Removing fossil fuel
subsidies – yes but how?
Henning Wuester, IRENA
REN21 Academy
Bonn, 10 November 2014
Contents
1. Introduction
2. Fossil fuel subsidies: state of the debate
3. The reality in selected MENA countries
4. Elements of successful subsidy reform
5. The way forward: linking subsidy reform to renewables
6. Concluding points
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INTRODUCTION
IRENA study on Energy Pricing in the MENA region
Work initiated at MENAREC5 for presentation at MENAREC6
Supported by the German Ministry of Economic Affairs (BMWi)
In cooperation with RCREEE and IISD
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Fossil fuel subsidies – state of the debate
Pro subsidy
Contra subsidy
• Stimulate economic
• Generate large public
growth and employment
budget deficits
• Help fight poverty; ensure • Inefficiencies created slow
energy access for all
down of economic and job
growth
• Share the natural wealth of
a country (for energy
• Regressive nature – helps
exporting countries)
the rich more then the
poor
• Exacerbates climate and
environmental externalities 4
THE REALITY IN
SELECTED MENA
COUNTRIES
5
RE targets in MENA
2020 Targets for Solar PV
Wind Power in 2020
Yemen, 400
Algeria, 270
Tunisia, 752
Yemen, 4
Syria, 380
Tunisia, 837 Algeria, 946
Egypt, 220
Iraq, 240
Jordan, 300
Syria,
1,000
Egypt, 7,200
Kuwait, 3,500
Saudi Arabia, 5,200
Solar PV in 2012
Wind Power in 2012
Palestine, 44
Syria, 0.84
Morocco, 2,000
Jordan,
1,200
Iraq, 80
Egypt,
550
Morocco,
291
Lebanon,
0.5
Qatar, 1.2
Libya, 600
Jordan,
1.4
Lebanon, 100
Libya, 129
Palestine, 45
Tunisia, 4
Saudi
Arabia, 7
Palestine, 1
Libya, 4.8
Kuwait, 1.8
Kuwait, 3,100
Saudi Arabia, 6,400
Qatar, 1,800
Yemen, 1.5
Algeria, 7.1
Egypt, 15
Jordan, 1.6
Iraq, 3.5
2020Targets for CSP
Tunisia, 133
Syria, 50
Yemen, 100
Algeria, 1500
Egypt, 1100
Iraq, 80
Jordan, 300
Kuwait, 1100
Libya, 125
Saudi Arabia, 10000
CSP in 2012
Morocco, 2000
Palestine, 20
Morocco,
15
Algeria,
25
Egypt,
Source: REN21
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Subsidies in electricity sector
96,800 GWh
35,060 GWh 22,520 GWh
0.16
0.14
0.12
Cost of Delivered
Electricity: 0.137
0.137
Subsidy
0.119
$/kWh
0.1
0.08
Keys:
Subsidy
Subsidy
- Low Voltage
Voltage < 600V
- Medium Voltage : 600V <Voltage <60kV
0.06
0.043
0.04
0.02
:
Retail Price: 0.028
Revenue
0.040
(Residential, Commercial, etc)
: 60 kV <Voltage
- Area of the bar
: Value of electricity at
this voltage
Revenue
Revenue
0
Low Voltage
- High Voltage
Medium Voltage
High Voltage
(Light Industry, Agriculture, etc) (Heavy Industry)
Egypt’s costs of delivered electricity, retail revenues and subsidies (including opportunity
costs) in 2012
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Budget pressures
Share of government expenditure on energy-related subsidies (blue),
education (red), and health (green) in Egypt, Yemen and Syria in 2008.
(UNDP, 2012)
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ELEMENTS OF
SUCCESSFUL SUBSIDY
REFORM
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Drivers for subsidy reform
• Budgetary impacts of
• Serious reform efforts in oilsubsidies
importing countries, in
particular in: Egypt, Jordan,
• Pressure to maintain social
Mauritania, Morocco, and
cohesion
Tunisia
• Resumption of high oil and
• Some discussion in oilgas prices
exporting countries
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Some features of successful subsidy reforms
1. Objectives are clearly stated and impact analyses
are performed.
2. Transparency is high, all communication is clear and
public and energy pricing is de-politicized.
3. Reforms are clearly targeted and impacts are
effectively mitigated.
4. Reforms are carefully paced and timed.
5. Effective substitute energy sources can be
introduced.
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THE WAY FORWARD:
LINKING SUBSIDY
REFORM TO
RENEWABLES
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Renewables are an alternative
0.4
2012
0.35
0.3
2012
$/kWh
0.25
2012
0.2
2015
2020
0.155
0.15
0.137
2020
Note:
2012
2015
0.1
1. The Grey Area is
the Generation Cost
of the Existing
Technology which is
from 0.137USD/kWh
to 0.155USD/kWh.
2. The Generation
Cost Includes Fuel
Cost with
International Fuel
Price.
0.05
0
PV
CSP
Onshore Wind
Offshore Wind
Egypt’s current costs of delivered electricity (including subsidies at international
fuel prices) compared to the levelised costs of solar and wind technologies
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Egypt’s RE strategy in context
of energy pricing reform
Energy pricing reform
RE strategy
•
•
•
•
Phasing out energy and
electricity subsidies until 2020
(cost-reflective tariffs)
25-30% annual electricity
price increases
Removing barriers for
renewable energy
•
•
Basis: 20/20 RE programme
(12% wind, 6% hydro, 2% solar)
and 2012 solar target (3.5 GW
by 2027)
Different development schemes:
public procurement, private
bidding, FiT
2014 FiT for 4.3 GW - lower
than current generation costs
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Potential for and benefits of renewables in the MENA
region:
 Renewable energy potentials in the MENA region are amongst the
highest in the world, particularly for solar technologies
 Renewable power installations create more jobs than conventional
fossil fuels
 RE will support energy and economic security by requiring fewer
market-linked fuel imports or increasing fossil fuel export potential
 A fast-growing sector that could generate significant future export
industries (and therefore jobs) in the MENA region
 Renewable energy will stabilise electricity generation costs (with
declining costs)
 Dramatically lower local and global environmental impacts (and
concomitant public health benefits)
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Concluding points
1. No ‘one size fits all’ – look at the specific country
situations.
2. Take arguments for subsidies serious.
3. Let the facts speak for themselves.
4. Focus on efficient energy pricing and the link to energy
policy objectives – positive agenda.
5. Low-cost renewables as an alternative to high-cost
fossil fuels will help successful subsidy reform.
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Thank you!
www.irena.org
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