Sector Planning & Policy Issues: The Energy Sector

1. Sector Planning & Policy Issues:The Energy Sector Session on Planning & Policy Rita Nangia Asian Development Bank The views expressed here are those of the presenter and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Directors, or the governments they represent.

2. Session Description • The session will cover - • Major energy trends in Asia • Sector planning and policy issues • Challenges and opportunities to integrated energy markets

3. Overview of the Session • Part I • The GMS energy scene • Sector planning issues • Part II • Interactive session

4. Access to Electricity Varies... Source: World Development Indicators 2004 & World Energy Outlook 2002

5. Access to Electricity Varies... Source: Key Energy Statistics, 2005, International Energy Agency & World Development Indicators Online

6. Overall Quality of Electricity Supply Varies... Source: The Global Competitiveness Report 2004-2005

7. The Greater MekongSubregion Land area 2.5 million km2Population316.8 Million

8. Source: Beyond Borders – Regional Cooperation Strategy & Program Update, 2007-2009; Asian Development Outlook, 2006; ADB Key Indicators, 2006; FAO/People’s Govt. of Yunnan Province; http://www.china.org.cn The GMS Economic Conditions Yunnan & Guangxi, PRC Land area: 624,000 km2 Population: 93.8 M GDP per capita: US$ 842 Myanmar Land area: 677,000 km2 Population: 55.4 M GDP per capita: US$ 176 Thailand Land area: 513,000 km2 Population: 64.76 M GDP per capita: US$ 2,727 Viet Nam Land area: 332,000 km2 Population: 83.1 M GDP per capita: US$ 622 Cambodia Land area: 181,000 km2 Population: 13.8 M GDP per capita: US$ 393 Lao PDR Land area: 237,000 km2 Population: 5.6 M GDP per capita: US$ 491

9. Hydro: 333,700 mega watts Coal: 59,340 million tonsGas: 1,378 billion cubic metersOil: 478 million tons The GMS Energy Scene Source: GMS Energy Strategy July 2006 Proceedings, work in progress

10. Energy Resources Yunnan, PRC Hydro: 150,000 MW Coal: 23,580 MT Gas: 32 BCM Oil: 226 MT Myanmar Hydro: 100,000 MW Coal: 200-230 MT Gas: 160 BCM Oil: 32 MT Cambodia Hydro: 15,000 MW Gas: 42.5- 99 BCM Oil: 7- 14 MT Viet Nam Hydro: 30,000 MW Coal: 32,250 MT Gas: 144 BCM Oil: 82 MT Thailand Hydro: 12,700 MW Coal: 2,400 MT Gas: 943 BCM Oil: 124 MT Lao PDR Hydro: 26,000 MW Coal: 910 MT Source: GMS Energy Strategy July 2006 Proceedings, work in progress

11. Challenges and Opportunities • Big disparity in the size of the countries’ markets. • Four countries (PRC, Thailand, Vietnam and Myanmar) have transmission systems that interconnect most of their internal demand centres. Two countries currently have no nationwide transmission systems (Lao PDR and Cambodia).

12. Challenges and Opportunities (continued) • Three countries (Myanmar, Lao PDR and Cambodia) have internal demand levels that do not allow for the development of large-scale generation projects that are only based on internal load. Therefore the possibilities of obtaining energy at low (competitive) prices are linked to cross-border trading. • Constraints to develop new hydro power in Thailand and there is a growing concern that natural gas reserves are not sufficient to satisfy future load growth. Coal resources are also limited to lignite, which has historically been associated with significant environmental problems.

13. **** *** * * ** * Historical Growth Rates for Electricity… Sources: *ADB Key Indicators, 2005 **RPTCC Presentation ***Viet Nam Master Plan VI Essentials ****ADB, MKOC Study on Electricity Production

14. National Electricity Forecasts in GMS - Source: Country Presentations RPTCC Meeting, Myanmar 2006

15. National Electricity Forecasts in GMS - Source: Country Presentations RPTCC Meeting, Myanmar 2006

16. National Electricity Forecasts In GMS - Source: Country Presentations RPTCC Meeting, Myanmar 2006

17. GMS Energy Strategy Policy & Planning Issues • Energy demand, access, and quality of supplies • Energy security • Expanding private sector participation • Energy and environment

18. Energy Demand, Access, and Quality of Supplies • Most country level forecasts see energy demand growth between 8% to 16%. Demand has to be met to ensure that adequate energy at reasonable price is not a constraint to economic growth. • Uneven access across countries in the region and even within country - rural energy access at affordable prices is important. • Quality, reliability, and security, important challenge

19. Energy Security • Rapid motorization and a vehicle boom increases the region’s oil dependence dramatically in the next two decades. • Poor production prospects, weak demand management, insignificant penetration rates for alternative energy sources, and high global oil prices make the region insecure and vulnerable. • In addition, there are no institutional mechanisms to deal with energy disruptions arising out of emergency or supply shocks.

20. Expanding Private Sector Participation • Presently, most energy entities are owned through public sector. Isolated regional private projects such as Nam Theun 2. • Large investment needs for energy: Country level resources are inadequate. • More attractive to harness private sector investments through regional approach. • Need to attract private initiatives also in the area of energy efficiency. • Need cost recovery, sector reforms, and greater competition to improve efficiency for energy.

21. Energy and Environment • Integrating environmental concerns at planning stage is usually a better alternative than clean up at later. • Cross-border environment impacts need to be integrated at planning stage. • Often environmental issues require cross-sectoral policy action - e.g., urban transport and air pollution as a result of energy use pattern. • Awareness and public education • Higher share of renewables and alternative energy

22. Sector Planning Basics Part II: Interactive Session - Identify step-by-step approach to sector planning

23. Developing the GMS Energy Strategy • Use the energy strategy model MESSAGE to develop a regional energy sector strategy. • MESSAGE utilizes existing domestic and internationally available information to formulate alternative energy supply strategies, each of them optimized under different sets of assumptions (“scenarios”) reflecting future uncertainties. • These strategies will be assessed for robustness of policy options, and policy recommendations will be based on these analyses. • The advantages of expanded cooperation among the GMS countries will be assessed by comparing country strategies with integrated strategies for the GMS.

24. Formulating Energy Strategies Using MESSAGE • MESSAGE identifies a flow of energy from primary-energy resources to useful-energy demands that • Is feasible in a mathematical and an engineering sense, and at the same time • Represents the investment choices that lead to the least cost of all feasible energy supply mixes to meet the given (expected) energy demand. • Feasibility is defined by constraints imposed, for example, by the environment, energy resources, and technology build-up.

25. MESSAGE MESSAGEModel for Energy Supply System Alternatives and their General Environmental Impacts Input Energy system structure (including vintage of plant and equipment) Base year energy flows and prices Energy demand projections (MAED) Technology and resource options & their techno-economic performance profiles Technical and policy constraints Output Primary and final energy mix Emissions and waste streams Health and environmental impacts (externalities) Resource use Land use Import dependence Investment requirements

26. Formulating Least-Cost Strategies • Formulating strategies from model solutions requires the assessment of political feasibility including possible implementation barriers such as the unavailability of investment financing. A crucial aspect of strategies will therefore be the possible involvement of the private sector. • The most important strategy will describe a maximum of GMS-wide integration of the individual energy systems.

27. Key Messages • Need an integrated approach both across sectors and across regions. • Need to mainstream cross-border public goods such as network expansion of markets and resulting efficiency, reliability, and security gains, as well as public bads - cross-border pollution, downstream impacts, haze, etc. • Need attention on harmonization of policies as also institutions. • Need comprehensive capacity building plans.