PROJECT IDENTIFICATION FORM (PIF)
PROJECT TYPE: FULL SIZE
THE GEF TRUST FUND
Submission Date: October.2007
Re-submission Date: 12May 2009
PART I: PROJECT IDENTIFICATION
GEFSEC PROJECT ID1: 3540
GEF AGENCY PROJECT ID:
COUNTRY (IES): Islamic Republic of Iran
PROJECT TITLE: Industrial Energy Efficiency in Key Sectors
GEF AGENCY (IES): UNIDO
OTHER EXECUTING PARTNER(S): FUEL CONSERVATION
COMPANY, Ministry of Oil
GEF FOCAL AREA (S): Climate Change
GEF-4 STRATEGIC PROGRAM(S): SP-2
NAME OF PARENT PROGRAM/UMBRELLA PROJECT:
INDICATIVE CALENDAR
Milestones
Expected Dates
Work Program (for FSP)
CEO Endorsement/Approval
GEF Agency Approval
Implementation Start
Mid-term Review (if planned)
Implementation Completion
June 2010
July 2010
August 2010
October 2010
October 2012
Nov 2014
A. PROJECT FRAMEWORK (Expand table as necessary)
Project Objective:
To make a contribution towards Iran’s energy efficiency strategy which aims to reduce energy consumption in the
industrial sector by 20% (specific energy use), equivalent to 67,150 GWh (27,290 kt CO2), by 2024 compared to a
base year of 2007. The project will focus on five key industrial sectors that collectively consume 71% of all
industrial energy. These sectors are Iron & Steel, Petrochemical, Refinery, Brick and Cement and the project will set
up voluntary energy agreements, provide a framework for National Energy Management Standards (EMS), assist in
capacity building through training, developing targets, providing benchmarks and most importantly, by identifying
technology improvement options to these high energy intensive industrial sectors. The project aims to make energy
savings in specific terms for the 5 large energy intensive industries of 10% by 2014 based on 2007. These targets
allow for annual growth in the industry which is currently 6%, and the expected savings will have reached 49 TWh
(1.3 million t CO2) by 2014.
Project
Components
1
1
Energy
Management &
Industry
Generic Energy
Saving
Measures
2
Iron & Steel
Indicate
whether
Investment,
TA, or
STA**
TA
TA
Expected Outcomes
Expected Outputs
Indicative GEF
Financing*
($K)
EMS systems established.
Technology benchmarks
identified.
Identify industry SEC
targets.
Agree voluntary or
contractual agreements for
energy savings.
Identify CDM
opportunities.
Dissemination of all energy
saving measures in each
sector to rest of industry.
Training Iranian specialists
in EE auditing.
Identify process
optimization to establish
new technology
opportunities and structural
improvements.
Identify opportunities for
waste heat recovery
Project ID number will be assigned initially by GEFSEC .
PIF Iran Industrial Energy Efficiency Project Number 3540, 2009
1. EMS introduced to
industrial sectors.
2. SEC targets agreed
for each sector or
process.
3. Energy Savings
agreements in place.
4. Marketing
information and
dissemination of good
savings measures in
all industries.
5. Training to be
provided to Iranian
specialists to
undertake energy
audits and identify
CDM opportunities.
Energy audits
undertake to:
1. Identify
technology
opportunities and
test. Identify
structural and
procedural changes
%
Indicative Cofinancing*
($K)
%
Total
($K)
575
25.4% of
component
10.7% of
GEF
financing
1,725
74.6% of
component
11.4% of cofinancing
2,300
960
26.4% of
component
17.6% of
GEF
financing
2,665
73.6% of
component
17.6% of cofinancing
3,625
1
3
Petrochemicals
TA
Identify process,
cogeneration and
technology upgrade
opportunities.
Establish industry wide heat
recovery and rotating
equipment saving
opportunities.
4
Refineries
TA
Identify potential
optimization opportunities
where equipment upgrade
can take place including
improved catalyst
technologies.
Establish opportunities to
reduce waste streams from
process.
5
Brick
TA
Establish improvements in
kiln insulation and other
heat loss opportunities.
Identify heat recovery
savings.
Identify investment
opportunities for new
technologies.
6
Cement
TA
Identify industry wide
material, grinding and
energy leakage
improvements.
Investigate greater use of
other industrial waste in
process and heat recovery
options.
Look for new technology
investment opportunities.
implemented.
2. Implement key
energy savings
measures identified.
3. Undertake training
of industry
representatives in EE
technologies to
include making a
financial case.
1. Design CHP
assessment tool for
industry.
2. Provide training to
specialists on use of
CHP assessment tool.
3. Through EE audit
programme establish
common opportunities
for equipment
upgrades.
4. Link equipment to
labeling scheme.
1. As Petrochemicals,
link to CHP initiatives
for sector.
2. Provide
information through
training to industry on
technology
improvements ie heat
recovery and process.
3. Invest in
technologies for trial
as part of
dissemination
scheme.
Follow audit
programme:
1. Demonstrate simple
low cost energy
savings heat
opportunities at
sample sites and
market to rest of
sector.
2. Invest in and
demonstrate heat
recovery and
combustion efficiency
technologies.
Initiate audit
programme to:
1. Establish low and
medium cost savings
opportunities common
to sector.
2. Initiate investment
in measures
identified.
3. Invest in common
technology
improvement
measures.
4. Disseminate results
of 2&3 above to rest
of industry.
5. Identify CDM
opportunities.
960
26.4% of
component
17.6% of
GEF
financing
2,665
73.6% of
component
17.6% of cofinancing
3,625
960
26.4% of
component
17.6% of
GEF
financing
2,665
73.6% of
component
17.6% of cofinancing
3,625
960
26.4% of
component
17.6% of
GEF
financing
2,665
73.6% of
component
17.6% of cofinancing
3,625
960
26.4% of
component
17.6% of
GEF
financing
2,665
73.6% of
component
17.6% of cofinancing
3,625
2
PIF Iran Industrial Energy Efficiency Project Number 3540, 2009
7
Project
management
Total project
costs
75
42.8% of
component
1.4% of
GEF
financing
100
57.2% of
component
0.7% of
cofinancing
175
5,450
26.4
15,150
73.6
20,600
* List the $ by project components. The percentage is the share of GEF and Co-financing respectively to the total amount for the component.
** TA = Technical Assistance; STA = Scientific & technical analysis.
B. INDICATIVE FINANCING PLAN SUMMARY FOR THE PROJECT ($K)
Project Preparation K*
Project K
GEF
Co-financing
5,450
15,150
20,600
Total
Agency Fee K
Total K
545
545
5,995
15,300
21,295
* Please include the previously approved PDFs and planned request for new PPG, if any. Indicate the amount already approved as
footnote here and if the GEF funding is from GEF-3.
C. INDICATIVE CO-FINANCING FOR THE PROJECT (including project preparation amount) BY SOURCE and
BY NAME (in parenthesis) if available, ($K)
Sources of Co-financing
Project Government Contribution
IFCO
GEF Agency(ies)-UNIDO
Bilateral Aid Agency(ies)
Multilateral Agency(ies)
Private Sector
NGO
Others
Total co-financing
Type of Co-financing
Amount K
Cash (5,050) & 4,000 in
kind
Cash
(select)
(select)
Cash (3,000) & 3,0002 in
kind
(select)
(select)
9,050
100
6,000
15,150
D. GEF RESOURCES REQUESTED BY FOCAL AREA (S), AGENCY (IES) SHARE AND COUNTRY(IES)*
* No need to provide information for this table if it is a single focal area, single country and single GEF Agency project.
PART II: PROJECT JUSTIFICATION
A. STATE THE ISSUE, HOW THE PROJECT SEEKS TO ADDRESS IT, AND THE EXPECTED GLOBAL
ENVIRONMENTAL BENEFITS TO BE DELIVERED:
Energy consumption in Iran is 1,611 TWh, of this, 20.4% is consumed by the industrial sector with the remainder
being consumed by the residential, commercial and public buildings (36.4%), power generation (17.6%), transport
(22.6%), and other industries including agriculture/forestry (3%). CO2 emissions from this energy consumption is
407.1 million t/a. With a population of 68.25 million, per capita emissions are at 6.0 tCO2/cap, this figure is above the
world average (4.2), below the average of the Middle East (6.6) and less than half the average of OECD countries
(11.0). CO2 emissions are 0.84 tCO2/1000 US$ GDP PPP.
CO2 intensity of GDP is high in Iran compared to the world average (0.5) or OECD countries (0.43), but below the
Middle East regional average (0.91). Efficiency of energy use is 0.34 toe/1000 US$ GDP PPP which is high compared
to the world average (0.21) or OECD countries (0.43), and somewhat below the Middle East regional average of 0.37.
2
Subject to the results of the assessments and the development plan for each industry unit, this amount would be clarified and
added later.
PIF Iran Industrial Energy Efficiency Project Number 3540, 2009
3
The primary resources for energy supply in Iran are oil (49.5%) and gas (48.6%), followed by small contributions of
coal 0.7%, hydropower 0.6% and combustible renewables and waste 0.5%. Of this 31.2% of energy consumption is in
the residential sector, 28.3% in transport, 22.6% in industry, 7.2% in commercial and public services and 4.1% in
agriculture/forestry. Electricity generation was 164.5 TWh in 2004, of which 76.2% was gas, 17.3% oil and 6.5%
hydropower. Iran is rich in oil resources; in 2006, oil exports accounted for around 85% of total export earnings,
nearly 55% of the government budget revenue and 23% of GDP.3
In recent years, Iran has experienced high growth rates of domestic energy demand of about 6.5% annually. This is
contrasted, “on the supply side, by an under invested and ageing core apparatus and infrastructure of oil and gas
extraction, transformation and transmission capacity” (IFCO/UNIDO 2006). According to the National Strategy for
Energy Efficiency and Conservation in the Islamic Republic of Iran, if these trends continue and are not permanently
reversed, eg by enacting a comprehensive set of energy saving measures nationwide, the country will not only face a
critical balance of payment situation caused by diminishing oil revenue streams, but the very social stability of the
country will be under threat. Some international analysts predict the onset of such consequences for as early as 2015
(IFCO/UNIDO 2006).
Figures from the 2007 energy balance show that Iran’s industry sector used 329 TWh and was made up of 54.6%
natural gas, 28.6% oil products, 5.1% coal and 12.6% electricity. Currently the average yearly growth in industrial
energy use is above 6%. The diversified industry sector in Iran has some 45,000 installed units. Five industrial sectors
can be classed as intensive energy users which are Iron & Steel, Petrochemicals, Refineries, Brick and Cement which
collectively consume approximately 216 TWh (65%) of all the energy used by Iran industry, and for this reason these
sectors should be the focus of this GEF project to improve Energy Management and savings in energy consumption.
A new Iranian Energy Efficiency Strategy developed by UNIDO and IFCO in 2008 (IFCO has a current goal to get
the strategy adopted by government) identifies that there is potential to reduce energy consumption in the industrial
sector by 35% with much of this coming from a combination of investment in new technology and improvement in
Energy Management. In the same Strategy document as part of its commitment to save energy and reduce CO2
emissions, Iran has pledged to cut energy use by 20% by 2024 specific energy consumption (SEC kWh/tonne of
product). This GEF project will aim to ‘get the ball rolling’ by concentrating energy efficiency on the high intensive
industries and in particular focusing on energy management initiatives and measures key to the sector specific issues.
It is seen as important to generate some projects that will lead the way to getting major improvements in place with
major players, and then disseminating these to others having demonstrated the savings that can be achieved in energy,
cost and CO2 reduction.
Figure 1 : Savings Targets and Timescale
Percentag e Savings (% )
Ind ustr y Ene rg y Savings Str ate gy
25
20
15
10
5
0
2008
2010
2012
2014
2016
2018
2020
2022
2024
Year
The Iranian Energy Efficiency Strategy will run until 2024 and the GEF project is planned until 2014, by which time it
is expected that 10% of the overall target will be achieved. The target will be set based on SEC and therefore although
energy consumption is expected to grow, the energy intensity will be reduced. The following table identifies how the
10% savings target will be achieved through the involvement of the GEF programme project:
3
All energy data taken from UNIDO report “The National Strategy for Energy Efficiency & Conservation in the IRI” 2008
PIF Iran Industrial Energy Efficiency Project Number 3540, 2009
4
Table 1 : Work Areas
Area of Work
Expected Programme of Work
Energy
Management
Output
It can be expected that there are Where appropriate, the following areas
good
energy
management linked to energy management will be
improvements which can be made identified through the detailed audits:
in all 5 of the intensive industries.
 Participation in EMS system
Each industry will be the subject of
 SEC savings targets
a number of detailed energy audits
 Formal savings agreements
(see
below),
and
energy
 CDM projects
management
assessments
are
 Capacity building by training local
expected to be part of the audit.
specialists
Energy management is expected to provide
5% of the total savings which is consistent
with improvements seen in developed
countries’ industries.
Industry
It is expected that 50 energy audits Each group of audits in these sectors is
Specific Energy will be held in 5 energy intensive expected to find common sector specific
Savings Activity industries as follows:
opportunities for improvement. The auditors
will be asked to prioritise the opportunities
 Iron & Steel (12)
into energy management, low and
 Petrochemicals (10)
medium/high cost so decisions on investment
 Refineries (12)
can be made. It is expected that on average
 Brick (8)
$3 million of investment funding will be used
 Cement (8)
Each of these industries will have in each sector to get the best possible energy
different technology improvement savings. These investments will then be
opportunities and each will be monitored and the results of the savings
identified and linked to developed disseminated and marketed to all industries.
countries’ benchmarks (see Table Details of the expected initiatives are
provided below.
2).
Savings target 49 TWh (1.3 million tCO2)
Saving
by 2014
24TWh
(0.63
million
tCO2)
25 TWh
(0.67
million
tCO2)
Linking to the graph & table above, energy management is seen as a major step in gaining improvements. It is planned
to introduce EMS throughout Iran in the five energy intensive industry sectors with formal monitoring, evaluating and
target setting of energy consumption, as well as providing sector-specific benchmarking information. Within industrial
applications, a system will be designed which links to everyday process and project management the concept of
energy management, and will also embody other key areas, including Training, Motivation and Awareness, Green
Accounts (where companies audit the environmental performance of their operation, as well as its economic
performance), Energy Policy and formal monitoring of energy use and targeting energy reductions, through effective
measures. As a signatory Annex 2 country Iran will have a greater commitment to energy savings, and industry will be
encouraged to enter into agreements voluntarily and perhaps later contractually to make energy savings. Focus for
energy savings will be improved energy management, promotion of energy saving technologies, promotion of greater
use of natural gas, and opportunities for DSM and CDM. This project will feature all these initiatives.
As part of the GEF project, work will be put in place through Energy Management Standards (EMS) to measure the
effectiveness and efficiency of actions implemented, and initiatives will then be put in place for the promotion of
energy efficiency. There is a need to establish a system for continuous updating and registration of energy data related
to energy efficiency and in particular, indicators for efficiency. Iran has already made a good start to setting energy
savings targets by putting in place a formalised system for collecting energy use data (see page 5 for details). The GEF
project will take this further by initiating a targeting system aimed at managing energy and calculating indicators,
which is seen as necessary for monitoring the implementation and success of the activities initiated as part of the
strategy for energy efficiency. The success of such a system will depend upon using a multi-stakeholder approach,
including consultation with representative bodies within each sector. The monitoring plan will take into account all
sector variables which are likely to impinge upon the targets prescribed. Such variables will include factors such as
actual economic and sector growth, thereby enabling energy use data to be normalised against representative data,
5
PIF Iran Industrial Energy Efficiency Project Number 3540, 2009
which describes sector activity over time. It is encouraging to note that where there has been implementation of
energy management units in industries in Iran, they have had a positive effect in optimising energy efficiency.
Energy agreements will be introduced aimed at industry sectors as a way to gain energy efficiency improvements
through commitment. Initially these will be voluntary agreements and will be negotiated with a company who would
aim to achieve energy saving targets. The agreement would provide some obligation to the company to make savings,
and the company would then receive an ‘award’ if they reached the target. On some occasions the voluntary
agreement might be with an industrial Trade Association who might agree targets for an industry sub-sector, for
example the Iran Cement industry. Within the life of the project there may be an opportunity to formalize the
voluntary agreement into a Contractual energy saving agreement, where a company or Trade Association is obligated
to reach energy saving targets. The Agreement would be a formal contract with the Ministry of Electrical Power.
Normally the company would be provided with a ‘bonus’ such as some tax relief, if they reached their target. In both
voluntary and contractual energy saving agreements, the company will be given formal Government recognition
because it has made a significant contribution to national energy saving targets through perhaps a Government
certificate.
The Iranian government had used a financing initiative to promote energy efficiency known as “Note 11” which
promoted investments with short payback cycles of 5 years or below. Unfortunately it has had limited success and has
only provided savings of 680,355 GWh to date, which represents 1% of the above mentioned energy efficiency
potential in the industrial sector. The limited uptake of this financial mechanism to help increase energy efficiency is
not helped by high energy subsidies, and in 2009 the Iranian government removed this initiative from the annual
budget.
The Iranian Government has reduced some of the subsidies on fuel and plans to continue the reduction programme in
the coming years which is seen as a positive step to encourage energy efficiency. The work planned to commit
industry to energy savings through voluntary or contractual agreements by the end of 2009 and the introduction of a
national energy audit programme for all energy intensive industries.
The focus for GEF support will be towards all industries but specifically the high energy intensive industries of Iron &
Steel, Petrochemicals, Refineries, Brick and Cement. Each of these industries needs investment to bring them up to
good practice energy use standards. The table below gives some indication of the savings opportunities in these
industries:
Table 2 : Industrial Benchmarks and Savings Opportunities
Iran Intensive Industry Sector Data (2006)
No of
sites
Industry
Energy
Consumption
2007 (GJ)
Energy
Consumption
(TWh)
%
Production
(k Tonnes)
SEC
Iran
SEC
Iran Target
for 2024
1
2
3
60
14
49
182,825,857
163,622,777
183,314,932
50.62
45.28
60.09
17.58
15.73
17.63
12,188
15 GJ/tonne 11 GJ/tonne
To be defined
To be defined
4
5
1032
41
Iron & Steel
Petrochemical
Refinery
(Oil & Gas)
Brick
Cement
104,312,098
112,421,332
28.88
31.13
10.03
10.81
21,731
32,120
5 GJ/tonne
4 GJ/tonne
Total
1196
746,496,997
206.76
71.78
3 GJ/tonne
3 GJ/tonne
Potential
savings
to Best
Practice
(TWh)
13.49
11.55
6.22
15%
(3 out of 5)
Table 2 shows that 15% energy savings are possible in just 3 out of the 5 energy intensive industries if the SEC targets
are achieved. Detailed analysis still has to be completed for Petrochemicals & Refineries but once finalised it is
estimated that 20% total savings could be reached by 2024. Referring to Figure 1, the savings at the end of the GEF
project are expected to reach 50% of the total target.
Specific energy use data is limited to 2006 for the five intensive industries. The base year for savings will be 2007 and
this data will be updated at the start of the GEF project.
In each of these 5 intensive industries, the expected savings will come from:
6
PIF Iran Industrial Energy Efficiency Project Number 3540, 2009

Generic energy saving opportunities in all industries:
o
o
o
Good Energy Management practice to include Monitoring (data collection) & Targeting (setting
energy saving targets by site and individual process or technology) through adoption of EMS
Providing technology benchmarks for process and sub-process
Setting specific energy consumption (SEC) targets
Linked to all of the above, it is seen to be very important to encourage investment in more advanced technologies. The
work of this project will create a national Energy Management Standard (EMS) and plans to undertake mandatory
energy audits are seen as key initiatives.
A complete package of energy management measures will be aimed at the five energy intensive industry sectors
which will include:















Adopting Energy Management Standards (EMS) and supporting implementation with financial assistance
Establishment and promotion of energy sector and sub-sector benchmarks, and energy technologies and
energy management training
Setting energy consumption criteria in different industrial processes
Industries to adopt SEC targets
Promotion of private ownership in industry
Market transformation programme initiated and adopted
Implementation of sector clean production strategies
Promotion of greater use of natural gas
Promotion of private energy supply partnerships
Investigation of DSM opportunities and promotion of activity in the positive areas identified
Sector energy efficiency plans adopted through agreements (voluntary/legislation)
Introduction of new mandatory audit programme aimed at energy intensive industries
Training of experts to provide energy audits and management advice, and technical improvements
Establishment of ESCOs and provision of incentives through financial measures (Private Sector finance, IRI
Government & International Banks)
Promotion of CDM activity through marketing/advertising
For each of the industries, a summary of the expected work in each sector is provided below and will be developed
further:

Iron & Steel - opportunities fall into two groups as follows:
o
o
New technology and structural changes
Existing production improvements:





Petrochemicals - energy savings opportunities will include:
o
o
o
o
o
o

Alternate iron-making process
Energy conservation in hot cast products
Increased capture of chemical energy in waste gas from processes
Improved material efficiency
Introduction of more co-generation
Introduction of modern catalysts
Waste and by-product use
Equipment upgrades
Increased efficiency in heat exchangers and rotating equipment
Optimising operating & control systems
Refineries - the following are seen as good potential energy savings opportunities in this industry:
7
PIF Iran Industrial Energy Efficiency Project Number 3540, 2009
o
o
o
o
o
o
o
o
o


Brick
o
Equipment upgrades
Increased efficiency in heat exchangers and rotating equipment
Introduction of co-generation technologies
Increased use of waste products for steam raising
Heat recovery systems/boilers
Optimising operating & control systems
Improved waste treatment systems
Optimising catalyst performance
Energy efficiency transport systems (technology & behavioural)
Low cost saving opportunities
 Kiln firing correction
 Increased insulation
 Increased thickness of rooms and doors
o
Medium cost saving opportunities
 Heat recovery from chimneys
 Pre-heating of combustion air
o
Long term cost saving opportunities
 Tunnel kiln combustion
 Heat recovery from fired production
 High efficiency combustors
Cement - the specific energy consumption of cement manufacture in Iran has been measured to be 900kcal/kg
of clinker compared to 650kcal/kg of clinker in developed countries. This shows that there is an opportunity to
reduce energy consumption in this process of the cement industry by 28%. Other process areas where savings
can be made are identified below:
o
Low cost saving opportunities
 Better selection of raw materials
 Optimise grinding technologies
 Reduce breakdowns
 Fuel selection
 Reduction in leaks
o
Medium cost saving opportunities
 Use of industrial waste material
 Heat recovery from exhaust systems
 Improved dust collection technologies
o
Long term cost saving opportunities
 Conversion from wet to dry production process
 Introduction of pre-calciner systems
 Conversion from ball and roller mills to roller mills
 Fuel conversion (total process)
In 2007 emissions of CO2 from the five energy intensive industries is estimated at 9.2 million tonnes based on current
fuel mix. Assuming the project helps to realize 10% energy savings, and assuming 6% growth, then the total savings
that could be achieved will be 49TWh. This equals emission reductions against a business as usual scenario of 1.3
million tCO2.
B. DESCRIBE THE CONSISTENCY OF THE PROJECT WITH NATIONAL PRIORITIES/PLANS:
The proposed project is in line with Article 50 of the Constitution of the Islamic Republic of Iran, which states the
duty to protect the environment in order to preserve it for present and future generations to have a thriving social life.
Energy efficiency in the industry is one way towards improved environmental protection. However, realizing global
8
PIF Iran Industrial Energy Efficiency Project Number 3540, 2009
environmental benefits is not the key motivation for environmental protection in Iran, for example, the 4th National
Development Plan (2005-2009) highlights stable economic growth in Chapter 1 and environmental protection in
Chapter 5. Its special focus considering environment is however on local air pollution, and the protection of
local/national environmental resources. The National Strategy for Energy Efficiency and Conservation also underlines
the local and national benefits of sound industrial management practices and lower energy consumption such as
reduction of the amount of pollutants and emissions released into the soil, atmosphere and bodies of water. Though
not primarily motivated by it, promoted practices are in fact contributing to global environmental benefits of reduced
CO2 emissions.
The uptake of the energy efficiency finance initiative called "Note 11"has been very poor and as a result the Iranian
government has taken this out of 2009 budget. The poor response by industry to this initiative is seen partially to be
due to the high level of energy subsidies. In response to this the government has reduced energy subsidies and will
continue the reduction in the coming years.
In its Initial National Communication to the UNFCCC (2003), Iran lists energy efficiency in industry among selected
mitigation policies and ranks energy efficiency in the iron & steel industry among the most cost-effective (negative
net costs for specified mitigation options; costs of 15-39 US$/tCO2 for specified mitigation options in the cement
industry). The National Communication identifies cost-effective energy use as a precondition for achieving the
country’s longer-term development policies, so the project contributes to these development objectives in the end.
C. DESCRIBE THE CONSISTENCY OF THE PROJECT WITH GEF STRATEGIES AND STRATEGIC PROGRAMS:
The project supports GEF 4 program section 2 "Climate Change" and herein Strategic Program 2 "Promoting Energy
Efficiency in the Industry Sector" (CC-SP2), through promoting the deployment and diffusion of energy-efficient
technologies and best practices in industrial production and manufacturing processes. It covers a wide spectrum of the
energy systems in industrial manufacturing and processing, including millers, grinders, combustion, steam, process
heat, combined heat and power, compressed air, motors, pumps, and fans. As demonstrated in A, the proposed project
will significantly contribute to the reduction of greenhouse gas emissions.
This project is one of several UNIDO projects designed to introduce national energy management standards, which
incorporate a “systems approach” to industrial energy efficiency. National projects are being proposed in at least one
country in each region where industry is a significant contributor to GDP. A parallel program in which UNIDO is
partnering with REEEP and ISO to establish an international Energy Management Standard, complements the national
projects.
D. OUTLINE THE CO-ORDINATION WITH OTHER RELATED INITIATIVES:
Together with the Fuel Conservation Company (IFCO-main counterpart), UNIDO has prepared the “National
Strategy for Energy Efficiency and Conservation in the Islamic Republic of Iran” and thereby gained significant
knowledge on energy efficiency in the industrial sector, and at the same time has built up contacts with relevant
stakeholders and initiatives in Iran. This builds a strong basis for co-ordinated efforts for the proposed project with
other initiatives in the field.
The Ministry of Electrical Power initiated energy efficiency activities in 1994 through the establishment of an Energy
Efficiency Office (EEO). EEO realized that the required policies should be implemented through an execution
organization and thus Iran Energy Efficiency Organization (SABA) was established in 1995. SABA is for example,
carrying out energy audits in industry, formulating indexes and standards for energy consumption in the major
industries or developing information banks for the major industries on energy efficiency technologies. In 1999, the
Ministry of Oil established Fuel Conservation Company (IFCO). EEO, SABA and IFCO are key partners in the
proposed project for addressing industrial energy efficiency potentials in Iran.
IFCO have undertaken some activities to help to reduce the level of energy subsidies to the industrial sectors through
initiating energy efficiency initiatives in large energy intensive industries (annual fuel consumption of 50 MWh).
These companies are obliged to:
a) Establish energy management systems
b) Undertake energy audits
c) Establish energy consumption criteria for large energy using processes
Work towards this programme undertaken by IFCO is as follows:
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PIF Iran Industrial Energy Efficiency Project Number 3540, 2009
a) Energy Auditing - Over 180 energy intensive industries have received energy audits many of which
are in sectors linked to the GEF project. IFCO are currently undertaking 32 audits of brick and tile
manufacturing facilities.
b) Guidelines for Energy Consumption - Some guidelines for energy consumption in the Brick, Sugar,
Vegetable Oil, Glass, Tyre, Cement and Iron & Steel industries have been prepared.
c) Establishing Criteria for Energy Consumption - Eleven energy consumption guides have been
prepared linked to industry sectors identified in (b) above. IFCO are preparing energy consumption
guides for industrial heaters and sector guides for some of the energy intensive industries. They are
also involved in a project to install combined chill and power (CCP), improving efficiency of boilers
at Kashan University, preparing energy consumption guides for the poultry industry, developing
combined heat and power plant (CHP) at Holy Imam Reza Shrine and Parand Township and
modification of tobacco drying systems.
d) Non-repayable Loan and Subsidies on Interest Payments - Some industries have received financial
help in optimizing energy consumption.
In addition IFCO have plans to update energy efficiency criteria for some industry sectors, undertake energy audits,
implement climate change projects and implement some projects linked to CDM. The GEF project is seen as a
positive step to linking to the initiatives already being undertaken as part of the Iranian government energy efficiency
work.
The National Energy Conservation Laboratory has also been working on energy efficiency, and has successfully
established energy standards, focusing however on domestic appliances such as refrigerators or air conditioners, the
proposed project will therefore complement these activities.
E. DISCUSS THE VALUE-ADDED OF GEF INVOLVEMENT IN THE PROJECT DEMONSTRATED THROUGH
INCREMENTAL REASONING :
1. At the moment, Iran experiences fast economic growth of 6% accompanied by equally high growth in energy
consumption and CO2 emissions. Energy intensity of the industry is high due to inefficiency of factories. The
country’s National Strategy addresses energy efficiency and conservation for Energy Efficiency and Conservation, but
it is doubtable, if according programs and regulations would materialize fully without additional impetus by the
proposed project and GEF funding.
2. The proposed project is estimated to result in energy reductions of 49TWh providing reductions in CO2 emissions
of 1.3 million tCO2 by 2014, by adoption of energy efficiency management and technologies. It is expected that the
policy and regulatory framework will be strengthened and energy efficient investment be enhanced. The project is
thus contributing to the GEF strategic program of reducing climate damage by improving energy efficiency in the
industrial sector. The legislative and management changes and the reductions in CO2 emissions and energy use are
assumed not to materialize in the absence of GEF funding for the proposed project.
3. As shown above, the project fits into the GEF-4 program and the overall strategy of GEF to help developing
countries fund projects and programs that protect the global environment. It has been shown that global environmental
protection does not rank highest among Iran’s policy priorities due to the more urgent socio-economic needs of its
population and pressing local environmental problems – thus, funds for according projects are not easily available and
there is a necessity for external funding by GEF.
4. The project is to improve the capacities of the public and private sectors in order to promote and implement
activities based on energy management best practice and investment regimes. This will lead to concrete outcomes
such as the establishment of a legal and regulatory basis for energy efficiency, strengthening the capacities of both
public and private sectors to secure on the ground implementation of regulatory frameworks and energy management
best practices, provision of information and technical assistance to manufacturers, co-operation and information
sharing among industry sectors, establishment and promotion of Energy Service Companies, as well as demonstration
of various aspects of energy management development and implementation of system optimization strategies.
Concrete outputs include energy efficiency standards being developed and put in place, tools and methods for the
optimization, information on energy efficiency and knowledge on energy efficient production disseminated, a sector
pilot market information system to be in use by industry, show case studies on various aspects of the system
optimization, facilitation and implementation of energy efficiency, and funding for energy efficiency technologies
being facilitated.
5. The major part of co-financing for the project comes from the Government of Iran & Iran Industry (90% of overall
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PIF Iran Industrial Energy Efficiency Project Number 3540, 2009
project costs). This justifies the assumption of strong country-ownership for the project and prospects for it to be
continued after GEF financing phases out.
6. This project will reduce greenhouse gas emissions and produce significant energy cost savings to the Iranian
Industrial Sector. It demonstrates the favorable economic and environmental impacts that can be achieved by
obtaining a professional energy assessment and implementing energy optimization strategies. In these times of rising
energy costs and heightened environmental awareness, saving energy should/would be a national priority and goal.
F. INDICATE RISKS, INCLUDING CLIMATE CHANGE RISKS, THAT MIGHT PREVENT THE PROJECT OBJECTIVE(S)
FROM BEING ACHIEVED, AND IF POSSIBLE, INCLUDE RISK MEASURES THAT WILL BE TAKEN:
The success of the proposed project might be at risk through socio-economic instability, high domestic inflation rates
or the vulnerability of the national currency - all leading to an insecure investment climate in Iran. The project will
closely monitor socio-economic circumstances and thus be able to react to such changes. Furthermore, the project
could reduce energy used in the industrial sector which could go for export helping to enhance socio-economic
stability.
Another risk for the project is the high subsidy level on energy use. The total costs for energy subsidies amounted to
82,500 billion Rial (US$ 9.1 billion) in 1999, to 127,600 billion Rial (US$ 14 billion) in 2002, and to 172,479 billion
Rial (US$ 19 billion) in 2004. This corresponds to 25% (1999) and 27% (2002) of GDP (IFCO/UNIDO 2006). The
industrial sector consumes 13.4% of total energy subsidies. Although the government has been trying to increase the
price of various energy carriers by 10 to 15% on a yearly basis, it might not be realistic to assume that government
would continue this policy in the coming years. It is very doubtful to expect quick reductions in the amount of energy
subsidies, and for the project, this means that investment in energy efficiency will have longer payback rates than with
reduced subsidies. By decreasing energy intensity of the industry despite high subsidies, the proposed project might
reduce the barriers for political decisions that reduce energy subsidies. This risk will be mitigated when industrial
companies are linked to voluntary or contractual agreements and commit to energy savings. Total reduced cost
available as a result of energy savings through the period of the energy efficiency strategy (20% savings by 2024) and
the GEF project (10% savings by 2014) will help the Iranian government in its strategy to reduce subsidies to the
energy intensive industries.
G. DESCRIBE, IF POSSIBLE, THE EXPECTED COST-EFFECTIVENESS OF THE PROJECT:
As described in detail under A, the estimated amount of CO2 reduction related to the project will be approximately 1.3
million tCO2 over a period until 2014. The estimated cost of the proposed project is 21.4 million US$, and this leads to
costs of approximately 16.46 US$/tCO2 abated.
The Energy Management Standards and energy system optimization are a great platform for GEF, to build positive
and beneficial relationships with energy conscious industries/companies, helping them to realize significant savings
and operate at optimal levels.
This project will reduce greenhouse gas emissions as above and produce significant energy cost savings to the Iranian
industries. These plants typically view energy as a fixed cost, however new tools and methods have evolved to
identify opportunities to reduce energy consumption and realize significant energy savings opportunities, and with
these tools and methods, the capability exists to save hundreds of millions of dollars in energy costs annually. In these
times of rising energy costs and heightened environmental awareness, saving energy should be a national priority and
goal. UNIDO, in partnership with the GEF and national governments and industry, will continue to develop and
implement products such as energy management and system optimization as well as services to help businesses
enhance their energy efficiency and improve operating margins.
H. JUSTIFY THE COMPARATIVE ADVANTAGE OF GEF AGENCY:
UNIDO’s industrial energy work is addressing energy consumption in one of two ways, firstly, energy usage as an
independent component of production, and secondly, as part of a wider resource, an efficient and cleaner production
programme. Over recent years, UNIDO has been developing its experience in a relatively new approach to industrial
energy efficiency called energy systems optimization (IESO), a method of energy efficiency that focuses on entire
industrial production systems rather than individual components. By application of this approach, the required
investments are relatively small, yielding substantial energy savings for companies.
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PIF Iran Industrial Energy Efficiency Project Number 3540, 2009
UNIDO has been working in Iran for some years and in 2008 provided technical support for the development of an
energy efficiency strategy. The strategy has the backing of major stakeholders and has been promoted through an
energy efficiency conference in Tehran in October 2008.
PART III: APPROVAL/ENDORSEMENT BY GEF OPERATIONAL FOCAL POINT(S) AND GEF
AGENCY(IES)
A. RECORD OF ENDORSEMENT OF GEF OPERATIONAL FOCAL POINT (S) ON BEHALF OF THE GOVERNMENT(S):
(Please attach the country endorsement letter(s) or regional endorsement letter(s) with this template).
(Enter Name, Position, Ministry)
Mr. Mahmoud Babaei
Director General for International Economic
Affairs and Specialized Agencies Ministry of
Foreign Affairs
45 Bldg. 8.2, 2nd Floor
Ferdowsi Avenue
Tehran, Iran
Tel: +98 21 6115 4505
Fax: +98 21 6670 3177
Date: (Month, day, year)
B. GEF AGENCY(IES) CERTIFICATION
This request has been prepared in accordance with GEF policies and procedures and meets the GEF
criteria for project identification and preparation.
Mr. D. Piskounov, Managing Director
UNIDO GEF Focal Point
GEF Agency Coordinator
Project Contact Person:
Mr. J. Gajowski
UNIDO, Environmental Management Branch
Tel.: +43 1 26026 4582
Email: j.gajowski@unido.org
Date:
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PIF Iran Industrial Energy Efficiency Project Number 3540, 2009