P -- pI )' I II( ) PoCrtugall:Issues and O)ptions in the Energy Sector Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Report of the Joint UJNDP/WorldBank EnergySector Assessment Program 1 l1s (1O WIneint hd', a ddstrier( l)ultlon It, (ontents rnay not he d1iscloserd wilhout aiithorizathi,n imoti th(e Governmont, the UNDIP or th, VVorldi Bank. Public Disclosure Authorized J I t 4T I INI)/PW(,I. I) 8A;K: I I i.I'(;Y SI-()1 AS';I:;;SXM Ni' 1)ROc () A,I f'} cccl ty D.ctI No, I ud(on C- i .VI I I 19').t1 3.54 3-1 NI) .I1. 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J une 19 83 4462-FIJ, *-o0oionur Ltsa nlds Juitne 198:S 4404-SOL So n (guI JIol Y 19 83 4 182-SE, UJgaIn1dI JuI y 1983 44 53-IJ'; Stdnl 11 Jul y 1383 451 1-SU Ni g a AugusL 1981 4440-UN1 L'PR] August 1983 4474-Nl.P lhe Gambhi a1 NoV6omb1her 1983 4 7A 3-GM l'e rU J:cnitniry 198/i 4b77-PI, (,oSt ; Rica Janua ry 19814 4 56)-CR l-oSot ho Ianiiary 1984 4676b-1S(u S(evchel Ies Jarni ry 1984 4693-SIEY Niger .larc h 1984 4 642-N 1.R Hloro e o IMarei 1984 4 1 57-1mR FOR OFFICIAL USE ONLY Report No. 4824-PO PORTUGAL ISSUES AND OPTIONS IN THE ENERGY SECTOR April 1984 This is one of a series of reports of the Joint UNDP/World Bank Energy Sector Assessment Program. Finance for this work has been provided, in part, by the UNDP Energy Account, and the work has been carried out by the World Bank. This report has a restricted distri- bution. Its contents may not be disclosed without authorization from the Government, the UNDP or the World Bank. AESTRACT Portugal's high energy import bill is a serious constraint to the development of its industrializingeconomy. The Government has made an impressive attempt to deal with the problem in its draft 1980-2010 national energy plan, which provides a sophisticated, flexible policy instrument. As agreed with the Government, the present report focuses on four specific issues in energy planning which have considerable bearing on the size and composition of the energy investment program: (a) the key assumptions underlying energy demand projections; (b) the level and structure of domestic energy prices, in view of their influence on energy demand and supply; (c) the comparative advantage to Portugal of importing liquified natural gas (LNG) as a substitute for petroleum products; and (d) the potential for improving energy efficiency in the transportation sector. The report makes a number of recommendations regarding the energy demand projectionsand the least-cost investment solution. Other recommendatd.onsinclude: (a) postponement of a final decision on the proposed LNG import scheme until the gas option has been more thoroughly evaluated; (b) closer alignment of relative retail prices for gasoline and gas oil; and (c) various administrative, technical, and fiscal measures to improve energy efficiency in the transportationsector. PREFACE 1. This report is not intended tc present a comprehensive assess- ment of the energy sector in Portugal. A large amount of work already has been done by the Portuguese with the assistance of the U.S. Depart- ment of Energy, 1/ culminating in the draft national energy plan of 1982, the subject of the present assessment, and by the Bank in connection with its own lending operations. Moreover, it should be emphasized that the level of technical expertise in Portugal is very high compared to most of the countries in which the Bank operates. For these reasons, it was decided, during discussions with the Government on the scope and purpose of the present assessment, that an across-the-boardapproach was neither necessary nor appropriate. 2. The mission and the Government agreed that the energy assess- ment could make a specific twofold contribution: (a) a second opinion on the major assumptions made in the 1982 draft energy plan which are crucial in determining the size and composition of the energy investment program, and (b) a review of important topics which the Government believes were not adequately covered in the plan, by reason of time constraints or lack of data. The timing of the assessment was considered particularly propitious as the plan document was under revision and it was expected that the assessment would contribute to the ongoing revision by pointing out the major issues and options warranting further study. 3. This report primarily addresses the following issues in the draft national energy plan and energy planning, as agreed with the Government: (a) the key assumptions used in the energy demand projections, with particular reference to the electricity projections, given the dominance of electric power in the energy investment program (two-thirdsof proposed 1983-1995expenditure); (b) the level and structure of existing energy prices, in view of their influence on energy demand and supply; (c) the comparative advantage to Portugal of substituting imported natural gas for petroleum products, with particular reference to the liquified natural gas (LNG) program in the draft energy plan and feasible gas alternatives;and (d) the potential for energy savings in the transportation sector, where there is no effective national conservation policy at present, despite the fact that the sector is second in importance only to industry in both petroleum and final energy consumption. 1/ USDOE/PortugalCooperative Energy Assessment, 1980. 4. In addressing these selected issues, the assessment touches upon two important related issues in the draft energy plan. These are (a) the nuclear power program, only as it relates to the mission's evaluation of the electricity demand projections and investment program, and (b) the proposed hydrocracking facility, which is under study by Portuguese experts, in connection with the projected market for petroleum products. Issues in renewable energy development are not dealt with in detail because of work already done in Portugal which indicates wood biomass and solar flat plate collectors for water heating to be the most viable options; further studies in these areas already have been included in the ongoing Bank project for energy conservation and diversification in industry. CURRENCY EQUIVALENTS July 1983* 1 US Dollar = 121.0 Escudos 1 Escudo = 0.008 US DoLlars 1982 1 US Dollar = 78.5 Escudos 1 Escudo = 0.013 US Dollars 1981 1 US Dollar = 61.5 Escudos 1 Escudo = 0.016 US Dollars 1980 1 US Dollar = 50.062 Escudos I Escudo = 0.020 US Dollars ACRONYMS ANTR,AM National Association of Road Transport for Merchandise CARRIS Urban Transport Company of Lisbon CP Portuguese Railway DCP Departmento Central de Planeamento DFI Decision Focus Inc. (Final Energy Demand Model) DGE Direccao Geral de Energia DGGM Direccao Geral de Geologia e Mines DOOT Directorate General of Road Transport DGRAA Directorate General of Water Resource Development DGV Directorate General of Traffic ECD Empresa Carbonifera do Douro EDP Electricidade de Portugal EEC European Economic Community EMATC Energy Management Audit and Training Center ER Estrafegia de Referencia GEP Gabinete de Estudos e Planeamento do Ministerio da Industria Energia e Exportacao GPEP Cabinet for Petroleum Exploration IAEA International Atomic Energy Agency IEA International Energy Agency IAMPEI Institute for Assistance to Small Industrial Enterprises JAE Autonomous Road Authority LNETI National Laboratory for Industrial Engineering and Technology LOCAPOR Leasing Agency for Energy Conservation Equipment MEDEE2 Energy Demand Model Forecasts of Useful Energy MIEE Ministerio da Industria, Energia e Exportacao PEN Plano Energetico Nacional (National Energy Plan) PETROGAL Petroleos de Portugal * Average value dutring the month in which the Energy Assessment Mission took place. ACRONYMS (con't) PGP Petroquim:ca e Gas de Portugal RN Rodoviaria Nacional (National Road Services) VAI,ORACUA Planning Model for Hydro Based Power Systems WASP Wien Automatic System Planning (Electric Power Supply Model) ABBREVIATIONS bbl Barrel bd Barrel Per Day Btu British Thermal Unit c.i.f. Cost, Insurance and Freight C.V. Calorific Value esc. Escudo f.3.b. Free on Board ft Cubic Feet CDP Gross Domestic Product GW Gigawatt CWh Gigawatthour kcal Kilocalorie kg Kilogram kgoe Kilogram of Oil Equivalent km Kilometer kV Kilovolt kVA Kilovoltampere kW Kilowatt kWh Kilowatthour LNG Liquified Natural Gas LPG Liquified Petroleum Gas (propane, butane) LRMC Long Run Marginal Cost of Supply ml Cubic Meter t Metric Ton (tonne) MW Megawatt PWR Pressurized Water Reactor SNG Synthetic Natural Gas (from coal) toe Tonne of Oil Equivalent tpy Tonnes Per Year U3 08 Uranium Oxide WEIGHTS AND MEASURES a/ I bbl 42 US gallons or 158.98 litres I bpd 50 toe/year I BTU = 0.252 kcal 1 GWh 86 toe (heat value) or 234.8 toe (thermal replacement value) I kcalj 3,968 BTU 1 km 0.62 mixes 1rn3 35.3 ft I tonne 1,000 kg This report is based on the findings of an energy assessment mission that visited Portugal in June/July, 1983. The mission comprised Jochen Schmedtje (Mission Leader), Matthew Mitchell (ResearchAssistant), and the following consultants: Bernard Russell (Energy Demand Projec- tions and the Power Subsector), David Pearce (Energy Pricer), Jean- Philippe Pillet (Energy Conservation in the Transportation Sector), and Peter King (LNG O)ption).