Provision of Technical Support/Services for an Economical ... · Provision of Technical Support/Services for an Economical, Technological and Environmental Impact Assessment of National

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 Yemen

January 2010, revised April 2010

Norsk-Data-Str. 1

61352 Bad Homburg, Germany

Tel: +49-6172-9460-103, Fax. +49-6172-9460-20

eMail: [email protected]

http://www.mvv-decon.com

Döppersberg 19

42103 Wuppertal, Germany

Tel: +49-202-2492-0, Fax: +49-202-2492-108

eMail: [email protected]

http://www.wupperinst.org

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

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Table of Contents Page

1. Project Synopsis 1

2. Summary of Energy Situation in Yemen 2

3. Comparison of Yemeni Practice with International Practice in Energy Efficiency 4

3.1 Strategy 4

3.2 Legal Reform 6

3.3 Price Reform 6

3.4 An Agency 8

3.5 Standards and / or Labels 9

3.6 Financial Incentives 10

3.7 Obligations 11

3.8 Audits and the Promotion of ESCOs 12

3.9 Transport and Spatial Planning 12

3.10 Dissemination of Information 13

4. Comparison of Yemeni Practice with International Practice in Renewable Energy 14

4.1 Targets and Strategy 14

4.2 Legal Reform 16

4.3 An Agency 18

4.4 Standards and /or Labels 19

4.5 Financial Incentives (Capital Support) 19

4.6 Feed-in Tariffs and Obligations 20

4.7 CDM Finance 21

4.8 Information 22

4.9 Industrial Policy 22

5. Case Studies 24

5.1 Case Study 1 - Efficient Lighting in Public Buildings 24

5.1.1 Background and Context 24

5.1.1.1 Programme of Activities 24

5.1.1.2 The Lighting market in Yemen 25

5.1.1.3 Scope of the Case Study 25

5.1.2 Evidence-based Policy Making 25

5.1.2.1 Alternative Forms of Intervention 26

5.1.2.2 Base Case 27

5.1.2.3 Impacts 27

5.1.2.4 Consultation 27

5.1.2.5 Compliance 28

5.1.3 Theory-based Evaluation 28

5.1.3.1 Methodology 28

5.1.3.2 Indicators 28

5.1.3.3 Behavioural Matrix 28

5.1.4 Cost-Benefit Assessment 33

5.1.4.1 Methodology Applied and Data Basis 33

5.1.4.2 Electricity Supply Cost 35

5.1.4.3 Emission Factors 40


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Table of Contents Page

5.1.4.4 Financial Analysis 1 - Individual Investor 40

5.1.4.5 Financial Analysis 2 - Electricity Company / Programme Manager PEC41

5.1.4.6 Economic Analysis 44

5.1.4.7 Sensitivity Test - Impact of the CERs Value 44

5.1.5 Conclusion 46


5.1.5.2 Cost-Benefit Analysis 46

5.1.5.3 Programme of Action (PoA) as a Policy Instrument 46

5.2 Case Study 2 - Off-Grid PV for Rural Electrification 47

5.2.1 Background and Context 47

5.2.2 Evidence-based Policy Making 47

5.2.2.1 Alternative forms of intervention 48

5.2.2.2 Base Case 48

5.2.2.3 Impacts 48

5.2.2.4 Consultation 49

5.2.2.5 Compliance 49

5.2.3 Theory-based Evaluation 49


5.2.3.2 Indicators 50

5.2.3.3 Behavioural Matrix 50

5.2.4 Cost-Benefit Assessment 53

5.2.4.1 Methodology Applied 53

5.2.4.2 Assumptions and Data Base 54

5.2.4.3 Cost Comparison Photovoltaic vs. Gasoline Diesel Generators 54

5.2.4.4 Subsidy Level for Decentralised Electricity Supply 55

5.2.5 Conclusion 58


5.2.5.2 Results of the Analysis 58

6. Institutional Reform in Yemen – Some Possibilities 59

6.1 Reform of the Pricing System 59

6.2 Communication Structures among Institutional Bodies 60

6.3 Establish reliable Energy Statistics 60

6.4 Create basic Legal Framework for PPP 60

6.5 Broaden University Education 60

6.6 Support the Way to an independent Efficiency and Renewable Energies

Authority 61

6.7 Establishment of Standards, Labels and Audit Schemes 61

6.8 Create a domestic Industry for Efficient Appliances 62

6.9 Foster Approaches in the Transport Sector 62

6.10 Renewable Energy Target and general Legal Approaches 63

6.11 Realise Projects and Initiatives 63

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


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Figure 4: Marginal cost of electricity from gas

Figure 5: Marginal Opportunity Costs including Emergency Generation

Figure 6: Emission Factors in grams of CO2 equivalent per kWh

Figure 7. Policy Cycle.

Figure 8: Yemen’s Primary Energy Mix, 2006

Figure 9: Historical Primary Energy Consumption in Yemen, 1980-2006

Figure 10: Historical Crude Oil Production in Yemen, 1990-2008

Figure 11: Yemen’s Infrastructure for Oil Transportation

Figure 12: Historical Net Electricity Generation and Consumption in Yemen, 1980-2006

Figure 13: Electricity Consumption by Sector in Yemen

Figure 14: Primary and Final Energy Intensity in Yemen in Comparison to EU-27 and MENA

Figure 15: Benefits of DSM/EE Measures Proposed in the Action Plan of the World Bank Project

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 Information Workshop

Annex 6: Energy Situation in Yemen

List of Tables

Table 1 Estimated savings from energy efficiency in the electricity sector

Table 2 Five year programme for DSM / EE

Table 3 Prices for petroleum products in Riyal and Euros

Table 4 Electricity tariff for 2008 and 2009

Table 5: Behavioural Matrix for a PoA on efficient lighting

Table 6: Cost-Benefit Analysis - General Data

Table 7: Cost-Benefit Analysis - Electronic Ballast

Table 8: Data for the Programme of Activity (PoA)

Table 9: Financial Analysis 1 - Individual Investment

Table 10: Financial Analysis 2 - Electricity Company / Programme Manager PEC

Table 11: Variation of the CERs / Carbon Credit Value

Table 12: Economic Analysis of the Programme

Table 13: Behavioural matrix for instruments to support off-grid PV for rural electrification

Table 14: Basic Data for the Analysis

Table 15: Direct Cost Comparison - PV vs. Gasoline Generator

Table 16: Determination of Subsidy Level 1 - Decentralised Electricity Supply (PV vs. Gasoline


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Generator)

Table 17: Determination of Subsidy Level 1 - Decentralised Electricity Supply (PV vs. Gasoline

Generator)

Table 18: General Information about Yemen in 2008

Table 19: Diesel prices in Rial/l for different consumer types, 2009.

Table 20: Grid-Based Renewable Energy Technical Potential in Yemen

List of Acronyms

AFD Agence Francaise de Development

BRT Bus Rapid Transit

CCGT Combined Cycle Gas Turbine

CDM Clean Development Mechanism

CER Certified Emission Reduction

CFL Compact Fluorescent Lamp

CNG Compressed Natural Gas

CPA CDM Programme Activity

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

EE Energy Efficiency

EHV Extra high voltage

EIA Energy Information Agency

EPC Energy Performance Contract

ESCO Energy Service Company

EU European Union

g gram

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

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

LSP Letter of Sector Policy


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LV Low Voltage

MED-EMIP Euro-Mediterranean Energy Market Integration Project

MED-ENEC Euro-Med Project on Energy Efficiency in the Construction Sector

MENA Middle East and North Africa

MMBTU Million British Thermal Units

MEPS Minimum Energy Performance Standards

MV Medium Voltage

MW Megawatt

NET PV Net Present Value

NGO Non-Governmental Organisation

OCGT open cycle gas turbine

OECD Organisation for Economic Cooperation and Development

PEC Public Electricity Company

PIN Project Idea Note

PoA Programme of Activities

PPA Power Purchase Agreement

PSA Production Sharing Agreement

RCREEE Regional Centre for Renewable Energy and Energy Efficiency

RE Renewable Energy

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 estab-

lished 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 re-

newable 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 re-

gional programs: "MED-EMIP" and Phase II of "MED-ENEC". Member countries will contribute finan-

cially 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 ac-

cess 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 il-

lustrated 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 pro-

ject 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.

The Yemen was visited by the project team during 9 to 14 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 devel-

opment in the Yemen.

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2. Summary of Energy Situation in Yemen

The Republic of Yemen’s energy supply is depending to 99% on oil products and to 1% on waste (and

renewables). This is about to change, as new power generation capacity is planned on natural gas

basis. Crude oil is produced domestically to significant amounts, but production is in steep decline.

Natural gas production shows a different trend: it is still at the very beginning with total proven re-

serves of 11 tcf (310 bn m3). The largest share is reserved for exports as LNG. The rest is intended to

be used as fuel for domestic power plants and – if further reserves are discovered – other in sectors,

e.g. the cement industry.

Total generation capacity of the Yemeni electricity system is 1 GW; 700-800 MW are state-owned, the

rest is operated mainly by a British company that sells electricity at high prices to the Public Electricity

Company PEC. The urbanisation share is low in Yemen resulting in very decentralised population pat-

terns, making centralised power grids over the whole country impossible. This is a setting that favours

small-scale renewable energy technologies together with energy efficient appliances.

The major actors in the Yemeni energy system to date are the Ministry of Oil and Mineral Resources

(fossil fuels), the Ministry of Electricity and Energy (currently also responsible for renewables), the Na-

tional Petroleum Company, the Public Electricity Company PEC (selling electricity to consumers), the

Ministry of Planning (responsible for budgetary procedures as energy prices) and the Rural Electrifica-

tion Authority. There is a lack of communication and transparency among different actors in the Yem-

eni decision making process, starting with the provision of basic knowledge for decision makers.

Extensive restructuring is underway, initiated partly by pressure from international donors: PEC will be

split up into separate companies for generation, transport and distribution of electricity; Renewable

energies and energy efficiency responsibilities will be concentrated in an independent authority; sepa-

rate institutional bodies have been given responsibility for rural electrification and on-grid develop-

ment.

The Yemeni energy sector – electricity generation and grids, renewables, efficiency – is very strongly

donor-driven, which makes long-term budgetary planning difficult. In its Power Sector Development

Strategy Note of 1997, updated in 2006, the Government of Yemen (GOY) committed to a nationwide

rural electrification (RE) programme. In order to ensure that future investments in RE and renewable

energy were sustainable, the GOY requested financing from the IDA for the development of a com-

prehensive RE strategy and associated RE programmme. Preparatory market assessment studies

and capacity building measures were initiated through a GEF-funded Rural Electrification and Renew-

able Energy Development Project (REREDP) which was co-financed by other donors and the GOY.

Based on the REREDP studies, a Rural Electrification Policy Statement (REPS) was approved by the

Cabinet in July 2008.

The National Rural Electrification Strategy study identified 27 service territories in twelve governorates

for rural electric service expansion and integration into the national grid. A merit based priority ranking

for the development of these service territories was prepared and an investment programme of about

US$259 million defined. The program will result in increased access for over 520,000 new rural

households that will increase access from the current level of about 20% to about 46% of rural house-

holds and benefit more than 3.5 million people. Rural Electrification for the remaining seven gover-

norates is not considered to be viable through grid extension and, will have to depend on development

of renewable energy.

The Worldbank also supports a project on the modernisation of the Yemeni power grid including some

DSM measures. In Al-Mokha a wind power farm of 60 MW capacity is planned. Total wind power po-

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tential is estimated to be 34 GW.

The Yemeni government decided on a 15% renewable electricity target by 2025. This is a realistic

time frame and such a target is also compatible with the future electricity system requirements and ca-

pabilities (regarding loss reduction and overall stability).

Energy prices are subsidised heavily in all sectors. This impedes end-consumers' approaches of en-

ergy efficiency on a cost-effective basis in the Yemeni energy system. Reduction of subsidies is dis-

cussed in Yemen, but not taken seriously into consideration currently. The Yemeni government could

generate high revenues by reducing subsidies and introducing efficiency, as more crude oil could be

exported and sold at high international prices.

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

This section attempts to compare the present status of energy efficiency with international prac-

tice.Public policy intervenes to correct market failures, in the case of energy efficiency the most com-

mon 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 ap-

praisal. Policy instruments are intended to correct or compensate for these distortions.The most com-

mon 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.

The World Bank has financed a study on how to implement energy efficiency in the electricity sector1.

The study makes many recommendations that are compiled into a three year Action Plan, but the ma-

terial is of a rather general nature, with little specific suggestion on how to develop and implement pol-

icy instruments. There is a detailed prescription for institutional reform. The study estimates the sav-

ings that might be achieved over the three years, but avoids setting numerical targets. The estimated

savings from the programme are shown in Table 1.

1 Yemen: Energy Efficiency Institutional Framework & 3 Year DSM/EE Action Plan, Prepared for the World Bank,

by Energysolve International, March 2009

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Table 1 Estimated savings from energy efficiency in the electricity sector

Year Demand (MW) Energy (GWh) Emissions of GHGs

(1000t CO2 equiv. )

Without DSM/EE With DSM/EE Without DSM/EE

2010/11 1387 1337 9539 9396 8065 7945

2011/12 1435 1315 10493 10141 8872 8574

2012/13 1501 1283 11542 10895 9759 9212

The estimated saving in peak demand of 218 MW represents a saving of about 15% in electrical gen-

erating capacity. The savings of 647 GWH of energy represents a 5.6% saving and the saving of GHG

is similar. These are ambitious estimates, but could well be achievable with determination and appro-

priate action.

The report proposes a future 5 year programme of donor support that is reproduced in the table. We

cannot confirm donor agreement to these topics and we do not necessarily endorse the programme in

detail, but in broad terms it is an appropriate set of activities.

Table 2 Five year programme for DSM / EE

World Bank GEF UNESCWA

Institutional structure develop-

ment

Detailed audits Household sector pilot projects:

CFL/linear fluorescent/solar wa-

ter heater

DSM/EE action plan Capacity building of DSM/EE

authority

Long term awareness

Tariff revision S&L program design and im-

plementation

Improved metering

Initial awareness: large con-

sumers; utility staff; project de-

velopers; financiers

Establish a data base Pf correction of distribution sub-

stations

Load research Establish test facilities to sup-

port S&L: lamps/fans/ac/water

heaters

Rural sector loss reduction

Energy audit training & walk-

through audits

(Indus/Gov/Hotel)

Further assistance to sustain

DSM/EE initiatives

Street lighting improvements

Identify CDM links and

promote investments

Integrated resource planning

ESCO activity development +

pilot

Financial assistance ESCO

projects: revolving fund +

guarantee fund

In June 2009 the GOY approved the national strategy for RE & EE which targets a 15% increase of

EE in the power sector by 2025. However, the baseline of this target requires further specification.

Furthermore, the target is yet to be framed with effective and efficient policy measures for efficiency

improvements.

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3.2 Legal Reform

The proper implementation of energy efficiency requires an energy efficiency law that justifies the pur-

pose 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 ensur-

ing 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 Yemen and as far as we know there is no immediate intention to

develop one. The DSM strategy does not touch upon this issue.

A law may not be essential, but it would greatly clarify intentions and create a sound legal basis for

essential policy instruments, including an implementing agency, financial incentives, labels and stan-

dards.

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.

Prices for energy are fixed by Presidential Decree on the recommendation of the Cabinet. They are

subsidised to varying extents, with the largest subsidies assigned to electricity for households and die-

sel fuel. Diesel fuel is politically sensitive because it affects the cost of transport and food, because

many farmers use diesel for water pumping.

There are several prices for diesel fuel; it is sold at 17 Riyal / litre to the power system and at 35 Riyal

per litre to the local transport market; there are other prices for cement factories and other users. The

price of kerosene is also fixed at 35 Riyal per litre. Gasoline is sold at 60 Riyal / litre and Heavy Fuel

Oil, which is consumed only by PEC, is 25 Riyal / litre. The refining industry in Yemen imports diesel

and gasoline, but exports heavy fuel oil and naphtha.

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There is no clear, standardised mechanism for price reform and prices are often fixed for long periods;

those for petroleum products have been unchanged since 2005. Increases in the retail prices of petro-

leum products in that year by 70% - 100% led to serious public protest. Reducing the subsidies is one

of ten published priorities for the National Plan over the next two years and in February 2010 there

was a further increase. The exchange rate at present is 300 Riyal for 1 €, so the above prices translate

roughly as shown in Table 1.

Table 3 Prices for petroleum products in Riyal and Euros

Riyal / litre Euro cents / litre

Diesel (electricity) 17 6

Diesel (transport) 39 13

Gasoline 65 22

Kerosene 35 12

Heavy Fuel Oil 25-32 8-10

Subsidies to petroleum prices in 2007 are estimated at $4 billion, or more than 10% of GDP. The

value of the subsidies fluctuates according to the international level of prices, which defines the oppor-

tunity cost, but is on a secular increase as access to energy extends.

Nor do the subsidies benefit the poor. The Household Energy Supply and Use study conducted in

Yemen by the World Bank and UNDP in 2005 showed that 57% of the direct subsidy on diesel that is

directly used by households is captured by the two top income deciles. The LPG subsidy is also poorly

targeted: 5% is captured by the poorest decile, but 16% by the top income decile. The kerosene sub-

sidy is the most targeted, with the bottom decile capturing some 13% as against 7% captured by the

top decile. This reflects that fact that most kerosene is mainly used by the poor for cooking and light-

ing. The household study concluded that reform is required not merely in the reduction of subsidies,

but in improving their transparency, and in instituting a permanent system that automatically adjusts

prices in line with world market trends.

One option for compensating for impacts on the poor is by direct financial transfers. The Social Wel-

fare Fund (SWF) is the main targeted social assistance programme in Yemen. According to the World

Bank/UNDP study its mechanisms are highly imperfect; 4.7% of the target group received SWF trans-

fers and 57% of those benefiting were not in the target group. The design of better social protection

mechanisms is a policy measure that might complement price reform.

Another consequence of subsidised prices is smuggling. Prices are lower than the prices in surround-

ing countries; products are therefore smuggled over the land borders and across the very long sea

border. This is a loss to the Yemeni economy, but it is probable that the smuggler’s profit is spent in

the Yemeni economy. Therefore, the net economic loss to Yemen is the share of the rent that goes to

the buyer in the neighbouring country; the main effect is a transfer payment from the government to

the smuggler.

Electricity prices are subsidised in two ways. First, PEC receives fuel inputs at prices well below inter-

national prices; this is an implicit subsidy that does not appear in the state accounts. Second, the

revenues from sales of electricity are insufficient to cover the costs of production even at the subsi-

dised prices and this deficit is compensated by an explicit financial transfer from the state that appears

in the budget.

Prices for electricity to final consumers are shown in the Table for 2008 and 2009. The main difference

is the substantial increase in 2009 for commercial customers; these consumers now cover the average

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costs of supply. The customers in the lowest tariff categories pay about 1.3 euro cent / kWh, which is

well below the costs of production. The highest charges, for hotels and large commercial enterprises,

are equal to about 10 euro cents / kWh, which is probably about the opportunity cost of generation

from the gas turbines. The actual marginal cost on the Yemeni system, ignoring the value of load

shed, is about 16 – 20 euro cent / kWh. This is derived from the cost of the electric power from the

emergency power generation, i.e. 10 USc/kWh for the leasing of the generating sets and about 20

USc/kWh for the opportunity cost of the diesel used in the engines.

Table 4 Electricity tariff for 2008 and 2009

Categories Riyal / kWh

2008 2009

Urban households 0 - 200 kWh 4 4

201 - 350 kWh 7 7

351 - 700 kWh 10 10

>700 kWh 17 17

Rural households 0 - 100 kWh 7 7

>100 kWh 17 17

Small commercial 17 18

Large commercial 17 30

Hotels 17 30

Agriculture 17 18

Large industry 15 30

Cement factories 15 30

Public water pumping 15 30

Government 18 30

Urban mosques 0 - 200 kWh 4 4

201 - 350 kWh 7 7

351 - 700 kWh 10 10

>700 kWh 17 17

Rural mosques 0 - 100 kWh 7 7

>100 kWh 17 17

Again, these subsidies are regressive. The truly poor who are not grid-connected receive nothing.

Yemen has the lowest access to electricity in the region; only 40% of the population compared to the

regional average of about 85%. Of the rural population (72% of the total), only 23% have access to

electricity, compared with 85% of the urban population (28% of the total). Of the rural population with

access to electricity, only one-half are connected to the national grid system and the rest have some

access from other sources, typically a diesel generator that operates only a few hours in the evening.

The subsidies therefore favour the grid-connected predominantly urban class.

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 equip-

ment and boilers will normally be performed by special corps of inspectors already engaged in stan-

dards work. The regulator would normally enforce any specific obligation on electricity networks.

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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.

Energy efficiency is at present the responsibility of a Department within the Ministry of Electricity and

Energy. The study on DSM and EE undertaken for the World Bank proposes a transition to a separate

Authority for DSM and Energy Efficiency, and a similar Authority for Renewable Energy.

As we understand the internal Ministry structures, such a transition would first involve the creation of a

sector for energy efficiency (and possibly renewable energy) and then subsequently an Authority.

There is resistance in government to the proliferation of Authorities and there is some benefit in com-

bining responsibilities for energy efficiency and renewable energy.

Most countries have found that the assignment of responsibility to an energy efficiency agency is an

important step. It is necessary to have an independent voice combating the dominance of the energy

suppliers and pressing for appropriate regulation and reform. The Yemen has a strategy for energy ef-

ficiency, outlined above, but it has no clear policy as is evident from the discussion of policy instru-

ments below. An agency can help transform the strategy into operational policy.

3.5 Standards and / or Labels

The obligation on manufacturers and importers of equipment to label goods or to meet specified stan-

dards is a policy measure introduced to overcome the market failure caused by asymmetric informa-

tion. Potential users of equipment, faced with a choice of designs, may not have the skills and informa-

tion to understand the consequences of their choice. They may be tempted to choose low-cost equip-

ment 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 exclu-

sive; 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.

There are no performance standards or labels for electrical appliances in the Yemen. The Standards

Institute is responsible for setting and monitoring standards, but it appears that at present it does not

have the testing facilities satisfactorily to monitor basic electrical properties and safety. It is in the

process of developing such facilities.

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There is no domestic manufacture of appliances; most are imported from China and, in the absence of

controls, importers and overseas manufacturers will be tempted to dispose of low-grade and even de-

fective stock. The quality and performance of such appliances must be very doubtful. Many fake

branded goods are also imported.

It is important that standards be established and monitored. The absence of local manufacture in this

instance can be an advantage as it means goods can be tested at the point of entry, which is much

easier than at the point of sale. Some private agents already operate an informal system for detecting

and seizing fake goods at the port. Technical assistance is desirable to support a proper system of

standards and it should take into account the progress that has been made elsewhere in the region.

Ideally it should be a part of a larger project to develop a range of instruments for energy efficiency.

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 fail-

ures • The principal-agent dilemma is especially acute

The Ministry of Public Works has published and is responsible for enforcing the building code. In prac-

tice it appears that compliance is weak. In any case, there is no treatment of the thermal performance

of buildings in the code. Control, at least of large air conditioned buildings that are now becoming

more common, especially in Aden is needed. Other countries in the region have made good progress

in developing codes for thermal efficiency. Technical assistance to help transfer this practice is highly

desirable.

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 in-

vestment 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 con-

cessional 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 some-

times 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

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 in-

centive. 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 mo-

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nopoly purchasing power of the network and the distorted fuel prices.

A variety of fiscal incentives is proposed under the World Bank DSM / EE programme. These include

capital subsidies for solar water heating, incentives for the purchase of energy efficient equipment

(through tax benefits, low interest loans, accelerated depreciation) and loan guarantees for larger in-

vestments.

Evidently incentives require funding and the only practical source is from low interest loans and grants

from donors. Rather than a miscellaneous collection of incentives operated by different entities it is

preferable to have incentives implemented by an energy efficiency fund with clear rules of procedure

and transparent management. Such an arrangement might quite probably be attractive to donors.

3.7 Obligations

Another approach, which may be combined with incentives, is to oblige companies to undertake en-

ergy 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, benchmark-

ing)

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 intro-

duced. The first set comprises agreements between government and representative bodies of appli-

ance 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 agree-

ments to reduce energy use in industrial processes. Such agreements, although voluntary, may also

be a condition for financial incentives.

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 net-

work 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

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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.

No such obligations exist in Yemen at present and given the present state of PEC it may well not be

timely to introduce them.

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 audit campaign on industry and large buildings ever seems to have been conducted in Yemen.

The World Bank financed study on energy efficiency estimated that a 20% saving from industry is

theoretically possible. It recommended that the MEE encourage private sector participation in energy

services to exploit this potential, based on ESCO models, but did not give any real proposal for how to

stimulate and finance such activities in the Yemen.

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 sys-

tems and land-use decided now will influence energy use for a hundred years. In urban metropolitan

areas, transport creates a third at least of total greenhouse gas emissions. Promotion of public trans-

port options and careful design of cities is critical for reducing emissions in cities.

Most petroleum products (70%) are used for transport. Because of the subsidy to diesel many gaso-

line engines have been converted to burn diesel. The conversions have many problems, not least the

inadequate air supply and the consequent poor combustion that is inefficient and polluting.

In 2002, the import duty on cars was reduced from 130% to 5% in order to combat dual problems of

very old cars on the road and massive smuggling from neighbouring countries. This in turn caused a

massive explosion in car ownership. Import restrictions on old cars were imposed in 2003; it is forbid-

den to import cars that are more than 5 years old. Many users prefer large four wheel drive cars be-

cause of the mountainous terrain and the poor roads.

Some testing centres have been established in the five largest governates and relicensing if cars older

than two years is now conditional on an annual inspection. The tests include emission controls. The

number of centres is well below what is required to handle all the vehicles in Yemen and the compli-

ance rate is estimated at around 34%, but it is a good start and should be sustained.

Public transport is not well organised. Most trips within cities are made using small private buses and

taxis. Large buses are used only between governates. Rationalisation of routes could reduce energy

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use,

A transport strategy has recently been submitted to the Cabinet by the Ministry of Transport and it is

expected to be approved in November 2009. The main objective is to reduce congestion rather than to

improve efficiency or to protect the environment. Some measures have already been taken; brides

have been built at busy intersections and some one-way streets have been created.

The extent of land use planning varies across the country. In Aden there is an effective zoning of de-

velopment according to a 10 year plan; much of the land is government owned. In Sanaa, land is pri-

vately owned and there is almost no control of development either legally or practically.

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.

The dissemination of information to users is normally a simple and cost-effective measure that can be

undertaken by government. Much information has been produced in the past few decades by donor

agencies that could be relevant to Yemen. There seems to be no campaign or systematic effort to in-

form users how to reduce consumption. The low tariffs tend to discourage energy efficiency and un-

dermine the case for public information and awareness programmes.

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

This section attempts to compare the present status of renewable energy policy in Yemen with inter-

national 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 gener-

ated 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 current national Power Sector Strategy Note developed by the Ministry of Electricity and Energy

does not consider the contribution that renewable energy might make to the national strategy for the

power sector. On the other hand a detailed strategy for renewable energy has been proposed by

Lahmeyer International to the Ministry of Electricity and Energy with quite ambitious targets.

The study by Lahmeyer recognises the high rate of growth in the demand for electricity, which it pro-

jected in its high growth scenario to imply a peak demand of 3,181 MW in 2025. This compares to a

peak demand of less than 1,000 MW in 2008. Against this strong growth in demand, the strategy as-

serts that there is only a limited potential for the use domestic natural gas in power generation. The

analysis assumes that the proven reserves of gas that are not committed for export could only sustain

electricity generation of about 1,150 MW for 25 years. The uncommitted proven and probable reserves

it was calculated could support 1,750 MW. This implies a substantial shortfall in capacity in 2025 of

about 1,200 to 2,000 MW of power. Already Sanaa and Yemen in general experience frequent load

shedding; this is due in part to the delays in Commissioning the gas-fired plant at Marib and difficulties

in completing a major transmission line.

The Lahmeyer study dismisses diesel generation as being too costly and generation from natural gas,

because it estimates there will not be gas available after export commitments have been met. This is

by no means clear; there is some 1.8 Tcf of gas uncommitted in existing fields and reasonable

prospectivity elsewhere in the country. It is an important uncertainty that could strongly influence the

development of wind power.

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Assessments of the wind power potential were made in the Lahmeyer study. Assuming that only 40

percent of the potential could be used because of shading losses, settlement and exclusion areas, and

considering only areas with capacity factors higher than 25 percent, the total technical potential was

determined at 15,200. Taking into account the best sites with capacity factors above 35 percent, the

technical potential was estimated at14,200 MW providing about 42,300 GWh of electricity per year2.

The most economically attractive areas are those with capacity factors of around 40 percent and full

load hours of more than 3500 hours per year. This corresponds to more than 2,500 MW of installed

capacity with an average yearly electricity generation of around 8300 GWh. Most of these economi-

cally attractive areas are situated in the coastal plains of Hodeidah (southern part), Taiz, Lahej, Aden

and Abyan. Wind power development is also favourable in these areas due their proximity to the na-

tional grid.

There is some geothermal potential to the South of Sanaa; this was mapped in a preliminary survey in

the 1980s. The survey identified 90 hot spring areas, the most promising of which is located at

Dhamar, reasonably close to the national grid. This resource is thought to be sufficient to support a 50

MW geothermal plant and could be developed it is estimated at a cost between 11 and 12 c/kWh. The

ultimate resource cannot be estimated without exploratory drilling, but could be between 250 – 500

MW. An MoU was signed with an Icelandic company to develop a 10 MW plant on the site, but the

company went bankrupt during the financial crisis. Exploratory drilling is now being financed by UNEP

and will start soon using Italian consultants; it is planned to drill some 1,000 – 1,500 metres. The Ice-

landic Bureau of Geology is still involved, but has transferred its work to another field. The study of

Lahmeyer estimated that 2,900 MW of power might be available from geothermal sources.

Around 10 MW of electric power could theoretically be produced from the current rate of municipal

solid waste MSW production in the main cities of Yemen. If the restriction is imposed to consider only

cities that generate more than 100 thousand tons of solid waste per year the figure falls to around 8

MW. Of this 6 MW could be obtained from landfill sites in the four largest cities of Sana’a, Aden, Ho-

deidah and Taiz and is most likely to be cost-effective.

The renewable energy strategy presents three scenarios for the penetration of renewable energy in

the grid:

• High market penetration scenario – 20% of generation mix in 2025 (equivalent to 3467 GWh).

This is obtained from 600 MW of wind power, 6 MW of landfill gas and 200 MW of geothermal energy

• Reference scenario – 15 % of generation mix in 2025 (equivalent to 2600 GWh). This is ob-tained from 400 MW of wind power, 6 MW of landfill gas and 160 MW of geothermal energy

• Low market penetration scenario – 10% of generation mix in 2025 (equivalent to 1733 GWh). In this case only around 200 MW of wind power capacity and only 50% of the landfill gas eco-nomic potential, 3 MW, is developed and 125 MW of geothermal energy

As noted earlier, these targets conflict to some extent with the contents of the national Power Genera-

tion Expansion Plan which gives a high preference to natural gas. Much of the power generated at

present in Yemen is from diesel oil at a very high opportunity cost to the economy; the opportunity cost

of generation from the 250 MW of emergency generation leased from an American supplier is proba-

bly close to 20 euro cents / kWh. The commissioning of the open cycle gas-turbine in Marib starting

from 2009 will increases the share of natural gas in the generation fuel mix. The Ma’abar natural gas-

2 Wind Energy Resource Assessment, July 2006, Lahmeyer for the Ministry of Electricity, The Republic Of Yemen

Renewable Energy Strategy And Action Plan

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based power plant expected to come on stream in 2013 and the retirement of oil-based plants will fur-

ther increase the share of gas and further gas plants are planned for Aden. In sum, 2,858 MW of gas

turbine plants is planned to be commissioned between 2007 and 2025.

The strategy paper of Lahmeyer also identified solar water heating as an important supply option and

proposed three scenarios for penetration by 2025:

• High penetration scenario – 60% of market potential (300,000 units) • Baseline scenario – 40 % of market potential (200,000 units) • Low penetration scenario – 20% of market potential (100,000 units)

The government of Yemen is currently engaged in developing a policy for renewable energy in line

with the strategy proposed in the Lahmeyer study. The main obstacle identified by government is fund-

ing. Guidelines for the allocation of national resources are established by the Ministry of Planning in a

Five Year Plan. The Ministry of Finance prepares a parallel mid-term expenditure statement that gen-

erally reveals a substantial gap between expenditures and revenues; ODA is sought to fill the gap.

Funds are allocated by the Ministry of Finance in an annual financial plan according to the availability

of ODA. State revenues are only just sufficient to cover basic services such as health and education;

salaries for public officials cover 70% of revenues. Investment in infrastructure depends almost entirely

on soft loans and grants from donors. The problem is compounded by an inefficient use of the funds

allocated by donors; the disbursement rate is low and there are many delays. Often the risk of making

no decision is seen as less than the risk of making a decision that may later be criticised. In such cir-

cumstances it is hard for the GoY to implement a high capital cost programme such as is required by

renewable energy unless ODA is assigned specifically to that programme. Programmes for renewable

energy are therefore inevitably donor-driven.

The main strategic objective of the policy now in formulation is to develop natural resources at rea-

sonable cost. The basic approach is to develop pilot projects with donor funding as a demonstration of

technical and economic feasibility by which to attract the private sector.

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.

In March 2009 new Electricity Law was issued; it appears to have been a requirement of the World

Bank for disbursement of its loans to the sector and took three years to approve. The law sets out to

improve the management of the power sector and to facilitate investment by private capital. It also

contains some general support for renewable energy, although there are no specific provisions. One

of the stated objectives of the law is to encourage environmentally friendly power production including

renewable energy and relying on it as a sustainable source of energy. Among the tasks of the Ministry

is “encouraging and developing the use of renewable energy resources in the generation of electrical

power”.

The law creates a regulatory office to be known as the Electricity Sector Regulatory Board; it specifies

the respective duties of the Ministry and the Board. Policy, the issue and licences and almost all deci-

sions of consequence except tariffs remain within the Ministry. The Regulatory Board is chaired by the

Minister and has four full-time members; it sets the tariffs for businesses across the electric system

and monitors the compliance of the industry with regulations. Tariffs are supposed to reflect costs, al-

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low a reasonable rate of return and respect social factors; they are published in a Prime Ministerial

Decree after approval by the Cabinet.

Licences are required for generation, transmission and distribution, but not unbundling of the system is

required. The Board must ensure that the transmission system is open to participants in the sector in a

manner that preserves the economical interests, and continuity and efficiency of the service.

The law also provides for a new authority called the "Rural Electrification Authority" that is established

under the supervision of the Minister, but which enjoys financial and administrative independence and

be legally competency to make agreements and enter into loans. The function of the Authority is to

implement the national plan for rural electrification. Among the many considerations that should guide

its work is “cooperating with other related entities concerned with studying conventional electric power

sources, new and renewable resources, determining current and future needs of power for the popula-

tion of rural areas, determining the best ways to meet those needs and selecting the best available

energy resource alternatives”.

Implicit in the law is the corporatization and commercialization of the Public Electricity Corporation and

the creation of separate entities for generation, transmission, distribution, and rural electrification. The

reform is expected to take three years.

Despite these provisions the law is not clear on the legal basis for public-private partnerships (PPP). In

general, investment in the Yemen is governed by the Investment Law No. 22 of 2002, this is generally

seen as offering only weak security for private investment; in the World Bank Doing Business Report

2010 the Yemen was ranked 132 out of 183 countries in terms of protecting investors. It appears that

there is substantial private interest in the proposed new gas fired plant at Ma’abar, but the government

has not given clear signals on how this partnership can proceed. It is clear that government has not

the funds to make these investments on its own account, so an investment law governing PPPs ap-

pears to be a priority.

The Lahmeyer study on which the renewable energy strategy is based also proposed a law on renew-

able energy and provides a draft. The objectives of the proposed draft law are to:

• promote the use of renewable energy • encourage private-sector investment in renewable energy • diversify energy sources • reduce emissions of environmental pollutants and greenhouse gases • develop national capacities related to renewable energy.

Articles 5 – 7 of the draft legislation establish a legal basis for the identification, conservation and utili-

zation of renewable energy resource areas. It is proposed to create a registry of renewable energy lo-

cations based on resource maps and measurements, to be known as the Renewable Energy Re-

source Land Use List. Restrictions would then be imposed on the development of these lands with

compensation being paid to the owners if necessary. Land use plans for renewable energy would be

based on this list and measures introduced to prevent loss or degradation of important sites.

Articles 8 – 11 establish the principles that should govern the development of renewable energy re-

sources and the certification of electricity generated from renewable energy resources. The law would

authorise the Ministry of Electricity and Energy to issue public tenders for the development of sites on

the land use list with preference for low cost sites located close to existing transmission. The tenders

should inter alia maximise local content. The Article 9 provides for the receipt of unsolicited proposals

and specifies how they should be treated. Article 10 allows the government to create public sector par-

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ticipants in development. Article 11 provides for the issue of Renewable Energy Source Certificates.

Any development in receipt of such certificates becomes a Qualified Renewable Energy Facility

(QREF).

Articles 12 and 13 create a duty on the public electricity system to purchase electricity from qualified

generators and to give such sources preference in dispatch. The principles determining the tariffs at

which electricity is to be sold are set out in Article 14. The tariff would normally be determined by the

freely negotiated power purchase agreement, but in the event of dispute arbitration can be sought

from the Electricity Sector Regulation Board, established by the Electricity Law.

The principles governing the creation and allocation of investment incentives are specified in Articles

17-20. The law permits funds from international donors to be used to subsidise several parts of the in-

vestment chain, including capital investments, project preparation studies, capacity building activities

and partial payment of the incremental costs of electrical energy produced by such Qualified Renew-

able Energy Facility. Article 20 envisages the possibility of a renewable energy fund with contributions

from the Government of Yemen, private and institutional investors, international donors or multilateral

agencies that could also contribute finance for any of the above.

Other Articles specify that government may participate in the equity of producers and that any Certified

Emission Reduction Credits issued to the project under the CDM are to be used to reduce the tariff at

which renewable electricity is sold. Article 21 requires that the cost of connecting a Qualified Renew-

able Energy Facility to the Grid shall be paid by the Public Electricity Corporation or its successor. Ar-

ticles 22 and 23 create the legal possibility for a feed-in tariff should this be thought desirable.

It is expected that the main articles of this draft law will be incorporated into a revised energy law.

4.3 An Agency

A specialised institution to make research, prepare initiatives, draft regulations, monitor progress, en-

sure compliance, administer funds and perform other administrative activities can be useful in promot-

ing renewable technologies.

The main institution involved in the development of renewable energy policy in Yemen at present is

the General Department for Renewable Energy of the Ministry of Electricity and Energy. The main re-

sponsibility for implementation comes under the Public Electricity Corporation (PEC) and is discharged

through the Public Authority of Rural Electrification (PARE) and the Renewable Energy Department

that comes under it. The PARE is responsible for rural electrification in general (mainly grid extension)

and its agency, the Renewable Energy Department covers off-grid renewable rural electrification.

The analytical papers underpinning the renewable energy strategy claimed that the separation of pol-

icy and implementation was not well defined, with PEC engaging in policy-like matter and the Ministry

implementing demonstration schemes. It also found that the staffing was insufficient to support the

various activities required to implement a substantial programme. However, the draft law contained

within the report does not address these issues.

It is certainly true that the formulation of policy in the area should rest with the Ministry. There is much

to be said for creating an independent authority for implementing policy. It allows the implementation

to proceed with some protection from continual political interference that obscures objectives and hin-

ders progress. It is often the case that responsibility for energy efficiency and for renewable energy

rest with the same body. Such an authority may in the first instance be a developer of wind projects

and sell on an IPP-like basis to the transmission company. At some point, as the technology is recog-

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nised as commercial, the ownership function should be separated from the regulatory and research

functions.

This is a model that the GoY may wish to consider. We understand that there is some resistance in

government to the creation of implementing authorities outside of the normal ministerial structure. The

Rural Electrification Authority was only created at the insistence of the donors for the rural electrifica-

tion programme. Nevertheless, such agencies elsewhere have been successful; NREA in Egypt is a

good example.

4.4 Standards and /or Labels

Standards would be inappropriate for large developments in renewable energy. Commercial develop-

ers 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.

There are no such standards in the Yemen.

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 re-

newables 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.

Some general incentives to investment are contained within the Investment Law 22 of 2002 that pro-

vides for exemptions from customs duties for imports that contribute to the creation of fixed assets and

for a limited volume of spare parts and imports required for maintenance. The Law also provides for a

variety of exemptions from taxes, including a tax holiday on profits. However, private funding for re-

newable energy in Yemen has not been forthcoming and all developments to date have been financed

by the government and by donors.

The most advanced wind project in Yemen is the proposed development at Al Mokha; this is a promis-

ing site on the Red Sea with an average wind speed of 7.4 m/sec at a height of 40m. Preparation of

the requisite feasibility studies and a model power purchase agreement was initiated under the RE-

REDP. Subsequently the World Bank agreed a sovereign loan for the implementation of a wind farm

of approximately 60 MW generation capacity, to be connected to the PEC grid. The plant is to be

wholly owned by a Special Purpose Company (SPC), to be created as a subsidiary of PEC. As the

success of the first wind project is critical the wind turbine manufacturer will operate the wind farm, at

least during the first five years, and train local engineers and technicians during this period working

within the SPC.

The commercial transactions pertaining to sales of electricity would simulate an IPP; the SPC will sell

electricity to PEC on a PPA. Eventually the subsidiary might be sold. The overall aim is to demon-

strate the sustained financial and economic viability of wind farms in the area; it is expected that suc-

cessful operation of the pilot scheme will generate interest in the future development of wind energy

along the Red Sea Yemeni coast.

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It was originally envisaged that the funding would be offered by the International Development Asso-

ciation (20 million US$), the AFD (50 million US$), the beneficiary (10 million US$) and the Islamic

Development Bank (15 million US$). Subsequently, the French Ministry of Finance withdrew from the

project. The funding for the wind farm is therefore not entirely secure. If built, the farm should qualify

for additional financing from carbon funds and preliminary preparations to register the project have

been made. The carbon finance funds would be used to reduce the government contributions to the

project, and also lessen the tariffs required for cost recovery.

A large rural electrification programme has now been authorised, (the Rural Energy Access Project)

funded jointly by the World Bank, the AFD and the Islamic Development Bank. The creation of the new

Authority and the new Electricity Law were conditions of that loan. The overall project will cost $117

million; this will be financed mostly by concessional loans, of which $37.6 million equivalent will be in

local currency, but also including $25 million as a grant from the World Bank.

Where grid access is not economically viable, the project envisages small Solar Home Systems

(SHS). The cost per kWh equivalent will depend on the usage of the SHS, including the types of ap-

plication and the amount of use. Levelised costs for the systems proposed were estimated at

$0.81/kWh, $0.71/kWh and $0.94/kWh for 20 Wp, 50 Wp and 100 Wp systems respectively. The level-

ised costs increase with system size, because the sophistication of the systems envisaged increases

also. These costs suggest that the SHS’s are more expensive than a community-based diesel gen-

erator. Justification is based in the environmental benefits and the longer term sustainability of energy

supply.

It is interesting that a small market for such solar kits exists at present without subsidy. In rural areas,

private individuals and some mosques in are prepared to pay for 100W or 200W photovoltaic installa-

tions with batteries and lamps costing from $800 to $2,000. Several small private companies are sup-

plying this market. No financial incentives are offered to such installations. It would be feasible in prin-

ciple to allow relief of tax on such equipment; import duties at present amount to 10% on batteries and

5% on other equipment; VAT is levied at 10% and other axes at 3%. It might be fair to permit exemp-

tion for photovoltaic installations for rural electrification given the extremely high subsidies enjoyed by

grid-connected consumers.

JICA has a semi pilot project of power generation by using a 300 Wp photovoltaic system to generate

power for Al-Wahda Hospital in Aden The intent is to demonstrate the viability of PV and to use the in-

stallation for capacity building; the main priority of JICA in Yemen is capacity building.

Solar water heating has not penetrated far in Yemen. The very low electricity tariffs are an obvious ob-

stacle. In 2003/4 there was an effort by local manufacturers to persuade government to provide loans

and repayment through the electricity bill, but it failed. There are some practical obstacles. Most hous-

ing is in apartment blocks and residents cannot install solar water heating without the permission of

the owner. The systems are often not efficient in the use of water, because it may be necessary to run

40 litres of water before the temperature reaches an acceptable level and water in Yemen is scarce

and expensive.

Despite these difficulties the technology should be very attractive at national level and instruments

should be devised to support market penetration.

4.6 Feed-in Tariffs and Obligations

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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 offer-

ing 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 identi-

fied 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 con-

cession 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 cri-

teria, 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 electric-

ity, but it is unknown what volume will be offered.

No feed-in tariff exists at present in Yemen, but the draft renewable law makes provision for such an

instrument if it is deemed useful. Article 22 of the draft permits government, at its discretion, to estab-

lish such a feed-in tariff applicable to Qualified Renewable Energy Facility. The law authorises the

Electricity Sector Regulation Board to specify details of such tariffs and the procedures to be followed

in a separate regulation. Article 23 permits the Board to pass regulations providing for net metering of

electricity generated by small-scale Renewable Energy Facilities or self-generators and to require re-

duced wheeling rates for electricity produced by a Qualified Renewable Energy Facility, if necessary.

The GoY has not apparently studied the prospects for feed-in tariffs in any detail. There is some in-

consistency between a feed-in tariff, that is essentially designed to appeal to unsolicited private in-

vestment, and the donor-driven, high-risk environment with which renewable policy must actually

cope.

There has been a proposal by a private Yemeni company to construct a 100 kW peak photovoltaic

grid-connected plant in Sanaa as a demonstration of the performance of the technology and to dem-

onstrate its economic potential. This plant would be financed through an advantageous PPA, essen-

tially a feed-in tariff, though not publically offered. It has been difficult to agree a price. The idea may

have some merit, but if the government were to proceed with this it would seem sensible to tender the

request.

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.

The Designated National Authority (DNA) for Yemen is the Environmental Protection Agency (EPA).

There is at present no registered CDM project. Preliminary work has been done on the Al Mokha wind

farm to register it for the CDM and provided that the project goes ahead it will most likely succeed.

Other projects are in the development stage. Landfill gas recovery from the four large cities has been

examined as an option, but is not yet approved because the finance for the development is not avail-

able. Other possibilities are a gas flaring project proposed by Total, an energy efficiency project with

the cement factory and a programme to switch lighting units from magnetic to electronic ballasts.

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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 devel-

oper 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.

There are twenty meteorological monitoring sites across the country all equipped to monitor wind and

solar radiation. These have been constructed for meteorological purposes and have only limited value

for selection of sites for commercial development of renewable energy.

A wind resource calculation using three-dimensional meso-scale atmospheric model KLIMM was car-

ried out within the Wind Resource Assessment and Demonstration Project implemented by Lahmeyer.

This was based on satellite data and data from the Civil Aviation and Meteorological Authority of

Yemen. The available meteorological wind observation data were also incorporated into the resource

calculation together with detailed wind measurements on two western sites. The output from this exer-

cise was a country-wide wind resource map with a spatial resolution of 1 km x 1 km. For the western

and southern mountain strip, and the Kamran Island a 250 m x 250 m map was also produced.

This work should be followed up by the Ministry. Additional measurement stations should be installed

in priority areas. Investors are likely to insist on their own measurements and it is in the interests of

the Yemen that they do this, but good pre-existing data will certainly encourage investors to examine

prospects in the country more seriously.

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.

There is some discussion of a PV assembly line in the Aden free-zone that would supply Yemen and

the countries on the African continent, but there already exist assembly lines in Saudi Arabia and in

the UAE. It is hard to see where the comparative advantage of Yemen would lie as its domestic mar-

ket is still small and it does not at present possess the necessary skills.

The emphasis of policy for off-grid photovoltaic systems is to develop delivery channels of PVs to rural

areas and to support the process through fostering microfinance and service providers. The aim is to

deliver PVs to 15,000 homes in the first instance, thereafter the market may develop spontaneously

and possibly the idea of local manufacture could be re-examined.

There is more to be said for stimulating the local market to produce solar water heaters. The skills are

available in Yemen and the protection offered by the lower value added to weight ratio and the cus-

tomer-specific installation would be an advantage. Two local manufacturers spontaneously entered

the market in 2001 without pre-existing government incentives. However, they seem to have had no

internal marketing plans and expected support from government. They proposed to PEC that the elec-

tricity utility should sell systems to final users and recover the costs through the electricity bill. The

Electricity Law in force at the time apparently did not permit such a measure so no such scheme ma

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5. Case Studies

The purpose of this chapter 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 system-

atic 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 - Efficient Lighting in Public Buildings 5.1.1 Background and Context

The example that we choose in this case for illustration is the analysis of a Programme of Activities in

efficient lighting.

5.1.1.1 Programme of Activities

In 2007 the CDM approach was enlarged to allow Programmes of Activities (PoAs) to be registered. A

PoA is a programme of many emission reduction activities; by aggregating the combined emission re-

ductions of different participants it allows technologies and projects that would be too small for the tra-

ditional approach to be viable. The PoA approach also reduces the CDM-related transaction costs that

would otherwise be impractically high for small and dispersed projects.

A PoA comprises several CDM Programme Activities (CPAs). A CPA is a single measure, or a set of

measures, to reduce GHG emissions applied within a designated area. The overall size of a PoA is

unknown at the start of the PoA implementation. Different CPAs can be included under a PoA either at

the time of registration or during implementation.

The difference between baseline emissions and project emissions constitutes the emissions reduc-

tions that can be claimed under CDM. The crediting period for CPAs can be either seven years, re-

newable twice, or ten years non-renewable. An advantage of PoAs is that the baseline for the pro-

gramme is determined at the beginning in the project design document (PDD) for the Programme of

Activities. This background draws heavily on the explanatory book for PoA developed by KfW within

the CDM/JI Initiative of the German Federal Ministry for the Environment, Nature Conservation and

Nuclear Safety (BMU)3.

The PoA coordinator must have a good network of contacts with target users and service providers

and must be able to assure an adequate monitoring of activities. For the programme of efficient light-

ing proposed here the PoA coordinator might be a Ministry or the PEC, a commercial bank, or possibly

even an equipment supplier. The analysis in this case study assumes that the PoA coordinator is the

PEC because we propose that the costs of the ballasts be recovered through the electricity bill and

3 PoA Blueprint Book: Guidebook for PoA coordinators, CDM/JI, German Federal Ministry for the Environment, Nature Con-

servation and Nuclear Safety (BMU)

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this can only be done by the PEC. The PEC is in any case well placed to implement and monitor the

programme.

5.1.1.2 The Lighting market in Yemen

The market is characterised by a variety of lighting equipment. Incandescent bulbs are still common in

households; some T10 fluorescent tubes are still to be found in the market. The offer of CFLs and

other more efficient lighting devices is often corrupted by cheap poor quality goods that are hard for

consumers to distinguish from good quality products. Fakes of major brands are also common.

The more efficient tubes and electronic ballasts are generally sold into the commercial market, where

electricity prices are reasonably high (10 euro cents / kWh), lighting hours are quite long, there is

some basic technical competence, awareness is high and finance for investments with rapid pay-

backs is not generally a problem.

PEC has considered disseminating information about CFLs on the back of the bills sent to consumers,

but eventually abandoned the idea because of the many poor quality goods on the market and its con-

cerns that consumers would not necessarily benefit and would hold PEC responsible for faulty pur-

chases. There could well be a case for a PoA that would ensure the delivery of good quality products

into sensible applications.

A promising market is lighting in government buildings. There are many government offices throughout

the country; PEC registers over 12,000 consumers in the government sector. If on average these of-

fices have 25 fluorescent lamps each, then there could be some 300,000 lamps. This market is fa-

vourable, because in general it will not have the budget to make the conversion on its own account

and it is subject to instruction at the political level. Penetration should therefore be 100% without free-

riders.

The main objective of the activity would be to promote the widespread adoption of such ballasts in all

areas where they are cost-effective, notably in commercial premises.

5.1.1.3 Scope of the Case Study

This case study considers the possibility of providing financial incentives to various groups of consum-

ers to adopt electronic ballasts and then examines the prospects of combining these with a PoA under

the CDM.

5.1.2 Evidence-based Policy Making

The procedure that we have proposed to implement evidence-based policy making comprises the fol-

lowing steps.

1. 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

2. There must always be a base-case against which alternatives are screened. Alternatives should include all available instruments.

3. All the relevant potential impacts need to be identified and where possible, quantified 4. Impacts should be assessed in consultation with the subjects of policy

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5. 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.

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

7. Quantitative analysis of impacts is essential. The analytical method most commonly used is economic cost-benefit analysis.

8. Cost-benefit analysis should take into account opportunity costs of energy and external envi-ronmental costs.

9. 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 sec-

tion on theory-based evaluation and the last three steps are demonstrated in the section on economic

cost-benefit assessment.

5.1.2.1 Alternative Forms of Intervention

Enhanced penetration of electronic ballasts could be fostered through several instruments:

• Minimum Energy Performance Standards (MEPS) could be introduced that would exclude other

options from the market • Electricity utilities could be obliged to convert a specified number of installations to electronic bal-

lasts each year • Financial incentives could be offered to consumers to adopt voluntarily the more efficient solution • Offices could be converted at the expense of a third party and the repayments made through the

electricity bill in instalments calculated to be less than the savings

We consider these possibilities in turn.

The introduction of MEPS would require a great deal of preliminary work, the construction of testing

laboratories and the creation and training of an inspectorate to ensure compliance. It would force upon

poorer consumers with low lighting hours, paying at present highly subsidised tariff, an economic in-

vestment. It is a perfectly valid instrument that may in due course be justified, but it is not a measure

that can be made quickly or easily.

Imposition of an obligation on the electricity utility would probably not work in the national interest. The

PEC would have an incentive to convert the consumers paying the lowest tariffs, because in that way

the utility minimises its loss of revenues. As it is shedding load, it can resell the electricity to other con-

sumers that on average will provide greater revenues. Its costs are unchanged and so the interest of

the utility in revenue maximisation is served. The interest of the economy in general is that the elec-

tronic ballasts should save the maximum of energy possible and this would be difficult to achieve

through an obligation laid upon the utility.

Programmes targeted to users with long lighting hours per year will provide the most benefit for the

economy in general. As long as the underlying investment is cost-effective at a national level, the use

of financial incentives to bring about the transition is not a loss to the economy, but simply a transfer of

resources among different parts. As long as the economy as a whole benefits from the activity, it is

possible in theory to reward non-participant groups in some manner and to ensure that there are no

regressive impacts. Whether this is actually achieved will depend on how the incremental revenues to

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the state are spent. The option however is unlikely to succeed in the target group of government of-

fices, because they are likely to experience tight budgetary constraints and will be reluctant to make

the conversion even faced with substantial financial incentives.

The last option, whereby a third party pays the conversion and then recovers its costs through the

electricity bill is the most practical. Only PEC is really in a position to implement this option. This is the

variant that we retain for analysis.

5.1.2.2 Base Case

The base case we assume to be a case where no intervention is made and government buildings

make no effort to adopt efficient ballasts. We consider this plausible, because government offices are

generally subject to fairly severe financial constraints and are unlikely spontaneously to convert old

magnetic ballasts to new electronic versions.

5.1.2.3 Impacts

In order to claim for CERs from a programme of lighting improvements, the energy savings have to be

calculated. The key parameters include: the number of appliances replaced; the power rating of the

ballasts removed; the power rating of the new ballasts and the daily lighting hours. The energy savings

are multiplied by the grid emission factor to calculate the emission reductions by the programme.

There are two methodological approaches to determining savings: by monitoring and evaluation or by

deemed savings approach. The main difference is the extent of monitoring; the former requires that a

sample of appliances has to be monitored to estimate the average daily lighting usage. The details of

methodologies are given in the PoA Blueprint Book and in the references therein. For the purposes of

this simple case study we assume simply an average operation of 8 hours per day or 2500 hours per

year. This is not unreasonable for government buildings in continuous use.

5.1.2.4 Consultation

Agents for international manufacturers of lighting equipment are likely to procure the equipment. Con-

sultation is necessary to determine what prices may be achieved in large scale tenders, whether they

are willing to engage in such a programme and on what terms. It would also be useful to combine the

activity with more widespread awareness and information campaigns which would benefits these

agents and to which they should be prepared to contribute in money or in kind.

Monitoring of the programme will be essential to verify claims of numbers installed and the circum-

stances. An appropriate monitoring body should be identified and the costs and modalities of their par-

ticipation need to be agreed.

Consultation is also desirable with international agencies that are familiar with the details of the meth-

odologies available and that are familiar with the likely size of the programme costs. These costs can

be considerable and can be too much for small projects to bear. They include the development of a

PoA Design Document and CPA Design Document with the monitoring plan; the validation of the

documents through a Designated Operational Entity and record keeping.

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5.1.2.5 Compliance

Compliance in the normal sense is unlikely to be a problem. Evidently the claims of agents and in-

stallers must be monitored by the programme coordinator for internal purposes, but this is not difficult

or costly.

More problematic is that compliance with the terms and requirements of the CDM will have to be dem-

onstrated annually. Monitoring should be conducted by or supervised by the PoA coordinator. The

daily lighting usage is to be monitored at sample installations which are chosen by a properly stratified

procedure and provided with meters. If the PoA is the PEC, as seems probable, then the inspector can

read the daily lighting usage meters and check whether the ballasts are still working at the same time

as he makes the normal meter reading.

Preliminary sample surveys of target establishments are advisable to confirm the number, nature and

efficiency of the lighting units and the typical hours of use.

5.1.3 Theory-based Evaluation

5.1.3.1 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 de-

pends very much on the type of policy investigated.

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 ex-

pected. 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.

5.1.3.2 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 under-

stand how policies work, how measures interact and how they can be improved

5.1.3.3 Behavioural Matrix

We specify the behavioural model as a form of logical framework in which the successive steps of pol-

icy 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 recog-

nisable behavioural assumptions; it depends very much on the type of policy investigated.

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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

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.







evaluation.

The behavioural model that we propose is shown in Table 5. In this case most of the matrix is me-

chanical rather than behavioural; the behavioural elements enter into the process towards the end as

market transformation begins.

The risks identified can often lead to the definition of new flanking policies. For example, if other con-

sumers are unaware of the good performance and cost-effectiveness of the pilot programme then it

will have no impact on their behaviour. It is necessary to accompany the pilot programme with a gen-

eral awareness programme to other potential demonstrating the superior technical and financial per-

formance and the practicality as shown by the PoA.

Similarly, as the market is transformed so fakes and poor quality goods are likely to appear. This is not

a risk with the main programme because the PoA will procure ballasts only from reputable source. As

other consumers begin to adopt the more efficient ballasts, for example smaller commercial facilities

also paying a high tariff, they may be tempted to buy inferior goods at lower prices with all the subse-

quent problems of poor performance and short life-time that then discredit the technology in general.

The solution to this is to introduce parallel policies of labelling and standard s along with verification of

compliance to prevent these goods reaching the market.

It will also be evident that the potential market is limited by the tariff structure. Only the specific groups

paying on the high tariff levels will find the concept attractive and only then if they use lights for long

periods each day. Tariff reform would extend the market significantly.

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Table 5: Behavioural Matrix for a PoA on efficient lighting

Behavioural

model

Indicators

Risks Assumptions

Input Output Outcome Impact

• Design of busi-

ness model

• Official time

and consultant

fees ($)

• Viable business

model (Y/N)

• Development of documentation and approval by DNA

• Official time

and consultant

fees ($)

• Adequately pre-

pared documenta-

tion (Y/N)

• DNA does not approve - unlikely

Validation of the documents through a DOE

• Fee to DOE ($) • Validated pro-ject (Y/N)

• DoE does not validate; documentation inadequate

• Registration • Registration

fee, ($)

• Registered pro-

ject (Y/N)

• Project meets requirements of CDM and PoA

• Procurement

and installation

of ballasts

• Initial payment

by PoA ($);

• Substitution on

target sites (#)

• Reduction in volume and cost of genera-tion (#,$)

• Ballasts not

available in

time or at ex-

pected price

• Proper consul-tation will avoid this risk

• Identification of

monitoring sites

and installation

of meters

• Fee to monitor-

ing body and

cost of meters

($)

• Meters installed on chosen sites (#)

• Old ballasts de-

stroyed under

verification

• Official time

and fee to

monitoring

body ($)

• Ballasts de-stroyed (#)

• Leakage of bal-

lasts to second

hand market

• Receipt of

revenues from

the adjusted bill

• Revenues to PoA ($)

• Government of-fices do not pay bills

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Behavioural

model

Indicators

Risks Assumptions


• Processing of

monitoring data

and preparation

of report

• Fee to monitor-

ing body and

cost of meters

($)

• Monitoring report

with verified out-

comes and sav-

ings (Y/N)

• Savings and impacts prop-erly quantified (#)

• Delays in re-

porting lead to

delayed receipt

of CERs

• Communication with DOE re-garding moni-toring reports

• Fee to DOE ($) • Authorisation of

issuance (Y/N)

•

• Receipt of

CERs

• Revenue to the

PoA ($)

• Uncertain fu-ture value of CERs

• Other users adopt technol-ogy

• Reduction in volume and cost of electric-ity generation (#,$)

• Other users are unaware of the demonstration in government buildings

• Price of elec-tricity for some users is to low

• Higher demand

causes lower

prices (econo-

mies of scale)

• Prices of ballasts

fall and availability

rises (#)

• Sales increase

(#)

• Reduction in

volume and

cost of electric-

ity generation

(#,$)

• New entrants in

market

• Prices of ballasts

fall and availability

rises (#)

• Sales increase

(#)

• Reduction in

volume and

cost of electric-

ity generation

(#,$)

• Low quality products and fakes enter market

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Behavioural

model

Indicators

Risks Assumptions


• CO2 emissions

and energy use

falls; overall fi-

nancial benefit

to country

• Volume of CO2

emission reduc-

tion (mt).

• Value of carbon

emission reduc-

tions ($).

• Net cost of pro-

ject ($).

•

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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5.1.4 Cost-Benefit Assessment

Quantitative analysis of impacts is essential. The analytical method most commonly used is economic

cost-benefit analysis. This cost-benefits analysis takes into account two perspectives to assess an

investment:

• Financial analysis - point of view of the investor: This analysis has to evaluate if the envisaged in-

vestments are of commercial interest for the private or the public investors under the given market conditions (including the aspect of taxes or subsidies). The present case study considers two enti-ties for this analysis: - Facility operator: The analysis relates the cost for the electronic ballast to the reduced costs

for electricity. - Electricity company (PEC): The electricity company will be confronted with lower electricity

sales, but also with lower generation requirements.

• Economic analysis - point of view of Yemen economy: This analysis evaluates if the envisaged

investment is beneficial for Yemen economy. Cost-benefit analysis should take into account oppor-tunity costs of energy and external environmental costs, particularly of the avoided emissions of carbon.

The analysis has to determine the benefits for the national economy and the resources used have

to be valued by determining the benefit these resources' would have generated in alternative uses

(opportunity cost principle).

The cost-benefit assessment is done considering the following steps:

• Specification of the electronic ballast project and key-parameter and data for the Programme of Ac-

tivity, • Determination of the avoided cost for electricity generation, • Financial analysis:

- Analysis of the individual investment decision, - Analysis of the impacts upon PEC as electricity company and as Programme Manager,

• Economic analysis, • Sensitivity analysis.

5.1.4.1 Methodology Applied and Data Basis

The electricity that is saved by installing electronic ballasts, or any other measure of energy efficiency,

would otherwise be generated from natural gas, i.e. the benefits of the electronic ballasts are the

avoided cost of additional natural gas based electricity generation. The economic assessment of

electronic ballasts obliges us to consider what value to Yemen of the resources used for electricity

generated from natural gas (opportunity costs). It appears that the marginal technology for gas will be

open cycle gas turbines (OCGTs), because the inland sites for power production have no water for

cooling. Combined cycles will presumably be built at the coast, but the open cycles will be despatched

later and are therefore the marginal source of power.

The key parameters for the assessment are:

• The costs and performance of electronic ballasts and the expectations of the market,

• The costs for PEC of managing the PoA and the modalities of the programme,

• Investment costs for OCGT and performance data,

• Value of natural gas for Yemen (opportunity costs),

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• Return on capital requirements of independent power producers (IPP) for OCGT developers.

Table 6: Cost-Benefit Analysis - General Data

Lighting Market and Technological Performance

The data for the electronic ballast used in the analysis is shown in the following table. It can be seen

that the investment is very attractive, the simple pay-back period is 2.4 years.

Table 7: Cost-Benefit Analysis - Electronic Ballast

Data for the Programme of Activities (PoW)

Regarding the Electronic Ballast Programme we make the assumption shown in the following table.

The Programme will consist in an installation of 300,000 electronic ballasts in about 12,000 build-

ings/offices. The total annual electricity saving will be 4,200 MWh and the total investment cost would

be 300 million Ryal. The Programme will be implemented over a period of 3 years.

We assume that the participants have the conversion made for free and then pay the cost through 7

equal annual payments on the electricity bill.

For Programme preparation and registering about 40 million Ryal will be required, the annual monitor-

ing cost are estimated to be in the order of 2 million Ryal. Considering a value the Certified Emission

Reductions (CERs) of 10.0 US $ / t CO2

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Table 8: Data for the Programme of Activity (PoA)

5.1.4.2 Electricity Supply Cost

The economic assessment of electronic ballasts obliges us to consider what value to Yemen of the

resources used for electricity generated from natural gas (opportunity costs). It appears that the mar-

ginal technology for gas will be open cycle gas turbines (OCGTs), because the inland sites for power

production have no water for cooling. Combined cycles will presumably be built at the coast, but the

open cycles will be despatched later and are therefore the marginal source of power.

The investment cost we take as $600 per kW and the thermal efficiency we assume to be 45%.

The key parameters for the assessment are (1) Investment costs for OCGT and performance data, (2)

Value of natural gas for Yemen (opportunity costs) and (3) Return on capital requirements of inde-

pendent power producers (IPP) for OCGT developers.

For the required return on capital we assume that the investment in new OCGT units is considered as

a reliable business, whereas the political risk in Yemen is substantial. We therefore take a required re-

turn on investment of 20%. This could be lower if the plant were built on a turnkey basis with soft

loans, but in principle, according to the Electricity Law, new plants should be constructed as IPPs.

Cost of Electricity Generation - Opportunity Cost for Natural Gas

Recent Price Development for Natural Gas

Yemen 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 1 that shows the spot prices at Henry Hub. 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 Yemen's

natural gas.

36


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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.

Source WTRG Economics

Figure 1: US LNG Prices

The Figure 2following 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 Figure 4-3. (Note: 1 MMBTU = 1.05 GJ).

37


Yemen.doc

0

20

40

60

80

100

120

140

160

180

200

2010 2015 2020 2025 2030

$/

bb

l Crude Oil (weighted

average) 2007 US$/bbl

" nominal prices

Figure 2: Forecasts of Crude Prices to 2030 (DOE/IEA)

We propose to use real 2007 prices for the cost benefit analysis to avoid having to link the power pur-

chase agreement to inflation.

0

2

4

6

8

10

12

14

16

18

20

2010 2015 2020 2025 2030

$/

MM

BTU LNG 2007 US$ /

MMBTU

" nominal $/MMBTU

Figure 3: Derived Forecast of International LNG Prices

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 bil-

lion, or roughly $1000 per 1 t/yr. Discounting at 15% over 20 years gives an annual payment of $160 /

38


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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 Yemen 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 calcula-

tions made for the California Energy Commission in 20074.

Opportunity Cost of Electricity from Natural Gas

Lighting makes a significant contribution to peak demand for electricity. If electricity is saved in lighting

then generally the savings will be experienced on plant running fairly low down the merit order. It is

impossible to gauge the exact impact without load studies and despatching models, but we assume an

open cycle gas turbine operating 4000 hours per year. Discounting the cost of the turbine ($600 / kW)

at 20% over 25 years gives an annual payment of $120/kW. Assuming 4000 hours of operation this

yields a contribution of capital to the unit cost of 3c/kWh.

The Figure 4 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 next line adds in the

capital contribution as calculated above and the last line adds a further 5 c / kWh as a nominal esti-

mate of T&D costs and losses.

4 The Outlook for Global Trade In Liquefied Natural Gas: Projections To The Year 2020, for the California Energy Com-

mission, by Jensen Associates, August 2007

39


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0

2

4

6

8

10

12

14

16

18

20

2010 2015 2020 2025 2030

c /

kWh

OC of gas

OC of elec (fuel only)

OC of elec (fuel +

capital)

OC of elec (fuel +

capital + T&D)

Figure 4: Marginal cost of electricity from gas

Opportunity Costs over the Short Term

The above analysis assumes that gas-fired plant can be built immediately to match demand. In fact at

the moment the Yemen suffers severe load shedding and relies on emergency generation from diesel.

The cost of the diesel generation is very high. We understand that the leasing costs of the plant are 10

c/kWh. The plants receive diesel for free, but the opportunity cost of the diesel is high, close to 20 c/

kWh. The opportunity cost of this generation is therefore about 30 c/kWh.

There is also an opportunity cost to the shedding of load. The value of the lost load must exceed 30 c /

kWh, otherwise the emergency generation would make no sense. The marginal value of electricity

saved at the moment is therefore somewhere between 30 c/kWh and a larger number that we cannot

estimate. For the sake of the case study we assume that the marginal opportunity cost at present is 30

c/kWh and that load shedding and emergency generation will cease in 2015, so the marginal opportu-

nity cost of electricity will have something like the form shown in Figure 5, where we have postulated a

gradual transition from the cost of emergency generation to the opportunity cost of gas-fired genera-

tion.

The construction of new gas-fired plants will certainly reduce the opportunity cost of electricity to

Yemen, but it will still be much higher than present tariffs. It is therefore still essential to make strenu-

ous efforts in price reform and energy efficiency.

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10

15

20

25

30

35

2010 2015 2020 2025 2030

c /

kWh

Figure 5: Marginal Opportunity Costs including Emergency Generation

5.1.4.3 Emission Factors

As the main fuel for power generation shifts from diesel to natural gas the emission factors from the

power system will also change.

The following figure shows our estimates of how this might progress as the transition occurs.

0

200

400

600

800

1000

2010 2015 2020 2025 2030

g /

kW

h

Figure 6: Emission Factors in grams of CO2 equivalent per kWh

5.1.4.4 Financial Analysis 1 - Individual Investor

Under the given electricity prices in Yemen of 30 Ryal / kWh (see Table 6) the installation of electronic

ballasts is a very profitable investment and should be recommended. The simple pay-back period is

2.4 years, considering annual operation of only 2000 h. The levelised costs / specific electricity saving

costs are 18.01 Ryal / kWh.

The assessment of an investment in one ballast is given in Table 9. It is assumed that the ballast is in-

41


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stalled in the middle of year 1 and immediately electricity savings can be considered (50% of the an-

nual values). The life-time of a ballast (considering 2,000 hours of use) is 12 years. The financial inter-

nal rate of return is 52.5 %.

For the Programme it is assumed that PEC provides the ballast free of charge, and costs are recov-

ered with an annual increase of the electricity bill of 219 Ryals (PEC charges an interest of 18%). The

ballast will generate immediately a net benefit. An IRR cannot be determined because there is no ini-

tial investment. The participating user would gain over the 12 years 998 Ryals, without any own pay-

ments.

5.1.4.5 Financial Analysis 2 - Electricity Company / Programme Manager PEC

The decision situation for the electricity company as the programme manager is quite complex be-

cause a number of aspects has to be taken into account. The Programme would not be in the interest

of PEC, with an IRR of 2.5%, far lower than the commercial required return of 20% (see Table 10).

The programme costs for the electricity company / programme manager are:

• The reduction in electricity sales and therefore also in revenues. Because the market proposed is

the commercial market, where prices for electricity are quite high, the loss of revenue to PEC from reduced sales is considerable.

• The programme costs - The investment will be financed with loans, but for this loan the debt service has to be consid-

ered, - The programme preparation and registration costs of 20 million and the annual monitoring costs

of 2 million Ryal.

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Table 9: Financial Analysis 1 - Individual Investment

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Table 10: Financial Analysis 2 - Electricity Company / Programme Manager PEC

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The Programme's benefits are:

• The avoided generation costs - in this case the gas based generation opportunity costs are consid-

ered, • The payments from the ballast-user, • The sale of the CERs.

5.1.4.6 Economic Analysis

The cost-benefit analysis for this case study will be completed with an assessment under the perspec-

tive of Yemen national economy. This analysis is shown in

• Programme costs: The costs will be again the programme costs. The investment costs will be

again covered by loans. The programme registration and monitoring has to be covered in addition. • Programme benefits: The programme benefits will be the avoided generation costs and the sale

of the CERs abroad.

As it can be seen in Table 12 the programme would be very beneficial for the economy of Yemen, with

the installation of the electronic ballast the cost burden of the electricity system could be significantly

reduced.

5.1.4.7 Sensitivity Test - Impact of the CERs Value

The analysis above showed that the Programme of Activity is not of interest because the high pro-

gramme costs (registration and monitoring) are not justified by the value of the CERs / carbon credits.

The question arises if higher values for the CERs would improve the situation. Table 11 shows the im-

pacts of varying the value for CERs. In addition, the case without the programme registration is

shown.

Table 11: Variation of the CERs / Carbon Credit Value

This sensitivity analysis shows that higher CERs value would improve the situation, but would not

change the situation for the electricity company PEC. Without the generation PEC might be interested,

especially the slight margin on the interest rates makes the programme of interest for PEC.

To recover the high PoA costs at a CER price of 10 US $ / t CO2, at least a programme of 800,000

units has to be considered. Of importance is the number of units, not so important is the price level of

the CERs.

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Table 12: Economic Analysis of the Programme

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5.1.5 Conclusion

5.1.5.1 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 the programme of action described here, the deconstruction helps to reveal the nature

and extent of the assumptions that must be made adequately to assess the impact. This helps to

frame the definition of the policy instrument and the cost-benefit analysis.

5.1.5.2 Cost-Benefit Analysis

The cost benefit analysis showed that the installation of electronic ballast would be highly beneficial for

the electricity user and for the national economy as the analysis in the previous sections showed. The

analysis was forward-looking comparing the use of electronic ballast with the construction of a new

OCGT unit.

• Direct electricity user: The electronic ballast reduce the electricity cost, the simply pay-back pe-

riod is 2.4 years, and considering the whole life-time of the ballasts, the return on investment amounts to 52.5 %.

To overcome the market barriers, a promotion programme would be nonetheless necessary to

overcome the reluctance of the electricity consumers and the lack of rational assessment of elec-

tricity saving options. • Electricity company PEC as Programme Manager: For the electricity company the programme

would not be of interest because the tariff is higher than the assumed costs of electricity genera-tion.

In addition, the high cost for programme preparation, registration and monitoring are not justified by

revenue generated through the sale of CERs / carbon credits.

The electricity company could be motivated to launch programme by offering a commercial margin,

as it was done in the case study with a 4% margin on the pre-financing conditions. • Impact upon the Yemen economy: The use of electronic ballasts would have a favourable impact

upon the national economy because the costs of the electricity system could be reduced.

5.1.5.3 Programme of Action (PoA) as a Policy Instrument

Summarising the analysis it can be said:

• The installation of electronic ballasts would be highly beneficial for the electricity consumers and

the national economy. • For the electricity company the programme would imply some losses, which have to be off-set by

additional commercial benefits. • The assumed conditions for the Programme of Action (PoA) show that the Programme would not

be of interest. Instead of 300,000 units at least 800,000 units have to be installed.

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5.2 Case Study 2 - Off-Grid PV for Rural Electrification 5.2.1 Background and Context

The example that we choose in this case for illustration is the analysis of instruments to support off-

grid PV for rural electrification

Status of Off-Grid PV for Rural Electrification in Yemen

Much of Yemen is far from the grid and will not be grid-connected in the foreseeable future. It is desir-

able both in the interests of social solidarity and political stability that remote communities have access

to electricity at acceptable costs.

A large rural electrification programme has now been authorised, (the Rural Energy Access Project)

funded jointly by the World Bank, the AFD and the Islamic Development Bank. The creation of the new

Authority and the new Electricity Law were conditions of that loan. The overall project will cost $117

million; this will be financed mostly by concessional loans, of which $37.6 million equivalent will be in

local currency, but also including $25 million as a grant from the World Bank.

Where grid access is not economically viable, the project envisages small Solar Home Systems

(SHS). The cost per kWh equivalent will depend on the usage of the SHS, including the types of ap-

plication and the amount of use. Levelised costs for the systems proposed were estimated at

$0.81/kWh, $0.71/kWh and $0.94/kWh for 20 Wp, 50 Wp and 100 Wp systems respectively. The level-

ised costs increase with system size, because the sophistication of the systems envisaged increases

also. These costs suggest that the SHS’s are more expensive than a community-based diesel gen-

erator. Justification is based in the environmental benefits and the longer term sustainability of energy

supply.

Scope of the Case Study

The objectives of the case study are to examine a range of policy instruments that might support this

sustainable process and to analyse selected instruments in detail.

5.2.2 Evidence-based Policy Making

The procedure that we have proposed to implement evidence-based policy making comprises the fol-

lowing steps.

1. Alternative forms of intervention need to be reviewed and short-listed. Evidence of the suc-

cess or failure of similar instruments in developed and developing countries needs to be stud-ied with special emphasis on the conditions that created success and failure

2. There must always be a base-case against which alternatives are screened. Alternatives should include all available instruments.

3. All the relevant potential impacts need to be identified and where possible, quantified 4. Impacts should be assessed in consultation with the subjects of policy 5. 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 compli-ance need to be worked out as does the procedure for monitoring impacts.

48


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6. Indicators need to be established of what is expected from the policy measures. These indi-cators 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

7. Quantitative analysis of impacts is essential. The analytical method most commonly used is economic cost-benefit analysis.

8. Cost-benefit analysis should take into account opportunity costs of energy and external en-vironmental costs.

9. 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 sec-

tion on theory-based evaluation and the last three steps are demonstrated in the section on economic

cost-benefit assessment.

5.2.2.1 Alternative forms of intervention

One can imagine several possibilities for achieving the specified objective. These include:

1. Distribution of highly subsidised PV systems to selected communities by a state entity; 2. Offer of subsidies to any purchaser; 3. Soft loans to individuals repayable over a period – possibly linked to a revolving fund.

The difficulty with options 1 and 2 is that the implicit discount rates of poor people are often extremely

high and therefore they are unlikely to invest in capital intensive projects. Another characteristic com-

mon to both options is that they require constant replenishment of funds from state resources or donor

funds and do not meet the test of sustainability. Option 1 suffers from the additional problem in that it

is discriminatory in favour of the selected communities. Option 3 in principle suffers none of these ob-

jections. It is non-discriminatory; if based on a revolving fund then it may be sustainable and does not

require constant additional funds.

We examine therefore Option 3, but also Option 2, because although it fails the sustainability test it is

close to the present intentions and therefore the comparison is interesting. We can simplify this com-

parison by representing the two options as a single option that comprises a partial grant and a partial

loan. The objective of the analysis is to calculate the costs of the alternatives to the state and to the

purchaser and to identify what specific conditions in either case might work.

5.2.2.2 Base Case

There is a choice of base case. We can compare PV rural electrification to a case where there is no

electricity available; this is difficult as it requires estimating the consumer surplus in various applica-

tions which cannot be reliably assessed. The alternative is to assume that the value of electricity is

self-evident and to compare its provision through small engines or by PV. We adopt the latter.

5.2.2.3 Impacts

The impacts will be a reduction in CO2 emissions. The parameters governing this extent of the reduc-

tion are problematic. Although we make our assessments against a base line represented by small

engines, it is not at all clear that this would be the case in practice. If the alternative were kerosene for

lighting then it is possible that the CO2 emissions would be comparable to those from small engines,

49


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but a reliable judgement on this would require considerable research.

In either case an assessment of CO2 savings would require knowledge of the number of systems in-

stalled; their power rating and the electricity generated. It seems unlikely, given all the uncertainties

that such a programme could be registered under the CDM and as shown in other case studies the

costs of registering programmes of small activities may well outweigh the benefits.

We therefore make no credit to the programme for CO2 emissions, although we do make an assess-

ment of their size, assuming an alternative of small engines.

There will be an impact on the economy of the individual / community. If no electricity is otherwise

available this may be significant; if electricity is available from other sources then the economic impact

will depend on the extent of the cost saving.

5.2.2.4 Consultation

Consultation with suppliers of photovoltaic systems is necessary to determine: what prices may be

achieved in large scale tenders; whether there are obstacles to procurement or installation and how

they can be overcome; whether they are willing to engage in such a programme and on what terms.

Consultation is also desirable with other Ministries operating in rural areas. It may be that extension

workers from health, education and agricultural services can help with basic advice on simple mainte-

nance and can supply information about the programme and support applications. This would avoid an

expensive duplication of machinery for delivering advice and support.

5.2.2.5 Compliance

The main compliance problem will be in ensuring that the money is used to buy photovoltaic equip-

ment and in recovering the payments. The systems will be installed by agents and their records must

be checked and verified by random checks on the ground. Penalties must be applied for fraud.

Obtaining could be difficult; it might be helped by the participation of a commercial bank to manage the

fund. In principle the solution is to take back the photovoltaic system, but this could be difficult in prac-

tice and it may have been sold on to a different owner. The problem can be serious, because if there

is one delinquent participant in a community and he is not penalised then the practice of non-payment

will spread.

This is a real risk; from an economic perspective it is simply a transfer payment from the state to the

delinquent participant and it is not a welfare loss, but it would destroy the sustainability of the revolving

fund. We incorporate into the analysis a loss of 20% of revenues, but note that performance in this re-

gard would need to be constantly monitored.

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

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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 de-

pends very much on the type of policy investigated.







evaluation.

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 under-

stand how policies work, how measures interact and how they can be improved

5.2.3.3 Behavioural Matrix

We specify the behavioural model as a form of logical framework in which the successive steps of pol-

icy 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 recog-

nisable behavioural assumptions; it depends very much on the type of policy investigated.

• 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.







evaluation. The behavioural model that we propose is shown in Table 13.

The risks identified can often lead to the definition of new flanking policies. For example, if other con-

sumers are unaware of the instrument then it will have no impact on their behaviour. It is necessary to

accompany the programme with a sensitisation of potential users and this could be done using exist-

ing extension workers in health, education and agriculture.

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Table 13: Behavioural matrix for instruments to support off-grid PV for rural electrification

Behavioural

model

Indicators

Input Output Outcome Impact Risks Assumptions

Assessment of

market and feasi-

bility study

Official time ($) Viable estimate of ini-

tial market; concept

paper (Y/N)

Preliminary sensi-

tisation of suppliers

(?)

Building support in

other Ministries

Preliminary sensi-

tisation of cooper-

ating Ministries (?)

Other Ministries will

assist; needs per-

suasion of health,

educational, agricul-

tural benefits

Creation of revolv-

ing fund and ap-

proval of instru-

ment

Official time ($) Agreed fund and pro-

cedures (Y/N)

Tender for agent to

manage fund

Official time ($) Tenders made (#)

Contract agreed

(Y/N)

No competent

agent is interested

Tender for and

purchase of

equipment

Official time ($)

Expenditure ($)

Firm tenders for

required volume at

acceptable price

(Y/N)

Tenders will be at

prices above ac-

ceptable limit

Contracts agreed Official time ($)

Expenditure ($)

Systems available

(#)

Awareness cam-

paign in appropri-

ate regions

Official time ($) Applications to

Fund (#)

No market interest Other Ministries will

assist on the ground;

see above

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Behavioural

model

Indicators

Input Output Outcome Impact Risks Assumptions

Applications re-

viewed, evaluated

and approved

Official time ($) Systems installed

(#)

Development

gains and CO2

savings (#)

Repayments

sought

Revenue to fund

($)

Fee to agent ($) Repayments will

be hard to recover

New cycle of re-

volving Fund as

repayments are

received

Official time ($) New systems in-

stalled (#)

Development

gains and CO2

savings (#)

Bad loans and ad-

ministration costs will

not deplete Fund

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 Cost-Benefit Assessment

5.2.4.1 Methodology Applied

The cost-benefit assessment of photovoltaic systems (PV) compared to small engines obliges us to

consider what value to give to the opportunity cost to Yemen of the fuel used in the engines. This is

the benefit of the fuel to the national economy if it were not used in the application considered. In this

case the opportunity cost is the fob export price or cif import price (depending on whether Yemen is a

net importer of exporter of the fuel in question) plus the cost of delivering it to the site, which would

also be avoided if it were not used.

We could use either diesel or gasoline engines as a reference. Our policy instrument is aimed at indi-

viduals who would presumably use gasoline engines, despite the higher cost of the fuel, because die-

sel sets are too large and expensive for individual use. On the other hand, from a state perspective, if

a village were to be electrified as an island, it would be done using a diesel engine. For consistency,

we assume the fuel is gasoline because this is more consistent with individual households.

The key parameters for the assessment are:

• Typical load to be met, • Costs and performance of photovoltaic and battery systems, • Investment costs for gasoline engines, • Opportunity costs of gasoline,

In chapter 5.2.2.1 we discussed three forms of achieving a wide-spread use of PV equipment in rural

areas. The three policy instruments considered are:

• Distribution of highly subsidised equipment, • Direct subsidies to purchases of PV equipment, • Soft loans to individuals repayable over a period.

The following application of the cost benefit analysis tool lays emphasis upon the first two options by

discussing in general terms the required subsidy level. The difference between these two options is

marginal and is more determined by the most appropriate institutional framework and the overall ap-

proach of the rural electrification programme. This issue is not considered in the following analysis. As

it will be shown, the third option of soft loans will not be sufficient to provide adequate incentives -

there has to be always a very important subsidy element.

The subsidy issue is discussed under three different perspectives:

• Least-cost electricity supply - this level of analysis determines what would be the best option of de-

centralised electricity supply in rural areas. For this analysis an economic discount rate of 12% is considered which reflects the scarcity of government funds in Yemen.

• Commercial market conditions - this level of analysis assumes the situation of normal business un-

dertakings with free access to the credit market. For this analysis a market discount rate of 8% is used, which is the lending rate for solvent clients.

• Individual preferences of low-income groups in rural areas - this level considers the decision situa-

tion of low-income families in rural areas and determines the conditions which have to be fulfilled that they would participated in rural PV electrification programme. For this analysis a personal dis-count rate of 30% is considered, this reflects the fact that the families have difficulties to save

54


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money and are forced to use their revenues to cover the daily costs.

5.2.4.2 Assumptions and Data Base

We assume that the total load for an average house from lighting, TV and fans is 600 Wh per day and

that this can be supplied from a system of 200 W peak costing $1,000. We note that a system of this

size in the Yemen presently will cost $2,000, but this is high compared to international prices ($1,000 /

kW peak) and we believe that with bulk procurement and a much larger market size the cost could be

halved.

It is assumed that 10% of the total investment costs cover the cost of the batteries and that these bat-

teries have a life-time of 5 years.

The cost of a small gasoline engine is around $500 and the opportunity cost of gasoline, i.e the value

in international trade is at present around $600 / tonne. This we take as the cost in our reference sce-

nario, but it could easily rise much higher and we take $1,000 / tonne as a high price scenario.

Table 14: Basic Data for the Analysis

5.2.4.3 Cost Comparison Photovoltaic vs. Gasoline Diesel Generators

The first step of the cost-benefit analysis is the direct comparison of PV solar systems with gasoline

generators. The analysis is shown in Table15. For the two technology options the unit costs (levelised

costs over a period of 15 years) are determined.

It can be seen that the PV alternative is more expensive than the gasoline generators. For the above

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mentioned decision situations the results are as follows:

• Commercial market conditions (discount rate 8%): For a well-off family with the possibility to fi-

nance the investment with a bank-loan, the PV unit costs would be 0.65 US$/kWh compared with the lower costs of the gasoline generator with 0.54 US$/kWh

• Least-cost electricity supply (discount rate of 12%): Under a least-cost electricity supply strategy

the gasoline option would be less costly, 0.77 US$/kWh for the PV systems compared with 0.59 US$/kWh.

• Individual preferences of low-income groups in rural areas: For low income families the high in-

vestment for the PV systems are leading to perceived high costs (due to the high time preference expressed in the high discount rate) for the PV systems of 1.25 US$/kWh, compared with 0.83 US$/kWh for the gasoline generators.

5.2.4.4 Subsidy Level for Decentralised Electricity Supply

The next step of the analysis is to determine the required subsidy level, this question is analysed in

two steps:

• Required subsidies to make the PV systems competitive with the gasoline generators (see Table

16). • Required subsidies to offer to the rural families electricity at the same costs as the urban families

(see Table 17)

Competitive Decentralised Electricity Systems

The analysis presented in Table 16 determines the subsidy level for PV systems so that the unit costs

are reduced to the level of the gasoline generators. The subsidy is considered for the initial invest-

ments and the batteries. The result is described below:

• Under normal market conditions the required subsidy level is 23%. • With a discount rate of 12% - least-cost analysis - the subsidy for PV systems would be 28%. • To offer incentives to low income families the required subsidy level would be 38%.

Nation-wide Equal Access to Electricity

In Table 17 it is assumed that the electricity tariff is 0.15 US$/kWh and the required subsidy level for

PV systems is determined to offer electricity at the same costs.

• The subsidy level reaches 97% under normal market conditions. • Considering the cases of a least-cost analysis with a discount rate of 12% the subsidy for PV sys-

tems would be 98%. • If the situation of low income families is considered the subsidy level would amount to 99%.

56


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Table 15: Direct Cost Comparison - PV vs. Gasoline Generator

57


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Table 16: Determination of Subsidy Level 1 - Decentralised Electricity Supply (PV vs. Gasoline Generator)

Table 17: Determination of Subsidy Level 1 - Decentralised Electricity Supply (PV vs. Gasoline Generator)

58


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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 photovoltaics, the deconstruction helps to reveal the nature and extent of the financial

assistance that must be made to make the first projects commercial. This coherent perception helps to

frame the definition of the policy instrument and the cost-benefit analysis.

5.2.5.2 Results of the Analysis

The analysis shows that relatively modest subsidies might be sufficient to make solar photovoltaic

generation competitive with diesel generation at present market conditions.

Quite significant subsidies would be necessary if the objective is to offer decentralised electricity ac-

cess to the rural population. But this would be the case also for other electricity supply possibilities.

A decision to proceed under these circumstances would probably need to be taken as part of a large-

scale effort to develop a photo-voltaic industry in the Yemen with a guaranteed sale of the assembled

units into the rural electrification market.

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6. Institutional Reform in Yemen – Some Possibilities

The policy cycle is shown in Figure 2. There are institutional needs at all stages of this cycle. Decision

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 leg-

islature. In many countries Ministerial Decrees are used to elaborate on primary legislation.

formulate

Implement

monitorevaluate

reformulate Theory

Model

Indicators

Foresight Evidence

Figure 7. Policy Cycle.

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 de-

veloped 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 regula-

tions.

6.1 Reform of the Pricing System

Energy – electricity, transport fuels, natural gas – is subsidised in Yemen in all sectors to varying de-

grees (for details see Appendix). This pricing system causes very high economic losses for the coun-

try. Currently there is no discussion on concise models to increase prices to a cost-covering level or

even to international standards. However, subsidisation has been recognised by governmental bodies

as being one of the major energy and macro-economic problems. During half day seminar conducted

by the project team in October 2009 it was a consensus among participants that models to combat

economic losses by subsidies should be developed and that a general price reform is necessary. The

60


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open question still remains how such a completely new approach could be implemented.

At the time being, changes in prices have to be approved by the cabinet. However, the proce-

dure/mechanism of recommendations for new prices and especially how these prices should be calcu-

lated is not transparent. A first step for a reform of the pricing system is a study the World Bank cur-

rently compiles on tariffs in Yemen.

The situation for overall budget planning is comparably intransparent. Annually estimations of gov-

ernment revenues are made by the Ministry of Planning. However, these revenues contain a large

share of international donor sources (e.g. World Bank loans) and are therefore not accurately assess-

able in mid-term perspective. Expenses of the government have to be calculated as well. These two

sides – revenues and expenses – show considerable incoherence which leads to unreliable govern-

ment budgets. In this setting, long-term agendas for sustainable price policies are difficult to imple-

ment.

6.2 Communication Structures among Institutional Bodies

Most of the relevant institutional bodies that are (or can become) relevant for renewable energy (RE)

and energy efficiency (EF) are already existing in Yemen or are in the process of creation. This is a

valuable starting point. However, the project team found that in some cases communication structures

are not working sufficiently well to guarantee efficient coordination of large-scale, system-relevant pro-

jects. An inter-institutional communication system not only requires the institutional bodies themselves

– being the nodes of the net – but also the establishment of communication structures – the threads

that link the nodes. Communication could be facilitated, for example, by establishing an inter-

ministerial renewable energy and energy efficiency committee with regular meetings to coordinate and

streamline government activities on these fields.

6.3 Establish reliable Energy Statistics

Statistics are the foundation of policy making. This is especially important in the case of future energy

supply and demand structures: what is the shape of a reference development path, how are consumer

groups structured, how is energy consumption distributed among these groups? To answer these and

other relevant questions, sound energy statistics need to be compiled. An in-depth statistical system is

currently not fully established in Yemen and in the medium-term it is an ambitious task to establish

one, even with the assistance of international donors; but it is worthwhile to tackle this challenge.

6.4 Create basic Legal Framework for PPP

Currently Yemen does not have a sufficient legal framework for PPP, which handicaps economic de-

velopment to some degree. Public-private partnership in electricity supply is not adequately handled

by the very general provisions of the existing Investment Law. It is recommended to concentrate on

this topic in the near future, as it creates the basis for a sound and secure investment climate in

Yemen.

6.5 Broaden University Education

Some approaches have been made to integrate energy efficiency and renewable energy topics to the

syllabi of mechanical engineering at Sana’a University. This is a promising start. It is recommended to

61


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introduce further topics and spread them to other universities:

• Combination of engineering and economics: create sound knowledge on the energy economic

background of technology choices

• Sustainable development of energy systems: aspects of economic and energy system develop-

ment are more and more depending on global contexts like long-term energy supply and climate

change. Future generations of engineers and decision-makers need knowledge about these inter-

dependencies of national and global challenges, particularly in terms of long-term stable develop-

ment. Not only engineers are currently in lack of such interlinked competence, but also econo-

mists, architects and scientists from other branches.

Syllabi that cover the above mentioned topics could be established with international scientific coop-

eration. Different teaching and education models could be combined, starting with courses of about

one week duration as supplementary elements to traditional curricula. After the sound planning of al-

ternative courses of study, teaching could be accomplished by Yemeni and foreign experts. This

would also enhance the integration of Yemeni experts, teachers and students into the international

scientific community through conference visits etc.

6.6 Support the Way to an independent Efficiency and Renewable Energies Author-ity

The importance of energy efficiency and renewable energies has been recognised in Yemen. EF and

RE are viewed as generating positive effects on security of energy supply, stabilisation of electricity

grids, climate change and the creation of sustainable job opportunities for the country.

Currently both topics are in the responsibility of a specialised department within the Ministry of Elec-

tricity and Energy (MEE). It is planned to establish an independent RE-EF-authority in a two-step ap-

proach:

• Step 1: Still under the auspices of the MEE the RE-EF-department will be transformed to a “sec-

tor” (larger organisational unit than a department)

• Step 2: Creation of an independent authority.

The project team strongly supports this approach and recommends that this process be accelerated

and accompanied with international support.

The establishment of an RE-EF-Authority and the restructuring of the Public Electricity Company PEC

(unbundling into three authorities for power generation, distribution and transmission) are essential

elements on the way to favourable institutional conditions for the introduction of renewable energies to

the Yemeni energy system. For more information see above section on Comparison of Yemeni prac-

tice with international practice in energy efficiency.

6.7 Establishment of Standards, Labels and Audit Schemes

The project team is unaware of any efficiency standards and other practical approaches to foster effi-

ciency in Yemen. Instead energy consumption is rising with about 8 percent per year. Capital exten-

sive approaches and schemes should be fostered in the form of a policy package:

• efficiency standards combined with labelling for household appliances

• efficiency standards in industry

• awareness campaigns for the broad public a

• capacity building programmes for key decision-makers in industry and administration, including

technical trainings, international best practice examples and information on international funding

opportunities for efficiency measures,

62


Yemen.doc

• auditing programmes for buildings, especially public buildings like hospitals or administration build-

ings

• Demand-Side Management (DSM) measures

The Yemeni Organisation for Standardisation already applies different standards, e.g. the ILC Stan-

dard for electrical appliances. Own standards are currently not defined, but international standards se-

lected that fit the Yemeni situation. The institutional settings are suitable to integrate the formulation of

efficiency standards into the ongoing work of the Standardisation Organisation. It is recommended to

accelerate this process with international technical assistance.

Building codes were introduced in Yemen, but they don’t cover energy efficiency aspects. This should

be changed. Codes for the building sector are a very complex set of regulations to cover many types

of buildings. If domestic expertise to handle this task should not be available, international expertise

could be helpful.

As an outcome of the Energy Efficiency and DMS study and as a first step towards the implementation

of the national strategy for RE and EE, the MOEE prepared together with the World Bank a detailed

project proposal for a medium-size GEF project “Removing Barriers to Energy Efficiency Improve-

ments in the Republic of Yemen”. The project has been approved by GEF in January 2010. MOEE

will apply for a large scale GEF EE project in 2011, once the new budget of the GEF fund has been

established and allocated.

6.8 Create a domestic Industry for Efficient Appliances

The definition of standards is partly linked to a domestic industry and domestic products to which

these standards can be applied. Currently there is no such industry existing in Yemen. The Ministry of

Planning should assess in detail (maybe with technical support from international organisations) which

incentives to create a domestic industry for the production of energy efficient appliances should be set.

Many reasons and benefits make such an effort rewarding:

• Yemen is surrounded by population-rich Arab countries with growing markets for electric appli-

ances, therefore high growth rates of the industry might be realised

• Job creation effects of such an industry would ease some of Yemen’s economic challenges,

mainly high unemployment rate and low domestic added value

• An industry for efficient appliances could create valuable feedback effects with education and

training at universities (e.g. co-education at universities and in industry companies)

6.9 Foster Approaches in the Transport Sector

In recent years the Yemeni government has taken a first step towards a more efficient transport sys-

tem: it passed a prohibition for the import of old (i.e. mostly less fuel efficient) cars. Apart from this

promising approach there are no other measures in the transport sector to tackle the problems of air

pollution, traffic congestion and rising fuel consumption. These problems derive from mainly two

sources:

1) fuel-inefficient vehicles are numerous on Yemeni roads

2) there is no coherent transport planning approach

As a first step a detailed traffic flow analysis can reveal weak spots in Yemen’s large cities. Subse-

quently the introduction of traffic control systems (synchronised traffic light systems, ordered traffic

guidance and others) could help to structure the current traffic flow. This is particularly important as

63


Yemen.doc

the number of vehicles is growing, therefore increasing the need of advanced traffic flow guidance.

There is no public transport system in Yemen yet. In large cities such approaches are essential in-

struments to control growing traffic, especially commuting.

Average life-time of passenger cars and other vehicles is long in Yemen. Therefore inefficient vehicles

remain in the transport system for long time. In other countries, e.g. Iran, premiums were paid to

scrape old cars. Another (and less costly) solution could be compulsory scrapping of cars of certain

age. Efficiency standards are not fitting the current Yemeni situation as this could possibly cause unaf-

fordable costs to consumers; furthermore it would be very difficult to introduce such standards at all,

as can be seen from the case of emission standards within the European Union in previous years.

6.10 Renewable Energy Target and general Legal Approaches

Various very promising initiatives are underway in Yemen to foster renewable energies. The Yemeni

government decided on a 15% renewable electricity target by 2025. This is a realistic time frame and

such a target is also compatible with the future electricity system requirements and capabilities (re-

garding loss reduction and overall stability). However, this progress is capital intensive. Technical

problems with the grid derive from all levels: generation capacity (bringing sufficient capacity on-grid in

time), transmission (reduction of technical losses) and distribution (reduction of technical and non-

technical losses, reliable metering). Currently a project by World Bank is dealing with these problems.

Yemen passed an energy law in 2009 unbundling the electricity sector and allowing participation of

private enterprises. This is a step towards becoming more attractive for solvent investors in the future.

In a subsequent step a law on renewable energies should be passed. Such law typically contains

some kind of incentive to invest into renewable generation capacities, e.g. a feed-in tariff. However, it

has to be studied in detail whether a feed-in structure (or other types of incentive models) can be

made compatible with the donor-driven infrastructure development of Yemen.

6.11 Realise Projects and Initiatives

Wind power. A wind potential atlas has been compiled in Yemen, indicating around 34 Gigawatts of

exploitable wind power potential. Yemen thus is one of the most important countries for wind power in

the Arab region. A more detailed investigation of the potential is needed. From a practical perspec-

tive it is necessary to increase the number of sites, the levels at which wind speeds are recorded and

the period of monitoring. The existing wind atlas is based only on 2 site measurements at 40 m for

one year (Hodeihah and Mohka) and satellite data. It is not a fully comprehensive wind atlas, but a

meso-scale atlas.

Currently one large-scale wind power project is in the advanced planning phase: the 60 MW project in

Al-Mokha. Strong efforts should be made to realise this promising project, as valuable experiences

could be gained on technical issues, system integration and funding levels.

Solar water heating. Two companies in Yemen produced solar water heaters (SWH) during the period

2002-2005, but because of insufficient marketing concepts they went insolvent. Solar water heating

devices are low-tech. Therefore it would be possible to generate jobs among low-skilled workers in

Yemen by creating a domestic industry. Domestic demand for SWH could be controlled by either in-

troducing building codes that make a certain renewable energy supply share (in this case SWH)

obligatory, by raising energy prices that reduce pay-back times of SWH or by supporting the sale of

SWH by paying premiums per device to the consumer. The latter two options could also be combined.

Financing of premiums could be accomplished with a certain share of international donors.

64


Yemen.doc

The starting phase of such large-scale dissemination and penetration of SWH would have the typical

project structure of international technical assistance and of the international donor sphere. But after

this initial phase the deep penetration of SWH can only be accomplished in sustainable manner by a

far-reaching price reform, as high prices of fossil fuelled alternatives (electricity, diesel generators) are

a powerful means to make consumers care for renewable energy devices. The essential indicators to

concentrate on are the pay-back time of initial investment and the creation of knowledge among the

public about these pay-back times as well as maintenance of SWH equipment.

Photovoltaics. Yemen’s rural electrification programme will introduce SHS (Solar Home Systems) on

PV basis to off-grid. The project team recommends to concentrate on a very high share of local con-

tent. In the first project phase, local content will probably be low, as technical assistance will dominate

the implementation process. However, local stakeholders – consumers, maintenance staff, suppliers

etc. – should be integrated very strongly in the following phases. This bears the opportunity to estab-

lish sustainable domestic and local expertise in PV technologies which could be the first step towards

establishing a local industry.

Economical, Technological and Environmental Impact Assessment of National

Regulations and Incentives for RE and EE: Country Report Yemen

Yemen.doc

Annex 1

Mission Report



Yemen.doc

Mission Report

The country mission was successfully completed in the time span of October 9 to 14, 2009. The mis-

sion programme had been prepared with very good support from the Yemeni representative in

RCREEE's Board of Trustees.

The mission programme was as follows:

Date Programme Item

9 Oct. internal team meeting with local Consultant

10 Oct. Meeting with Geological Survey Board

10 Oct. Meeting with Ministry of Oils and Minerals

10 Oct. Meeting with Renewable Energy Society

10 Oct. Meeting with World Bank

10 Oct. Meeting with AFD

10 Oct. Meeting with GTZ

10 Oct Meeting with Dome Trading & Contracting Co.

11 Oct. Meeting with Ministry of Electricity and Energy

11 Oct. Meeting with Public Electricity Company

11 Oct. Meeting with Yemen Gas Company

11 Oct. Meeting with Al-Murrani Centre for PV Systems

12 Oct. Meeting with Environmental Protection Authority

12 Oct. Meeting with Ministry of Planning

12 Oct. Meeting with Sana'a University

12 Oct. Meeing with Ministry of Interior

12 Oct. Meeting with JICA

12 Oct. Meeting with Al Zubairi & Bro.

13 Oct. Half day Seminar

14 Oct. internal project team meeting

More stakeholders participated in the half day seminar. A list of stakeholders is attached in the follow-

ing Annex 2. Some 25 persons attended the seminar and engaged in lively discussions.

The seminar was held at the Mercure Sana'a Hotel. In accordance with the country tradition it was ini-

tiated by a prayer offered by Dr. Mohamed Alijadoumi, University of Sana'a. The seminar was opened

by Eng. Adel Dhumran. Deputy Minister Assistant of Electricity and Energy. The seminar had three

main objectives (1) to promote RCREEE in Yemen, (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 4) 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 5.



Yemen.doc

Annex 2

List of Stakeholders



Yemen.doc

List of Stakeholders

Organisation Contact Per-

son

Position email

Ministry of Elec-

tricity & Energy

Eng. Moham-

med H. Al

Sha-abi

General Director, Re-

newable Energy De-

partment

[email protected]

Ministry of Elec-

tricity & Energy

Wagdi Aman Chairman, Private

Power Unit

[email protected]

Ministry of Elec-

tricity & Energy

Eng. Gamil Al-

Agbhani

Director of Deputy

Minister Office

[email protected]

Ministry of Elec-

tricity & Energy

Adel Abdul-

ghani

Gneral Director for

Planning and Infor-

mation

PEC Abdulaziz

Noman

Deputy General

Manager for Genera-

tion and Transmis-

sion

Ministry of Elec-

tricity & Energy

Gamil A.

Thobet

Project Manager

Wind Farm

[email protected]

Ministry of Plan-

ning & Interna-

tional Cooperation

Eng. Hisham

Sharaf Abdalla

Vice Minister [email protected]

Ministry of Oil &

Minerals

Eng. Abdul-

malik M.

Aama

Deptuty Minister [email protected]

Ministry of Oil &

Minerals

Dr. Ismail N.

Al-Ganad

Chairman, Geological

Survey & Mineral Re-

sources Board

[email protected]

Ministry of Oil and

Minerals

Dr. Nageep M.

Aloj

Deputy Executive

Managing Director,

Yemen Gas Com-

pany

[email protected]

Yemen Petroleum

Company

Awadh Ahmed

Humran

Executive Deputy Di-

rector General

[email protected]

Yemen Petroleum

Company

Abdullatif A.

Mutahar

Director, Commercal

Affairs Unit

[email protected]

Yemen Gas Com-

pany

Abdulazis Sul-

tan

Environmental Man-

ager

[email protected]

Yemen Gas Com-

pany

Fouad Al

Dhobai

Manager of LNG Pro-

ject

[email protected]

Ministry of Water

and Environment

Ameen Mo-

hammed Al

Hmadi

Deputy Gernal Direc-

tor of Planning, Envi-

ronment Protection

Authority

[email protected]

Yemen Standardi-

zation, Metrology

& Quality Control

Org.

Eng. Ahmed

A. Y. Al-

Bashah

General Director [email protected]

Civil Avaiation & Dr. Abdo A. Assistand Deputy [email protected]



Yemen.doc

Meteorological

Authority

Almakaleh Chairman for Meteor-

ology

Sana'a University Dr. Tawfik Ali

Abdullatif

Assistant Professor,

Mechanical engineer-

ing Department, En-

ergy and Environ-

ment

[email protected]

Sana'a University Dr. Eng. Mo-

hammed A.

Al-Shaghadari

Energy-Environment-

Training-

Consultations

[email protected]

Dome Trading &

Contracting Co.

Ltd.

Abdulaziz M.

Da'er

General Manager [email protected]

Dome Trading &

Contracting Co.

Ltd.

Abdulsalam

Althari

Head of Trading &

Procurement

[email protected]

M.A.Alzubairi &

Bro.

Mohammed

M. Al-Zubairi

Sana'a Branch Man-

ager

[email protected]

GTZ Dr. Thomas

Engelhardt

Director, GTZ Office

Sana'a

[email protected]

Agence Francaise

de Développe-

ment

Christian

Flamant

Country Director for

Yemen

[email protected]

Ministry of Elec-

tricity & Energy

Dr. Andreas

Zoellner

Advisor for Renew-

able Energies (CIM)

[email protected]

Ministry of Elec-

tricity & Energy

Eng. Dirk

Weiß

Advisor for GIS [email protected]

JICA Megumi Shuto Project Formulation

Adviser

[email protected]

JICA Mohammed

Al-Riashi

Administrative &

Techncal Cooperai-

ton Assistant

[email protected]



Yemen.doc

Annex 3

Seminar Programme

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


Methodology and Policy for Energy Efficiency and Renewable Energies Half-day Seminar - Yemen, 13 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 the-

ory based policy evaluation for Energy Efficiency and Renewable Energy and the seminar will be used

to discuss some preliminary findings in Yemen.

The seminar will have the following structure:

1. Welcome, by Representative of the Ministry of Electricity and Energy

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 Yemen, by Abdusallam Mansoor Al

Janad and Nikolaus Supersberger

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

6. General Discussion to be continued over lunch

Annex 4

Presentation on Methodology


Sana’a: Seminar on Methodology and Policy, 13 October 2009

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

Page 1

Evidence based policy makingand theory based evaluation

Nigel Lucas




Page 2

Sana’a must be seen, however long the journey,

though the hardy camel droop, leg-worn on theway.




• Evidence based policy making

• Theory based evaluation

• The linkages

– Theory

– Indicators

• How we will adapt it

Page 3

Contents




Page 4

• What is Evidence Based Policy Making?

• Why do we need it? What have we been doing before -making it up?

• What is evidence?

Evidence Based Policy Making?




Page 5

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

“An approach to policy development and implementation which usesrigorous techniques to develop and maintain a robust evidence basefrom 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 theirpurpose?

What is Evidence Based Policy Making?




Page 6

•Policy often driven by prejudice or short-term politicalpressure

•Foreign consultants and agencies often prescribe remediesfrom home with little thought whether they are appropriate.Mimicry is not policy.

•Agencies have their own agendas and visions that mayconflict among themselves and with those of government

•Countries need well-resourced, in-house capabilities toanalyse and evaluate policy and more transparent processes

Why do we need it?




Page 7

• Evidence is any information that can be used to turn policyobjectives into feasible and effective policy instruments

• An evidence-based approach should show continuitybetween foresight, strategy, policy, and implementation

• Can distinguish three main components:

• hard data (facts, trends, survey information)

• analytical reasoning that processes data to illuminateproblems

• stakeholder opinion on an issue or set of issues.

What is evidence?




Need evidence and process

Page 8

Good evidence is necessary, but not sufficient

Use it well Use it poorly

Use good information

Use poor information

There are policy processes that:




Page 9

•Alternative forms of intervention need to be reviewed and short-listed. Evidence of the success or failure of similar instruments indeveloped and developing countries needs to be studied with specialemphasis on the conditions that created success and failure

•There must always be a base-case against which alternatives arescreened. Alternatives should include all available instruments.

•All the relevant potential impacts need to be identified and wherepossible, quantified

•Indicators need to be established of what is expected from the policymeasures. These indicators should cover outputs, outcomes andimpacts

•Intermediate indicators are important in helping understand howpolicies work, how measures interact and how they can be improved

The process of evidence-based policy making (I)




Page 10

•Impacts should be assessed in consultation with the subjects ofpolicy

•The cost of compliance needs to be assessed. Consideration shouldbe given to how these costs can be minimized.

•It is necessary to consider who pays the compliance costs; thereare generally alternatives with different implications for equity.

•The procedures for compliance need to be worked out and formonitoring impacts.

•Quantitative analysis of impacts is essential. The analytical methodmost commonly used is economic cost-benefit analysis.

•Cost-benefit analysis should take into account opportunity costs ofenergy and external environmental costs

The process of evidence-based policy making (II)




Page 11

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 implicitbetween a policy initiative (e.g. introduction of minimum energy performancestandards for electrical appliances) and the policy outcome (reducing energy andGHGs). The Figure represents the implicit theory of policy makers:

Introductionof MEPS

Consumer isempowered tomake a betterjudgement andchangebehaviour

Manufacturersareincentivised tomake moreefficientmodels

Market istransformedand inefficientdevicesbecomeobsolete

Energy useand CO2emissionsfall;Domesticmanufacturestrengthened

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




Alternative theories

Page 12

Introductionof MEPS

Consumers areindifferent toenergy use –buy only onprice

Manufacturersare obliged tomake moreefficientmodels

Market isswamped bypoor qualitysmuggledgoods

Energy useand CO2emissionsrise;domesticmanufacturefalls

Failure to be clear about the causal sequence by which a policy is expected to workcan result in poor and even contrary outcomes

Theory Based evaluation does not prevent us constructing a bad model but tells uswhat indicators we should examine to make sure things are going well




Page 13

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

Indicators should cover:

•inputs, i.e. the financial, human, technical or organizational resourcesused in the endeavour

•outputs, (objectively verifiable indicators that demonstrate the progressmade in implementing the measures, e.g. the creation of a minimumenergy performance standard),

•outcomes (immediate effects on the regulated subject, e.g. the offer ofnew products and retooling of production lines) and

•impacts (direct measurements of the improvements that the programmeis designed to bring about, e.g. more efficient products and lower energyuse).

Indicators




Page 14

Indicators and the theoretical models (Labels andstandards)

Causal sequence

Indicators

Risks Assumptions


Development of

standards and

supporting

measures

Administrative

time and effort

Standards

published and

supporting

measures in

place

Consumer

surveys show

consumers and

manufacturers

change

expectations

Inadequate

accompanying

measures;

consumers

unaware or

unaffected

Manufacturers

have confidence in

regulatory system

Manufacturers

incentivised to

make more

efficient models

New investment

and production

measures ($)

Strengthened

manufacturing

capacity -

inspection

Range of new

products

determined by

survey

Consumers choose

better devices; do

not seek non-

compliant cheaper

goods

Administrative

time and effort

in ensuring

compliance ($)

More

discriminating

purchases

Consumers

purchase better

quality products

– consumer and

market surveys

Low cost non-

compliant goods

excluded from

market

Electricity

consumption

lowered

Consumer

normally pays

more ($)

Better capital

stock in

households –

household

surveys; market

studies

Lifetime cost

decreases

Electricity

consumption

decreases

CO2 emissions

decrease

Manufacturing

base

strengthened




Page 15

Theory and the policy cycle

formulate

Implement

monitorevaluate

reformulate Theory

Model

Indicators

Foresight Evidence




Policies for EE

Page 16

• 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




Policies for RE

Page 17

• Targets and strategy

• Legal reform

• Institutional reform

• Standards and /or labels

• Financial incentives (Capital support)

• Feed-in tariffs and obligations (Operating support)

• CDM Finance

• Information

• Industrial policy




Page 18

A toolbox for policy formulation

1. Introduction2. Objectives and requirements for RE&EE support schemes3. Overview of the toolbox

a. Evidence-based policy makingb. Theory-based evaluationc. Cost-benefit analysis

4. Case studiesa. Introductionb. Regulatory framework for renewablesc. Incentive schemes for solar water heaters?d. Finance through the CDM (landfill)e. Market transformation strategy for renewables (pv)f. Energy efficiency obligationsg. Energy efficiency fundh. Energy audits?i. ESCOsj. Labels and standardsk. Public awareness campaigns?

5. Combining instrumentsa. Legislationb. Agencyc. National strategy

6. Technical assistance




Page 19

• 0$/tonne

• 2$/tonne

• 10$/tonne

• 50$/tonne

• 0$/tonne $0 / kW

• 2$/tonne $34 / kW

• 10$/tonne $170 / kW

• 50$/tonne $850 /kW

The price of carbon




Page 20

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

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

• Why should Yemen pay the difference?

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

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

Who pays and how?




Many thanks for

your attention

Page 21

Annex 5

Preview on Information Workshop


Yemen, Half-day Seminar on Methodology and Policy, 13 October 2009


Page 1

Preview of the Information Workshop

- December 2009 -

Martin Ehrlich




Page 2

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 formulationand „theory based“ policy evaluation

• Specific objectives of the project:

– Comparative analysis of EE & RE policies

– Provision of impact assessments of EE & RE policy and promotioninstruments in RCREEE countries

– Strengthening of the methodological basis for policy formulation

– Provision of recommendations for adjustments of the policy makingprocess




Page 3

• Presentation of the methodological basis:

– Evidence based policy making and planning procedures

– Theory based evaluation and procedures for applicationin practice

• Country specific conclusions

• Recommendations regarding the policy making process

• Presentation of Case Studies

– Case Study on EE promotion

– Case Study on RE promotion

Objective of the Training Component




Page 4

• 1st day: Senior decision makers

• Presentation of the Impact Assessment Project

• Key elements of the methodology

• Recommendation of the country assessment

• 2nd & 3rd day: Policy analysts and RE & EE experts

• Detailed presentation of the synthesis report and countryassessments

• Discussion of case studies with presentation of the methodologicalbasis

Audience for the Training Event




Page 5

Modules of the Training Event

Morning Session Afternoon Session

1st

day

Presentation of the National

Regulations and Incentives Project

Key principles of evidenced based

policy making and theory based

evaluation

Presentation of International Practice

Result of the Country Review

2nd

day

Presentation of International

Practice in the Synthesis Report

– International practice

– Assessment of RCREEE practices

– Energy planning and political

consultation process

Presentation of the Country Report

– Methodological basis for policy

preparation

– Assessment of the policy making

process

Country specific conclusions and

recommendations

3rd

day

Case study on Energy Efficiency

Selected EE policy instrument

Theoretical framework

Results of the case study

Country specific conditions

Case study on Renewable Energy

Selected RE policy instrument

Theoretical framework

Results of the case study

Country specific conditions




Page 6

• 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 andassessment

• 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• EE and RE policy making process• Policy implementation• Observations and recommendations

Programme for Senior Policy Decision Makers




Page 7

• Presentation on methodological basis (international practice andpractice in RCREEE countries)

• Evidence based policy formulation

• Theory policy evaluation

Including: Economic evaluation of policy instruments / Integration ofclimate policy benefits in RE & EE policy analysis

• Presentation of case studies (including the discussion of casestudies 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

Programme for Policy Analysts and Consultants




Page 8

• Key-documents for RCREEE countries

• Country Reports with the assessment of EE & RE policies andinstruments

• Synthesis Report

• Contacts within the RCREEE countries for networking andprofessional contacts

• Case Studies on evidence based policy preparation and andtheory based policy evaluation

Information Regarding the Available Project Results

Annex 6

Energy Situation in Yemen



Yemen.doc

Energy Situation in Yemen

In 1990, the Yemen Arab Republic (YAR) and People’s Democratic Republic of Yemen (PDRY)

merged to create Republic of Yemen (ROY). The unification has led to dramatic political and economi-

cal reforms in Yemen but also to a number of serious set backs for the national economy. Yemen still

belongs to the poorest countries of the world with a per capita GDP of US-$2001 770PPP and is the

poorest country in the MENA region. For comparison: Sudan has a per capita GDP of US-$2001 1610,

Morocco of US-$2001 3700 and the poorest country Sierra Leone US-$2001 480.

Table 18: General Information about Yemen in 2008

Population

(million)

GDP

(billion

$2000)

GDP

(PPP)

(billion

$2000)

Energy

production

(Mtoe)

Net en-

ergy

imports

(Mtoe)

Total

Primary

Energy

Supply

(Mtoe)

Elec.

Cons.

(TWh/a)

CO2

emissions

(b) (mil-

lion ton-

nes of

CO2)

22.4 12.4 19.4 16.5 -8.8 7.2 4.5 20.6

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

(b) CO2 emissions from fuel combustion only. Emissions are calculated using the IEA's energy bal-

ances and the Revised 1996 IPCC Guidelines.

Besides a lack of economic development, Yemen is projected to face a rapid population growth in the

coming decades. The energy sector plays a decisive role as population growth requires an extension

of energy supply in order to avoid social tensions and massive emigration.

1. Yemen’s Energy Mix

The energy supply of Yemen heavily depends on fossil fuels. Fig 8 shows that 99% of all energy de-

mand is contributed by oil and merely 1% by renewable energy. The total primary energy supply is 7.1

Mtoe. Figure 9 shows the historic development of the per capita total primary energy consumption for

the years 1980 until 2006 in tonnes of oil equivalent.



Yemen.doc

Figure 8: Yemen’s Primary Energy Mix, 2006

The trend indicates increasing demand for energy per capita since 1993. Primary energy consumption

reached a low point during the civil war in 1994. Yemen’s 2006 per capita primary energy demand is

still low compared to other countries in the MENA region, such as Syria (1.0 toe/cap), Jordan (1.4

toe/cap) or Lebanon (1.3 toe/cap).

Figure 9: Historical Primary Energy Consumption in Yemen, 1980-2006

2. Oil

Yemen’s General Corporation for Oil & Gas/Mineral Resources is an affiliation of several state-owned

subsidiaries, which are responsible for managing the industry contracts and relations with private op-

erators. All branches report to the Ministry of Oil and Mineral Resources (MOMR) which is responsible

for the national oil policy. However, contracts with foreign oil companies still require parliamentary ap-

proval.



Yemen.doc

Yemen is a small non-OPEC oil producer, trying to attract foreign investment. According to the BP

2009 Statistical Review of World Energy, the country’s proven crude oil reserves accumulated to 2.7

billion barrels in 2008. In 2007, Yemen's total crude oil production was 319,000 barrels per day, down

from 441,000 bpd in 2001. According to Yemen's Petroleum Exploration and Production Authority

(PEPA), this is due to the declining production at Masila and Marib, the country's two largest fields. In

2008, oil production further declined by 6% compared to 2007 to 298,000 barrels per day.

Figure 10: Historical Crude Oil Production in Yemen, 1990-2008

The national government estimates that the country holds around 9 billion barrels of oil reserves,

mainly due to the fact that offshore fields have not yet been explored. The government hopes to boost

oil production to 500,000 barrels per day in the next few years and to this end carried out an offshore

licensing round in 2007. However, oil production in Yemen heavily depends on private foreign compa-

nies.

Fig. 11 sketches Yemen’s pipeline network for transporting crude oil produced in three central areas.

The oil-producing regions are connected to three shipping terminals.



Yemen.doc

Figure 11: Yemen’s Infrastructure for Oil Transportation

Yemen currently has a crude oil refining capacity of 110,000 barrels per day from two refineries. The

Yemeni government is planning to upgrade the refining capacity in the near future. Currently 120,000

barrels of oil products are consumed daily in Yemen, therefore refined products have te be imported.

Among other plans about 50,000 barrels per day of refining capacity is expected to come online in

2010 from a joint venture announced between India’s Reliance Industries and Hood Oil. The refinery is

planned in Ras Issa on the Red Sea coast.Pricing structures are complex in Yemen. In general three

different rates for petroleum products exist, rates for

• international companies

• international oil and gas drilling companies

• national market.

Diesel for the national market costs about 35 Rial per litre (ca. 11 EUR-ct), gasoline 60 Rial/l, premium

gasoline 120 Rial/l and kerosene 35 Rial/l. However, diesel prices are further differentiated between

different consumer groups: Diesel for electricity generation (17 Rial/l), for trucks, for cement factories

and for other factories. All these prices for domestic consumers are strongly subsidised (compare Ta-

ble 19). There is currently no long-term goal to increase prices.

Table 19: Diesel prices in Rial/l for different consumer types, 2009. Consumer type Domestic price International price Difference / subsidy

Foreign company 112.75 112.75 0

Commercial and industry 70 42.75

Private households 35 77.75

Electricity production 17 95.75



Yemen.doc

3. Natural Gas

Total natural gas reserves (including associated gas and others) is estimated to be 11 tcf in Yemen

(310 bn m3 with conversion factor of 1 m

3 = 35.31 cf). 9.2 tcf are supposed to get exported as LNG

over the coming 25 years. Domestic consumption is forecasted to be 1.5 tcf in the same time frame for

power production. There might be about 7 tcf of additional natural gas reserves, and some of this gas

would then be used in the transport sector, for cement factories and power production.

Presently there is no joint planning of the power and gas sectors. But a joint committee has been es-

tablished and it is expected to start work soon. It is targeted to have a single plan for gas and power

development.

In former years the natural gas sector has lagged due to weak investment and marketing prospects.

Since international companies increased their investments in the Yemeni natural gas sector for explo-

ration and production, the LNG sector got a strong push.

Total-led Yemen Liquified Natural Gas (YLNG) possesses the production rights of more than 50% of

Yemen’s natural gas reserves for export. First shipping transfers are expected by the end of 2009 from

the LNG plant in Balhaf. This project consists of a 20-mile pipeline connecting the gas processing fa-

cilities in the Marib’s field to the liquefaction facilities and an LNG plant with an overall capacity of 6.7

million tons per year. The plant shall export approximately two-thirds of its production to the U.S. and

the remainder to Asia.

4. Electricity: Status and Outlook

Yemen’s power sector is managed by the state owned Public Electricity Corporation (PEC) which is

responsible for 70% of the country’s electricity generation as well as the national power grid. The re-

maining generating capacity is operated mainly by the British company Agricom which receives very

high prices for electricity.The Ministry of Electricity and Energy (MEE) is the policy making body and

de facto regulator of the electric power industry in Yemen.

In 2006, Yemen’s installed power generating capacity totalled 1.1 GW compared to 0.8 GW in 2000.

Power generation capacity needs to be further expanded in order to catch up with the rapidly growing

power demand entailing from urbanisation and population growth. According to the International En-

ergy Agency, electricity demand increases at an annual rate of 7%. Fig. 12 illustrates the historical

growth of Yemeni net electricity generation and electricity consumption from 1981 to 2005.



Yemen.doc

Figure 12: Historical Net Electricity Generation and Consumption in Yemen, 1980-2006

The Yemeni power sector is suffering from supply shortages especially during summertime. High elec-

tricity losses in the national power grid are a severe problem in Yemen. In 2003, power losses accu-

mulated to approximately 23%, ranking Yemen second in the MENA region. Electricity demand is

mainly driven by urban households, constituting 58% of total demand.



Yemen.doc

Figure 13: Electricity Consumption by Sector in Yemen

In the past years the Yemeni government has considered many different ways to deal with regular

electricity shortages. This included the restructuring of the PEC and an integration of the power sector

through small-scale privatization of power plants to create independent power producers (IPPs). Fur-

thermore, the government fosters the introduction of gas-fired power plants to free up oil for exports. Currently one power plant – Marib I – has been finalized but didn’t start operation yet. The reason is

that natural gas supply from Yemeni gas fields is not functioning sufficiently. Marib II and Marib III are

further natural gas power plant projects that are supposed to contribute about 340 MW of generation

capacity each. Siemens started to build Marib I in March 2005. In November 2007, the Saudi Arabian

government agreed to provide a US$ 101 million grant for this project. So far, much of Yemen's elec-

tricity infrastructure improvements have been funded by multilateral development organizations.

In 2006, the World Bank approved a $50 million loan to help finance the “Power Sector Project”. The

project’s objectives include relieving power constraints, enhancing electricity supply efficiency and

strengthening corporate governance in the electricity sector. It concentrates also on demand side

management. At the same time, the World Bank started to design a masterplan for energy which en-

visages the installation of 2,500-3,000 MW total power generation capacity by 2025.

Electricity prices are strongly subsidised in Yemen. For details see section Comparison of Yemeni

practice with international practice in energy efficiency.

5. Renewable Energy

In 2008, Lahmeyer International quantified the potential of different renewable energy resources in

Yemen. The study distinguishes between theoretical and technical potentials. Theoretical potentials

represent the physical, meteorological or biochemical energy available in a certain region and at a cer-



Yemen.doc

tain time or period. The technical potential is divided into gross technical and practicable potentials.

The former is defined as the achievable potential using known technologies taking into account differ-

ent technical factors (e.g. recovery factor of the resource, efficiency of the applied technology). Practi-

cal potentials take also into account grid accessibility.

Table 20: Grid-Based Renewable Energy Technical Potential in Yemen

Resource Theoretical Potential

(MW)

Technical Potential

Gross (MW) Practicable (MW)

Wind 308,722 123,429 34,286

Geothermal 304,000 29,000 2,900

Solar electric (CSP) 2,446,000 1,426,000 18,600

Biomass (Landfill Gas) 10 8 6

Hydropower

Existing Dams 1 - -

Major Wadis 12-31 11-30 -

Solar thermal

Domestic Solar Water

Heaters (SWH)

MWthermal

3,014

MWthermal

278

MWthermal

278

Table 20 indicates that solar power has by far the largest technical gross potential in Yemen but ranks

second in terms of practical technical potential as many potential plant sites are located more than 50

km away from the electricity grid. This implies that infrastructure investments are needed in order to

realise Yemen’s solar power potential. Coastal areas – from AL Hodeidah, down to Lahj and towards

Abyan – have a high potentals for wind power. However, it is estimated that about 60% of the theoreti-

cal potential could not be used due to shading losses, settlement and other exclusion areas. For quan-

tifying the technical wind power potential, the potential within 50 km distance from existing 33 kV and

132 kV networks was estimated. The volcanic areas of Dhamar Governorate have a high geothermal

power density. Tawilah sandstone layer in Sana’a, Al Hodeidah and Taiz governorates are the most

promising regions for geothermal energy development.

The national government and international donating organisations have set up different initiatives and

targets to promote renewable energy in Yemen. Based on the reference scenario of Lahmeyer’s

study, the government has approved a renewable electricity expansion target of 15% by 2025. The

mentioned renewable expansion targets are accompanied by the following technology projects:

• Wind power: The World Bank in cooperation with other international organisations and the

Yemeni government plan to publish a tender for a wind farm in Al-Mocha. The wind farm will

have a capacity of 60 MW.

• Currently a very large project funded by the Islamic Development Bank IDB, Worldbank and

other donors is in its starting phase: rural electricification via PV. Total volume is projected to

be around 300 million US$ of which 120 million US$ are guaranteed yet.

• Geothermal energy: Yemen’s geothermal resources are currently being assessed in different

projects. Geothermal pilot projects are run by the German Federal Institute for Geosciences

and Natural Resources (BGR) and the United Nations Environment Programme (UNEP). Fur-

thermore, the GEF (Global Environment Facility) trust fund will provide the Yemeni govern-

ment with US$ 1 million to establish a geothermal research project. The aim of this project is

to reduce the costs and perceived risks associated with geothermal power development and

investigate the best available site in the Dhamar-Rada’a field at the Al Lisi Mountain.

• Capacity building: Decision-makers and the public are educated on renewable energy through

workshops, seminars and awareness programmes. These efforts, however, are rather small-

scale and at an early stage.



Yemen.doc

• Other projects: Photovoltaics are used as a power source for different purposes in Yemen, in-

cluding telecommunication transmission (supply of microwave stations in the mountains with

almost 1,200 panels in total), television transmission (19 stations with a peak load of 14,800

MW), water pumping in rural areas (projects by GTZ and others), domestic applications in ru-

ral areas (solar water heating), schools and hospitals. However, the expansion of PV and

other renewable energy technologies is inhibited by several barriers. High investment risks,

unreliable institutional framework conditions, technical barriers and a lack of access to capital

and financial institutions make an implementation of renewable energy projects difficult.

In addition, subsidised electricity prices are a heavy burden for the deployment of renewable energy

technologies. In 2008, subsidies for domestic petroleum consumption were estimated at US$3.5 billion

or about 11% of the GDP. This includes both explicit subsidies which cover the difference between

cost of generation and selling price, as well as implicit subsidies in the form of investment cost and

fuel cost subsidies.

6. Energy Efficiency

Fig. 14 illustrates the primary energy intensity and the final energy intensity in Yemen from 1980 to

2007 in comparison to the regional average of the MENA region and the EU-27. Yemeni energy inten-

sity is rather high due to the low efficiency of industrial processes and end-use appliances. Further-

more, electricity losses during transmission and distribution are a major cause for high national energy

intensity (see above).

Figure 14: Primary and Final Energy Intensity in Yemen in Comparison to EU-27 and MENA

The Yemeni government has approved a strategy to improve energy efficiency by 15% until 2025 to-

wards a baseline development. However, the baseline of this target requires further specification. Fur-

thermore, the target is yet to be framed with effective and efficient policy measures for efficiency im-

provements. So far, Yemen has not adopted efficiency standards, labels or building codes. Interna-

tional donors in cooperation with the government are conducting different programmes to foster en-

ergy efficiency:



Yemen.doc

• Improvement of the national power grid: Aiming at reducing electricity losses, the Islamic

Development Bank, World Bank and other donors are funding a project which shall modernise

and extend the Yemeni electricity grid.

• Demand-side management: The government is considering energy efficiency and demand-

side management (DSM) measures to overcome energy shortages. In 2009, EnergySolve In-

ternational Ltd. completed a report funded by the World Bank which developed an institutional

structure for the effective implementation of demand-side management and energy efficiency

measures in Yemen. See section Comparison of Yemeni practice with international practice in

energy efficiency for details

Fig. 15 illustrates the impact of the outlined measures on power demand, peak load and greenhouse

gas emissions.

Figure 15: Benefits of DSM/EE Measures Proposed in the Action Plan of the World Bank Pro-

ject



Yemen.doc

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ESCO Science and Technology Vision, Volume 1, p. 45-50. Availabe online:

http://www.isesco.org.ma/ISESCO_Technology_Vision/NUM01/Ali%20M.%20Al-

Ashwal/Ali%20M.%20Al-Ashwal.pdf, accessed online: 10.05.2009.

Alice R. Buchalter (2008), “COUNTRY PROFILE: YEMEN”, Library of Congress. Availabe online:

http://memory.loc.gov/frd/cs/profiles/Yemen.pdf, accessed 10.05.2009.

Bernard Jamet et.al. (2008), „YEMEN MSP Project” GEF trust fund. Availale online:

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