World Bank Reprint Series: Number 165

Mohan Munasinghe

Integrated NationalEnergy Planningin Developing Countries

Reprinted with permission from Natural Resources Forum, vol. 4 (1980), pp. 359-73.

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INTEGRATED NATIONAL ENERGY PLANNING (INEP) INDEVELOPING COUNTRIES

MOIIAN MUNASINGUlHI

Recent increases in energy prices have dravvn attention to the importanceof developing an integrated approach to energy sector planning, in contrastto thlX prevailing practice of uncoordinated planning in different energysub-s'.ctors. Integrated national energy planning (INEP) requires a cleardefinition of national oher-:ives, in relation to which ltnks between theenergy sector, and activities in each individual sub-sector, may be analysed.Policy tools for achieving national goals include physical controls, technicalmethods, education and propaganda, and pricing. Use of these tools mustbe coordinated. The INEP procedure, which leads to an energy masterplan, consists of several steps: determining the so,io-economic background,supply and demand analysis, energy balance, and policy formulation.Initially INEP may be carried out at a relatively simple level, and later asdata and analytical capabilities improve more sophisticated computerizedmiodellit-ig techniques could be implemented. The institutional structureshould be rationalized by sett'ng up a central energy authority (CEA) orministry of energy (MOE), with its principal focus on energy planning andpolicy formulation.

Les rdcentes hausses des prix de l'nergie ont r6v6l6 l'importance de l'61a-horation d'une approche integr6e de la planification du secteur de l'6ner-gie contrastant avec les pratiques courantes de planification non coor-donnee qui existent dans les differents sous-secteurs de l16nergie. La pla-nification nationale integree de l'6nergie (PNIE) requiert une d6finitionpr6cise des ohjectifs nationaux a la lumidre desquels on pourra analyserles liens existant entre le secteu.; de '6nergie et ies autres secteurs del'4conomie, les rapports entre les sous-secteurs a l'int6rieur du secteur del'nergie et les activit6s de chaque sous-secteur pris individuellement.Les contr6les directs, les m6thodes techniques, 1'enseignement, la publicit6et la fixation des prix sont au nombre des moyens d'action dont disposeune telle politicque pour parvenir auix objectifs nationaux. La procedure dela PNIE qui conduit a l'laboration d'un plan-cadre en mati&re d'6nergiecorniprend plusieurs 6tapes: determination du contexte socio-6conornique,analyse de l'offre et de la demande, bilan 6nerg6tique et formulation po-litique. Doins une premiere 6tape, ia PNIE peut etre effectuee a un niveau

Dr. 'P7unasinghe is an E,ngincor Econounist with the World Bank in Washirgton, DC, where he hasworked since 1975. H-e is also a visiting professor in the Economics Department of American Uni-versity in Viashington artd thr' d{i eetor of two non-profit foundations, the Carrifex Inrernational Socio-Economic Developm'ent Centre and the Sri Lanka Overseas Fou/ndatioll.He is rhe author of over 35 technical '-dpers and three books, including Economics of Power SystemReliability and Planniny (Johns Hopkins Press, Baltimore, 1979).This article is based on a paper presented at a seminar on energy in Sri Lanka, held in Colombo, SriLanka in January 1980. The views expressed here are those of the author and not necessarily those ofthe World Bank.

Natrgral Resourcr, Fonrum 4 ('1980) 359-- 373. AllRights Rest,-cd.C'py,right --i. 1980 United NiVtions. N. Y., U.S.A.

360 .1J611lt lIl.1i)ltI'n IC'

relativement elementaire et par la suite, au fur et a mesure que les donn6set les m6thodes d'analyse s'am6liorent, des techniques informatiques plusavanc6es en matidre d'6tablissement de moddlas pourraient dtre utilisees.'-e cadre institutionnel devrait etre rationalis6 par la cr6ation d'!ne auto-rit6 centrale de l'6nergie ou d'un ministere de l'6nergie ay,nt pour tacheprincipale la planification de l'6nergie et la formulation de politiques.

Los recientes aumentos de los precios de energfa resaltan la importancia deun enfoque integral en la planificaci6n del sector de energia, en contrastea la practica generalizada de la planificaci6n por subsectores de energia. LaPlanificaci6n Energ6tica Nacional Integrada (PENI) requiere una claradefinici6n de objetivos nacionales en relacion a los cuales pueden analizarselas relaciones entre el sector de energ(a y el resto de la economfa, las inter-acciones entre los subsectores de energfa y las actividades dentro cie cada.ubsector. Las herramientas de polftica para alcanzar objetivos nacionalesincluyen controles ffsicos, m6todos t6cnicos, educaci6n y propaganda, yprecios. El procesco de PENI, que da como resultado un Plan Maestro deEnergia, comprende varias etapas: determinaci6n de las condicionessocioecon6micas, analisis de la demanda y la oferta, balance energ6tico, yformu aci6n de polfticas. Al comienzo la PENI puede llevarse a cabo a unnivel relativamente simple; luego, cuando la informaci6n y la capacidadanalftica mejoran se pueden implementar t6cnicas de modelizaci6n a basede computadoras. El marco institucional debe racionalizarse mediante lacreaci6n de una autoridad energetica central o ministro de energ(a, encarga-do en particular de la formulaci6n de pol(ticas y la planificaci6n energe-ticas.

1.0. Introduction

In recent years, decision makers in an increasing number of countries have realized thatenergy sector planning should be carried out on an integrated basis witlhin the frameworkof a national energy master plan which determines eneigy policy, ranginig from slhort-temisupply and demand management decisions to long-term plannintg. However, in practiceinvestment planning and pricing are still carried out on an ad lhocs anid at best partial orsub-sector basis. Thus typically, electricity and oil sub-sector planning lave traditionallybeen carried out independently of each other as well as of otlher energy sub-sectors. Aslong as energy was cheap such partial approaches were acceptable, but lately, with theinternational oil price acting as the messenger of rising energy costs, significant fluctua-tions in relative fuel prices, and sudden energy shortages, the advantages of an ilntegratedenergy policy lhave become evident.

In this paper the importance of co-ordinated eniergy plannling is emphn)lIasi/ed, witlparticular reference to the interrelationslhips among thle policies adopted in varioLus energysub-sectors such as electric power (inicludinig lhydro, niclear, oeotlenrinal, oil anid coalfired sources), petroleum, natural gas, coal, non-conventional (solar, bio-gas, inhi:i-lfvdro)and traditional fuels (woodfuel, bagasse or vegetable residue). The scope and objectivesof inbtegrated national energy planning, tlhe policy tools available, and constraints par-ticular to the developing countries are discussed next. Section 3.0 outlines llow eniergvplanning is carried out, while the problems of imlplelleltlLinlg tile rcsLtilmlg policy conclu-sions are examined in section 4.0.

Integraied National Energy Planning 361

2.0. Scope and Objectives of Energy Planning, Policy Tools and Constraints

We begin by discussing wvhat is meant by integrated national energy planning in thledeveloping country context. Tile broad rationale underlying INEP is the need for anenergy master plan (EMP) that will make the best use of energy resources, promotesocio-economic development and iniprove the welfare and quality of life of citizensTherefore energy planning is an essenitial part of overall national economic planning, anidshould be carried out and implemented in close coordination witlh the latter. Ilowever,in energy planning, the principal emplhasis is on the dciailed and disaggregate analysis ofthe energy sector, witlh due regard for the main interactionis witlhin the sector itself, aswell as witlh the rest of the ceuonoiy.

2.1. Scope and levels of planning

The scope of integrated national energy plan:ing (INEP) may be clar-ified by examiningthe hierarchical framework depicted in Figure 1. At the Iiigliest and most iggregate level,it should be clearly recognized that the energy sector is a part of the wlhole economy.Tlherefore, energy planning requires analysis of the links between the energy sector andthe rest of the econonoy. Such links include the input requirements of the energy sectorsuch as capital, labour and raw materials as wvell as energy outputs such as electricity,petroleum products, woodftuel and so on. anid the imTipact on thie economly of policiesconcerning dvailabilitn of suppl\ , energy prices, taxes atnd so oni, in relationi to na.ionalobjectives. Since energn pennieates tlhe wlhole econiomy, tlle energy sector is mluclh m)ore

t er/ ub Secto rs, | and Outputs\

/ --- National Goals\l < and Inputs\

REST OFTHE ECONOMY

-' Electricity\ Sub-Sector o

ActivitiesWithinIndividual Sub-Sectors

Energy Sub-SectorInieractions

World Bank 21568

Fig. 1. I'lir.irLi I of interactionis in Ii teur.t1d Na.itionaol I nervb llhnnh (NlP)

362 AMohan. 1inasinghie

\.tuJlSi' tlhan other sectors suclh as agriculture or industry. In this respect, the energysector is like thie -financial sector," with energy acting as the plhysical counterpart of

0110eV.Thie second level of INTiP treats the energy sector as a separate entity comnposed of

Y'.n-WOct;s suchl as ;lectricity, petroleum products and so on. This permits detailed3analvsk of inle sw: witlh special enmphasis on interactions among the diffe nt eonergysuh-,ect,'rs. substitutiioni possibilities, and the resoi t ioni of any resulting policy coniflicts.4M%e dS C.1p110ttiom0l btetween kerosene and electricity for lighting, or voom'flel anidke, ,ocrI for cokiming. The tlhird and most disaggregate level pertains to plainmimmg withineach of the energ' subt)-sectors.TThus,forexample,the electricity sub-sectormnustdetenniimeit- ,., .ltmmmammd forecaot anid long-ternm investment programme, the wvoodfujel sub-sector

dT si t ielop cml[ntipntioln projections and detailed plans for reforestation. hanresting oftillmuhcr! andt so onl.

Integrzated e2mergy pllanninig pemits thie developlmlenlt of a cohlerent set of policiesv.-hidh meet the needs of many interrelated and often conflicting national objectives.Tlhee obiectives incluLde: determining the detailed energy needs of the econony to:ik`ci% gpiuvtlm and de.C]Opnment targets; choosing the mix of energ, sources to meetfuture tenergy requirenments in the cheapest way possible; conserving energy resources and..1ininlatinlg wvasteftll consumption, diversifying and reducing dependance on foreignsources: s ]upplying basic energy needs of the poor; saving scarce foreign exchiange andrnduLcimig the trade deficit: priority development of special regions or sectors of theecononivy; raisinig stulficienlt revenues to finance energy sector developmnentt; etnsurinigc,:ontinIm itv of suppl1 and price stability: and preservation of the environment, and so on.

2.2. Polic1, 1,,li1n awnd (onstraints

' achieve the desired objectives, the policy tocls available to the governmrent for op-iimalsnpphll-denimmmd planning and maonagement include: pnNysical controls; technical metlhods(including researchi and developnment); education and propaganda; and pricing. Since thesetools are initerl-elated, their use should be closely co-ordillated for maximum effect.Physical conitrols are most useful in the short term wvhen there are unforeseen shortagesof cetrm... All mnethiods of physiclly limiting consumption suclh as load sheddinig andWoutinel pow\ekr cuts in the electricity sub-sector, as well as reducing the supply of gasolineor banning the use of auLtomlobiles during some periods, are included in this category.Technical meanas applied to thle supply of energy include the determination of the mostft'ficient nieans of producing a giveni form of energy, choice of the chieapest mix of fuels,

research and developimienit of substitute fuels such as wood-alcohol for gasoline, and s:)on. I echnologv nmay be used also to influence eniergy dem1anid, for examiple, by introdlu-ing Iligher efficieine) energy conversion devices such as better stoves for woodfuel. Tllepolicy tools of educationi and propaganda can lhelp to iniprov,e the energy supply situa-tion tlhroiuglh elforts to make citiz.ers aware of environmlental concernis, anid d1emland(l forenergy milay also be redul1cedl by an effective programmeiiic of public educatioi for energycin )IIse I alt ionII.

Tlricing is a very imiipor tant policy tool, especially in the long run.' As will be discussedlater, ani imipurtant criterioi for price setting is that it should reflect the cost of supply.

htc'qrat.d Nationlal Fn'er.Kv Plannbing 363

However, we note that energy supply systems, including- electricity generationi. transmis-sion and distribution, oil and gas wells and pipelines, coal mines, forests and so on usuallyrequire large capital investmients: such projects also involve long lead times and lhave longlifetimes. Tlherefore once the investment decision is made (usually on the basis of theconventional least-cost m,lethlod of supplying a given fuel type, with due regard for inter-fuel substitution possibilities), the cotuntry is effectivelv locked into a certain supplypattern for many years. Therefore, prices slhould be related to the costs ofsuipply, basedon thelongterm horizon of plannin]g. On the demlanid side also, energy coniversioii devices,suclh as, automobiles, gas stoves, elec:ric appliances. maclhines anid so on, are expensiverelative to average income levels (especially in tle developing countries), and lave relativelylong lifetimes. Tlherefore, olice they hiave puirelased certain items of equklipmlenlt. tlleability of ConIsumlers to change their energy usage patterns in response to clhalges inrelative fuel prices is very limited in thle short run.

The price of a particular form of energy, say gasoliuc, can be used most effectivelyas a two-way signal. Tlhus for ;conondicall efficienlt allocation of scarce resoturces bothwithin the energy sector and between it and the rest of the economy. the energy' prodtucer,that is, the government, nmust establislh an appropriate price based on the time econlomic

cost of supply, the marginal opportuniity cost. This indicates to the coilsuLiner the timeresource cost to the eC(llmin\ of n.,kino energy available to hiin. At the same time theconsumer's willingness to paN indicates to the supplielr tile valuie pladeCd on energ\ byusers.^

In the developing coutntries tlworc are genciall additional conlstraints oni enoergy policy.For example, thlere Max be severe ina.ket distorti )ns due to taxes, imiiport duties, mtihsidiesand exteroalities whicil cause inarket (or finaicial) prices to diverge sublstan tiallh fromlthe true eCo0llolli. opporttaitM costs (or shadow prices). Tlherelore, on the groulnds o(f

economiiic etftcieliC) alone we have to use shadIow]t)% prices instead of nllancial costs in iiiakil rmboth the investment and eircri\ pricine decisionis. Tlhen there are often sevore incomedisparities and social consideratiolln wlhichl require stubsidi,ed energy prices and ratit)oninlgto meet the basic energ\ needs of pzOr consuhmiers. Finally, thlere couldi be inan\ ad-ditional considerations inlClUdilt future investmnent requliirlileeitts, tunilacial viahiliht andaitononix of the eniergy sector, antd regional dle\elopment needs, as wvell as socio-pI] it ical ,

legal and otlher corstrazilits, affecting the policy decisioi.

3.0. Developing the Energy Masrer Plan (F.MP)

As \plainictl eanlici , INI. 1is the pro c eos thiotighm x \iichl it is poshible to :chlike\c the goatof the; II, I v lilastem Plan. Since botil nl iicaii, awIl t1ie ei(l ire -lo'h iiiteh; miiikd,describinig thie INI-I procediure will providcl a better underst.enldin of' the I il1l. In tllepre\viouM SeCtiOn tili thiree hierarclical leveis wlicihl define the scope of INIP were tdescrib-ed: anialy-sis of in telactions between the energy sector and tile lest of tlim econonl\-interactions amnmimg (ilt'errmt .iliu-wkItous withiin the eaergy sectorI; and :activities withineaclh emierey sUb-Sector. Next we will (liseusis the Iiierarclmy of timne liori,ons wihich- mustbe considered in INLUP, the shiort, imied-iuim anid long tenn, and also outline the problemsof uncertainity, before descthrimmi the IN T proceduire.

364 LJhdfl IIi,n:,'jcA.

3.1. Phlllliilug 110hoin11S aflldt' 1nC tUilil '

In the short tenrm, with a time scale of about onie year, national uenigy -laiiniiii'v, is miostuseful for sLIpplI-deliland imanagemient decisions to mlieet unforeseenl pib)hloins. If pastplanning had been successful, short terii cnergy .' mllagmenrit would be free of piobleni,as a part of the colntinui evollutioin of the longer term energy st rategy. lho)vescr, whensudden d iffiCImtiCs o()ccr (for example, u navailahility of h)y mer)leet ric power fiollovinu adrouglht or short: ges of petirolen i-based fuiels), comittilgency planis incluiding, pll\ySicalrationing, price su rcliarel es and so on mliust be set in mllotioll to miii iiniie any aklverseeffect on the developmlent ffo 1t.

Energy planning for the meidiumii term is more flexible because there is tLifhiciciit tinmeto make significan pfolicy changes with in thie uppiroxitiately two to teLn- ear time horizoninv(olved. In particular, the mlost important dlecisions inclulde the planning, evaluation andimplementation of eniergy piI, ects, for exainple, building a new tlhermlazl power stationor gas pipeline; pricing, inter-fuel substitution and conservationi policies. oing termenergy planning horizons. wlichl generallk extend at least ten to twenty years, inivolve thlemost fu ndamzenltal strate-ies of all. TyDically, a variety of alternative scenari( b are e\anihincd.These migllt includle the clhoice of greater or lesser energy intensive patternis of ocuntmici,developminent, graduial clhangetver from depeiidence oni some energy sources to othersas the former becoime unavailable, optimniiiii enlergy stipply developmilllit proL rnmmimc,,(usually consisting of a series of inidividual projects, suclh as lonIg rang1e electric no'.ersystem expansion plilniri) and otlhers,

It shiould be noted that wlhile the distinction between long, medium anid short terimiplanninig is convenicit for conc.eptual a1iml .snal;\,x i.^;ll pzill?1SeS in lJciCC IIICIO ure eat)shiarp dividing linies animng thie thiree categ.ories. Tlhere is a hierarccical relaitioiwldiup in-volved in wlichl the shiort termi decisions and mediuml term policies slhould ineree assmoothly and consistently as possible with the long run strategy. flowever, the lormger theplanning horizon, the more unicertain are the data and pro)jections.

All forms of planning must Jleal withi the pro-blemn (of uicertainty. I Itm ever, incertaintytraises greater difficulties in energ) planoinue because oi the sector's widespread interac-tion with the rest of the ccmnomn anid vulnem ability to initeriationial Levets. Specifilcproblems of uncertainty are Caused by: the long planninig lhorizon for emmergv invtestmeintdecisions, long lead times reqtuired for energ\ resoulrce developmient, and danger ofresultant "lock-iii" effects- incomiplete knowledge of the national energy resk'Lirce base,and the possibility of iiindinig oil, gas, coal and so oin in the future chaTnges in the patternsof energy use; chaniges in the teclmn1]lo(g of energy suipply and eud-tuse; and v:mmiatioru' inenergy prices.

Tlherecfore, it is ijniportamit for several alternative plianmning scenmri(s or Luavmiipti(m,ii

regarding the fuituire to be Onllsi(dered dtirinig the INEIP process (lescribed necxt. Fnergypolicies shoUld be tlexihie, relying on a variety of eniergy soumrces, and lluisiug thie fll]range of policyv instrumnenmts for dlemianid niani.igemnent. finally, the plann1,ing 1prslhotuld be dvinamllic and comlion os, withi all data, I.SsLIMptions and anahl ses bec'ilng coi-stantly revised using the most ieceilt iiromrmimationi.

Initegrated iVationtal lAnvr, Planllitlg 365

3.2. Socio-ccollomiL backjgooundt

The INEP procedure itself may be broken down as slhown in Figuire 2 into the followinigsteps: Socio-economic background and national objectives; energy denmaidnd aialysis:energy supply analysis: energy balance: policy formulation and impact analysis. It slhouldbe noted thiat tlhese divisions are coniceptual. and( in practice there will be considerahleoverlap among tlhem.

The first and last steps examinie broad relationships witli the rest of thle eco1111W,corresponidinig to the hiigest hierarclhical level discussed earlier. Tllus in the first step.national priorities and objectives, as well ns the overall evolution of' the economllicbackground, say over the next twenty years, mlust be examined. Typical quiestions thatshould be addressed colcern economiiic targets such as the desired e,rowthi rate ofthe GNP. as well as socio-political consoiderations suchi as the minimuini levels of eneigyto be provided to disadvantaged groups to meet their basic needs, and special requlire-ments for development of depressed regions or rural areas. tnl'oriwiationi is alsorequired on the energy intensity of future socio-econon iic decelopmen t plans, for exaiiiple.whetlher rapid industrialization will occur, or whetlher agriictltulla1 growtlh will entailsignificant use of eniergv intenisive fert'li,zers and mechaniization. A related set of qntiestionwconcerns technically and socially feasible inter-fuel stibstittitioni possibilities and policies,such as encouraging or discon raginig h,ouseholds to switclh from traditionial inon-cioin-mercial fuels suchl as woodfkel to c(omilnnercial fuels suclh as kerosenie or gas;; electriticationof railways versuis greater reliance on road tranisport; anid so on. ;i,all, ,- projecti0iis areneeded for future a' ailat-ility anid prices of fuels like crudtle oil or coal on the %orldmlark-et: for availabilit) of financial resoturces for energ, imiiports or developinent Ofdomestic energy sources; and for develolpmiient of relevant new teclhologies anid IotI-conventional soutrces suich1 as solar, biogas and mini-hydiro,

feedback for impact analysis and consistency checks

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Ncitional I s r r

Figacw2o.nomlc s a- -iIne -,m -t Pn

)rformat,cm I

WoOd Sj, Ehr; ^1X

1- ig. 2. BaN1ic step>s in imph-nion l^rtin.v IN1 P

366 .l4/han 11unasingIw

3.3. Suppl'l atndi dematnd anali-ses

The second tlhrougli Itorthi steps !elute mainliy to thie two lower levels in the INEP hiier-archy shown in Figure 1, that is, enlergy sector and sob-sector planning. It slhould benoted that these stages in INEP will be strongly influenced by the information andassuMnptions from the preleding step. Whlile thlese steps deal witlh forecasts spanning tllefull long term hlorizon of Nlhi (20 years), lllediulmii and short term projection1s should bedeveloped witlhin tlle same consistent framnework. The principal objective of energydemand analysis is tci determnine future mequiremnienits by type of fuel and by consumercategory (or type of usaye). Past and present energy usage patterns must be analysed indetail relative to otlher factors suclh as prices, incomes, levels of economic activity, supplyconstraints stocks of emmerv using equipinent. Tllese results and informliation on possiblechanges in future usage lpatter[Is form the basis for forecastin'g the structure of nationalenergy denitaitids. In -eneral. the eneray reqitnireininents of productive sectors of theeconomly may be analn setl on the basis of the teclhnological relationislhips and prodUCticinfunctions underlying these activities. However, a thorouglh analysis of houselhold eniergydemand, particularlv for traditional fuels, whiclh often constitute the bulk of the fuelsuipply, will require detailedl surveys and ecUnom1iC studies.3

F.nergy sol\pph analvsis involves the systematic determination of all possible futureenergy su ply options, disaggregated by energN sob-sector. First, past and present data onenergy reS)urces and productioiin, imiport> and exports, generation, storage. refilling. trans-portatior, distribhtion and retailing, financial and inanpower requirements, costs and out-put prices mrust be ex\aiminedi. Thien this informiiation togethier witlh projectionis of fuielresource developiment projects anid progin:minimes. energy sub-sector output capabilities,capacity to import or export, application of new teelnologies and non-conventionalsources, rinanicial, manipower and 01aUllizational resources must be combined to providedetailed forecasts of the dvaildhility of the difterent forms of energy.

3.4. Lnergyl balance

Supplpk-demand balancing consists basically of assigniing specific energy sources to cor-responding uses. A simple but typical miatrix for doing this is shown in Fiigure 3 where therows indicate energy uses (includinig losses in processing, refining, transportation andretailillg.) 4 Examiiinationi of past anid present energy balances allows the energy analyst todetermiine thle evoluition of iupply and demnand witl,in a comiiprelhensive fr;amiiewvork-, thebottlenecks that exist, and lhow supply and dem_2niand hias adjjusted to conistraints. Next,supply-demiand balances must be developed for future years. Projected energy slhortagesand surpluses by fuel type and usage categor) must be reconiciled, for exalmplilc, by increas-ing or decreasing energy imports or exports, inter-fIel substituJtio)n (where tecnliically

and socially feasible), auigmiienitinig domnestic -onventional and non-conventional energysources, reduLcilng delmand throtuglh pricing, rationing anid pliNsivsal cointrols. Thus, somlle ofthese equilibrating mieaSuLrs will require goinig back to earlier steps to re-adjust the supplyand demeianid anialyses and forecasts.

Inutegrawq.i y 7/ Lu 'r.j Plannttitng 367

3.5. 1Policy fbrinuilationl anid EMP

The series of four steps descr-ibed above will yield a set of energy policies for ianagementof supply and demand wlhich ensure that future national energy requirements arc satisfieLl.SiTICe there are many different policy combiniations there will be several alternati.epackages or sets of policies involving tlle basic policy tools described earlier (plhy,sic:lcontrols, technical niietliods, edLucationi and propaganda, and priiciiig). The final stepconsists of formulating these alternative policy packages anid theni testinig tlhemii for tlheirimpact on the rest of the economy.

At this stage, certain consistency clhecks must be made. Thus, the Consequences ofsome energy policies may imply violation of otlher national objectives or assumiptionsregarding the evolution of the economy strategy may entail unacceptably higl balanceof payments deficits for energy imiports or draining of financial resources from siectorslike agriculture, or drastically curtailing the energy supply in those sectors, thus infriniginigon otlher priorities set by the government. If some of these basic objectives or backgrounddata are chlanged as a result of tradeoffs, theni the steps must be repeated using the newassumptions. Thus, the INEP process pennits dynamic consistency clhecks thlroulghiterative feedback, as summarized in Figure 2.

Finally, the set of eniergy policies whichl are consistent with broad national goals andwhich best satisfy future energy needs imay be selected by the decisionmiia"ers. Thlispolicy package, and the associated set of supply and demand forecasts and halancesconstitute the energy master plan (EMP).

4.0. Problems of Implementation

In this section we discuss problems associated with practical implementation of INEPand execution of EMP, once it has been determnined. These dlifficul ties may be examinedin two conveniienit categyories: data collection and analysis; and inistitultionial structureand manpower needs.

4.1. Data collec tioln anid analysis

INEP can be carried out at different levels of sophistication depending on data avail-ability and the capability to analyse this information utilizing computer facilities, skill-ed manpower and so on. In Countrie; where these constraints are severe, and especiallywhen therc has been little prior expe rience in energy planning eveni in individual sub-sectors, INEP may have to be implemented progressively.

For examnple, the first phase might consist of energy planninig at a relativel)y un-complicated level. A basic socio-econornic accommntinig matrix (or small inmput-Ot tputtable) miglht be used to generate infornmation regarding the economic background.Similarly, simple time trend projections could be used for energy supply and demandlforecasts (witlh judicious assumptions whlere data is unavailable, particularly with respectto traditional fuels). The energy balance might consist of a basic table like Figure 3, with

tn

I - I - --J 1 ---------- -�-�---- - 00

!fl1640U4W '-""-�'� - -- � .1 4 �

- -ft. 4 -

- - -S - I -. -- - £

a - -- - - - - - - - - - -. -- - - -

-F t - - -- - - - -�

I . - p I

-- -t- t t-- -P --- i---- j -i -- t -* -- 4------ .---- -

i - 4 , , -t I-- i ----- I- -� --- -�

- II I +

- +- --

'r- k-*-*-* --t � I. -� - -� - - -A ______ 4 -. -

-S ----.---------.-

I + -'- ,---------------

-±vtS-I, S�,+ ,+�-..+z-s -, t* I * * , - - -

5- - p p - * I - - - . p - p - - - - - p -- -- - - - -

,-,, 4-- - -p.- - + --p - p - - I- -

-, - I - -' - p p - - - p p - p - - - p --

- - - I - - - - 0

0

Ip, -14+.

* 5-P�5�

- ++4PP+.PI- p

1-ig. 3. Typical energy balance ShL�L 0

-. �- 4

Ii2hr , Vt, I \ational Energy 1PIwulsii;ng 369

relih.aLe oni direct policies suche as inicreasing oil imports or shedding electrical load (powercuts) to imlake cquilibrating adjustmients. Thus tlle initial version of the EMP would consistof simple supply and demiianid projections and a straightforward set of policies, with littlescope for imiipact analysis or itcration. In brief, such a first attempt at INEP would relypI iucilpally onl physicall\ based data, extrapolation of past trends in energy supply anddemanid (;r;stnnming, for lack of better inifonniation, that energy resources and technology,consumier lbThavimir, externial factors and so on would essentially continue unchanged),very blhi.' cunstisency chlecks in tlie energy balance, and relatively uncomplicated policyd!11%;1 hi;,

At this stage it is worthwhlile stressilg the importance of data collection and analysisin tie INFP procedture. Thlerefore, building a good energy data base is an importantr. l rennenrt of INLY. In particl1ar. the data should, as far as possible, be easy to gather,.jccnratc. rllrkenlieilt to mlnipulate and analysc, internally consistent, relevant to policywtork, conmipatible witlh tbhe work of other sectors in the economy, and consistent witlintern-itiunall) accepted stanldards. Sinice the quality of data across sub-sectors is likelyto be uineven, attention should be focused early on the weaker areas (availability andusage of truditional fuels), to avoid distorting the energy balance. A simple data base mighthe a set of tables, while a more sophisticated version would involve a computerizeddata base. WUhile basic data (by energy sub-sector) may be in diverse physical units (e.g.,killm%att-hounnr (k\\1i) of electricity, barrels of oil, tons of coal, of wood etc.), it is im-pOrtant to reduce them to a commllioni energy unit for cornparison, and preparation ofthe ener balahince. COmnimonly used basic energy units include the Joule, tonne of oilequMiwlemut and ton of coal eqLUivalent. It slould also be made clear whether the energy is in<!oh or tnet ternin, that is of electricitv delivered to the consumer, or litres of fuel oilburned at a tlhernial power station before accounting for efficiency of conversion and

Fven the fir~z version of an EMP based on a simple INEP procedure can be used veryeffectiveb,. First, at the very least, it provides a consistent and comprehensive approachto NAlvinp na;tional energn problems which is superior to the traditional uncoordinatedplahnirinor by sub-sector. Seconid, tb focusing oni data needs and analysis, it permits theatithmorities to identify areas where informTiationi is poor, data collection and organizationninmt he inipru-ed. nmanpower and analytical skills have to be built up, and so on. Third,

it f6rces energy planniers to relate the process to explicit objectives and policies. More~ermenalll, TlTNUP and the EMP facilitate the recognition of key energy issues, and helpto remulve thiese problems in a conisistent way. The identification of such issues and thetrrniulatio)n of policies to solve them (or establislhing guidelines to study them furtheref.rOe decidinpu on appropriate policies), is one of the most inmportant goals of INEP.

1. pi.. ener-y related issues iniglht include: data problems (as discussed earlier); man-pve r anid o)rreani/ational needs; conservationi; imports and exports and dependence ontireienmi sonmrces; environmnental degradation; pricing; investment and financinig; and

>Olwt:aueo and ratiouning.Once experience hias beCn gained and skills built up by working witlh the sinmplified

INI 11P prOeilednrimore sophisticated approaches may be developed. Thus, a multi-1eetOl un1acu0-ecun0omn11ic modiel couldl be ulsed to establish the socio-economic background,immJmmdirr, amaNlxsis of several alternative scenarios which take uncertainty into account.

370 Adol/ian Munasiughe

These might include hiigh versus low economic growtlh rate, more versus less energyintensive growtlh or hiighi versus low costs of eniergy imports and exports.' Tthe supply anddemand projections could also be more complex, using multiple correlation tecliiii(lues toinclude the effects of economic variables Pk-,r price and iiicomie and to capture theimpact of policy induced shifts in eniergy usage and supply patterns suchI as a programTmeto promote LPG and discourage use of kerosene.

The energy balance could be expanded to ineluide additional suib-categories of supplyand demand, details of losses in extraction, refining, comversion. transportation and so on.Ultimately a sophisticated computerized energy model miglht be dleveloped, that wouldincorporate the effects of many items of plhysical, economic and behavioural informiation,and governnment policies. These models generally fall into two broad categories. The first,the optimization miodel, in which soime rf,,nn, of objective function, that is, a matlhematic-al expression wlhiclh embodies the required goal, is (IptimnizeJ suibject to teclhnical, econom-

REALIZATION VARIABLES (b)

GNP Erergy Tech ENologes Resource Availability of DemandGrowth . .,wnR,eRate n S) Elec. Gen, (2), Synth. OlandGas U.3°8 Coal

Fuels R7 P. AES o9 f (46 Price oncofe

|BASE CASE \///

Modified b \anJ on Nuclear

on ula C:onsumption, ProductionC Technologies 4R R GY MO \ Import Totals tcc: 11) - \d otl- / (1) ORI \J\ / n, ProdutciIn \1> 92) DESOM \8omp.s,ion .M,xes)

Coal and Shale ( 3) SRI P,Ices)Limits (2) ( 4) PIES /\Ecoriomic Sonefits Minus/2/ (5) ETA ,Ci/ (sts/Relaxed / 6) Nordhaus / \NOT INC,LUDED /

r.Environmental / - -/\Remlainring EnvironmnentalrStandards (4) 1 C\ Ina.

| | Quantity | Year' of | | Ceilings onsDiscount C ,ejilings and Availabrility Growth Rates

Raltes | | Prices of | tf N(wvv of No.1 Irnports | |Tmrhrroixje,ls I Technijleoqw,e

i2) i 3l (1

BLEND VARIABLES Ic)

YVorld Barnk 21 1570F;ig. 4. Reeent 011L. rp. niodels fo-r the I'S

.Source: NatIiona:l Acieniv1R of Sctiences, Lim')gy llweh,flin4 ir aiotll uncertainS filtuivt DClsllll, 11978,

Irti,nWaretiI Nationial Energy Plannlin 31

ic and belhavioural relationslhips, as well as plhysical anid policy -onstr.diint:. tne h fXxnc-tion might be the minimization of the costs of meetinig total energx tevdl . hlle icon'.is the simulation model, in wlhich alternative scenarios are explor, l: in a st !SistL Iframnework, subject to constraints. Optimization nmodels usually yield a well il..f0r.1optifiual EMP, whereas witlh simulation imodels the policy-miaker lhas to choosSe fromnamong the alternative simluilated scenarios. Simulation models allow inore flex bilitv witlrespect tG adjustments based on expert judgmenwmt and iicoipoi:mtiomi oi ksclloi le,ationwhichl cannot be Llquanitified in the model a situationi which max he uio:- 1 .lan indeveloping countries. It is important that such a model be calibrated anid tuiined by testimigit using historical data, so that it provides an accurate represenltation of the energy sectoi.

Policy impact analysis and feedback is also facilitated by iusinig a comnp)uterid ielrgIm11odel, wlhich could interface whh the macro-econonmic model. A m1ore colmplex set ofnational objectives could be formnulated, and explicit trade-offs amiongy them eoplonord.In slumnary, as data and analytical capability improve, the TIN:P procedure may beprogressively upgraded with greater payoffs in imiproved energy sector planning andsupply-demand management.

4,2. Ihistitonit*lal structzre anidi manl)owt er nteeds

The major organizational probleml in most couniitries is the one referred to in the firstparagraph of this paper. It is thie fact tllat energy sub-sector instituitiolls suchi as theelectricity authiority, petroleuim authority, forestry departmient and so otn are scatteredamong manv (lifferent ministries and pursue their own policies with very little co1ordi-nation. Ideally, a single energy ministry or autlhority shouild control all energy prod(lucingtor,ani'ations and determine energy policy. In practice, this solution mnav be difficult toimplement quickly because individuals and organizations may niot wislh to chiange theexisting situation.

In soome countries, particularly small ones with limite(d skilled 111;uilulmper resources,locating a fledgling energy planning group within an established suib-sectui- institution(for example, the electrikity autlhority), may be the only realistic short term alternative.lHowever, this is rarely a desirable long tenn solution, especially if it strengthens the biasand domirance of the sub-sector agency or becomes a heavy burden on it. Implantingan energy planning cell witlhin an existing national economic planning body may also bepossible. and this would facilitate co-ordination between the energy and otther sectors.lioweeer, this is likely to result in less dilution of energy related iesponsibilities and mayreduce the effectiveness of energy policy, especially if econiomiiic planning itself is perceiv-ed mnainly as a paper exercise that is rarely hinplemnented.

A stepwise approach in reorganizing the energy sector may often be more desirable.For examiple, at, eneray council or board which brin-gs togetlher representatives of alleo.ergy s,5ppliers ind major users miglht be constituted initially to co-ordiniate nationialenergy pianrnilng. This body could have a secretariat wlhiclh wouild form the nucleuis of tlhenletwork for data collection and analysis, to beuin -implemiientiing INET.

Once the advantages of co-ordinatinig the energy plan become evident, a centrale,nerev authoritv- (CEA) or ministr)y of energy (MNOb) might be set up which would have

372 1ohant Afunzasinghe

full control over the energy sector. The CEA concept is modelled on the lines of a centralbank, because the pervasive role of energy makes it the physical couirnterpart of money.Therefore, the CEA should be an autonomous body with maximum authority. Thealternative approach of an MOE would be more conventional,

Whichever institution is established, two general points should be emphasized. Firstly,because of the importance of energy, the CEA or MOE should have direct access to the headof state and be able to invoke his authority, to bring other ministries or institutions intoline. Secondly, the CEA or MOE should be primarily concerned witlh energy planningand policy making, including in particular the gathering and analysis of energy data, andreview of major decisions relating to pricing, investment and energy usage. Executiollof energy policy, day-to-day operations, preparation of sub-sector investllment or pricingprogrammes, routine paper work and so on shiould be left to the line agencies in thevarious sub-sectors themselves, for example, electricity authority, forestry department,and so on. Involvement of the CEA or MOE in thesc functions would soon transform itinto a huge bureaucracy and drastically reduce its effectiveness. While a CEA could beset up independently with specific safeguards against this danger, an MOE is more likely tobecome bureaucratized, especially in countries where many existing ministries are stillinfluenced by administrative procedures with roots stretchlinig back to the colonial period.Therefore, it would be worthwhile to set up a separate group or institute for planningand policy within the MOE, which would act as a driving force.

Those carrying out INEP should be drawn from as maniy other govenimiient depart-ments and institutions as possible, to represent a wide variety of viev.wp)oints and skills.This would help develop a balanced approach to INEP and also inaintain links witlh othersectors and institutions without which INEP could become an abstract theomotical ex-ercise. In particular. the commercial energy sub-sectors slhould not be allowed to doniiatethe traditional fuels sub-sector.

The balanced development of energy planning skills botlh at the mangement andtechnical level is important. The underlying theme should be self-reliance in energy plan-ning, because the final responsibflity for l[NP shouild rest on local staff and .policv-makers. Althlough in many cases it may be necessary to rely on foreign experts or con-sultants to initiate the process and play an advisory role, the traininlg of local COunter-parts and the goal of eventual transition to completely n:1tiollal staffing slhould have ahiglh priority. At the same timne, because both technical and economic knowledge in tlleenergy area tends to change rapidly, energy planners should have good, up-to-date libraryand documentation facilities, as well as ready access to international conferences. traininccourses and meetings. Finally, if salary levels are inadequiate, it will be rather difficult torecruit and retain personniel with energy related skills.

References

1. M. Munasinghe, 'An integrated framework for enerie pricing in dlevcliz,ph *nznttTios,' 1/. I:nvri,4Journzal, July 1980.

2. M. Munasinghe, 'Ilectric power pricing policy,' .Staj Wttorkintg Iuper Va 34U World [lank, Wi',-hington, D.C., June 1979).

Integrated National Energy Planninlg 373

3. See for example: M. Munasinglie and C.J. Warren, 'Rural electrification, energy economics andnational policy in the developing countries,' Finture Energy Concepts, Publ. No. 176 (Institutionof Electrical Engineers, London, 1979).

4. Details concerning this table may be found in: A. Ramsdell and K. Walton, 'Basic energy statistics:A global perspective,' in Workshop on Eknergy Data of Developing Countries, Proceedings: Volume 1(International Energy Agency (OECD), 1979), pp. 33-44.

5. When values are attached to goods and services in the economy, shadow prices which represent trueeconomic opportunity costs slhould be used. For ani application of slhadow prices to the energysector, see: M. Munasinghe, The Econtomizics of Power Si stertn Reliahilit) and Planning, Clhapter 9(Johns lHopkins Press, Baltimore, 1979).

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