Day 1 Improvement of the EE&RE Policy Making Process

Economical, Technological and Environmental Impact Assessment of National Regulations
and Incentives for Renewable Energy and Energy Efficiency
A project financed by the Ministry of Foreign Affairs of Denmark

RE & EE National Policies Evaluation Workshop

Cairo, December 19 – 20, 2010

Improvement of the EE&RE Policy Making Process

Page 1 Cairo – RE & EE Policy Evaluation December 19 - 20, 2010


Overview of the presentation

• Tool 1 - Economic and financial considerations
• Tool 2 – Scenario analysis
• Case studies – Marocco CSP
• Tool 3: Policy Prepration Methodology
– Evidence base policy preparation
– Theory based policy evaluation



Tool 1 - Economic and financial considerations

• RE and EE policies have to consider a number of different actors
(investors, energy supply companies, energy user, Government-
budget, Government country)
• Multiple win-win situations are possible and should be achieved
• For each stakeholder an cost-benefit analysis should be made
• Costs are not only costs of equipment

Opportunity costs should be considered:
– Benefit foregone in an alternative use
– „There is no free lunch
– Economic values – social opportunity costs – shadow prices



Tool 2 - Scenario Analysis

• Uncertainties regarding to:
– Economic development (financial crisis)
– International cooperation
– Availability of energy ressources
– Energy prices (reference price of crude oil)
– Technology costs

• Scenario analysis Analysis
– Dealing with uncertainties
– Expoloring future developments
– Creation of consensus



Case Study – Concentrated Solar Power (CSP)

• Scope of the case study:
– CSP technology financing conditions
– Coal based electricity generation
– Comparison of levelized costs „renewable value“
– Cmparison of elecricity supply costs
– Sensitivity Test - Scenarios



CSP - Financing conditions



Coal Based Electricity Generation - Data and Assumptions



Coal Power Plant and CSP - Comparison Levelised Costs

35
31.89
30
24.20

25
US-cent / kWh

20

15
7.69
10

5

0
Coal CSP Renew able value
Cost of electricity supply



Coal-electricity and CSP - Comparison of electricity supply costs

35
30
US-cent / kWh

25
20
15
10
5
0
2014

2017

2020

2023

2026

2029

2032

2035

2038

2041

2044

2047
Year

Coal based CSP based



Impact of Carbon Credits upon "Renewable Values"

30

24.20
25 22.64 21.87
21.09 20.32
20
US-cent / kWh

15

10

5

0
0 USD 10 USD 20 USD 30 USD 50 USD
Value of CERs / Carbon credits (USD / t CO2)



Sensitivity Test - Scenarios

The sensitivity test considers the following cases / scenarios:

Case 1: Assumptions as stated for the base case,
Case 2: Favourable financing conditions (longer loan repayment
period, lower interest rate and lower equity requirements,
Case 3: Assumptions of case 2 plus a higher CSP load factor of 35%
(instead 25%) without considering higher investment costs -
technical progress would lead to better performance at the
same costs,
Case 4: Assumptions of case 2 & 3 plus assumed higher coal prices.



"Renewable values" - Comparison of cases



Tool 3: Policy Prepration Methodology

What are
Evidence based policy making
and
Theory based evaluation
?



What is Evidence Based Policy Making?

“An approach to policy development and implementation which uses
rigorous techniques to develop and maintain a robust evidence base
from which to develop policy options”.

• All policies are based on evidence – the questions are:
– Is the evidence reliable?
– Are the processes by which evidence is turned into policy fit for
their purpose?
• Evidence is leading to an behavioural model – „Theory“
• Formuliation in Behavioural Matrix – Log-frame matrix
• Verifiable indicators – impact measurement



Why do we need it?

• Policy is often driven by prejudice or short-term political pressure
• Made by small groups – exhibits preferences and perceptions of this
group – can be changed when group changes – may not be accepted
by stakeholders - partial and unstable
• Agencies have their own agendas and visions that may conflict
among themselves and with those of government
• Countries need well-resourced, in-house capabilities to analyse and
evaluate policy and more transparent processes
• The perceived need is more stable and robust policy with greater
acceptance
• We should not start the policy making process with a „perceived or
inherited theory“.



What is evidence?

• Evidence is any information that can be used to turn policy objectives into
feasible and effective policy instruments:
• hard data (facts, trends, survey information)
• analytical reasoning that processes data to illuminate problems
• stakeholder opinion on an issue or set of issues.
• Research, analysis of stakeholder opinion, public perceptions and beliefs,
cost/benefit analyses, economic and statistical modelling are important
sources of evidence
• An evidence-based approach should show continuity between foresight,
strategy, policy, and implementation



Good evidence is necessary, but not sufficient

There are policy processes that

use it well use it poorly
use good information
use poor information

Need evidence and process



The process of evidence-based policy making

• Alternative forms of intervention need to be reviewed and short-listed
• There must always be a base-case against which alternatives are screened
• All the relevant potential impacts need to be identified and where possible, quantified
• Impacts should be assessed in consultation with the subjects of policy
• The cost of compliance needs to be assessed
• To be considered also who pays the compliance costs / procedures for compliance
• Indicators need to be established of what is expected from the policy measures
• Quantitative analysis of impacts is essential. The analytical method most commonly
used is economic cost-benefit analysis / economic-financial evaluation
• Cost-benefit analysis should take into account opportunity costs of energy and
external environmental costs
• Multi-criteria analysis maybe a useful support to decision making; sensitivity analysis
is one expression of this idea



What is Theory-Based Evaluation?

 Theory -Based evaluationbasedon analys is focusses on theor logical sequence
Theory focus evaluation the theoretical
es of
by which a policytheoretical and logical to bring about its des ired effects .
analysis of the intervention is expected sequence / behavioural model
 by which a policy intervention is expected toask about the s teps thateffect. plicit
For instance, a theory ed evaluation m ight bring about its desired are im
-bas
between a policy initiative (e.g. introduction ofm inim um energy perform ance
Example: The evalutationthe policy about importantenergy and
electricalappliancesand might ask
s tandards for ) outcome (reducing
GHGs. Thebetween a policy initiativetheoryof policy m akers
steps Figure repres ents the
) implicit and the outcome of: this policy.

Introduction Cons um er is Manufacturers Market is Energy us e
of MEPS em powered to are trans form ed and CO2
m ake a better incentivised to and inefficient em is sions
judgem entand m akemore devices fall;
change efficient becom e Dom es tic
behaviour m odels obs olete m anufacture
s trengthened

 The concept is s im ilar to the logical fram ework for project evaluation
, but because it
depends on an explicit behavioural m odel it can handle not logical structures
linear

 Theory -Based evaluation focuson analys is Affairs theoretical or logical sequence
es of the of Denmark
A project financed by the Ministry of Foreign
by which a policy intervention is expected to bring about its des ired effects .
 For instance, a theory Theory-Based Evaluation? the s teps that are im plicit
What is ed evaluation m ight ask about
-bas
between a policy initiative (e.g. introduction ofm inim um energy perform ance
s tandards for
electricalappliancesand the policy
) outcome (reducingenergy and
GHGs. The Figure repres ents the
) implicit theoryof policy m akers :

Introduction Cons um er is Manufacturers Market is Energy us e
of MEPS em powered to are trans form ed and CO2
m ake a better incentivised to and inefficient em is sions
judgem entand m akemore devices fall;
change efficient becom e Dom es tic
behaviour m odels obs olete m anufacture
s trengthened

 The concept is s im ilar to the logical fram ework for project evaluation
, but because it
depends on an explicit behavioural m odel it can handle not logical structures
linear



Theory and the Policy Cycle

Foresight formulate Evidence

reformulate Theory Implement

Model

Indicators

evaluate monitor


Day 1 Improvement of the EE&RE Policy Making Process

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