ren strategy - executive summary_final

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MINISTRY OF ELECTRICITY AND ENERGY

THE REPUBLIC OF YEMEN

GENERAL DEPARTMENT FOR RENEWABLE ENERGY

NATIONAL STRATEGY FOR

RENEWABLE ENERGY

AND ENERGY EFFICIENCY

June 2009


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1 Executive Summary of the National Strategy for RenewableEnergy (REN) and Energy Effic iency (EE)

1.1 Key Power Sector IssuesThe Power Sector in Yemen is mainly focussing the following generation challenges:

High demand growth rate

o High peak demand case: projected peak demand of 3,181 MW in 2025from current peak demand of app. 1,485 MW

Limited natural gas supply for domestic utilization (not committed for export)

o Power Generation Master Plan projects 2858 MW gas turbine capacity in2025 (96% of the national generation capacity)

o Uncommitted proven reserves can only sustain 1154 MW for 25 years

o Uncommitted proven and probable reserves can support 1745 MW for 25years

Capacity shortage in 2025 ranges between 1,177 2,158 MW and translates intoan electricity generation gap between 7,888 14,462 GWh1.

1.2 Supply Options

Options to meet these challenges and generation shortage include:

Interconnection with the national grids of neighbouring Arab and East-Africancountries

o Least likely short-term option as such proposed regional projects requiretime consuming bilateral or multi-national negotiations and introduce amid-term dependency from electricity imports, but

o Important long-term strategic option in order to export carbon-free GreenElectricity generated by REN technologies, not only to neighbouringcountries but in the future even to Europe (Solar P lan of the EU)

Diesel power generation

o Least likely option since the cost of diesel generation is higher thanalternative options and depends on import of diesel.

Natural gas generation

o Least likely option because of its dependence on the discovery andconfirmation of additional natural gas reserves.

o Reallocations from existing and future export commitments is unlikely asdue to dwindling oil reserves, natural gas could play an important sourceof government revenues in the future.

1Depending on different demand forecast scenarios under a business as usual approach without

introducing proposed REN and EE measures.

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eliminate peak and energy shortages faced by the electricity sector through thepromotion of renewable energies as well as through improved energy efficiencyand conservation among main consumer classes,

alleviate the impact on the poor of future rising fuel and electricity prices by

promoting energy efficiency and conservation initiatives,

promote sustainable electricity sector development by creating and opening upthe Yemeni electricity market in the field of renewable power generation andpower distribution in rural areas, to foreign and private investors (IndependentPower Producers) as well as to various non-governmental institutions to providerenewable energy services in rural areas (Rural Energy Service Providers).

1.4 Proposed renewable energy and energy effic iency targets

Grid electricity (large scale electricity generation)o High market penetration scenario 20% of generation mix in 2025 (3467

GWh)

o Baseline scenario 15 % of generation mix in 2025 (2600 GWh).

This translates into an overall ins talled capacity in the year 2025 of

400 MW from wind farms3

160 MW from geothermal power stations and

6 MW from power stations using landfill gas

o Low market penetration scenario 10% of generation mix in 2025 (1733GWh)

Off-grid electrification (electrification of individual rural Households-HH)4

o High market penetration scenario 160.000 rural HH (65% of identifiedmarket potential) to be electrified Solar Home Systems until 2025(installed capacity app. 8 MWp)

o Baseline scenario 110.000 rural HH (45% of identified marketpotential) to be electrified Solar Home Systems until 2025 (installedcapacity app. 5.5 MWp)

3Assuming that the generation capacity based on fossil fuels can be accelerated beyond PECs

master plan for generation also the installed capacity of wind farms will be increasedcorrespondingly but should not contribute to more than 15% of the overall installed generationcapacity in the interconnected national grid. Only interconnection with the grid of neighboringcountries will allow to significantly un-lock the countrys enormous renewable energy potential.4This off-grid electrification target stems from the National Rural Electrification Strategy which will

be implemented by the Public Authority for Rural Electrification (PARE). Due to the fact that itaims at the dissemination and promotion of renewable energy systems it was decided to integrateit into the Executive Summary of the overall National Strategy for REN and EE.

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o Low market penetration scenario 60.000 rural HH (25% of identifiedmarket potential) to be electrified with Solar Home Systems until 2025(installed capacity app. 2.5 MWp)

Energy Efficiency

o High Market penetration scenario 20% increase in energy efficiency inthe power sector until 2025

o Baseline scenario 15 % increase in energy efficiency in the powersector until 2025

o Low Market penetration scenario 10% increase in energy efficiency inthe power sector until 2025

Solar Water Heaters

o High market penetration scenario 60% of market potential in 2025

(300,000 units) representing a saving potential of 686 GWh

o Baseline scenario 40 % of market potential in 2025 (200,000 units)representing a saving potential of 457 GWh

o Low market penetration scenario 20% of market potential in 2025(100,000 units) representing a saving potential of 229 GWh

Once Concentrated Solar Power (CSP) generation gets economically viable due toincreased accumulated generation capacity installed worldwide it is recommended toimplement a 100 MW CSP station in Yemen.

As the CSP technology can contribute to partially cover the base load demand in the

future, regardless of the current prices the MEE will immediately start to identify the mostpromising areas and develop at least three CSP projects beyond pre-feasibility stageand will try to source donor funding to buy down the economic cost of generation andaccelerate implementation.

After carrying out a reassessment of the potential ofbiogas units on the rural householdlevel a national program for the widespread dissemination of biogas digesters will bedeveloped if deemed to be viable. The implementation of such a program would bemanaged either by PARE or another concerned governmental institution to bedetermined during the course of such a feasibility study.

Given the challenging boundary conditions during and after the recently kick-startedreform process in the power sector prescribed by the electricity law it is recommended toset the renewable energy and energy efficiency targets according to the baselinescenario as presented above.

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1.5 Strategies to Remove Barriers and Promote Renewable Energies andEnergy Effic iency

To achieve the above targets, the MEE has formulated strategies that enhance marketdeployment of renewable energy technologies and energy efficiency measures as well

as remove barriers to renewable energy development and energy conservation in thecountry.

Seven strategic areas of intervention were identified and the above barriers wereclassified according to these strategic areas:

Policy

Resource utilization and market access

Financial and fiscal incentives

Financing

Institutional arrangement

Information and capacity building

Legal framework

Strategic measures to remove these barriers were elaborated which represent the maincomponents of the strategy for renewable energy and energy efficiency. These aresummarized in Table 1-1.

Table 1-1: Components of the Renewable Energy and EE Strategy

Strategic Area Barriers Strategic Measures

1. REN and EEPolicy

Lack of REN andEE PolicyFramework

Adoption of REN and EE pol icy ob jecti ves and targets

General REN policy objectives:

optimize the utilization of domestic renewableenergy resources to prevent dependence fromfuture energy / electricity imports

diversify the countrys energy mix by increasingthe share of renewable energies (REN) inelectricity generation (both grid and off-grid),

ensure poverty alleviation, sustainable ruraldevelopment and economic growth by promotingaccess to decentralized renewable energyconversion technologies

eliminate peak and energy shortages faced by theelectricity sector through the promotion ofrenewable energies as well as through improvedenergy efficiency and conservation

alleviate the impact on the poor of future rising fueland electricity prices by promoting energyefficiency and conservation initiatives

promote sustainable electricity sector development

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by creating and opening up the Yemeni electricitymarket in the field of renewable power generationand power distribution in rural areas, to foreign andprivate investors (Independent Power Producers)as well as to various non-governmental institutionsto provide renewable energy services in ruralareas (Rural Energy Service Providers)

Renewable Energy and Energy Efficiency targets:

Grid electricity

Baseline scenario 15 % of electricity generationmix in 2025 (2600 GWh)

Off-grid electricity

Baseline scenario electrification of 110 000 ruralhouseholds with individual solar home systems(SHS) in 2025 amounting app. 5.5 MWp ofinstalled capacity and 45% of market potential(corresponding strategy to be implemented by the

Public Authority for Rural Electrification PARE)Solar water heaters

Baseline scenario 40 % of market potential in2025 (200,000 units installed)

Energy Efficiency

Baseline scenario 15% increase of energyefficiency in the power sector until 2020

2. RENResourceUtilization andMarket Access

No specific agencyresponsible forpromotion andcoordination in the

field of REN and EE

Lack of REN accessframeworks

MEE to act as the leading governmental agency forthe promotion of grid-based REN generationtechnologies and EE

PARE to act among other tasks as the sole nationalagency for the promotion of REN technologies fordecentralized off-grid electrification

Creation of an inter-ministerial committee forenergizing rural development (Ministry of Education,Ministry of Public Health and Population, Ministry ofLocal Affairs, Ministry of Agriculture, Ministry of Waterand Environment as well as Social Fund forDevelopment , Public Works Project and EnvironmentProtection Authority)

Elaboration of a REN Resource Area DevelopmentPlan

identifying and prioritizing geographic locations inYemen with high practicable potential for electricitygeneration from REN and

registering the most important REN resource areasat the Land Authority earmarked for RENgeneration projects and turning it intogovernmental property wherever possible

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Lack of technicalstandards for gridconnection of RENprojects

Lack of a nationalsolar water heaterprogram

Lack of a nationalbiogas program forrural households

Lack of technicalstandards for EE

Establishment of an IPP Framework for REN projectsspecifying

5,

Procedures for REN resource area contracting

land lease agreement,

power purchase tariff options (technology based,either negotiated or feed-in tariff scheme).

Technical standards for grid-connection (grid-code) tobe elaborated together with PEC and to be integratedin the standardized power purchase agreements(chapter 3 of the REN and EE Strategy report)

Development of a solar water heater MarketTransformation Framework encouraging localproduction and employment including deliverymechanisms and financing schemes (chapter 5 of theREN and EE Strategy report)

Assessment of the potential of biogas digesters on thehousehold level in rural areas and elaboration andimplementation of a national biogas programpromoting the local production and subsidizeddissemination of biogas digesters

Specification of energy efficiency standards, labelsprotocols, codes of practice and other criteria forenergy efficiency and conservation

3. Financialand FiscalIncentives

High upfront costs

Lack of financialand fiscal incentivesfor the promotion ofREN and EE

Application of existing Investment Law incentives(income tax holidays, import duty exemption, etc) forall renewable energy projects implemented by privateinvestors and the government

Proposed additional measures include:

soft loans,

grid connection costs to be absorbed by PEC(future Corporation for Transmission),

free land-use (to be specified in the land-leaseagreement),

subsidies on project studies, resource explorationand measurement (to be financed through theREN Fund).

Technology specific and scale dependent feed-in tariffscheme for renewable energies to be developed and

approved after successful implementation of the firstpilot demonstration schemes

Formulate and approve regulations for custom and tax

5MEE will sign a Memorandum with project developers to further investigate the identified

renewable energy resource area. Each developer will be given two years to conduct resourcemeasurement activities and project studies. At the end of the second year each developer mustsubmit a proposal for power development. If the developer fails to submit a proposal, MEE willoffer the site to another renewable energy power developer.

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Insufficientremuneration of civilservants

Lack of financialand fiscal incentivesfor the promotion ofEE and DSM

exemption for small scale renewable energy systemsapplicable in the field of rural development

All renewable energy projects to be developed with acarbon financing component (Clean DevelopmentMechanism - CDM) to be registered at the EPA.

Establishing an attractive remuneration scheme in theREN/EE sector to facilitate recruitment of skilled andhighly motivated employees

Provision of fiscal incentives and disincentives throughtariffs and taxation to promote energy efficiency andconservation

(Chapter 4 of the REN and EE strategy report)

4. Financing Lack of financing tosupport andpromote REN and

EE

Establishment of a Renewable Energy and EnergyEfficiency Fund to be managed under the MEE toprovide financing for smart subsidies, demonstration

projects and barrier removal activities

Implementation of credit schemes through a revolvingfund to be managed under the PARE in order toenable poor rural households purchase REN systemsespecially for lighting (initially being implementedunder the recently approved Rural Energy AccessProject at PARE)

(Chapter 6 of the REN and EE Strategy report)

5. InstitutionalArrangement

Lack of institutionsand lack ofcoordination on the

national, regionaland internationallevel

Improve the institutional set-up within the power sectorenabling it to play the required role in effectivelypromoting REN and EE

Phased institutional approach at the MEE:

Immediate creation of a General Department forREN and EE in the MEE with units for

o Wind energy

o Solar energy

o Geothermal energy

o Policy, Planning, Regulation (includingClean Development Mechanism - CDM)

o Investment Promotion, Public Relationsand Donor Fund Raising

o Energy Efficiency and Demand SideManagement

Creation of a separate sector for REN and EE inthe MEE headed by a Deputy Minister within 3years

Creation of a separate Authority for REN and EEunder the MEE within 5 years

Creation of a off-grid directorate under PARE beingresponsible for managing the national Solar HomeSystem Program as well as the

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Through the MEE the GoY joins at least one regional(Regional Centre for Renewable Energy and EnergyEfficiency - RECREEE) and one internationalorganization (International Renewable Energy Agency)for the promotion of Renewable Energies and EnergyEfficiency


6. Informationand capacitybuilding

Lack of awarenesson REN and EEamong investorsand households

Lack of technicalskills and capacities

Lack of support toresearch anddevelopment

Establishment of one-stop information and investmentpromotion centre at MEE in close coordination with theGeneral Investment Authority (GIA).

Increase public awareness about the national Strategyfor REN/EE through the implementation of publicawareness campaigns

on the national Solar Home System (SHS)program during the implementation of RENprojects in rural areas (to be carried out by PARE)

regarding the economic feasibility and poitive

impacts on household budgets through replacingelectrical heaters by solar water heaters

preparation of suitable awareness material for differenttarget groups to explain the working principles of RENSystems and to promote the economic benefits ofproposed energy efficiency measures

Creation of a national training centre for REN/EEwithin PECs Dahban Training centre to carry outcapacity building programs in the field of REN/EE totest and licence REN equipment and to certify energyefficient products

Formulation of capacity building programmes to meetthe needs of staff within the power sector as well asother national stakeholders

Preparation of special REN/EE training programsfor the staff being involved in the implementation ofthe REN/EE Strategy

Preparation of training programs for engineers andtechnicians in the field of design implementationand maintenance of REN systems

Collaboration with national knowledge centres andregional and international agencies in implementingcapacity building activities

Support to knowledge centres in undertaking appliedresearch to be financed through the REN Fund


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7. LegalFramework

Lack of REN legaland regulatoryframeworks

Adoption of a renewable energy by-law

Integration of REN legal and regulatory frameworks inthe executive regulations of the Electricity Law or therenewable energy by-law


Whenever possible, especially large-scale renewable power generation projects will bedeveloped and implemented through IPP schemes.

In order to increase investors confidence and to demonstrate that the required legal andinstitutional framework has been put in place by the GoY the first renewable energyprojects will be financed by the GoY together with international donors but also allowingand enabling Public Private Partnerships (i.e. creation of completely or partiallygovernment owned special purpose companies for the operation of REN power stations)and as such simulating future IPP conditions.

The guiding principle in the implementation of the rural development component of theStrategy for REN and EE is to create an enabling legal framework to attract foreign andprivate investors and to enable public private partnerships in the field of electricitygeneration, provision of local electricity services (Service Providers) as well as energyefficiency and conservation through:

Creation of an enabling investment climate for private investors and cooperativesin the field of decentralized power generation

Provision of an effective institutional framework to manage and operate ruralelectrification systems by Rural Electric Service Providers (especially consumerowned cooperatives) through the Public Authority for Rural Electrification(PARE)

Provision of market based conditions for the private sector to participate inmanaging and operating rural electrification systems and ensure consumerprotection (quality of service and regulated electricity tariffs)

1.6 Renewable Energy and Energy Effic iency Action Plans

Based on the above strategies, the MEE has elaborated a 10-year Action Plan andestimates of costs of activities to be pursued in order to implement the strategic barrierremoval measures. These activities are categorized into the following6:

Action plan to establish enabling framework

Wind energy action plan

Geothermal energy action plan

Concentrating solar power action plan

6The action plan for the implementation of the National Solar Home System Program is an

integral part of the recently approved multi donor financed Rural Energy Access Project (REAP)being implemented at PARE and was therefore not included in this action plan.

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Solar water heater action plan

Energy efficiency action plan

This action plan does neither include reoccurring operational cost of the GeneralDepartment/Sector and later Authority for REN and EE nor the required investment for

the implementation of the first demonstration schemes but is limited to the cost related tofinance barrier removal activities only. The components of these action plans and theircost estimates are summarized inTable 1-2. It is anticipated that these cost can bepartially covered by grants for technical assistance from multi-and bilateral donors.Nevertheless substantial commitment from the GoY is crucial to raise such additionalfunding.

Table 1-2: REN/EE Action Plan Activities and Cost Estimates for the period 2010-2020

Act iv it ies USD (mill ions)

1. Action Plan to Establish Enabling Frameworks

A. Policy Objectives (study has been carried out)

B1. Institutional arrangement (creation of an REN / EE Authority)

B2. Establishing REN/EE Training Centre in Dahban

C. Incentive mechanisms (study has been carried out)

D. REN Fund (Institutional and Operating Arrangement for Renewableenergy Fund Study)

E. Legal Framework (draft legislation has been prepared)

F.1 One Stop Information Centre Establishment

F.2 Investment Promotion and Awareness Raising

F.3 Road Show and Investors Summit

G. Collaboration with Knowledge Centres

Subtotal

-

0.300

0.200

-

0.200

-

0.100

0.200

0.250

0.200

1.450

2. Wind Energy Action Plan

A.1 Policy Objectives

B.1 List of priority sitesB.2 Wind measurement and wind atlas update (6 stations)

C.1 Feed-in Tariff Study

C.2 Power Purchase Agreement (PPA)

C.3 Bidding Documents

C.4 Tendering and Evaluation

C.5 Land Lease Agreement

D.1 Demonstration Project

E.1 Study visits

E.2 Assessment and Measurement Training

E.3 Training Workshops

Subtotal

-

0.0500.500

0.100

-

-

1.000

0.025

-

0.100

0.100

0.100

1.975

3. Geothermal Energy Act ion Plan7


B.1 List of Priority Sites (already carried out by GSMRB / BGR)

B.2 Resource characterization (up to 6 sites)

B.3 Exploration and reservoir assessment (governmental contributiontowards reservoir assessment carried out by int. investors)

B.4 Pre-feasibility Study of Geothermal Demonstration Project

-

-

1.200*

1.450

0.200

7To be disbursed by and through the Geological Survey and Mineral Resources Board (GSMRB)

of the Ministry of Oil and Mineral Resources

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C.1 Feed-in Tariff Study

C.2 Power Purchase Agreement (PPA)

C.3 Bidding Documents (included in C2)

C.4 Technical Assistance in Tendering and Evaluation

C.5 Land Lease Agreement (included in C2)

E.1 Study visits

E.2 Assessment and Measurement Training

E.3 Training Workshops

Subtotal

0.100

0.200

-

0.400

-

0.120

0.100

0.100

3.870

4. Concentrating Solar Power Action Plan


B.1 List of Priority Sites (included in B.2)

B.2 Resource Measurement (3 sites)

B.3 Energy yield analysis and pre-feasibility study

C.1 Study visits

C.2 Trainings

Subtotal

-

-

0.100

0.500

0.050

0.050

0.700

5. Solar Water Heater and Biogas Action Plan

A. Policy (included in B)B. Market transformation

C. Develop National Program for Biogas digesters

D. Capacity building

E. Awareness Raising

Subtotal

-0.200

0.100

0.250

0.300

0.850

6. Energy Effi ciency and Demand Side Management

A. Policy (study has been carried out)

B. 3-years EE and DSM Action Plan (study has been carried out)

C. Energy Audits and Load Research

D. Awareness Raising and Training

Subtotal

-

-

0.170

0.300

0.470

TOTAL 8.765

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