Encouraging Solar Electricity Production in the OPT: Is It Just a Slogan?

Transcription

1 Palestine Economic Policy Research Institute Background Paper Roundtable (7): Encouraging Solar Electricity Production in the OPT: Is It Just a Slogan? 2015

2 Background Palestine suffers a significant shortage of natural resources, particularly the traditional sources of energy, oil and gas. This has posed significant challenges to the energy sector. First, it has made Palestine heavily dependent on energy imports. The country imports from Israel more than 86 percent of its electric power needs and 95 percent of the fuel needed to generate electricity. Second, the price of these imports is high, resulting in high costs for both Palestinian power generating companies and consumers. The annual electricity bill, for example, has reached USD 500 million, and when Israel raised prices in 2013 by 33 percent (form 2010 prices), electricity imports jumped to USD 650 million. The annual import of oil and its derivatives is around USD 800 million. Both oil and electricity imports deplete more than 12 percent of the Palestinian GDP. Worse, Israel controls the quantities of fuel imports, sets their prices, determines the time when they are allowed into Palestine and denies their entry (as is the case in the Gaza Strip in particular) at its sole discretion, let alone the commercial monopoly imposed by Israeli companies on Palestinian energy imports. Part of the dilemma is the loss the sector incurs as a result of financial leakage arising from Israel s control of the energy sources and the absence of financial audit of reports and bills issued by the Israeli companies, in addition to arbitrary fees for non-existent services, such as renewable energy and carbon tax. Now after more than two decades of the Oslo Agreement, Israel still requires the Israeli Civil Administration approval for setting up stations and substations to generate power or to upgrade the existing grid. These are issues that cannot be resolved while negotiations are stalled because of Israeli intransigence. There is ample justification to consider alternatives for the current mechanism of energy provision to Palestine. The real challenge for policy makers and the private sector is developing a strategy for the foreseeable future, with new investments in the field, moving towards more reliance on renewable sources of energy. Such a move should enhance economic security on both the consumption and production levels. Renewable energy Renewable energy is defined as energy that comes from resources which are constantly replenished. Unlike fossil fuels (such as petroleum, coal, natural gas) and nuclear power, renewable resources never run out. Renewable energy is also called clean energy because it can be generated without harmful emissions for the environment or public health. It does not produce carbon dioxide or other harmful gases. Countries around the world have started to look for alternative energy sources to reduce the amount of gas that is released during the combustion of fossil fuels, causing global warming and ozone depletion, with significant harm to the environment, people, animals and plants. Renewable energy comes particularly from the wind, sun, water, tides, waves, geothermal heat and biomass energy. This paper focuses on solar power which can replace conventional fuels in some important areas: generating power for off-grid areas, supplying remote communication stations with electricity, pumping water to irrigate crops, as well as powering households, industrial facilities and streets. In some cases, it can be used to run cars. Solar power is safe, economically feasible, flexible when more power is needed, and it requires little maintenance. 1

3 Renewable energy around the world The production of clean energy around the globe has recently increased substantially. Most developed countries depend on hydroelectric power from dams and waterfalls and wind power to generate electricity. In the last ten years, some industrial and developing countries have started to use solar panels to produce electricity on a large scale. Many countries set a goal of meeting 20 percent of energy demand through the use of renewable sources by The efforts of regulating renewable energy production have developed into drawing up international treaties. In 1992, UN member states drew up the Kyoto Protocol which has committed State Parties to reduce greenhouse gas emissions. To do so, there was a need to explore renewable energy sources as alternatives that can reduce environmental damage and climate change. In 2007, a group of European countries committed themselves to meeting 20 percent of their energy demand through the use of renewable sources by Later, the target was raised to 30 percent. Soon, all countries, including Palestine, will somehow be required to reduce the emission of harmful gases. As a matter of fact, the sooner the countries start using renewable energy technology, the higher the economic benefits. This is another reason for Palestinians to increase investments in this sector. Globally, investment in renewable energy has risen significantly. In a report released in March 2013 by the United Nations Environment Program and Bloomberg New Energy Finance, the world has invested nearly USD 270 billion in renewable energy in 2014, an increase of 17 percent over More than 90 percent of this investment went to solar and wind power generation, one third reported in China and Japan. Renewable sources (wind, water, etc.) raised its share of world electricity generation from 5 percent in 2007 to 8.5 percent in 2013 and up to 9.1 percent in The report also found that electricity from solar energy reduced power production costs by 59 percent in recent years compared with traditional methods. These investments have grown significantly in the countries that provided support and incentives to private investors, while investments in countries that cut support saw a decline. In Italy, for example, investments fell by 70 percent in 2014 from 2013 due to reduced support and poor investment incentives. Currently, solar power accounts for only 2 percent of global demand for electricity though the sun delivers to the earth four times the global demand for electricity. In developing countries, problems and obstacles still exist as infrastructure for storing power and feeding it into the grid is not available. Also, technical problems and difficulties in managing and ensuring funds for investments still impede real progress in the sector. In Arab countries, investments in green energy and its share in power consumption are still in the embryonic stage compared with other countries. The table below shows shares of renewable energy in total power production in selected countries, with Palestine reporting a negligible share compared to neighboring countries. Table 1: Shares of renewable energy in total power production in selected countries Country Palestine Jordan Egypt Israel Share.02%0 2% 3% 5% Source: Jordan Strategy Forum; Palestinian Energy Authority; Energy Research Center at An-najah University. Renewable energy in Israel Israel has made much progress in moving to a renewable energy future, with the country being at the cutting edge of solar energy technology. Israel is the first per capita producer of power from the sun, and currently 5 percent of renewable energy is used, with the sun accounting for about 2 percent of the energy 2

4 consumed in Israel 1. The country has signed the Kyoto Protocol in 1998 and ratified it in One of the obligations of the signatories of the Protocol is to reduce the amount of greenhouse gas emissions. In order to meet this obligation, Israel started a large scale campaign to encourage individuals and companies to generate electricity from solar energy. Part of the effort was done by Israel Electric Corporation which announced in June 2008 that it would buy electric power generated from the sun from households and small businesses at prices up to four times the electricity prices in the market. This feedin-tariff is limited to 50 MW in seven years (whichever comes first) with limits set on production capacity up to 15 KW for individuals and 50 KW for companies 2. To promote investment in renewable energy, the Israeli government decided in mid to allocate NIS 5 billion to support the production of electricity from solar energy, setting the goal of reaching 10 percent dependence on renewable energy by Israel s interest in the production of alternative energy and reducing emissions has spilled over into the occupied Palestinian territory. Because Israel still considers the occupied Palestinian Territories as part of its dominion and because the Palestinian Authority is not a signatory to the Kyoto Protocol, any reduction in the emission of greenhouse gases in the Palestinian Territory is counted to Israel s advantage. The occupying power carries out its plans through the Civil Administration in Bet El, announcing the applicability of offers available in Israel to Palestinians (individuals and companies) that are connected to the Israeli grid. According to the Palestinian Energy Authority, around 40 Palestinian businesses have subscribed to take advantage of this offer. The energy sector in the Palestinian Territory Energy generation and consumption in Palestine depend on two sources: First, oil and natural gas derivatives: These are fully imported from Israel at an annual cost of about USD 900 million. This source accounts for about 51 percent of total energy consumption in Palestine. Second, imported electricity: The imports are mainly from Israel (around 87 percent of the total), in addition to 4 percent from Egypt and Jordan. The remaining 7.4 percent is supplied by Palestine Electric Company Gaza Power Plant which runs on industrial diesel often imported from Israel. The bill of electricity imports from neighboring countries is USD million a year 4. Electricity imports from Israel are not governed by an agreement between the PA and Israel, but through bilateral contracts between local government councils and individual electricity distribution companies, on the one hand, and Israel Electric Corporation, on the other. Communities in Palestine receive electricity from five distribution companies: Northern Electricity Distribution Company, Jerusalem District Electricity Company, Hebron Electric Power Company, Southern Electricity Company and Gaza Electricity Distribution Corporation. The power is transmitted through 230 sub-stations installed in the Palestinian territory. The current state of the Palestinian energy sector According to PCBS 2013 Household Energy Survey data, there are some significant indicators, both positive and negative: The incentive is set at NIS per KWh. The price of electricity in Israel is around 50 agorot per KWh. See: Sectoral Strategy ( ), the Palestinian Energy Authority,

5 Househollds and services consume around 75 percent of the total power supply, while economic and productive facilities consume only 25 percent. Electric power consumption grows annually at a rate of 6 percent, and thus it is expected to reach 8400 GW/h in Thirty-two percent of the Palestinian households use electricity to heat water. Around 26 percent of electricity purchase is lost somewhere between the source and the residential/commercial destination. The loss results from either technical issues, namely the large number of substations (230) and poor grid, or non-technical issues, basically related to electricity theft and poor collection of dues. The annual per capita consumption of electricity (after deducting transmission loss) is about 830 kilowatt-hour, which is well below the rates in neighboring countries: 2093 in Jordan and 1549 in Egypt 5. Electricity prices are high because of high transmission loss, high costs of domestic electricity production, high cost of power imported from Israel, and inefficient distribution companies. The use of renewable energy sources to generate electricity is negligible. The Palestinian power sector management The Palestinian power sector is managed by several organizational bodies, each within its range of competence and in accordance with the laws in force. The Palestinian Energy Authority is the official body that drafts vs. enacts laws and regulations applicable to entities working in the energy sector. In 2012, it developed the national energy strategy and designed the measures to ensure energy conservation. It also drafted the renewable energy bill and net-metering bill, pending approval by legislature. The Authority seeks to ensure energy security, diversify sources of power generation, develop the necessary standards, produce a Palestinian atlas for the sun and the wind to be used by renewable energy producers and researchers, and tender large projects; all to achieve the strategic goal of producing 20 percent of Palestinian electricity consumption by 2020 through alternative energy sources. The Palestinian Electricity Regulatory Commission was established according to Presidential Decree No. 13 of Article 5 of the decree states that the PERC possesses a separate legal personality and enjoys financial and administrative independence, which it needs to carry out its duties and powers, namely setting and monitoring electricity tariff; giving the necessary permits for the transmission, distribution and generation of power; promoting competition and preventing monopoly; raising the public awareness; and safeguarding the rights of all parties (consumers, producers and distributors). The private sector (distribution companies and local distributors, such as rural and urban councils as well as transmission and production companies): Each of these agencies operates according to its own regulations, but under the broader regulations of the PEA. Unfortunately, some municipalities and village councils know nothing about the renewable energy schemes, and even some of them say they did not receive newsletters or instructions from official parties on renewable energy. The Energy Authority promotes the production of electricity from alternative energy through: 1. Tendering for medium and large scale production of renewable energy: The Energy Authority is planning to put 10 competitive projects up for tenders from the private sector to generate energy, particularly for government and semi-government agencies, with an allocation of USD 200 million

6 2. Regulating net metering, grid connectivity and billing through cooperating with small investors and distribution companies. The method depends on a direct relationship between the consumer and the companies in order to deliver the needs of the individual consumers, be they households, businesses or industries. However, because there is no law to regulate the relationship between the consumers and the suppliers, distribution companies usually apply their own policies. For example, they collect 12 agorot per kwh for storing surplus energy, which is arguably unfair for the consumer. 3. Launching the Palestinian Solar Energy Initiative by the Palestinian Cabinet: The PSEI aims at providing 1,000 homes' roofs with solar cells, with the government contributing 50 percent of costs. In practice, however, as the government stopped its support of the project, only 200 homes benefited from the initiative. In addition to the government s failure to meet its commitment, it is believed that the initiative was launched too early without an accompanying campaign to make investors aware of the economic benefits of renewable energy. Part of the failure is attributed to the poor coordination with stakeholders, weak cooperation from distribution companies and lack of a regulatory framework as a necessary condition for success. Development in renewable energy use in Palestine There are of course promising opportunities for using photovoltaic panels to generate electric power. The Palestinian Authority is aware that solar energy is particularly important for two reasons: geography and climate. Sunrays are abundant in Palestine, as the country enjoys 300 sunny days a year. Geographically, Palestine lies on latitude 30 o north, where the annual incident solar irradiance is 3000 KWh per sq. m. Studies show that the annual rate of solar energy is 5.46 KWh per square meter per day, which is a high percentage compared with other countries 6 suggesting an enabling climate for renewable energy. Believing that the climate and geography are effective enablers, both the public and private sectors have started to explore opportunities to utilize green energy technologies. Some research and development institutes, governmental agencies and universities (such as Palestinian Energy and Environmental Research Center, Energy Research Center at An-najah University and the Palestinian Solar and Sustainable Energy Society) have made some efforts and small pilot projects to use solar energy to generate electricity. Part of the effort was made by international non-governmental organizations, which financed a number of projects: powering Wadi An-nar and providing power to outpatient medical facilities, clinics, schools, some Bedouin communities and small villages far from electricity grids, such Atof in northern West Bank, Mneizel south of Hebron and Jobbat Al-deeb in Bethlehem. In the past few years, more than 40 private companies were set up to install and maintain networks and electricitygenerating solar cells. At the official level, the Palestinian Energy Authority has adopted a national strategy for the energy sector ( ) which aims to increase domestic production of electric power to cover 20 percent of consumption by The remaining 80 percent is to be covered by the Eight Country Interconnection Project. On the implementation level, the PA signed a preliminary agreement with the Japanese government to implement a project that generates electricity through solar cells with a capacity of KW to supply power to the agro-industrial area in Jericho. Currently, the Energy Authority is seeking to raise funds for a solar-powered electric generating station in Jericho with a capacity of 100 MW in several stages, with the first stage producing10-20 MW. However, these projects, which are still in the planning stage, face serious challenges and real constraints by the occupation authorities. 6 Energy Research Center, An-najah National University. 5

7 The positions of stakeholders For reliability of results and for in-depth examination of the opportunities and challenges discussed so far, and in exploration of the different views of stakeholders (producers, distributors and lawmakers) the author conducted direct interviews with representatives from: The Palestinian Energy Authority and the Palestinian Electricity Regulatory Commission Energy Authority objectives, policies and strategies A Palestinian national plan for power conservation was developed with the aim of reducing energy consumption. In 2012, a national plan for renewable energy was developed. Implementing a number of renewable energy projects for public institutions. Competitive bidding for the production of 10 megawatts of power to cover 5 percent of domestic consumption is being currently considered. Drafting the renewable energy bill and net metering bill, pending approval by legislature. Compelling transmission and distribution companies to connect users to the grid and buy excess electricity that is fed back into the grid. Following through on the implementation of the Palestinian Solar Energy Initiative. While acknowledging all the achievements of the Palestinian Energy Authority, we still have some observations to share with the reader. The Palestinian Solar Energy Initiative is shutting down; the laws have not been enacted and the researchers have not managed to get a draft; the bidding is still in the intention stage; and distribution companies still operate on a profit and loss basis and on their own terms rather than in accordance with the standards of the Energy Authority. According to the Palestinian Electricity Regulatory Commission, laws are still being drafted nearing completion and that it will start operating effectively when these laws are approved by legislature. The fact is that the Commission was never able to take action because there are no laws to regulate the renewable energy sector. Once the law is enacted, the distribution companies and producers will be required to shape up and set prices. We should make it clear that the new law has no conflict with the Electricity Company Law, which is a basic law in this area. The private sector (Renewable Energy Industries Union and some companies unaffiliated with the Union) The position of the private sector came from the President of the Union: Renewable energy in Palestine is only three years old, but it is vital and strategic. It has some economic and environmental significance, and it helps achieve energy independence. However, renewable energy has yet to be made a priority by the Palestinian decision-makers. The PA is no longer interested in this sector and the government budget has no allocations for developing the sector. That is why investment is still weak. The renewable energy national strategy has some major flaws and the resources necessary for implementation are lacking.. There is no clear regulatory framework; policies are vague; and funding for the primary cost is not specified: Will the banks help in funding the projects? Is there a central agency to buy the power produced locally or from Israel? There are no investment incentives. When the Investment Promotion Law was enacted, the renewable energy sector was completely disregarded. Many distributors know nothing about renewable energy and its benefits. 6

8 The infrastructure does not help establish a favorable investment climate, as distribution companies bear the costs of connecting to the grid. The belief that the producers are competing with distribution companies is erroneous. Honestly speaking, it is the PA that should be responsible for building the infrastructure and developing the grid so that the solar-generated power can be fed into it. For example, if there are 50 homes to be connected to the network, who will bear the cost of supplying and installing the new transformer? In fact, distribution companies should not be responsible for that. The absence of laws is a license for distribution companies to be the legislator and the operator. Currently, companies work randomly without regulation. In short, expansion in green energy requires a regulatory environment and implementing rules; compelling distribution companies to connecting to the grid subject to fair conditions; providing investment incentives; and developing an effective control system. These translate into more investment through granting soft loans, and thus creating an enabling environment where the state is interested and the private sector makes profits. According to some companies unaffiliated with the Union, the sale and purchase prices are the main problems. Distribution companies do not offer incentives that promote investment. Another problem is the reliability of the grid, with doubts about its ability to take in large projects in particular. This problem must be tackled by the Energy Authority. A third problem is niche: most companies working in renewable energy do other businesses due to weak demand for solar cells. To overcome some of these problems, home roofs must be used at a large scale. This can be done through incentives and promotional policies, with prices affordable for the buyers and profitable for the sellers. Distribution companies (including municipalities) We concluded from the interviews that the municipalities being distributors that only buy and sell electricity do not have a role in promoting renewable energy. They have no role because there is no legal framework to regulate the sector. There role of distribution companies, such as Jerusalem District Electricity Company, in strengthening the grid for the purposes of producing renewable energy is not well-defined. It is the Energy Authority that is supposed to install transformer, cables and grid lines and bear the other costs. In reality, however, it is the distribution companies that bear these costs while the government and users reap the benefits. There are no potential investors in renewable energy production. All what we have is small investors who only seek to cut their electricity bill. Because Israel controls prices, there is a problem in pricing policies. The distribution companies buy the surplus energy from producers at prices higher than the Israeli price, which means that these companies do really promote the production of renewable energy. Therefore, the claim that distribution companies consider producers as potential competitors is untrue. For example, Jerusalem District Electricity Company allows excess energy to be fed into the grid for one year at a nominal cost. The company also provides power to vulnerable areas and refugee camps without charge. It is unfair that distribution companies give incentives and bear additional costs which are basically the responsibility of the Palestinian Authority. Because there are no laws governing the renewable energy sector, electricity companies had to use their independent reasoning and set a price for storing excess energy. However, Jerusalem District Electricity Company has always been prudent and open to initiatives and opinions from stakeholders: the Solar Energy Initiative, Surplus Storage Systems, producers, municipalities and power plants a total of 88 clients with a capacity of 2254 KW and within the Electricity Company Law. Renewable energy production in the first six months of 2015 reached 1,665,608 KW. The goal is to reach a production capacity of 2 MW. In sum, the Palestinian energy sector is state-owned.and because the welfare of the people is the responsibility of the state, the PA should be responsible for developing this sector and installing grids and sub-grids, as well as undertaking maintenance services. Part of the duty is providing investment 7

9 incentives and enacting laws for distributors, producers and municipalities, as well as defining specifications, standards and methods of action for the Palestinian Union of Electrical Engineers and companies working in maintenance and installation. Conclusion Despite the strenuous efforts by the public and private sectors, renewable energy production remains at a standstill. If the present trends continue, Israel will continue to dominate the production and sale of energy to Palestine. Special efforts are, thus, needed to address inadequacies and obstacles to the growth of this sector. Below, we suggest some policy recommendations: Making this sector one of the national economic independence issues, as renewable energy production increases GDP, reduces dependence on Israel and improves sustainability of power service. Speeding up the process of establishing a legal framework for renewable energy with all stakeholders involved to ensure addressing concerns of all parties, particularly producers and small home/business consumers. The absence of a legal framework is a major obstacle to the development of this sector. So far, the PA and other concerned authorities, such as municipalities, have failed to pay sufficient heed to developing a viable strategy that seeks to gradually reduce imports from Israel, particularly electricity, through improving local production. Investment policies/incentives are, thus, urgently required. This is the case in many countries, such as the European Union, the United States, Israel and Japan, where the governments subsidize alternative energy purchases for every kilowatt fed into the grid. Motivating banks operating in Palestine to grant guaranteed credit facilities for renewable energy small investors. Promote the formation of cooperatives aimed at producing renewable energy for residents of blocks and neighborhoods. Municipalities and licensing authorities are advised to encourage the production of renewable energy by making the issuance of building permits conditional on providing architectural drawings for solar panels to be installed on roofs or walls or in open spaces. Encourage home owners to use roofs and open spaces to invest or lease them for electricity production. Launching consumer awareness campaigns on the economic/environmental benefits of solar energy and methods to reduce costs Solar energy saves money. For example, by installing solar panels, Palestine Economic Policy Research Institute MAS saves around NIS 2,000 a month on average. This is a call for public and private institutions to consider installing solar panels to produce power. Some financial, technical and human barriers need to be tackled. Suppliers, for example, need some maintenance training. Research in this area is rare, which requires more scholarly efforts. Efforts should be made to overcome the obstacles imposed by Israel which controls the grid infrastructure in Areas A, B and C, which ultimately aborts Palestinian endeavors, particularly setting up power production plants in Area C. Any Israeli attempt to hinder the Palestinian efforts should be exposed before the international forums. Distribution companies should upgrade the grid and install new transformers so as to reduce power loss, with substantial amounts of money wasted annually and borne by the PA, providers and consumers. 8

10 Questions for discussion Why haven t significant investments been made yet in this sector? Has the national strategy for the energy sector been reconsidered? What objectives have so far been achieved? Why are families and businesses still unwilling to invest in renewable energy despite the well-proven benefits? 9