TECHNISCHE UNIVERSITÄT BERLIN Renewable Energy Policy Framework & Barriers

TECHNISCHE UNIVERSITÄT BERLIN

Renewable Energy Policy Framework & Barriers

A look into the future prospects of the Egyptian market.

Supervisor, Dr. Franz Trieb

Author, Eng. Mohamed M. Abdelwahed

Integration of Renewable Energies Module , MSc Program of Energy Engineering Department, Technische Universität Berlin , El-Gouna campus

Renewable Energy Policy Framework & Barriers Integration of Renewable Energy A look into the future prospects of the Egyptian market MSc. Program of Energy Engineering

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Report Outline Topic Page 1- General energy context in Egypt……………………………………………………………………….3

1.1 Energy demand and supply 3 1.2 Energy sector institutional set-up 5

2- Renewable energy policy overview in Egypt……………………………………………………. 7

2.1 Incentives offered to the renewable energy sector 7 2.2 Private sector participation within the sector 7 2.3 Land usage & allocations for renewables 8 2.4 Renewable based projects in Egypt 8

3- Renewable energy barriers in Egypt………………………………………………………………..12

3.1 Product cost & pricing 12 3.2 Legal & regulatory 13 3.3 Market performance 14

4- Renewable energy policies globally…………………………………………………………………16

4.1 Renewable energy promotion policies 16 4.2 Emission reduction policies 21

4.3 Power sector restructuring policies 21 4.4 Distributed generation policies 23

5- Case studies for Renewable energy policy frameworks…………………………………..25

5.1 Policy framework in the U.S.A. 25 5.2 Policy framework in the U.K. 28 5.3 Policy framework in the Denmark 30 5.4 Policy framework in Germany 32 5.5 Policy framework in China 34 5.6 Energy master plan 2020 36

6- Policy recommendations for Red Sea governorate, Egypt……………………………….37

6.1 Background (Red Sea governorate) 37 6.2 Phase One (Setup an energy market) 38

6.3 Phase Two (Maintain market sustainability) 40


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Abstract Over the past three decades, Egypt as a country and the power sector in specific have continued to come short of the targeted renewable share within the energy mixture. The consistent depletion of fossil fuel reserves accompanied with rapid increases in energy consumption have crippled the economy and has strapped the post revolution appointed government with a huge financial burden. Recent reports from the ministry of electricity and energy have indicated a deficit of 25 percent between national supply and demand. Egypt has reached the dire necessity state where it needs to capitalize on the potential of renewable technologies. This report examines the current state of the local energy market and answers the question of energy as a national resource and not only as a commodity. Also, this work identifies market distortions that vary between financial, structural, societal and political which halted past development plans. The objective is to address the existing challenges and barriers through a set of enacted policies by stakeholders that stimulate and drive the renewable energy market into growth. The report includes a literature review that examines four different types of globally enacted policies; renewable promotion, emission reduction, sector restructuring and distributed generation. The intervention policies include legislations, incentives for investment, energy generation targets, renewable promotion strategies and guidelines for energy resource conservation. In this study, a research has been conducted to cover five different study cases (United States of America, United Kingdom, Denmark, Germany & China) with a focus on the respective governmental actions in each country to support renewable based energy. A holistic approach is taken into account where a background analysis on each energy market is covered, the development of the renewable sector over the years is investigated and experience lessons are extracted from each country. At the end, the report introduces an experimental energy market in the Red Sea governorate that should it be implemented, would work as a benchmark assessment tool for future national scale imposed policies. The proposed market is developed over two phases with recommendations for market structure, renewable promotion policies, cost reduction incentives and infrastructure development plans.


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1. General energy context in Egypt

1.1 Energy demand and supply

Energy is essential to Egypt’s economic growth for two primary reasons: it is a key direct driver of domestic development, and it represents a source of foreign currency associated with fuel exports. The country’s current primary energy sources are oil products, natural gas, hydropower, and to a very limited extent renewable energy resources. Crude oil production in Egypt peaked in the late 90s at nearly a million barrels per day, or 336 million barrels per year (bbl/y). By the late 2000s, production had fallen to 602,530 barrels per day (220 million bbl/y), an average annual decrease of 3.4 percent. Production continues to decline despite new discoveries and improvements in oil recovery techniques at mature fields. In 2008, remaining oil reserves were estimated at 3.7 billion barrels; the last major discovery was the Sakkara field in 1989. Official estimates of proven natural gas reserves are 68.2 trillion cubic feet in 2006/07. Independent international experts estimate reserves to be anywhere from 58.5 trillion cubic feet to 63 trillion cubic feet, although several reports have surfaced recently on post revolution Egypt showing it unexpectedly turning into a net gas importer. The forecasts differ according to assumptions about the effectiveness of governance, energy conservation measures undertaken, level of globalization and international cooperation, and local conditions. Although projections vary with regard to when Egypt’s fossil reserves will reach critical levels, most analysts agree that Egypt faces major challenges in meeting its growing energy needs based on conventional national resources. Electricity consumption in Egypt is increasing rapidly. According to government figures, the commercial sector experienced the most rapid average annual growth over the last five years (10.2 percent), followed by public utilities (9.4), government (8.3), agriculture (7.9), residential (7.5), and industry (5.9). Peak load demand has increased at an average annual rate of 8.1 percent over the last 10 years, reaching 18,430 megawatts (MW) in 2006/07. Egypt's electricity consumption grew by 95% in the period from 2001/02 to 2009/10 to reach a total of 127 billion kilowatts per hour. Egyptian electricity subscribers have witnessed a 28.5% increase in the period from 2004/05- 2010/2011 to 26.6 million subscribers. Assuming varying degrees of saturation in the end-use sectors, Egypt’s electricity use is projected to increase at an average annual rate of 5.7 percent from 2005 to 2030. Annual growth is expected to be 6.6 percent for the period 2005/06 to 2010/11, then declining to 5.8 percent for the period 2010/11 to 2020/21, and falling to 5.2 percent for the period 2020/21 to 2029/30. Demand is projected to reach 54,200 MW by 2026/27. Egypt’s two major end-users of electricity are the residential sector and the industrial sector. In 2006/07, these accounted for 36% and 35%, respectively, of the country’s total electricity consumption. The two sectors have also been major drivers of the rapid growth in electricity demand, accounting for 67 percent of the total growth in the last five years. Recent reports from the ministry of petroleum have indicated that Egypt the government has spent LE55 billion ($8.1 billion) in the first half of the current fiscal year 2012/13 for the energy subsidy bill and it is expected that the full-year bill will amount to LE110 billion ($16.3 billion). Peak load demand is expected to continue increasing at average rates of 6–7 percent for the next decade. Sources vary, however, on the precise rate of expected growth of the industrial and residential


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sectors. The main drivers of increased electricity demand are population growth, construction of housing units, and industrial development. This trend is likely to continue into the foreseeable future, although it may face temporary interruptions due to factors such as regional political turmoil.

To meet rising electricity demand, Egypt’s installed electricity generation capacity has grown steadily for the last 5–6 years, reaching 23,000 MW in 2007. New capacity installations between 2004 and 2007 averaged 1,500 MW per year. Egypt plans to reach a 32,000 MW capacity during the next five years. The additions are expected to come mainly from thermal sources that use highly efficient combined-cycle production technologies. Egypt will need to improve its power infrastructure in parallel with its increasing capacity.

Data of installed electricity generation capacity in Egypt from 1980 to 2009. Source:EIA

In 2006/07, natural gas fuel represented 69 percent of the total installed power generation capacity, oil 16.9 percent, and hydropower 12.8 percent. Hydro generating capacity remains constant at 2,700 MW, and the potential for increase is limited. Non-hydro RE (predominantly wind) represented 1 percent of the total installed generation capacity in 2006/07, and electricity from industrial co-generation units represented some 0.3 percent of the total.


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Shares of energy sources in the Egyptian market

Egypt’s dependence on fossil fuels—with its depleting oil resources, controversial estimates for natural gas reserves, and rising electricity demand and energy generation—represents a clear call for action. Energy-efficiency improvements offer enormous potential and must be taken more seriously. However, given the expected significant gap in resources to meet growing electricity demand and the efficiency limitations of available power-production technologies, the Egyptian government has chosen to consider nuclear power and renewable sources as new energy options. In the early 1980s, the Ministry of Energy and Electricity (MOEE), in cooperation with the United Nations Development Programme, began formulating the first “Egyptian Renewable Energy Strategy.” The 1982 strategy called for RE to provide 5 percent of annual primary energy consumption by 2000. This goal was modified in 1987, with the target year pushed to 2005. In the early 1990s, the target share was reduced from 5 percent to 3 percent by 2005, and in the late 1990s, the target was again revised, to 3 percent of annual electricity consumption by 2010. As a result of the continued underachievement of targets, The Egyptian government has formulated with Lehmeyer international Gmbh a new Master Energy Plan that targets a 20 % renewable energy generation by the year 2020 through a group of policies and incentives offered to drive the market expansion. The first phase of the plan should cover till 2025 and introduces scenarios for Wind & Solar energy, while the second phase extends to 2050 to cover all resources of renewables.

1.2 Energy sector institutional set-up

Egypt’s energy market is currently characterized as a single-buyer captive market, where the MOEE, via its affiliated companies and authorities, essentially holds monopoly over the distribution, transmission, and generation of electricity. The MOEE determines electricity prices for all sectors in Egypt. The rates are progressive for energy consumption levels in all sectors. Residential consumers benefit from a higher level of subsidy, but subsidies are provided to all sectors in varying degrees (with subsidies per kWh declining as consumption rises). Governmental decrees called for the elimination of these subsidies within three years. However, the recent economic crisis and the disrupted political scenery have prompted the government to switch from a speedy elimination of subsidies to a more gradual approach. Under Egypt’s current electricity laws, the MOEE is responsible for planning related to electricity generation, transmission, and distribution. Through its affiliated company the Egyptian Electricity Holding Company, the MOEE essentially holds a monopoly on generation, transmission, and distribution in Egypt. The MOEE supervises, and carries out almost exclusively, the execution of electrical power projects. Several authorities and agencies affiliated with the MOEE are responsible for the research and


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dissemination of information and for managing nuclear facilities, plans, and reactors. The Rural Electrification Authority handles the supply of electricity to rural areas, agricultural fields, and the Nile valley and delta.

Hierarchal structure for affiliated institutions of the MOEE.

The New Renewable Energy Authority plays the role of a governmental think tank that devises solutions for renewable energy challenges and develops policies, measures, and technological solutions aimed at advancing the sector. It also has a quasi-regulatory role because it is responsible for standardization, testing, and commissioning of RE systems at large. At the same, by being involved in policy and decision making for renewables promotion, the NREA plays the role of wind-farm project developer, operator, and maintainer, which may create some conflict of interests and goals. The Supreme Council of Energy (SCE) was established in 2006 by the prime minister’s decree as the highest policymaking authority in Egypt’s energy sector. The decree defines its responsibility as short- and long-term energy planning, with direct reporting to Egypt’s president with strategic issues in the energy sector including policy initiation, energy pricing and investment programs. The SCE is chaired by the Prime Minister and includes as its members the ministers of Petroleum, Electricity, Defense, Foreign Affairs, Investment, Industry, Water Resources and Irrigation, and Transportation and Housing. The Electric Utilities and Consumer Protection Regulatory Agency (ERA), established in 1997, is affiliated with the MOEE and is responsible for all licensing and grid-regulation activities related to electricity generation, transmission, and distribution. Within the current captive market structure and the MOEE monopoly, the presence of the ERA is not wholly justified. This is because a regulatory, law-enforcement body of the sort that is supposed to provide institutional checks and controls is indispensable only in a liberalized energy market. Two other institutions are handed the responsibility of daily operation and management of energy utilities and power stations, Egyptian Electrical Transmission Company (EETC) and Egyptian Electrical Holding Company (EEHC). They cover 99% of electricity supply in Egypt through a vertically integrated structure that monopolizes the market.


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2. Renewable energy policy overview in Egypt

2.1 Incentives offered to the renewable energy sector

The Supreme Council of Energy through the Egyptian government on 27/11/2009 issued a package of incentives to be provided by the ministry of investments for public participation in the wind power industry. The package included; government risk guarantee of PPAs for 20-25 year periods, selling price in foreign currency while operational & maintenance will be in local one, local component privileges are offered within tenders, government planned to prepare by end of 2012 all the required studies for implementing projects such as environmental & social impact assessment including bird migration and soil research studies, a governmental assigned committee shall give clearances and allocate all land permits necessary and exempting renewable energy equipment from custom duties. The primary direct incentive for RE technologies now in place is a reduced customs tariff for equipment and components. Under Article 5 of Presidential Decree 39/2007 concerning customs tariffs, “equipment and components as well as spare parts of new and renewable energies (wind and solar energy) are subject to 2% custom tax of value.” According to the Article, the Minister of Finance is authorized to designate these preferential tariffs via decree; however, since the decree has not yet been issued, the current procedure is to apply for the reduced customs rate. The New and Renewable Energy Authority (NREA) affirms that no application has been rejected to date. The necessity of financial schemes is accentuated in Egypt against a background of significant subsidies to fossil fuels, against which renewables must compete. There are no direct financial- support schemes specific to renewables in Egypt, targeting either suppliers or end-users. Support to industrial users could be mobilised from environment-oriented funds. The Egyptian Federation of Industries, through its affiliated Environmental Compliance Office (ECO), provides a soft loan of up to 3 million Egyptian pounds with subsidised interest of 2.5 percent. Other sources include the Egyptian Pollution Abatement Programme (EPAP) and the Public Private Sector Industries (PPSI) funds coordinated by the Egyptian Environmental Affairs Agency.

2.2 Private sector participation within the sector

Egypt’s current structure as a captive energy market, in which the government is a single buyer and holds a near-monopoly is not conducive for the rise of a significant power market. However, a proposed new electricity law, now in the process of being ratified, and its associated changes in market structure, offers incentives for private-sector participation in the energy market, including renewables. A newly proposed electricity law appeared imminent by the end of 2009 but has since been postponed due to the continued political instability. The law furnishes the legal grounds for private-sector involvement in generation and distribution activities. It will create a competitive and transparent energy market through third-party access to state-owned infrastructure, unbundling ownership of distribution system, focusing subsidy on low-income end-users, and integrating RE into the free energy market. Electricity transmission company will continue to be state-owned and to act as the transmission system operator (TSO)—the central hub and nervous system of the Egyptian electricity network. The proposed energy market structure under the new law is two-folds. First, there will be a regulated market in which unqualified consumers deal directly with utilities according to contractual templates set by the ERA. Second, there will be a competitive market where qualified consumers make contractual arrangements with accredited generators and suppliers. “A “qualified” consumer, as defined by the law,


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is one who has the right to choose its own electricity supplier.” Qualified consumers will probably be, at the initial stage, some transmission-connected, independent high-voltage, extra-high-voltage, and medium-voltage consumers. To facilitate such a structure, the law guarantees the presence of both public and private energy traders connected to the transmission system. Public traders will continue to sell to low-voltage (unqualified) high- and extra-high independent consumers via the current distribution system or through an extended private distribution system. Meanwhile, the law allows private traders to sell energy transmitted by the TSO to qualified consumers. The law expected to allow for a flexible trajectory of implementation paths, as the share of the competitive market can increase at different rates, according to experiences learned during the initial stage. Low-voltage traders could start to take part in the market as the share of the competitive market increases.

2.3 Land usage & allocations for renewables

The government has issued over the last decade several decrees for allocation of land for renewable based projects. . The lands will be used according to a usufruct contracts and to some rules approved by the cabinet depending on each project. An incentive package is included by NREA for the allocation contracts which include; NREA shall consider land preparation costs as part of the project investment costs and such costs shall be divided into installments between 3-5 years from start of operation. The land shall be recaptured at the end of project life time. The issued decrees;

- May 2006, Red Sea governer decree no. 136 to allocate 653 Km2 at Gabl Elziet. - May 2009, Presidential decree no. 138 to allocate 1229 Km2 at West Suez Gulf. - September 2009, a presidential decree No. 319 allocating lands in Upper Egypt, West & East of

the Nile to governorates of Beni Sueif, Minya, Assuit with total amount of 6418 km2. - December 2010, a presidential decree No. 738 to allocate 198 km2 north of the previously NREA

allocated land in the Red Sea in 2006. - Pending a decree, 3630 acres (75. 25 km2) is allocated for Kom Ombo Solar plant.

2.4 Renewable based projects in Egypt

2.4.1 Wind Projects

Current projects,

Hurghada 5 MW wind farm - Operational since 1993 through usage of hybrid technology (single, double & triple turbines). - Local component in manufacture is 40 % with turbine capacity between 100-300KW. - By 2010/11, production has reached to 7 GWH annually, which has saved 1.5 thousand tons of

equivalent oil and reduced carbon emissions by 4000 tons.

Zaafrana 545 MW wind farm - Operational since 2011 through different stages ( 60, 80,85,120 &160 MW) - Governmental co-operational protocols with Spain, Japan, Germany & Denmark. - Nordex, a German wind generator manufacturer, realized the first phase of the project. - The second and third extension phases are being undertaken by joint bidders Vestas

Deutschland GmbH and ABB New Ventures. - The final phase is valued around €75 million.


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Future plans,

200MW Gulf Elziet Wind farm, - Umbrella agreement with Egyptian Government, German Government, European Investment

Bank EIB and European Commission. - Contract of the Lot-1 was signed with the Spanish Company GAMESA in 14/ 7/ 2011 to supply,

erect wind turbines and SCADA system. - Civil and electric works (Lot 2 & Lot 3) are expected to be issued at early of 2012. - Expected Output 894 (350) GWh annually saving about 191.000 of Ton Oil equivalent, and

reducing 491 thousand ton of CO2 annually. - The project is expected to be operational in April 2014 and to employ up to 40 workers for plant

maintenance, in addition to more than 100 workers in the construction of the wind farm. - Project finances are 340 million Euro (880 mil $)divided; 191.5 mil loan from Kfw 14/12/2010, 50

mil loan from EIB 30 /9 /2009, 30 Mil as a grant from European Commission, 20 & 10 Mil form Neighborhood Investment Fund and National Indicative Program , 68.5 mil from Egyptian government.

420 MW wind farms in co-operation with Japan, I- 220 MW wind farm in Gabal Elziet - 40 year 38,864 billion Japanese Yen soft loan with 10 year grace period at an interest rate of

0.3 %. - Environmental, bird migration, and feasibility studies of the Project were finalized and expected - Contract planned to be signed with the consultant in March 2012. - Project expected to be operational by 2014 with an output of 983 GWh annually saving about

210000 of ton oil equivalents, reducing 540 thousand ton of CO2 annually.

II- 220 MW wind farm in west of Nile - Japanese Government assigned a Consultant in August 2010, to conduct the environmental

study, bird migration study, wind speed measurement study. - Installation of 10 measurement equipment has started in end of 2011 for an area of 4242 km. - The project is expected to be operated in 2016 with an output of 473 GWh annually. The project

will save about 102000 ton of oil equivalents, reducing 260 thousand ton of CO2 annually.

300 MW wind farms in co-operation with Spanish government I- 120 MW wind farm - Farm with investment of 120 Million Euro (40% commercial loan + 60% soft loan). - Tender will be tied to the Spanish market only. - Spanish government provided grant for environmental & feasibility studies.(completed) - Projected Output 536 GWh annually saving about 115000 tons of oil equivalents, reducing 294

thousand ton of CO2 annually. II- 140 MW wind farm - Investment of 170 Million Euro (40% commercial loan + 60% soft loan). - Tender will be tied to the Spanish market only. - Agreement in principle to finance feasibility study, tender documents preparation & contracting

through a grant. - The project is expected to be operated in 2016 with an output of 625 Gwh annually, saving about

134000 tons of oil equivalents, reducing 344 thousand ton of CO2 annually.


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III- 40 MW wind farm - May 2011 NREA has sent a preliminary copy from the tender documents concerning selecting

the consultant responsible for conducting the technical feasible study in addition to co-operating with NREA to prepare the tender documents to be issued in the international markets.

- Expected output of 179 GWh annually, saving about 134 thousand tons of oil equivelent, reducing 344 thousand ton of CO2 annually.

200 MW wind farms at Gulf of Suez in co-operation with Masdar - Financed through both Masder and NREA (220 Million dollar each). - NREA finances were agreed with African Development Bank (ADB) as following; 50 Mil from

Clean Technological Fund (1 Mil as non-refundable grant + 49 Mil as soft loan), 140 Mil as soft loan presented from African Development Bank (ADB), 30 Million dollar as local fund.

- The project is expected to be operated in 2016 with expected output of 894 GWh annually, saving about 191 thousand tons of oil equivalents and reducing 491 thousand ton of CO2 annually.

200 MW wind farms at Gulf of Suez - Protocol was signed between KfW, EIB, French Development Agency and the European Union. - KfW agreed in principal to present 67.5 Mil Euro for the finance of the project. - In November 2010, Neighborhood Investment Facility agreed in principle to participate in

financing the project with an amount of 10 Mil Euros as a grant. - The project is expected to be operated by the end of 2014 with an expected output 894

GWh/year, saving about 191 thousand tons of oil equivalents, reducing 491 thousand ton of CO2 annually.

Intalgia-Suez cement 120 MW wind farm - Part of the effort to lower energy consumption for intensive-energy industries. - Intalgia offered to build a private wind farm to supply its own factories. - NREA have received approval by prime minister on the memo. - The project environmental study was completed in April 2010 and approved by the

Environmental Affairs Agency. - The land usufruct agreement has been completed and currently under revision by the state

council.

250 MW wind farm on BOO basis - The project will be in co-operation with Egyptian Transmission Company where four companies

have submitted their offers & 10 developers were short listed. - Wind speed measurements will be completed in the selected site starting from Nov. 2010 till the

end of 2012.


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2.4.2 Solar Projects

Current projects,

Kuraymat 140 MW Integrated Solar Combined Cycle Power Plant - The project site is located nearly 90 km South Eastern Cairo. - The capacity of the project is 140 MW including solar share of 20 MW. - Orascom construction and industries completed the project in 2011. - Total area is 644 thousand m2, 1920 collector & 5370 mirror. - Net energy is 852 GWH annually, solar covers 34 GWH annually saving 10000 Tons of oil

equivelant. - Project finances amounted to 340 Million US Dollar as follow: 50 Million dollar grant from Global

Environment Facility (GEF) World Bank, 190 Million US Dollar soft loan from Japanese International Co- operation Agency (JICA) (0,75% interest – 40 years repayment period including 10 years grace period), 100 Million US Dollar provided by NREA through national banks.

Electrifying Marsa Matrouh villages with PV: NREA signed a protocol for co-operation with the Italian Ministry of Environment, Land and Sea to electrify two remote settlements in Matrouh Governorate by PV systems. The project consists of electrifying of 100 houses, 40 street light units, 1 school, 3 mosques and 2 medical clinic units. The project was completed by December 2010.

Future plans,

100 MW solar thermal plant located in Kom Ombo,Aswan. - Funded by with Kfw, World Bank & African Development Bank. - Total finances is 440 million dollar divided as; 100 Million dollar from CTF (99 mil as loan + 1 Mil

grant to prepare the environmental study and technical support), 170 Million dollar from the World Bank, 50 Million Euro from European Investment Bank, 50 Million Euro from French Agency Development, 50 Million Euro from German Government.

- Feasibility study expected to finish by the end of 2012.

20 MW Hurghada in co-operation with JICA - Tokyo Electric Power Service Company (TEPSCO) was selected for the feasibility study. - The solar radiation measurement equipment was supplied beside the supply of 2 modules to

measure the sand effect in since October 2011. - The expected duration of the project is 18 month started from 18 January.

20 MW Kom Ombo in co-operation with French development Agency - The feasibility study will be prepared through a grant presented from AFD with an amount of

800 thousand Euros. - The grant agreement between the ministry of international cooperation & AFD is under study.


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3. Renewable energy barriers in Egypt The need for policy generation in favor of renewables can be contributed to several “barriers” or conditions that limit public enthusiasm and investment flow. Barriers create an unjust market for renewables where they stand at disadvantage from conventional fuel resources and traditional energy schemes, identified as “market distortions”. Barriers vary from financial to structural to technological to societal ones; Egypt includes absence of a strategic state policy, low consumer awareness, subsidies of fossil fuels, traditional infrastructure that doesn’t support renewables, lack of local R&D, lack of technical skills, absence of fuel-risk schemes, high initial capital costs, high financial uncertainty, absence of a capital energy market, lack of regulatory framework and most importantly political instability.

3.1 Product cost and pricing

The continued debate between conventional & renewable energy resources is cornered around the issue of generation cost. Renewables push for “life cycle” basis for comparison as initial capital on a cost per unit basis ($/KW) favor fossil based systems. The global energy markets have in recent years come to accept the life cycle analysis as it accounts beside initial capital, future fuel consumption, future operation and maintenance costs, decommissioning costs and equipment life time which tilts the equation towards renewables. 3.1.1 Favored subsidies for competition Large public subsidies, both implicit and explicit, are channeled in varying amounts to all forms of conventional energy, which can distort investment cost decisions. Economic woes of the poor coupled with public pressure have continued to give immunity to fossil fuels subsidies from government restructuring plans. By the 2009/2010 financial year, the state spent 7.5 billion L.E. on power generation subsidies and if fuel subsidies are added, the total value would reach 16.5 billion L.E. which equals to around 25% of public deficit. The limited state financial resources have failed to offer renewables a fair match of subsidies or even the necessary funds for utilization of renewables. The window of opportunity for the Egyptian government to allocate necessary investments is limited under current conditions.

Public subsidies can take many forms: direct budgetary transfers, tax incentives, R&D spending, liability insurance, leases, land rights-of-way, waste disposal, and guarantees to mitigate project financing or fuel price risks. Large subsidies offered for fossil fuels in Egypt significantly lower final energy prices, putting renewable energy at a competitive disadvantage if it does not enjoy equally support schemes. 3.1.2 High initial capital cost Renewable energy investments generally require higher amounts of financing for the same capacity. Lower fuel and operating costs make renewable energy cost-competitive on a life-cycle basis, higher initial capital costs can mean that renewable energy provides less installed capacity per initial dollar invested than conventional energy sources. Due to Egypt’s continued budget deficit and low credit rating, capital markets demand a premium in lending rates for financing projects. The situation gets tougher for renewables as they have a higher capital risk up front more than conventional energy projects. Also, renewable systems are considered high tech where in normal circumstances face high taxes and import duties. These duties may exacerbate the high first-cost considerations relative to other technologies and fuels.


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3.1.3 Difficult fuel price risk assessment As discussed earlier in the report, data over Egypt’s reserve of fossil fuels and especially natural gas is highly debated. The absence of exact data accompanied with the state’s sudden change in 2013 from net export to import and the continued fluctuation of global prices have offered a difficulty to formulate a quantitive analysis on power generation capacity. Although Renewable energy technologies avoid fuel costs (with the exception of biomass) and so avoid fuel price risk. However, this benefit, or “risk-reduction premium,” is often missing from economic comparisons and analytical tools because it is difficult to quantify.

3.1.4 Unfavorable power pricing rules Renewable energy sources are expected to be located remotely from the electric power grid and may not receive full credit for the value of their power. Two factors are at work. First, renewable energy generated on distribution networks near final consumers rather than at centralized facilities. Thus, the “locational” value of the power is not captured by the producer. Second, some renewables (PV & wind) are an “intermittent” source whose output level depends on the resource. A zero price included for “capacity value” of the generation and an average price is paid at peak times (when power is more valuable).

3.1.5 Transaction costs Renewable projects may require additional information not readily available due to the lack of local R&D, or may require additional time or attention to financing or permitting because of local unfamiliarity with the technologies or uncertainties over performance. For these reasons, the transaction costs of renewable energy projects—including resource assessment, siting, permitting, planning, developing project proposals, assembling financing packages, and negotiating power-purchase contracts with utilities—may be much larger on a per-kilowatt (kW) capacity basis than for conventional power plants.

3.1.6 Environmental externalities The environmental impacts of fossil fuels often result in real costs to society, in terms of human health (i.e., loss of work days, health care costs), infrastructure decay (i.e., from acid rain), declines in forests and fisheries, and perhaps ultimately, the costs associated with climate change. Dollar costs of environmental externalities are difficult to evaluate and depend on assumptions that can be subject to wide interpretation and discretion.

3.2 Legal & Regulatory

3.2.1 Lack of legal framework for independent power producers As explained earlier in the report, Egypt’s institutional hierarchy for power generation, production and distribution is monopolized by the government. The absence of a capital market for independent entities limit global and local power producers from investing in the sector. Independent producers are incapable to sell to the utility or to third parties through power purchase agreements. Government utility negotiates power purchase agreements on an individual ad-hoc basis, making it difficult for project developers to plan and finance projects on the basis of known and consistent rules.


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3.2.2 Restrictions on siting and constructions Although most of Egypt’s high potential sites for renewables are located in remote areas, renewable projects for heavily populated – high consumption areas will face several obstacles. Egypt lacks a clear urban development plan for major cities as Greater Cairo (16 million inhabitants) or Alexandria (6 million inhabitants). Wind turbines, rooftop solar hot-water heaters, photovoltaic installations, and biomass combustion facilities may all face building restrictions based upon height, aesthetics, noise, or safety. Urban planning agencies are unfamiliar with renewable energy technologies and there are no established procedures for dealing with siting and permitting. Competition for land use with agricultural, recreational, scenic, or development interests can also occur.

3.2.3 Transmission access Although Egypt’s current transmission lines reach out to 99% of the population but that is only due to the heavily populate delta and Nile basin area. Western & southern areas with high renewable potential are located remotely from the current grid. Transmission access lines for renewables will have to go through vast desert areas where issues of maintenance and security rise. Also Egypt lacks the necessary infrastructure for transmission or distribution access for third parties (TPA), which offers direct sales between the third party and the end consumer. Such infrastructure is necessary if photovoltaic connected grid or private wind schemes should be applied in the future.

3.2.4 Utility interconnection requirements

The current lack of uniform requirements for individual home or commercial systems can offer a burden on utility connections. Safety and power-quality risk from non-utility generation is a legitimate concern of utilities. Incentives are needed to set more reasonable but still technically sound requirements for producers. In turn, the transaction costs of hiring legal and technical experts to understand and comply with interconnection requirements will be significant.

3.2.5 Liability insurance requirements Egypt’s utilities lack of renewables infrastructure poses excessive requirements for any new installation for liability insurance. “Islanding” considers a big challenge for small power generators especially home PV systems feeding the utility grid under net metering provisions. The phenomena “Islanding”, which occurs when a self-generator continues to feed power into the grid when power flow from the central utility source has been interrupted, can result in serious injury or death to utility repair crews. Although proper equipment standards can prevent islanding, liability is still an issue. Several U.S. states have prohibited utilities from requiring additional insurance beyond normal homeowner liability coverage as part of net metering statutes.

3.3 Market performance 3.3.1 Lack of access to credit

Egypt’s economic trouble continues to shed pessimism on the renewable energy market. The state’s credit rating has dropped to “C+” by the International Monetary Foundation, government budget deficit expected to reach 200 billion L.E. in 2013 and the foreign reserves have dropped to below 13 billion $, all reasons that hit the credibility of government commitment for planned projects or near future market expansion.


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In addition to, consumers or developers lack access to local credit and bank finances to invest or purchase renewable energy systems. In rural areas, “microcredit” lending is pushed into the agriculture sector and doesn’t exist for household-scale renewable energy systems. Available loan terms are too short relative to the equipment or investment lifetime

3.3.2 Perceived technology performance uncertainty and risk Proven, cost-effective technologies may still be perceived as risky if there is little experience with them in a new application or region. The lack of visible installations and familiarity with renewable energy technologies can lead to perceptions of greater technical risk than for conventional energy sources. These perceptions may increase required rates of return, result in less capital availability, or place more stringent requirements on technology selection and resource assessment.

3.3.3 Lack of technical or commercial skills or information National spending on R&D in Egypt is modest, accounting for only 0.2 percent of GDP in 2006. The bulk of government R&D funding is directed toward agriculture (48.6 percent) and health (17 percent). Engineering and energy both rank near the bottom 5 percent of funding priorities. Although efforts from the NREA, RCREE, Cairo University and local market players are noticeable but the market consensus agrees to the lack of required information. This could be contributed to several causes:

a) Lack of necessary equipment and facilities, labs, and machinery to develop lab production capabilities into prototype production and to begin working on problems of stability and efficiency.

b) Lack of research coordination where it is perceived to be scattered and based on individual initiatives and interests. Egypt’s main R&D actors do not coordinate their work effectively, including in the nascent wind energy industry. Moreover, research initiatives generally do not cater to industry needs and are driven instead by the sources of funding.

c) Lack of long term planning and clear objectives. Research in all active Egyptian institutes is organized according to yearly plans, which are developed for budgetary purposes and typically reflect a compilation of individual initiatives. However, there are no higher objectives for these plans that could fulfill the initial conditions for intra- or inter-organizational coordination.

d) Lack of effective support to overcome technical challenges. This is perceived due to the over reliance of local market players on their foreign partners and to the general in-effectiveness of R&D activities on the industrial sector in Egypt.


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4. Renewable energy policies globally The upfront cost of Renewable energy systems acts as the main constraint against the sector development which mandates economic and political intervention. In Egypt the continued depletion of conventional resources coupled with annual increase in electricity use by 11% forces the government to imply support schemes both financially and technologically for the renewable’s market. Government intervention usually includes legislation, incentives to investment, energy generation targets, guidelines for energy conservation, strategies to stimulate the energy industry, and taxation. There is not one perfect support scheme that could be recommended for all countries. The choice depends upon different factors such as: the current market stage of the technologies, the budget available or the means of finance, the anticipated targets, as well as the desirability and feasibility of the technology mix, with regard to the natural conditions in the respective country.

As discussed in earlier chapters the Egyptian government has existing plans to implement some of these policies but in a rather ad-hoc manner. Other governments have implemented recently the renewable energy targets or “goals” as political context for promoting specific combinations of policies from all categories. Such targets focus on the aggregate renewable percentage in the total primary consumption or the minimum renewables share in electricity generation. Analysis and review of such practices as “success” could only be based on a predefined set of goals and objectives. In Egypt’s case, first and foremost is the deployment of renewable energy practices and expansion of the local market. Other goals are energy security, stabilization of prices, climate mitigation, environmental protection and job creation which will constitute the policy framework.

4.1 Renewable Energy Promotion Policies

Government policies which aims to support renewable energy fall into three main categories: a) price setting and quantity forcing policies, which mandate prices or quantities; b) investment cost reduction policies, which provide incentives that lower the total initial capital costs; c) market facilitation policies, which offer a wide range of public policies that tackle the market barriers and accelerate renewable’s market growth.

4.1.1 Price setting & quantity forcing policies These are considered a set of policies that stimulate the renewables market through either mandating utilities to comply with specific prices toward producers (Feed-In-Tarrif) or complying to generate a quantity of their distributed electricity by renewables (Renewable Energy Portfolio Standards). Often price-setting or quantity-forcing policies occur in parallel with other policies, such as investment cost reduction policies.

I- Electricity Feed In Tariff The term “feed-in tariff” derives from the German “Stromeinspeisungsgesetz” of 1990, which literally translated means “electricity feeding-in law.” A feed-in tariff (FIT) is an energy supply policy focused on supporting the development of new renewable energy projects by offering long-term power purchase agreements for the sale of renewable energy electricity.


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FIT purchase agreements are typically offered within contracts ranging from 10-25 years and are extended for every kilowatt-hour of electricity produced. The payment levels offered for each kilowatt-hour can be differentiated by technology type, project size, resource quality, and project location to better reflect actual project costs. Policy designers can also adjust the payment levels to decline for installations in subsequent years, which will both track and encourage development for cost reduction. In an alternative approach, FIT payments can be offered as a premium, or bonus, above the prevailing market price. Successful feed-in tariff policies typically include three key provisions: (1) guaranteed access to the grid; (2) stable, long-term purchase agreements (typically, 15-20 years); and (3) payment levels based on the costs of RE generation. This leads to minimization of investment risk which leads to lower interest rates on capital and thus lower cost. In countries such as Germany, policies include streamlined administrative procedures to shorten lead times, reduce bureaucratic overhead, minimize project costs, and accelerate the pace of renewable energy deployment. In addition, eligibility is typically extended to anyone with the ability to invest, including but not limited to homeowners; business owners; federal, state, and local government agencies; private investors; utilities and nonprofit organizations.

II- Renewable Portfolio Standard

Renewable portfolio standard or “quotas” requires that a minimum percentage of generation sold or capacity installed be provided by renewable energy. Obligated utilities are required to ensure that the target is met, either through their own generation, power purchases from other producers, or direct sales from third-parties to the utility’s customers. RPS obligations are placed on the final retailers of power, who must purchase either a portion of renewable power or the equivalent amount of green certificates. Two types of standards have emerged: capacity-based standards set a fixed amount of capacity by a given date, while generation-based standards mandate a given percentage of electricity generation that must come from renewable energy systems. In most cases, RPS policies were implemented as part of utility restructuring legislation. These are typically generation-based standards with phased implementation to allow utilities to reach incrementally increasing targets over a number of years. However, the amount of new and additional generation expected from these standards varies widely depending on existing renewable energy capacity.

III- Renewable Green Certificates Renewable green certificates are emerging as a way for utilities and customers to trade renewable energy production and/or consumption credits in order to meet obligations under RPS and similar policies. Standardized certificates provide evidence of renewable energy production, and are coupled with institutions and rules for trading that separate renewable attributes from the associated physical energy. This creates a “paper” market for renewable energy to be created independent of actual electricity sales and flows. Green certificate markets are emerging in several countries, allowing producers or purchasers of renewable energy who earn green certificates to sell those certificates to those who need to meet obligations but haven’t generated or purchased the renewable power themselves.


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IV- Centralized Bidding or Tendering Governmental bidding or tendering systems are one of the major policies for promotion of renewables in the electric power sector. These mechanisms have been applied in the early stages of development in UK and are presently employed for wind power in China under the name of concession program. As the name implies, the policy mechanism works by calling for bids from investors for RE projects. The lowest bid wins the project and is offered long term power purchase agreements to secure investment. It is essentially a market-based policy, which strives to develop RE projects at the least possible cost. The bidding system is utilized to cap the market, balance generation and avoid the mushroom effect.

4.1.2 Cost Reduction Policies

A number of policies are designed to provide incentives for voluntary investments in renewable energy by reducing the costs of such investments.

I- Subsidies & Rebates Initial capital outlay by consumers for renewable energy systems is reduced through direct subsidies, or rebates. These subsidies are used to “buy down” the initial capital cost of the system, so that the consumer sees a lower price. Programs are available through state agencies and municipality owned utilities for households and business though some programs are tailored for industry and public institutions as well. In some cases, rebates are coupled with low or now interest loans.

II- Tax relief a. Investment Tax Credit

This tax credit is implemented on businesses and a residence to relief purchase cost of renewable’s systems with few limitations.

b. Accelerated Depreciation Accelerated depreciation allows renewable energy investors to receive the tax benefits sooner than under standard depreciation rules. The effect of accelerated depreciation is similar to that of investment tax credits.

c. Production Tax Credit

A production tax credit provides the investor or owner of qualifying property with an annual tax credit based on the amount of electricity generated by that facility. By rewarding production, these tax credits encourage improved operating performance.

d. Property Tax Incentive These are generally implemented in one of three ways: (1) renewable energy property is partially or fully excluded from property tax assessment, (2) renewable energy property value is capped at the value of an equivalent conventional energy system providing the same service, and (3) tax credits are awarded to offset property taxes.

e. Personal Tax Incentive

Credits are offered to replace personal income tax for purchase or/and conversion to eligible renewable systems or fuels. Taxpayers can deduct the interest paid on loans for renewable equipment.


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f. Sales Tax Incentive

Policies provide retail sales tax exemption for eligible renewable systems and renewable fuels. Sales taxes are covered 100% for capital expenses, and provide specific cents-per-gallon exemptions for renewable fuels. Some policies specify maximum or minimum sizes for eligible systems.

g. Pollution Tax Incentive Incentive that offers renewable or “green” energy sources exemptions from fossil fuel environmental taxes.

h. Other Tax Exemptions A variety of other tax policies exist, such as income tax exemptions on income from renewable power production, excise duty and sales tax exemptions on equipment purchased, and reduced or zero import tax duties on assembled renewable energy equipment or on components.

III- Grants

International organizations, institutions, NGOs and government offer a wide range of non-refundable grants to developing countries in order to facilitate the expansion of local renewable markets. Some of these grants are utilized in part of global programs as the dessertec initiative in the mediterian region.

Locally, Governments offer grants as part of support schemes for newly installed renewable systems. This is an effort to lower the burden of initial capital costs on power producers.

IV- Loans Loan programs offer financing for the purchase of renewable energy equipment. Loans can be market-rate, low-interest (below market rate), or forgivable. Loans are available to virtually all sectors—residential, commercial, industrial, transportation, public, and nonprofit. Repayment schedules vary, with terms of up to 10 years common. Interest rates for renewable energy investments can often be 1% or higher than those for conventional power projects because of the higher perceived risks involved, so government-subsidized loans that offer below-market interest rates are also common. Renewable energy loans can take many forms. Residential loans may range from $500 to $10,000 or more, while commercial and industrial loans may extend to the millions. Funding comes from a variety of sources, including municipal bonds, system benefit funds, revolving funds, and utility penalty or overcharge funds. Financing may be for a fraction to 100% of a project. Some loan programs have minimum or maximum limits, while others are open-ended. Loan terms range from 3 years to the life of a project. Some loans are contractor-driven, and may include service contracts in the loan amount.

4.1.3 Public Investment and Market Facilitation Activities

I- Public Benefit Fund Public funds for renewable energy development are raised through a System Benefits Charge (SBC), which is a per-kWh levy on electric power consumption. Some analysts suggest that state clean energy funds seem to be one of the more effective policies in promoting renewable energy development to result from electricity restructuring.


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In general, the funds serve a variety of purposes, such as paying for the difference between the cost of renewables and traditional generating facilities, reducing the cost of loans for renewable facilities, providing energy efficiency services, funding public education on energy-related issues, providing low-income energy assistance, and supporting research and development. II- Infrastructure Policies Market restructuring policies supports market institutions, participants, and rules to encourage renewable energy technology deployment. A variety of policies are used to build and maintain this “market infrastructure,” including policies for design standards, accelerated siting and permitting, equipment standards, and contractor education and licensing. Additionally, policies to induce renewable technology manufactures to site locally, and direct sales of renewable systems to customers at concessionary rates facilitate market development.

a- Construction and design policies These are considered a package of policies around technology standards that include system installations standard, design standards based on life-cycle cost and operational performance requirements. b- Site prospecting, review and permitting Government intervenes to remove some of the technological barriers to renewable energy development through resource, transmission, zoning and permitting assessments. c- Equipment standards and contractor certification A variety of equipment-related standards and certification measures have been applied to ensure uniform quality of equipment and installation, increasing the likelihood of positive returns from renewable energy installations. Contractor licensing requirements ensure that contractors have the necessary experience and knowledge to properly install systems. Equipment certifications ensure that equipment meets certain minimum standards of performance or safety. d- Industrial recruitment Industrial recruitment policies are a package of financial incentives such as tax credits, grants, and government procurement commitments to attract renewable energy equipment manufacturers to locate in strategic areas. These incentives are designed to create local jobs, strengthening the local economy and tax base, and improving the economics of local renewable development initiatives. e- Direct equipment sales These programs allow the consumer to buy or lease renewable energy systems directly from electric provider at below-retail rates. Some programs provide a capital buy down.

III- Government Procurement Government procurement policies aim to promote sustained and orderly commercial development of renewable energy. Governmental purchase agreements can reduce uncertainty and spur market development through long-term contracts, pre-approved purchasing agreements, and volume purchases. Government purchases of renewable energy technologies in early market stages can help overcome institutional barriers to commercialization, encourage the development of appropriate


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infrastructure, and provide a “market path” for technologies that require integrated technical, infrastructure, and regulatory changes. IV- Resource Access Laws Renewable access laws address access, easements, and covenants. Access laws provide a property owner the right to continued access to a renewable resource. Easements provide a privilege to have continued access to wind or sunlight, even though development or features of another person's property could reduce that access. Easements are often voluntary contracts, and may be transferred with the property title. Covenant laws prohibit neighborhood covenants from explicitly restricting the installation or use of renewable equipment. Policy mechanisms include access ordinances, development guidelines addressing street orientation, zoning ordinances with building height restrictions, and renewable permits.

4.2 Emission Reduction Policies

Policies to reduce power plant emissions, including nitric oxides (NOx), sulphur oxides (Sox), and carbon dioxides, have the potential to positively affect renewable energy development. Many emissions-reduction policies create “allowances” for certain emissions (representing the right to emit a certain amount of that pollutant). Credits available to renewable energy generation can “offset” these allowed emissions. Such credits have market value, and are often traded to allow electricity generators to comply with emission regulations at least cost.

4.2.1 Renewable Energy Set Asides Considered as an action plan to reach national emission limits for nitric oxides, Eligible renewable energy producers receive these set-aside allowances and can sell them to fossil-fuel-based electricity generators to enable those generators to stay within their emission restrictions. The additional revenue from sales of these set-aside allowances can potentially provide financial stimulus for renewable energy development.

4.2.2 Emissions Cap & Trade Cap and trade policies are instituted to sulphur oxide emissions and facilitate least cost compliance. Credits (rights to emit sulphur oxides) were assigned for renewable energy projects or employed energy efficiency measures. Allowances are defined as one ton sulphur oxides produced per specific power generation power generation from renewable energy or equivalent consumption avoided by energy efficient revamping. Such law faces competition from fossil-fuel based producers as market price for credits were too low to justify renewables investment.

4.2.3 Greenhouse Mitigation Action Plan was designed to promote the capture of landfill methane gas for power generation, thus avoiding methane emissions (methane has a high “global warming potential”). The plan includes a group of incentives that support initiatives including development of biomass/landfill methane energy resources, and emission offsets from landfill methane and other renewable power generation.

4.3 Power Sector Restructuring Policies

Power sector restructuring is a set of policies to establish a fully competitive electricity market, where electricity generation, Trading, transmission, distribution and supply activities are fully unbundled. These policies aim to diversify energy sources and reform regulation institutions to harness renewables.


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Restructuring trends changes changing the traditional mission and mandates of electric utilities in complex ways, and affecting environmental, social, and political conditions.

4.3.1 Competitive Wholesale Market and Deregulation of Power Generation Prices Power generation is usually one of the first aspects of utility systems to be deregulated. The trend is away from utilities monopolies towards open competition, where power contracts are signed between buyers and sellers in wholesale “power markets.” Distribution utilities and industrial customers gain more choices in obtaining wholesale power. Such markets may often begin with independent-power-producer (IPP) frameworks. As wholesale electricity becomes more of a competitive market commodity, price becomes relatively more important than other factors in determining a buyer’s choice of electricity supplier. The potential effects of competitive wholesale markets and IPPs on renewable energy are significant. Wholesale power markets allow IPPs to bypass the biases against renewables that traditional utility monopolies have had where IPP frameworks have been explicitly enacted to support renewable energy.

4.3.2 End User self-generation Independent power producers may be the end-users themselves rather than just dedicated generation companies. With the advent of IPP frameworks, utility buy-back schemes (including net metering), and cogeneration technology options, more and more end-users, from large industrial customers to small residential users, are generating their own electricity. Their self-generation offsets purchased power and they may even sell surplus power back to the grid. Traditionally, regulated monopoly utilities have enjoyed economic advantages from large power plants and increasing economies of scale. These advantages are eroding due to new distributed generation technologies that are cost-competitive and even more efficient at increasingly smaller scales. In fact, newer technologies reduce investment risks and costs at smaller scales by providing modular and rapid capacity increments.

4.3.3 Commercialization of Utilities Historically, Utilities were government-owned and operated entities. Global trend has arisen in recent decades for transformation of utilities into private for-profit bodies that must act like commercial corporations. Even if utilities remain state-owned, they are becoming “commercialized”—losing state subsidies and becoming subject to the same tax laws and accounting rules as private firms. Privatization of utilities could produce either positive or negative impacts. The right political, environmental and public mandate structure could allow privatized utilities with new source of finance—capital from private debt and equity markets.

4.3.4 Supply Chain Unbundling Utilities in developing countries are hierarchical integrated, including generation, transmission and distribution functions. Under some restructuring programs, each of these functions is being “unbundled” into different commercial entities, some retaining a regulated monopoly status (particularly distribution utilities) and others starting to face competition (particularly generators). Unbundling can provide greater consumer incentives to self-generate using renewable energy. If retail tariffs are “unbundled” as well, so that generation, transmission and distribution costs are separated,


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customers have more incentive to self-generate, thereby avoiding transmission and distribution charges. Open-access transmission policies that go along with unbundling have been explicitly targeted to promote renewable energy in some countries.

4.3.5 Competitive Retail Power Market & “Green power” sales Competition at the retail level, the newest phenomena in power sector restructuring, means that individual consumers are free to select their power supplier from among all those operating in a given market. Competitive retail power markets have allowed the emergence of “green power” suppliers who offer to sell renewable energy, usually at a premium. Retail markets in conjunction with other renewable energy promotion policies have allowed for green power sales grow. Suppliers are forced to investment in new renewable energy capacity to meet demand, or buy power from other renewable energy producers.

4.4 Distributed Generation Policies

Transmission and distribution costs of energy could be burdensome for renewables as if summed up with power loss costs could contribute to half of the power transmitted cost. Regular procedures require transmission costs to be paid even if transmission capacity isn’t utilized. Distributed generation policies aim to facilitate and ease costs on renewables through the reform of traditional structures.

4.4.1 Net Metering Self-generation and co-generation facilities require a two way flow of energy between the customer, the grid and consumers. Net Metering allows the customer to operate at net production and net consumption modes; at power generation lower than consumption, the power flow is from the grid into the costumer and the meter reads negative. While at power generation excess than consumption, the power flow is into the grid and the meter reads positive. Such application enables customers to only pay for deficit power only, in addition to make substantial income during excess and in some cases allowed to carry over excess into the future. Net metering allows customers to sell power at wholesale rates or avoided costs which ensures installation cost recovery. Electricity providers may also benefit from net metering, particularly with customer sited PV which produces electricity during peak periods. Such peak power can offset the need for new central generation and improve system load factors.

4.4.2 Real-time Pricing (Dynamic Pricing) Utility rate structure in which the per-kWh charge varies each hour based on the utility’s real-time production costs. Because peaking plants are more expensive to run than baseload plants, retail electricity rates are higher during peak times than during shoulder and off-peak times under real-time pricing. When used in conjunction with net metering, customers receive higher peak rates when selling power into the grid at peak times. Under time-of-use pricing, summer peak demand by customers drops which allows the utility to avoid capacity additions.

Photovoltaic power is often a good candidate for real-time pricing, especially if maximum solar radiation occurs at peak demand times of day when power purchase prices are higher. At lower off-peak times the customer is likely purchasing power from the grid. Real-time metering equipment is necessary, which adds complexity and expense to metering hardware and administration.


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4.4.3 Interconnection regulations Renewables face several barriers in terms of grid connection laws and regulations. Interconnection laws go hand in hand with market deregulation to avoid preferences for conventional based producers. The set of laws also address the transmission costs barrier which allows remote application as wind energy to supply to urbanized areas (elimination of Pancaking). Interconnection laws provide legal access to renewable producers to the grid, determine the standards of physical connection and expense sharing regulation between producers and utilities. They also eliminate early market entrant preferences (Grandfathering) for capacity allocation in case of transmission congestion which is beneficial to wind energy development. Interconnection laws offer standards for power purchase/ sale contracts between producers and utilities to create a balance between requirements from small-based systems and that of large-scale producers. Under a standard agreement, renewable developers pay only for the direct costs of connecting the plant to the local system, but not for upgrades to the grid necessary to carry additional capacity. This allows generators to compete more equally.


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Source: Wikipedia, Renewable energy in the USA

5. Case studies for renewable energy policy frameworks 5.1 Policy framework in the U.S.A.

5.1.1 Background

Renewable energy has been part of the energy mix since early federal statistical records where taken in late 1940s. For the first 60 years of last century, renewable projects were solely dependent on hydropower. As per technology development, other renewables as biomass, wind and solar thermal have come to play a bigger role in terms of production. Contribution of renewables has witnessed fluctuating behavior due to local and international geopolitical factors. Some of the factors that effected renewables contribution; middle-east oil boom in the early 60s, Arab- Israeli war in the early 70s, implementation of the PURPA federal policy, economic regression in the mid and late 80s, natural gas production boom in northern America in the 90s and the rise of fossil fuel prices in 2000s.

During his inauguration, President Obama confirmed the federal state’s commitment to renewable energy by doubling production in the following three years. Based on data from the International Agency of Energy (IAE) for 2009, renewables accounted for 11.75% of domestic generated electricity in the USA at a total production of 464487 GWH. Hydro technology continued to dominate at 64% share while wind and solar have continued to show strong strides within the market. The state of California leads the way with 31% of renewable generation. It’s important to differentiate between federal and state policies in framework analysis. Currently all but four states have local legislation and incentives to promote renewables.

5.1.2 Policy development I- Federal Policies

The first taken by the federal government in 1978, PURPA (Public Utility Regulatory Policies Act) was enacted in 1978 in part to encourage electric power production by small power producers using renewable resources to reduce U.S dependence on foreign oil. The policy required utilities to purchase

4%

1%

9% 2%

0%

4% 0%

64%

0% 0%

16%

Municipal waste

Industrial waste

Primary solid biofuels

Biogases

Liquid biofuels

Geothermal

Solar thermal

Hydro

Solar PV

Tide wave

Wind

RE Electricity Generation USA

RE Generation 464487 GWH


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power from small renewable generators and co-generators, known as “qualifying facilities,” through long-term (10-year) contracts at prices approximating the “avoided costs” of the utilities. These avoided costs represented the marginal costs to the utilities of building new generation facilities, which could be avoided by purchasing power from the qualifying facilities instead. Avoided cost calculations typically assumed an aggressive schedule of escalating future energy prices, making contract prices to qualifying facilities quite attractive. PURPA set the avoided cost of generation in the range of very favorable rates which initially spurred many investments by renewable energy producers. However, by the 1990s energy prices had not risen as originally expected and a large number of natural-gas fired independent generation came on-line in California. Power surpluses emerged, wholesale power prices declined, and declining standard offer rates led to reduced competitiveness of renewable energy and a significant slowdown in construction of new capacity. In 1992, The ERPC (Renewable Energy Product Credit) was enacted which limited the federal laws in favor of more localized state laws. The REPC offered eleven different exempted and reduced federal taxes on renewable power projects in states. It also offered federal funding for renewable initiatives as “Wind Power America” and “Solar America Initiative”. Both Initiatives provided necessary support in terms of research and development for state’s governing bodies in the renewable fields, this included but not limited to technology potential assessments, policy framework studies and technology research programs. From the REPC, federal emission reduction laws were introduced. Under the 1990 Clean Air Act the United States instituted a cap-and-trade mechanism to reduce SO2 emissions and facilitate least-cost compliance. Under the Acid Rain sub-program, 300000 SO2 emissions allowances (rights to emit SO2) were set aside for utilities that employed renewable energy or energy efficiency measures. Allowances were to be earned from 1992 through 1999, allocated at a rate of one allowance (one ton of SO2 avoided) per 500 MWh of generation produced by renewable energy or avoided through increased energy efficiency. U.S. Environmental Protection Agency requires twenty-two U.S. states and the District of Columbia to reduce NOx emissions significantly by 2007. II- State Policies Renewable Portfolio Standards, many RPS policies have occurred as part of utility restructuring legislation. These are typically generation-based standards with phased implementation to allow utilities to reach incrementally increasing targets over a number of years. At least twelve U.S. states have enacted an RPS, ranging from 1% to 40% of electricity generation. However, the amount of new and additional generation expected from these standards varies widely depending on existing renewable energy capacity. Subsidies & Rebates, The United States launched a “million solar roofs” initiative in 1997 to install solar PV systems and solar thermal systems on one million buildings by 2010. The program includes long-term low-interest customer financing, government procurement for federal buildings, commercialization programs, and production incentives. Individual states also have capital subsidy programs for PV, with the California Energy Commission offering rebates of up to $4.50/peak-watt or 50 percent off the system purchase price. New York and New Jersey offered up to $5/peak-watt subsidies, and New York rebating as much as 70% of the cost of eligible equipment as of 2002. Tax reliefs have been especially popular in the United States, where a host of 11 federal and state tax policies address energy production, property investments, accelerated depreciation, and renewable fuels. State policies vary widely in scope and implementation. At least 17 states have personal tax


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incentives, 21 states have corporate tax incentives, 16 states have sales tax incentives, and 24 states have property tax incentives. An example of Infrastructure policies is found in Tucson, Arizona, which requires that commercial facilities achieve a 50% reduction in energy usage over 1995 Model Energy Code, and Florida, which requires that all new educational facilities include passive solar design. Net Metering, 38 U.S. states now have net metering laws. Size limits on net metered systems typically range from 10kW to 100kW, with the exception of a few states that do not limit system size or overall enrollment. Real-time Pricing, New York State offer real time pricing rates for large commercial and industrial customers that vary hourly according to the varying cost of generation. California installed 23,000 real-time meters for large customers at a cost of $35 million. In response, summer peak demand by those customers in the state dropped by 500 MW under time-of-use pricing, which would allow the utility to avoid $250-300 million in capacity additions. Green Markets, 30 U.S. states have green pricing programs. Four states have mandatory green power policies that require utilities to offer customers opportunities to support renewable energy. California became one of the largest markets, with over 200,000 customers, but this was aided by a 1 cent/kWh subsidy to green power, paid for by a system benefits charge.

5.1.3 Lessons learned

- Effectiveness of de-centralized policies as seen clear in comparison between federal and state

laws that cater for the resource type , potential, socio-political & economical characteristics of

each state.

- Renewable Portfolio Standard policies are only effective with a group of financial support

packages such as tax reliefs, subsidies & rebates.

- National emission reduction policies could produce a stimulating effect on the renewable energy

market.

- Real Pricing & Net Metering are necessary framework tools to maximize potential of solar based

installation & generation.


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5.2 Policy framework in the U.K.

5.2.1 Background

The UK, endowed with abundant coal and hydrocarbon resources, has long been a laggard in the development of renewable energy. From the mid-90s renewables began to contribute to the electricity generated in the UK. New targets have been set for reductions in carbon emissions and the promotion of renewable electricity power generation through commercial incentives such as the Renewable Obligation Certificate scheme (ROCs). Historically hydroelectric schemes were the largest producers of renewable electricity in the UK. Based on IAE data in 2009; renewable energy constituted 8.97 % of electricity generation. The most prominent statistic was wind technology surpassing hydro power for the first time in UK history. Potential of wind technology promise the trend continues in the future.

5.2.2 Policy development

The United Kingdom tried competitive bidding for renewable-energy-resource obligations during the 1990s under its “Non-Fossil-Fuel Obligation” (NFFO) policy. Under the NFFO, power producers bid on providing a fixed quantity of renewable power, with the lowest-price bidder winning the contact. With each successive bidding round (there were four total), bidders reduced prices relative to the last round. For example, wind power contract prices declined from 10 p/kWh in 1990 under NFFO-1, to 4.5 p/kWh in 1997 under NFFO-4.

The NFFO experience showed that competitively determined subsidies can lead to rapidly declining prices for renewable energy. However, there has also been criticism that the NFFO process encouraged competing projects to bid below cost in order to capture contracts, with the result that successful bidders were unable to meet the terms of the bid or ended up insolvent. This criticism proved valid in practice; contracts awarded to low-bidders did not always translate into projects on the ground. The UK abandoned the NFFO approach after the fourth round of bidding in 1997. In 2002, Renewable Obligations Law (RO) was introduced to set annual targets for RE production that reaches up to 10% by 2010. Utilities can meet purchase certificates from qualified renewable generators (REC). Start/Stop grants were offered to generators in order to switch production into renewable based systems. Yet at 250,000 micro installations only, in 2008 the newly enacted Energy law replaced it with a tariff based structure for Wind projects.

8% 3%

12%

18%

0%

0% 0%

29%

0%

0%

30%

Municipal waste

Industrial waste


Biogases

Liquid biofuels

Geothermal

Solar thermal

Hydro

Solar PV

Tide wave

Wind

RE Electricity Generation



29


- Competitive bidding without investment insurance proved unsustainable. NFFO encouraged

competing projects to bid below cost in order to capture contracts, with the result that

successful bidders were unable to meet the terms of the bid or ended up insolvent.

- Under the RO, market dependence on REC trading proved insufficient. Utilities have been

reluctant to sign long term contracts with renewable generators due to the uncertainty of future

pricing.

- RO proved as a biased system that restrained market development. It didn’t provide enough

support for non-specialists, micro-generation installations never had a fair opportunity in the

market.


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5.3 Policy framework in the Denmark

5.3.1 Background

Since the first oil crises in 1973 the main objectives of Danish energy policy have been: Security of energy supply, diversification in use of energy sources, environmental and climate aspects of the use of energy, cost effectiveness of energy supplies. Since then Denmark has since increased efficiency in use of energy through renewable energy development. Contemporary wind technology was born and came of age in Denmark. In the 1980s and 1990s, a dynamic research and production network evolved here, growing at an astonishing pace and resulting in the creation of a new industry. By 2001 there was 2500 MW of wind power already installed in a country of just over 5 million inhabitants. Based on IAE data, renewables accounted for an impressive 29.6% of domestic electricity generation. Wind technology contributed by 63 % of the total produced 36364 GWH. The Danish export of energy technology and especially renewables has in recent years grown stronger than the overall Danish export and as of 2008 the energy technology export constitutes 10% of the total Danish exports.

5.3.2 Policy development Denmark’s 97 % dependency on oil imports during the time of the oil crisis forced the government to take drastic measures in promoting renewable energy. In 1979, the government enacted an incentive’s policy package for renewables projects that offered rebates up to 35% of capital investment. It took only 10 years to dramatically shift almost half of the power production from inefficient, centralized, fossil fuel power supply to local, municipal or consumer-owned companies. Coincidently this is the amount of time it takes to build one atomic power plant, or roughly 1200 MWel. Denmark withdrew nuclear plants from national energy plans in 1985. The government enacted Feed-In-Tariffs in 1993, complemented with a group of production subsidies at 0.1 DK/KWH which allowed Danish wind industry to maintain a 50% market share of global wind turbine production for a number of years. The FITs have an incoherent mix of schemes; For PV the net –metering principle is the rule. The tariff for wind energy in Denmark depends on several variables: on which year the turbine went into operation, how many full-load hours they already delivered, and whether they are offshore or onshore. The tariff comprises a market power price element, power balance compensation and a government subsidy.

16% 0%

18%

3%

0% 0%

0%

0% 0%

0%

63%

Municipal waste

Industrial waste

Primary solidbiofuelsBiogases

Liquid biofuels

Geothermal

Solar thermal

Hydro

Solar PV

Tide wave

Wind

RE Electricity Generation Denmark



31

Early 2000s, obligations for wind power purchases above base load levels were removed. To compensate the industry, the government enforced in 2001 a large tax on fossil fuel generated electricity, from which green power sales were exempt, made green power economically competitive with conventional power. In result, one million green power customers signed up within the first year. In 2003, government imposed a renewable portfolio standard through a legislation that forced end users to purchase a minimum of 20 % from renewable sources. In 2004 the organizational structure of the Danish supply of power was dramatically restructured. The consumer owned power companies were commercialized as part of a politically compromise. Distribution, transmission and production became independent sectors with each their sort of framework. Distribution is the responsibility of local not-for-profit cooperatives, municipal, or companies with a concession. High voltage power transmission is the responsibility of energinet.dk, a new, wholly state-owned company. The level of support for FITs electricity produced from wind turbines was increased once again in the summer of 2008. New wind turbines as well onshore as offshore receive a price premium of €cents 3.3/kWh for 22.000 full load hours, in addition to € 0.3 cent/kWh in the entire lifetime of the turbine to compensate for the cost of balancing. Household wind turbines below 25 kW receive a fixed feed in tariff of €cents 8/kWh.


- Continued political commitment is considered a necessity for development of the renewables

market. Despite decades long politicking between neo-liberal and socialist governments, both

have maintained a proactively engaged in a holistic approach to remove market barriers. The

industry has benefited in dividends from the continued fine tuning.

- Denmark’ successful FIT scheme showed most valid criticism in practice, where the continued

wind power market expansions resulted in the increased burden on the tariff which forced the

government to halt the scheme in the mid-2000s.

- Denmark’s framework highlighted the need for a multi-faceted policy approach where mixture

of schemes is necessary to provide the optimum solution to renewables development.


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5.4 Policy framework in Germany 5.4.1 Background

Germany is the largest national economy in Europe, the fourth largest by nominal GDP in the world. Natural resources are not found in economically significant quantities except for lignite coal and potash salt, such that lignite based power plants have become the main source of electricity in Germany. Most fossil fuel resources are mostly imported from other countries. Based on the IAE data for 2009, renewable systems contributed to 18% of the total domestic generated electricity. Germany’s sector structure is considered by many experts the model for renewable globally due to the diversified mixture of sources. This is attributed primarily to the pioneering Feed-In-Tariffs policy implemented by Germany from 1990.

5.4.2 Policy development The first real Feed-In Law in Germany was the Stromeinspeisungsgesetz (StrEG) introduced in 1990, otherwise known as the Electricity Feed-In-Law. This took the form of a simple one-page bill for assisting producers of electricity from small hydro stations and wind energy installations. This bill required utilities to connect renewable energy generators to the grid, and to buy the electricity produced at a rate of 65-90% of the average tariff charged per unit to end-users. This tariff rate ensured a profitable business for wind power generators situated at very good locations, but was not high enough to allow Photovoltaic (PV) plants to be operated profitably.

Renewable based electricity generation in Germany under Feed-In-Tariffs

Source: German federal ministry for environment, nature conservation and nuclear safety

8% 1%

10%

12%

2%

0%

0% 24% 6%

0%

37%

Municipal waste

Industrial waste


Biogases

Liquid biofuels

Geothermal

Solar thermal

Hydro

Solar PV

Tide wave

Wind

RE Electricity Generation Germany



33

The StrEG was modified in several ways in April 1998 with the adoption of the Energy Supply Industry Act, and in 2000, the Erneuerbare-Energien-Gesetz (EEG), otherwise known as the 2000 Renewable Energy Sources Act, was introduced in response to deregulation of the German electricity market in 1998, and a number of other problems with the StrEG. The EEG introduced a number of changes, including a differentiation in tariff rates depending on the renewable energy type, size and site. It also extended the range of technologies to be covered, and replaced the StrEG’s percentage-based rates with fixed rates over fixed periods - 20 years from the start of operation of each new qualifying plant. The tariff rates were determined by scientific studies, which determined the tariff figure that would allow profitability and the use of state-of-the art technology. The Act also provided that adjustments in rates could be proposed every two years. The rates at which the guaranteed tariff would reduce each year (annual digression rates) were also set fairly high in the amendment, ranging from 1%-6.5% annually depending on the technology.

The laws outlined above have had a major impact on facilitating the development of Germany’s supply of renewable energy. While Germany’s energy use has remained relatively stable, renewables have accounted for an ever greater portion of the electricity consumed, helping to limit Germany’s greenhouse gas emissions. It has been estimated that the EEG itself has directly saved more than 33 million ton of carbon dioxide from being released in to the atmosphere. From 2000 to 2004 the volume of electricity produced from renewable sources supported by the EEG increased from about 13.6 TWh. While energy produced from wind and biomass more than doubled in this period, there was also a nine-fold increase in electricity generated from PV systems in Germany.


- For startup countries, Feed in tariff provides substantial increase in market share of renewables

as it expands the network of producers from large-scale plants to small household generators.

- It is vital to include mechanism for tariff adjustment. If it's too high, windfall profits for

producers will follow and market balance will be lost. If it's too low, there will be no or little

enticement for investment.

- Tariffs based on a percentage system are unsustainable, at deregulated markets when

production increases and electricity prices go down, it simultaneously reduced incomes for

renewable energy producers below profitability.

- The end-user cost sharing mechanism is much more beneficial as it removes any burdens off the

national budget, in addition to creating public awareness and community participation within

the renewable sector.


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Source: Sciencedirect.com, Wind capacity in China

5.5 Policy framework in China

5.5.1 Background

China’s power industry has maintained continuous annual growth up to 14 % in 2007, a 2 billion populations and recent industrialization have made it the second largest energy consumer in the world. Equipped with 47% of global coal supplies, China’s coal-fired power output amounts to at least 78% of the national total. The drawback of such development was the increased carbon emissions and in 2006, china was the world largest emitter of pollution. Based on IAE data of 2009, renewables accounted for 17 % of electricity generated domestically. China in 2007 became the second largest clean energy producer in term of installations. China’s renewable sector is solely dependent on hydropower with a share of 96% of total 645 TWH renewable electricity generations. Other renewable sources especially wind have witnessed rapid recent development with the government inducing 10 billion $ of investment in the sector in 2007, second only to Germany. China became the world leader in wind power installation at 25 GW in 2009.

5.5.2 Policy development The Chinese government introduced competitive bidding for wind farm development in 2003, to steadily ramp up new wind power capacity at the lowest possible costs. After years of high wind electricity tariffs, the government hoped that such a concession approach would drive down and reveal the cost of wind farms in China. The first round of bidding took place in October 2003, with two projects awarded 200 MW. While the winning bid prices were significantly lower than any previous wind farm price in China, they were below the long-run marginal costs. Winning bidders are granted approval to develop the selected project site, a PPA for the first 30,000 hours of the project operation, guaranteed grid interconnection, financial support for grid extension and access roads, and preferential tax and loan conditions by the central government.

Municipal wasteIndustrial wastePrimary solid biofuelsBiogasesLiquid biofuelsGeothermalSolar thermalHydroSolar PVTide waveWindRE Electricity Generation China

RE Generation

645365 GWH

4%

96

%


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At the Beijing International Renewable Energy Conference in 2005, the Chinese government announced an ambitious target to achieve sixteen percent of energy consumption from renewable energy by 2020. After carefully examining the three options of the mandated market policies through study tours and workshops, the Chinese government decided to adopt the feed-in tariff approach. China passed Renewable Energy Promotion Law in February 2005, which took effect on January 1, 2006, making it one of the first countries in the developing world to adopt mandated market policies for renewable energy. While the Renewable Energy Law in 2005 provided critical principles and frameworks, it did not include detailed operational guidelines for implementation and enforcement, which were left to be developed in the Implementation Regulations. Contrary to expectations, the Implementation Regulation announced on January 1, 2006 did not apply the feed-in tariff to wind power, only to biomass. Biomass power tariffs are set at province-specific average coal prices plus a premium of RMB 0.25/kWh Chinese Renminbi, which is equal to three U.S. cents/kWh. Wind power tariffs, however, are established through the ongoing concession process.


- Concession prices were not viable financially. The highest winning bids price ranged from 4.6 to

6.2 U.S. cent/kWh, while lowest cost was estimated between 6.3 and 8 U.S. cent/kWh.

Consequently the number of bidders decreased in each of the following round.

- China’s experience highlighted the need for cost benchmark before implementation of FITs. The

lack of reliable data on large scale commercial projects from experience is blamed for the

postponement of FIT enforcement.

- The dilemma around Tariff enforcement on a national or a province level needed to be tackled

through intensive research, also attributed to FIT postponement was the need to prepare

regional markets through concessions based projects.


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5.6 Egypt’s Master Energy Plan 2020

The country has adopted an ambitious plan to cover 20% (12000 MW) of all generated electricity by renewable sources in 2020. Wind power is expected to meet its share of 7200 MW by annual additional installations of 550 MW, of which 200 MW will be generated through the NREA and the rest through private investors. Egypt’s primary locations for solar energy are able to offer 500 more hours of solar operation each year compared to Spain and Greece, the most favourable European locations. The first solar thermal power plant has been constructed at Kuraymat and contributes 140 MW. This location in the desert makes use of the extended unified power grid and expanded natural gas pipelines, as well as being near a source of water, the River Nile. Hydro-electric power generation has the potential to account for 14% of total generation by 2013. Together with wind energy, hydro power is central to the government’s renewable energy strategy. In theory, the Aswan High Dam Project can generate 2.1 GW, currently low water levels prevent this from being realised. A Russian company has been awarded the refurbishment of the power station to increase the capacity to 2.4 GW. Egypt is among the first countries to tap into the $5.2bn Clean Technology Fund managed by the World Bank in order to reverse its ever increasing greenhouse gas emissions. Other sources of finance for renewable energy projects include the World Bank Group, African Development Bank and the private sector.


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6. Policy recommendations for Red Sea governorate, Egypt 6.1 Background The Red Sea governorate overlooks the Red Sea Coast in the East, stretching over 119000 km2 with only 71 km2 populated (0.06%). The governorate’s location has a strategic importance as it is bordered in the West by eight Upper Egypt governorates, in the North by Suez and in the South by Sudan. Hurghada is the governorate's capital and the main western harbor for Egypt. The total area of the governorate covers 12% of Egypt’s area, where it is divided into 6 major cities; Hurghada, Safaga, Ras Gharib, Marsa Alam, Qusair and Shalatin. According to results of a 2010 census; the governorates labor force has reached 141,000 with 9% unemployment and 11% illiteracy rate. 95% of the population lives in urban areas with an annual growth rate of 25 per thousand. The governorate has almost 100,000 registered electricity users with an annual consumption of 1641.9 GWH, 20% of which is consumed by industrial facilities. There are 6 power plants operating on natural gas and Mazut (heavy liquid hydrocarbon from oil), with only two renewable based plants, one 5 MW wind farm and another pilot PV plant in Hurghada. Total electricity production is 952.91 GWH with the deficit between supply and demand covered from the national grid through two access points. The Red Sea governorate is by far the richest area in Egypt with natural resources as the area of Ras Gharib alone produces 70% of national oil production. In addition to several mining activities for metals and none metal ores together with ornament stones. Tourism remains the number one activity in the governorate as it is blessed with several natural protectorates that house a unique collection of sea creatures, birds and wild life. Also, the Red Sea coast offers unparalleled scenery which offered some of the most attractive touristic sites globally. The potential for renewable energy is vast in the governorate; plans for several projects are in place already as mentioned earlier in the report. The Red Sea witnesses solar Irradiance between 2250-3000 KWh/m2/annum and almost 1mm rain precipitation annum. Wind measurements have read wind speeds at

ground level that range up to 15 m/s and reaches to over 25 m/s at average turbine height. This section proposes a plan to create an energy market that taps the potential in the governorate and could act as a benchmark for greater initiatives on the national scale. The policy plan is divided into two phases; the first one aims to setup and stimulate the market through several promotion policies, while the second phase offers sustainability measures to maintain market development.

Red Sea emblem, source: redseagov.eg

Red Sea map, source: redseagov.eg

Red Sea wind atlas, NREA

report

Red Sea solar map, NREA


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6.2 Phase One (Setup an energy market)

Market Structure

- Red Sea Electrical Company (RSEC) owned by the governorate will act as a holding company for a Red Sea Transmission System Operator (RSTSO) & Red Sea Energy Regulatory Agency (RSERA).

- RSEC holds 51% share of 6 commercialized utilities, minority ownership for city municipals (30%) & private investors (20%).

- Third Party Access (TPA) of distribution & production allowed. (Example El-Gouna Electric Co.) - Under Co-ownership of NREA & RSEC, RSERA will introduce the Red Sea Power Market where

bilateral contracts between IPP & utilities are allowed. - Feed through several access points will allow National trade under RSERA standards.

Renewable energy promotion policies

- RSERA will offer tendered feed in tariff where caps are forced on utilities for each type of resource (fossil & renewables), producers receive a different payment based on avoided costs and technology development.

- RSERA in co-operation with an expert panel from regional research institutions will offer a tariff-adjustment & cap limit on a bi-annual rate.

- Qualification & Eligibility are extended to all able to invest and produce entities, from large scale plants to households.

- Guaranteed access to the grid for renewable-based producers after a two year RSERA registration period, While Utilities are penalized for over the cap trading.

- Net Metering will be applied to PV household installations.


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Cost reduction policies - RSEC will offer a subsidy on the end user electricity price to balance with the national prices. - RSEC will offer rebates for a margin of household PV investment costs. - RSEC will provide guarantees to banks for low interest rate loans offered to producers. - Producers will receive annual production tax credits depending on electricity generated. - Producers will receive sales tax credits for generated electricity and manufacturers for

equipment. - Producers will receive reduced import and duty taxes on equipment.

Infrastructure policies

- RSERA is responsible to enforce equipment standards and contractor licensing on the market, in addition to work with regional research institutions on resource, transmission, zoning and permitting assessments.

- RSEC through the governorate of Red Sea will offer a group of financial investments as part of manufacturers’ industrial recruitment in the local market.


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6.3 Phase Two (maintain market sustainability)

Market Structure

- Privatization of utilities where investors hold 51% share while municipal councils maintain a minority share of 49%.

- Commercialization or privatization of existing governorate owned power plants. - Red Sea Power Market will be deregulated into a “wholesale” free trading market but still under

the supervision of RSERA. - Introduction of “Spot Markets”. - Local producers will be allowed to trade in other national markets but a sales tax will be taken

off such transaction. Renewable energy promotion policies

- Although feed-in-tariff will be removed but the cap system will maintain enforced on new installations.

- Continued Guaranteed access to the grid for renewable-based producers after a two year RSERA registration period, and Utilities are still penalized for over the cap trading.

- Net metering will be extended to other cogeneration systems. - Real pricing will be applied to PV household installations. - New pollution tax will be enforced on fossil fuel based generation only.

Cost reduction policies - While all subsidies shall be removed, rebate programs should continue. - RSEC will continue to provide guarantees to banks for low interest rate loans offered to

producers. - Producers will continue to receive annual production tax credits depending on electricity

generated. - Producers will continue to receive sales tax credits for generated electricity and manufacturers

for equipment. - Reduced import and duty taxes on equipment will be removed and replaced by local R&D

funding programs.


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References

1. Deciding the Future: Energy Policy Scenarios to 2050, World Energy Council 2007. 2. Development of Renewable Energy policy in the MENA region, RECREE 2012. 3. Renewable energy mix for Egypt, Dr-Ing Hani El-Nokrashy, NOKRASHY ENGINEERING GMBH. 4. The importance of legal & regulatory framework for the development of renewable energy technologies, OSCE 2009. 5. Learning curves: a tool for renewable energy policy assessment, Lena Naij. 6. Cost effectiveness of renewable electricity policies, Karen Palmer & Dallas Burtaw. 7. Energy efficiency & renewable energy; Egypt’s national study, Rafik Yousry, NREA. 8. Renewable energy policies & barriers, Fred Beck & Eric Martinot. 9. Legal & regulatory framework of renewables to mitigate climate control, Xiaodong Wang, 2007. 10. The World Bank Group, Renewable Energy Toolkit Website, www.worldbank.org/retoolkit. 11. World Energy Outlook 2009, 2010, 2011&2012, IAE. 12. Cost development of future technologies for power generation—a study based on experience curves and complementary bottom-up assessments, Lena Naij. 13. Prospects of the Renewable Energy Sector in Egypt; Janet L. Sawin and Lisa Mastny 2010. 14. U.S. Energy Information Administration (EIA); Egypt energy profile 2011. 15. Egyptian Power Sector Reform and New Electricity Law, Hafez Elsalamawy, ERA 2012. 16. NREA annual report 2010-2011. 17. Egyptian Electricity Holding Company annual report 2010-2011. 18. Egypt State Information Services, Energy Outlook 2011-2012. 19. Clean Energy Investment in Developing Countries: Wind Power in Egypt, Mohamed Elsobky. 20. Report on renewable energy in Egypt, Egyptian-British chamber of commerce 2009. 21. Egyptian renewable energy activities & strategies 20x20, NREA. 22. Invest in Egypt: Renewable energy, Ministry of Investment Egypt 2009. 23. Concentrated solar power in Egypt, Amged Elhelewy NREA 2011. 24. California solar initiative: Annual progress assessment, June 2012. 25. A policymaker’s guide to feed-in-tariffs policy design, NREL 2011. 26. Financing concentrating solar power in the Middle East & North Africa, Dr. Franz Trieb 2010. 27. Review of best practices of solar electricity resources applications in selected Middle East and North Africa (MENA) countries, Antonis Tsikalakis 2010. 28. Fact book of renewable energy, RWE 2012. 29. Solar power generation in the US, Richard Perez. 30. German success story in renewable energy feed-in-tariffs, Miguel Mendonca. 31. Short and long term impacts of the expansion of renewable energy on the German labor market, Marlene O’Sullivan 2010. 32. Curbing global energy demand: Energy productivity opportunity, Mckinssey Global Institute 2007. 33. Danish renewable energy policy development, Preben Maegaard. 34. Generation & wholesale markets design, Prof. Ignacio J Pérez, MIT open course 2010. 35. The German feed-in-tariff: recent policy changes, Mark Fulton 2012. 36. Renewable energy policy implementation drivers and barriers for Abu Dhabi, Toufic Mezhar, Masdar. 37. Spatial mapping of renewable energy potential; Renewable & Sustainable Energy Reviews Ramachandra 2007. 38. Policy differences in the promotion of renewable energies in the EU member states, D. Reiche 2004.

39. Renewable Energy: A Global Review of Technologies, Policies and Markets, U. Laumanns 2006.

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TECHNISCHE UNIVERSITÄT BERLIN Renewable Energy Policy Framework & Barriers

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