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A project financed by the Ministry of Foreign Affairs of Denmark
Provision of Technical Support/Services for an
Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for
Renewable Energy and Energy Efficiency
Country Report Yemen
January 2010, revised April 2010
Norsk-Data-Str. 1
61352 Bad Homburg, Germany
Tel: +49-6172-9460-103, Fax. +49-6172-9460-20
eMail: [email protected]
http://www.mvv-decon.com
Döppersberg 19
42103 Wuppertal, Germany
Tel: +49-202-2492-0, Fax: +49-202-2492-108
eMail: [email protected]
http://www.wupperinst.org
Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Yemen
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Table of Contents Page
1. Project Synopsis 1
2. Summary of Energy Situation in Yemen 2
3. Comparison of Yemeni Practice with International Practice in Energy Efficiency 4
3.1 Strategy 4
3.2 Legal Reform 6
3.3 Price Reform 6
3.4 An Agency 8
3.5 Standards and / or Labels 9
3.6 Financial Incentives 10
3.7 Obligations 11
3.8 Audits and the Promotion of ESCOs 12
3.9 Transport and Spatial Planning 12
3.10 Dissemination of Information 13
4. Comparison of Yemeni Practice with International Practice in Renewable Energy 14
4.1 Targets and Strategy 14
4.2 Legal Reform 16
4.3 An Agency 18
4.4 Standards and /or Labels 19
4.5 Financial Incentives (Capital Support) 19
4.6 Feed-in Tariffs and Obligations 20
4.7 CDM Finance 21
4.8 Information 22
4.9 Industrial Policy 22
5. Case Studies 24
5.1 Case Study 1 - Efficient Lighting in Public Buildings 24
5.1.1 Background and Context 24
5.1.1.1 Programme of Activities 24
5.1.1.2 The Lighting market in Yemen 25
5.1.1.3 Scope of the Case Study 25
5.1.2 Evidence-based Policy Making 25
5.1.2.1 Alternative Forms of Intervention 26
5.1.2.2 Base Case 27
5.1.2.3 Impacts 27
5.1.2.4 Consultation 27
5.1.2.5 Compliance 28
5.1.3 Theory-based Evaluation 28
5.1.3.1 Methodology 28
5.1.3.2 Indicators 28
5.1.3.3 Behavioural Matrix 28
5.1.4 Cost-Benefit Assessment 33
5.1.4.1 Methodology Applied and Data Basis 33
5.1.4.2 Electricity Supply Cost 35
5.1.4.3 Emission Factors 40
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Table of Contents Page
5.1.4.4 Financial Analysis 1 - Individual Investor 40
5.1.4.5 Financial Analysis 2 - Electricity Company / Programme Manager PEC41
5.1.4.6 Economic Analysis 44
5.1.4.7 Sensitivity Test - Impact of the CERs Value 44
5.1.5 Conclusion 46
5.1.5.1 Methodology 46
5.1.5.2 Cost-Benefit Analysis 46
5.1.5.3 Programme of Action (PoA) as a Policy Instrument 46
5.2 Case Study 2 - Off-Grid PV for Rural Electrification 47
5.2.1 Background and Context 47
5.2.2 Evidence-based Policy Making 47
5.2.2.1 Alternative forms of intervention 48
5.2.2.2 Base Case 48
5.2.2.3 Impacts 48
5.2.2.4 Consultation 49
5.2.2.5 Compliance 49
5.2.3 Theory-based Evaluation 49
5.2.3.1 Methodology 49
5.2.3.2 Indicators 50
5.2.3.3 Behavioural Matrix 50
5.2.4 Cost-Benefit Assessment 53
5.2.4.1 Methodology Applied 53
5.2.4.2 Assumptions and Data Base 54
5.2.4.3 Cost Comparison Photovoltaic vs. Gasoline Diesel Generators 54
5.2.4.4 Subsidy Level for Decentralised Electricity Supply 55
5.2.5 Conclusion 58
5.2.5.1 Methodology 58
5.2.5.2 Results of the Analysis 58
6. Institutional Reform in Yemen – Some Possibilities 59
6.1 Reform of the Pricing System 59
6.2 Communication Structures among Institutional Bodies 60
6.3 Establish reliable Energy Statistics 60
6.4 Create basic Legal Framework for PPP 60
6.5 Broaden University Education 60
6.6 Support the Way to an independent Efficiency and Renewable Energies
Authority 61
6.7 Establishment of Standards, Labels and Audit Schemes 61
6.8 Create a domestic Industry for Efficient Appliances 62
6.9 Foster Approaches in the Transport Sector 62
6.10 Renewable Energy Target and general Legal Approaches 63
6.11 Realise Projects and Initiatives 63
List of Figures
Figure 1: US LNG Prices
Figure 2: Forecasts of Crude Prices to 2030 (DOE/IEA)
Figure 3: Derived Forecast of International LNG Prices
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Figure 4: Marginal cost of electricity from gas
Figure 5: Marginal Opportunity Costs including Emergency Generation
Figure 6: Emission Factors in grams of CO2 equivalent per kWh
Figure 7. Policy Cycle.
Figure 8: Yemen’s Primary Energy Mix, 2006
Figure 9: Historical Primary Energy Consumption in Yemen, 1980-2006
Figure 10: Historical Crude Oil Production in Yemen, 1990-2008
Figure 11: Yemen’s Infrastructure for Oil Transportation
Figure 12: Historical Net Electricity Generation and Consumption in Yemen, 1980-2006
Figure 13: Electricity Consumption by Sector in Yemen
Figure 14: Primary and Final Energy Intensity in Yemen in Comparison to EU-27 and MENA
Figure 15: Benefits of DSM/EE Measures Proposed in the Action Plan of the World Bank Project
List of Annexes
Annex 1: Mission Report
Annex 2: List of Stakeholders
Annex 3: Seminar Programme
Annex 4: Presentation on Methodology
Annex 5: Preview on Information Workshop
Annex 6: Energy Situation in Yemen
List of Tables
Table 1 Estimated savings from energy efficiency in the electricity sector
Table 2 Five year programme for DSM / EE
Table 3 Prices for petroleum products in Riyal and Euros
Table 4 Electricity tariff for 2008 and 2009
Table 5: Behavioural Matrix for a PoA on efficient lighting
Table 6: Cost-Benefit Analysis - General Data
Table 7: Cost-Benefit Analysis - Electronic Ballast
Table 8: Data for the Programme of Activity (PoA)
Table 9: Financial Analysis 1 - Individual Investment
Table 10: Financial Analysis 2 - Electricity Company / Programme Manager PEC
Table 11: Variation of the CERs / Carbon Credit Value
Table 12: Economic Analysis of the Programme
Table 13: Behavioural matrix for instruments to support off-grid PV for rural electrification
Table 14: Basic Data for the Analysis
Table 15: Direct Cost Comparison - PV vs. Gasoline Generator
Table 16: Determination of Subsidy Level 1 - Decentralised Electricity Supply (PV vs. Gasoline
Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for RE and EE: Country Report Yemen
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Generator)
Table 17: Determination of Subsidy Level 1 - Decentralised Electricity Supply (PV vs. Gasoline
Generator)
Table 18: General Information about Yemen in 2008
Table 19: Diesel prices in Rial/l for different consumer types, 2009.
Table 20: Grid-Based Renewable Energy Technical Potential in Yemen
List of Acronyms
AFD Agence Francaise de Development
BRT Bus Rapid Transit
CCGT Combined Cycle Gas Turbine
CDM Clean Development Mechanism
CER Certified Emission Reduction
CFL Compact Fluorescent Lamp
CNG Compressed Natural Gas
CPA CDM Programme Activity
CSP Concentrated Solar Power
CTF Clean Technology Fund
DANIDA Danish International Development Agency
DSM Demand Side Management
DNA Designated National Authority
EBPM Evidence Based Policy Making
EE Energy Efficiency
EHV Extra high voltage
EIA Energy Information Agency
EPC Energy Performance Contract
ESCO Energy Service Company
EU European Union
g gram
GEF Global Environment Fund
GHG Green House Gas
GJ Giga Joule
GWh Giga Watt hours
HV High Voltage
IBRD International Bank for Reconstruction and Development (Worldbank)
IDA International Development Agency
IEA International Energy Agency
IISD International Institute for Sustainable Development
IPP Independent Power Producer
JICA Japanese International Cooperation Agency
kWh kilo Watt hours
LEED Leadership in Environmental and Energy Design
LNG Liquefied Natural Gas
LPG Liquefied Petroleum Gas
LRT Light Rail Transit
LSP Letter of Sector Policy
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LV Low Voltage
MED-EMIP Euro-Mediterranean Energy Market Integration Project
MED-ENEC Euro-Med Project on Energy Efficiency in the Construction Sector
MENA Middle East and North Africa
MMBTU Million British Thermal Units
MEPS Minimum Energy Performance Standards
MV Medium Voltage
MW Megawatt
NET PV Net Present Value
NGO Non-Governmental Organisation
OCGT open cycle gas turbine
OECD Organisation for Economic Cooperation and Development
PEC Public Electricity Company
PIN Project Idea Note
PoA Programme of Activities
PPA Power Purchase Agreement
PSA Production Sharing Agreement
RCREEE Regional Centre for Renewable Energy and Energy Efficiency
RE Renewable Energy
SWH Solar Water Heater
TBE Theory Based Evaluation
toe tons of oil equivalent
UNDP United Nation Development Program
USAID United States Agency for International Development
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1. Project Synopsis
The "Regional Centre for Renewable Energies and Energy Efficiency (RCREEE)" was formally estab-
lished June 25, 2008 through the signing of the "Cairo Declaration of Intentions on Establishment of a
Regional Centre for Renewable Energies and Energy Efficiency (RCREEE)" by representatives of its
member states: Algeria, Egypt, Jordan, Lebanon, Libya, Morocco, Palestine, Syria, Tunisia and
Yemen. The overall objective of RCREEE is, through its interventions, to achieve:
a) rapid implementation of cost-effective policies and instruments for the increased penetration of re-
newable energy (RE) and energy efficiency (EE) technologies and practices in member countries;
and
b) increased market shares of companies and plants located in MENA-countries on the markets for
technologies and services related to RE and EE in the MENA and EU regions.
For the first five years of operation, RCREEE receives financial support from the Governments of
Egypt, Germany and Denmark. The European Commission (EC) supports RCREEE through two re-
gional programs: "MED-EMIP" and Phase II of "MED-ENEC". Member countries will contribute finan-
cially by increasingly co-financing the costs of the participation of national officials in RCREEE semi-
nars and workshops.
The present project is the first project support to RCREEE from the Danish Government. It is part of
RCREEE's overall effort of providing member state administrations with better information and new
planning tools and processes. It supports RECREEE in the development of a website which offers ac-
cess to a complete subject-ordered list of member state RE&EE laws and regulations, reviewed policy
documents, selected background and evaluation reports deemed to represent state-of-the art high
quality analytical work as well as discussion blogs on topics deemed to be of general interest for
RCREEE governments.
In parallel and supporting the above activities, the project has gathered the pertinent information on
EE and RE in each member country and made them available through the RCREEE website in an or-
ganised manner. Likewise the methodology on evidence based policy development and theory based
policy evaluation was discussed and extended in each country and their relevance and applicability il-
lustrated through case studies. On the basis of the country reports, a regional report was prepared to
allow policy makers and decision makers in all RCREEE member countries to see the status of their
EE and RE policies in a comprehensive regional context.
The activities were carried out by the project core team of four international experts assisted in each
country by a national specialist. Workshops were held by the national specialists at the end of the pro-
ject using the material and the methodological case studies developed throughout the project. The
national and regional reports were revised to take into account the comments received.
The Yemen was visited by the project team during 9 to 14 October 2009.
The following sections in this report reflect the impressions gained by the project team through the
discussions held during the course of the mission and all the information that has been available to the
team. The main purpose of this country paper is to stimulate new thought on EE and RE policy devel-
opment in the Yemen.
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2. Summary of Energy Situation in Yemen
The Republic of Yemen’s energy supply is depending to 99% on oil products and to 1% on waste (and
renewables). This is about to change, as new power generation capacity is planned on natural gas
basis. Crude oil is produced domestically to significant amounts, but production is in steep decline.
Natural gas production shows a different trend: it is still at the very beginning with total proven re-
serves of 11 tcf (310 bn m3). The largest share is reserved for exports as LNG. The rest is intended to
be used as fuel for domestic power plants and – if further reserves are discovered – other in sectors,
e.g. the cement industry.
Total generation capacity of the Yemeni electricity system is 1 GW; 700-800 MW are state-owned, the
rest is operated mainly by a British company that sells electricity at high prices to the Public Electricity
Company PEC. The urbanisation share is low in Yemen resulting in very decentralised population pat-
terns, making centralised power grids over the whole country impossible. This is a setting that favours
small-scale renewable energy technologies together with energy efficient appliances.
The major actors in the Yemeni energy system to date are the Ministry of Oil and Mineral Resources
(fossil fuels), the Ministry of Electricity and Energy (currently also responsible for renewables), the Na-
tional Petroleum Company, the Public Electricity Company PEC (selling electricity to consumers), the
Ministry of Planning (responsible for budgetary procedures as energy prices) and the Rural Electrifica-
tion Authority. There is a lack of communication and transparency among different actors in the Yem-
eni decision making process, starting with the provision of basic knowledge for decision makers.
Extensive restructuring is underway, initiated partly by pressure from international donors: PEC will be
split up into separate companies for generation, transport and distribution of electricity; Renewable
energies and energy efficiency responsibilities will be concentrated in an independent authority; sepa-
rate institutional bodies have been given responsibility for rural electrification and on-grid develop-
ment.
The Yemeni energy sector – electricity generation and grids, renewables, efficiency – is very strongly
donor-driven, which makes long-term budgetary planning difficult. In its Power Sector Development
Strategy Note of 1997, updated in 2006, the Government of Yemen (GOY) committed to a nationwide
rural electrification (RE) programme. In order to ensure that future investments in RE and renewable
energy were sustainable, the GOY requested financing from the IDA for the development of a com-
prehensive RE strategy and associated RE programmme. Preparatory market assessment studies
and capacity building measures were initiated through a GEF-funded Rural Electrification and Renew-
able Energy Development Project (REREDP) which was co-financed by other donors and the GOY.
Based on the REREDP studies, a Rural Electrification Policy Statement (REPS) was approved by the
Cabinet in July 2008.
The National Rural Electrification Strategy study identified 27 service territories in twelve governorates
for rural electric service expansion and integration into the national grid. A merit based priority ranking
for the development of these service territories was prepared and an investment programme of about
US$259 million defined. The program will result in increased access for over 520,000 new rural
households that will increase access from the current level of about 20% to about 46% of rural house-
holds and benefit more than 3.5 million people. Rural Electrification for the remaining seven gover-
norates is not considered to be viable through grid extension and, will have to depend on development
of renewable energy.
The Worldbank also supports a project on the modernisation of the Yemeni power grid including some
DSM measures. In Al-Mokha a wind power farm of 60 MW capacity is planned. Total wind power po-
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tential is estimated to be 34 GW.
The Yemeni government decided on a 15% renewable electricity target by 2025. This is a realistic
time frame and such a target is also compatible with the future electricity system requirements and ca-
pabilities (regarding loss reduction and overall stability).
Energy prices are subsidised heavily in all sectors. This impedes end-consumers' approaches of en-
ergy efficiency on a cost-effective basis in the Yemeni energy system. Reduction of subsidies is dis-
cussed in Yemen, but not taken seriously into consideration currently. The Yemeni government could
generate high revenues by reducing subsidies and introducing efficiency, as more crude oil could be
exported and sold at high international prices.
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3. Comparison of Yemeni Practice with International Practice in Energy Effi-ciency
This section attempts to compare the present status of energy efficiency with international prac-
tice.Public policy intervenes to correct market failures, in the case of energy efficiency the most com-
mon failures are: distorted energy prices, external costs, poor access to technical information, agent-
principal problems, budgetary constraints and excessive risk aversion, poor skills of investment ap-
praisal. Policy instruments are intended to correct or compensate for these distortions.The most com-
mon among these instruments can be categorised as:
Corrective Measures
Price Reform
Institutional and legal reform
Labelling
Dissemination of information
Research, development and demonstration
Financial incentives
Support for energy service companies (ESCOs)
Compensating Measures
Standards
Mandatory measures (e.g. compulsory audits and management obligations)
Corporate agreements
Efficiency obligations
Transport and spatial planning
Normally these instruments should be combined within an overall strategy that sets out objectives and
targets and defines the combinations of instruments that are expected to achieve the targets.
The following discussion reflects this taxonomy.
3.1 Strategy
Strategy sets out objectives and targets and defines the combinations of policy instruments that are
expected to achieve the targets.
The World Bank has financed a study on how to implement energy efficiency in the electricity sector1.
The study makes many recommendations that are compiled into a three year Action Plan, but the ma-
terial is of a rather general nature, with little specific suggestion on how to develop and implement pol-
icy instruments. There is a detailed prescription for institutional reform. The study estimates the sav-
ings that might be achieved over the three years, but avoids setting numerical targets. The estimated
savings from the programme are shown in Table 1.
1 Yemen: Energy Efficiency Institutional Framework & 3 Year DSM/EE Action Plan, Prepared for the World Bank,
by Energysolve International, March 2009
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Table 1 Estimated savings from energy efficiency in the electricity sector
Year Demand (MW) Energy (GWh) Emissions of GHGs
(1000t CO2 equiv. )
Without DSM/EE With DSM/EE Without DSM/EE
2010/11 1387 1337 9539 9396 8065 7945
2011/12 1435 1315 10493 10141 8872 8574
2012/13 1501 1283 11542 10895 9759 9212
The estimated saving in peak demand of 218 MW represents a saving of about 15% in electrical gen-
erating capacity. The savings of 647 GWH of energy represents a 5.6% saving and the saving of GHG
is similar. These are ambitious estimates, but could well be achievable with determination and appro-
priate action.
The report proposes a future 5 year programme of donor support that is reproduced in the table. We
cannot confirm donor agreement to these topics and we do not necessarily endorse the programme in
detail, but in broad terms it is an appropriate set of activities.
Table 2 Five year programme for DSM / EE
World Bank GEF UNESCWA
Institutional structure develop-
ment
Detailed audits Household sector pilot projects:
CFL/linear fluorescent/solar wa-
ter heater
DSM/EE action plan Capacity building of DSM/EE
authority
Long term awareness
Tariff revision S&L program design and im-
plementation
Improved metering
Initial awareness: large con-
sumers; utility staff; project de-
velopers; financiers
Establish a data base Pf correction of distribution sub-
stations
Load research Establish test facilities to sup-
port S&L: lamps/fans/ac/water
heaters
Rural sector loss reduction
Energy audit training & walk-
through audits
(Indus/Gov/Hotel)
Further assistance to sustain
DSM/EE initiatives
Street lighting improvements
Identify CDM links and
promote investments
Integrated resource planning
ESCO activity development +
pilot
Financial assistance ESCO
projects: revolving fund +
guarantee fund
In June 2009 the GOY approved the national strategy for RE & EE which targets a 15% increase of
EE in the power sector by 2025. However, the baseline of this target requires further specification.
Furthermore, the target is yet to be framed with effective and efficient policy measures for efficiency
improvements.
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3.2 Legal Reform
The proper implementation of energy efficiency requires an energy efficiency law that justifies the pur-
pose of the activity, establishes a clear focus in government, assigns the responsibilities of actors, and
makes provision for an agency and specific instruments.
The following list contains the most frequently occurring provisions in such laws:
• Recognising energy efficiency as an appropriate subject of legislation and regulation
• Identifying and communicating in a policy document or national plan the principles of energy
efficiency policy
• Identifying through technical analysis the potential for saving and prioritizing the sectors with
highest potential
• Defining policy interventions to promote energy efficiency e. g. fiscal and financial incentives,
tradable certificates, and regulations
• Drafting of legislation to implement policy interventions
• Setting penalties for default
• Creating institutional structures to promote energy efficiency
• Assigning staff in proper numbers and with proper qualifications to the institutions and ensur-
ing adequate finance for the institutions
• Drafting national programmes for short and long-term management of energy efficiency
• Assigning responsibility to promote energy efficiency at national, regional and municipal levels
• Monitoring and evaluating progress
There is no energy efficiency law in Yemen and as far as we know there is no immediate intention to
develop one. The DSM strategy does not touch upon this issue.
A law may not be essential, but it would greatly clarify intentions and create a sound legal basis for
essential policy instruments, including an implementing agency, financial incentives, labels and stan-
dards.
3.3 Price Reform
It is well established that energy demand is price sensitive, especially demand for electricity. The most
reliable results come from industrialised countries. Price reform will save large quantities of energy,
especially in the long-run and can make a substantial reduction in GHG emissions from countries with
distorted prices. Subsidies put a large strain on public accounts and weaken foreign trade balances.
They also tend to devastate the state-owned enterprises that are normally a victim of the practice.
Prices for energy are fixed by Presidential Decree on the recommendation of the Cabinet. They are
subsidised to varying extents, with the largest subsidies assigned to electricity for households and die-
sel fuel. Diesel fuel is politically sensitive because it affects the cost of transport and food, because
many farmers use diesel for water pumping.
There are several prices for diesel fuel; it is sold at 17 Riyal / litre to the power system and at 35 Riyal
per litre to the local transport market; there are other prices for cement factories and other users. The
price of kerosene is also fixed at 35 Riyal per litre. Gasoline is sold at 60 Riyal / litre and Heavy Fuel
Oil, which is consumed only by PEC, is 25 Riyal / litre. The refining industry in Yemen imports diesel
and gasoline, but exports heavy fuel oil and naphtha.
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There is no clear, standardised mechanism for price reform and prices are often fixed for long periods;
those for petroleum products have been unchanged since 2005. Increases in the retail prices of petro-
leum products in that year by 70% - 100% led to serious public protest. Reducing the subsidies is one
of ten published priorities for the National Plan over the next two years and in February 2010 there
was a further increase. The exchange rate at present is 300 Riyal for 1 €, so the above prices translate
roughly as shown in Table 1.
Table 3 Prices for petroleum products in Riyal and Euros
Riyal / litre Euro cents / litre
Diesel (electricity) 17 6
Diesel (transport) 39 13
Gasoline 65 22
Kerosene 35 12
Heavy Fuel Oil 25-32 8-10
Subsidies to petroleum prices in 2007 are estimated at $4 billion, or more than 10% of GDP. The
value of the subsidies fluctuates according to the international level of prices, which defines the oppor-
tunity cost, but is on a secular increase as access to energy extends.
Nor do the subsidies benefit the poor. The Household Energy Supply and Use study conducted in
Yemen by the World Bank and UNDP in 2005 showed that 57% of the direct subsidy on diesel that is
directly used by households is captured by the two top income deciles. The LPG subsidy is also poorly
targeted: 5% is captured by the poorest decile, but 16% by the top income decile. The kerosene sub-
sidy is the most targeted, with the bottom decile capturing some 13% as against 7% captured by the
top decile. This reflects that fact that most kerosene is mainly used by the poor for cooking and light-
ing. The household study concluded that reform is required not merely in the reduction of subsidies,
but in improving their transparency, and in instituting a permanent system that automatically adjusts
prices in line with world market trends.
One option for compensating for impacts on the poor is by direct financial transfers. The Social Wel-
fare Fund (SWF) is the main targeted social assistance programme in Yemen. According to the World
Bank/UNDP study its mechanisms are highly imperfect; 4.7% of the target group received SWF trans-
fers and 57% of those benefiting were not in the target group. The design of better social protection
mechanisms is a policy measure that might complement price reform.
Another consequence of subsidised prices is smuggling. Prices are lower than the prices in surround-
ing countries; products are therefore smuggled over the land borders and across the very long sea
border. This is a loss to the Yemeni economy, but it is probable that the smuggler’s profit is spent in
the Yemeni economy. Therefore, the net economic loss to Yemen is the share of the rent that goes to
the buyer in the neighbouring country; the main effect is a transfer payment from the government to
the smuggler.
Electricity prices are subsidised in two ways. First, PEC receives fuel inputs at prices well below inter-
national prices; this is an implicit subsidy that does not appear in the state accounts. Second, the
revenues from sales of electricity are insufficient to cover the costs of production even at the subsi-
dised prices and this deficit is compensated by an explicit financial transfer from the state that appears
in the budget.
Prices for electricity to final consumers are shown in the Table for 2008 and 2009. The main difference
is the substantial increase in 2009 for commercial customers; these consumers now cover the average
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costs of supply. The customers in the lowest tariff categories pay about 1.3 euro cent / kWh, which is
well below the costs of production. The highest charges, for hotels and large commercial enterprises,
are equal to about 10 euro cents / kWh, which is probably about the opportunity cost of generation
from the gas turbines. The actual marginal cost on the Yemeni system, ignoring the value of load
shed, is about 16 – 20 euro cent / kWh. This is derived from the cost of the electric power from the
emergency power generation, i.e. 10 USc/kWh for the leasing of the generating sets and about 20
USc/kWh for the opportunity cost of the diesel used in the engines.
Table 4 Electricity tariff for 2008 and 2009
Categories Riyal / kWh
2008 2009
Urban households 0 - 200 kWh 4 4
201 - 350 kWh 7 7
351 - 700 kWh 10 10
>700 kWh 17 17
Rural households 0 - 100 kWh 7 7
>100 kWh 17 17
Small commercial 17 18
Large commercial 17 30
Hotels 17 30
Agriculture 17 18
Large industry 15 30
Cement factories 15 30
Public water pumping 15 30
Government 18 30
Urban mosques 0 - 200 kWh 4 4
201 - 350 kWh 7 7
351 - 700 kWh 10 10
>700 kWh 17 17
Rural mosques 0 - 100 kWh 7 7
>100 kWh 17 17
Again, these subsidies are regressive. The truly poor who are not grid-connected receive nothing.
Yemen has the lowest access to electricity in the region; only 40% of the population compared to the
regional average of about 85%. Of the rural population (72% of the total), only 23% have access to
electricity, compared with 85% of the urban population (28% of the total). Of the rural population with
access to electricity, only one-half are connected to the national grid system and the rest have some
access from other sources, typically a diesel generator that operates only a few hours in the evening.
The subsidies therefore favour the grid-connected predominantly urban class.
3.4 An Agency
Many countries have found it useful to establish a specialised institution to prepare initiatives, draft
regulations, monitor progress, ensure compliance, administer funds and perform other administrative
activities. It will not necessarily be the only institution with powers in the area. If fiscal incentives are
adopted then these will be managed through the office responsible for taxation, but there will still be a
need to confirm the technical acceptability of the investment. Compliance with standards for equip-
ment and boilers will normally be performed by special corps of inspectors already engaged in stan-
dards work. The regulator would normally enforce any specific obligation on electricity networks.
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Despite the need to involve existing institutions, it is often considered useful to create a specialised
agency. This agency would typically have the following responsibilities.
• Developing and disseminating targeted information to specific categories of users
• Organising training; liaison with universities and professional bodies
• Developing energy efficiency standards
• Conduct of surveys; analysis of data and maintenance of database
• Conducting or managing programmes of certification and labelling
• Liaising with other state institutions (e.g. Taxation offices and inspectorates)
• Administering energy efficiency funds
• Specifying mandatory audits; certifying and/or licensing energy auditors
• Designing short-term and long-term energy efficiency programmes
• Monitoring, evaluating and reporting on the implementation state activities and private initiatives
• Designing and proposing new interventions as opportunities are identified
Legislation would probably be needed to establish such an agency and to specify its duties.
Energy efficiency is at present the responsibility of a Department within the Ministry of Electricity and
Energy. The study on DSM and EE undertaken for the World Bank proposes a transition to a separate
Authority for DSM and Energy Efficiency, and a similar Authority for Renewable Energy.
As we understand the internal Ministry structures, such a transition would first involve the creation of a
sector for energy efficiency (and possibly renewable energy) and then subsequently an Authority.
There is resistance in government to the proliferation of Authorities and there is some benefit in com-
bining responsibilities for energy efficiency and renewable energy.
Most countries have found that the assignment of responsibility to an energy efficiency agency is an
important step. It is necessary to have an independent voice combating the dominance of the energy
suppliers and pressing for appropriate regulation and reform. The Yemen has a strategy for energy ef-
ficiency, outlined above, but it has no clear policy as is evident from the discussion of policy instru-
ments below. An agency can help transform the strategy into operational policy.
3.5 Standards and / or Labels
The obligation on manufacturers and importers of equipment to label goods or to meet specified stan-
dards is a policy measure introduced to overcome the market failure caused by asymmetric informa-
tion. Potential users of equipment, faced with a choice of designs, may not have the skills and informa-
tion to understand the consequences of their choice. They may be tempted to choose low-cost equip-
ment with high energy consumption in preference to higher price options that perform better. Manufac-
turers may not have an incentive to provide this information if they think that their comparative market
advantages do not include greater efficiency than competitors. Labelling and standards are not exclu-
sive; goods can be obliged to meet a certain minimum standards and then labelled according to their
performance when it exceeds the standard. Labelling and standards both require testing facilities and
protocols; both require rigorous and competent enforcement.
There are no performance standards or labels for electrical appliances in the Yemen. The Standards
Institute is responsible for setting and monitoring standards, but it appears that at present it does not
have the testing facilities satisfactorily to monitor basic electrical properties and safety. It is in the
process of developing such facilities.
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There is no domestic manufacture of appliances; most are imported from China and, in the absence of
controls, importers and overseas manufacturers will be tempted to dispose of low-grade and even de-
fective stock. The quality and performance of such appliances must be very doubtful. Many fake
branded goods are also imported.
It is important that standards be established and monitored. The absence of local manufacture in this
instance can be an advantage as it means goods can be tested at the point of entry, which is much
easier than at the point of sale. Some private agents already operate an informal system for detecting
and seizing fake goods at the port. Technical assistance is desirable to support a proper system of
standards and it should take into account the progress that has been made elsewhere in the region.
Ideally it should be a part of a larger project to develop a range of instruments for energy efficiency.
Standards for buildings are an important special case because:
• The rate of new building in developing countries is far higher than anywhere else in the world • Buildings are large consumers of energy • Buildings last for decades and will determine energy use for a very long time • Large improvements in the energy efficiency of buildings can be achieved at low cost • Developers will not normally make those improvements because of various chronic market fail-
ures • The principal-agent dilemma is especially acute
The Ministry of Public Works has published and is responsible for enforcing the building code. In prac-
tice it appears that compliance is weak. In any case, there is no treatment of the thermal performance
of buildings in the code. Control, at least of large air conditioned buildings that are now becoming
more common, especially in Aden is needed. Other countries in the region have made good progress
in developing codes for thermal efficiency. Technical assistance to help transfer this practice is highly
desirable.
3.6 Financial Incentives
Financial incentives can be separated into economic and fiscal incentives. Economic incentives are
aimed at encouraging investment in energy efficient equipment and processes by reducing the in-
vestment cost directly and fiscal incentives are those actions that reduce the cost indirectly through
the taxation system. Economic incentives can be further divided into investment subsidies and con-
cessional finance. Investment subsidies change the perceived cost of an investment and concessional
finance changes the financing conditions. Fiscal incentives differ from other financial incentives in
several ways. They do not need to be funded directly; they are funded indirectly in that they represent
a loss of revenue to the state budget. Generally they are available to all who qualify according to the
terms of the exemption; there is no application and award process. For this reason they are some-
times preferred as being less susceptible to corruption and to political manipulation. They can be
managed through the normal tax compliance regime. In middle income countries this approach is
generally only practical with companies.
A last instrument that might be included under this heading is feed-in tariffs for cogeneration. If the
feed-in tariff is above the opportunity cost of electricity then the instrument does really constitute an in-
centive. The incentive is funded by other consumers of electricity unless a special compensation is
paid from the state budget to the network. If the feed-in tariff is above the marginal cost of electricity at
subsidised fuel prices, but below the opportunity cost then it is simply a regulation to correct the mo-
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nopoly purchasing power of the network and the distorted fuel prices.
A variety of fiscal incentives is proposed under the World Bank DSM / EE programme. These include
capital subsidies for solar water heating, incentives for the purchase of energy efficient equipment
(through tax benefits, low interest loans, accelerated depreciation) and loan guarantees for larger in-
vestments.
Evidently incentives require funding and the only practical source is from low interest loans and grants
from donors. Rather than a miscellaneous collection of incentives operated by different entities it is
preferable to have incentives implemented by an energy efficiency fund with clear rules of procedure
and transparent management. Such an arrangement might quite probably be attractive to donors.
3.7 Obligations
Another approach, which may be combined with incentives, is to oblige companies to undertake en-
ergy efficiency by mandatory measures. These can be multiple and include obligations to:
• To carry out audits at regular intervals
• To report to central government database and possibly to communicate audit results to the
public
• To report energy consumption, saving measures and implemented measures
• To propose action plans to implement the energy savings measures identified in audits
• To carry out certain specified measures
• To appoint an energy manager
• Mandatory certification of auditors
• Mandatory comparison of operation and investment to reference values (norms, benchmark-
ing)
Some, or all, of these requirements may be confined to large users and made conditional on crossing
a defined threshold of energy use.
Obligations can be mandatory or voluntary. Two main sets of voluntary agreements have been intro-
duced. The first set comprises agreements between government and representative bodies of appli-
ance manufacturers to reach specified improvements in the performance of appliances; the approach
has also been extended to vehicles. The second set comprises agreements with individual industries
to improve their own on-site energy performance. Industry can have various motivations to participate
in these agreements. Appliance manufacturers may expect to persuade government to supplement
their efforts with instruments aimed at stimulating purchases by consumers. It may in some instances
be a mechanism to forestall regulation. This latter reason may also encourage participation in agree-
ments to reduce energy use in industrial processes. Such agreements, although voluntary, may also
be a condition for financial incentives.
In liberalised markets an alternative to promoting energy efficiency through state financial incentives
and funds is to place an obligations placed on suppliers. In this scheme a supplier or distribution net-
work manager scheme is placed under an obligation to demonstrate programs that save specified
amounts of energy related to their total supply volume. The supplier or network operator then builds
the costs into his cost-base; he then has the usual interest of a commercial company in keeping his
cost-base as small as possible. The requirement is enforced by the regulator; failure to comply may be
penalized in proportion to the deficit between the target savings for the supplier and the amount
achieved. Savings do not have to be made within the supplier’s own area; they can be in fuel oil, coal
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or transport fuels. Such schemes can be complemented by “white certificates”. In this arrangement,
suppliers are obliged to demonstrate they either accomplished energy savings directly or have bought
certificates from others who can show they have made savings.
No such obligations exist in Yemen at present and given the present state of PEC it may well not be
timely to introduce them.
3.8 Audits and the Promotion of ESCOs
The original of an Energy Service Companies or ESCO is that an entity other than the energy supplier
should identify, design, finance, supervise and commission projects for a client, to be compensated by
a share of the energy savings achieved over a defined period. The partition of savings is determined
by a special contract known as an energy performance contract (EPC). Actual practice varies widely;
some ESCOs will finance the project, others will organise finance. Implementation is not easy and
there are relatively few successful examples. The name ESCO is sometimes also given to companies
that just provide consulting services, but do not enter into an EPC. It is important to be clear what is
meant, as the latter is a much easier exercise than the former.
No audit campaign on industry and large buildings ever seems to have been conducted in Yemen.
The World Bank financed study on energy efficiency estimated that a 20% saving from industry is
theoretically possible. It recommended that the MEE encourage private sector participation in energy
services to exploit this potential, based on ESCO models, but did not give any real proposal for how to
stimulate and finance such activities in the Yemen.
3.9 Transport and Spatial Planning
More than half of the global population now live in cities and according to UN Habitat, by 2030, it will
be 60 percent. Cities consume enormous amounts of energy and they have great inertia; road sys-
tems and land-use decided now will influence energy use for a hundred years. In urban metropolitan
areas, transport creates a third at least of total greenhouse gas emissions. Promotion of public trans-
port options and careful design of cities is critical for reducing emissions in cities.
Most petroleum products (70%) are used for transport. Because of the subsidy to diesel many gaso-
line engines have been converted to burn diesel. The conversions have many problems, not least the
inadequate air supply and the consequent poor combustion that is inefficient and polluting.
In 2002, the import duty on cars was reduced from 130% to 5% in order to combat dual problems of
very old cars on the road and massive smuggling from neighbouring countries. This in turn caused a
massive explosion in car ownership. Import restrictions on old cars were imposed in 2003; it is forbid-
den to import cars that are more than 5 years old. Many users prefer large four wheel drive cars be-
cause of the mountainous terrain and the poor roads.
Some testing centres have been established in the five largest governates and relicensing if cars older
than two years is now conditional on an annual inspection. The tests include emission controls. The
number of centres is well below what is required to handle all the vehicles in Yemen and the compli-
ance rate is estimated at around 34%, but it is a good start and should be sustained.
Public transport is not well organised. Most trips within cities are made using small private buses and
taxis. Large buses are used only between governates. Rationalisation of routes could reduce energy
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use,
A transport strategy has recently been submitted to the Cabinet by the Ministry of Transport and it is
expected to be approved in November 2009. The main objective is to reduce congestion rather than to
improve efficiency or to protect the environment. Some measures have already been taken; brides
have been built at busy intersections and some one-way streets have been created.
The extent of land use planning varies across the country. In Aden there is an effective zoning of de-
velopment according to a 10 year plan; much of the land is government owned. In Sanaa, land is pri-
vately owned and there is almost no control of development either legally or practically.
3.10 Dissemination of Information
Access to knowledge is costly and may impede an individual or company from undertaking activities in
energy efficiency. It is a legitimate role of government to generate and disseminate knowledge as a
public good. We interpret the term knowledge in this context very widely to include data, technical
guidance, research and demonstration.
The dissemination of information to users is normally a simple and cost-effective measure that can be
undertaken by government. Much information has been produced in the past few decades by donor
agencies that could be relevant to Yemen. There seems to be no campaign or systematic effort to in-
form users how to reduce consumption. The low tariffs tend to discourage energy efficiency and un-
dermine the case for public information and awareness programmes.
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4. Comparison of Yemeni Practice with International Practice in Renewable Energy
This section attempts to compare the present status of renewable energy policy in Yemen with inter-
national practice.
Public policy intervenes to correct market failures. In the case of renewable energy, the most common
failures are somewhat similar to those identified previously for energy efficiency, but with a different
emphasis. Distorted energy prices, unrecognised external costs, poor access to technical information
all play a part. There is however a significant difference. Many measures of energy efficiency are cost
effective, but prevented by distortions of the conventional market. This is also true of some renewable
options, such as solar water heating. Many renewable energy technologies are not cost-effective even
if the distortions of the conventional market are removed. They are justified by the external costs that
they avoid, especially the external costs of GHG emissions. This means that they must be financially
subsidised to financial incentives of one sort or another are critical to renewable policy.
In addition to these general market failures there can be specific market failures for electricity gener-
ated from renewable energy that is fed into a national grid as electricity. Excessive and unjustified
costs of connection to the grid, inability to connect, disputes over responsibility for payment – these
can impede renewable deployment.
Policy instruments are intended to correct or compensate for these various distortions.
4.1 Targets and Strategy
Strategy sets out objectives and targets and defines the combinations of policy instruments that are
expected to achieve the targets.
The current national Power Sector Strategy Note developed by the Ministry of Electricity and Energy
does not consider the contribution that renewable energy might make to the national strategy for the
power sector. On the other hand a detailed strategy for renewable energy has been proposed by
Lahmeyer International to the Ministry of Electricity and Energy with quite ambitious targets.
The study by Lahmeyer recognises the high rate of growth in the demand for electricity, which it pro-
jected in its high growth scenario to imply a peak demand of 3,181 MW in 2025. This compares to a
peak demand of less than 1,000 MW in 2008. Against this strong growth in demand, the strategy as-
serts that there is only a limited potential for the use domestic natural gas in power generation. The
analysis assumes that the proven reserves of gas that are not committed for export could only sustain
electricity generation of about 1,150 MW for 25 years. The uncommitted proven and probable reserves
it was calculated could support 1,750 MW. This implies a substantial shortfall in capacity in 2025 of
about 1,200 to 2,000 MW of power. Already Sanaa and Yemen in general experience frequent load
shedding; this is due in part to the delays in Commissioning the gas-fired plant at Marib and difficulties
in completing a major transmission line.
The Lahmeyer study dismisses diesel generation as being too costly and generation from natural gas,
because it estimates there will not be gas available after export commitments have been met. This is
by no means clear; there is some 1.8 Tcf of gas uncommitted in existing fields and reasonable
prospectivity elsewhere in the country. It is an important uncertainty that could strongly influence the
development of wind power.
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Assessments of the wind power potential were made in the Lahmeyer study. Assuming that only 40
percent of the potential could be used because of shading losses, settlement and exclusion areas, and
considering only areas with capacity factors higher than 25 percent, the total technical potential was
determined at 15,200. Taking into account the best sites with capacity factors above 35 percent, the
technical potential was estimated at14,200 MW providing about 42,300 GWh of electricity per year2.
The most economically attractive areas are those with capacity factors of around 40 percent and full
load hours of more than 3500 hours per year. This corresponds to more than 2,500 MW of installed
capacity with an average yearly electricity generation of around 8300 GWh. Most of these economi-
cally attractive areas are situated in the coastal plains of Hodeidah (southern part), Taiz, Lahej, Aden
and Abyan. Wind power development is also favourable in these areas due their proximity to the na-
tional grid.
There is some geothermal potential to the South of Sanaa; this was mapped in a preliminary survey in
the 1980s. The survey identified 90 hot spring areas, the most promising of which is located at
Dhamar, reasonably close to the national grid. This resource is thought to be sufficient to support a 50
MW geothermal plant and could be developed it is estimated at a cost between 11 and 12 c/kWh. The
ultimate resource cannot be estimated without exploratory drilling, but could be between 250 – 500
MW. An MoU was signed with an Icelandic company to develop a 10 MW plant on the site, but the
company went bankrupt during the financial crisis. Exploratory drilling is now being financed by UNEP
and will start soon using Italian consultants; it is planned to drill some 1,000 – 1,500 metres. The Ice-
landic Bureau of Geology is still involved, but has transferred its work to another field. The study of
Lahmeyer estimated that 2,900 MW of power might be available from geothermal sources.
Around 10 MW of electric power could theoretically be produced from the current rate of municipal
solid waste MSW production in the main cities of Yemen. If the restriction is imposed to consider only
cities that generate more than 100 thousand tons of solid waste per year the figure falls to around 8
MW. Of this 6 MW could be obtained from landfill sites in the four largest cities of Sana’a, Aden, Ho-
deidah and Taiz and is most likely to be cost-effective.
The renewable energy strategy presents three scenarios for the penetration of renewable energy in
the grid:
• High market penetration scenario – 20% of generation mix in 2025 (equivalent to 3467 GWh).
This is obtained from 600 MW of wind power, 6 MW of landfill gas and 200 MW of geothermal energy
• Reference scenario – 15 % of generation mix in 2025 (equivalent to 2600 GWh). This is ob-tained from 400 MW of wind power, 6 MW of landfill gas and 160 MW of geothermal energy
• Low market penetration scenario – 10% of generation mix in 2025 (equivalent to 1733 GWh). In this case only around 200 MW of wind power capacity and only 50% of the landfill gas eco-nomic potential, 3 MW, is developed and 125 MW of geothermal energy
As noted earlier, these targets conflict to some extent with the contents of the national Power Genera-
tion Expansion Plan which gives a high preference to natural gas. Much of the power generated at
present in Yemen is from diesel oil at a very high opportunity cost to the economy; the opportunity cost
of generation from the 250 MW of emergency generation leased from an American supplier is proba-
bly close to 20 euro cents / kWh. The commissioning of the open cycle gas-turbine in Marib starting
from 2009 will increases the share of natural gas in the generation fuel mix. The Ma’abar natural gas-
2 Wind Energy Resource Assessment, July 2006, Lahmeyer for the Ministry of Electricity, The Republic Of Yemen
Renewable Energy Strategy And Action Plan
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based power plant expected to come on stream in 2013 and the retirement of oil-based plants will fur-
ther increase the share of gas and further gas plants are planned for Aden. In sum, 2,858 MW of gas
turbine plants is planned to be commissioned between 2007 and 2025.
The strategy paper of Lahmeyer also identified solar water heating as an important supply option and
proposed three scenarios for penetration by 2025:
• High penetration scenario – 60% of market potential (300,000 units) • Baseline scenario – 40 % of market potential (200,000 units) • Low penetration scenario – 20% of market potential (100,000 units)
The government of Yemen is currently engaged in developing a policy for renewable energy in line
with the strategy proposed in the Lahmeyer study. The main obstacle identified by government is fund-
ing. Guidelines for the allocation of national resources are established by the Ministry of Planning in a
Five Year Plan. The Ministry of Finance prepares a parallel mid-term expenditure statement that gen-
erally reveals a substantial gap between expenditures and revenues; ODA is sought to fill the gap.
Funds are allocated by the Ministry of Finance in an annual financial plan according to the availability
of ODA. State revenues are only just sufficient to cover basic services such as health and education;
salaries for public officials cover 70% of revenues. Investment in infrastructure depends almost entirely
on soft loans and grants from donors. The problem is compounded by an inefficient use of the funds
allocated by donors; the disbursement rate is low and there are many delays. Often the risk of making
no decision is seen as less than the risk of making a decision that may later be criticised. In such cir-
cumstances it is hard for the GoY to implement a high capital cost programme such as is required by
renewable energy unless ODA is assigned specifically to that programme. Programmes for renewable
energy are therefore inevitably donor-driven.
The main strategic objective of the policy now in formulation is to develop natural resources at rea-
sonable cost. The basic approach is to develop pilot projects with donor funding as a demonstration of
technical and economic feasibility by which to attract the private sector.
4.2 Legal Reform
The main legal elements in a policy to promote renewable technologies are a clear targeted strategy
or road map, a specialised agency to implement public activities and a support system specifically
aimed at allocating the extra costs of the technology.
In March 2009 new Electricity Law was issued; it appears to have been a requirement of the World
Bank for disbursement of its loans to the sector and took three years to approve. The law sets out to
improve the management of the power sector and to facilitate investment by private capital. It also
contains some general support for renewable energy, although there are no specific provisions. One
of the stated objectives of the law is to encourage environmentally friendly power production including
renewable energy and relying on it as a sustainable source of energy. Among the tasks of the Ministry
is “encouraging and developing the use of renewable energy resources in the generation of electrical
power”.
The law creates a regulatory office to be known as the Electricity Sector Regulatory Board; it specifies
the respective duties of the Ministry and the Board. Policy, the issue and licences and almost all deci-
sions of consequence except tariffs remain within the Ministry. The Regulatory Board is chaired by the
Minister and has four full-time members; it sets the tariffs for businesses across the electric system
and monitors the compliance of the industry with regulations. Tariffs are supposed to reflect costs, al-
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low a reasonable rate of return and respect social factors; they are published in a Prime Ministerial
Decree after approval by the Cabinet.
Licences are required for generation, transmission and distribution, but not unbundling of the system is
required. The Board must ensure that the transmission system is open to participants in the sector in a
manner that preserves the economical interests, and continuity and efficiency of the service.
The law also provides for a new authority called the "Rural Electrification Authority" that is established
under the supervision of the Minister, but which enjoys financial and administrative independence and
be legally competency to make agreements and enter into loans. The function of the Authority is to
implement the national plan for rural electrification. Among the many considerations that should guide
its work is “cooperating with other related entities concerned with studying conventional electric power
sources, new and renewable resources, determining current and future needs of power for the popula-
tion of rural areas, determining the best ways to meet those needs and selecting the best available
energy resource alternatives”.
Implicit in the law is the corporatization and commercialization of the Public Electricity Corporation and
the creation of separate entities for generation, transmission, distribution, and rural electrification. The
reform is expected to take three years.
Despite these provisions the law is not clear on the legal basis for public-private partnerships (PPP). In
general, investment in the Yemen is governed by the Investment Law No. 22 of 2002, this is generally
seen as offering only weak security for private investment; in the World Bank Doing Business Report
2010 the Yemen was ranked 132 out of 183 countries in terms of protecting investors. It appears that
there is substantial private interest in the proposed new gas fired plant at Ma’abar, but the government
has not given clear signals on how this partnership can proceed. It is clear that government has not
the funds to make these investments on its own account, so an investment law governing PPPs ap-
pears to be a priority.
The Lahmeyer study on which the renewable energy strategy is based also proposed a law on renew-
able energy and provides a draft. The objectives of the proposed draft law are to:
• promote the use of renewable energy • encourage private-sector investment in renewable energy • diversify energy sources • reduce emissions of environmental pollutants and greenhouse gases • develop national capacities related to renewable energy.
Articles 5 – 7 of the draft legislation establish a legal basis for the identification, conservation and utili-
zation of renewable energy resource areas. It is proposed to create a registry of renewable energy lo-
cations based on resource maps and measurements, to be known as the Renewable Energy Re-
source Land Use List. Restrictions would then be imposed on the development of these lands with
compensation being paid to the owners if necessary. Land use plans for renewable energy would be
based on this list and measures introduced to prevent loss or degradation of important sites.
Articles 8 – 11 establish the principles that should govern the development of renewable energy re-
sources and the certification of electricity generated from renewable energy resources. The law would
authorise the Ministry of Electricity and Energy to issue public tenders for the development of sites on
the land use list with preference for low cost sites located close to existing transmission. The tenders
should inter alia maximise local content. The Article 9 provides for the receipt of unsolicited proposals
and specifies how they should be treated. Article 10 allows the government to create public sector par-
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ticipants in development. Article 11 provides for the issue of Renewable Energy Source Certificates.
Any development in receipt of such certificates becomes a Qualified Renewable Energy Facility
(QREF).
Articles 12 and 13 create a duty on the public electricity system to purchase electricity from qualified
generators and to give such sources preference in dispatch. The principles determining the tariffs at
which electricity is to be sold are set out in Article 14. The tariff would normally be determined by the
freely negotiated power purchase agreement, but in the event of dispute arbitration can be sought
from the Electricity Sector Regulation Board, established by the Electricity Law.
The principles governing the creation and allocation of investment incentives are specified in Articles
17-20. The law permits funds from international donors to be used to subsidise several parts of the in-
vestment chain, including capital investments, project preparation studies, capacity building activities
and partial payment of the incremental costs of electrical energy produced by such Qualified Renew-
able Energy Facility. Article 20 envisages the possibility of a renewable energy fund with contributions
from the Government of Yemen, private and institutional investors, international donors or multilateral
agencies that could also contribute finance for any of the above.
Other Articles specify that government may participate in the equity of producers and that any Certified
Emission Reduction Credits issued to the project under the CDM are to be used to reduce the tariff at
which renewable electricity is sold. Article 21 requires that the cost of connecting a Qualified Renew-
able Energy Facility to the Grid shall be paid by the Public Electricity Corporation or its successor. Ar-
ticles 22 and 23 create the legal possibility for a feed-in tariff should this be thought desirable.
It is expected that the main articles of this draft law will be incorporated into a revised energy law.
4.3 An Agency
A specialised institution to make research, prepare initiatives, draft regulations, monitor progress, en-
sure compliance, administer funds and perform other administrative activities can be useful in promot-
ing renewable technologies.
The main institution involved in the development of renewable energy policy in Yemen at present is
the General Department for Renewable Energy of the Ministry of Electricity and Energy. The main re-
sponsibility for implementation comes under the Public Electricity Corporation (PEC) and is discharged
through the Public Authority of Rural Electrification (PARE) and the Renewable Energy Department
that comes under it. The PARE is responsible for rural electrification in general (mainly grid extension)
and its agency, the Renewable Energy Department covers off-grid renewable rural electrification.
The analytical papers underpinning the renewable energy strategy claimed that the separation of pol-
icy and implementation was not well defined, with PEC engaging in policy-like matter and the Ministry
implementing demonstration schemes. It also found that the staffing was insufficient to support the
various activities required to implement a substantial programme. However, the draft law contained
within the report does not address these issues.
It is certainly true that the formulation of policy in the area should rest with the Ministry. There is much
to be said for creating an independent authority for implementing policy. It allows the implementation
to proceed with some protection from continual political interference that obscures objectives and hin-
ders progress. It is often the case that responsibility for energy efficiency and for renewable energy
rest with the same body. Such an authority may in the first instance be a developer of wind projects
and sell on an IPP-like basis to the transmission company. At some point, as the technology is recog-
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nised as commercial, the ownership function should be separated from the regulatory and research
functions.
This is a model that the GoY may wish to consider. We understand that there is some resistance in
government to the creation of implementing authorities outside of the normal ministerial structure. The
Rural Electrification Authority was only created at the insistence of the donors for the rural electrifica-
tion programme. Nevertheless, such agencies elsewhere have been successful; NREA in Egypt is a
good example.
4.4 Standards and /or Labels
Standards would be inappropriate for large developments in renewable energy. Commercial develop-
ers are well equipped to decide for themselves on efficient and effective specifications. There is a
good case for standards for small appliances such as solar heaters.
There are no such standards in the Yemen.
4.5 Financial Incentives (Capital Support)
Many financial incentives have been used in different countries to promote renewable energy. Support
can either be offered to investment or to operation. Investment support for renewables is general de-
livered through the same type of instruments that are used to support investment in energy efficiency,
e.g. capital grants, tax exemptions, soft loans and loan guarantees. In the case of grid connected re-
newables it is possible also to offer support to operation either by allowing the electricity to be sold at
inflated tariffs or by obliging certain parties to purchase specified volumes. These instruments are to
some extent exclusive and are discussed together in the next section.
Some general incentives to investment are contained within the Investment Law 22 of 2002 that pro-
vides for exemptions from customs duties for imports that contribute to the creation of fixed assets and
for a limited volume of spare parts and imports required for maintenance. The Law also provides for a
variety of exemptions from taxes, including a tax holiday on profits. However, private funding for re-
newable energy in Yemen has not been forthcoming and all developments to date have been financed
by the government and by donors.
The most advanced wind project in Yemen is the proposed development at Al Mokha; this is a promis-
ing site on the Red Sea with an average wind speed of 7.4 m/sec at a height of 40m. Preparation of
the requisite feasibility studies and a model power purchase agreement was initiated under the RE-
REDP. Subsequently the World Bank agreed a sovereign loan for the implementation of a wind farm
of approximately 60 MW generation capacity, to be connected to the PEC grid. The plant is to be
wholly owned by a Special Purpose Company (SPC), to be created as a subsidiary of PEC. As the
success of the first wind project is critical the wind turbine manufacturer will operate the wind farm, at
least during the first five years, and train local engineers and technicians during this period working
within the SPC.
The commercial transactions pertaining to sales of electricity would simulate an IPP; the SPC will sell
electricity to PEC on a PPA. Eventually the subsidiary might be sold. The overall aim is to demon-
strate the sustained financial and economic viability of wind farms in the area; it is expected that suc-
cessful operation of the pilot scheme will generate interest in the future development of wind energy
along the Red Sea Yemeni coast.
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It was originally envisaged that the funding would be offered by the International Development Asso-
ciation (20 million US$), the AFD (50 million US$), the beneficiary (10 million US$) and the Islamic
Development Bank (15 million US$). Subsequently, the French Ministry of Finance withdrew from the
project. The funding for the wind farm is therefore not entirely secure. If built, the farm should qualify
for additional financing from carbon funds and preliminary preparations to register the project have
been made. The carbon finance funds would be used to reduce the government contributions to the
project, and also lessen the tariffs required for cost recovery.
A large rural electrification programme has now been authorised, (the Rural Energy Access Project)
funded jointly by the World Bank, the AFD and the Islamic Development Bank. The creation of the new
Authority and the new Electricity Law were conditions of that loan. The overall project will cost $117
million; this will be financed mostly by concessional loans, of which $37.6 million equivalent will be in
local currency, but also including $25 million as a grant from the World Bank.
Where grid access is not economically viable, the project envisages small Solar Home Systems
(SHS). The cost per kWh equivalent will depend on the usage of the SHS, including the types of ap-
plication and the amount of use. Levelised costs for the systems proposed were estimated at
$0.81/kWh, $0.71/kWh and $0.94/kWh for 20 Wp, 50 Wp and 100 Wp systems respectively. The level-
ised costs increase with system size, because the sophistication of the systems envisaged increases
also. These costs suggest that the SHS’s are more expensive than a community-based diesel gen-
erator. Justification is based in the environmental benefits and the longer term sustainability of energy
supply.
It is interesting that a small market for such solar kits exists at present without subsidy. In rural areas,
private individuals and some mosques in are prepared to pay for 100W or 200W photovoltaic installa-
tions with batteries and lamps costing from $800 to $2,000. Several small private companies are sup-
plying this market. No financial incentives are offered to such installations. It would be feasible in prin-
ciple to allow relief of tax on such equipment; import duties at present amount to 10% on batteries and
5% on other equipment; VAT is levied at 10% and other axes at 3%. It might be fair to permit exemp-
tion for photovoltaic installations for rural electrification given the extremely high subsidies enjoyed by
grid-connected consumers.
JICA has a semi pilot project of power generation by using a 300 Wp photovoltaic system to generate
power for Al-Wahda Hospital in Aden The intent is to demonstrate the viability of PV and to use the in-
stallation for capacity building; the main priority of JICA in Yemen is capacity building.
Solar water heating has not penetrated far in Yemen. The very low electricity tariffs are an obvious ob-
stacle. In 2003/4 there was an effort by local manufacturers to persuade government to provide loans
and repayment through the electricity bill, but it failed. There are some practical obstacles. Most hous-
ing is in apartment blocks and residents cannot install solar water heating without the permission of
the owner. The systems are often not efficient in the use of water, because it may be necessary to run
40 litres of water before the temperature reaches an acceptable level and water in Yemen is scarce
and expensive.
Despite these difficulties the technology should be very attractive at national level and instruments
should be devised to support market penetration.
4.6 Feed-in Tariffs and Obligations
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Grid connected renewable energy is rarely cost-effective in its own right. It must be subsidised if it is to
be developed by private industry. There are two main ways of delivering the subsidy. One is by offer-
ing higher prices than those available commercially; the other is by creating a second valuable good
that represents the value of the fact that the energy is generated from renewables. The second
scheme is operated by issuing certificates that certify the renewable origin and then obliging an identi-
fied group (normally suppliers) to buy them. This creates a market and therefore a price.
The offer of higher tariffs may be created by tendering a concession, it being understood that the con-
cession will be granted however the price achieved compares to market prices for electricity. This
stands in continuity with traditional processes of tendering large plants to IPPs; it allows secondary cri-
teria, such as percentage domestic content, to be added to the evaluation criteria. It has recently been
adopted by Denmark for large developments. Higher tariffs made also be operated by a feed-in tariff
that is made available to any generator.
Certificate based schemes define a quantity of renewable electricity to be produced and market forces
identify a price that is unknown at the outset; feed-in tariffs fix a price to be paid for renewable electric-
ity, but it is unknown what volume will be offered.
No feed-in tariff exists at present in Yemen, but the draft renewable law makes provision for such an
instrument if it is deemed useful. Article 22 of the draft permits government, at its discretion, to estab-
lish such a feed-in tariff applicable to Qualified Renewable Energy Facility. The law authorises the
Electricity Sector Regulation Board to specify details of such tariffs and the procedures to be followed
in a separate regulation. Article 23 permits the Board to pass regulations providing for net metering of
electricity generated by small-scale Renewable Energy Facilities or self-generators and to require re-
duced wheeling rates for electricity produced by a Qualified Renewable Energy Facility, if necessary.
The GoY has not apparently studied the prospects for feed-in tariffs in any detail. There is some in-
consistency between a feed-in tariff, that is essentially designed to appeal to unsolicited private in-
vestment, and the donor-driven, high-risk environment with which renewable policy must actually
cope.
There has been a proposal by a private Yemeni company to construct a 100 kW peak photovoltaic
grid-connected plant in Sanaa as a demonstration of the performance of the technology and to dem-
onstrate its economic potential. This plant would be financed through an advantageous PPA, essen-
tially a feed-in tariff, though not publically offered. It has been difficult to agree a price. The idea may
have some merit, but if the government were to proceed with this it would seem sensible to tender the
request.
4.7 CDM Finance
The Clean Development Mechanism offers operating support to projects through the provision of a
market for the certificates of Carbon Emission Reduction. This is a complex project cycle, but can be
useful for large projects.
The Designated National Authority (DNA) for Yemen is the Environmental Protection Agency (EPA).
There is at present no registered CDM project. Preliminary work has been done on the Al Mokha wind
farm to register it for the CDM and provided that the project goes ahead it will most likely succeed.
Other projects are in the development stage. Landfill gas recovery from the four large cities has been
examined as an option, but is not yet approved because the finance for the development is not avail-
able. Other possibilities are a gas flaring project proposed by Total, an energy efficiency project with
the cement factory and a programme to switch lighting units from magnetic to electronic ballasts.
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4.8 Information
It is a legitimate role of government to generate and disseminate knowledge as a public good. The
main need in this respect is for data on the renewable resource. It makes no sense for every devel-
oper to make their own measurements of solar and wind data. The need is especially acute for wind
as the extent of the resource varies locally.
There are twenty meteorological monitoring sites across the country all equipped to monitor wind and
solar radiation. These have been constructed for meteorological purposes and have only limited value
for selection of sites for commercial development of renewable energy.
A wind resource calculation using three-dimensional meso-scale atmospheric model KLIMM was car-
ried out within the Wind Resource Assessment and Demonstration Project implemented by Lahmeyer.
This was based on satellite data and data from the Civil Aviation and Meteorological Authority of
Yemen. The available meteorological wind observation data were also incorporated into the resource
calculation together with detailed wind measurements on two western sites. The output from this exer-
cise was a country-wide wind resource map with a spatial resolution of 1 km x 1 km. For the western
and southern mountain strip, and the Kamran Island a 250 m x 250 m map was also produced.
This work should be followed up by the Ministry. Additional measurement stations should be installed
in priority areas. Investors are likely to insist on their own measurements and it is in the interests of
the Yemen that they do this, but good pre-existing data will certainly encourage investors to examine
prospects in the country more seriously.
4.9 Industrial Policy
It is important that countries develop their own capacity to manufacture and / or assemble renewable
technologies in parallel with the investment process. This can be done by targeted research, by grants
to appropriate industries and by local manufacturing obligations in tendering.
There is some discussion of a PV assembly line in the Aden free-zone that would supply Yemen and
the countries on the African continent, but there already exist assembly lines in Saudi Arabia and in
the UAE. It is hard to see where the comparative advantage of Yemen would lie as its domestic mar-
ket is still small and it does not at present possess the necessary skills.
The emphasis of policy for off-grid photovoltaic systems is to develop delivery channels of PVs to rural
areas and to support the process through fostering microfinance and service providers. The aim is to
deliver PVs to 15,000 homes in the first instance, thereafter the market may develop spontaneously
and possibly the idea of local manufacture could be re-examined.
There is more to be said for stimulating the local market to produce solar water heaters. The skills are
available in Yemen and the protection offered by the lower value added to weight ratio and the cus-
tomer-specific installation would be an advantage. Two local manufacturers spontaneously entered
the market in 2001 without pre-existing government incentives. However, they seem to have had no
internal marketing plans and expected support from government. They proposed to PEC that the elec-
tricity utility should sell systems to final users and recover the costs through the electricity bill. The
Electricity Law in force at the time apparently did not permit such a measure so no such scheme ma
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5. Case Studies
The purpose of this chapter is to demonstrate the processes of evidence-based policy making (EBPM)
and theory-based evaluation (TBE). These techniques are well-known in the literature and have been
widely applied, but not generally to technical areas of policy such as energy efficiency and renewable
energy. There is potential for application in these areas because the methodologies provide a system-
atic basis for analysis and debate among stakeholders around a common and clear statement of the
policy intervention that can be maintained and improved throughout the project cycle from formulation,
through implementation, monitoring and evaluation.
The basic expression of this methodology is the behavioural model that underlies our understanding of
the reaction of stakeholders to the policy instrument.
5.1 Case Study 1 - Efficient Lighting in Public Buildings 5.1.1 Background and Context
The example that we choose in this case for illustration is the analysis of a Programme of Activities in
efficient lighting.
5.1.1.1 Programme of Activities
In 2007 the CDM approach was enlarged to allow Programmes of Activities (PoAs) to be registered. A
PoA is a programme of many emission reduction activities; by aggregating the combined emission re-
ductions of different participants it allows technologies and projects that would be too small for the tra-
ditional approach to be viable. The PoA approach also reduces the CDM-related transaction costs that
would otherwise be impractically high for small and dispersed projects.
A PoA comprises several CDM Programme Activities (CPAs). A CPA is a single measure, or a set of
measures, to reduce GHG emissions applied within a designated area. The overall size of a PoA is
unknown at the start of the PoA implementation. Different CPAs can be included under a PoA either at
the time of registration or during implementation.
The difference between baseline emissions and project emissions constitutes the emissions reduc-
tions that can be claimed under CDM. The crediting period for CPAs can be either seven years, re-
newable twice, or ten years non-renewable. An advantage of PoAs is that the baseline for the pro-
gramme is determined at the beginning in the project design document (PDD) for the Programme of
Activities. This background draws heavily on the explanatory book for PoA developed by KfW within
the CDM/JI Initiative of the German Federal Ministry for the Environment, Nature Conservation and
Nuclear Safety (BMU)3.
The PoA coordinator must have a good network of contacts with target users and service providers
and must be able to assure an adequate monitoring of activities. For the programme of efficient light-
ing proposed here the PoA coordinator might be a Ministry or the PEC, a commercial bank, or possibly
even an equipment supplier. The analysis in this case study assumes that the PoA coordinator is the
PEC because we propose that the costs of the ballasts be recovered through the electricity bill and
3 PoA Blueprint Book: Guidebook for PoA coordinators, CDM/JI, German Federal Ministry for the Environment, Nature Con-
servation and Nuclear Safety (BMU)
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this can only be done by the PEC. The PEC is in any case well placed to implement and monitor the
programme.
5.1.1.2 The Lighting market in Yemen
The market is characterised by a variety of lighting equipment. Incandescent bulbs are still common in
households; some T10 fluorescent tubes are still to be found in the market. The offer of CFLs and
other more efficient lighting devices is often corrupted by cheap poor quality goods that are hard for
consumers to distinguish from good quality products. Fakes of major brands are also common.
The more efficient tubes and electronic ballasts are generally sold into the commercial market, where
electricity prices are reasonably high (10 euro cents / kWh), lighting hours are quite long, there is
some basic technical competence, awareness is high and finance for investments with rapid pay-
backs is not generally a problem.
PEC has considered disseminating information about CFLs on the back of the bills sent to consumers,
but eventually abandoned the idea because of the many poor quality goods on the market and its con-
cerns that consumers would not necessarily benefit and would hold PEC responsible for faulty pur-
chases. There could well be a case for a PoA that would ensure the delivery of good quality products
into sensible applications.
A promising market is lighting in government buildings. There are many government offices throughout
the country; PEC registers over 12,000 consumers in the government sector. If on average these of-
fices have 25 fluorescent lamps each, then there could be some 300,000 lamps. This market is fa-
vourable, because in general it will not have the budget to make the conversion on its own account
and it is subject to instruction at the political level. Penetration should therefore be 100% without free-
riders.
The main objective of the activity would be to promote the widespread adoption of such ballasts in all
areas where they are cost-effective, notably in commercial premises.
5.1.1.3 Scope of the Case Study
This case study considers the possibility of providing financial incentives to various groups of consum-
ers to adopt electronic ballasts and then examines the prospects of combining these with a PoA under
the CDM.
5.1.2 Evidence-based Policy Making
The procedure that we have proposed to implement evidence-based policy making comprises the fol-
lowing steps.
1. Alternative forms of intervention need to be reviewed and short-listed. Evidence of the success
or failure of similar instruments in developed and developing countries needs to be studied with special emphasis on the conditions that created success and failure
2. There must always be a base-case against which alternatives are screened. Alternatives should include all available instruments.
3. All the relevant potential impacts need to be identified and where possible, quantified 4. Impacts should be assessed in consultation with the subjects of policy
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5. The cost of compliance needs to be assessed. Consideration should be given to how these costs can be minimized. It is necessary to consider who pays the compliance costs; there are generally alternatives with different implications for equity. The procedures for compliance need to be worked out as does the procedure for monitoring impacts.
6. Indicators need to be established of what is expected from the policy measures. These indica-tors should cover outputs, outcomes and impacts. Intermediate indicators are important in help-ing understand how policies work, how measures interact and how they can be improved
7. Quantitative analysis of impacts is essential. The analytical method most commonly used is economic cost-benefit analysis.
8. Cost-benefit analysis should take into account opportunity costs of energy and external envi-ronmental costs.
9. Multi-criteria analysis maybe a useful support to decision making; sensitivity analysis is one expression of this idea
The first five steps are discussed in this section; the formulation of indicators is discussed in the sec-
tion on theory-based evaluation and the last three steps are demonstrated in the section on economic
cost-benefit assessment.
5.1.2.1 Alternative Forms of Intervention
Enhanced penetration of electronic ballasts could be fostered through several instruments:
• Minimum Energy Performance Standards (MEPS) could be introduced that would exclude other
options from the market • Electricity utilities could be obliged to convert a specified number of installations to electronic bal-
lasts each year • Financial incentives could be offered to consumers to adopt voluntarily the more efficient solution • Offices could be converted at the expense of a third party and the repayments made through the
electricity bill in instalments calculated to be less than the savings
We consider these possibilities in turn.
The introduction of MEPS would require a great deal of preliminary work, the construction of testing
laboratories and the creation and training of an inspectorate to ensure compliance. It would force upon
poorer consumers with low lighting hours, paying at present highly subsidised tariff, an economic in-
vestment. It is a perfectly valid instrument that may in due course be justified, but it is not a measure
that can be made quickly or easily.
Imposition of an obligation on the electricity utility would probably not work in the national interest. The
PEC would have an incentive to convert the consumers paying the lowest tariffs, because in that way
the utility minimises its loss of revenues. As it is shedding load, it can resell the electricity to other con-
sumers that on average will provide greater revenues. Its costs are unchanged and so the interest of
the utility in revenue maximisation is served. The interest of the economy in general is that the elec-
tronic ballasts should save the maximum of energy possible and this would be difficult to achieve
through an obligation laid upon the utility.
Programmes targeted to users with long lighting hours per year will provide the most benefit for the
economy in general. As long as the underlying investment is cost-effective at a national level, the use
of financial incentives to bring about the transition is not a loss to the economy, but simply a transfer of
resources among different parts. As long as the economy as a whole benefits from the activity, it is
possible in theory to reward non-participant groups in some manner and to ensure that there are no
regressive impacts. Whether this is actually achieved will depend on how the incremental revenues to
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the state are spent. The option however is unlikely to succeed in the target group of government of-
fices, because they are likely to experience tight budgetary constraints and will be reluctant to make
the conversion even faced with substantial financial incentives.
The last option, whereby a third party pays the conversion and then recovers its costs through the
electricity bill is the most practical. Only PEC is really in a position to implement this option. This is the
variant that we retain for analysis.
5.1.2.2 Base Case
The base case we assume to be a case where no intervention is made and government buildings
make no effort to adopt efficient ballasts. We consider this plausible, because government offices are
generally subject to fairly severe financial constraints and are unlikely spontaneously to convert old
magnetic ballasts to new electronic versions.
5.1.2.3 Impacts
In order to claim for CERs from a programme of lighting improvements, the energy savings have to be
calculated. The key parameters include: the number of appliances replaced; the power rating of the
ballasts removed; the power rating of the new ballasts and the daily lighting hours. The energy savings
are multiplied by the grid emission factor to calculate the emission reductions by the programme.
There are two methodological approaches to determining savings: by monitoring and evaluation or by
deemed savings approach. The main difference is the extent of monitoring; the former requires that a
sample of appliances has to be monitored to estimate the average daily lighting usage. The details of
methodologies are given in the PoA Blueprint Book and in the references therein. For the purposes of
this simple case study we assume simply an average operation of 8 hours per day or 2500 hours per
year. This is not unreasonable for government buildings in continuous use.
5.1.2.4 Consultation
Agents for international manufacturers of lighting equipment are likely to procure the equipment. Con-
sultation is necessary to determine what prices may be achieved in large scale tenders, whether they
are willing to engage in such a programme and on what terms. It would also be useful to combine the
activity with more widespread awareness and information campaigns which would benefits these
agents and to which they should be prepared to contribute in money or in kind.
Monitoring of the programme will be essential to verify claims of numbers installed and the circum-
stances. An appropriate monitoring body should be identified and the costs and modalities of their par-
ticipation need to be agreed.
Consultation is also desirable with international agencies that are familiar with the details of the meth-
odologies available and that are familiar with the likely size of the programme costs. These costs can
be considerable and can be too much for small projects to bear. They include the development of a
PoA Design Document and CPA Design Document with the monitoring plan; the validation of the
documents through a Designated Operational Entity and record keeping.
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5.1.2.5 Compliance
Compliance in the normal sense is unlikely to be a problem. Evidently the claims of agents and in-
stallers must be monitored by the programme coordinator for internal purposes, but this is not difficult
or costly.
More problematic is that compliance with the terms and requirements of the CDM will have to be dem-
onstrated annually. Monitoring should be conducted by or supervised by the PoA coordinator. The
daily lighting usage is to be monitored at sample installations which are chosen by a properly stratified
procedure and provided with meters. If the PoA is the PEC, as seems probable, then the inspector can
read the daily lighting usage meters and check whether the ballasts are still working at the same time
as he makes the normal meter reading.
Preliminary sample surveys of target establishments are advisable to confirm the number, nature and
efficiency of the lighting units and the typical hours of use.
5.1.3 Theory-based Evaluation
5.1.3.1 Methodology
Evaluation of a project depends upon an underlying belief in how actors will be affected by the policy
and how they will respond. We call this belief a “behavioural model”. We specify the behavioural
model as a causal sequence in which the successive steps of policy implementation are shown in the
first column and then in subsequent columns are listed various indicators, risks and assumptions. The
successive steps of the policy may or may not specify recognisable behavioural assumptions; it de-
pends very much on the type of policy investigated.
The behavioural model is a formal description of the process of implementation, the concerns to be
raised at each stage and the measures that are to be adopted to make everything is working as ex-
pected. It provides a structure for the analytical steps and indicates the evidence that should be
sought at each stage to support assertions or on which to found analysis. It allows the issues that
might affect implementation to be identified and it allows different stakeholders to debate around a
clear and concrete representation of the policy. In later stages it serves as the basis for monitoring and
evaluation.
5.1.3.2 Indicators
Indicators need to be established of what is expected from the policy measures. These indicators
should cover outputs, outcomes and impacts. Intermediate indicators are important in helping under-
stand how policies work, how measures interact and how they can be improved
5.1.3.3 Behavioural Matrix
We specify the behavioural model as a form of logical framework in which the successive steps of pol-
icy implementation are shown in the first column and then in subsequent columns are listed various
indicators, risks and assumptions. The successive steps of the policy may or may not specify recog-
nisable behavioural assumptions; it depends very much on the type of policy investigated.
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The indicators that we adopt are measures of input, output, outcome and impact. By these terms we
mean the following:
• Inputs are the financial, human, technical or organizational resources used in the endeavour,
• Outputs are objectively verifiable indicators that demonstrate the progress made in implementing
the measures,
• Outcomes are the immediate effects on the regulated subject,
• Impacts are direct measurements of the improvements that the programme is designed to bring
about.
The behavioural model is a formal description of the process of implementation, the concerns to be
raised at each stage and the measures that are to be adopted to make everything is working as ex-
pected. It provides a structure for the analytical steps and indicates the evidence that should be
sought at each stage to support assertions or on which to found analysis. It allows the issues that
might affect implementation to be identified and it allows different stakeholders to debate around a
clear and concrete representation of the policy. In later stages it serves as the basis for monitoring and
evaluation.
The behavioural model that we propose is shown in Table 5. In this case most of the matrix is me-
chanical rather than behavioural; the behavioural elements enter into the process towards the end as
market transformation begins.
The risks identified can often lead to the definition of new flanking policies. For example, if other con-
sumers are unaware of the good performance and cost-effectiveness of the pilot programme then it
will have no impact on their behaviour. It is necessary to accompany the pilot programme with a gen-
eral awareness programme to other potential demonstrating the superior technical and financial per-
formance and the practicality as shown by the PoA.
Similarly, as the market is transformed so fakes and poor quality goods are likely to appear. This is not
a risk with the main programme because the PoA will procure ballasts only from reputable source. As
other consumers begin to adopt the more efficient ballasts, for example smaller commercial facilities
also paying a high tariff, they may be tempted to buy inferior goods at lower prices with all the subse-
quent problems of poor performance and short life-time that then discredit the technology in general.
The solution to this is to introduce parallel policies of labelling and standard s along with verification of
compliance to prevent these goods reaching the market.
It will also be evident that the potential market is limited by the tariff structure. Only the specific groups
paying on the high tariff levels will find the concept attractive and only then if they use lights for long
periods each day. Tariff reform would extend the market significantly.
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Table 5: Behavioural Matrix for a PoA on efficient lighting
Behavioural
model
Indicators
Risks Assumptions
Input Output Outcome Impact
• Design of busi-
ness model
• Official time
and consultant
fees ($)
• Viable business
model (Y/N)
• Development of documentation and approval by DNA
• Official time
and consultant
fees ($)
• Adequately pre-
pared documenta-
tion (Y/N)
• DNA does not approve - unlikely
Validation of the documents through a DOE
• Fee to DOE ($) • Validated pro-ject (Y/N)
• DoE does not validate; documentation inadequate
• Registration • Registration
fee, ($)
• Registered pro-
ject (Y/N)
• Project meets requirements of CDM and PoA
• Procurement
and installation
of ballasts
• Initial payment
by PoA ($);
• Substitution on
target sites (#)
• Reduction in volume and cost of genera-tion (#,$)
• Ballasts not
available in
time or at ex-
pected price
• Proper consul-tation will avoid this risk
• Identification of
monitoring sites
and installation
of meters
• Fee to monitor-
ing body and
cost of meters
($)
• Meters installed on chosen sites (#)
• Old ballasts de-
stroyed under
verification
• Official time
and fee to
monitoring
body ($)
• Ballasts de-stroyed (#)
• Leakage of bal-
lasts to second
hand market
• Receipt of
revenues from
the adjusted bill
• Revenues to PoA ($)
• Government of-fices do not pay bills
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Behavioural
model
Indicators
Risks Assumptions
Input Output Outcome Impact
• Processing of
monitoring data
and preparation
of report
• Fee to monitor-
ing body and
cost of meters
($)
• Monitoring report
with verified out-
comes and sav-
ings (Y/N)
• Savings and impacts prop-erly quantified (#)
• Delays in re-
porting lead to
delayed receipt
of CERs
• Communication with DOE re-garding moni-toring reports
• Fee to DOE ($) • Authorisation of
issuance (Y/N)
•
• Receipt of
CERs
• Revenue to the
PoA ($)
• Uncertain fu-ture value of CERs
• Other users adopt technol-ogy
• Reduction in volume and cost of electric-ity generation (#,$)
• Other users are unaware of the demonstration in government buildings
• Price of elec-tricity for some users is to low
• Higher demand
causes lower
prices (econo-
mies of scale)
• Prices of ballasts
fall and availability
rises (#)
• Sales increase
(#)
• Reduction in
volume and
cost of electric-
ity generation
(#,$)
• New entrants in
market
• Prices of ballasts
fall and availability
rises (#)
• Sales increase
(#)
• Reduction in
volume and
cost of electric-
ity generation
(#,$)
• Low quality products and fakes enter market
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Behavioural
model
Indicators
Risks Assumptions
Input Output Outcome Impact
• CO2 emissions
and energy use
falls; overall fi-
nancial benefit
to country
• Volume of CO2
emission reduc-
tion (mt).
• Value of carbon
emission reduc-
tions ($).
• Net cost of pro-
ject ($).
•
Note on symbols: • $ indicates indicator is measured in financial terms • # indicates indicator is measured in numbers • Y/N indicates indicators is a yes or no observation • ? indicates indicator that cannot be quantified, but can be assesses qualitatively
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5.1.4 Cost-Benefit Assessment
Quantitative analysis of impacts is essential. The analytical method most commonly used is economic
cost-benefit analysis. This cost-benefits analysis takes into account two perspectives to assess an
investment:
• Financial analysis - point of view of the investor: This analysis has to evaluate if the envisaged in-
vestments are of commercial interest for the private or the public investors under the given market conditions (including the aspect of taxes or subsidies). The present case study considers two enti-ties for this analysis: - Facility operator: The analysis relates the cost for the electronic ballast to the reduced costs
for electricity. - Electricity company (PEC): The electricity company will be confronted with lower electricity
sales, but also with lower generation requirements.
• Economic analysis - point of view of Yemen economy: This analysis evaluates if the envisaged
investment is beneficial for Yemen economy. Cost-benefit analysis should take into account oppor-tunity costs of energy and external environmental costs, particularly of the avoided emissions of carbon.
The analysis has to determine the benefits for the national economy and the resources used have
to be valued by determining the benefit these resources' would have generated in alternative uses
(opportunity cost principle).
The cost-benefit assessment is done considering the following steps:
• Specification of the electronic ballast project and key-parameter and data for the Programme of Ac-
tivity, • Determination of the avoided cost for electricity generation, • Financial analysis:
- Analysis of the individual investment decision, - Analysis of the impacts upon PEC as electricity company and as Programme Manager,
• Economic analysis, • Sensitivity analysis.
5.1.4.1 Methodology Applied and Data Basis
The electricity that is saved by installing electronic ballasts, or any other measure of energy efficiency,
would otherwise be generated from natural gas, i.e. the benefits of the electronic ballasts are the
avoided cost of additional natural gas based electricity generation. The economic assessment of
electronic ballasts obliges us to consider what value to Yemen of the resources used for electricity
generated from natural gas (opportunity costs). It appears that the marginal technology for gas will be
open cycle gas turbines (OCGTs), because the inland sites for power production have no water for
cooling. Combined cycles will presumably be built at the coast, but the open cycles will be despatched
later and are therefore the marginal source of power.
The key parameters for the assessment are:
• The costs and performance of electronic ballasts and the expectations of the market,
• The costs for PEC of managing the PoA and the modalities of the programme,
• Investment costs for OCGT and performance data,
• Value of natural gas for Yemen (opportunity costs),
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• Return on capital requirements of independent power producers (IPP) for OCGT developers.
Table 6: Cost-Benefit Analysis - General Data
Lighting Market and Technological Performance
The data for the electronic ballast used in the analysis is shown in the following table. It can be seen
that the investment is very attractive, the simple pay-back period is 2.4 years.
Table 7: Cost-Benefit Analysis - Electronic Ballast
Data for the Programme of Activities (PoW)
Regarding the Electronic Ballast Programme we make the assumption shown in the following table.
The Programme will consist in an installation of 300,000 electronic ballasts in about 12,000 build-
ings/offices. The total annual electricity saving will be 4,200 MWh and the total investment cost would
be 300 million Ryal. The Programme will be implemented over a period of 3 years.
We assume that the participants have the conversion made for free and then pay the cost through 7
equal annual payments on the electricity bill.
For Programme preparation and registering about 40 million Ryal will be required, the annual monitor-
ing cost are estimated to be in the order of 2 million Ryal. Considering a value the Certified Emission
Reductions (CERs) of 10.0 US $ / t CO2
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Table 8: Data for the Programme of Activity (PoA)
5.1.4.2 Electricity Supply Cost
The economic assessment of electronic ballasts obliges us to consider what value to Yemen of the
resources used for electricity generated from natural gas (opportunity costs). It appears that the mar-
ginal technology for gas will be open cycle gas turbines (OCGTs), because the inland sites for power
production have no water for cooling. Combined cycles will presumably be built at the coast, but the
open cycles will be despatched later and are therefore the marginal source of power.
The investment cost we take as $600 per kW and the thermal efficiency we assume to be 45%.
The key parameters for the assessment are (1) Investment costs for OCGT and performance data, (2)
Value of natural gas for Yemen (opportunity costs) and (3) Return on capital requirements of inde-
pendent power producers (IPP) for OCGT developers.
For the required return on capital we assume that the investment in new OCGT units is considered as
a reliable business, whereas the political risk in Yemen is substantial. We therefore take a required re-
turn on investment of 20%. This could be lower if the plant were built on a turnkey basis with soft
loans, but in principle, according to the Electricity Law, new plants should be constructed as IPPs.
Cost of Electricity Generation - Opportunity Cost for Natural Gas
Recent Price Development for Natural Gas
Yemen has the opportunity to export gas, the opportunity costs is thus the net value of export, more
specifically it is the net value of export as liquefied natural gas (LNG). Prices are volatile as can be
seen from Figure 1 that shows the spot prices at Henry Hub. Contract prices are less volatile, but are
not transparent.
The cost for liquefaction has to be taken into account to determine the opportunity cost of Yemen's
natural gas.
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Price Forecast Based on Crude Oil Prices
The US Department of Energy/Energy Information Agency has produced long-term forecasts of crude
and petroleum product prices to 2030 (EIA, 2009). This is an authoritative source; it may not be right,
but a great deal of effort and analysis has gone into its creation and it is a reasonable source to adopt.
Source WTRG Economics
Figure 1: US LNG Prices
The Figure 2following Figure 2 shows the forecasts of crude prices in real and nominal terms to 2030.
It is statistically clear that fuel prices are strongly correlated over the medium term. We use a formula
to describe a plausible relationship between LNG prices and crude oil prices. This formula is derived
from regression studies of the price of LNG in the Mediterranean basin. We recognise its limitations
and we accept that the nature of the long-term correlation between gas and crude is not clear, but it
offers a starting point to forecast LNG prices.
The formula we use is:
y = 0.0805 x + 2.852
Where, y = LNG price in $/MMBTU and x = price of crude in $/tonne
This procedure gives a central case for LNG as shown in Figure 4-3. (Note: 1 MMBTU = 1.05 GJ).
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0
20
40
60
80
100
120
140
160
180
200
2010 2015 2020 2025 2030
$/
bb
l Crude Oil (weighted
average) 2007 US$/bbl
" nominal prices
Figure 2: Forecasts of Crude Prices to 2030 (DOE/IEA)
We propose to use real 2007 prices for the cost benefit analysis to avoid having to link the power pur-
chase agreement to inflation.
0
2
4
6
8
10
12
14
16
18
20
2010 2015 2020 2025 2030
$/
MM
BTU LNG 2007 US$ /
MMBTU
" nominal $/MMBTU
Figure 3: Derived Forecast of International LNG Prices
Netbacks The financing of LNG trains is complex. We make a very simple calculation here as a basis for further
reflection.
Prices for LNG trains vary considerably according to the state of the market. According to the IEA in
2003, a single LNG chain involves investment of around $5 billion for a typical 6.6 million tonne two-
train project, (IEA, 2003). Assuming price escalation to 2009, this indicates a value of about $6.5 bil-
lion, or roughly $1000 per 1 t/yr. Discounting at 15% over 20 years gives an annual payment of $160 /
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t / yr, or a contribution of $200 / tonne to the price of LNG.
The calorific value of natural gas is about 44 MMBTU / tonne, so the contribution of capital to the long
run marginal cost of LNG is around $3.6 / MMBTU.
Losses of gas in processing (as fuel) are about 8%, say $0.3/MMBTU (this is based on the opportunity
cost of gas so implies iteration). The cost of transport to a European market and the cost of transport
of natural gas to the burner tip in the power station we have not estimated and we consider that the
net sum of these will be small compared to the uncertainties elsewhere in the calculation.
On this basis, if Yemen were faced with the choice of building a new LNG export train or burning the
gas in a power station, the opportunity cost of gas would be the international market price less about
$4 / MMBTU, ~= $3.6 + $0.3. We note that this calculation is in close agreement with similar calcula-
tions made for the California Energy Commission in 20074.
Opportunity Cost of Electricity from Natural Gas
Lighting makes a significant contribution to peak demand for electricity. If electricity is saved in lighting
then generally the savings will be experienced on plant running fairly low down the merit order. It is
impossible to gauge the exact impact without load studies and despatching models, but we assume an
open cycle gas turbine operating 4000 hours per year. Discounting the cost of the turbine ($600 / kW)
at 20% over 25 years gives an annual payment of $120/kW. Assuming 4000 hours of operation this
yields a contribution of capital to the unit cost of 3c/kWh.
The Figure 4 shows how the opportunity cost of electricity can be constructed from the opportunity
cost of gas. The opportunity cost of gas is indicated in c / kWh in the bottom line. The next line up
shows the opportunity cost of the fuel burnt to make one unit of electricity. The next line adds in the
capital contribution as calculated above and the last line adds a further 5 c / kWh as a nominal esti-
mate of T&D costs and losses.
4 The Outlook for Global Trade In Liquefied Natural Gas: Projections To The Year 2020, for the California Energy Com-
mission, by Jensen Associates, August 2007
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0
2
4
6
8
10
12
14
16
18
20
2010 2015 2020 2025 2030
c /
kWh
OC of gas
OC of elec (fuel only)
OC of elec (fuel +
capital)
OC of elec (fuel +
capital + T&D)
Figure 4: Marginal cost of electricity from gas
Opportunity Costs over the Short Term
The above analysis assumes that gas-fired plant can be built immediately to match demand. In fact at
the moment the Yemen suffers severe load shedding and relies on emergency generation from diesel.
The cost of the diesel generation is very high. We understand that the leasing costs of the plant are 10
c/kWh. The plants receive diesel for free, but the opportunity cost of the diesel is high, close to 20 c/
kWh. The opportunity cost of this generation is therefore about 30 c/kWh.
There is also an opportunity cost to the shedding of load. The value of the lost load must exceed 30 c /
kWh, otherwise the emergency generation would make no sense. The marginal value of electricity
saved at the moment is therefore somewhere between 30 c/kWh and a larger number that we cannot
estimate. For the sake of the case study we assume that the marginal opportunity cost at present is 30
c/kWh and that load shedding and emergency generation will cease in 2015, so the marginal opportu-
nity cost of electricity will have something like the form shown in Figure 5, where we have postulated a
gradual transition from the cost of emergency generation to the opportunity cost of gas-fired genera-
tion.
The construction of new gas-fired plants will certainly reduce the opportunity cost of electricity to
Yemen, but it will still be much higher than present tariffs. It is therefore still essential to make strenu-
ous efforts in price reform and energy efficiency.
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10
15
20
25
30
35
2010 2015 2020 2025 2030
c /
kWh
Figure 5: Marginal Opportunity Costs including Emergency Generation
5.1.4.3 Emission Factors
As the main fuel for power generation shifts from diesel to natural gas the emission factors from the
power system will also change.
The following figure shows our estimates of how this might progress as the transition occurs.
0
200
400
600
800
1000
2010 2015 2020 2025 2030
g /
kW
h
Figure 6: Emission Factors in grams of CO2 equivalent per kWh
5.1.4.4 Financial Analysis 1 - Individual Investor
Under the given electricity prices in Yemen of 30 Ryal / kWh (see Table 6) the installation of electronic
ballasts is a very profitable investment and should be recommended. The simple pay-back period is
2.4 years, considering annual operation of only 2000 h. The levelised costs / specific electricity saving
costs are 18.01 Ryal / kWh.
The assessment of an investment in one ballast is given in Table 9. It is assumed that the ballast is in-
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stalled in the middle of year 1 and immediately electricity savings can be considered (50% of the an-
nual values). The life-time of a ballast (considering 2,000 hours of use) is 12 years. The financial inter-
nal rate of return is 52.5 %.
For the Programme it is assumed that PEC provides the ballast free of charge, and costs are recov-
ered with an annual increase of the electricity bill of 219 Ryals (PEC charges an interest of 18%). The
ballast will generate immediately a net benefit. An IRR cannot be determined because there is no ini-
tial investment. The participating user would gain over the 12 years 998 Ryals, without any own pay-
ments.
5.1.4.5 Financial Analysis 2 - Electricity Company / Programme Manager PEC
The decision situation for the electricity company as the programme manager is quite complex be-
cause a number of aspects has to be taken into account. The Programme would not be in the interest
of PEC, with an IRR of 2.5%, far lower than the commercial required return of 20% (see Table 10).
The programme costs for the electricity company / programme manager are:
• The reduction in electricity sales and therefore also in revenues. Because the market proposed is
the commercial market, where prices for electricity are quite high, the loss of revenue to PEC from reduced sales is considerable.
• The programme costs - The investment will be financed with loans, but for this loan the debt service has to be consid-
ered, - The programme preparation and registration costs of 20 million and the annual monitoring costs
of 2 million Ryal.
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Table 9: Financial Analysis 1 - Individual Investment
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Table 10: Financial Analysis 2 - Electricity Company / Programme Manager PEC
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The Programme's benefits are:
• The avoided generation costs - in this case the gas based generation opportunity costs are consid-
ered, • The payments from the ballast-user, • The sale of the CERs.
5.1.4.6 Economic Analysis
The cost-benefit analysis for this case study will be completed with an assessment under the perspec-
tive of Yemen national economy. This analysis is shown in
• Programme costs: The costs will be again the programme costs. The investment costs will be
again covered by loans. The programme registration and monitoring has to be covered in addition. • Programme benefits: The programme benefits will be the avoided generation costs and the sale
of the CERs abroad.
As it can be seen in Table 12 the programme would be very beneficial for the economy of Yemen, with
the installation of the electronic ballast the cost burden of the electricity system could be significantly
reduced.
5.1.4.7 Sensitivity Test - Impact of the CERs Value
The analysis above showed that the Programme of Activity is not of interest because the high pro-
gramme costs (registration and monitoring) are not justified by the value of the CERs / carbon credits.
The question arises if higher values for the CERs would improve the situation. Table 11 shows the im-
pacts of varying the value for CERs. In addition, the case without the programme registration is
shown.
Table 11: Variation of the CERs / Carbon Credit Value
This sensitivity analysis shows that higher CERs value would improve the situation, but would not
change the situation for the electricity company PEC. Without the generation PEC might be interested,
especially the slight margin on the interest rates makes the programme of interest for PEC.
To recover the high PoA costs at a CER price of 10 US $ / t CO2, at least a programme of 800,000
units has to be considered. Of importance is the number of units, not so important is the price level of
the CERs.
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Table 12: Economic Analysis of the Programme
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5.1.5 Conclusion
5.1.5.1 Methodology
The case study demonstrates the advantages of developing deconstructed versions of policy prescrip-
tions as an aid to analysis and to stimulate focused debate among stakeholders.
In the case of the programme of action described here, the deconstruction helps to reveal the nature
and extent of the assumptions that must be made adequately to assess the impact. This helps to
frame the definition of the policy instrument and the cost-benefit analysis.
5.1.5.2 Cost-Benefit Analysis
The cost benefit analysis showed that the installation of electronic ballast would be highly beneficial for
the electricity user and for the national economy as the analysis in the previous sections showed. The
analysis was forward-looking comparing the use of electronic ballast with the construction of a new
OCGT unit.
• Direct electricity user: The electronic ballast reduce the electricity cost, the simply pay-back pe-
riod is 2.4 years, and considering the whole life-time of the ballasts, the return on investment amounts to 52.5 %.
To overcome the market barriers, a promotion programme would be nonetheless necessary to
overcome the reluctance of the electricity consumers and the lack of rational assessment of elec-
tricity saving options. • Electricity company PEC as Programme Manager: For the electricity company the programme
would not be of interest because the tariff is higher than the assumed costs of electricity genera-tion.
In addition, the high cost for programme preparation, registration and monitoring are not justified by
revenue generated through the sale of CERs / carbon credits.
The electricity company could be motivated to launch programme by offering a commercial margin,
as it was done in the case study with a 4% margin on the pre-financing conditions. • Impact upon the Yemen economy: The use of electronic ballasts would have a favourable impact
upon the national economy because the costs of the electricity system could be reduced.
5.1.5.3 Programme of Action (PoA) as a Policy Instrument
Summarising the analysis it can be said:
• The installation of electronic ballasts would be highly beneficial for the electricity consumers and
the national economy. • For the electricity company the programme would imply some losses, which have to be off-set by
additional commercial benefits. • The assumed conditions for the Programme of Action (PoA) show that the Programme would not
be of interest. Instead of 300,000 units at least 800,000 units have to be installed.
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5.2 Case Study 2 - Off-Grid PV for Rural Electrification 5.2.1 Background and Context
The example that we choose in this case for illustration is the analysis of instruments to support off-
grid PV for rural electrification
Status of Off-Grid PV for Rural Electrification in Yemen
Much of Yemen is far from the grid and will not be grid-connected in the foreseeable future. It is desir-
able both in the interests of social solidarity and political stability that remote communities have access
to electricity at acceptable costs.
A large rural electrification programme has now been authorised, (the Rural Energy Access Project)
funded jointly by the World Bank, the AFD and the Islamic Development Bank. The creation of the new
Authority and the new Electricity Law were conditions of that loan. The overall project will cost $117
million; this will be financed mostly by concessional loans, of which $37.6 million equivalent will be in
local currency, but also including $25 million as a grant from the World Bank.
Where grid access is not economically viable, the project envisages small Solar Home Systems
(SHS). The cost per kWh equivalent will depend on the usage of the SHS, including the types of ap-
plication and the amount of use. Levelised costs for the systems proposed were estimated at
$0.81/kWh, $0.71/kWh and $0.94/kWh for 20 Wp, 50 Wp and 100 Wp systems respectively. The level-
ised costs increase with system size, because the sophistication of the systems envisaged increases
also. These costs suggest that the SHS’s are more expensive than a community-based diesel gen-
erator. Justification is based in the environmental benefits and the longer term sustainability of energy
supply.
Scope of the Case Study
The objectives of the case study are to examine a range of policy instruments that might support this
sustainable process and to analyse selected instruments in detail.
5.2.2 Evidence-based Policy Making
The procedure that we have proposed to implement evidence-based policy making comprises the fol-
lowing steps.
1. Alternative forms of intervention need to be reviewed and short-listed. Evidence of the suc-
cess or failure of similar instruments in developed and developing countries needs to be stud-ied with special emphasis on the conditions that created success and failure
2. There must always be a base-case against which alternatives are screened. Alternatives should include all available instruments.
3. All the relevant potential impacts need to be identified and where possible, quantified 4. Impacts should be assessed in consultation with the subjects of policy 5. The cost of compliance needs to be assessed. Consideration should be given to how these
costs can be minimized. It is necessary to consider who pays the compliance costs; there are generally alternatives with different implications for equity. The procedures for compli-ance need to be worked out as does the procedure for monitoring impacts.
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6. Indicators need to be established of what is expected from the policy measures. These indi-cators should cover outputs, outcomes and impacts. Intermediate indicators are important in helping understand how policies work, how measures interact and how they can be improved
7. Quantitative analysis of impacts is essential. The analytical method most commonly used is economic cost-benefit analysis.
8. Cost-benefit analysis should take into account opportunity costs of energy and external en-vironmental costs.
9. Multi-criteria analysis maybe a useful support to decision making; sensitivity analysis is one expression of this idea
The first five steps are discussed in this section; the formulation of indicators is discussed in the sec-
tion on theory-based evaluation and the last three steps are demonstrated in the section on economic
cost-benefit assessment.
5.2.2.1 Alternative forms of intervention
One can imagine several possibilities for achieving the specified objective. These include:
1. Distribution of highly subsidised PV systems to selected communities by a state entity; 2. Offer of subsidies to any purchaser; 3. Soft loans to individuals repayable over a period – possibly linked to a revolving fund.
The difficulty with options 1 and 2 is that the implicit discount rates of poor people are often extremely
high and therefore they are unlikely to invest in capital intensive projects. Another characteristic com-
mon to both options is that they require constant replenishment of funds from state resources or donor
funds and do not meet the test of sustainability. Option 1 suffers from the additional problem in that it
is discriminatory in favour of the selected communities. Option 3 in principle suffers none of these ob-
jections. It is non-discriminatory; if based on a revolving fund then it may be sustainable and does not
require constant additional funds.
We examine therefore Option 3, but also Option 2, because although it fails the sustainability test it is
close to the present intentions and therefore the comparison is interesting. We can simplify this com-
parison by representing the two options as a single option that comprises a partial grant and a partial
loan. The objective of the analysis is to calculate the costs of the alternatives to the state and to the
purchaser and to identify what specific conditions in either case might work.
5.2.2.2 Base Case
There is a choice of base case. We can compare PV rural electrification to a case where there is no
electricity available; this is difficult as it requires estimating the consumer surplus in various applica-
tions which cannot be reliably assessed. The alternative is to assume that the value of electricity is
self-evident and to compare its provision through small engines or by PV. We adopt the latter.
5.2.2.3 Impacts
The impacts will be a reduction in CO2 emissions. The parameters governing this extent of the reduc-
tion are problematic. Although we make our assessments against a base line represented by small
engines, it is not at all clear that this would be the case in practice. If the alternative were kerosene for
lighting then it is possible that the CO2 emissions would be comparable to those from small engines,
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but a reliable judgement on this would require considerable research.
In either case an assessment of CO2 savings would require knowledge of the number of systems in-
stalled; their power rating and the electricity generated. It seems unlikely, given all the uncertainties
that such a programme could be registered under the CDM and as shown in other case studies the
costs of registering programmes of small activities may well outweigh the benefits.
We therefore make no credit to the programme for CO2 emissions, although we do make an assess-
ment of their size, assuming an alternative of small engines.
There will be an impact on the economy of the individual / community. If no electricity is otherwise
available this may be significant; if electricity is available from other sources then the economic impact
will depend on the extent of the cost saving.
5.2.2.4 Consultation
Consultation with suppliers of photovoltaic systems is necessary to determine: what prices may be
achieved in large scale tenders; whether there are obstacles to procurement or installation and how
they can be overcome; whether they are willing to engage in such a programme and on what terms.
Consultation is also desirable with other Ministries operating in rural areas. It may be that extension
workers from health, education and agricultural services can help with basic advice on simple mainte-
nance and can supply information about the programme and support applications. This would avoid an
expensive duplication of machinery for delivering advice and support.
5.2.2.5 Compliance
The main compliance problem will be in ensuring that the money is used to buy photovoltaic equip-
ment and in recovering the payments. The systems will be installed by agents and their records must
be checked and verified by random checks on the ground. Penalties must be applied for fraud.
Obtaining could be difficult; it might be helped by the participation of a commercial bank to manage the
fund. In principle the solution is to take back the photovoltaic system, but this could be difficult in prac-
tice and it may have been sold on to a different owner. The problem can be serious, because if there
is one delinquent participant in a community and he is not penalised then the practice of non-payment
will spread.
This is a real risk; from an economic perspective it is simply a transfer payment from the state to the
delinquent participant and it is not a welfare loss, but it would destroy the sustainability of the revolving
fund. We incorporate into the analysis a loss of 20% of revenues, but note that performance in this re-
gard would need to be constantly monitored.
5.2.3 Theory-based Evaluation
5.2.3.1 Methodology
Evaluation of a project depends upon an underlying belief in how actors will be affected by the policy
and how they will respond. We call this belief a “behavioural model”. We specify the behavioural
model as a causal sequence in which the successive steps of policy implementation are shown in the
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first column and then in subsequent columns are listed various indicators, risks and assumptions. The
successive steps of the policy may or may not specify recognisable behavioural assumptions; it de-
pends very much on the type of policy investigated.
The behavioural model is a formal description of the process of implementation, the concerns to be
raised at each stage and the measures that are to be adopted to make everything is working as ex-
pected. It provides a structure for the analytical steps and indicates the evidence that should be
sought at each stage to support assertions or on which to found analysis. It allows the issues that
might affect implementation to be identified and it allows different stakeholders to debate around a
clear and concrete representation of the policy. In later stages it serves as the basis for monitoring and
evaluation.
5.2.3.2 Indicators
Indicators need to be established of what is expected from the policy measures. These indicators
should cover outputs, outcomes and impacts. Intermediate indicators are important in helping under-
stand how policies work, how measures interact and how they can be improved
5.2.3.3 Behavioural Matrix
We specify the behavioural model as a form of logical framework in which the successive steps of pol-
icy implementation are shown in the first column and then in subsequent columns are listed various
indicators, risks and assumptions. The successive steps of the policy may or may not specify recog-
nisable behavioural assumptions; it depends very much on the type of policy investigated.
• Inputs are the financial, human, technical or organizational resources used in the endeavour,
• Outputs are objectively verifiable indicators that demonstrate the progress made in implementing
the measures,
• Outcomes are the immediate effects on the regulated subject,
• Impacts are direct measurements of the improvements that the programme is designed to bring
about.
The behavioural model is a formal description of the process of implementation, the concerns to be
raised at each stage and the measures that are to be adopted to make everything is working as ex-
pected. It provides a structure for the analytical steps and indicates the evidence that should be
sought at each stage to support assertions or on which to found analysis. It allows the issues that
might affect implementation to be identified and it allows different stakeholders to debate around a
clear and concrete representation of the policy. In later stages it serves as the basis for monitoring and
evaluation. The behavioural model that we propose is shown in Table 13.
The risks identified can often lead to the definition of new flanking policies. For example, if other con-
sumers are unaware of the instrument then it will have no impact on their behaviour. It is necessary to
accompany the programme with a sensitisation of potential users and this could be done using exist-
ing extension workers in health, education and agriculture.
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Table 13: Behavioural matrix for instruments to support off-grid PV for rural electrification
Behavioural
model
Indicators
Input Output Outcome Impact Risks Assumptions
Assessment of
market and feasi-
bility study
Official time ($) Viable estimate of ini-
tial market; concept
paper (Y/N)
Preliminary sensi-
tisation of suppliers
(?)
Building support in
other Ministries
Preliminary sensi-
tisation of cooper-
ating Ministries (?)
Other Ministries will
assist; needs per-
suasion of health,
educational, agricul-
tural benefits
Creation of revolv-
ing fund and ap-
proval of instru-
ment
Official time ($) Agreed fund and pro-
cedures (Y/N)
Tender for agent to
manage fund
Official time ($) Tenders made (#)
Contract agreed
(Y/N)
No competent
agent is interested
Tender for and
purchase of
equipment
Official time ($)
Expenditure ($)
Firm tenders for
required volume at
acceptable price
(Y/N)
Tenders will be at
prices above ac-
ceptable limit
Contracts agreed Official time ($)
Expenditure ($)
Systems available
(#)
Awareness cam-
paign in appropri-
ate regions
Official time ($) Applications to
Fund (#)
No market interest Other Ministries will
assist on the ground;
see above
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Behavioural
model
Indicators
Input Output Outcome Impact Risks Assumptions
Applications re-
viewed, evaluated
and approved
Official time ($) Systems installed
(#)
Development
gains and CO2
savings (#)
Repayments
sought
Revenue to fund
($)
Fee to agent ($) Repayments will
be hard to recover
New cycle of re-
volving Fund as
repayments are
received
Official time ($) New systems in-
stalled (#)
Development
gains and CO2
savings (#)
Bad loans and ad-
ministration costs will
not deplete Fund
Note on symbols: • $ indicates indicator is measured in financial terms • # indicates indicator is measured in numbers • Y/N indicates indicators is a yes or no observation • ? indicates indicator that cannot be quantified, but can be assesses qualitatively
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5.2.4 Cost-Benefit Assessment
5.2.4.1 Methodology Applied
The cost-benefit assessment of photovoltaic systems (PV) compared to small engines obliges us to
consider what value to give to the opportunity cost to Yemen of the fuel used in the engines. This is
the benefit of the fuel to the national economy if it were not used in the application considered. In this
case the opportunity cost is the fob export price or cif import price (depending on whether Yemen is a
net importer of exporter of the fuel in question) plus the cost of delivering it to the site, which would
also be avoided if it were not used.
We could use either diesel or gasoline engines as a reference. Our policy instrument is aimed at indi-
viduals who would presumably use gasoline engines, despite the higher cost of the fuel, because die-
sel sets are too large and expensive for individual use. On the other hand, from a state perspective, if
a village were to be electrified as an island, it would be done using a diesel engine. For consistency,
we assume the fuel is gasoline because this is more consistent with individual households.
The key parameters for the assessment are:
• Typical load to be met, • Costs and performance of photovoltaic and battery systems, • Investment costs for gasoline engines, • Opportunity costs of gasoline,
In chapter 5.2.2.1 we discussed three forms of achieving a wide-spread use of PV equipment in rural
areas. The three policy instruments considered are:
• Distribution of highly subsidised equipment, • Direct subsidies to purchases of PV equipment, • Soft loans to individuals repayable over a period.
The following application of the cost benefit analysis tool lays emphasis upon the first two options by
discussing in general terms the required subsidy level. The difference between these two options is
marginal and is more determined by the most appropriate institutional framework and the overall ap-
proach of the rural electrification programme. This issue is not considered in the following analysis. As
it will be shown, the third option of soft loans will not be sufficient to provide adequate incentives -
there has to be always a very important subsidy element.
The subsidy issue is discussed under three different perspectives:
• Least-cost electricity supply - this level of analysis determines what would be the best option of de-
centralised electricity supply in rural areas. For this analysis an economic discount rate of 12% is considered which reflects the scarcity of government funds in Yemen.
• Commercial market conditions - this level of analysis assumes the situation of normal business un-
dertakings with free access to the credit market. For this analysis a market discount rate of 8% is used, which is the lending rate for solvent clients.
• Individual preferences of low-income groups in rural areas - this level considers the decision situa-
tion of low-income families in rural areas and determines the conditions which have to be fulfilled that they would participated in rural PV electrification programme. For this analysis a personal dis-count rate of 30% is considered, this reflects the fact that the families have difficulties to save
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money and are forced to use their revenues to cover the daily costs.
5.2.4.2 Assumptions and Data Base
We assume that the total load for an average house from lighting, TV and fans is 600 Wh per day and
that this can be supplied from a system of 200 W peak costing $1,000. We note that a system of this
size in the Yemen presently will cost $2,000, but this is high compared to international prices ($1,000 /
kW peak) and we believe that with bulk procurement and a much larger market size the cost could be
halved.
It is assumed that 10% of the total investment costs cover the cost of the batteries and that these bat-
teries have a life-time of 5 years.
The cost of a small gasoline engine is around $500 and the opportunity cost of gasoline, i.e the value
in international trade is at present around $600 / tonne. This we take as the cost in our reference sce-
nario, but it could easily rise much higher and we take $1,000 / tonne as a high price scenario.
Table 14: Basic Data for the Analysis
5.2.4.3 Cost Comparison Photovoltaic vs. Gasoline Diesel Generators
The first step of the cost-benefit analysis is the direct comparison of PV solar systems with gasoline
generators. The analysis is shown in Table15. For the two technology options the unit costs (levelised
costs over a period of 15 years) are determined.
It can be seen that the PV alternative is more expensive than the gasoline generators. For the above
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mentioned decision situations the results are as follows:
• Commercial market conditions (discount rate 8%): For a well-off family with the possibility to fi-
nance the investment with a bank-loan, the PV unit costs would be 0.65 US$/kWh compared with the lower costs of the gasoline generator with 0.54 US$/kWh
• Least-cost electricity supply (discount rate of 12%): Under a least-cost electricity supply strategy
the gasoline option would be less costly, 0.77 US$/kWh for the PV systems compared with 0.59 US$/kWh.
• Individual preferences of low-income groups in rural areas: For low income families the high in-
vestment for the PV systems are leading to perceived high costs (due to the high time preference expressed in the high discount rate) for the PV systems of 1.25 US$/kWh, compared with 0.83 US$/kWh for the gasoline generators.
5.2.4.4 Subsidy Level for Decentralised Electricity Supply
The next step of the analysis is to determine the required subsidy level, this question is analysed in
two steps:
• Required subsidies to make the PV systems competitive with the gasoline generators (see Table
16). • Required subsidies to offer to the rural families electricity at the same costs as the urban families
(see Table 17)
Competitive Decentralised Electricity Systems
The analysis presented in Table 16 determines the subsidy level for PV systems so that the unit costs
are reduced to the level of the gasoline generators. The subsidy is considered for the initial invest-
ments and the batteries. The result is described below:
• Under normal market conditions the required subsidy level is 23%. • With a discount rate of 12% - least-cost analysis - the subsidy for PV systems would be 28%. • To offer incentives to low income families the required subsidy level would be 38%.
Nation-wide Equal Access to Electricity
In Table 17 it is assumed that the electricity tariff is 0.15 US$/kWh and the required subsidy level for
PV systems is determined to offer electricity at the same costs.
• The subsidy level reaches 97% under normal market conditions. • Considering the cases of a least-cost analysis with a discount rate of 12% the subsidy for PV sys-
tems would be 98%. • If the situation of low income families is considered the subsidy level would amount to 99%.
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Table 15: Direct Cost Comparison - PV vs. Gasoline Generator
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Table 16: Determination of Subsidy Level 1 - Decentralised Electricity Supply (PV vs. Gasoline Generator)
Table 17: Determination of Subsidy Level 1 - Decentralised Electricity Supply (PV vs. Gasoline Generator)
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5.2.5 Conclusion
5.2.5.1 Methodology
The case study demonstrates the advantages of developing deconstructed versions of policy prescrip-
tions as an aid to analysis and to stimulate focused debate among stakeholders.
In the case of photovoltaics, the deconstruction helps to reveal the nature and extent of the financial
assistance that must be made to make the first projects commercial. This coherent perception helps to
frame the definition of the policy instrument and the cost-benefit analysis.
5.2.5.2 Results of the Analysis
The analysis shows that relatively modest subsidies might be sufficient to make solar photovoltaic
generation competitive with diesel generation at present market conditions.
Quite significant subsidies would be necessary if the objective is to offer decentralised electricity ac-
cess to the rural population. But this would be the case also for other electricity supply possibilities.
A decision to proceed under these circumstances would probably need to be taken as part of a large-
scale effort to develop a photo-voltaic industry in the Yemen with a guaranteed sale of the assembled
units into the rural electrification market.
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6. Institutional Reform in Yemen – Some Possibilities
The policy cycle is shown in Figure 2. There are institutional needs at all stages of this cycle. Decision
making proceeds through the general processes available in the executive and legislative branches of
government. Normally policy briefs will originate from the executive and be elaborated by Ministerial
departments often with analytical support from agencies of government and paid consultants and in
consultation with other stakeholders. Primary legislation is debated and finally sanctioned by the leg-
islature. In many countries Ministerial Decrees are used to elaborate on primary legislation.
formulate
Implement
monitorevaluate
reformulate Theory
Model
Indicators
Foresight Evidence
Figure 7. Policy Cycle.
This structure needs to be properly serviced with evidence and analysis if it is to work well. There is a
need for an institution, or perhaps several, to gather and maintain evidence and to carry out analytical
work that feeds into the formulation of policy and later guides the monitoring and evaluation and re-
formulation of policy. Foresight studies are a part of the evidence that should be considered in policy
formulation and these should take into account the evolution of global trends and policies in energy
and the environment, but also of trends beyond these disciplinary frontiers.
Implementation of policy may be conducted by Ministerial departments or nominated agencies. In de-
veloped countries, implementation is often assigned to specialist agencies. In developing countries it
is more common that policy is implemented by the Ministry. Implementation will often be demanding of
resources, this may be the case for some market based instruments as well as the majority of regula-
tions.
6.1 Reform of the Pricing System
Energy – electricity, transport fuels, natural gas – is subsidised in Yemen in all sectors to varying de-
grees (for details see Appendix). This pricing system causes very high economic losses for the coun-
try. Currently there is no discussion on concise models to increase prices to a cost-covering level or
even to international standards. However, subsidisation has been recognised by governmental bodies
as being one of the major energy and macro-economic problems. During half day seminar conducted
by the project team in October 2009 it was a consensus among participants that models to combat
economic losses by subsidies should be developed and that a general price reform is necessary. The
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open question still remains how such a completely new approach could be implemented.
At the time being, changes in prices have to be approved by the cabinet. However, the proce-
dure/mechanism of recommendations for new prices and especially how these prices should be calcu-
lated is not transparent. A first step for a reform of the pricing system is a study the World Bank cur-
rently compiles on tariffs in Yemen.
The situation for overall budget planning is comparably intransparent. Annually estimations of gov-
ernment revenues are made by the Ministry of Planning. However, these revenues contain a large
share of international donor sources (e.g. World Bank loans) and are therefore not accurately assess-
able in mid-term perspective. Expenses of the government have to be calculated as well. These two
sides – revenues and expenses – show considerable incoherence which leads to unreliable govern-
ment budgets. In this setting, long-term agendas for sustainable price policies are difficult to imple-
ment.
6.2 Communication Structures among Institutional Bodies
Most of the relevant institutional bodies that are (or can become) relevant for renewable energy (RE)
and energy efficiency (EF) are already existing in Yemen or are in the process of creation. This is a
valuable starting point. However, the project team found that in some cases communication structures
are not working sufficiently well to guarantee efficient coordination of large-scale, system-relevant pro-
jects. An inter-institutional communication system not only requires the institutional bodies themselves
– being the nodes of the net – but also the establishment of communication structures – the threads
that link the nodes. Communication could be facilitated, for example, by establishing an inter-
ministerial renewable energy and energy efficiency committee with regular meetings to coordinate and
streamline government activities on these fields.
6.3 Establish reliable Energy Statistics
Statistics are the foundation of policy making. This is especially important in the case of future energy
supply and demand structures: what is the shape of a reference development path, how are consumer
groups structured, how is energy consumption distributed among these groups? To answer these and
other relevant questions, sound energy statistics need to be compiled. An in-depth statistical system is
currently not fully established in Yemen and in the medium-term it is an ambitious task to establish
one, even with the assistance of international donors; but it is worthwhile to tackle this challenge.
6.4 Create basic Legal Framework for PPP
Currently Yemen does not have a sufficient legal framework for PPP, which handicaps economic de-
velopment to some degree. Public-private partnership in electricity supply is not adequately handled
by the very general provisions of the existing Investment Law. It is recommended to concentrate on
this topic in the near future, as it creates the basis for a sound and secure investment climate in
Yemen.
6.5 Broaden University Education
Some approaches have been made to integrate energy efficiency and renewable energy topics to the
syllabi of mechanical engineering at Sana’a University. This is a promising start. It is recommended to
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introduce further topics and spread them to other universities:
• Combination of engineering and economics: create sound knowledge on the energy economic
background of technology choices
• Sustainable development of energy systems: aspects of economic and energy system develop-
ment are more and more depending on global contexts like long-term energy supply and climate
change. Future generations of engineers and decision-makers need knowledge about these inter-
dependencies of national and global challenges, particularly in terms of long-term stable develop-
ment. Not only engineers are currently in lack of such interlinked competence, but also econo-
mists, architects and scientists from other branches.
Syllabi that cover the above mentioned topics could be established with international scientific coop-
eration. Different teaching and education models could be combined, starting with courses of about
one week duration as supplementary elements to traditional curricula. After the sound planning of al-
ternative courses of study, teaching could be accomplished by Yemeni and foreign experts. This
would also enhance the integration of Yemeni experts, teachers and students into the international
scientific community through conference visits etc.
6.6 Support the Way to an independent Efficiency and Renewable Energies Author-ity
The importance of energy efficiency and renewable energies has been recognised in Yemen. EF and
RE are viewed as generating positive effects on security of energy supply, stabilisation of electricity
grids, climate change and the creation of sustainable job opportunities for the country.
Currently both topics are in the responsibility of a specialised department within the Ministry of Elec-
tricity and Energy (MEE). It is planned to establish an independent RE-EF-authority in a two-step ap-
proach:
• Step 1: Still under the auspices of the MEE the RE-EF-department will be transformed to a “sec-
tor” (larger organisational unit than a department)
• Step 2: Creation of an independent authority.
The project team strongly supports this approach and recommends that this process be accelerated
and accompanied with international support.
The establishment of an RE-EF-Authority and the restructuring of the Public Electricity Company PEC
(unbundling into three authorities for power generation, distribution and transmission) are essential
elements on the way to favourable institutional conditions for the introduction of renewable energies to
the Yemeni energy system. For more information see above section on Comparison of Yemeni prac-
tice with international practice in energy efficiency.
6.7 Establishment of Standards, Labels and Audit Schemes
The project team is unaware of any efficiency standards and other practical approaches to foster effi-
ciency in Yemen. Instead energy consumption is rising with about 8 percent per year. Capital exten-
sive approaches and schemes should be fostered in the form of a policy package:
• efficiency standards combined with labelling for household appliances
• efficiency standards in industry
• awareness campaigns for the broad public a
• capacity building programmes for key decision-makers in industry and administration, including
technical trainings, international best practice examples and information on international funding
opportunities for efficiency measures,
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• auditing programmes for buildings, especially public buildings like hospitals or administration build-
ings
• Demand-Side Management (DSM) measures
The Yemeni Organisation for Standardisation already applies different standards, e.g. the ILC Stan-
dard for electrical appliances. Own standards are currently not defined, but international standards se-
lected that fit the Yemeni situation. The institutional settings are suitable to integrate the formulation of
efficiency standards into the ongoing work of the Standardisation Organisation. It is recommended to
accelerate this process with international technical assistance.
Building codes were introduced in Yemen, but they don’t cover energy efficiency aspects. This should
be changed. Codes for the building sector are a very complex set of regulations to cover many types
of buildings. If domestic expertise to handle this task should not be available, international expertise
could be helpful.
As an outcome of the Energy Efficiency and DMS study and as a first step towards the implementation
of the national strategy for RE and EE, the MOEE prepared together with the World Bank a detailed
project proposal for a medium-size GEF project “Removing Barriers to Energy Efficiency Improve-
ments in the Republic of Yemen”. The project has been approved by GEF in January 2010. MOEE
will apply for a large scale GEF EE project in 2011, once the new budget of the GEF fund has been
established and allocated.
6.8 Create a domestic Industry for Efficient Appliances
The definition of standards is partly linked to a domestic industry and domestic products to which
these standards can be applied. Currently there is no such industry existing in Yemen. The Ministry of
Planning should assess in detail (maybe with technical support from international organisations) which
incentives to create a domestic industry for the production of energy efficient appliances should be set.
Many reasons and benefits make such an effort rewarding:
• Yemen is surrounded by population-rich Arab countries with growing markets for electric appli-
ances, therefore high growth rates of the industry might be realised
• Job creation effects of such an industry would ease some of Yemen’s economic challenges,
mainly high unemployment rate and low domestic added value
• An industry for efficient appliances could create valuable feedback effects with education and
training at universities (e.g. co-education at universities and in industry companies)
6.9 Foster Approaches in the Transport Sector
In recent years the Yemeni government has taken a first step towards a more efficient transport sys-
tem: it passed a prohibition for the import of old (i.e. mostly less fuel efficient) cars. Apart from this
promising approach there are no other measures in the transport sector to tackle the problems of air
pollution, traffic congestion and rising fuel consumption. These problems derive from mainly two
sources:
1) fuel-inefficient vehicles are numerous on Yemeni roads
2) there is no coherent transport planning approach
As a first step a detailed traffic flow analysis can reveal weak spots in Yemen’s large cities. Subse-
quently the introduction of traffic control systems (synchronised traffic light systems, ordered traffic
guidance and others) could help to structure the current traffic flow. This is particularly important as
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the number of vehicles is growing, therefore increasing the need of advanced traffic flow guidance.
There is no public transport system in Yemen yet. In large cities such approaches are essential in-
struments to control growing traffic, especially commuting.
Average life-time of passenger cars and other vehicles is long in Yemen. Therefore inefficient vehicles
remain in the transport system for long time. In other countries, e.g. Iran, premiums were paid to
scrape old cars. Another (and less costly) solution could be compulsory scrapping of cars of certain
age. Efficiency standards are not fitting the current Yemeni situation as this could possibly cause unaf-
fordable costs to consumers; furthermore it would be very difficult to introduce such standards at all,
as can be seen from the case of emission standards within the European Union in previous years.
6.10 Renewable Energy Target and general Legal Approaches
Various very promising initiatives are underway in Yemen to foster renewable energies. The Yemeni
government decided on a 15% renewable electricity target by 2025. This is a realistic time frame and
such a target is also compatible with the future electricity system requirements and capabilities (re-
garding loss reduction and overall stability). However, this progress is capital intensive. Technical
problems with the grid derive from all levels: generation capacity (bringing sufficient capacity on-grid in
time), transmission (reduction of technical losses) and distribution (reduction of technical and non-
technical losses, reliable metering). Currently a project by World Bank is dealing with these problems.
Yemen passed an energy law in 2009 unbundling the electricity sector and allowing participation of
private enterprises. This is a step towards becoming more attractive for solvent investors in the future.
In a subsequent step a law on renewable energies should be passed. Such law typically contains
some kind of incentive to invest into renewable generation capacities, e.g. a feed-in tariff. However, it
has to be studied in detail whether a feed-in structure (or other types of incentive models) can be
made compatible with the donor-driven infrastructure development of Yemen.
6.11 Realise Projects and Initiatives
Wind power. A wind potential atlas has been compiled in Yemen, indicating around 34 Gigawatts of
exploitable wind power potential. Yemen thus is one of the most important countries for wind power in
the Arab region. A more detailed investigation of the potential is needed. From a practical perspec-
tive it is necessary to increase the number of sites, the levels at which wind speeds are recorded and
the period of monitoring. The existing wind atlas is based only on 2 site measurements at 40 m for
one year (Hodeihah and Mohka) and satellite data. It is not a fully comprehensive wind atlas, but a
meso-scale atlas.
Currently one large-scale wind power project is in the advanced planning phase: the 60 MW project in
Al-Mokha. Strong efforts should be made to realise this promising project, as valuable experiences
could be gained on technical issues, system integration and funding levels.
Solar water heating. Two companies in Yemen produced solar water heaters (SWH) during the period
2002-2005, but because of insufficient marketing concepts they went insolvent. Solar water heating
devices are low-tech. Therefore it would be possible to generate jobs among low-skilled workers in
Yemen by creating a domestic industry. Domestic demand for SWH could be controlled by either in-
troducing building codes that make a certain renewable energy supply share (in this case SWH)
obligatory, by raising energy prices that reduce pay-back times of SWH or by supporting the sale of
SWH by paying premiums per device to the consumer. The latter two options could also be combined.
Financing of premiums could be accomplished with a certain share of international donors.
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The starting phase of such large-scale dissemination and penetration of SWH would have the typical
project structure of international technical assistance and of the international donor sphere. But after
this initial phase the deep penetration of SWH can only be accomplished in sustainable manner by a
far-reaching price reform, as high prices of fossil fuelled alternatives (electricity, diesel generators) are
a powerful means to make consumers care for renewable energy devices. The essential indicators to
concentrate on are the pay-back time of initial investment and the creation of knowledge among the
public about these pay-back times as well as maintenance of SWH equipment.
Photovoltaics. Yemen’s rural electrification programme will introduce SHS (Solar Home Systems) on
PV basis to off-grid. The project team recommends to concentrate on a very high share of local con-
tent. In the first project phase, local content will probably be low, as technical assistance will dominate
the implementation process. However, local stakeholders – consumers, maintenance staff, suppliers
etc. – should be integrated very strongly in the following phases. This bears the opportunity to estab-
lish sustainable domestic and local expertise in PV technologies which could be the first step towards
establishing a local industry.
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Annex 1
Mission Report
Economical, Technological and Environmental Impact Assessment of National
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Mission Report
The country mission was successfully completed in the time span of October 9 to 14, 2009. The mis-
sion programme had been prepared with very good support from the Yemeni representative in
RCREEE's Board of Trustees.
The mission programme was as follows:
Date Programme Item
9 Oct. internal team meeting with local Consultant
10 Oct. Meeting with Geological Survey Board
10 Oct. Meeting with Ministry of Oils and Minerals
10 Oct. Meeting with Renewable Energy Society
10 Oct. Meeting with World Bank
10 Oct. Meeting with AFD
10 Oct. Meeting with GTZ
10 Oct Meeting with Dome Trading & Contracting Co.
11 Oct. Meeting with Ministry of Electricity and Energy
11 Oct. Meeting with Public Electricity Company
11 Oct. Meeting with Yemen Gas Company
11 Oct. Meeting with Al-Murrani Centre for PV Systems
12 Oct. Meeting with Environmental Protection Authority
12 Oct. Meeting with Ministry of Planning
12 Oct. Meeting with Sana'a University
12 Oct. Meeing with Ministry of Interior
12 Oct. Meeting with JICA
12 Oct. Meeting with Al Zubairi & Bro.
13 Oct. Half day Seminar
14 Oct. internal project team meeting
More stakeholders participated in the half day seminar. A list of stakeholders is attached in the follow-
ing Annex 2. Some 25 persons attended the seminar and engaged in lively discussions.
The seminar was held at the Mercure Sana'a Hotel. In accordance with the country tradition it was ini-
tiated by a prayer offered by Dr. Mohamed Alijadoumi, University of Sana'a. The seminar was opened
by Eng. Adel Dhumran. Deputy Minister Assistant of Electricity and Energy. The seminar had three
main objectives (1) to promote RCREEE in Yemen, (2) to discuss with stakeholders the findings of the
mission and (3) to introduce the participants to the ideas of Evidence Based Policy Making and Theory
Based Policy Evaluation by giving a detailed presentation on that topic (Annex 4) and by presenting
case studies illuminating the methodology (Chapter 5 above). Finally the seminar was used to give a
preview on the national information workshop on EE and RE policy development. The presentation is
attached in Annex 5.
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Annex 2
List of Stakeholders
Economical, Technological and Environmental Impact Assessment of National
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List of Stakeholders
Organisation Contact Per-
son
Position email
Ministry of Elec-
tricity & Energy
Eng. Moham-
med H. Al
Sha-abi
General Director, Re-
newable Energy De-
partment
Ministry of Elec-
tricity & Energy
Wagdi Aman Chairman, Private
Power Unit
Ministry of Elec-
tricity & Energy
Eng. Gamil Al-
Agbhani
Director of Deputy
Minister Office
Ministry of Elec-
tricity & Energy
Adel Abdul-
ghani
Gneral Director for
Planning and Infor-
mation
PEC Abdulaziz
Noman
Deputy General
Manager for Genera-
tion and Transmis-
sion
Ministry of Elec-
tricity & Energy
Gamil A.
Thobet
Project Manager
Wind Farm
Ministry of Plan-
ning & Interna-
tional Cooperation
Eng. Hisham
Sharaf Abdalla
Vice Minister [email protected]
Ministry of Oil &
Minerals
Eng. Abdul-
malik M.
Aama
Deptuty Minister [email protected]
Ministry of Oil &
Minerals
Dr. Ismail N.
Al-Ganad
Chairman, Geological
Survey & Mineral Re-
sources Board
Ministry of Oil and
Minerals
Dr. Nageep M.
Aloj
Deputy Executive
Managing Director,
Yemen Gas Com-
pany
Yemen Petroleum
Company
Awadh Ahmed
Humran
Executive Deputy Di-
rector General
Yemen Petroleum
Company
Abdullatif A.
Mutahar
Director, Commercal
Affairs Unit
Yemen Gas Com-
pany
Abdulazis Sul-
tan
Environmental Man-
ager
Yemen Gas Com-
pany
Fouad Al
Dhobai
Manager of LNG Pro-
ject
Ministry of Water
and Environment
Ameen Mo-
hammed Al
Hmadi
Deputy Gernal Direc-
tor of Planning, Envi-
ronment Protection
Authority
Yemen Standardi-
zation, Metrology
& Quality Control
Org.
Eng. Ahmed
A. Y. Al-
Bashah
General Director [email protected]
Civil Avaiation & Dr. Abdo A. Assistand Deputy [email protected]
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Meteorological
Authority
Almakaleh Chairman for Meteor-
ology
Sana'a University Dr. Tawfik Ali
Abdullatif
Assistant Professor,
Mechanical engineer-
ing Department, En-
ergy and Environ-
ment
Sana'a University Dr. Eng. Mo-
hammed A.
Al-Shaghadari
Energy-Environment-
Training-
Consultations
Dome Trading &
Contracting Co.
Ltd.
Abdulaziz M.
Da'er
General Manager [email protected]
Dome Trading &
Contracting Co.
Ltd.
Abdulsalam
Althari
Head of Trading &
Procurement
M.A.Alzubairi &
Bro.
Mohammed
M. Al-Zubairi
Sana'a Branch Man-
ager
GTZ Dr. Thomas
Engelhardt
Director, GTZ Office
Sana'a
Agence Francaise
de Développe-
ment
Christian
Flamant
Country Director for
Yemen
Ministry of Elec-
tricity & Energy
Dr. Andreas
Zoellner
Advisor for Renew-
able Energies (CIM)
Ministry of Elec-
tricity & Energy
Eng. Dirk
Weiß
Advisor for GIS [email protected]
JICA Megumi Shuto Project Formulation
Adviser
JICA Mohammed
Al-Riashi
Administrative &
Techncal Cooperai-
ton Assistant
Economical, Technological and Environmental Impact Assessment of National
Regulations and Incentives for RE and EE: Country Report Yemen
Yemen.doc
Annex 3
Seminar Programme
Economical, Technological and Environmental Impact Assessment of National Regulations and Incentives for Renewable Energy and Energy Efficiency
A project financed by the Ministry of Foreign Affairs of Denmark
Methodology and Policy for Energy Efficiency and Renewable Energies Half-day Seminar - Yemen, 13 October 2009, 9:00 - 13:00
Objective of the Seminar: The seminar serves the objective of the project to support RCREEE’s
overall effort of providing member state administrations with better information and new planning tools
and processes. The seminar will give an introduction to evidence based policy development and the-
ory based policy evaluation for Energy Efficiency and Renewable Energy and the seminar will be used
to discuss some preliminary findings in Yemen.
The seminar will have the following structure:
1. Welcome, by Representative of the Ministry of Electricity and Energy
2. Introduction to the Project and to the Seminar, by the project team leader, Florian Sauter-
Servaes
3. Methodology: Evidence based Policy Making and Theory based Evaluation, by Nigel Lucas
4. Status of EE and RE Policies and their Development in Yemen, by Abdusallam Mansoor Al
Janad and Nikolaus Supersberger
5. Preview on Information Workshop, December 2009, by Martin Ehrlich
6. General Discussion to be continued over lunch
Annex 4
Presentation on Methodology
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 1
Evidence based policy makingand theory based evaluation
Nigel Lucas
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 2
Sana’a must be seen, however long the journey,
though the hardy camel droop, leg-worn on theway.
A project financed by the Ministry of Foreign Affairs of Denmark
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
• Evidence based policy making
• Theory based evaluation
• The linkages
– Theory
– Indicators
• How we will adapt it
Page 3
Contents
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 4
• What is Evidence Based Policy Making?
• Why do we need it? What have we been doing before -making it up?
• What is evidence?
Evidence Based Policy Making?
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 5
Many different definitions, but what it really means is just:
“An approach to policy development and implementation which usesrigorous techniques to develop and maintain a robust evidence basefrom which to develop policy options”.
All policies are based on evidence - the questions are:
•Is the evidence reliable?
•Are the processes by which evidence is turned into policy fit for theirpurpose?
What is Evidence Based Policy Making?
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 6
•Policy often driven by prejudice or short-term politicalpressure
•Foreign consultants and agencies often prescribe remediesfrom home with little thought whether they are appropriate.Mimicry is not policy.
•Agencies have their own agendas and visions that mayconflict among themselves and with those of government
•Countries need well-resourced, in-house capabilities toanalyse and evaluate policy and more transparent processes
Why do we need it?
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 7
• Evidence is any information that can be used to turn policyobjectives into feasible and effective policy instruments
• An evidence-based approach should show continuitybetween foresight, strategy, policy, and implementation
• Can distinguish three main components:
• hard data (facts, trends, survey information)
• analytical reasoning that processes data to illuminateproblems
• stakeholder opinion on an issue or set of issues.
What is evidence?
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Need evidence and process
Page 8
Good evidence is necessary, but not sufficient
Use it well Use it poorly
Use good information
Use poor information
There are policy processes that:
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 9
•Alternative forms of intervention need to be reviewed and short-listed. Evidence of the success or failure of similar instruments indeveloped and developing countries needs to be studied with specialemphasis on the conditions that created success and failure
•There must always be a base-case against which alternatives arescreened. Alternatives should include all available instruments.
•All the relevant potential impacts need to be identified and wherepossible, quantified
•Indicators need to be established of what is expected from the policymeasures. These indicators should cover outputs, outcomes andimpacts
•Intermediate indicators are important in helping understand howpolicies work, how measures interact and how they can be improved
The process of evidence-based policy making (I)
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 10
•Impacts should be assessed in consultation with the subjects ofpolicy
•The cost of compliance needs to be assessed. Consideration shouldbe given to how these costs can be minimized.
•It is necessary to consider who pays the compliance costs; thereare generally alternatives with different implications for equity.
•The procedures for compliance need to be worked out and formonitoring impacts.
•Quantitative analysis of impacts is essential. The analytical methodmost commonly used is economic cost-benefit analysis.
•Cost-benefit analysis should take into account opportunity costs ofenergy and external environmental costs
The process of evidence-based policy making (II)
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 11
What is Theory-Based Evaluation?
Theory-Based evaluation focuses on analysis of the theoretical or logical sequence
by which a policy intervention is expected to bring about its desired effects.
For instance, a theory-based evaluation might ask about the steps that are implicitbetween a policy initiative (e.g. introduction of minimum energy performancestandards for electrical appliances) and the policy outcome (reducing energy andGHGs). The Figure represents the implicit theory of policy makers:
Introductionof MEPS
Consumer isempowered tomake a betterjudgement andchangebehaviour
Manufacturersareincentivised tomake moreefficientmodels
Market istransformedand inefficientdevicesbecomeobsolete
Energy useand CO2emissionsfall;Domesticmanufacturestrengthened
The concept is similar to the logical framework for project evaluation, but because itdepends on an explicit behavioural model it can handle not linear logical structures
A project financed by the Ministry of Foreign Affairs of Denmark
Sana’a: Seminar on Methodology and Policy, 13 October 2009
Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Alternative theories
Page 12
Introductionof MEPS
Consumers areindifferent toenergy use –buy only onprice
Manufacturersare obliged tomake moreefficientmodels
Market isswamped bypoor qualitysmuggledgoods
Energy useand CO2emissionsrise;domesticmanufacturefalls
Failure to be clear about the causal sequence by which a policy is expected to workcan result in poor and even contrary outcomes
Theory Based evaluation does not prevent us constructing a bad model but tells uswhat indicators we should examine to make sure things are going well
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 13
Indicators need to be established of what is expected from the policymeasures. This is vital for evaluation.
Indicators should cover:
•inputs, i.e. the financial, human, technical or organizational resourcesused in the endeavour
•outputs, (objectively verifiable indicators that demonstrate the progressmade in implementing the measures, e.g. the creation of a minimumenergy performance standard),
•outcomes (immediate effects on the regulated subject, e.g. the offer ofnew products and retooling of production lines) and
•impacts (direct measurements of the improvements that the programmeis designed to bring about, e.g. more efficient products and lower energyuse).
Indicators
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 14
Indicators and the theoretical models (Labels andstandards)
Causal sequence
Indicators
Risks Assumptions
Input Output Outcome Impact
Development of
standards and
supporting
measures
Administrative
time and effort
Standards
published and
supporting
measures in
place
Consumer
surveys show
consumers and
manufacturers
change
expectations
Inadequate
accompanying
measures;
consumers
unaware or
unaffected
Manufacturers
have confidence in
regulatory system
Manufacturers
incentivised to
make more
efficient models
New investment
and production
measures ($)
Strengthened
manufacturing
capacity -
inspection
Range of new
products
determined by
survey
Consumers choose
better devices; do
not seek non-
compliant cheaper
goods
Administrative
time and effort
in ensuring
compliance ($)
More
discriminating
purchases
Consumers
purchase better
quality products
– consumer and
market surveys
Low cost non-
compliant goods
excluded from
market
Electricity
consumption
lowered
Consumer
normally pays
more ($)
Better capital
stock in
households –
household
surveys; market
studies
Lifetime cost
decreases
Electricity
consumption
decreases
CO2 emissions
decrease
Manufacturing
base
strengthened
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 15
Theory and the policy cycle
formulate
Implement
monitorevaluate
reformulate Theory
Model
Indicators
Foresight Evidence
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Policies for EE
Page 16
• Corrective Measures– Price Reform
– Institutional and legal reform
– Labelling
– Dissemination of information
– Research, development and demonstration
– Financial incentives
– Support for energy service companies (ESCOs)
• Compensating Measures– Standards
– Mandatory measures (e.g. compulsory audits and management obligations)
– Corporate agreements
– Efficiency obligations
– Transport and spatial planning
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Policies for RE
Page 17
• Targets and strategy
• Legal reform
• Institutional reform
• Standards and /or labels
• Financial incentives (Capital support)
• Feed-in tariffs and obligations (Operating support)
• CDM Finance
• Information
• Industrial policy
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 18
A toolbox for policy formulation
1. Introduction2. Objectives and requirements for RE&EE support schemes3. Overview of the toolbox
a. Evidence-based policy makingb. Theory-based evaluationc. Cost-benefit analysis
4. Case studiesa. Introductionb. Regulatory framework for renewablesc. Incentive schemes for solar water heaters?d. Finance through the CDM (landfill)e. Market transformation strategy for renewables (pv)f. Energy efficiency obligationsg. Energy efficiency fundh. Energy audits?i. ESCOsj. Labels and standardsk. Public awareness campaigns?
5. Combining instrumentsa. Legislationb. Agencyc. National strategy
6. Technical assistance
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 19
• 0$/tonne
• 2$/tonne
• 10$/tonne
• 50$/tonne
• 0$/tonne $0 / kW
• 2$/tonne $34 / kW
• 10$/tonne $170 / kW
• 50$/tonne $850 /kW
The price of carbon
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 20
• Energy efficiency is win-win. No real issue – it is a sensible target ofpublic policy intervention. Lower costs; benefits to state and company.
• Renewable energy; it is not so clear. In many instances; definitelymore costly than alternatives.
• Why should Yemen pay the difference?
• If not Yemen then who and how? CDM? Policies and Measures(PAMs)
• Without clarity on who should be and is willing to accept the additionalcost , it is hard to have entirely coherent renewable policy
Who pays and how?
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Many thanks for
your attention
Page 21
Annex 5
Preview on Information Workshop
A project financed by the Ministry of Foreign Affairs of Denmark
Yemen, Half-day Seminar on Methodology and Policy, 13 October 2009
Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 1
Preview of the Information Workshop
- December 2009 -
Martin Ehrlich
A project financed by the Ministry of Foreign Affairs of Denmark
Yemen, Half-day Seminar on Methodology and Policy, 13 October 2009
Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 2
Objective of the Impact Assessment Project
• To achieve:
– Rapid implementation of cost-effective policies and instruments
– Accelerated deployment of cost effective RE & EE technologies
– Through:
• Increased penetration of „evidence based“ policy formulationand „theory based“ policy evaluation
• Specific objectives of the project:
– Comparative analysis of EE & RE policies
– Provision of impact assessments of EE & RE policy and promotioninstruments in RCREEE countries
– Strengthening of the methodological basis for policy formulation
– Provision of recommendations for adjustments of the policy makingprocess
A project financed by the Ministry of Foreign Affairs of Denmark
Yemen, Half-day Seminar on Methodology and Policy, 13 October 2009
Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 3
• Presentation of the methodological basis:
– Evidence based policy making and planning procedures
– Theory based evaluation and procedures for applicationin practice
• Country specific conclusions
• Recommendations regarding the policy making process
• Presentation of Case Studies
– Case Study on EE promotion
– Case Study on RE promotion
Objective of the Training Component
A project financed by the Ministry of Foreign Affairs of Denmark
Yemen, Half-day Seminar on Methodology and Policy, 13 October 2009
Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 4
• 1st day: Senior decision makers
• Presentation of the Impact Assessment Project
• Key elements of the methodology
• Recommendation of the country assessment
• 2nd & 3rd day: Policy analysts and RE & EE experts
• Detailed presentation of the synthesis report and countryassessments
• Discussion of case studies with presentation of the methodologicalbasis
Audience for the Training Event
A project financed by the Ministry of Foreign Affairs of Denmark
Yemen, Half-day Seminar on Methodology and Policy, 13 October 2009
Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 5
Modules of the Training Event
Morning Session Afternoon Session
1st
day
Presentation of the National
Regulations and Incentives Project
Key principles of evidenced based
policy making and theory based
evaluation
Presentation of International Practice
Result of the Country Review
2nd
day
Presentation of International
Practice in the Synthesis Report
– International practice
– Assessment of RCREEE practices
– Energy planning and political
consultation process
Presentation of the Country Report
– Methodological basis for policy
preparation
– Assessment of the policy making
process
Country specific conclusions and
recommendations
3rd
day
Case study on Energy Efficiency
Selected EE policy instrument
Theoretical framework
Results of the case study
Country specific conditions
Case study on Renewable Energy
Selected RE policy instrument
Theoretical framework
Results of the case study
Country specific conditions
A project financed by the Ministry of Foreign Affairs of Denmark
Yemen, Half-day Seminar on Methodology and Policy, 13 October 2009
Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 6
• Presentation of the Impact Assessment Project• Scope of the project and organisation• Value of international comparative analysis
• Key elements of the methodological basis for policy preparation andassessment
• Need for a methodological basis• Benefits of a sound methodological basis• Short and long term requirements
• Presentation of international practice• Policy making process• Policy implementation and impact assessment
• Result of the country review• EE and RE policy making process• Policy implementation• Observations and recommendations
Programme for Senior Policy Decision Makers
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
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• Presentation on methodological basis (international practice andpractice in RCREEE countries)
• Evidence based policy formulation
• Theory policy evaluation
Including: Economic evaluation of policy instruments / Integration ofclimate policy benefits in RE & EE policy analysis
• Presentation of case studies (including the discussion of casestudies prepared by participants)
• Presentation of selected policy instrument
• Required theoretical framework and selected approach
• Result of the case study
• Comment on country-specific conditions and challenges
Programme for Policy Analysts and Consultants
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Economical, Technological and Environmental Impact Assessment of National Regulationsand Incentives for Renewable Energy and Energy Efficiency
Page 8
• Key-documents for RCREEE countries
• Country Reports with the assessment of EE & RE policies andinstruments
• Synthesis Report
• Contacts within the RCREEE countries for networking andprofessional contacts
• Case Studies on evidence based policy preparation and andtheory based policy evaluation
Information Regarding the Available Project Results
Annex 6
Energy Situation in Yemen
Economical, Technological and Environmental Impact Assessment of National
Regulations and Incentives for RE and EE: Country Report Yemen
Yemen.doc
Energy Situation in Yemen
In 1990, the Yemen Arab Republic (YAR) and People’s Democratic Republic of Yemen (PDRY)
merged to create Republic of Yemen (ROY). The unification has led to dramatic political and economi-
cal reforms in Yemen but also to a number of serious set backs for the national economy. Yemen still
belongs to the poorest countries of the world with a per capita GDP of US-$2001 770PPP and is the
poorest country in the MENA region. For comparison: Sudan has a per capita GDP of US-$2001 1610,
Morocco of US-$2001 3700 and the poorest country Sierra Leone US-$2001 480.
Table 18: General Information about Yemen in 2008
Population
(million)
GDP
(billion
$2000)
GDP
(PPP)
(billion
$2000)
Energy
production
(Mtoe)
Net en-
ergy
imports
(Mtoe)
Total
Primary
Energy
Supply
(Mtoe)
Elec.
Cons.
(TWh/a)
CO2
emissions
(b) (mil-
lion ton-
nes of
CO2)
22.4 12.4 19.4 16.5 -8.8 7.2 4.5 20.6
(a) Gross production + imports – exports – transmission/distribution losses
(b) CO2 emissions from fuel combustion only. Emissions are calculated using the IEA's energy bal-
ances and the Revised 1996 IPCC Guidelines.
Besides a lack of economic development, Yemen is projected to face a rapid population growth in the
coming decades. The energy sector plays a decisive role as population growth requires an extension
of energy supply in order to avoid social tensions and massive emigration.
1. Yemen’s Energy Mix
The energy supply of Yemen heavily depends on fossil fuels. Fig 8 shows that 99% of all energy de-
mand is contributed by oil and merely 1% by renewable energy. The total primary energy supply is 7.1
Mtoe. Figure 9 shows the historic development of the per capita total primary energy consumption for
the years 1980 until 2006 in tonnes of oil equivalent.
Economical, Technological and Environmental Impact Assessment of National
Regulations and Incentives for RE and EE: Country Report Yemen
Yemen.doc
Figure 8: Yemen’s Primary Energy Mix, 2006
The trend indicates increasing demand for energy per capita since 1993. Primary energy consumption
reached a low point during the civil war in 1994. Yemen’s 2006 per capita primary energy demand is
still low compared to other countries in the MENA region, such as Syria (1.0 toe/cap), Jordan (1.4
toe/cap) or Lebanon (1.3 toe/cap).
Figure 9: Historical Primary Energy Consumption in Yemen, 1980-2006
2. Oil
Yemen’s General Corporation for Oil & Gas/Mineral Resources is an affiliation of several state-owned
subsidiaries, which are responsible for managing the industry contracts and relations with private op-
erators. All branches report to the Ministry of Oil and Mineral Resources (MOMR) which is responsible
for the national oil policy. However, contracts with foreign oil companies still require parliamentary ap-
proval.
Economical, Technological and Environmental Impact Assessment of National
Regulations and Incentives for RE and EE: Country Report Yemen
Yemen.doc
Yemen is a small non-OPEC oil producer, trying to attract foreign investment. According to the BP
2009 Statistical Review of World Energy, the country’s proven crude oil reserves accumulated to 2.7
billion barrels in 2008. In 2007, Yemen's total crude oil production was 319,000 barrels per day, down
from 441,000 bpd in 2001. According to Yemen's Petroleum Exploration and Production Authority
(PEPA), this is due to the declining production at Masila and Marib, the country's two largest fields. In
2008, oil production further declined by 6% compared to 2007 to 298,000 barrels per day.
Figure 10: Historical Crude Oil Production in Yemen, 1990-2008
The national government estimates that the country holds around 9 billion barrels of oil reserves,
mainly due to the fact that offshore fields have not yet been explored. The government hopes to boost
oil production to 500,000 barrels per day in the next few years and to this end carried out an offshore
licensing round in 2007. However, oil production in Yemen heavily depends on private foreign compa-
nies.
Fig. 11 sketches Yemen’s pipeline network for transporting crude oil produced in three central areas.
The oil-producing regions are connected to three shipping terminals.
Economical, Technological and Environmental Impact Assessment of National
Regulations and Incentives for RE and EE: Country Report Yemen
Yemen.doc
Figure 11: Yemen’s Infrastructure for Oil Transportation
Yemen currently has a crude oil refining capacity of 110,000 barrels per day from two refineries. The
Yemeni government is planning to upgrade the refining capacity in the near future. Currently 120,000
barrels of oil products are consumed daily in Yemen, therefore refined products have te be imported.
Among other plans about 50,000 barrels per day of refining capacity is expected to come online in
2010 from a joint venture announced between India’s Reliance Industries and Hood Oil. The refinery is
planned in Ras Issa on the Red Sea coast.Pricing structures are complex in Yemen. In general three
different rates for petroleum products exist, rates for
• international companies
• international oil and gas drilling companies
• national market.
Diesel for the national market costs about 35 Rial per litre (ca. 11 EUR-ct), gasoline 60 Rial/l, premium
gasoline 120 Rial/l and kerosene 35 Rial/l. However, diesel prices are further differentiated between
different consumer groups: Diesel for electricity generation (17 Rial/l), for trucks, for cement factories
and for other factories. All these prices for domestic consumers are strongly subsidised (compare Ta-
ble 19). There is currently no long-term goal to increase prices.
Table 19: Diesel prices in Rial/l for different consumer types, 2009. Consumer type Domestic price International price Difference / subsidy
Foreign company 112.75 112.75 0
Commercial and industry 70 42.75
Private households 35 77.75
Electricity production 17 95.75
Economical, Technological and Environmental Impact Assessment of National
Regulations and Incentives for RE and EE: Country Report Yemen
Yemen.doc
3. Natural Gas
Total natural gas reserves (including associated gas and others) is estimated to be 11 tcf in Yemen
(310 bn m3 with conversion factor of 1 m
3 = 35.31 cf). 9.2 tcf are supposed to get exported as LNG
over the coming 25 years. Domestic consumption is forecasted to be 1.5 tcf in the same time frame for
power production. There might be about 7 tcf of additional natural gas reserves, and some of this gas
would then be used in the transport sector, for cement factories and power production.
Presently there is no joint planning of the power and gas sectors. But a joint committee has been es-
tablished and it is expected to start work soon. It is targeted to have a single plan for gas and power
development.
In former years the natural gas sector has lagged due to weak investment and marketing prospects.
Since international companies increased their investments in the Yemeni natural gas sector for explo-
ration and production, the LNG sector got a strong push.
Total-led Yemen Liquified Natural Gas (YLNG) possesses the production rights of more than 50% of
Yemen’s natural gas reserves for export. First shipping transfers are expected by the end of 2009 from
the LNG plant in Balhaf. This project consists of a 20-mile pipeline connecting the gas processing fa-
cilities in the Marib’s field to the liquefaction facilities and an LNG plant with an overall capacity of 6.7
million tons per year. The plant shall export approximately two-thirds of its production to the U.S. and
the remainder to Asia.
4. Electricity: Status and Outlook
Yemen’s power sector is managed by the state owned Public Electricity Corporation (PEC) which is
responsible for 70% of the country’s electricity generation as well as the national power grid. The re-
maining generating capacity is operated mainly by the British company Agricom which receives very
high prices for electricity.The Ministry of Electricity and Energy (MEE) is the policy making body and
de facto regulator of the electric power industry in Yemen.
In 2006, Yemen’s installed power generating capacity totalled 1.1 GW compared to 0.8 GW in 2000.
Power generation capacity needs to be further expanded in order to catch up with the rapidly growing
power demand entailing from urbanisation and population growth. According to the International En-
ergy Agency, electricity demand increases at an annual rate of 7%. Fig. 12 illustrates the historical
growth of Yemeni net electricity generation and electricity consumption from 1981 to 2005.
Economical, Technological and Environmental Impact Assessment of National
Regulations and Incentives for RE and EE: Country Report Yemen
Yemen.doc
Figure 12: Historical Net Electricity Generation and Consumption in Yemen, 1980-2006
The Yemeni power sector is suffering from supply shortages especially during summertime. High elec-
tricity losses in the national power grid are a severe problem in Yemen. In 2003, power losses accu-
mulated to approximately 23%, ranking Yemen second in the MENA region. Electricity demand is
mainly driven by urban households, constituting 58% of total demand.
Economical, Technological and Environmental Impact Assessment of National
Regulations and Incentives for RE and EE: Country Report Yemen
Yemen.doc
Figure 13: Electricity Consumption by Sector in Yemen
In the past years the Yemeni government has considered many different ways to deal with regular
electricity shortages. This included the restructuring of the PEC and an integration of the power sector
through small-scale privatization of power plants to create independent power producers (IPPs). Fur-
thermore, the government fosters the introduction of gas-fired power plants to free up oil for exports. Currently one power plant – Marib I – has been finalized but didn’t start operation yet. The reason is
that natural gas supply from Yemeni gas fields is not functioning sufficiently. Marib II and Marib III are
further natural gas power plant projects that are supposed to contribute about 340 MW of generation
capacity each. Siemens started to build Marib I in March 2005. In November 2007, the Saudi Arabian
government agreed to provide a US$ 101 million grant for this project. So far, much of Yemen's elec-
tricity infrastructure improvements have been funded by multilateral development organizations.
In 2006, the World Bank approved a $50 million loan to help finance the “Power Sector Project”. The
project’s objectives include relieving power constraints, enhancing electricity supply efficiency and
strengthening corporate governance in the electricity sector. It concentrates also on demand side
management. At the same time, the World Bank started to design a masterplan for energy which en-
visages the installation of 2,500-3,000 MW total power generation capacity by 2025.
Electricity prices are strongly subsidised in Yemen. For details see section Comparison of Yemeni
practice with international practice in energy efficiency.
5. Renewable Energy
In 2008, Lahmeyer International quantified the potential of different renewable energy resources in
Yemen. The study distinguishes between theoretical and technical potentials. Theoretical potentials
represent the physical, meteorological or biochemical energy available in a certain region and at a cer-
Economical, Technological and Environmental Impact Assessment of National
Regulations and Incentives for RE and EE: Country Report Yemen
Yemen.doc
tain time or period. The technical potential is divided into gross technical and practicable potentials.
The former is defined as the achievable potential using known technologies taking into account differ-
ent technical factors (e.g. recovery factor of the resource, efficiency of the applied technology). Practi-
cal potentials take also into account grid accessibility.
Table 20: Grid-Based Renewable Energy Technical Potential in Yemen
Resource Theoretical Potential
(MW)
Technical Potential
Gross (MW) Practicable (MW)
Wind 308,722 123,429 34,286
Geothermal 304,000 29,000 2,900
Solar electric (CSP) 2,446,000 1,426,000 18,600
Biomass (Landfill Gas) 10 8 6
Hydropower
Existing Dams 1 - -
Major Wadis 12-31 11-30 -
Solar thermal
Domestic Solar Water
Heaters (SWH)
MWthermal
3,014
MWthermal
278
MWthermal
278
Table 20 indicates that solar power has by far the largest technical gross potential in Yemen but ranks
second in terms of practical technical potential as many potential plant sites are located more than 50
km away from the electricity grid. This implies that infrastructure investments are needed in order to
realise Yemen’s solar power potential. Coastal areas – from AL Hodeidah, down to Lahj and towards
Abyan – have a high potentals for wind power. However, it is estimated that about 60% of the theoreti-
cal potential could not be used due to shading losses, settlement and other exclusion areas. For quan-
tifying the technical wind power potential, the potential within 50 km distance from existing 33 kV and
132 kV networks was estimated. The volcanic areas of Dhamar Governorate have a high geothermal
power density. Tawilah sandstone layer in Sana’a, Al Hodeidah and Taiz governorates are the most
promising regions for geothermal energy development.
The national government and international donating organisations have set up different initiatives and
targets to promote renewable energy in Yemen. Based on the reference scenario of Lahmeyer’s
study, the government has approved a renewable electricity expansion target of 15% by 2025. The
mentioned renewable expansion targets are accompanied by the following technology projects:
• Wind power: The World Bank in cooperation with other international organisations and the
Yemeni government plan to publish a tender for a wind farm in Al-Mocha. The wind farm will
have a capacity of 60 MW.
• Currently a very large project funded by the Islamic Development Bank IDB, Worldbank and
other donors is in its starting phase: rural electricification via PV. Total volume is projected to
be around 300 million US$ of which 120 million US$ are guaranteed yet.
• Geothermal energy: Yemen’s geothermal resources are currently being assessed in different
projects. Geothermal pilot projects are run by the German Federal Institute for Geosciences
and Natural Resources (BGR) and the United Nations Environment Programme (UNEP). Fur-
thermore, the GEF (Global Environment Facility) trust fund will provide the Yemeni govern-
ment with US$ 1 million to establish a geothermal research project. The aim of this project is
to reduce the costs and perceived risks associated with geothermal power development and
investigate the best available site in the Dhamar-Rada’a field at the Al Lisi Mountain.
• Capacity building: Decision-makers and the public are educated on renewable energy through
workshops, seminars and awareness programmes. These efforts, however, are rather small-
scale and at an early stage.
Economical, Technological and Environmental Impact Assessment of National
Regulations and Incentives for RE and EE: Country Report Yemen
Yemen.doc
• Other projects: Photovoltaics are used as a power source for different purposes in Yemen, in-
cluding telecommunication transmission (supply of microwave stations in the mountains with
almost 1,200 panels in total), television transmission (19 stations with a peak load of 14,800
MW), water pumping in rural areas (projects by GTZ and others), domestic applications in ru-
ral areas (solar water heating), schools and hospitals. However, the expansion of PV and
other renewable energy technologies is inhibited by several barriers. High investment risks,
unreliable institutional framework conditions, technical barriers and a lack of access to capital
and financial institutions make an implementation of renewable energy projects difficult.
In addition, subsidised electricity prices are a heavy burden for the deployment of renewable energy
technologies. In 2008, subsidies for domestic petroleum consumption were estimated at US$3.5 billion
or about 11% of the GDP. This includes both explicit subsidies which cover the difference between
cost of generation and selling price, as well as implicit subsidies in the form of investment cost and
fuel cost subsidies.
6. Energy Efficiency
Fig. 14 illustrates the primary energy intensity and the final energy intensity in Yemen from 1980 to
2007 in comparison to the regional average of the MENA region and the EU-27. Yemeni energy inten-
sity is rather high due to the low efficiency of industrial processes and end-use appliances. Further-
more, electricity losses during transmission and distribution are a major cause for high national energy
intensity (see above).
Figure 14: Primary and Final Energy Intensity in Yemen in Comparison to EU-27 and MENA
The Yemeni government has approved a strategy to improve energy efficiency by 15% until 2025 to-
wards a baseline development. However, the baseline of this target requires further specification. Fur-
thermore, the target is yet to be framed with effective and efficient policy measures for efficiency im-
provements. So far, Yemen has not adopted efficiency standards, labels or building codes. Interna-
tional donors in cooperation with the government are conducting different programmes to foster en-
ergy efficiency:
Economical, Technological and Environmental Impact Assessment of National
Regulations and Incentives for RE and EE: Country Report Yemen
Yemen.doc
• Improvement of the national power grid: Aiming at reducing electricity losses, the Islamic
Development Bank, World Bank and other donors are funding a project which shall modernise
and extend the Yemeni electricity grid.
• Demand-side management: The government is considering energy efficiency and demand-
side management (DSM) measures to overcome energy shortages. In 2009, EnergySolve In-
ternational Ltd. completed a report funded by the World Bank which developed an institutional
structure for the effective implementation of demand-side management and energy efficiency
measures in Yemen. See section Comparison of Yemeni practice with international practice in
energy efficiency for details
Fig. 15 illustrates the impact of the outlined measures on power demand, peak load and greenhouse
gas emissions.
Figure 15: Benefits of DSM/EE Measures Proposed in the Action Plan of the World Bank Pro-
ject
Economical, Technological and Environmental Impact Assessment of National
Regulations and Incentives for RE and EE: Country Report Yemen
Yemen.doc
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