AFGHANISTAN ENERGY STUDY ENERGY SECURITY TRADE-OFFS UNDER HIGH UNCERTAINTY Resolving Afghanistan’s Power Sector Development Dilemma Defne Gencer, John Irving, Peter Meier, Richard Spencer, and Chris Wnuk AFGHANISTAN ENERGY STUDY ENERGY SECURITY TRADE-OFFS UNDER HIGH UNCERTAINTY: Resolving Afghanistan’s Power Sector Development Dilemma Defne Gencer, John Irving, Peter Meier, Richard Spencer, and Chris Wnuk © 2018 International Bank for Reconstruction and Development/The World Bank 1818 H Street NW, Washington, DC 20433 202-473-1000 | www.worldbank.org Some rights reserved. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Cover photo: ©2008 World Bank/Taimani Films Contents Foreword . vii Acknowledgments . viii Abbreviations and Acronyms . ix Executive Summary . xiii 1 Introduction . 1 1.1 Power Sector Planning in Afghanistan ................................1 1.2 Objectives and Scope of this Study ....................................3 2 Afghanistan’s Power Sector development Dilemma . 7 2.1 Institutional Setting in the Electricity Sector . 7 2.2 Power Supply and Demand Over the Past Decade . 8 2.3 Trade with Neighboring Countries ...................................11 2.4 Power Sector Development Vision . .12 2.5 Energy Security Concerns and Decision Making in the Sector . .15 2.6 Environmental and Social Concerns and Decision Making . 17 2.7 Dimensions of Uncertainty In Decision Making in Afghanistan . .21 2.8 Consequences of Uncertainties for Power Planning . 27 3 Case Studies . 31 3.1 Planning for Hydro Projects . .31 3.2 Planning for Coal for Power Generation ..............................33 3.3 Planning Domestic Thermal Generation Using Gas ...................36 3.4 Transmission Planning ..............................................40 4 Conclusions and Recommendations . 43 4.1 Decision Making Under Uncertainty .................................43 4.2 The Limits of “Predict-then-act” Planning . .43 4.3 Energy Rather than Power Sector Planning ...........................44 4.4 Hydropower Planning ...............................................45 4.5 Coal for Power Generation . 45 4.6 Gas Power Generation Planning .....................................46 4.7 Transmission Planning Strategies . .46 Bibliography . 47 iii Annexes 1 Methodological Considerations . .53 2 Case Study—Hydropower Project Development . .71 3 Case Study: Developing Afghanistan’s Coal Resources ......................................91 4 Case Study: Thermal Generation Options ................................................ 121 5 Case Study: Transmission Planning ...................................................... 137 6 Glossary ................................................................................ 161 7 Workshop Participants . 163 Boxes A2.1 Real Options ..............................................................................74 A3.1 Coal Requirements for Power Stations . .95 A3.2 Imported Coal .......................................................................... 102 A4.1 Gas Pricing and Conversion Factors ...................................................... 123 Figures 2.1 The Grid Systems of Afghanistan ...........................................................8 2.2 Monthly Energy Supply to the Kabul Region.................................................9 2.3 Hourly Load Curve for February 2015 . 10 2.4 Vision 2014/2015 As Seen in 2011 .........................................................14 2.5 Short-term Investment Plans 2012.........................................................22 2.6 Gas Pipeline Proposals . 23 2.7 Brent Crude Oil (ICE) . 26 2.8 Scenario Design in the APSMP Addendum . .29 3.1 Scenario Discovery ........................................................................39 A1.1 NPV as a Function of Discount Rate ........................................................55 A1.2 Comparison of NPVs as a Function of Discount Rate When GHG Damage Costs Are Included ..............................................................................59 A1.3 Supply Diversity Index: Afghanistan . .70 A2.1 Existing and Planned Hydro Projects in the Kabul/Kunar River Basins . .72 A2.2 The Seasonality of Hydro Production (SEPS+NEPS, 2025) . 73 A2.3 The Decision Tree . .82 A2.4 The Decision Tree with Learning ...........................................................83 A2.A Certainty Of Sales Of Summer Surplus To Pakistan [Timestep=1]............................87 A2.B Impact of Learning: PPA for Imports from Turkmenistan and Statement of Intent from Pakistan to Purchase Surplus Power [Timestep=2]..............................88 A2.C Lower Discount Rate (6 Percent) . .89 A3.1 Coal Resources in Afghanistan.............................................................93 A3.2 Annual Coal Production in Afghanistan....................................................94 A3.3 Geological Eras . .96 A3.4 The Timeline for Mine Development ..................................................... 103 iv A4.1 Gas Pipeline to Mazar-e-Sharif . 124 A4.2 Gas Pipeline to Kabul ................................................................... 124 A4.3 Gas Production Scenarios, MCM/day..................................................... 125 A4.4 Probability Distribution of NPVs ......................................................... 132 A4.5 Scenario Discovery . 134 A4.6 Adjustment for Stakeholder Assessments ................................................ 135 A5.1 Typical Ranges and Weighted Averages of Total Installed Costs of Utility Scale Generation Technologies by Region (2013/2014) . 142 A5.2 Proposed Interconnect Strategy with Potential CAR/Iran Exporters . 145 A5.3 Afghanistan Wind Resources . 147 A5.4 Alternative Transmission Routes to Provide Diversity in NEPS ............................. 148 A5.5 Typical HVDC Interconnection Arrangements . 149 A5.6 Uprating HVDC Interconnection from Monopole to Bipole Configuration . 150 A5.7 FACTS (Flexible AC Transmission) . 151 A5.8 Single Line Diagrams of “Single-phase Ground-return” SWS . 154 A5.9 A Rigid String Toughened Glass Insulator String with Arcing Horns, As Used in Northern Ghana ............................................................. 156 Tables 2.1 The “Robust” Generation Capacity Expansion Plan 2016–32 . 13 2.2 International Comparisons, CO2 Emissions Per Capita (2008)................................18 2.3 Cost Benefit Analysis of Illustrative Options With and Without GHG Damage Costs Included, 10 Percent Discount Rate..........................................19 2.4 Estimated Ambient Levels of Particulates, μg/m3 ...........................................19 2.5 Cost of Social and Environmental Mitigation Plans .........................................20 3.1 Net Benefits—$, millions (as NPV, 10 percent discount rate) . 34 3.2 NPV of the Exploration Program in Known Coal Fields . 34 3.3 Plausible Ranges of Uncertainty . .38 A1.1 NPV Calculations, 10 Percent Discount Rate ................................................56 A1.2 Social Value of Carbon (SVC) (in 2014 $) ....................................................57 A1.3 NPV Calculations Including GHG Damage Costs (10 Percent Discount Rate) . .58 A1.4 International Comparisons, CO2 Emissions Per Capita (2008)..........................................................................59 A1.5 Estimated Ambient Levels of Particulates, μg/m3 ...........................................60 A1.6 Cost of Social and Environmental Mitigation Plans .........................................61 A1.7 The Risk Dimensions of Energy Security....................................................69 A2.1 The Hydropower Projects in the “Robust” Generation Capacity Expansion Plan Recommended by the APSMP..............................................................73 A2.2 Hydro Versus Gas Engine Generation at Sheberghan: LCOE Comparisons at 10 Percent Discount Rate..................................................................76 A2.3 APSMP Assumptions: Average Monthly MW................................................77 A2.4 Hydro Versus Gas Engines: Comparison of Net Benefits .....................................78 v A2.5 Uncertainties .............................................................................81 A3.1 Levelized Cost of CBM Production........................................................ 111 A3.2 Cost of Imports and Coal Generation Under Different Assumptions ....................... 113 A3.3 Net Benefits,