MIDDLE EAST AND NORTH AFRICA (MENA) | ENERGY AND EXTRACTIVES GLOBAL PRACTICE | THE WORLD BANK GROUP Securing Energy for Development in the West Bank and Gaza Securing Energy for Development in the West Bank and Gaza Acknowledgments The report was prepared under the guidance of Vivien Company (TEDCO), Southern Electricity Distribution Foster (Global Lead, GEEDR, co-task team leader) Company (SELCO), Palestinian Investment Fund and Roger Coma-Cunill (Senior Energy Specialist, (PIF), Palestinian Central Bureau of Statistics (PCBS), GEE05, co-task team leader). and Palestinian private sector. The study also benefited from discussions with and inputs from The report was authored by Sara Badiei (Energy the Israeli Electric Corporation (IEC), Coordinator Specialist, GEE05), Vivien Foster and Roger Coma- of Government Activities in the Territories (COGAT), Cunill. Several sections of the report were led Israeli Public Utilities Authority (PUA), Israeli Ministry of by the following team members: Samuel Kwesi Foreign Affairs and Ministry of Energy. The study also Ewuah Oguah (Energy Specialist, GEESO), the received inputs from the Jordanian Ministry of Energy. planning model analysis; Joeri Frederik de Wit (Energy Economist, GEESO), the demand forecast The team would like to thank Marina Wes (current analysis; Alain Bourguignon, the renewable energy, Country Director West Bank and Gaza, MNC04), transmission and distribution, and energy efficiency Steen Jorgensen (former Country Director West Bank analysis; Amit Mor and Shimon Seroussi (Eco-Energy, and Gaza, MNC04), Erik Fernstrom (MENA Energy consultants), the gas analysis and energy sector Practice Manager, GEE05), Bjorn Philipp (Program financial model; Peter Griffin (consultant), the macro- Leader, MNC04) and Mark Eugene Ahern (Program economic model analysis; Joern Huenteler (Energy Leader, MNC04) for their continuous guidance and Specialist, GEE05) provided valuable inputs on the support as well as peer reviewers Victor Loksha Jordan and Egypt energy sectors; Jonathan Walters (Senior Energy Economist, GEEES), Rahul Kitchlu (Castalia, consultant) provided political economy (Senior Energy Specialist, GEE01), Kwawu Mensan and institutional guidance throughout the project; Gaba (Global Lead, GEEDR), Bjorn Philipp, as well as Carlos Alberto Lopez Quiroga (Senior Oil and Gas Rima Tadros and Thomas Berdal from the Norwegian Specialist, GEEX2) provided advise on hydrocarbons; Representative office. and Khalida Seif El Din Al-Qutob (Program Assistant, MNCGZ) contributed with valuable logistical and The financial support by the Norwegian Government administration support. and the Energy Sector Management Assistance Program (ESMAP) is gratefully acknowledged. The study would not have been possible without the ESMAP—a global knowledge and technical continuous collaboration and consistent feedback assistance program administered by the World from the Palestinian Energy and Natural Resources Bank—assists low- and middle-income countries to Authority (PENRA), Palestinian Electricity Regulatory increase their know-how and institutional capacity Council (PERC), the Palestinian Ministry of Finance to achieve environmentally sustainable energy (MoF), Palestinian Electricity Transmission Company solutions for poverty reduction and economic growth. Ltd. (PETL), Palestinian Energy and Environmental ESMAP is funded by Australia, Austria, Denmark, the Research Center (PEC), Jerusalem District Electricity European Commission, Finland, France, Germany, Company (JDECO), Gaza Electricity Distribution Iceland, Japan, Lithuania, the Netherlands, Norway, Company (GEDCO), Northern Electricity Distribution Sweden, Switzerland, the United Kingdom, and the Company (NEDCO), Hebron Electricity Distribution World Bank Group. Company (HEPCO), Tubas Electricity Distribution Table of Contents EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 What Is the Current Energy Supply Situation in the West Bank and Gaza? . . . . . . . . . . . . . . . . . . . . . . . . . . 5 What Options Exist for Improving Energy Security in the West Bank and Gaza? . . . . . . . . . . . . . . . . . . . . . . 8 How Can the West Bank and Gaza Choose among the Options? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 What Measures Need to Be Taken by Government? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 What Are the Costs and Benefits of Achieving Energy Security? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 PART I - The West Bank and Gaza Energy Sector Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Chapter 1: The West Bank and Gaza Electricity Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Chapter 2: Electricity Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Chapter 3: Importing Electricity from Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Chapter 4: Importing Natural Gas for Domestic Power Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Chapter 5: Importing Electricity from Jordan and Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Chapter 6: Developing Domestic Renewable Power Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Chapter 7: Developing Transmission Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Chapter 8: Integrating Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 PART II - Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Chapter 9: Introduction and methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Chapter 10: Analysis and Results for the West Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93 Chapter 11: Analysis and Results for Gaza . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 PART III - Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Chapter 12: A Four-Phase Road Map to Improved Energy Security in the West Bank and Gaza . . . . . . . . 128 APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Appendix A: The Palestinian Electricity Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Appendix B: Electricity Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 Appendix C: Importing Electricity from Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Appendix D: Importing Natural Gas for Domestic Power Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Appendix E: Importing Electricity from Jordan and Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Appendix F: Developing Domestic Renewable Power Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Appendix G: Developing Transmission Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Appendix H: Robust Planning Methodology and Detailed Technical Results . . . . . . . . . . . . . . . . . . . . . . . 173 Appendix I: Financial Sector Model Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 Securing Energy for Development in the West Bank and Gaza | 1 2 | Securing Energy for Development in the West Bank and Gaza Abbreviations bcm billion cubic meters CAPEX capital expenditure (Note: CAPEX, capex, and CapEx are all used by the WB and various other organizations. CAPEX is used here for internal consistency. It is used commonly, although not consistently, by the WB. CCGT combined cycle gas turbine COGAT Coordinator of Government Activities in the Territories Unit (Israeli entity) CSP concentrated solar power DISCO distribution company GDP gross domestic product GEDCO Gaza Electricity Distribution Company GPP Gaza Power Plant GWh gigawatt hour IEC Israeli Electric Corporation IPP independent power producer HEPCO Hebron Electricity Distribution Company JDECO Jerusalem District Electricity Company kV kilovolt kW kilowatt kWh kilowatt hour LNG liquified natural gas LPG liquid petroleum gas MVC municipality and village council MW megawatt MWh megawatt hour NEDCO Northern Electricity Distribution Company NEPCO National Electric Power Company (Jordan) NIS new Israeli shekel (Israeli currency unit) PCBS Palestinian Central Bureau of Statics PEC Palestinian Energy and Environmental Research Center PENRA Palestinian Energy and Natural Resources Authority PERC Palestinian Electricity Regulatory Council PETL Palestinian Electricity Transmission Company PPA power purchase agreement PUA Public Utility Authority (Israeli) PV photovoltaic RE renewable energy SELCO Southern Electricity Distribution Company tcf trillion cubic feet TEDCO Tubas Electricity Distribution Company TOU time of use VRE variable renewable energy Securing Energy for Development in the West Bank and Gaza | 3 Executive Summary 4 | Securing Energy for Development in the West Bank and Gaza What Is the Current Energy Supply Situation in the West Bank and Gaza? Energy security challenges are already severe Figure 1: Main Sources of Electricity in in Gaza and are emerging in the West Bank. The the West Bank and Gaza, 2015 power supply meets only half the demand in Gaza, leading to rolling blackouts of eight hours on and 6,000 eight hours off. Although the West Bank generally enjoys 24-hour power supply, shortages have 5,000 emerged during peak winter and summer months. Energy (GWh) 4,000 With demand projected to grow at an average annual rate of about 3.5 percent in the foreseeable future— 3,000 slightly higher in Gaza and lower in the West Bank— shortages are likely to become worse unless new 2,000 supply options are found. 1,000 The West Bank and Gaza rely primarily on Israeli 0 West Bank Gaza Combined imports to meet electricity needs. In 2015, about 90 percent of their electricity was supplied by the Israeli From Israel From Egypt Electric Corporation (IEC) (figure 1). The situation differs significantly between the West Bank, where From Jordan Gaza Power Plant IEC imports represent 99 percent of consumption, and Gaza, where they represent 64 percent. Modest Source: Palestinian Central Bureau of Statics. 2015. “Quantity of Electricity amounts of electricity are imported from Jordan Imported (MWh) in the West Bank by Source and Month, 2015” and “Quantity of Electricity Imported and Purchased (MWh) in Gaza Strip by Source and into the West Bank and from Egypt into Gaza. The Month, 2015”, Ramallah City. http://www.pcbs.gov.ps/site/886/Default.aspx Palestinian Authority has set targets to develop 130 megawatts (MW) of renewable energy by 2020, but only 18 MW had been developed as of June, 2017. of renewable technologies such as rooftop solar photovoltaic (PV), with shorter implementation time, The only large-scale generation capacity in the should be prioritized. territories is the troubled Gaza Power Plant (GPP). The 140 MW diesel-fired plant was developed as The electricity sector in West Bank and Gaza has an “independent power project” (IPP) and has been undergone several institutional reforms, which operating since 2004 on a 20-year power-purchase still require further consolidation. In 1995, the agreement (PPA) involving significant take-or-pay sector was reorganized to cluster most of the former capacity charges. Due to the high cost of diesel municipal service providers into six local distribution fuel, the plant is so expensive to operate — NIS utilities. The Electricity Law of 2009 created the 1.05–1.65 (US$0.29–0.46) per kilowatt hour — that Palestinian Electricity Regulatory Council (PERC), with it can typically be run only at half capacity. It has also responsibility for tariff setting and monitoring, as well suffered repeated damages during armed conflicts, as the Palestinian Electricity Transmission Company which affected its fuel storage capacity. The best Ltd (PETL), a new transmission operator and prospect is to convert the plant to natural gas, which wholesale single buyer. While there is no Palestinian would reduce operating costs to about a third of transmission infrastructure at present, PETL will take current levels. In parallel, considering the expected charge of four high-voltage substations, three of long lead time of such a conversion, the development which have been built, to manage the flow of high Securing Energy for Development in the West Bank and Gaza | 5 voltage power from Israel into the West Bank, which utilities has been improving, full cost recovery has not previously took place through a myriad of low voltage yet been achieved. In 2015, Distribution Companies connection points. (DISCOs) recovered revenue for only 64 percent of the electricity they purchased in the West Bank The electricity sector has yet to establish a track (table 1), and 50 percent in Gaza. Third, even when record as a creditworthy buyer for wholesale revenues are collected, they are sometimes diverted power. There are three layers to this problem. First, by municipal governments to cover other subnational despite important efforts by PERC, electricity is not expenditures rather than being channeled to the priced at cost-recovery levels throughout the West purchase of power. Thus, implicit subsidies to the Bank and Gaza. The gap between tariffs and costs electricity sector have been estimated at close to 1 is particularly large in Gaza, where tariffs have not percent of gross domestic product (GDP) in the West been adjusted during the past decade. Second, Bank and 4–5 percent of GDP in Gaza. while the operational performance of the distribution TABLE 1: OVERVIEW OF WEST BANK AND GAZA ELECTRICITY DISTRIBUTION COMPANIES, 20151 GEDCO TOTAL JDECO NEDCO HEPCO SELCO TEDCO WEST BANK1 Scale Customers 231,500 436,389 256,314 90,265 45,660 25,650 18,500 Purchased electricity (NIS millions) 795 1,398 871 250 164 71 42 Billed electricity (NIS millions) 518 1,509 949 245 193 76 46 Net annual income/loss (NIS millions) n.a. -76 -82 9 9 -15 3 Performance Losses: Technical and nontechnical 26% 22% 24% 17% 20% 28% 16% Collection ratio 65% 89% 91% 98% 81% 71% 76% Overhead costs (ie, Operations and 8% 17% 22% 5% 10% 21% 17% maintenance) as percentage of purchased electricity Source: Information provided by the Gaza Electricity Distribution Company (GEDCO), Jerusalem District Electricity Company (JDECO), Northern Electricity Distribution Company (NEDCO), Hebron Electricity Power Company (HEPCO), Southern Electricity Distribution Company (SELCO), Tubas Electricity Distribution Company (TEDCO). 6 | Securing Energy for Development in the West Bank and Gaza Figure 2: Electricity Sector Debt to IEC, 2008–2015 2,500 Debt to IEC (NIS millions) 2,000 1,500 1,000 500 0 2008 2009 2010 2011 12/12/17 1/13/17 10/13/17 11/13/17 12/13/17 1/14/17 2/14/17 3/14/17 4/14/17 5/14/17 6/14/17 7/14/17 8/14/17 9/14/17 10/14/17 11/14/17 12/14/17 1/15/17 2/15/17 3/15/17 4/15/17 5/15/17 6/15/17 7/15/17 8/15/17 9/15/17 10/15/17 11/15/17 All other DISCOs JDECO Total Source: Information provided by ECO Energy. Note: IEC = Israeli Electric Corporation; DISCO = Distribution Company; JDECO = Jerusalem District Electricity Company. The poor record of paying for power imported from accumulated debt owed to IEC exceeded NIS 2 Israel has led to the so-called net lending crisis billion (US$500 million) (figure 2). An agreement and a large accumulation of outstanding debt. The was reached in September 2016 that allowed for power purchased from IEC is only partially paid for by the settlement of past accumulated debt and laid the DISCOs, with the unpaid portion being partially the vision for a future power market with imports covered through net lending (a fiscal mechanism channeled through the new high-voltage substations whereby money is deducted from clearance revenues and tariffs set according to a new, long-term power- that would otherwise be transferred from Israel to purchase agreement. According to this vision, PETL the Palestinian Authority) and partially accumulated would act as the single buyer, purchasing power from as outstanding debt. By September 2016, the IEC and selling it to the DISCOs. Securing Energy for Development in the West Bank and Gaza | 7 What Options Exist for Improving Energy Security in the West Bank and Gaza? Looking forward, the West Bank and Gaza have Nevertheless, historical imports from Egypt into Gaza, several tangible options for expanding and diversifying which have been managed through the local Egyptian electricity supply. For example: distribution company rather than the national Egyptian transmission operator, have proved unreliable due to Israeli electricity imports continue to be a valid security issues in Sinai. In addition, Gaza has not yet option, but this route requires a significant scaling established any payment record with Egypt, since up of interconnection capacity. Israel has a strong the cost of these imports has been covered by third track record of providing reliable power supply to the party benefactors to date. Finally, neither Jordan nor West Bank and Gaza. As long as the net lending crisis Egypt has access to the controversial net-lending can be satisfactorily resolved, there is potential to mechanism that has provided Israel with an informal increase Israeli power imports to the two economies, payment-security mechanism to at least partially provided the existing interconnection capacity is offset payment risk from the West Bank and Gaza. upgraded accordingly. The West Bank and Gaza combined already represent IEC’s largest and fastest- Thanks to major gas discoveries in the eastern growing electricity customer. However, IEC is facing Mediterranean, it would be feasible in the medium high levels of indebtedness and an uncertain operating term to import gas to the West Bank and Gaza structure. Under the current Israeli power sector for power generation. Israel became a major gas reform, all new Israeli generation capacity is being producer in 1999 with the discovery of the 10.9 developed by independent power producers, which trillion-cubic-foot (TCF) Tamar field. The imminent may present an alternative and more commercially development of the 21.9 TCF Leviathan field will oriented Israeli power supply option for the West make Israel a gas exporter. The Israeli government Bank and Gaza in the future. has already given approval for a 40-kilometer pipeline extension from the Ashkelon terminal in Israel into Increasing power imports from Jordan and Egypt Gaza, which would enable the conversion of GPP to is a realistic medium-term option, although it is operate on natural gas, as well as for a 15-kilometer not without challenges. Jordan and Egypt have spur from the Israeli national gas transportation recently overcome power supply crises caused by a network into Jenin in the north of the West Bank, to shortage of Egyptian gas and are now heading for allow for the construction of a new 400 MW combined significant power surpluses. In principle, the existing cycle gas turbine (CCGT) plant. interconnection capacity of 20 MW from Jordan and 20–30 MW from Egypt could be upgraded to support The Gaza Marine gas field, discovered almost two higher volumes of imports. Jordanian electricity has decades ago, has yet to be developed. The eventual been more expensive than Israeli power, due to heavy development of this 1.2 TCF gas field could eliminate reliance on liquefied natural gas, but is expected to the need for Israeli gas. The investment costs of become cheaper as Israeli gas enters the Jordanian developing Gaza Marine have been estimated at market and as the share of renewables increases in US$0.25 billion to US$1.20 billion, depending on the Jordan. Egyptian power is currently cheaper than extent to which existing gas infrastructure is shared Israeli power due to the historic low cost of natural with Israel. However, development would require a gas, while the size of Egypt’s power system is about gas supply contract with a creditworthy buyer, and it 30 times that of West Bank and Gaza’s demand, will take some time before gas demand in the West making it relatively easy for Egypt to supply the Bank and Gaza builds up to the requisite levels (figure scale of power needed in West Bank and Gaza. 3). Once developed, Gaza Marine has the potential 8 | Securing Energy for Development in the West Bank and Gaza Figure 3: Estimated Natural Gas Demand in the West Bank and Gaza until 2030 1.2 Demand (Billion cubic meters) 1.0 0.8 0.6 0.4 0.2 0.0 2022 2023 2024 2025 2026 2027 2028 2029 2030 West Bank Gaza Combined Source: Information provided by ECO Energy. to generate US$2.7 billion in fiscal revenues for the solar potential of over 3,000 MW estimated in Area Palestinian Authority over an estimated 25 years C, which would be suitable for both PV and CSP of production. technologies. Nevertheless, the significant political challenges associated with securing Israeli approval There is substantial potential for solar electricity in for construction in Area C cast some doubt over the the West Bank, particularly in Area C (table 2). Solar possibility of developing this resource. By contrast, energy is the only significant renewable resource in extreme land constraints in the Gaza strip limit the the Palestinian Territories. The technical potential in available solar potential to 160 MW of rooftop solar. the West Bank is estimated to be around 530 MW of However, even this limited solar capacity could play a rooftop solar PV, and at least 100 MW of utility scale vital role in increasing energy security and acting as solar in Areas A and B. This is dwarfed by the vast an electricity safety net. Securing Energy for Development in the West Bank and Gaza | 9 TABLE 2: SOLAR ENERGY POTENTIAL IN THE WEST BANK AND GAZA POTENTIAL AVAILABLE RE CAPACITY (MW) Utility scale PV or CSP   Areas A and B Area C Total West Bank 103 3,374 3,477 Gaza 0 Combined 3,477 Rooftop solar Residential Public Commercial Total West Bank 490 13 31 534 Gaza 136 8 19 163 Combined 626 21 50 697 Source: World Bank estimates. Notes: For utility scale PV or CSP, according to PETL and the Palestinian Energy and Environmental Research Center (PEC), 0.12 percent of Areas A and B and 3 percent of Area C are available for solar installations. The land requirement is about 28 square meters per kilowatt peak (includes space for control rooms and so forth). For rooftop PV, according to the Palestinian Central Bureau of Statistics and PEC, in West Bank and Gaza, there are over 400,000 residential, 2,500 public sector, and 5,000 commercial sector rooftops. The rooftop areas range from 150 to 300 square meters, and 30–50 percent of the rooftops are available for solar installations. The rooftop space requirement is nine square meters per kilowatt peak. RE = Renewable Energy; MW = Megawatts; PV = photovoltaic; CSP = concentrated solar power. Measures to improve energy efficiency can As domestic generation capacity expands, make a valuable contribution to energy security. transmission infrastructure must develop. At The National Energy Efficiency Action Plan aims present, there is no significant power transmission to make savings equivalent to 1 percentage point infrastructure in the West Bank and Gaza. Most of energy consumption annually through 2020. It power is simply absorbed and distributed from the focuses primarily on reducing electricity consumption Israeli grid at low voltage. As the Palestinian territories by improving the energy efficiency of residential increase their domestic generation capacity, there buildings. A much more ambitious action plan is will be an increasing need to move power from the under consideration by the Palestinian Energy and point of generation to centers of demand, which Natural Resources Authority (PENRA) for 2020– may be located some distance away. In Gaza, this 2030. It aims to save 5 percent of the anticipated will call for creating a transmission backbone within energy consumption during that period. The new the compact urban area. In the West Bank, this could strategy encompasses use of high-impact, energy- initially be managed by putting (“wheeling”) power efficient appliances (such as heaters, fridges, and out into the Israeli grid at one location and bringing it air conditioners); tightening of efficiency standards back into the West Bank at a different location. The for buildings; and smart grid infrastructure to allow level and structure of associated wheeling charges consumers to participate in the energy market as will have a significant effect on the cost of power to demand response. Investments to improve energy end consumers. As the volume of wheeling rises, efficiency are proven to be much more cost-effective it will become increasingly attractive to develop a than expanding power generation capacity. Many of domestic transmission backbone in the West Bank. the measures included in the government’s plans cost However, since the backbone would need to traverse between US$0.01 and 0.05 per kilowatt hour (kWh), Area C, the issue of securing the necessary while new generation would cost at least US$0.10 construction permits from Israel would present a per kWh. significant challenge. 10 | Securing Energy for Development in the West Bank and Gaza How Can the West Bank and Gaza Choose among the Options? Choosing among the available energy supply not straightforward to predict. These considerations options involves balancing technical and financial must be carefully balanced to define the best possible considerations. Meeting electricity needs typically power generation investment plan, and a range of involves developing a balanced portfolio that alternative scenarios must be considered. (Box 1 represents a reasonable, affordable cost. provides an overview of alternative scenarios that were considered in a novel Robust Power System From a technical standpoint, the options must be Planning Model developed uniquely for this study) sequenced and packaged into an investment plan that reliably meets demand. The options described in It is important to understand the tariff implications the previous section vary in production cost, physical of the preferred investment plan and whether it is production characteristics, availability, and associated affordable to the population. The costs of providing risks. For example, gas-fired power generation will be a secure electricity service include the cost not feasible only after gas transportation infrastructure only of power generation but also of the associated is completed and a gas supply agreement can transmission and distribution infrastructure. Inefficient commence, while generating solar power from operation could inflate costs. Given fiscal constraints in PV panels is subject to variability in solar radiation the West Bank and Gaza, domestic power generation throughout the day and from one day to another. could be developed by the private sector under a Gas-fired power generation may be vulnerable to power-purchase agreement, leaving public investment a curtailment of gas supply, while solar power is a for transmission and distribution, for which private fully indigenous resource. Also, the costs of gas- investment would be difficult to harness. Ultimately, fired power generation are relatively well understood, these costs must be paid either by the consumer although they are susceptible to variations in the through retail tariffs or by the government through price of natural gas, while the costs of generating subsidies. Both sources of funding are constrained, solar power are declining rapidly along a path that is given the relatively low income of the population and Box 1: A Robust Power-Systems Planning Model for the West Bank and Gaza To select from among the energy supply options, a traditional least-cost power-systems planning model is modified to account for the uncertain nature of the Palestinian context and used to identify investment plans that are as resilient as possible to alternative states of the world. Five illustrative planning scenarios for West Bank and Gaza are explored, covering the period through to 2030. 1. ‘Do nothing’ considers how rapidly energy security will deteriorate if no further investments are made. 2. ‘Planned future’ looks at the impact of implementing all investment projects currently in the pipeline. 3. ‘PENRA vision’ explores limiting dependence on any one source of energy to no more than 50 percent. 4. ‘Maximum cooperation’ considers meeting demand growth primarily through increased Israeli imports. 5. ‘Maximum independence’ considers the fullest possible extent of domestic power generation. Securing Energy for Development in the West Bank and Gaza | 11 Box 2: A Power-Sector Financial Model for the West Bank and Gaza The planning model (see box 1) feeds into a comprehensive financial model of the West Bank and Gaza power sector. This sheds light on the financial implications of any investment scenario. The financial model looks at how the selected generation investment plan translates into an average cost of power generation, converts this into a wholesale power tariff by incorporating the costs of any future transmission system, overlays a distribution margin to create a retail tariff, and, finally, assesses the affordability of this tariff to the population, as well as the fiscal implications of any remaining subsidies. Figure B2.1 The Power-Sector Financial Model Poor Government Affordability households subsidies thresholds Distribution investments DISCOs Retail tariff Distribution operating margin Wholesale power purchase (imports plus IPPs) Transmission investments PETL Bulk supply tariff Transmission operating margin Note: IPP = independent power producer, PETL = Palestinian Electricity Transmission Company Ltd, DISCO = the limited budget of government. An important reality as Jenin and Nablus—having already experienced check for any power-sector investment plan is to unserved demand in 2016. To avert this outcome, the examine its impact on retail tariffs, determine whether West Bank must develop several alternative energy these are affordable, and, if not, determine what the supply options. potential size of the associated subsidy bill would be. Due to the diverse features of the power sector in the The development of gas-fired power generation two territories, the study analyses the West Bank and and renewable energy should be pursued more the Gaza Strip separately. (For more information on intensively, considering the cost convergence of the financial model of the electricity sector developed different energy supply options over time (figure 4). for this study, see box 2.) As of 2017, there is a wide variation in the cost of the different energy supply options available to the West WHAT DOES THE WEST BANK’S Bank, and Israeli imports carry a cost advantage over ENERGY FUTURE LOOK LIKE? any of the alternatives. However, this changes over time. Gas-fired power generation, once available, Failure to invest in the West Bank’s power sector proves to be cheaper than Israel imports. While would lead to deepening shortages over time. Under continuing technological change in renewable energy the ‘do nothing’ scenario, unserved demand rises brings the cost of utility-scale PV below the cost of from negligible levels today to reach 9 percent of the Israeli imports before the end of the planning horizon. forecasted load by 2030, with certain locations—such Rooftop solar and even concentrated solar power 12 | Securing Energy for Development in the West Bank and Gaza Figure 4: Time Trends for the Levelized Cost of Energy for Different Supply Options in the West Bank 0.20 Levelized Costs (U.S. dollars / KWh) 0.18 0.16 0.14 0.12 0.10 0.08 0.06 0.04 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Rooftop solar, Commercial solar, CSP-6h, from $6,332/kW from $2,500/kW from $1,248/kW CCGT-Gas, from Israel import Jordan import $6.5/MMBTU Source: World Bank estimations Note: kW = kilowatt hour; GPP = Gaza Power Plant; MMBTU = Million British Thermal Units . start to look a lot more competitive. These evolving investments of between US$0.85 billion and relative costs of power generation are one important US$2.28 billion. driver of project selection. 3. Unserved demand: All scenarios that bring new investment into power generation ensure that all There are several attractive power-development demand can be reliably met. scenarios available to the West Bank, all of which 4. Reliance on electricity imports: The degree of are broadly competitive with Israeli power imports. reliance on Israeli imports ranges from 96 percent The performance of the five alternative scenarios in the “maximum cooperation” scenario to 36 presented by the planning model can be compared percent in the “maximum independence” scenario. along several dimensions, with no single scenario Hence, Israel remains a significant source of dominating on every dimension (table 3). electricity under any eventuality. 5. Reliance on imported fuel: All the scenarios 1. Average cost of power generation: This is a entailing significant development of power key driver of retail tariffs and varies remarkably generation capacity include reliance on gas little across the scenarios considered for the imports to meet between 32 and 37 percent of West Bank, ranging from US$0.098 to US$0.102 electricity needs. per kWh. This is due to the convergence in the 6. Reliance on domestic renewables: The cost of different power-generation technologies maximum share that can be reached for domestic already noted. renewables, even under the most optimistic 2. Capital expenditure: Scenarios contemplating scenario, is 19 percent if production is limited to continued reliance on Israeli imports require hardly Areas A and B or 30 percent if sites in Area C can any capital expenditure to be made, whereas be developed. those involving the development of domestic power generation capacity would entail private Securing Energy for Development in the West Bank and Gaza | 13 TABLE 3: COMPARISON OF RESULTS ACROSS PLANNING SCENARIOS FOR THE WEST BANK AVERAGE DOMESTIC DOMESTIC COST OF GENERATION RENEWABLE POWER CAPEX UNSERVED ELECTRICITY FROM ENERGY (US$ PER (US$ DEMAND IMPORTS IMPORTED GENERATION KWH) MILLIONS) IN 2030 IN 2030 FUEL IN 2030 IN 2030 1. Do nothing 0.0979 0 9.0% 90.0% 0% 0.4% 2. Planned future 0.1006 850 0% 64.0% 32.0% 4.0% 3. PENRA vision 0.1016 2,133 0% 45.0% 37.0% 19.0% 4. Maximum cooperation 0.0978 174 1.0% 96.0% 0% 4.0% 5. Maximum independence 0.0988 2,284 0% 36.0% 34.0% 30.0% Note: CAPEX = capital expenditure; PENRA = Palestinian Energy and Natural Resources Authority. Figure 5: Results of the PENRA Vision Scenario for the West Bank PENRA Vision: “Dependency ratio on any one source should not exceed 50% in best conditions, with a possibility of importing all needs in case of emergency.” B. West Bank energy supply (GWh) 8,000 7,000 6,000 5,000 4,000 3,000 2.000 1,000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Egypt/Jordan imports Israel imports CCGT + GT Diesel genset PV-Area C RE - other Unserved energy Demand Note: RE = renewable energy; PV = photovoltaic; CCGT= combined cycle gas turbine; GT = gas turbine, Genset = Generator. Overall, the PENRA vision scenario looks relatively to sustain the envisaged investments in generation in attractive (figure 5). It calls for development of gas- the West Bank, as well as the associated transmission fired power-generation capacity along with aggressive and distribution costs, rises in the medium term to NIS expansion of solar energy on rooftops and in Areas A and 0.66 (US$0.18) per kWh, well above current levels B to attain over 500 MW of solar PV capacity by 2030— of NIS 0.55 (US$0.15) per kWh (figure 6). However, about four to five times the current target. By 2030, this if the operational and commercial efficiency of the scenario achieves a relatively balanced consumption distribution utilities could be improved over the same of domestic solar and gas-fired power generation with time, the financial equilibrium tariff could drop toward Israeli imports. Import capacity is nonetheless kept NIS 0.58 (US$0.16) per kWh by 2030. Essentially, higher than strictly needed to provide backup in the case addressing the shortcomings of the distribution of shortfalls in the other sources of energy. utilities can reduce the retail tariff by as much as NIS 0.07 (US$0.02) per kWh. Failure to adjust tariffs as To implement the PENRA’s vision, electricity tariffs needed would create a financial deficit in the sector would need to increase significantly in the medium peaking at NIS 600 million (US$165 million) per year term, but could decline over time if efficiency by 2022 (equivalent to 6 percent of the 2016 public targets are met. The financial equilibrium tariff needed budget for the West Bank). 14 | Securing Energy for Development in the West Bank and Gaza Figure 6: Equilibrium Tariff Needed to Finance Preferred Sector Investment Plan for the West Bank 0.75 Equilibrium tariff (NIS/KWh) 0.70 0.65 0.60 0.55 0.50 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PENRA vision PENRA vision 2015 average (no efficiency gains) (with efficiency gains) retail tariff Note: PENRA = Palestinian Electricity and Natural Resources Authority Figure 7: Targeted Subsidy Requirement to Offset Affordability Concerns for the Bottom Income Decile in the West Bank 25 Required Subsidy (NIS millions ) 20 15 10 5 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 JEDCO NEDCO HEPCO SELCO TEDCO These tariffs would present an affordability households to meet their basic electricity needs. problem only for the poorest households in the Based on the distribution of income in the West Bank, West Bank, and this could be addressed through only the poorest 10 percent of the population would a modest targeted subsidy. According to usual struggle to buy 160 kWh per month at the required practice, electricity service is considered affordable financial equilibrium tariff of NIS 0.66 (US$0.18) per if households can meet their electricity basic needs kWh. Assuming that these needy households could without spending more than 5 percent of their monthly be identified using existing social registries, the budget. In the context of the West Bank and Gaza, cost of a targeted subsidy to safeguard their basic the retail tariff increases with higher consumption consumption would amount to no more than NIS in pre-defined blocks. The first block of the tariff 25 million (US$7 million) per year in 2022, declining schedule, set at 160 kWh per month, broadly allows further as tariffs come down thereafter (figure 7). Securing Energy for Development in the West Bank and Gaza | 15 WHAT DOES GAZA’S ENERGY FUTURE The cost of the diesel-fired GPP becomes LOOK LIKE? increasingly unattractive over time relative to alternative options (figure 8). As of 2017, the GPP is Failure to invest in Gaza’s power sector would already very expensive compared to alternatives and make an already dire situation worse. Gaza is this cost is projected to rise along with the international unable to meet 50 percent of its demand today. If oil price. Israeli electricity can be imported at fraction of no further power options are developed, the extent the cost of current domestic generation, and Egyptian of unserved energy would escalate to 63 percent of imports are even cheaper though heavily restricted demand by 2030. To avert this outcome, Gaza needs in supply and rather unreliable. Conversion of the to develop additional power supply options, albeit GPP to natural gas would make it competitive with from a much more limited menu than that available to Israeli and Egyptian imports. While rooftop solar looks the West Bank. relatively expensive today (though still undercutting Figure 8: Time Trends of Levelized Cost of Energy for Different Supply Options in Gaza 0.45 Levelized Cost (U.S. Dollar/KWh) 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Rooftop solar, GPP on gas, from GPP on diesel, from $2,500/kW $6.5/MMBTU from $19.8/MMBTU CCGT gas, from Israel import Egypt import $6.5/MMBTU Note: kWh = kilowatt hour; GPP = Gaza Power Plant; MMBTU = Million British Thermal Units; CCGT = combined cycle gas turbine. TABLE 4: COMPARISON OF RESULTS ACROSS PLANNING SCENARIOS FOR GAZA DOMESTIC DOMESTIC AVERAGE GENERATION RENEWABLE COST OF CAPEX UNSERVED ELECTRICITY FROM ENERGY POWER (US$ (US$ DEMAND IMPORTS IMPORTED GENERATION PER KWH) MILLIONS) IN 2030 IN 2030 FUEL IN 2030 IN 2030 1. Do nothing 0.1468 0 63% 26% 11% 0% 2. Planned future 0.1339 1,035 0% 26% 68% 6% 3. PENRA vision 0.1230 1,066 0% 47% 46% 6% 4. Maximum 0.1037 385 0% 93% 0% 6% cooperation 5. Maximum 0.1515 1,185 2% 9% 83% 6% independence Note: CAPEX = capital expenditure; PENRA = Palestinian Energy and Natural Resources Authority. 16 | Securing Energy for Development in the West Bank and Gaza the GPP), the cost is expected to fall significantly generation is developed to the fullest extent. In over the planning horizon converging towards Israel marked contrast to the West Bank, the premium imports. These changing patterns of relative costs are for energy independence in Gaza amounts to a one key driver of investment planning decisions. substantial 50 percent of costs. 2. Capital expenditure: Scenarios contemplating The options for Gaza are much more constrained continued reliance on Israeli imports require hardly than for the West Bank, and the premium associated any capital expenditure to be made, whereas with energy independence is particularly high. The those involving the development of domestic key energy policy issue for Gaza is where to strike the power-generation capacity would entail private balance between Israeli imports and domestic gas- investments of just over US$1 billion. fired power generation, while intensively developing 3. Unserved demand: All scenarios that bring new solar rooftop PV. The performance of the five alternative investment into power generation ensure that scenarios presented by the planning model can be all demand can be reliably met, although some compared along several dimensions (table 4). chance of unserved demand remains when there is no diversification from Israeli imports. 1. Average cost of power generation: This is a 4. Reliance on electricity imports: The degree of key driver of retail tariffs and varies greatly across reliance on Israeli imports ranges from 93 percent the scenarios considered for Gaza, ranging from in the “maximum cooperation” scenario to only 9 US$0.10 per kWh, if power is entirely sourced from percent in the “maximum independence” scenario. Israeli imports, to US$0.15 per kWh if domestic 5. Reliance on imported fuel: All the scenarios Securing Energy for Development in the West Bank and Gaza | 17 entailing significant development of West Bank commissioning of new 161 kilovolt lines to expand and Gaza power-generation capacity rely on gas import capacity from Israel. Further out, once gas imports to meet between 46 and 83 percent of becomes available, the GPP comes back into service electricity needs. In that sense, the “maximum and plays a growing role in meeting energy needs. independence” scenario essentially only By 2030, the scenario sees an almost 50:50 reliance replaces dependence on electricity imports with on self-generation through gas and Israeli imports. In dependence on gas imports. addition, rooftop solar provides a safety net to meet 6. Reliance on domestic renewables: Gaza’s critical needs under emergency conditions. renewable energy potential is limited to rooftop solar, and this is unable to meet more than 6 The tariff impact of implementing the PENRA percent of energy needs under any scenario but vision is substantial, although it can be somewhat should still be maximized to provide a basic safety offset by operational efficiency gains. Any scenario net where possible. involving significant investment in domestic power generation in Gaza entails financial equilibrium Among the energy diversification options for Gaza, tariffs of the order of NIS 0.91 (US$0.25) per kWh the PENRA vision is the one offering the lowest cost in the medium term, well above the current levels premium for energy independence. The differential of NIS 0.52-0.56 (US$0.14-0.15) per kWh (figure average cost of generation between PENRA’s vision 10). These would eventually decrease to about NIS and the “maximum cooperation” scenario is NIS 0.07 0.62 (US$0.17) per kWh, but only if the Gaza utility (US$0.02) per kWh, or about 20 percent, still relatively substantially improves its operational and commercial high but preferable to the alternatives. The PENRA performance in line with regional best practice; this vision scenario envisages a phasing out of diesel- can reduce the retail tariff by as much as NIS 0.47 fired power generation in the short run and increased (US$0.13) per kWh by 2030. Failure to adjust tariffs reliance on Israeli imports (figure 9). This brings a would result in a financial shortfall of around NIS 700 double benefit by bringing power generation costs million (US$200 million) by the mid-2020s (equivalent down to a third of current levels while at the same time to 12.5 percent of the public budget for 2016). expanding supply to a point where current outages can be offset. This achievement is contingent on the Figure 9: Results of the PENRA Vision Scenario for Gaza PENRA Vision: “Dependency ratio on any one source should not exceed 50% in best conditions, with a possibility of importing all needs in case of emergency.” A. Gaza Supply Capacity B. Gaza energy supply (GWh) in 2030 (MW) 5,000 4,000 3,000 2,000 1,000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Egypt/Jordan imports Israel imports CCGT + GT Diesel genset PV-Area C RE - other Unserved energy Demand Note: RE = renewable energy; PV = photovoltaic; CCGT= combined cycle gas turbine; GT = gas turbine, Genset = Generator. 18 | Securing Energy for Development in the West Bank and Gaza Figure 10: Equilibrium Tariff Needed to Finance Preferred Sector Investment Plan for Gaza Equilibrium tariff (NIS/KWh) 1.6 1.4 1.2 1.0 0.8 0.6 0.4 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PENRA vision PENRA vision 2015 average (with efficiency gains) (no efficiency gains) retail tariff Figure 11: Targeted Subsidy Requirement to Offset Affordability Concerns in Gaza 100 Required Subsidy (NIS millions) 90 80 70 60 50 40 30 20 10 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Subsidy to Subsidy to Subsidy to Subsidy to 1st decile 2nd decile 3rd decile 4th decile Affordability is a much more serious concern in cost of a targeted subsidy to safeguard their basic Gaza than the West Bank, given higher costs of consumption would amount to approximately NIS electricity and a more impoverished population. 80 million (US$22 million) per year in 2021. However, Based on the distribution of income in Gaza, as tariff levels decline toward 2030, they would also as much as 40 percent of the population would become more affordable, such that by the end of the struggle to buy 160 kWh per month at the required planning horizon social protection would be needed financial equilibrium tariff of NIS 0.91 (US$0.25) per for only the poorest 10 percent of the population kWh. Assuming that these needy households could (figure 11). be identified using existing social registries, the Securing Energy for Development in the West Bank and Gaza | 19 What Measures Need to Be Taken by Government? To make progress toward greater energy security, First, replace generation from the GPP with the Palestinian Authority needs to adopt a increasing electricity imports from Israel to provide sequenced approach to addressing critical policy relief until a conversion to gas can be undertaken. bottlenecks. The starting point for this roadmap is The cost of diesel-fired generation at the GPP is very the completion of the power-purchase agreement high, at approximately US$0.30 per kWh, even at with Israel currently under negotiation and the current low oil prices. This is approximately three times subsequent energization of PETL’s four high-voltage the cost of power imports from Israel, which provides a substations in the West Bank. Considering the delays more reliable source of supply. Until the GPP is ready for in the bilateral negotiations, PETL should seize the the switch to gas-fired generation, which would slash opportunity to agree on power supply agreements costs to US$0.068 per kWh, it would be desirable to with Palestinian distribution companies. These substitute domestic diesel-fired power generation with downstream arrangements need to be in place Israeli power imports, taking advantage of the new 161 before the power-purchase agreement with Israel is kilovolt line that is in an advanced stage of planning. signed. Once these immediate measures are taken, Even if the capacity charges of US$0.026 per kWh to the question becomes what needs to be done next to the GPP continue to be paid as per the existing 20- move toward the vision of improved energy security in year PPA, every reduction of one kWh in diesel-fired the Palestinian territories. The analysis suggests that power generation would be sufficient to buy two kWh a certain sequence of measures needs to be taken. of Israeli imports. Such a move would simultaneously Four distinct phases have been identified (table 5). reduce costs and increase quantity and reliability of supply, and thereby increase prospects for improved PHASE 1 cost recovery through tariff revenues. The first phase, and absolute priority, is to improve Second, accelerate improvements in the operational the creditworthiness of the sector, without which and commercial performance of Palestinian DISCOs. none of the alternative supply arrangements could Cost recovery tariffs could be reduced substantially over be consummated. Progress on all other aspects time if the operational and commercial performance of of the Palestinian energy sector depend on greater the Palestinian DISCOs improved to reasonable regional creditworthiness. Without it, the sector cannot sign benchmark levels. For the utilities in the West Bank, new power-import deals or close power-purchase improved operational performance would take US$0.03 agreements with independent power producers for per kWh off the financial equilibrium tariff, while in Gaza increased domestic power-generation projects, let improving operational performance is worth as much as alone import natural gas. None of these ventures US$0.11 per kWh. Achieving further improvements can can get off the ground unless the Palestinian build on some recent successes with the introduction of electricity sector strengthens its creditworthiness. prepaid and smart meters that helped to raise revenue Financial security will bring about energy security, collection rates to 85 percent on average across the but the reverse is not true. There are several distinct utilities. Moreover, across the board, attention needs to components that must be tackled if creditworthiness turn toward improving network losses, which remain very is to be improved. high despite all efforts. It is recommended that a revenue protection program be established to permanently measure and bill every kWh sold to the largest DISCO customers with state-of-the-art technology. 20 | Securing Energy for Development in the West Bank and Gaza Third, create securitization mechanisms to ensure with Israel and the energization of four high-voltage that Palestinian DISCO revenues are not diverted substations. The signing of an interim power- to other municipal projects. Due to the lack of a purchase agreement with Israel to energize the Jenin subnational financing framework in the Palestinian high-voltage substation, which took place in July territories, DISCO revenues remain vulnerable to 2017, was the first step toward PETL’s financial and diversion into municipal budgets. The long-term operational sustainability. PETL is now able to resell solution, which is to strengthen the basis of subnational the discounted high voltage power to DISCOs at a public finance, is important for development reasons slight markup, allowing it to obtain revenues. The start that go well beyond the energy sector. However, it of PETL’s commercial operations enable the company will likely take some time to achieve. Hence the to gradually move beyond donor dependency, paving importance of finding interim mechanisms to securitize the way for development of domestic independent the revenues needed for the DISCOs to meet the power projects. In the meantime, until the full power- costs of wholesale power purchase. This could take purchase agreement for all four substations is signed the form of escrow accounts to ring fence electricity with Israel, PETL should make further progress bill payments with a payment prioritization hierarchy toward its goal of being the single buyer, by ensuring ensuring payment to wholesale suppliers. The issue that all wholesale power purchases are undertaken of securitization of revenues is particularly critical in through its intermediation to improve transparency Gaza, and would be an essential component of any and discipline of the sector. moves to substitute increased Israeli power imports for domestic diesel-fired power generation. PHASE 2 Fourth, ensure that all Palestinian DISCOs move While the absolute priority is to improve the toward cost recovery. Not all Palestinian DISCOs creditworthiness of the electricity sector, there are charging cost-recovery tariffs. Only two utilities, are several other no-regrets measures that can JEDCO and NEDCO, make formal tariff submissions advance in parallel during a second phase. to PERC. The resulting uniform tariff that is applied Even after decisive steps are taken to address across all Palestinian utilities in the West Bank is creditworthiness, time will be needed for a payment estimated to under recover costs for all but NEDCO. record to be established and a reputation to be Moreover, PERC’s practice of not passing through built. During this period of consolidation, it would collection inefficiencies to the retail tariff, while be helpful to accelerate measures that facilitate the defensible from the standpoint of consumers, further development of other power supply options that will weakens the financial solidity of the sector. In addition, become feasible once the issue of creditworthiness GEDCO in Gaza does not follow PERC tariff guidelines has been adequately addressed. and has not adjusted its electricity tariff for a decade, currently charging a retail tariff that is US$0.03–0.05 First, create the infrastructure needed to support per kWh lower than the wholesale purchase price of the import of natural gas into the Palestinian electricity, without considering the costs of power territories. All the planning analysis confirms the distribution. The higher costs of electricity production strategic role that natural-gas-fired power generation in Gaza combined with the sensitive social context can play in the electricity mix for both the West Bank suggest that efforts to improve cost recovery in Gaza and Gaza as well as its relatively attractive cost. The would need to be preceded by the measures noted first step in making this possible is to construct the to both reduce costs and improve the availability of relatively modest pipeline extensions needed for the power supply. import of gas from the Israeli system. These will create the platform to have credible negotiations for gas Fifth, build the capacity of PETL to play its supply agreements and ultimately the construction envisaged role in the sector. In the new sector of new gas-fired plants, or the conversion to gas in architecture, PETL has been assigned a dual role of the case of Gaza. The Gas-for-Gaza Project led by transmission system operator and single buyer and the Office of the Quartet has focused its efforts on central bookkeeper of the electricity sector. However, removing key obstacles for the construction of a gas its start of commercial operations has been delayed pipeline from Israel to the GPP. pending the closure of a power-purchase agreement Securing Energy for Development in the West Bank and Gaza | 21 Second, pursue an aggressive program to PHASE 3 promote rooftop solar PV. Unlike utility scale solar power, rooftop solar PV is highly decentralized In a third phase, it will become possible to make and is not contingent on progress toward sector progress with the first major wave of Palestinian creditworthiness and the capacity of PETL. Moreover, independent power projects. These will build on it has been shown that rooftop solar PV can play a the critical foundational elements tackled under the valuable role as an electricity safety net to increase first two phases. It makes sense to begin with those the resilience of the Palestinian electricity system and projects that look to be the most tractable from a ensure that critical humanitarian needs can be met. technical and political perspective, which suggests This is particularly true in the case of Gaza, where focusing on developing CCGT capacity and utility- efforts to pilot rooftop solar programs are already scale solar PV in Areas A and B. under way. First, convert the GPP to CCGT gas-fired Third, complete the domestic transmission technology as the most urgent of the domestic backbone in Gaza. Domestic transmission constraints power-generation projects. Conversion of the GPP are already an issue in Gaza, and these will become once a gas pipeline comes on stream would save more severe as efforts to increase the supply of power between US$45–62 million annually in fuel bills and bear fruit. It is important to ensure that the modest provide Gaza with a cost-effective domestic source but needed transmission and distribution upgrades of power generation. are completed in a timely fashion, and certainly well ahead of any future expansion of the GPP. Second, progress with the construction of a new CCGT gas-fired plant, initially in Jenin and Fourth, improve the enabling environment for eventually in Hebron. Once the gas transportation independent power projects. While the financial infrastructure is in place, and some improvements creditworthiness of the sector is the single largest to the sector environment have been achieved, the impediment to the implementation of independent implementation of the Jenin CCGT plant should be power projects, there are several simple measures that relatively straightforward. Guarantees may be required could improve the quality of the enabling environment, to reduce the risk of nonpayment by the off-taker. Two and which could be handled through secondary important issues need to be addressed in the project legislation or executive regulations that develop broad design. One is the arrangement for selling any surplus provisions in the existing sector legislation. These energy back to the Israeli grid. The other is to ensure include further clarifying the provisions for licensing that the terms of a future gas supply agreement are new generators and the provisions associated with sufficiently flexible to allow for an eventual switch of connection to the grid. The roles of PERC and PETL supply to or from the Gaza Marine gas field should in this process need to be further spelled out. this prove desirable. Fifth, establish a risk-mitigation mechanism Third, embrace a more ambitious target for utility- to support the next generation of Palestinian scale solar PV farms in Areas A and B. As noted independent power projects. Risk mitigation in the planning analysis, it looks feasible to develop is no substitute for addressing fundamental more than 600 MW of solar PV capacity in the West creditworthiness issues, and it does not make Bank based on potential just in Areas A and B as sense to move ahead with risk mitigation until the well as rooftop. This goes far beyond the current Palestinian Authority has demonstrated a sustained target of 130 MW by 2020. With the improvements and credible commitment to improving the underlying in the enabling environment in place, as well as the financial standing of the sector. Nevertheless, risk establishment of risk-mitigation mechanisms, it mitigation may play a valuable role in getting the next should become feasible to scale up and accelerate generation of Palestinian independent power projects efforts to develop this solar potential. off the ground. It would therefore be valuable to work with donors to develop a suitable mechanism for Fourth, establish suitable wheeling arrangements risk mitigation, evaluating the relevance of a range of with Israel. As the volume of domestic power financial instruments such as guarantees, first loss, generation in the West Bank ramps up, there will be blended finance, and viability gap finance. increasing need to move power away from generation 22 | Securing Energy for Development in the West Bank and Gaza plants and toward Palestinian load centers. At a dialogue process that over time can help clarify present, this can be done only by wheeling power the modalities for making use of Area C. A related out through the Israeli grid and reimporting it into the issue is the need to coordinate Palestinian plans to West Bank at another location. The analysis suggests ramp up renewable-energy generation with those that that wheeling charges are relatively costly, particularly also exist on the Israeli side, in order to ensure that if low-voltage networks are needed. It will therefore be challenges related to grid stability and the integration important to ensure that the number of substations of intermittent sources can be adequately handled to in the West Bank increases to keep pace with the the benefit of both sides. expansion of domestic supply. It would also be important to have a dialogue with the Israeli regulator, PHASE 4 regarding the charges for wheeling and to explore possible alternative arrangements (such as power The fourth and final phase would build on earlier swaps) that may help to contain costs. success to tackle the more challenging, and potentially transformational, projects needed to Fifth, engage in dialogue over the use of Area C for complete the Palestinian energy vision. These include the development of Palestinian power infrastructure the construction of solar generation and transmission and renewable energy generation. The planning backbone infrastructure in Area C, as well as the analysis highlights the economic value of Area C, development of the Gaza Marine gas field. both as a location for grid-based solar generation and as the conduit for any future Palestinian electricity First, develop a Palestinian transmission backbone transmission infrastructure. While there is much that in the West Bank. The analysis has shown that as still needs to be done before the issue of Area C domestic Palestinian power generation ramps up, the becomes a binding constraint, the political complexity cost of wheeling power through the Israeli grid rapidly of the issue suggests that it may be helpful to begin become quite significant. A more economic option Securing Energy for Development in the West Bank and Gaza | 23 in the long term would be to construct a Palestinian for gas. This demand will take time to develop and transmission backbone. It would need to cut across would be achieved only once significant gas-fired Area C, which would present significant technical and power generation was on-stream and a solid gas- political challenges. purchase payment record had been established in both the West Bank and Gaza. That would be a Second, develop utility-scale solar PV and CSP suitable juncture to enable signing a bankable deal for projects in Area C of the West Bank. If a successful the development of the field, allowing the Palestinian track record of solar farm development can be gas-fired plants to switch gradually from Israeli to established on the more limited land endowments of Palestinian gas as the new field becomes productive. Areas A and B, and suitable transmission backbone Given the relatively small volume of Palestinian infrastructure can be put in place across Area C, the demand, it may make sense to consider the options West Bank would be ready to benefit from larger for Gaza Marine development that require the least scale solar development in Area C. This would entail infrastructure development—by making use of both solar PV and CSP technologies. stranded infrastructure from the Israeli Mari B field— thereby making the field economic at lower levels of Third, move ahead with the development of the throughput. The primary value of the Gaza Marine Gaza Marine gas field. The development of the Gaza field to the Palestinian economy lies not so much Marine gas field is critically dependent on having a in a supply of gas, which is abundantly available in creditworthy buyer to sign the gas purchase deal. the region, nor as a source of energy security, since Given the abundance of gas discoveries in the Palestinian gas would likely be transported through eastern Mediterranean and the relatively small nature Israeli infrastructure. Rather, the field is an eventual of the field, development of the field will likely need to source of revenue for the Palestinian Authority, be underwritten by a significant Palestinian demand estimated at US$2.7 billion over 25 years. 24 | Securing Energy for Development in the West Bank and Gaza What Are the Costs and Benefits of Achieving Energy Security? The overall investment costs of pursuing energy implementing the proposed investments and security for the West Bank and Gaza are estimated associated reforms would boost GDP growth by 0.3 to be US$4 billion to US$5 billion (table 6). Of percentage points per year in the West Bank and this, almost all would take the form of private sector 0.5 percentage points per year in Gaza. Relative to investment in domestic power-generation capacity, with the counterfactual “do nothing” scenario, the energy only US$0.3 billion taking the form of public investment subsidy bill would come down by 1.7 percentage in supporting infrastructure for electricity transmission points of GDP in the West Bank and 5.1 percentage and distribution as well as gas transportation. Just points of GDP in Gaza. The main macroeconomic over half would be needed for the West Bank and the benefits would come through freeing up resources remainder for Gaza. Significant investments would for higher levels of productive investment in begin in phase 2 of the roadmap, peaking in phase 3, these economies. and remaining significant in phase 4. This study shows that it is possible to envisage a Macroeconomic simulations indicate that the path toward greater energy security for the West wider development impacts of pursuing these Bank and Gaza, and even if the way is fraught energy investment pathways would be substantial. with financial, technical, and political challenges, According to modeling undertaken for this project, inaction is not an option. TABLE 5: INVESTMENT NEEDS FOR THE PALESTINIAN ELECTRICITY SECTOR, 2017–30 (US$ MILLIONS) WEST BANK GAZA COMBINED PUBLIC PRIVATE PUBLIC PRIVATE PUBLIC PRIVATE Phase 1 - - - - - - Phase 2 7 800–1,100 135 240–320 142 1,040–1,420 Phase 3 930 900–990 - 1,830–1,920 Phase 4 188 375–500 - 250–1,200 188 620–1,700 Total 195 2,105–2,530 135 1,390–2,510 330 3,495–5,040 Source: World Bank estimates Securing Energy for Development in the West Bank and Gaza | 25 TABLE 6: OVERVIEW OF THE PROPOSED ROADMAP FOR PALESTINIAN ENERGY SECURITY PHASE 1: IMPROVE SECTOR PHASE 2: ADVANCE PARALLEL NO REGRETS CREDITWORTHINESS MEASURES Substitute Israeli imports for diesel-fired Create infrastructure for import of natural gas generation in Gaza P : Gradually ramp down GPP and use the savings P, I : Construct natural gas pipelines for West Bank to buy additional IEC supply until GPP can be and Gaza paving the way for construction of new/ converted to gas. upgraded power plants. I : Provide additional power to Gaza through 161kV. Improve operational and commercial efficiency Improve enabling environment for IPPs P : Continue improvement of DISCO performance P : Update and improve legislation and licensing by reducing losses, increasing collection rates and provisions that would help IPPs enter the market bringing down overhead costs. One mechanism can and also clarify roles and responsibilities of PERC be through a revenue protection program aiming and PETL in this environment. to permanently measure and bill every KWh sold largest DISCO consumers. Securitize payments of wholesale electricity Promote uptake of rooftop solar PV P : Strengthen sub national public finance to avoid P : Set aggressive targets for 160MW of rooftop PV diversion of electricity bill collections to municipal in Gaza and 530MW in West Bank. budgets and set up escrow accounts both in Gaza and West Bank to ring fence collections. Adjust tariffs to better reflect cost recovery Develop transmission backbone in Gaza P : Reexamine the retail tariffs and increase rates to P : Upgrade T&D network to allow increase in allow better cost recovery by DISCOs. power supply and reduction in losses. Build the capacity of PETL to play its role Design a risk mitigation mechanism for IPPs P : PETL to streamline billing to and payments from P, D : After creditworthiness issues from Phase DISCOs while in parallel pushing to energize the I have been improved, develop financial risk new substations and sign the PPA with IEC. mitigation instruments such as guarantee I : Sign bulk supply PPA and energize new mechanisms. substations. I: Israeli measures P: Palestinian measures D: Donor community measures 26 | Securing Energy for Development in the West Bank and Gaza PHASE 3: IMPLEMENT FIRST WAVE OF IPPS PHASE 4: IMPLEMENT TRANSFORMATIONAL PROJECTS Convert GPP to CCGT gas-fired technology Develop grid-scale solar PV/CSP farms in Area C P : Complete conversion and upgrade of GPP P : Begin development of renewables in Area C ensuring flexible gas supply agreement to allow only after a successful track record of renewable switch to Gaza Marine. development in Areas A and B. I : Enter into gas supply agreement for GPP. I : Provide permits for construction in Area C. Construct new CCGT plant at Jenin, then Hebron Develop transmission backbone in the West Bank P : Complete JPP and HPP construction with P : Begin development of a transmission backbone, flexible gas supply agreement to allow switch to considering also the possibility of negotiating Gaza Marine. Build additional substations to keep a swap mechanism that eliminates the need for pace with increased domestic generation. wheeling or building of infrastructure. I : Enter into gas supply agreement for JPP and I : Provide permits for construction in Area C HPP. and/or provide swap alternatives to building a backbone. Increase renewable energy targets Develop Gaza Marine Gas Field P : Increase renewable energy targets to 600MW in P : Develop Gaza Marine with least amount of West Bank and 160MW in Gaza by 2030 (includes infrastructure development to keep costs low. rooftop solar) but only after the right enabling I : Allow permission to use existing Israeli environment has been established from Phase I. infrastructure for evacuation of Gaza Marine. Establish wheeling arrangements with IEC P, I : Negotiate lower wheeling tariffs and/or swap arrangements until a transmission backbone is built Engage in dialogue over use of Area C P, I : Coordinate on Area C access and permitting issues as well as grid stability and regional integration for supply expansion and transmission infrastructure. Note: IPP = independent power producer; GPP = Gaza Power Plant; CCGT = combined cycle gas turbine; PV = photovoltaic; CSP = concentrated solar power; IEC = Israeli Electric Corporation; DISCO = Distribution Company; PERC = Palestinian Electricity Regulatory Council; PETL = Palestinian Electricity Transmission Company Ltd; JPP = Jenin Power Plant; HPP = Hebron Power Plant; T&D = Transmission and Distribution; PPA = power-purchase agreement. Securing Energy for Development in the West Bank and Gaza | 27 ENDNOTES 1. Total West Bank is made up of JDECO, NEDCO, HEPCO, SELCO and TEDCO which are the 5 DISCOs in the West Bank. GEDCO is the only DISCO in Gaza. 28 | Securing Energy for Development in the West Bank and Gaza PART I The West Bank and Gaza Energy Sector Context Securing Energy for Development in the West Bank and Gaza | 31 CHAPTER 1 The West Bank and Gaza Electricity Sector SECTOR OVERVIEW AND which will allow for the import of electricity from CHALLENGES Israel through a small number of high-voltage lines. For Gaza, an additional 161 kV interconnector with The Palestinian territories face significant energy Israel is planned. Refer to part 1, chapter 7 for more security challenges, already severe in Gaza, and detail on the Palestinian transmission and distribution emerging in the West Bank. Limited power supply system. See appendix A, map A.1 and map A.2 for is rationed through rolling blackouts, which are the existing electricity supply options. increasing in duration in Gaza and in frequency in the West Bank. In Gaza, the available power supply The Palestinian Authority does not have control over meets only half the demand, and the rationing of most of its territory, adding layers of complexity to the power results in 8 hours of power supply followed by 8 implementation of infrastructure projects. The Oslo II hours of power cuts. During peak summer and winter Accord divided the West Bank in three administrative load conditions, the power schedule is reduced to divisions: Areas A, B, and C. The distinct areas 3–4 hours per day. Although the West Bank generally were given different statuses, according to their enjoys 24 hours of power supply, in recent years governance, pending a final status accord. Area it has also begun experiencing power shortages during peak winter and summer months. Electricity shortages in both the West Bank and Gaza are often Figure 1.1: Main Sources of Electricity in met with mass protests and demonstrations. the West Bank and Gaza, 2015 The West Bank and Gaza rely primarily on electricity imports from Israel, particularly in the West Bank. 6,000 Imports of electricity from the Israeli Electric Corporation (IEC) account for 99 percent of electricity 5,000 supply in the West Bank and 64 percent in Gaza, but Energy (GWh) 4,000 they have recently been constrained as the existing power lines are becoming overloaded (see figure 3,000 I-1.1). Up to now, Israeli power has been provided 2,000 through over 270 low and medium-voltage connection points between Israel and the West Bank, with a 1,000 total contracted capacity of 890 megawatts (MW). In Gaza, 10 connection points with Israel provide 0 West Bank Gaza Combined 120 MW of capacity. Due to the low and medium- voltage connection points, Palestinian consumers From Israel From Egypt have historically paid higher Israeli tariff rates of NIS From Jordan Gaza Power Plant 0.33–0.37 (US$0.09–0.10) per kilowatt hour (kWh), and cannot benefit from the lower tariff rates available to higher voltage customers. Furthermore, the Source: Palestinian Central Bureau of Statics (PCBS), 2015, “Quantity of Electricity Imported (GWh) in the West Bank by Source and Month, 2015” proliferation of connection points has made it difficult and “Quantity of Electricity Imported and Purchased (GWh) in Gaza Strip by to monitor electricity flows across the territories. In Source and Month, 2015,” Ramallah City. http://www.pcbs.gov.ps/site/886/ Default.aspx. the West Bank, four new 161 kilovolt (kV) substations have recently been constructed with donor support, 32 | Securing Energy for Development in the West Bank and Gaza A constitutes around 18 percent of the West Bank power. While there are plans to upgrade the Jordanian and is administered exclusively by the Palestinian interconnector to allow more imports, similar to the Authority. Area B makes up around 22 percent and case of Egypt, the question of payment remains the is administered by both the Palestinian Authority and main concern. Israel. Area C, which contains Israeli settlements, makes up the remaining 60 percent of the West Bank The Gaza Power Plant (GPP) provides the only and is administered by Israel (see map G.3 in appendix significant domestic generation capacity in the G). A key Israeli actor in the Palestinian power sector Palestinian energy portfolio, and it has been plagued is the Coordinator of Government Activities in the with difficulties. GPP is owned by the Gaza Power Territories Unit (COGAT), which operates under the Generation Company, which is in turn owned Israeli Ministry of Defense and is responsible, among by the Greek- Lebanese construction company other issues, for dealing with energy and electricity Consolidated Contractors Company. The plant supply issues in Area C.1 COGAT’s authorization entered into commercial operation on March 15, 2004, is required for regional electricity projects, such as under a 20-year Power Purchase Agreement (PPA) interconnectors with neighboring counties, as well as contract, which requires that the Palestinian Authority any power generation or transmission infrastructure cover take-or-pay capacity charges of NIS 0.096 to be built within the West Bank. COGAT plays an (US$0.026) for the full 140 MW capacity of the plant. important role in the monitoring and maintenance of This capacity charge is paid to the owners of GPP distribution infrastructure and provides assistance in regardless of the level of the plant’s actual production dealing with failures. and output. In addition, the Palestinian Authority must cover the cost of fuel, which, depending on In addition to the Israeli supply, modest volumes of the level of fuel taxes and exemptions applied, can power are imported from Jordan to the West Bank range from NIS 0.74 to NIS 1.3 (US$0.20–0.40) per and from Egypt to Gaza. Egypt’s Al Kanal Electricity kWh for the diesel fuel alone. Although the plant has a Company can supply up to 30 MW of electricity rated capacity of 140 MW, it normally operates at less through three-medium voltage 33 kV connections than 50 percent of its capability due to the inability of points at the southern end of the Gaza strip (see map the Palestinian institutions to pay the high costs of A.2 in appendix A). The power lines from Egypt are diesel fuel. As international donor support to the West frequently out of service, delivering significantly less Bank and Gaza has declined in recent years, budget than the 30 MW capacity. Furthermore, the available constraints have resulted in the Palestinian Authority electricity is of poor quality and subject to frequent reducing the exemption on fuel taxes to Gaza, more voltage and frequency deviations that damage than doubling the cost of fuel for GPP. The plant has expensive and sensitive equipment at hospitals such also suffered repeated damage during armed conflict, as magnetic resonance imaging (MRI) machines and affecting its fuel storage capacity. Considering both computed tomography (CT) scans. The majority of the capacity charges and the fuel costs, GPP is very the power from Egypt is paid for through the Arab expensive to run at approximately NIS 1.05–1.65 League as a donation relieving the obligation of (US$0.30–0.45) per kWh, to more than three times payment on Gaza and the Palestinian Authority. As the IEC power import tariff. GPP is already designed a result, there is no track record of payment between to operate on natural gas, which would significantly the Egyptian power utility that supplies electricity bring down its cost of power production. This will to Gaza and the local distribution company Gaza become possible once the planned gas pipeline Electricity Distribution Company (GEDCO). As for project linking Gaza to gas terminals at Ashkelon in the West Bank, Jordan’s National Electric Power Israel is completed. Company (NEPCO) can supply up to 20 MW through a medium-voltage connection. Jerusalem District In the West Bank and Gaza, renewable energy Electric Company (JDECO) currently purchases generation is still in its infancy. The Palestinian cabinet power from NEPCO by arbitraging time-of-use (TOU) adopted a renewable energy strategy in 2012 that set prices between IEC and NEPCO. NEPCO prices are a target of 130 MW for domestic renewable generation on average NIS 0.11–0.15 (US$0.03–0.04) per kWh by 2020, of which only 18 MW has been installed as higher than IEC prices, except at certain times of day of 2017. The renewable energy laws, which laid out during specific seasons. Refer to part 1, chapter 5.2 the rules and regulations for entering the Palestinian for more details on the cost of Jordanian versus Israeli renewable energy market, were released only in Securing Energy for Development in the West Bank and Gaza | 33 mid-2015. In terms of utility-scale solar photovoltaic An unfinished power sector reform, which started over (PV), many private-sector entities have shown great 20 years ago, consolidated the distribution segment interest and several licenses have been granted. into a handful of local distribution companies. PENRA, However, by law, projects over 1 MW can sell only to established in 1995, launched key institutional reforms, the single buyer, Palestinian Electricity Transmission including the consolidation of hundreds of small Company Ltd. (PETL), which is not currently credit municipality and village councils’ (MVC) electricity worthy and lacks any kind of payment record. This services into six larger distribution companies (DISCOs) high risk of nonpayment, together with the possibility to benefit from economies of scale. These include of significant construction delays, is discouraging GEDCO, Hebron Electricity Distribution Company project developers and financiers alike. Further (HEPCO), JDECO, Northern Electricity Distribution obstacles, are lack of access to prime land in Area Company (NEDCO), Southern Electricity Distribution C as well as the lack of transmission infrastructure Company (SELCO) and Tubas Electricity Distribution to evacuate the power. In terms of rooftop solar, the Company (TEDCO). Despite considerable progress, Palestinian Solar Initiative, launched in 2012, aimed a significant number of MVCs continue to distribute to install on-grid residential rooftop solar systems in power independently, rejecting the legal imperative the West Bank, each with a range of 1-5 kW, for a to integrate electricity services and merge with the total installed capacity target of 5 MW by 2015. Under DISCOs. Together, these independent MVCs represent the plan, households purchase the solar systems up to 30 percent of total power sales in the West Bank. themselves through “green loans” and sell energy In the long run, the goal is to further consolidate all back to the grid in return for a feed-in-tariff. Although DISCOs and MVCs in the West Bank into one central initially attractive, over time the Palestinian Authority DISCO, thereby reducing overhead costs and in turn reduced the feed-in-tariff rates due to budgetary bringing down the retail sales tariff. See appendix A, restrictions, making the program progressively less tables A.3 to A.4 for the financial statements provided attractive to consumers. As of December 2016, the by each DISCO from 2011 to 2015. Palestinian Energy and Natural Resources Authority (PENRA) reported that approximately 300 systems JDECO is the longest standing distribution company were installed under the Palestinian Solar Initiative. in the Palestinian territories and is regulated by both Refer to part I, chapter 6 for further details on the Israeli and Palestinian authorities due to the nature of Palestinian renewable energy sector. its service area. In contrast to the other five DISCOs 34 | Securing Energy for Development in the West Bank and Gaza that were created as part of the recent sector reform, system operator for the Palestinian energy sector. JDECO is a longstanding utility that has been in Although the Palestinian energy sector does not existence since 1914. JDECO’s coverage area includes yet have any transmission infrastructure, PETL will (i) East Jerusalem (30 percent), which falls under Israeli be responsible for maintaining and operating the control with tariffs and regulations set by the Israeli new substations and acting as the single buyer of Public Utility Authority (PUA), and (ii) the central West wholesale power purchased from Israel, as well Bank (70 percent), including Ramallah and Jericho, as from any future Palestinian independent power which falls under the control of the Palestinian Authority, producers (IPPs). In the absence of transmission with tariffs and regulations set by the Palestinian infrastructure, the electricity network in the West Electricity Regulatory Council (PERC). As noted, Bank takes the form of a series of “electricity islands,” JDECO purchases the bulk of its supply from IEC, all connected to the Israeli grid, rather than one supplemented by Jordanian imports when demand interconnected Palestinian network. Refer to part I, peaks or pricing differences prove advantageous. chapter 7 for further discussions on PETL and the transmission and distribution grids. The Electricity Law of 2009 created several new sector institutions and provided the beginnings of a The political division between the West Bank (ruled legal framework for public-private partnership (PPP) by Fatah) and Gaza (ruled by Hamas) reduces the in the sector. The new legislation paved the way for ability of PENRA, PETL, and PERC to exercise their a new sector regulatory entity, as well as the creation jurisdiction in Gaza. In principle, the new institutional of a separate transmission company. In addition, the structure applies across the Palestinian territories. law provides a basis for new generation projects to be However, in practice, GEDCO, the Gaza utility, developed in the West Bank and Gaza on a PPP basis operates independently of this framework. For by classifying this as a licensed activity. Nevertheless, example, GEDCO does not follow the unified tariff set few details are provided about the detailed terms by PERC and adopted by all the DISCOs in the West and conditions of licenses or their classification into Bank. In fact, PERC has no enforcement capability different categories, and the law is silent about roles in Gaza, as the board and governance structure of and responsibilities for the grid connection of new GEDCO do not report to the Palestinian Authority. generation plants. In the absence of broader PPP PENRA does have a branch office on the ground in framework legislation, these kinds of issues would Gaza, which works very closely with GEDCO and need to be settled through secondary legislation or with PENRA Ramallah to coordinate activities, but it supporting regulations. does not have direct control over GEDCO. PENRA in Gaza supports GEDCO by facilitating materials entry The establishment of PERC has helped provide a for energy projects in Gaza, organizing provision of more solid technical basis for the determination of fuel for GPP, and communicating and coordinating tariffs. It was created in 2009, with support from the with the international community on energy projects World Bank and the European Union, with a mandate in Gaza. of regulating and monitoring the energy sector. A key contribution of PERC has been to adopt a clear Despite some improvements, the electricity sector tariff-setting methodology and set a unified end- suffers from operational and financial problems due to user tariff for the Palestinian territories (see appendix high losses and low collection rates. In 2015, DISCOs A, tables A.1 and A.2, for a breakdown of PERC’s in the West Bank and Gaza billed consumers for 76 tariff structure). In addition, PERC has managed to percent of the power they purchased from suppliers, significantly improve data collection over the past few with the other 24 percent lost and never billed due years, allowing the regulator to track key technical, to the poor state of the infrastructure and illegal financial, and customer service performance connections. Of the electricity billed to consumers, indicators for each DISCO on a quarterly basis. DISCOs collected 84 percent of invoices, with 16 percent accumulating as outstanding debt from The new transmission company, PETL was also been consumers to DISCOs. Overall, this means that for established as part of a move to rationalize power every 100 kWh supplied to the DISCOs from IEC, import arrangements with Israel. PETL was created only 64 kWh actually generate revenue; although, in 2013, with support from the World Bank, and has there is significant variation in performance across a mandate to be the single buyer and transmission companies (see table I-1.1). The net annual income Securing Energy for Development in the West Bank and Gaza | 35 TABLE I-1.1: OVERVIEW OF PALESTINIAN ELECTRICITY DISTRIBUTION COMPANIES, 2015 GEDCO TOTAL JDECO NEDCO HEPCO SELCO TEDCO WEST BANK Scale Customers 231,500 436,389 256,314 90,265 45,660 25,650 18,500 Purchased electricity 795 1,398 871 250 164 71 42 (NIS millions) Billed electricity (NIS millions) 518 1,509 949 245 193 76 46 Net annual income/loss (NIS millions) n.a. -76 -82 9 9 -15 3 Performance Losses: technical and 26% 22% 24% 17% 20% 28% 16% nontechnical Collection ratio 65% 89% 91% 98% 81% 71% 76% O&M as percentage of purchased electricity 8% 17% 22% 5% 10% 21% 17% Note: GEDCO = Gaza Electricity Distribution Company; JDECO = Jerusalem District Electric Company; NEDCO = Northern Electricity Distribution Company; HEPCO = Hebron Electricity Distribution Company; SELCO = Southern Electricity Distribution Company; TEDCO = Tubas Electricity Distribution Company. of JDECO has been negative year after year over Bank to establish an escrow account for collection of the past five years, despite the company’s scale electricity bills. This mechanism, which has already advantages and relatively high collection rates arising been adopted by over 100 local authority councils, from the successful implementation of prepaid aims to monitor, streamline, and audit the flow of meters. However, the company faces challenges electricity payments, preventing diversion of funds. in terms of high distribution losses and operating expenditures. On the other hand, NEDCO is by far Current electricity tariffs are low relative to the costs the most efficient DISCO in the West Bank and Gaza, of service provision, leading to implicit subsidies of with the lowest losses and overhead costs and the over NIS 600 million (US$166 million). The regulatory highest collection rates. authority, PERC, has set a uniform tariff of NIS 0.53– 0.56 (US$0.14–0.15) per kWh for the Palestinian Bill collection rates are particularly low in Gaza and in DISCOs. However, financial analysis of the sector refugee camps in the West Bank, due to difficult living suggests that the full cost of service provision—given conditions and a culture of nonpayment. In Gaza, current levels of inefficiency—ranges from about NIS paying electricity bills is not considered a high priority, 0.66 to NIS 1.42 (US$0.18–0.39) per kWh, depending particularly given the low quality of service. This is on the DISCO. Even if operating and commercial understandable given that the population has been efficiency could be improved to more typical levels, affected by armed conflict every two to three years over tariffs would still need to increase significantly to ensure the past decade and faces the highest unemployment the financial viability—and hence creditworthiness— rate in the world at 42 percent. Refugee camps in the of the sector. It is estimated that the shortfall between West Bank are also challenging in terms of revenue tariffs and costs amounts to implicit subsidies of over collection, as they combine high levels of per capita NIS 600 million (US$166 million) in 2015. consumption with very low rates of bill payment. According to a recent survey, underlying reasons for However, it is important to recognize that there are nonpayment of electricity bills are the high cost of genuine affordability issues among the poor. A widely electricity, low income, poor quality of service, and used international benchmark is that electricity remains perceived exemption due to refugee status. Moreover, affordable when households are able to meet their the poor security conditions in the camps make it basic needs without spending more than 5 percent of difficult for DISCO staff to enter and enforce revenue income. Based on current practice in West Bank and collection or disconnect service. A recent cabinet Gaza, it is estimated that 160 kWh is an adequate decision enforces all DISCOs and MVCs in the West level of consumption to meet basic household needs. 36 | Securing Energy for Development in the West Bank and Gaza Given the current income distribution, the lowest As a result, the DISCOs have developed a culture income decile can only afford to pay a rate of NIS of nonpayment for wholesale electricity supplied 0.43 (US$0.11) per kWh. The mechanism currently by IEC, leaving the Palestinian Authority to step in used to safeguard affordability is a rising block tariff, through a “net lending” mechanism. Given the weak with first block of 160 kWh per month currently set state of cost recovery, some DISCOs and MVCs pay at NIS 0.43 (US$.11) per kWh, matching the lowest only partially for electricity supplied by IEC, which income decile’s ability to pay. However, given that amounts to 58 percent of the total cost of electricity; average residential electricity consumption in the others don’t pay at all, preferring to use the collected West Bank and Gaza is only 200–300 kWh per revenues for financing municipal activities. For years, month, this means that most consumption benefits the Palestinian Authority has indirectly paid a portion from this subsidized rate. of the outstanding bills owed by DISCOs and MVCs to IEC through a mechanism called ‘net lending’.2 In addition to the challenge of collecting revenue from Outstanding payments owed to the IEC are either (i) customers, the scarcity of subnational fiscal resources deducted from the Palestinian Authority’s clearance means that power sector revenues get diverted revenues by the Israeli Ministry of Finance and to municipal budgets. No regular and predictable registered as net lending or (ii) are accumulated as debt intergovernmental fiscal transfer exists to cover the owed to the IEC. Net lending reduced the Palestinian recurring expenditures of municipalities or fund basic Authority’s available revenues by an estimated NIS 1 capital investments. Thus, MVCs have developed a (US$0.3) billion in 2012, representing 13.5 percent practice of diverting revenues from service fees to of the Palestinian Authority’s total revenues. This meet their expenditures needs, making electricity mechanism sets a precedence in which service revenues among the more important sources of providers continue to receive electricity from suppliers, municipal funds. Data for the years 2011–13 show and consumers continue to receive electricity from that total revenues per capita for village councils service providers even if they do not pay their bills, (VCs) in charge of electricity distribution can be with an assurance that the Palestinian Authority will up to four times higher than for those VCs without pay on their behalf, reducing a sense of responsibility that responsibility. VCs with electricity distribution and accountability. Since Israel considers JDECO an functions were able to spend over twice as much in Israeli company, the debt owed by JDECO to IEC per capita operating and development expenditures cannot be paid through the net lending, mechanism each year in the 2011–13 period than VCs not in making JDECO the second largest contributor, after charge of electricity distribution. For municipalities, GEDCO, to Palestinian electricity sector debt to Israel. there is almost a 100 percent difference between the two groups of municipalities in total revenues A new electricity agreement between government of per capita in the 2010–12 period. This consideration Israel and the Palestinian Authority has settled past may be one of the factors discouraging the remaining debt and plans to pave the way for improvements municipalities from incorporating their electricity in the Palestinian energy sector. The unpaid portion service under the umbrella of the local DISCOs. of outstanding bills from IEC to Palestinian service However, even in municipalities that have ceded providers started to accumulate substantially from electricity service to the Palestinian DISCOs, there 2011 onward (see figure I-1.2). The debt can be is evidence that some dividend income is still being divided into two portions, the larger share that relates paid by the DISCOs back to the municipalities. While directly to JDECO and a smaller share owed by the data on this phenomenon is sparse, it is known that Palestinian Authority relating to the remaining five at least NIS 5.1 (US$1.4) million were paid to various Palestinian distribution companies and MVCs. In view municipalities by three Palestinian DISCOs in 2014. of the situation, IEC made payment of past debt a Breaking this vicious circle will require (i) increasing precondition for energization of the four, new high- local revenue collection; (ii) improving transparency voltage substations as well as a precondition for the of payment flows, including interagency arrears; (iii) scale-up of the capacity of the connection points. On placing sanctions on entities that divert funds for September 13, 2016, the Palestinian Authority and nonessential or unproductive use; and (iv) providing the Israeli government signed an agreement to settle financial support to those Local Government Units past electricity sector debt, which stood at NIS 2.03 that do not have the fiscal capacity to ensure basic billion (US$534 million) and created joint committees service provision. to work on three key issues: (i) energization of the Securing Energy for Development in the West Bank and Gaza | 37 Figure I-1.2: Electricity Sector Debt to IEC, 2008–2015 2,500 Debt to IEC (NIS millions) 2,000 1,500 1,000 500 0 2008 2009 2010 2011 12/12/17 1/13/17 10/13/17 11/13/17 12/13/17 1/14/17 2/14/17 3/14/17 4/14/17 5/14/17 6/14/17 7/14/17 8/14/17 9/14/17 10/14/17 11/14/17 12/14/17 1/15/17 2/15/17 3/15/17 4/15/17 5/15/17 6/15/17 7/15/17 8/15/17 9/15/17 10/15/17 11/15/17 All other DISCOs JDECO Total Source: Information provided by Eco Energy. Note: IEC = Israeli Electric Corporation; DISCO = Distribution Company; JDECO = Jerusalem District Electricity Company. TABLE I.1.2: MACROECONOMIC IMPACT OF ELECTRICITY SECTOR UNDERPERFORMANCE WEST BANK GAZA 2013 2014 2015 2013 2014 2015 Implicit subsidy (US$ millions per annum) 94.8 65.9 72.6 136.0 178.1 125.4 Implicit subsidy (NIS millions per annum) 342.3 235.9 281.5 491.1 637.7 486.5 Implicit subsidy (% of GDP) 1.0 0.6 4.4 5.0 Subsidy rate (% of tariff) 17.5 50.9 65.5 56.7 new high-voltage substations to bring more power to The economic burden associated with the the West Bank, (ii) signing of a long-term PPA at a subsidization of the electricity sector is several times lower wholesale tariff rate, and (iii) transfer of over 200 higher in Gaza than in the West Bank. Based on connection points to PETL in order to have a single computable general equilibrium models developed for point of transaction (single buyer) between Israeli both the West Bank and Gaza, the magnitude of the and Palestinian entities. On July 10, 2017, an interim subsidies associated with the electricity sector were PPA was signed for the energization of the Jenin estimated (table I-1.2). The implicit subsidies due to substation alone, which was an encouraging step in underpricing, distribution losses, and undercollection the right direction, until the full negotiations for the of revenues amounted to between NIS 236 and NIS long term PPA are concluded. Overall, the success 342 million (US$65 million to US$95 million) per year of the new electricity agreement rests on the ability of for the West Bank, which amount to no more than 1 PETL to pay for 100 percent of the power purchased percent of the West Bank’s GDP for 2013–15. This from IEC. In turn, DISCOs and end consumers need is equivalent to a 15–20 percent subsidization rate to follow suit along the value chain. for the retail tariff. In the case of Gaza, the implicit subsidies are much larger, both in absolute and relative terms, amounting to NIS 487–638 million 38 | Securing Energy for Development in the West Bank and Gaza (US$125–175 million) per year, which amounts to as improvement over power imports. It is important to much as 4–5 percent of Gaza’s GDP in 2013–15. This ensure that contractual terms are sufficiently attractive is equivalent to a 60 percent subsidization rate of the and adequate supplies of cost-effective fuel are available. retail tariff. For Gaza, a key priority is the conversion of the current plant to natural gas to reduce the cost of fuel. IMPLICATIONS FOR WEST BANK AND GAZA Palestinian’s power-sector reform process has made strides but remains incomplete. Significant institutional The energy sector context carries several important reforms have already been undertaken in the implications for the future of the Palestinian Palestinian electricity sector, but these are still fragile electricity sector. and need to be sustained. Institutional strengthening is needed for all sector institutions, including PERC, There is scope to diversify Palestinian electricity PETL, and the DISCOs. PETL is expected to be supply, particularly in the West Bank. The Palestinian commercially operational and financially sustainable energy sector, particularly in the West Bank, has long following the energization of the Jenin, Nablus, relied primarily on Israel for power imports, which Hebron, and Ramallah high-voltage substations and for the most part have been relatively reliable and the signature of a long-term PPA with IEC. In the cost-effective. Yet energy security could be further meantime, the signing of the interim PPA for the Jenin enhanced by greater diversification of power sources substation allows PETL to begin operations gradually in the West Bank, including the development of until the full PPA is signed. indigenous gas-fired and solar power options. Distribution utilities are the Achilles’ heel of the The Gaza Power Plant provides a cautionary tale Palestinian electricity sector. The underperformance of independent power projects. Nevertheless, the of the DISCOs is the deepest challenge faced in experience of GPP, which has proved expensive the electricity sector, because the DISCOs are the and unreliable, demonstrates that indigenous foundation of the payment chain for the sector and power generation does not necessarily represent an because the difficulties faced are institutional and Securing Energy for Development in the West Bank and Gaza | 39 political in nature. Without improving the ability of have access to 30 percent more power. This does the DISCOs to capture customer revenues and not require additional payments by the Palestinian reliably pay for wholesale power, PETL’s viability will Authority through clearance revenues or net lending. be compromised, as will the creditworthiness of the Later, once GPP is converted to operating on natural sector as an off-taker for future independent power gas, which is expected to have a lower cost of projects in the West Bank and Gaza. production, on par with Israeli imports, then GPP can be turned on again. However, in the immediate Addressing subnational financing issues is key to the term, the best solution for Gaza is to ramp down future of the power sector. Even after the performance GPP operating on diesel. of the DISCOs is improved, their financial viability will remain vulnerable to municipal capture of revenues, To ensure bill collection revenue continues to be until and unless the fundamental challenges of forwarded from GEDCO to the Palestinian Authority, subnational municipal finance are addressed. Indeed, it is important to set up a separate escrow account without this, as DISCOs enhance their own efficiency into which collections are deposited and which is they risk simply becoming an increasingly attractive monitored by an international oversight committee. source of municipal revenues without solving the There is a legitimate concern that, if GPP is turned off, fundamental problem of creditworthiness in the sector authorities in Gaza will no longer have any incentive In Gaza, it is possible to pay for additional IEC supply to forward bill collections to the Palestinian Authority, by ramping down generation at GPP and using the which will then bear the responsibility of paying for money to buy double the power from IEC. As shown all IEC supply through clearance revenues. Currently, in table I-1.3, between 2011 and 2015, GPP was fuel for GPP is procured by the Palestinian Authority operating an average capacity of 45 MW, while IEC from the money that is forwarded to the Palestinian imports accounted for 119 MW. Factoring in the Authority by GEDCO from bill collections amounting capacity charge that is paid for IEC, the unit cost to NIS 20 million to NIS 25 million per month. To of power from GPP is three times more expensive ensure that this forwarding of bill collections continues than IEC. If the GPP take-or-pay capacity-charge as GPP ramps down, an escrow account should be payments continue to be paid, for every 1 MW that set up, separate from Palestinian Authority budgets, GPP is ramped down, 2 MW can be purchased from into which GEDCO can forward its collections. IEC for the same cost. If GPP’s take-or-pay capacity- This account should be monitored by a high-level charge payments are terminated, for every 1 MW international committee that serves to ensure that GPP is ramped down, 3 MW can be purchased transparency. At NIS 20 million to NIS 25 million per from IEC for the same cost. This means that if GPP, month, the collections will be enough to pay for 30– running on diesel, is turned off completely and the 40 percent of the total supply to Gaza, which is on par money is used to buy power from IEC, Gaza can with the current setup. 40 | Securing Energy for Development in the West Bank and Gaza TABLE I-1.3: FINANCING ADDITIONAL IEC POWER BY RAMPING DOWN GAZA POWER PLANT Status quo: 2011–15 historical average values IEC GPP Cost of purchased power (NIS per month) 31,807,885 Cost of capacity charge (NIS per month) 10,097,360 Cost of diesel fuel (NIS per month) 24,430,783 Quantity of purchased power 85,576,569 Quantity of purchased power 32,633,872 (kWh per month) (kWh per month) Corresponding capacity (MW) 119 Corresponding capacity (MW) 45 Average purchase tariff (NIS per kWh) 0.37 Average purchase tariff (NIS per kWh) 1.06 Cost of fuel per kWh produced 0.75 (NIS per kWh) Total cost per month (NIS) 66,336,028 Phase 1: Ramp down GPP by 12 MW, ramp up IEC by 25 MW IEC GPP Cost of purchased power (NIS per month) 38,498,290 Cost of capacity charge (NIS per month) 10,097,360 Cost of diesel fuel (NIS per month) 17,740,378 Quantity of purchased power 103,576,569 Quantity of purchased power 23,697,039 (kWh per month) (kWh per month) Corresponding capacity (MW) 144 Corresponding capacity (MW) 33 Average purchase tariff (NIS per kWh) 0.37 Average purchase tariff (NIS per kWh) 1.06 Cost of fuel per kWh produced 0.75 (NIS per kWh) Total cost per month (NIS) 66,336,028 Phase 2: Ramp down GPP by 25 MW, ramp up IEC by 50 MW IEC GPP Cost of purchased power (NIS per month) 45,188,695 Cost of capacity charge (NIS per month) 10,097,360 Cost of diesel fuel (NIS per month) 11,049,973 Quantity of purchased power 121,576,569 Quantity of purchased power 14,760,206 (kWh per month) (kWh per month) Corresponding capacity (MW) 169 Corresponding capacity (MW) 21 Average purchase tariff (NIS per kWh) 0.37 Average purchase tariff (NIS per kWh) 1.06 Cost of fuel per kWh produced 0.75 (NIS per kWh) Total cost per month (NIS) 66,336,028 Phase 3: Ramp down GPP by 45 MW, ramp up IEC by 91 MW IEC GPP Cost of purchased power (NIS per month) 56,160,959 Cost of capacity charge (NIS per month) 10,097,360 Cost of diesel fuel (NIS per month) 0 Quantity of purchased power 151,096,569 Quantity of purchased power 0 (kWh per month) (kWh per month) Corresponding capacity (MW) 210 Corresponding Capacity (MW) 0 Average purchase tariff (NIS per kWh) 0.37 Average purchase tariff (NIS per kWh) 1.06 Cost of fuel per kWh produced 0.75 (NIS per kWh) Total cost per month (NIS) 66,258,319 Note: IEC = Israeli Electric Corporation; GPP = Gaze Power Plant; kWh = kilowatt hour; MW = megawatt. Securing Energy for Development in the West Bank and Gaza | 41 NOTES 1 For large energy projects in Areas A and B, COGAT has been requesting that their approval be obtained in advance. 2 Net lending refers to the process by which Israel deducts a portion of unpaid electricity bills, owed by Palestinian distributors, to IEC (which supplies over 95 percent of the energy to West Bank and Gaza) from collection revenues that are collected by the Israeli Ministry of Finance on behalf of the Palestinian Authority. This process essentially forces the Palestinian Authority to indirectly pay for the outstanding bills of distribution companies through collected revenues meant for the national budget. 42 | Securing Energy for Development in the West Bank and Gaza CHAPTER 2 Electricity Demand THE CURRENT CONTEXT While enjoying diversified energy sources, Palestinian households increasingly rely on electricity. While Electricity accounts for 27 percent of Palestinian nonresidential energy consumption almost entirely energy consumption, which is dominated by the takes the form of electricity, Palestinian households residential sector. From 2001 to 2013, electricity meet their energy needs through a mixture of demand grew at an average annual rate of 7.2 electricity, liquefied petroleum gas (LPG) and solar percent. Residential electricity consumption has been water heaters. A long series of household energy growing slightly below that average, at 5.3 percent, surveys documents a trend of substitution of with average household electricity consumption electricity for other forms of household energy over reaching some 250 kilowatt-hours (kWh) per month time, particularly for baking but also for water and by 2013. This is a modest level of consumption by (to a lesser extent) space heating applications (see regional standards, at about half the levels found in appendix B, figures B.1 and B.2). Since 2009, there the Maghreb countries. Nonresidential electricity has also been a notable increase in the uptake of air- consumption was negligible in the early 2000s, and conditioning units. Based on econometric analysis of despite steep growth rates of 13.4 percent annually the 2013 household energy survey, air-conditioning from 2001 to 2013, still accounted for only a small units add over 100 kWh per month to a household’s percent of total electricity consumption relative to the consumption during the summer months, while residential sector in 2013 (see figure I-2.1). It is unusual electric water and space heating each add 50 kWh for the share of nonresidential consumption to be so per month during the winter months (see appendix B, low, and this illustrates the underdeveloped nature of tables B.1 and B.2). the economy. It also represents a disadvantage for the utilities, which typically count on large industries as anchor customers. Figure I-2.1: Palestinian Energy Consumption by Sector 20,000 20,000 15,000 15,000 10,000 10,000 5,000 5,000 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Electricity (TJ) LPG (TJ) Solar (TJ) Source: PCBS, “Energy Balances, 2001–2013.” http://www.pcbs.gov.ps/site/lang__en/886/Default.aspx Note: LPG = liquefied petroleum gas. Securing Energy for Development in the West Bank and Gaza | 43 Figure I-2.2: Volatility of Electricity Consumption over Time 20 50% 18 40% 16 14 30% 12 20% 10 8 10% 6 0% 4 10% 2 0 20% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Growth rate of final consumption of electricity (%) Final consumption of electricity (TJ) Electricity demand patterns in the West Bank and Observed electricity consumption is not a reliable Gaza have historically been quite volatile, making indicator of existing electricity demand. Effective it challenging to predict the future. For example, demand for electricity is the amount that would be electricity consumption grew at 38.2 percent in consumed at current tariffs if all electricity were fully 2012, shrunk by 2.1 percent in the next two years, paid for and there were no restrictions on the available and increased again by 12.4 percent in 2015 (see supply. Neither of these two conditions holds for the figure I-2.2). As a result of strong swings in historic West Bank and Gaza. Due to problems of network demand as well as limited data availability, Palestinian theft and under-collection of bills, a significant share electricity demand cannot be reliably forecast using of electricity consumption is supplied for free and standard econometric techniques. There is some therefore likely exceeds what would be consumed if evidence, however, that electricity demand does tend tariffs were fully enforced. At the same time, severe to follow GDP growth trends. Indeed, for the Middle supply restrictions and associated rationing— East and North Africa region as a whole, the elasticity particularly in the Gaza Strip—mean that even paying of electricity output to real GDP growth, based on consumers cannot access all the power they would 370 country-year observations, finds a regionwide like to buy. As a result, electricity demand is partially elasticity value of 1.07. suppressed. These two effects pull the base year demand in opposite directions, and their net impact A simple and defensible approach is to base electricity needs to be considered. demand forecasts on real GDP growth forecasts. The most recent real GDP demand forecasts from Inflated consumption is observable and relatively easy the Palestinian Central Bureau of Statics (PCBS) to estimate. It can quite readily be estimated from utility and the International Monetary Fund stand at 2.63 operational data, by calculating the absolute amount of percent for the West Bank and Gaza as a whole, electricity lost to theft and under-collection, based on ranging from 2.51 percent in the West Bank to 3.02 the reported rates for nontechnical losses and revenue percent in Gaza. These become the starting point collection, respectively. Based on the literature, it is for forecasting electricity demand. However, it is also assumed that this inflated demand would drop by one- important to consider the current base from which half if tariffs were effectively applied.1 In the West Bank electricity demand is forecast to grow. and Gaza, with total unpaid consumption amounted to 903 megawatt hours (MWh) and 558 MWh in 2030, implying that baseline consumption should be reduced by half of this amount, that is, 452 MWh and 279 MWh, respectively. 44 | Securing Energy for Development in the West Bank and Gaza Suppressed demand is unobservable and can be percent in the West Bank and 1.9 percent in Gaza estimated only indirectly. Utilities can provide some (see tables I-2.1 and I-2.2). A range of plus and minus indication based on their knowledge of demand 1 percent around these central growth estimates is patterns. In the West Bank, the Palestinian Energy recommended to capture the uncertainty in electricity and Natural Resources Authority (PENRA) reports demand growth. A full set of year-by-year demand that this is 235 MW, or 20 percent of load. For Gaza, forecasts is provided in appendix B, table B.3. the Gaza Electricity Distribution Company (GEDCO) reports that this is somewhere between 145 MW and FIGURE I-2.2: FORECAST ELECTRICITY 245 MW, or around 50 percent of the load. This 50 DEMAND GROWTH RATES FOR THE percent shortfall for Gaza is reasonably consistent WEST BANK AND GAZA with the results obtained by comparing average AAGR % WEST GAZA WEST BANK residential and total industrial electricity consumption BANK AND GAZA in Gaza with that in the less-constrained environment Real GDP growth 2.51 3.02 2.63 of the West Bank. forecast + Adjustment for 0.40 1.90 0.90 TABLE I-2.1: ADJUSTING CURRENT suppressed demand ELECTRICITY CONSUMPTION IN THE = Electricity demand 2.91 4.92 3.53 WEST BANK AND GAZA TO EFFECTIVE forecast DEMAND Note: AAGR = Average Annual Growth Rate 2013 MWH WEST GAZA WEST BANK BANK AND GAZA Current consumption 3,166 1,344 4,510 The contrast in the electricity supply situation in the - Inflated consumption 452 279 731 West Bank and Gaza is also evident in patterns of generator ownership among firms and households. + Suppressed demand 655 768 1,423 Owning and operating a small backup generator in = Effective demand 3,370 1,832 5,202 the West Bank and Gaza is expensive and works out Source: Based on utility data from the Palestinian Energy and Natural to NIS 2.77 (US$0.76) per kWh for a diesel generator, Resources Authority and Palestinian Electricity Regulatory Council for 2013. and NIS 4.0 (US$1.01) per kWh for a more common Note: MWh = megawatt hour. gasoline generator. According to enterprise surveys, 47 percent of firms in Gaza reported owning a Since estimates for suppressed demand exceed generator, and they depend on it for 42 percent of those for inflated consumption, the electricity demand their electricity supply. By contrast, only 13 percent of forecast needs to be adjusted upward. For the West firms in the West Bank reported owning a generator, Bank and Gaza combined, the amount of suppressed depending on it for only 15 percent of their supply. demand is found to exceed the magnitude of inflated Throughout the West Bank and Gaza, generator consumption, indicating that current electricity ownership is strongly linked to the size of the firm, consumption is lower than it would be in a normal and hence the available capital. Despite the high environment. In the West Bank, suppressed demand cost, as many as 20 percent of households in Gaza slightly exceeds inflated consumption by a margin reported owning generators in 2013, compared to of about 6 percent of registered consumption. In less than 1 percent in the West Bank. Nevertheless, Gaza, the suppressed demand is substantially larger Northern Electricity Distribution Company (NEDCO), than the inflated consumption, by a margin of 36 a distribution company in the West Bank, has used percent of registered consumption. It is unrealistic to large utility-scale generators in the past to meet assume that suppressed demand can be eliminated summer peak load energy shortages. overnight; it would take some time for supply to catch-up. The demand forecast is therefore adjusted Combining all the assumptions and methods in such a way as to ensure that this consumption discussed so far, the low, central, and high demand shortfall is gradually eliminated over the period 2016– forecasts for the West Bank and Gaza are provided 30. This entails an extra annual growth rate of 0.9 in table I-2.3. percent for the West Bank and Gaza as a whole: 0.4 Securing Energy for Development in the West Bank and Gaza | 45 TABLE I-2.3: SUMMARY OF ELECTRICITY SUPPLY FORECAST REQUIRED TO MEET EFFECTIVE DEMAND BY 2030 (GWH) CENTRAL CASE LOW CASE HIGH CASE WEST GAZA WEST WEST GAZA WEST WEST GAZA WEST BANK BANK BANK BANK BANK BANK AND AND AND GAZA GAZA GAZA 2013 consumption 3,166 1,344 4,510 3,166 1,344 4,510 3,166 1,344 4,510 2013 effective demand 3,370 1,832 5,202 3,370 1,832 5,202 3,370 1,832 5,202 2013 supply for effective demand 3,938 2,141 6,079 3,938 2,141 6,079 3,938 2,141 6,079 2014 4,037 2,206 6,239 3,998 2,185 6,179 4,076 2,227 6,300 2015 4,138 2,272 6,403 4,058 2,229 6,279 4,220 2,317 6,529 2016 4,242 2,341 6,572 4,119 2,273 6,382 4,368 2,410 6,766 2017 4,349 2,412 6,745 4,182 2,319 6,485 4,521 2,507 7,011 2018 4,458 2,484 6,922 4,245 2,366 6,591 4,680 2,607 7,266 2019 4,570 2,559 7,104 4,309 2,414 6,699 4,844 2,712 7,529 2020 4,685 2,636 7,291 4,374 2,462 6,808 5,014 2,821 7,803 2021 4,803 2,716 7,482 4,440 2,512 6,919 5,190 2,934 8,086 2022 4,923 2,798 7,679 4,508 2,563 7,031 5,373 3,052 8,379 2023 5,047 2,882 7,881 4,576 2,614 7,146 5,561 3,174 8,683 2024 5,174 2,969 8,088 4,645 2,667 7,262 5,757 3,302 8,999 2025 5,304 3,059 8,301 4,715 2,721 7,381 5,959 3,435 9,325 2026 5,437 3,151 8,519 4,786 2,776 7,501 6,168 3,572 9,664 2027 5,573 3,246 8,743 4,859 2,831 7,623 6,385 3,716 10,014 2028 5,713 3,344 8,973 4,932 2,889 7,747 6,609 3,865 10,378 2029 5,857 3,445 9,209 5,007 2,947 7,874 6,841 4,020 10,755 2030 6,004 3,548 9,451 5,082 3,006 8,002 7,081 4,182 11,145 Source: World Bank elaboration. Note: GWh = gigawatt hour. Beyond the general demands of the population and productive sector, several humanitarian activities have critical energy needs. Few detailed needs assessments have been done, but box I-2.1 provides an important illustration for the water and wastewater sector in Gaza. 46 | Securing Energy for Development in the West Bank and Gaza Box I-2.1: Existing and Future Electricity Needs for Gaza’s Water Sector The electricity needs of essential infrastructure, such as water and sanitation, must be incorporated into any supply expansion plan. In Gaza, the existing water and wastewater facilities required approximately 34MW of electricity as of 2014. By 2030, this is expected to increase to 127 MW as additional desalination and wastewater treatment plants come online (details provided in appendix figure B.3). Supply expansion plans must consider a holistic view that considers the needs of critical infrastructure, such as water, sanitation, and health services. Map BI-2.1.1: Gaza Water and Wastewater Infrastructure Plans IBRD 43944 | SEPTEMBER 2018 Desalination Plants Wastewater Treatment Plant/Pumping Station Biet Lahia Terminal Pumping Station Armistice Demarcation Line, 1949 Energy need=1.3 MW International Boundary Energy need (2025)=2.4 MW Gaza Desalination Plant Capacity=12,000 m3 Energy need=2.5 MW M edi t erran ean Sea x Gaza existing WWTP Upgrading by KFW capacity=90,000 m3/d IS RAE L Energy need=5.2 MW Deir Abalah Desalination Plant North Gaza WWTP (NGEST) Capacity=6,000 m3 Final design capacity=60,000 m3/d Energy need=1.2 MW G a za Energy need (2025)=4 MW 1st phase capacity=35,000 m3/d Central Desalination Plant x Energy need=2.4 MW Capacity=55 MCM/y Energy need=35 MW Reuse Scheme (NGEST) Capacity=110 MCM/y Energy need=4.8 MW Energy need (2035)=55 MW x Planned Central Gaza WWTP x Final design capacity (2030)=200,000 m3/d Energy need=11 MW 1st phase capacity=120,000 m3/d Energy need=6.5 MW Rafah existing WWTP Capacity=10,000 m3/d Energy need=0.6 MW South Khanyounis WWTP Final design capacity=44,000 m3/d ARAB Energy need=3 MW R EP . O F 1st phase capacity=26,000 m3/d EG Y P T Energy need=1.8 MW 0 4 8 Kilometers Source: Gaza Coastal Municipalities Water Utility. Securing Energy for Development in the West Bank and Gaza | 47 IMPLICATIONS FOR THE WEST BANK Moderate electricity demand growth is anticipated in AND GAZA the West Bank and Gaza. Because of macroeconomic challenges as well as constraints faced by the These patterns of electricity demand have important productive sector, electricity demand is forecast to implications for energy planning in the West Bank slow from historic levels of 7.2 percent annually to and Gaza. levels of around 3.5 percent annually. Palestinian energy planning should recognize the Electricity demand will grow more rapidly in Gaza inherently uncertain nature of electricity demand. than in the West Bank. Due to higher GDP growth The challenges in predicting electricity demand forecasts and the need to catch up with higher levels underscore the importance of not relying on a single of suppressed demand, electricity consumption in estimate for planning purposes but ensuring that the Gaza is forecast to grow substantially faster than in wide range of uncertainty of demand is reflected in the West Bank, at 4.9 percent versus 2.9 percent power system planning. annually. Given the much tighter supply situation in Gaza, this will represent a challenge going forward. Electricity demand is strongly influenced by broader policies on household energy. Given the weight of Current levels of electricity consumption understate residential electricity demand and recent substitution existing demand. Observed electricity consumption trends, it is important to recognize that broader does not provide a reliable demand baseline, given household energy policies will have an important that a significant amount of electricity is supplied impact on the demand for electricity. Historical policies free of charge, while there is also significant rationing to promote solar water heaters have been successful due to supply shortages. The dampening impact of in dampening household electricity demand, but rationing on current consumption is estimated to usage appears to be in decline. Similarly, government outweigh the inflated consumption resulting from policy needs to carefully consider the economic case nonpayment, particularly in the case of Gaza. for using LPG (as opposed to electricity) for space and water heating, and ensure that incentives are A number of humanitarian activities have critical adequately aligned. energy needs that need to be better documented. The example of water and wastewater services in Gaza was provided as an illustration, but a similar case could be made for health-care facilities. 48 | Securing Energy for Development in the West Bank and Gaza NOTES 1 For more on this, see Peter Meier. 2016. Guidelines for Economic Analysis of Energy Projects (forthcoming). Securing Energy for Development in the West Bank and Gaza | 49 CHAPTER 3 Importing Electricity from Israel THE CURRENT CONTEXT The power sector in Israel is regulated by the Public Utilities Authority (PUA) under a modern regulatory The Israeli and Palestinian electricity sectors are framework. The PUA was established in 1996 and closely intertwined. On the one hand, the Palestinian operated originally as an independent regulatory territories depended on the Israeli Electric Corporation entity reporting to the public and the Knesset. In (IEC) for 90 percent of electricity supply in 2015, January 2016, however, the PUA’s scope of action ranging from 64 percent in Gaza to 99 percent was moved under the Ministry of Energy. The in the West Bank. On the other hand, taken as a PUA sets electricity tariffs based on IEC’s cost of whole, the West Bank and Gaza are the IEC’s single service, excluding costs considered excessive or largest customer, accounting for 6 percent of Israeli unnecessary, while providing for allowed returns on electricity demand in 2015 (see appendix C, table equity according to the risk profile of each activity (see C.3). Moreover, Palestinian electricity demand has appendix C, table C.6). By law, PUA is prohibited from been growing historically, at 7.2 percent per annum setting tariffs that create deliberate cross-subsidies from 2001 to 2013, much faster than Israeli electricity between customer classes. PUA is involved in the demand, which expands at only 5.2 percent per determination of five categories of tariffs: (i) electricity annum. This is also reflected in demand forecasts usage tariffs (for end users); (ii) network wheeling (see tableI-2.3), which project annual demand growth tariffs (for use of the transmission grid); (iii) production of 3.5 percent for the West Bank and Gaza versus tariffs (for electricity generated by independent only 2.9 percent for Israel. This means that over time power producers, IPPs); (iv) interconnection tariffs Palestinian needs will inevitably represent a growing (to access the grid); and (v) system management or share of the Israeli total, estimated to increase to 11 ancillary services (to cover back-up provided by IEC percent of Israeli electricity demand by 2030. to other market players). The PUA also assesses the marginal production costs of different generators as Israel’s power sector remains largely vertically input to economic dispatch by the system manager’s integrated and is in the midst of a shift from coal- office, which is still a department within IEC. For the fired to gas-fired power generation. Due to a lack of largest consumers, time-of-use tariffs are applied, interconnection with neighboring Arab countries, the differentiating nine different time blocks with different Israeli power system operates as an island that must cost characteristics. (Full particulars of the regulated be fully self-sufficient and capable of fully meeting power tariffs determined by PUA can be found in its own demand in all circumstances. The only slight appendix c, tables C.5 through C.10.) exception to this are the transmission links with the West Bank and Gaza, whose power systems in turn Israel’s electricity industry has been undergoing a have modest interconnections with Jordan for the protracted, and still incomplete, process of sector West Bank and Egypt for Gaza. As of the end of reform. This began with the 1996 Electricity Sector 2015, Israel had an installed generation capacity of Law and its subsequent amendments. Implementation 17.3 GW and generated 65.4 million MWh. About 45 has proved challenging, with negotiations between percent of energy came from IEC’s two large coal-fired the government and IEC management ongoing since plants, while the remainder came almost entirely from 2002. In the meantime, a number of different blueprints natural gas (see appendix C, tables C.1 and C.2). Use of reform have been put forward. IEC itself envisions of natural gas for electricity generation has expanded becoming a holding company with subsidiaries for rapidly during recent years, as a result of major Israeli generation, distribution, transmission, and services, gas discoveries in the eastern Mediterranean. See with potential privatization of at least 49 percent of the appendix C, table C.4 for the Israeli demand forecast. generation and distribution subsidiaries. At the same 50 | Securing Energy for Development in the West Bank and Gaza time, the recommendations of the government’s expected to be commissioned by 2022. As a result, Yogev Committee in 2014 envisaged divestiture of the market share of IPPs in Israeli power generation some of IEC’s generation assets to cap market share has climbed steeply, spurred by abundant availability of at 58 percent, as well as a separate transmission natural gas, already rising from 1 percent in 2009 to 33 system operator and the possibility of limited private- percent in 2016 and projected to rise further to reach sector entry into the distribution segment. 40 percent by 2020 (see figure I-3.1). The rapid entry of IPPs during a period of relatively flat demand growth During the past decade, IEC has experienced severe has helped to reduce generation costs, increase financial difficulties and accumulated debts of NIS 65 reserve margins, and pave the way for the replacement billion (US$16.6 billion) as of end 2015. A number of aging coal plants. of factors contributed to this situation, including the employee union’s wage demands, the electricity A clear set of regulations governs commercial regulator’s unwillingness to pass on costs deemed transactions between IPPs and other market inefficient into consumer tariffs, and substantial participants. To stimulate the first generation of IPPs, debt service obligations. The specific debt from the the companies were provided with a safety net: IEC Palestinian Authority, which reached NIS 2 billion would purchase up to 80 percent of their power (US$0.5 billion) in 2016, while substantial in absolute production at normative tariffs set by PUA. As the terms is a relatively small share of IEC’s overall debt sector has matured, these financial supports have burden (no more than 3 percent). been removed so that more recent IPPs operate as merchant plants. Only transactions between IPPs and Nevertheless, dramatic changes have already taken IEC (the “essential services provider”) are currently place as a result of the strong entry of IPPs. Since 2009, subject to price regulations; all other transactions are IEC has been prohibited from building new generation deemed private and prices can be freely agreed by plants, and there has been strong entry of gas-fired bilateral negotiation. Sales from IPPs to IEC can take IPPs that received construction and operation licenses the form of capacity and energy contracts or energy- from the PUA. Installed IPP capacity increased from only contracts, with the former being subject to closer some 100 MW in 2009 to some 5,500 MW at May regulation. IPPs are required to provide demand 2017, with further 4,000 MW already licensed and forecasts for their customers and show how these Figure I-3.1: Market Share of Israeli IPPs Climbs Steeply over Time 0.45 0.40 0.35 0.30 Market Share (%) 0.25 0.20 0.15 0.10 0.05 0.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Securing Energy for Development in the West Bank and Gaza | 51 will be reliably met by a combination of their own The West Bank and Gaza could also consider selling generation and power purchased from other private any future electricity surpluses to Israel. Any future producers. They also need to provide IEC with day- Palestinian IPP could potentially sell surplus electricity ahead maintenance and output schedules for each into the Israeli grid, and this would likely be a necessary 30-minute time interval. backstop arrangement if PETL is to sign take-or-pay contracts with future IPPs. The arrangements for The next wave of IPPs will include a substantial scaling trading surplus electricity would need to be agreed up of renewable energy. The Israeli government has to on a case-by-case basis and regulated in a power introduced technology-specific feed-in tariffs. These purchase agreement. are designed to support scaling up of renewable energy from levels of 2 percent in 2015 to reach The West Bank and Gaza may stand to benefit from targets of 10 percent renewable energy by 2020 time of-use pricing for Israeli electricity. The current and 17 percent by 2030. This will lead to a second renegotiation of the Palestinian Power Purchase wave of policy- driven IPPs for renewable energy, and Agreement with IEC, in the context of the switch to will raise technical challenges for the Israeli system high-voltage electricity imports, offers the opportunity to accommodate a much higher share of variable to benefit from the time-of-use tariff structures that renewable energy. have been developed by the PUA in Israel. This offers potential advantages, given that the Palestinian IMPLICATIONS FOR THE WEST BANK and Israeli daily and annual peaks do not coincide. AND GAZA Historically, only Jerusalem District Electric Company has been charged based on time-of-use, while These recent developments in the Israeli electricity other Palestinian imports have rather been charged sector have significant implications for the future based on the (less attractive) bulk supply tariff (see energy plans of the West Bank and Gaza. appendix C, table C.9). On the retail side, Palestinian distribution companies could also benefit from selling The West Bank and Gaza will represent a growing electricity to their consumers on a time-of-use basis, share of IEC’s client base. As Palestinian electricity which would encourage demand-side management demand growth outpaces that in Israel, and as and energy efficiency. IEC’s share of the Israeli power market continues to decline, the Palestinian Single Buyer PETL may The West Bank and Gaza may need to purchase represent an increasingly large share of IEC’s client ancillary services from Israel. The current renegotiation base, further intertwining the economic prospects of of the Palestinian Power Purchase Agreement with these two companies. This means that Palestinian IEC will also need to consider the future role for energy planning decisions, as well as the financial management (or ancillary) services from IEC. This viability of the Palestinian electricity sector, will have is particularly relevant in the context of the planned an increasingly large impact on IEC. construction of new Palestinian IPPs in the West Bank based on gas-fired and renewable energy The West Bank and Gaza will have the option of technologies. As such new plants come on stream, buying power from Israeli IPPs. With the growth of the the West Bank will continue to require backup Israeli IPP sector, the Palestinian single buyer would services (such as reserves and system balancing) that also increasingly have opportunities to purchase are most efficiently provided by IEC, and for which power directly from IPPs on negotiated commercial PUA has already established regulatory tariffs (see terms outside of the context of any intergovernmental appendix C, table C.10). framework. Given the relatively rapid pace of Palestinian demand growth, this may make it Palestinian renewable energy plans need to be an increasingly attractive market for Israeli IPPs. coordinated with the Israeli system. Given that the Nonetheless, this option may be difficult to pursue Israeli power system is already contemplating a until the Palestinian electricity sector reestablishes substantial scaling up of variable renewable energy a strong payment record with IEC. Moreover, a generation, additional scaling up on the Palestinian commercial power import agreement would likely also system would need to be carefully coordinated entail harder enforcement of payment discipline, given with the Israeli system operator to ensure that the that parallel fiscal channels would not be available. additional variability is appropriately managed. 52 | Securing Energy for Development in the West Bank and Gaza CHAPTER 4 Importing Natural Gas for Domestic Power Generation THE CURRENT CONTEXT demand of 1 billion cubic meters (bcm) per year by 2030. Development of gas-fired power generation The discovery of sizable gas resources in the eastern capacity is one of the main options available to Mediterranean has the potential to be game changing support diversification away from Israeli power for the region. Discoveries have been made in the imports (although in itself that does nothing to Levant Basin, a geological structure that straddles diversify dependency away from Israel, if the gas is the territorial waters of Cyprus, Israel, the Palestinian imported from Israel). In the West Bank, plans are territories, Lebanon, and Syria, and more recently, already under way to commission a 400-megawatt in Egypt’s Nile Delta Basin. Currently net energy (MW) gas-fired combined-cycle power plant in the importers,1 these countries are now faced with the northern region of Jenin and potential subsequent prospect of long-term energy self-sufficiency and addition of a second plant of a similar scale in the even energy exporting status, with the prospect of southern region of Hebron. The associated natural a new revenue stream for their economies. In 2010, gas demand is estimated to start at 0.24 bcm per the United States Geological Survey estimated that year in the early 2020s and climb to 0.71 bcm per there could be up to an additional 122 trillion cubic year by 2030. In Gaza, the priority may be conversion feet of undiscovered natural gas resources in the of the Gaza Power Plant (GPP) from fuel to gas and Levant Basin. As a result, the eastern Mediterranean restoration of its full production capacity. This gas is now the focus of much interest on the part of conversion could save the Palestinian Authority as major upstream investors. However, in the short to much as NIS 164–226 million (US$45–62 million) per medium term, the development and monetization of year in its current fuel bills (depending on the price of these resources present stakeholders with a set of oil).2 This would create a gas demand of 0.21 bcm per challenges over and above the standard technical year by the mid-2020s, potentially climbing to 0.33 difficulties relating to the development of these bcm per year by 2030 if further capacity expansion resources. The challenges originate in the region’s takes place. Demand for natural gas in the industrial complex political make-up and include the downturn sector is not expected to be economically viable due of international gas prices, rapidly falling costs of solar to the absence of major industries in the Palestinian energy as an abundant alternative to gas, as well as territories (see appendix D, table D.1).3 Therefore, the underdeveloped nature of their energy and gas referring to table I-4.1, the maximum estimated gas utilization policies. demand for the Palestinian territories would begin at around 0.34 bcm per year in the early 2020s and climb The West Bank and Gaza plan to use natural gas to to a maximum of 1.04 bcm per year by 2030. (Further support development of domestic gas-fired power- details of the assumptions behind this forecast can be generation capacity, leading to modest estimated found in appendix D, tables D.2 and D.3). Securing Energy for Development in the West Bank and Gaza | 53 TABLE I-4.1: ESTIMATED NATURAL GAS DEMAND IN THE PALESTINIAN TERRITORIES UNTIL 2030 YEAR WEST BANK GAZA WEST BANK AND GAZA 2022 0.24 0.11 0.34 2023 0.24 0.11 0.34 2024 0.47 0.21 0.69 2025 0.47 0.21 0.69 2026 0.47 0.33 0.80 2027 0.47 0.33 0.80 2028 0.71 0.33 1.04 2029 0.71 0.33 1.04 2030 0.71 0.33 1.04 Source: Information provided by Delek Drilling. Israel has become a major natural gas producer due The commissioning of Leviathan is expected in to substantial offshore discoveries that began in 1999. December 2019. The FID decision was delayed for Since then, some 36 trillion cubic feet (tcf) of natural three years due to domestic professional and public gas were discovered offshore Israel (equivalent to regulatory debates, including an antitrust case brought over 1,000 bcm). About 94 percent of this resource is against Noble Energy and Delek, the companies that concentrated in just two huge fields: Tamar with 10.9 hold major equity stakes in both the Tamar and the tcf and Leviathan with 21.9 tcf. To backup domestic Leviathan fields. The case was eventually resolved gas production, Israel connected in 2013 a Floating in 2016 with the High Court authorization of the Storage Regasification Unit (FSRU) to the domestic gas government-led Natural Gas Framework. According pipe grid. The FSRU, located 10 kilometers offshore to this framework, Noble Energy has agreed to from the Israeli city of Haedera, enables imports of partially divest its interests in the Tamar field and modest quantities of liquified natural gas (LNG) at Delek has agreed to divest all of its interests in the prices that ranged during the period of 2016 to April Tamar field. In addition, the two companies had to sell 2017 at NIS 18–26 (US$5–7) per million British thermal their Karish and Tanin assets, which were purchased units (MMBTU), excluding the FSRU leasing cost. in 2016 by Energian Energy of Greece. It should be noted, however, that geological reports suggest that Tamar is the only offshore gas field active today and current discoveries represent only about half of the supplies the entirety of Israeli gas needs at prices potential available in Israeli waters, providing the ranging from NIS 17–24 (US$4.7–6.5) per MMBTU. basis for ongoing exploration efforts. In this regard, The reliance of Israel on one gas source creates a the Israeli government published in late 2016 its major national security risk, since the entire gas first offshore exploration round, tendering 24 blocks supply is exposed to technical and security risks. in its exclusive economic zone (each of 400 square Hence, there is an urgent need for Israel to diversify kilometers). Proposal are expected by July 2017. its gas supply sources by developing additional Table I-4.2 provides an overview of current Israeli fields. Tamar’s gas production is also constrained by natural gas discoveries and proven reserves. a serious bottleneck in the submarine pipeline that connects it to shore, since the capacity of the pipeline is lower than the demand for gas in peak hours. In February 2017, the developers of the larger Leviathan field finally reached a final investment decision (FID) for the NIS 14.6 billion (US$4 billion) development of the field. (For further details of recent Israeli prices for natural gas, see appendix D, table D.4.) 54 | Securing Energy for Development in the West Bank and Gaza TABLE I-4.2: NATURAL GAS DISCOVERIES AND PROVEN RESERVES IN ISRAELI WATERS FIELD DATE OF DISCOVERY OPERATOR RESERVE (TCF) Noa 1999 Noble Energy 0.3* Mary Band 2000 Noble Energy 1.0* Or 2000 Isramco 0.1 Dalit 2009 Noble Energy 0.5 Tamar 2009 Noble Energy 10.9 Leviathan 2010 Noble Energy 21.9 Tanin 2011 Noble Energy 1.2 Dolphin 2011 Noble Energy 0.1 Shimshon 2012 Isramco 0.5 Karish 2013 Noble Energy 1.8 Total 38.2 Note: tcf = trillion cubic feet. * These fields have already been depleted. Israeli gas demand for both power generation create transparency in the market. According to the and industry has been growing rapidly. Since the Natural Gas Framework for policy that was approved discovery of domestic natural gas reserves, Israel in 2016, gas export prices cannot be lower than has been actively promoting a switch in its power- average domestic prices. The regulatory regime for generation mix from oil-fired to gas-fired, resulting gas in Israel has been subject to considerable political in annual savings to the economy estimated at NIS contention but appears to have now stabilized. 11 billion (US$3 billion) annually, as well as important air quality benefits. Natural gas is also being taken Once Leviathan comes on stream, there is the up for industrial use. All this is bringing important possibility that Israel will become a significant natural fiscal proceeds to the Israeli economy, estimated to gas exporter. Once under production, the Leviathan amount to NIS 220 billion (US$60 billion) over the next field will substantially exceed projected domestic gas 25 years. As a result, gas demand has already growth demand, allowing Israel to become an exporter. In from negligible levels in the early 2000s to 8.3 bcm 2013, the Zemach Committee established that 15 per year by 2015 and is projected to expand further, tcf of Israeli reserves could be allocated for export reaching 18 bcm per year by 2030. purposes, as the balance was more than adequate to cover domestic needs for the next 30 years. Gas Israel has a regulatory regime in place to govern export quotas could increase, however, as additional its natural gas sector. Israel’s Natural Gas Authority gas reserves are established. was created in 2002 and has jurisdiction over both economic and technical (safety) regulation of the Israel started to export gas to Jordan in 2017 sector. The Natural Gas Authority aims to create by supplying 1.8 bcm from the Tamar field. The conditions suitable for private-sector development destination was two of the Jordanian Arab Potash of the gas sector through promoting competition plants that are located at the southern Dead Sea. wherever possible, while regulating monopoly Moreover, in September 2016 Nobel Energy (on segments of the industry. Israel operates an open behalf of the Leviathan partners) signed a final binding third-party access regime for its gas transportation 45 bcm take-or-pay contract with the Jordanian network, with regulated tariffs for the national state-owned electric utility National Electric Power transportation company, Israeli Natural Gas Lines Company (NEPCO) for the supply of 3 bcm per (INGL), as well as the local distributors. The prices annum for 15 years. It is expected that additional of the natural gas itself, however, are not subject to Jordanian independent power producer (IPPs) and regulation but rather determined through negotiation industrial consumers may sign gas import contracts between the parties, although negotiated prices and with Leviathan in the near future.4 resulting profitability must be publicly disclosed to Securing Energy for Development in the West Bank and Gaza | 55 Israeli gas may also be exported to Egypt. An openness to supply gas to the Palestinian territories arrangement to export 5 bcm per year to the Egyptian under commercial agreements, and a letter of intent industrial sector is under discussion with Dolphinus for Noble Energy to supply gas to the future Jenin Holdings, possibly by reversing the flow of the idle gas-fired power plant was signed in 2014 but later EMG pipeline that previously supplied gas from cancelled in 2015. Further discussions are reportedly Egypt to Israel, or by utilizing the Arab Pipeline, under way. Meanwhile, the Israeli authorities once gas from Leviathan reaches Jordan (expected have indicated the feasibility of interconnecting at December 2019 or early 2020). In addition, two the Palestinian territories with the Israeli gas separate memoranda of understanding (MOUs) were transportation infrastructure. signed in 2014, to supply 4.5 bcm per year and 7 bcm per year for 15 years, with Egyptian idle LNG export The West Bank could relatively easily be supplied facilities of Union Fenosa Gas and ENI in Dumyat and with natural gas from Israel by constructing short British Gas (currently Royal Dutch Shell) at Idku. It is spurs from the nearby Israeli gas-transportation doubtful, however, whether these MOUs will evolve to network. In the northern West Bank (see map I-4.1), binding contracts, as market conditions have changed the construction of only 15 kilometers of pipeline significantly since 2014. The major hindering factors from Afula (Israel) to the Jenin Industrial Zone, near are the steep decrease in oil and LNG prices, on the the border with Israel, could supply high-pressure one hand, and the very large discoveries of additional gas to the planned 400 MW Combined Cycle gas fields in Egypt, with the leading discovery of Zohr Gas Turbine (CCGT) plant in Jenin. This work has field by ENI in 2015, on the other. received the required authorizations from the Israeli Civil Administration and is straightforward from a Israel’s gas fields could provide an immediate source technical standpoint. It could be conducted by INGL, of gas for the West Bank and Gaza. Palestinian gas the Israeli high-pressure gas transmission company, demand, estimated to rise toward 1 bcm per year by up to the border with the West Bank, at which point 2030, is tiny in relation to Israeli gas reserves already in another company will need to build the pipeline all excess of 1,000 bcm. Israel has already indicated its the way to the plant. The gas could flow through this Map I-4.1: Natural Gas Supply Options to the West Bank IBRD 43945 | SEPTEMBER 2018 Power plant CNG compression station CNG storage and pressure Jenin reduction station Jenin Industrial Zone Development Options Tubas 15 km pipeline from Afula Tulkarm to Jenin IPP/industrial zone 20 km pipeline form Kiryat Gat Nablus to a prospective power station Qalqilyah (CCGT) in Tarkumiye region Pipeline from Jordan Salfit to Jenin IPP/industrial zone Mediterranean W es t B a n k Low pressure pipelines from the JORDAN Jerusalem Natural GasS ea Company to: Ramallah Ramallah Bethlehem Jericho Jerusalem I S R AE L Bethlehem Dead Sea Tarqumiya Armistice Demarcation Lines, 1949 Hebron No-man’s Land Areas, Armistice G aza Line, 1949 Demarcation Administrative Boundary International Boundaries Schematic map; not to scale 56 | Securing Energy for Development in the West Bank and Gaza Map I-4.2: Natural Gas Supply Options to Gaza IBRD 43946 | SEPTEMBER 2018 Feed pipe Tama lines from Ashdod r Field Israeli EEZ Tamar Platform Mary B Platform Ashkelon (field depleted) Noa North (developed) Noa South Gaza Gaza Marine Gaza IPP Export to the West Bank/Israel Palestinian EEZ Egyptian EEZ ISRAEL idl e) GAZA e( lin Rafah ipe Gp EM Armistice Demarcation Line, 1949 International Boundary ARAB REP. El-Arish OF EGYPT Schematic map; not to scale Gas fields Development Options Gas treatment facility Ashkelon to Gaza pipeline (onshore) Offshore treatment platform Ashkelon to Gaza pipeline (offshore) Power plant Gas treatment at Mary B / Tamar platforms CNG compression station Submarine pipeline to Ashkelon, treatment facility in Ashkelon Existing Pipelines Utilization of EMG pipelines for gas transportation to Ashkelon, treatment facility in Ashkelon Tamar / Mary B / Israeli grid Gaza Marine to El-Arish (pipeline + treatment facility at El-Arish - Ashkelon EMG pipeline (idle) El-Arish), export to Egypt and/or pipeline to Gaza Utilization of EMG pipeline for gas transportation to Gaza and Israel Treatment facility in Gaza (near Gaza IPP power station) and export of excess gas via Israel to the West Bank pipeline within five years prior to the commissioning from the Jordanian grid to Jenin, over hilly terrain, and of the Jenin gas-fired combined cycle power plant could be expected to cost more than US$100 million. by 2022. The pipeline could deliver gas from Israeli It would also need to cross the Jordan River, which sources (such as Tamar, Leviathan, or Karish-Tanin) is the border between Jordan and the West Bank, or eventually others. A similar arrangement could be that is currently held by Israel. Given that a pipeline envisaged in the southern West Bank. This would from Israel to Jordan is already planned to support involve the construction of a high-pressure pipeline the export of Israeli gas, the same infrastructure could from Kiryat Gat to the Tarkumiya area, west of Hebron, potentially be used to transport gas from Jordan into to supply gas for a proposed future second gas-fired the West Bank using the same spur from the INGL plant for the West Bank. This option is not expected network already noted. to materialize before the end of the 2020s. It is also relatively straightforward (from a technical An additional option that has sometimes been raised point of view) to supply Gaza with Israeli gas through is the construction of a dedicated gas pipeline from a short dedicated pipeline from the Israeli production Jordan to the northern West Bank. This could be terminal in nearby Ashkelon. There are two main used to supply gas from the Arab gas pipeline or options for the supply of Israeli natural gas to Gaza. imported LNG from Jordan (map I-4.1). While this The first option is the supply of Israeli gas through a option is technically feasible, its economic viability high-pressure 18-kilometer pipeline from Ashkelon in can be called into question. Such a dedicated pipeline Israel to GPP that is located to the south of Gaza City. would need to be a relatively long 80-kilometer spur Technically it is a relatively simple project (8-kilometer Securing Energy for Development in the West Bank and Gaza | 57 TABLE I-4.3: ALTERNATIVE OPTIONS FOR DEVELOPING THE GAZA MARINE GAS FIELD OPTION 1 OPTION 2 OPTION 3 Anchor client Israel and West Bank and Egypt and West Bank and West Bank and Gaza Gaza (possibly also Jordan) Gaza Gas transportation 45-kilometer (km) offshore 70-km offshore pipeline 25-km offshore pipeline to infrastructure pipeline to Ashkelon (Israel) to El Arish (Egypt) Mari B and Tamar Platforms Gas treatment New gas treatment facility in Supply to Gaza Use existing offshore gas infrastructure Ashkelon (Israel) or Egyptian market treatment facility (Israel) or feed-gas to LNG liquefaction plants in Egypt Project duration 3–4 years 3–4 years 2 years Investment costs US$1.2 billion–1.5 billion US$1.2 billion–1.5 billion US$0.3 billion–0.4 billion Required 2.0 bcm per year 2.0 bcm per year 0.2-0.3 bcm per year (rising in throughput a flexible manner with demand) Supply to Gaza 23-km pipeline from 65-km pipeline from El 23-km pipeline from Ashkelon Ashkelon (Israel) to GPP Arish (Egypt) to GPP (Israel) to GPP Supply to West Via injection into INGL gas None Via injection into INGL gas Bank transportation network transportation network Note: bcm = billion cubic meters; GPP = Gaza Power Plant; LNG = liquified natural gas. 58 | Securing Energy for Development in the West Bank and Gaza pipeline from Ashkelon to Erez, the Gaza crossing, would also allow transportation of Palestinian gas into and an additional 10 kilometers to the station). The the West Bank through the Israeli gas transportation European Union is currently sponsoring a technical network, as already described. study to support the Gas to Gaza initiative led by the Quartet. The second option is the supply of Egyptian The development of the Gaza Marine field would gas via a 60-kilometer pipeline from El Arish to GPP. bring significant fiscal revenues to the Palestinian In addition to the Israeli discoveries, a much smaller Authority. Based on a typical 60 percent public sector Palestinian gas field has been discovered offshore profit-sharing arrangement, it is estimated that Gaza from Gaza. The so-called Gaza Marine field is located Marine could bring fiscal proceeds of almost NIS 36 kilometers offshore from Gaza in relatively shallow 10 billion (US$2.7 billion) over its 25-year life. These waters, and has estimated reserves of 1.2 tcf. In would be phased as follows: NIS 146 million (US$40 November 1999, a 25-year contract for gas exploration million) per year in the first 3 years of operation; NIS and development of the field was signed between 310 million (US$85 million) per annum in the rest of British Gas Group, the Consolidated Construction the first decade of operation; and NIS 475 million Company, and the Palestinian Investment Fund, a (US$130 million) per annum in the next 15 years of sovereign wealth vehicle that reinvests in Palestinian operation. Out of these revenues, royalties set at projects. The Palestinian Authority has recently 12.5 percent of sales would amount to 26 percent renegotiated the terms of the concession agreement of overall fiscal proceeds, with the remainder being with British Gas to grant a 15-year extension and taxes.5 In 2005, the Palestinian Authority signed an increase the Palestinian Investment Fund equity share agreement in principle to sell the natural gas to the from 10.0 percent to 17.5 percent and limit British government of Egypt via the terminal at El Arish, but Gas rights to Gaza Marine only. this deal did not receive Israeli approval. From 2006 to 2008, negotiations took place with Israeli Electric The development of the Gaza Marine field is highly Corporation regarding possible sale of the gas to contingent on securing export markets, since the Israel via the terminal at Ashkelon. Due to the failure to Palestinian market is too small to justify the necessary reach a purchase agreement, the private companies investment. It has been estimated that the Gaza Marine pulled out, and the development of the Gaza Marine field would need to be developed with a throughput of field has subsequently been on hold. 2 bcm per year in order to provide adequate returns to the necessary investment of NIS 3.6–4.4 billion IMPLICATIONS FOR THE WEST BANK (US$1.0–1.2 billion). This is about twice the maximum AND GAZA levels of demand that could be reached in the West Bank and Gaza by 2030. Hence, the development of These recent developments in the natural gas sector the field is contingent on securing a suitable export have significant implications for the future energy agreement, either to Israel (and possibly Jordan) or to plans of the West Bank and Gaza. Egypt. The first option of export to Israel would entail construction of an offshore pipeline to Ashkelon in The development of gas-fired power-generation Israel, where a new gas treatment plant could also be plants in the Palestinian territories should not be located. The second option of export to Egypt would contingent on development of Gaza Marine. Given be based on an offshore pipeline to El Arish in Egypt the relatively small initial levels of Palestinian gas and use of the gas as feedstock in the Egyptian LNG demand, their relatively slow ramp-up, and the export terminal at Idku. A third possible option would unproven creditworthiness of the West Bank and be to develop the Gaza Marine field at a lower level of Gaza as a purchaser of natural gas, it does not look throughput more compatible with domestic demand. practical to base development of Palestinian gas- This could be viable if existing Israeli infrastructure fired power generation on development of Palestinian could be shared with the Tamar field and the soon to gas resources. Instead, the well-established Israeli be depleted Mari B field, which are located relatively gas market with its abundant reserves provides a nearby, reducing development costs to NIS 910 more practical immediate source of gas for the West million (US$250 million). The main features of the Bank and Gaza, with the ability to supply at relatively three options are summarized in table I-4.3. In all small volumes, providing flexibility for demand growth three cases, a part of the gas could be brought back (although the Palestinian credit worthiness issue still by pipeline into Gaza, as noted. The two Israel options needs to be addressed). Securing Energy for Development in the West Bank and Gaza | 59 There may be strategic value in developing gas previously shown an interest in Palestinian gas, the transportation links between Israel and the Palestinian recent agreement of import arrangements with Israel territories. Whether gas is ultimately sourced from may limit the scope for this. Given the uncertainties Israeli or Palestinian sources, connecting the West surrounding all the potential export possibilities, the Bank and Gaza to the Israeli gas transportation option of developing Gaza Marine at a slower pace infrastructure looks to be a necessary prerequisite for that could be entirely absorbed by the Palestinian accessing any gas supplies. Fortunately, the required market could prove to be a practical solution for investments to connect the West Bank and Gaza getting the project off the ground. However, it may to the Israeli high-pressure gas grid are relatively be more feasible to get this project off the ground small. These costs are estimated at some NIS 55 once some gas-fired generation capacity has been million (US$15 million) to connect the prospective built in the West Bank and Gaza, the required gas Jenin IPP in the northern West Bank, and some transportation infrastructure is in place, and a track NIS 73 million (US$20 million) to connect Gaza IPP. record of payment has been established based on These connections have already been established experience with Israeli gas imports. as technically and economically viable and seem to have some political support from both the Israeli Any gas-import agreement with Israel should not government and the Palestinian Authority. foreclose the eventual development of Gaza Marine. If the ultimate goal is to anchor the development of The main economic benefit of the Gaza Marine project Gaza Marine from an established base of Palestinian to the West Bank and Gaza lies in its contribution to gas consumption, it would be important to ensure fiscal balance rather than to energy security. In view that any gas import agreements with Israel provide of the preceding considerations, it is clear that Gaza adequate flexibility for an eventual transition from Marine gas is not critical to the development of gas- Israeli to Palestinian gas supplies. However, it is likely fired generation capabilities in the Palestinian territories. that this flexibility will come at a cost premium relative Nor does it necessarily guarantee greater energy to a longer term rigid take-or-pay arrangement for the independence to the West Bank and Gaza, given supply of gas. that Palestinian gas would in any case need to travel through Israeli infrastructure to reach the West Bank or Development of gas-fired power in the West Bank Gaza. It follows, therefore, that the main advantage of and Gaza may in future become uneconomic. Given developing Gaza Marine may lie in its contribution to the rapid pace of development of solar photovoltaics, public finances rather than to energy security. concentrated solar power, and energy storage technologies, it should not be precluded that gas- There may be merit in considering the smaller scale fired power will become uneconomic in the West development options for Gaza Marine. It is unclear Bank and Gaza, or simply less desirable given the whether export arrangements of Gaza Marine gas energy security advantages for solar energy. Solar to either Israel, Jordan, or Egypt would prove to be energy supply to the West Bank and Gaza could be feasible. Israel itself is on the brink of having a large from Palestinian territory and/or from Jordan (which gas surplus, once the Leviathan field comes on is scaling up solar energy very rapidly) and/or from stream. Egypt, on the other hand, has become a Egypt (which is planning to scale up solar). significant importer of LNG (rather than an exporter as previously envisaged), although this may change with the discovery of the Zohr field. While Jordan has 60 | Securing Energy for Development in the West Bank and Gaza NOTES 1 With the partial exception of Egypt, which has oscillated between being a net importer and a net exporter. 2 The exact magnitude of the savings is sensitive to the oil price and is estimated at current oil prices of US$50 per barrel and prevailing gas prices for independent power producers in Israel. The savings could increase to NIS 226 million (US$62 million) per annum in case oil prices increase to US$100 per barrel. 3 The existing factories could be converted to natural gas supplied in compressed natural gas form (by road tankers). But their modest consumption of diesel and liquified petroleum gas and current oil prices do not make it a viable option. 4 It should be noted that no existing IPP in Jordan purchases its own fuel; all supplied with fuel by NEPCO, at NEPCO’s own risk. 5 These results derive from the following simplistic assumptions: Gaza Marine development via the Tamar Platform scheme; development costs of $250 million; gas treatment and variable costs of $1 per MMBTU and gas price of $5 per MMBTU. Gas production quantities would be 0.5 BCM per year in the first 3 years of operation, 1 BCM per year in the next 7 years of operation, and 1.5 BCM per year in the next 15 years of operation. Securing Energy for Development in the West Bank and Gaza | 61 CHAPTER 5 Importing Electricity from Jordan and Egypt CURRENT CONTEXT The upgrade of the existing connection inside Jericho from 33 kV to 132 kV would further increase power In addition to its power imports from Israel, the West supply in the West Bank and diversify Palestinian Bank and Gaza also have the possibility to consider electricity sources. This project is backed by further increasing the current modest imports from Palestinian Energy and Natural Resources Authority Jordan and Egypt. The validity of these options and JDECO, and its execution would be highly depends to a considerable extent on the domestic desirable. Other options, such as a 400 kV connection power sector situation in each of these neighboring to the Jordanian Samra 400 kV substation, have been countries, as well as the relative costs of their power assessed in the past but are more costly and more export tariffs compared with Israel and domestic complex. The Jordanian substation has sufficient Palestinian options. Expanding imports from either of space for extensions by two 400 kV line bays, and these countries would also entail significant upgrades there is also the possibility of extending the Samra to cross-border transmission infrastructure, which is Thermal Power Plant in Jordan, to supply additional currently quite modest, and would require various energy if required.2 levels of political and governmental approvals to allow permitting for construction. For both countries, the Since Palestinian power demand is not integrated lack of payment security from Palestinian buyers is into Jordanian power sector expansion plans, only also a concern, as the risk of nonpayment is deemed surplus Jordanian power is available for export. Given high, and unlike Israel, neither Egypt nor Jordan has the relatively small size of the Jordanian system, access to the controversial net lending mechanism total power demand in the West Bank currently to recover their costs. Finally, although Jordan is represents about one-third of Jordanian demand. typically considered as a supplier to the West Bank The quantities available for export are determined on and Egypt to Gaza, since Egypt and Jordan are an hourly basis by the available capacity in Jordan fully connected it is—at least in principle—possible as well as the evolving Jordanian load. Nevertheless, to envisage Jordanian power flowing to Gaza via Jordan’s National Electric Power Company has been Egypt or Egyptian power flowing to the West Bank responding positively to requests for firm power via Jordan. export from Jordan to the West Bank. In a recent visit to Amman, the Palestinian minister of energy agreed JORDAN with the Jordanian counterparts to accelerate efforts to upgrade the existing connection inside Jericho In 2008, the West Bank started importing 20 from 33 kV to 132 kV.3 megawatts (MW) of power from the Jordanian grid through a 33 kilovolt (kV) feeder to Jericho. The Jordan’s successful transformation of its energy Palestinian strategy was to reduce its dependence sector has increased its capability to export power on Israeli electricity supply and access the Arab to the West Bank. As recently as 2010-2015, Jordan network in a moment when Israeli electricity supply faced an electricity supply crisis due to a shortage to the Gaza Strip was being reduced.1 The Jericho of natural gas in Egypt that led to the curtailment area was disconnected from the Israeli power grid of Egyptian fuel and power imports, and forced the and connected to the Jordanian grid. Since then, the country to switch its plants over to Heavy Fuel Oil Jerusalem District Electricity Company (JDECO) has with serious financial consequences. This situation been managing a separate electricity supply system has largely been turned around by the installation for the customers in the Jericho area. of an FSRU at Aqaba allowing the import of LNG so 62 | Securing Energy for Development in the West Bank and Gaza that thermal plants could revert to running on natural purchases power from Israeli Electric Corporation gas. The recent signature of a Gas Sales Agreement (IEC) on a time-of-use basis, with different costs GSA) with the US-based Noble Energy for gas from based on the time of day and season. At the same Israel’s Tamar and Leviathan fields, will allow Jordan time, JDECO arbitrages IEC costs against Jordan to displace part of its LNG imports with natural gas time-of-use rates, which are made up of a capacity reducing the cost of power generation. While Jordan charge component and a day-versus-night tariff rate. was also interested in exploring imports of Palestinian Typically, during fall and spring, when Palestinian gas from Gaza Marine, it remains unclear when such loads are smaller, JDECO buys exclusively from IEC, gas may become available. As a result of these whose rates are much lower than Jordan’s. However, measures, Jordan has restored its reserve margin during summer and winter, when Palestinian loads to the prudent 10-15 percent range. In addition, the are high and IEC tariffs increase (see figure I-5.1), country has 1,300 MW of renewable energy in the JDECO may purchase power from Jordan, as tariffs pipeline, which due to their variable nature are not rates are within 10–15 percent difference. It should counting towards the reserve margin. Hence, Jordan be noted that the Palestinian Authority pays back is likely to enjoy electricity surpluses in the medium to JDECO the difference in price between IEC and term and would be well positioned to increase Jordanian tariff rates, as JDECO is obliged to follow electricity exports to the West Bank. PERC’s unified tariff, which is set using the IEC price only. A fundamental reason for the cost differential A key issue driving the decision of how much to rely between Israeli and Jordanian power lies in the fact on Jordanian imports is their relative cost. Historically, that Israeli power generation is increasingly based on the cost of electricity imports from Jordan to the West relatively low-cost domestic gas, while that in Jordan Bank, through JDECO, have been based on a special it is based on significantly more expensive imports of import tariff averaging NIS 0.51–0.55 (US$0.14–0.15) LNG. This differential will come down as Jordan starts per kilowatt hour (kWh), which is significantly more to rely on Israeli imports of natural gas, although it is expensive than the Israeli import tariff averaging unlikely to disappear entirely. NIS 0.33–0.40 (US$0.09–0.11) per kWh. JDECO Figure I-5.1: IEC Time-of-Use High Voltage Tariff versus Jordan Average Annual Tariff WINTER TRANSITION SUMMER 100 80 Tariff (Agorots per KWH) 60 40 20 0 Off-peak Shoulder Peak Off-peak Shoulder Peak Off-peak Shoulder Peak High Voltage Jordan 2015 average tariff Source: Information provided by Israeli Electric Corporation and Palestinian Electricity Regulatory Council. Note: TOU = time-of-use. *IEC time-of-use high voltage tariff set as of September 13, 2015. **Jordan 2015 annual average tariff. Securing Energy for Development in the West Bank and Gaza | 63 Increasing energy imports from Jordan is key to Increasing connection capacity from Egypt into Gaza diversifying energy sources through regional trade. is a technically feasible option. It would have minimal Jordan is willing to act as a transit country for Palestinian impact on the Egyptian power system, because trade with third parties and already has a well- current exports represent only 0.1 percent of total established wheeling tariff and associated regulations. current consumption in Egypt. (Indeed, total electricity Strengthening connection with the Jordanian grid demand in the West Bank and Gaza is no more than would allow access to Egyptian power supply as well 2–3 percent of Egyptian demand.) The construction of as the eight-country Arab regional grid comprised of a 220-kV transmission line from Egypt into Gaza has Egypt, Iraq, Jordan, Syria, Turkey, Libya, Lebanon, and been considered in the past. The Islamic Development the West Bank and Gaza. In terms of natural gas, as Bank had agreed to finance two 22-kV feeders from noted, an approximately60-kilometer branch from the Egypt to Gaza, which would have increased the import Arab Gas Pipeline from Jordan into the West Bank capacity to 60 MW, but the project was put on hold. would allow export of gas for the Palestinian energy sector. This would require agreement from the four Egypt has successfully turned around its recent nations (Egypt, Jordan, Lebanon, and Syria) that are power supply crisis and is heading for a substantial members of the Arab Gas Pipeline. electricity surplus. A shortage of domestic gas supply led to a serious power supply crisis in Egypt during EGYPT the summer of 2014, resulting in rolling blackouts and social unrest. Since then, the government has Gaza imports 20–30 MW of power from Egypt to taken decisive measures to expand electricity supply the Gaza Strip during a limited number of hours per through contracting emergency plants, establishing day. This restricted service is frequently interrupted three new floating LNG import terminals at Ain due to lack of maintenance of the lines and security Sokhna to compensate for the shortage of domestic concerns in the Sinai Peninsula. In addition, the gas, and contracting the development of over 18 electricity supplied is of poor quality, with voltage and gigawatts (GW) of new thermal generation capacity, frequency deviations causing damage to sensitive most notably through a large bilateral deal with electronic equipment, such as magnetic resonance Siemens of Germany for the development of a new imaging machines at hospitals. Egypt provides 14 generation of efficient CCGT plants. As a result, percent of Gaza’s energy supply through three feeder Egypt’s fossil-fuel generation capacity is expected lines from the Al Arish power plant in Northern Sinai to double between 2015 and 2021, even as some at an average tariff of NIS 0.27 (US$0.07) per kWh, 4 GW of new renewable energy capacity also come almost 40 percent lower than the Israeli import price. online. Demand is unlikely to keep up with this rapid Unlike all other cross-border electricity transactions growth, so that, in the absence of major capacity with Egypt, which have the Egyptian Electricity retirements, the average capacity utilization of fossil Transportation Company as the contractual party, power plants will fall from 54 percent in 2015 to 41 the export of power to Gaza is managed through an percent in 2021 (see table I-5.1 and appendix E, table agreement with the local Canal Distribution Company E.1 for additional detail). As a result, Egypt is moving in Sinai. The total monthly cost of Egyptian power from a 5 GW power deficit in 2014 to potentially a imports is NIS 3.7 million (US$1 million), which is substantial power surplus by 2021, opening up the entirely paid by the League of Arab States. possibility of significantly expanding power exports and other domestic uses of electricity. TABLE I-5.1: PROJECTED FOSSIL FUEL SUPPLY SITUATION IN THE EGYPTIAN POWER MARKET UNIT 2015 2016 2017 2018 2019 2020 2021 Capacity utilization factor % 54 55 52 44 40 41 41 Marginal economic cost US$ per kWh 0.04 0.03 0.04 0.05 0.05 0.06 0.06 Electricity supply ‘000s GWh 161.9 171.7 178.6 188.6 199.1 210.2 223.2 Generation capacity GW 21.3 22.3 25.9 33.6 39.6 41.2 44.8 Note: kWh = kilowatt hour; GWh = gigawatt hour; GW = gigawatt. 64 | Securing Energy for Development in the West Bank and Gaza Map I-5.1: Zohr Gas Discovery and Surrounding Infrastructure 0 50 100 Kilometers IBRD 43947 | SEPTEMBER 2018 Medit err a ne a n Se a Total (100%) Total (100%) ENI (100%) Leviathan Aphrodite Zohr Tamar BP (100%) BP (100%) ENI (100%) ENI (100%) Petro Celtic (50%) Edison (50%) West Bank Gaza ELNG Damietta LNG ISRAEL AR AB R E P. OF EG YPT Offshore Fields Offshore Blocks Zohr Gas Licensed Armistice Demarcation Lines, 1949 Other Gas, Gas/Condensate Relinquished International Boundaries Oil, Oil & Gas Field Grouping Source: Wood Mackenzie; Deutsche Bank. Egypt’s declining domestic gas production received a reform agenda has helped to restore private-sector boost from the discovery of the Zohr field in 2015. Th-s confidence and underpinned the current development offshore deep water field could hold a potential of 30 of the Zohr field. Due to its strategic location close to the trillion cubic feet (tcf) of lean gas, making it the largest boundary of Egyptian, Cypriot, and Israeli water, and the gas discovery in Egypt and one of the largest globally availability of stranded LNG export facilities in Egypt, the over the past decade. Assuming that 75 percent of the Zohr field also has the potential to become a gas hub for gas can be recovered, the field would add around 22 tcf, LNG export from the region (see map I-5.1). or 34 percent to Egypt’s natural gas reserves, equivalent to about 12 years of current natural gas consumption. The cost of Egyptian electricity imports compares ENI’s announced development plan envisages the start favorably with those of Israel. Domestic electricity of production by the end of 2017, just two years after tariffs in Egypt, at an average level of NIS 0.08 the discovery, with a progressive ramp up to a volume of (US$0.02) per kWh, compare favorably with Israel, about 2.7 billion cubic feet of gas per day by 2019. This although they are distorted by significant subsidies, discovery promises to reverse the fortunes of Egypt’s gas both to the power sector and the upstream fuels sector, which had been in long-term decline, switching sector, which are currently in the process of being from exporting to importing status in 2015. This was unraveled. The current cost recovery benchmark tariff due to an unfavorable energy-pricing regime, mounting is in the order of NIS 0.15 (US$0.04) per kWh. Historic arrears to international oil and gas companies, and social exports to Gaza have also been priced at a favorable unrest following the Arab Spring. An ambitious policy rate of NIS 0.27 (US$0.07) per kWh. Securing Energy for Development in the West Bank and Gaza | 65 IMPLICATIONS FOR THE WEST BANK From a technical standpoint, the relative sizes of the AND GAZA different power systems also facilitate reliance on Egypt. Another important difference lies in the scale These recent developments in the electricity sectors of the two neighbors’ power sectors. The Egyptian of neighboring Jordan and Egypt have significant sector is more than 10 times larger than the Jordanian implications for the future energy plans of the West one—Palestinian electricity demand represents more Bank and Gaza. than 30 percent of Jordanian demand but less than 3 percent of Egyptian demand. This has important Jordan and Egypt have recently overcome major, implications for energy planning. Any significant related power supply crises and are well on their way increase in imports from Jordan would eventually to having significant power surpluses. The recent suggest the need for closer coordination between electricity supply crisis in Egypt, due to declining the two countries on energy planning. Imports from availability of domestic gas, triggered a second crisis Egypt could be substantially increased without any in Jordan, as Egyptian imports to that country had to real impact on the Egyptian system. be curtailed. Both countries have acted decisively to address their respective crises and are emerging with From a political and security standpoint, however, significantly expanded power-generation capacity power imports from Jordan may be more feasible and greatly enhanced energy security. Both countries than those from Egypt. Despite the technical and are beginning to face the prospect of electricity economic advantages of Egyptian power, cross- surpluses, a modest surplus in Jordan of the order border power cooperation with Jordan is significantly of 100s of MW and a much more substantial surplus more advanced for political reasons. For a number of in Egypt of the order of 1,000s of MW. As a result, reasons, ranging from political upheaval and security both countries will have power available for export concerns in the Sinai to the recent curtailment of during the coming years, which would greatly help in power exports to Jordan, Egypt’s reputation as a the diversification efforts of the West Bank and Gaza. reliable source of electricity has been prejudiced. At the same time, political relations between Egypt and From an economic standpoint, power imports from Gaza have been increasingly strained. On the other Egypt look more attractive than those from Jordan. hand, political relations with Jordan remain strong and The characteristics of potential power imports from constructive dialogue has already been established. Jordan and Egypt look quite different. Egyptian power looks to be lower cost than Israeli power, Further upgrading of electricity imports from Jordan while Jordanian power looks to be higher cost than will require approvals from Israel over access to Area Israeli power. Since all three countries are heavily C. Any expansion of or addition to the current cross- dependent on natural gas, this difference largely boils border power line to Jordan traverses Area C of the down to the cost of gas. In Egypt, domestic gas has West Bank and as a result will require Israeli approval, historically been low cost, as the gas reserves are in even for the upgrade of the existing lines. shallow waters. In Israel, gas prices are higher as the gas reserves are in deeper waters. In Jordan, gas prices are the highest, as they do not have domestic gas supply and rely on more expensive LNG imports. 66 | Securing Energy for Development in the West Bank and Gaza NOTES 1 This is described in “Palestinians Plug Jericho into Jordan’s Power Grid,” Reuters, February 15, 2008, http://www.reuters.com/article/us-palestinians- israel-electricity/palestinians-plug-jericho-into-jordans-power-grid-idUSL2563001520080225. 2 For more on this see Palestinian Energy Authority and Norconsult. 2008. Interconnection of the Electrical Networks of Egypt—Gaza Strip and Jordan- West Ban. Sandvika, Norway: Norconsult. 3 More information can be found in World Bank. 2016. “Aide Memoire.” Washington, DC: World Bank. Securing Energy for Development in the West Bank and Gaza | 67 CHAPTER 6 Developing Domestic Renewable Power Generation THE CURRENT CONTEXT dropped more than 80 percent since 2010.1 1 In addition, neighboring Jordan has received bids as Renewable energy represents the only truly low as NIS 0.22 (US$0.06) per kilowatt hour (kWh), independent form of power supply that does not rely which is almost half the price of Israeli Electric on imports of electricity or fuel. Currently, over 96 Corporation (IEC) imports. Nevertheless, care should percent of Palestinian energy supply is dependent be taken in comparing simplistic unit costs between on Israel in terms of either direct electricity imports firm sources of energy, like IEC imports, and variable or fuel imports for the Gaza Power Plant (GPP). In sources, like solar generation. In addition, the political the future, there are plans to increase domestic gas- and economic climate in Jordan are significantly fired generation capacity. However, unless the Gaza better than in the West Bank and Gaza, making it Marine field is developed—which is difficult, given a more conducive environment for investment and the complex geopolitical context—the fuel for these private-sector involvement. Nevertheless, the West power plants would also have to be imported from Bank and Gaza are located in a region rich with the Israel. Even if Gaza Marine were to be developed, the sun’s energy. With 3,000 sunshine hours per year and import of the fuel would likely still entail reliance on global horizontal irradiance over 2,000 kilowatt-hours Israeli gas transportation infrastructure. Renewable per meter squared, the West Bank and Gaza rank energy, particularly solar, is the only source that can among the world’s top locations for construction of be independently produced on Palestinian soil. solar systems. Solar energy represents one of the few untapped supply options for the West Bank and Gaza, As the cost of solar energy continues to decline, in a context where negotiations with neighboring the option looks increasingly attractive for the West countries on increasing power supply options have Bank and Gaza. As shown in figure I-6.1, the cost proven difficult to advance. of rooftop photovoltaics and utility-scale solar have Figure I-6.1: Recent and Projected Declines in the Unit Cost of Renewable Energy 800 700 Capital cost (US$ per KW) 600 500 400 300 200 100 0 Rooftop Solar Utility Scale PV CSP Wind Biomass 2010 2016 2030 68 | Securing Energy for Development in the West Bank and Gaza TABLE I-6.1: PROGRESS TOWARD THE ACHIEVEMENT OF PENRA’S RENEWABLE ENERGY TARGETS PENRA’S RENEWABLE ENERGY TARGETS (SET IN 2012) 2020 TARGET (MW) ACHIEVED BY 2017 (MW) Rooftop Solar 25 1.5 Utility-scale PV and CSP 40 16 Wind 44 0 Biogas (animal and landfill) 21 0.5 Total 130 18 Note: PENRA = Palestinian Energy and Natural Resources Authority; MW = megawatt; PV = photovoltaic; CSP = concentrated solar power. Nevertheless, it is proving challenging to kickstart and C). However, obtaining construction permits in renewable energy investment in the Palestinian Area C is extremely difficult, with only 3.5 percent context. The Palestinian Energy and Natural Resources of construction permits submitted by Palestinians Authority’s (PENRA’s) renewable energy targets, set in to the Israeli Civil Administration to build in Area C 2012, aim to generate 130 megawatts (MW) of power having been approved in 2015. Again, due to land supply from domestic renewable resources by 2020. constraints—less severe for the West Bank than Gaza As of March 2017, less than 15 percent of that target but nonetheless real—the total renewable potential of had been achieved (see table I-6.1). After a slow Areas A and B amounts to just 707 MW, of which over start, interest in renewables has noticeably increased 75 percent is in the form of rooftop solar. The larger in the past three to four years, following the cabinet prevalence of houses in the West Bank, as well as the adoption of the renewable energy strategy in 2012 larger population, makes the rooftop potential much and the promulgation of the Palestinian Renewable larger than for Gaza. Third, as much as 98 percent Energy Laws released in 2015. This young sector has of renewable energy potential in the West Bank and faced two main challenges to date. They include an Gaza takes the form of solar, due to limited suitability inability to secure a power purchase agreement with for wind or availability of biomass. a bankable off-taker, and there is a lack of available transmission infrastructure for power evacuation. Wind faces land limitations similar to utility-scale PV Investors are deterred by the context that, given and needs to be firmed up due to its intermittent the current circumstances, could result in significant nature. Because of safety concerns, wind farms cannot construction delays and high risk of payment default. be built in densely populated urban centers. In Gaza, this means wind production is not possible. In addition, If these obstacles were addressed, the potential for wind speeds are not sufficient in Gaza. In the West renewable energy development in the West Bank and Bank, the densely populated Area A is not suitable for Gaza could go far beyond current policy targets. In wind generation. On the other hand, similar to utility- fact, based on a survey of the available potential, the scale PV, Area C is not accessible for construction. existing renewable energy target could be increased The limited sites in the West Bank with the right height, by more than 30 times, as highlighted in table I-6.2, orientation, and wind speed are located close to the for a total of 4,246 MW. (See appendix F, tables F.1 Israeli border, which presents a security concern to through F.5 for full calculations and assumptions). the Israeli side. Also, the intermittency of wind would However, there are a number of important points to have to be firmed up with additional power supply likely note. First, about 96 percent of the identified potential having to come from Israel. is in the West Bank. Only 165 MW of potential have been identified for Gaza, and this is almost exclusively Biogas plants are dispatchable and do not face land in the form of rooftop solar, due to extreme land restrictions but are limited in terms of scalability. constraints and vertical patterns of urbanization. Small, distributed biogas digesters can be located Second, about 83 percent of the potential identified close to their associated farms. The larger biogas for the West Bank is located in Area C (see appendix power plants for landfills can be built on site. Power G, map G.3 for map and explanation of areas A, B from biogas plants is dispatchable because gas Securing Energy for Development in the West Bank and Gaza | 69 TABLE I-6.2: OVERVIEW OF RENEWABLE ENERGY POTENTIAL IN THE WEST BANK AND GAZA POTENTIAL AVAILABLE RENEWABLE ENERGY CAPACITY (MW) Utility-scale PV or CSPa Areas A and B Area C Total West Bank 103 3,374 3,477 Gaza 0 0 Rooftop solarb Residential Public Commercial Total West Bank 490 13 31 534 Gaza 136 8 19 163 Windc and biomassd Wind Areas A, B, C Biomass (animals) Biomass (landfill) Total West Bank 45 7 18 70 Gaza 0 2 0 2 Total West Bank 4,081 Gaza 165 West Bank and Gaza 4,246 Note: MW = megawatt; PV = photovoltaic; CSP = concentrated solar power. a Assumptions: According to PETL and PEC, 0.12 percent of Area A and B and 3 percent of Area C are available for solar installations. The land requirement is ~28 square meters (m2) per kilowatt peak (kWp), including space for control rooms and so forth. b Assumptions: According to the Palestinian Central Bureau of Statics and the Palestinian Energy and Environmental Research Center, in the West Bank and Gaza there are over 400,000 residential, 2,500 public-sector, and 5,000 commercial sector rooftops. The rooftop areas range from 150–300 m2, and between 30–50 percent of the rooftops are available for solar installations. The rooftop space requirement is 9 m2 per KWp. c Assumptions: In hilly regions of the West Bank, wind speeds are 4–8 meters per second for regions above 1,000 meters. The land requirement is ~210 to 330 m2 per KWp. d Assumptions: Three landfills in the West Bank (Jenin, Ramallah, and Hebron) each take in 800 tons of waste per day and produce 41,800 m3 of biogas, which can be converted to 251 megawatt hours (MWh) per day. For animal waste, assuming approximately 172 animal digesters making a total of 750 MWh per day. output is constant, and an operator can choose figures represent the U.S. solar market and could be when to generate power. This eliminates the need for higher in the West Bank and Gaza to compensate firming up arrangements through backup generation. for the higher risk environment. In addition, cost Biogas generation will decline over time but can be comparisons between PV and concentrated solar considered relatively constant until 2030. Although power (CSP) technologies are complicated by the biogas is an excellent supply option, it is limited in fact that CSP provides some degree of storage and scale and cannot be scaled up. hence greater flexibility of use. By 2030, rooftop solar and utility-scale photovoltaic There is considerable potential to use rooftop solar as (PV) are expected to have the lowest combined capital an electricity safety net for institutions fulfilling critical expenditure as well as fixed and variable operating humanitarian roles, particularly in Gaza. Box I-6.1 and maintenance costs. The 2016 and forecast 2030 describes how health facilities in Gaza are benefiting capital costs, as well as fixed and variable operation from a switch away from backup diesel to rooftop and maintenance costs for these supply options, are solar generation. shown in table I-6.3.2 2 It should be noted that these 70 | Securing Energy for Development in the West Bank and Gaza TABLE I-6.3: PROJECTED COST OF ALTERNATIVE RENEWABLE ENERGY TECHNOLOGIES IN THE WEST BANK AND GAZA BY 2030 ROOFTOP SOLAR UTILITY-SCALE PV CSP WIND BIOMASS 2016 Capital costs (US$ per kW) 2,930 1,600 4,800 1,580 3,984 Fixed O&M (US$ per kW per year) 17 15 63 51 107 Variable O&M (US$ per MWh) 0 0 4 0 5 2030 Capital costs (US$ per kW) 1,500 1,000 3,000 1,290 3,750 Fixed O&M (US$ per kW per year) 10 8 40 49 107 Variable O&M (US$ per MWh) 0 0 4 0 5 Note: MW = megawatt; PV = photovoltaic; CSP = concentrated solar power; kW = kilowatt; MWh = megawatt hour; O&M = Operation and maintenance. Box I-6.1: Contribution of Rooftop Solar to meet Critical Energy Needs in Gaza’s Health Facilities The United Nations (UN) has been delivering emergency fuel supply to a subset of critical health and water and sewage facilities in Gaza since 2013. The available power supply to Gaza is only enough to meet half the demand, and the available power is constantly fluctuating due to frequent unit and line outages. Between 2015 and 2016, Gaza Power Plant (GPP) was off-line on average 23 days per year, and a subset of Egyptian and Israeli import lines were down for an average of 6 and 4 days, respectively, per month. As a result, since December 2013, the UN has coordinated emergency donations of fuel supplies for generators of critical infrastructure in Gaza to ensure the population continues to have access to health, water, and sanitation facilities. As of April 2017, the UN supplies this emergency fuel to 186 facilities, of which 32 are in the health sector, 124 in water and sanitation, and 30 in solid waste management. The UN Office for the Coordination of Humanitarian Affairs (OCHA) takes on the role of coordination and prioritization of fuel needs with sectors in Gaza, while UN Relief and Works Agency (UNRWA) takes charge of purchase, delivery and distribution of fuel. As the power situation in Gaza deteriorates, the need for additional emergency fuel donations for critical infrastructure increases, while donors are backing away from providing additional funding. In the best- case scenario, where GPP is running at 60 MW, health facilities need 450,000 liters of fuel per month, water and sewage facilities need 200,000 liters per month, and solid waste collection needs 150,000 liters per month. In total, this costs over NIS 22 million (US$6 million) per year, which includes a UN tax exemption on the cost of fuel, without which the cost would be much higher. If GPP is not running, health facilities need 650,000 liters of fuel per month, WASH facilities need 400,000 liters per month, and solid waste collection needs 200,000 liters per month. In total, this costs NIS 37 million (US$10 million) per year. Traditionally, Islamic Development Bank, Qatar, Turkey, and Japan have been the biggest donors of funds for emergency fuel supplies to Gaza. However, as the situation continues to deteriorate, donors are finding it increasingly difficult to contribute to such an expensive and unsustainable solution. Securing Energy for Development in the West Bank and Gaza | 71 Box I-6.1: Contribution of Rooftop Solar to meet Critical Energy Needs in Gaza’s Health Facilities (continued) Many donors are considering donation of rooftop solar systems for critical departments in hospitals as an alternative to providing fuel for generators. Since the 2014 war in Gaza, which saw extensive damage to GPP and the Egyptian and Israeli import lines, the efforts to harness the abundant energy of the sun, through distributed rooftop solar systems, have increased 10-fold in the Gaza Strip.a This is especially true for critical infrastructure such as hospitals, where donors are substituting the need to provide emergency fuels for generators with installation of sustainable solar systems for critical units or departments at a fraction of the cost. As of May 2017, approximately 306 kW of rooftop solar systems have been, or are being installed on health facilities in Gaza at a total cost of approximately NIS 5.5 million (US$1.5 million). Table F.6 in appendix F contains a full breakdown of the completed and ongoing installations, including the names of health facilities benefiting from the projects and the names of donors providing the funding. There is significant additional need for installation of rooftop solar systems in Gaza, and more donors should consider this approach as an alternative to providing fuel donations. Rooftops of hospitals in Gaza are large, flat surfaces ideal for solar installations. Although the area will not be enough to supply solar energy to the entire hospital, the existing rooftop space should be maximized through solar installations before spending extremely high sums on diesel fuel for generators. According to the Ministry of Health (MoH) and the World Health Organization (WHO), an additional 1 MW of rooftop solar systems can be installed across 34 critical units within 10 MoH hospitals in Gaza, with a total expected cost of approximately NIS 14.5 million (US$4 million). Table F.7 in appendix F provides a full breakdown of the hospitals and critical units in need of solar systems. A similar analysis should be carried out for the WASH sector in Gaza, where a subset of energy needs could also be met through solar energy. a According to PENRA Gaza, between 2012 and 2014, only 310 kilowatt peak (kWp) of large-scale rooftop solar systems were installed. However, post-2014, over 3,500 kWp have been or are being installed IMPLICATIONS FOR THE WEST BANK AND GAZA The financial credibility of PETL is ultimately premised on the creditworthiness of the distribution companies These recent developments in the renewable energy (DISCOs). Ultimately, PETL is largely a financial middle market have significant implications for the future man between generators and distributors. Providing energy plans of the West Bank and Gaza. credit enhancements for PETL cannot be seen as a reliable solution until the real underlying financial The Palestinian Electricity Transmission Company issues are resolved at the level of the DISCOs and (PETL) is the key enabler of renewable energy municipality and village councils. That involves tackling development, particularly in the West Bank. pricing and operational performance at the utility level, PETL plays two critical roles in renewable energy as well as strengthening municipal finances to avoid development: off-taker of power and provider of the diversion of revenues from the electricity sector transmission infrastructure. At present, PETL has into municipal budgets. As such, a cabinet decision no track record in either of these roles. It is therefore has enforced DISCOs and municipality and village pressing for PETL to become financially sustainable councils to establish escrow accounts that ring-fence and establish a track record as a reputable off-taker. the electricity bill payments to ensure they are used It is also important to ensure that PETL has the only for the payment of suppliers. capability to meet the transmission requirements of renewable energy generation and/or to negotiate appropriate transmission arrangements with IEC. 72 | Securing Energy for Development in the West Bank and Gaza Land availability is a major constraint for developing the West Bank is made up of vast empty spaces. utility-scale solar energy production. Due to the The lack of access to Area C is a significant lost small size and high population density of Gaza, the opportunity for independence, diversification, and potential for utility-scale solar is negligible. In the West energy security for the Palestinian energy sector. Bank, Areas A and B, which make up 40 percent of the total land area, contain all Palestinian towns and Rooftop solar systems increase resilience and energy industries, leaving little space for land-intensive solar security in a context prone to armed conflict. Of all generation, but providing more rooftop space for PV supply options under consideration, rooftop solar than in Gaza. According to PETL and the Palestinian holds the greatest potential, as it is least tied to the Energy and Environmental Research Center, based geopolitics of the region. Land restrictions are not on currently submitted projects, approximately 0.12 a factor and construction permits are not required. percent of Areas A and B are available and suitable There is no need to enter into long-term power for solar production, with maximum potential capacity purchase agreements with an off-taker or to evacuate of 103 MW. Area C, which is sparsely developed, has the power generated through a transmission grid. In much larger tracts of desert land potentially suitable terms of construction time, it is the fastest and easiest for solar generation. However, this is outside the to build, and since there is no need for imported control of the Palestinian Authority, and permits for fuels, the system reduces import dependency. Due to construction are rarely granted there. their small distributed nature, rooftop solar systems are the most secure power supply option in case of Access to Area C would have a huge impact on armed conflict, as experience has shown that large the ability to develop domestic renewable energy centralized generation systems have repeatedly generation for the West Bank. If just 3 percent of become damaged during past conflicts. In that sense, the land in Area C was used for utility-scale solar rooftop solar can be regarded as an electricity safety production, over 3,000 MW could be built. Area C, net that allows the most basic needs to be met under which makes up 60 percent of the total land area of a wide range of possible scenarios Securing Energy for Development in the West Bank and Gaza | 73 NOTES 1 See the National Renewable Energy Laboratory (NREL) 2016 annual technology baseline. Note that these figures represent the U.S. solar sector. In the West Bank and Gaza, costs could be higher to compensate for the high-risk environment. 2 National Renewable Energy Laboratory (NREL) 2016 annual technology baseline. 74 | Securing Energy for Development in the West Bank and Gaza CHAPTER 7 Developing Transmission Infrastructure THE CURRENT CONTEXT Expansion plans for Gaza are still in the discussion phase and include (i) a high-voltage 161 kV power The West Bank and Gaza are highly dependent on line from IEC with import capacity of 100–150 MW energy imports from neighboring countries. The and (ii) and upgrade of GPP to operate on natural West Bank has over 250 low- and medium-voltage gas coupled, with expansion of the capacity up to connection points with Israel, and 1 connection 560 MW. All expansion plans, for the West Bank and point with Jordan, which provide 99 percent and especially for Gaza are heavily tied to the political 1 percent of total energy supply to the West Bank, economy of the context and concerns over risk respectively. Gaza has 10 connection points with of nonpayment. Israel, 3 with Egypt, and 1 with the Gaza Power Plant (GPP), which provide 64 percent, 13 percent, and 23 In the West Bank, the energization of the new high- percent of Gaza’s energy supply, respectively. Map voltage substations under the Palestinian Electricity G.1 in appendix G is a geographical representation Transmission Company’s (PETL’s) management of the connection points. All connection points in will start a process of consolidation of the existing Gaza, and most in the West Bank, are fully saturated, connection points. This would streamline operations which leads to power cuts during peak winter and by reducing the large number of direct bilateral low- summer loads. As the electricity demand continues to and medium-voltage connection points between grow, the situation is bound to deteriorate unless the Palestinian distribution companies (DISCOs) and capacity of import lines is expanded. municipalities and village councils (MVCs). Instead, IEC would sell power to PETL at higher voltage To increase diversification of supply and relieve the through the substations, and PETL would in turn sell pressure on the saturated interconnections, additional the power to DISCOs and MVCs. This would increase infrastructure needs to be built. Plans for improved billing transparency and allow PETL to improve the power supply for the West Bank are more advanced sector’s bookkeeping by having better control of the than for Gaza. According to the Palestinian Energy billing and payment cycles. Power transmission at Authority’s draft Energy Sector Strategy 2017– higher voltages would also reduce losses, enabling 2022, expansion plans for the West Bank include PETL and DISCOs to bill for a larger portion of the the following: purchased power, thereby improving cost recovery. In addition, IEC’s bulk supply tariff at higher voltage is at 1. Four new high voltage substations (see map least 10 percent lower than at the low- and medium- G.2 in appendix G for location and service area voltage levels. Finally, the substations would allow of new substations) providing an additional 550 desperately needed additional power to be supplied megawatts (MW) of import capacity from Israeli to the West Bank, which would be instrumental in Electric Corporation (IEC) with expected in-service avoiding civil unrest and mass protests observed dates ranging from 2017 to 2019 during past winter and summer peak load conditions, 2. Jenin Power Plant (JPP), providing additional which stemmed from power cuts due to shortages in capacity of 200–450 MW with expected service power supply. date of 2020 3. Hebron Power Plant, providing additional capacity of 120 MW with planned service date of 2022. Securing Energy for Development in the West Bank and Gaza | 75 The West Bank does not have its own transmission the Israeli transmission network is used and highest backbone to evacuate domestic generation. Currently, if both the transmission and distribution network are Palestinian load centers are passive absorbers of used. (See appendix C, table C.7 for definition of electricity. Their power comes from several low- and TOU periods). Table I-7.2 provides a breakdown of medium-voltage distribution networks managed by the consumption patterns in the West Bank, showing Palestinian DISCOs. These Palestinian distribution that the shoulder hours in spring and fall make up the networks are in turn fed by Israeli high-voltage largest percentage of consumption, at 26 percent, transmission networks that act as electron highways and on-peak hours in winter or summer make up the routing large volumes of power over large distances smallest percentage of consumption, at 3 percent from point of generation to point of distribution. each. Average wheeling costs, shown in table I-7.3, are derived by cross multiplying the costs in table As the West Bank develops its own domestic power- I-7.1 with the consumption patterns in table I-7.2. generation capacity, one option for moving generated Table I-7.3 shows that, for every kilowatt hour (kWh) power to its load centers is to wheel through the of Palestinian energy that needs to be moved through Israeli grid. Wheeling is a mechanism by which power the Israeli grid, the Palestinian side would need to generated in the West Bank is evacuated out into pay between NIS 0.018–0.050 (US$0.005–0.013) the Israeli network and injected back into the West per kWh, equivalent to a 5–10 percent mark-up over Bank at a different location closer to the Palestinian the IEC import tariff. In addition to these relatively load centers. Wheeling charges are set by the Israeli high wheeling costs, the Israeli transmission network regulator, Public Utility Authority (PUA), with a full acts as the gatekeeper for the flow of Palestinian breakdown provided in table I-7.1. This figure shows electricity, which diminishes the control and flexibility that the time-of-use (TOU) costs are lowest if only of Palestinian operators. 76 | Securing Energy for Development in the West Bank and Gaza TABLE I-7.1: ISRAELI ELECTRIC CORPORATION WHEELING TARIFFS NIS AGOROT PER KWH, AS OF SEPTEMBER 13, 2015 SEASON TOU BLOCK TRANSMISSION TRANSMISSION AND DISTRIBUTION TARIFF * DISTRIBUTION TARIFF*** TARIFF** Off peak 0.89 3.46 2.55 Winter Shoulder 1.10 3.89 2.78 Peak 2.8 7.22 4.38 Off peak 0.81 3.22 2.41 Spring/Fall Shoulder 1.36 4.17 2.80 Peak 1.79 4.82 3.01 Off peak 1.42 4.20 2.77 Summer Shoulder 2.60 6.32 3.68 Peak 6.12 12.13 5.90 Source: Information provided by Israel PUA. Note: Ultra-high voltage = 400 kV and 161 kV; high voltage = 22 kV and 33 kV. TOU = time of use. * Ultra-high voltage producer selling to ultra-high voltage consumer ** Ultra-high voltage producer selling to “far away” high voltage consumer *** Ultra-high voltage producer selling to “close by” high voltage consumer TABLE I-7.2: WEST BANK ANNUAL CONSUMPTION BY TIME OF USE WINTER SPRING/FALL SUMMER OFF SHOULDER ON PEAK OFF SHOULDER ON PEAK OFF SHOULDER ON PEAK PEAK PEAK PEAK 3% 16% 9% 11% 26% 20% 3% 7% 5% Source: IEC load curve for JDECO consumption, 2015 Note: The data comes from IEC and represents only sales to JDECO, which covers approximately 50 percent of the West Bank. The figures here assume similar consumption patterns in all of the West Bank. TABLE I-7.3: ANNUAL AVERAGE WHEELING TARIFFS TRANSMISSION TARIFF TRANSMISSION AND DISTRIBUTION TARIFF DISTRIBUTION TARIFF Agorot per kWh 1.8 5.0 3.1 U.S. cents per kWh 0.5 1.3 0.8 Source: World Bank calculations. Note: kWh = kilowatt hour. An alternative option is to construct a Palestinian comparison of the financial impacts of wheeling backbone by connecting the new high-voltage versus building a backbone is provided in Part II. substations through a high-voltage transmission line. This would allow generated power to be routed Building a transmission backbone in the West Bank is directly to Palestinian load centers through this logistically and operationally complex. The land in the backbone, providing greater flexibility and autonomy West Bank is divided into islands, called Areas A and to Palestinian operators. Although operationally more B, that are surrounded by Area C (see map in map favorable, this option faces significant obstacles, as G.3 in appendix G). Areas A and B, which combined Israeli approval and permits would be required for make up 40 percent of the West Bank, are under those sizeable sections of the backbone that would Palestinian or joint Palestinian and Israeli civil control, need to be built cross Area C. A more detailed respectively, so construction permits can be obtained Securing Energy for Development in the West Bank and Gaza | 77 more easily. Area C is entirely under Israeli control and which power generated in the West Bank is exported construction permits are extremely difficult to obtain. to Israel and Israel agrees to provide the same Building a transmission backbone would require quantity of power at a different location back to the constructing large and contiguous infrastructure West Bank. The details need to be sorted between traversing Areas A, B, and C, which would likely face the two sides, but this would provide a convenient significant delays. In addition, neighboring countries middle ground to avoid having to build infrastructure would have to provide approvals for large connections in Area C or having to pay a constant per kWh charge to their system, which may affect their own grid to use the Israeli network. stability. Finally, if the transmission backbone is built, all sides must work together constantly to create In Gaza, Palestinian Authority concerns over supply-demand balance in the connected grids, nonpayment have impeded development of additional which requires excellent cooperation at all times. IEC supply through a 161 kV transmission line from For this to happen, PETL would need to develop Israel. Additional power supply to Gaza is desperately the capacity to play the role of a proper transmission needed as the existing import feeder lines have been system operator. fully saturated for quite some time. Additional power supply from IEC through a 161 kV transmission line Many other preconditions need to be met before has been on hold for over a decade, but recently Israeli it makes sense to consider the development of authorities gave the green light for its construction. a transmission backbone. Before a transmission Since the Palestinian Authority pays for the entirety backbone is built, a series of phases must be passed of the power that Gaza receives from IEC through to create the right environment. First, the substations clearance revenues and the net lending process, must be energized, which would allow PETL to they are concerned about how the additional power become operational. Next, PETL must work with from IEC to Gaza will be paid for. This is especially DISCOs to reduce financial leakages, in order to true given the fact that donor contributions to the create strong payment discipline along the electricity Palestinian Authority’s budget support have fallen supply chain. This would improve the creditworthiness from 32 percent of gross domestic product in 2008 of PETL and make it possible for it to sign power to under 6 percent in 2016. purchase agreements (PPAs) with independent power producers, thereby increasing domestic generation Building a transmission backbone in Gaza makes capacity. As domestic generation increases, in the more sense than wheeling domestically generated initial years, wheeling could be a viable option as power supply through Israel. Given the small size of PETL becomes financially and operational stable the Gaza Strip, and the fact that there are no land and capable. Only at this point, once the foundations restriction and permitting issues such as Area C in for a financially secure energy sector have been the West Bank, if domestic generation is ramped up laid, would it be time to consider the construction in the future in Gaza, it makes more sense to create of a transmission backbone to enhance energy a domestic backbone then to export the power into sector independence. the Israeli grid for wheeling and reinjection. Between the West Bank and Gaza, the total investment A swap mechanism could be an interesting third option costs for building the full domestic transmission and to consider. In addition to the options of wheeling distribution infrastructure, including the transmission through the Israeli grid or building a transmission backbone but assuming no wheeling or swaps, are backbone in the West Bank, the Palestinian Authority given in table I-7.4. could negotiate a swap mechanism with Israel, in 78 | Securing Energy for Development in the West Bank and Gaza TABLE I-7.4: SUMMARY OF TRANSMISSION AND DISTRIBUTION INVESTMENT COSTS (US$ MILLIONS) GAZA WEST BANK WEST BANK AND GAZA Transmission backbone 33a 72b 105 Transmission to evacuate renewable energy projects in Area C - 44 c 44 Regional interconnectors 32d 20e 52 Distribution 60 f 52 g 112 Total 124 188 312 a 2 x 161/33 substations, overhead 161 kilovolt (kV) line; 26 kilometers (km). b 2 x 161/33 substations, overhead 161 kV line; 117 km plus a national control center. c 3 x 161/33 substations, overhead 161 kV line; 72 km. d 2 x 161/33 substations, overhead 161 kV line; 20 km. e 1 x 161/33 substations, overhead 161 kV line; 26 km. f For Gaza-North, rehabilitation of the distribution grid (224 km) and extension of the grid (200 km). For Gaza- South, rehabilitation of the distribution grid (74.7 km) and extension of the grid (200 km). g For West Bank-North, adaptation of the distribution grid to support new connection points (200 km) and extensions around JPP (100 km). For West Bank- Central, adaptation of the distribution grid to support new connection points (200 km) and extensions for supporting Area C and extension of connection with Jordan (100 km plus 100 km). For West Bank-South, adaptation of the distribution grid to support new connection points and extensions to support the development of gas for West Bank-South. IMPLICATIONS FOR THE WEST BANK sales to, and collections from, electricity distributors AND GAZA in the West Bank. Progress can be achieved on draft PSAs while the main PPA is still being negotiated. The development of transmission infrastructure in the Once the PPA is signed, the PSAs can be completed West Bank and Gaza have the following implications with final clauses, saving a significant amount of time. for the Palestinian energy sector. Second, a billing and collection system must be set up for PETL, allowing it to receive invoices from PETL must start operating on a commercial basis and IEC, send bills to distributors, collect payments from take ownership for fixing the gaps in the revenue cycle distributors, and pay back IEC for the purchased as its first priority. Financial independence will lead to electricity. USAID is currently supporting PETL to energy independence, but the reverse is not possible. design the software and mechanism for billing and Supplier concerns over nonpayment undermine any collections. In addition, PETL is working with IEC to potential for upgrade and expansion in the energy ensure that the company receives the bills directly sector. PETL has two roles: that of a single buyer instead of through the Palestinian distributors. and bookkeeper and that of a transmission system Finally, PETL should collaborate with the Palestinian operator. In order to enable the right environment Electricity Regulatory Council in the preparation of its for building large-scale infrastructure, including sale tariff to the distributors. With these mechanisms transmission, PETL must excel in its role as the in place, PETL could accelerate its progress toward single buyer and bookkeeper first before becoming a fulfilling its role and responsibilities under the PPA transmission system operator, and it can take on this and reducing its reliance on donor assistance for its role even before the substations are energized or a operational costs. PETL’s staffing plan needs to be PPA with IEC is signed. adjusted according to the company’s projections on revenues collected from distributors. In parallel, while PETL is negotiating with IEC on the main PPA and the energization of the substations, it As domestic generation develops, Israeli and can focus on strengthening its operational capacity as Palestinian sides will have to work together to the energy sector’s bookkeeper. As the negotiations determine how best to evacuate the power. In the continue, PETL should focus on three issues in the short term, the two sides will need to negotiate short term. First, PETL should prepare and open favorable wheeling charges or swap mechanisms negotiations on power service agreements (PSA) with to ensure that power supply expansion keeps pace the DISCOs and MVCs to set the terms of power with demand growth. In the mid- to longer term, as Securing Energy for Development in the West Bank and Gaza | 79 the Palestinian energy sector becomes more stable and bankable, the two sides can work together to build a long-term vision of establishing a high- voltage transmission network. Given the inherently interwoven nature of the Israeli and Palestinian energy sectors, with or without a Palestinian transmission network, both sides must cooperate closely to ensure grid stability. If the Palestinian energy sector is to become a major client for wheeling power back through the Israeli grid, then the tariff structure for wheeling will need to be carefully considered, or alternatively a swap mechanism needs to be negotiated. At present, the wheeling charges that would apply to Palestinian electricity wheeling back through the Israeli grid look to be relatively high and represent a significant surcharge on the import tariff. The cost implications of using the Israeli grid for wheeling would need to be carefully understood and negotiated by both sides. A swap mechanism could be the most ideal solution if both sides can come to agreeable terms. 80 | Securing Energy for Development in the West Bank and Gaza CHAPTER 8 Integrating Energy Efficiency THE CURRENT CONTEXT because this energy type has the largest share in the Palestinian final energy mix (see table I-8.1).1 The The Palestinian energy system is characterized by the Palestinian Energy and Natural Resources Authority complete dependence on imported energy products (PENRA), with the support of the French Development and the predominance of electricity in final energy Agency (Agence Française de Développement, AFD) consumption. Diesel and gasoline are used primarily and the World Bank, has been actively spurring the in the transport sector, while all other sources of implementation of the three-phased NEEAP for 2012– energy—including electricity—are primarily used by 20. Phase I has been successfully achieved and Phase the residential sector (figure I-8.1). II is being implemented satisfactorily. PENRA’s Energy Efficiency Unit has so far undertaken 250 energy audits The Palestinian National Energy Efficiency Action Plan across different sectors of the Palestinian economy, (NEEAP) aims to reduce 384 gigawatt hours (GWh) of which have triggered the investments required to total energy demand by 2020, representing around unlock the untapped energy efficiency potential. Phase 1 percent reduction per year (compared to 2010 III is expected to start in 2018.2 levels). The action plan is mainly focused on electricity, Figure I-8.1: Final Energy Consumption per Sector in the Palestinian Territories 20,000 15,000 TJ 10,000 Commercial and public services Residential 5,000 Transport Industry 0 Solar Wood LPG Gasoline Diesel Electricity energy and charcoal Source: World Bank own elaboration based on PCBS data. Note: LPG = liquid petroleum gas. Securing Energy for Development in the West Bank and Gaza | 81 TABLE I-8.1: ENERGY EFFICIENCY TARGETS UNDER NEEAP 2012–2020 (GWH) SECTOR TARGETS PHASE I (2012–14) PHASE II (2015–17) PHASE III (2018–20) 2020 Industrial 5 6 8 19 Buildings 38 130 195 363 Water pumping - 1 1 2 Total (GWh) 43 137 204 384 Source: Information provided by Palestinian National Energy Efficiency Action Plan (NEEAP) and Palestinian Energy and Natural Resources Authority. Note: GWh = gigawatt hour. To further promote energy-efficiency investments, 2020, to expand and consolidate its achievements. PENRA has drafted the ambitious National Energy This phase focuses on energy audits for the industrial Efficiency Action Plan for 2020–2030 with the support and commercial sectors and financial incentives. The of the World Bank (figure I-8.2) . The proposed target deployment of smart-meters and related information is to reduce 5 percent of the forecast consumption systems will allow consumers to have real-time and during the 10-year period, a total savings of 5,000 accurate information on consumption and associated GWh. This represents a large increase from the 384 costs. Consumption data will be collected, stored, GWh savings of the current NEEAP 2012–2020. The and analyzed to provide useful guidance to replace future action plan is also divided in three phases. inefficient products and improve industrial processes (sub-metering and energy audits are the key tools to Phase I (2021–30) focuses on efficient appliances and be used). This phase will also pave the way to Phase industrial equipment (see figure I-8.3). This phase is III to ensure that smart-home appliances will be fully designed as a follow-on of the current NEEAP 2012– interoperable with metering systems. Figure I-8.2.: Draft NEEAP 2020–2030 Implementation Strategy Phase III: Smart home, grid, city Phase II: Energy market structuring, energy conservation, DS management Phase I: EE appliances, residential sector, smart metering 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 82 | Securing Energy for Development in the West Bank and Gaza Figure I-8.3: Energy Efficiency Potential in the Residential Sector TV set, video, computing Air conditioner Electric room heater Water heating and tank Water heating Tumble dryer Washing two feeds Washing machine (*) Dishwasher two feeds Dishwasher (*) Fridge Microwave Electric stove Lighting LED Lighting CFL Lighting 0,000 0,500 1,000 1,500 2,000 2,500 Kilowatt hours per day per day Energy consumption for one standard household Source: World Bank own elaboration based on Palestinian Central Bureau of Statics data for households energy 2015. Phase II (2024–30) will focus on energy market Phase III (2027–30) will focus on smart-homes, smart- structuring and thermal insulation of buildings. The buildings, and smart-grids. The simultaneous use of opening of the national electricity market to competition market-based services and smart-appliances would could be considered in this phase. From an energy enable consumers to become active energy players. efficiency perspective, this reform would make new For instance, consumer’s behavior could adjust to market-based services available, such as the possibility changes in electricity prices. Demand response to remunerate clients reducing their consumption actions to shift consumer’s electricity usage during on demand. The rollout of smart-meters and the peak hours in response to time-based rates would introduction of time-of-use tariffs would contribute to avoid building new generation capacity. incentivize behavior change and reduce consumption during peak hours. Due to the large lead times of The proposed energy efficiency actions have relatively building renovations, thermal insulation of buildings modest investment costs and short payback periods. should also be a priority activity during this phase. Table I-8.2 summarizes the proposed energy- Following the design of specific minimum efficiency efficiency actions with the expected savings during performance standards and building codes integrating the 2020–30 timeframe, their total costs, and the cost- nearly Zero Energy Building standards (nZEB), these benefit ratio. When this ratio is less than the average would become mandatory for all public buildings and retail electricity price, i.e., US$0.13 for residential, the encouraged by financial incentives for the residential corresponding investment may be recovered in less sector.3 A building renovation strategy would also be than 10 years. drafted for the residential sector in order to improve thermal insulation of the existing building stock. Securing Energy for Development in the West Bank and Gaza | 83 TABLE I-8.2: ENERGY EFFICIENCY POTENTIAL DURING 2020–2030 ENERGY-EFFICIENCY ACTIONS BENEFITS (GWH) TOTAL COSTS COST-BENEFIT (US$ MILLIONS) (US$-KWH) Lighting: move to CFL standard 2,612 1.750 0.001 Lighting: move to LED standard 322 2.275 0.007 Introduction of more efficient fridges 127 4.375 0.035 Switch to gas for room heating 246 24.832 0.101 Electronic thermostats 222 10.177 0.046 Labelling and national campaign 1,270 3 0.002 Repairing of SWH 1,576 126 0.080 Smart-metering for all households 1,587 48 0.038 Sub-metering 317 4.812 0.015 Building thermal insulation 720 345 0.479 Labelling program 881 50 0.057 Source: PENRA, Palestinian National Energy Efficiency Action Plan for 2020 – 2030, draft March 2016. Note: CFL = compact fluorescent light; LED = light-emitting diode. IMPLICATIONS FOR THE WEST BANK consumption profiles to detect nonefficient usages, AND GAZA recommend the replacement of appliances, and so forth. Home displays or equivalent devices The development of energy-efficiency programs in the (for example, mobile applications) will help the West Bank and Gaza have the following implications consumers relate their daily behaviors and the for the Palestinian energy sector. impacts on their consumption. Monthly billing information is not sufficient to create this link Managing overall energy demand is a priority, but between usage and energy. The same program managing peak hour load will become increasingly should help DISCOs improve their quality of important. Nowadays, electricity is bought from IEC service (detection of failures) and reduce technical at a high price, but IEC is in charge of managing the and commercial losses. Smart-meters are not flexibility of the demand. In the future, PETL, acting sufficient to do that. Internal processes have to be as transmission system operator, could purchase implemented to randomly check the consumption “blocs” of electricity in bulk at a lower price but would and detect unbalanced low voltage lines. have the responsibility to make daily forecasts and balance demand and generation in real time. If PETL 2. The second action is to promote a switch from has to develop the role of system operator in the electricity to gas (liquid petroleum gas and/or future, a deep knowledge of energy consumption and natural gas) for room heating. Electricity should its patterns would be key. be reserved to usages where there are no replacements (motors, electronics, and so forth). Among the proposed energy-efficiency actions, two For consumers, the main argument in favor of may require a complex implementation program: electricity is the low cost of appliances. However, in the long term, the operational costs are much 1. The first is the generalization of the smart-meters lower for gas. This switch cannot be initiated for the residential sector. This program aims to without a national strategy for gas so that the provide information to the consumers so that cost of the required infrastructures (transportation they will be in a position to better manage their and storage of gas) will be shared among all consumption. These meters are the visible part of stakeholders. The repair and further penetration the iceberg. A sophisticated information system of solar water heaters is part of this endeavor, is simultaneously required from DISCOs to since it would decrease the need to use prepare energy audits per household, compare nonrenewable energy. 84 | Securing Energy for Development in the West Bank and Gaza NOTES 1 Electricity represents 33 percent of the final consumption of energy. Savings on diesel, the second energy most commonly used in the Palestinian territories, should also be considered in future assessments. Electricity is mainly used by the residential sector (more than 60 percent), whereas diesel is used almost exclusively in the transport sector. 2 The AFD has financed the required energy audit equipment and staff costs. Audits include 60 in the industrial, 120 in the public, 40 in the service, 10 in the agricultural, and 20 in the residential sectors 3 The concept of nZEB is an attempt to standardize the consumption of energy per square meter per year. Securing Energy for Development in the West Bank and Gaza | 85 PART I I Decision Making CHAPTER 9 Introduction and methodology Attention now turns to the exploration of possible There are therefore two steps involved in realizing energy futures for the West Bank and Gaza, with a secure and affordable energy future for the West the accent on enhanced energy security. However, Bank and Gaza. The first is to conduct a power- energy security can itself be defined from a number sector planning exercise to evaluate the relative of perspectives, each of them valid in its own attractiveness of different electricity supply options. way. First, there is the ability to reliably meet the The second step is to evaluate the feasibility of entire demand for electricity, by minimizing supply financing the preferred power-sector planning choice. interruptions and hence loss of load. Second, there is the resilience of the power system that comes ROBUST PLANNING MODEL from diversifying sources of power supply, including alternatives that are relatively robust in the context of As a first step, a robust planning model is developed different types of shocks. Third, there is the degree that is capable of incorporating the significant of independence of the power system, in terms of uncertainties of the Palestinian context into a the extent to which electricity needs can be met from traditional least cost power generation plan. Power- domestic production versus imports. It should be system planning is normally undertaken using models noted that only renewable energy provides full energy that select the least-cost sequence of generation independence, in the sense that domestic generation options needed to meet electricity demand at some with fossil fuels can be as, if not more, vulnerable to specified level of reliability, based on the assumption fuel supply interruptions as importing electricity. The that all parameters are known with certainty. This analysis will consider all three of these dimensions of approach does not appear realistic in the Palestinian energy security, which can usefully be described as context, where deep uncertainty is the norm. Four reliability, resilience, and independence. In practice, dimensions of uncertainty are explicitly considered tradeoffs may exist between them. for each generation option: (i) uncertainty in demand forecast, (ii) uncertainty in the evolving unit cost Energy security cannot be considered in isolation of different technologies over time, (iii) uncertainty from financial affordability. Increasing energy security in how soon particular supply options (that is, gas) often comes with a cost premium of some sort, as will become available, and (iv) uncertainty due to additional investments will likely be needed to achieve outages and force majeure, such as conflict. Based the requisite reserve margin, diversify sources of on stakeholder consultation and expert opinion, power, and/or expand domestic production. The plausible ranges for the uncertainties were defined. benefits of energy security also need to be weighed-up against associated costs and the affordability of these By running the planning exercise many times in different costs for the power system as a whole. Affordability states of the world, it becomes possible to identify can be considered from two perspectives. The first the plan that is most robust over the largest number is whether the retail tariffs needed to implement the of possible futures. The model is run 100 times and energy security plan are affordable to customers. The each time a different draw is made from the probability second is whether any government subsidies needed distribution of all the uncertain parameters, resulting in to support the achievement of the energy security a slightly different optimal least-cost plan (see figure II- plan are fiscally affordable to government. Both are 9.1). At the end of the process, the 100 resulting plans evaluated in this analysis. are put side by side and used to construct a robust plan by starting with the supply option that is most frequently selected across the 100 least-cost plans, 88 | Securing Energy for Development in the West Bank and Gaza Figure II-9.1: Illustration of Methodology for Determining the Robust Plan 100 simulations/future outlooks TABLE II-9.1: OVERVIEW OF ENERGY PLANNING SCENARIOS DEVELOPED WITH THE ROBUST PLANNING MODEL SCENARIOS CHARACTERIZATION PURPOSE Do Nothing Electricity demand continues to grow without This is the baseline against which other any proactive measures either to increase power planning alternatives can be evaluated. imports or develop generation capacity. Planned Future Future increases in electricity demand are met by Evaluate the current thinking of the projects that are already in the pipeline. Palestinian Authority by analyzing the impact of (i) planned projects currently PENRA Vision Future increases in electricity demand are met in the pipeline and (ii) PENRA’s vision in such a way that by 2030 no single generation as stated in the most recent Palestinian source accounts for more than 50 percent of energy National Authority Energy Sector needs, while providing the capacity to import 100 Strategy of 2011–2013, as well as the percent of energy needs as backup. draft Strategy for 2017–2022. Maximum Future increases in electricity demand are met Evaluate alternative futures at Cooperation primarily by increasing electricity imports. the extreme opposite ends of the independence spectrum to analyze the Maximum Future increases in electricity demand are met tradeoffs. Independence primarily by developing domestic generation options. Note: PENRA = Palestinian Energy and Natural Resources Authority. and then adding the next most frequently selected, and The robust planning model is used to illustrate a so on, until demand is fully met. The model provides number of different planning scenarios. The model a detailed set of information regarding each selected will be used to explore five different types of planning energy future and can be constrained to meet certain scenarios each for the West Bank and Gaza (table II- policy objectives. Extensive details on the robust 9.1). It is important to stress that not all of the scenarios planning model and methodology, uncertainty variables presented by the model are necessarily realistic, and and plausible ranges, and full model outcomes are some of them are used primarily to illustrate the provided in appendix 8. implications of pursuing different approaches. Securing Energy for Development in the West Bank and Gaza | 89 SECTOR FINANCIAL MODEL data submitted by a subset of the utilities—Jerusalem District Electricity Company and Northern Electricity A power sector financial model was developed to Distribution Company. This means that while tariffs are cover the entire Palestinian electricity sector. The model set to cover costs on average, individual utilities may begins with the Palestinian Electricity Transmission over- or under recover. The financial model instead Company (PETL) purchasing a “basket” of electricity calculates individual cost recovery tariffs for each utility from different producers at different wholesale costs each year. Second, PERC bases tariff calculations on under power purchase agreements, assuming no the assumption of 100 percent revenue collection, Palestinian public investment in generation (figure II- so as not to pass on commercial inefficiencies to 9.2). The pattern of purchases is determined by the customers. The financial model allows efficiency output of the robust planning model (see figure II-9.3), improvement targets for 2030 to be built into the which identifies the quantity and cost of each generation calculations so that performance improves gradually source. PETL then sells this electricity to distribution and is reflected in tariffs as soon as improvements companies (DISCOs) at a bulk supply tariff, which will take place. However, during the transition period, include a mark-up to cover PETL’s own investment collection inefficiencies are passed on to customers. and overhead costs. DISCOs then sell this electricity to consumers at a retail tariff, which will include a Considerable efforts were made to collect the mark-up to cover their own investment and overhead financial and operational data needed for the model. costs. The tariffs calculated in the financial model are Numerous meetings were held with the Ministry of equilibrium tariffs designed to offset and compensate Finance, PETL, PERC, and all six DISCOs to support for losses and low collection rates. This differs from the an extensive data-gathering exercise. The data regulator’s (Palestinian Electricity Regulatory Council, collected include financial statements of DISCOs, as or PERC) tariff-setting methodology. well as operational data such as purchase and sales, losses and collection rates, payment to suppliers The retail tariff, consistent with financial equilibrium (including through net lending), and more. In the that is calculated by the model, differs somewhat case of the transmission system operator, PETL—a from the regulatory tariff set by the regulator, PERC. new institution with limited financial records—the First, PERC calculates a single unified tariff for all company’s business plan was used to estimate its Palestinian distributors, based on averaging financial anticipated cost structure. Figure II-9.2: Flowchart Illustrating the Different Building Blocks of the Electricity Sector Financial Model Poor Government Affordability households subsidies thresholds Distribution investments DISCOs Retail tariff Distribution operating margin Wholesale power purchase (imports plus IPPs) Transmission investments PETL Bulk supply tariff Transmission operating margin Note: DISCO = distribution company; IPP = independent power producer; PETL = Palestinian Electricity Transmission Company. 90 | Securing Energy for Development in the West Bank and Gaza In addition, the consumer perspective was introduced income distribution discussed previously, and the 5 into the financial model by incorporating an affordability percent affordability threshold, the model identifies limit on retail tariffs for the poorest households. To (i) the maximum cost for the subsistence block of determine the affordability limits, the financial model consumption so that even the poorest consumers can draws upon the most recent Palestinian Expenditure afford basic electricity supply, and (ii) the magnitude and Consumption Survey, from 2011, which provides of subsidies required to make electricity services detailed information on household budgets, including affordable to different income deciles. Such subsidies electricity expenditure. The survey was used to could either be channeled through distribution utilities understand the income distribution in the Palestinian as targeted bill reductions for poor households or territories, and in particular the budget available to the through social welfare payments. In either case, a average household in each decile—or 10 percent—of targeting mechanism would be needed to ensure the income distribution from poorest to richest. that the poorest households can be identified. The West Bank and Gaza Cash Transfer Program could According to the international literature, 5 percent of potentially be used as the targeting mechanism, since budget for a basic level of “subsistence consumption” it contains a database of 115,000 households living is said to represent an affordability limit. In the under the poverty line in the West Bank and Gaza. Palestinian context, the subsistence consumption The alternative to targeted subsidies, which is to keep is set at 160 kilowatt hours (kWh) per month and tariffs low for all consumers, can also be modeled. corresponds to the first block of the retail tariff While simpler to administer, it evidently entails a much structure (see appendix A, table A.1). Considering the higher subsidy bill. Securing Energy for Development in the West Bank and Gaza | 91 Figure II-9.3: Flowchart Illustrating the links between the Robust Planning Model, Sector Financial Model, and the Transmission Costing Matrix DISCO Household financial budgets statements Unserved demand survey & annual Supply reports options Robust Total and average Government Planning cost of power subsidies Model production Financial Demand Bulk supply Model forecast tariff charged Energy produced per supply type by PETL Retail tariff T&D charged by T&D investment DISCOs costs Affordability constraint Note: DISCO = distribution company; PETL = Palestinian Electricity Transmission Company; T&D = transmission and distribution. Bringing all the pieces together, the robust planning Finally, the macrofiscal impact of implementing the model and the sector financial model are designed planned scenarios are also evaluated. Building on a to work together along with a transmission costing new set of computable general equilibrium models matrix as illustrated in figure II-9.3. The results of the developed separately for the West Bank and Gaza, robust planning model are fed into both the financial it is possible to examine the macrofiscal impacts of model and a transmission costing matrix, which the planning scenarios. The models are augmented is used to price out the cost of building additional to provide a more detailed characterization of the transmission and distribution (T&D) infrastructure for energy sector than might normally be the case, and the generation mix identified by the robust planning the impact of the planning scenario is incorporated model. The T&D costs are then also fed into the into the model simulation. This makes it possible financial model, which calculates the equilibrium to examine how the energy investments affect the tariffs and, comparing to affordability thresholds, also overall growth domestic product growth trajectory, as identifies subsidies required from the government well as the public finances. to protect the poorest consumers. If outcomes are unacceptable, further iterations of the models are run to, for example, impose upper bounds on the cost of generation to improve overall affordability. Refer to appendix 9 for further details on the financial model methodology. Refer to appendix I, tables I.1–I.6 for full operational and financial data used in the financial model for each DISCO. 92 | Securing Energy for Development in the West Bank and Gaza CHAPTER 10 Analysis and Results for the West Bank This chapter presents the results of the integrated are inevitably somewhat subjective and based on a planning and financial exercise for the West Bank. combination of expert judgment and stakeholder consultation. PLANNING MODEL Domestic gas-fired power generation looks to The two key drivers of the planning scenarios are compare favorably with Israeli imports, while projected the relative cost of power supplied through different declines in the cost of renewable energy bring these technologies and the range of uncertainties that increasingly into parity. The LCOE analysis illustrates affects each of them. Figure II-10.1 plots the so-called a wide dispersion in costs across different generation levelized cost of energy (LCOE), defined as total capital technologies, although for most sources there is and operating costs across the lifetime of a power convergence of costs over time toward the range project averaged over the total electricity produced. of NIS 0.26–0.47 (US$0.07–0.13) per kilowatt hour While LCOE is a convenient device for making simple (kWh) by 2030. Israeli imports, currently the dominant relative cost comparisons, it is important to recognize source of energy, and priced at just under NIS 0.37 that it does not capture all relevant characteristics of (US$0.10) per kWh, set the relevant benchmark. At each power source, such as its availability for dispatch the beginning of the period, only gas-fired power and contribution to meeting peak loads. Table II-10.1 generation comes in below the cost of Israel imports. summarizes the different uncertainty parameters While renewable energy starts out as more expensive that characterize each of the power supply options, than Israeli power imports, projected steep declines considering delays in availability, uncertainty of cost, in unit costs bring solar photovoltaic (PV) into parity as well as probabilities of interruption to supply. These by the year 2022, and the cost differential for rooftop Figure II-10.1: Time Trends of Levelized Cost of Energy for Different Supply Options in the West Bank 0.20 0.18 0.16 0.14 0.12 0.10 0.08 0.06 0.04 0.02 0.00 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 CCGT-Gas, from $6.5/MMBTU Israel import Jordan import Rooftop solar, from $2,500/kW Commercial solar, from $1,248/kW CSP-6h, from $6,332/kW Note: CCGT = combined cycle gas turbine; CSP = concentrated solar power; kWh = kilowatt hour; MMBTU = million British thermal unit. Securing Energy for Development in the West Bank and Gaza | 93 TABLE II-10.1: OVERVIEW OF UNCERTAINTY PARAMETERS FOR THE WEST BANK NORTH AND SOUTH PLANNING EXERCISE DIESEL GAS: NORTH GAS: SOUTH ISRAEL JORDAN Availability range Earliest 2016 2021 2024 2020 2022 Latest 2016 2035 2035 2030 2035 Volume range Lowest Unlimited 0.2 bcm 0.2 bcm 850 MW 30 MW Highest Unlimited 2.0 bcm 2.0 bcm 1400–1800 MW 100–200 MW Price range Lowest Known $4.0/MMBTU $4.0/MMBTU Current Indexed to oil Highest Known $6.5/MMBTU $7.5/MMBTU $0.11/kWh Indexed to oil Outage duration range Minimum days 37 37 37 18 29 Maximum days 293 365 365 91 256 Other parameters Minimum availability 0.30 0.40 0.40 0.80 0.70 Probability of interruption 0.40 0.06 0.10 0.02 0.05 Note: bcm = billion cubic meters; MW = megawatt; MMBTU = million British thermal units. solar and concentrated solar power is substantially captured. Based on the historical record, Israeli eroded by 2030. Nevertheless, it is important to power imports come across as the least risky source underscore that these do not represent firm energy in of electricity and diesel as the riskiest. the way that Israeli power imports do. Power imports from Jordan are also expected to decline with time Against this backdrop, the results of five planning as cheaper Israeli gas begins flowing to Jordan by scenarios are considered. As noted above, these 2020. This will bring the cost of Jordanian power include a Do Nothing counterfactual, where not closer to Israeli power, although Jordanian power further investments are made in power infrastructure is expected to continue being offered at a premium while demand continues to grow. This is compared to Israeli power unless Jordan’s power generation with the impact of the current pipeline of investments, portfolio moves away from being dominated by gas described as the Planned Future, as well as PENRA and toward cheaper renewables. Vision for the longer term, which seeks to limit dependence on any single source of energy to 50 The modeling exercises also strives to capture percent of demand while retaining the ability to import some of the main features of the uncertain 100 percent of energy needs if required. For the planning environment. Specific uncertainty ranges purposes of illustration, two additional, more extreme associated with each of the nonrenewable options scenarios are considered. Maximum Cooperation are summarized in table II-10.1. With the exception considers the possibility of continuing the West Bank’s of diesel, there is considerable uncertainty of when historically almost exclusive dependence on Israel particular capacity expansions would come online, for imported power, while scaling up the associated how large they would be, and at what price they infrastructure to keep pace with mounting demand. would be offered. Probabilities of supply interruptions Maximum Independence looks at the fullest extent of and their effect on availability of power from different domestic power generation that could be developed sources and potential duration of outages are also in the West Bank under the most optimistic scenario. 94 | Securing Energy for Development in the West Bank and Gaza Under the Do Nothing scenario, the West Bank Under the Planned Future scenario, a significant becomes increasingly unable to meet its electricity volume of investment brings about greater supply demand (figure II-10.2). With the capacity for Israeli diversification with only minimal impacts on costs (figure electricity imports capped at current levels of 890 II-10.3). The development of the Jenin and Hebron megawatts (MW), and Jordanian imports capped at gas-fired CCGT plants, as well as the expansion of 20 MW, and in the absence of any new domestic the renewable energy portfolio to reach the 130 MW generation capacity, the average cost of electricity target, call for capital expenditure of NIS 3.1 billion remains at current level of NIS 0.36 (US$0.098) (US$850 million) and lead to significant diversification per kWh. However, the percentage of unserved of the power mix, with domestic production providing demand rises steeply from small levels in 2016 to 36 percent of energy needs by 2030. Relative to the reach 9 percent in 2030, and averages 4 percent of Do Nothing scenario, this eliminates supply shortages total demand over the entire period. The associated while only raising the average cost of electricity very economic losses are valued at NIS 9.5 billion (US$2.6 slightly to NIS 0.37 (US$0.101) per kWh. However, billion), equivalent to about 20 percent of the gross in terms of energy independence, little has changed, domestic product (GDP) of the West Bank in 2015. In since both the electricity and gas—accounting for 96 the northern region of the West Bank, this shortage percent of energy use—are imported from Israel. has already been felt as power shortages during the summer of 2016 that resulted in rolling blackouts culminating in street protests. This clearly represents an unacceptable trajectory. Figure II-10.2: Results of “Do Nothing” Scenario for West Bank Do Nothing: Demand continues to grow while power infrastructure is capped at 890MW of interconnectors with Israel and 20MW of interconnectors with Jordan A. West Bank Supply B. West Bank energy supply (GWh) Capacity in 2030 (MW) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Egypt/Jordan imports Israel imports CCGT + GT Diesel genset PV-Area C RE - other Unserved energy Demand AVG COST CAPEX 2030 2030 2030 DOMESTIC 2030 DOMESTIC POWER (US (US$ UNSERVED ELECTRICITY GEN-IMPORTED GEN-RENEWABLES (%) CENTS/KWH) MILLION) DEMAND (%) IMPORTS (%) FUEL (%) 9.79 0 9% 90% 0% 0.4% Takeaway: Currently, power supply is not diversified and there will soon be power shortage in the West Bank. Note: CAPEX = capital expenditure; GWh = gigawatt hour; GT = Gas Turbine ; MW = megawatt; PV = photovoltaic; RE = renewable energy. Securing Energy for Development in the West Bank and Gaza | 95 Figure II-10.3: Results of “Planned Future” Scenario Planned Future: All PENRA’s currently planned projects come online (four substations (540 MW), Jenin Power Plant (400 MW), Hebron Power Plant (120 MW)). Renewables target (130 MW A. West Bank Supply B. West Bank energy supply (GWh) Capacity in 2030 (MW) 8000 7000 6000 5000 4000 3000 2000 1000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Egypt/Jordan imports Israel imports CCGT + GT Diesel genset PV-Area C RE - other Unserved energy Demand AVG COST CAPEX 2030 2030 2030 DOMESTIC 2030 DOMESTIC POWER (US (US$ UNSERVED ELECTRICITY GEN-IMPORTED GEN-RENEWABLES (%) CENTS/KWH) MILLION) DEMAND (%) IMPORTS (%) FUEL (%) 10.06 850 0% 64% 32% 4% Takeaway: There is no power shortage but still limited diversification as 96% of power and fuel is imported. Note: CAPEX = capital expenditure; GWh = gigawatt hour; GT = Gas Turbine; MW = megawatt; PV = photovoltaic; RE = renewable energy. 96 | Securing Energy for Development in the West Bank and Gaza Figure II-10.4: Results of “PENRA Vision” Scenario Planned Future: All PENRA’s currently planned projects come online (four substations (540 MW), Jenin Power Plant (400 MW), Hebron Power Plant (120 MW)). Renewables target (130 MW A. West Bank Supply B. West Bank energy supply (GWh) Capacity in 2030 (MW) 8000 7000 6000 5000 4000 3000 2000 1000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Egypt/Jordan imports Israel imports CCGT + GT Diesel genset PV-Area C RE - other Unserved energy Demand AVG COST CAPEX 2030 2030 2030 DOMESTIC 2030 DOMESTIC POWER (US (US$ UNSERVED ELECTRICITY GEN-IMPORTED GEN-RENEWABLES (%) CENTS/KWH) MILLION) DEMAND (%) IMPORTS (%) FUEL (%) 10.16 2,133 0% 45% 37% 19% Takeaway: PENRA can achieve diversification vision w/o Area C but needs large RE scale up in Areas A, B and rooftop solar. Note: CAPEX = capital expenditure; GWh = gigawatt hour; GT = Gas Turbine ; MW = megawatt; PENRA = Palestinian Energy and Natural Resources Authority; PV = photovoltaic; RE = renewable energy. But the only way to meet the full PENRA Vision of A and B—and achieving, as a result, a much higher diversification is to invest much more heavily in solar degree of diversification. Although these options PV, fully developing potential in Areas A and B (figure are slightly more expensive on a per unit basis than II-10.4). While the Planned Future scenario represents Israeli imports, and the necessary capital expenditure a substantial improvement on Do Nothing, it remains more than doubles to reach NIS 7.7 billion (US$2.1 dependent on Israeli electricity and fuel imports to billion), the overall impact on the average cost of meet 96 percent of its energy needs. It does not meet generation remains very modest, rising only to NIS PENRA’s longer term diversification criterion that no 0.372 (US$0.102) per kWh. This scenario shows that source of electricity should account for more than PENRA’s strategic vision can be achieved without 50 percent of demand. To meet this constraint, the access to Area C, by focusing on developing solar PV model ramps up the proportion of renewable energy— potential in Areas A and B and on rooftops. essentially developing much of the potential in Areas Securing Energy for Development in the West Bank and Gaza | 97 Figure II-10.5: Results of “Maximum Independence” Scenario Maximum Independence: Same goals as PENRA vision but with unlimited access to Area C A. West Bank Supply B. West Bank energy supply (GWh) Capacity in 2030 (MW) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Egypt/Jordan imports Israel imports CCGT + GT Diesel genset PV-Area C RE - other Unserved energy Demand AVG COST CAPEX 2030 2030 2030 DOMESTIC 2030 DOMESTIC POWER (US (US$ UNSERVED ELECTRICITY GEN-IMPORTED GEN-RENEWABLES (%) CENTS/KWH) MILLION) DEMAND (%) IMPORTS (%) FUEL (%) 9.88 2,284 0% 36% 34% 30% Takeaway: If Area C was available, diversification would be more balanced and average cost of power would be lower Note: CAPEX = capital expenditure; GWh = gigawatt hour; GT = Gas Turbine ; MW = megawatt; PENRA = Palestinian Energy and Natural Resources Authority; PV = photovoltaic; RE = renewable energy. Relaxing the constraint on access to Area C Finally, it is helpful to contrast these increasingly significantly reduces import dependence and diversified and independent scenarios with one improves diversification even while slightly reducing of Maximum Cooperation (figure II-10.6). This costs (figure II-10.5). Even in the PENRA Vision, essentially represents a continuation of the current more diversified scenario, the West Bank would still strategy whereby the West Bank imports almost be dependent on Israel for about 80 percent of its all of its electricity needs from Israel, with the Israeli energy needs through electricity and fuel imports. interconnection capacity allowed to expand in tandem The next scenario considers what is the Maximum with growing demand and estimated to reach 1,430 Independence that could be achievable in power MW by 2030. At the same time, the relatively modest generation. This is done by relaxing the constraint current targets for renewable energy are met. This on access to Area C, so that the model has a much approach largely avoids any major capital expenditure larger renewable energy potential to draw upon. on the Palestinian side and results in the preservation Under these conditions, it becomes economical to of the current average cost of NIS 0.36 ($0.098) per increase the renewable energy share from 19 to 30 kWh. Diversification drops significantly relative to the percent, even as the average cost of generation falls other scenarios, as 96 percent of electricity would slightly relative to the PENRA Vision, from NIS 0.372 be imported. The inclusion of this alternative helps to (US$0.102) to NIS 0.361 (US$0.099), although capital clarify that the cost premium for supply diversification expenditure requirements climb slightly to reach NIS in the context of the West Bank is relatively small 8 billion (US$2.2 billion). at between NIS 0.004–0.015 (US$0.001–0.004) per kWh, which represents a markup of less than 5 percent. 98 | Securing Energy for Development in the West Bank and Gaza No single option performs better than others on all the total capital expenditure, the level of unserved relevant dimensions, illustrating that tradeoffs must demand in 2030, the continued reliance on electricity be made. Examining the five scenarios side by side imports or fuel imports for generation, and the share helps to clarify their relative performance. Table II- of domestically generated renewable energy in the 10.2 compares various dimensions of performance, overall mix. including the average cost of power generation, Figure II-10.6: Results of “Maximum Cooperation” Scenario Maximum Cooperation: All additional power supply comes from IEC with import capacity expanded to 1,430MW by 2030 A. West Bank Supply B. West Bank energy supply (GWh) Capacity in 2030 (MW) 8000 7000 6000 5000 4000 3000 2000 1000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Egypt/Jordan imports Israel imports CCGT + GT Diesel genset PV-Area C RE - other Unserved energy Demand AVG COST CAPEX 2030 2030 2030 DOMESTIC 2030 DOMESTIC POWER (US (US$ UNSERVED ELECTRICITY GEN-IMPORTED GEN-RENEWABLES (%) CENTS/KWH) MILLION) DEMAND (%) IMPORTS (%) FUEL (%) 9.78 174 1% 96% 0% 4% Takeaway: Premium for diversified portfolio is 0.1-0.4 US cents/KWh more expensive than importing all power from IEC Note: CAPEX = capital expenditure; GWh = gigawatt hour; GT = Gas Turbine; IEC = Israeli Electric Corporation; MW = megawatt; PV = photovoltaic; RE = renewable energy. TABLE II-10.2: COMPARISON OF RESULTS ACROSS THE FIVE SCENARIOS AVERAGE CAPEX 2030 2030 2030 2030 COST OF (US$ UNSERVED ELECTRICITY DOMESTIC DOMESTICALLY POWER MILLIONS) DEMAND IMPORTS GENERATION GENERATED RE (U.S. WITH CENTS IMPORTED PER KWH) FUEL 1. Do nothing 9.79 0 9% 90% 0% 0.4% 2. Planned future 10.06 850 0% 64% 32% 4% 3. PENRA vision 10.16 2,133 0% 45% 37% 19% 4. Maximum 9.88 2,284 0% 36% 34% 30% cooperation 5. Maximum 9.78 174 1% 96% 0% 4% independence Note: The darker the shade of green the better the performance on that dimension, while the darker the shade of orange the worse the performance on that dimension. Note: CAPEX = capital expenditure; kWh = kilowatt hour; RE = renewable energy. Securing Energy for Development in the West Bank and Gaza | 99 The scenarios with the highest share of domestic Given the potential substantial scale-up in solar renewable energy look to be the most attractive, but energy, close coordination with the Israeli grid would they require raising large amounts of capital from the be critical to preserve overall stability. Both the PENRA private sector. What is clear is that any alternative that Vision and the Maximum Independence scenarios achieves a significant shift in the level of diversification call for increasing the share of solar PV up to 20 or and energy independence entails raising private 30 percent. It is important to note that any scale-up capital in excess of NIS 7.3 billion (US$2 billion) over in generation in the West Bank will raise significant the next decade. Given that private-sector investment grid stability and integration issues for the Israeli grid, in the Palestinian power sector is very much in its which is also in the process of ramping up its share infancy, this is not a minor undertaking, and would of variable renewable energy to meet its own national require addressing the creditworthiness of the sector, targets. Close collaboration and careful planning would which is currently the most significant constraint to be a prerequisite for any expansion plan involving an attractive private capital. enhanced role for renewable energy. Finally, although the currently Planned Future projects are important While access to Area C would be desirable, significant for ensuring power-supply expansion keeps pace diversification can already be achieved based on use with demand growth, and significantly impact the of Areas A and B alone. The Maximum Independence reliability of supply, their impact on diversification and scenario is based on unrestricted access to Area C, independence is still relatively small. which is far from being the current situation and would pose major political challenges. Nevertheless, in the To put things in perspective, the cost differentials absence of access to Area C, PENRA’s strategic vision, between alternative scenarios are small and almost of limiting dependency on any one supply to less than all of them deliver a reliable supply. There is a 50 percent, could still be achieved by maximizing difference of just 4 percent (or $0.004 per kWh) in renewable energy installations in Areas A and B and the average cost of generation between the highest on rooftops. This would be a desirable starting point and lowest scenarios. Moreover, all scenarios except and would still represent a major increase in ambition for Do Nothing essentially provide for a reliable supply from current targets of 130 MW by 2020 to a target of of electricity. 600 MW by 2030. Given that only 18 MW of solar PV have been achieved since the target was announced in 2012, this would be very challenging. Figure II-10.7: Resilience Stress Test across Scenarios in Terms of Percent Increase in Unserved Demand for the West Bank Max Cooperation Max Independence PENRA Vision Planned Future Do Nothing 0% 5% 10% 15% 20% 25% 30% 35% 40% War Peace Note: PENRA = Palestinian Energy and Natural Resources Authority. 100 | Securing Energy for Development in the West Bank and Gaza Another way to compare the alternative scenarios is distances within the West Bank. Under both scenarios, through a stress-testing process that examines how distribution infrastructure needs to be expanded and they perform under extreme conditions. In particular, upgraded to accommodate the additional supply. the stress test looks at how the percentage of Part I, chapter 7, provides background detail on unserved energy rises for each scenario when conflict wheeling tariffs and transmission and distribution conditions are simulated. (T&D) infrastructure capital costs. The scenarios with a higher share of solar PV look By 2030, approximately 2,400 Gigawatt hours (GWh) to be the most resilient (figure II-10.7). As might be of domestic generation will need to be wheeled expected, the scenarios with higher solar PV shares through the IEC grid if PENRA’s planned projects come have the lowest share of unserved energy, at around online (figure II-10.8). In the following analysis, the 20 percent compared with 25–35 percent for the cost of wheeling is compared to the cost of building others. This is because they are less susceptible to a transmission backbone for the Planned Future supply interruption or conflict damage. scenario. It is expected that by 2030 up to 35 percent of demand will be met by domestic generation, in TRANSMISSION particular, through renewables and thermal generation, corresponding to approximately 2,400 GWh per year. Domestic power generation in the West Bank can be moved to Palestinian load centers either by wheeling Due to the envisaged scale-up in the volume of through the Israeli network or by building a Palestinian domestically generated electricity, the recurring cost transmission backbone. As domestic power of wheeling charges rapidly increase year over year. generation in the West Bank increases, there is a Figures II-10.9 and II-10.10 show the need for NIS 146 need to evacuate electricity from the locations where million (US$40 million) investment in the Palestinian it is produced to those where it will be consumed, distribution network to absorb the additional as cost-effectively as possible. Two options exist. The generation that would come online under the Planned first is to wheel the power out from the West Bank, Future scenario. In terms of transmission, figure II-10.9 through the Israeli network, and inject it back into the shows the scenario in which IEC’s most expensive West Bank to the load centers. The second is to build wheeling tariff is used, which, at NIS 0.05 (US$0.013) an independent Palestinian transmission backbone per kWh, allows the use of both the Israeli transmission capable of moving power at higher voltages over long and distribution networks. Figure II-10.10 shows the Figure II-10.8: Domestic Generation, as Proportion of Total Demand, Needing to Be Wheeled through the Israeli Electric Corporation Grid under the “Planned Future” Scenario Demand 8000 RE - other 7000 CCGT + GT 6000 5000 4000 3000 2000 1000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Note: CCGT = combined cycle gas turbine; RE = renewable energy. Securing Energy for Development in the West Bank and Gaza | 101 Figure II-10.9: Cumulative Transmission and Distribution and Wheeling Costs under “Planned Future” Scenario if Highest Wheeling Charge Is Used 120 100 Cost (US $millions) 80 60 40 20 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 Wheeling Running costs Distribution CAPEX Transmission CAPEX Note: CAPEX = capital expenditure. Figure II-10.10: Cumulative Transmission and Distribution and Wheeling Costs Under “Planned Future” Scenario if Lowest Wheeling Charge Is Used 120 100 Cost (US $millions) 80 60 40 20 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 Wheeling Running costs Distribution CAPEX Transmission CAPEX Note: CAPEX = capital expenditure. scenario in which IEC’s least expensive wheeling tariff charges will be lower at approximately NIS 40 million is used, which, at NIS 0.02 (US$0.005) per kWh, (US$11 million) per year. allows the use of only the Israeli transmission network. In this case, additional substations would need to be In the Palestinian backbone case, the exact investment built in the West Bank, beyond the existing four new requirements would reflect the composition of the high-voltage substations, to ensure that all power selected investment plan (table II-10.3). Investment evacuated into Israel and received back into the West needs for distribution range from NIS 95 to NIS 190 Bank travel only on the Israeli transmission grid. The million (US$26–52 million); those from transmission cost for these additional substations is estimated at an range NIS 172 to NIS 500 million (US$47–137 million). additional NIS 146 million (US$40 million). If the higher The projects with the largest impact on transmission wheeling tariff is used, by 2030 wheeling charges will investment requirements are the Jenin Power Plant reach over NIS 110 million (US$30 million) per year. and the development of solar PV in Area C, each at If the lower wheeling tariff is used, by 2030 wheeling around NIS 164 million (US$45 million). 102 | Securing Energy for Development in the West Bank and Gaza TABLE II-10.3: BREAKDOWN OF REQUIRED TRANSMISSION AND DISTRIBUTION INVESTMENTS AS ADDITIONAL SUPPLY COMES ONLINE IF A TRANSMISSION BACKBONE IS BUILT (US$) FOUR HIGH- JPP COMES HPP COMES RENEWABLES JORDANIAN TOTAL VOLTAGE ONLINE ONLINE ALLOWED IN CONNECTOR SUBSTATIONS AREA C IS EXPANDED ENERGIZED West Bank Trans. 0 47 25 44 20 137 West Bank Dist. 26 7 7 7 7 52 Total T&D 26 54 31 51 27 188 Note: JPP = Jenin Power Plant; HPP = Hebron Power Plant. For the Planned Future scenario, the total required In the short term, PENRA must negotiate lower investment in T&D would be NIS 409 million (US$112 wheeling tariffs with IEC, and in the mid to long term, million). The components in figure II-10.11, which PENRA should build a transmission backbone to contribute to the Planned Future scenario, are the reduce costs—negotiating a swap mechanism could energization of the four new substations, plus Jenin be an attractive third option. The cost of wheeling Power Plant and Hebron Power Plant coming online. at the higher tariff breaks even with the cost of the Combined, these additional supply options will need backbone by 2045 and the cost of wheeling at the NIS 263 million (US$72 million) for transmission lower tariff breaks even with the cost of the backbone infrastructure, and NIS 146 million (US$40 million) by 2052. By 2030, the transmission component of the for distribution infrastructure for a total investment of retail tariff would be NIS 0.004 (US$0.001) per kWh if NIS 409 million (US$112 million). Regardless, it is not a backbone is built, NIS 0.007 (US$0.002) per kWh desirable to have variable costs that grow year after if the lower wheeling charge is used, and NIS 0.018 year and the transmission backbone would allow (US$0.005) per kWh if the higher wheeling charge is a fixed cap on expenditures. It is important to note used (assuming amortization of all CAPEX to 25 years). that, whereas investments in generation would be This represents 0.7, 1.3, and 3.3 percent of the total pursued under a public-private partnership model, expected retail tariff in 2030, respectively. Building a investments in T&D would necessarily take the form transmission backbone is more cost-effective than of public investment. wheeling the power through Israel. simply because Figure II-10.11: Cumulative Transmission and Distribution Investment for the “Planned Future” Scenario if a Transmission Backbone Is Built 120 100 Cost (US $millions) 80 60 40 20 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 Wheeling Running costs Distribution CAPEX Transmission CAPEX Note: CAPEX = capital expenditure. Securing Energy for Development in the West Bank and Gaza | 103 the costs are fixed and do not grow as domestic has not been in force and retail tariffs have dropped generation expands. If wheeling is to be used, at least below the weighted average cost of supply, which in the initial years until a transmission backbone is built, includes IEC imports and generation from GPP) the wheeling tariff should be extensively negotiated with IEC to bring down costs. A swap mechanism, in While there has been some improvement in the which power generated in the West Bank is evacuated operating efficiency of the West Bank DISCOs, to Israel, and swapped for power from Israel at a later substantial variations remain across companies. time and injected back into the West Bank, can be an In the West Bank, overall DISCO losses (including attractive alternative but requires extensive negotiations both technical and nontechnical losses) have been and collaboration on both sides. falling from around 26 percent in 2011 to 23 percent in 2015 (figure II-10.13). As of 2015, Southern FINANCIAL MODEL Electricity Distribution Company (SELCO) had the highest losses, at 27 percent, followed by Jerusalem Attention now turns to the financial implications District Electricity Company (JDECO) at 24 percent, of implementing the planning scenarios described Hebron Electricity Distribution Company (HEPCO) at above. The key focus of attention is the financial 20 percent, Northern Electricity Distribution Company equilibrium tariff and how it may need to evolve (NEDCO) at 17 percent, and Tubas Electricity relative to historic practice. Distribution Company (TEDCO) at 16 percent. The overall DISCO collection rates have improved from 88 Historically, the retail tariff in the West Bank has included percent in 2011 to 91 percent in 2015. As of 2015, an average 45 percent markup over the wholesale NEDCO, JDECO, and HEPCO, which combined cost of IEC power (figure II-10.12). Retail tariffs in the make up over 92 percent of sales, had collection rates West Bank are determined by the regulator, PERC, above 90 percent. while SELCO and TEDCO had which allows a markup over the wholesale price of IEC collection rates above 75 percent. For the purposes power to cover the operating margin of the DISCOs, of financial modeling, two possibilities are considered. including the significant operational inefficiencies and The first is that the regulator will set ambitious but overheads. For the period 2011–15, this markup has realistic efficiency targets for the DISCOs that will be averaged 45 percent over and above the IEC tariff. met by 2030. The second is that there is no significant (This is in contrast to Gaza, where PERC regulation improvement in DISCO inefficiency. Figure II-10.12: In the West Bank, Retail Tariffs Have Followed the Cost of Israeli Electric Corporation Supply 0.8 0.7 Tariff (NIS per kWh) 0.6 0.5 Average sales price (NIS per KWh) 0.4 Average purchase price* 0.3 (NIS per KWh) 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Average purchase price* (NIS per KWh) 0.33 0.42 0.44 0.46 0.41 Average sales price (NIS per KWh) 0.54 0.60 0.61 0.63 0.58 Markup 65% 45% 39% 35% 41% Note: kWh = kilowatt hour Includes Israeli Electric Corporation and Jordan 104 | Securing Energy for Development in the West Bank and Gaza Figure II-10.13: Time Trend for Distribution Losses and Revenue Collection Rates in the West Bank 0.94 0.34 0.92 0.32 Collections rates (%) 0.90 0.30 Losses (%) 0.88 0.28 0.86 0.26 0.84 0.24 0.82 0.22 0.80 0.20 2011 2012 2011 2013 2012 2014 2013 2015 2014 2015 Losses* 0.26 0.24 \0.23 0.22 0.22 Collection rates 0.88 0.88 0.82 0.90 0.91 * Technical and non-technical losses The financial modeling exercise is pursued for three for higher generation costs. However, by 2027, it is of the planning scenarios that capture the full range expected that the Planned Future and PENRA Vision of potential financial implications. In the West Bank, scenarios, which represent diversified portfolios with the PENRA Vision scenario was the most expensive, large amounts of solar and gas plants, will have lower entailing an average generation cost of NIS 0.39 costs than the Maximum Cooperation scenario, which (US$0.102) per kWh, while the Maximum Cooperation represents pure imports from IEC. Despite the declining scenario was the least expensive, entailing an average costs by 2030, the equilibrium tariff for all scenarios is generation cost of NIS 0.37 (US$0.098) per kWh. The higher than the 2015 retail tariff. Planned Future represents the middle ground, with an average cost of NIS 0.42 (US$0.11) per kWh. If DISCO performance is not improved by 2030, the equilibrium tariff for the PENRA Vision planning In the West Bank, the financial equilibrium tariffs do scenario will be NIS 0.07 (US$0.02) per kWh higher not vary significantly across scenarios, but all show a than otherwise. The equilibrium tariffs represented declining trend. The equilibrium tariff follows a narrow in figure II-10.14 assume that, by 2030, collection band for all three scenarios, reflecting the fact that the rates increase from current levels of 91 percent to 97 average cost of generation does not differ significantly percent, distribution grid technical and nontechnical across different planning scenarios in the West Bank losses decline from current levels of 23 percent to 16 (figure II-10.14). In all cases, the financial equilibrium percent, transmission system losses are 2 percent, tariff declines significantly by the end of the period, as and DISCO operation and maintenance costs DISCO efficiencies improve, technology costs drop improve by 2 percent per year. Based on reports (such as those for PV), and gas becomes available. from the DISCOs, it is assumed that debt is currently For both the PENRA Vision and particularly for the financed at 3.5 percent, but would need to rise Planned Future the financial equilibrium tariff rises in the toward 7 percent by 2030. If these improvements are medium term before an eventual decline, essentially not achieved, the equilibrium tariff in 2030 will be NIS because operational efficiency has not yet had time to 0.66–0.71 (US$0.17–0.19) per kWh instead of NIS improve to a point where it can more than compensate 0.58–0.61 (US$0.15–0.16) per kWh (figure II-10.15). Securing Energy for Development in the West Bank and Gaza | 105 Figure II-10.14: West Bank Equilibrium Tariff Decline as Discos Performances Improve by 2030 0.8 0.7 0.6 0.5 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Max Cooperation PENRA Vision Planned Future 2015 average retail tariff Note: kWh = kilowatt hour. Figure II-10.15: West Bank Equilibrium Tariff Remains High if DISCO Performances Fail to Improve by 2030 0.8 0.7 0.6 0.5 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Max cooperation PENRA vision Planned Future 2015 average retail tariff Note: kWh = kilowatt hour. Failure to adjust the unified tariff in the West Bank NIS 0.10–0.35 (US$0.03–0.09) for every kWh they would result in massive average annual subsidy sell if the tariffs are not increased. JDECO, with the requirements to keep the DISCOs afloat (figure largest customer base, will require the largest subsidy II-10.16). If the West Bank pursues the PENRA from the government. NEDCO, which already has the Vision scenario without making any compensating best operational performance, does not require much adjustments in retail tariffs, the subsidy required to in the way of subsidies and would be the only DISCO keep the DISCOs afloat would begin at approximately able to absorb the new generation cost without a raise NIS 300 (US$82) million in 2018, and increase to in the unified tariff. These calculations assume that all almost NIS 450 (US$123) million by 2022. In other DISCOs meet efficiency targets by 2030. If they do words, in 2018, all DISCOs, except NEDCO, will lose not, the required subsidy will be significantly higher. 106 | Securing Energy for Development in the West Bank and Gaza Figure II-10.16: Subsidy Required to Sustain Financial Equilibrium of Discos in the Absence of Any Adjustment to the Current Unified Retail Tariff Based on the PENRA Vision Scenario, Assuming Efficiency Targets Are Achieved 500 400 300 Cost (US $millions) 200 100 0 -100 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 JEDCO HEPCO SELCO TEDCO NEDCO Note: JEDCO = Jerusalem District Electricity Company; HEPCO = Hebron Electricity Distribution Company; SELCO = Southern Electricity Distribution Company; TEDCO = Tubas Electricity Distribution Company; NEDCO = Northern Electricity Distribution Company. Securing Energy for Development in the West Bank and Gaza | 107 Alternatively, if subsidies are targeted purely to the per kWh, so that subsidies need only be channeled poorest customers who face affordability limits, the to the poorest 10 percent of the population. The overall subsidy bill drops substantially. According subsidy required to cover the difference between the to the affordability thresholds in the West Bank, the increased retail tariff and the affordability thresholds bottom decile of the population can afford to pay up of these families would amount to no more than to NIS 0.41 (US$0.114) per kWh, while the second NIS 25 million (US$7 million) per year with over 60 decile can afford to pay up to NIS 0.71 (US$0.197) percent going to JDECO consumers (figure II-10.18). per kWh (figure II-10.17). The analysis suggests that, As DISCO efficiencies improve, required subsidies are as long as DISCOs meet their efficiency targets, observed to decrease over time. tariffs should hardly rise beyond NIS 0.7 (US$0.19) Figure II-10.17: Comparing the First and Second Decile Affordability Thresholds against Equilibrium Tariff for the PENRA Vision Scenario Assuming Efficiency Targets Are Reached 0.8 0.6 0.4 0.2 0.0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PENRA Vision Equilibirum tariff Figure II-10.18: Subsidy Required to Keep the Bills of the Bottom Decile of Households within the Corresponding Affordability Limits for the PENRA Vision Scenario Assuming Efficiency Targets Are Reached 25 20 Subsidy (NIS $millions) 15 10 5 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 JEDCO HEPCO SELCO TEDCO NEDCO 108 | Securing Energy for Development in the West Bank and Gaza MACRO FISCAL MODEL electricity subsidies that are otherwise projected to escalate to 0.8 percent of GDP by 2025 under the Do A combined energy investment and reform package Nothing scenario, to a net positive fiscal position of 0.9 produces tangible macro fiscal benefits. To evaluate percent of GDP by 2025 (table II-10.4). This makes the fiscal and macroeconomic impact of PENRA’s a substantial contribution to the net government current projects in the pipeline, a computable operating balance, estimated to be in slight surplus general equilibrium (CGE) model is designed for the under the Planned Future versus a sizeable deficit Planned Future scenario. For modeling purposes, under the Do Nothing scenario. The Planned Future this scenario is characterized by a steep expansion scenario also delivers a significant boost to the growth in domestic power generation accompanied by a fall rate of the economy, which would be 0.3 percentage in energy costs. points of GDP higher than otherwise for the entire decade (table II-10.5). The main sector to benefit from The CGE model predicts that the Planned Future the energy turnaround is investment, which grows as scenario ensures electricity subsidies are fully much as 0.7 percentage points of GDP higher than eliminated and there is a boost in GDP growth and otherwise, partly as a result of the increased fiscal investment. From a fiscal perspective, the Planned space created by reducing electricity subsidies. Future scenario entails a dramatic reduction in TABLE II-10.4: IMPACT OF THE “PLANNED FUTURE” ENERGY SCENARIO ON GOVERNMENT ACCOUNTS AS % OF GDP 2016 2025 BASELINE PLANNED FUTURE DO NOTHING Revenue 28.0 26.2 27.1 Expenditure 26.6 25.9 28.3 Of which Electricity subsidies 0.1 -0.9 0.8 Operational Balance 1.4 0.3 -1.2 TABLE II-10.5: IMPACT OF THE “PLANNED FUTURE” ENERGY SCENARIO ON MACROECONOMIC PERFORMANCE AVERAGE ANNUAL GROWTH 2016–25 PLANNED FUTURE DO NOTHING GDP at market prices 2.7 2.4 Investment 2.3 1.6 Consumer price index 2.0 1.8 Securing Energy for Development in the West Bank and Gaza | 109 CHAPTER 11 Analysis and Results for Gaza This chapter presents the results of the integrated Domestic power generation in Gaza is extremely planning and financial exercise for Gaza. costly, and will continue to be until the Gaza Power Plant (GPP) can be converted to gas and preferably PLANNING MODEL to combined cycle technology (figure II-11.1). At present, the cost of diesel-fired generation at the GPP The two key drivers of the planning scenarios are is over NIS 1.09 (US$0.30) per kilowatt hour (kWh) and the relative cost of power supplied through different projected to increase in line with the forecast trajectory technologies and the range of uncertainties that of the global oil price. The only alternative domestic affects each of them. Figure II-11.1 plots the so-called source of energy—rooftop solar—is also relatively levelized cost of energy (LCOE), defined as total capital expensive although projected to become cheaper and operating costs across the lifetime of a power over time in line with global trends, to reach around project averaged over the total electricity produced. NIS 0.44 (US$0.12) per kWh by 2030. As of today, While LCOE is a convenient device for making simple Israeli imports, at around NIS 0.37 (US$0.10) per kWh relative cost comparisons, it is important to recognize and Egyptian imports, at around NIS 0.27 (US$0.07) that it does not capture all relevant characteristics of per kWh, are by far the most cost-effective source of each power source, such as its availability for dispatch energy available. However, eventual conversion of the and contribution to meeting peak loads. Table II-11.1 GPP to natural gas, as well as possible conversion to summarizes the different uncertainty parameters more efficiency combined cycle gas turbine (CCGT) that characterize each of the power supply options, technology, would significantly bring down the costs considering delays in availability, uncertainty of cost, of domestic generation. as well as probabilities of interruption to supply. These are inevitably somewhat subjective and based on a combination of expert judgment and stakeholder consultation. Figure II-11.1: Time Trends of Levelized Cost of Energy for Different Supply Options in Gaza 0.5 0.4 0.3 0.2 0.1 0.0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 GPP on diesel, from $19.8/MMBTU Israel import Egypt import Rooftop solar,from $2,500/kW GPP on gas, from $6.5/MMBTU CCGT gas, from $6.5/MMBTU Note: GPP = Gaza Power Plant; CCGT = combined cycle gas turbine; MMBTU = millions British thermal unit. 110 | Securing Energy for Development in the West Bank and Gaza TABLE II-11.1: OVERVIEW OF UNCERTAINTY PARAMETERS FOR GAZA PLANNING EXERCISE DIESEL GAS ISRAEL EGYPT Availability range Earliest 2016 2022 2022 2021 Latest 2016 2035 2035 2035 Volume range Lowest Unlimited 0.2 bcm 120 MW 10 MW Highest Unlimited 2.0 bcm 270 MW 70–150 MW Price range Lowest Known $4.0 per MMBTU Current $0.08 per kWh Highest Known $7.5 per MMBTU $0.11 per kWh $0.10 per kWh Outage duration range Minimum days 37 37 18 29 Maximum days 365 365 91 182 Other parameters Minimum availability 0.30 0.30 0.80 0.60 Probability of interruption 0.15 0.15 0.02 0.20 Note: bcm = billion cubic meters; MMBTU = millions British thermal unit; MW = megawatt; kWh = kilowatt hour. Due to the risky environment in Gaza, some of the any single source of energy to 50 percent of demand lower cost power options are not necessarily the most while retaining the ability to import 100 percent secure (table II-11.1). The relative cost of alternative of energy needs if required. For the purposes of power generation options needs to be considered illustration, two additional—more extreme—scenarios alongside their relative risk. A key issue to look at is are considered. Maximum Cooperation considers the probability of a supply interruption at any given the possibility of Gaza following the power supply time. This indicates that both the diesel supply to the model that has so far characterized the West Bank, GPP and Egyptian imports have proved to be highly which is full dependence on Israeli imports to the unreliable sources of electricity in the past. While gas extent of phasing out the GPP completely. Maximum supplies are not yet available, due to their nature as fuel Independence considers the opposite possibility of imports, it is envisaged that these could be subject to scaling-up the GPP to the point where it is capable of similar levels of risk. Electricity imports from Israel, on meeting the full extent of anticipated demand growth. the other hand, based on the historical record have proven to be more reliable and are therefore assigned Under the Do Nothing scenario, Gaza’s existing a lower probability of interruption. acute power shortages only become increasingly intolerable over time (figure II-11.2). The baseline for Against this backdrop, the results of the five planning the planning exercise is a scenario in which no further scenarios are considered. These include a Do power infrastructure is developed to support either Nothing counterfactual, where no further investments increased domestic generation or expanded imports, are made in power infrastructure while demand but demand continues to grow in line with forecasts. continues to grow. This is compared with the impact Gaza is already unable to meet 50 percent of its of the current pipeline of investments, described as demand, and under the Do Nothing scenario this the Planned Future, as well as the PENRA Vision for situation continues to deteriorate dramatically, so that the longer term, which seeks to limit dependence on by 2030 over 60 percent of demand cannot be met, Securing Energy for Development in the West Bank and Gaza | 111 Figure II-11.2: Results of “Do Nothing” Planning Scenario for Gaza Do nothing: No additional power supply is brought online, and Gaza is limited to the following existing status: (i) 120 WM import capacity from IEC, (ii) 30 MW import capacity from Egypt, and (iii) the Gaza Power Plant (GPP) is running on diesel with 140MW capacity but limited to 60 MW due to fuel shortages. A. Gaza Supply B. Gaza energy supply (GWh) Capacity in 2030 (MW) 5,000 4,000 3,000 2,000 1,000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Egypt/Jordan imports Israel imports CCGT + GT Diesel genset PV-Area C RE - other Unserved energy Demand AVG COST CAPEX 2030 2030 2030 DOMESTIC 2030 DOMESTIC POWER (US (US$ UNSERVED ELECTRICITY GEN-IMPORTED GEN-RENEWABLES (%) CENTS/KWH) MILLION) DEMAND (%) IMPORTS (%) FUEL (%) 14.68 0 63% 26% 11% 0% Takeaway: Under current conditions, unserved demand and power cuts will continue to increase in Gaza until 2030. Note: CAPEX = capital expenditure; GWh = gigawatt hour; GT = Gast Turbine; IEC = Israeli Electric Corporation; MW = megawatt; PV = photovoltaic; RE = renewable energy. which represents power cuts longer and more severe Natural Resources Authority’s (PENRA’s) plans to than those experienced today. At the same time, the energize a new 161 kilovolt (kV) line with the Israeli cost of the limited power generation available is very Electric Corporation (IEC) and substantially expand high at almost NIS 0.55 (US$0.15) per kWh—about the capacity of the GPP to 560 megawatt (MW) while 50 percent higher than the equivalent scenario for converting it to gas, this scenario incorporates the the West Bank—and this is due to the high cost of possibility of developing Gaza’s full potential of 163 running the GPP on diesel. And the GPP does not MW of solar photovoltaic (PV), mainly in the form of permit the achievement of energy independence. rooftop solar systems. The inclusion of the latter is Due to the limited capacity and the constraints on not based on cost considerations, as rooftop solar diesel purchases, Gaza continues to rely on imports remains relatively costly even through to the end of to meet 26 percent of its energy needs. Overall, this period, but is rather motivated by considerations the Do Nothing baseline scenario for Gaza paints a of resilience. Solar capacity of this kind could help to dire picture. Additional power supply is desperately provide an electricity safety net capable of meeting needed, but the high cost of energy, coupled with the most basic needs during times of geopolitical consumers’ low ability and willingness to pay, make tension that could potentially affect fuel or electricity it difficult to bring on additional supply. imports. The implementation of this package would ensure that unserved demand could be eliminated Gaza’s situation would improve significantly with the by the early 2020s. However, implementing these implementation of Planned Future projects, although projects would entail raising over NIS 3.7 billion (US$1 the cost of energy would remain relatively high (figure billion) of private financing, and the cost of electricity II-11.3). In addition to the Palestinian Energy and would remain relatively high at NIS 0.50 (US$0.134) 112 | Securing Energy for Development in the West Bank and Gaza Figure II-11.3: Results of “Planned Future” Planning Scenario for Gaza Planned Future: All PENRA’s current planned projects come online: (i) upgrade of GPP to run on natural gas and expand capacity up to 560 MW, (ii) and energization of the 161 kV power line to bring an additional 120 MW from IEC. In addition, we assume 163 MW of renewable energy (of which over 80% is rooftop solar) which is Gaza’s maximum potential capacity. A. Gaza Supply B. Gaza energy supply (GWh) Capacity in 2030 (MW) 5000 4000 3000 2000 1000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Egypt/Jordan imports Israel imports CCGT + GT Diesel genset PV-Area C RE - other Unserved energy Demand AVG COST CAPEX 2030 2030 2030 DOMESTIC 2030 DOMESTIC POWER (US (US$ UNSERVED ELECTRICITY GEN-IMPORTED GEN-RENEWABLES (%) CENTS/KWH) MILLION) DEMAND (%) IMPORTS (%) FUEL (%) 13.39 1,035 0% 26% 68% 6% Takeaway: Planned projects will meet Gaza’s unserved demand by 2030 but 94% of fuel and power will be imported. Note: CAPEX = capital expenditure; GWh = gigawatt hour; IEC = Israeli Electric Corporation; GT = Gast Turbine; MW = megawatt; PV = photovoltaic; RE = renewable energy. per kWh. Gaza would only be able to meet 6 percent requires capital expenditure in excess of NIS 3.7 billion of its energy needs on a fully self-sufficient basis (US$1 billion), the average cost of energy is slightly through solar; however, this is the maximum amount reduced by NIS 0.04 (US$0.011) per kWh to NIS 0.45 feasible in any case. (US$0.12). Furthermore, unserved demand is more rapidly eliminated even before 2020. Both effects are Achieving the PENRA Vision for the future, requires due to the greater reliance of Israeli imports. rebalancing from domestic thermal generation toward Israeli imports, thereby reducing the average cost of As a comparison to this balanced scenario, two more energy (figure II-11.4). The next scenario is based on extreme scenarios are also considered here for illustrative the implementation of the PENRA Vision, according purposes. One explores the option of maximizing to which no source should contribute more than 50 cooperation on electricity imports with Israel, and the percent of overall generation, while the import capacity other the option of further developing domestic thermal should remain large enough to import all needed generation to achieve Maximum Independence. energy in case of emergency. Renewable energy potential continues to be tapped. The Planned Future Under a strategy of Maximum Cooperation, Gaza scenario does not meet PENRA’s strategic vision, achieves the lowest possible power generation costs, because it relies on the GPP for more than 50 percent comparable to those currently enjoyed by the West of energy needs. The only viable way to achieve Bank (figure II-11.5). Given the cost and security the requisite rebalancing is to scale back the GPP’s advantages of Israeli power imports over domestic capacity and allow the Israeli connection to make up a thermal generation, the Maximum Cooperation larger proportion of the overall capacity. While this still scenario would call for shutting down the GPP and Securing Energy for Development in the West Bank and Gaza | 113 Figure II-11.4: Results of “PENRA Vision” Planning Scenario for Gaza PENRA Vision: “Dependency ratio on any one source should not exceed 50% in best conditions, with a possibility of importing all needs in case of emergency.” A. Gaza Supply B. Gaza energy supply (GWh) Capacity in 2030 (MW) 5000 4000 3000 2000 1000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Egypt/Jordan imports Israel imports CCGT + GT Diesel genset PV-Area C RE - other Unserved energy Demand AVG COST CAPEX 2030 2030 2030 DOMESTIC 2030 DOMESTIC POWER (US (US$ UNSERVED ELECTRICITY GEN-IMPORTED GEN-RENEWABLES (%) CENTS/KWH) MILLION) DEMAND (%) IMPORTS (%) FUEL (%) 12.30 1,066 0% 47% 46% 6% Takeaway: Better diversification, which will reduce costs, requires IEC imports beyond the planned 161kV line. Note: CAPEX = capital expenditure; GWh = gigawatt hour; GT = Gast Turbine ; MW = megawatt; PV = photovoltaic; RE = renewable energy. 114 | Securing Energy for Development in the West Bank and Gaza Figure II-11.5: Results of “Maximum Cooperation” Planning Scenario for Gaza Maximum Cooperation: The Gaza Power Plant (GPP) is shut down and all electricity needs are imported from IEC with expanded interconnection capacity. The full 163 MW of solar potential is developed as a safety net. A. Gaza Supply B. Gaza energy supply (GWh) Capacity in 2030 (MW) 5000 4000 3000 2000 1000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Egypt/Jordan imports Israel imports CCGT + GT Diesel genset PV-Area C RE - other Unserved energy Demand AVG COST CAPEX 2030 2030 2030 DOMESTIC 2030 DOMESTIC POWER (US (US$ UNSERVED ELECTRICITY GEN-IMPORTED GEN-RENEWABLES (%) CENTS/KWH) MILLION) DEMAND (%) IMPORTS (%) FUEL (%) 10.37 385 0% 93% 0% 6% Takeaway: Cost of power is 3UScents/KWh cheaper than the planned strategy which would help improve cost recovery. Note: CAPEX = capital expenditure; GWh = gigawatt hour; GT = Gast Turbine; IEC = Israeli Electric Corporation; MW = megawatt; PV = photovoltaic; RE = renewable energy. Securing Energy for Development in the West Bank and Gaza | 115 Figure II-11.6: Results of “Maximum Independence” Planning Scenario for Gaza Maximum independence: Meet all demand growth through further expansion of Gaza Power Plant up to 677 MW, while retaining existing 120 MW interconnection with IEC, and developing full 163 MW of solar PV potential (80% of rooftop) A. Gaza Supply B. Gaza energy supply (GWh) Capacity in 2030 (MW) 5,000 4,000 3,000 2,000 1,000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Egypt/Jordan imports Israel imports CCGT + GT Diesel genset PV-Area C RE - other Unserved energy Demand AVG COST CAPEX 2030 2030 2030 DOMESTIC 2030 DOMESTIC POWER (US (US$ UNSERVED ELECTRICITY GEN-IMPORTED GEN-RENEWABLES (%) CENTS/KWH) MILLION) DEMAND (%) IMPORTS (%) FUEL (%) 15.15 1,185 2% 9% 83% 6% Takeaway: Relying purely on gas plants means, if gas is ever unavailable, diesel must be used, driving up costs significantly Note: CAPEX = capital expenditure; GWh = gigawatt hour; GT = Gast Turbine; IEC = Israeli Electric Corporation; MW = megawatt; PV = photovoltaic; RE = renewable energy. relying entirely on Israeli power imports. This entails generation are at their highest (figure II-11.6). With expanding connection capacity with Israel from current Israeli imports capped at current levels of 120 MW, levels of 120 MW toward 800 MW. The 163 MW of and renewable energy potential constrained to 163 mainly rooftop solar are retained as an electricity safety MW, this scenario entails further expansion of the net. In terms of operational installed capacity, this level GPP until it is capable of meeting the entire demand. of rooftop solar development would actually represent This entails significantly higher capital expenditure more than twice as much energy as what is offered by than any of the other scenarios, at around NIS 4.4 the GPP today, which is constrained to just 60 MW. billion (US$1.2 billion). While unserved demand is However, in the absence of improved storage capacity, eliminated by 2020, the average cost of generation is the hours of service available from solar power would also higher than under any other scenario, at NIS 0.55 be more restrictive. The capital expenditure associated (US$0.152) per kWh. The reason for this—despite the with this option on the Palestinian side is much lower, at relative cost-effectiveness of CCGT technology—is NIS 1.4 billion (US$0.39 billion). Significant investments that high-cost diesel becomes the backup fuel for would also be required on the Israeli side to enhance the gas plant anytime it experiences an outage; this connection capacity, although these should be covered is relatively often given the plant’s operational history. through the power export tariff. This approach also Finally, this poorly diversified scenario is so heavily eliminates unserved demand relatively quickly, before dependent on imported fuel that any impression of 2020, and results in relatively low tariffs of NIS 0.38 independence is largely illusory. It is possible that the (US$0.104) per kWh. performance of this scenario could be improved, if the GPP were able to run on Gaza Marine gas. However, Under a strategy of Maximum Independence, a larger even in this case, the gas would likely need to be scale-up of the GPP is called for, and costs of power transported via Israel or Egypt. 116 | Securing Energy for Development in the West Bank and Gaza TABLE II-11.2: COMPARISON OF RESULTS ACROSS THE FIVE PLANNING SCENARIOS FOR GAZA AVERAGE CAPEX 2030 2030 2030 2030 COST (US$ UNSERVED ELECTRICITY DOMESTIC DOMESTICALLY POWER MILLIONS) DEMAND IMPORTS GENERATION GENERATED RE (U.S. WITH CENTS IMPORTED PER KWH) FUEL 1. Do nothing 14.68 0 63% 26% 11% 0% 2. Planned future 13.39 1,035 0% 26% 68% 6% 3. PENRA vision 12.30 1,066 0% 47% 46% 6% 4. Maximum cooperation 10.37 385 0% 93% 0% 6% 5. Maximum independence 15.15 1,185 2% 9% 83% 6% Note: The darker the shade of green the better the performance on that dimension, while the darker the shade of orange the worse the performance on that dimension. Note: CAPEX = capital expenditure; kWh = kilowatt hour; RE = renewable energy. Securing Energy for Development in the West Bank and Gaza | 117 Figure II-11.7: Resilience Stress Test across Scenarios in Terms of Percent Increase in Unserved Demand for Gaza Max Cooperation Max Independence PENRA Vision Planned Future Do Nothing 0% 10% 20% 30% 40% 50% 60% 70% 80% War Peace Note: PENRA = Palestinian Energy and Natural Resources Authority. No single option performs better than others on all Energy policy for Gaza therefore boils down to striking relevant dimensions, illustrating that trade-offs must the right balance between these two limited options. be made. Examining the five scenarios side by side A simple cost comparison between the two suggests helps to clarify their relative performance. Table II- a slight advantage for the GPP once converted to gas. 11.2 compares various dimensions of performance, However, the relative ranking of these two options including the average cost of power generation, changes when risk factors are considered. On the the total capital expenditure, the level of unserved one hand, Israeli power imports have had a reliable demand in 2030, the continued reliance on electricity historical track record. On the other hand, the GPP imports or fuel imports for generation, and the share would never be able to rely on gas entirely sourced of domestically generated renewable energy in the and transported within the Palestinian territories and overall mix. would be forced to run on expensive diesel whenever gas supplies were to fail. Running the GPP on diesel, The key energy policy issue for Gaza is where to as at present, is a highly unattractive option, which strike the right balance between Israeli imports should be avoided as much as possible. Indeed, and domestic gas-fired power generation. The the investment differential between Maximum first point to note is that the degree of true energy Cooperation and Maximum Independence is as much independence achievable in Gaza is, due to as NIS 2.9 billion (US$0.8 billion) while the average geographic circumstances, much lower than for the cost differential is as much as NIS 0.175 (US $0.048). West Bank. Whereas the West Bank could potentially meet 20–30 percent of its energy needs from solar The recommendation is, therefore, not only to pursue energy by 2030 (depending on access to Area the energization of the existing 161 kV line, but also C), Gaza is only able to meet at most 6 percent of to explore the possibility of additional connection electricity demand from solar energy by 2030, even capacity with IEC, even as efforts to import gas to after exploiting the full extent of its renewable energy Gaza continue. Finally, the development of Gaza’s potential. Moreover, given the low historical reliability limited solar potential looks to be a worthwhile of Egyptian power imports, Gaza’s only two realistic investment that provides a basic electricity safety net power supply options are Israeli imports and an more effectively and efficiently than is currently being expanded GPP suitably converted to fire on gas. achieved with the GPP. 118 | Securing Energy for Development in the West Bank and Gaza TABLE II-11.3: OVERVIEW OF TRANSMISSION AND DISTRIBUTION INVESTMENT REQUIREMENTS FOR GAZA (US$) GPP UPGRADED AND EXPANDED OR EGYPTIAN TOTAL ADDITIONAL SUPPLY FROM IEC COMES INTERCONNECTOR IS TO GAZA EXPANDED WB Trans. 33 32 65 WB Dist. 47 13 60 Total T&D 80 45 125 Figure II-11.8: In Gaza, Retail Sales Tariffs Have Remained Flat as Cost of Power from Israel and Gaza Power Plant Has Increased 0.8 Tariff (NIS per kWh) 0.7 0.6 Average sales price (NIS per KWh) 0.5 Average purchase price* (NIS per KWh) 0.4 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Average purchase price* (NIS per kWh) 0.41 0.52 0.56 0.73 0.60 Average sales price (NIS per kWh) 0.50 0.52 0.52 0.50 0.49 Markup/discount 23% 1% -7% -47% -22% Note: kWh = kilowatt hour. Includes Israeli Electric Corporation and Gaza Power Plant. Another way to compare the alternative scenarios is the Maximum Independence scenario, and far through a stress-testing process that examines how outperforming the Maximum Cooperation scenario they perform under extreme conditions. In particular, that could lead to as much as 50 percent of unserved the stress test looks at how the percentage of energy during a conflict period. unserved energy rises for each scenario when conflict conditions are simulated. TRANSMISSION The Planned Future and PENRA Vision scenarios The specific situation of Gaza points to the need are the ones that perform the best under conflict to develop domestic transmission infrastructure as conditions (figure II-11.7). Under these scenarios the opposed to wheeling via the Israeli network. With unserved demand during wartime would increase respect to transmission options, Gaza’s situation is to 24–29 percent, even slightly outperforming quite different to that of the West Bank. Given Gaza’s Securing Energy for Development in the West Bank and Gaza | 119 Figure II-11.9: Time Trend for Distribution Losses and Collection Efficiency in Gaza 0.74 0.34 0.72 0.32 Collections rates (%) 0.70 0.30 Losses (%) 0.68 0.28 0.66 0.26 0.64 0.24 0.62 0.22 0.60 0.20 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Losses* 30% 30% 30% 26% 26% Collection Rates 65% 68% 71% 64% 65% * Includes technical and nontechnical. small territory and compact settlement patterns, its FINANCIAL MODEL absence of land-use restrictions, and the relatively limited existing connection capacity with Israel, the Attention now turns to the financial implications of option of wheeling power within Gaza via the Israeli implementing the planning scenarios. The key focus network does not appear to be relevant. Attention, of attention will be the financial equilibrium tariff and therefore, focuses on the need to develop domestic how it may need to evolve relative to historic practice. transmission and distribution infrastructure for power transportation purposes. The Gaza Electricity Distribution Company (GEDCO) currently sells power to consumers at a cost lower Capital expenditure requirements for transmission and than its own average purchase price from IEC and distribution in Gaza range from NIS 292 million to NIS GPP (figure II-11.8). Gaza’s retail power tariffs have 456 million (US$80 million–125 million) (table II-11.3). been fixed at NIS 0.50 (US$0.14) per kWh for the Given the need to substantially expand the amount past decade, even as the weighted average cost of power flowing through the Gaza network to meet of purchasing power both from Israel and GPP has growing demands, an investment of NIS 120 million risen toward NIS 0.60–0.70 (US$0.17–0.19) per kWh. (US$33 million) in an internal transmission backbone The implication is that GEDCO is selling power to and a further NIS 172 million (US$47 million) for customers at a discount over its own power purchase supporting distribution network enforcements would price, and that’s not even considering the utility’s own be needed in any case, whether the additional power distribution operating margin. was coming from IEC, the GPP, or some combination of the two. Although the planning scenarios did not Moreover, GEDCO’s operating performance is by end up including increased imports from Egypt, it is far the worst of any of the Palestinian distribution important to note that the pursuit of this option would utilities (figure II-11.9). While GEDCO’s distribution entail a different set of investments in transmission and losses (including both technical and nontechnical distribution, amounting to a total of NIS 164 million losses) have been falling somewhat from around 30 (US$45 million). It is important to note that, whereas percent in 2011 to 26 percent in 2015, they remain investments in generation would be pursued under high relative to other Palestinian utilities and are more a public-private partnership model, investments in than twice as high as what would be considered transmission and distribution would necessarily take good practice internationally. GEDCO’s collection the form of public investment. ratio, which stands at around 65 percent (despite a 120 | Securing Energy for Development in the West Bank and Gaza Figure II-11.10: Projected Financial Equilibrium Tariff for GEDCO under Different Planning Scenarios and Improved Operational Efficiency Assumptions 1.5 1.2 0.9 0.6 0.3 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Max Cooperation PENRA Vision Planned Future 2015 average retail tariff sNote: kWh = kilowatt hour. Figure II-11.11: Projected Financial Equilibrium Tariff for GEDCO under Different Planning Scenarios and Static Operational Efficiency Assumptions 2.0 1.5 1.0 0.5 0.0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Max Cooperation PENRA Vision Planned Future 2015 average retail tariff Note: kWh = kilowatt hour. recent spurt), is extremely low and represents a huge the Maximum Independence and PENRA Vision financial drain on the company. This poor performance scenarios were the most expensive, entailing an is partly explained by high levels of unemployment average generation cost of approximately NIS 0.54 and poverty in Gaza due to the conflict situation, as (US$0.15) per kWh, while the Maximum Cooperation well as limited willingness to pay from consumers that scenario was the least expensive, entailing an average are subject to continuous rolling blackouts. generation cost of (NIS 0.36) US$0.10 per kWh. The Planned Future represents the middle ground, with an The financial modeling exercise is pursued for three average cost of just over (NIS 0.51) US$0.13 per kWh. of the planning scenarios that capture the full range of potential financial implications. In the case of Gaza, Securing Energy for Development in the West Bank and Gaza | 121 Figure II-11.12: Subsidy Requirement to Maintain Financial Equilibrium of GEDCO under Planned Investment Scenario if Retail Tariffs Are Not Adjusted under “PENRA Vision” Scenario 1500 1200 Capital cost (US$ per KW) 900 600 300 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Efficiency targets met Efficiency targets not met The financial equilibrium tariffs tend to converge across of action. The financial equilibrium tariffs presented in scenarios by 2030, but there are huge differences figure II-11.11 are based on an important additional during the earlier years of the transition (figure II- assumption that GEDCO’s financial performance 11.10). While planning scenarios were compared in would improve substantially over time to meet more terms of their average cost of generation, in practice reasonable standards (if not yet full international best the cost of generation varies annually throughout the practice). In particular, it is assumed that collections planning period. In practice, across all scenarios, the can be increased from the current levels of 65 percent cost of generation declines toward the end of the to 97 percent, while distribution losses fall from the planning scenario, as GEDCO is able to switch toward current level of 26 percent to 16 percent. In addition, lower cost technologies, such as CCGT, and benefit transmission losses are set at 2 percent, and there from declining cost trends for solar PV. The PENRA is an assumption that operations and maintenance Vision scenario entails a particular cost “hump” in the costs could be trimmed by 2 percent annually. Based early years, as GEDCO has to increase reliance on on reports from the DISCOs, it is assumed that debt is diesel to meet demands until the gas conversion for currently financed at 3.5 percent, but would probably the GPP comes on stream. The financial equilibrium need to rise toward 7 percent by 2030. Without these tariff converges across all scenarios towards NIS improvements, the financial equilibrium tariff to which 0.50–0.60 (US$0.14–0.17) per kWh by 2030, which all scenarios converge by 2030 rises substantially is just slightly above the current tariff. However, in the from NIS 0.50–0.70 (US$0.14–0.19) per kWh to NIS early years, the tariff differences can be very large, 0.90–1.10 (US$0.25–0.30) per kWh. Moreover, during ranging from NIS 1.20 (US$0.33) per kWh for the the transition years, the financial equilibrium tariff gets “PENRA Vision” scenario to NIS 0.70 (US$0.19) per as high as NIS 0.90–1.50 (US$0.25–0.42) per kWh. kWh for the Maximum Cooperation scenario. Failure to adjust GEDCO tariffs would result in massive The financial equilibrium tariffs for GEDCO are hugely average annual subsidy requirements to keep GEDCO sensitive to assumptions about improvements in afloat (figure II-11.12). For the PENRA Vision scenario, operational performance, making this a critical area the subsidy requirements are estimated at NIS 1,100 122 | Securing Energy for Development in the West Bank and Gaza Figure II-11.13: Comparing the First Five Affordability Deciles against Equilibrium Tariff for the PENRA Vision Scenario, Assuming Efficiency Targets Are Met by 2030 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Equilibirum tariff Decile 1 Decile 2 Decile 3 Decile 4 Decile 5 Figure II-11.14: Subsidy Requirement to Maintain Affordability of GEDCO’s Tariffs to the Poorest Households under the “PENRA Vision” Scenario, Assuming Efficiency Targets Are Met 100 80 Cost (US $millions) 60 40 20 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Subsidy to 1st decile Subsidy to 2nd decile Subsidy to 3rd decile Subsidy to 4th decile Securing Energy for Development in the West Bank and Gaza | 123 million–1,200 million (US$300 million–330 million) An alternative approach is to allow GEDCO’s tariffs during the early years of the transition, although they to adjust to the evolving financial equilibrium tariff, decline as efficiency targets are reached. Another way while providing a social safety net to safeguard of stating this is that if new power projects are taken on affordability to the poorest. The fiscal costs of keeping without performing tariff adjustments, GEDCO could GEDCO’s tariffs constant would clearly be prohibitive. be expected to lose an average of NIS 0.47 (US$0.13) At the same time, increasing tariffs beyond their on every kWh sold over the entire time horizon until already relatively high level could create affordability 2030. with the losses in the initial five years being up to problems among Gaza’s impoverished population. NIS 0.8 (US$0.22) per kWh. These subsidies assume The affordability analysis conducted for this study that GEDCO meets the desired efficiency targets by suggests that the affordable tariff limit will be NIS 0.42 2030. If this expectation is not fulfilled, then the annual (US$0.11) per kWh in 2018 for the bottom decile subsidy requirements would increase by, on average, of the population, NIS 0.65 (US$0.18) per kWh for a further NIS 308 million (US$81 million) per year over the second decile, NIS 0.83 (US$0.23) per kWh for the time horizon until 2030. the third, NIS 1.0 (US$0.27) per kWh for the fourth, and NIS 1.17 (US$0.32) per kWh for the fifth decile TABLE II-11.4: IMPACT OF THE “PLANNED FUTURE” ENERGY SCENARIO ON GOVERNMENT ACCOUNTS AS % OF GDP 2016 2025 BASELINE PLANNED FUTURE DO NOTHING Revenue 44.1 44.4 47.3 Expenditure 47.1 40.5 48.6 Of which electricity subsidies 4.7 0.9 6.0 Operational balance -3.0 3.9 -1.3 TABLE II-11.5: IMPACT OF THE “PLANNED FUTURE” ENERGY SCENARIO ON MACROECONOMIC PERFORMANCE AVERAGE ANNUAL GROWTH PLANNED FUTURE DO NOTHING 2016–25 GDP at market prices 4.6 4.1 Investment 8.9 5.2 Consumer price index 1.5 1.5 124 | Securing Energy for Development in the West Bank and Gaza of the population (figure II-11.13). A targeted subsidy designed to keep electricity bills affordable for the poor as tariffs adjust to meet financial equilibrium would have a much lower fiscal cost, estimated starting at less than NIS 70 million (US$19 million) per year, increasing to NIS 80 million (US$22 million) per year in the subsequent years, then dropping to less than NIS 10 million (US$3 million) per year by 2030, as costs come down and target efficiencies are reached (figure II-11.14). MACRO FISCAL MODEL A combined energy investment and reform package produces tangible macro fiscal benefits. To evaluate the fiscal and macroeconomic impact of PENRA’s current projects in the pipeline, a computable general equilibrium (CGE) model is designed for the Planned Future scenario described above. For modeling purposes, this scenario is characterized by a steep expansion in domestic power generation accompanied by a fall in energy costs. The CGE model predicts that the Planned Future scenario ensures electricity subsidies are fully eliminated and there is a boost in GDP growth and investment. From a fiscal perspective, the Planned Future scenario entails a dramatic reduction in electricity subsidies that are otherwise projected to escalate to 6.0 percent of GDP by 2025 under the Do Nothing scenario, to a much lower level of 0.9 percent of GDP by 2025 (table II-11.4). This makes a substantial contribution to the net government operating balance estimated to be in substantial surplus under the Planned Future versus a sizeable deficit under the Do Nothing scenario. The Planned Future scenario also delivers a significant boost to the growth rate of the economy, which would be 0.5 percentage points of GDP higher than otherwise for the entire decade (table II-11.5). The main sector to benefit from the energy turnaround is investment, which grows as much as 3.7 percentage points of GDP higher than otherwise, partly as a result of the increased fiscal space created by reducing electricity subsidies. Securing Energy for Development in the West Bank and Gaza | 125 PART III Conclusions and Recommendations Securing Energy for Development in the West Bank and Gaza | 127 CHAPTER 12 A Four-Phase Road Map to Improved Energy Security in the West Bank and Gaza This concluding chapter brings together all of the energy sector depend on greater creditworthiness. analysis in the report to define a sequenced and Without improved creditworthiness, the sector cannot prioritized roadmap of recommendations for the sign new power import deals or close PPAs with Palestinian electricity sector. The starting point independent power producers for increased domestic for the road map is to strengthen the Palestinian power-generation projects; as recent experience Electricity Transmission Company’s (PETL’s) with renewable energy development has illustrated. operational capacity and financial sustainability. While Creditworthiness is equally important to allow the an important interim agreement was signed in July import of natural gas into the Palestinian territories, 2017, PETL is still negotiating with the Israeli Electric whether through gas purchase agreements with Corporation about (i) a power purchase agreement Israel or ultimately a contract to develop Palestinian (PPA), (ii) the energization of several high-voltage gas from the Gaza Marine field. None of these substations, and (iii) the transfer of connection ventures can get off the ground unless the Palestinian points from distribution companies (DISCOs) and electricity sector becomes a credible off-taker. municipality and village councils to PETL. In parallel, PETL should focus on (i) negotiating the power supply There are several distinct components that will need agreements with Palestinian distributors, (ii) putting in to be tackled if creditworthiness is to be improved. place billing and collection systems to sell power to, and collect payments from, Palestinian distributors, First, replace generation from the Gaza Power Plant and (iii) providing advice to the Palestinian Electricity (GPP) with increasing electricity imports from Israel to Regulatory Council (PERC) for the calculation of a provide considerable relief until a conversion to gas can tariff for selling power to the distributors. With these be undertaken. The cost of diesel-fired generation at mechanisms in place, PETL could accelerate its GPP is exceptionally high, at approximately US$0.30 progress toward fulfilling its role and responsibilities per kilowatt hour (kWh), even at current low oil prices. under the PPA and reduce its reliance on donor This is approximately three times the cost of power assistance for operational costs. Once these imports from Israel, which also provides a much more immediate measures are in place, the question reliable level of supply. Until GPP is ready for the becomes what needs to be done next to begin to switch over to gas-fired generation that would slash move toward the vision of improved energy security in costs to US$0.068 per kWh, it would be desirable the Palestinian territories. The analysis suggests that to substitute domestic diesel-fired power generation there is a certain sequence in which measures will with Israeli power imports, taking advantage of the need to be taken. Four distinct phases are identified. new 161 kV line that is in an advanced stage of planning. Even considering the need to continue to PHASE 1: IMPROVE SECTOR pay capacity charges of US$0.026 per kWh to GPP, CREDITWORTHINESS every reduction of one kWh in diesel-fired power generation would be sufficient to buy two kWh of The first phase needs to focus on what is by far the Israeli imports. Such a move would simultaneously highest priority issue in the Palestinian electricity sector reduce costs and improve quantity and reliability of today: namely, the issue of financial creditworthiness. supply, and thereby increase prospects for improved Progress on all other aspects of the Palestinian recovery of costs through tariff revenues. 128 | Securing Energy for Development in the West Bank and Gaza Second, accelerate improvements in the operational Third, create securitization mechanisms to ensure and commercial performance of Palestinian that Palestinian DISCO revenues are not diverted DISCOs. Cost-recovery tariffs could be significantly to other municipal projects. Due to the lack of a reduced over time if the operational and commercial subnational financing framework in the West Bank performance of the Palestinian DISCOs could and Gaza, DISCO revenues remain vulnerable to be improved to reasonable regional benchmark diversion into municipal budgets. The long-term levels. For the utilities in the West Bank, improved solution to this problem, which is to strengthen the operational performance would take US$0.03 basis of subnational public finance, is important for per kWh off the financial equilibrium tariff, while in broader development reasons that go well beyond the Gaza improving operational performance is worth energy sector. However, this will likely take some time as much as US$0.11 per kWh. Achieving further to achieve. Hence the importance of finding interim improvements can build on some recent successes mechanisms to securitize the revenues needed for with the introduction of prepaid and smart meters that the DISCOs to meet the costs of wholesale power helped to raise revenue collection rates to 85 percent purchase. This could take the form of a payment on average across the utilities. Further improvements prioritization hierarchy, combined with an escrow in revenue collection are required, particularly for account that requires revenues to be deposited to weak performers such as Gaza Electricity Distribution cover a certain advance period of wholesale power Company and Southern Electricity Distribution purchases before these can be supplied. The issue Company. Moreover, across the board, attention of securitization of revenues is particularly critical in needs to turn toward improving network losses Gaza, and would be an essential component of any which remain abnormally high despite all efforts. In moves to substitute increased Israeli power imports this regard, it is recommended to establish a revenue for domestic diesel-fired power generation. protection program to permanently measure and bill every kWh sold to the largest DISCO customers with state-of-the-art technology. Securing Energy for Development in the West Bank and Gaza | 129 Fourth, ensure that all Palestinian DISCOs move toward operator and single buyer and central bookkeeper of cost recovery. Not all Palestinian DISCOs are charging the electricity sector. However, its start of operations cost recovery tariffs today. Only two Palestinian utilities, has been delayed pending the closure of a long-term Jerusalem District Electricity Company and Northern PPA with Israel and the energization of the high-voltage Electricity Distribution Company, make formal tariff substations. The signing of an interim agreement with submissions to PERC. The resulting uniform tariff that Israel to energize the Jenin high-voltage substation is applied across all Palestinian utilities in the West Bank alone was the first step toward PETL’s financial and is estimated to under recover costs for all but Northern operational sustainability, and this was completed on Electricity Distribution Company. Moreover, PERC’s July 10, 2017 after extensive negotiations. PETL is practice of not passing through collection inefficiencies now able to resell the discounted power to DISCOs in to the retail tariff, while defensible from the standpoint the north of the West Bank at a slight markup, allowing of consumers, further weakens the financial solidity them to obtain revenues. The next step is the signing of the sector. In addition, Gaza Electricity Distribution of the main long-term PPA for all substations. In the Company does not follow PERC tariff guidelines and meantime, PETL should make further progress toward has not adjusted its electricity tariff for a decade, its goal of being the single buyer, by ensuring that all currently charging a retail tariff that is US$0.03–0.05 wholesale power purchases are undertaken through per kWh lower than the wholesale purchase price its intermediation in order to improve transparency of electricity, without considering the costs of power and discipline of the sector. distribution. The higher costs of electricity production in Gaza, combined with the sensitive social context, PHASE 2: ADVANCE PARALLEL “NO suggest that efforts to improve cost recovery in Gaza REGRETS” MEASURES would need to be preceded by measures to both reduce costs and improve the availability of power While the absolute priority is to improve the supply, such as the switching of diesel-fired power creditworthiness of the electricity sector, there generation for Israeli imports. are several other no regrets measures that can advance in parallel during a second phase. Even Fifth, build the capacity of PETL to play its envisaged after decisive steps are taken to address the issue of role in the sector. In the new sector architecture, PETL creditworthiness, time will be needed for a payment has been assigned a dual role of transmission system record to be established and a reputation to be 130 | Securing Energy for Development in the West Bank and Gaza built. During this period of consolidation, it would be kilometers of transmission and distribution lines in helpful to accelerate measures that will facilitate the the Gaza Strip affected by past conflicts. But more development of other power supply options that will needs to the done. Additional feasibility studies for the become feasible once the issue of creditworthiness transmission and distribution lines to deliver the power has been adequately addressed. to the end-consumer will, however, be required. First, create the infrastructure needed to support the Fourth, improve the enabling environment for import of natural gas into the Palestinian territories. independent power projects. While the financial All the planning analysis confirms the strategic role creditworthiness of the sector is the single largest that natural gas-fired power generation can play in impediment to the implementation of independent the electricity mix for both the West Bank and Gaza, power projects, there are several other simple as well as its relatively attractive cost. The first step measures that could be taken to improve the quality in making this possible is to construct the relatively of the enabling environment, and which could be modest pipeline extensions needed to make possible handled through secondary legislation or executive the import of gas from the Israeli system. These will regulations that develop broad provisions in the create the platform for credible negotiations for gas existing sector legislation. These include further supply agreements and ultimately the construction clarifying the provisions for licensing new generators of a new gas-fired plant, or the conversion to gas in and the provisions associated with connection to the the case of Gaza. The Gas-for-Gaza Project led by grid. The roles of PERC and PETL in this process also the Office of the Quartet has focused its efforts in need to be further spelled out. removing key obstacles for the construction of a gas pipeline from Israel to the GPP. Fifth, establish a risk-mitigation mechanism to support the next generation of Palestinian independent power Second, pursue an aggressive program to promote projects. Risk mitigation is no substitute for addressing the uptake of rooftop solar photovoltaics (PV). Unlike the fundamental underlying creditworthiness issues grid-based solar power, rooftop solar PV is highly in the sector, and it does not make sense to move decentralized and is not contingent on progress ahead with risk mitigation until the Palestinian toward sector creditworthiness and the capacity of Authority has demonstrated a sustained and credible PETL. Moreover, it has been shown that rooftop solar commitment to improving the financial standing of the PV can play a valuable role as an electricity safety net sector. Nevertheless, once this has taken place, risk to increase the resilience of the Palestinian electricity mitigation may play a valuable role in getting the next system and ensure that critical humanitarian needs generation of Palestinian independent power projects can be met. This is particularly true in the case of off the ground. It would therefore be valuable to work Gaza, where the World Bank will support a pilot with donors to develop a suitable mechanism for rooftop solar PV project to reduce the high upfront risk mitigation, evaluating the relevance of a range of capital expenditures for the customers and test the financial instruments such as guarantees, first loss, sustainability of a revolving fund model. In parallel, the blended finance, and viability gap finance. French Development Agency is planning to launch a project-based on a financial intermediary model to PHASE 3: IMPLEMENT FIRST WAVE OF support the scaling up of renewable energies. INDEPENDENT POWER PROJECTS Third, complete the domestic transmission backbone In a third phase, it will become possible to make progress in Gaza. Domestic transmission constraints are already with a major wave of Palestinian independent power an issue in Gaza, and these will only become more projects. These will build on the critical foundational severe as efforts to increase the supply of power bear elements already tackled under the first two phases. fruit. It is therefore important to ensure that the modest It makes sense to begin with those projects that look transmission and distribution upgrades required are to be the most tractable from a technical and political completed in a timely fashion, and certainly well ahead perspective, which suggests focusing on developing of any future expansion of GPP. The Gaza Electricity combined cycle gas turbine (CCGT) capacity and Network Rehabilitation Project, financed by the World utility-scale solar PV in Areas A and B. Bank, has constructed or rehabilitated more than 250 Securing Energy for Development in the West Bank and Gaza | 131 First, convert GPP to CCGT gas-fired technology as Fifth, engage in dialogue over the use of Area C for the most urgent of the domestic power-generation the development of Palestinian power infrastructure projects. Conversion of GPP to CCGT gas-fired and renewable energy generation. The planning technology once a gas pipeline comes on stream analysis highlights the economic value of Area C, would save between US$45 million and US$62 both as a location for grid-based solar generation million annually in fuel bills and provide Gaza with a and as the conduit for any future Palestinian electricity cost-effective domestic source of power generation. transmission infrastructure. While there is much that still needs to be done before the issue of Area C Second, proceed with the construction of a becomes a binding constraint, the political complexity new CCGT gas-fired plant initially in Jenin, and of the issue suggests that it may be helpful to begin eventually in Hebron. Once the gas transportation a dialogue process that over time can help to clarify infrastructure is in place, and some improvements the modalities for making use of Area C. A related to the sector environment have been achieved, the question is the need to coordinate Palestinian plans to implementation of the Jenin CCGT plant should be ramp up renewable energy generation with those that relatively straightforward. Guarantee products might also exist on the Israeli side, in order to ensure that be required to reduce the risk of nonpayment by the challenges related to grid stability and the integration off-taker. Two important issues need to be addressed of intermittent sources can be adequately handled to in the project design. One is the arrangements for the benefit of both sides. selling any surplus energy back into the Israeli grid. The other is to ensure that the terms of a future gas PHASE 4: IMPLEMENT supply agreement are sufficiently flexible to allow for TRANSFORMATIONAL PROJECTS an eventual switch of supply from the Gaza Marine gas field, should this prove to be desirable. The fourth and final phase would build on earlier Third, embrace a more ambitious target for utility- success to tackle the more challenging, and scale solar PV farms in Areas A and B. As noted in potentially transformational, projects needed to the planning analysis, it looks feasible to develop over complete the Palestinian energy vision. These include 600 MW of solar PV capacity in the West Bank based the construction of solar generation and transmission on potential in Areas A and B as well as rooftop. This backbone infrastructure in Area C, as well as the goes far beyond the current target of 130 MW by 2020. development of the Gaza Marine gas field. With the improvements in the enabling environment in place, as well as the establishment of risk-mitigation First, develop a Palestinian transmission backbone mechanisms, it should become feasible to scale-up in the West Bank. The analysis has shown that as and accelerate efforts to develop this solar potential. domestic Palestinian power generation ramps up, the cost of wheeling charges back through the Israeli grid Fourth, establish suitable wheeling arrangements with rapidly become quite significant. A more economic Israel. As the volume of domestic power generation option in the long term would be to construct a in the West Bank ramps up, there will be increasing Palestinian transmission backbone. need to move power away from generation plants toward Palestinian load centers. At present, this can Second, develop utility-scale solar PV and be done only by wheeling power back through the concentrated solar power projects in Area C of the Israeli grid and reimporting into the West Bank at West Bank. If a successful track record of solar farm another location. The analysis suggests that wheeling development can be established on the more limited charges are relatively costly, particularly if low- land endowments of Areas A and B, and suitable voltage networks need to be used. It will therefore be transmission backbone infrastructure can be put in important to ensure that the number of substations place across Area C, the West Bank would be ready in the West Bank increases in such a way as to to benefit from larger scale solar development in Area keep pace with the expansion of domestic supply. It C. This would entail both solar PV and concentrated would also be important to have dialogue with the solar power technologies. Israeli regulator, Public Utility Authority, regarding the charges for wheeling, and to explore any possible Third, move ahead with the development of the Gaza alternative arrangements (such as power swaps) that Marine gas field. As noted, the development of the may help to contain costs. Gaza Marine gas field is critically dependent on having 132 | Securing Energy for Development in the West Bank and Gaza TABLE III-5.1: INDICATIVE INVESTMENT NEEDS ASSOCIATED WITH THE PALESTINIAN ENERGY AGENDA (US$ MILLIONS) WEST BANK GAZA WEST BANK AND GAZA PUBLIC PRIVATE PUBLIC PRIVATE PUBLIC PRIVATE Phase One - - - - - - Phase Two 7a 800–1,100b 135c 240–320d 142 1,040–1,420 Phase Three 930e 900–990f - 1,830–1,920 Phase Four 188g 375–500h - 250–1,200i 188 620–1,700 Total 195 2,105–2,530 135 1,390–2,510 330 3,495–5,040 a Includes natural gas pipeline of 15 kilometers (km) for Jenin Power Plant (JPP). b Includes 530 megawatt (MW) of rooftop in the West Bank, assuming cost of US$1,500–2,000 per kilowatt peak (kWp). c Includes natural gas pipeline of maximum 20 km (section inside Gaza only) and upgraded transmission and distribution network capable of absorbing power from expanded Gaza Power Plant, Israeli Electric Corporation, and Egyptian supply options. d Includes 160 MW of rooftop in the West Bank, assuming cost of US$1,500–2,000 per kWp. e Includes JPP at 400 MW and Hebron Power Plant (HPP) at 120 MW, as well as 130 MW of renewable energy in Areas A and B. f Includes GPP upgrade to 560 MW on natural gas in Gaza. g Includes the West Bank transmission backbone and distribution grid upgrade assuming four new substations are active, JPP and HPP are online, access to area C is granted, and Jordanian connector is expanded. h Includes 500 MW of utility-scale solar in Area C, assuming cost of US$750–1,000 per Watt-peak. i Estimate of costs for development of Gaza Marine gas field. a creditworthy off-taker to sign the gas purchase deal. CONCLUDING REMARKS Given the abundance of gas discoveries in the eastern Mediterranean and the relatively small nature of the The implementation of this road map would require field, the development of this field will likely need to private investment of the order of NIS 13 billion to NIS be underwritten by a significant Palestinian demand 18 billion (US$3 billion to US$5 billion) complemented for gas. For all the reasons described, this demand by public investment of around NIS 1 billion (US$0.3 will take time to develop and would be achieved only billion). Table III-5.1 clarifies the indicative investment once significant gas-fired power generation was on- needs that would be required during each phase of stream and establishing a solid gas purchase payment the road map in the West Bank and Gaza. Of the record in both the West Bank and Gaza. That would total investment requirements of NIS 14 billion to NIS be a suitable juncture at which to sign a bankable 20 billion (US$3.8 billion to US$5.4 billion), over 90 deal for the development of the field, allowing the percent corresponds to the private sector, between Palestinian gas-fired plants to switch gradually from 50 and 75 percent to the West Bank. Israeli to Palestinian gas as the new field starts to become productive. Given the relatively small volume Progress in many of the areas identified will require of Palestinian demand, it may make sense to consider continued and even deepened cooperation with the options for Gaza Marine development that require Israeli institutions (table III-5.2). In every phase of the least infrastructure development—by making use the road map, progress depends on coordinated of stranded infrastructure from the Israeli Mari B field— measures being taken on both the Palestinian and thereby making the field economic at lower levels of Israeli sides. Close coordination will be needed on throughput. Seen from this perspective, the primary both sides throughout the implementation process. value of the Gaza Marine field to the Palestinian economy lies not so much as a supply of gas, which In conclusion, the analysis presented in this report has is in any case abundantly available in the region, nor allowed numerous elements of a Palestinian energy even as a source of energy security, since Palestinian vision to come into focus. It has also clarified what gas would inevitably need to be transported through are the most immediate steps that need to be taken Israeli infrastructure. Rather it is an eventual source of in support of that vision. fiscal revenues for the Palestinian Authority, estimated at US2.7 billion over 25 years. Securing Energy for Development in the West Bank and Gaza | 133 TABLE III-5.2: SUMMARY OVERVIEW OF THE PROPOSED ROAD MAP FOR PALESTINIAN ENERGY SECURITY PHASE 1: IMPROVE SECTOR PHASE 2: ADVANCE PARALLEL NO REGRETS CREDITWORTHINESS MEASURES Substitute Israeli imports for diesel-fired Create infrastructure for import of natural gas generation in Gaza P : Gradually ramp down GPP and use the savings P, I : Construct natural gas pipelines for West Bank to buy additional IEC supply until GPP can be and Gaza paving the way for construction of new/ converted to gas. upgraded power plants. I : Provide additional power to Gaza through 161kV. Improve operational and commercial efficiency Improve enabling environment for IPPs P : Continue improvement of DISCO performance P : Update and improve legislation and licensing by reducing losses, increasing collection rates and provisions that would help IPPs enter the market bringing down overhead costs. One mechanism can and also clarify roles and responsibilities of PERC be through a revenue protection program aiming and PETL in this environment. to permanently measure and bill every KWh sold largest DISCO consumers. Securitize payments of wholesale electricity Promote uptake of rooftop solar PV P : Strengthen sub national public finance to avoid P : Set aggressive targets for 160MW of rooftop PV diversion of electricity bill collections to municipal in Gaza and 530MW in West Bank. budgets and set up escrow accounts both in Gaza and West Bank to ring fence collections. Adjust tariffs to better reflect cost recovery Develop transmission backbone in Gaza P : Reexamine the retail tariffs and increase rates to P : Upgrade T&D network to allow increase in allow better cost recovery by DISCOs. power supply and reduction in losses. Build the capacity of PETL to play its role Design a risk mitigation mechanism for IPPs P : PETL to streamline billing to and payments from P, D : After creditworthiness issues from Phase DISCOs while in parallel pushing to energize the I have been improved, develop financial risk new substations and sign the PPA with IEC. mitigation instruments such as guarantee I : Sign bulk supply PPA and energize new mechanisms. substations. 134 | Securing Energy for Development in the West Bank and Gaza PHASE 3: IMPLEMENT FIRST WAVE OF IPPS PHASE 4: IMPLEMENT TRANSFORMATIONAL PROJECTS Convert GPP to CCGT gas-fired technology Develop grid-scale solar PV/CSP farms in Area C P : Complete conversion and upgrade of GPP P : Begin development of renewables in Area C ensuring flexible gas supply agreement to allow only after a successful track record of renewable switch to Gaza Marine. development in Areas A and B. I : Enter into gas supply agreement for GPP. I : Provide permits for construction in Area C. Construct new CCGT plant at Jenin, then Hebron Develop transmission backbone in the West Bank P : Complete JPP and HPP construction with P : Begin development of a transmission backbone, flexible gas supply agreement to allow switch to considering also the possibility of negotiating Gaza Marine. Build additional substations to keep a swap mechanism that eliminates the need for pace with increased domestic generation. wheeling or building of infrastructure. I : Enter into gas supply agreement for JPP and I : Provide permits for construction in Area C HPP. and/or provide swap alternatives to building a backbone. Increase renewable energy targets Develop Gaza Marine Gas Field P : Increase renewable energy targets to 600MW in P : Develop Gaza Marine with least amount of West Bank and 160MW in Gaza by 2030 (includes infrastructure development to keep costs low. rooftop solar) but only after the right enabling I : Allow permission to use existing Israeli environment has been established from Phase I. infrastructure for evacuation of Gaza Marine. Establish wheeling arrangements with IEC P, I : Negotiate lower wheeling tariffs and/or swap arrangements until a transmission backbone is built Engage in dialogue over use of Area C P, I : Coordinate on Area C access and permitting issues as well as grid stability and regional integration for supply expansion and transmission infrastructure. Securing Energy for Development in the West Bank and Gaza | 135 Appendix Securing Energy for Development in the West Bank and Gaza | 137 APPENDIX A: The Palestinian Electricity Sector Map A.1: Electricity Supply System in the West Bank and Gaza IBRD 43948 | SEPTEMBER 2018 Existing Power Plant Future Power Plant Existing Substations New Substations or Under Construction Jenin Future Substations Future Transmission Lines (220/66 kV) JENIN Existing 33 kV Distribution Lines Existing 22 kV Distribution Lines TUBAS Tulkarm Tubas HIGH VOLTAGE LINES: TULKARM New Feed Lines from Israel to West Bank Nablus Prospective Feed Line from Israel to Gaza QALQILYAH Feed Line to Jericho Qalqilyah NABLUS Prospective Feed Line from Jordan Feed Line from Egypt to Gaza SALFIT JORDAN Salfit 0 10 20 Kilometers W e s t Ba nk RAMALLAH JERICHO Ramallah Me dite r r a n ean Jericho Sea JERUSALEM Jerusalem ISRAEL Bethlehem BETHLEHEM Dead Sea JABALYA Jabalya Gaza City Hebron Gaza HEBRON Deir el Balah GAZA CITY KHAN YUNIS DEIR EL BALAH Khan Yunis Governorate Capitals Rafah Northern West Bank is fed from: Armistice Demarcation Lines, 1949 • 2x33kV feeders from Beisan substation No-man’s Land Areas, RAFAH • 12x33kV feeders from Ariel (Salfit) substation Armistice Demarcation Line, 1949 • 2x33kV feeders from Mt. Afraym substation Jerusalem City Limit, Unilaterally • 3x22kV feeders Expanded by Israel June 1967; then Annexed July 30, 1980 ARAB Southern West Bank is fed from: Governorate Boundaries REP. OF • 10x33kV feeders from Hebron substation • 4x33kV feeders from 2 portable substations Administrative Boundary EGYPT International Boundaries 138 | Securing Energy for Development in the West Bank and Gaza Map A.2: Power Supply to Gaza IBRD 43949 | SEPTEMBER 2018 Electric Feeder (Israel) M e d i t e r r a n e a n Se a Electric Feeder (A.R. Egypt) 0 4 8 Kilometers Hospital Water Treatment Facilities North Gaza Pumping Stations Grizim (Al Bahar Line) Wastewater Desalination Plants Water Wells 53% Meiron Sewage Outlet (in constant use) (Beit Lahia line) Gaza 12 Sewage Outlet (overflow only) 4 MW MW Open Border Crossing 8 55% MW Erez Eival Closed, but open for exceptional (Beit Hanun) Jabalia Line cases Border Crossing Closed Border Crossing 12 MW Built-up areas Refugee Camps Middle Area Governorate Boundaries Armistice Demarcation Line, 1949 International Boundary 59% 12 MW Nekarot Khan Yunis Nahal Oz/Fuel Pipeline (Baghdad Line) 12 Karni Crossing MW (Al Montar) Gaza Power 12 Hemda (Al Quba Line) 58% Plant MW Iron (Al Shaff Line) Rafah x CURRENT SITUATION WITH GPP 58% 12 MW Romah (Middle Line) TURNED OFF Gaza Strip Total 4 MW Deficit 66% Kela' (Kisufim Line) 8 MW Percentage of ISRAEL demand met Electricity by provider 12 A.R. of MW Israel Egypt Shiryon 80% 20% (Khan Yunis Line) 5 MW 10 MW 450 MW Demand Gaza-2 5 MW 150 MW Available Line 10 2 MW MW Palestine Sufa 1.9 Million Affected population Line 10 Surya MW (Rafah Line) Gaza-1 Rafah (Al ‘Awda) 16-20 HOURS Line of scheduled electricity outages are Kerem Shalom implemented across Gaza per day. AR AB R E P. (Karrm Abu Salem) Source: OCHA 2016. https://www.ochaopt.org/content/ O F E GYPT gaza-strip-access-and-movement-august-2016 Securing Energy for Development in the West Bank and Gaza | 139 TABLE A.1: PERC FLAT TARIFF STRUCTURE SEGMENTS 2011 2012 2014 FEB ‘15 SEPT ‘15 Residential (postpaid): All West Bank except Jericho and Jordan Valley [NIS per kWh] 1–160 kWh per month 1–100 kWh per month: 0.4085 0.465 0.490 0.441 0.437 161–250 kWh per month 101–200 kWh per month: 0.4546 0.510 0.528 0.475 0.471 251–400 kWh per month 0.590 0.635 0.572 0.543 Above 200kWh per month: 0.4795 401–600 kWh per month 0.620 0.665 0.600 0.581 Above 600 kWh 0.690 0.735 0.662 0.642 Fixed fees per day 0.333 0.333 0.333 0.333 0.333 Residential (prepaid): All West Bank except Jericho and Jordan Valley [NIS per kWh] Flat Rate (no segments) 0.467 0.520 0.565 0.500 0.475 Fixed fees per day 0 0 0 0 0 Residential (postpaid): Only Jericho and Jordan Valley [NIS per kWh] 1- 500 kWh per month NA 0.480 NA 0.450 0.428 Above 500 kWh per month NA 0.520 NA 0.490 0.466 Residential (prepaid): Only Jericho and Jordan Valley [NIS per kWh] Flat rate (no segments) NA 0.520 NA 0.475 0.451 Commercial (postpaid): Single and three-phase [NIS per kWh] Flat rate (no segments) 0.518 0.630 0.667 0.614 0.596 Fixed fees per day 0.667 0.667 0.667 0.667 0.667 Commercial (prepaid): Single and three-phase [NIS per kWh] Flat Rate (no segments) 0.508 0.600 0.637 0.586 0.568 Fixed fees per day 0.34 0 0 0 0 Industrial (low voltage): Less than 60 MWh consumption per month [NIS per kWh] Flat rate (no segments) 0.428 0.500 0.537 0.500 0.485 Fixed fees per day 1 1 1 1 1 Industrial (medium voltage: 6.6, 11, 33kV) [NIS per kWh] Flat rate (no segments) 0.399 0.450 0.487 0.440 0.414 Fixed fees per day 4 4 4 4 4 Industrial 2 (marble and stone) [NIS per kWh] Flat rate (no segments) NA NA NA 0.54 0.5238 Water pump [NIS per kWh] Flat rate (no segments) 0.467 0.500 0.537 0.485 0.460 Fixed fees per day 1 1 1 1 1 Agriculture [NIS per kWh] Flat Rate (no segments) 0.409 0.460 0.497 0.448 0.440 Fixed fees per day 0.333 0.333 0.333 0.333 0.333 Street lights [NIS per kWh] Flat rate 0.407 0.466 0.503 0.453 0.450 Fixed fees per day 0.333 0.333 0.333 0.333 0.333 Temporary service (postpaid) [NIS per kWh] Flat rate 0.683 0.800 0.837 0.754 0.754 Fixed fees per day 0.667 0.667 0.667 0.667 0.667 Temporary service (prepaid) [NIS per kWh] Flat rate 0.683 0.800 0.837 0.754 0.754 Fixed fees per day 0.34 0.34 0.34 0 0 Note: The flat tariff is applied to residential, commercial, and industrial customers consuming less than 60 MWh per month. 140 | Securing Energy for Development in the West Bank and Gaza TABLE A.2: PERC TIME OF USE (TOU) TARIFF STRUCTURE (NIS PER KWH) LOW VOLTAGE (NIS PER KWH) SEASON TOU TARIFF CATEGORY 2015 ISRAEL 2011 PA 2012 PA FEB 2015 SEPT 2015 TARIFF TARIFF TARIFF PA TARIFF PA TARIFF Rate–A (off-peak) 0.3802 0.3055 0.4364 0.4283 0.4010 Winter Rate–B (mid-peak) 0.6035 0.5648 0.7541 0.6798 0.6263 Rate–C (peak) 1.0052 0.9774 1.2859 1.1323 1.0283 Rate–A (off-peak) 0.3304 0.2697 0.3826 0.3722 0.3602 Spring and Rate–B (mid-peak) 0.409 0.3408 0.4776 0.4607 0.4400 autumn Rate–C (peak) 0.503 0.4259 0.5914 0.5666 0.5303 Rate–A (off-peak) 0.3441 0.2756 0.3955 0.3876 0.3767 Summer Rate–B (mid-peak) 0.4964 0.4453 0.6026 0.5591 0.5408 Rate–C (peak) 1.1466 1.0792 1.4105 1.2915 1.1894 MEDIUM VOLTAGE (NIS PER KWH) SEASON TOU TARIFF CATEGORY TARIFF ISL 2011 PA 2012 PA FEB 2015 SEPT 2015 2015 [6] TARIFF [4] TARIFF [3] PA TARIFF PA TARIFF [2] [1] Rate–A (off-peak) 0.3014 0.2684 0.3642 0.3395 0.3149 Winter Rate–B (mid-peak) 0.513 0.5165 0.6667 0.5778 0.5285 Rate–C (peak) 0.8796 0.8963 1.1583 0.9908 0.8939 Rate–A (off-peak) 0.2556 0.2355 0.3147 0.2879 0.2780 Spring and Rate–B (mid-peak) 0.3259 0.2996 0.4007 0.3671 0.3491 autumn Rate–C (peak) 0.4141 0.3795 0.5078 0.4664 0.4336 Rate–A (off-peak) 0.2639 0.2367 0.3220 0.2973 0.2886 summer Rate–B (mid-peak) 0.3997 0.3905 0.5108 0.4502 0.4349 Rate–C (peak) 0.9993 0.9772 1.2627 1.1256 1.0305 Note: The TOU tariff is applied to Industrial customers consuming less than 60 MWh per month. Securing Energy for Development in the West Bank and Gaza | 141 TABLE A.3: JDECO BALANCE SHEETS (IN NIS EXCLUDING VAT) 2011 2012 2013 2014 2015 Current assets Accounts receivable 511,543,102 592,638,906 759,513,337 912,051,741 994,313,285 Cash and cash equivalents 66,731,355 78,507,761 89,072,998 81,999,095 76,013,661 Asset inventory in warehouse 50,328,765 32,279,908 41,059,610 46,348,215 45,437,813 Work under implementation 147,115,720 236,841,628 NA NA NA Other current assets 3,493,216 7,661,401 18,406,544 15,083,321 10,010,723 Total current assets 779,212,158 947,929,604 908,052,489 1,055,482,372 1,125,775,482 Noncurrent assets Property plant and equipment 327,291,487 361,827,870 415,044,614 627,740,662 715,900,801 Projects under construction NA NA 257,407,020 108,497,147 128,373,720 Intangible assets 50,000 50,000 50,000 50,000 50,000 Other noncurrent assets 7,130,789 22,717,324 32,248,657 43,470,784 46,554,248 Total noncurrent assets 334,472,276 384,595,194 704,750,291 779,758,593 890,878,769 Total assets 1,113,684,434 1,332,524,798 1,612,802,780 1,835,240,965 2,016,654,251 Current liabilities Accounts payable 285,831,913 441,908,286 881,953,033 1,027,225,379 1,255,331,424 Other current liabilities 115,593,048 116,281,908 132,567,633 139,247,227 143,390,312 Total current liabilities 401,424,961 558,190,194 1,014,520,666 1,166,472,606 1,398,721,736 Noncurrent liabilities Long term loans 192,511,116 152,496,471 117,087,630 92,051,231 68,657,070 Provision for end of service 67,999,128 68,395,500 86,197,324 81,978,304 89,250,091 Deferred revenue 127,381,058 179,957,470 114,982,955 118,558,214 130,182,770 Other allocation reserves 3,586,600 3,586,600 3,586,600 3,586,600 5,086,600 Total noncurrent liabilities 391,477,902 404,436,041 321,854,509 296,174,349 293,176,531 Equity Paid up capital 178,875,000 178,875,000 178,875,000 178,875,000 178,875,000 Treasury shares -3,879,311 -7,666,691 -1,486,709 -3,622,230 -3,622,230 Statutory reserve 9,187,500 9,187,500 9,187,500 9,187,500 9,187,500 Revaluation reserve 86,962,931 69,570,345 53,716,168 33,576,949 67,683,536 Retained earnings 49,635,451 119,932,409 36,135,646 154,576,791 72,632,178 Total equity 320,781,571 369,898,563 276,427,605 372,594,010 324,755,984 Total liabilities and equity 1,113,684,434 1,332,524,798 1,612,802,780 1,835,240,965 2,016,654,251 Source: 2011–15 JDECO annual reports (all years audited by Price Waterhouse Coopers (PWC). 142 | Securing Energy for Development in the West Bank and Gaza TABLE A.4: JDECO INCOME STATEMENTS (IN NIS EXCLUDING VAT) 2011 2012 2013 2014 2015 Operating income Electricity sales (billed) 694,862,965 875,140,233 888,860,424 950,714,795 949,052,263 Purchased electricity -562,555,632 -800,261,437 -831,806,133 -886,356,917 -871,483,182 Gross Profit from sales 132,307,333 74,878,796 57,054,291 64,357,878 77,569,081 Subscriber’s contribution to 35,149,206 22,703,391 68,183,242 54,921,120 55,149,003 extension of services Revenue from services 9,828,978 7,166,019 9,646,416 11,571,609 10,182,591 Total operating income 177,285,517 104,748,206 134,883,949 130,850,607 142,900,675 Operating expenses General and administrative expenses -145,790,757 -148,425,865 -162,865,171 -171,517,383 -187,635,103 Depreciation expenses -23,871,283 -21,160,451 -19,752,101 -29,677,585 -36,690,360 Provision for doubtful receivables NA NA -2,378,492 -2,245,586 -4,000,000 Provision for obsolete or damaged NA NA -1,508,245 -1,508,245 -1,815,124 goods Total operating expenses -169,662,040 -169,586,316 -186,504,009 -204,948,799 -230,140,587 Net Income or losses before other 7,623,477 -64,838,110 -51,620,060 -74,098,192 -87,239,912 income and expenses Financing expenses -21,769,450 -33,838,017 -28,076,247 15,225,873 10,827,836 Other income 8,993,026 27,270,860 4,725,648 5,217,910 2,191,500 Annual income or loss before income -5,152,947 -71,405,267 -74,970,659 -53,654,409 -74,220,576 tax Income tax expense -2,589,440 0 0 -2,791,446 -7,658,068 Annual income or loss -7,742,387 -71,405,267 -74,970,659 -56,445,855 -81,878,644 Source: 2011–15 JDECO annual reports (all years audited by PWC). Securing Energy for Development in the West Bank and Gaza | 143 TABLE A.5: SELCO BALANCE SHEETS (IN NIS EXCLUDING VAT) 2011 2012 2013 2014 2015 Current assets Cash and cash equivalents 3,183,063 9,114,211 5,435,813 16,670,961 11,389,588 Checks under collection 4,381,660 6,607,877 5,379,639 2,308,503 4,388,066 Stakeholders net receivables 128,539,580 142,283,171 158,385,189 205,881,442 218,715,066 Inventories 42,268,623 38,112,171 30,555,028 33,265,776 27,559,593 Prepaid payments and debit 4,403,698 5,548,385 9,511,609 13,917,083 23,312,365 balances Total current assets 182,776,624 201,665,815 209,267,278 272,043,765 285,364,678 Noncurrent Assets Beit Ummar Municipality 6,892,635 6,892,635 6,892,635 6,892,635 6,892,635 Net fixed assets 86,856,645 107,515,454 107,259,124 108,602,044 138,986,851 Work-in-progress 13,109,462 526,611 4,385,403 9,405,428 0 Other 0 0 0 1,602,317 3,382,006 Total noncurrent assets 106,858,742 114,934,700 118,537,162 126,502,424 149,261,492 Total assets 289,635,366 316,600,515 327,804,440 398,546,189 434,626,170 Current liabilities Accounts payable 11,928,801 5,054,300 15,598,036 16,196,681 37,843,068 Other current liabilities 7,671,467 10,503,416 11,557,674 17,974,835 18,323,477 Total current liabilities 19,600,268 15,557,716 27,155,710 34,171,516 56,166,545 Long-term liabilities Long-term loans 78,142,027 84,069,134 82,815,894 83,084,752 83,015,967 Severance allowances 2,817,115 3,334,956 4,695,549 4,646,758 5,563,625 Ministry of Finance 179,409,815 223,048,447 257,816,215 325,136,253 333,309,386 Total long-term liabilities 260,368,957 310,452,537 345,327,658 412,867,763 421,888,978 Total liabilities 279,969,225 326,010,253 372,483,368 447,039,279 478,055,523 Equities Paid-in capital 44,250 44,250 44,250 44,250 44,250 Statutory reserve 44,250 44,250 44,250 44,250 44,250 Voluntary reserve 1,869,495 1,869,495 1,869,495 1,869,495 1,869,495 Stakeholders receivables -31,065,858 -40,474,211 -57,391,364 -46,594,927 -61,433,602 Shareholders current account 41,522,376 41,522,376 41,522,376 41,522,376 41,522,376 Accumulative (loss) – Statement B -2,748,372 -12,416,014 -30,767,935 -45,378,534 -25,476,122 Net equities 9,666,141 -9,409,854 -44,678,928 -48,493,090 -43,429,353 Total liabilities and equities 289,635,366 316,600,399 327,804,440 398,546,189 434,626,170 Source: SELCO financial statements, 2011–13 audited by Talal Abu Gazaleh, but 2014–15 draft or unaudited. form. 144 | Securing Energy for Development in the West Bank and Gaza TABLE A.6: SELCO INCOME STATEMENTS (IN NIS EXCLUDING VAT) 2011 2012 2013 2014 2015 Revenues Electricity sales plus discount 48,333,776 55,906,513 53,766,667 76,048,100 67,230,123 Electricity purchase -42,969,409 -54,065,475 -52,664,853 -70,714,130 -48,869,845 Operating expenses (wages, rents, -4,024,643 -5,046,172 -8,078,247 -8,251,986 -11,083,814 salaries, maintenance) Installation services revenues 1,537,144 2,743,024 2,442,701 2,178,763 867,314 Other operating revenues 3,424,981 1,205,492 1,293,851 1,171,357 4,758,443 Total profit (loss) 6,301,849 743,382 -3,239,881 432,104 12,902,221 Contributions in kind 131,826 300,269 - 623,738 4,021,210 Currency differential -3,588,404 862,298 2,585,184 -39,483 -249,711 Total profit (loss) before administrative 2,845,271 1,905,949 -654,697 1,016,359 16,673,720 and general expenses Expenses Administrative, general, and operating -4,009,067 -4,216,934 -10,058,292 -6,555,902 -7,412,130 expenses Other expenses 2,180,286 1,566,260 1,914,811 347,531 6,909,898 Allowance -4,928,673 -5,493,227 -6,801,094 -7,145,739 -7,115,438 Financing costs -1,574,845 -2,233,066 -2,387,574 -1,933,661 -3,185,965 The provision for doubtful debts -502,135 -1,196,624 -340,034 -339,187 -222,797 Total expenses -8,834,434 -11,573,591 -17,672,183 -15,626,958 -11,026,432 Net income or loss of the year -5,989,163 -9,667,642 -18,326,880 -14,610,599 5,647,288 Accumulative (loss) at the beginning of 2,225,724 -2,748,372 -12,416,014 -30,767,935 -45,378,534 the year Prior-years’ adjustments -19,203 - -25,041 0 14,255,124 Net accumulative (loss) at the end of the -3,782,642 -12,416,014 -30,767,935 -45,378,534 -25,476,122 year – Statement A Source: SELCO financial statements, 2011–13 audited by Talal Abu Gazaleh, but 2014–15 in draft or unaudited form. Securing Energy for Development in the West Bank and Gaza | 145 TABLE A.7: HEPCO BALANCE SHEETS (IN NIS EXCLUDING VAT)   2011 2012 2013 2014 2015 Current assets Cash and cash equivalent 10,542,073 13,424,893 13,090,423 2,947,436 5,782,708 Checks under collection–short 5,510,679 6,152,219 7,967,833 9,876,538 9,387,145 term Accounts receivables–net 294,580,488 339,491,140 401,093,998 389,259,352 382,332,268 Inventory 28,680,295 39,868,393 30,765,489 30,762,287 29,994,661 Other current assets 3,073,656 357618 1,321,385 8,942,093 5,902,513 Hebron municipality current 133,858,383 153,102,568 187,741,096 225,874,663 270,649,990 account Total current assets 476,245,574 552,396,831 641,980,224 667,662,369 704,049,285 Long-term assets Checks under collection–long 1,423,064 1,364,601 3,007,089 6,761,154 11,181,157 term Work in process 0 10537049 19,480,450 2,776,993 7,290,115 Properties, fixed assets NBV 128,520,429 127,103,039 126,096,754 142,789,491 137,973,496 Concession rights 30,444,000 30,444,000 30,444,000 30,444,000 30,444,000 Total long-term assets 160,387,493 169,448,689 179,028,293 182,771,638 186,888,768 Total assets 636,633,067 721,845,520 821,008,517 850,434,007 890,938,053 Liabilities and owner’s equity Current liabilities World Bank loan–short term 661,915 686,135 1,029,203 1,805,633 3,419,999 Accounts payable plus 466,273,583 555,898,298 650,710,732 626,763,044 651,371,638 outstanding Unearned revenue 4,526,352 5,960,690 1,705,579 10,422,151 11,022,622 Other current liabilities 1,559,105 3,785,656 3,467,256 2,035,616 11898610 Total current liabilities 473,020,955 566,330,779 656,912,770 641,026,444 677,712,869 Long-term liabilities Employees end of service 3,596,685 4,364,141 5,248,868 5,163,790 7,014,518 benefit World Bank loan–long term 9,381,319 8,640,322 8,299,574 7,181,005 6,450,622 Deferred revenues–grants and 6,822,433 10,334,784 20,864,471 23,974,775 25,285,153 in-kind Total long-term liabilities 19,800,437 23,339,247 34,412,913 36,319,570 38,750,293 Total liabilities 492,821,392 589,670,026 691,325,683 677,346,014 716,463,162 Owner’s equity Hebron municipality paid in capital 152,745,000 152,745,000 152,745,000 152,745,000 152,745,000 Prior period adjustments–VAT -4,303,468 NA Reconciliation Prior period adjustments -8,933,325 -20,569,506 -2,062,166 -8,339,560 -5,448,532 Prior period adjustments–MoF 41,222,720 41,222,720 reconciliation Accumulated losses -8,236,760 -14,044,297 Total owner’s equity 143,811,675 132,175,494 129,682,834 173,087,932 174,474,891 Total liabilities and owner’s equity 636,633,067 721,845,520 821,008,517 850,433,946 890,938,053 Source: HEPCO annual reports (financial statements not audited) 146 | Securing Energy for Development in the West Bank and Gaza TABLE A.8: HEPCO INCOME STATEMENTS (IN NIS EXCLUDING VAT) 2011 2012 2013 2,014 2015 Revenues Electricity sales 144,250,785 159,362,877 171,194,239 179,775,466 183,560,826 Add: Tariff differences 9,352,890 21,979,208 9,700,234 9,854,794 9,612,348 Add: Fixed charges NA NA NA 2,991,710 NA Deduct: Cost of electricity purchased -136,354,132 -159,809,793 -170,222,657 -175,900,386 -163,700,004 Gross profit 17,249,543 21,532,292 10,671,816 16,721,584 29,473,170 Other income Customer participations 4,247,980 1,596,640 2,165,075 2,640,750 6,896,943 Other operating revenues 8,704,419 10,570,952 13,004,102 11,546,126 7,922,121 Accrued of deferred revenues 758,048 583,833 600,000 795,173 800,000 Total other income 13,710,447 12,751,425 15,769,177 14,982,049 15,619,064 Total operating income 30,959,990 34,283,717 26,440,993 31,703,633 45,092,234 Expenses Operating expenses -1,476,263 -3,067,033 -2,841,731 -1,829,166 -2,722,492 General and administrative expenses -1,366,052 -1,878,389 -2,706,498 -1,469,510 -1,346,796 Payroll expenses -10,037,633 -12,013,416 -12,983,957 -11,912,764 -12,358,333 Depreciation -9,002,162 -8,797,369 -9,207,810 -10,251,450 -9,762,652 Community Municipality of Hebron NA -231,614 -178,414 NA -853,424 contributions Loan interest expense -105,696 NA NA NA -195,000 World Bank loan NA NA NA -170,000 NA Currency differential loss -539,704 -120,016 -15,243 -100,000 -100,000 Bad debt expenses or doubtful -1,000,000 -11,472,400 -1,000,000 -3,000,000 -6,000,000 receivables Net book value of assets disposed NA NA NA NA -1,000,000 Other NA NA NA -927,688 NA Total operating expenses -23,527,510 -37,580,237 -28,933,653 -29,660,578 -34,338,697 Net income 7,432,480 -3,296,520 -2,492,660 2,043,055 10,753,537 Source: HEPCO annual reports (financial statements not audited). Securing Energy for Development in the West Bank and Gaza | 147 TABLE A.9: GEDCO BALANCE SHEET (IN NIS EXCLUDING VAT) 2014 2015 Assets Current assets Cash and cash equivalents 6,389,609 2,197,965 Customers’ receivables 3,545,123,306 3,743,707,146 Materials and supplies in warehouses 14,635,146 24,182,036 Partners current accounts (municipalities) 370,615,454 399,610,375 Receivables and other current assets 14,697,288 35,880,987 Total current assets 3,951,460,803 4,205,578,509 Noncurrent Assets Financial assets at fair value 413,478 484,398 Property, plant, and equipment, net 116,354,190 122,062,881 Projects in progress 4,374,270 10,707,531 Total noncurrent assets 121,141,938 133,254,810 Total assets 4,072,602,741 4,338,833,319 Liabilities and shareholders’ equity Current liabilities Payables and other liabilities 103,218,121 128,883,852 Banks overdraft 0 13,195,769 Total current liabilities 103,218,121 142,079,621 Noncurrent liabilities Palestinian National Authority (PNA) 3,978,060,454 4,208,767,055 Canal Company for Electricity Distribution (Egypt) 100,122,920 151,475,280 Deferred revenues 80,043,837 97,539,206 Sundry provisions 59,569,735 61,649,421 Total noncurrent liabilities 4,217,796,946 4,519,430,962 Total liabilities 4,321,015,067 4,661,510,583 Shareholders’ equity In-kind capital (electricity distribution network) 149,280,948 149,280,948 Revaluation reserve–electricity network 50,011,980 50,0 11,980 Cumulative change in fair value 6,030 76,950 Deferred losses -1,156,470,721 -447,711,284 This year loss or profit–exhibit (B) 708,759,437 -74,335,858 Net shareholders’ equity -248,412,326 -322,677,264 Total liabilities and shareholders’ equity 4,072 1 602,741 4,338,833,319 Source: GEDCO financial statements (unaudited). 148 | Securing Energy for Development in the West Bank and Gaza TABLE A.10: GEDCO INCOME STATEMENT (IN NIS EXCLUDING VAT) 2014 2015 Operating revenues from billed sales 509,181,596 517,553,841 Cost of Sale Cost of energy sold -383,614,843 -406,186,153 Energy lost (not billed) -127,853,756 -126,671,379 Operating expenses -3,299,263 -5,540,937 Total cost of sale -514,767,862 -538,398,469 Gross profit -5,586,266 -20,844,628 Deduct Depreciation of electricity network -12,500,915 -13,152,821 Staff costs -40,490,490 -44,020,905 General and administrative expenses -13,817,427 -13,678,708 Losses aggression -35,188,472 -18,726 -101,997,304 -70,871,160 Add Realized grants and cash donations 1,507,955 1,191,189 Realized grants and in-kind donations 17,707,847 5,535,508 Other revenues 2,882,112 3,823,384 22,097,914 10,550,081 Loss for the year from activities -85,485,656 -81,165,707 Other items Prior years’ adjustments 794,245,093 6,829,849 Total other items 794,245,093 6,829,849 This year loss or profit–exhibit (A) 708,759,437 -74,335,858 Source: GEDCO financial statements (unaudited). Securing Energy for Development in the West Bank and Gaza | 149 TABLE A.11: NEDCO BALANCE SHEETS (IN NIS EXCLUDING VAT) 2011 2012 2013 2014 Current assets Accounts receivable 48,714,506 97,809,318 142,280,736 128,961,956 Cash on hand at banks 11,223,360 24,619,157 23,092,885 23,137,898 Dues from municipal and village NA 56,036,239 80,236,793 70,964,603 councils Other current assets 52,200,611 22,194,384 37,580,642 19,153,316 Total current assets 112,138,477 200,659,098 283,191,056 242,217,773 Noncurrent assets Property and equipment 230,296,617 253,445,831 258,628,054 261,864,378 Projects under construction NA 1,037,694 691,256 3,331,636 Stock items NA 22,683,775 28,566,280 25,916,981 Total noncurrent assets 230,296,617 277,167,300 287,885,590 291,112,995 Total assets 342,435,094 477,826,398 571,076,646 533,330,768 Current liabilities Accounts payable 31,620,495 18,117,173 64,573,004 70,652,834 Other current liabilities 76,439,237 185,617,359 219,583,341 170,255,539 Total current liabilities 108,059,732 203,734,532 284,156,345 240,908,373 Noncurrent liabilities Provision for end of service 1,230,496 2,641,153 4,188,232 6,109,462 Deferred earnings NA 33,786,138 37,921,059 39,528,711 Other noncurrent liabilities 300,700 NA NA NA Total noncurrent liabilities 1,531,196 36,427,291 42,109,291 45,638,173 Equity Paid-up capital 15,251,594 17,231,440 17,231,440 17,231,440 Shareholder accounts 204,698,552 208,832,878 208,932,490 209,415,550 Statutory reserve 1,289,402 2,191,547 2,896,229 3,766,961 Optional reserve 1,289,402 2,191,547 2,896,229 3,766,961 Retained earnings 10,315,216 7,217,163 12,854,622 12,603,310 Total equity 232,844,166 237,664,575 244,811,010 246,784,222 Total liabilities and equity 342,435,094 477,826,398 571,076,646 533,330,768 Source: NEDCO financial statements audited by Ernst and Young (2015 financial statements not available). 150 | Securing Energy for Development in the West Bank and Gaza TABLE A.12: NEDCO INCOME STATEMENTS (IN NIS EXCLUDING VAT) 2011 2012 2013 2014 Operating income Electricity sales (billed) plus subscriptions plus 188,881,771 225,555,641 254,389,364 260,922,894 services, etc. Electricity purchases plus salaries and wages plus -178,567,444 -199,879,476 -229,675,461 -249,814,659 depreciation Gross profit per operating Income 10,314,327 25,676,165 24,713,903 11,108,235 Operating expenses General and administrative expenses -10,119,348 -17,066,283 -12,359,573 -12,741,808 Depreciation -723,176 -1,889,580 -1,697,289 -1,508,697 Provision for doubtful receivables -795,182 1,269,174 -792,774 -5,422,052 Other expenses -300,700 NA NA NA Total operating expenses -11,938,406 -17,686,689 -14,849,636 -19,672,557 Net income or losses before other income and -1,624,079 7,989,476 9,864,267 -8,564,322 expenses Revenue settlement with MoF 0 0 0 24,865,770 Grant from PENRA 1,804,535 NA NA NA Other income 310,568 2,916,473 1,878,699 -841,050 Annual profit before income taxes 491,024 10,905,949 11,742,966 15,460,398 Income tax expenses -399,893 -1,884,496 -4,696,143 -6,753,083 Annual profit after income tax 91,131 9,021,453 7,046,823 8,707,315 Source: NEDCO financial statements audited by Ernst and Young (2015 financial statements not available). Securing Energy for Development in the West Bank and Gaza | 151 TABLE A.13: TEDCO BALANCE SHEETS (IN NIS EXCLUDING VAT) 2011 2012 2013 2014 2015 Current assets Cash in bank 4,569,288 5,633,391 6,586,378 35,731,934 3,670,399 Checks 0 1,016,042 1,152,079 1,842,673 3,021,252 Accounts receivable 18,974,046 22,267,521 25,261,915 33,723,803 40,106,657 Other receivables 3,980,653 7,003,961 16,088,166 27,497,055 14,732,989 Accessories and spare parts in warehouse 809,865 1,535,601 1,488,859 1,669,365 1,959,394 Prepaid expenses 141,785 164,227 166,001 225,038 186,853 Total current assets 28,475,637 37,620,743 50,743,398 100,689,868 63,677,544 Fixed assets 20,849,458 22,975,233 24,146,557 25,764,776 28,768,289 Fixed asset consumption -6,723,629 -7,846,018 -9,030,484 -10,132,413 -11,451,747 Net fixed assets 14,125,829 15,129,215 15,116,073 15,632,363 17,316,542 Total assets 42,601,466 52,749,958 65,859,471 116,322,231 80,994,086 Liabilities and equity Accounts payable 11,608,119 30,917,332 43,164,091 92,984,000 55,848,851 Other payables 9,498,750 0 1,712,992 1,931,121 0 Due payments 7,133 1,202,011 41,373 5,500 9,500 Income tax provision 65,103 65,103 65,103 65,103 572,664 Other provisions 524,622 755,152 956,586 1,237,181 1,611,351 Total liabilities 21,703,727 32,939,598 45,940,145 96,222,905 58,042,366 Capital 15,361,808 15,361,808 15,361,808 15,361,808 15,361,808 Capital reserve 5,374,958 5,374,958 5,374,958 5,374,958 5,374,958 Legal per statutory reserve 481,660 481,660 481,660 510,557 795,796 Earning from previous years 663,091 0 0 0 0 Losses 0 -320,687 -1,408,066 -1,309,997 -1,147,997 Net loss for the year -983,778 -1,087,379 108,966 162,000 2,567,155 Total equity 20,897,739 19,810,360 19,919,326 20,099,326 22,951,720 Total liabilities and equity 42,601,466 52,749,958 65,859,471 116,322,231 80,994,086 Source: TEDCO financial statements audited by Jamal Abu Farha. 152 | Securing Energy for Development in the West Bank and Gaza TABLE A.14: TEDCO INCOME STATEMENTS (IN NIS EXCLUDING VAT) 2011 2012 2013 2014 2015 Revenues Electricity sales–prepaid 17,539,822 20,048,480 21,065,333 Electricity sales–mechanical counters 29,751,149 34,608,924 7,916,514 11,280,770 10,736,612 Electricity sales–medium voltage 12,124,651 13,012,333 13,374,891 Electricity sales–street lighting 1,135,804 1,228,366 1,045,340 Electricity purchases -26,771,696 -33,147,964 -38,208,786 -44,740,672 -42,342,607 Gross profit electricity sales 2,979,453 1,460,960 508,005 829,277 3,879,569 Other revenues Revenue from miscellaneous services 0 2,163,512 1,696,691 3,118,616 3,610,845 Government support for electricity production (subsidy) 0 0 2,976,902 2,472,444 2,821,416 Income from transformer 346,075 825,730 801,657 773,759 1,206,323 maintenance center Total other revenues 346,075 2,989,242 5,475,250 6,364,819 7,638,584 Expenses Operating expenses -2,781,780 -3,159,127 -3,210,182 -3,985,514 -4,801,092 General and administrative expenses -887,262 -1,768,156 -1,906,374 -2,305,516 -2,561,213 Transformer main center expenses -640,264 -610,298 -757,733 -723,066 -730,790 Total expenses -4,309,306 -5,537,581 -5,874,289 -7,014,096 -8,093,095 Net profit from transformer -294,189 215,432 43,924 50,693 475,533 maintenance center Total profit from electricity sales (not including transfer maintenance -689,589 -1,302,811 65,042 129,307 2,949,525 center) Total net profit (including transfer -983,778 -1,087,379 108,966 180,000 3,425,058 maintenance center) Income tax 0 0 16,345 38,000 572,664 Statutory reserve–10% 0 0 10,897 18,000 285,239 Net profit after taxes and reserves 0 0 81,724 124,000 2,567,155 Source: TEDCO financial statements audited by Jamal Abu Farha. Securing Energy for Development in the West Bank and Gaza | 153 APPENDIX B: Electricity Demand Figure B.1: Shifting Patterns of Energy Usage for Cooking and Baking (percentage of households) 100 90 80 70 60 50 40 30 20 10 0 Jul Jan Jul Jan Jul Apr Apr Jan Jul Jul Jul Jan Jul Jan Jul Apr Apr Jan Jul Jul 2003 2004 2005 2006 2008 2009 2013 2003 2004 2005 2006 2008 2009 2013 Cooking (stove top) Baking (oven) Other Kerosene Wood Gas Electricity Not available Source: Palestinian Central Bureau of Statics (PCBS,) Household Energy Surveys, 2003–13. Figure B.2: Shifting Patterns of Energy Usage for Water Heating (percentage of households) 100 90 80 70 60 50 40 30 20 10 0 2003 2004 2005 2009 2006 2008 2001 2003 2004 2005 2009 2013 January April July Other Kerosene Solar Wood Gas Electricity Not available Source: PCBS, Household Energy Surveys, 2001–13. 154 | Securing Energy for Development in the West Bank and Gaza TABLE B.1: ELECTRICITY CONSUMPTION REGRESSION MODEL RESULTS FOR THE SUMMER SEASON INDEPENDENT VARIABLE OBSERVATIONS R-SQUARE Household grid electricity consumption, July 14,001 0.16 VARIABLE COEFFICIENT STANDARD ERROR T-STATISTIC Gaza region dummy 191.9 28.8 6.7 North West Bank region dummy 183.8 28.1 6.5 Mid West Bank region dummy 344.3 28.8 12.0 South West Bank region dummy 211.1 28.6 7.4 Ownership of electric air conditioner 108.5 9.8 11.1 Ownership of electric fan 53.6 14.8 3.6 Ownership of solar heater 27.7 4.1 6.7 Main cooking fuel is electricity 10.9 38.5 0.3 Main baking fuel is electricity -2.3 3.9 -0.6 Main water heating fuel is electricity 41.7 6.0 7.0 Ownership of electric generator -20.0 13.5 -1.5 TABLE B.2: ELECTRICITY CONSUMPTION REGRESSION MODEL RESULTS FOR THE WINTER SEASON INDEPENDENT VARIABLE OBSERVATIONS R-SQUARE Household grid electricity consumption, January 6,733 0.20 VARIABLE COEFFICIENT STANDARD ERROR T-STATISTIC Gaza region dummy 239.4 22.5 10.6 North West Bank region dummy 217.7 23.5 9.3 Mid West Bank region dummy 329.8 24.9 13.2 South West Bank region dummy 268.7 23.5 11.4 Ownership of electrical heater 51.3 4.9 10.5 Ownership of solar water heater 26.4 3.5 7.6 Main cooking fuel is electricity 9.8 21.6 0.5 Main baking fuel is electricity 4.8 5.4 0.9 Main water heating fuel is electricity 67.5 5.2 13.1 Ownership of electric generator -45.9 10.9 -4.2 Securing Energy for Development in the West Bank and Gaza | 155 TABLE B.3: EXISTING AND FORECAST ELECTRICITY NEEDS OF THE WATER AND WASTEWATER SECTOR IN GAZA WATER/WASTEWATER FACILITY 2014 2017 2018 2020 2025 2030 2035 North Gaza WWTP (NGEST) component Terminal pumping station 2 1 1 2 2 3 3 Waste water treatment plant 2 2 2 3 4 5 5 Recovery and reuse scheme phase 1 2 2 3 3 4 5 Recovery and reuse scheme phase 2 3 3 4 5 5 6 NGEST total 4 8 9 11 14 17 19 Planned central Gaza WWTP (KFW) 7 7 8 11 13 Khanyounis WWTP 2 2 3 5 6 Rafah existing WWTP 1 2 2 2 2 3 Gaza existing WWTP (shikh Ejleen) 5 3 3 3 3 Central desalination plant 35 35 35 55 55 Deiralbalah desalination plant 1 1 1 2 2 2 Gaza desalinization plant 3 3 3 3 3 3 Existing W and WW facilities 25 33 30 30 30 30 30 Total Gaza governorates energy required for water and wastewater facilities 34 46 87 93 99 127 134 Note: WWTP = wastewater treatment plant. NGEST = Northern Gaza Emergency Sewage Treatment. KFW = Kreditanstalt für Wiederaufbau. 156 | Securing Energy for Development in the West Bank and Gaza Securing Energy for Development in the West Bank and Gaza | 157 APPENDIX C: Importing Electricity from Israel TABLE C.1: ELECTRICITY GENERATION IN ISRAEL BY TYPE OF FUEL AND PRODUCER, 2014–15 COAL NATURAL GAS GASOIL HFO RENEWABLES TOTAL GWH % GWH % GWH % GWH % GWH % GWH % 2014 IEC 30 58% 22 42% 0.05 0% 0.01 0% 0 0% 52 84% IPPs 0 0% 9 91% 0 0% 0.01 0% 0.87 9% 10 16% Total 30 49 31 49.5 0.05 0.1 0.02 0 0.87 1.4 62 100% 2015 IEC 29 58% 21 42% 0.37 1% 0.06 0% 0 0% 50 78% IPPs 0 0% 13 90% 0.12 1% 0.02 0% 1.28 9% 14 22% Total 29 44.6 34 52.6 0.49 0.7 0.08 0.1 1.28 2 65 100% Source: Israel’s Public Utility Authority (PUA), June 2016. Note: IEC = Israeli Electric Corporation; IPP = independent power producer. TABLE C.2: ISRAELI GENERATION CAPACITY, 2007–15 (MW) 2007 2008 2009 2010 2011 2012 2013 2014 2015 Installed capacity 11,297 11,649 11,664 12,769 12,759 13,248 13,483 13,617 13,617 TABLE C.3: IEC ELECTRICITY SALES BY TYPE OF CONSUMERS, 2014–15 TOTAL ELECTRICITY 2014 TOTAL ELECTRICITY 2015 CONSUMPTION (%) (MWH) CONSUMPTION (%) (MWH) Domestic 34.8 17,604 32.1 15,981 Industrial 18.0 9,108 17.9 8,951 Public and commercial 30.3 15,342 32.0 15,953 Water pumping 4.0 2,018 4.8 2,404 Agriculture 2.6 1,332 3.5 1,769 East Jerusalem electricity company 4.2 2,128 3.9 1,945 Palestinian authority 6.1 3,069 5.8 2,899 Total 100 50,601 100 49,902 Source: IEC Financial Statement of 2015 (published March 31, 2016). Securing Energy for Development in the West Bank and Gaza | 159 TABLE C.4: ELECTRICITY DEMAND FORECAST FOR ISRAEL, 2016–30 YEAR GENERATION (GWH) CONSUMPTION (GWH) PEAK DEMAND (MW) 2016 67.8 63.4 13,191 2017 70.1 65.5 13,670 2018 72.4 67.7 14,126 2019 74.8 69.9 14,577 2020 76.9 71.9 14,960 2021 79.2 74.0 15,446 2022 81.5 76.2 15,895 2023 83.9 78.4 16,348 2024 86.2 80.6 16,767 2025 88.5 82.7 17,265 2026 91.0 85.0 17,734 2027 93.6 87.5 18,236 2028 96.1 89.8 18,688 2029 98.7 92.2 19,237 2030 101.1 94.5 19,711 Source: Ministry of National Infrastructure, Energy and Water Resources, http://energy.gov.il/Subjects/Electricity/Pages/GxmsMniAboutElectricity.aspx. Note: The forecast is based on data from IEC and is based on an annual growth of 1.9% in GDP per capita and extreme heat stress conditions. TABLE C.5: OVERVIEW OF ISRAELI TRANSMISSION AND DISTRIBUTION SERVICE TARIFFS (NIS AGOROT PER KWH, AS OF SEPTEMBER 13, 2015) TOU TRANSMISSION TRANSMISSION AND DISTRIBUTION SEASON BLOCK TARIFFS * DISTRIBUTION TARIFFS** TARIFFS*** Off peak 0.89 3.46 2.55 Winter Shoulder 1.10 3.89 2.78 Peak 2.80 7.22 4.38 Off peak 0.81 3.22 2.41 Transition Shoulder 1.36 4.17 2.80 Peak 1.79 4.82 3.01 Off peak 1.42 4.20 2.77 Summer Shoulder 2.60 6.32 3.68 Peak 6.12 12.13 5.90 Source: Israel PUA. Notes: US$1 = NIS 3.846 (June 30, 2016). Ultra-high voltage = 400 kV and 161 kV; high voltage = 22 kV and 33 kV. TOU = time of use. * Ultra-high voltage producer selling to ultra-high voltage consumer. ** Ultra-high voltage or high-voltage producer selling to “far away” high-voltage consumer. *** Ultra-high voltage producer selling to “close by” high-voltage consumer. 160 | Securing Energy for Development in the West Bank and Gaza TABLE C.6: EFFICIENCY COEFFICIENTS AND RETURN ON EQUITY USED IN ISRAELI TARIFF-SETTING (%) SHARE OF EFFICIENCY WEIGHTED ANNUAL WEIGHTED ASSETS COEFFICIENT EFFICIENCY RETURN ON RETURN ON COEFFICIENT EQUITY EQUITY Generation 50.1 2.0 1.00 7.62 3.82 Transmission 19.5 1.3 0.25 5.50 1.07 Distribution 30.3 3.7 1.12 6.20 1.88 100.0 2.38 6.78 Source: Israel PUA and IEC Financial Statements, 2015. TABLE C.7: PERIOD DEFINITIONS FOR ISRAELI TIME-OF-USE TARIFF RATES SEASON TIME OF DAY TIME-OF-USE PERIOD DEFINITIONS SATURDAYS AND SATURDAYS SATURDAYS AND HOLIDAYS AND HOLIDAYS HOLIDAYS Summer Peak 1017 (July – August) Shoulder 0710, 1721 Off-peak 0024 0024 0007, 2124 Winter (December–February) Peak 1719 1620 1622 Shoulder 1921 0608, 0816, 2224 Off-peak 0017, 2124 0016, 2024 0006 Transition (remaining months) Peak 06 20 Shoulder 1721 0620 2022 Off-peak 0017, 2124 0006, 2024 0006, 2224 Source: Israel PUA. Last updated February 15, 2010. TABLE C.8: ISRAELI TIME-OF-USE TARIFFS (NIS AGOROT PER KWH) SEASON TOU BLOCK LOW HIGH ULTRA- HIGH VOLTAGE** VOLTAGE** VOLTAGE** Winter Off-peak 35.60 27.96 25.18 Shoulder 55.60 46.92 43.62 Peak 91.29 79.36 73.93 Transition Off-peak 31.98 24.68 22.10 Shoulder 39.06 30.99 27.89 Peak 47.08 38.49 35.06 Summer Off-peak 33.44 25.62 22.63 Shoulder 48.01 38.61 34.47 Peak 105.59 91.49 84.18 Source: Israel PUA as of September 13, 2015. * US$1 = NIS 3.846 (June 30, 2016). ** Ultra-high voltage = 400 kV and 161 kV; high = 22 kV and 33 kV; low = 400 volt. Securing Energy for Development in the West Bank and Gaza | 161 TABLE C.9: ISRAELI BULK SUPPLY TARIFFS (NIS AGOROT PER KWH) LOW VOLTAGE HIGH VOLTAGE 44.35 35.92 Source: Israel PUA as of September 13, 2015. TABLE C.10: ISRAELI SYSTEM MANAGEMENT SERVICES TARIFFS (NIS AGOROT PER KWH) SEASON TIME-OF- ADMINISTRATIVE SYSTEM BACKUP OTHER SYSTEM TOTAL USE COSTS BALANCE SERVICES SERVICES Off-peak 0.27 0.58 0.40 4.01 5.26 Winter Shoulder 0.27 0.58 0.77 4.01 5.63 On-peak 0.27 0.58 1.35 4.01 6.21 Off-peak 0.27 0.58 0.34 4.01 5.20 Transition Shoulder 0.27 0.58 0.43 4.01 5.30 On-peak 0.27 0.58 0.56 4.01 5.42 Off-peak 0.27 0.58 0.34 4.01 5.20 Summer Shoulder 0.27 0.58 0.54 4.01 5.41 On-peak 0.27 0.58 1.41 4.01 6.27 Average tariff 0.27 0.58 0.54 4.01 5.40 Source: Israel PUA as of September 13, 2015. Note: US$1 = NIS 3.846 (June 30, 2016). 162 | Securing Energy for Development in the West Bank and Gaza APPENDIX D: Importing Natural Gas for Domestic Power Generation TABLE D.1: PROSPECTIVE INDUSTRIAL CONSUMERS OF NATURAL GAS IN THE WEST BANK NAME OF CITY TYPE OF DIESEL LPG NATURAL GAS NO. COMPANY FACTORY CONSUMPTION CONSUMPTION DEMAND 1,000 (LITER PER YEAR) (KG PER YEAR) CM PER YEAR 1 BPC Company Ramallah Pharmaceutical 134,785 0 126 2 Star Factory Ramallah Chemical 59,512 31,055 94 3 Al-Juneidi Factory Hebron Food 1,020,000 0 954 4 Aziza Factory Tulkarem Food 170,138 0 159 5 NBC Factory Ramallah Food 134,611 0 126 6 Siniora Factory Aziza Food 202,042 0 189 7 Sinokrot Factory Ramallah Food 166,307 116,798 301 8 Al-Jebrini Factory Hebron Food 92,028 121,575 238 9 Al-Arz Company Nablus Food 0 112,794 141 10 Al-Safa Factory Nablus Food 0 116,575 146 11 Al-Betra Company Hebron Food 0 67,192 84 12 NAPCO Company Nablus Aluminum 0 379,464 474 Total consumption per year 1,979,423 945,453 3,033 Source: Palestinian Federation of Industry, Eco Energy’s Calculation of NG Demand. Notes: LPG = liquid petroleum gas; kg = kilogram; Natural gas conversion factors: 1,000 liters of diesel = 935 cubic meters of (cm) gas; 1 ton LPG = 1,250 cm. TABLE D.2: FORECAST DEMAND FOR NATURAL GAS BASED ON POWER GENERATION IN THE WEST BANK INSTALLED ELECTRICITY TOTAL ELECTRICITY PERCENTAGE OF NATURAL GAS DOMESTIC CAPACITYa GENERATION DEMANDb PRODUCTIONc DEMANDd Year MW GWh GWh % bcm 2022 200 1226 6417 19 0.24 2023 200 1226 6802 18 0.24 2024 400 2453 7210 34 0.47 2025 400 2453 7643 32 0.47 2026 400 2453 8101 30 0.47 2027 400 2453 8587 29 0.47 2028 600 3679 9103 40 0.71 2029 600 3679 9649 38 0.71 2030 600 3679 10228 36 0.71 Jenin IPP: 200 MW in 2022, 400 MW by 2024. Tarkumiye IPP: 200 MW by 2028. a b Based on 2015 demand in the West Bank of 4,286 GW and assumed growth rate of 6% per annum. c Share of domestic gas-based generation of total electricity demand in the West Bank. d CCGTs have 57% efficiency and operated at 70% capacity. Securing Energy for Development in the West Bank and Gaza | 163 TABLE D.3: FORECAST DEMAND FOR NATURAL GAS BASED ON POWER GENERATION IN GAZA NATURAL GAS–BASED POWER CAPACITY AND TOTAL DOMESTIC NATURAL GAS GENERATION ELECTRIC CONVERTED NEW TOTAL GENERATION DEMANDb PRODUCTION DEMANDd GPPa CCGTa CAPACITY (%)c Year MW MW MW GWh GWh % bcm 2022 70 70 429 1462 29 0.11 2023 70 70 429 1550 28 0.11 2024 140 140 858 1643 52 0.21 2025 140 140 858 1741 49 0.21 2026 140 100 240 1472 1846 80 0.33 2027 140 100 240 1472 1956 75 0.33 2028 140 100 240 1472 2074 71 0.33 2029 140 100 240 1472 2198 67 0.33 2030 140 100 240 1472 2330 63 0.33 a Gaza Power Plant (GPP): 70 MW conversion from gasoil to gas at 2022, additional 70 MW by 2024; new 100 MW CCGT by 2026 b Based on 2015 demand in Gaza of 972 GWh, and assumed average growth rate of 6% per annum. c Share of domestic gas–based generation of total electricity demand in Gaza. d Converted GPP works at 45% efficiency; new CCGT works at 57% efficiency; all plants work at 70% capacity. FIGURE D.4: NATURAL GAS PRICES IN ISRAEL 2016 (US$ PER MMBTU) CONSUMER INITIAL PRICE INDEXATION IEC 5.7 U.S. CPI +/- 1% per year * Major IPPs 4.7-5.0 IEC generation tariff with ceiling Major industries 4.7-5.5 Basket of fuels with cap Marketing companies 5.2-5.8 Heavy fuel oil with cap final price for small industries 6.0-7.0 Heavy fuel oil with cap Note: MMBTU = million British thermal units. * IEC’s price indexation formula: U.S. CPI+1% per year until 2020 and then U.S. CPI - 1% per year for 7 years. 164 | Securing Energy for Development in the West Bank and Gaza APPENDIX E: Importing Electricity from Jordan and Egypt TABLE E.1: PROJECTED FOSSIL FUEL SUPPLY SITUATION IN THE EGYPTIAN POWER MARKET AVERAGE CAPACITY UNIT 2015 2016 2017 2018 2019 2020 2021 UTILIZATION Average (fossil fuel) % 54% 55% 52% 44% 40% 41% 41% SPECIFIC GENERATION UNIT 2015 2016 2017 2018 2019 2020 2021 COST (MARGINAL CASH COST FOR EEHC) Coal US$ per kWh 0.000 0.000 0.000 0.000 0.000 0.030 0.033 Heavy fuel oil US$ per kWh 0.042 0.044 0.045 0.047 0.048 0.050 0.052 Light fuel oil US$ per kWh 0.059 0.059 0.060 0.062 0.064 0.065 0.068 Natural gas US$ per kWh 0.022 0.024 0.025 0.027 0.029 0.032 0.034 Average (fossil fuel) US$ per kWh 0.027 0.029 0.030 0.032 0.033 0.035 0.038 SPECIFIC GENERATION 2015 2016 2017 2018 2019 2020 2021 COST (MARGINAL UNIT ECONOMIC COST) Coal US$ per kWh 0.000 0.000 0.000 0.000 0.000 0.030 0.033 Heavy fuel oil US$ per kWh 0.042 0.035 0.045 0.051 0.057 0.063 0.070 Light fuel oil US$ per kWh 0.096 0.078 0.106 0.119 0.133 0.149 0.167 Natural gas US$ per kWh 0.039 0.033 0.042 0.046 0.050 0.056 0.063 Average (fossil fuel) US$ per kWh 0.040 0.034 0.043 0.047 0.052 0.057 0.062 GENERATION UNIT 2015 2016 2017 2018 2019 2020 2021 Coal GWh - - - - - 5,995 19,376 Heavy fuel oil GWh 37,489 39,701 39,726 41,118 43,935 45,067 44,987 Light fuel oil GWh 451 450 427 364 328 336 336 Natural gas GWh 124,005 131,543 138,433 147,148 154,814 158,803 158,520 Total (fossil fuel) GWh 161,946 171,694 178,586 188,629 199,076 210,202 223,218 CAPACITY UNIT 2015 2016 2017 2018 2019 2020 2021 Combined-cycle gas turbine MW 11,730 12,480 17,230 23,730 29,730 29,730 29,730 Gas turbine MW 6,794 7,020 5,820 7,030 7,030 7,030 7,030 Steam turbine (oil and gas MW 2,800 2,800 2,800 2,832 2,832 2,832 2,832 boiler) Steam turbine (coal boiler) MW - - - - - 1,600 5,180 Total (fossil fuel) MW 21,324 22,300 25,850 33,592 39,592 41,192 44,772 Securing Energy for Development in the West Bank and Gaza | 165 APPENDIX F: Developing Domestic Renewable Power Generation TABLE F.1: ESTIMATION OF DISAGGREGATED POTENTIAL FOR RESIDENTIAL ROOFTOP PV NUMBER OF RESIDENTIAL ROOFTOPS POPULATION INDIVIDUAL HOUSEHOLD NUMBER NO. GOVERNORATE POPULATION* (%) HOUSES (HH) SIZE* OF HHS ROOFTOP (%)* FOR PV West Bank 2,790,331 Region 57.4% 4.9 569,455 326,867 Jenin 303,565 WB-N 1,094,815 24.1% 223,432 128,250 Tubas 62,627 WB-N Tulkam 178,774 WB-N Nablus 372,621 WB-N Qualqilya 108,049 WB-N Salfit 69,179 WB-N Ramallah 338,383 WB-C 1,011,269 22.2% 206,381 118,463 Jericho 50,762 WB-C Jerusalem 411,640 WB-C Bethlehem 210,484 WB-C Hebron 684,247 WB-S 684,247 15.0% 139,642 80,155 Gaza Strip 1,760,037 Gaza 1,760,037 38.7% 29.3% 5.7 308,778 90,472 North 348,808 Gaza 606,749 Dier al Balah 255,705 Khan Yunis 331,017 Rafah 217,758 TOTAL 4,550,368 100.0% 878,234 417,339 Note: WB-N = West Bank north; WB-C = West Bank central. * Information provided by Palestinian Central Bureau of Statics (PCBS). TABLE F.2: ESTIMATION OF NUMBER OF ROOFTOPS FOR NONRESIDENTIAL ROOFTOP PV Public administration 200 Schools 2,200 Commercial 5,000 Source: Information provided by Palestinian Energy and Environmental Research Center (PEC). 166 | Securing Energy for Development in the West Bank and Gaza TABLE F.3: ASSUMPTIONS REGARDING LAND REQUIREMENTS FOR SOLAR POWER GENERATION IN THE WEST BANK AND GAZA (SQUARE METERS PER KWP) Rooftop solar 8–12 Utility-scale PV 24–32 CSP 31–40 Wind 210–330 Source: National Renewable Energy Laboratory (NREL). 2013. Land-Use Requirements for Solar Power Plants in the United States. Golden, CO: NREL; and NREL. 2009. Land-Use Requirements of Modern Wind Power Plants in the United States. TABLE F.4: ESTIMATION OF OVERALL POTENTIAL FOR ROOFTOP SOLAR PV IN THE WEST BANK AND GAZA MAXIMUM POTENTIAL CAPACITY – ROOFTOP SOLAR West Bank NO. OF AREA PER ROOFTOPS WELL AVAILABLE POTENTIAL ROOFTOPS ROOFTOP (M2) AVAILABLE ORIENTED SURFACE (M2) CAPACITY FOR PV (MW) Residential 326,867 150 30% 30% 4,412,709 490 Public 123 200 40% 100% 9,811 1 Schools 1,349 160 50% 100% 107,925 12 Commercial 3,066 300 30% 100% 275,944 31 Gaza NO. OF AREA PER ROOFTOPS WELL AVAILABLE POTENTIAL ROOFTOPS ROOFTOP AVAILABLE ORIENTED SURFACE (M2) CAPACITY FOR PV (M2) (MW) Residential 90,472 150 30% 30% 1,221,373 136 Public 77 200 40% 100% 6,189 1 Schools 851 160 50% 100% 68,075 8 Commercial 1,934 300 30% 100% 174,056 19 Total West Bank and Gaza 697 TABLE F.5: ESTIMATION OF POTENTIAL FOR UTILITY-SCALE SOLAR POWER GENERATION IN THE WEST BANK AND GAZA MAXIMUM POTENTIAL CAPACITY – UTILITY SCALE SOLAR TOTAL SURFACE AVAILABLE AVAILABLE POTENTIAL ACCORDING TO PETL ACCORDING TO PETL CAPACITY (KM2) (%) (%) (KM2) (MW PEAK) Areas A and B 2,488 40% 0.12% 3 103 Area C 3,732 60% 2.64% 98.5 3374 Total 6,220 100% 2.76% 101.5 3476 Securing Energy for Development in the West Bank and Gaza | 167 FIGURE F.6: CURRENTLY INSTALLED AND ONGOING SOLAR PROJECTS AT GAZA HOSPITALS MOH FACILITY UNIT BENEFITING OF DONOR CAPACITY BUDGET STATUS THE PROJECT (W) (US$) 1 Shifa hospital Cardiac care Italian workers 4,500 50,000 Completed syndicate 2 Shifa hospital ICU JICA 30,000 150,000 Completed Nassr pediatric NCU (Nursery) Sawaed Society 20,000 90,000 Completed 3 hospital Harazen maternity OT, lab, lighting UNDP 12,000 60,000 Completed 4 hospital Emirati RC maternity OT lights UNDP 8,000 40,000 Completed 5 hospital 6 EGH ICU ICRC 30,000 140,000 Completed 7 32 PHC clinics Refrigerators for ICRC 750 190,000 Completed vaccines 8 Tahreer maternity OT, delivery wards, Human Appeal 50,000 217,180 Ongoing hospital NCU, ED Int. 9 Al-Aqsa hospital OT, NCU, Cardiac care UNDP 60,000 225,000 Ongoing 10 Indonesian hospital OT, ED UNDP 60,000 225,000 Ongoing 11 Rantissi specialized NCU, part of Lab Welfare 30,720 150,000 Ongoing hospital Association Total 305,970 1,537,180 Source: Provided to the World Bank by the World Health Organization (WHO) office in Gaza ( September 2017). 168 | Securing Energy for Development in the West Bank and Gaza FIGURE F.7: CRITICAL UNITS IN GAZA MOH HOSPITALS IN NEED OF SOLAR ENERGY MOH FACILITY TARGETED UNIT HOURS OF CAPACITY BUDGET POWER SUPPLY (KWP) (US$) 1 Shifa hospital Hemodialysis (38 HD unit plus desalinization 12 100 500,000 plant) NCU for premature babies (35 incubators) 24 30 120,000 Cardiac care 24 30 120,000 Laboratory 24 20 80,000 Sterilization unit—to operate 1 operating 12 40 160,000 theater (OT) sterilizer 2 EGH OT rooms (8 rooms) 6 30 120,000 NCU (14 beds) 24 30 120,000 Neurology care (12 beds) 24 30 120,000 Laboratory 24 20 80,000 Sterilization unit (to operate 1 OT sterilizer) 12 40 160,000 3 Nasser hospital OT rooms (3 rooms) 6 20 80,000 (Khanyounis) ICU (16 beds) 24 30 120,000 Hemodialysis (18 HD unit plus desalinization 12 50 200,000 plant) NCU for premature babies (20 incubator) 24 30 120,000 Laboratory 24 20 80,000 Sterilization unit (to operate 1 OT sterilizer) 12 40 160,000 Rantissi ICU (4 beds) 24 10 40,000 4 specialized Hemodialysis (5 HD units) 12 10 40,000 hospital Dorra pediatric ICU (6 beds) 24 20 80,000 5 hospital Laboratory 24 20 80,000 6 Eye hospital OT rooms (3 rooms) 6 15 60,000 Sterilization unit (to operate 1 OT sterilizer) 12 40 160,000 Beit Hanoun OT rooms (2 rooms) 6 15 60,000 7 hospital Laboratory 24 20 80,000 Sterilization unit (to operate 1 OT sterilizer) 12 40 160,000 Al-Aqsa hospital Hemodialysis (18 HD units) 12 50 200,000 8 Laboratory 24 25 100,000 Sterilization unit (to operate 1 OT sterilizer) 12 40 160,000 ICU (6 beds) 24 15 60,000 9 Najjar hospital Laboratory 24 20 80,000 Sterilization unit (to operate 1 OT sterilizer) 12 40 160,000 Emirati RC NCU 24 10 40,000 10 maternity hospital Laboratory 24 20 80,000 Sterilization unit (to operate 1 OT sterilizer) 12 40 160,000 Total in US$ 1,010 4,140,000 Source: Provided to the World Bank by the World Health Organization (WHO) office in Gaza (September 2017). . Securing Energy for Development in the West Bank and Gaza | 169 APPENDIX G: Developing Transmission Infrastructure Map G.1: Map of Existing Transmission Infrastructure in the West Bank and Gaza IBRD 43950 | SEPTEMBER 2018 Existing Power Plant Existing Substations 2x22kV feeders 2x33kV feeder from Existing 22 kV Distribution Lines Beisan 161/33kV s/s Existing 33 kV Distribution Lines Existing IEC 161kV Transmission Lines Jenin JENIN feeders 3x22kV Northern West Bank is fed from: TUBAS • 2x33kV feeders from IEC Beisan substation Tulkarm Tubas • 12x33kV feeders from IEC Ariel (Salfit) substation TULKARM JORDAN 2x33kV feeder from • 2x33kV feeders from IEC Mt. Afraym substation Immanuel 161/33kV s/s • 3x22kV feeders from IEC Immanuel substation Nablus • 5x22kV feeders from IEC QALQILYAH Qalqilyah NABLUS Southern West Bank is fed from: • 10x33kV feeders from IEC Hebron substation • 4x33kV feeders from 2 portable substations SALFIT Salfit 2x33kV feeder from Mt. Afraym 161/33kV s/s Gaza is fed from: 12x33kV feeder from Ariel (Salfit) 161/33kV s/s • 10x33kV feeders from IEC • 3x33kV feeders from A.R. Egypt Wes t B an k RAMALLAH JERICHO Ramallah 1x33kV feeder from Jordan (5MW) M e dite rra n e a n Se a Jericho Jerusalem JERUSALEM ISRAEL Bethlehem BETHLEHEM Dead Sea JABALYA Jabalya Gaza City Hebron Gaza GAZA CITY 10x33kV feeder from Hebron 161/33kV s/s Deir el Balah HEBRON KHAN DEIR EL BALAH YUNIS 10x33kV feeder from RAFAH Israel Electric Company (120MW) Khan Yunis Rafah Governorate Capitals Governorate Boundaries Armistice Demarcation Lines, 1949 Administrative Boundary No-man’s Land Areas, International Boundaries ARAB Armistice Demarcation Line, 1949 REP. OF Jerusalem City Limit, Unilaterally EGYPT 0 10 20 Kilometers Expanded by Israel June 1967; then Annexed July 30, 1980 170 | Securing Energy for Development in the West Bank and Gaza Map G.2: Location and Service Area of New Palestinian Electricity Transmission Company High-Voltage Substations IBRD 43951 | SEPTEMBER 2018 New PETL Substation Jalamah S/S Service Area Jenin Al Jalamah s/s Sarra S/S Service Area Jenin Qalandia S/S Service Area Beit Ula S/S Service Area JENIN Governorate Capitals Armistice Demarcation Lines, 1949 TUBAS Tulkarm Tubas No-man’s Land Areas, Armistice Demarcation Line, 1949 TULKARM Governorate Boundaries Nablus Sarra s/s Administrative Boundary Nablus International Boundaries QALQILYAH NABLUS Qalqilyah SALFIT Salfit a Se an JORDAN RAMALLAH ane JERICHO err Ramallah dit Ramallah Qalandia s/s Me Jericho JERUSALEM Jerusalem ISRAEL Bethlehem BETHLEHEM Tarqumiya Beit Ula s/s D ead S ea Hebron HEBRON 0 10 20 Kilometers Securing Energy for Development in the West Bank and Gaza | 171 Map G.3: Land in the West Bank Is Divided into Areas A and B, under Palestinian Civil Administration, and Area C under Israeli Civil Administration IBRD 43952 | SEPTEMBER 2018 LAND CLASSIFICATION ACCORDING Umm TO OSLO AGREEMENT Al-Fahm Area A Beit Shean Area B Jenin Area C Main cities and towns Maythalun Armistice Demarcation Lines, 1949 No-man’s Land Areas, Tulkarm Tubas Armistice Demarcation Line, 1949 Jerusalem City Limit, Unilaterally Tayibe Expanded by Israel June 1967; then Annexed July 30, 1980 Tire Nablus Administrative Boundary Qalqiliya International Boundaries Qabalan ea Salfit an S Tel Aviv ane JORDAN iterr Ramla Baytin Med Ramallah Jericho Jerusalem ISR A E L Bethlehem Surif Bayt Fajjar Dead Sea Hebron Yattir Az Zahiriyah 0 10 20 Kilometers 172 | Securing Energy for Development in the West Bank and Gaza APPENDIX H: Robust Planning Methodology and Detailed Technical Results INTRODUCTION 1. In a deterministic analysis, what does a least-cost capacity expansion plan look like, which ensures This technical appendix describes the methodological the West Bank are Gaza are self-reliant and able considerations and input assumptions behind the to meet demand securely (assuming there are no power system expansion model used for the report. capital constraints)? The analysis applies concepts from the robust- 2. What are the features of a capacity plan that decision-making framework to develop power- ensures the West Bank are Gaza can respond to a generation capacity expansion plan for both the wide range of uncertainties including contingencies West Bank and Gaza that takes into consideration around electricity imports? What are the cost endogenous and exogenous uncertainties. It is implications of such a plan? How well does this built around a linear programming (LP) optimization second plan perform in terms of costs compared and simulation model that generates scenarios to with a classic least-cost plan? capture the pervasive uncertainties in a region where 3. How does the average cost of production change geopolitical conditions heavily influence the availability by sharing reserve margin requirements with of electricity and fuel supply. neighboring countries? 4. Given capital constraints, what is a balanced mix The analysis compares the output of classical methods that combines (ii) and (iii) to keep average costs of to power-system expansion planning with the robust- production at a specified annual level? decision-making-related approach to show how 5. How does access to regulated land (known uncertainties can affect the choice of technology as Area C) affect the generation mix and options. The analysis also presents results that take system costs? into account constraints to project-financing access. 6. If political uncertainties are not resolved over the planning horizon, what is the impact of only The geopolitical conditions, and related uncertainties, implementing projects that are solely within the call for a significant shift from traditional planning control of the Palestinian Authority (PA), and what methods. To the extent that political, social, and is the impact of delayed action or inaction on economic uncertainties can be abstracted for unmet demand? modelling purposes, they have been incorporated in the analysis largely through varying assumptions Limitations of the Study related to the availability, timing, and cost of infrastructure development. While efforts have been made to include some uncertainties in the expansion plan, it is not Objective comprehensive in this regard. Importantly, climate risks are not included in the analysis. For example, Given the uncertainties, the objective of the rising air temperatures reduce the efficiency of generation-expansion planning component of the plants (including most types of solar PV plants) while study is to propose a set of generation options increasing demand (for cooling) during the summer that perform well under various conditions. They months, among others. are designed to be able to satisfy peak load and energy demand up to 2030 reliably, and at the most The location of plants and financial structuring of efficient cost. The analysis thus seeks to answer the potential projects are other important issues that following questions: can affect which specific projects materialize. These Securing Energy for Development in the West Bank and Gaza | 173 issues are beyond the scope of the study, which does generation mix that satisfies peak load and energy not consider locational issues. demand under a predefined set of constraints. The robustness of the plan is tested through a carefully Delays during construction are also not considered in selected set of scenarios. Under the current the analysis. Construction delays can impact project circumstances in the West Bank and Gaza, the sheer costs, and large projects tend to be more exposed number of uncertainties leaves such an approach to this risk. As an example, doubling the construction too vulnerable to failure measured by the inability to time for a gas turbine from 24 to 48 months could meet demand. increase project costs by close to 10 percent.1 Delays also expose the project to fluctuations in material An approach to counter this risk could be to plan for prices linked to international commodity prices. the worst or close to worst case scenario, but this Including these issues tends to further strengthen the comes at cost. While partly justifiable, this cost in the case for distributed generation options. form of capital expenditure is likely to be unwarranted because the system will be overly designed. The METHODOLOGICAL CONSIDERATIONS approach adopted for this study therefore seeks to balance the goal of meeting demand at all times, with Planning for the expansion of power sectors in the risk of stranded assets under multiple scenarios. developing countries is challenging, due in part to the uncertainty associated with demand projections Bazilian and Chattopadhyay (2016) describe three because historical trends are typically different from possible planning techniques for fragile states: (i) expected growth patterns. The power sector in the least-cost planning tools that include risk premiums West Bank and Gaza falls in this category. Additionally, as inputs; (ii) extension of least-cost planning models the geopolitical situation in the West Bank and Gaza with a simulation component to reflect some of the (one of the territories on the World Bank’s list of uncertainties associated with fragile and conflict fragile situations) introduces additional layers of states; and (iii) stochastic programming and robust significant uncertainty. 2 decision models that are specifically designed to facilitate decision making under uncertainty. Constraints imposed by fragility have been routinely left out of power-sector planning in most conflict- In a case study for the Republic of South Sudan, prone countries. It manifests through various impacts Bazilian and Chattopadhyay (2016) employed the first on technology choices, timing, cost of and access approach (i) to look at the impact of differentiating the to financing, and so forth. The lack of financing, cost of capital for risky projects (typically large, scale- delays, and damages are all constraints and risks efficient infrastructure that are cheaper but highly that need to be considered in planning for these exposed to the risk of destruction and significant plans to be more effective. Although these issues are delays) from smaller but less risky options. By using well understood in qualitative terms and practiced a higher weighted average cost of capital (WACC) for in the field, it is only recently that consideration is riskier projects as a proxy to capture a wide range being given to quantitatively formalize this trade-off of financing risks, the analysis results in a shift away to produce a power system plan that finds a good from large, centralized technology options to more balance between cost and risks and characterizes decentralized choices. For the case of the West the ever-changing dynamics of fragile states (Bazilian Bank and Gaza, there is no evidence to conclude and Chattopadhyay 2016 ). that financing for scale-efficient projects like thermal power plants will be more expensive than financing For the West Bank and Gaza, uncertainties around for more decentralized options or by how much. demand projections, the level of electricity imports, timing of fuel availability, volumes and costs of fuel, In another case study, Spyrou, and Hobbs (2016) granting of access to expand infrastructure, and the use a two-stage stochastic planning model to risk of high outage rates mean the classic approach analyze the impact of climate risks on the power to least-cost expansion planning is not adequate. system expansion plan for Bangladesh—one of the The classic approach to least-cost planning typically most vulnerable countries to climate change (World assumes expected outage rates, fuel and plant Bank 2013 ). The analysis concludes that modeling availability, and a load growth forecast to project a the relationship between climate and power system 174 | Securing Energy for Development in the West Bank and Gaza parameters could save up to US$1.6 billion in 2015 Figure H.1: Process Flow for Selecting dollars. In a two-stage stochastic programming model, Robust Options an action is taken in the first stage (or the present) knowing that the future could evolve in many different 1. Scenarios: Develop multiple future scenarios from predefined ranges of uncertain parameters using ways, based on a set of random parameters. A set Monte Carlo of recourse decisions is then defined to determine a course of action in the second stage that responds to the outcome of the uncertain parameter. The goal is to find a solution that optimizes the expected outcome of 2. Multiple least-cost plans: For each future a decision. Stochastic programming models are reliant scenario, develop a least-cost plan on the fact that probability distributions governing the data are known or can be estimated (Shapiro and Philpott 2007) (Shapiro, Dentcheva, and Ruszczynski 2009). 3. Review options: Evaluate least-cost plans to Establishing such probability distributions for the West rank technologies and capacities according to frequency of selection across scenarios Bank and Gaza can be challenging. There is little historical data to inform the design of the distribution parameters. The distribution shapes could be attempted through the use of expert judgement, but the political underpinnings in the West Bank and Gaza 4. Stack and test options: increase the subjectivity of such an exercise. Select technologies and capacities ranked The approach used to deal with uncertainties in this highest, i.e., selected in 100% of scenarios. study involves using Monte Carlo simulations to draw scenarios from a range of parametric uncertainties and then running them through a deterministic LP model. Test resultant plan across multiple The simulations serve to “recognize” the stochastic scenarios and observe total system costs. nature of the parameters, but this process falls short of a full stochastic model because the final selection of the capacity plan is decided by the modeler rather Reduce preference ranking and select than the model. associated technologies and capacities until least selected options (i.e., only in 1% of scenarios) are available. The Monte Carlo simulation process considers random variation in uncertain parameters such as demand and generation availability, fuel prices, and so forth, to form a composite sample that represents one realization or “future” of all possible uncertain parameters. The LP dispatch optimization (determination of 5. Robust plan: Select plan with the lowest average the optimal output of power generation plants) is of total system costs across multiple scenarios solved for the sample to obtain one-point estimate of system costs, prices, and so forth. The process is repeated for a large set of samples (for example, somewhere between 100 and 1,000, depending on the number of parameters and their variance) to form a distribution of the outcomes. The process is fundamentally not very different from running a large number of alternative scenarios with the exception that (i) we directly represent the probability distribution of each uncertainty parameter rather than accepting a predefined scenario with a specific view on the uncertain parameters and (ii) we therefore can evaluate Securing Energy for Development in the West Bank and Gaza | 175 the impact of multiple uncertain parameters on the Details of the process flow are as follows: final output, be it prices or system costs. Step 1: Develop Multiple Scenarios The process flow for the analysis is shown in figure H.1. We start by identifying all the input parameters that are After identifying the uncertain parameters, multiple uncertain. These include the timing and availability of scenarios were generated using Monte Carlo sampling fuel, energy demand, fuel prices, amount of imports, techniques. Each scenario contains a random draw availability of power plants, and investment costs, from within the distribution of the individual parameters among others (see table H.1). The ranges for these for every year in the planning horizon. For example, it uncertain parameters were developed by the project will include a certain demand profile for every year, team after consultations in Jordan, Israel, Egypt, and plant availability for every year, fuel prices for every the West Bank and Gaza. year, and so on. Since the draws from the various parameters are completely independent, two valid In this type of analysis, it is important to identify the questions arise at this stage: (i) How certain are we correlations between parameters. Of particular interest that the combination of individual draws adequately was the correlation between fuel and electricity import cover the worst-case scenarios? (ii) how plausible is prices. Since the transition from oil-based generation the combination of all the individual draws? to gas-based generation, electricity prices in Israel have been decoupled from international oil prices, The coverage of scenarios depends on the number of because most of the production is driven by long- draws for the Monte Carlo analysis. A higher number term gas purchase agreements. The growing share of of draws increases the coverage of scenarios. renewable energy will further decouple the two prices. This needs to be balanced with the computational requirements. The number of scenarios was selected This is likely to be the case for Egypt as well. We to minimize the variance in total system costs across therefore assume no correlation between fuel prices scenarios, an indication that enough samples across and imports from Israel and Egypt. Electricity prices the range of uncertainty have been selected. In this in Jordan, on the other hand, are correlated with fuel study, 100 draws were used to demonstrate the prices, and this assumption has been used in the study. merits of the study approach. At present, gas generation is based on liquified natural gas, and so prices are linked to the international gas For question (ii), the primary issue of concern was market. However, there are considerations to import the link between outages caused by sabotage and gas from Israel or other countries. Jordan is also demand. As an example, how plausible is a scenario considering oil shale and nuclear power as generation with high outages and high demand growth? Using options, together with a strong renewable energy the study approach, it is also possible to discard portfolio. These plans, if implemented, will reduce the combinations of parameters that are unreasonable. link between international oil and electricity prices. TABLE H.1: INPUT PARAMETERS AND ASSOCIATED UNCERTAINTIES PARAMETER UNCERTAINTY Fuel Prices, volumes, and availability of diesel (as a result of attacks and politically imposed constraints) Timing, volumes, prices, and availability of gas CAPEX Variations in photovoltaic, wind, and concentrated solar power CAPEX Electricity Prices, volumes, and availability imports Demand High volatility in projected demand Transmission Uncertainties around the commissioning of West Bank backbone and West Bank-Gaza connection Plant availability Extended outages as a result of damage or difficulty in reaching plant locations; damage due to sabotage incurs a cost to the system 176 | Securing Energy for Development in the West Bank and Gaza Figure H.2: Characterizing Four Possible Economic Conditions of the West Bank and Gaza • Significant disrutptions to supply due • Disruptions to supply due to to sabotage sabotage and • Limited imports • Limited imports • WB Transmission • Limited fuel (diesel) backbone may be • WB Transmission commissioned backbone mad be in • Very limited fuel place (diesel) A. War B. Siege • Low load growth • High unmet demand • Hight unmet demand • Disruptions due to • Open imports higher level of • Gas available C. Prosperous D. Stagnant imports • WB Transmission • Limited fuel backbone commissioned (diesel or gas) • Increased uncertainty in • WB Transmission load growth backbone may be • Low unmet demand commissioned • Increased uncertainty in load growth • Relatively hight unmet demand To design the scenarios, the study categorizes four Step 2: Develop Multiple Least-Cost Plans possible states in the West Bank and Gaza: war, siege, economic stagnation, or economic prosperity. For each of the four scenarios we develop an expansion These conditions are characterized by different levels plan using the core LP model. It is important to note of investments in power sector infrastructure and that the model considers the entire planning horizon demand characteristics as shown in figure H.2. and optimizes capacity and dispatch to minimize system costs for the horizon. It does not optimize For extended periods in the planning horizon, or the solution on a year-to-year basis. For example, if the entire duration, either territories of the West a scenario draws on natural gas being available but Bank and Gaza could be in a state of siege (as is also draws low availability for the gas plants in some the case in Gaza presently), stagnation (as is the years, the model considers this availability and may case in the West Bank), or prosperity where there install more capacity within defined constraints to are no limits to infrastructure development. A state satisfy the supply-demand balance. It will not only use of war is more transient, marked by particular years the higher availability of preceding years to determine with high outages, limited imports, and limited optimal capacity and timing. The core LP model is fuel supply. For example, over the entire planning explained in a later section. horizon, a territory could be in a state of stagnation with spot disturbances in which supply options are Step 3: Review Plans and Rank Options disrupted. History shows destroyed equipment is restored, and this is assumed to continue. It was In this step, we analyze, for every year in every scenario, also decided to establish a minimum availability the frequency with which technology options are threshold for imports from Israel, the main source of picked and, when picked, the capacity that is installed imports, since it was unrealistic to anticipate this to be in that year. The aim is to identify those technology- completely unavailable. capacity options that are robust across multiple Securing Energy for Development in the West Bank and Gaza | 177 scenarios. These are then ranked by the percentage because the demand forecast is uncertain. To deal with of times the technology-capacity mix is selected in this problem, we run multiple experiments (multiple every scenario and for every year. To determine the scenarios that draw from the uncertain parameters) capacity that is picked up across multiple scenarios, whenever we include additional options in the stack we approximate the plant capacities to the nearest and observe the performance of the capacity plan. 10MW. This is similar to creating 10MW “bins.”3 It is important to distinguish this step from step 2, where we develop multiple capacity plans to satisfy Step 4: Stack and Test Options multiple future scenarios. The most preferred technology-capacity options are In step 2, the question we answer is this: if the future those that are selected in most scenarios. Figure H.3 looked like a particular scenario, what types of plants shows variation of the capacity of available generation should be built? When should they be built and how options across multiple scenarios. Existing capacity should they be dispatched? In this step, whenever is always included. As seen from the figure, 194 MW we add onto the stack of technology-capacity of the plant PVr-WBC is robust in all scenarios, while options, we take this as our capacity plan and ask the the first concentrated solar power (CSP) of 20 MW is question: If this was my capacity plan, how would it only picked up in 11 percent of scenarios. Technology perform in multiple scenarios? and capacity options that appear in 100 percent of scenarios constitute no-regret options. Moving to The stack developed in step 4 can also be used to the right of the chart, the capacities of technologies select projects to prioritize. The more robust options at increase but are less robust. the bottom of the stack should be given a higher priority. While it would be ideal to include only the most robust Step 5: Select Robust Plan technology-capacity options, this is unlikely to meet demand, and so it is necessary to add more capacity. The performance of each potential capacity plan is We therefore stack less preferred options to increase evaluated mainly through the change in total system installed capacity that is, select capacities to right in costs or the objective function (least cost). By observing figure H.3). At this point, we have little idea about the the total system costs across multiple scenarios, we target capacity that will be adequate for the system, select the plan with the lowest cost as the “robust” plan. Figure H.3: Cumulative Capacity by Technology 600 PVcAB-WBN CC-WBN 500 PVcAB-WBS CC-Gaza Cumulative capacity (MW) PVcAB-WBC DiesGen-Gaza 400 PVr-Gaza Jordan-WBC 300 CC-WBS Israel-WBN Wind-WBS Egypt-Gaza 200 Bio-WBC Israel-Gaza 100 0 100 97 94 91 88 85 82 79 76 73 70 67 64 61 58 55 52 49 46 43 40 37 34 31 28 25 22 19 16 13 10 7 4 1 178 | Securing Energy for Development in the West Bank and Gaza Jiang and Vogt-Schilb (2016) employ a similar STRUCTURE OF THE MODEL approach in a case study for Bangladesh as the quantitative basis for a “robust adaptive strategy The West Bank is modeled as three separate zones: that performs acceptably over several dimensions WB North, WB Central, and WB South (see map H.1). in as many plausible futures as possible.” The main Electricity imports from Israel is injected through three differences are (i) Latin hypercube sampling was used points in the north, central, and south. Demand and to reduce the need for large number of simulations, solar resource availability is accordingly distributed while we use Monte Carlo sampling for this study, among the three zones in the West Bank. Gaza is and (ii) after generating multiple expansion plans, the modeled as one separate zone.4 technology-capacity options were placed in large bins to reduce the number of plans, each of which There is currently no transmission network in the was then tested across multiple scenarios and West Bank or Gaza, and the two territories are not performance assessed independently. In this study, directly connected either. The analysis of transmission we develop the capacity plan starting with no-regret requirements is undertaken separately and not options and increasingly adding less preferred options included in the model. as described in step 4. Map H.1: Categorization of Zones and Power Import Connections in West Bank and Gaza IBRD 43953 | SEPTEMBER 2018 Armistice Demarcation Lines, 1949 IEC-WB North Jenin No-man’s Land Areas, IEC Injection Point Armistice Demarcation Line, 1949 in North Governorate Boundaries WEST BANK Administrative Boundary NORTH Tubas Tulkarm International Boundaries Nablus Qalqilyah Salfit M e d ite r r a ne a n JORDAN Sea IEC-WB Central WEST BANK IEC Injection Point Ramallah in Center CENTRAL Jericho Jordan-WB IEC-Gaza Jerusalem A.R. Egypt-WB IEC Injection Point I SR A EL Imports from Jordan in Gaza Bethlehem and A.R. Egypt IEC-WB South Dead Sea Jabalya IEC Injection Point Hebron Gaza City in South GAZA WEST BANK Deir el Balah SOUTH Khan Yunis Rafah A.R. Egypt-Gaza ARAB REP. Injection Point OF EGYPT for A.R. Egypt Imports Securing Energy for Development in the West Bank and Gaza | 179 CapBal i, g, y capacity balance CapBal1 i, g, y capacity balance MaxBuild i, g MinCapReserve b, y minimum capacity reserve JointFuel i, g, y, t MaxCFGen i, g, y maximum capacity factor limit for each generator (ex- The model used for the West Bank and Gaza cept is a • Generation: Operational characteristics of import) GAMS-based, least-cost planning tool that is in generation plants, such as thermal efficiency, MaxCFImp i, g, y maximum capacity factor limit for each import source many ways, simpler to populate (through an Excel maximum utilization factors, and so on FuelBal front fuel balance • Transmission: Transfer-capacity limits between i, f, y than commercial end) and easier to customize FuelLimitCon tools, i, f, y as algorithms and procedures gasbe can limits built zones and associated losses around the basic model to deal with uncertainties. CapitalConstraint total capital 5 on new investment is constrained Given i, g,and the sparse data available REProfileConsSolar y, tthe wide range Solar of The main output of the model is a set of generation profile uncertainties the necessary for i, REProfileConsCSP g,analysis, y, t this flexibility options and their associated timing, dispatch levels, CSPprofile critical. is REProfileConsWind i, g, y, t CSP profile and residual or unmet demand. From this, the average eTotalIECWB y total importscost fromof generation per year (or block of the load IECto WB Mathematical Description of the LP Model duration curve), associated emissions, total system eTransferLimit i, j, y, t zonal transfer limit This section briefly describes the LP least-cost costs, CAPEX requirements, and reserve margins, RECapAreaC planning model at the core controlThe y of the analysis. total capacity of installed among others, RE can be calculated. RepairCap g, y restore deterministic least-cost planning model takes into capacity at a cost consideration TotalRepairs the following as g, yinput: The objective total repair costcarried function through to years - other be minimized is the TotalRepairs1 g, y total repair cost carried net discounted cost (at through a rate - year 1 of 10 percent) for the • Cost: eVRECapex Investment costs for n, g,generation y expansion, capex Annualized planning periodsources forVRE and is calculated as shown in EQ 1. fuel prices, and fixed eLimitIsraelImports b, y and variable operation and Limit Israeli imports into WB maintenance costs eEqualizeIECWB1 y Distribute IECimports equally (for when there are no • Load: Load forecasts in the form of load duration curves for the planning years transmisison constraints) eEqualizeIECWB2 y Strategy5Con b, f, y constrain max gen by fuel to 50% EQ Set 1: Objective Function Equation Definitions Obj 1 cost = ( (ord(y)−1) ·( (CRFN R · capN R,y · GenDataN R,CAPEXperkW ) · 1000 + y (1 + r) NR what is going on here n,RE VRECapexn,RE,y + (capg,y ·GenDatag,FOMperMW )+ (vImportReservesIM,y · g IM ReserveImportsIM,y )+ (CumRepairg,y ·CRFrg ·GenDatag,CostOfRepair )·1000+ ( (Geni,g,f,y,t · g i,g,f |mapg,f t Durationt · VCg,y,f ))+ ( (Geni,g,f,y,t · Durationt · GenEmisg,f ))[IncludeCO2Price]+ i,g,f |mapg,f t ( (Geni,g,f,y,t · Durationt · GenDatag,VOM )) + (USE1i,y,t · Durationt · VoLLy ) + i,g,f |mapg,f t i,t 3 180 | Securing Energy for Development in the West Bank and Gaza Symbols Where the sets and decision variables are defined as follows : Sets Sets: Name Domains Description Name Domains Description AreaCAccess2 i, j i nodes IECEnergyShare min share of IEC imports g g generators VoLLReserve y reserve cost of reserve shortfall in dollar per MW t t time increment of LDC RECapex g, y RE capex f f fuel type MaxIECImports y random limits of imports y * years CRF g cost recovery factor map g, f CRFr g cost recovery factor for repair works s * fuel price scenarios pTransferLimit i, j, y transfer limit b b states DestroyedCap g, y fraction of capacity destroyed in a year IM g imports as generators VoLL y value of lost load in dollar per MWh EX f export fuels AvailableLand y land granted in Area C NE f nonexport fuels all fuels apart from exports LoadGrowthFactor i, y used in Monte Carlo RE g renewables ReserveImports g, y cost of holding import reserves GE g generators Availability g, y unit availability NR g nonRE generators ImportVolume f, y volume of imports PV g PV technologies FuelLimit s, f, y fuel limit te te genertor technologies FuelLimitFactor f, y used in Monte Carlo mapbi b, i map nodes to territories VC g, y, f variable cost in $ per MWh mapij i, j map nodes GenEmis g, f CO2 emissions in tons per MWh mapig i, g map nodes to generators ReserveContribution g, y contribution of imports to reserves AreaC g Area C PV and CSP EEScalingFactor y IEC g Israel imports n * Variables Decision variables: Parameters Name Domains Description Gen i, g, f, y, t generation per unit per year per LDC pointin MW Name Domains Description cap g, y installed capacity in year y in MW TechIndex te Build i, g, y Build new capacity MW in year y CSPProfile t, i VRECapex n, g, y Annualized RE capex carried from Nth year to last year Duration t in USD GenData g, * Retire i, g, y Retire existing capacity LandUse te USE i, y, t unmet demand in MW LDCBase i, t, y USE1 i, y, t unserved energy in MW PVProfile t, i Unmetreserve b, y reserve capacity shortfall WindProfile t, i Surplus i, y, t surplus power (to get around the min load constraint!) SetStrategy planning strategy Fuel i, f, y fuel consumption in MMBTU IncludeCO2Price Tran i, j, y, t power transfer from zone i to j in MW IncludeEnergyEfficiency cost total system cost in billion USD MaxCapital max gen investment in billion dollars Repair g, y capacity to be repaired by year after year 1 r discount rate vImportReserves g, y imported reserves in MW DumpPrice cost of surplus or dump power in dollar per MWh CumRepair *, * lossfactor net energy interchange in pu ReserveMargin system reserve margin in pu Equations 1 Securing Energy for Development in the West Bank and Gaza | 181 2 The sum of Cap*CAPEXperkW determines the total Sum of GenEmis*CO2Price adds the cost of annualized investment for all thermal generators in CO2 emissions if required and is set by the flag a particular year. The cost recovery factor (CRF) is IncludeCO2Price. CO2 prices are not included in the calculated using a weighted average cost of capital analysis for the West Bank and Gaza. (WACC) of 10 percent. In addition to regular costs, the objective function For renewable energy (RE) plants, a separate term, includes penalties associated with violation of BuiltRE, adds the annualized CAPEX requirements demand constraint, VoLL, which is set at US$750 per to the(Surplus objective i,y,t · Duration function. t · has This DumpPrice) + been separated Unmetreserve megawatt hour b,y · VoLLReserve (MWh) y ))1000000 for this study, and reserve limit, asi,t a new variable because the CAPEX for RE plants b VoLLReserve, which is set at US$5,000 per kW in this changes with time. Any new installation therefore study. Mathematically, the unserved energy variable applies CapBal the CAPEX requirements for the year of relaxes the demand balance constraint to avoid i,g,y installation calculated in a separate equation. infeasibility in time periods with excess demand. In capg,y = capg,y−1 + Buildi,g,y − Retirei,g,y i, an practice, it∀is g, yindirect measure | ((ord(y) > 1)of ∧system reliability. mapigi,g ) The sum of Cap*FOMperMW adds the fixed operating Its valuation is an economic concept that indicates and maintenance costs for all generators per installed the willingness to pay by electricity consumers to CapBal1i,g,y VC + VOM together make up the avoid supply interruption (Electricity Commission kW every year. short-run capg,y = marginal Buildi,g,y − for cost each generator, VC being ∀i, Retire 2008). The study g, y | ((ord(y) = 1)reports VoLL to be as high ∧ GenData as i,g,y g,CAPEXperkW ) the cost of fuel and VOM being variable operating and US$44,500 per MWh in Australia and US$960 per maintenance costs. MWh for Chile. Mathematically, because of the role RepairCapg,y this plays in balancing demand and supply, the value The sum of CumRepair*CostOfRepair adds a for lost load needs to be high enough to prevent the Repair cost g,y = cap whenever g,y · DestroyedCap there is damage to g,y a plant. The model from curtailing load as a means of ∀ g, y minimizing CostOfRepair is assumed to be a third of the CAPEX, system costs. The selected VoLL is set at the cost of and CumRepair carries the total annualized repair self-generation through portable household gasoline TotalRepairs g,y costs through the planning horizon. Repair costs are generators. assumed CumRepair to be recovered g,y = CumRepairover 12 g,yyears −1 + (irrespective Repairg,y ∀g, y | (ord(y) > 1) of the plant). 6 The objective function is minimized subject to various constraints described here: TotalRepairs1g,y (Surplusi,y,t · Durationt · DumpPrice) + Unmetreserveb,y · VoLLReservey ))1000000 CumRepair i,t g,y = Repairg,y b ∀g, y | (ord(y) = 1) EQ Set 2: Capacity Balance and maximum build capacity CapBali,g,y MinCapReserveb,y capg,y = + Build ( capg,y−1(cap i,g,y − Retirei,g,y ∀i, g, y | ((ord(y) > 1) ∧ mapigi,g ) g,y · ReserveContributiong,y )) + Unmetreserveb,y ≥ (1 + ReserveMargin) · i|mapbib,i g |mapigi,g CapBal1 max{ i,g,y LDCBasei,t,y t} ∀b, y capg,yi|= mapbib,i Buildi,g,y − Retirei,g,y ∀i, g, y | ((ord(y) = 1) ∧ GenDatag,CAPEXperkW ) MaxBuild RepairCapi,g g,y Build Repair = cap g,y i,g,y ≤ g,y GenData · DestroyedCap g,Pderated g,y ∀i, g | GenDatag,CAPEXperkW ∀g, y y TotalRepairsg,y eVRECapexn,RE,y CumRepairg,y = CumRepairg,y−1 + Repairg,y ∀g, y | (ord(y) > 1) VRECapexn,RE,y = VRECapexn,RE,y−1 + (Buildi,RE,y · RECapexRE,y · CRFRE · i|(ord(y)=n.val) TotalRepairs1g,y 1000) ∀n, RE, y | (ord(y) > 1) CumRepairg,y = Repairg,y ∀g, y | (ord(y) = 1) Capacityi,g,y,t MinCapReserveb,y Geni,g,f,y,t ≤ capg,y ∀i, g, y, t f | map g,f ( (cap g,y · ReserveContribution 182 | Securing Energy for Development in the West Bank and Gaza g,y )) + Unmetreserve b,y ≥ (1 + ReserveMargin) · i|mapbib,i g |mapigi,g max{ LDCBase t} ∀b, y JointFueli,IM,y,t Geni,IM,f,y,t ≤ capIM,y ∀i, IM, y, t f |mapIM,f MaxCFGeni,GE,y First, the dynamic links across the years is captured horizon is restricted to the planned capacity addition. in the first equality ( (Gen constraint that defines the variable Additionally, constraints ensure new plants are i,GE,f,y,t · Durationt )) ≤ capGE,y · 8760 · GenDataGE,MaxCF · AvailabilityGE,y Cap . Capacity f |mapGE,f t may be augmented by building new not mothballed and existing capacity is included. units (that ∀i, GE, y is, Build ), or it can be mothballed (Retire). Finally, the capacity addition, annual capacity, and Second, JointFuel first-year capacity is restricted to the power output are subject to a set of conditions as the i,IM,y,t existing capacity, and the total capacity that can represented by the last two constraints. be built forGen MaxCFImp a newi,IM,ystation i,IM,f,y,t over ≤ cap the entire planning IM,y ∀i, IM, y, t f |mapIM,f ( (Gen EQ Set 3: Capacity i,IM,f,y,t · Limits Utilization Durationt )) ≤ capIM,y · 8760 · GenDataIM,MaxCF · AvailabilityIM,y · f |mapIM,f t MaxCFGeni,GE,y ImportVolumeEX,y ∀i, IM, y ( (Geni,GE,f,y,t · Durationt )) ≤ capGE,y · 8760 · GenDataGE,MaxCF · AvailabilityGE,y EX |mapIM,EX f |mapGE,f t ∀ i, GE, yi,f,y FuelBal Geni,g,f,y,t · Durationt Fueli,f,y = i,IM,y MaxCFImp ( ( )) ∀i, f, y t 0.293071 · GenDatag,Efficiency g |mapg,f ( (Geni,IM,f,y,t · Durationt )) ≤ capIM,y · 8760 · GenDataIM,MaxCF · AvailabilityIM,y · f |mapIM,f t FuelLimitConi,N E,y ImportVolumeEX,y ∀i, IM, y Fuel EX |map E,y ≤ i,NIM,EX FuelLimit1,N E,y · FuelLimitFactorN E,y ∀i, N E, y eTotalIECWB FuelBal i,f,y y Geni,g,f,y,t · Duration ≤+ (capIEC,y (Surplus +·vImportReserves Duration IEC,y ) ( ( t · DumpPrice) MaxIECImports )) y ·b,y Unmetreserve ImportVolume · VoLLReserve y ))1000000 ∀yy t Fuel i,f,y = i,y,t ∀,y IsraelImport i, f, IEC i,t t 0 . 293071 · GenData g, b Efficiency g |mapg,f Generation CapBal from all units (existing eEqualizeIECWB1 i,g,y y and new) is limited by are limited to import caps and the availability of the tie FuelLimitCon the maximum capacity factors on the Cap. Availability line. This is defined by the second equation. The third i,N E,y cap theg,y isFuel = capg,y maximum Israel-WBS −1cap = + Build ,y capacity factor, Israel-WBC − Retire i,g,y and ,y i,g,y of the it is one ∀i, g, y | equation ensures ((ord(y) that sum of 1) ∧ mapig >imports from ∀ y ) to Israel i,g i,N E,y ≤ FuelLimit1,N E,y · FuelLimitFactorN E,y ∀i, N E, y random parameters sampled. Imports (which are the three zones of West Bank do not exceed Israel- modelled as generators running on an “import fuel”), West Bank import cap. eEqualizeIECWB2 CapBal1i,g,y y eTotalIECWBy cap EQ Set Israel-WBC g,y 4: =Destroyed Build = cap ,y i,g,y Capacity − Retirei,g,y Israel-WBN ,y ∀y ∀i, g, y | ((ord(y) = 1) ∧ GenDatag,CAPEXperkW ) (capIEC,y + vImportReservesIEC,y ) ≤ MaxIECImportsy · ImportVolumeIsraelImport,y ∀y IEC eTransferLimit RepairCap g,y i,j,y,t Trani,j,y,t g,y =≤ cap pTransferLimit eEqualizeIECWB1 Repair g,y · DestroyedCap y i,j,y g,y ∀i, j, y, t | mapij ∀g,i,j y capIsrael-WBS,y = capIsrael-WBC,y ∀y TotalRepairsg,y eEqualizeIECWB2 CumRepairg,y = CumRepair y g,y −1 + Repairg,y ∀g, y | (ord(y) > 1) capIsrael-WBC,y = capIsrael-WBN,y ∀y TotalRepairs1g,y 5 eTransferLimit CumRepairg,y = Repair i,j,y,t g,y ∀g, y | (ord(y) = 1) Trani,j,y,t ≤ pTransferLimiti,j,y ∀i, j, y, t | mapiji,j MinCapReserveb,y ( (capg,y · ReserveContributiong,y )) + Unmetreserveb,y ≥ (1 + ReserveMargin) · i|mapbib,i g |mapigi,g max{ LDCBasei,t,y t} ∀b, y Securing Energy for Development in the West Bank and Gaza | 183 i|mapbib,i 5 ( (Geni,IM,f,y,t · Durationt )) ≤ capIM,y · 8760 · GenDataIM,MaxCF · AvailabilityIM,y · f |mapIM,f t ImportVolumeEX,y ∀i, IM, y EX |mapIM,EX Major outages FuelBal i,f,y due to damage incur a cost, and the plant out of service. These repairs incur a cost to probability of damage is defined as another uncertain the system that is amortized over 12 years. The first Geni,g,f,y,t parameter. DestroyedCap is a fraction · Durationt equation calculates the destroyed capacity in a year. that represents Fueli,f,y = ( ( )) ∀i, f, y 0.293071 For the installed capacity destroyed. distributed · GenData The second and third calculated total repairs for all g,Efficiency g |mapg,f t generation sources, damage has less of an impact years and the first year respectively. It is this variable and DestroydCap is small. Centralized units are more that is multiplied by the per kW repair costs in the exposed to the risk FuelLimitCon of damage that takes the entire objective function. i,N E,y Fueli,N E,y ≤ FuelLimit1,N E,y · FuelLimitFactorN E,y ∀i, N E, y EQ Set 5: Zonal Balance eTotalIECWBy DemBalBasei,y,t (capIEC,y + vImportReservesIEC,y ) ≤ MaxIECImportsy · ImportVolumeIsraelImport,y ∀y Geni,g,f,y,t +USEi,y,t +USE1i,y,t − Surplusi,y,t + (Tranj,i,y,t · 0.97) − Trani,j,y,t = IEC g,f |mapg,f j j LDCBasei,t,y · EEScalingFactory ∀i, y, t | IncludeEnergyEfficiency eEqualizeIECWB1y cap Israel-WBS,y =i,y,t DemBal1Base capIsrael-WBC,y ∀y Geni,g,f,y,t +USE1i,y,t −Surplusi,y,t + (Tranj,i,y,t ·lossfactor)− Trani,j,y,t = eEqualizeIECWB2y g,f |(mapg,f ∧mapigi,g ) j |mapiji,j j |mapiji,j LDCBase i,t,y,y = capIsrael-WBN,y capIsrael-WBC ∀i, y, t | (IncludeEnergyEfficiency = ∀ 0)y CapitalConstraint eTransferLimiti,j,y,t ( i,j,y,t Tran (Buildi,g,y · GenData ≤ pTransferLimit g,CAPEXperkW )) i,j,y ∀i, j, y, t | mapiji,j y i,g 1000 ≤ MaxCapital · 1000 eLimitIsraelImports W est Bank ,y By Kirchoff’s First Law (also known as KCL Kirchoff’s Demand is one of IECEnergyShare the key random parameters in the current law), the total line flows (Gen and out · into i,IEC,f,y,t of model.t ) Duration ≤ (1a− Given · ord(y)) distribution of peak and energy, · the 15 node must a IEC,i,f,t |(mapbiequal West Bank,ithe ∧map difference IEC,f ) between the 5 random sampling process draws a demand profile for generation flowing into the node and the off-takes. (LDCBasei,t,y · Durationt · LoadGrowthFactoreach of the load blocks, and the dispatch optimization i,y ) ∀ W est Bank , y | ((ord(y) + Thus, the nodal balance constraints equate demand, is repeated for each such demand sample (along with i,t|mapbiWest Bank,i generation, losses, and electricity flows to and from other random parameters). The first equation is used 2015) the node. AreaCAccess2) >Generation deficit violation variables (USE1) in energy-efficiency scenarios, and the second is used are also included to deal with those rare situations in when energy efficiency is not part of the scenario. which the system may be unable REProfileConsSolar i,P V,y,tto meet the load at a node, due to a general shortage of generation or to The third equation limits transfers to the capacity of transmission Gen system failure.≤ i,P V,f,y,t Lines conventional have a t,i PVProfile · capP V,y the transmission corridor (pTransferLimit ) which ∀i, P V, y, t is direction f |mapigi,Passociated V with them. A positive Tran variable also randomly sampled. represents power flowing into the node for some lines and power flowing out for others. A fraction of the loss REProfileConsCSP (LS ) is attributed to the load end of the line. i,g,y,t Geni,g,f,y,t ≤ CSPProfilet,i · capg,y ∀i, g, y, t | (GenDatag,Type = 7) f |mapigi,g REProfileConsWindi,g,y,t Geni,g,f,y,t ≤ WindProfilet,i · capg,y ∀i, g, y, t | (GenDatag,Type = 8) f |mapigi,g 184 | Securing Energy for Development in the West Bank and Gaza RECapAreaCy TotalRepairsg,y CumRepairg,y = CumRepairg,y−1 + Repairg,y ∀g, y | (ord(y) > 1) TotalRepairs1g,y EQ Set 6: Reserve CumRepair Requirements g,y = Repairg,y ∀g, y | (ord(y) = 1) MinCapReserveb,y ( JointFueli,IM,y,t (capg,y · ReserveContributiong,y )) + Unmetreserveb,y ≥ (1 + ReserveMargin) · i|mapbib,i g |mapigi,g max{ Geni,IM,f,y,t LDCBase ≤i,t,y capt } IM,y ∀i, IM, y,y ∀b, t f |mapIM,f i|mapbi b,i MaxCFGen MaxBuild i,g i,GE,y Reserve is modelled for each territory (b). Although frequency falls, and generators with spinning Build( provision of regulation i,g,y (Gen ≤ GenData i,GE,f,y,t · Durationt )) is fundamentally g,Pderated ≤ capGE,y different from· 8760 · GenData reserve respond ∀i, g MaxCF GE, · Availability |under ‘free GenData GE,y action.” In the governor g,CAPEXperkW provision of contingency reserve, and the former is longer time frame, generators that are not currently f | y map GE,f t ∀i, GE, also y governed by an additional set of constraints in synchronized may synchronize and commence real-time, eVRECapex the nature of constraints that are relevant generation. ReserveContribution is a factor that n,RE,y in a long-term MaxCFImp planning framework is largely similar determines available capacity that contributes to the i,IM,y across VRECapex n,RE,y and regulation reserve. Contingency = VRECapex n,RE,y −1 + reserve reserve requirements. (Buildi,RE,y · RECapexRE,y · CRFRE · response( is expected to occur (Geni,IM,f,y,t automatically · Durationt )) ≤ cap when IM,y · 8760 · GenDataIM,MaxCF · AvailabilityIM,y · i|(ord(y)=n.val) f |mapIM,f t 1000) ∀n, RE, y | (ord(y) > 1) ImportVolumeEX,y ∀i, IM, y EX |Set EQ 7: Fuel Consumption and Constraints mapIM,EX Capacityi,g,y,t Geni,g,f,y,t ≤ capg,y FuelBal ∀i, g, y, t i,f,y f |mapg,f Geni,g,f,y,t · Durationt Fueli,f,y = ( ( )) ∀i, f, y t 0.293071 · GenDatag,Efficiency g |mapg,f FuelLimitConi,N E,y 4 Fueli,N E,y ≤ FuelLimit1,N E,y · FuelLimitFactorN E,y ∀i, N E, y JointFueli,IM,y,t eTotalIECWB y Gen ≤ cap ∀i, IM, y, ≤ MaxIECImportsy · ImportVolumeIsraelImport t (capIEC,y i,IM,f,y,t IM,y IEC,y ) + vImportReserves ,y ∀y f |mapIM,f IEC MaxCFGeni,GE,y y eEqualizeIECWB1 capIsrael-WBS The first equation ( ,y = cap (Gen defines Israel-WBC i,GE,f,y,t · Duration the t )) ≤ capGE,y fuel consumption ,y as a· 8760 · GenDataFor companies. GE,MaxCF · Availability this stage ∀y of the GE,y planning exercise, function of the generation from that type of fuel across we do not impose take-or-pay constraints, even f | map GE,f t ∀i, all generating GE, y eEqualizeIECWB2 units over all load duration curve blocks though this is likely to be the case for gas supply. Our y in that year. We have assumed a constant heat rate objective at this stage is to establish what volume of capIsrael-WBC over the entire ,y = capIsrael-WBN generation range,y of a generator, but gas for the power sector is least cost. ∀y This, together MaxCFImp i,IM,y this can be changed to represent the detailed heat with other domestic uses of gas in the West Bank rate characteristic ( (Gen eTransferLimit of the unit i,IM,f,y,t i,j,y,t using a piecewise · Duration linear t )) ≤ capIM,y and · 8760 Gaza, will · GenData inform IM,MaxCF the structure · Availability IM,yof· any take-or- f |mapIM,f The second constraint is a simple bound function. t pay contract, the details of which will need to be Tran on the ≤ pTransferLimit maximum amount of fuel that is available in thoroughly analyzed. ∀i, Thej, y, t | mapij third i,j,y,t ImportVolume i,j,y EX,y y ensures that ∀constraint i, IM,i,j a year. It is also possible to represent any take-or- total generation in every load block does not exceed EX |mapIM,EX pay fuel contracts for individual generating stations or rated capacity. FuelBali,f,y Geni,g,f,y,t · Durationt Fueli,f,y = ( ( )) ∀i, f, y 0.293071 · GenDatag,Efficiency g |mapg,f t 5 Securing Energy for Development in the West Bank and Gaza | 185 FuelLimitConi,N E,y Fueli,N E,y ≤ FuelLimit1,N E,y · FuelLimitFactorN E,y ∀i, N E, y eLimitIsraelImports W est Bank ,y IECEnergyShare (Geni,IEC,f,y,t · Durationt ) ≤ (1 − · ord(y)) · 15 IEC,i,f,t|(mapbiWest Bank,i ∧mapIEC,f ) (LDCBasei,t,y · Durationt · LoadGrowthFactori,y ) ∀ W est Bank , y | ((ord(y) + i,t|mapbiWest Bank,i EQ Set 8: Variable Renewable Energy Profiles 2015) > AreaCAccess2) REProfileConsSolari,P V,y,t Geni,P V,f,y,t ≤ PVProfilet,i · capP V,y ∀i, P V, y, t f |mapigi,P V REProfileConsCSPi,g,y,t Geni,g,f,y,t ≤ CSPProfilet,i · capg,y ∀i, g, y, t | (GenDatag,Type = 7) f |mapigi,g REProfileConsWindi,g,y,t Geni,g,f,y,t ≤ WindProfilet,i · capg,y ∀i, g, y, t | (GenDatag,Type = 8) f |mapigi,g RECapAreaCy These equations define the limits of generation from types of variable renewable energy (VRE)—PV, CSP (capAreaC,y · LandUsete ) ≤ AvailableLandy ∀y variable RE sources. REProfile is the maximum and wind—have unique profiles. AreaC,te|(GenDataAreaC,Type =TechIndexte ) utilization of the RE plant in every time block. All three EQ Set 9: Combined Solar and PV Capacity Cannot 6 Exceed Total Land Available JointFueli,IM,y,t Geni,IM,f,y,t ≤ capIM,y ∀i, IM, y, t f |mapIM,f MaxCFGeni,GE,y INPUT PARAMETERS Renewable ( (Geni,GE,f,y,t · Durationt )) ≤ capGE,y · 8760 energy · GenData sources GE,MaxCF could GE,y · Availability be a significant f |mapGE,f t part of the energy mix in the West Bank and Gaza, In∀this section, i, GE, y we describe the main inputs required with total potential of between 3,100 and 4,000 for the model including the RE profiles, load blocks, MW (depending on the share of CSP and PV. See and generator data. MaxCFImp table H.3). There is considerable technical potential i,IM,y for solar PV and CSP (at least 98 percent of RE Generator ( Data potential), (Geni,IM,f,y,t · Durationt )) ≤ capIM,y · 8760 · GenDatabut the IM, bulk MaxCF · (at least 76 percent Availability IM,y · of potential f |mapIM,f t solar generation) is in Area C of the West Bank and Generators are defined by the parameters defined in can be realized only if Israel grants ImportVolume y to the land. access ∀i, IM, EX,y table H.2. EX |mapIM,EX The Gaza Power Plant (GPP) is the only The technical potential for gas- or diesel-fired plants operating power plant. The installation costs for depends on the volume of fuel. variable VRE technologies are modeled to reduce cover FuelBal planning horizon. The rate at which thei,f,y VRE prices reduce is sampled and discussed in a Gen i,g,f,y,t · Durationt later Fuelsection. i,f,y = ( ( )) ∀i, f, y t 0.293071 · GenDatag,Efficiency g |mapg,f FuelLimitConi,N E,y Fueli,N E,y ≤ FuelLimit1,N E,y · FuelLimitFactorN E,y ∀i, N E, y eTotalIECWB y for Development in the West Bank and Gaza 186 | Securing Energy (capIEC,y + vImportReservesIEC,y ) ≤ MaxIECImportsy · ImportVolumeIsraelImport,y ∀y TABLE H.2: GENERATOR PARAMETERS FUEL INSTALLATION FIXED VARIABLE CONTRIBUTION BASE MAX HEAT COST (2018) O&M O&M TO RESERVE* UNIT REPAIR RATE SIZE COSTS US$ PER KW US$ US$ PER % MW US$ PER MMBTU PER MWH KW PER KW MWH PER YEAR Rooftop PV Solar 2,591 15 0.0 0.0 0.0 864 0.0 (PVr)a Utility PV Solar 1,646 13 0.0 0.0 0.5 549 0.0 (PVc)a Concentrated Solar 5,552 59 10.0 0.8 10.0 1,851 0.0 solar power or thermal (CSP)a Wind (Wind)a Wind 1,863 51 0 0.0 1.0 621 0.0 Biogas (Bio)d Landfill/ 3,942 107 5.0 1.0 2.0 1,314 14.5b manure Distributed Diesel 800 15 15.0 1.0 2.0 263 10.0 diesel genset (DiesGenb Combined Gas/ 1,300 6.2 3.5 1.0 140.0 433 6.7 cycle gas diesel turbine (CC)b Simple cycle Gas/ 1,000 25 7.5 1.0 100.0 333 9.0 gas turbine diesel (GT)b Imports from 5 0.0 Scenario 0.0 0.0 Jordanc Imports from 5 0.0 Scenario 0.0 0.0 Israelc Imports from 5 0.0 Scenario 0.0 0.0 Egyptc Sources: a team estimates based on NREL Annual Technology Baseline; b high end of Lazard’s levelized cost of energy analysis (version 9.0); c team estimates; d International Energy Agency, World Energy Outlook. Note: O&M = operations and maintenance. * A factor that determines available capacity that contributes to the reserve requirements. PV and wind, for example, are not firm and do not contribute to the reserve margin in the analysis. Securing Energy for Development in the West Bank and Gaza | 187 TABLE H.3: POTENTIAL GENERATOR CAPACITIES Gaza Potential capacity (MW) Rooftop photovoltaic (PVr) 163 Biogas (Bio) 2 Distributed diesel genset (DiesGen) Unconstrained Combined cycle gas turbine (CC) Unconstrained Simple cycle gas turbine (GT) Unconstrained West Bank North Potential capacity (MW) Rooftop photovoltaic (PVr) 210 Commercial photovoltaic (PVcAB) - Areas A and B 14 Wind (WindC) - Area C 9 Biogas (Bio) 10 Distributed diesel genset (DiesGen) Unconstrained Combined cycle gas turbine (CC) Unconstrained Simple cycle gas turbine (GT) Unconstrained West Bank Central Potential capacity (MW) Rooftop photovoltaic (PVr) 194 Commercial photovoltaic (PVcAB) - Areas A and B 7 Commercial photovoltaic (PVcC) - Area C 3,200 Concentrated solar power/thermal (CSP) - Area C 2,424 Biogas (Bio) 8 Distributed diesel genset (Diesel) Unconstrained West Bank South Potential capacity (MW) Rooftop photovoltaic (PVr) 131 Commercial photovoltaic (PVcAB) - Areas A and B 14 Wind (WindC) - Area C 36 Biogas (Bio) 7 Distributed diesel genset (DiesGen) Unconstrained Combined cycle gas turbine (CC) Unconstrained Simple cycle gas turbine (GT) Unconstrained Source: Team estimates. While there continues to be several discussions with optimized to minimize system costs within export potential investors and the Palestinian Authority around limit constraints and gives the minimum transfer new sources of generation, such as the Jennin power capacity when sizing the connection. Import sources plant, there are no committed generation projects, so considered are shown in table H.4. we do not include specific candidate projects in the plan. We instead use generic generators to determine Under 2018 cost conditions, solar PV has the lowest the capacities of various technologies that are robust. levelized cost of energy (LCOE) of all technologies available, as shown in figure H.4. At low utilization Electricity imports are modelled as generators with rates, diesel has the lowest, costs making it a good no CAPEX requirements. The fuel fixed operations candidate for providing backup services. This also and maintenance costs include the cost of providing means frequent outages, which affect the availability ancillary services to the West Bank and Gaza, which of plants, increases average system costs. is priced at US$12 MWh. The capacity is therefore 188 | Securing Energy for Development in the West Bank and Gaza TABLE H.4: CURRENT CAPACITY AND PRICING OF ELECTRICITY IMPORTS FROM TO CURRENT CAPACITY (MW) 2016 PRICE (US$ PER MWH) Israel West Bank 800 90.0 Israel Gaza 120 90.0 Jordan West Bank 30 95.9 Egypt Gaza 10 50.0 Egypt West Bank (through Jordan) 0 N/Aa Source: Team estimates. a There is currently no power import from Egypt to the West Bank, but this could include the cost of generation of US$81 per MWh to Egypt and US$6.5 per MWh wheeling charges to Jordan based on current transmission wheeling charges for renewables in Jordan at 4.6 Jordanian fils per kWh. Figure H.4: Comparison of LCOE in U.S. Cents per kWh for Technology Options 400 2018 350 300 250 200 150 100 50 0 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32% 34% 36% 38% 40% Notes: CAPEX and O&M as shown in table H.3: Diesel = 21 US$ per MMBTU; WACC = 10%; 20-year life for PV and 30 for all others. 300 2025 250 200 150 100 50 0 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32% 34% 36% 38% 40% Notes: CAPEX and O&M as shown in table H.3: Diesel = 34.2 US$ per MMBTU; Gas = 5.5$ per MMBTU; WACC = 10%; 20-year life for PV and 30 for all others Egypt-Gaza Jordan-West Bank IEC CSP Utility PV GT - Gas CCGT - Gas Distributed Diesel Securing Energy for Development in the West Bank and Gaza | 189 Figure H.5: Forecast Demand and Peak Load in West Bank and Gaza a. Demand forecast: Gaza (GWh) b. Demand forecast: West Bank (GWh) 9,000 9,000 8,000 8,000 7,000 7,000 6,000 6,000 5,000 5,000 GWh GWh 4,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000 0 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 High Case Central Case Low Case c. Peak load forecast: Gaza (MW) d. Peak load forecast: West Bank (MW) 900 1,600 800 1,400 700 1,200 600 1,000 500 MW MW 800 400 600 300 200 400 100 200 0 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 High Case Central Case Low Case As the utilization rate increases, the high cost of Demand Data diesel makes these far less attractive. Scale efficient units like CCGTs become more cost effective. We The demand forecast developed shows a wide also see CSP outperforming CCGT running on diesel range of uncertainty in outer years, rising to nearly 40 due to the high cost of diesel. These comparisons percent of the low forecast scenario in 2030. Peak do not take into account other benefits of the various demand forecast was calculated with an assumed technologies, such as the provision of ancillary load factor of 60 percent based on historical data services and system support for thermal units, and from Jerusalem District Electricity Company (JDECO). avoided generation emissions for renewable energy The resultant peak load is between 1,800 MW and technologies. A different picture emerges in 2025 2,500 MW in the West Bank and Gaza, respectively when the CAPEX for solar PV in particular is expected (figure H.5). to be lower and gas is more likely to be available. In this scenario, the LCOE for CCGT at 70 percent The peak and energy forecasts were used to develop utilization is on par with the LCOE for utility-scale PV load blocks for each year in the horizon. (Load blocks at US$0.54 per kWh at a gas price of US$5.5 per are used to reduce the size of the LP and computing MMBTU. CSP costs are also lower, with a high end resource requirements.) In the absence of system LCOE close to 15 US cents per kWh. data, load blocks were developed using simulated 190 | Securing Energy for Development in the West Bank and Gaza Figure H.6: 24-Hour Profiles from Selected Months for West Bank Jan Mar May Jul Sep Nov 1.2 1.0 0.8 0.6 0.4 0.2 0.0 0 3 6 9 12 15 18 21 0 3 6 9 12 15 18 21 0 3 6 9 12 15 18 21 0 3 6 9 12 15 18 21 0 3 6 9 12 15 18 21 0 3 6 9 12 15 18 21 Wind CSP PV Demand hourly load data. Ideally, a year of system hourly load TABLE H.5: DISTRIBUTION OF DEMAND data is the least requirement to first generate the IN THE WEST BANK load duration curve and then the load blocks. This ZONE SHARE OF WEST becomes even more critical if variable renewable BANK DEMAND resources are included in the model, because the West Bank North 26% coincidence between hourly load data and renewable West Bank Central 54% resource availability is important. West Bank South 20% For this analysis, we obtained daily load curves for the winter and summer seasons for the Jerusalem Renewable Energy Data area from the distribution company (JDECO). This gives a sense of the daily characteristics of demand. Variable renewable energy technologies considered The same daily curve was assumed for the West were wind and solar for PV and CSP applications. Bank and Gaza. The same profile was assumed for Unlike a broad resource assessment for a region, weekends and weekdays but was shifted downward hourly energy output data is required to ensure to simulate lower demand on weekend days. We also that output is correctly matched to the various load obtained monthly energy consumption for the West blocks. The system advisor model from the National Bank, which gives a sense of the seasonality and Renewable Energy Laboratory (NREL) was used to month-to-month variations in demand. Combining calculate hourly energy output from resource data for this data, we generated a rudimentary load duration all three technologies.7 curve that characterizes monthly load and seasonal day load variations. The load block definition was Solar (PV and CSP): To consider year to year variations maintained for all forecasted years and every demand in solar data, we use typical meteorological year growth path (low, medium, high, and robust). (TMY) data provided by various bodies and entities. TMY data includes monthly data that represent The demand for West Bank was distributed across typical conditions and is selected from a multiyear the three zones using historical sales data from the data set.8 The study utilized TMY data from three distribution companies. Fifty-four percent of the load locations in Israel that are close to West Bank Tel Aviv was allocated to central West Bank, 26 percent to for northern West Bank, Atarot for central West Bank, northern West Bank, and 20 percent to southern and Bersheva for southern West Bank. TMY data West Bank, as shown in table H.5. from Al Arish in Egypt was used for Gaza.9 Securing Energy for Development in the West Bank and Gaza | 191 Wind: Hourly wind speed data is not as readily available Demand as irradiation data for most locations. To obtain hourly data for the study, we scaled wind speeds from Demand is sampled between the low forecast and weather station data (which is typically measured at high forecast. The uncertainty is observed in the rate approximately 10 meters) to 80 m eters. 10 at which demand will grow. We first select a demand point in the first year, and then for each subsequent Understanding the complementarity between wind year we select a demand point between the demand and solar resources will require several years of data, of the preceding year and the high load forecast but the daily profiles used show that wind and solar trajectory. This ensures demand increases steadily output coincide with each other as shown in figure (albeit at an unknown rate) as would be expected in H.6. CSP could be used to better complement the West Bank and Gaza. the resources. Fuel Volumes and Pricing Other Input Assumptions Natural gas. Gas from various fields is considered as Cost of capital. The weighted average cost of capital potential fuel for both Gaza and the West Bank with is assumed at 10 percent. variable timing, volumes, and pricing: for example, from different gas fields in Israel available in the north Discount rate. The discount rate used to determine of West Bank, from Gaza or Egypt in the south of the system net present value is assumed at West Bank (table H.6). The model is passive to the 10 percent. source of gas and the matrix is simplified, with three sources of gas: one source for Gaza (GazaGas); one CHARACTERIZING UNCERTAINTIES for the south of the West Bank (WB_SouthGas, for plants such as Hebron); and a third source for gas In this section, we discuss the representation in the north (WB_NorthGas, for plants such as the of uncertainties in the model. While most of the Jenin). Each source of gas has a range of dates gas uncertainties stem from the political conditions, others could be expected, an associated range of possible such as uncertainties around demand forecasts and volumes, and a range of prices. The sampled fuel prices are common to most power systems. scenarios draw from these ranges to determine the year gas is available for power production, the volume, and its price. TABLE H.6: UNCERTAIN PARAMETERS AROUND GAS SUPPLY FOR POWER GENERATION: TIMING, VOLUME, AND PRICING AVAILABLE FOR POWER ANNUAL VOLUME (BCM) PRICE (US$ PER MMBTU) Earliest Latest Min Max Min Max Gaza gas 2022 2035 0.2 2.0 4.00 7.50 WB North gas 2021 2035 0.2 2.0 4.00 6.50 WB South gas 2024 2035 0.2 2.0 4.00 7.50 Source: Team estimates. Note: bcm = billion cubic meters; MMBTU = million British thermal units. 192 | Securing Energy for Development in the West Bank and Gaza Figure H.7: Diesel Price Range 1.8 1.6 1.4 1.2 1.0 $/liter 0.8 0.6 0.4 0.2 0.0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Upper bound Base case Lower bound The sampled volume is the maximum annual volume of Import Volumes and Pricing gas used for the planning horizon. For example, if the sampled parameters for Gaza gas are 2025 available Two forms of uncertainties are simulated for power year, 1.3 billion cubic meters (bcm) volume and price imports: (i) when import limits could increase due to of 5.2 $ per MMBTU, there is no gas available in the changes in the West Bank and Gaza’s network to model until 2025 and 1.3 bcm available from 2025 at accept higher imports or changes in the generation a price of 5.2 $ per MMBTU. and network capacity of exporting countries to be able to export more power and (ii) import prices following a Diesel. The volume of diesel is unconstrained in the change in import volumes. model unless an incident reduces supply. Shortages in the past have largely been due to the inability to We first sample a year when anticipated changes pay for fuel. Future diesel prices follow the trajectory in the networks allow for increased power imports. for international oil price forecasts. Between 2000 Capacity before this year is fixed at current levels and and 2015, oil prices in real 2010 U.S. dollars ranged then allowed to increase to an upper limit from the between $32 and $98 per barrel or 66 percent and sampled year. For some imports, the upper limit is 200 percent of 2015 prices.11 There is a strong also a range, because it is unclear. After the capacity correlation between the price of diesel and crude oil change, the price is sampled between the price of a in most markets (EIA 2015 ), so we assume range of preceding year and an upper limit. 66–200 percent of the average cost of fuel for GPP in 2015 as an uncertainty range for the price of diesel. The cost of imports from Jordan is indexed to the Therefore, the price per liter of diesel for every year is cost of fuel, but other import sources are independent sampled between $0.51 and $1.57 for every scenario of fuel prices because they are largely based on (see figure H.7). national gas reserves and contracted under long- term purchase agreements. The volume of diesel is unconstrained. There is a risk to the availability of fuel caused either by damage to Imports from Israel. The increase in power imports pipelines (in the case of gas supply) or restrictions to from Israel to West Bank is contingent on the the movement of fuel tankers (for diesel) this is dealt commissioning of four transmission substations in with in a later section. West Bank. Electricity imports could increase from 850 MW in 2017 to between 1,400 MW and 1,800 MW in 2020. Securing Energy for Development in the West Bank and Gaza | 193 Figure H 8.9: Relationship between Cost of Imports from Jordan and Diesel Prices 20.00 18.00 y = -8.23 09x 2 + 27.5 97x - 3.3149 16.00 14.00 12.00 cents/kWh 10.00 8.00 6.00 4.00 2.00 0.00 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 Diesel prices ($/liter) The current import from Israel to Gaza is approximately earliest the connection could be upgraded is 2022, 120 MW and could be increased to between 220 MW increasing import capacity up to 1,000 MW. The cost and 270 MW in 2022. of imports from Jordan is indexed to fuel prices. The relationship is simplified using the polynomial function The Israeli Electric Corporation (IEC) sells electricity to that best approximates the correlation between JDECO at time-of-use tariffs, but to the rest of the West forecast fuel prices and forecast tariffs from 2016 to Bank and Gaza at a bulk tariff rate of approximately 2025 as shown in figure H.8. US$90 per MWh (close to the weighted average of the time-of-use tariffs). There is the possibility that the Imports from Egypt. An increase in power imports rest of the West Bank and Gaza will be transitioned to from Egypt to Gaza is contingent on upgrading the time-of-use tariffs. There is also the likelihood that the current distribution link through the Sinai region, price of electricity sold to the West Bank and Gaza will increasing the capacity of the grid in Gaza, the increase with the change in import volumes. The team availability of excess generation in Egypt, and power estimates this to be up to US$110 per MWh. transfer capability of the Egyptian network to wheel power to the point of the connection line. The earliest Pricing before the change in import limit is increased this could be expected is estimated to be in 2021 at by 1 percent per annum. The 1 percent annual a capacity of 70–150 MW (see table H.7).12 Because increase then continues from the new price. Consider this is uncertain, the volume of imports is also sampled an example in which 2020 is the year sampled for an within this range. increase in Israeli imports into West Bank. By 2020, the cost of imports would be approximately US$92.7 per Jordan is connected with the Egyptian network MWh due to the 1 percent change in prices. The price at 500 kV, and it is possible for Jordan to wheel beyond 2020 is sampled between US$92.7 per MWh power from Egypt through to the West Bank. This is and a defined upper limit. If the new price is sampled as contingent on the completion of the Green Corridor US$95 per MWh, for example, it is applied from 2021 project by 2018–19 and the availability of excess and increased at 1 percent per annum from 2022. capacity and energy in Egypt.13 If this is incremental to Imports from Jordan. An increase in power imports current exports from Jordan, the Jordan-West Bank from Jordan to the West Bank is contingent on connection needs to have been commissioned as upgrading the current connection and the availability well. An additional 50–200 MW could be wheeled to of excess capacity and energy in Jordan. Both Egypt through Jordan. parameters are uncertain, as is the price at which power will be sold eventually. It is estimated that the 194 | Securing Energy for Development in the West Bank and Gaza TABLE H.7 : CHANGES IN ELECTRICITY IMPORT SOURCES AND CAPACITIES FROM TO CHANGE IN CAPACITY CAPACITY (MW) PRICE AFTER CHANGE ($ PER MWH) Earliest Latest Before Max After Min Max Israel West Bank 2020 2030 850 1400-1800 Preceding year 110 Israel Gaza 2022 2035 120 270 Preceding year 110 Jordan West Bank 2022 2035 30 100-200 Based on oil price Egypt Gaza 2021 2035 10 70-150 81 100 Egypt West Bank Same as Jordan-West 0 50-200 87.5a 106.5a Bank Source: Team estimates. a Same rate sold to Gaza plus US$6.5 per MWh wheeling charge to Jordan. Figure H.9: CAPEX Range for VRE Technologies (US$ per Watt) Rooftop PV (PVr) Commercial PV (PVc) 3.5 2.5 3.0 2.0 2.5 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Concentrated Solar (CSP) Wind 7.0 2.0 6.0 1.8 1.6 5.0 1.4 4.0 1.2 1.0 3.0 0.8 2.0 0.6 1.0 0.4 0.2 0.0 0.0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Notes: Base case scenario CAPEX estimates based on NREL’s 2016 Annual Technology Baseline. Lower bounds and upper bound for wind are estimated by NREL in the 2016 Annual Technology Baseline. For wind, CAPEX is expected to increase due to the need for higher masts and bigger turbines to maximize low wind speeds. Upper bound for PV is from the International Energy Agency (IEA) World Energy Outlook. Upper bound for CSP is calculated by team using IEA trajectory for CSP without storage. Securing Energy for Development in the West Bank and Gaza | 195 Cost and Land Access for VRE technologies The study demonstrates the benefit of utilizing the solar resource in Area C, so the model is set up such Installation costs for VRE technologies are expected that from the year access is granted, all potential to decline, but the speed of decline is unclear (see land is available for use. We do not take the fact a comparison of costs by NREL for example.)14 that access is granted on a project-by-project basis Investment cost estimates for the region produced into consideration. by the International Energy Agency for the World Energy Outlook are considered to be on the high Fuel Interruptions and Plant Outages side, especially when compared with the results of tenders from various countries.15 (For example, There are several risks that could ultimately affect the a recent bid in Zambia yielded US$0.06 per kWh.) volume of fuel available for power generation including While this is unlikely to be the case in the West Bank the risk of vandalism to gas pipelines, reduced fuel and Gaza, there is uncertainty around what could be volumes due to lack of payment and restrictions to expected in the future. We therefore include a range the transportation of diesel. We define a probability of of installation costs for VRE technologies. The team’s outage on the sources of fuel supply and a range of CAPEX estimates are based on NREL’s 2016 Annual availability for each year as shown in table H.8. Technology Baseline and the range of CAPEX variation is shown in figure H.9. We ensure that CAPEX for The annual probability of interruption and availability of rooftop and utility-scale PV are increased or reduced fuel are selected to show the relative risks associated in tandem, but assume that the CAPEX for wind and with different sources following discussions with CSP are independent from other technologies. various stakeholders. The probability of outage on imported electricity together with the availability also CSP and PV have different land requirements, capital captures possible challenges in exporting countries. costs and generation profiles. CSP requires 30 percent more land per MW installed, and is more than three A similar set of risks apply to power plants and times more expensive than PV but is dispatchable, the connection lines. Centralized plants are more while PV is not. The share of CSP and PV is optimized vulnerable to destruction than decentralized options. by the model subject to land constraints. The land In the model, we specify a share of installed capacity constraint is defined by EQ Set 9, which ensures that that is taken out of service when there are damages. the total installed capacity of CSP and PV does not This percentage is assumed to be 50 percent, 75 exceed available land. As noted, at least 76 percent percent, or 100 percent of capacity for centralized of the solar potential is in Area C, and therefore units and less than 5 percent for decentralized projects are subject to Israel granting access to the units. In effect, this penalizes larger units because site. We assume the earliest the West Bank and Gaza the availability can be significantly reduced due to could access Area C is 2018 and the latest date of damages that affect the cost per unit of production. 2035. Allowing for a two-year construction period, the earliest solar projects are allowed from 2020. TABLE H.8: ANNUAL PROBABILITY OF OUTAGE AND MINIMUM AVAILABILITY FOR FUEL SOURCES PROBABILITY OF INTERRUPTION MINIMUM AVAILABILITY Gaza Gas 0.12 0.3 West Bank North gas 0.05 0.6 West Bank South gas 0.10 0.6 Gaza diesel 0.40 0.3 West Bank diesel 0.30 0.4 Israel imports 0.02 0.8 Jordan imports 0.05 0.7 Egypt imports 0.20 0.6 Source: Team assumptions. 196 | Securing Energy for Development in the West Bank and Gaza Damages incur costs to the system determined by select a duration of outage between a full year to RepairCosts. Without knowing a priori the extent of as little as one month.16 The availability of plants is damage, it is difficult to assess the costs or length calculated as follows: of outage. For example,, replacing the step-up transformers or fuel tanks to a gas plant both result (1-Share of Damaged Capacity) × (1−Duration of in a complete shutdown of the plant, but the cost Outage) × Max Availability of Plant implications and duration of outages are completely different. In the model, we assume the cost of repairs Plants in Gaza are at a higher risk than those in the to be a third of the cost of installation and randomly West Bank, as shown in table H.9. TABLE H.9: ANNUAL RISKS ASSOCIATED WITH GENERATORS GAZA PROBABILITY PERCENT OF MINIMUM MAXIMUM OF DAMAGE CAPACITY DURATION OF DURATION SUBJECT TO OUTAGE (% OF OUTAGE DAMAGE OF YEAR) (% OF YEAR) Rooftop PV (PVr) 0.05 1 8 50 Biogas (Bio) 0.05 100 10 80 Distributed diesel genset (Diesel) 0.10 1 10 80 Combined cycle gas turbine (CC) 0.15 50-100 10 100 Simple cycle gas turbine (GT) 0.15 50–100 10 100 Israel – Gaza 0.02 100 5 25 Egypt – Gaza 0.20 100 8 50 WEST BANK PROBABILITY % OF MINIMUM MAXIMUM OF DAMAGE CAPACITY DURATION DURATION SUBJECT TO OF OUTAGE OF OUTAGE DAMAGE (% OF YEAR) (% OF YEAR) Rooftop PV (PVr) 0.05 1 8 50 Commercial PV (PVcAB) 0.05 1 10 70 Concentrated solar power/thermal (CSP) 0.10 50-100 10 100 Wind (WindC) - Area C 0.05 5 10 80 Biogas (Bio) 0.05 100 10 80 Distributed diesel genset (Diesel) 0.10 1 10 80 Combined cycle gas turbine (CC) 0.10 50–100 10 100 Simple cycle gas turbine (GT) 0.10 50–100 10 100 Israel – West Bank 0.02 100 5 25 Jordan – West Bank 0.10 100 5 70 Egypt – West Bank 0.15 100 5 70 source: Elaboration based on team assumptions. Securing Energy for Development in the West Bank and Gaza | 197 Distribution of Uncertain Parameters per kWh for the fuel cost assuming a CCGT) makes it Multiple experiments were performed to develop a competitive option, so the critical parameter related the capacity plan and, before discussing the results to gas is the timing or availability. Eighty-three percent of the analysis, it is worth examining the uncertain of the experiments included the availability of gas in parameters to understand their distribution. The the West Bank by 2030 compared with 66 percent energy demand for 2030 sampled across multiple of samples in Gaza. This is because there are two scenarios is negatively skewed with a mean of 4,032 likely sources of gas in the West Bank (either north or GWh and 6,856 GWh in Gaza and the West Bank, south) and gas in the north has an earlier likelihood respectively, as seen in figure H.10. This is higher than of materializing. Finally, access to Area C in the West the 2030 median forecast of3,548 GWh and 6,004 Bank is critical for large-scale deployment of solar GWh. We can also see that 30 percent of scenarios technologies and construction of the transmission sample 2030 PV prices at or below US$1 per W, and backbone; 68 percent of the samples allowed access the cost of CSP is relatively high in comparison. The to Area C by 2030, with 30 percent allowing access price range for gas between US$4 per MMBTU and by 2022. US$7.5 MMBTU (which translates to US$0.027–0.05 Figure H.10: Distribution of Uncertain Parameters from the Experiments a) Distribution of energy demand in 2030 in Gaza and West Bank (GWh) Gaza West Bank 25 100 15 100 20 80 12 80 Cumulative Cumulative Frequency Frequency 15 60 9 60 10 40 6 40 5 20 3 20 0 0 0 0 3650 3700 3750 3800 3850 3900 3950 4000 4050 4100 4150 4200 6500 6550 6600 6650 6700 6750 6800 6850 6900 6950 7000 7050 7100 b) Distribution of CAPEX for CSP and Utility-scale PV in 2030 (US$ per kW) CSP Utility PV 12 100 20 100 10 80 80 15 8 Cumulative Cumulative Frequency Frequency 60 60 6 10 40 40 4 5 2 20 20 0 0 0 0 600 700 800 900 2,900 3,000 3,100 3,200 3,300 3,400 3,500 3,600 3,700 3,800 3,900 4,000 4,100 4,200 4,300 4,400 1,000 1,100 1,200 1,300 1,400 1,500 1,600 Frequency Cumulative 198 | Securing Energy for Development in the West Bank and Gaza Figure H.10: Distribution of Uncertain Parameters from the Experiments (continued) c) Distribution of the timing of gas for power production in Gaza and West Bank (year) Gaza West Bank 10 100 15 100 8 80 12 80 Cumulative Cumulative Frequency Frequency 6 60 9 60 4 40 6 40 2 20 3 20 0 0 0 0 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 d) Distribution of access to Area C in West Bank 12 100 10 80 8 Cumulative Frequency 60 6 40 4 2 20 0 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Frequency Cumulative Source: Team elaboration. NOTES: The charts show the underlying frequency distribution of the labeled parameters. The bar charts show the number of times a value on the x-axis is sampled. For example, in panel a for Gaza, 21 samples had projected demand at 4000 GWh in 2020. The curves show the cumulative frequency of the labeled parameters. The unit of the x-axis is indicated in parenthesis in the title of each panel. Securing Energy for Development in the West Bank and Gaza | 199 Combining these randomly generated parameters of the policy implications and relevance of the yields a vast array of possible future scenarios, each scenarios to the West Bank and Gaza is found in the with a different set of implications. For example, a main report. scenario with access to Area C by 2020 may have a relatively higher PV CAPEX trajectory resulting in little Nine expansion scenarios were developed for the installed PV or vice versa. To keep track of the multiple West Bank and six for Gaza to answer the questions future scenarios, we adopted a scoring system from raised by the study. The scenarios are not necessarily which we can assess the underlying conditions for incremental, and some are used to illustrate the each scenario. impact of modelling and policy choices, as described in table H.10. DETAILED RESULTS Additionally, existing capacity options are tested and This section describes the scenarios analyzed, a situation where no action taken is also simulated to highlighting the differences in results with the aim of show the impact of inaction. providing insights to these differences. A discussion TABLE H.10: EXPANSION PLANS DEVELOPED TO ANSWER STUDY QUESTIONS SCENARIOS DESCRIPTION West Bank WS1: Classic least cost Least-cost plan based on a best estimate of the future in the West Bank and Gaza with reserve requirements satisfied domestically (high security) WS2: Domestic reserves Robust expansion plan that considers uncertainties with reserve requirements satisfied domestically (high security) WS3: Shared reserves Robust expansion plan that considers uncertainties with reserve requirements shared with imports (partial reliance on electricity imports for security) WS4: Area C access WS3 with full access to Area C from 2018 WS5: Cost cap WS3 with system average cost capped at IE import tariffs WS6: PENRA Vision Palestinian Energy And Natural Resources Authority (PENRA) Vision to limit generation from any source to under 50%, with IEC providing reserves WS7: Planned Future Scenario with current generation options under consideration by PENRA WS8: High IEC Scenario with full supply from IEC and minimal investments in near-committed RE projects WS9: Do Nothing Continuation of the status quo with limited increase in IEC imports Gaza GS1: Planned Future Scenario with current generation options under consideration by PENRA GS2: PENRA Vision PENRA Vision to limit generation from any source to under 50%, with IEC providing reserves GS3: Full supply with GPP Full supply to Gaza with the Gaza Power Plant (GPP) GS4: High IEC Full supply to Gaza with IEC and GPP shut down and minimal investments in RE GS5: Meet demand with gas Full supply with gas from Gaza marine gas fields GS6: Do Nothing Continuation of the status quo with limited increase in IEC imports A deterministic least-cost plan could be costly because any one particular future scenario—even the most it is tailored for a particular scenario, and there is a likely future scenario—but will reduce the risk of high chance of regret or failure or underutilized assets over- or underinvestment. We first look at a robust when underlying assumptions change. To improve plan that ensures the West Bank is able to cover all the resilience of the capacity plan to uncertainties, contingencies internally. we employ the methodology described to develop subsequent capacity plans. A plan that performs well Given that there is currently very little installed capacity, under uncertainty may not necessarily be optimal for such a plan will require significant investments over 200 | Securing Energy for Development in the West Bank and Gaza short periods. We therefore look at a scenario where TABLE H.11: UNDERLYING reserve requirements are shared with interconnected ASSUMPTIONS FOR THE systems to benefit from one of the main benefits DETERMINISTIC PLAN of such connections—that is, the distribution of PARAMETER ASSUMPTION reserve capacity requirements among them. Given Demand Central case the high potential of solar in Area C, the impact of Diesel prices Base case access to Area C on generation options is evaluated Gas prices US$5.75 per MMBTU in WS4. In WS5, we examine the impact imposing cost constraints on the model based on the policy Increase in Israel– 2021 West Bank of the PA to cap the cost of energy to the costs of imports from IEC. These scenarios are only relevant Increase in Jordan– 2024 West Bank for the West Bank, because supply options to Gaza are much more limited and most constraints result in Egypt–West Bank 2024 unmet demand. Increase in Israel-Gaza 2024 Increase in Egypt-Gaza 2023 Scenarios WS6 and GS2 evaluate PENRAs long-term Israel import price US$90 per MWh + 1% p.a. vision to limit electricity generation from any source to Jordan import price Based on diesel price under 50 percent, which diversifies the energy mix. Egypt import price US$81 per MWh + 1% p.a. Timing of gas (West Bank) 2022 Apart from S1, in which parameters were fixed, most other cases considered uncertainties around demand, Timing of gas (Gaza) 2023 fuel pricing, and availability as described in previous Volume of gas 1.1 bcm sections. Features of the scenarios are described in (West Bank) Table H.10. Volume of gas (Gaza) 1.1bcm Reserve margin 15% The presentation of results follows the sequence of requirements questions raised. Results for the West Bank are first Access to Area C 2020 presented, followed by results for Gaza. Financial constraints No Unplanned outages No West Bank RE CAPEX Base case A Classic Least-Cost Plan In a deterministic analysis, what does a least-cost capacity expansion plan look like, which ensures the West Bank and Gaza are self-reliant and able to meet demand securely (assuming there no capital constraints)? A classic least-cost plan based on the planners’ best estimate of the future performs extremely well if that future materializes. Under the static conditions described in Table H.11 , power generation switches from IEC imports to gas and meets entire demand (Figure H.11 – panel a). At approximately 6 US cents per kWh, CCGT is the least-cost option when gas is available followed by utility-scale PV at approximately US$1,041 per kW and US$0.07 per kWh. Also, 410 MW of distributed diesel capacity is installed from 2018 largely to satisfy reserve margin requirements and this is maintained through to 2030 (Figure H.11 – panel b). Securing Energy for Development in the West Bank and Gaza | 201 Figure H.11: Energy and Mix and 2030 Capacity Share in a Deterministic Scenario A. West Bank Supply B. West Bank energy supply (GWh) Capacity in 2030 (MW) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PV-Other PV-Area C CSP Wind Biogas Diesel Genset CCGT GT Israel Imports Egypt Imports Jordan Imports WB-Gaza Exchange Unserved Energy Demand Figure H.12: Energy and Mix for the Deterministic Plan under Test Conditions 8000 6000 4000 2000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Unserved Energy Israel Imports Biogas WB-Gaza Exchange GT Wind Jordan Imports CCGT CSP Egypt Imports Diesel Genset PV-Area C Demand PV-Other How well does the least-cost plan perform In terms of reliability measured by the level of unmet under uncertainty? demand, there is little impact, as unserved energy is just 334 GWh over the planning horizon. Outages are To test the performance of the classic least-cost plan, covered by a combination of diesel generators and it is subjected to 100 simulations in which various imports from Egypt, Jordan, and Israel. However, parameters such as demand, fuel availability and a comparison of costs shows that undiscounted pricing, disruptions, and import volumes are varied. system costs nearly double, from US$8.7 billion to On average (across the 100 samples), the share of US$16.5 billion (figure H.13). gas in the energy mix drops to 45 percent, largely substituted by imports from Israel (figure H.12). 202 | Securing Energy for Development in the West Bank and Gaza Figure H.13: Comparison of System Costs for the Deterministic Scenario (US$ billions) 1.73 3.36 1.13 1.88 8.72 8.54 1.32 0.38 0.46 0.00 1.43 4.95 0.00 Unserved Energy Costs Total Fixed + Var O&M Fixed + Var O&M Fuel Reserve Penalties Fuel CAPEX CAPEX Repair Costs Total Reserve Energy Costs Reserve Penalties Repair Costs Deterministic plan Deterministic plan under shocks Figure H.14: Total Energy Mix for 100 Possible Future Scenarios (2020–2030) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 Wind Biogas CCGT In some scenarios, gas materializes earlier than 2023, An optimal capacity plan was generated for multiple PV-Area A/B PV-Area C Diesel Genset so on average there is some gas in 2022. This helps sampled scenarios. Each plan is perfectly suited for reduce system costs, but the gains are offset Israel Imports Jordanby the Imports the particular scenario, Unserved Energy but the plans will perform other scenarios when gas is available beyond 2023. differently across multiple scenarios. One hundred Absent gas is replaced by imports to the extent future scenarios were developed and for each of permitted. Destructions also add to the cost, but the these, a capacity plan was generated using the core highest change in costs is due to higher fuel costs LP model. (US$3.6 billion higher) as gas is substituted with more expensive options when delayed or unavailable. As seen from figure H.14, IEC imports continue to be a steady source of imports for West Bank across Incorporating Uncertainties multiple scenarios. Generation from gas (CCGT) is also prominent as well as PV which was not picked What are the features of a capacity plan that ensures up in the deterministic scenario. that the West Bank can respond to a wide range of uncertainties including contingencies around In terms of capacity, the standard deviations in figure electricity imports? What are the cost implications of H.15 show Israel imports provide a steady source of such a plan? capacity. Technologies like CSP are also picked up in Securing Energy for Development in the West Bank and Gaza | 203 later years, when access to Area C is granted. There robust. A plan comprising solely of no-regret options is wide range around the solar PV capacity in Area is unlikely to satisfy demand and will result in high C due to the combination of CAPEX and access to system costs. Therefore, capacity and technology land. Diesel generators appear to be a robust option options that are less preferred across the scenarios across multiple scenarios, but, as seen from figure need to be included in the expansion plan. Whenever H.14, the utilization of these units is low because of additional capacity is added, the capacity plan is the high cost of fuel. However, they are best suited tested across multiple scenarios. As more capacity for providing system reserve because of the low is added, CAPEX requirements increase but unmet CAPEX requirements. demand reduces and total system costs reduce accordingly. Beyond a certain point, unmet demand From the capacity plans, the most robust was is minimized and additional investments increase developed. Capacities of a particular technology with system costs. The lowest point is selected as the high frequency of selection across scenarios are more optimum capacity plan. (See figure H.16) Figure H.15: Mean Capacity by Fuel for Specific Years, Showing Range as Error Bars and Standard Deviation as Dots 2500 2000 1500 MW 1000 Average capacity 500 Standard deviation 0 Biogas CSP GT Jordan Impor ts PV-Area C Biogas CSP GT Jordan Impor ts PV-Area C Biogas CSP GT Jordan Impor ts PV-Area C 2020 2025 2030 Figure H.16 : Total CAPEX and System Costs for 100 Capacity Plans Tested across Multiple Scenarios 26 Avg discounted system costs ($bn) 24 22 20 18 16 14 12 0 5 10 15 20 25 30 35 Total CAPEX ($bn) Note: Installed capacity is increased with increasingly less preferred technology capacities across the 100 capacity plans. 204 | Securing Energy for Development in the West Bank and Gaza Figure H.17: Robust Capacity Plan and Energy Mix a) Capacity (MW) 4000 3500 3000 2500 2000 1500 1000 500 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Jordan Imports CCGT CSP Egypt Imports Diesel Genset PV-Area C Israel Imports Biogas PV-Other GT Wind Demand b) Energy (GWh) 8000 6000 4000 2000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Unserved Energy Israel Imports Biogas WB-Gaza Exchange GT Wind Jordan Imports CCGT CSP Egypt Imports Diesel Genset PV-Area C Demand PV-Other The resultant capacity plan performs better than the requirements. System reserve requirements is set deterministic plan by saving nearly US$1.2 billion over at 15 percent above peak demand and must be the planning horizon. The net present value of the robust satisfied internally. Import capacity therefore does plan is US$7.1 billion compared with the deterministic not contribute to reserve requirements. Additionally, plan at US$8.6 billion. CAPEX requirements in the PV does not provide firm capacity and so does not robust capacity plan are US$1.3 billion higher than contribute to the reserve margin limits. While the low the classic case, but unserved energy costs are 47 CAPEX requirements for distributed diesel plants percent lower and repair costs are less than half the make them an attractive option to meet reserve results from the deterministic scenario. margins, energy output shows they are low on the merit order of dispatch because of the relatively higher Total capacity is 3,484 MW for average expected cost of fuel and utilization is approximately 1 percent. peak capacity of 1,300 MW (figure H.17). The total PV capacity helps reduce fuel and repair costs. capacity is high but needed to meet the planning Securing Energy for Development in the West Bank and Gaza | 205 Figure H.18: Associated Costs for the Self-Reliant Robust Capacity Plan 1600 14 1400 12 1200 10 USD Million 1000 8 800 600 6 400 4 200 2 0 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 CAPEX Fuel Reserve Penalties Unserved Energy Costs Fixed + Var O&M Average Cost of Production (US cents/kWh) Repair Costs Transforming a system with no installed capacity to A power system designed to be operated one that is self-reliant in a short period of time, as independently misses the benefits of large connected illustrated in this scenario, is extreme and impractical systems. A major benefit of connecting power but illustrates the merits of considering uncertainties systems is the ability to distribute reserve margin in the planning process. US$945 million is required in requirements, thereby reducing total system costs. 2018 alone to avoid the reserve requirement penalty. While this is technically optimal, other nontechnical considerations may constrain the benefits associated CAPEX requirements are annualized, and its impact with operating in connected systems. on the average cost of generation is distributed across several years. For a self-reliant system, the To evaluate the cost of a completely self-reliant average cost of generation increases from US$0.092 system for the West Bank and Gaza, the robust plan per kWh to US$0.124 kWh in 2019 and drops in later is compared with a plan that is not constrained to years to US$0.114 per kWh (figure H.18). While the satisfy reserve margin requirements internally. The impact on the average cost is reasonable, raising the same steps outlined in the flowchart (Figure H.1) are required capital, associated infrastructure, and human followed to develop the alternative plan with the main capital needs will be more challenging. To reduce the difference being that the need to meet reserve margin financial burden on consumers, a longer time frame requirements internally is removed. will be required to develop a capacity mix that is self- reliant. During this period, imports will continue to play Partially relying on imports reduces CAPEX a significant role in the energy mix. requirements from US$2.2 billion to US$1.4 billion (figure H.19). There is some loss of reliability as How does the average cost of production change unserved energy increases from 0.3 percent to 1.1 by sharing reserve margin requirements with percent. However, the average cost is more stable neighboring countries? and does not exceed 10.6 US cents per kWh with nearly US$ 200 million in fuel savings. 206 | Securing Energy for Development in the West Bank and Gaza Figure H.19: Associated Costs for the Robust Capacity Plan with Shared Reserves 1400 11.0 1200 10.5 1000 10.0 USD Million 800 9.5 600 400 9.0 200 8.5 0 8.0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 CAPEX Fuel Reserve Penalties Unserved Energy Costs Fixed + Var O&M Average Cost of Production (US cents/kWh) Repair Costs Comparison of Least-Cost and Policy-Based Across the scenarios, WS7 (the Planned Future) has Scenarios the lowest combination of CAPEX requirements and unmet demand. In general, the scenarios with higher Table H.12 summarizes the results for the West local generation have lower unmet demand. Bank. Supply from Israel to the West Bank has been stable in the past, and if this continues, the cost of Additional tests were run to assess the performance inaction on system reliability (WS9) is modest with 4 of the plans under stability (labelled peace) and percent unmet demand over the planning horizon as extreme shocks (labelled war). The tests were carried demand outgrows the pace of system expansion. out over the period 2025–30 for a select number of By 2030, unmet demand is estimated at 9 percent scenarios. The more diversified scenarios performed of unmet demand. better under severe shocks than the less diversified scenarios. For example, WS4 has a low combination If supply from IEC grows with demand (WS8), unmet of fuel costs and unmet demand under shocks figure demand estimated at 1.3 percent and the average H.20. Domestic reserves are more expensive both cost of electricity is approximately US$0.098 per kWh. under stability and during shocks but provides the highest security of supply (least unmet demand). PENRA’s current expansion plan is also robust with unmet demand under 1 percent, but with US$927 million in CAPEX requirements is more expensive than reliance on IEC. On the other hand, PENRA’s policy to cap projects below the costs of IEC imports delays investment and results in 4.2 percent of unmet demand. Securing Energy for Development in the West Bank and Gaza | 207 Figure H.20: Performance of Scenarios under Stability and Extreme Shocks in West Bank WEST BANK - Share of Unserved Energy (%) WEST BANK - Fuel Costs (US$ bil) 32% High IEC Supply G High IEC Supply 3% G 20% High Area C 0.74 0.23 F High Area C 1% F Shared Reserves E Shared Reserves 0% E Domestic Reserves D 0% D Domestic Reserves 21% PENRA Vision 0.50 1.1 0 C C PENRA Vision 2% 26% 0.20 0.72 Planned Future B B Planned Future 3% 36% A Do Nothing A Do Nothing 7% - 0.50 1.00 0% 20% 40% 1.50 War Peace War Peace 208 | Securing Energy for Development in the West Bank and Gaza TABLE H.12: SUMMARY OF RESULTS FOR THE WEST BANK CLASSIC DOMESTIC SHARED HIGH PRICE PENRA PLANNED HIGH DO LCP RESERVE RESERVE AREA C CAP VISION FUTURE IEC NOTHING WS1 WS2 WS3 WS4 WS5 WS6 WS7 WS8 WS9 1. 2030 total available capacity MW 2,066 3,485 2,440 2,792 2,052 2,641 2,127 1,607 987 PV other MW 22 109 159 39 39 574 147 147 15 PV Area C MW 0 554 554 1,094 0 0 0 0 0 CSP MW 0 7 0 0 0 0 0 0 0 Wind MW 9 10 10 10 10 50 0 0 0 Biogas MW 25 30 30 30 20 30 0 0 0 Diesel genset MW 597 1,190 50 30 0 30 0 0 0 CCGT MW 572 720 720 590 780 730 520 0 0 GT MW 0 0 0 0 0 0 0 0 0 Israel imports MW 699 761 806 887 1,111 1,119 1,430 1,430 942 Egypt imports MW 93 82 82 82 78 77 0 0 0 Jordan imports MW 49 21 29 30 14 31 30 30 30 2. Peak demand MW 1,304 1,304 1,304 1,304 1,304 1,304 1,304 1,304 1,304 3. Domestic capacity: 2030 MW 1,226 2,621 1,523 1,793 849 1,414 667 147 15 4. Domestic cap. as share of % 94% 201% 117% 137% 65% 108% 51% 11% 1% peak: 2030 5. Average cost of energy U.S. cents/kWh 13.57 11.77 9.94 9.88 9.49 10.16 10.06 9.78 9.79 6. Total CAPEX US$ mill 1,323 2,833 1,982 2,284 1,139 2,133 850 174 0 7. Total OPEX US$ mill 378 464 241 347 100 280 174 102 71 8. Total fuel US$ mill 3,606 869 673 482 374 748 566 0 0 9. Unserved energy costs US$ mill 1,135 169 658 782 2,553 547 222 811 2,645 10. Total penalties (other) US$ mill 5,093 2,908 794 657 363 2,697 1,183 391 482 11. Total system costs U$D mill 11,535 7,243 4,348 4,551 4,530 6,406 2,995 1,478 3,197 12. Total unmet demand GWh 1,513 225 878 1,043 3,404 730 296 1,081 3,527 13. Total energy demand GWh 81,669 81,669 81,669 81,669 81,669 81,669 81,669 81,669 81,669 Securing Energy for Development in the West Bank and Gaza | 209 CLASSIC DOMESTIC SHARED HIGH PRICE PENRA PLANNED HIGH DO LCP RESERVE RESERVE AREA C CAP VISION FUTURE IEC NOTHING WS1 WS2 WS3 WS4 WS5 WS6 WS7 WS8 WS9 14. Share of total unmet demand % 1.9% 0.3% 1.1% 1.3% 4.2% 0.9% 0.4% 1.3% 4.3% (total) 15. Share of energy imports: % 58% 38% 37% 33% 52% 44% 62% 96% 90% 2030 16. Diversity factor: 2030 % 0.37 0.28 0.27 0.25 0.39 0.26 0.49 0.91 0.79 17. 2030 share of energy mix 6,873 6,904 6,906 6,894 6,900 6,892 6,883 6,860 6,869 PV other % 1% 3% 4% 1% 1% 14% 3% 3% 0% PV Area C % 0% 13% 13% 25% 0% 0% 0% 0% 0% CSP % 0% 0% 0% 0% 0% 0% 0% 0% 0% Wind % 0% 0% 0% 0% 0% 2% 0% 0% 0% Biogas % 3% 3% 3% 3% 2% 3% 0% 0% 0% Diesel genset % 0% 0% 0% 0% 0% 0% 0% 0% 0% CCGT % 37% 40% 40% 34% 43% 37% 32% 0% 0% GT % 0% 0% 0% 0% 0% 0% 0% 0% 0% Israel imports % 48% 30% 30% 26% 44% 32% 62% 95% 88% Egypt imports % 6% 7% 7% 7% 8% 9% 0% 0% 0% Jordan imports % 3% 0% 0% 0% 1% 3% 0% 1% 2% 210 | Securing Energy for Development in the West Bank and Gaza Unserved energy % 0.3% 0.0% 0.0% 0.1% 1.1% 0.0% 0.0% 0.6% 8.6% Gaza Scenario GS4, which allows increased imports Given the limited supply options, the scenarios in Gaza from IEC, offers the best combination of costs and focus on various policy options. With the exception unmet demand. of GS2, all the scenarios are tests of various supply options under uncertainty. Additional tests were run to assess the performance of the plans under stability (labelled peace) and Comparison of Least-Cost and Policy-Based extreme shocks (labelled war). The tests were carried Scenarios out over the period 2025–30 for a select number of scenarios. As seen for the West Bank, the more Table H.13 summarizes the results for Gaza. Unlike diversified scenarios performed better under sever in the West Bank, the cost of inaction on system shocks than the less diversified scenarios. GS2 reliability (GS6) is severe, with 52 percent unmet (PENRA Vision) has a low combination of fuel costs demand over the planning horizon. and unmet demand under shocks (figure H.21). Figure H.21: Performance of Scenarios under Stability and Extreme Shocks in Gaza GAZA - Share of Unserved Energy (%) GAZA - Fuel Costs (US$ bil) 31% 1.15 Meet demand with Gas Meet demand with Gas 0.57 F 5% F High IEC supply 51% High IEC supply ( E E 31% ( Full Supply w/ GPP 28% Full Supply w/ GPP 1.15 D D 6% 0.57 PENRA vision 24% PENRA vision 1.10 C C 4% 0.50 Planned future 29% Planned future 0.72 B 7% B 0.20 Do Nothing 63% Do Nothing 1.40 1.71 A A 50% 0% 50% 100% - 1.00 2.00 War Peace War Peace Securing Energy for Development in the West Bank and Gaza | 211 TABLE H.13: SUMMARY OF RESULTS FOR GAZA PLANNED PENRA FULL HIGH IEC GAZA DO FUTURE VISION SUPPLY SUPPLY NOTHING W/GPP WITH GAS GS1 GS2 GS3 GS4 GS5 GS6 1. 2030 total available capacity MW 975 1,077 1,395 971 970 190 PV other MW 163 163 163 163 163 0 PV Area C MW 0 0 0 0 0 0 CSP MW 0 0 0 0 0 0 Wind MW 0 0 0 0 0 0 Biogas MW 2 2 2 2 0 0 Diesel genset MW 0 120 0 0 0 0 CCGT MW 560 460 560 0 677 60 GT MW 0 60 0 0 0 0 Israel imports MW 240 199 660 796 120 120 Egypt imports MW 10 73 10 10 10 10 Jordan imports MW 0 0 0 0 0 0 2. Peak demand MW 767 767 767 767 767 767 212 | Securing Energy for Development in the West Bank and Gaza 3. Domestic capacity: 2030 MW 725 805 725 165 840 840 4. Domestic capacity as share of peak: 2030 % 95% 105% 95% 22% 110% 110% 5. Average cost of energy U.S. cents 13.39 15.44 11.41 10.37 15.15 14.68 per kWh 6. Total CAPEX US$ mill 1,035 1,066 1,035 385 1,185 0 7. Total OPEX US$ mill 236 280 205 76 246 173 8. Total fuel US$ mill 2,264 3,471 718 4 3,987 1,588 9. Unserved energy costs US$ mill 2,834 1,630 1,333 2,167 2,390 18,108 10. Total penalties (other) US$ mill 1,644 8,473 1,637 220 1,962 763 11. Total System costs US$ mill 8,013 14,920 4,928 2,851 9,769 20,632 PLANNED PENRA FULL HIGH IEC GAZA DO FUTURE VISION SUPPLY SUPPLY NOTHING W/GPP WITH GAS GS1 GS2 GS3 GS4 GS5 GS6 12. Total Unmet demand GWh 3,779 2,173 1,778 2,889 3,186 24,144 13. Total Energy demand GWh 46,538 46,538 46,538 46,538 46,538 46,538 14. Share of total unmet demand % 8% 5% 4% 6% 7% 52% 15. Share of energy imports: 2030 % 29% 45% 46% 93% 16% 26% 16. Diversity factor: 2030 % 0.54 0.36 0.46 0.84 0.72 0.47 17. 2030 share of energy mix 4,032 4,032 4,032 4,032 4,032 4,032 PV other % 6% 6% 6% 6% 6% 0% PV Area C % 0% 0% 0% 0% 0% 0% CSP % 0% 0% 0% 0% 0% 0% Wind % 0% 0% 0% 0% 0% 0% Biogas % 0% 0% 0% 0% 0% 0% Diesel genset % 0% 0% 0% 0% 0% 0% CCGT % 68% 47% 51% 0% 83% 11% GT % 0% 1% 0% 0% 0% 0% Israel imports % 28% 33% 45% 92% 14% 24% Egypt imports % 2% 12% 1% 2% 1% 2% Jordan imports % 0% 0% 0% 0% 0% 0% Unserved energy % 0% 1% 0% 0% 2% 63% Securing Energy for Development in the West Bank and Gaza | 213 SEQUENCING INVESTMENTS optimal investments in both the West Bank and Gaza because they are less dependent on external The analysis identifies options that are robust in factors. In the interim, strengthening imports from multiple possible future scenarios, but it also clearly Israel also helps keep down average system costs. shows reliance on external decisions, least of which Imports from Egypt will also help diversify supply is technical. Without a change, the underlying and increase reliability of supply. geopolitical conditions, options for power supply that are directly within the control of the PA are limited. The West Bank and Gaza stand to benefit from However, we see that these options, while not the evolutions in power systems because there are no cheapest, are indeed least cost. For example, based locked-in technologies. The cost of PV has dropped on the assumed likelihood of gas availability, CCGT by over 60 percent since 2010 and costs of storage is a robust option across all applicable scenarios. technologies such as utility-scale batteries or fuel cells However, the construction of thermal plants is only are on a downward trajectory. As the unit costs of least cost when gas is available. Translating any plan storage reach parity with cheapest source of imports, into reality will require a different approach, where it will be beneficial to consider battery storage as a decisions are taken as uncertainties resolve over time. means of improving the security of supply (see box H.1). A list of generation technologies and triggers for There are, however, options that are optimal with action is presented in table A8.14. either high or limited imports, and these are obvious targets for immediate action. The approach used The possibility for off-shore wind in Gaza helps for the study shows how technology and capacity diversify the sources of generation and the average that are robust across multiples scenarios can cost of generation is therefore relatively lower as be determined. For example, the analysis shows shown in Fig B1-b where change in price ranges are that solar (both rooftop PV and centralized) are much higher. TABLE H.14: TRIGGERS FOR DECIDING ON VARIOUS TECHNOLOGY OPTIONS Technology Decision trigger Solar PV and other small RE (Area A and Gaza) Immediate Solar PV (Areas B and C) When access is granted Increased imports from Jordan When Jordan is able to export power Increased imports from Egypt When Egypt is able to export power Increased imports from IEC Immediate Storage When unit cost of storage is close to cost of reserves from imports Additional thermal plant in Gaza When there is clarity around gas availability Additional thermal plant in the West Bank When there is clarity around gas availability West Bank backbone When access is granted and there is clarity around availability of gas for centralized self- generation or higher imports from Jordan especially. West Bank-Gaza connection When access is granted or Israel is willing to construct and operate the line and there is clarity around availability of centralized self- generation or higher imports from Jordan. especially. 214 | Securing Energy for Development in the West Bank and Gaza Box H.1: Improving the Security of Supply with Renewable Energy Technologies The West Bank and Gaza’s ability to generate their own electricity offers relatively higher security than importing electricity, because, unlike electricity, fuel can be purchased from several markets, which reduces dependence on a single source. The most secure system will be one unconstrained by fuel requirements. Renewable energy technologies (RETs), namely solar, wind and battery, offer this potential for the West Bank and Gaza. As the costs of RETs fall, certain CAPEX combinations for solar technologies, wind, and batteries yield overall unit costs that are low enough to merit closer examinations. A simplified exercise was undertaken to illustrate the concept. The analysis takes 2030 hourly load conditions and meets this demand with RETs through several combinations of investment costs. Figure H.B1.1 shows combinations of costs that yield average system costs of US$0.12, 0.13, 0.14, and 0.15 per kWh. For example, if the cost of storage drops to $263 per kWh, it could be combined with low cost offshore wind between $2,402 and $3,753 per kW and/or PV between $299 and $790 per kW. These ranges can be combined to yield US$0.15 per kWh. In other words, if the cost of PV drops by 60 percent, reaching $790 per kW, and storage, for example, falls to $263 per kWh, it is a combination that could be attractive for large-scale deployment of RE. Figure H.B1.1 : Percentage change in capex from 2016 costs that can result in average costs of generation under 16 UScents per kWh in West Bank USc/kWh Storage 42% 82% 73% 75% ~ 15 6hr CSP 10 hr CSP 49% 50% PV 55% 85% USc/kWh Storage 47% 76% 74% ~ 14 6hr CSP B 10 hr CSP 76% 78% PV 63% 85% USc/kWh Storage 65% 83% 51% 78% ~ 13 6hr CSP 0% 10 hr CSP B PV 78% 85% USc/kWh Storage 76% 83% 64% 77% ~ 12 6hr CSP 10 hr CSP 71% 72% PV 78% 79% USc/kWh Storage 79% 83% 6hr CSP 73% 74% ~ 11 10 hr CSP 75% 76% PV 73% 82% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Securing Energy for Development in the West Bank and Gaza | 215 Fig B1-b: Percentage change in capex from 2016 costs that can result in average costs of generation under 16 UScents per kWh in Gaza 83% ~ 15 USc/kWh Wind 69% 12% 82% 6hr CSP 59% 76% 16% 79% PV 38% 86% ~ 13 USc/kWh ~ 14 USc/kWh Wind 66% 82% 42% 83% 6hr CSP 56% 77% 43% 78% PV 39% 85% Wind 76% 82% 62% 83% 6hr CSP 64% 65% 21% 78% 40% 78% PV ~ 12 USc/kWh Wind 70% 83% 65% 83% 6hr CSP 67% 78% 33% 75% PV 55% 85% 83% ~ 11 USc/kWh Wind 81% 66% 79% 6hr CSP 73% 74% 67% 68% 73% 82% PV 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Reference costs (2017) PV 10 hr CSP 6hr CSP Wind Storage $/kW $/kW $/kW $/kW $/kWh 1567 6650 5552 5141 375 216 | Securing Energy for Development in the West Bank and Gaza NOTES 1 Based on the following: overnight CAPEX, $750 per kW; weighted average cost of capital, 10 percent; plant life, 40 years; half of CAPEX needed from start of construction. 2 Find the list at http://siteresources.worldbank.org/EXTLICUS/ Resources/511777-1269623894864/FY15FragileSituationList.pdf. 3 Plant capacities are modelled as continuous variables to reduce computational time, so the capacity plans likely contain different plant capacities for each of the scenarios (even if by a small number). In reality, plant capacities are discrete variables rather than continuous. For example, generation plants are typically commissioned in blocks equal to the size of the units (for example, 48 MW could be configured as 12 MW x 4 units). In the model, we assume this to be continuous, allowing capacity increases that do not necessarily match unit sizes. CCGT capacity of 1.1 MW could be added, for example, which is not realistic. However, the objective of this exercise is to develop a sense of the generation mix going forward. The error introduced by this approximation is therefore not important. 4 Within the scope of the project, all imports are modeled as generators connected to the relevant zones. This mathematically yields similar results as the primary focus is on the impact of energy imports into the West Bank and Gaza and not necessarily energy exchange between. 5 General Algebraic Modeling System (GAMS) is a fully documented model and has been used for other World Bank assignments in Ukraine, Bangladesh, Bulgaria, and South Africa. 6 The cost per kW to repair a plant depends on the extent of damage. To simplify the problem, we assume a single cost amortized over 12 years. This has been estimated from past World Bank projects that refurbished or rehabilitated thermal plants, mostly to improve efficiency. 7 The system advisor model (SAM) is a performance and financial model for RE planning from the U.S. National Renewable Energy Laboratory (NREL), https://sam.nrel.gov/. 8 Weather data overview are available at https://www.nrel.gov/analysis/ sam/help/html- php/index.html?weather_format.htm. 9 Solar resource data obtained from EnergyPlus, https://energyplus.net/ weather. EnergyPlus is a tool funded by the U.S. Department of Energy’s Building Technologies Office, and managed by NREL. 10 Wind speed data from weather stations was obtained from the Iowa Environmental Mesonet program of the Iowa State University of Science and Technology. It collects environmental data from cooperating members with observing networks, http://mesonet.agron.iastate.edu/ ASOS/. 11 World Bank Global Economic Monitor Commodities (http://databank. worldbank.org/data/reports.aspx?source=Global-Economic-Monitor- (GEM)-Commodities). 12 Capacity range is based on National Electric Power Company (NEPCo) annual reports. 13 The Green Corridor Project is a major grid upgrade to the north-south transmission corridor in Jordan. 14 See annual technology costs from NREL at http://www.nrel.gov/docs/ fy16osti/66944.pdf. 15 See the International Energy Agency’s World Energy Outlook model, http://www.worldenergyoutlook.org/weomodel/. 16 The cost of repairs is based on the rehabilitation of thermal plants carried out by the World Bank. Securing Energy for Development in the West Bank and Gaza | 217 REFERENCES Mooney, C. Z. (1997). Monte carlo simulation. Sage publications. Bazilian, M., & Chattopadhyay, D. (2016). Considering NREL. (2016). U.S. Solar Photovoltaic System Cost power system planning in fragile and conflict Benchmark: Q1 2016. Golden, CO: National states. Energy for Sustainable Development, Renewable Energy Laboratory (NREL). vol.32, 110-120. Popper, W., Popper, S. W., Berrebi, C., Griffin, J., EIA. (2015, December). Factors Affecting Diesel Light, T., Endy M. Daehner, E. M., & Crane, K. Prices. Retrieved from Website of the US Energy (2009). Natural Gas and Israel’s Energy Future: Information Administration: http://www.eia.gov/ Near-Term Decisions from a Strategic Perspective. energyexplained/index.cfm?page=diesel_factors_ Santa Monica, CA: RAND Corporation. affecting_prices Shapiro, A., & Philpott, A. (2007). A Tutorial on Electricity Commission. (2008). Investigation of the Stochastic Programming. Retrieved from value of unserved energy. Kingston: Concept Website of the School of Industrial and Systems Economics report prepared for the Electricity Engineering, Georgia Institute of Technology, Commission of New Zealand. Atlanta, : http://www2.isye.gatech.edu/people/ Hummon, M., Denholm, P., Jorgenson, J., Palchak, faculty/Alex_Shapiro/TutorialSP.pdf D., Kirby, B., & Ma, O. (2013). Fundamental Drivers Shapiro, A., Dentcheva, D., & Ruszczynski, A. (2009). of the Cost and Price of Operating Reserves. Lectures on Stochastic Programming: Modelling Golden, CO: National Renewable Energy and theory. Philadelphia: Soceity for Industrial and Laboratory (NREL). Applied Mathematics. IEA. (2016). World Energy Investment 2016. Paris: Spyrou, E., & Hobbs, B. F. (2016). Climate aware International Energy Agency. power system planning: Bangladesh Case study. IFC, ESMAP. (2017). Energy Storage Trends and Baltimore, MD. Opportunities in Emerging Markets. International World Bank. (2013). Turn Down the Heat: Climate Finance Corporation and Energy Sector Extremes, Regional Impacts, and the Case for Management Assistance Program, World Bank. Resilience. Washington, DC: A report for the World Jiang, H., & Vogt-Schilb, A. (2016). In Search of Bank by the Potsdam Institute for Climate Impact Adaptive Strategy for Power System Expansion Research and Climate Analytics. in Bangladesh through Robust Decision Analysis. Washington, D.c.: A report prepared under a World Bank project on Climate-Resilient Power Systems Planning. APPENDIX I: Financial Sector Model Methodology OVERALL APPROACH The financial model was used to explore the financial impacts on the sector based on three scenarios from The financial model of the Palestinian Authority (PA) the robust planning model that covered the entire power sector will be built on three levels: range of power production costs from lowest to highest. For the West Bank, these included Planned 1. Level 1: Simple cash flow models of the six Palestinian Future, Maximum Cooperation, and PENRA Vision power distribution utilities DISCOs: Gaza Electricity scenarios, and for Gaza, these included Planned Distribution Company (GEDCO), Hebron Electricity Future, Maximum Independence, and Maximum Distribution Company (HEPCO), Jerusalem District Cooperation. The detailed description of the scenarios Electricity Company (JDECO), Northern Electricity is provided in the planning model section of the main Distribution Company (NEDCO), Southern Electricity report under Part II. Distribution Company (SELCO), and Tubas Electricity Distribution Company (TEDCO) The financial model assumes the following: 2. Level 2: A simple cash flow model of the new Palestinian transmission utility Palestinian • PETL will act as a single buyer. PETL will import all Electricity Transmission Company (PETL) the electricity that is available from Israeli Electric 3. Level 3: A simple characterization of the net Corporation (IEC), Jordan, and Egypt and will buy impact of the power sector on the budget of the all the electricity produced in the PA (combined Palestinian Authority in the form of subsidies cycle gas turbine, solar, wind, biomass, and so forth). The financial model uses as its historical reference • PETL will act also as a single supplier to the DISCOs period the years 2011–15. The financial model using the IEC transmission infrastructure or its projects forward for the period 2016–30. own transmission infrastructure. (Transmission costs are included in PETL tariffs shown in the The objective of the financial modeling is to evaluate financial model.) the tariffs setting and the creditworthiness of the • The DISCOs invest in their own distribution distribution companies (DISCOs) and especially infrastructure (distribution costs are included in of PETL as an off-taker for a series of major new DISCOs tariffs shown in the financial model). commercial term commitments for the bulk purchase of power into the Palestinian territories and to identify Level 1: Distribution Utilities a series of measures that could be taken to improve this creditworthiness. In particular, these measures Output Variable: Electricity Average Equilibrium Cost could include the following: and Retail Tariff in Each Distribution Utility as Well as Aggregate • Improvements in the commercial and operational Based on data projections and the chosen levels performance of the DISCOs for input parameters, the model solves for the • Increases in the retail tariff to the end consumer retail electricity price level that ensures the financial • Injection of additional public subsidy to the sector equilibrium of each utility. This should initially be done at the utility level. However, Palestinian Electricity The financial model uses PA electricity physical Regulatory Council (PERC) currently has a policy of demand projections from the robust planning model charging a single uniform tariff throughout the West and transmission and distribution costs forecast Bank and Gaza, so the model will also calculate the based on the various planning scenarios. average cost recovery tariff across the five distribution 220 | Securing Energy for Development in the West Bank and Gaza utilities, as well as computing the transfers that would The projection of the wholesale power price over time be needed across utilities to ensure their individual will be an output of the Level 2 model covering PETL. financial sustainability should the uniform tariff be applied. Those whose financial equilibrium tariff is Affordability Check: How Power Bills Weigh on above the sector average would need to receive a net Household Budgets compensatory transfer, and vice versa. As an add-on to the financial analysis of the DISCOs, the model includes a module that will allow checking Input Variables: Distribution Losses and Revenue for affordability and computing the potential value of Collection Ratio consumer subsidies. The affordability check is based The financial model will be set up to allow the user on data for the average household income across to choose target values for distribution losses and 10 deciles of the Palestinian income distribution that revenue collection ratios for the year 2030. These two is derived from the PCBS Labor Force Survey for parameters reflect the overall operational and financial 2013. These will need to be rolled forward to reflect performance of the utility and can be improved over anticipated real income growth through 2030. time through management effort. Given that there are measures under way to improve the poor current Subsistence electricity consumption can be estimated performance in these areas, the model assumes that as the amount of electricity needed to provide a basic the full benefit of these measures will be achieved by package of energy services in the household. Such 2030. The user should be able to input more or less information was derived from the PCBS Household ambitious targets for both of these variables to see Energy Surveys. Based on an estimate of subsistence what impact this has on the equilibrium tariff. electricity consumption the weight of the power bill associated with the equilibrium retail tariff can be Data Projections: Characterizing the Revenues calculated as a share of household income. When and Expenditures this share exceeds 5 percent, an affordability issue Basic data on the revenues and expenditures of the is presumed to arise. On this basis, it is possible to utilities is collected by PERC for the purposes of calculate the total amount of government demand- determining the revenue requirement for the cost- side subsidy that would be needed to keep the plus-tariff-setting process. cost of subsistence consumption below the 5 percent threshold. On the revenue side, the model takes historical data on billings and collections in both physical and financial The model calculates and displays two distinct terms. The difference between power purchased and subsidies. The first is the subsidy requirement to power billed will give distribution losses. The difference maintain financial equilibrium if retail tariffs are not between power billed and power collected will give adjusted as additional power-supply options come the collection losses. The projection of the revenue online. The second is the subsidy requirement to side will be based on physical demand projections provide targeted subsidies to the poorest, who provided by the robust planning model and on return cannot afford increases in tariffs. The subsidies are on equity set by the regulator (PERC). The tariff to be then compared in scenarios where DISCO efficiencies applied to the demand projections will be based on are, and are not, improved to provide a sense of the the solution of the model as noted above. impact of DISCO inefficiencies on the PA budget. On the expenditure side, the model uses data from Level 2: PETL the DISCOs financial annual reports on operations and maintenance (O&M), taxes, debt service, planned Output Variable: Average Wholesale Price of Electricity investments, and power purchase costs. O&M are to Be Charged by PETL to Discos projected based on demand projections and on Based on data projections and the chosen levels for efficiency factor to be set by the regulator. Debt input parameters, the model solves for the average service and planned investments are projected based wholesale power price level that ensures the financial on information about the repayment profile of currently equilibrium of the PA power sector, and for Gaza and held debts, interest rate on debt, and investment for the West Bank separately. plans for the period. The distribution utilities’ most significant expenditure is power purchase. Securing Energy for Development in the West Bank and Gaza | 221 Input Variable: Average Unit Subsidy to the Wholesale obtainable from the PETL Price Waterhouse Coopers Price of Electricity to Be Applied by PA (PWC) Business Plan or from PETL itself. The financial model allows the user to choose the percentage of the wholesale electricity price that would On the revenue side, PETL’s future revenue will be the be subsidized by the PA. The value of this supply-side wholesale power tariff multiplied by the total amount subsidy is initially set to zero to understand the full tariff of energy demanded by the DISCOs. implications of the proposed investment plan. If the resulting retail tariff proves to be unaffordable (based Level 3: Palestinian Authority on the affordability check), then the problem can be addressed either through incorporating a supply-side Data Projections: Characterizing Fiscal Flows to the subsidy at the level of PETL or a demand-side subsidy Power Sector directly to consumers of the distribution utilities, The model will take stock of all the ways in which the or a combination of the two. Although in practice, energy sector results in revenues or expenditures to supply-side subsidies are more commonplace, the public budget. demand-side subsidies are far preferable from an economic standpoint. On the revenue side, the power sector contributes tax revenues through the application of value-added tax Data Projections: Characterizing Revenues and (VAT) and corporation taxes (VAT is not calculated in Expenditures the model at this stage). It is not clear whether there On the expenditure side, PETL’s expenditures can are any other positive fiscal contributions at present, be divided between those associated with wholesale but the future development of Gaza Marine would power purchase and those associated with operating potentially provide an important revenue source, the transmission system. although certainly not earmarked to the power sector. In terms of wholesale power purchase, in the future On the expenditure side, the power sector draws PETL will be the holder of various power purchase several implicit and explicit subsidies from the public agreements (PPAs) signed with different suppliers budget, for which we do not yet have a comprehensive that may include IEC, Israeli Independent Power inventory. The ones that we do know about include Producers (IPPs), gas-fired IPPs in the West Bank net lending, subsidy to DISCOs to compensate for and Gaza, solar IPPs in the West Bank and Gaza, higher IEC prices, and potentially a pass-through of and power import contracts with Jordan and Egypt. capital grants and concessional finance from donors. The output of the planning model will give the total amount of power from each source that PETL will Furthermore, the demand and supply-side subsidies need to purchase in any given year. The planning calculated in Levels 1 and 2, respectively, enter the model will also have unit cost information for each Level 3 model as a projected subsidy expenditure for of these projects. On the basis of this information, a the sector. The impact of this subsidy on the overall financial PPA price will need to be estimated bearing fiscal balance of the PA would need to be gauged to in mind the potential financing conditions for power- identify a level of public subsidy that is affordable in generation infrastructure in the West Bank and Gaza, fiscal terms. Since power is only one of the sectors particular for domestic IPPs. Multiplying each power- handled through the budget, it would be important to purchase price by the corresponding volume of power know the overall revenue and expenditure balance of will give the total wholesale power purchase bill in the PA and how this is projected to evolve over time. any given year. The overall volume of supply should be compatible with the demand projections used in In summary, the schematic chart of figure I.1 illustrates the planning model and also feed into the Level 1 the flows into and between the different entities DISCOs model. of the PA power sector presented in the financial model. Tables I.1 to I.6 provide the input and output PETL also faces other costs associated with operating variables used in the financial model for each and developing the transmission system. These distribution company. include transmission losses, O&M expenditures, taxes, debt service, and any investments needed to upgrade the transmission network. These data is 222 | Securing Energy for Development in the West Bank and Gaza Figure I.1: Flow of Activities among the West Bank and Gaza Power-Generation Entities Part I: Current Cash Flow JDECO (East Jerusalem) Power Import HEPCO Egypt (Hebron) Municipalities & other NEDCO Power Import (Nablus) Jordan IEC SELCO Power Import (South WB) Israel PETL TEDCO (TSO & single Renewable (North WB) buyer) Energy IPP’s GEDCO (Gaza) Part II: Capital Cash Flow IPP Gaza TAMAR LEVIATAN IPP Banks & Financial Jenin Institutions IPP Hebron Gaza Marin (Gas field) Part III: Government Take PA (Palestinian Authority) Legend Power cash flow (Kwh x predicted electricity tariff) 1 Taxes, net lending2, capital subsidies or guarantees and royalties Net capital investments3 O&M and financial expenses Loans Principal payments Gas purchase 1. Power cash flow includes repayments of debts to ICE. 2. DISCOs (and some municipalities) are currently paying directly to IEC for the purchased power distributed to Palestinian customers. Since DISCOs do not pay 100% their electricity supplies, namely IEC, the PA is indirectly subsidizing the DISCOs due to the monthly sums taken by the Israeli Ministry of Finance from Palestinian taxes collected on their behalf (”clearance revenues”) to compensate from the Palestinian DISCO’s non-payment for purchased electricity from IEC (”Net lending”) 3. Capital investments minus return on capital Securing Energy for Development in the West Bank and Gaza | 223 TABLE I.1: FINANCIAL MODEL INPUTS AND OUTPUTS—GEDCO 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 GEDCO purchases and sales Purchase of electricity from IEC and GWh 1,763 1,642 1,730 1,385 1,432 1,486 1,504 1,724 2,036 2,328 2,612 2,996 3,149 3,297 3,471 3,649 3,749 3,900 4,035 4,170 Jordan/ PETL Total losses % 30.0% 30.0% 30.0% 26.5% 26.2% 26.0% 25.8% 25.6% 25.4% 25.2% 24.9% 24.7% 24.5% 24.3% 24.1% 23.9% 23.6% 23.4% 23.2% 23.0% Total power sales GWh 1,234 1,149 1,211 1,018 1,056 1,099 1,116 1,283 1,519 1,742 1,960 2,255 2,377 2,496 2,635 2,778 2,862 2,986 3,099 3,211 Collection rate % 65.0% 68.0% 71.0% 64.0% 65.0% 66.7% 68.5% 70.2% 71.9% 73.7% 75.4% 77.1% 78.9% 80.6% 82.3% 84.1% 85.8% 87.5% 89.3% 91.0% Total power paid by consumers GWh 802 781 860 652 686 734 764 900 1,093 1,283 1,478 1,739 1,874 2,012 2,170 2,336 2,456 2,614 2,766 2,922 Operating income (power sales) NIS mill 615 599 632 509 518 592 575 717 832 942 1,039 869 1,391 1,494 1,587 1,618 1,723 1,680 1,788 1,832 Other income NIS mill NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Total income NIS mill 615 599 632 509 518 592 575 717 832 942 1,039 869 1,391 1,494 1,587 1,618 1,723 1,680 1,788 1,832 GEDCO operating costs Electricity purchase from IEC and NIS mill 701 817 911 916 795 808 760 932 1,054 1,133 1,219 951 1,581 1,665 1,731 1,720 1,799 1,704 1,781 1,786 Jordan/ PETL O&M expenses NIS mill 53 56 54 58 63 66 66 76 90 103 115 132 139 146 153 161 166 172 178 184 Depreciation expenses NIS mill NA NA NA 13 13 13 13 13 13 22 22 22 22 22 22 22 22 22 22 22 Running cost NIS mill NA NA NA NA NA 0 0 0 0 16 16 16 16 16 16 16 16 16 16 16 Financial cost NIS mill NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Return on equity NIS mill NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Total electricity costs NIS mill 755 873 965 986 872 887 840 1,021 1,157 1,273 1,372 1,121 1,758 1,848 1,921 1,919 2,002 1,914 1,997 2,008 GEDCO income Annual income/loss before income tax NIS mill -139 -274 -334 -477 -354 -295 -265 -304 -325 -331 -333 -252 -367 -354 -335 -301 -280 -234 -210 -176 Income tax - 15% NIS mill NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Net Annual income NIS mill -139 -274 -334 -477 -354 -295 -265 -304 -325 -331 -333 -252 -367 -354 -335 -301 -280 -234 -210 -176 GEDCO purchase, sale, and equilibrium tariff Average purchase cost / PETL tariff NIS/kWh 0.398 0.497 0.527 0.661 0.555 0.544 0.505 0.541 0.518 0.487 0.467 0.318 0.502 0.505 0.499 0.471 0.480 0.437 0.441 0.428 Average retail tariff NIS/kWh 0.498 0.521 0.522 0.500 0.490 0.807 0.753 0.796 0.761 0.734 0.703 0.500 0.742 0.743 0.731 0.693 0.701 0.643 0.646 0.627 Electricity average equilibrium cost NIS/kWh 0.941 1.117 1.123 1.513 1.270 1.209 1.099 1.134 1.058 0.992 0.928 0.645 0.938 0.919 0.886 0.822 0.815 0.732 0.722 0.687 *Assuming Planned Future planning scenario from 2016 to 2030. 224 | Securing Energy for Development in the West Bank and Gaza Securing Energy for Development in the West Bank and Gaza | 225 TABLE I.2: FINANCIAL MODEL INPUTS AND OUTPUTS—JDECO 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 JDECO Purchases and Sales Purchase of electricity from IEC GWh 1,797 1,943 1,902 1,935 2,114 2,084 2,142 2,199 2,186 2,391 2,511 2,446 2,548 2,509 2,563 2,677 2,796 2,918 2,913 3,012 and Jordan/ PETL Total losses % 27.7% 26.4% 26.2% 24.9% 23.9% 23.8% 23.8% 23.7% 23.6% 23.6% 23.5% 23.5% 23.4% 23.3% 23.3% 23.2% 23.2% 23.1% 23.1% 23.0% Total power sales GWh 1,299 1,431 1,403 1,454 1,609 1,588 1,633 1,678 1,670 1,827 1,920 1,872 1,952 1,923 1,966 2,055 2,148 2,244 2,241 2,320 Collection rate % 95.9% 96.6% 83.4% 95.0% 90.5% 90.5% 90.6% 90.6% 90.6% 90.7% 90.7% 90.7% 90.8% 90.8% 90.8% 90.9% 90.9% 90.9% 91.0% 91.0% Total power paid by consumers GWh 1,245 1,381 1,171 1,381 1,444 1,437 1,479 1,520 1,513 1,656 1,742 1,698 1,772 1,746 1,786 1,867 1,952 2,040 2,039 2,111 Operating income (Power sales) NIS mill 695 875 889 951 949 946 943 970 975 1,129 1,184 1,223 1,246 1,205 1,214 1,248 1,278 1,065 1,285 1,309 Other income NIS mill 54 57 83 72 68 67 68 70 70 76 80 78 81 80 82 85 89 93 93 96 Total income NIS mill 749 932 971 1,022 1,017 1,012 1,012 1,041 1,045 1,206 1,265 1,301 1,328 1,285 1,296 1,334 1,368 1,158 1,378 1,405 JDECO operating costs Electricity purchase from IEC NIS mill 563 800 832 886 871 741 731 756 762 909 960 1,011 1,030 991 999 1,030 1,056 814 1,058 1,079 and Jordan/ PETL O&M expenses NIS mill 146 148 163 172 188 185 190 195 194 212 223 217 226 223 228 238 248 259 259 267 Depreciation expenses NIS mill 24 21 20 30 37 36 36 36 35 37 36 36 36 35 35 35 34 34 34 33 Interest rate on debt % 2.75% 3.52% 2.10% -1.04% -0.64% 3.50% 3.75% 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00% 6.25% 6.50% 6.75% 7.00% Financing expenses NIS mill 22 34 28 -15 -11 59 62 63 64 64 64 63 63 62 61 60 59 58 57 56 Running cost NIS mill NA NA NA NA NA 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 Other expenses NIS mill NA NA 4 4 6 4 5 5 5 5 5 5 5 5 5 6 6 6 6 6 Return on equity NIS mill NA NA NA NA NA 23 22 21 20 19 17 15 13 11 9 6 4 1 0 -2 Total electricity costs NIS mill 754 1,004 1,046 1,076 1,091 1,045 1,041 1,071 1,076 1,242 1,302 1,344 1,369 1,323 1,332 1,370 1,402 1,167 1,408 1,434 JDECO income Annual income/loss before NIS mill -5 -71 -75 -54 -74 -14 -13 -14 -16 -22 -25 -32 -33 -32 -33 -35 -37 -14 -36 -38 income tax Income tax - 15% NIS mill 3 0 0 3 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Net annual income NIS mill -8 -71 -75 -56 -82 -14 -13 -14 -16 -22 -25 -32 -33 -32 -33 -35 -37 -14 -36 -38 JDECO purchase, sale, and equilibrium tariff Average purchase cost / PETL NIS/kWh 0.313 0.412 0.437 0.458 0.412 0.356 0.341 0.344 0.349 0.380 0.382 0.413 0.404 0.395 0.390 0.385 0.378 0.279 0.363 0.358 tariff Average retail tariff NIS/kWh 0.535 0.612 0.633 0.654 0.590 0.658 0.638 0.638 0.644 0.682 0.680 0.720 0.703 0.690 0.680 0.669 0.655 0.522 0.630 0.620 Electricity average equilibrium NIS/kWh 0.606 0.727 0.894 0.779 0.755 0.727 0.704 0.705 0.711 0.750 0.747 0.791 0.773 0.758 0.746 0.734 0.718 0.572 0.691 0.680 cost *Assuming Planned Future planning scenario from 2016 to 2030. 226 | Securing Energy for Development in the West Bank and Gaza Securing Energy for Development in the West Bank and Gaza | 227 TABLE I.3: FINANCIAL MODEL INPUTS AND OUTPUTS—NEDCO 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 NEDCO purchases and sales Purchase of electricity from IEC GWh 414 474 480 502 549 576 1,125 1,193 1,232 1,274 1,289 1,470 1,498 1,668 1,763 1,799 1,842 1,882 2,051 2,122 and Jordan/ PETL Total losses % 19% 17% 12% 14% 17% 17% 17% 18% 18% 19% 19% 20% 20% 20% 21% 21% 22% 22% 23% 23% Total power sales GWh 337 392 420 435 458 478 928 979 1,007 1,035 1,042 1,182 1,198 1,327 1,395 1,416 1,442 1,465 1,588 1,634 Collection rate % 79% 70% 87% 86% 98% 99% 99% 100% 100% 101% 101% 102% 102% 103% 103% 104% 104% 105% 105% 106% Total power paid by consumers GWh 266 274 365 376 450 472 922 978 1,010 1,044 1,056 1,204 1,226 1,364 1,441 1,470 1,504 1,535 1,672 1,728 Operating income (power sales) NIS mill 189 223 232 245 242 252 452 493 521 589 606 734 744 811 852 867 878 706 939 976 Other income NIS mill 2 6 24 40 NA 46 48 51 53 55 55 63 64 72 76 77 79 81 88 91 Total income NIS mill 191 230 256 285 NA 298 501 544 574 643 661 797 808 883 928 944 957 787 1,027 1,067 NEDCO operating costs Electricity purchase from IEC and NIS mill 179 200 230 250 247 205 384 410 430 484 493 608 606 659 687 692 696 525 745 760 Jordan/ PETL O&M expenses NIS mill 10 17 12 13 NA 15 29 30 31 32 33 37 38 42 45 46 47 48 52 54 Depreciation expenses NIS mill 1 2 2 2 NA 1 2 3 4 6 6 6 6 6 6 6 6 6 6 6 Interest rate on debt % NA NA NA NA NA 4% 4% 4% 4% 5% 5% 5% 5% 6% 6% 6% 6% 7% 7% 7% Financing expenses NIS mill NA NA NA NA NA 10 11 17 19 21 22 22 26 25 26 25 22 19 5 13 Running cost NIS mill NA NA NA NA NA 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 Other expenses NIS mill 1 NA 1 5 NA 6 12 13 13 14 14 16 16 18 19 19 20 20 22 23 Return on equity NIS mill NA NA NA NA NA 17 18 20 22 25 27 30 33 36 40 45 49 54 59 65 Total electricity costs NIS mill 191 219 245 269 NA 254 455 493 519 583 596 720 726 788 824 834 841 673 890 922 NEDCO Income Annual income/loss before income NIS mill 0.5 11 12 15 NA 60 63 70 77 85 92 107 115 131 144 155 166 168 195 210 tax Income tax - 15% NIS mill 0.4 2 5 7 NA 9 9 11 12 13 14 16 17 20 22 23 25 25 29 32 Net annual income NIS mill 0.1 9 7 9 NA 51 54 60 65 73 78 91 98 112 123 132 141 143 166 179 NEDCO purchase, sale, and equilibrium tariff Average purchase cost / PETL NIS/kWh 0.348 0.410 0.444 0.487 0.450 0.356 0.341 0.344 0.349 0.380 0.382 0.413 0.404 0.395 0.390 0.385 0.378 0.279 0.363 0.358 tariff Average retail tariff NIS/kWh 0.561 0.569 0.551 0.563 0.528 0.533 0.490 0.504 0.516 0.564 0.573 0.610 0.607 0.594 0.591 0.590 0.584 0.460 0.561 0.565 Electricity average equilibrium cost NIS/kWh 0.716 0.797 0.671 0.717 NA 0.539 0.493 0.504 0.514 0.558 0.565 0.598 0.592 0.577 0.572 0.568 0.559 0.438 0.533 0.533 *Assuming Planned Future planning scenario from 2016 to 2030. 228 | Securing Energy for Development in the West Bank and Gaza Securing Energy for Development in the West Bank and Gaza | 229 TABLE I.4: FINANCIAL MODEL INPUTS AND OUTPUTS—TEDCO 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 TEDCO purchases and sales Purchase of electricity from IEC and GWh 71 81 85 96 104 118 213 226 234 242 245 279 284 317 334 341 350 357 389 403 Jordan/ PETL Total losses % 3% 16% 14% 15% 16% 17% 17% 17% 18% 18% 19% 19% 20% 20% 21% 21% 22% 22% 23% 23% Total power sales GWh 69 68 73 81 87 99 177 187 192 197 198 225 228 252 265 269 274 278 301 310 Collection rate % 97% 105% 97% 85% 76% 77% 78% 79% 80% 81% 82% 83% 84% 85% 86% 87% 88% 89% 90% 91% Total power paid by consumers GWh 67 72 71 68 67 76 139 148 154 160 163 187 192 215 228 234 241 248 271 282 Operating income (power sales) NIS mill 30 35 39 46 46 42 73 80 84 96 99 121 123 136 144 148 151 125 165 173 Other income NIS mill 0 3 5 6 8 9 16 17 17 18 18 20 21 23 25 25 26 26 29 30 Total income NIS mill 30 38 44 52 54 51 89 96 102 113 117 141 144 159 168 173 176 151 194 202 TEDCO operating costs Electricity purchase from IEC and NIS mill 27 33 38 45 42 42 73 78 82 92 94 115 115 125 130 131 132 100 141 144 Jordan/ PETL O&M expenses NIS mill 3.7 4.9 5.1 6.3 7.4 8.4 15.1 16.0 16.5 17.1 17.3 19.7 20.1 22.4 23.6 24.1 24.7 25.2 27.5 28.5 Depreciation expenses NIS mill NA NA NA NA NA 0.0 0.0 0.0 0.0 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Interest rate on debt % NA NA NA NA NA 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Financing expenses NIS mill NA NA NA NA NA 2.0 2.2 3.7 4.4 5.1 5.9 6.5 7.9 8.5 9.5 10.2 10.5 10.8 9.2 11.0 Running cost NIS mill NA NA NA NA NA 0.0 0.0 0.0 0.0 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Other expenses NIS mill 0.6 0.6 0.8 0.7 0.7 0.8 1.5 1.6 1.6 1.7 1.7 2.0 2.0 2.2 2.3 2.4 2.5 2.5 2.7 2.8 Return on equity NIS mill NA NA NA NA NA 1.6 1.5 1.3 1.1 1.0 0.8 0.6 0.4 0.3 0.3 0.4 0.7 1.0 1.8 2.5 Total electricity costs NIS mill 31.1 38.7 44.1 51.8 50.4 55.0 93.1 100.4 105.3 117.5 120.0 144.7 146.0 159.1 166.8 169.2 171.0 139.8 183.2 189.7 TEDCO income Annual income/loss before income NIS mill -1.0 -1.1 0.1 0.2 3.4 -2.2 -3.1 -2.9 -2.5 -3.2 -2.5 -3.1 -1.7 0.0 1.8 3.8 6.1 12.1 12.2 15.1 tax Income tax - 15% NIS mill 0.0 0.0 0.0 0.0 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.9 1.8 1.8 2.3 Net annual income NIS mill -1.0 -1.1 0.1 0.1 2.9 -2.2 -3.1 -2.9 -2.5 -3.2 -2.5 -3.1 -1.7 0.0 1.8 3.8 5.2 10.3 10.4 12.9 TEDCO purchase, sale, and equilibrium tariff Average purchase cost / PETL tariff NIS/kWh 0.378 0.407 0.447 0.468 0.407 0.356 0.341 0.344 0.349 0.380 0.382 0.413 0.404 0.395 0.390 0.385 0.378 0.279 0.363 0.358 Average retail tariff NIS/kWh 0.432 0.506 0.527 0.563 0.529 0.556 0.526 0.538 0.549 0.597 0.606 0.644 0.641 0.631 0.630 0.629 0.625 0.503 0.608 0.612 Electricity average equilibrium cost NIS/kWh 0.465 0.539 0.619 0.756 0.757 0.720 0.672 0.678 0.684 0.733 0.736 0.773 0.761 0.740 0.730 0.722 0.709 0.564 0.675 0.672 *Assuming Planned Future planning scenario from 2016 to 2030. 230 | Securing Energy for Development in the West Bank and Gaza Securing Energy for Development in the West Bank and Gaza | 231 TABLE I.5: FINANCIAL MODEL INPUTS AND OUTPUTS—HEDCO 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 HEPCO purchases and sales Purchase of electricity from IEC and GWh 362 369 373 379 411 419 650 673 695 720 744 729 719 738 733 732 792 810 850 901 Jordan/ PETL Total losses % 22% 19% 20% 19% 20% 21% 21% 21% 21% 21% 21% 22% 22% 22% 22% 22% 22% 23% 23% 23% Total power sales GWh 282 300 299 306 328 333 516 532 549 567 585 571 563 576 571 569 614 627 656 694 Collection rate % 74% 74% 70% 82% 81% 82% 83% 83% 84% 85% 85% 86% 87% 87% 88% 88% 89% 90% 90% 91% Total power paid by consumers GWh 209 222 209 251 267 273 427 443 461 480 499 491 487 502 501 503 547 562 593 632 Operating income (power sales) NIS mill 154 181 181 193 193 175 246 260 274 307 322 339 334 339 338 338 359 300 376 399 Other income NIS mill 14 13 16 15 16 16 25 26 26 27 28 28 27 28 28 28 30 31 32 34 Total income NIS mill 167 194 197 208 209 191 270 285 300 335 350 367 362 367 365 366 389 330 408 434 HEPCO operating costs Electricity purchase from IEC and NIS mill 136 160 170 176 164 149 222 231 242 274 285 301 291 292 286 282 299 226 309 323 Jordan/ PETL O&M expenses NIS mill 13 17 19 15 16 17 26 27 28 29 30 29 29 29 29 29 32 32 34 36 Depreciation expenses NIS mill 9 9 9 10 10 10 10 9 9 11 11 11 10 10 10 10 10 10 10 10 Interest rate on debt % NA NA NA NA NA 4% 4% 4% 4% 5% 5% 5% 5% 6% 6% 6% 6% 7% 7% 7% Financing expenses NIS mill 2 12 1 3 7 25 26 31 34 37 41 44 47 50 53 55 57 61 59 66 Running cost NIS mill NA NA NA NA NA 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 Other expenses NIS mill NA 0 0 1 1 1 1 1 1 1 2 2 1 2 2 2 2 2 2 2 Return on equity NIS mill NA NA NA NA NA 12 12 12 11 11 10 8 7 6 5 4 3 2 2 1 Total electricity costs NIS mill 160 197 199 206 198 214 297 311 326 362 377 394 386 388 384 381 403 333 415 438 HEPCO income Annual income/loss before income NIS mill 7 -3 -2 2 11 -10 -15 -15 -15 -18 -18 -20 -18 -16 -14 -13 -11 -2 -6 -4 tax Income tax - 15% NIS mill 1 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Net annual income NIS mill 6 -3 -2 2 9 -10 -15 -15 -15 -18 -18 -20 -18 -16 -14 -13 -11 -2 -6 -4 HEPCO purchase, sale, and equilibrium tariff Average purchase cost / PETL tariff NIS/kWh 0.377 0.433 0.456 0.464 0.398 0.356 0.341 0.344 0.349 0.380 0.382 0.413 0.404 0.395 0.390 0.385 0.378 0.279 0.363 0.358 Average retail tariff NIS/kWh 0.545 0.604 0.605 0.630 0.590 0.641 0.576 0.585 0.594 0.640 0.645 0.692 0.687 0.675 0.674 0.671 0.657 0.533 0.634 0.632 Electricity average equilibrium cost NIS/kWh 0.766 0.889 0.952 0.821 0.743 0.782 0.696 0.702 0.707 0.755 0.756 0.804 0.792 0.773 0.766 0.758 0.736 0.592 0.701 0.694 *Assuming Planned Future planning scenario from 2016 to 2030. 232 | Securing Energy for Development in the West Bank and Gaza Securing Energy for Development in the West Bank and Gaza | 233 TABLE I.6: FINANCIAL MODEL INPUTS AND OUTPUTS—SELCO 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 SELCO purchases and sales Purchase of electricity from IEC and GWh 121 125 124 124 131 178 207 214 221 229 237 232 229 235 233 233 252 258 271 287 Jordan/ PETL Total losses % 37% 30% 29% 28% 27% 27% 26% 26% 26% 26% 25% 25% 25% 25% 24% 24% 24% 24% 23% 23% Total power sales GWh 76 88 88 89 96 131 152 158 164 171 177 174 172 177 177 177 192 197 208 221 Collection rate % 54% 59% 58% 71% 79% 80% 81% 82% 82% 83% 84% 85% 85% 86% 87% 88% 89% 89% 90% 91% Total power paid by consumers GWh 41 52 51 63 76 104 123 129 135 142 148 147 147 153 154 156 170 176 187 201 Operating income (Power sales) NIS mill 48 56 54 76 67 73 93 98 102 112 116 120 118 119 118 117 124 104 130 136 Other income NIS mill 2 5 6 4 9 9 11 11 11 12 12 12 12 12 12 12 13 13 14 15 Total income NIS mill 50 61 60 80 77 82 103 108 113 123 128 132 129 131 129 129 137 117 143 151 SELCO operating costs Electricity purchase from IEC and NIS mill 43 54 53 71 49 63 71 74 77 87 91 96 93 93 91 90 95 72 98 103 Jordan/ PETL O&M expenses NIS mill 8 9 18 15 19 20 23 24 25 25 26 26 25 26 26 26 28 29 30 32 Depreciation expenses NIS mill 5 5 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 Interest rate on debt % NA NA NA NA NA 4% 4% 4% 4% 5% 5% 5% 5% 6% 6% 6% 6% 7% 7% 7% Financing expenses NIS mill 2 2 2 2 3 15 14 15 15 14 14 13 12 11 11 10 9 9 8 8 Running cost NIS mill NA NA NA NA NA 0 0 0 0 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 Other expenses NIS mill -2 0 -2 0 -7 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Return on equity NIS mill NA NA NA NA NA 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total electricity costs NIS mill 56 71 78 95 71 105 115 120 123 134 138 142 137 138 135 133 140 116 144 149 SELCO income Annual income/loss before income NIS mill -6 -10 -18 -15 5 -22 -12 -11 -10 -11 -10 -10 -8 -7 -5 -4 -3 1 0 1 tax Income tax - 15% NIS mill 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Net annual income NIS mill -6 -10 -18 -15 5 -22 -12 -11 -10 -11 -10 -10 -8 -7 -5 -4 -3 1 0 1 SELCO purchase, sale, and equilibrium tariff Average purchase cost / PETL Tariff NIS/kWh 0.356 0.433 0.426 0.570 0.373 0.356 0.341 0.344 0.349 0.380 0.382 0.413 0.404 0.395 0.390 0.385 0.378 0.279 0.363 0.358 Average retail tariff NIS/kWh 0.639 0.636 0.610 0.851 0.703 0.804 0.754 0.756 0.752 0.789 0.781 0.818 0.800 0.778 0.764 0.751 0.728 0.591 0.692 0.676 Electricity average equilibrium cost NIS/kWh 1.375 1.368 1.544 1.495 0.940 1.005 0.934 0.927 0.913 0.947 0.929 0.964 0.934 0.900 0.876 0.854 0.820 0.660 0.766 0.742 *Assuming Planned Future planning scenario from 2016 to 2030. 234 | Securing Energy for Development in the West Bank and Gaza Securing Energy for Development in the West Bank and Gaza | 235 Securing Energy for Development in the West Bank and Gaza