of appliances, efficiency standards could be introduced. There is considerable action already now in Libya to introduce such standards. Concrete manifestations of standards are e.g. energy labels that are common in many countries. Buildings are the link to the industry and commercial sectors. Building codes in these sectors can also have strong impact on energy demand structures. Standards for industrial equiment help to reach efficiency targets as elements of the mentioned efficiency strategy.

6.3.1 Implementation: Introduce Standards, Labels etc.

The introduction of energy efficiency standards, labels and other measures bears one major advantage: It could be done quickly without going through the procedure of formulating and implementing new primary legislation. A specialised authority, e.g. an Energy Efficiency Authority, could act as implementing body. Respective expertise would come from such an authority itself and could also include international expertise to accelerate the process.

6.3.2 Creation of an Energy Efficiency Authority EEA

Currently such an Energy Efficiency Authority (EEA) does not exist. It is recommended to establish such an institutional body as soon as possible. Its responsibilities should include implementation of policies, consulting of decision makers and communication with consumers, to mention only some fields of action. Close institutional connection to the Renewable Energy Authority would generate synergies, as the combination of renewables and efficiency can in many cases lead to very positive overall effects (reduction of costs, reduction of overall system requirements, higher stability of grids etc.). They are also key elements for climate protection on the one hand and value generation in national contexts (job creation etc.) on the other hand.

Two general models for an EEA should be taken into closer consideration: 1) Independent authority 2) EEA + REAOL with renewables and efficiency being roofed by one body

By choosing model 1, it would have to be guaranteed that there are close communication linkages to REAOL to realise the above mentioned synergies. Transferring responsibilities for efficiency to REAOL completely would possibly bear the opportunity that integrated overall strategies for efficiency and renewables were formulated quicker and with less efforts.

6.3.3 Establishment of an Energy Efficiency Fund EEF

It is recommended to establish an Energy Efficiency Fund (EEF). General opportunities of an EEF are: - No primary legislation would be necessary for its creation - The fund would finance up-front costs of efficiency measures - The fund could be handled in a flexible way to fit the special needs of different consumer groups - The fund could be combined with other measures like public procurement

The institutional set-up of an Energy Efficiency Fund could be kept simple, as no primary legislation would be needed. Advantages are that the EEF can be established quickly and set-up costs are low. In order to make the EEF work as soon as possible, priority fields of action and eligibility of applicants should be defined. This requires the formulation of statutes in the first place and then the formulation of concise application procedures.

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The EEF should compensate consumers for high upfront costs of more efficient appliances. The selection of a set of appliances that receive funding should be guided by clear criteria such as energy saving potentials, payback-periods and other aspects. The fund could also be combined with public procurement measures, public awareness campaigns and approaches from other fields of efficiency dissemination. Models to combine renewable energy utilisation and energy efficiency should be closely analysed in regard to possible funding by the EEF. It needs to be discussed which entity will be in charge of the fund.

6.4 Foster Renewable Energies

As mentioned above, Libya has ambitious plans for renewable energy utilisation. It remains to be discussed which instruments and measures are suited best in the Libyan context to not only increase the percentage share of energy supply, but also to make renewable energies “work” for national development: In other countries renewable energy industries were created within very few years creating hun- dreds of thousand of jobs. It should be investigated which job potential renewable energy technologies – as well as energy efficiency technologies – can unfold in Libya in the mid- to long-term. The possible macro-economic effects need to be investigated in relation to different models of renewables integration: bidding procedures for predefined projects will show different effects than a feed-in based system.

Renewable energies for heat generation (water heating) have a large potential in Libya. As the examples of other countries show, e.g. Palestine, solar water heating devices (SWH) have low costs and can save large amounts of energy. In Libya, subsidised electricity prices inhibit the competitiveness of SWH. However, the government could benefit strongly through domestically saved energy by funding solar water heaters, as from the governments point of view their economic feasibility should be calculated on the basis of international energy prices (export prices from Libyan perspective).

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

Annex 1

Mission Report

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

Mission Report

The country mission was successfully completed in the time span of 29 September to 4 October 2009. The mission programme had been prepared with very good support from the Lebanese representative in RECREEE's Board of Trustees.

The mission programme was as follows:

Date Programme Item 29 Sept Travel to Tripoli 30 Sept Meeting with General People's Committee for Planning and Finance 30 Sept Meeting with the Environment General Authority (EGA) 30 Sept Meeting with the Centre for the Study of Solar Energy 1 Oct Meetings at the General Electrical Company of Libya (GECOL) 1 Oct Meeting with National Oil Corporation 1 Oct Meetings at Renewable energy Authoirty of Libya (REAOL) 1 Oct Meeting with Centre for Standardisation and Metrology 2 Oct Internal project team meeting 3 Oct Half day Seminar 4 Oct Internal Team Meetings and Travel to Palestine

Some stakeholder could not be visited, but participated in the half day seminar. A list of stakeholders is attached in the following Annex 2. Most of them (some 20 persons) attended the seminar and engaged in lively discussions.

The seminar was held at the Al-Kabir Hotel. It was opened by RCREEE's member of the the Board of Trustees, Eng. Fathi Abougrad, who is the Chairman of the Renewable Energy Authority of Libya. The seminar had three main objectives (1) to promote RCREEE in Libya, (2) to discuss with stakeholders the findings of the mission and (3) to introduce the participants to the ideas of Evidence Based Policy Making and Theory Based Policy Evaluation by giving a detailed presentation on that topic (Annex 5) and by presenting case studies illuminating the methodology (Chapter 5 above). Finally the seminar was used to give a preview on the national information workshop on EE and RE policy development. The presentation is attached in Annex 6.

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

Annex 2

List of Stakeholders

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

List of Stakeholders

Organisation Contact Per- Position email son General Commit- Mr. Ali Khamis Advisor tee of Planning & El Arbad Finance Gneral Electric Co. Eng. Faraj A. General Manager of [email protected] of Libya Elamari Planning Dept. National Oil Corpo- Abduladium A. HSE Superintendent [email protected] ration Alballug Renewable Energy Eng. Fathi M. Chairman [email protected] Authority of Libya Abougrad Centre for Stan- Dr. Dia Abou- Director [email protected] dardisation and hadra Metrology University of Eng. Dr. I.M. Rashed Wind Energy Re- [email protected] University of Al- searcher fateh National Estab- Dr. Eng. S.M. Head of Nat. Project for [email protected] lishment for Scien- Ashur Alternative Energy tific Research Centre for Solar Ahmed Aleshri Head of Planning Dep. [email protected] Energy Research and Studies Centre for Solar Mohamed Ali Head of PV Department [email protected] Energy Research Ettayef and Studies Centre for Solar Eng. Hashen I. Researcher [email protected] Energy Research Abusanuga and Studies National Oil Corpo- Mohamed Ad- Environmental Engineer ration bib National Oil Corpo- Mohamed A. [email protected] ration Elgashfi REAOL Mohamed Ali Director [email protected] Ekhlat REAOL Ramadan Ab- Researcher [email protected] diwe REAOL Youssef K. Researcher [email protected] Bouker REAOL Abdul Raouf [email protected] Tawil REAOL Mohamed D. [email protected] Sidon

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

Annex 3

Seminar Programme

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark

Methodology and Policy for Energy Efficiency and Renewable Energies Half-day Seminar - Libya, 3 October 2009, 9:00 - 13:00

Objective of the Seminar: The seminar serves the objective of the project to support RCREEE’s overall effort of providing member state administrations with better information and new planning tools and processes. The seminar will give an introduction to evidence based policy development and theory based policy evaluation for Energy Efficiency and Renewable Energy and the seminar will be used to discuss some preliminary findings in Libya.

The seminar will have the following structure:

1. Welcome, by Representative of the Ministry

2. Introduction to the Project and to the Seminar, by the project team leader, Florian Sauter- Servaes

3. Methodology: Evidence based Policy Making and Theory based Evaluation, by Nigel Lucas

4. Status of EE and RE Policies and their Development in Libya, by Mohammed Ekhlat and Niko- laus Supersberger

5. Preview on Information Workshop, December 2009, by Martin Ehrlich

6. General Discussion

Annex 4

Presentation on Methodology

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark

Evidence based policy making and theory based evaluation Nigel Lucas

Page 1 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Contents

• Evidence based policy making • Theory based evaluation • The linkages – Theory – Indicators • How we will adapt it

Page 2 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Evidence Based Policy Making?

• What is Evidence Based Policy Making? • Why do we need it? What have we been doing before - making it up? • What is evidence? • I do not have the time or resources. • Is it all I need?

Page 3 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark What is Evidence Based Policy Making?

Many different definitions, but what it really means is just:

“An approach to policy development and implementation which uses rigorous techniques to develop and maintain a robust evidence base from which to develop policy options”.

All policies are based on evidence - the questions are: •Is the evidence reliable? •Are the processes by which evidence is turned into policy fit for their purpose?

Page 4 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Why do we need it?

•Policy often driven by prejudice or short-term political pressure •Made by small groups – exhibits preferences and perceptions of this group – can be changed when group changes – may not be accepted by stakeholders - partial and unstable •Foreign consultants and agencies often prescribe remedies from home with little thought whether they are appropriate. Mimicry is not policy. •Agencies have their own agendas and visions that may conflict among themselves and with those of government •Countries need well-resourced, in-house capabilities to analyse and evaluate policy and more transparent processes

•The perceived need is more stable and robust policy with greater acceptance

Page 5 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark What is evidence?

• The evidence base must be both broad enough to develop a wide range of policy options, and detailed enough for those options to stand up to intense scrutiny. • An evidence-based approach should show continuity between foresight, strategy, policy, and implementation • Evidence does not necessarily mean hard facts like scientific data, although the objectively verifiable evidence is important • Evidence is any information that can be used to turn policy objectives into feasible and effective policy instruments • Can distinguish three main components: • hard data (facts, trends, survey information) • analytical reasoning that processes data to illuminate problems • stakeholder opinion on an issue or set of issues. • Research, analysis of stakeholder opinion, public perceptions and beliefs, cost/benefit analyses, economic and statistical modelling are important sources of evidence • Judgement of the quality of the methods that are used to gather and synthesise the information is vital

Page 6 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Evidence and time horizons

• Often we work under pressure. Can only do what is reasonable • Four options for research – Review existing research – Consult experts – Commission new research – Consider a wide range of fully costed and appraised options • Operate on different time scales

Page 7 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Reconciling evidence and time

Page 8 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Is it all I need? Nine features of better policy making

• LOOK FORWARD • LOOK OUTWARD • INNOVATE • SEEK EVIDENCE directly addressed by EBP&TBE • BE INCLUSIVE • BE JOINED UP • MONITOR directly addressed by EBP&TBE • EVALUATE directly addressed by EBP&TBE • LEARN directly addressed by EBP&TBE

Page 9 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Good evidence is necessary, but not sufficient

There are policy processes that:

Use it well Use it poorly

Use good information

Use poor information

Need evidence and process

Page 10 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark The process of evidence-based policy making (I)

Page 11 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark The process of evidence-based policy making (II)

•Impacts should be assessed in consultation with the subjects of policy •The cost of compliance needs to be assessed. Consideration should be given to how these costs can be minimized. •It is necessary to consider who pays the compliance costs; there are generally alternatives with different implications for equity. •The procedures for compliance need to be worked out and for monitoring impacts. •Quantitative analysis of impacts is essential. The analytical method most commonly used is economic cost-benefit analysis. •Cost-benefit analysis should take into account opportunity costs of energy and external environmental costs. •Multi-criteria analysis is a useful support to decision making

Page 12 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark What is Theory-Based Evaluation?

 Theory-Based evaluation focuses on analysis of the theoretical or logical sequence by which a policy intervention is expected to bring about its desired effects.  For instance, a theory-based evaluation might ask about the steps that are implicit between a policy initiative (e.g. introduction of minimum energy performance standards for electrical appliances) and the policy outcome (reducing energy and GHGs). The Figure represents the implicit theory of policy makers:

Introduction Consumer is Manufacturers Market is Energy use of MEPS empowered to are transformed and CO2 make a better incentivised to and inefficient emissions judgement and make more devices fall; change efficient become Domestic behaviour models obsolete manufacture strengthened

 The concept is similar to the logical framework for project evaluation, but because it depends on an explicit behavioural model it can handle not linear logical structures

Page 13 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Theory and the policy cycle

Foresight formulate Evidence

reformulate Theory Implement

Model

Indicators

evaluate monitor

Page 14 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark

Alternative theories

Introduction Consumers are Manufacturers Market is Energy use of MEPS indifferent to are obliged to swamped by and CO2 energy use – make more poor quality emissions buy only on efficient smuggled rise; price models goods domestic manufacture falls

 Failure to be clear about the causal sequence by which a policy is expected to work can result in poor and even contrary outcomes  Theory Based evaluation does not prevent us constructing a bad model but tells us what indicators we should examine to make sure things are going well

Page 15 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Indicators

Indicators need to be established of what is expected from the policy measures. This is vital for evaluation.

Indicators should cover: •inputs, i.e. the financial, human, technical or organizational resources used in the endeavour •outputs, (objectively verifiable indicators that demonstrate the progress made in implementing the measures, e.g. the creation of a minimum energy performance standard), •outcomes (immediate effects on the regulated subject, e.g. the offer of new products and retooling of production lines) and •impacts (direct measurements of the improvements that the programme is designed to bring about, e.g. more efficient products and lower energy use).

Page 16 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Intermediate indicators

• Impact indicators tell you if you are getting the results that you wanted • Generally thought they are not sufficient in themselves • Intermediate indicators are useful and indeed necessary to verify the underlying theory

Page 17 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Indicators and the theoretical models (Labels and standards)

Indicators Causal sequence Risks Assumptions Input Output Outcome Impact  Consumer Inadequate  Standards Development of surveys show accompanying published and Manufacturers standards and  Administrative consumers and measures; supporting have confidence in supporting time and effort manufacturers consumers measures in regulatory system measures change unaware or place expectations unaffected Manufacturers  Strengthened  Range of new  New investment incentivised to manufacturing products and production make more capacity - determined by measures ($) efficient models inspection survey Consumers choose  Consumers  Administrative Low cost non- better devices; do  More purchase better time and effort compliant goods not seek non- discriminating quality products in ensuring excluded from compliant cheaper purchases – consumer and compliance ($) market goods market surveys  Lifetime cost decreases  Better capital  Electricity stock in consumption Electricity  Consumer households – decreases consumption normally pays household  CO2 emissions lowered more ($) surveys; market decrease studies  Manufacturing base strengthened

Page 18 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark The price of carbon

• 0$/tonne • 2$/tonne • 10$/tonne • 50$/tonne

• 0$/tonne $0 / kW • 2$/tonne $34 / kW • 10$/tonne $170 / kW • 50$/tonne $850 /kW

Page 19 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Who pays and how?

• Energy efficiency is win-win. No real issue – it is a sensible target of public policy intervention. Lower costs; benefits to state and company.

• Renewable energy; it is not so clear. In many instances; definitely more costly than alternatives.

• Why should Libya pay the difference?

• If not Libya then who and how? CDM? Policies and Measures (PAMs)

• Without clarity on who should be and is willing to accept the additional cost , it is hard to have entirely coherent renewable policy

Page 20 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark A toolbox for policy formulation

1. Introduction 2. Objectives and requirements for RE&EE support schemes 3. Overview of the toolbox a. Evidence-based policy making b. Theory-based evaluation c. Cost-benefit analysis 4. Case studies a. Introduction b. Regulatory framework for renewables c. Incentive schemes for solar water heaters? d. Finance through the CDM (landfill) e. Market transformation strategy for renewables (pv) f. Energy efficiency obligations g. Energy efficiency fund h. Energy audits? i. ESCOs j. Labels and standards k. Public awareness campaigns? 5. Combining instruments a. Legislation b. Agency c. National strategy 6. Technical assistance

Page 21 Tripoli: Seminar on Methodology and Policy, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark

Many thanks for your attention

Page 22 Tripoli: Seminar on Methodology and Policy, 3 October 2009

Annex 5

Preview on Training

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark

Preview of the Workshop on RE & EE Policies - December 2009 -

Martin Ehrlich

Page 1 Libya – Seminar on Methodology and Policy, Tripoli, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Contents of the Presentation

• Objective of the Project • Objective of the Training & Information Component • Audience for the RE & EE Policy Event • Modules of the RE & EE Policy Event • Programme for Senior Policy Decision Makers • Programme for Policy Analysts and Consultants

Page 2 Libya – Seminar on Methodology and Policy, Tripoli, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Objective of the Impact Assessment Project

• To achieve: – Rapid implementation of cost-effective policies and instruments – Accelerated deployment of cost effective RE & EE technologies – Through: • Increased penetration of „evidence based policy formulation” and „theory based policy evaluation” • Specific objectives of the project: – Comparative analysis of RE & EE policies – Provision of impact assessments of RE & EE policy and promotion instruments in RCREEE countries – Strengthening of the methodological basis for policy formulation – Provision of recommendations for adjustments of the policy making process

Page 3 Libya – Seminar on Methodology and Policy, Tripoli, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Objective of the Training & Information Component

• Presentation of the methodological basis: – Evidence based policy making and planning procedures – Theory based evaluation and procedures for application in practice • Country specific and regional conclusions • Recommendations regarding the policy making process • Presentation of Case Studies – Case Studies on EE promotion – Case Studies on RE promotion

Page 4 Libya – Seminar on Methodology and Policy, Tripoli, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Information Regarding the Available Project Results

• Key-documents for RCREEE countries • Country Reports with the assessment of EE & RE policies and instruments • Synthesis Report • Contacts within the RCREEE countries for networking and professional contacts • Case Studies on evidence based policy preparation and theory based policy evaluation

Page 5 Libya – Seminar on Methodology and Policy, Tripoli, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Programme for Senior Policy Decision Makers

• Presentation of the Impact Assessment Project • Scope of the project and organisation • Value of international comparative analysis • Key elements of the methodological basis for policy preparation and assessment • Need for a methodological basis • Benefits of a sound methodological basis • Short and long term requirements • Presentation of international practice • Policy making process • Policy implementation and impact assessment • Result of the country review • RE and EE policy making process • Comparison with international practicies • Policy implementation • Observations and recommendations

Page 6 Libya – Seminar on Methodology and Policy, Tripoli, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Programme for Policy Analysts and Consultants

• Presentation on methodological basis (international practice and practice in RCREEE countries) • Evidence based policy formulation • Theory policy evaluation Including: Economic evaluation of policy instruments / Integration of climate policy benefits in RE & EE policy analysis • Presentation of case studies (including the discussion of case studies prepared by participants) • Presentation of selected policy instrument • Required theoretical framework and selected approach • Result of the case study • Comment on country-specific conditions and challenges

Page 7 Libya – Seminar on Methodology and Policy, Tripoli, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Audience for the RE & EE Policy Event

• 1st day: Senior decision makers • Presentation of the Impact Assessment Project • Key elements of the methodology • Recommendation of the country & regional assessment

• 2nd & 3rd day: Policy analysts and RE & EE experts • Detailed presentation of the synthesis report and country assessments • Discussion of case studies with presentation of the methodological basis

Page 8 Libya – Seminar on Methodology and Policy, Tripoli, 3 October 2009 Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency

A project financed by the Ministry of Foreign Affairs of Denmark Modules of the RE & EE Policy Event

Morning Session Afternoon Session

 Presentation of the National Regulations and Incentives Project 1st  Presentation of International Practice  Key principles of evidenced based day  Result of the Country Review policy making and theory based evaluation

 Presentation of the Country Report  Presentation of International – Methodological basis for policy Practice in the Synthesis Report preparation 2nd – International practice – Assessment of the policy making day – Assessment of RCREEE practices process – Energy planning and political Country specific conclusions and consultation process recommendations Case study on Energy Efficiency Case study on Renewable Energy  Selected EE policy instrument  Selected RE policy instrument 3rd  Theoretical framework  Theoretical framework day  Results of the case study  Results of the case study  Country specific conditions  Country specific conditions

Page 9 Libya – Seminar on Methodology and Policy, Tripoli, 3 October 2009

Annex 6

Energy Situation in Libya

1. Libya’s Energy Mix and Demand Projections

After 20 years of underinvestment and isolation, the Libyan energy sector is experiencing a revival. In- ternational sanctions were lifted in 2003-2004 and foreign firms are now competing for access to Libya’s extensive oil and gas reserves. Energy consumption in Libya is projected to grow strongly in the future, driven largely by rapid economic growth. According to the Reference Scenario of the World Energy Outlook 2005 of the International Energy Agency (IEA), primary energy demand will increase by 28 Mtoe between 2003 and 2030, growing at an average annual rate of 3.6%. Oil will remain the dominant fuel, but the share of gas will increase from 26% in 2003 to 41% of total energy demand by 2030.

Table 24: General Information about Libya in 2008

Population GDP GDP Energy Net e n- Total Elec. CO2 (billion (PPP) production ergy Primary Cons. emissions (million) 2000 $) (billion (Mtoe) imports Energy (a) (b) (mil- 2000 $) (Mtoe) Supply lion ton- (Mtoe) nes of

CO 2) 6.2 49.6 67.4 101.6 -83.5 17.8 23.9 43.1

(a) Gross production + imports – exports – transmission/distribution losses

(b) CO 2 emissions from fuel combustion only. Emissions are calculated using the IEA's energy balances and the Revised 1996 IPCC Guidelines.

In 2006, total primary energy demand in Libya was 18 Mtoe. Per capita consumption, at about 2.9 toe, is well above the North African average of 0.9 toe. Libya does not have a large population, extensive agricultural potential or a well-established industrial base like other North African countries such as Al- geria, Egypt, Morocco or Tunisia. Libya does, however, have abundant energy resources. Given the country’s small population, 6.2 million in 2008 (Table 24) and its large oil and gas reserves, Libya’s energy situation resembles that of the small oil-exporting Gulf countries more than that of its North Af- rican neighbours. Figure 16 shows the Libyan energy mix in 2006 where oil and gas accounted for over 99% of energy demand.

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

Figure 16 Libyan Total Primary Energy Demand, 2006

The 2005 IEA Reference Scenario expects total energy demand to reach 46 Mtoe in 2030, growing by nearly 3.6% per year from 2003 to 2030. However, the fuel mix is expected to change, with the share of natural gas increasing (Figure 17). The share of gas will rise as a result of government initiatives to free up oil for export and recent upward revisions to estimates of proven gas reserves. Most of the increase in gas demand will occur in the power and water sector, where 51% of total generation will be gas-fired by 2030. The fuel requirements for water desalination will account for 23% of the increase in energy demand in the power and water sector from 2003 to 2030.

Figure 17: Reference Scenario of Libya’s Primary Energy Mix until 2030

2. Crude Oil

Libya’s proven oil reserves, totalling 43.7 billion barrels, account for ca. 40% of total oil reserves in Af- rica. About 80% of Libya’s proven oil reserves are located in the Sirte basin where currently 90% of the country’s oil output is produced. Since only a quarter of Libya’s surface has been investigated for exploration, there is a good chance for new oil field discoveries. Libya hopes to increase oil reserve estimates with incentives for additional exploration in both established oil producing areas as well as more remote parts of the country. Libya is considered a highly attractive oil producer due to low production costs and its proximity to Europe. Crude oil produced in Libya is of high quality because of its low sulphur content. Figure 18 presents the Libyan crude oil production level from 1981 to 2008. Since 2000, crude oil production has grown by 23%, reaching 1.7 million barrels per day. Libya envisages reaching a production volume of 2.3 million barrels per day by 2013. However, originally the targeted production volume for the period was 3 million barrels per day.

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

Figure 18: Libyan Crude Oil Production, 1981-2008

Libya’s oil sector is dominated by the National Oil Corporation (NOC). It has a monopoly on all oil fields and manages investments in the Libyan oil industry through Exploration and Production Sharing Agreements (EPSA). The share of international oil companies (IOC) in Libya’s oil concessions was ini- tially as high as 49%. However, recently the Libyan Oil and Natural Gas Council cut the IOC shares to 20%, which requires renegotiations of exploration contracts. Due to this development and infrastructure constraints, foreign investments, which had increased in recent years, have begun to slow again.

The geographic dispersion of Libyan oil and gas fields can be observed in Figure 19. The graph also gives an overview of existing crude oil refineries and transport infrastructures. Among the oil fields to be further exploited in the future is the Nafoora field in the east of the country. In addition, ten small exploration projects shall increase the overall crude oil output until 2010. Their reserve level is estimated to add up to 120 million barrels. From 2004-2030, cumulative investment of $41 billion will be needed in the oil sector, 89% of the money will be earmarked for upstream projects. This is due to the long time of poor maintenance and aged technology since the trade sanctions prohibited Libya to renew its oil refinery facilities.

National refining capacity totals 378,000 barrels per day, being provided by five domestic oil refineries, all owned by NOC. All refineries are in urgent need of upgrading and maintenance. Because Libya was unable to import new refining technology during the time of trade sanctions, its refining capacity is well below the design capacity. The quality of Libya’s oil products is low since existing refineries are not designed for producing low-sulphur products or unleaded and reformulated gasoline. The government introduced plans for investments into retrofitting and expanding existing refineries. In April 2008 for example, NOC signed a joint venture agreement with TransAsia Gas International and Star Petro Energy, subsidiaries of Dubai based Al Ghurair, for the upgrading and revamping of the Ras Lanuf refinery. The investments have a worth of two billion dollars.

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

Figure 19: Geographic Dispersion of Libyan Oil and Gas Fields and Energy Infrastructure

3. Natural Gas

NOC, the Libyan national oil corporation, is also responsible for natural gas production and has a monopoly on all new discoveries. As of 2008, Libya had proven natural gas reserves of 1.3 billion tons oil equivalent (toe). This amount increased significantly over the last 20 years since large investments were undertaken to investigate new deposits. The production rate of natural gas will increase faster than that of crude oil production in the near future. The IEA expects marketed gas production to rise from 6 billion cubic meters (bcm) in 2003 to 12 bcm in 2010 and then surge to 57 bcm in 2030. Cumu- lative investment requirements in the gas sector will be $21 billion in 2004-2030.

An expansion of natural gas production is a high priority for Libya as firstly the governments wants to replace oil-fired power plants with natural gas-fuelled units to free up more oil for export and secondly is looking to increase its natural gas exports, especially to Europe. To accomplish this plan, the Libyan government is looking for foreign partners. At the end of 2007, the only current exporter of Libyan gas, Eni, committed to a ten-year deal, which includes the further development of its fields to increase supply up to 3 bcm of gas. The gas is sent through the Greenstream pipeline to Italy.

4. Electricity

GECOL, the state owned company, is responsible for power generation, transmission and distribution in Libya. It owns 100% of the long-range transmission grid and 90% of the distribution grid. GECOL’s power plants produced 25.5 TWh in 2007. The installed capacity totals approximately 5,440 MW; peak demand in 2007 was 4,420 MW (see Figure 17). Energy supply increased steadily over the last years and Libya has Africa’s highest electricity generation per capita with 4,158 kWh. This is due to the very poor energy efficiency in Libya’s economy and society (see below).

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

Figure 20 Development of Produced Power and Peak Load in Libya

Energy demand rose rapidly over the last decade and the high peak demand led to many interruptions in energy supply. Currently, peak load grows at an average annual rate of 8-10% which constitutes a great challenge for Libya’s power sector. GECOL projects that peak load will reach nearly 8,000 MW by 2015.

Almost 80% of the electricity consumed is based on oil. An important goal is to alleviate the domi- nance of oil-based power production by constructing new natural-gas fired power plants. This would, at the same time, serve the objective to renew the national power plant fleet. In 2003, about two-thirds of the installed power generating capacity was more than 20 years old. Hence, the efficiency of the already installed power plants is far below the OECD standard. In 2006, the average conversion efficiency of Libyan thermal power plants was less than 29% compared to 36-40% in most industrialised countries.

To respond to the future challenges in energy generation, GECOL plans to install 10,000 MW in generation capacity until 2015. GECOL tries to realize these projects with different investors, such as European companies (e.g. Limier or Enelpower) or Arabic investors like the Kuwait-based Arab Fund for Economic and Social Development and the Jeddah-based Islamic Development Bank. All the planned power plants are equipped with mixed generation options based on steam and combined cycle using natural gas. Table 25 shows ongoing and future projects. The target fuel mix until 2016 is to generate almost 100% of the demanded electricity by natural gas.

Table 25: New Power Plants in Libya, status 2008 Under Construction Contract Awarded Planned 4,400 MW 2,200 MW 3,500 MW 750 MW – Benghazi C.C 750 MW – Sebha Gaz Plant 750 MW – Tripoli East 750 MW – Misurata C.C. 1,400 MW – T.W. Steam 750 MW – Derna Plant 312 MW – West Mountain 750 MW – Butraba 500 MW – Zwitina Gas Plant 500 MW – Tobruk Co-Gen 750 MW – Srir West Gas 600 MW – Misurata Co-Gen Plant 1,400 MW – Gulf Steam Plant

Libya’s installed grid capacity adds up to 4,350 MW. The power transmission network is completely in- terconnected and allows electricity trade with Egypt and Tunisia. GECOL aims to establish a 400 kV

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

high-voltage grid to improve power transmission. Furthermore, many feasibility studies are on their way to investigate if new connections with Algeria and Italy should be considered to export future sur- plus electricity.

5. Renewable Energy

Libya has significant wind and solar energy potential. Feasibility studies have shown that the Mediter- ranean shoreline is a good location for onshore and offshore wind parks. A wind atlas based on satellite and meteorologial stations data has been completed and published recently.

Figure 21 shows selected Libyan onshore locations that were examined to determine their wind producing capacity. The region around the city Misurata would have the highest realizable energy output. At present no projects have been installed yet. A 25 MW pilot wind project is under negotiation. Libya’s goal is to install up to level of 10 MW wind turbines until 2010.

Figure 21: Annual Energy Supply by Using Vistas V-52 Wind Turbines at Selected Locations in Libya

The German Aerospace Center (DLR) conducted a study for the whole MENA region in 2005 and analysed the potential for renewable energy. Their findings for Libya can be seen in the table below. DLR separated the technical potential from the realizable economical potential of every renewable energy source. Wind and solar radiation seem to be the most prosperous sources in Libya. The average daily solar radiation on a horizontal surface in Libya alternates in January between 2.5 and 7.1 kWh/m2.

Table 26: Technical and economic renewable electricity supply side potentials in TWh/a Hydro Geo Bio CSP Wind PV

Tech. Econ. Tech. Econ. Tech. Econ. Tech. Econ. Tech. Econ. Tech. Econ.

Libya n.a. n.a. n.a. n.a. n.a. 1.7 139,600 139,477 5,363 15 n.a. 3.9

Egypt 80 50 n.a. 25,7 n.a. 15.3 73,656 73,656 7,650 90 n.a. 36

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

Yemen n.a. n.a. n.a. 107 n.a. 9.1 5,143 5,100 8 3 n.a. 25.8

Remarks: Well docu- from 5,000m From agri- From DNI and From wind- No informa- mented re- temperature cultural (bio- CSP site map- speed and tion except source taken map consid- gas) and ping taking sites site mapping from EU. from litera- ering areas municipal with DNI> taking sites General PV ture with waste and 2000kWh/m2/y with a yield> growth rates T>180°C as renewable as economic 14 GWh/y used for cal- economic solid bio- and from lit- culation mass poten- erature (EU) tials

The region with the highest amount of solar radiation is located in the south of Libya. The accessible radiation depends not only on global radiation, cloud cover and exposition is also very important. A study by Kummel and D. Wheeler for the Center of Global Development proposes to build CSP plants in the northwest area between Ghadamis and Al Quaryah ash Sharqiyah.

1,865 kWp of PV capacity were installed in Libya in 2006. The amount is increasing significantly; especially decentralized electricity generation in rural areas is being encouraged. Photovoltaics are also used in agriculture to supply water pumps with electricity instead of using diesel. The long-term plan is to install an overall PV capacity of 10 MWp until 2010.

Figure 22: Libya’s Projected Installed Power Capacity. Source: DLR 2005

Figure 22 shows the installed power generating capacity projected by DLR in their MED-CSP study. Oil and gas will be the basis for the increasing energy supply but the share of renewable energy sources will increase significantly until 2030. The most important technologies in this development are concentrated solar power plants (CSP) and wind turbines.

The Renwable Energy Authority of Libya (REAOL) was founded to promote the development of renewable energy in Libya. REAOL has set a target to cover 10% of Libya’s energy supply from renewable energy resources by the year of 2020 and 30% by 2030. In order to meet these objectives, REAOL has developed a roadmap for the expansion of renwable energy production capacity (see Fig- ure 17). REAOL handed the roadmap over to the Ministry of Electricity and Energy. The ministry, which has been disbanded in 2008, approved the roadmap.

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

Figure 23: REAOL roadmap for renewable energy expansion in Libya

6. Energy Efficiency

Figure 24 illustrates the Libyan energy intensity in comparison to other countries in the MENA region. Libya ranks fifth, showing a relatively high energy intensity.

Figure 24: Libya’s Energy Intensity in 2005 Compared to Other MENA Countries

Among the most important reasons for this are high energy consumption of cooling devices and low

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

energy efficiency standards of electric appliances in the residential sector. Besides these points, M. Éclat et al. 2007 give the following reasons:

• Low electricity tariffs, especially for the residential sector; • Cheap oil prices for transportation; • A lack of national policy towards the conservation of energy; • A lack of national institutional knowledge about energy efficiency; • A lack of detailed studies to advise regional decision makers.

GECOL tries to improve energy efficiency by introducing a demand side management (DSM) system for their electricity grid. The goal of the DSM system is to reduce the peak load of electricity demand by: • Introducing codes and standards; • Changing customer behaviour; • Changing the used technology (e.g. thermal storage, heat pumps); • Using pricing as a ruling tool (reduce subsidies).

Besides its plan to implement a DSM system, GECOL has developed a strategy to improve energy efficiency. The most important steps of this strategy are:

• The development of sector level load curves for eight major sectors during two seasons and day types based on detailed metering. The results shall be disaggregated into end uses based on metering and monitoring. • Conduct an assessment of Libya’s DSM potential and create DSM measures for Libya. These should take different perspectives like cultural issues, weather or marginal energy costs into account. • Set up pilot programs for three customer sectors. Determine the cost reduction potentials and identify technology and market barriers. • Design of long-term measures like codes or standards and their communication to the users. • Establish pilot projects for seven additional sectors based on the experience of previous pilot projects. • Design and conduct long-term evaluations which analyse energy and demand impacts, cost- effectiveness and the environmental impacts of certain energy efficiency measures. • Conduct capacity building measures to improve the understanding on energy efficiency, including training sessions to increase technical skills and knowledge.

Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

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Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc

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Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Libya Libya.doc